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on a global , pan-regional and local basis , our networks and agencies provide a comprehensive range of services in the following fundamental disciplines : advertising , crm , which as described below includes crm consumer experience and crm execution & support , public relations and healthcare . our business model was built and continues to evolve around our clients . while our networks and agencies operate under different names and frame their ideas in different disciplines , we organize our services around our clients . our fundamental business principle is that our clients ' specific marketing requirements are the central focus of how we structure our service offerings and allocate our resources . this client-centric business model requires that multiple agencies within omnicom collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure . this collaboration allows us to cut across our internal organizational structures to execute our clients ' marketing requirements in a consistent and comprehensive manner . we continually seek to grow our business with our existing clients by maintaining our client-centric approach , as well as expanding our existing business relationships into new markets and with new clients . in addition , we pursue selective acquisitions of complementary companies with strong entrepreneurial management teams that typically currently serve or have the ability to serve our existing client base . as a leading global advertising , marketing and corporate communications company , we operate in all major markets and have a large and diverse client base . in 2017 , our largest client represented 3.0 % of revenue and our 100 largest clients , which represent many of the world 's major marketers , comprised approximately 51 % of revenue . our clients operate in virtually every sector of the global economy with no one industry comprising more than 14 % of our revenue in 2017 . although our revenue is generally balanced between the united states and international markets and we have a large and diverse client base , we are not immune to general economic downturns . as described in more detail below , in 2017 our revenue decreased $ 143.3 million , or 0.9 % , compared to 2016 . changes in foreign exchange rates negatively impacted revenue in the first six months of 2017 . beginning in the third quarter of 2017 , the euro and a number of other foreign currencies strengthened against the u.s. dollar . as a result , changes in foreign exchange rates for 2017 had a marginal effect on our revenue . in 2017 , changes in foreign exchange rates increased revenue by $ 42.9 million , or 0.3 % . acquisition revenue , net of disposition revenue , reduced revenue $ 647.3 million , or 4.2 % , primarily reflecting the sale of our specialty print media and organic growth increased revenue $ 461.1 million , or 3.0 % . 8 global economic conditions have a direct impact on our business and financial performance . adverse global or regional economic conditions pose a risk that our clients may reduce , postpone or cancel spending on advertising , marketing and corporate communications services , which would reduce the demand for our services . in 2017 , our agencies in north america continued their modest growth as activity in the united states varied across our service disciplines and growth slowed in the second half of the year relative to the first half . our businesses in the united kingdom , or the u.k. , and europe had solid performance . however , while improving in 2017 , the continuing uncertain economic and political conditions in the european union , or the eu , have been further complicated by the official notification from the u.k. to the european council to withdraw from the eu . in brazil , unstable economic and political conditions contributed to the continuing volatility in the market and our agencies experienced negative growth . most of our businesses in asia continue their modest growth consistent with recent periods . the economic and fiscal issues facing countries in europe and latin america continue to cause economic uncertainty in those regions ; however , the impact on our business varies by country . we will continue to monitor economic conditions closely , as well as client revenue levels and other factors and , in response to reductions in our client revenue , if necessary , we will take actions available to us to align our cost structure and manage our working capital . there can be no assurance whether , or to what extent , our efforts to mitigate any impact of future adverse economic conditions , reductions in client revenue , changes in client creditworthiness and other developments will be effective . certain business trends have had a positive impact on our business and industry . these trends include clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and integrating traditional and non-traditional marketing channels , as well as utilizing new communications technologies and emerging digital platforms . as clients increase their demands for marketing effectiveness and efficiency , they have made it a practice to consolidate their business within one service provider in the pursuit of a single engagement covering all consumer touch points . we have structured our business around these trends . we believe that our key client matrix organization structure approach to collaboration and integration of our services and solutions have provided a competitive advantage to our business in the past and we expect this to continue over the medium and long term . in addition , during 2017 , we continued the process of forming practice areas within our global network structure to bring together agencies operating in common disciplines to leverage existing resources and to create , in close coordination with our key client matrix organization , additional custom client solutions . story_separator_special_tag the tax act reduced the u.s. federal statutory income tax rate to 21 % from 35 % for tax years beginning after december 31 , 2017 and made several changes to existing tax law that affect our tax assets and liabilities related to previously reported taxable income . the significant changes require that we record tax expense on the accumulated earnings of our foreign subsidiaries and adjust our previously reported deferred tax positions to reflect the impact of the revised statutory federal rate as of the enactment date . in december 2017 , the sec issued staff accounting bulletin 118 , or sab 118 , which provides guidance on accounting for the impact of the tax act . sab 118 provides that provisional amounts should be recognized in our financial statements where accounting for certain effects of the tax act are not complete and a reasonable estimate of the effects of the tax act can be made . accordingly , at december 31 , 2017 , we have estimated the effect of the tax act and recorded a net increase to income tax expense of $ 106.3 million . our estimate is based on our understanding of the tax act and currently available guidance . we expect to revise this estimate in future periods as further information becomes available . see note 10 to the consolidated financial statements for additional information . our effective tax rate for 2017 was 36.9 % compared to 32.6 % for 2016 . the increase is attributable to the estimated impact of the tax act of $ 106.3 million partially offset by the recognition of an excess tax benefit from share-based compensation of $ 20.8 million resulting from the adoption of fasb asu 2016-09 ( see note 1 to the consolidated financial statements ) . asu 2016-09 requires that beginning in 2017 excess tax benefits and deficiencies arising from share-based compensation be recognized in results of operations in the period when the restricted stock awards vest or stock options are exercised . in prior years , excess tax benefits and deficiencies from share-based compensation were recorded in additional paid-in capital . the effect of the tax act on income tax expense for 2017 is presented below in results of operations 2017 compared to 2016. while we are still evaluating the impact of the tax act on our 2018 annual effective tax rate , we expect the tax act to reduce our effective tax rate between 3.5 % and 4.5 % , which excludes the impact of tax benefits or deficiencies on share-based compensation . at this point , we can not predict the 2018 impact from share-based compensation because it is subject to changes in our share price . net income - omnicom group inc. for 2017 decreased $ 60.2 million , or 5.2 % , to $ 1,088.4 million from $ 1,148.6 million in 2016 . the year-over-year decrease is due to the impact of the tax act of $ 106.3 million , which is partially offset by the after tax increase from the factors described above . diluted net income per share - omnicom group inc. decreased 2.7 % to $ 4.65 in 2017 , compared to $ 4.78 in 2016 . the impact of the tax act reduced diluted net income per share - omnicom group inc. $ 0.45 . in addition , the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock , net of shares issued for restricted stock awards , stock option exercises and employee stock purchase plan improved diluted net income per share - omnicom group inc in 2017 compared to 2016 . the effect of the tax act on net income - omnicom group inc. and diluted net income per share - omnicom group inc. is presented below in results of operations 2017 compared to 2016 . 10 critical accounting policies the following summary of our critical accounting policies provides a better understanding of our financial statements and the related discussion in this md & a . we believe that the following policies may involve a higher degree of judgment and complexity in their application than most of our accounting policies and represent the critical accounting policies used in the preparation of our financial statements . readers are encouraged to consider this summary together with our financial statements and the related notes , including note 2 , for a more complete understanding of the critical accounting policies discussed below . estimates we prepare our financial statements in conformity with u.s. gaap and are required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . we use a fair value approach in testing goodwill for impairment and when evaluating our equity method and cost method investments to determine if an other-than-temporary impairment has occurred . actual results could differ from those estimates and assumptions . acquisitions and goodwill we have made and expect to continue to make selective acquisitions . the evaluation of potential acquisitions is based on various factors , including specialized know-how , reputation , geographic coverage , competitive position and service offerings of the target businesses , as well as our experience and judgment . business combinations are accounted for using the acquisition method . the assets acquired , including identified intangible assets , liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values . in circumstances where control is obtained and less than 100 % of a business is acquired , goodwill is recorded as if 100 % were acquired . acquisition-related costs , including advisory , legal , accounting , valuation and other costs are expensed as incurred . certain acquisitions include an initial payment at closing and provide for future additional contingent purchase price payments ( earn-outs ) , which are recorded as a liability at the acquisition date fair value . subsequent changes in the fair value of the liability are recorded in results of operations .
| results of operations - 2017 compared to 2016 ( in millions ) : replace_table_token_5_th as discussed below , in 2017 the tax act reduced net income - omnicom group inc. by $ 106.3 million and diluted net income per share - omnicom group inc. by $ 0.45. see note 10 to the consolidated financial statements for additional information . non-gaap financial measures we use ebita and ebita margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets , which primarily consists of amortization of intangible assets arising from acquisitions . we define ebita as earnings before interest , taxes and amortization of intangible assets , and ebita margin as ebita divided by revenue . ebita and ebita margin are non-gaap financial measures . we believe that ebita and ebita margin are useful measures for investors to evaluate the performance of our business . non-gaap financial measures should not be considered in isolation from , or as a substitute for , financial information presented in compliance with u.s. gaap . non-gaap financial measures reported by us may not be comparable to similarly titled amounts reported by other companies . the following table reconciles the u.s. gaap financial measure of net income - omnicom group inc. to ebita and ebita margin for the for the periods presented ( in millions ) : replace_table_token_6_th 15 revenue in 2017 , revenue decreased $ 143.3 million to $ 15,273.6 million from $ 15,416.9 million in 2016 . changes in foreign exchange rates increased revenue by $ 42.9 million , or 0.3 % . acquisition revenue , net of disposition revenue , reduced revenue $ 647.3 million , or 4.2 % , reflecting the disposition of certain non-strategic businesses in the past year , and organic growth increased revenue $ 461.1 million , or 3.0 % .
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111 warrants and options in addition to our equity method investments and equity securities , we hold options to purchase 0.4 million additional shares of biocardia , 0.2 million of which are vested as of december 31 , 2018 , and 33 thousand , 0.7 million , 0.5 million , 22 thousand and 29 thousand of warrants to purchase additional shares of cocp , incelldx , inc. , xenetic , phio and neovasc , respectively . we recorded the changes in the fair value of the options and warrants in fair value changes of derivative instruments , net in our consolidated statement story_separator_special_tag this annual report on form 10-k contains certain forward-looking statements within the meaning of the private securities litigation reform act of 1995 ( “ pslra ” ) , section 27a of the securities act of 1933 , as amended , ( the “ securities act ” ) , and section 21e of the securities exchange act of 1934 , as amended , ( the “ exchange act ” ) , about our expectations , beliefs , or intentions regarding our product development efforts , business , financial condition , results of operations , strategies , or prospects . you can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters . rather , forward-looking statements relate to anticipated or expected events , activities , trends , or results as of the date they are made . because forward-looking statements relate to matters that have not yet occurred , these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements . many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements . these factors include those contained in “ item 1a — risk factors ” of this annual report on form 10-k. we do not undertake any obligation to update forward-looking statements . we intend that all forward-looking statements be subject to the safe harbor provisions of pslra . these forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance . overview we are a diversified healthcare company that seeks to establish industry-leading positions in large and rapidly growing medical markets . our diagnostics business includes bioreference laboratories ( “ bioreference ” ) , the nation 's third-largest clinical laboratory with a core genetic testing business and an almost 300-person sales and marketing team to drive growth and leverage new products , including the 4kscore prostate cancer test . our pharmaceutical business features rayaldee , an fda-approved treatment for secondary hyperparathyroidism ( “ shpt ” ) in adults with stage 3 or 4 chronic kidney disease ( “ ckd ” ) and vitamin d insufficiency ( launched in november 2016 ) , opk88004 , a selective androgen receptor modulator which we have studied for benign prostatic hyperplasia , but for which we are exploring other indications , and opk88003 , a once or twice weekly oxyntomodulin for type 2 diabetes and obesity which is a clinically advanced drug candidate among the new class of glp-1 glucagon receptor dual agonists ( phase 2b ) . our pharmaceutical business also features hgh-ctp , a once-weekly human growth hormone injection ( in phase 3 and partnered with pfizer ) . we operate established pharmaceutical platforms in spain , ireland , chile and mexico , which are generating revenue and from which we expect to generate positive cash flow and facilitate future market entry for our products currently in development . we have a development and commercial supply pharmaceutical company , as well as a global supply chain operation and holding company in ireland , which we expect will play an important role in the development , manufacturing , distribution and approval of a wide variety of drugs with an emphasis on high potency products . we also own a specialty active pharmaceutical ingredients ( “ apis ” ) manufacturer in israel , which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products . recent developments in february 2019 , we issued $ 200.0 million aggregate principal amount of convertible senior notes due 2025 ( the “ 2025 convertible notes ” ) in an underwritten public offering . the 2025 convertible notes will bear interest at a rate of 4.50 % per year , payable semiannually in arrears on february 15 and august 15 of each year , beginning on august 15 , 2019. the notes mature on february 15 , 2025 , unless earlier repurchased , redeemed or converted . on february 1 , 2019 , we announced that the fda has approved our point-of-care sangia total psa test using the claros 1 analyzer . the product is indicated to quantitatively measure total psa in whole blood from a fingerstick of blood collected by a healthcare professional and is used in conjunction with a digital rectal exam as an aid in the detection of prostate cancer in men aged 50 years and older . we are evaluating commercialization strategies for the psa test on the claros 1 analyzer , including the expansion of the test menu , prior to commercialization . on january 31 , 2019 , we announced that novitas solutions , inc. has issued a notice of a future non-coverage determination for the 4kscore test to be effective march 20 , 2019. the notice released by novitas does not appear to be different from the draft local coverage determination released by novitas on may 18 , 2018. we are evaluating options to appeal the decision and undertake other steps with the u.s. centers for medicare & medicaid services ( cms ) in an effort to have this determination rescinded or reversed . story_separator_special_tag upon obtaining regulatory approval by the u.s. fda , the ipr & d assets will be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life . asset impairment charges . asset impairment charges was $ 21.8 million and $ 13.2 million , respectively , for the years ended december 31 , 2018 and 2017 . asset impairment charges for the year ended december 31 , 2018 is related to an impairment charge of $ 10.1 million to write our ipr & d assets for alpharen and opk88004 down to their estimated fair value and a goodwill impairment charge of $ 11.7 million to write the carrying amount of the finetech reporting unit down to its estimated fair value due to the loss of a significant customer in 2018. asset impairment charges for the year ended december 31 , 2017 is related to an impairment charge of $ 13.2 million to write our intangible asset for varubi down to its estimated fair value . interest income . interest income for the years ended december 31 , 2018 and 2017 , was not significant as our cash investment strategy emphasizes the security of the principal invested and fulfillment of liquidity needs . interest expense . interest expense for the years ended december 31 , 2018 and 2017 , was $ 11.9 million and $ 6.6 million , respectively . interest expense is principally related to interest incurred on the 2033 senior notes , on bioreference 's outstanding debt under its credit facility and on the 2023 convertible notes issued in february 2018. the increase in interest 71 expense for the year ended december 31 , 2018 is primarily due to interest incurred on the 2023 convertible notes and to higher outstanding debt and interest rates under bioreference 's credit facility in 2018 compared to 2017. fair value changes of derivative instruments , net . fair value changes of derivative instruments , net for the years ended december 31 , 2018 and 2017 , were $ 3.0 million and $ 0.1 million of income , respectively . derivative income for the year ended december 31 , 2018 principally related to the change in fair value of warrants to purchase additional shares of neovasc . fair value changes of derivative instruments , net for the year ended december 31 , 2017 is primarily related $ 3.2 million of income due to the change in the fair value of the embedded derivatives in the 2033 senior notes , which was partially offset by $ 2.9 million of expense related to the change in the fair value of warrants and options to purchase additional shares of neovasc , inc. ( “ neovasc ” ) and xenetic biosciences , inc. ( “ xenetic ” ) . other income and ( expense ) , net . other income and ( expense ) , net for the years ended december 31 , 2018 and 2017 , were $ 1.5 million and $ 10.5 million of income , respectively . other income for the year ended december 31 , 2018 primarily consists of net unrealized gains recognized during the period on equity securities . other income for the year ended december 31 , 2017 primarily consists of a $ 3.0 million gain on the sale of non-strategic assets at a wholly-owned bioreference subsidiary , a $ 1.5 million gain on the sale of certain available for sale investments , a $ 2.5 million gain in connection with the acquisition transaction between eloxx pharmaceuticals , inc. and sevion therapeutics , inc. , and a $ 1.9 million gain in connection with the dilution of our equity method investment in vbi vaccines inc. ( “ vbi ” ) . income tax benefit ( provision ) . our income tax benefit ( provision ) for the years ended december 31 , 2018 and 2017 was $ 38.7 million , and $ ( 18.9 ) million , respectively . the change in income tax benefit is primarily a result of our analysis of the realization of deferred tax assets and corresponding release of the valuation allowance associated with u.s. and non-u.s. deferred tax assets . as of december 31 , 2017 , the company determined that it was more likely than not that certain u.s. and non-u.s. deferred tax assets would not be realized and recorded a valuation allowance of $ 28.7 million . on december 22 , 2017 , the tax act was enacted into law and the new legislation reduced the corporate income tax rate from 35 % to 21 % which required us to remeasure our u.s. deferred tax assets and liabilities and recognize the effect in the period of enactment , resulting in $ 31.8 million of expense , with an equal offset to valuation allowance . loss from investments in investees . we have made investments in other early stage companies that we perceive to have valuable proprietary technology and significant potential to create value for us as a shareholder or member . we account for these investments under the equity method of accounting , resulting in the recording of our proportionate share of their losses until our share of their loss exceeds our investment . until the investees ' technologies are commercialized , if ever , we anticipate they will report a net loss . loss from investments in investees was $ 14.5 million and $ 14.5 million for the years ended december 31 , 2018 and 2017 , respectively . included in loss from investments in investees for the year ended december 31 , 2018 is a charge of $ 2.9 million to write our investment in incelldx , inc. down to its fair value as of december 31 , 2018 .
| results of operations for the years ended december 31 , 2018 and december 31 , 2017 effective january 1 , 2018 , we adopted accounting standards codification topic 606 , revenue from contracts with customers , using the full retrospective transition method . under this method , we have revised our consolidated financial statements for the years ended december 31 , 2017 and 2016 , as if topic 606 had been effective for those periods . for further discussion on the impact of adopting topic 606 , refer to note 2 to the consolidated financial statements , “ summary of significant accounting policies. ” replace_table_token_3_th revenue from services for the year ended december 31 , 2018 increased approximately $ 30.5 million compared to the year ended december 31 , 2017. the increase in revenue from services is attributable to reduced adjustments to estimated collection amounts from third-party payors as discussed in the paragraph below . revenue from services for the year ended december 31 , 2017 was also negatively affected by claims of overpayment as a result of payor error of approximately $ 30.0 million . in addition , revenue from services for the year ended december 31 , 2018 increased by $ 12.9 million from improved collections for our clinical testing resulting from improvements in our billing cycle and $ 4.7 million from higher volume in our genomics testing . partially offsetting these increases , revenue from services for the year ended december 31 , 2018 was negatively affected by $ 24.5 million as a result of changes in clinical test volumes as a result of increased competition , reduced clinical reimbursement of $ 15.6 million due to pama which came into effect in january 2018 , and reduced genomics reimbursement of $ 11.6 million as a result of an increase in denial rates and changes to medical and procedural requirements .
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the company story_separator_special_tag the following discussion should be read in conjunction with the “ selected financial data ” in item 6 and the financial statements and accompanying notes appearing elsewhere in this report . story_separator_special_tag margin-left : 0pt ; margin-right : 0pt '' > our revenues , cash flows from operations and future growth depend substantially upon : · the timing and success of drilling and production activities by our operating partners ; · the prices and demand for oil , natural gas and ngls ; · the quantity of oil and natural gas production from the wells in which we participate ; · changes in the fair value of the derivative instruments we use to reduce our exposure to fluctuations in the price of oil ; · our ability to continue to identify and acquire high-quality acreage and drilling opportunities ; and · the level of our operating expenses . in addition to the factors that affect companies in our industry generally , the location of our acreage and wells in the williston basin subjects our operating results to factors specific to this region . these factors include the potential adverse impact of weather on drilling , production and transportation activities , particularly during the winter and spring months , and the limitations of the developing infrastructure and transportation capacity in this region . the price of oil in the williston basin can vary depending on the market in which it is sold and the means of transportation used to transport the oil to market . light sweet crude from the williston basin has a higher value at many major refining centers because of its higher quality relative to heavier and sour grades of oil ; however , because of north dakota 's location relative to traditional oil transport centers , this higher value is generally offset to some extent by higher transportation costs . while rail transportation has historically been more expensive than pipeline transportation , williston basin prices have justified shipment by rail to markets such as st. james , louisiana , which offer prices benchmarked to brent/lls . although pipeline , truck and rail capacity in the williston basin has historically lagged production in growth , we believe that additional planned infrastructure growth will help keep price discounts from significantly eroding wellhead values in the region . over the past several years , oil production in the williston basin has increased dramatically . for example , north dakota 's oil production in october 2014 was up approximately 133 % as compared to october 2011. the surging oil production has created a huge need for oil takeaway infrastructure , which has struggled to keep pace with the growth in production . this caused the price of bakken crude to lag significantly behind wti crude at certain times over the last few years . our oil price differential to the nymex wti benchmark price during 2014 was approximately $ 13.67 per barrel , as compared to $ 8.68 per barrel in 2013. during 2014 , our oil price differential widened compared to 2013 due to several factors such as takeaway capacity lagging behind production , and seasonal refinery maintenance temporarily depressing crude demand . as the rail capacity continues to increase and planned pipeline expansions are completed , we believe the oil price differentials will improve . another significant factor affecting our operating results is drilling costs . the cost of drilling wells has increased significantly over the past few years as rising oil prices have triggered increased drilling activity in the williston basin . although individual components of the cost can vary depending on numerous factors such as the length of the horizontal lateral , the number of fracture stimulation stages , and the choice of proppant ( sand or ceramic ) , the total cost of drilling and completing an oil well has increased . this increase is largely due to longer horizontal laterals and more fracture stimulation stages , but also higher demand for rigs and completion services throughout the region . in addition , because of the rapid growth in drilling , the availability of well completion services has at times been constrained , resulting at times in a backlog of wells awaiting completion . 43 market conditions the price that we receive for the oil and natural gas we produce is largely a function of market supply and demand . being primarily an oil producer , we are more significantly impacted by changes in oil prices than by changes in the price of natural gas . world-wide supply in terms of output , especially the production quota set by opec , and the strength of the u.s. dollar has adversely impacted oil prices . additionally , an economic slowdown in europe and asia has reduced overall demand over the second half of 2014 and is continuing into 2015. historically , commodity prices have been volatile and we expect the volatility to continue in the future . factors impacting the future oil supply balance are world-wide demand for oil , as well as the growth in domestic oil production . prices for various quantities of natural gas , ngls and oil that we produce significantly impact our revenues and cash flows . commodity prices have been volatile in recent years . the following table lists average nymex prices for natural gas and oil for the years ended december 31 , 2014 , 2013 and 2012. replace_table_token_18_th ( 1 ) based on average of daily closing prices . oil and natural gas prices have fallen significantly since their early third quarter 2014 levels . lower oil and gas prices not only decrease our revenues , but an extended decline in oil or gas prices may materially and adversely affect our future business , financial position , cash flows , results of operations , liquidity , ability to finance planned capital expenditures and the oil and natural gas reserves that we can economically produce . story_separator_special_tag the 2014 average production tax rate was higher than the 2013 average due to fewer wells that qualified for reduced rates/or tax exemptions during 2014. the 2013 average production tax rate was lower than the 2012 average due to well additions that qualified for reduced rates/or tax exemptions during 2013. certain portions of our production occurs in montana and north dakota jurisdictions that have lower initial tax rates for an established period of time or until an established threshold of production is exceeded , after which the tax rates are increased to the standard tax rate . the majority of our production is located in north dakota which imposes a standard 11.5 % tax on our production revenues except for where properties qualify for reduced rates . 46 general and administrative expense general and administrative expense was $ 17.6 million for 2014 compared to $ 16.6 million for 2013 and $ 22.6 million for 2012. general and administrative expenses in 2014 as compared to 2013 included higher legal and professional fees of $ 1.4 million , which includes a legal settlement of $ 0.6 million , which was partially offset by a decrease in travel expenses of $ 0.3 million . additionally , salaries and benefit expenses decreased $ 0.2 million in 2014 as compared to 2013. the $ 6.0 million decrease in 2013 when compared to 2012 was primarily due to $ 5.5 million of severance charges recognized in 2012 in connection with the departures of our former president and our former chief operating officer . additionally , salaries and benefit expenses decreased $ 1.5 million in 2013 as compared to 2012 , which was partially offset by increased insurance ( $ 0.6 million ) and legal and professional ( $ 0.2 million ) expenses . lower share based compensation in 2013 drove the year over year drop in salary and benefit expenses . depletion , depreciation , amortization and accretion depletion , depreciation , amortization and accretion ( “ dd & a ” ) was $ 172.9 million in 2014 compared to $ 124.4 million in 2013 and $ 98.9 million in 2012. depletion expense , the largest component of dd & a , was $ 29.86 per boe in 2014 compared to $ 27.62 per boe in 2013 and $ 26.18 per boe in 2012. we have historically adjusted our depletion rates in the fourth quarter of each year based on the year end reserve report and other times during the year when circumstances indicate there has been a significant change in reserves or costs . the aggregate increase in depletion expense for 2014 compared to 2013 was driven by a 29 % increase in production and an 8 % increase in our depletion rate per boe . although our average depletion rate per boe increased by 8 % in 2014 compared to 2013 , our depletion rate per boe actually declined in the fourth quarter of 2014 compared to the prior four quarters , primarily due to higher reserve estimates in our 2014 year end reserve report . as the play has matured , the application of newer technologies and completion methods have increased our proved reserve valuations in many of our areas of operation . depletion rates per boe increased from $ 26.18 per boe in 2012 to $ 27.62 in 2013. the aggregate increase in depletion expense for 2013 compared to 2012 was driven by a 19 % increase in production . depreciation , amortization and accretion was $ 0.8 million in 2014 compared to $ 0.8 million in 2013 and $ 0.5 million in 2012. the following table summarizes dd & a expense per boe for 2014 , 2013 and 2012 : replace_table_token_21_th interest expense interest expense was $ 42.1 million for 2014 compared to $ 32.7 million in 2013 and $ 13.9 million in 2012. in may 2013 and may 2012 , we issued $ 200 million and $ 300 million of 8 % senior unsecured notes , respectively . the increase in interest expense for 2014 as compared to 2013 , and for 2013 as compared to 2012 , was primarily due to different weighted average debt amounts outstanding between years , as well as the higher interest rate applicable to the senior notes . income tax provision the provision for income taxes was $ 99.4 million in 2014 compared to $ 31.8 million in 2013 and $ 43.0 million in 2012. the effective tax rate in 2014 was 37.8 % compared to an effective tax rate of 37.4 % in 2013. the effective tax rate was different than the statutory rate of 35 % primarily due to state tax rates . the effective tax rate in 2013 was 37.4 % compared to an effective tax rate of 37.3 % in 2012. the effective tax rate was different than the statutory rate of 35 % primarily due to state tax rates . 47 net income net income was $ 163.7 million in 2014 compared to $ 53.1 million in 2013 and $ 72.3 million in 2012. the increase in net income in 2014 as compared to 2013 was driven by a $ 171.3 million gain on the mark-to-market of derivative instruments , as well as higher oil and gas sales due to increased production levels . the decrease in net income in 2013 as compared to 2012 was driven by 2013 losses on settled derivatives and losses on the mark-to-market of derivative instruments of $ 12.2 million and $ 21.3 million , respectively . in 2012 , our loss on settled derivatives was $ 0.4 million and our gain on the mark-to-market of derivative instruments was $ 15.1 million . additionally , the higher oil and gas revenues in 2013 were partially offset by increased production expenses , production taxes , depletion expenses , and interest expense in 2013 compared to 2012. our net income translated to diluted net income per common share of $ 2.69 , $ 0.85 , and $ 1.15 in 2014 , 2013 and 2012 , respectively .
| overview of 2014 results during 2014 , we achieved the following financial and operating results : · increased total production by 29 % compared to 2013 ; · increased total estimated proved reserves to 100.7 million boe as of december 31 , 2014 , an increase of 20 % compared to 2013 year-end ; · participated in the completion of 589 gross ( 41.6 net ) wells ; · continued to high-grade our leasehold position to 185,018 net acres with approximately 65 % of our total acreage position either developed , held by production or held by operations as of december 31 , 2014 ; and · ended the year with $ 9.3 million in cash and , including availability under our revolving credit facility , liquidity of approximately $ 261.3 million . operationally , our 2014 performance reflects another year of successfully executing our strategy of developing our acreage position and building a long-life reserve base . our success enabled us to increase proved reserves by 16.6 million boe , resulting in a 388 % reserve replacement percentage relative to our 2014 production . during 2014 , production increased 29 % to 5.8 million boe as compared to 2013 production of 4.5 million boe . the increase in 2014 production was driven by a 27 % increase in producing net wells from 146.2 net wells at december 31 , 2013 to 185.7 net wells at december 31 , 2014. total revenues increased 77 % or $ 259.3 millionin 2014 compared to 2013. this increase was due to higher production levels that generated $ 62.4 million in oil and gas revenue growth , a $ 4.3 million decrease in the loss on settled derivatives and a $ 192.5 million change in the gain ( losses ) on the mark-to-market of our derivative instruments .
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the company does not adjust revenue for any financing effects in transactions where the company expects the period between the transfer of the goods or services and collection to be less than one year . no contract assets or liabilities were recorded as of december 31 , 2020 , or 2019. revenue from product sales the company 's customers are primarily pharmaceutical wholesalers , specialty pharmacies , and pharmaceutical distributors . customers purchase product to fulfill orders from retail pharmacy chains and independent pharmacies of varying size and purchasing power . the company recognizes gross revenue when its products are shipped from a third party fulfillment center and physically received by its customers . the company 's customers take control of its products , including title and ownership , upon the physical receipt of its products at their facilities . customer orders are generally fulfilled within a few days of order receipt , resulting in minimal order backlog . there are no minimum product purchase requirements with our customers . the company recognizes revenue from product sales in an amount that reflects the consideration the company expects to ultimately receive in exchange for those goods . product sales are recorded net of various forms of variable consideration , including : provision for estimated rebates ; provision for estimated future product returns ; and an estimated provision for discounts . these are collectively considered `` sales deductions . `` as described below , variability in the net transaction price for the company 's products arises primarily from the aforementioned sales deductions . significant judgment is required in estimating certain sales deductions . in making these estimates , the company considers : historical experience ; product price increases ; current contractual arrangements under applicable payor programs ; unbilled claims ; processing time lags for claims ; inventory levels in the wholesale , specialty pharmacy , and retail distribution channel ; and product life cycle . the company adjusts its estimates of revenue either when the most likely amount of consideration it expects to receive changes , or when the consideration becomes fixed . variable consideration on product sales is only recognized when it is probable that a significant reversal will not occur . if actual results in the future vary from our estimates , the company adjusts its estimates in the period identified . these adjustments could materially affect net product sales and earnings in the period in which the adjustment ( s ) is recorded . sales deductions the company records product sales net of the following sales deductions : rebates : rebates are discounts which the company pays under either public sector or private sector health care programs . rebates paid under public sector programs are generally mandated under law , whereas private sector rebates are generally contractually negotiated by the company with managed care providers . both types of rebates vary over time . public sector rebate programs encompass : various medicaid drug rebate programs ; medicare gap coverage programs ; programs covering public health service institutions ; and programs covering government entities . all federal employees and agencies purchase drugs under the federal supply schedule . 101 supernus pharmaceuticals , inc. notes to consolidated financial statements ( continued ) 2. summary of significant accounting policies ( continued ) private sector rebate programs include : contractual agreements with managed care providers , under which the company pays fees to gain access to that provider 's patient drug formulary ; and company-sponsored programs , under which the company defrays or eliminates patient co-payment charges that the patient would otherwise be obligated to pay to their managed care provider in order to fill their prescription . rebates are owed upon dispensing our product to a patient ; i.e . , filling a prescription . the accrual balance for rebates consists of the following three components . first , because rebates are generally invoiced and paid in arrears , the accrual balance consists of an estimate of the amount expected to be incurred for prescriptions dispensed in the current quarter . second , the accrual balance also includes an estimate for known or estimated prior quarters ' unpaid rebates , covering those prescriptions dispensed in past quarters but for which no invoice has yet been received . third , the accrual balance includes an estimate for rebates that will be prospectively owed for prescriptions filled in future quarters . this estimate pertains to a product that has been sold by the company to wholesalers or distributors and which resides either as wholesaler/distributor inventory or as inventory held at pharmacies . as of the end of the reporting period , this product has not been dispensed to a patient . the company 's estimates of expected rebate claims vary by program and by type of customer because the period between the date at which the prescription is filled and the date the company receives and pays the invoice varies substantially . for each of its products , the company bases its estimates of expected rebate claims on multiple factors , including : historical levels of deductions ; contractual terms with managed care providers ; actual and anticipated changes in product price ; prospective changes in managed care fee for service contracts ; prospective changes in co-payment assistance programs ; and anticipated changes in program utilization rates ; i.e . , patient participation rates under each specific program . the company records an estimated liability for rebates at the time the customer takes title to the product ( i.e . , at the time of sale to wholesalers/distributors ) . story_separator_special_tag 76 table of contents research and development expenses the following table provides information regarding our research and development ( r & d ) expenses for the years indicated ( dollars in thousands ) : replace_table_token_7_th ( 1 ) direct costs , which include personnel costs and related benefits , are recorded on a project-by-project basis . many of our r & d costs are not attributable to any individual project because we share resources across several development projects . indirect costs that support a number of our r & d activities are recorded in the aggregate , including stock-based compensation . ( 2 ) r & d program terminated in 2020 . ( 3 ) on april 21 , 2020 , we entered into a development and option agreement ( development agreement ) with navitor pharmaceuticals , inc. ( navitor ) . under the terms of the development agreement , the company and navitor will jointly conduct a phase ii clinical program for nv-5138 ( spn-820 ) in treatment-resistant depression ( trd ) . r & d expenses increased by $ 6.9 million in 2020 as compared to 2019. this increase consists of a $ 10 million option fee paid in conjunction with the navitor collaboration for spn-820 , a reduction of direct project costs of $ 4.5 million , and an increase in indirect project costs of $ 1.4 million . selling , general , and administrative expense the table below provides information regarding our selling , general , and administrative ( sg & a ) expenses for the years indicated ( dollars in thousands ) : replace_table_token_8_th 77 table of contents selling and marketing expense selling and marketing expenses increased by $ 24.8 million in 2020 compared to the same period in 2019. the increase was primarily attributable to increased marketing expenses and professional consulting spend related to the commercial products , including the acquired commercial products from the uswm acquisition and preparations for the launch of spn-812 . general and administrative expense general and administrative expenses increased by $ 22.7 million in 2020 , compared to the same period in 2019. the change was primarily due to an increase in business development expenses , including $ 12.5 million of acquisition-related transaction cost and post-acquisition integration costs . amortization of intangible assets the following table provides information regarding the amortization expense for intangible assets during the periods indicated ( dollars in thousands ) : change 2020 2019 amount percent amortization of intangible assets $ 15,702 $ 5,179 $ 10,523 203 % amortization of intangible assets increased for the year ended december 31 , 2020 , primarily due to the amortization of the definite-lived intangible assets acquired in the uswm acquisition . contingent consideration expense the following table provides information regarding the contingent consideration expense during the periods indicated ( dollars in thousands ) : change 2020 2019 amount percent contingent consideration expense $ 1,900 $ — $ 1,900 * * contingent consideration expense recorded for the year ended december 31 , 2020 of $ 1.9 million reflects the periodic fair value remeasurement of the contingent milestones payable to uswm in connection with the closing of the uswm acquisition in june 2020. the expense recognized in 2020 is from the increase in the fair value of the contingent consideration liabilities , which was primarily due to the changes made in the assumptions on the expected timing of the achievement of milestones and changes to the estimate of projected revenues that did not qualify as measurement period adjustments . during 2020 , the company recorded a measurement period adjustment of $ 40.9 million , which was recorded against goodwill and therefore did not have an impact on the results of operations in 2020. these measurement period adjustments were based on new information obtained by the company regarding the facts and circumstances that existed as of the closing date of june 9 , 2020. refer to note 3 , uswm acquisition in item 8— financial statements and supplementary data in this report . other ( expense ) income the following table provides the components of other ( expense ) income during the years indicated ( dollars in thousands ) : replace_table_token_9_th interest income includes primarily interest earned from cash , cash equivalents , and marketable securities holdings of $ 16.0 million and $ 21.3 million for the years ended december 31 , 2020 , and 2019 , respectively . the year over year decrease in interest income , $ 2.9 million , was primarily due to decreased marketable securities holdings , mainly resulting from cash outlays for transaction related costs pertaining to the uswm acquisition purchase price consideration plus the investment in navitor and option fee paid to navitor related to the nv-5138 ( spn-820 ) program license agreement . 78 table of contents both the interest expense related to the 2023 notes issued in march 2018 and noncash interest expense related to our nonrecourse royalty liability generally remained unchanged from 2019 to 2020. income tax expense the following table provides information regarding our income tax expense during the periods indicated ( dollars in thousands ) : replace_table_token_10_th the increase in our income tax expense was primarily due to year over year increase in earnings . the increase in the effective tax rate is primarily due to the favorable impact to the 2019 effective tax rate of a decrease in our uncertain tax position reserve because of the expiring statute of limitations .
| summary of cash flows the following table summarizes the major sources and uses of cash for the periods set forth below ( dollars in thousands ) : replace_table_token_12_th 80 table of contents operating activities net cash provided by operating activities is comprised of two components : cash provided by operating earnings ; and cash provided by ( used in ) changes in working capital . the net cash provided by operating activities , $ 138.4 million , was primarily driven by increased operating earnings , reduced by incremental cash absorbed by increased working capital . cash utilized in working capital reflects the timing impacts of cash collections on receivables and settlement of payables , as described below . the changes in cashflows related to operating assets and liabilities are as follows ( dollars in thousands ) : years ended december 31 , 2020 2019 explanation of change ( increase ) decrease in : accounts receivable $ ( 34,607 ) $ 15,751 receivables increased in 2020 due to increased prescription unit volume and pricing and the timing of receivable collections . receivables decreased in 2019 due to a sequential decline in prescription volume , amplified by channel inventory reduction in the first quarter of 2019 . inventories ( 10,124 ) ( 969 ) inventory increase in 2020 due to capitalization of pre-launch inventory , offset by the timing of manufacturing campaigns . inventory increase in 2019 due to timing of manufacturing campaigns . prepaid expenses and other assets ( 10,442 ) ( 2,864 ) the increase in 2020 was primarily due to the timing of income tax payments . the increase in 2019 was due to timing differences related to deposits for equipment purchases and prepaid clinical trial costs . increase ( decrease ) in : accounts payable and other liabilities 8,272 ( 11,683 ) the change in both periods was due to the timing of receipt of vendor invoices , vendor payments and timing of income tax payments .
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we will adopt asu 2014-09 using the modified retrospective method in the first quarter of fiscal year 2018 , which will materially impact the timing of recognition of revenue for our collaboration agreement with ipsen . for information on our adoption of asu 2014-09 , see story_separator_special_tag some of the statements under in this “ management 's discussion and analysis of financial condition and results of operations ” are forward-looking statements . these statements are based on our current expectations , assumptions , estimates and projections about our business and our industry and involve known and unknown risks , uncertainties and other factors that may cause our company 's or our industry 's results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied in , or contemplated by , the forward-looking statements . words such as “ believe , ” “ anticipate , ” “ expect , ” “ intend , ” “ plan , ” “ focus , ” “ goal , ” “ objective , ” “ will , ” “ may ” “ would , ” “ could , ” “ estimate , ” “ predict , ” “ target , ” “ potential , ” “ continue , ” or the negative of such terms or other similar expressions 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 in “ item 1a . risk factors ” as well as those discussed elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this report . we have adopted a 52- or 53-week fiscal year policy that generally ends on the friday closest to december 31st . fiscal year 2015 ended on january 1 , 2016 ; fiscal year 2016 ended on december 30 , 2016 ; fiscal year 2017 ended on december 29 , 2017 ; and fiscal year 2018 will end on december 28 , 2018. for convenience , references in this report as of and for the fiscal years ended january 1 , 2016 , december 30 , 2016 and december 29 , 2017 are indicated as being as of and for the years ended december 31 , 2015 , 2016 and 2017 , respectively . all annual periods presented are 52-week fiscal years and all interim periods presented are 13-week fiscal quarters . overview we are a biotechnology company committed to the discovery , development and commercialization of new medicines to improve care and outcomes for people with cancer . since our founding in 1994 , three products discovered at exelixis have progressed through clinical development , received regulatory approval , and entered the marketplace . two are derived from cabozantinib , an inhibitor of multiple tyrosine kinases including met , axl , vegf receptors and ret : cabometyx approved for advanced rcc and cometriq approved for progressive , metastatic mtc . the third product , cotellic , is a formulation of cobimetinib and is an inhibitor of mek , marketed under a collaboration with genentech , and is approved as part of a combination regimen to treat advanced melanoma . both cabozantinib and cobimetinib have shown potential in a variety of forms of cancer and are the subject of broad clinical development programs for multiple potential oncology indications . we have and continue to be highly focused on the execution of the commercial launch of cabometyx for previously treated patients with advanced rcc , originally approved by the fda in april 2016. on december 19 , 2017 , approximately two months ahead of the assigned pdufa action date , the fda approved cabometyx for an expanded indication to include previously untreated patients with advanced rcc . utilizing our existing commercial and medical affairs organizations and established distribution network , we were prepared to bring cabometyx to all eligible patients in the u.s. who may benefit from this treatment option immediately upon approval of the expanded indication . while our commercialization efforts for cabometyx and cometriq are focused in the u.s. we have licensed development and commercialization rights to cabozantinib outside of the u.s. to ipsen and takeda . ipsen has been granted rights to cabozantinib outside of the u.s. and japan , and takeda has been granted rights to cabozantinib in japan . ipsen and takeda also contribute financially and operationally to the further global development and commercialization of cabozantinib in other potential indications , and we are working closely with them on these activities . beyond our currently approved indications for advanced rcc and for mtc , we are pursuing other indications that have the potential to expand the number of cancer patients that could benefit from cabozantinib . most advanced in the cabozantinib development program is our evaluation of cabometyx as a treatment for patients with advanced hcc who have previously been treated with sorafenib . on october 16 , 2017 , we announced that , at the time of the second planned interim analysis , the study 's idmc had recommended that celestial , our company-sponsored , global phase 3 trial comparing cabozantinib to placebo in patients with advanced hcc who had previously progressed on or were intolerant to sorafenib and up to one additional therapy , be stopped because it had met its primary endpoint , with cabozantinib providing a statistically significant and clinically meaningful improvement in os compared to placebo . safety data from the study were consistent with the established profile of cabozantinib . based on the results of celestial , we plan to submit a snda to the fda in the first quarter of 2018 , for cabometyx as a treatment for patients with previously treated advanced 58 hcc . story_separator_special_tag we subsequently amended the protocol in january 2018 to add four new expansion cohorts to the trial , which will now also include patients with nsclc and crpc in addition to previously included patients with rcc and uc . in may 2017 , we entered into a lease agreement for an aggregate of 110,783 square feet of space in office and research facilities in alameda , california , which will become our corporate headquarters in 2018. the lease agreement was amended in october 2017 to include an additional 19,778 square feet . in july 2017 , we entered into an amendment to our collaboration agreement with genentech in connection with the final resolution of claims asserted in an arbitration proceeding by us against genentech related to the development , pricing and commercialization of cotellic . the amendment provides for a favorably revised revenue and cost-sharing arrangement , that became effective as of july 1 , 2017 , and that is applicable to current and all potential future commercial uses of cotellic . in september 2017 , ipsen received validation from the ema for the application for variation to the cabometyx marketing authorization for the addition of a new indication in previously untreated , advanced or metastatic rcc in adults . in september 2017 , we announced that our partner daiichi sankyo reported positive top-line results from esax-htn , a phase 3 pivotal trial of esaxerenone , a product of the companies ' prior research collaboration , in patients with essential hypertension in japan . with the trial achieving its primary endpoint , daiichi sankyo communicated its intention to submit a japanese regulatory application for esaxerenone for an essential hypertension indication in the first quarter of 2018. in october 2017 , we announced that bms filed a clinical trial authorization in europe for a first-in-human study of a rorγ inverse agonist . in october 2017 , we announced that celestial met its primary endpoint of os , with cabozantinib providing a statistically significant and clinically meaningful improvement in os compared to placebo in patients with previously treated advanced hcc . median os was 10.2 months with cabozantinib versus 8.0 months with placebo ( hr 0.76 ; 95 % ci 0.63-0.92 ; p=0.0049 ) . based on these results , we plan to submit an snda to the fda in the first quarter of 2018 for cabometyx as a treatment for patients with previously treated advanced hcc . ipsen has informed us that it intends to submit a regulatory dossier for cabometyx as a treatment for patients with previously treated advanced hcc to the ema in the first half of 2018. in december 2017 , following a priority review and approximately two months ahead of the assigned pdufa target action date , the fda approved cabometyx for the expanded indication of patients with previously untreated advanced rcc , the most common form of kidney cancer in adults . the fda 's priority review and early approval of cabometyx was based on results from the randomized phase 2 cabosun trial in patients with previously untreated rcc , which demonstrated a statistically significant and clinically meaningful improvement in pfs versus sunitinib , a current standard of care . in february 2018 , we announced updated results from the nci-ctep-sponsored phase 1 trial of cabozantinib in combination with nivolumab , with or without ipilimumab , in patients with refractory genitourinary tumors . the updated results demonstrated an acceptable tolerability profile and high rates of durable responses in the previously treated metastatic uc and metastatic rcc cohorts . in february 2018 , updated data from a phase 2 ist of cabozantinib in patients with previously untreated radioiodine-refractory differentiated thyroid carcinoma , or dtc , was presented at the 2018 multidisciplinary head and neck cancers symposium . based on the encouraging efficacy results and manageable safety profile in this phase 2 trial and other prior phase 2 trials in previously treated dtc , we plan to initiate a phase 3 pivotal trial evaluating cabozantinib as a treatment for patients with advanced dtc in 2018 . 60 2017 financial highlights our net product revenues increased by $ 213.6 million , or 158 % , to $ 349.0 million in 2017 compared to 2016 , which primarily reflects the growth in product sales of cabometyx since the product 's launch in late april 2016 and an increase in market share . our collaboration revenues increased by $ 47.4 million , or 85 % , to $ 103.5 million in 2017 compared to 2016 , primarily due to increases in milestone , license , development , royalty and product supply revenues recognized under our collaboration agreements . between march 2017 and june 2017 , we repaid our $ 80.0 million term loan with silicon valley bank and retired the deerfield notes in consideration for a payment of $ 123.8 million . for additional information on the repayment of our term loan with silicon valley bank and the retirement of the deerfield notes , see “ note 6. debt ” to our “ notes to consolidated financial statements ” contained in part ii , item 8 of this annual report on form 10-k. cash and investments decreased to $ 457.2 million at december 31 , 2017 as compared to $ 479.6 million at december 31 , 2016 primarily due to the payoff of in debt , described above , offset by the increase in product and collaboration revenue . 2018 outlook in 2018 , our key objective remains to maximize the clinical and commercial opportunities for cabozantinib and cobimetinib as oncology franchises . on the commercial front , we are executing on the u.s. launch of cabometyx for the expanded indication of previously untreated advanced rcc and working to ensure launch readiness should cabometyx be approved by the fda for previously treated advanced hcc , while also supporting our collaboration partners on the execution of their commercial plans .
| results of operations revenues revenues by category were as follows ( dollars in thousands ) : replace_table_token_5_th ( 1 ) includes milestone payments . ( 2 ) includes amortization of upfront payments . net product revenues by product were as follows ( dollars in thousands ) : replace_table_token_6_th for the year ended december 31 , 2017 , net product revenues increased 158 % , as compared to 2016 . net product revenues for cabometyx increased 247 % during 2017 , primarily due to a 228 % increase in the number of units of cabometyx sold , and to a lesser extent , an increase in the average selling price of the product . the increase in cabometyx sales volume reflects the growth in product sales of cabometyx since the product 's launch in late april 2016 and an increase in market share . net product revenues for cometriq decreased 40 % during 2017 , primarily due to a 53 % decrease in the number of units of cometriq sold , partially offset by an increase in the average selling price of the product . the decrease in cometriq sales volume was primarily driven by the adoption of cabometyx by our u.s. customers and the change in how our product was distributed outside the u.s. , which resulted in a shift from earning product revenues during most of 2016 under our former distribution agreement with swedish orphan biovitrum to earning royalty and other collaboration revenues during 2017 under our current collaboration agreement with ipsen . we have completed our analysis of the adoption of asu 2014-09 , which we will adopt using the modified retrospective method in the first quarter of fiscal year 2018 , and we have determined the adoption will not have a material impact on our recognition of net product revenues .
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the rights become exercisable under specified circumstances , including if any person or group ( an acquiring person ) becomes the beneficial owner of 15 % or more of our outstanding units , subject to specified exceptions . each right entitles the registered holder to purchase from us one one-hundredth of a unit of junior participating preferred units , series i ( preferred units ) at an exercise price of $ 100 , subject to adjustment under specified circumstances . if events specified in the rights agreement occur , each holder of rights other than the acquiring person can exercise their rights . when a holder exercises a right , the holder will be entitled to receive units valued at a multiple of the exercise price of the right specified in the rights agreement . in some cases , the holder will receive cash , property or other securities instead of units . we may redeem the rights for $ 0.001 per right at any time prior to the tenth day after a person or group becomes an acquiring person . the rights will expire on june 30 , 2016 , unless extended or earlier redeemed or exchanged , and are protected by customary anti-dilution provisions . preferred units purchasable upon exercise of the rights will not be redeemable . each preferred unit will be entitled to share in our distributions of available cash pro rata with the units . in the event of liquidation , the holders of the preferred units will be entitled to a minimum preferential liquidation payment of $ 100 per unit . each preferred unit will have 100 votes , voting together with the units . finally , in the event of any merger , consolidation or other transaction in which units are exchanged , each preferred unit will be entitled to receive 100 times the amount received per unit . 13. employee benefit plans the nustar thrift plan the story_separator_special_tag the following review of our results of operations and financial condition should be read in conjunction with items 1. , 1a . and 2 . business , risk factors and properties , and item 8 . financial statements and supplementary data , included in this report . cautionary statement regarding forward-looking information this form 10-k contains certain estimates , predictions , projections , assumptions and other forward-looking statements that involve various risks and uncertainties . while these forward-looking statements , and any assumptions upon which they are based , are made in good faith and reflect our current judgment regarding the direction of our business , actual results will almost always vary , sometimes materially , from any estimates , predictions , projections , assumptions or other future performance suggested in this report . these forward-looking statements can generally be identified by the words anticipates , believes , expects , plans , intends , estimates , forecasts , budgets , projects , will , could , should , may and similar expressions . these statements reflect our current views with regard to future events and are subject to various risks , uncertainties and assumptions . please read item 1a . risk factors for a discussion of certain of those risks . if one or more of these risks or uncertainties materialize , or if the underlying assumptions prove incorrect , our actual results may vary materially from those described in any forward-looking statement . other unknown or unpredictable factors could also have material adverse effects on our future results . readers are cautioned not to place undue reliance on this forward-looking information , which is as of the date of the form 10-k. we do not intend to update these statements unless it is required by the securities laws to do so , and we undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events . overview nustar gp holdings , llc ( nustar gp holdings ) is a delaware limited liability company . our units are traded on the new york stock exchange ( nyse ) under the symbol nsh. unless otherwise indicated , the terms nustar gp holdings , llc , nustar gp holdings , we , our and us are used in this report to refer to nustar gp holdings , llc , to one or more of our consolidated subsidiaries or to all of them taken as a whole . our only cash generating assets are our ownership interests in nustar energy l.p. ( nustar energy ) , a publicly traded delaware limited partnership ( nyse : ns ) . as of december 31 , 2010 , our aggregate ownership interests in nustar energy consisted of the following : the 2 % general partner interest ; 100 % of the incentive distribution rights ( idr ) issued by nustar energy , which entitle us to receive increasing percentages of the cash distributed by nustar energy , currently at the maximum percentage of 23 % ; and 10,283,359 common units of nustar energy representing a 15.6 % limited partner interest . we account for our ownership interest in nustar energy using the equity method . therefore , our financial results reflect a portion of nustar energy 's net income based on our ownership interest . we have no separate operating activities apart from those conducted by nustar energy and therefore generate no revenues from operations . nustar energy is engaged in the terminalling and storage of petroleum products , the transportation of petroleum products and anhydrous ammonia , and asphalt refining and fuels marketing . nustar energy has terminal facilities in the united states , the netherlands , including st. eustatius in the caribbean , canada , the united kingdom and mexico . story_separator_special_tag we borrowed $ 5.2 million from our revolving credit facility for the year ended december 31 , 2010 mainly to fund our contribution to nustar energy in order to maintain our 2 % general partner interest following its issuance of common units in may 2010. cash distributions received from nustar energy were $ 76.6 million for the year ended december 31 , 2009 , which we used primarily to fund distributions to our unitholders totaling $ 73.3 million . we borrowed $ 14.3 million for the year ended december 31 , 2009 to fund our contribution to nustar energy in order to maintain our 2 % general partner interest following its issuance of common units in november 2009 , and for other capital resource requirements . cash distributions received from nustar energy were $ 69.4 million for the year ended december 31 , 2008 , which we used primarily to fund distributions to our unitholders totaling $ 64.2 million . we borrowed $ 5.0 million for the year ended december 31 , 2008 to fund our contribution to nustar energy in order to maintain our 2 % general partner interest following its issuance of common units in april 2008. credit facility borrowings under our revolving credit facility are used to fund capital contributions to nustar energy to maintain our 2 % general partner interest as nustar energy issues additional units and meet other liquidity and capital resource requirements . on july 15 , 2010 , we entered into a 364-day revolving credit facility ( 2010 credit facility ) that matures on july 14 , 2011 with a borrowing capacity of up to $ 30.0 million , of which up to $ 10.0 million may be available for letters of credit . interest on the 2010 credit facility is based upon , at our option , either an alternative base rate plus 1.75 % or a libor-based rate plus 2.75 % , which was 3.1 % as of december 31 , 2010. these interest rates are 1.75 % lower than the rates that were in effect under our previous revolving credit facility , which matured on july 16 , 2010 ( 2009 credit facility ) . our obligations under the 2010 credit facility are unsecured . the 2010 credit facility contains customary covenants and provisions including limitations on indebtedness , liens , dispositions of material property , mergers and asset transfers . 34 the terms of the 2010 credit facility , which are similar to those under the 2009 credit facility , require nustar energy to maintain a total debt-to-ebitda ratio of less than 5.0-to-1.0 for any four consecutive quarters , subject to adjustment following certain acquisitions . we are also required to receive cash distributions of at least $ 35.0 million in respect of our ownership interests in nustar energy for the preceding four fiscal quarters ending on the last day of each fiscal quarter . our management believes that we are in compliance with the covenants , including the debt-to-ebitda ratio , which was 4.6x as of december 31 , 2010. as of december 31 , 2010 , we had availability of $ 14.0 million for borrowings or letters of credit under the 2010 credit facility . the weighted average interest rate related to combined borrowings under both the 2010 credit facility and the 2009 credit facility for the year ended december 31 , 2010 was 4.0 % . we are in discussions with the lenders to renew or replace our 2010 credit facility . investment in nustar energy in may 2010 , nustar energy issued 4,400,000 common units representing limited partner interests at a price of $ 56.55 resulting in net proceeds of $ 245.2 million , including $ 5.1 million from us in order to maintain our 2 % general partner interest . cash distributions to unitholders our limited liability company agreement requires that , within 50 days after the end of each quarter , we distribute all of our available cash to the holders of record of our units on the applicable record date . available cash is defined as all cash on hand at the end of any calendar quarter less the amount of cash reserves necessary or appropriate , as determined in good faith by our board of directors , to fund debt we may incur , if any , general and administrative expenses , future distributions and other miscellaneous uses of cash . the table set forth below shows our cash distributions applicable to the period in which the distributions were earned : replace_table_token_12_th pension and other postretirement benefit funded status during 2010 , we contributed $ 17.0 million to our pension and postretirement benefit plans . we expect to contribute approximately $ 11.0 million to our pension and postretirement benefit plans in 2011 , which principally represents contributions either required by regulations or laws or , with respect to unfunded plans , necessary to fund current benefits . we have not disclosed pension and postretirement funding beyond 2011 as the funding can vary from year to year based upon changes in the fair value of the plan assets and actuarial assumptions . since costs incurred by us related to our pension and other retirement benefit plans are reimbursed by nustar energy , funding for these plans will primarily be provided by nustar energy . related party agreements agreements with nustar energy effective january 1 , 2008 , nustar gp , llc and nustar energy entered into a services agreement stating that nustar energy will reimburse nustar gp , llc for furnishing administrative and certain operating services necessary to conduct the business of nustar energy . we also have a non-compete agreement with nustar energy related to business opportunities . please refer to note 5 of the notes to consolidated financial statements in item 8 . financial statements and supplementary data for a more detailed discussion of agreements with nustar energy .
| financial highlights ( thousands of dollars , except unit and per unit data ) replace_table_token_5_th the following table summarizes nustar energy 's results of operations for the years ended december 31 , 2010 and 2009 : replace_table_token_6_th 29 nustar energy 's net income increased $ 14.1 million for the year ended december 31 , 2010 , compared to the year ended december 31 , 2009 , primarily due to increased segment operating income , which was partially offset by an increase in general and administrative expenses and a decrease in other income . nustar energy 's segment operating income increased $ 45.7 million for the year ended december 31 , 2010 , compared to the year ended december 31 , 2009 , mainly due to increased operating income from its asphalt and fuels marketing segment . nustar energy 's operating income in its transportation and storage segments also increased compared to last year . equity in earnings of nustar energy the following table summarizes our equity in earnings of nustar energy for the years ended december 31 , 2010 and 2009 : replace_table_token_7_th nustar energy 's per unit distributions for the year ended december 31 , 2010 increased , compared to the year ended december 31 , 2009 , from $ 4.245 to $ 4.280. that increase , coupled with an increase in the number of nustar energy units outstanding resulting from the issuance of units in the fourth quarter of 2009 and the second quarter of 2010 , resulted in nustar energy increasing its total cash distributions . since our idr in nustar energy entitle us to an increasing amount of nustar energy 's cash distributions , our equity in earnings of nustar energy related to our idr increased for the period .
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words such as “ expect , ” “ anticipate , ” “ intend , ” “ plan , ” “ believe , ” “ seek , ” “ may , ” “ will , ” “ should , ” “ could , ” “ future , ” “ likely , ” “ predict , ” “ project , ” “ potential , ” “ continue , ” “ estimate ” and similar expressions are generally intended to identify forward-looking statements , but are not exclusive means of identifying forward-looking statements in this annual report . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . moreover , neither we , nor any other person , assume responsibility for the accuracy and completeness of the forward-looking statements . we are under no obligation to update any of the forward-looking statements after the filing of this annual report to conform such statements to actual results or to changes in our expectations . the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report . readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business , including without limitation the disclosures made in item 1a of part i of this annual report under the caption “ risk factors ” . risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to : volatility in our revenues and results of operations ; changing conditions in the financial markets ; our ability to generate sufficient revenues to achieve and maintain profitability ; the short term nature of our engagements ; the accuracy of our estimates and valuations of inventory or assets in “ guarantee ” based engagements ; competition in the asset management business ; potential losses related to our auction or liquidation engagements ; our dependence on communications , information and other systems and third parties ; potential losses related to purchase transactions in our auction and liquidations business ; the potential loss of financial institution clients ; potential losses from or illiquidity of our proprietary investments ; changing economic and market conditions ; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation ; potential significant liability and harm to our reputation if we are required to pay the termination fee or other obligations of vintage capital in connection with the ongoing litigation with rent-a-center ; potential mark-downs in inventory in connection with purchase transactions ; failure to successfully compete in any of our segments ; loss of key personnel ; our ability to borrow under our credit facilities or at-the-market offering as necessary ; failure to comply with the terms of our credit agreements or senior notes ; our ability to meet future capital requirements ; our ability to realize the benefits of our completed acquisitions , including our ability to achieve anticipated opportunities and operating cost savings , and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all ; our ability to promptly and effectively integrate our business with that of magicjack ; the reaction to the magicjack acquisition of our and magicjack 's customers , employees and counterparties ; and the diversion of management time on acquisition-related issues . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise except as otherwise required by the context , references in this annual report to “ the “ company , ” “ b . riley , ” “ we , ” “ us ” or “ our ” refer to the combined business of b. riley financial , inc. and all of its subsidiaries . overview b. riley financial , inc. ( nasdaq : rily ) and its subsidiaries provide collaborative financial services and solutions through several operating subsidiaries including : · b. riley fbr , inc. ( “ b . riley fbr ” ) is a leading , full service investment bank providing financial advisory , corporate finance , research , securities lending and sales & trading services to corporate , institutional and high net worth individual clients . b. riley fbr was formed in november 2017 through the merger of b. riley & co , llc and fbr capital markets & co. ; the name of the combined broker dealer was subsequently changed to b. riley fbr , inc. fbr capital markets & co. was acquired by b. riley financial in june 2017 . · b. riley wealth management , inc provides comprehensive wealth management and brokerage services to individuals and families , corporations and non-profit organizations , including qualified retirement plans , trusts , foundations and endowments . b. riley wealth management was formerly wunderlich securities , inc. , which the company acquired on july 3 , 2017 and changed its name in june 2018 . · b. riley capital management , llc , a securities and exchange commission ( “ sec ” ) registered investment advisor , which includes : 57 o b. riley asset management , an advisor to certain private funds and to institutional and high net worth investors ; o b. riley wealth management , a multi-family office practice and wealth management firm focused on the needs of ultra-high net worth individuals and families ; and o great american capital partners , llc ( “ gacp ” ) , the general partner of two private funds , gacp i , l.p. and gacp ii , l.p. , both direct lending funds that provide senior secured loans and second lien secured loan facilities to middle market public and private u.s. companies . story_separator_special_tag in connection with the execution of the limited guarantee , the company entered into a mutual indemnity/contribution agreement , dated as of june 17 , 2018 ( the “ mutual indemnity agreement ” ) , with the vintage merger guarantor and samjor family , lp ( collectively , the “ vintage indemnity parties ” ) . under the mutual indemnity agreement , the vintage guarantors agreed , jointly and severally , to indemnify and hold harmless b. riley and its affiliates from damages and liabilities arising out of the guarantee obligations , other than those caused b. riley 's failure to fund under their debt or equity commitments . on december 18 , 2018 , rent-a-center purported to terminate the merger agreement because the end date of the agreement was allegedly not extended prior to december 17 , 2018 by vintage parent . rent-a-center delivered notice of such termination to vintage parent , and notified vintage parent of its obligation under the terms of the merger agreement to pay rent-a-center the termination fee within three business days . on december 18 , 2018 , vintage capital management , llc , an affiliate of vintage parent ( “ vintage capital ” ) , delivered a letter to rent-a-center stating that rent-a-center 's purported termination of the merger agreement is invalid , that it believes the merger agreement remains in effect . on december 21 , 2018 , vintage capital filed a complaint in the court of chancery of the state of delaware ( the “ court ” ) challenging rent-a-center 's purported termination of the merger agreement and demand for payment of the termination fee . the relief sought by vintage capital includes declaratory judgements that the merger agreement has not been terminated and remains in full force and effect , that rent-a-center has breached its obligations under the merger agreement and is not excused from failing to comply with its obligations thereunder and that the termination fee is an unenforceable penalty . on december 28 , 2018 , rent-a-center provided each of b. riley and the vintage merger guarantors with a written request under the limited guarantee ( a “ performance demand ” ) , to promptly , and in any event within ten ( 10 ) business days , pay to rent-a-center the guaranteed obligations ( including the termination fee ) in full . on december 30 , 2018 , b. riley filed a motion in the court to intervene in the above referenced case filed by vintage capital pursuant to which b. riley is seeking declaratory judgments , among other things , that the parties agreed to extend the end date under the merger agreement and that rent-a-center is estopped from terminating the merger agreement , that rent-a-center has breached the merger agreement and its obligations of good faith and fair dealing in connection with consummating the merger , and that the termination fee is an unenforceable penalty . b. riley is also seeking an award of costs and reasonable attorneys ' fees and such other further relief as the court finds equitable and appropriate . at a hearing held on december 31 , 2018 , the court stated that it would grant a temporary restraining order to preserve the status quo , which order would prohibit rent-a-center from engaging in certain transactions pending an expedited trial on the merits . on january 3 , 2019 , the court granted b. riley 's motion to intervene in the vintage capital case and on january 7 , 2019 , the court granted a temporary restraining order restricting rent-a-center from engaging in certain transactions prior to the trial on the merits scheduled for february 11 , 2019. on february 11th and 12th , a trial was held in delaware , post-trial briefs were filed on february 22 , 2019 and march 1 , 2019. a post-trial hearing has been scheduled for march 11 , 2019. the company believes that it is reasonably possible that the court will rule in favor of the performance demand . the amount of possible loss is not estimable ; however , the range of loss could be from $ 0 to $ 128.5 million . 59 on november 14 , 2018 , the company entered into an agreement to acquire shares of national holdings corporation ( “ national holdings ” ) , a nasdaq-listed issuer , from fortress biotech , inc. for an aggregate purchase price totaling approximately $ 22.9 million . the transaction was completed in two tranches . in the first tranche , which was completed in the fourth quarter of 2018 , the company acquired shares representing 24 % of the total outstanding shares of national holdings . the second tranche was contingent upon receipt of the approval of financial industry regulatory authority , inc. , which was obtained in the first quarter of 2019. as a result of the closing of the second tranche , the company now holds 49 % of the outstanding shares of national holdings . the equity ownership in national holdings is accounted for under the equity method of accounting . brpac , uol , and ymax ( together with brpac and uol , the “ borrowers ” ) , our indirect wholly-owned subsidiaries , in their capacity of borrowers , entered the brpac credit agreement dated december 19 , 2018 , with the banc of california , n.a . in its capacity as agent and lender and with the other lenders party thereto . certain of the borrowers ' u.s. subsidiaries are guarantors of all obligations under the brpac credit agreement and are parties to the brpac credit agreement in such capacity ( collectively , the “ secured guarantors ” ; and , together with the borrowers , the “ credit parties ” ) . in addition , we and b. riley principal investments , llc , the parent corporation of brpac and our subsidiary , are guarantors of the obligations under brpac credit agreement pursuant to standalone guaranty agreements pursuant to which the shares of outstanding membership interests of the brpac are pledged as collateral .
| results of operations the following year to year comparisons of our financial results are not necessarily indicative of future results . year ended december 31 , 2018 compared to year ended december 31 , 2017 consolidated statements of income ( dollars in thousands ) replace_table_token_4_th 62 revenues the table below and the discussion that follows are based on how we analyze our business . replace_table_token_5_th n/m - not applicable or not meaningful . total revenues increased $ 100.8 million to $ 423.0 million during the year ended december 31 , 2018 from $ 322.2 million during the year ended december 31 , 2017. the increase in revenues during the year ended december 31 , 2018 was primarily due to an increase in revenue from services and fees of $ 85.7 million , an increase in revenue from interest income – securities lending of $ 14.8 million and increase in revenue from sale of goods of $ 0.3 million . the increase in revenue from services and fees of $ 85.7 million in 2018 was primarily due to an increase in revenue of $ 70.6 million in the capital markets segment , $ 7.5 million in the auction and liquidation segment , $ 5.4 million in the valuation and appraisal segment and $ 2.2 million in the principal investments – united online and magicjack segment .
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story_separator_special_tag when reading the following management 's discussion and analysis of financial condition and results of operations , please refer to our consolidated financial statements and related notes included in item 8 , `` financial statements and supplementary data , '' of this report . unless noted otherwise , all references to fbl financial group , inc. ( we or the company ) include all of its direct and indirect subsidiaries , including its insurance subsidiaries farm bureau life insurance company ( farm bureau life ) and greenfields life insurance company ( greenfields life ) . in this discussion and analysis , we explain our consolidated results of operations , financial condition and where appropriate , factors that management believes may affect future performance , including : factors which affect our business , our revenues and expenses in the periods presented , changes in revenues and expenses between periods , sources of earnings and changes in stockholders ' equity , impact of these items on our overall financial condition and expected sources and uses of cash . we have organized our discussion and analysis as follows : first , we discuss our business and drivers of profitability . we then describe the business environment in which we operate including factors that affect operating results . we highlight significant events that are important to understanding our results of operations and financial condition . we then review the results of operations beginning with an overview of the total company results , followed by a more detailed review of those results by operating segment . finally , we discuss critical accounting policies and recently issued accounting standards . the critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management 's most difficult or complex judgment . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > our business generally benefits from moderate to strong economic expansion . conversely , a lackluster economic recovery characterized by higher unemployment , lower family income , lower consumer spending , muted corporate earnings growth and lower business investment could adversely impact the demand for our products in the future . we also may experience a higher incidence of claims , lapses or surrenders of policies . we can not predict whether or when such actions may occur , or what impact , if any , such actions could have on our business , results of operations , cash flows or financial condition . while there were positive economic signs during 2013 , the u.s. economy continues to face a number of challenges . pertinent recent economic events include , but are not limited to the following : gross domestic product increased approximately 1.9 % during 2013 based on early estimates . u.s. unemployment remains high at 6.7 % through december 2013. growth in personal income generally remains below average . based on usda estimates , u.s. net farm income is forecasted to have grown 15.1 % and farm real estate value is forecasted to have grown 7.5 % during 2013. the european debt crisis continues to cause intermittent stress within the markets . continued uncertainty as to actions the united states congress will take to address the national debt , including potential actions to change the tax advantages of life insurance . an increase in market interest rates during 2013 has reduced the fair value of our fixed maturity investment portfolio . the benchmark 10-year u.s. treasury yield rose during 2013 , while credit spreads decreased . strong liquidity and favorable corporate profitability continue to support fundamental credit quality . in the securitized markets , spreads on agency residential mortgage-backed securities and commercial mortgage-backed securities declined but rose for asset-backed securities . the yield curve remained moderately steep at year end , but low current interest rates create a challenging environment for sales of new money fixed annuity products . we intentionally decreased the amount of annuity sales beginning in 2012 by suspending sales of certain products and reducing agent commission rates on certain products where it was difficult to achieve profitability targets during this period of low interest rates . we expect modest increases in annuity sales due to the recent rise in market interest rates and a renewed emphasis placed on sales of products with low guaranteed crediting rates . our life sales have increased , reflecting the attractiveness of 26 enhanced universal life and term life product offerings and the strong farm and energy subsectors of the economy in our marketplace , as well as farm bureau life 's emphasis on life insurance product sales . results of operations for the three years ended december 31 , 2013 replace_table_token_11_th ( 1 ) amounts are net of adjustments , as applicable , to amortization of unearned revenue reserves , deferred acquisition costs , value of insurance in force acquired and income taxes attributable to these items . our operating income increased in 2013 , compared to 2012 , primarily due to the impact of an increase in the volume of business in force , higher corporate segment net investment income and the impact of unlocking assumptions used in the calculation of amortization of deferred acquisition costs and the value of insurance in force . these increases were partially offset by an increase in death benefits . operating income increased in 2012 , compared to 2011 , primarily due to the impact of an increase in the volume of business in force , partially offset by increases in the amortization of deferred acquisition costs and the value of insurance in force . earnings in 2011benefited from refining actuarial estimates that reduced the value of insurance in force and deferred acquisition costs by $ 7.4 million . story_separator_special_tag results for 2012 were negatively impacted by the impact of reserve refinements which increased traditional life future policy benefits $ 1.8 million as a result of the impact of updates to mortality tables and lapse assumptions . the impact of refining methods and assumptions in 2011 relating to the value of insurance in force , deferred acquisition costs and certain traditional life insurance reserves decreased benefits and expenses $ 7.4 million . unlocking of deferred acquisition costs , value of insurance in force and unearned revenue reserve resulted in an increase in 2013 operating income compared to 2012 , and a decrease in 2012 operating income compared to 2011. unlocking for each year reflected changes in projected policy lapses and mortality assumptions used in the estimate of future expected gross profits . during 2012 , we incurred additional amortization through unlocking as a result of our analysis of the impact of a continued low interest rate environment on projected investment and spread income , as well as withdrawal rates . 31 death benefits , net of reinsurance and reserves released , increased in 2013 primarily due to an increase in the average size of claims . the weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in 2013 and 2012 due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments , compared with the average existing portfolio yield , partially offset by an increase in investment fee income in 2012. see the `` financial condition '' section which follows for additional information regarding the yields obtained on investment acquisitions . weighted average interest crediting rates on our interest sensitive life insurance products were impacted by crediting rate decreases taken on various products in 2013 , 2012 and 2011 in response to the declining portfolio yield , partially offset by sales of products with higher crediting rates . replace_table_token_16_th 32 replace_table_token_17_th ( 1 ) includes prepayment fee income and net discount accretion on mortgage and asset-backed securities resulting from changing payment speed assumptions at the end of the period . pre-tax operating income increased in 2013 and 2012 compared prior years . the increase in 2013 was primarily due to an increase in net investment income , the impact of market performance and profits on amortization of deferred acquisition costs on our variable business and a decrease in death benefits , partially offset by an increase in pre-tax equity loss . the increase in 2012 was primarily due to a reduction in other underwriting expenses allocated to the segment , the impact of market performance and profits on amortization of deferred acquisition costs on our variable business and an increase in net investment income , partially offset by an increase in pre-tax equity loss . other underwriting expenses decreased in 2012 due to a reallocation of certain expenses from the corporate and other segment to the annuity and life insurance segments due to our decision to discontinue sales of variable products , resulting in a shift of corporate overhead to the product segments . in total , other underwriting expenses increased 1.2 % in 2012. other income in 2012 included administrative fee income of $ 3.5 million received from equitrust life for accounting and other services rendered to support the transition of that company subsequent to its sale in december 2011. other income in 2011 included $ 1.5 million in other income associated with the equitrust mutual funds merger and a $ 1.0 million cash settlement received from a litigation case . other income and other expenses also includes fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries , which include management , advisory , marketing and distribution services and leasing activities . amortization of deferred acquisition costs and unearned revenue reserves changed over the three year period primarily due to the impact of market performance in the separate accounts . death benefits net of reinsurance and reserves released decreased in 2013 primarily due to a decrease in the average claim size . net investment income increased during 2013 and 2012 due to an increase in investments , including funds received from the sale of equitrust life as discussed in note 15 to our consolidated financial statements , as well as the impact of higher yielding securities held in the portfolio . equity income ( loss ) includes our proportionate share of gains and losses attributable to our ownership interest in partnerships , joint ventures and certain companies where we exhibit some control but have a minority ownership interest . given the timing of availability of financial information from our equity investees , we will consistently use information that is as much as three months in arrears for certain of these entities . several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios . as is normal with these types of entities , the level of these gains and losses is subject to fluctuation from period to period depending on the prevailing economic environment , changes in prices of bond and equity securities held by the investment partnerships , timing and success of initial public offerings or exit strategies , and the timing of the sale of investments held by the partnerships and 33 joint ventures . we have increased our investments in low income housing tax credit partnerships which generate pre-tax losses but after tax gains as the related tax credits are realized . the timing of the realization of tax credits is subject to fluctuation from period to period due to the timing of housing project completions and when tax credits are approved . equity income , net of related income taxes , was as follows : replace_table_token_18_th income taxes on operating income the effective tax rate on operating income was 25.3 % for 2013 and 29.0 % for 2012 and 2011 .
| overview and profitability we operate predominantly in the life insurance industry through our principal subsidiary , farm bureau life . farm bureau life markets individual life insurance policies and annuity contracts to farm bureau members and other individuals and businesses in the midwestern and western sections of the united states through an exclusive agency force . several subsidiaries support various functional areas of farm bureau life and other affiliates by providing investment advisory , marketing and distribution , and leasing services . in addition , we manage two farm bureau affiliated property-casualty companies . we analyze operations by reviewing financial information regarding our primary products that are aggregated in annuity and life insurance product segments . in addition , our corporate and other segment includes various support operations , corporate capital and other product lines that are not currently underwritten by the company . we analyze our segment results based on pre-tax operating income , which excludes the impact of certain items that are included in net income . see note 13 to our consolidated financial statements for further information regarding how we define our segments and operating income . we also include within our analysis “ premiums collected ” which is not a measure used in financial statements prepared in accordance with gaap , but is a common industry measure of agent productivity . see note 13 to our consolidated financial statements for further information regarding this measure and its relationship to gaap revenues . on december 30 , 2011 , we completed the sale of our wholly-owned subsidiary , equitrust life insurance company ( equitrust life ) . as a result of the sale , certain lines of business are considered discontinued operations , and unless otherwise indicated , have been removed from the discussion that follows . see note 15 to our consolidated financial statements for additional information related to the sale .
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we use the black-scholes option pricing model to determine the fair value story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with “ selected consolidated financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. overview our goal is to establish invisalign clear aligners as the standard method for treating malocclusion and to establish the itero intraoral scanner as the preferred scanning device for 3d digital scans , ultimately driving increased product adoption by dental professionals . we intend to achieve this by continued focus and execution of our strategic growth drivers set forth in the business strategy section in our annual report on form 10-k. the successful execution of our business strategy and our results in 2015 and beyond may be affected by a number of other factors including : additional aligners at no charge . in july 2015 , we launched a new product policy called `` additional aligners at no charge '' that addresses one of our customers ' top complaints . previously , we charged customers for additional aligners ordered beyond those covered by the initial treatment plan . with this product policy change , we no longer distinguish between mid-course corrections and case refinements and allow doctors to order additional aligners to address either treatment need at no charge , subject to certain requirements . these changes were effective for all new invisalign full , teen , and assist treatments shipped worldwide after july 18 , 2015 as well as any open invisalign full , teen and assist cases as of that date . based on this new product policy , beginning in the third quarter of 2015 , we deferred more revenue as a result of providing free additional aligners for eligible treatments . additionally , since we grandfathered over 1 million open cases , we will recognize lower revenues as additional aligners are shipped . we expect lower amounts of revenue to be recognized for at least the next two years until these cases complete . in the fourth quarter of 2015 , the new product policy decreased clear aligner net revenues by approximately $ 7.0 million and reduced operating margin by 2.2 % and diluted earnings per share by $ 0.07 per share . we expect a decrease in clear aligner net revenues by approximately $ 7.0 million to $ 8.0 million in the first quarter of 2016 , and by approximately $ 25.0 million to $ 30.0 million in fiscal year 2016. while this product policy change will impact the timing of our revenue recognition , we believe this policy change will result in a significant improvement in customer satisfaction and loyalty , and ultimately increase invisalign utilization and volume over time . new products , feature enhancements and technology innovation . product innovation drives greater treatment predictability and clinical applicability , and ease of use for our customers , which supports adoption of invisalign in their practices . increasing applicability and treating more complex cases requires that we move away from individual features to more comprehensive solutions so that invisalign providers can more predictably treat the whole case , such as with invisalign g5 for deep bite treatment , invisalign g6 for premolar extraction and clincheck pro , the next generation invisalign treatment software tool , designed to provide more precise control over final tooth position and to help invisalign providers achieve their treatment goals . in addition , we began shipping the next generation itero element intraoral scanner in september 2015 and expect to ramp up our production over the next few quarters accordingly ; however , if we are unable to scale production of our itero element scanner to meet customer demand , our financial results may be negatively impacted . we believe that over the long-term , clinical solutions and treatment tools will increase adoption of invisalign and increase sales of our intraoral scanners ; however , it is difficult to predict the rate of adoption which may vary by region and channel . invisalign adoption . our goal is to establish invisalign as the treatment of choice for treating malocclusion ultimately driving increased product adoption and frequency of use by dental professionals , also known as `` utilization rates . '' our quarterly utilization rates for the previous 9 quarters are as follows : 34 * invisalign utilization rates = # of cases shipped divided by # of doctors cases were shipped to total utilization in the fourth quarter of 2015 increased to 4.9 cases per doctor compared to 4.4 in the fourth quarter of 2014. utilization among our north american orthodontist customers reached an all time high of 9.9 cases per doctor in the fourth quarter of 2015 compared to 8.6 in the fourth quarter of 2014. international doctor utilization increased to 5.0 cases in the fourth quarter of 2015 from 4.5 in the fourth quarter of 2014. north american gp doctor utilization increased to 3.1 cases in the fourth quarter of 2015 from 2.9 in the fourth quarter of 2014. the increase in north america orthodontist utilization reflects improvements in product and technology , which continues to strengthen our doctors ' clinical confidence in the use of invisalign such that they now utilize invisalign more often and on more complex cases , including their teenage patients . increased international utilization reflects growth in both the emea and asia pacific regions driven by go-to-market and sales coverage investments , improving clinical education and support as well as ongoing technology innovation . we expect that over the long-term our utilization rates will gradually improve as a result of advancements in product and technology , which continue to strengthen our doctors ' clinical confidence in the use of invisalign , however , we expect that our utilization rates may fluctuate from period to period due to a variety of factors , including seasonal trends in our business along with adoption rates of new products and features . number of new invisalign doctors trained . story_separator_special_tag selling , general and administrative expense increased in 2015 compared to 2014 primarily due to higher compensation related costs of $ 50.1 million as a result of increased headcount , which led to higher salaries , stock based compensation and commissions . in addition , consulting costs increased by $ 9.7 million primarily due to our enterprise resource planning ( `` erp '' ) project . partially offsetting these increases was the mdet refund of $ 6.8 million received in the first quarter of 2015. selling , general and administrative expense increased in 2014 compared to 2013 primarily due to higher compensation costs of $ 24.1 million due to increased headcount , including the additional headcount from the acquisition of our apac distributor and stock based compensation . in addition , we incurred higher advertising and marketing expenses as a result of increased advertising production and marketing campaigns combined with higher costs for trade shows and our europe and apac summits as well as 39 increases in consulting expenses and credit card processing fees . these increases were offset by lower mdet of $ 6.8 million as our aligners were no longer subject to the excise tax in 2014 as well as lower outside litigation costs . in march 2014 , the irs informed us that our aligners are not subject to the mdet , which we had been paying and expensing in selling , general and administrative expense in the consolidated statements of operations since january 1 , 2013. research and development ( in millions ) : replace_table_token_8_th changes and percentages are based on actual values . certain tables may not sum or recalculate due to rounding . research and development expense includes the personnel-related costs and outside consulting expenses associated with the research and development of new products and enhancements to existing products , corporate allocations , facility and facility related costs and stock-based compensation expense . research and development expense increased during 2015 compared to 2014 primarily as a result of our investment in obstructive sleep apnea which was terminated in the third quarter of 2015. while we continue to believe that the opportunities in the obstructive sleep apnea market are potentially interesting , we have decided to remain focused on our core business and organic growth opportunities . research and development expense increased during 2014 compared to 2013 almost entirely due to higher compensation costs as a result of higher bonuses , stock-based compensation and salaries primarily due to additional headcount . impairment of goodwill ( in millions ) : year ended year ended december 31 , 2015 december 31 , 2014 change december 31 , 2014 december 31 , 2013 change impairment of goodwill $ — $ — $ — $ — $ 40.7 $ ( 40.7 ) % of net revenues — % — % — % 6.2 % changes and percentages are based on actual values . certain tables may not sum or recalculate due to rounding . there was no charge for impairment of goodwill recorded in the years ended december 31 , 2015 or 2014. during the first quarter of 2013 , we determined that the goodwill for our scanner reporting unit should be tested for impairment as a result of changes in the competitive environment for intra-oral scanners which caused us to lower our expectations for growth and profitability for our scanner reporting unit . as a result of our analysis , we recorded a goodwill impairment charge of $ 40.7 million , none of which was deductible for tax purposes . refer to note 5 `` goodwill and intangible assets '' of our consolidated financial statements for details of the impairment analysis . impairment of long-lived assets ( in millions ) : year ended year ended december 31 , 2015 december 31 , 2014 change december 31 , 2014 december 31 , 2013 change impairment of long-lived assets $ — $ — $ — $ — $ 26.3 $ ( 26.3 ) % of net revenues — % — % — % 4.0 % changes and percentages are based on actual values . certain tables may not sum or recalculate due to rounding . there was no charge for impairment of long-lived assets recorded in the year ended december 31 , 2015 or 2014 . 40 the impairment of our long-lived assets in 2013 was the result of changes in the competitive environment for intra-oral scanners which caused us to lower our expectations for growth and profitability for our scanner reporting unit . as a result , we determined that the carrying value of the long-lived assets was not recoverable and therefore recorded an impairment charge of $ 26.3 million . refer to note 5 `` goodwill and intangible assets '' of our consolidated financial statements for details of the impairment analysis . interest and other income ( expense ) , net ( in millions ) : replace_table_token_9_th interest and other income ( expense ) , net , includes foreign currency translation gains and losses , interest income earned on cash , cash equivalents and investment balances and other miscellaneous charges . interest and other income ( expense ) , net , in 2015 increased mainly due to higher interest income on higher balances of cash , cash equivalents and investments offset in part by higher foreign exchange losses primarily due to the strengthening of the u.s. dollar to the euro and australian dollar . interest and other income ( expense ) , net , in 2014 decreased due to higher foreign exchange losses primarily as a result of the weakening of the euro to the u.s. dollar offset slightly by increased interest income earned on higher balances of cash , cash equivalents and investments . provision for income taxes ( in millions ) : replace_table_token_10_th changes and percentages are based on actual values . certain tables may not sum or recalculate due to rounding . our provision for income taxes was $ 42.1 million , $ 44.5 million and $ 28.8 million for the year ended december 31 , 2015 , 2014 and 2013 , respectively .
| results of operations net revenues by reportable segment comparison for year ended december 31 , 2015 , 2014 and 2013 : we group our operations into two reportable segments : clear aligner segment and scanner segment . our clear aligner segment consists of our invisalign system which includes invisalign full , teen and assist ( `` full products '' ) , express/lite ( `` express products '' ) , vivera retainers , along with our training and ancillary products for treating malocclusion . our scanner segment consists of intra-oral scanning systems and additional services available with the intra-oral scanners that provide digital alternatives to the traditional cast models . this segment includes our itero scanner and orthocad services . net revenues for our clear aligner segment by region and our scanner segment for the year ended december 31 , 2015 , 2014 and 2013 is as follows ( in millions ) : replace_table_token_4_th changes and percentages are based on actual values . certain tables may not sum or recalculate due to rounding . 36 clear aligner case volume by region case volume data which represents invisalign case shipments by region , for the year ended december 31 , 2015 , 2014 and 2013 is as follows ( in millions ) : replace_table_token_5_th changes and percentages are based on actual values . certain tables may not sum or recalculate due to rounding . fiscal year 2015 compared to fiscal year 2014 total net revenues increased by $ 83.9 million in 2015 as compared to 2014 primarily as a result of invisalign case volume growth across all regions and products as well as increased invisalign non-case revenue . clear aligner - north america clear aligner north america net revenues increased by $ 52.1 million in 2015 compared to 2014 primarily due to invisalign case volume growth of approximately $ 79.0 million across all channels and products .
| 5,608 |
the primary use of cash for the company 's operating activities for the twelve months ended december 31 , 2014 include working capital requirements , mainly an increase in inventory , timing differences on collections of accounts receivable of approximately $ 1,032,000 and other current assets . atg and cpg customers are increasingly requesting and or requiring stock inventory in order to facilitate assurance of meeting their often volatile delivery schedule needs . as these requirements increase , they directly impact comparative cash flows when implemented and increase inventory levels when it is a continuing requirement . additionally , at times , the company takes advantage of price discounts on volume purchases for common parts . cash generated and used in operations is consistent with sales volume , customer expectations and competitive pressures . the company generated cash in its financing and investing activities in the twelve months ended december 31 , 2014 by refinancing and acquiring approximately $ 2,000,000 of additional long-term debt , while using approximately $ 202,000 for the purchase of treasury shares . the company also expended approximately $ 3,154,000 for capital expenditures that include payments for the current expansion at cpg . -13- on december 1 , 2014 , the company , entered into a loan agreement that provides for a $ 2,620,000 seven-year term loan ( the “ term loan ” ) and $ 2,000,000 line of credit ( the “ line of credit ” ) . the line of credit is available until june 24 , 2015 , unless subsequently renewed , and replaced the company 's previous $ 2,000,000 line of credit . as of december 31 , 2014 there were no draws on the line . the proceeds from the term loan were used to pay off the industrial development revenue bonds that were issued by a government agency in 1994 to finance the construction of the company 's headquarters/advanced technology facility and which matured on december 1 , 2014. in addition , the company 's wholly-owned subsidiary , the ontario knife company ( okc ) entered into a separate loan agreement with the bank . the okc loan agreement provides for a $ 2,000,000 seven-year term loan ( the “ okc term loan ” ) . the proceeds from the okc term loan will be used to purchase equipment and expand/renovate the okc facility in franklinville , new york . borrowings under these credit facilities will bear interest , at the company 's option , at the bank 's prime rate or libor plus 1.4 % . principal installments are payable on the term loan and the okc term loan through december 1 , 2021 with a balloon payment at maturity of the term loan . the term loan and line of credit are secured by all of the company 's equipment , receivables and inventory . the okc term loan is secured by substantially all of okc 's equipment and is fully and unconditionally guaranteed by the company . the company believes its cash generating capability and financial condition , together with available credit facilities will be adequate to meet our operating , investing and financing needs . at december 31 , 2014 , the company has accrued for approximately $ 5,597,000 related to the adverse arbitration award . subsequent to year end , the arbitration award was finalized and paid by the company . in addition , the company entered into an agreement with its insurance carrier related to the company 's claim for insurance for damages the company suffered in connection with the arbitration . see note 8 , commitments and contingencies , and note 12 , subsequent events , of the accompanying consolidated financial statements for more information off balance sheet arrangements none . critical accounting policies the company prepares its consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . as such , the company is required to make certain estimates , judgments and assumptions that the company believes are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented . actual results could differ significantly from those estimates under different assumptions and conditions . the company believes that the following discussion addresses the company 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and which require the company 's most difficult and subjective judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . note 1 , business description and summary of significant accounting policies , of the accompanying consolidated financial statements includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements . revenue recognition revenues are recognized as services are rendered or as units are shipped at the designated fob point consistent with the transfer of title , risks and rewards of ownership . such purchase orders generally include specific terms relative to quantity , item description , specifications , price , customer responsibility for in-process costs , delivery schedule , shipping point , payment and other standard terms and conditions of purchase . -14- inventories inventories are stated at the lower of standard cost or net realizable value . cost includes all costs incurred to bring each product to its present location and condition , which approximates actual cost ( first-in , first-out ) . market provisions in respect of lower of cost or market adjustments and inventory expected to be used in greater than one year are applied to the gross value of the inventory . pre-production and start-up costs are expensed as incurred . employee benefit plans the company provides a range of benefits to its current and retired employees story_separator_special_tag the primary use of cash for the company 's operating activities for the twelve months ended december 31 , 2014 include working capital requirements , mainly an increase in inventory , timing differences on collections of accounts receivable of approximately $ 1,032,000 and other current assets . atg and cpg customers are increasingly requesting and or requiring stock inventory in order to facilitate assurance of meeting their often volatile delivery schedule needs . as these requirements increase , they directly impact comparative cash flows when implemented and increase inventory levels when it is a continuing requirement . additionally , at times , the company takes advantage of price discounts on volume purchases for common parts . cash generated and used in operations is consistent with sales volume , customer expectations and competitive pressures . the company generated cash in its financing and investing activities in the twelve months ended december 31 , 2014 by refinancing and acquiring approximately $ 2,000,000 of additional long-term debt , while using approximately $ 202,000 for the purchase of treasury shares . the company also expended approximately $ 3,154,000 for capital expenditures that include payments for the current expansion at cpg . -13- on december 1 , 2014 , the company , entered into a loan agreement that provides for a $ 2,620,000 seven-year term loan ( the “ term loan ” ) and $ 2,000,000 line of credit ( the “ line of credit ” ) . the line of credit is available until june 24 , 2015 , unless subsequently renewed , and replaced the company 's previous $ 2,000,000 line of credit . as of december 31 , 2014 there were no draws on the line . the proceeds from the term loan were used to pay off the industrial development revenue bonds that were issued by a government agency in 1994 to finance the construction of the company 's headquarters/advanced technology facility and which matured on december 1 , 2014. in addition , the company 's wholly-owned subsidiary , the ontario knife company ( okc ) entered into a separate loan agreement with the bank . the okc loan agreement provides for a $ 2,000,000 seven-year term loan ( the “ okc term loan ” ) . the proceeds from the okc term loan will be used to purchase equipment and expand/renovate the okc facility in franklinville , new york . borrowings under these credit facilities will bear interest , at the company 's option , at the bank 's prime rate or libor plus 1.4 % . principal installments are payable on the term loan and the okc term loan through december 1 , 2021 with a balloon payment at maturity of the term loan . the term loan and line of credit are secured by all of the company 's equipment , receivables and inventory . the okc term loan is secured by substantially all of okc 's equipment and is fully and unconditionally guaranteed by the company . the company believes its cash generating capability and financial condition , together with available credit facilities will be adequate to meet our operating , investing and financing needs . at december 31 , 2014 , the company has accrued for approximately $ 5,597,000 related to the adverse arbitration award . subsequent to year end , the arbitration award was finalized and paid by the company . in addition , the company entered into an agreement with its insurance carrier related to the company 's claim for insurance for damages the company suffered in connection with the arbitration . see note 8 , commitments and contingencies , and note 12 , subsequent events , of the accompanying consolidated financial statements for more information off balance sheet arrangements none . critical accounting policies the company prepares its consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . as such , the company is required to make certain estimates , judgments and assumptions that the company believes are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented . actual results could differ significantly from those estimates under different assumptions and conditions . the company believes that the following discussion addresses the company 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and which require the company 's most difficult and subjective judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . note 1 , business description and summary of significant accounting policies , of the accompanying consolidated financial statements includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements . revenue recognition revenues are recognized as services are rendered or as units are shipped at the designated fob point consistent with the transfer of title , risks and rewards of ownership . such purchase orders generally include specific terms relative to quantity , item description , specifications , price , customer responsibility for in-process costs , delivery schedule , shipping point , payment and other standard terms and conditions of purchase . -14- inventories inventories are stated at the lower of standard cost or net realizable value . cost includes all costs incurred to bring each product to its present location and condition , which approximates actual cost ( first-in , first-out ) . market provisions in respect of lower of cost or market adjustments and inventory expected to be used in greater than one year are applied to the gross value of the inventory . pre-production and start-up costs are expensed as incurred . employee benefit plans the company provides a range of benefits to its current and retired employees
| results of operations the following table compares the company 's consolidated statements of operations data for the year ended december 31 , 2014 and 2013 ( $ 000 's omitted ) . replace_table_token_3_th revenue the company 's consolidated revenues increased approximately $ 1,336,000 or 4.4 % for the twelve month period ended december 31 , 2014 when compared to the same period in 2013. the increase in revenue is the result of an approximate $ 3,316,000 increase in commercial shipments at the atg offset by decreases in commercial shipments at the cpg of approximately $ 852,000. revenues from shipments to the government and its prime vendors at the atg and cpg decreased approximately $ 500,000 and $ 630,000 , respectively , for the twelve month period ended december 31 , 2014 when compared to the same period in 2013 due to budget cuts for military spending and vagaries inherent in the government procurement process and programs . cost of goods sold cost of goods sold as a percentage of revenues increased from 75.2 % to 77.5 % for the twelve month period ended december 31 , 2014 when compared to the same period in 2013. many factors effect cost of goods sold as a percentage of sales including production volume efficiencies , product mix , additional engineering and engineering support associated with customer design changes . -11- specific to 2014 , the cpg margins and costs were impacted negatively by expected operating inefficiencies due to decreases in revenue and production at cpg as the operation is being transitioned to its new facility .
| 5,609 |
the following table shows the number of systems that we had in operation as of the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_7_th we derive substantially all of our revenue from fees charged for the diagnostic imaging services performed at our facilities . the following table shows our facilities in operation at year end and revenues for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_8_th during 2018 we deepened our influence in established territories through targeted expansions in california and new york . in central california , we augmented our presence in the san joaquin valley with acquisitions in the cities of fresno and clovis and are now a leading imaging operator in the greater fresno , california area . in southern california we formed the regions largest imaging network , a 34 outpatient imaging center venture with memorialcare , spanning across orange county , long beach , the south bay and other cities in southern los angeles county . in new york , we entered into a capitation arrangement with emblemhealth to provide diagnostic imaging services and assumed responsibility for imaging operations in 26 locations . to expand and upgrade these services , we entered into the long island , new york market and acquired 10 additional centers . our revenue is derived from a diverse mix of payors , including private payors , managed care capitated payors and government payors . we believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class . in addition , our experience with capitation arrangements over the last several years has provided us with the expertise to manage utilization and pricing effectively , resulting in a predictable stream of revenue . our service fee revenue , net of contractual allowances and discounts , the provision for bad debts , and revenue under capitation arrangements for the years ended december 31 , are summarized in the following table ( in thousands ) : 38 replace_table_token_9_th we have developed our medical imaging business through a combination of organic growth , acquisitions and joint venture formations . for further information , see “ recent developments and facility acquisitions and dispositions ” below . we typically experience some seasonality to our business . during the first quarter of each year we generally experience the lowest volumes of procedures and the lowest level of revenue for any quarter during the year . this is primarily the result of two factors . first , our volumes and revenue are typically impacted by winter weather conditions in our northeastern operations . it is common for snowstorms and other inclement weather to result in patient appointment cancellations and , in some cases , imaging center closures . second , in recent years , we have observed greater participation in high deductible health plans by patients . as these high deductibles reset in january for most of these patients , we have observed that patients utilize medical services less during the first quarter , when securing medical care will result in significant out-of-pocket expenditures . the consolidated financial statements in this annual report include the accounts of radnet management , brmg and the ny groups . the consolidated financial statements also include radnet management i , inc. , radnet management ii , inc. , radiologix , inc. , radnet management imaging services , inc. , delaware imaging partners , inc. , new jersey imaging partners , inc. and diagnostic imaging services , inc. ( dis ) , all wholly owned subsidiaries of radnet management . accounting standards codification ( asc ) 810-10-15-14 , consolidation , stipulates that generally any entity with a ) insufficient equity to finance its activities without additional subordinated financial support provided by any parties , or b ) equity holders that , as a group , lack the characteristics specified in the codification which evidence a controlling financial interest , is considered a variable interest entity ( “ vie ” ) . we consolidate all vies in which we own a majority voting interest and all vies for which we are the primary beneficiary . we determine whether we are the primary beneficiary of a vie through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the vie . the variable interest holder that has both of the following has the controlling financial interest and is the primary beneficiary : ( 1 ) the power to direct the activities of the vie that most significantly impact the vie 's economic performance and ( 2 ) the obligation to absorb losses of , or the right to receive benefits from , the vie that could potentially be significant to the vie . in performing our analysis , we consider all relevant facts and circumstances , including : the design and activities of the vie , the terms of the contracts the vie has entered into , the nature of the vie 's variable interests issued and how they were negotiated with or marketed to potential investors , and which parties participated significantly in the design or redesign of the entity . facility acquisitions , and formation of joint ventures facility acquisitions on december 3 , 2018 we completed our acquisition of certain assets of orange county diagnostics imaging center consisting of five multi-modality imaging centers located in orange county , california for purchase consideration of $ 6.6 million . we have made a preliminary fair valuation determination of the acquired assets and approximately $ 23,000 of current 39 assets , $ 69,000 of other assets , $ 2.8 million of leaseholds and equipment , a $ 50,000 of covenant not to compete , and $ 3.6 million of goodwill were recorded . on november 5 , 2018 we completed our acquisition of certain assets of arcadia radiology imaging consisting of one multi-modality imaging center and one women 's center located in arcadia , california for purchase consideration of $ 3.8 million . story_separator_special_tag formation of new joint ventures on april 12 , 2018 we acquired a 25 % economic interest in nulogix , inc. for $ 2.0 million . the company and nulogix will collaborate on projects to improve practices in the imaging industry . as we do not have a controlling economic interest in nulogix , the investment is accounted for under the equity method . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , to $ 185.8 million for the twelve months ended december 31 , 2018 compared to $ 178.5 million for the twelve months ended december 31 , 2017. other operating expenses , limited to centers which were in operation throughout the full fiscal years of both 2018 and 2017 , decreased $ 5.3 million , or 3.1 % , mainly due to timing of payment on utilities and favorable re-negotiated contract rates for services.this comparison excludes expenses from centers that were acquired or divested subsequent to january 1 , 2017. for the twelve months ended december 31 , 2018 , other operating expense from centers that were acquired or divested subsequent to january 1 , 2017 and excluded from the above comparison was $ 20.6 million . for the twelve months ended december 31 , 2017 , other operating expense from centers that were acquired or divested subsequent to january 1 , 2017 was $ 8.0 million . depreciation and amortization depreciation and amortization increased $ 6.1 million , or 9.1 % , to $ 72.9 million for the twelve months ended december 31 , 2018 compared to $ 66.8 million for the twelve months ended december 31 , 2017. depreciation and amortization , including only those centers which were in operation throughout the full fiscal years of both 2018 and 2017 , decreased $ 757,000 , or 1.2 % . this comparison excludes expenses from centers that were acquired or divested subsequent to january 1 , 2017. for the twelve months ended december 31 , 2018 , depreciation expense from centers that were acquired or divested subsequent to january 1 , 2017 and excluded from the above comparison was $ 8.5 million . for the twelve months ended december 31 , 2017 , depreciation and amortization from centers that were acquired or divested subsequent to january 1 , 2017 and excluded from the above comparison was $ 1.6 million . gain on sale and disposal of equipment we recorded a gain on sale of equipment of approximately $ 2.1 million for the twelve months ended december 31 , 2018 and a loss on disposal of equipment of approximately $ 1.1 million for the twelve months ended december 31 , 2017. severance costs we incurred severance expenses of $ 1.9 million for the twelve months ended december 31 , 2018 and $ 1.8 million for the twelve months ended december 31 , 2017. loss on impairment 44 we recorded impairment charges to our imaging on call reporting unit of $ 3.9 million for the twelve months ended december 31 , 2018 , with goodwill representing $ 3.8 million of the total and the remainder being a write off the imaging on call trade name of approximately $ 100,000 . interest expense interest expense for the twelve months ended december 31 , 2018 increased approximately $ 2.8 , or 7.0 % , to $ 43.5 million for the twelve months ended december 31 , 2018 compared to $ 40.6 million for the twelve months ended december 31 , 2017. interest expense included $ 3.9 million and $ 3.5 million of non-cash amortization of deferred loan costs , discount on issuance of debt and other non-cash interest for the twelve months ended december 31 , 2018 and 2017 , respectively . excluding these non-cash amounts for each period , interest expense increased approximately $ 2.4 million , or 6.5 % for the twelve months ended december 31 , 2018 compared to the twelve months ended december 31 , 2017. the main drivers behind the increase were the interest payments on assumed debt of the new jersey imaging network and higher loan interest stemming from interest rate hikes during 2018. see “ liquidity and capital resources ” below for more details on our credit facilities . meaningful use incentive for the year ended december 31 , 2017 we recognized other income from meaningful use incentive in the amount of $ 250,000. this amount was earned under a medicare program to promote the use of electronic health record technology . equity in earnings from unconsolidated joint ventures for the twelve months ended december 31 , 2018 we recognized equity in earnings from unconsolidated joint ventures of $ 11.4 million versus $ 13.6 million for the twelve months ended december 31 , 2017 , a decrease of $ 2.2 million or 16.1 % . the decrease was related to the assumption of operational control of the new jersey imaging network which consolidated it 's financial results into the total company 's revenue and expenses . gain on re-measurement valuation of pre-existing interest on october 1 , 2018 we completed an step-up acquisition of new jersey imaging network , formerly a joint venture . the change in control was effective upon the execution of an agreement which provided radnet with the ability to make unanimous operating decisions . upon a fair value determination of our 49 % interest in the business of approximately $ 42.5 million , the step-up in valuation from an existing investment caused us to recognize a gain of $ 39.5 million for the year ended december 31 , 2018. gain on sale of imaging centers and medical practice we recognized a gain on the sale of 5 wholly owned imaging centers in rhode island and 3 oncology practices in the amount of $ 3.1 million for the twelve months ended december 31 , 2017. other expenses / income for the years ended ended december 31 , 2018 and december 31 , 2017 we recorded approximately $ 181,000 and $ 8,000 of other income , respectively .
| results of operations the following table sets forth , for the periods indicated , the percentage that certain items in the statements of operations bears to net revenue for the year 2018 and net revenue before provision for bad debts for the years 2017 and 2016 , respectively . 41 replace_table_token_10_th year ended december 31 , 2018 compared to the year ended december 31 , 2017 total net revenue total net revenue for the twelve months ended december 31 , 2018 was $ 975.1 million compared to $ 922.2 million for the twelve months ended december 31 , 2017 , an increase of $ 53.0 million or 5.7 % . total net revenue , limited to centers which were in operation throughout the full fiscal years of 2018 and 2017 , increased $ 16.2 million , or 1.8 % . this comparison excludes revenue contributions from centers that were acquired or divested subsequent to january 1 , 2017. for the twelve months ended december 31 , 2018 , net service fee revenue from centers that were acquired or divested subsequent to january 1 , 2017 and excluded from the above comparison was $ 79.0 million . for the twelve months ended december 31 , 2017 , net service fee revenue from centers that were acquired or divested subsequent to january 1 , 2017 and excluded from the above comparison was $ 42.2 million .
| 5,610 |
the company has a single operating and reportable segment based on the manner in which the chief executive officer , who is the chief operating decision maker , evaluates performance story_separator_special_tag introduction the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this annual report to enhance the understanding of our financial condition , changes in financial condition , and results of operations . the following discussion and analysis contain forward-looking statements about our business , operations , and financial performance based on current plans and estimates that involve risks , uncertainties , and assumptions . actual results could differ materially from those discussed in the forward-looking statements . factors that could cause such differences are discussed in the sections of this annual report titled “ item 1a . risk factors ” and “ cautionary statements regarding forward-looking statements. ” overview we are a leading provider of security , automation , and smart home solutions servicing consumer and business customers in the u.s. we offer many ways to help protect customers by providing 24/7 professional monitoring services as well as delivering lifestyle-driven solutions via professionally installed , do-it-yourself ( “ diy ” ) , mobile , and digital-based offerings for consumer , small business , and larger commercial customers . our security and automation offerings involve the installation and monitoring of security and premises automation systems designed to detect intrusion ; control access ; sense movement , smoke , fire , carbon monoxide , flooding , temperature , and other environmental conditions and hazards ; and address personal emergencies such as injuries , medical emergencies , or incapacitation . our products and services include interactive and smart home solutions which allow our customers to remotely monitor and manage their residential and commercial environments . depending on the service plan and type of product installation , customers are able to remotely access information regarding the security of their residential or commercial environment , arm and disarm their security systems , adjust lighting or thermostat levels , monitor and react to defined events , or view real-time video from cameras covering different areas of their premises from web-enabled devices ( such as smart phones , laptops , and tablet computers ) and a customized web portal . additionally , our interactive and smart home solutions enable customers to create customized and automated schedules for managing lights , thermostats , appliances , garage doors , cameras , and other connected devices . these systems can also be programmed to perform additional functions such as recording and viewing live video and sending text messages or other alerts based on triggering events or conditions . as part of our innovative and dynamic growth markets , we are extending the concept of security from the physical home or business to personal on-the-go security and safety and cybersecurity . customers ' increasingly mobile and active lifestyles have created new opportunities for us in the fast-growing market for self-monitored diy products and mobile technology . our technology also allows us to integrate with various third-party connected and wearable devices so that we can service our customers whether they are at home or on-the-go . as of december 31 , 2019 , we served approximately 6.5 million recurring customers , excluding contracts monitored but not owned . we are one of the largest full-service companies with a national footprint and we deliver an integrated customer experience by maintaining the industry 's largest sales , installation , and service field force , as well as a 24/7 professional monitoring network . basis of presentation all financial information presented in this section has been prepared in u.s. dollars in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) and includes the accounts of adt inc. and its subsidiaries . all intercompany transactions have been eliminated . we report financial and operating information in one segment . the following represents the discussion and analysis of our results of operations for the years ended december 31 , 2019 and 2018 and for the comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018. discussion and analysis for the year ended december 31 , 2017 and for the comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 are omitted from this annual report and are located in item 7 . “ management 's discussion and analysis of financial condition and results of operations ” in the annual report on form 10-k for the year ended december 31 , 2018 , which was filed with the sec on march 11 , 2019 . 41 factors affecting operating results our subscriber-based business requires significant upfront investment to generate new customers , which in turn provides predictable recurring revenue generated from our monitoring and other services . in order to optimize returns on customer acquisitions and cash flow generation , we focus on the following key drivers of our business : best-in-class customer service ; customer retention ; disciplined , high-quality customer additions ; efficient customer acquisition ; and costs incurred to provide ongoing services to customers . our ability to add new subscribers depends on the overall demand for our products and services , which is driven by a number of external factors . the overall economic condition in the geographies in which we operate can impact our ability to attract new customers and grow our business in all customer channels . growth in our residential customer base can be influenced by the overall state of the housing market . growth in our commercial customer base can be influenced by the rate at which new businesses begin operations or existing businesses grow . the demand for our products and services is also impacted by the perceived threat of crime , as well as the quality of the service of our competitors . story_separator_special_tag finally , we entered into a patent and trademark license agreement with telus granting the usage of our trademarks and patents in canada to telus for a period of seven years . the sale of adt canada did not represent a strategic shift that will have a major effect on our operations and financial results , and therefore , did not meet the criteria to be reported as discontinued operations . key performance indicators in evaluating our results , we utilize key performance indicators which include non-gaap measures as well as certain other operating metrics such as recurring monthly revenue and gross customer revenue attrition . our computations of key performance indicators may not be comparable to other similarly titled measures reported by other companies . additionally , our operating metric key performance indicators are approximated as there may be variations to reported results in each period due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently , or otherwise , including periodic reassessments and refinements in the ordinary course of business . these refinements , for example , may include changes due to systems conversion or historical methodology differences in legacy systems . recurring monthly revenue ( “ rmr ” ) rmr is generated by contractual recurring fees for monitoring and other recurring services provided to our customers , including contracts monitored but not owned . we believe the presentation of rmr is useful because it measures the volume of revenue under contract at a given point in time . 43 gross customer revenue attrition gross customer revenue attrition is defined as rmr lost as a result of customer attrition , net of dealer charge-backs and reinstated customers , excluding contracts monitored but not owned and diy customers . customer sites are considered canceled when all services are terminated . dealer charge-backs represent customer cancellations charged back to the dealers because the customer canceled service during the charge-back period , which is generally twelve to fifteen months . gross customer revenue attrition is calculated on a trailing twelve-month basis , the numerator of which is the rmr lost during the period due to attrition , net of dealer charge-backs and reinstated customers , excluding contracts monitored but not owned and diy customers , and the denominator of which is total annualized rmr based on an average of rmr under contract at the beginning of each month during the period . as of january 1 , 2019 , in conjunction with the acquisition of lifeshield llc , we began presenting gross customer revenue attrition excluding existing and new diy customers . as a result , trailing twelve-month gross customer revenue attrition excludes diy customers for all periods presented in this annual report . for all prior reports covering periods prior to january 1 , 2019 , trailing twelve-month gross customer revenue attrition included diy customers . including diy customers as of december 31 , 2018 and 2017 rounds to the same percentage as presented in this annual report . adjusted ebitda adjusted ebitda is a non-gaap measure that we believe is useful to investors to measure the operational strength and performance of our business . our definition of adjusted ebitda , a reconciliation of adjusted ebitda to net income ( loss ) ( the most comparable gaap measure ) , and additional information , including a description of the limitations relating to the use of adjusted ebitda , are provided under “ —non-gaap measures. ” free cash flow free cash flow is a non-gaap measure that our management employs to measure cash that is available to repay debt , make other investments , and pay dividends . our definition of free cash flow , a reconciliation of free cash flow to cash flows from operating activities ( the most comparable gaap measure ) , and additional information , including a description of the limitations relating to the use of free cash flow , are provided under “ —non-gaap measures. ” 44 story_separator_special_tag deferred subscriber acquisition costs . these increases were partially offset by a reduction in share-based compensation of approximately $ 49 million , which was primarily due to certain awards with accelerated vesting conditions that became fully vested in july 2018 as a result of our ipo , as well as a reduction in expenses as a result of the sale of adt canada . depreciation and intangible asset amortization the increase in depreciation and intangible asset amortization was primarily due to an increase of $ 82 million associated with the amortization of customer contracts acquired under the adt authorized dealer program with the remainder of the increase due to the impact of recent acquisitions , capital expenditures , and subscriber system assets . the increase in depreciation and intangible asset amortization was partially offset by a decrease in amortization expense related to trade names of $ 39 million primarily associated with the protection one trade name , which became fully amortized in june 2018 , as well as a reduction in depreciation and amortization as a result of the sale of adt canada . merger , restructuring , integration , and other the increase in merger , restructuring , integration , and other was primarily due to the timing and amount of fair value remeasurements on a strategic investment , which resulted in a loss of $ 13 million in 2019 compared to a gain of $ 11 million in 2018. the remainder of the increase in merger , restructuring , integration , and other was primarily due to an increase of $ 9 million related to acquisition costs . 46 goodwill impairment during 2019 , we recorded a goodwill impairment loss of $ 45 million in connection with the sale of adt canada . during 2018 , we recorded a goodwill impairment loss of $ 88 million due to the underperformance of the canada reporting unit relative to expectations as part of our annual goodwill impairment tests .
| results of operations the following table sets forth our consolidated results of operations , summary cash flow data , and key performance indicators for the periods presented . replace_table_token_2_th _ ( 1 ) refer to the “ —key performance indicators ” section for the definitions of these key performance indicators . ( 2 ) trailing twelve-month gross customer revenue attrition excludes diy customers for all periods presented in this annual report . for all prior reports covering periods prior to january 1 , 2019 , trailing twelve-month gross customer revenue attrition included diy customers . including diy customers as of december 31 , 2018 and 2017 rounds to the same percentage as presented in this annual report . refer to the “ —key performance indicators ” section for further details . ( 3 ) adjusted ebitda and free cash flow are non-gaap measures . refer to the “ —non-gaap measures ” section for the definitions of these terms and reconciliations to the most comparable gaap measures . 45 2019 compared to 2018 monitoring and related services revenue the increase in monitoring and related services revenue was driven by an increase in recurring revenue as well as service revenue . recurring revenue increased primarily due to incremental revenue from recent acquisitions as well as improvements in average pricing , which was driven by the addition of new customers at higher rates as new customers generally select higher priced services as compared to our existing customers as well as price escalations in our existing customer base . the increase in recurring revenue was partially offset by customer attrition , a lower volume of customer additions , and a reduction of revenue due to the sale of adt canada . the increase in service revenue was primarily due to incremental revenue from recent acquisitions .
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we have completed a number of acquisitions since 2003 , consisting of either the purchase of a company , substantially all of the assets of a company , or individual products or product lines . in 2015 we completed three acquisitions , nicview , gnd , and monarch medical diagnostics , llc ( `` monarch '' ) . we expect to continue to pursue opportunities to acquire other businesses in the future . year 2015 overview in 2015 , we completed acquisitions of one business in the newborn care market and of two businesses in the neurology diagnostic services market for total cash consideration of $ 15.2 million . these acquisitions allowed us to offer patients a more convenient way to complete routine eeg testing and provide families with streaming video of their babies in the neonatal intensive care unit . our consolidated revenue increased by $ 20.0 million for the year ended december 31 , 2015 compared to 2014. this increase was driven by recent acquisitions and organic growth in our newborn care business . net income was $ 37.9 million , or $ 1.14 per diluted share in the year ended december 31 , 2015 , compared with net income of $ 32.5 million , or $ 1.00 per diluted share in 2014. this increase in income was primarily the result of increased revenue and gross profit . we incurred $ 2.1 million of restructuring charges in 2015 as we took additional steps to improve efficiencies in operations and eliminate redundant costs from acquisitions . application of critical accounting policies we prepare our financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . in so doing , we must often make estimates and use assumptions that can be subjective and , consequently , our actual results could differ from those estimates . for any given individual estimate or assumption we make , there may also be other estimates or assumptions that are reasonable . we believe that the following critical accounting policies require the use of significant estimates , assumptions , and judgments . the use of different estimates , assumptions , and judgments could have a material effect on the reported amounts of assets , liabilities , revenue , expenses , and related disclosures as of the date of the financial statements and during the reporting period . revenue recognition revenue , net of discounts , is recognized from sales of medical devices and supplies , including sales to distributors , when the following conditions have been met : a purchase order has been received , title has transferred , the selling price is fixed or determinable , and collection of the resulting receivable is reasonably assured . terms of sale for most domestic sales are fob origin , reflecting that title and risk of loss are assumed by the purchaser at the shipping point ; however , terms of sale for some neurology , sleep-diagnostic , and head cooling systems are fob destination , reflecting that title and risk of loss are assumed by the purchaser upon delivery . terms of sales to international distributors are generally exw , reflecting that goods are shipped “ ex works , ” in which title and risk of loss are assumed by the distributor at the shipping point . for products shipped under fob origin 28 or exw terms , delivery is generally considered to have occurred when the product is shipped . freight charges billed to customers are included in revenue and freight-related expenses are charged to cost of revenue . we generally do not provide rights of return on products . for products containing embedded software , we have determined that the hardware and software components function together to deliver the products ' essential functionality , and therefore , the revenue from the sale of these products does not fall within the scope of the software revenue recognition rules . our revenue recognition policies for sales of these products are substantially the same as for our other tangible products . revenue from sales of certain of our products that remain within the scope of the software revenue recognition rules under asc subtopic 985-605 is not significant . revenue from extended service and maintenance agreements , for both medical devices and data management systems , is recognized ratably over the service period . revenue from installation or training services is deferred until such time service is provided . certain revenue transactions include multiple element arrangements . we allocate revenue in these arrangements to each unit of accounting using the relative selling price method . the selling prices used during the allocation process are based on vendor specific objective evidence ( “ vsoe ” ) if available , third-party evidence ( `` tpe '' ) if vsoe is not available , or estimated selling price ( `` esp '' ) if neither vsoe or tpe is available . group purchasing organizations ( “ gpos ” ) negotiate volume purchase prices for member hospitals , group practices , and other clinics . our agreements with gpos typically contain preferential terms for the gpo and its members , including provisions for some , if not all , of the following : payment of marketing fees by natus to the gpo , usually based on purchasing experience of group members ; and non-recourse cancellation provisions . we do not sell products to gpos . hospitals , group practices , and other clinics that are members of a gpo purchase products directly from us under the terms negotiated by the gpo . negotiated pricing and discounts are recognized as a reduction of the selling price of products at the time of the sale . revenue from sales to members of gpos is otherwise consistent with general revenue recognition policies as previously described . inventory inventories are carried at the lower of cost or market , with cost being determined using the first-in , first-out method . story_separator_special_tag similar to other option pricing models , the black-scholes method requires the input of highly subjective assumptions , including stock price volatility . changes in the subjective input assumptions can materially affect the estimated fair value of our employee stock options . we recognize share-based compensation associated with restricted stock awards ( `` rsa '' ) and restricted stock units ( `` rsu '' ) . rsas and rsus vest ratably over a three-year period for employees . rsas and rsus for executives vest over a four-year period ; 50 % on the second anniversary of the vesting start date and 25 % on each of the third and fourth anniversaries of the vesting date . the value is estimated based on the market value of our stock on the date of issuance pursuant to asc topic 718 , compensation-stock compensation . we issue new shares of common stock upon the exercise of stock options and the vesting of rsas and rsus . forfeitures of employee stock options and awards are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from initial estimates . share-based compensation expense is recorded net of estimated forfeitures , such that expense is recorded only for those share-based awards that are expected to vest . the cash flow from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for employee options ( excess tax benefits ) is classified as a cash inflow from financing activities and a cash outflow from operating activities 30 in our statements of cash flows . we treat tax deductions from certain stock option exercises as being realized when they reduce taxes payable in accordance with relevant tax law . story_separator_special_tag style= '' line-height:120 % ; padding-top:6px ; text-align : justify ; text-indent:36px ; font-size:10pt ; '' > restructuring costs decreased during the year ended december 31 , 2015 compared to the prior year . in 2014 we experienced higher expenses related to facilities consolidation . during the third quarter of 2014 we listed our manufacturing facility in mundelein , illinois for sale and recorded a disposal expense of $ 2.2 million to reflect the difference between net realizable value and book value . other income ( expense ) , net other income ( expense ) , net consists of interest income , interest expense , net currency exchange gains and losses , and other miscellaneous income and expense . we reported other income ( expense ) , net of $ ( 1.0 ) million in 2015 , compared to $ 158,000 in in 2014. interest income of $ 27,000 in 2015 was $ 92,000 less than the amount reported for 2014. we reported $ 1.4 million of foreign currency exchange losses in 2015 versus $ 37,000 of foreign exchange losses in 2014. this increase was driven primarily by the declining value of foreign currencies in which we transact . interest expense was $ 352,000 in 2015 compared to $ 438,000 in 2014. provision for income tax the actual effective tax rate ( `` etr '' ) for 2015 is 27.6 % as compared to 29.4 % for 2014. the lower effective tax rate in 2015 compared with 2014 is primarily due to a change in geographic mix of income offset by the release of a deferred tax asset valuation allowance in 2014 and an increase in state taxes . comparison of 2014 and 2013 revenue replace_table_token_15_th for the year ended december 31 , 2014 , neurology revenue increased by 4 % compared to the prior year with the growth coming primarily from the domestic market . devices and systems revenue increased 6 % for the year ended december 31 , 2014 compared to the prior year driven mainly by growth in our eeg , emg , and psg product lines in both the domestic and international 33 markets . supplies revenue for the twelve-month period declined 2 % compared to the prior year due mainly to decline in sales to international customers . for the year ended december 31 , 2014 , newborn care revenue increased by 2 % compared to the prior year . geographically , the increase occurred in our domestic market . other factors contributing to the increase were the increase in supplies sales , introduction of two new products in the hearing and phototherapy market segments , and the introduction of peloton , our hearing screening service initiative . no single customer accounted for more than 10 % of our revenue in either 2014 or 2013. revenue from domestic sales increased 8 % to $ 215.5 million in 2014 , from $ 199.6 million in 2013. revenue from international sales increased 3 % to $ 140.3 million in 2014 compared to $ 144.5 million in 2013. revenue from domestic sales was 61 % of total revenue in 2014 compared to 58 % of total revenue in 2013 , and revenue from international sales was 39 % of total revenue in 2014 compared to 42 % of total revenue in 2013. cost of revenue and gross profit replace_table_token_16_th for the year ended december 31 , 2014 , our gross profit as a percentage of sales increased by 1.4 % compared to the prior year . this increase in gross profit was driven by higher domestic revenues which generally have higher gross margins than international sales , as well as cost reduction initiatives which are resulting in higher margins primarily in neurology devices . operating costs replace_table_token_17_th marketing and selling marketing and selling expenses as a percentage of revenue decreased in 2014 compared to 2013. the increase in expense is related to higher commissions and additional labor costs associated with our peloton business . research and development research and development expenses decreased during the year ended december 31 , 2014 compared to the prior year . this decrease was primarily due to a reduction in payroll expenses driven by our ongoing cost reduction activities .
| results of operations the following table sets forth for the periods indicated selected consolidated statement of income data as a percentage of total revenue . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_11_th comparison of 2015 and 2014 revenue replace_table_token_12_th for the year ended december 31 , 2015 , neurology revenue increased by 2 % compared to the prior year with the growth coming primarily from gnd services provided in the domestic market . devices and systems revenue declined by 2 % for the year ended december 31 , 2015 compared to the prior year due mainly to a strong us dollar as compared to the euro and canadian dollar in 2015. supplies revenue for the twelve-month period increased 1 % compared to the prior year due mainly to strong sales 31 in our domestic market . services revenue in 2015 is the result of our entry into the ambulatory eeg service market through the acquisition of gnd in january 2015. for the year ended december 31 , 2015 , newborn care revenue increased by 13 % compared to the prior year with growth in both international and domestic markets . devices and systems revenue increased by 8 % compared to the prior year due mainly to the acquisition of nicview , our video streaming initiative , balance monitoring and distributed products . supplies revenue for the twelve-month period increased 3 % compared to the prior year . services revenue increased by 124 % compared to the prior year due mainly to the growth in peloton and our neometrics data management services .
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audit-related fees for the year ended december 31 , 2011 , the company 's independent accounting firm , bdo usa , llp , did not provide the company with any assurance and related services reasonably related to the performance of the audit or review of the company 's financial statements that are not reported above under “ story_separator_special_tag overview this discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes . our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we review our estimates and assumptions . our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances . actual results are likely to differ from those estimates under different assumptions or conditions , but we do not believe such differences will materially affect our financial position or results of operations . our critical accounting policies , the policies we believe are most important to the presentation of our financial statements and require the most difficult , subjective and complex judgments , are outlined below in ‘ ‘ critical accounting policies , '' and have not changed significantly . in addition , certain statements made in this report may constitute “ forward-looking statements ” . these forward-looking statements involve known or unknown risks , uncertainties and other factors that may cause the actual results , performance or achievements of the company to be materially different from any future results , performance or achievements expressed or implied by the forward-looking statements . these factors include , among others , 1 ) our ability to obtain necessary regulatory approvals for our products ; and 2 ) our ability to increase revenues and operating income , which is dependent upon our ability to develop and sell our products , general economic conditions , and other factors . you can identify forward-looking statements by terminology such as “ may , ” “ could ” , “ will , ” “ should , ” “ expects , ” “ intends , ” “ plans , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” “ potential , ” “ continues ” or the negative of these terms or other comparable terminology . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . except as may be required by applicable law , we do not undertake or intend to update or revise our forward-looking statements , and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments . thus , you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements . you should carefully review and consider the various disclosures we make in this report and our other reports filed with the securities and exchange commission that attempt to advise interested parties of the risks , uncertainties and other factors that may affect our business . all of the company 's future products that are currently being developed are based on its patented dual path platform ( dpp® ) , which is a unique diagnostic point-of-care platform that has certain advantages over lateral flow technology . the company has completed development of several products that employ the dpp® technology , two of which will be marketed under chembio 's label ( dpp® hiv 1/2 screening assay and dpp® syphilis screen & confirm ) and several others that have been developed specifically related to private label agreements with the oswaldo cruz foundation ( “ fiocruz ” ) for the brazilian public health market , as explained below . all of the company 's products other than its lateral flow tests ( see products and our rapid test technologies ) are based on the company 's patented dual path platform ( dpp® ) technology . the company has had very active research and development programs and has significantly increased its spending on research and development during the last three years . third-party funding from research and development contracts and grants have offset a significant portion of these increased research and development expenses . externally funded r & d programs were particularly instrumental in helping the company to avoid raising capital during 2008-2010 , which was a very difficult period for fundraising . moreover these collaborations have resulted in significant third party validations of our dpp® technology and an increasing capability to develop , manufacture , validate , and improve current and future dpp® products and product features . the company has a number of additional products under development that employ the dpp® technology . these product development activities are further described below . dpp® leptospirosis – our work under the three-year $ 3 million small business innovative research ( sbir ) phase ii grant we were awarded in 2009 by the united states national institutes of health ( nih ) to fully develop , validate , and commercialize a rapid diagnostic test for leptospirosis for general use worldwide is progressing on schedule and we expect to complete this grant in the second quarter of 2012. the test is being developed with our dpp® technology utilizes proprietary reagents developed by yale university and the oswaldo cruz foundation at the brazilian ministry of health . story_separator_special_tag 23 fda approval for dpp® hiv 1/2 screening assay - we began submitting the pma ( pre-marketing approval ) application to the fda using the modular pma option , and we have thus far submitted module i containing manufacturing information and module ii containing non-clinical data , which was submitted in the beginning of october 2011. we have enrolled 98 % of the 3,000 patient clinical trial . we expect the trial to be completed as soon as possible depending on the recruitment rate of the remaining pediatric enrolees . we continue to be satisfied with the results and believe they continue to support product performance that will meet or exceed requirement for a pma approval on oral fluid , finger-stick whole blood , venous whole blood , serum and plasma samples . assuming early may completion , we would submit module iii to the fda during the second quarter of 2012. based on statutory fda timetables , we would anticipate an fda approval at least on an approvable pma decision well before year end . we would then immediately apply for clia waiver , which is expected to take approximately three months to be granted . syphilis - as a result of our having received a ce mark for the product in q3'11 and our business development efforts during q4'11 , we have now established several european distributors for this product . product evaluations are being completed in france and the uk . in the u.s. we have decided to incorporate a reader for the u.s. market product and as an option in europe . we believe this will better ensure that there will be an acceptable agreement of our test results to the legacy rpr test results which is the reference for the non-treponemal marker on our dual marker test . we already are manufacturing large volumes of a visually read , treponemal-only test for brazil with outstanding performance . this product would be an alternative pathway to bringing a syphilis poct to the u.s. market . however such a test , like the laboratory treponemal tests , would not differentiate between active and previous infections , which are a preferred feature at least for testing in higher prevalence and risk groups . assuming we can successfully incorporate the reader , we believe we can complete the clinical trials and make the 510 ( k ) submission to the fda for this product in 2012. therefore fda 510 ( k ) clearance could be within the first half of 2013 followed by commercial launch in the us . sure check® hiv otc study - we have made progress toward completing the requirements for submitting an ide ( “ investigational device exemption ” ) application . this exemption must be granted in order to begin clinical studies that would be necessary to gain fda approval of this product , which approval could take two or three years from the time that we initiate such clinical studies . we believe that this year ( 2012 ) there will be external events that will help us to better define the market opportunity . this principally includes a meeting of the fda 's blood products advisory committee ( date not determined yet ) that is likely to result in a final recommendation concerning the application by orasure technologies for otc use of its oral fluid hiv test . assuming it is recommended , and the product is actually launched , we will be able to assess the market approach and its reception by their targeted consumers . this information will help us before we commit additional significant sums to this program . we can do this knowing that we are the only company other than this competitor that has a device that is qualified to begin the studies necessary to gain otc approval . since our meeting with the fda in october 2011 which clarified the regulatory pathway to commercialization , we continue to make progress towards the hiv rapid test for over-the-counter ( otc ) market . we have completed the “ instructional manual ” for home-testing using the flesch-kincaid readability tests . the initial validation on the comprehension of the manual has been initiated in the first quarter of 2012 using groups identified during our market research ( completed in 2011 ) , this group will comprise of individuals with limited education and or english as a second language . in addition to making progress towards the regulatory path for commercialization , we are actively working with public health agencies to begin studies in 2012. the objective of these studies is to understand the barriers and facilitators to uptake home testing and other strategies that can be employed to prevention and care of certain demographics at risk to hiv infection . these studies , while providing invaluable health care strategies , can provide feedback to chembio to improve upon or validate the design of the product to assure it remains safe and effective in a non-professional laboratory setting . recent events in accordance with the terms of the company 's 2008 stock incentive plan , on february 16 , 2012 , the company determined to grant on february 16 , 2012 , to certain employees of the company , options to purchase an aggregate of 203,125 shares of the company 's common stock . the exercise price for these options was to be equal to the last traded price for the company 's common stock on february 16 , 2012 , which was at $ .50 per share . the options become exercisable on the effective date of the grant . each option granted will expire and terminate , if not exercised sooner , upon the earlier to occur of ( a ) 30 days after termination of the employee 's employment with the company or ( b ) the fifth anniversary of the effective date of the grant . the following table identifies the portions of these options issued to officers of the company .
| 2011 results in 2011 chembio achieved record product revenue growth of 28.9 % , funded increased development expenses , and delivered strong income before income taxes of $ 1,076,000. a $ 3,906,000 , or 28.9 % , increase in net product sales offset a $ 1,223,000 decrease in non-product revenues . this resulted in the company producing a $ 1,290,000 , or 15.9 % , increase in its gross margin , to a record $ 9,390,000. in the fourth quarter of 2011 , based on our sustained profitable operating performance over the past three years and our positive outlook for taxable income in the future , the company reevaluated its deferred tax asset . based on anticipated continued profitability the company believes it is more likely than not that it will realize these tax benefits and accordingly has reversed $ 5,156,000 of the valuation allowance previously recorded against the deferred tax assets . this reversal of the tax valuation allowance resulted in an addition of $ 5.1 million to the company 's net income for 2011. the company still maintains a full valuation allowance on research and development tax credits . the company generated $ 2,268,000 in cash flow from operations in 2011 , more than doubling its previous record of $ 1,107,000 in 2010. the company utilized portions of this cash flow from operations to fund an $ 875,000 license obligation and to invest $ 727,000 in new equipment and facility improvements that are expected to improve efficiencies and increase capacity to serve current and anticipated demand . the record product and resulting record total revenues were achieved as a result of the launch of four of our dpp® products in brazil combined with strong sales growth for our two fda-approved rapid hiv tests in the us market .
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the company has adopted this standard and applied its guidance to its reporting and disclosure of the one stone exchange , the weald ata and the iow ata , and discontinued operations of np and mpuk ( see notes 2 , 3 and 4 ) . there are no new significant accounting standards applicable to the company that have been issued but not yet adopted by the company as of june 30 , 2016 . note 2 - one stone exchange on march 31 , 2016 , magellan and one stone entered into an exchange agreement ( the “ exchange agreement ” ) . the exchange agreement provides , upon the terms and subject to the conditions set forth in the exchange agreement , for the transfer by one stone to the company of 100 % of the outstanding shares of magellan story_separator_special_tag introduction the following discussion and analysis presents management 's perspective of our business , financial condition , and overall performance . this information is intended to provide investors with an understanding of our past performance , current financial condition , and outlook for the future , and should be read in conjunction with items 1 and 2 : business and properties and item 8 : financial statements and supplementary data of this form 10-k. amounts expressed in british pounds sterling and australian dollars are indicated as `` gbp '' and `` aud , '' respectively . forward-looking statements are not guarantees of future performance , and our actual results may differ significantly from the results expressed or implied in the forward-looking statements . see `` forward-looking statements '' at the end of this section . factors that might cause such differences include , but are not limited to , those discussed in item 1a : risk factors of this form 10-k. we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview over the past few years , magellan was focused on the potential development of poplar in montana using co 2 -eor as a technique to potentially recover significant volumes of hydrocarbons from the field . over the second and third quarter of calendar year 2015 , the company reached the conclusion that using co 2 -eor at poplar was a technical success and that it would be economically challenging to develop the project in the current commodity price environment , which was increasingly weakening over the period . as a result of these considerations , in june 2015 , the company formed the special committee with the primary objective of reviewing the strategic alternatives potentially available to the company . during the twelve month period ended june 30 , 2016 , and the third quarter of calendar year 2016 , the strategic alternatives review process ( i ) resulted in ( a ) the disposal of the company 's np segment through the exchange agreement signed in march 2016 with one stone ; ( b ) the sale of the mereenie bonus in may 2016 ; and ( c ) the sale of the weald basin assets signed in june 2016 ; and ( ii ) reached a conclusion with the announced merger transaction with tellurian in august 2016. although the company was able to extrapolate from the co 2 -eor pilot project that significant hydrocarbons may be recovered from poplar using co 2 -eor , we determined that the economic development of such project would require materially higher oil prices . therefore , in light of the company 's constrained liquidity position and continuing lower commodity price environment , we determined that magellan was unlikely to have sufficient liquidity to finance this project and its other activities in the medium term until such time that commodity prices would recover to a level that would enable the necessary capital raising for the development of the project . the strategic alternatives review process also considered the possibility of focusing the company 's business and strategy on certain of the company 's other international assets . we estimated that although the prospects identified through the seismic surveys conducted in 2012 and 2013 over the nt/p82 block in the bonaparte basin , offshore australia were promising , these prospects remained at an early stage of the exploration process and required significant capital to be further assessed , which capital may become available through potential farmout or other transactions , and therefore the company 's interests in nt/p82 could not form the core business of the company at this stage . with respect to the company 's interests in the united kingdom , the company considered the following factors : i ) the term of the main licenses in the central weald basin expiring in june 2016 , ii ) the pending litigation with celtique which hampered our ability to strategically progress the potential play in the weald , and iii ) the challenging political and social environment in the united kingdom , particularly evidenced by the rejection of the planning application of cuadrilla resources limited 's proposed wells in lancashire . although the horse hill-1 well presents interesting prospects , these remained uncertain at the time of the review , and magellan merely holds a 35 % interest and is not the operator of the well , which combined with the prior factors undermined the potential to focus the company 's business plan on its uk assets . the company then estimated that , in order to unlock the potential value of its assets and its public platform , it needed to dispose of its interests in its np segment , which was incurring operating losses and further undermining the company 's liquidity position , and to address its financial obligations primarily related to the term loan with wtsb and the series a convertible preferred stock issued to one stone , in order to preserve and maximize value for the company 's shareholders . story_separator_special_tag should the merger with tellurian not close , the company will need to pursue other alternatives in order to continue as a going concern . exchange agreement . on march 31 , 2016 , magellan and one stone entered into an exchange agreement ( the “ exchange agreement ” ) . the exchange agreement provides , upon the terms and subject to the conditions set forth in the exchange agreement , for the transfer by one stone to the company of 100 % of the outstanding shares of magellan series a convertible preferred stock ( the “ preferred stock ” ) in consideration for the assignment to and assumption by one stone of 100 % of the outstanding membership interests in nautilus poplar llc , and 51 % of the outstanding common units in utah co2 37 llc ( “ utah co2 , ” and together with nautilus poplar llc , the `` co2 business '' ) , as adjusted by the cash amount ( as defined in the exchange agreement and discussed further below ) ( the “ exchange ” ) . the exchange agreement was given economic effect as of september 30 , 2015 ( the “ effective date ” ) . pursuant to the exchange agreement , on april 15 , 2016 , magellan and one stone i ) entered into a secured promissory note ( the “ note ” ) pursuant to which one stone made a loan to magellan in the aggregate amount of $ 625 thousand ( the “ loan amount ” ) and ii ) simultaneously entered into a pledge agreement pursuant to which magellan pledged , assigned and granted to one stone a security interest in the company 's interests in mpa , as collateral for the loan . the purpose of the note was primarily to fund the payment of outstanding payables with certain vendors of the co2 business to maintain its ongoing operations between signing of the exchange agreement and closing of the exchange . at the closing of the exchange , the loan amount was deemed to be paid in full and no further amounts under the note are required to be repaid by the company . on august 1 , 2016 , all the conditions to the closing of the exchange were met and the exchange was consummated . the primary conditions to closing included i ) the receipt of the approval of the exchange by the company 's shareholders which was received on july 13 , 2016 , during the company 's annual and special meeting of the shareholders , ii ) the consent of wtsb to release a guaranty provided by magellan , and iii ) the payment of the cash amount . on august 1 , 2016 , one stone paid the cash amount to the company , which was agreed to amount to $ 900 thousand . the purpose of the cash amount was primarily to reimburse the company for the funding of the operations of the poplar field during the period between september 30 , 2015 , and the closing of the exchange , which operations were expected to result in a loss in the aggregate for the period . in addition , messrs. gluzman and israel , one stone 's representatives on the company 's board of directors , agreed to forego the amount of director compensation , in cash and stock , owed to them and outstanding as of the closing date , which was estimated at approximately $ 174 thousand in the aggregate . following the closing of the exchange , the company canceled all issued and outstanding shares of the series a preferred stock , and messrs. gluzman and israel ceased serving as members of the board . mereenie bonus sale . on may 18 , 2016 , magellan entered into and completed a sale and purchase deed with macquarie to sell to macquarie all the company 's rights to certain bonus payments , which bonus payments are based upon sales of hydrocarbons from the mereenie field located in the amadeus basin in australia ranging from 2,500 boepd to 10,000 boepd and may result in cumulative potential payments ranging from aud $ 5.0 million to of aud $ 17.5 million ( the `` mereenie bonus '' ) . the consideration for the sale of the mereenie bonus paid by macquarie was aud $ 3.5 million . the mereenie bonus was not previously recorded as an asset on the company 's consolidated balance sheet in light of the contingent nature of these payments . in light of i ) the general uncertainties related to the ability to increase sales of hydrocarbons from the mereenie field to the required thresholds to trigger the various bonus payments and ii ) the pressing liquidity needs facing the company during the second quarter of calendar year 2016 , the company believed that the monetization of this contingent asset was important to enable the continuation of the strategic alternatives review process . the company 's ability to repatriate the proceeds from the sale of the mereenie bonus to the us was constrained by the terms of the pledge agreement the company entered into in conjunction with the note with one stone . approximately aud $ 2.8 million was transferred to the us in may 2016 and the remainder was available for transfer following the closing of the exchange agreement on august 1 , 2016. central weald sale . on june 10 , 2016 , mpuk entered into i ) an asset transfer agreement relating to the sale to ukog of mpuk 's 50 % interests in pedls 231 , 234 , and 243 ( the `` weald ata '' ) , ii ) an asset transfer agreement relating to the sale to ukog of mpuk 's 22.5 % interest in the offshore petroleum licence p1916 ( the `` iow ata '' ) , and iii ) a settlement agreement with celtique .
| results of discontinued operations . on march 31 , 2016 , the company entered into the exchange agreement with one stone , which closed on august 1 , 2016. in addition , on june 10 , 2016 , mpuk entered into the weald ata and iow ata . therefore , the results of operations of the co2 business and of the pedls disposed of pursuant to the weald ata and iow ata were reclassified to discontinued operations . the following table presents the results of the company 's discontinued operations : replace_table_token_12_th oil revenue revenues for the year ended june 30 , 2016 , totaled $ 2.0 million , compared to $ 4.5 million in the prior year , a decrease of 55 % . of the $ 2.5 million decrease in revenue from the prior year , $ 1.9 million was attributable to lower commodity prices and $ 0.6 million was related to lower production . oil sales volume sales volume for the year ended june 30 , 2016 , totaled 60 mbbls ( 164 bopd ) , compared to 79 mbbls ( 217 bopd ) sold in the prior year , a decrease of 24 % . the decrease was primarily the result of cost reductions at poplar , which included shutting-in wells with high operating costs and the suspension of workovers , and the natural production decline of the field . average realized oil price the average realized price for the year ended june 30 , 2016 , was $ 33.17 /bbl , compared to $ 56.44 /bbl in the prior year , a decrease of 41 % . the decrease was primarily the result of a decrease in the benchmark pricing ( wti ) , partially offset by an improvement in the differential realized at the poplar field . the company does not currently engage in any oil and gas hedging activities .
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those statements include statements regarding the intent , belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based and should be read together with the “ risk factors ” section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report and in other reports we file with the securities and exchange commission , particularly those under “ risk factors. ” . business overview we are a clinical-stage biopharmaceutical company focused on discovering , licensing , acquiring and developing small molecules and biologics to treat and prevent human disease and alleviate suffering . our portfolio is primarily composed of central nervous system ( cns ) and immunology product candidates . the cns portfolio includes both small molecules and biologics to treat pain , neurologic , psychiatric and addiction conditions . our lead cns candidate , tnx-102 sl 1 , is in mid-phase 3 development for the management of fibromyalgia , and positive data on the relief phase 3 trial were recently reported . we expect interim data from a second phase 3 study , rally , in the third quarter of 2021 2 and topline data in the fourth quarter of 2021. we completed enrollment of 50 % of participants in the rally study in march 2021. the immunology portfolio includes vaccines to prevent infectious diseases and biologics to address immunosuppression , cancer , and autoimmune diseases . our lead vaccine candidate , tnx-1800 3 , is a live replicating vaccine based on the horsepox viral vector platform to protect against covid-19 , primarily by eliciting a t cell response . we expect efficacy data from animal studies of tnx-1800 in the first quarter of 2021. tnx-801 3 , live horsepox virus vaccine for percutaneous administration , is in development to protect against smallpox and monkeypox . 1 tnx-102 sl is an investigational new drug and has not been approved for any indication . 2 pending submission and agreement from fda on statistical analysis plan . 3 tnx-1800 and tnx-801 are investigational new biologics and have not been approved for any indication . current operating trends our current research and development efforts are focused on developing tnx-102 sl for the treatment of fm , ptsd , aad and aud , tnx-1800 as a potential covid-19 vaccine , tnx-801 as a potential smallpox vaccine , but we also expend effort on our other pipeline programs , primarily related to tnx-1300 , tnx-1900 , tnx-601 , tnx-701 , tnx-1500 , tnx-1600 , tnx-1700 , tnx-2100 , tnx-2300 and tnx-2900 . our research and development expenses consist of manufacturing work and the cost of drug ingredients used in such work , fees paid to consultants for work related to clinical trial design and regulatory activities , fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies , and for other medical research addressing the potential efficacy and safety of our study drugs . we believe that significant investment in product development is a competitive necessity , and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies . we expect that all of our research and development expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development . these expenditures are subject to numerous uncertainties relating to timing and cost to completion . we test compounds in numerous preclinical studies for safety , toxicology and efficacy . at the appropriate time , subject to the approval of regulatory authorities , we expect to conduct early-stage clinical trials for each drug candidate . we anticipate funding these trials ourselves , and possibly with the assistance of federal grants , contracts or other agreements . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products . completion of clinical trials may take several years , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . the commencement and completion of clinical trials for our products may be delayed by many factors , including lack of efficacy during clinical trials , unforeseen safety issues , slower than expected participant recruitment , lack of funding or government delays . in addition , we may encounter regulatory delays or rejections as a result of many factors , including results that do not support the intended safety or efficacy of our product candidates , perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development . as a result of these risks and uncertainties , we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows , if any , from our product candidates . our business , financial condition and results of operations may be materially adversely affected by any delays in , or termination of , our clinical trials or a determination by the fda that the results of our trials are inadequate to justify regulatory approval , insofar as cash in-flows from the relevant drug or program would be delayed or would not occur . 84 story_separator_special_tag agreed to pay a six-digit license fee to columbia as consideration for entering into the license agreement . we are obligated to use commercially reasonable efforts , as defined in the license agreement , to develop and commercialize the product , and to achieve specified developmental milestones . story_separator_special_tag both the costs associated with the cash payments and share issuance , totaling $ 2.4 million , were recorded to research and development in the statement of operations for the year ended december 31 , 2020. because the trigemina intellectual property was acquired prior to fda approval , the cash and stock consideration was expensed as research and development costs since there is no alternative future use and the acquired intellectual property does not constitute a business . pursuant to the terms of the assignment and assumption agreement , stanford has granted us an exclusive license , with the right to sublicense , certain patents related to the trigemina assets . stanford has reserved for itself the right to practice under the patents for academic research and educational purposes . we are obligated to use commercially reasonable efforts to diligently develop , manufacture , and sell products claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets for such products . the stanford license agreement specifies developmental milestones and the period of time during which such milestones must be completed , and provides for an annual maintenance fee payable to stanford . as of december 31 , 2020 , no milestone payments have been accrued or paid in relation to this agreement . 86 on august 19 , 2019 , we entered into an asset purchase agreement ( the “ trimaran asset purchase agreement ” ) with trimaran pharma , inc. ( “ trimaran ” ) and the selling shareholders named therein ( the “ selling shareholders ” ) pursuant to which we acquired trimaran 's assets related to certain pyran-based compounds ( the “ trimaran assets ” ) . in connection with the acquisition of the trimaran assets , we entered into a first amended and restated exclusive license agreement ( the “ wsu license agreement ” ) with wayne state university ( “ wsu ” ) on august 19 , 2019. as consideration for entering into the trimaran asset purchase agreement , we paid $ 100,000 to trimaran and have assumed certain liabilities of trimaran totaling $ 68,500. the $ 168,500 was recorded to research and development expenses in the statement of operations in 2019. upon the achievement of specified development , regulatory and sales milestones , we also agreed to pay trimaran and the selling shareholders , in restricted stock or cash , at our option , a total of approximately $ 3.4 million . pursuant to the terms of the trimaran asset purchase agreement , trimaran and the selling shareholders are prohibited from disclosing confidential information related to the trimaran assets and are restricted from engaging , for a period of three years , in the development or commercialization of any therapeutic containing any pyran-based drug compound for the treatment of post-traumatic stress disorder , attention deficit hyperactivity disorder or major depressive disorder . also for a period of three years , if trimaran or any selling shareholder engage in the research or development of any potential therapeutic compound for the treatment of any central nervous system disorder , trimaran or such selling shareholder is obliged to provide notice and opportunity to tonix to make an offer to acquire or license rights with respect to such product candidate . as of december 31 , 2020 , no milestone payments have been accrued or paid in relation to this agreement . pursuant to the terms of the wsu license agreement , wsu granted us an exclusive license , with the right to sublicense , certain patents , technical information and material ( collectively , the “ technology ” ) related to the trimaran assets . wsu has reserved for itself the right to practice the technology for academic research and educational purposes . we are obligated to use commercially reasonable efforts to obtain regulatory approval for one or more products utilizing the technology ( “ wsu products ” ) and to use commercially reasonable marketing efforts throughout the term of the wsu license agreement . the wsu license agreement specifies developmental milestones and the period of time during which such milestones must be completed and provides for an annual maintenance fee payable to wsu . we are obligated to substantially manufacture wsu products in the united states if wsu products will be sold in the united states . pursuant to the wsu license agreement , we paid $ 75,000 to wsu as reimbursement of certain patent expenses , and , upon the achievement of specified development , regulatory and sales milestones , we also agreed to pay wsu , milestone payments totaling approximately $ 3.4 million . we also agreed to pay wsu single-digit royalties on net sales of wsu products sold by us or a sublicensee on a tiered basis based on net sales , and additional sublicense fees on certain consideration received from sublicensees . royalties on each particular wsu product are payable on a country-by-country and product-by-product basis until the date of expiration of the last valid claim in the last to expire of the issued patents covered by the wsu license agreement . royalties payable on net sales of wsu products may be reduced by 50 % of the royalties payable by us to any third party for intellectual property rights which are necessary for the practice of the rights licensed to us under the wsu license agreement , provided that the royalty payable on a wsu product may not be reduced by more than 50 % . each party also has the right to terminate the agreement for customary reasons such as material breach and bankruptcy . the wsu license agreement contains provisions relating to termination , indemnification , confidentiality and other customary matters for an agreement of this kind . as of december 31 , 2020 , no milestone payments have been accrued or paid in relation to this agreement .
| results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , such as the progress of our research and development efforts and the timing and outcome of regulatory submissions . due to these uncertainties , accurate predictions of future operations are difficult or impossible to make . fiscal year ended december 31 , 2020 compared to fiscal year ended december 31 , 2019 research and development expenses . research and development expenses for the fiscal year ended december 31 , 2020 were $ 36.2 million , an increase of $ 18.0 million , or 99 % , from $ 18.2 million for the fiscal year ended december 31 , 2019. this increase in predominately due to the acquisition of the trigemina asset for $ 2.4 million , timing of development milestones related to the phase 3 relief study in fm for tnx-102 sl in 2020 , initiation of a second phase 3 study in fm , rally , in 2020 , as well as new activities related to the development of tnx-1800 as a potential covid-19 vaccine , increased activities related to the development of tnx-801 as a potential smallpox vaccine , and increased spending related to our development pipeline . general and administrative expenses .
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during the second quarter of 2015 , organizational changes were made to ( i ) realign our businesses and organizational structure and ( ii ) streamline and consolidate certain business processes to achieve greater operating efficiencies . in furtherance of these objectives , we combined our display solutions and power solutions business lines into a new segment called standard products group . beginning in the second quarter of 2015 , we report our financial results in two operating segments : semiconductor manufacturing services and standard products group . all prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation . beginning in the third quarter of 2015 , we changed the name of our semiconductor manufacturing services segment to foundry services group . we believe that this new name provides greater clarity on the identity of this segment . there is no change to the composition of this reportable segment from what we previously reported for the semiconductor manufacturing services segment . our foundry services group provides specialty analog and mixed-signal foundry services mainly for fabless and idm semiconductor companies that primarily serve consumer , computing , communication , industrial , automotive and iot 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 flat panel displays and include our sensor products for mobile applications , industrial applications and home appliances . our power solutions products include discrete and integrated circuit solutions for power management in consumer , computing , communication 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 . 48 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 consumer , computing , communication , industrial , automotive and iot 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 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 . in contrast to fabless semiconductor companies , our internal manufacturing capacity provides us with greater control over manufacturing costs and the ability to implement process and production improvements which can favorably impact gross profit margins . story_separator_special_tag our foundry services target customers who require differentiated , specialty analog and mixed-signal process technologies such as high voltage complementary metal-oxide-semiconductor ( cmos ) , embedded memory or bipolar-cmos-dmos ( bcd ) . these customers typically serve the consumer , computing , communication , industrial , automotive and iot applications . our foundry services group business represented 45.9 % , 51.6 % and 53.9 % of our net sales for the fiscal years ended december 31 , 2015 , 2014 and 2013 , respectively . gross profit from our foundry services group business was $ 66.2 million , $ 75.7 million and $ 108.7 million for the fiscal years ended december 31 , 2015 , 2014 and 2013 , respectively . standard products group : our standard products group includes our display solutions and power solutions business lines . our display solutions products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in ultra high definition ( uhd ) , high definition ( hd ) , light emitting diode ( led ) , 3d and oled televisions and displays , notebooks and mobile communications and entertainment devices . our display solutions products support the industry 's most advanced display technologies , such as active matrix organic light emitting diodes ( amoleds ) , and low temperature polysilicons ( ltps ) , as well as high-volume display technologies such as thin film transistors ( tft ) . we provide a full range of intelligent sensor product families featuring 0.18 micron analog and mixed-signal technology with low power consumption . our sensor families target the growing market for applications ranging from smartphone , tablet pc and other consumer electronics to industrial devices . our power solutions business line produces power management semiconductor products including discrete and integrated circuit solutions for power management in high-volume consumer applications . these products include mosfets , insulated-gate bipolar transistors ( igbts ) , power modules , ac-dc converters , dc-dc converters , led drivers , switching regulators and linear regulators for a range of devices , including televisions , smartphones , mobile phones , desktop pcs , notebooks , tablet pcs , other consumer electronics , and industrial applications such as power suppliers , led lighting , motor control and home appliances . our standard products group , which includes our display solutions and power solutions business lines , represented 54.0 % , 48.3 % and 46.0 % of our net sales for the fiscal years ended december 31 , 2015 , 2014 and 2013 , respectively . gross profit from our standard products group was $ 68.1 million , $ 76.6 million and $ 45.9 million for the fiscal years ended december 31 , 2015 , 2014 and 2013 , respectively . explanation and reconciliation of non-us gaap measures adjusted ebitda and adjusted net loss we use the terms adjusted ebitda and adjusted net loss throughout this report . adjusted ebitda , as we define it , is a non-us gaap measure . we define adjusted ebitda for the periods indicated as net income ( loss ) , adjusted to exclude ( i ) depreciation and amortization , ( ii ) interest expense , net , ( iii ) income tax expenses ( benefits ) , ( iv ) restructuring and impairment charges , ( v ) equity-based compensation expense , ( vi ) foreign currency loss ( gain ) , net , ( vii ) derivative valuation loss ( gain ) , net , ( viii ) secondary offering and others , ( ix ) loss on early extinguishment of senior notes and ( x ) restatement related expenses . see the footnotes to the table below for further information regarding these items . we present adjusted ebitda as a supplemental measure of our performance because : adjusted ebitda eliminates the impact of a number of items that may be either one time or recurring items that we do not consider to be indicative of our core ongoing operating performance ; we believe that adjusted ebitda is an enterprise level performance measure commonly reported and widely used by analysts and investors in our industry ; our investor and analyst presentations will include adjusted ebitda ; and 51 we believe that adjusted ebitda provides investors with a more consistent measurement of period to period performance of our core operations , as well as a comparison of our operating performance to that of other companies in our industry . we use adjusted ebitda in a number of ways , including : for planning purposes , including the preparation of our annual operating budget ; to evaluate the effectiveness of our enterprise level business strategies ; in communications with our board of directors concerning our consolidated financial performance ; and in certain of our compensation plans as a performance measure for determining incentive compensation payments . we encourage you to evaluate each adjustment and the reasons we consider them appropriate . in evaluating adjusted ebitda , you should be aware that in the future we may incur expenses similar to the adjustments in this presentation . adjusted ebitda is not a measure defined in accordance with us gaap and should not be construed as an alternative to income from continuing operations , cash flows from operating activities or net income ( loss ) , as determined in accordance with us gaap .
| results by segment replace_table_token_13_th net sales were $ 698.2 million for the year ended december 31 , 2014 , a $ 36.0 million , or 4.9 % , decrease compared to $ 734.2 million for the year ended december 31 , 2013. net sales declined in 2014 compared to fiscal year 2013 primarily as a result of significant decrease in revenue related to our foundry services group segment as described below . foundry services group . net sales from our foundry services group segment were $ 360.5 million for the year ended december 31 , 2014 , a $ 34.8 million , or 8.8 % , decrease compared to net sales of $ 395.4 million for the year ended december 31 , 2013. the decrease was attributable to reduced levels of demand of our products by customers primarily serving the smartphone market . standard products group . net sales from our standard products group segment were $ 337.1 million for the year ended december 31 , 2014 , a $ 1.2 million , or 3.5 % , decrease compared to $ 338.3 million for the year ended december 31 , 2013. this decrease was primarily due to decrease in revenue related to our display solutions business line as described below . net sales from our display solutions business line were $ 199.9 million for the year ended december 31 , 2014 , a $ 3.1 million , or 1.5 % , decrease compared to $ 203.0 million for the year ended december 31 , 2013. the decline was primarily due to lower sales of large display products by $ 23.0 million , offset by the increase in sales of $ 19.5 million in the mid-range smartphone market .
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by its terms , the policy became effective november 2018. under the adopted policy , each director is to receive an annual cash compensation of $ 30,000 and the chairman and vice chairman is paid an additional $ story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations is intended to provide information necessary to understand our audited consolidated financial statements for the two-year period ended november 30 , 2018 and highlight certain other information which , in the opinion of management , will enhance a reader 's understanding of our financial condition , changes in financial condition and results of operations . in particular , the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the fiscal year ended november 30 , 2018 , as compared to the fiscal year ended november 30 , 2017. this discussion should be read in conjunction with our consolidated financial statements for the two-year period ended november 30 , 2018 and related notes included elsewhere in this annual report on form 10-k. these historical financial statements may not be indicative of our future performance . this management 's discussion and analysis of financial condition and results of operations contains numerous forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing , particularly in “ item 1a . risk factors. ” corporate overview we are a biotechnology company specializing in the development , manufacturing and provision of technologies and services in the cell and gene therapy industry . we operate through two platforms : ( i ) a point-of-care ( “ pocare ” ) cell therapy platform ( “ pt ” ) and ( ii ) a contract development and manufacturing organization ( “ cdmo ” ) platform conducted through our subsidiary , masthercell global . through our pt business , our aim is to further the development of advanced therapy medicinal products ( “ atmps ” ) through collaborations and in-licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes to bring such atmps to patients . we out-license these atmps through regional partners to whom we also provide regulatory , pre-clinical and training services to support their activity in order to reach patients in a point-of-care hospital setting . through our cdmo platform , we are focused on providing contract manufacturing and development services for biopharmaceutical companies . -56- our therapeutic development efforts in our pt business are focused on advancing breakthrough scientific achievements in atmps , and namely autologous therapies , which have a curative potential . we base our development on therapeutic collaborations and in-licensing with other pre-clinical and clinical-stage biopharma companies as well as direct collaboration with research and healthcare institutes . we are engaging in therapeutic collaborations and in-licensing with other academic centers and research centers in order to pursue emerging technologies of other atmps in cell and gene therapy in such areas as cell-based immunotherapies , metabolic diseases , neurodegenerative diseases and tissue regeneration . each of these customers and collaborations represents a growth opportunity and future revenue potential as we out-license these atmps through regional partners to whom we also provide regulatory , pre-clinical and training services to support their activity in order to reach patients in a point-of-care hospital setting . we carry out our pt business through three wholly-owned and separate subsidiaries . this corporate structure allows us to simplify the accounting treatment , minimize taxation and optimize local grant support . the subsidiaries related to this business are orgenesis maryland inc. , in the u.s. , orgenesis sprl , in the european union and orgenesis ltd. in israel . our subsidiary , masthercell global , is a cdmo specialized in cell therapy development for advanced therapeutically products . in the last decade , cell therapy medicinal products have gained significant importance , particularly in the fields of ex-vivo gene therapy and immunotherapy . while academic and industrial research has led scientific development in the sector , industrialization and manufacturing expertise remains insufficient . masthercell global plans to fill this gap by providing three types of services to its customers : ( i ) process and assay development services and ( ii ) current good manufacturing practices ( cgmp ) contract manufacturing services and ( iii ) technology innovation and engineering services . these services offer a double advantage to masthercell global 's customers . first , customers can continue allocating their financial and human resources on their product/therapy , while relying on a long-term reliable and trusted partner for their process development/production . second , through its subsidiaries , it allows customers to benefit from masthercell global 's expertise in cell therapy manufacturing and all related aspects . masthercell global 's wholly-owned subsidiaries include masthercell s.a. , a belgian-based subsidiary and a contract development and manufacturing organization ( “ cdmo ” ) specialized in cell therapy development and manufacturing for advanced medicinal products , atvio biotech ltd. ( “ atvio ” ) , an israeli-based cdmo , and curecell co. ltd. ( “ curecell ” ) , a korea-based cdmo . we operate our cdmo and the pt businesses as two separate business segments . corporate history we were incorporated in the state of nevada on june 5 , 2008 under the name business outsourcing services , inc. effective august 31 , 2011 , we completed a merger with our subsidiary , orgenesis inc. , a nevada corporation , which was incorporated solely to effect a change in its name . as a result , the company changed its name from “ business outsourcing services , inc. ” to “ orgenesis inc. ” on october 11 , 2011 , we incorporated orgenesis ltd. as our wholly-owned subsidiary under the laws of israel . story_separator_special_tag in connection therewith , the company , masthercell global and gpp-ii masthercell , llc , a delaware limited liability company ( “ gpp-ii ” ) and an affiliate of great point entered into stock purchase agreement ( the “ spa ” ) pursuant to which gpp-ii purchased 378,000 shares of newly designated series a preferred stock of masthercell global ( the “ masthercell global preferred stock ” ) , representing 37.8 % of the issued and outstanding share capital of masthercell global , for cash consideration to be paid into masthercell global of up to $ 25 million , subject to certain adjustments ( the “ consideration ” ) . orgenesis holds 622,000 shares of masthercell global 's common stock , representing 62.2 % of the issued and outstanding equity share capital of masthercell global . an initial cash payment of $ 11.8 million of the consideration was remitted at closing , with a follow up payment of $ 6,600,000 to be made in each of years 2018 and 2019 ( the “ future payments ” ) , or an aggregate of $ 13.2 million , if ( a ) masthercell global achieves specified ebitda and revenues targets during each of these years , and ( b ) the orgenesis ' shareholders approve certain provisions of the stockholders ' agreement referred to below on or before december 31 , 2019. none of the future consideration amounts , if any , will result in an increase in gpp-ii 's equity holdings in masthercell global beyond the 378,000 shares of series a preferred stock issued to gpp-ii at closing . the proceeds of the investment will be used to fund the activities of masthercell global and its consolidated subsidiaries . notwithstanding the foregoing , gpp-ii may , in its sole discretion , elect to pay all or a portion of the future consideration amounts even if the financial targets described above have not been achieved and the orgenesis stockholder approval has not been obtained . in satisfaction of the first of the two conditions described above , masthercell global achieved the specified ebitda and revenues targets in 2018 as described in the spa and received $ 6,600,000 of the future payments on january 16 , 2019. in connection with the entry into the spa described above , each of the company , masthercell global and gpp-ii entered into the masthercell global inc. stockholders ' agreement ( the “ stockholders ' agreement ” ) providing for certain restrictions on the disposition of masthercell global securities , the provisions of certain options and rights with respect to the management and operations of masthercell global , certain favorable , preferential rights to gpp-ii ( including , without limitation , a tag right , drag right and certain protective provisions ) , a right to exchange the masthercell global preferred stock for shares of orgenesis common stock and certain other rights and obligations . in addition , after the earlier of the second anniversary of the closing or certain enumerated circumstances , gpp-ii is entitled to effectuate a spinoff of masthercell global and the masthercell global subsidiaries ( the “ spinoff ” ) . the spinoff is required to reflect a market value determined by one of the top ten independent accounting firms in the u.s. selected by gpp-ii , provided that under certain conditions , such market valuation shall reflect a valuation of masthercell global and the masthercell global subsidiaries of at least $ 50 million . in addition , upon certain enumerated events as described below , gpp-ii is entitled , at its option , to put to the company ( or , at company 's discretion , to masthercell global if masthercell global shall then have the funds available to consummate the transaction ) its shares in masthercell global or , alternatively , purchase from the company its share capital in masthercell global at a purchase price equal to the fair market value of such equity holdings as determined by one of the top ten independent accounting firms in the u.s. selected by gpp-ii , provided that the purchase price shall not be greater than three times the price per share of masthercell global preferred stock paid by gpp-ii and shall not be less than the price per share of masthercell global preferred stock paid by gpp-ii . gpp-ii may exercise its put or call option upon the occurrence of any of the following : ( i ) there is an activist shareholder of the company ; ( ii ) the chief executive officer and or chairman of the board of directors of the company resigns or is replaced , removed , or terminated for any reason prior to june 28 , 2023 ; ( iii ) there is a change of control event of the company ; or ( iv ) the industry expert director appointed to the board of directors of masthercell global is removed or replaced ( or a new such director is appointed ) without the prior written consent of gpp-ii . for the purposes of the foregoing , the following definitions shall apply : ( a ) “ activist shareholder ” shall mean any person who acquires shares of capital stock of the company who either : ( x ) acquires more than a majority of the voting power of the company , ( y ) actively takes over and controls a majority of the board of directors of the company , or ( z ) is required to file a schedule 13d with respect to such person 's ownership of the company and has described a plan , proposal or intent to take action with respect to exerting significant pressure on the management of or directors of , the company ; and ( b ) “ change of control ” shall mean any of : ( a ) the acquisition , directly or indirectly ( in a single transaction or a series of related transactions ) by a person or group of persons of either ( i ) a majority of the common stock of the company ( whether by merger , consolidation , stock purchase , tender offer , reorganization
| results of operations comparison of the year ended november 30 , 2018 to the year ended november 30 , 2017 our financial results for the year ended november 30 , 2018 are summarized as follows in comparison to the year ended november 30 , 2017 : replace_table_token_0_th revenues replace_table_token_1_th all our revenues were derived from the cdmo segment , most of which were generated from our belgian subsidiary , masthercell s.a. we believe that revenue diversification by source in the cdmo segment , together with a leading position in immunotherapy and , in particular , car t-cell therapy development and manufacturing , strengthened masthercell 's resilience in the industry . our revenues for the year ended november 30 , 2018 were $ 18,655 thousand , as compared to $ 10,089 thousand for the corresponding period in 2017 , representing an increase of 85 % . the increase in revenues for the year ended november 30 , 2018 compared to the corresponding period in 2017 is attributable to an increase in the projects provided by masthercell s.a , resulting primarily from the extension of existing customer service contracts with biotechnology clients , as well as from revenues generated from existing manufacturing agreements . in addition , we acquired all the issued and outstanding share capital of atvio , our israel-based cdmo partner since august 2016 , and 94.12 % of the share capital of curecell , our korea-based cdmo partner since march 2016 , which are both reflected in the increase in our revenues from services provided of $ 1,174 thousand during the year ended november 30 , 2018. backlog we define our backlog as products that we are obligated to deliver or services to be rendered based on firm commitments relating to purchase orders received from customers .
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these products are used in agriculture to enhance crop yield and quality by controlling a broad spectrum of insects , weeds and disease , as well as in non-agricultural markets for pest control . the fmc health and nutrition segment focuses on nutritional ingredients , health excipients , and functional health ingredients . nutritional ingredients are used to enhance texture , color , structure and physical stability . health excipients are used for binding , encapsulation and disintegrant applications . functional health ingredients are used as active ingredients in nutraceutical and pharmaceutical markets . our fmc lithium segment manufactures lithium for use in a wide range of lithium products , which are used primarily in energy storage , specialty polymers and chemical synthesis application . 2015 highlights the following are the more significant developments in our businesses during the year ended december 31 , 2015 : revenue of $ 3,276.5 million in 2015 increased $ 17.8 million or one percent versus last year . the increase in revenue was attributable to fmc agricultural solutions as a result of additional revenue from the acquisition of cheminova . this was offset by significant unfavorable currency impacts , primarily in our agricultural solutions segment within brazil . a more detailed review of revenues by segment is included under the section entitled “ results of operations ” . on a regional basis , sales in latin america decreased by18 percent , sales in north america were relatively flat , sales in asia were up 13 percent and sales in europe , middle east and africa ( emea ) increased by 29 percent . our gross margin , excluding acquisition-related charges , of $ 1,133.2 million decreased approximately $ 82 million or approximately seven percent versus last year . gross margin as a percent of revenue is approximately 34.5 percent versus 37.3 percent in 2014. the reduction in gross margin was due to lower volumes in brazil within fmc agricultural solutions and unfavorable currency impact and product mix . the gross margin percentage decline was impacted by the same factors . selling , general and administrative expenses increased 25 percent from $ 589.8 million to $ 737.9 million primarily related to acquisition related charges . selling , general and administrative expenses , excluding non-operating pension and postretirement charges and acquisition-related charges , of $ 470.1 million increased $ 22.6 million or approximately five percent . the increased was driven primarily by the addition of the cheminova acquisition . non-operating pension and postretirement charges and acquisition-related charges are presented in our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . research and development expenses of $ 143.7 million increased $ 17.4 million or 13.8 percent . adjusted earnings after-tax from continuing operations attributable to fmc stockholders of $ 332.6 million decreased approximately $ 94 million or 22 percent due to lower results in the fmc agricultural solutions primarily within brazil . see the disclosure of our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . during 2015 , we incurred significant restructuring and other charges . the increase was primarily the result of charges associated with the integration of cheminova as well as charges within health and nutrition associated with the mothballing of seal sands facility in the uk . charges associated with the integration of cheminova also included the loss on sale of $ 64.5 million associated with the sale of our generic crop protection business in brazil . other 2015 highlights during 2015 , we closed on two significant transactions - the divestiture of our alkali chemicals division and the acquisition of cheminova . this marked the completion of our transformation to a technology-driven specialty company with leading market positions across agriculture , nutrition , pharmaceutical and specialty lithium applications . in agricultural solutions , the acquisition of cheminova strengthened our technology pipeline , brought greater regional balance , broadened our market access and expanded our portfolio . the acquisition and integration of cheminova combined with the actions we have taken to restructure our agricultural solutions operations in brazil have positioned fmc to better address current market conditions . 22 in health and nutrition , we focused on driving higher margins by capturing high-value commercial opportunities across our existing portfolio and by the implementation of manufacturing excellence programs and process technology improvements . and in lithium , we continued to execute on our strategy of growing our differentiated , downstream specialty business to take advantage of favorable end market demand . finally , 2015 was also a year marked by significant foreign exchange volatility which impacted our results negatively as well as difficult conditions across the global agriculture market . to address this , we took decisive actions throughout the year to address these challenges which included accelerating the integration of cheminova , restructuring our agricultural solutions business in brazil , exercising discipline on pricing and aggressively controlling costs across the company . 2016 outlook we expect to deliver earnings growth in all businesses in 2016 , and will continue to position fmc firmly on the path of growth by leveraging the company 's unique business model that has defined our success . we remain a technology-driven company with low-cost asset light operations , a unique business research and development model that balances short-and mid-term development with long-term innovation , and global scale with strong regional expertise to support local customers . please see segment discussions under the section entitled “ results of operations ” for 2016 outlook for each segment . on a consolidated basis we expect our 2016 adjusted earnings per share to be between $ 2.50 and $ 2.80 . 23 results of operations— 2015 , 2014 and 2013 overview the following presents a reconciliation of our segment operating profit to the net income attributable to fmc stockholders as seen through the eyes of our management . story_separator_special_tag information about how each of these items relates to our businesses at the segment level and results by segment are discussed below and in note 19 to our consolidated financial statements included in this form 10-k. fmc agricultural solutions replace_table_token_10_th 2015 vs. 2014 revenue of $ 2,252.9 million increased approximately four percent versus the prior year period due to revenue from the cheminova acquisition on april 20 , 2015. operating profit of $ 363.9 million decreased approximately 27 percent compared to the year-ago period . this decline was primarily driven by market conditions and currency movements in brazil . refer to the fmc agricultural solutions pro forma financial results with cheminova section below for further discussion . for 2016 , full-year segment revenue is expected to be approximately $ 2.3 billion to $ 2.5 billion and full-year segment earnings are expected to be in the range of $ 380 million to $ 420 million . in europe , we expect our key markets to be broadly flat compared to last year , although we expect to see higher growth across eastern europe . in north america , we expect the challenging market conditions will continue in 2016 given elevated channel inventory levels and projected lower farm incomes . as a result , we expect the market in north america to be down in 2016. across asia , we expect the market to be mixed , depending on the country . however , overall , we expect the region to be up slightly in 2016 assuming more normal pest pressures and weather conditions . finally , turning to latin america , market conditions in argentina , mexico and columbia are expected to remain favorable , with growth in weed resistant acres and increasing acreage of niche crops . we expect the market in brazil to be down again in 2016. channel inventory levels are expected to remain elevated in 2016. however , we expect to see an improvement in market fundamentals for sugarcane and cotton 2014 vs. 2013 revenue of $ 2,173.8 million increased approximately one percent versus the prior year period due to higher sales in north america , asia and emea offset by a decline in sales in latin america . sales in latin america of $ 1,120.7 million decreased five percent due to weak demand conditions in brazil , particularly in sugarcane and cotton segments , as drought and lower planted area reduced herbicide and insecticide demand . this was partially offset by growth in other latin american countries such as argentina and mexico as fmc gained market share . sales in north america of $ 560.2 million increased 11 percent primarily driven by strong demand for pre-emergent herbicides into soybeans and growth from new product introductions into various crop segments . revenue in asia of $ 343.6 million increased nine percent reflecting sales growth in australia , pakistan , korea and china . sales in europe , middle east and africa ( emea ) increased seven percent to $ 149.3 million primarily due to higher herbicide volumes . 26 fmc agricultural solutions ' operating profit of $ 497.8 million decreased approximately eight percent compared to the year-ago period , reflecting relatively flat sales , unfavorable currency impacts , increases to sg & a as well as additional planned r & d investments and changes in product mix . sg & a costs were approximately $ 2 million higher and r & d costs were approximately $ 12 million higher than the prior year period with spending on marketing , sales and technology investments . fmc agricultural solutions pro forma financial results with cheminova in the second quarter of 2015 we began to present pro forma combined results for the fmc agricultural solutions segment for 2015 and 2014. we believe that reviewing our operating results by combining actual and pro forma results for the fmc agricultural solutions segment for 2015 and 2014 is more useful in identifying trends in , or reaching conclusions regarding , the overall operating performance of this segment . our pro forma segment information will include adjustments as if the cheminova transaction had occurred on january 1 , 2014. our pro forma data will also be adjusted for the effects of acquisition accounting but will not include adjustments for costs related to integration activities , cost savings or synergies that might be achieved by the combined businesses . pro forma amounts to be presented will not necessarily be indicative of what our results would have been had we operated cheminova since january 1 , 2014 , nor our future results . we believe that reviewing our operating results by combining actual and pro forma results for the fmc agricultural solutions segment for these interim periods is more useful in identifying trends in , or reaching conclusions regarding , the overall operating performance of the segment . replace_table_token_11_th _ ( 1 ) as reported amounts are the results of operations of fmc agricultural solutions , including the results of the cheminova acquisition from april 21 , 2015 onward . ( 2 ) cheminova pro forma amounts include the historical results of cheminova , prior to april 21 , 2015. these amounts also include adjustments as if the cheminova transaction had occurred on january 1 , 2014 , including the effects of acquisition accounting . the pro forma amounts do not include adjustments for expenses related to integration activities , cost savings or synergies that may have been or may be achieved by the combined segment . ( 3 ) the pro forma combined amounts are not necessarily indicative of what the results would have been had we acquired cheminova on january 1 , 2014 or indicative of future results . replace_table_token_12_th _ ( 1 ) the pro forma combined revenue by region amounts are not necessarily indicative of what the results would have been had we acquired cheminova on january 1 , 2014 or indicative of future results . 27 pro forma combined results - 2015 vs. 2014 pro forma combined revenue of $ 2,614.9 million decreased approximately 23 percent versus the prior year period .
| resulted in a $ 56.8 million decrease to our u.s. qualified pension benefit obligations . the effect of the change in the discount rate from 4.95 percent at december 31 , 2013 to 4.15 percent at december 31 , 2014 resulted in a $ 11.1 million increase to the 2015 u.s. qualified pension expense . the change in discount rate from 4.15 percent at december 31 , 2014 to 4.50 percent at december 31 , 2015 was attributable to an increase in yields on high quality corporate bonds with cash flows matching the timing and amount of our expected future benefit payments between the 2014 and 2015 measurement dates . using the december 31 , 2014 yield curve , our u.s. qualified plan cash flows produced a single weighted-average discount rate of approximately 4.15 percent . matching our u.s. qualified plan cash flows to a similarly constructed curve reflecting high-yielding bonds available as of december 31 , 2015 , resulted in a single weighted-average discount rate of approximately 4.50 percent . historically , we estimated the service cost and interest cost components of expense using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period . on december 31 , 2015 , we changed the method we used to estimate the service cost and interest cost components of our net periodic benefit cost for our us defined benefit pension plans . we have elected to use a full yield curve approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows .
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the following table summarizes the identifiable intangible assets acquired as part of the acquisition , and adjustments to carrying value include foreign currency translation adjustments and adjustments to preliminary purchase price allocation during the fiscal years 2013 , 2012 and 2011 ( in thousands ) : 52 nanometrics incorporated notes to consolidated financial statements— ( continued ) replace_table_token_23_th replace_table_token_24_th replace_table_token_25_th prior to the acquisition , the company had a pre-existing relationship with nanda . in december 2010 , the company acquired certain patents from rtm under an asset purchase story_separator_special_tag overview you should read the following discussion and analysis of our financial condition and results of operations together with “ selected financial data ” and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited to , those presented under “ risk factors ” in item 1a and elsewhere in this annual report on form 10-k. please see “ cautionary information regarding forward-looking statements ” at the beginning of this form 10-k for additional information you should consider regarding forward-looking statements . we are an innovator in the field of metrology and inspection systems for semiconductor manufacturing and other industries . our systems are designed to precisely monitor film thickness and critical dimensions that are necessary to control the manufacturing process and to identify defects that can affect production yields and performance . principal factors that impact our revenue growth include capital expenditures by manufacturers of semiconductors to increase capacity and to enable their development of new technologies , and our ability to improve market share . the increasing complexity of the manufacturing processes for semiconductors is an important factor in the demand for our innovative metrology systems , as are the adoption of optical critical dimension ( “ ocd ” ) metrology across fabrication processes , immersion lithography and double patterning , new types of thin film materials , advanced packaging strategies and wafer backside inspection , and the need for improved process control to drive process efficiencies . our strategy is to continue to innovate organically as well as to evaluate strategic acquisitions to address business challenges and opportunities . our revenues are primarily derived from product sales but are also derived from customer service and system upgrades for the installed base of our products . in 2013 , we derived 74.4 % of our total net revenues from product sales and 25.6 % of our total net revenues from services . important themes and significant trends the semiconductor equipment industry is characterized by cyclical growth . changing trends in the semiconductor industry continue to drive the need for metrology as a major component of manufacturing systems . these trends include : proliferation of optical critical dimension metrology across fabrication processes . our customers use photolithographic processes to create patterns on wafers . critical dimensions must be carefully controlled during this process . in advanced node device definition , additional monitoring of thickness and profile dimensions on these patterned structures at cmp , etch , and thin film processing is driving broader ocd adoption . our proprietary ocd systems can provide the critical process control of these circuit dimensions that is necessary for successful manufacturing of these state-of-the-art devices . nanometrics ocd technology is broadly adopted across nand , dram , hdd , and logic semiconductor manufacturing processes . adoption of advanced packaging processes . our customers use photolithographic , etching , metallization and wafer thinning to enable next generation advanced packaging solutions for semiconductor devices . the new packaging leads to increased functionality in smaller , less expensive form factors . advanced packages can be broken down into high density flip chip or bump packages that increase pin density allowing for more complex i/o on advanced cpu parts . similar or different devices can be stacked at the wafer level using a through silicon via ( `` tsv '' ) process . the 24 tsv process enables high density small form factor parts , being primarily driven by mobile consumer products ( e.g . cellular telephones with integrated cmos camera sensors ) . increasingly advanced packaging technologies are being adopted by our end customers . adoption of new types of thin film materials . the need for ever increasing device circuit speed coupled with lower power consumption has pushed semiconductor device manufacturers to begin the replacement of the traditional aluminum etch back interconnect flows as well as conventional gate dielectric materials , all which drive a broader adoption of thin film and ocd metrology systems . to achieve greater semiconductor device speed , manufacturers have adopted copper in logic/idm and it is now proliferating in next generation dram and flash nodes . additionally , to achieve improved transistor performance in logic devices and higher cell densities in memory devices , new materials including high dielectric constant ( or high-k ) gate materials are increasingly being substituted for traditional silicon-oxide gate dielectric materials . high-k materials comprise complex thin films including layers of hafnium oxide and a bi-layer of thin film metals . our advanced metrology and inspection solutions are required for control of process steps , which are critical to enable the device performance improvements that these new materials allow . development of 3d transistor architectures . our end customers continue to improve device density and performance by scaling front end of line transistor architectures . many of these designs , including fin-fet transistors and 3d-nand have buried features and high aspect ratio stacked features that enable improved performance and density . the advanced designs require additional process control to manage the complex shapes and materials properties , driving additional applications for both ocd and our unifire systems . need for improved process control to drive process efficiencies . story_separator_special_tag under service contract arrangements , services are provided as needed over the fixed arrangement term and such terms can be up to 12 months . we do not generally grant customers a general right of return or refund and may impose a penalty on orders canceled prior to the scheduled shipment date . we regularly evaluate our revenue arrangements to identify deliverables and to determine whether these deliverables are separable into multiple units of accounting . we allocate the arrangement consideration among the deliverables based on relative best estimated selling price ( `` besp '' ) . we have established vendor specific objective evidence ( `` vsoe '' ) for some of our products and services when a substantial majority of selling prices falls within a narrow range when sold separately . for deliverables with no established vsoe , we use besp to determine standalone selling price for such deliverable . we do not use third party evidence ( `` tpe '' ) to determine standalone selling price since this information is not widely available in the market as our products contain a significant element of proprietary technology and the solutions offered differ substantially from our competitors . we have established a process for developing besp , which incorporates historical selling prices , the effect of market conditions , gross margin objectives , pricing practices , as well as entity-specific factors . we monitor and evaluate besp on a regular basis to ensure that changes in circumstances are accounted for in a timely manner . when certain elements in multiple-element arrangements are not delivered or accepted at the end of a reporting period , the relative selling prices of undelivered elements are deferred until these elements are delivered and or accepted . if deliverables can not be accounted for as separate units of accounting , the entire arrangement is accounted for as a single unit of accounting and revenue is deferred until all elements are delivered and all revenue recognition requirements are met . allowance for doubtful accounts – we maintain allowances for estimated losses resulting from the inability of our customers to make their required payments . credit limits are established through a process of reviewing the financial history and stability of our customers . where appropriate and available , we obtain credit rating reports and financial statements of customers when determining or modifying their credit limits . we regularly evaluate the collectability of our trade receivable balances based on a combination of factors such as the length of time the receivables are past due , customary payment practices in the respective geographies and our historical collection experience with customers . we believe that our allowance for doubtful accounts adequately reflects our risk associated with our receivables . if the financial condition of a customer were to deteriorate , resulting in their inability to make payments , we would assess the necessity of recording additional allowances . this would result in additional general and administrative expenses being recorded for the period in which such determination was made . inventories – inventories are stated at the lower of cost or market . we are exposed to a number of economic and industry-specific factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage , or saleable only for amounts that are less than their carrying amounts . these factors include , but are not limited to , technological changes in our market , our ability to meet changing customer requirements , competitive pressures in products and prices , and the availability of key components from our suppliers . we have established inventory reserves when conditions exist that suggest that our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future demand for our products and market conditions . once a reserve has been established , it is maintained until the part to which it relates is sold or is otherwise disposed of . therefore , a sale of reserved inventory has a higher gross profit margin . we 26 regularly evaluate our ability to realize the value of our inventory based on a combination of factors including the following : historical usage rates , forecasted sales of usage , product end-of-life dates , estimated current and future market values and new product introductions . inventory includes evaluation tools placed at customer sites . for demonstration inventory , we also consider the age of the inventory and potential cost to refurbish the inventory prior to sale . demonstration inventory is amortized over its useful life and the amortization expense is included in total inventory write down on our statements of cash flows . when recorded , our reserves are intended to reduce the carrying value of our inventory to its net realizable value . if actual demand for our products deteriorates , or market conditions are less favorable than those that we project , additional reserves may be required , which would adversely affect gross margin and net income . product warranties – we sell the majority of our products with a standard twelve month repair or replacement warranty from the date of acceptance or shipment date . we provide an accrual for estimated future warranty costs based upon the historical relationship of warranty costs to the cost of products sold . the estimated future warranty obligations related to product sales are reported in the period in which the related revenue is recognized . the estimated future warranty obligations are affected by the warranty periods , sales volumes , product failure rates , material usage and labor and replacement costs incurred in correcting a product failure . if actual product failure rates , material usage , labor or replacement costs differ from our estimates , revisions to the estimated warranty obligations would be required . for new product introductions where limited or no historical information exists , we may use warranty information from other previous product introductions to guide us in estimating our warranty accrual .
| results of operations the following table presents our consolidated statements of operations data as a percentage of total net revenues for fiscal years ended december 28 , 2013 , december 29 , 2012 and december 31 , 2011 . 28 replace_table_token_7_th fiscal years 2013 , 2012 and 2011 ended december 28 , 2013 , december 29 , 2012 and december 31 , 2011 , respectively . total net revenues . our net revenues were comprised of the following product lines ( in thousands , except percentages ) : replace_table_token_8_th 29 replace_table_token_9_th in 2013 , revenue from products decreased by $ 36.4 million from 2012 , principally due to decreased demand from our customers associated with the industry-wide slowdown in memory-related semiconductor capital spending . approximately $ 36.5 million of the decrease was attributable to sales of our automated systems ( principally atlas ® ) . integrated systems accounted for $ 1.0 million of the decrease ( principally impulse ® ) while materials characterization sales increased by $ 1.1 million . service revenue decreased by $ 2.1 million in 2013 principally due to lower upgrade sales . in 2012 , revenue from products decreased by $ 50.9 million from 2011 , principally due to decreased demand from some of our largest customers , particularly in the second half of 2012. sales of our automated systems ( primarily atlas ® , lynx , nanogen ® , and mosaic ) accounted for $ 19.8 million of the decrease . integrated systems accounted for approximately $ 13.0 million of decrease ( primarily 9010 series and impulse ® ) and materials characterization ( primarily qs1200 , qs2200/3300 , rpmblue and vertex tm ) decreased by $ 18.1 million . service revenue increased by $ 3.8 million in 2012 compared to 2011 principally due to increased demand for upgrades and services provided under customer contracts during 2012. gross margin .
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accrued interest on this note was $ 5,195 and $ 3,695 as of december 31 , 2013 and 2012 , respectively . included in the labor expense are amounts for services rendered by the president , which was estimated at $ 12,000 for the years ended december 31 , 2013 and 2012. on june 29 , 2009 , the company took out a promissory note from an unrelated third party in the amount of $ 1,200. the note accrues interest at a rate of 8.0 % and is due upon demand . on january 25 , 2012 , the company took out a promissory note from an unrelated third party in the amount of $ 3,500. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . this note was paid in full in 2013. on february 10 , 2012 , the company took out a promissory note from an unrelated third party in the amount of $ 2,000. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on may 4 , 2012 , the company took out a promissory note from an unrelated third party in the amount of $ 3,000. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on august 7 , 2012 the company took out a promissory note from an unrelated third party in the amount of $ 8,300. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . this note was paid in full in 2013. on october 16 , 2012 the company took out a promissory note from an unrelated third party in the amount of $ 2,500. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on november 1 , 2012 the company took out a promissory note from an unrelated third party in the amount of $ 1,600. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on november 13 , 2012 the company took out a promissory note from an unrelated third party in the amount of $ 2,500. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . this note was paid in full in 2013. on february 4 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 6,000. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on march 14 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 1,575. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on april 15 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 2,000. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on april 30 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 4,200. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on may 23 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 1,800. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on august 6 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 7,350. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . this note was paid in full in 2013. accrued interest on these notes was $ 1,869 and $ 910 as of december 31 , 2013 and 2012 , respectively . 10 we anticipate our expenses to be limited to accounting , auditing , legal and filing fees associated with continuing our reporting status with the securities and exchange commission along with miscellaneous expenses related to our corporate existence . we estimate our ongoing expenses to be $ 15,000 per year . we do not have any commitments for capital expenditures nor do we anticipate entering any such commitments . as of the date of this report we only have $ 3,865 in cash and we will need additional funds to cover our expenses for the next twelve months . management anticipates that we will receive sufficient advances from our president to meet our needs through the next 12 months . however , there can be no assurances to that effect . our need for capital may change dramatically if we acquire an interest in a business opportunity during that period . on november 15 , 2013 , the company filed a form 8-k describing a potential merger with quantumsphere , inc. the board of directors intends to obtain certain assurances of value of the target entity 's assets prior to consummating such a transaction . we can not assure that we will be successful in consummating any acquisition on favorable terms or we will be able to profitably manage any business venture we acquire . should we require additional capital , we may seek additional advances from officers , sell common stock or find other forms of debt financing . the company has no other assets or line of credit , other than that which present management may agree to extend to or story_separator_special_tag accrued interest on this note was $ 5,195 and $ 3,695 as of december 31 , 2013 and 2012 , respectively . included in the labor expense are amounts for services rendered by the president , which was estimated at $ 12,000 for the years ended december 31 , 2013 and 2012. on june 29 , 2009 , the company took out a promissory note from an unrelated third party in the amount of $ 1,200. the note accrues interest at a rate of 8.0 % and is due upon demand . on january 25 , 2012 , the company took out a promissory note from an unrelated third party in the amount of $ 3,500. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . this note was paid in full in 2013. on february 10 , 2012 , the company took out a promissory note from an unrelated third party in the amount of $ 2,000. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on may 4 , 2012 , the company took out a promissory note from an unrelated third party in the amount of $ 3,000. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on august 7 , 2012 the company took out a promissory note from an unrelated third party in the amount of $ 8,300. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . this note was paid in full in 2013. on october 16 , 2012 the company took out a promissory note from an unrelated third party in the amount of $ 2,500. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on november 1 , 2012 the company took out a promissory note from an unrelated third party in the amount of $ 1,600. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on november 13 , 2012 the company took out a promissory note from an unrelated third party in the amount of $ 2,500. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . this note was paid in full in 2013. on february 4 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 6,000. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on march 14 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 1,575. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on april 15 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 2,000. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on april 30 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 4,200. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on may 23 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 1,800. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . on august 6 , 2013 , the company took out a promissory note from an unrelated third party in the amount of $ 7,350. the note accrues interest at a rate of 5.0 % and is due two years from the date of issuance . this note was paid in full in 2013. accrued interest on these notes was $ 1,869 and $ 910 as of december 31 , 2013 and 2012 , respectively . 10 we anticipate our expenses to be limited to accounting , auditing , legal and filing fees associated with continuing our reporting status with the securities and exchange commission along with miscellaneous expenses related to our corporate existence . we estimate our ongoing expenses to be $ 15,000 per year . we do not have any commitments for capital expenditures nor do we anticipate entering any such commitments . as of the date of this report we only have $ 3,865 in cash and we will need additional funds to cover our expenses for the next twelve months . management anticipates that we will receive sufficient advances from our president to meet our needs through the next 12 months . however , there can be no assurances to that effect . our need for capital may change dramatically if we acquire an interest in a business opportunity during that period . on november 15 , 2013 , the company filed a form 8-k describing a potential merger with quantumsphere , inc. the board of directors intends to obtain certain assurances of value of the target entity 's assets prior to consummating such a transaction . we can not assure that we will be successful in consummating any acquisition on favorable terms or we will be able to profitably manage any business venture we acquire . should we require additional capital , we may seek additional advances from officers , sell common stock or find other forms of debt financing . the company has no other assets or line of credit , other than that which present management may agree to extend to or
| results of operations years ended december 31 , 2013 and 2012 we have $ 3,865 cash on hand and have experienced losses since inception . we did not generate any revenues from operations during the years ended december 31 , 2013 and 2012. expenses during the year ended december 31 , 2013 were $ 51,576 with interest expense of $ 3,495 for a net loss of $ 55,071 compared to expenses of $ 40,902 and interest expense of $ 2,174 for a net loss of $ 43,076 for the year ended december 31 , 2012. expenses for 2013 consisted entirely of general and administrative expenses including labor expense and professional fees . off-balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition , results of operations or liquidity . need for additional financing based upon current management 's willingness to extend credit to the company and or invest in the company until a business combination is completed , the company believes that its existing capitalwill be sufficient to meet the company 's cash needs required for the costs of compliance with the reporting requirements of the securities exchange act of 1934 , as amended , and for the costs of accomplishing its goal of completing a business combination , for an indefinite period of time .
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the company is entitled to reimbursement of overhead costs associated with the study costs incurred under the dod contract . the company estimates this overhead story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended . such forward-looking statements involve risks , uncertainties and other factors that may cause our actual results , levels of activity , performance or achievements to be materially different from the information expressed or implied by these forward-looking statements . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k. please refer to the section entitled “ forward-looking statements ” in this annual report on form 10-k. overview we are a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of acute pain . our lead product candidates , arx-04 and zalviso , utilize sublingual sufentanil , delivered via a non-invasive route of administration . we intend to commercialize our product candidates in the united states and license the development and commercialization rights to our product candidates for sale outside of the united states through strategic partnerships and collaborations . we may also consider the option to enter into strategic partnerships for our product candidates in the united states . arx-04 ( sufentanil sublingual tablet , 30 mcg ) arx-04 is an investigational product candidate consisting of a single tablet delivered via a disposable , pre-filled , single-dose applicator , or sda . we are developing arx-04 for the treatment of moderate-to-severe acute pain to be administered by a healthcare professional to a patient in medically supervised settings of acute pain . if approved , examples of potential patient populations and settings in which arx-04 could be used include : emergency room patients ; patients who are recovering from short-stay or ambulatory surgery and do not require more long-term patient-controlled analgesia ; post-operative patients who are transitioning from the operating room to the recovery floor ; patients being treated and transported by paramedics ; and for battlefield casualties . in september 2015 , we reported that sap301 , a pivotal phase 3 multi-center , double-blind , placebo-controlled study of arx-04 , met primary and secondary endpoints in the short-term treatment of patients with moderate-to-severe acute pain following ambulatory abdominal surgery . sap301 is considered the second of two pivotal placebo-controlled studies required to be included in the nda submission . in october 2015 , we announced the initiation of an open-label phase 3 study , sap302 , of arx-04 for the treatment of adult patients who present in the emergency room with moderate-to-severe acute pain associated with trauma or injury . the primary efficacy endpoint is the summed pain intensity difference , or spid , over 1-hour , or spid-1 . safety endpoints , such as adverse events and vital signs will also be assessed , as will the patients ' and healthcare providers ' satisfaction with the method of pain control . based on discussions with the fda , we have amended the protocol for sap302 to allow for multiple dosing of arx-04 . we are planning to enroll an additional 60 patients in the extension phase of the sap302 study . the sap302 study is expected to be completed by the third quarter of 2016. we held a pre-nda meeting with the fda in december 2015 to review plans for an nda for arx-04 . based on discussions with the fda , we intend to increase the safety database by expanding the clinical program for arx-04 by approximately 160 additional patients to include individuals from specific populations and settings . enrollment in the ongoing sap302 open-label study in the emergency room will be increased as described above , and a new study , known as sap303 , was initiated in march 2016 in post-operative patients with moderate-to-severe acute pain . sap303 will focus on enrolling patients greater than 40 years of age and will allow for administration of arx-04 for up to 12 hours . with these modifications , assuming successful completion of sap302 and sap303 by the third quarter of 2016 , acelrx anticipates submitting the nda for arx-04 in the fourth quarter of 2016. the fda has also agreed to allow us to include as supporting safety information in the nda for arx-04 , data from approximately 323 patients treated in the zalviso clinical studies who had administered two 15 mcg tablets 20-to-25 minutes apart . acelrx had previously completed and analyzed pharmacokinetic and modeling data , which demonstrated the equivalency of one sufentanil sublingual tablet , 30 mcg , to two sufentanil sublingual tablets , 15 mcg , taken 20-to-25 minutes apart . 63 on may 11 , 2015 , we entered into an award contract supported by the united states army medical research and materiel command , or usamrmc , within the u.s. department of defense , or the dod , in which the dod agreed to provide up to $ 17.0 million to support the development of arx-04 , referred to as the dod contract . under the terms of the contract , the dod will reimburse us for costs incurred for development , manufacturing , regulatory and clinical costs outlined in the contract in order to submit an nda to the fda , including reimbursement for certain personnel and overhead expenses . the period of performance under the dod contract began on may 11 , 2015. the contract gives the dod the option to extend the term of the contract and provide additional funding . story_separator_special_tag for additional information on the royalty monetization with pdl , see note 8 “ liability related to sale of future royalties ” in the accompanying notes to the consolidated financial statements . grünenthal will be responsible for all commercial activities for zalviso , including obtaining and maintaining pharmaceutical product regulatory approval in the territory . we will be responsible for obtaining and maintaining device regulatory approval in the territory and the manufacturing and supply of zalviso to grünenthal for commercial sales . in association with the impending commercialization of zalviso in the european union , we completed the conformite europeenne approval process for the zalviso device , more commonly known as a ce mark approval process . we received ce mark approval in december 2014 , which permits the commercial sale of the zalviso device in the european union . in connection with the ce mark approval , we were also granted international standards organization , or iso , 13485:2003 certification of our quality management system in november 2014. this is an internationally recognized quality standard for medical devices . certification of our quality management system was issued by the british standards institution , or bsi , a notified body . the certification applies to the redwood city , california location which designs , manufactures and distributes finished medical devices , and includes critical suppliers . we submitted an nda for zalviso in september 2013 , which the fda accepted for filing in december 2013. on july 25 , 2014 , the fda issued a complete response letter , or crl , for the zalviso nda . the crl contains requests for additional information on the zalviso system to ensure proper use of the device . the requests include submission of data demonstrating a reduction in the incidence of optical system errors , changes to address inadvertent dosing , among other items , and submission of additional data to support the shelf life of the product . although there were no requests for additional clinical studies in the crl , in march 2015 , we received correspondence from the fda stating that , in addition to the work we had performed to address the items in the crl , a clinical study would be required to test modifications to the zalviso device . our iap312 study is designed to evaluate the effectiveness of changes made to enhance performance of the zalviso device and takes into account comments from the fda on the protocol . the iap312 study will include approximately 315 post-operative patients and collect information requested by the division to supplement the three positive phase 3 trials already completed . acelrx plans to initiate the study in the first quarter of 2016. financial overview we have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as we continue our research and development activities and pre-commercialization activities . as we pursue development of our product candidates , including regulatory review and potential commercial development , subject to fda approval , of our product candidates , we expect the business aspects of our company to become more complex . in the future , we plan to add personnel and incur additional costs related to the maturation of our business and the potential commercialization of arx-04 and zalviso in the united states . in addition , we believe that continued investment in research and development is critical to attaining our strategic objectives . in order to develop our product candidates as commercially viable therapeutics , we expect to expend significant resources for expertise in manufacturing , regulatory affairs , clinical research and other aspects of pharmaceutical development . to date , we have funded our operations primarily through the issuance of equity securities , borrowings , payments from our commercial partner , grünenthal , monetization of certain future royalties and commercial sales milestones from the sales of zalviso by grünenthal , and funding from the dod . our revenues since inception have consisted primarily of revenues from our amended license agreement with grünenthal and our research contracts with the usamrmc within the dod . as mentioned above , in may 2015 , the dod agreed to provide us up to $ 17.0 million to support the development of arx-04 . under the terms of the contract , the dod will reimburse us for costs incurred for development , manufacturing , regulatory and clinical costs outlined in the contract in order to submit an nda to the fda , including reimbursement for certain personnel and overhead expenses . there can be no assurance that we will enter into other collaborative agreements or receive research-related contract awards in the future . we expect revenues to continue to fluctuate from period-to-period . there can be no assurance that our relationship with our existing commercial partner , grünenthal , will continue beyond the initial term , or that we will be able to meet the milestones specified in the amended license agreement , or that the funding provided by the dod contract will be sufficient for an nda submission for arx-04 , or that we will obtain marketing approval for any of our product candidates outside of zalviso in the eu and eea and subsequently generate revenue from those product candidates in excess of our operating expenses . 65 our net losses were $ 24.4 million and $ 33.4 million during the years ended december 31 , 2015 and 2014 , respectively . as of december 31 , 2015 , we had an accumulated deficit of $ 203.2 million . as of december 31 , 2015 , we had cash , cash equivalents and investments totaling $ 113.5 million compared to $ 75.4 million as of december 31 , 2014. as mentioned above , on september 18 , 2015 , we sold a portion of the expected royalty stream and commercial milestones from the sales of zalviso in the eu by grünenthal to pdl under the royalty monetization . we received gross proceeds of $ 65.0 million from the royalty monetization .
| results of operations our results of operations have fluctuated from period to period and may continue to fluctuate in the future , based upon the progress of our research and development efforts and variations in the level of expenses related to developmental efforts during any given period . results of operations for any period may be unrelated to results of operations for any other period . in addition , historical results should not be viewed as indicative of future operating results . we are subject to risks common to companies in our industry and at our stage of development , including risks inherent in our research and development efforts , reliance upon our collaborator , enforcement of our patent and proprietary rights , need for future capital , potential competition and uncertainty of clinical trial results or regulatory approvals or clearances . in order for a product candidate to be commercialized based on our research , we and our collaborators must conduct preclinical tests and clinical trials , demonstrate the efficacy and safety of our product candidates , obtain regulatory approvals or clearances and enter into manufacturing , distribution and marketing arrangements , as well as obtain market acceptance . years ended december 31 , 2015 , 2014 and 2013 revenue to date , we have not generated any commercial product revenue . in september 2015 , the european commission , or ec , granted marketing approval for zalviso in the european union to our commercial partner , grünenthal . we do not expect to receive any commercial sales revenue until after we ship commercial product to grünenthal , who anticipates launching zalviso in the european union in the first half of 2016. revenue during the year ended december 31 , 2015 , was $ 19.3 million , including $ 14.9 million recognized under our amended license agreement with grünenthal . in addition , we recognized $ 4.4 million in revenue under the dod contract . revenue for the year ended december 31 , 2014 was $ 5.2
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property , plant and equipment property , plant and equipment are recorded at story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto included in part ii , item 8 , `` financial statements and supplementary data , '' of this annual report on form 10-k. discussion of 2018 items and the year-over-year comparison of changes in our financial condition and the results of operations as of and for the years ended december 31 , 2019 and december 31 , 2018 can be found in part ii , item 7 , `` management 's discussion and analysis of financial condition and results of operations , '' of our annual report on form 10-k for the year ended december 31 , 2019 filed with the sec on february 27 , 2020. story_separator_special_tag related to revenue , refer to note 5 , `` revenue recognition , '' to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k. inventory accounting for all inventory , carrying value is recorded at the lower of cost or net realizable value . net realizable value can be influenced by current anticipated demand . if actual demand differs from our estimates , additional reductions to inventory carrying value would be necessary in the period such determination is made . for our aftermarket products , excluding our aftermarket automotive glass products , cost is established based on the average price we pay for parts ; for our aftermarket automotive glass products inventory , cost is established using the first-in first-out method . inventory cost for our aftermarket products includes expenses incurred for freight in and overhead costs ; for items purchased from foreign companies , import fees and duties and transportation insurance are also included . refurbished inventory cost is based upon the average price we pay for cores . the cost of our refurbished inventory also includes expenses incurred for freight in , labor and other overhead costs . our salvage inventory cost is established based upon the price we pay for a vehicle , including auction , towing and storage fees , as well as expenditures for buying and dismantling vehicles . inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility 's inventory at expected selling prices , the assessment of which incorporates the sales probability based on a part 's days in stock and historical demand . the average cost to sales percentage is derived from each facility 's historical profitability for salvage vehicles . remanufactured inventory cost is based upon the price paid for cores , and also includes expenses incurred for freight , direct manufacturing costs and overhead related to our remanufacturing operations . the cost of manufactured product inventory is established using the first-in first-out method . lease accounting for information regarding our critical accounting policies related to leases , refer to note 13 , `` leases , '' to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k. business combinations we record our acquisitions using the purchase method of accounting , under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . we utilize management estimates and , in some instances , independent third party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . there are inherent assumptions and estimates used in developing the future cash flows and fair values of tangible and intangible assets , such as projecting revenues and profits , discount rates , income tax rates , royalty rates , customer attrition rates and other various valuation assumptions . we use various valuation 37 methods to value property , plant and equipment . when valuing real property , we typically use the sales comparison approach for land and the income approach for buildings and building improvements . when valuing personal property , we typically use either the income or cost approach . we used the relief-from-royalty method to value trade names , trademarks , software and other technology assets , and we used the multi-period excess earnings method to value customer relationships . the relief-from-royalty method assumes that the intangible asset has value to the extent that its owner is relieved of the obligation to pay royalties for the benefits received from the intangible asset . the multi-period excess earnings method is based on the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges . goodwill and indefinite-lived intangibles impairment we are required to test goodwill and indefinite-lived intangible assets for impairment at least annually and between annual tests whenever events indicate that an impairment may exist . when testing goodwill for impairment , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceeds the carrying value . developing the estimated future cash flows and fair value of the reporting unit requires management 's judgment in projecting revenues and profits , allocation of shared corporate costs , tax rates , capital expenditures , working capital requirements , discount rates and market multiples . many of the factors used in assessing fair value are outside the control of management , and it is reasonably likely that assumptions and estimates can change in future periods . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . story_separator_special_tag recently issued accounting pronouncements see `` recent accounting pronouncements '' in note 4 , `` summary of significant accounting policies '' to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for information related to new accounting standards . financial information by geographic area see note 16 , `` segment and geographic information '' to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for information related to our revenue and long-lived assets by geographic region . 1 lkq europe program we have undertaken the 1 lkq europe program to create structural centralization and standardization of key functions to facilitate the operation of the europe segment as a single business . under this multi-year program , we expect to recognize the following : restructuring expenses — non-recurring costs resulting directly from the implementation of the 1 lkq europe program from which the business will derive no ongoing benefit . see note 6 , “ restructuring and acquisition related expenses ” to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for further details . transformation expenses — period costs incurred to execute the 1 lkq europe program that are expected to contribute to ongoing benefits to the business ( e.g . non-capitalizable implementation costs related to a common erp system ) . these expenses are recorded in selling , general and administrative expenses . transformation capital expenditures — capitalizable costs for long-lived assets , such as software and facilities , that directly relate to the execution of the 1 lkq europe program . costs related to the 1 lkq europe program incurred to date are reflected in selling , general and administrative expenses and purchases of property , plant and equipment in our consolidated financial statements in part ii , item 8 of this annual report on form 10-k. beginning in the second half of march 2020 , management delayed certain projects under the 1 lkq europe program to reduce expenses and preserve capital in response to the covid-19 pandemic . based on our expectations in the second quarter of 2020 that the impacts on our business from covid-19 had stabilized , we restarted the program in july 2020 with substantially the same initiatives and projects as prior to the pandemic . while certain projects were delayed as a result of the covid-19 pandemic , such as our procurement initiatives and the new headquarters in switzerland , we also accelerated certain projects , such as the integration of previously acquired networks and sharing resources across lkq europe . we have continued the project on schedule during the second wave of covid-19 . we are targeting to complete the organizational design and implementation projects by the middle of 2021 , with the remaining projects scheduled to be completed by 2024. during the year ended december 31 , 2020 , we incurred $ 38 million in costs across all three categories noted above . we expect that costs of the program , reflecting all three categories noted above , will range between $ 60 million and $ 80 million in 2021 with an additional $ 80 million to $ 100 million between 2022 and the projected program completion date in 2024. in the future , we may also identify additional initiatives and projects under the 1 lkq europe program that may result in additional expenditures , although we are currently unable to estimate the range of charges for such potential future initiatives and projects . we expect the transformation and restructuring expenses will be entirely funded by the improved trade working capital initiatives across our europe segment . 39 covid-19 impact on our operations in late february 2020 , the italian government began placing restrictions on activity as a result of the covid-19 outbreak . sales volumes fell as fewer cars were on the road and less maintenance activity was performed . while our italian operation is an important part of our european business , it represented approximately 10 % of the segment 's revenue in 2019 , and thus the disruption did not have a material impact on the company . by mid-march , the covid-19 impact began spreading across the rest of the geographies where we operate at a very rapid pace . governments adopted aggressive restrictions on the operation of non-essential businesses and personal movement , which reduced miles driven and collisions . while our businesses have been deemed essential in most jurisdictions in which we operate , the change in behavior driven by the covid-19 restrictions negatively impacted our sales volume . our organic parts and services revenue declined by 16.8 % , 4.5 % , and 5.2 % in the second , third , and fourth quarters of 2020 , respectively , relative to the comparable prior periods . we showed improvement in the third quarter of 2020 as governments gradually lifted restrictions for non-essential businesses and personal movement , however , in the fourth quarter of 2020 revenue declined as certain jurisdictions put restrictions back into place . as anticipated , april experienced the most negative revenue impact , with organic parts and services revenue ( on a per day basis ) down 30.3 % compared to the prior year period . as movement restrictions lessened in may and june , we experienced organic parts and services revenue declines ( on a per day basis ) of 13.2 % and 7.3 % , respectively , compared to the prior year periods . however , the pace of improvement flattened into the third quarter as the increasing level of covid-19 cases , especially in the united states , slowed the recovery . during the third quarter , organic parts and services revenue declined by 4.5 % compared to the prior year period , a small improvement from the june decline of 7.3 % ( on a per day basis ) .
| overview we are a global distributor of vehicle products , including replacement parts , components and systems used in the repair and maintenance of vehicles , and specialty products and accessories to improve the performance , functionality and appearance of vehicles . buyers of vehicle replacement products have the option to purchase from primarily five sources : new products produced by oems ; new products produced by companies other than the oems , which are referred to as aftermarket products ; recycled products obtained from salvage and total loss vehicles ; recycled products that have been refurbished ; and recycled products that have been remanufactured . we distribute a variety of products to collision and mechanical repair shops , including aftermarket collision and mechanical products ; recycled collision and mechanical products ; refurbished collision products such as wheels , bumper covers and lights ; and remanufactured engines and transmissions . collectively , we refer to the four sources that are not new oem products as alternative parts . we are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products , with our sales , processing , and distribution facilities reaching most major markets in the united states and canada . we are also a leading provider of alternative vehicle replacement and maintenance products in germany , the united kingdom , the benelux region ( belgium , netherlands , and luxembourg ) , italy , czech republic , austria , slovakia , poland , and various other european countries . in addition to our wholesale operations , we operate self service retail facilities across the u.s. that sell recycled automotive products from end-of-life-vehicles . we are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the u.s. and canada . we are organized into four operating segments : wholesale – north america ; europe ; specialty and self service .
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changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future . on december 22 , 2017 , the united states government enacted the tax cuts and jobs act which significantly impacted our financial statements . for the year ended december 31 , 2017 story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto that appear elsewhere in this report . this discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties . actual results may differ materially from those discussed in these forward-looking statements due to a number of factors , including those set forth in the section entitled “ risk factors ” and elsewhere in this report . unless the context otherwise requires or unless otherwise indicates , references in this report to “ clearwater paper corporation , ” “ we , ” “ our , ” “ the company ” and “ us ” refer to clearwater paper corporation and its subsidiaries . overview recent events asset divestiture on august 21 , 2018 , we sold our ladysmith , wisconsin manufacturing facility for net cash proceeds of approximately $ 71 million and recorded a related gain on divested assets of $ 24.0 million . among other offsets , the net gain on divested assets includes $ 34.0 million of assets sold and a $ 14.0 million goodwill write-off . shelby expansion project we are nearing completion of building a new tissue machine and related converting equipment at a site adjacent to our existing facility in shelby , north carolina . the new tissue machine will produce a variety of high-quality private label ultra and premium bath , paper towel and napkin products . at full production capacity , the new tissue machine is expected to produce approximately 70,000 tons of tissue products annually . the estimated cost for the project includes approximately $ 360 million for the tissue machine , converting equipment and buildings , and approximately $ 60 million for warehouse expansion that will consolidate all southeastern warehousing in shelby . the total estimated cost of the project has increased by approximately $ 80 million from our original estimates due to the combination of external and internal factors , including acceleration of the startup of our converting operation in shelby to help improve the consumer products segment 's operating model by lowering transportation costs . the external and internal factors include a very tight construction labor market , additional engineering requirements , weather-related delays and significantly higher material costs , including steel costs that were exacerbated by tariffs first imposed in 2018. to partially offset the increased cost for the shelby expansion , we elected to reduce approximately $ 30 million in other capital expenditures originally forecasted for 2018. we project that the construction of the new facility will be completed in early 2019 and will be fully operational in 2020. as of december 31 , 2018 , we have incurred a total of $ 371.8 million on construction related activities and the new tissue machine in shelby , of which $ 295.7 million was incurred in 2018. we also capitalized $ 8.9 million of interest as of december 31 , 2018 , related to the shelby expansion , of which $ 7.7 million was incurred in 2018. selling , general and administrative cost structure changes in the second half of 2017 , we examined our selling , general and administrative , or sg & a , cost structure as part of our effort to maintain our longer-term competitiveness . as a result of this review , in the fourth quarter of 2017 we began executing on a plan that is expected to result in lower sg & a expenses beginning in 2018. in 2018 , we incurred $ 6.9 million of expenses associated with these efforts , which consisted primarily of severance and professional services expenses . as of december 31 , 2018 , we had achieved approximately $ 13 million in cost reductions , compared to 2017 sg & a expenses , as a result of these changes . goodwill impairment we conducted our annual impairment test as of the november 1 , 2018 measurement date and concluded , in connection with the preparation of our 2018 financial statements , that the estimated fair value of the consumer products reporting unit was below the carrying value of the reporting unit , resulting in a non-cash impairment charge of $ 195.1 million . this amount represents the remaining goodwill associated with our consumer products reporting unit that was originally recorded as the result of our acquisition of cellu tissue holdings , inc. in 2010 . 23 developments and trends in our business net sales prices for our consumer tissue products are affected by competitive conditions and the prices of branded tissue products . tissue has historically been one of the strongest segments of the paper and forest products industry due to its steady demand growth . our consumer products segment competes based on product quality , customer service and price . we deliver customer-focused business solutions by assisting in managing product assortment , category management , and pricing and promotion optimization . in recent years , the industry has seen an increase in premium and ultra tissue products as industry participants have added or improved through-air-dried , or tad , or equivalent production capacity as well as added conventional tissue capacity . demand and pricing for consumer tissue products is currently being affected by the increased capacity , as well as changing dynamics in the at-home tissue segment as a result of changing consumer purchasing habits , consolidations and new entrants in the consumer retail channel , and new and evolving sales and distribution channels . story_separator_special_tag as a significant producer of private label consumer tissue products , we package to order for retail chains , wholesalers and cooperative buying organizations . under our agreements with those customers , we are responsible for the expenses related to the unique packaging of our products for direct retail sale to their consumers . for 2018 , packaging costs decreased compared to 2017 , primarily due to reduced tissue finished good case shipments , which were partially offset by higher pricing for packaging materials . energy . we use energy in the form of electricity , hog fuel , steam and natural gas to operate our mills . energy prices may fluctuate widely from period-to-period due primarily to volatility in weather and electricity and natural gas rates . we generally strive to reduce our exposure to volatile energy prices through conservation . in addition , a cogeneration facility that produces steam and electricity and the recently installed continuous digester at our lewiston , idaho manufacturing site helps to lower our energy costs . energy costs for 2018 decreased compared to 2017 due to favorable natural gas and electricity prices in our pulp and paperboard segment , as well as lower natural gas usage at our idaho pulp and paperboard facility . to help mitigate our exposure to changes in natural gas prices , we use firm-price contracts to supply a portion of our natural gas requirements . as of december 31 , 2018 , these contracts covered approximately 14 % of our expected average monthly natural gas requirements for 2019 , which includes approximately 12 % of the expected average monthly requirements for the first quarter of 2019. our energy costs in future periods will depend principally on our ability to produce a substantial portion of our electricity needs internally , on changes in market prices for natural gas and on our ability to reduce our energy usage through conservation . maintenance and repairs . we regularly incur significant costs to maintain our manufacturing equipment . we perform routine maintenance on our machines and periodically replace a variety of parts such as motors , pumps , pipes and electrical parts . major equipment maintenance and repairs in our pulp and paperboard segment also require maintenance shutdowns approximately every 18 to 24 months at both our idaho and arkansas facilities , which increase costs and may reduce net sales in the quarters in which the major maintenance shutdowns occur . in 2018 , maintenance costs decreased compared to 2017 , due to no planned major maintenance at our pulp and paperboard facilities in 2018. in 2019 , we expect to have shutdowns for major maintenance at our idaho facility in the third quarter and at our arkansas facility in the fourth quarter . other . other costs consist of miscellaneous operating costs , which decreased for the year ended december 31 , 2018 compared to 2017 primarily due to lower costs for temporary employees , operating supplies , property taxes and purchased paper . these decreases were partially offset by a lower amount of insurance recoveries in 2018 , compared to 2017 , which included claim settlements for fires at our las vegas and shelby facilities . selling , general and administrative expenses selling , general and administrative expenses primarily consist of compensation and associated expenses for sales and administrative personnel , as well as commission expenses related to sales of our products . interest expense interest expense is comprised of interest on our $ 275 million aggregate principal amount of 4.5 % senior notes issued january 2013 and due 2023 , which we refer to as the 2013 notes , and interest on our $ 300 million aggregate principal amount of 5.375 % senior notes issued in 2014 and due in 2025 , which we refer to as the 2014 notes . interest expense also includes interest on the amount drawn under our revolving credit facilities and amortization of deferred issuance costs associated with all of our notes and revolving credit facilities . these interest expense amounts are partially offset by capitalized interest associated with major capital project spending . income taxes income taxes are based on reported earnings and tax rates in jurisdictions in which our operations occur and offices are located , adjusted for available credits , changes in valuation allowances and differences between reported earnings and taxable income using current tax laws and rates . 26 the following table details our tax provision and effective tax rates for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_3_th the rate for 2018 includes a $ 10.0 million benefit from federal tax credits for alternative energy production related to our lewiston pulp optimization project . the benefit for 2017 was primarily driven by a $ 70 million tax benefit resulting from the remeasurement of our net deferred tax liabilities following passage of the tax cuts and jobs act in december 2017. the estimated annual effective tax rate for 2019 is expected to be approximately 25 % . 27 results of operations our business is organized into two reporting segments : consumer products and pulp and paperboard . intersegment costs for pulp transferred from our pulp and paperboard segment to our consumer products segment are recorded at cost , and thus no intersegment sales or cost of sales for these transfers are included in our segments ' results . our financial and other data are not necessarily indicative of our future performance . year ended december 31 , 2018 compared to year ended december 31 , 2017 the following table sets forth data included in our consolidated statements of operations as a percentage of net sales . replace_table_token_4_th 1 in 2018 , the company adopted a new accounting standard , asu 2017-07 , which resulted in a change in the presentation of pension and postretirement benefit ( costs ) income other than service costs on a line outside of “ income from operations. ” the corresponding prior period amounts have been reclassified to conform with the current period presentation .
| cash flows summary replace_table_token_12_th 1 in 2018 , we adopted a new accounting standard , asu 2016-18 , which required a change in the presentation of cash , cash equivalents , and restricted cash in the statement of cash flows . as a result of adopting this standard , the net cash flows from operating activities increased by $ 1.0 million for 2017. there were no changes to the 2016 presentation as previously reported . operating activities —net cash flows from operating activities for 2018 decreased by $ 9.8 million compared to 2017. the decrease in operating cash flows was driven by a $ 27.7 million decrease in earnings , after adjusting for non cash related items , as well as a decrease of $ 5.6 million in cash flows generated from changes in working capital in 2018 compared to the same period in 2017. this decrease in net cash flows from operating activities was partially offset by a net $ 14.0 million decrease in taxes receivable in 2018 , as a result of cash received from income tax refunds , compared to a $ 10.6 million increase in taxes receivable in 2017. net cash flows from operating activities for 2017 increased by $ 5.9 million compared to 2016. the increase in operating cash flows was driven by $ 21.8 million of positive cash flows generated from changes in working capital in 2017 , largely 36 due to an increase in accounts payable and accrued liabilities , compared to $ 3.5 million of negative cash flows for changes in working capital in 2016. this increase in net cash flows from operating activities was partially offset by a net $ 10.6 million increase in taxes receivable in 2017 , compared to a $ 5.1 million decrease in taxes receivable in 2016. the change in the taxes receivable balance for 2017 was due to increased tax depreciation relating to
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to the transaction continue to hold ( either by the shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity ) a majority of the total voting power represented by the shares of voting capital stock of polar ( or the surviving entity ) outstanding immediately after the transaction , or ( iii ) all or substantially all of our assets are sold . 50 rajesh masina our executive employment agreement with rajesh masina , dated as of july 8 , 2016 , provides for at-will employment as our vice president operations at an annual base salary is $ 120,000 . on april 2 , 2018 , we appointed mr. masina as our chief operating officer and increased his annual base salary to $ 175,000 effective as of april 1 , 2018. mr. masina is eligible to receive an annual discretionary cash bonus to be paid based upon performance criteria set by our compensation committee , as more fully described above , and is eligible to participate in all of our employee benefit programs including our 2016 plan . upon termination by polar without cause , resignation by mr. masina for good reason or upon mr. masina 's disability , mr. masina is entitled to receive ( i ) a lump sum cash payment equal to 50 % of his then-current base salary , and ( ii ) continued health insurance coverage for six months . if mr. masina is terminated without cause or resigns for good reason within three months before or twelve months after a change in control , mr. masina is entitled to ( a ) a lump sum cash payment equal to 50 % of his then-current base salary , and ( b ) continued health insurance coverage for six months . the terms “ for good reason , ” “ cause ” and “ change in control in mr. masina 's executive employment agreement are identical to the definitions contained in mr. sams ' amended and restated executive employment agreement . luis zavala our executive employment agreement with luis zavala , dated as of july 8 , 2016 , provides for at-will employment as our vice president finance at an annual base salary of $ 120,000 . on april 2 , 2018 , we appointed mr. zavala as our chief financial officer and increased his annual base salary to $ 175,000 effective as of april 1 , 2018. mr. zavala is eligible to receive an annual discretionary cash bonus to be paid based upon performance criteria set by our compensation committee , as more fully described above , and is eligible to participate in all of our employee benefit programs including our 2016 plan . the general terms of mr. zavala 's executive employment agreement are identical to the terms of mr. masina 's executive employment agreement . 2016 omnibus incentive plan on july 8 , 2016 our board of directors and stockholders adopted the 2016 plan . the material terms of the 2016 plan are summarized below . summary of the material terms of the 2016 plan purpose . we established the 2016 plan to attract , retain and motivate our employees , officers and directors , to promote the success of our business by linking story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those discussed below . 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 ” and elsewhere in this annual report on form 10-k. our historical results are not necessarily indicative of the results to be expected for any future period , and results for any interim period are not necessarily indicative of the results to be expected for the full year . overview . we design , manufacture and sell dc power systems for applications primarily in the telecommunications market and , to a lesser extent , in other markets , including military , electric vehicle charging , cogeneration , distributed power and uninterruptable power supply . within the telecommunications market , our dc power systems provide reliable and low-cost dc power to service applications that do not have access to the utility grid ( i.e. , prime power applications ) or have critical power needs and can not be without power in the event of utility grid failure ( i.e. , back-up power applications ) . within this market , we offer the following three configurations of our dc power systems , with output power ranging from 5 kw to 20 kw : · dc base power systems . these systems integrate a dc generator and automated controls with remote monitoring , which are typically contained within an environmentally regulated enclosure . · dc hybrid power systems . these systems incorporate lithium-ion batteries ( or other advanced battery chemistries ) with our proprietary bms into our standard dc power systems . · dc solar hybrid power systems . these systems incorporate photovoltaic and other sources of renewable energy into our dc hybrid power system . story_separator_special_tag we recognize income taxes for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our financial statements or tax returns . a valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized . effects of inflation the impact of inflation and changing prices has not been significant on the financial condition or results of operations of our company . impact of recent accounting pronouncements see “ note 1 – organization and summary of significant accounting policies – recent accounting pronouncements ” of the notes to financial statements commencing on page f-11 of this annual report on form 10-k for management 's discussion as to the impact of recent accounting pronouncements . jumpstart our business startups act of 2012 on april 5 , 2012 , the jobs act was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , if as an “ emerging growth company ” we choose to rely on such exemptions , we may not be required to , among other things , ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , ( ii ) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the dodd-frank wall street reform and consumer protection act , ( iii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) , and ( iv ) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer 's compensation to median employee compensation . these exemptions will apply until we no longer meet the requirements of being an “ emerging growth company. ” we will remain an “ emerging growth company ” until the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1 billion or more ; ( ii ) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering ; ( iii ) the date on which we have issued more than $ 1 billion in nonconvertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the sec . financial performance summary – year ended december 31 , 2017 our revenues decreased by $ 8,382,768 , or 37 % , to $ 14,418,726 for the year ended december 31 , 2017 , as compared to $ 22,801,494 for the year ended december 31 , 2016. we reported net loss of $ 757,416 for 2017 , as compared to net income of $ 4,402,810 for 2016. the decrease in our financial performance during 2017 is a result of decreased revenues , combined with increased administrative , sales , and research and development expenditures as a percentage of net sales , as compared to 2016 . 34 the decrease in revenues during 2017 is a direct result of decreased sales of our dc power systems coupled with price reductions on our dc power systems that went into effect in the first quarter of 2017. our backlog as of december 31 , 2017 was $ 1,825,712 , with 44 % of that amount being attributable to verizon wireless , 37 % to our new tier-1 telecommunications wireless carrier customer , and 14 % to military customers . we anticipate that the majority of our future sales during the next twelve months will be comprised of dc power systems for applications within the mobile telecommunications tower market in the u.s. and international markets as we continue to expand our sales infrastructure in these markets . story_separator_special_tag 0.2pt ; text-indent : 35.8pt '' > depreciation and amortization expenses . during 2017 , depreciation and amortization expenses increased by $ 4,208 to $ 31,096 , as compared to $ 26,888 during 2016. the increase is attributed to the purchase of equipment for our manufacturing facility and three vehicles to support our technical support services . interest expense . during 2017 , our interest expense was $ 17,822 , as compared to $ 112,550 during 2016 , a decrease of $ 94,728. our interest expense is primarily attributable to interest paid for financing of production equipment .
| results of operations the tables presented below , which compare our results of operations from one period to another , present the results for each period , the change in those results from one period to another in both dollars and percentage change , and the results for each period as a percentage of net revenues . the columns present the following : · the first two data columns in each table show the absolute results for each period presented . · the columns entitled “ dollar variance ” and “ percentage variance ” shows the change in results , both in dollars and percentages . these two columns show favorable changes as a positive and unfavorable changes as negative . for example , when our net revenues increase from one period to the next , that change is shown as a positive number in both columns . conversely , when expenses increase from one period to the next , that change is shown as a negative in both columns . · the last two columns in each table show the results for each period as a percentage of net revenues . 35 comparison of the years ended december 31 , 2017 and 2016 replace_table_token_2_th net sales . net sales decreased by $ 8,382,768 , or 37 % , to $ 14,418,726 for 2017 , as compared to $ 22,801,494 for 2016. the decrease was primarily due to a decrease in sales of our dc power systems to verizon wireless , which for the last four years was our largest customer .
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in april 2011 , the company received a request for royalty payments from a representative of got . the company responded stating that the licenses were no longer in force and that the request for royalties was untimely . although got does not agree , both parties have expressed an interest in resolving the disagreement amicably . communications with got have continued to date as both companies work to resolve the issue . the company estimates that the range of loss contingency is between $ 0 and $ 250 thousand . operating leases the company leases office facilities and office , lab and factory equipment under operating leases . the company currently has lease commitments for space in hopewell junction , new york , bellevue , washington , and santa clara , california . the company 's manufacturing facilities are leased from ibm in hopewell junction , new york . emagin leases approximately 37,000 square feet to house its equipment for oled microdisplay fabrication and for research and development , an assembly area and administrative offices . the lease expires may 31 , 2014 with the option of extending the lease for five years . the corporate headquarters are located in bellevue , washington where emagin leases approximately 6,300 square feet . the lease expires on august 31 , 2014. in addition , the company leases approximately 2,400 square feet of office space for design and product development in santa clara , california and the lease expires on october 31 , 2015. the future minimum lease payments through 2015 are $ 1.8 million . rent expense was approximately $ 1.2 million for the years ended december 31 , 2012 and 2011 , respectively . the following is a schedule of future minimum lease payments under long-term operating leases ( in thousands ) : replace_table_token_23_th equipment purchase commitments emagin has committed to equipment purchases of $ 0.3 million at december 31 , 2012. employee benefit plans emagin has a defined contribution plan ( the 401 ( k ) plan ) under section 401 ( k ) of the internal revenue code , which is available to all employees who meet established eligibility requirements . employee contributions are generally limited to 15 % of the employee 's compensation . under the provisions of the 401 ( k ) plan , emagin may match a portion of the participating employees ' contributions . there was no matching contribution to the 401 ( k ) plan for the years ended december 31 , 2012 and 2011. separation and employment agreements 2012 effective as of december 25 , 2012 , susan r. taylor resigned as senior vice president , general counsel and corporate secretary and her employment agreement was terminated . effective as of may 8 , 2012 , the company and paul campbell entered into an executive employment agreement ( the “ employment agreement ” ) pursuant to which mr. campbell will continue serving as the company 's chief financial officer and treasurer until december 31 , 2013 unless the contract is terminated sooner pursuant to its terms . under the employment agreement , mr. campbell is paid an annual base salary of $ 318,000 and received stock options valued at $ 82,400 on may 8 , 2012 and $ 123,600 on december 31 , 2012. pursuant to the employment agreement , mr. campbell 's employment may be terminated by the company with or without cause and he may terminate his employment for good reason ( as defined in the agreement ) , among other reasons . if mr. campbell 's employment is terminated without cause or if he terminates it for good reason , then mr. campbell , at the company 's sole discretion , shall be entitled to the lesser of ( i ) the total amount of his base salary that remains unpaid under the employment agreement , which shall be paid monthly or ( ii ) monthly salary payments for twelve ( 12 ) months , based on his monthly rate of base salary at the date of such termination . mr. campbell shall also be entitled to receive ( i ) payment for accrued and story_separator_special_tag introduction the following discussion should be read in conjunction with the financial statements and notes thereto . our fiscal year ends december 31. this document contains certain forward-looking statements including , among others , anticipated trends in our financial condition and results of operations and our business strategy . these forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties . ( see part i , item 1a , `` risk factors `` ) . actual results could differ materially from these forward-looking statements . important factors to consider in evaluating such forward-looking statements include ( i ) changes in external factors or in our internal budgeting process which might impact trends in our results of operations ; ( ii ) unanticipated working capital or other cash requirements ; ( iii ) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate ; and ( iv ) various competitive market factors that may prevent us from competing successfully in the marketplace . overview we design , manufacture and supply miniature displays , which we refer to as oled-on-silicon-microdisplays , and microdisplay modules for virtual imaging , primarily for incorporation into the products of other manufacturers . microdisplays are typically smaller than many postage stamps , but when viewed through a magnifier they can contain all of the information appearing on a high-resolution personal computer screen . our microdisplays use organic light emitting diodes , or oleds , which emit light themselves when a current is passed through the device . story_separator_special_tag progress is generally based on a cost-to-cost approach however an alternative method may be used such as physical progress , labor hours or others depending on the type of contract . physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances . contract costs include all direct material , labor and subcontractor costs and an allocation of allowable indirect costs as defined by each contract , as periodically adjusted to reflect revised agreed upon rates . these rates are subject to audit by the other party . 16 index product warranty we offer a one-year product replacement warranty . in general , our standard policy is to repair or replace the defective products . we accrue for estimated returns of defective products at the time revenue is recognized based on historical activity as well as for specific known product issues . the determination of these accruals requires us to make estimates of the frequency and extent of warranty activity and estimate future costs to replace the products under warranty . if the actual warranty activity and or repair and replacement costs differ significantly from these estimates , adjustments to cost of revenue may be required in future periods . use of estimates in accordance with accounting principles generally accepted in the united states of america , management utilizes certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments related to , among others , allowance for doubtful accounts , warranty reserves , inventory reserves , stock-based compensation expense , deferred tax asset valuation allowances , litigation and other loss contingencies . management bases its estimates and judgments 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 could differ from those estimates . fair value of financial instruments emagin 's cash , cash equivalents , accounts receivable , short-term investments , and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments . in addition , the long-term investments are stated at cost which approximates fair value . emagin measured the fair value of our warrants based on the monte carlo simulation approach . stock-based compensation emagin maintains several stock equity incentive plans . the 2005 employee stock purchase plan ( the “ espp ” ) provides our employees with the opportunity to purchase common stock through payroll deductions . employees may purchase stock semi-annually at a price that is 85 % of the fair market value at certain plan-defined dates . as of december 31 , 2012 , the number of shares of common stock available for issuance was 300,000. as of december 31 , 2012 , the plan had not been implemented . the 2003 stock option plan ( the ” 2003 plan ” ) provides for grants of shares of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . under the 2003 plan , an iso grant is granted at the market value of our common stock at the date of the grant and a non-iso is granted at a price not to be less than 85 % of the market value of the common stock . these options have a term of up to 10 years and vest over a schedule determined by the board of directors , generally over a five year period . the amended 2003 plan provides for an annual increase in common stock available for issuance by 3 % of the diluted shares outstanding on january 1 of each year for a period of 9 years which commenced january 1 , 2005. in 2012 , there were no options granted from the 2003 plan . the 2008 incentive stock plan ( “ the 2008 plan ” ) adopted and approved by the board of directors on november 5 , 2008 provides for shares of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . the 2008 plan has an aggregate of 2,000,000 shares . in 2012 , there were no options granted from this plan . the 2011 incentive stock plan ( “ the 2011 plan ” ) adopted and approved by the shareholders on november 3 , 2011 provides for shares of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . the 2011 plan has an aggregate of 1,400,000 shares . in 2012 , there were 800,203 options granted from this plan . we account for the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors by estimating the fair value of stock awards at the date of grant using the black-scholes option valuation model . stock-based compensation expense is reduced for estimated forfeitures and is amortized over the vesting period using the straight-line method . see note 10 of the consolidated financial statements – stock compensation for a further discussion on stock-based compensation . income taxes we are required to estimate income taxes in each of the jurisdictions in which we operate . the process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for accounting and tax purposes . these differences result in deferred tax assets and liabilities .
| results of operations the following table presents certain financial data as a percentage of total revenue for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_1_th year ended december 31 , 2012 compared to year ended december 31 , 2011 revenues revenues increased approximately $ 1.4 million to a total of approximately $ 30.6 million for the year ended december 31 , 2012 from approximately $ 29.2 million for the year ended december 31 , 2011 , a 5 % increase . in 2012 , there was a 12 % increase in display revenue as a result of a 17 % increase in the number of displays sold however it was offset by a 4 % decrease in the average selling price which was a result of changes in product and customer mix as compared to 2011. the increase in display revenue was offset by a 22 % decrease in headset revenue as we allocated our production capacity to our customers ' display products and reduced the production of our 3d displays . in 2012 , contract revenue decreased 22 % as a result of a reduction in funding of research and development contracts . cost of goods sold cost of goods sold is comprised of costs of product revenue and contract revenue . cost of product revenue includes materials , labor and manufacturing overhead related to our products . cost of contract revenue includes direct and allocated indirect costs associated with performance on contracts . cost of goods sold for the year ended december 31 , 2012 was approximately $ 15.6 million as compared to approximately $ 13.7 million for the year ended december 31 , 2011 , an increase of approximately $ 1.9 million .
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our retail segment consumer products and services are sold directly to our customers through our stores , websites , mobile applications , catalogs and customer contact centers . our wholesale segment consists of the free people wholesale division that primarily designs , develops and markets young women 's contemporary casual apparel and shoes sold through specialty and department stores and third-party websites . our fiscal year ends on january 31. all references to our fiscal years refer to the fiscal years ended on january 31 in those years . for example , our fiscal year 2017 ended on january 31 , 2017. retail segment our omni-channel strategy enhances our customers ' brand experience by providing a seamless approach to the customer shopping experience . all available shopping channels are fully integrated , including stores , websites , mobile applications , catalogs and customer contact centers . our investments in areas such as marketing campaigns and technology advancements are designed to generate demand for the omni-channel and not the separate store or direct-to-consumer channels . store sales are primarily fulfilled from that store 's inventory , but may also be shipped from any of our fulfillment centers or from a different store location if an item is not available at the original store . direct-to-consumer orders are primarily shipped to our customers through our fulfillment centers , but may also be shipped from any store , or a combination of fulfillment centers and stores depending on the availability of particular items . direct-to-consumer orders may also be picked up at a store location . customers may also return certain merchandise purchased through direct-to-consumer channels at store locations . as our customers continue to shop across multiple channels , we have adapted our approach towards meeting this demand . due to the availability of like product in a variety of shopping channels , we source these products utilizing single skus based on the omni-channel demand rather than the demand of the separate channels . these and other technological capabilities allow us to better serve our customers and help us complete sales that otherwise may not have occurred due to out-of-stock positions . as a result of changing customer behavior and the substantial integration of the operations of our store and direct-to-consumer channels , we manage and analyze our performance based on a single omni-channel rather than separate channels and believe that the omni-channel results present the most meaningful and appropriate measure of our performance . over the next several years we plan to continue to shift investment to the direct-to-consumer channel to align with changing customer preferences . our comparable retail segment net sales data is equal to the sum of our comparable store and comparable direct-to-consumer channel net sales . a store is considered to be comparable if it has been open at least twelve full months , unless it was materially expanded or remodeled within that year or was not otherwise operating at its full capacity within that year . a direct-to-consumer channel is considered to be comparable if it has been operational for at least twelve full months . there is no overlap between comparable store net sales and comparable direct-to-consumer net sales . sales from stores and direct-to-consumer channels that do not fall within the definition of comparable store or channel are considered to be non-comparable . the effects of foreign currency translation are also considered non-comparable . 25 we monitor customer traffic , average unit selling price , average transactions per store and average units per transaction at our stores , and customer sessions , average order value and conversion rates on our websites and mobile applications . we believe that changes in any of these metrics may be caused by a response to our brands ' fashion offerings , our marketing and digital marketing campaigns , circulation of our catalogs and an overall growth in brand recognition . as of january 31 , 2017 , we operated 242 urban outfitters stores of which 181 were located in the united states , 18 were located in canada and 43 were located in europe . during fiscal 2017 , we opened four new urban outfitters stores , three located in the united states and one located in europe , and we closed two urban outfitters stores , one located in the united states and one located in europe . total store selling square footage increased 1.0 % over the prior year period to 2.2 million square feet . urban outfitters operates websites and mobile applications in north america and europe that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in our stores . urban outfitters offers a catalog in europe offering select merchandise , most of which is also available in our urban outfitters stores . urban outfitters targets young adults aged 18 to 28 through a unique merchandise mix , compelling store environment , websites and mobile applications . urban outfitters ' product offering includes women 's and men 's fashion apparel , intimates , footwear , beauty and accessories , home goods , activewear and electronics . a large portion of our merchandise is exclusive to urban outfitters , consisting of an assortment of product designed internally and designed in collaboration with third-party brands . urban outfitters ' north american and european retail segment net sales accounted for approximately 32.5 % and 7.4 % of consolidated net sales , respectively , for fiscal 2017 , compared to 32.5 % and 8.0 % , respectively , for fiscal 2016. the anthropologie group consists of the anthropologie , bhldn and terrain brands . we initially operated the bhldn and terrain brands as standalone concepts and opened two bhldn stores and two terrain garden centers . we ultimately determined that the bhldn and terrain brands were complementary to the anthropologie brand and integrated those brands into the anthropologie group during fiscal 2015 and 2016 , respectively . story_separator_special_tag free people 's range of tops , bottoms , sweaters , 27 dresses , intimates , shoes and activewear are sold through approximately 1,900 better department and specialty stores worldwide , third-party websites and our own free people stores . our wholesale segment net sales accounted for approximately 8.1 % of consolidated net sales for fiscal 2017 , compared to 7.6 % for fiscal 2016. critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states . these generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets , liabilities , net sales and expenses during the reporting period . our senior management has reviewed the critical accounting policies and estimates with the audit committee of our board of directors . our significant accounting policies are described in note 2 , summary of significant accounting policies , in the notes to our consolidated financial statements included in this annual report on form 10-k. we believe that the following discussion addresses our critical accounting policies , which are those that are most important to the portrayal of our financial condition , results of operations and cash flows and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . if actual results were to differ significantly from estimates made , the reported results could be materially affected . we are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates . revenue recognition we recognize revenue in our retail segment at the point-of-sale for merchandise sold or services provided at our store or when merchandise is shipped to the customer , in each case , net of estimated customer returns . revenue is recognized by our wholesale segment when merchandise is shipped to the customer , net of estimated customer returns . revenue is presented on a net basis and does not include any tax assessed by a governmental or municipal authority . payment for merchandise in our retail segment is tendered by cash , check , credit card , debit card or gift card . therefore , uncollectible accounts receivable for our retail segment is negligible and primarily results from unauthorized credit card transactions . we maintain an allowance for doubtful accounts for the wholesale segment accounts receivable , which we review on a regular basis and believe is sufficient to cover potential credit losses and billing adjustments . we account for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer . a liability is established and remains on our books until the card is redeemed by the customer , at which time we record the redemption of the card for merchandise as a sale , or when we determine the likelihood of redemption is remote . we determine the probability of the gift cards being redeemed to be remote based on historical redemption patterns . revenues attributable to the reduction of gift card liabilities for which the likelihood of redemption becomes remote are included in sales and are not material . our gift cards do not expire . sales return reserve we record a reserve for estimated product returns where the sale has occurred during the period reported , but the return is likely to occur subsequent to the period reported . the reserve for estimated 28 product returns is based on our most recent historical return trends . if the actual return rate is materially different than our estimate , sales returns would be adjusted in the future . as of january 31 , 2017 and 2016 , reserves for estimated sales returns totaled $ 24.9 million and $ 24.4 million , representing 4.2 % and 3.5 % of total liabilities , respectively . marketable securities all of our marketable securities as of january 31 , 2017 and january 31 , 2016 are classified as available-for-sale and are carried at fair value , which approximates amortized cost . interest on these securities , as well as the amortization of discounts and premiums , is included in interest income in the consolidated statements of income . we record unrealized gains and losses on these securities ( other than mutual funds , held in the rabbi trust for the urban outfitters , inc. non-qualified deferred compensation plan ( see note 4 , marketable securities , in the notes to our consolidated financial statements included in this annual report on form 10-k ) ) as a component of other comprehensive ( loss ) income in the consolidated statements of comprehensive income and in accumulated other comprehensive loss within shareholders ' equity in the consolidated balance sheets until realized , except when we consider declines in value to be other than temporary . other than temporary impairment losses related to credit losses are considered to be realized losses . mutual funds held in the rabbi trust have been accounted for under the fair value option , which results in all unrealized gains and losses being recorded in interest income in the consolidated statements of income . when available-for-sale securities are sold , the cost of the securities is specifically identified and is used to determine the realized gain or loss . securities classified as current assets have maturity dates of less than or equal to one year from the balance sheet date . securities classified as non-current assets have maturity dates greater than one year from the balance sheet date . inventory we value our inventory , which consists primarily of general consumer merchandise held for sale , at the lower of cost or net realizable value . cost is determined on the first-in , first-out method and includes the cost of merchandise and import related costs , including freight , import taxes and agent commissions .
| results of operations as a percentage of net sales the following table sets forth , for the periods indicated , the percentage of our net sales represented by certain income statement data and the change in certain income statement data from period to period . this table should be read in conjunction with the discussion that follows : replace_table_token_5_th fiscal 2017 compared to fiscal 2016 net sales in fiscal 2017 increased by 2.9 % to $ 3.5 billion , from $ 3.4 billion in fiscal 2016. the $ 100.7 million increase was attributable to a $ 71.9 million , or 2.3 % , increase in retail segment net sales and a $ 28.8 million , or 11.0 % , increase in wholesale segment net sales . retail segment net sales for fiscal 2017 accounted for 91.9 % of total net sales compared to 92.4 % of total net sales during fiscal 2016. the growth in our retail segment net sales during fiscal 2017 was due to an increase of $ 24.2 million , or 0.8 % , in retail segment comparable net sales , which includes our direct-to-consumer channel , and an increase of $ 47.7 million in non-comparable net sales , including new store net sales . retail segment comparable net sales increased 3.9 % at urban outfitters , were flat at free people and decreased 2.0 % at anthropologie group . the increase in retail segment comparable net sales was 33 driven by continued growth in the direct-to-consumer channel , which was partially offset by negative comparable store net sales . the direct-to-consumer net sales increase was driven by an increase in sessions and conversion rate , which was offset by a decrease in average order value . negative comparable store net sales resulted from decreased transactions , average unit selling price , while units per transaction remained flat .
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promoters and certain control persons see the heading transactions with related persons above . parents of the smaller reporting company we have no parents . director independence we do not have any independent directors serving on our board of directors . item 14 : principal accounting fees and services the following is a summary of the fees billed to us by our principal accountants during fiscal years ended march 31 , 2016 and 2015 : replace_table_token_8_th audit fees - consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our forms 10-q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements . audit-related fees - consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under audit fees. tax fees - consists of fees for professional services rendered by our principal accountants for tax compliance , tax advice and tax planning . all other fees - consists of fees for products and services provided by our principal accountants , other than the services reported under audit fees , audit-related fees , and tax fees above . policy on audit committee pre-approval of audit and permissible non-audit services of independent auditors we have not adopted an audit committee ; therefore , there is no audit committee policy in this regard . however , we do require approval in advance of the performance of professional services to be provided to us by our principal accountant . additionally , all services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant . 25 part iv item 15 : exhibits and financial statement schedules ( a ) ( 1 ) ( 2 ) financial statements . see the audited financial statements for the years ended march 31 , 2016 and 2015 , contained in part ii , item 8 , which are incorporated herein by this reference . ( a ) ( 3 ) ( i ) exhibits . the following exhibits are filed as part of this annual report : exhibit number description 31 certification pursuant to section 302 of the sarbanes-oxley act provided by william c. lachmar , president , ceo , chief financial officer and director . 32 certification pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 proved by william c. lachmar , president , ceo , chief financial officer and director . 26 exhibit number description 101.ins xbrl instance document 101.pre . xbrl taxonomy extension presentation linkbase 101.lab xbrl taxonomy extension label linkbase 101.def xbrl taxonomy extension definition linkbase 101.cal xbrl taxonomy extension calculation linkbase 101.sch xbrl taxonomy extension schema documents incorporated by reference where incorporated in this annual report prospectus dated january 7 , 2013 , and filed with the sec on january 8 , 2013 ( spin-off ) part i , item 1 8-k current report dated april 22 , 2013 , and filed with the sec on april 22 , 2013 ( spin-off payment date ) part i , item 1 annual report on form 10k for the fiscal year ended march 31 , 2015 3.1 articles of incorporation 3.2 bylaws 14 code of ethics part i , item 1 part iii , item 10 ( 1 ) summaries of all exhibits are modified in their entirety by reference to the actual exhibit . ( 2 ) these documents and related exhibits have previously been filed with the sec and are referenced for additional information . signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this annual report to be signed on its behalf by the undersigned , thereunto duly authorized . geo point resources , inc. date : july 14 , 2016 by : william c. lachmar william c. lachmar , president , ceo , chief financial officer , treasurer , controller and sole director pursuant to the requirements of the securities exchange act of 1934 this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . geo point resources , inc. date : july 14 , 2016 by : william c. lachmar william c. lachmar , president , ceo , chief financial officer , treasurer , controller and sole director date : july 14 , 2016 by : jeffrey r. brimhall jeffrey r. brimhall , secretary 27 story_separator_special_tag when used in this annual report , the words may , will , expect , anticipate , continue , estimate , project , intend , and similar expressions are intended to identify forward-looking statements regarding events , conditions , and financial trends that may affect our future plans of operations , business strategy , operating results , and financial position . persons reviewing this annual report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors . our future results and shareholder values may differ materially from those expressed in these forward-looking statements . many of the factors that will determine these results and values are beyond our ability to control or predict . we may be required to update these forward-looking statements from time to time as circumstances change ; however , we undertake no duty to do so . plan of operation we anticipate continuing our current business operations comprising the engineering and environmental divisions ' operations formerly conducted by geo point utah , and story_separator_special_tag promoters and certain control persons see the heading transactions with related persons above . parents of the smaller reporting company we have no parents . director independence we do not have any independent directors serving on our board of directors . item 14 : principal accounting fees and services the following is a summary of the fees billed to us by our principal accountants during fiscal years ended march 31 , 2016 and 2015 : replace_table_token_8_th audit fees - consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our forms 10-q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements . audit-related fees - consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under audit fees. tax fees - consists of fees for professional services rendered by our principal accountants for tax compliance , tax advice and tax planning . all other fees - consists of fees for products and services provided by our principal accountants , other than the services reported under audit fees , audit-related fees , and tax fees above . policy on audit committee pre-approval of audit and permissible non-audit services of independent auditors we have not adopted an audit committee ; therefore , there is no audit committee policy in this regard . however , we do require approval in advance of the performance of professional services to be provided to us by our principal accountant . additionally , all services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant . 25 part iv item 15 : exhibits and financial statement schedules ( a ) ( 1 ) ( 2 ) financial statements . see the audited financial statements for the years ended march 31 , 2016 and 2015 , contained in part ii , item 8 , which are incorporated herein by this reference . ( a ) ( 3 ) ( i ) exhibits . the following exhibits are filed as part of this annual report : exhibit number description 31 certification pursuant to section 302 of the sarbanes-oxley act provided by william c. lachmar , president , ceo , chief financial officer and director . 32 certification pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 proved by william c. lachmar , president , ceo , chief financial officer and director . 26 exhibit number description 101.ins xbrl instance document 101.pre . xbrl taxonomy extension presentation linkbase 101.lab xbrl taxonomy extension label linkbase 101.def xbrl taxonomy extension definition linkbase 101.cal xbrl taxonomy extension calculation linkbase 101.sch xbrl taxonomy extension schema documents incorporated by reference where incorporated in this annual report prospectus dated january 7 , 2013 , and filed with the sec on january 8 , 2013 ( spin-off ) part i , item 1 8-k current report dated april 22 , 2013 , and filed with the sec on april 22 , 2013 ( spin-off payment date ) part i , item 1 annual report on form 10k for the fiscal year ended march 31 , 2015 3.1 articles of incorporation 3.2 bylaws 14 code of ethics part i , item 1 part iii , item 10 ( 1 ) summaries of all exhibits are modified in their entirety by reference to the actual exhibit . ( 2 ) these documents and related exhibits have previously been filed with the sec and are referenced for additional information . signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this annual report to be signed on its behalf by the undersigned , thereunto duly authorized . geo point resources , inc. date : july 14 , 2016 by : william c. lachmar william c. lachmar , president , ceo , chief financial officer , treasurer , controller and sole director pursuant to the requirements of the securities exchange act of 1934 this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . geo point resources , inc. date : july 14 , 2016 by : william c. lachmar william c. lachmar , president , ceo , chief financial officer , treasurer , controller and sole director date : july 14 , 2016 by : jeffrey r. brimhall jeffrey r. brimhall , secretary 27 story_separator_special_tag when used in this annual report , the words may , will , expect , anticipate , continue , estimate , project , intend , and similar expressions are intended to identify forward-looking statements regarding events , conditions , and financial trends that may affect our future plans of operations , business strategy , operating results , and financial position . persons reviewing this annual report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors . our future results and shareholder values may differ materially from those expressed in these forward-looking statements . many of the factors that will determine these results and values are beyond our ability to control or predict . we may be required to update these forward-looking statements from time to time as circumstances change ; however , we undertake no duty to do so . plan of operation we anticipate continuing our current business operations comprising the engineering and environmental divisions ' operations formerly conducted by geo point utah , and
| results of operations year ended march 31 , 2016 , compared to year ended march 31 , 2015 during the fiscal year ended march 31 , 2016 , we had sales of $ 148,222 , compared to $ 229,807 for the fiscal year ended march 31 , 2015 , a decrease of $ 81,585. cost of sales for the fiscal year ended march 31 , 2016 , was $ 33,793 , compared to $ 60,334 for the previous fiscal year , a decrease of $ 26,541. in addition , during the year ended march 31 , 2016 , we have seen a decrease in the need for our services due to significant pressure on fees within our industry due to competition . due to our overall low cost structure , we believed our ability to provide our services at a lower cost than most competitors is resulting in a greater level of bid acceptance . however , our competitors continue to lower the prices for their services as well . general and administrative expenses during the fiscal year ended march 31 , 2016 , were $ 138,166 , compared to $ 148,763 , during the fiscal year ended march 31 , 2015 , a decrease of $ 10,597. the decrease in general and administrative expenses was directly related to a decrease in professional costs incurred in connection with the company 's public filings . we had other expenses , which primarily consisted of interest expense on the line of credit of $ 48,854 in fiscal 2016 and $ 35,099 in fiscal 2015 , an increase of $ 13,755 , primarily related to the increase in the balance of the line of credit .
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the adoption of these provision did not have material impact to our disclosures and are incorporated throughout the following content . non-gaap financial measures management 's discussion and analysis of financial condition and results of operations include non-gaap measures used to describe our performance . a reconciliation of those measures to gaap measures are provided in item 6 . “ selected financial data. ” the following is an overview of the non-gaap measures used and the reasons why management believes they are useful and important in understanding the company 's financial condition and results of operations are included below . consistent with the provisions of subpart 229.1400 of regulation s-k , “ disclosures by bank and savings and loan registrants , ” we present net interest income , net interest margin and efficiency ratios on a fully taxable equivalent ( “ te ” ) basis . the te basis adjusts for the tax-favored status of interest income from certain loans and investments using the statutory federal tax rate ( 21 % for 2020 , 2019 and 2018 , and 35 % for all other periods presented ) to increase tax-exempt interest income to a taxable-equivalent basis . this measure is the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources . we present certain additional non-gaap financial measures to assist the reader with a better understanding of the company 's performance period over period , as well as to provide investors with assistance in understanding the success management has experienced in executing its strategic initiatives . we use the term “ operating ” to describe a financial measure that excludes income or expense considered to be nonoperating in nature . items identified as nonoperating are those that , when excluded from a reported financial measure , provide management or the reader with a measure that may be more indicative of forward-looking trends in the company 's business . however , these non-gaap financial measures have inherent limitations and should not be considered in isolation or as a substitute for analysis of results or capital position under u.s. gaap . we define operating revenue as net interest income ( te ) and noninterest income less nonoperating revenue . we define operating pre-provision net revenue as operating revenue ( te ) less noninterest expense , excluding nonoperating items . management believes that operating pre-provision net revenue is a useful financial measure because it enables investors and others to assess the company 's ability to generate capital to cover credit losses through a credit cycle . executive overview for our company and countless others , 2020 was an eventful year . we dealt with the pandemic and the resultant broad impact to the economy , our communities and our operations ; executed a balance sheet de-risking strategy ; built credit reserves ; and continued to meet the financial needs of our customers with unwavering teamwork , commitment to service and strength during stressful times . at december 31 , 2020 , assets totaled $ 33.6 billion , up 10 % compared to the prior year , with loans of $ 21.8 billion and deposits totaling $ 27.7 billion . capital remained well above regulatory minimums , including the conservation buffer , and our liquidity position remains strong with more than $ 1.3 billion in short-term investments and approximately $ 17.5 billion of net availability from internal and external sources at december 31 , 2020. covid-19 pandemic the spread of covid-19 , the disease caused by a highly-contagious novel coronavirus , continues to be a global public health crisis . in march 2020 , following the world health organization 's declaration of covid-19 as a pandemic , efforts to contain the spread of the virus in the united states in the form of stay at home orders and or heavy restrictions on travel , entertainment , trade and retail operations triggered an abrupt , sharp decline in commercial and consumer activity . nearly a year later , the virus is not yet contained , and disruption of global financial markets continues . given the ongoing and dynamic nature of the circumstances , it is not possible to accurately predict the extent , severity or duration of these conditions or when normal economic and operating conditions will resume . 41 the federal government has introduced various measures to provide temporary economic aid to individuals and businesses financially impacted by covid-19 . in march 2020 , the federal reserve lowered the target range for the federal funds rate to a range of zero to 0.25 percent . the coronavirus aid , relief , and economic security ( cares ) act , a $ 2.2 trillion stimulus package , provided , among many other forms of fiscal and regulatory relief , enhanced unemployment benefits , direct payments to qualifying individuals , and forgivable loans to qualifying businesses under the small business administration 's paycheck protection program ( ppp ) . the december 2020 passage of the consolidated appropriations act , 2021 , a major government funding bill , provides for additional monetary stimulus to qualifying individuals and supplemental ppp loan opportunities to qualifying business entities . in addition to fiscal stimulus , the federal government 's public-private partnership , operation warp speed , was established in may 2020 to facilitate and accelerate the development , manufacturing , and distribution of covid-19 vaccines , therapeutics and diagnostics . in december 2020 , two varieties of a vaccine were given authorization for use in the united states . at present , access to either of these vaccines is largely limited to healthcare and other essential workers and individuals meeting certain age and or health-related criteria . story_separator_special_tag key underlying assumptions in the baseline forecast are that ( 1 ) there will be no widespread economic shutdown , ( 2 ) vaccines will be made widely available by february 2021 , resulting in infections abating by september 2021 , ( 3 ) unemployment rates averaging 8.1 % in 2020 , 6.9 % in 2021 , and 6.0 % in 2022 , ( 4 ) change in gross domestic product averages of -3.5 % in 2020 , 4.1 % in 2021 , and 4.7 % , a return to the pre-pandemic level , in 2022 , ( 5 ) the next round of fiscal stimulus would be smaller than previously expected and therefore less impactful , and ( 6 ) the federal reserve will continue to respond to the economic damage by maintaining rates at or near zero until late 2023. the alternative moody 's forecast scenarios have varying degrees of positive and negative severity of the outcome of the economic downturn , as well as varying shapes and length of recovery . management determined that assumptions provided for in the downside slower near-term growth and recessionary scenarios ( s-2 and s-3 , respectively ) were reasonably possible , and as such , the s-2 and s-3 scenarios were given consideration through probability weighting in our allowance for credit losses calculation at december 31 , 2020. we believe these alternative scenarios are less likely to occur than the baseline and have weighted them accordingly in developing our economic forecast . the extent to which observed and forecasted economic conditions deteriorate or recover beyond that currently forecasted may result in additional volatility and allowance for credit loss builds or releases in the future . changes in the depth and duration of these economic conditions may also require revisions to our currently forecasted cash flows that could result in impairment of certain intangible or other assets in future periods . given the above economic forecast , we expect to continue to have pressure on loan demand and earnings in the near term , the extent of which is difficult to estimate . in the latter half of 2020 , we have seen improved customer activity and revenue levels that we expect to continue into 2021. we have implemented several strategies to try to effectively manage our asset/liability mix to manage our resources and reduce costs until the economy returns to a more normalized level of activity in our region . the timing of such return pre-pandemic activity in our region remains uncertain . overview of 2020 financial results net loss for the year ended december 31 , 2020 was $ 45.2 million , or $ ( 0.54 ) per common share , compared to net income of $ 327.4 million in 2019 , or $ 3.72 per diluted common share . following is an overview of financial results for the year ended december 31 , 2020 : net loss of $ 45.2 million included $ 160.1 million of provision for credit losses attributable to the sale of a substantial portion of the energy loan portfolio , described below , and $ 442.8 million of provision for credit losses that was largely attributable to borrowers financially impacted by covid-19 operating pre-provision net revenue ( ppnr ) was $ 491.2 million , up $ 3 million compared to 2019 , with an increase in total revenue ( te ) of $ 54 million , partially offset by an increase in operating expense of $ 51 million net interest margin was 3.27 % , a decrease of 17 basis points ( bps ) from 2019 , as a result of both the sharp contraction in interest rates in response to economic disruption , and a changing asset/liability portfolio mix net operating loss carryback provisions included in the cares act contributed to additional tax benefits in 2020 , with a total net income tax benefit of $ 79.6 million for the year loans totaled $ 21.8 billion , up $ 0.6 billion from december 31 , 2019 , which includes ppp loans of $ 2.0 billion criticized commercial loans declined $ 188 million , or 32 % , and total nonperforming loans declined by $ 163 million , or 53 % , from december 31 , 2019 , reflecting the sale of a significant portion of our energy portfolio total assets at december 31 , 2020 were $ 33.6 billion , up $ 3.0 billion , or 10 % , from december 31 , 2019 deposits of $ 27.7 billion at december 31 , 2020 , increased $ 3.9 billion , or 16 % , compared to the prior to year ; noninterest bearing deposits comprised 44 % of total deposits at december 31 , 2020 , compared to 37 % for the prior year end capital ratios remain strong and well above regulatory minimums , with common equity tier 1 equity ( “ cet1 ” ) of 10.61 % at december 31 , 2020 , compared to 10.50 % at december 31 , 2019. dividends were maintained throughout 2020 43 as noted above , during the third quarter of 2020 , we closed the sale of $ 497 million of energy loans , including reserve based lending , midstream and nondrilling service credits , and received net proceeds of approximately $ 254.4 million . the primary objective of the sale was to remove risk in our loan portfolio by accelerating the disposition of assets that were impacted by ongoing issues in the energy industry , which were further exacerbated by the pandemic . as a result of this transaction , our credit quality metrics have improved year-over-year , despite the current economic environment . our 2020 results reflect both the continued focus on de-risking the balance sheet in light of today 's economic environment , including the energy loan sale , and the building of credit reserves for the expected impact to our economies related to the pandemic . despite those charges , our pre-provision net revenue improved and our capital remains solid .
| fourth quarter results net income for the fourth quarter of 2020 was $ 103.6 million , or $ 1.17 per diluted common share , compared to $ 79.4 million , or $ 0.90 , in the third quarter of 2020 and $ 92.1 million , or $ 1.03 , in the fourth quarter of 2019. the fourth quarter of 2019 included $ 3.9 million ( $ .03 per share after-tax impact ) of final merger costs associated with the september 2019 acquisition of midsouth bancorp , inc. highlights of our fourth quarter of 2020 results ( compared to third quarter 2020 ) : implemented tax strategies that added approximately $ 0.21 to fourth quarter diluted earnings per share pre-tax pre-provision net revenue increased $ 4.3 million to $ 130.6 million , with revenue up $ 1.7 million and operating expense down $ 2.6 million net interest margin ( te ) remained steady at 3.22 % , down 1 bp from the third quarter of 2020 nonperforming loans declined $ 37 million , or 20 % , and criticized commercial loans declined $ 19 million , or 5 % common equity tier 1 ratio was up 31 bps to 10.61 % tangible common equity ratio was up 11 bps to 7.64 % loans decreased $ 450 million driven by $ 318 million in net ppp loan forgiveness deposits increased $ 667 million primarily as a result of stimulus funds and seasonal year-end inflows total loans at december 31 , 2020 were $ 21.8 billion , a decrease of $ 450 million , or 2 % , from september 30 , 2020. loan growth in the company 's commercial markets was offset by the ppp loan forgiveness and net declines in other amortizing loan portfolios , such as our indirect lending portfolio that is in run-off . management expects loans to decline again in the first quarter of 2021 , as significantly more ppp loans are forgiven and opportunities for new organic growth remain low .
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concentration risk financial instruments , which potentially subject the company to concentrations of credit risk , principally consist of cash , cash equivalents , investment securities , accounts receivable , and restricted cash . the company invests its excess cash primarily in money market funds , u.s. treasury notes , and high quality , marketable debt instruments of corporations and government sponsored enterprises in accordance with story_separator_special_tag financial condition and results of operations . the following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report . past operating results are not necessarily indicative of results that may occur in future periods . this discussion contains forward-looking statements , which involve a number of risks and uncertainties . such forward-looking statements include statements about the benefits to be derived from nuplazid ® ( pimavanserin ) and from our drug candidates , the potential market opportunities for pimavanserin and our drug candidates , our strategy for the commercialization of nuplazid , our plans for exploring and developing pimavanserin for indications other than parkinson 's disease psychosis , our plans and timing with respect to seeking regulatory approvals , the potential commercialization of any of our drug candidates that receive regulatory approval , the progress , timing , results or implications of clinical trials and other development activities involving nuplazid and our drug candidates , our strategy for discovering , developing and , if approved , commercializing drug candidates , our existing and potential future collaborations , our estimates of future payments , revenues and profitability , our estimates regarding our capital requirements , future expenses and need for additional financing , possible changes in legislation , and other statements that are not historical facts , including statements which may be preceded by the words “ believes , ” “ expects , ” “ hopes , ” “ may , ” “ will , ” “ plans , ” “ intends , ” “ estimates , ” “ could , ” “ should , ” “ would , ” “ continues , ” “ seeks , ” “ aims , ” “ projects , ” “ predicts , ” “ pro forma , ” “ anticipates , ” “ potential ” or similar words . in addition , statements that “ we believe ” and similar statements reflect our beliefs and opinions on the relevant subject . these statements are based upon information available to us as of the date of this report , and while we believe such information forms a reasonable basis for such statements , such information may be limited or incomplete , and our statements should not be read to indicate that we have conducted an exhaustive inquiry into , or review of , all potentially available relevant information . these statements are inherently uncertain . for forward-looking statements , we claim the protection of the private securities litigation reform act of 1995. readers of this report are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date on which they are made . we undertake no obligation to update or revise publicly any forward-looking statements . forward-looking statements are not guarantees of performance . actual results or events may differ materially from those anticipated in our forward-looking statements as a result of various factors , including those set forth under the section captioned “ risk factors ” elsewhere in this report . information in the following discussion for a yearly period means for the year ended december 31 of the indicated year . overview background we are a biopharmaceutical company focused on the development and commercialization of innovative medicines to address unmet medical needs in central nervous system disorders . we have a portfolio of product opportunities led by our novel drug , nuplazid ( pimavanserin ) , which was approved by the u.s. food and drug administration , or fda , in april 2016 for the treatment of hallucinations and delusions associated with parkinson 's disease psychosis , or pd psychosis . we hold worldwide commercialization rights to pimavanserin . we launched nuplazid in the united states in may 2016 with the recommended dosing of 34 mg once a day taken as two 17 mg tablets . in june 2018 , the fda approved a 34 mg nuplazid capsule formulation and a 10 mg nuplazid tablet . we believe that pimavanserin has the potential to address important unmet medical needs in neurological and psychiatric disorders in addition to pd psychosis and we plan to continue to study the use of pimavanserin in multiple disease states . for example , we believe dementia-related psychosis represents one of our most important opportunities for further exploration . following our end-of-phase 2 meeting with the fda and agreement with the agency on our clinical development plan , we initiated our phase 3 harmony relapse prevention study in the fourth quarter of 2017 , which allows us to evaluate pimavanserin for a broader indication than ad psychosis alone . more specifically , harmony will evaluate pimavanserin for the treatment of hallucinations and delusions associated with dementia-related psychosis , which includes psychosis in patients with alzheimer 's disease , dementia with lewy bodies , parkinson 's disease dementia , vascular dementia and frontotemporal dementia . according to the national institute of mental health , major depressive disorder ( mdd ) affects approximately 16 million adults in the united states , with approximately 2.5 million adults treated with adjunctive therapy . the majority of people who suffer from mdd do not respond adequately to initial antidepressant therapy . in october 2018 , we announced positive top-line results from clarity , a phase 2 study evaluating pimavanserin for adjunctive treatment in 207 patients with mdd who had a confirmed inadequate response to existing first-line , ssri or snri , antidepressant therapy . story_separator_special_tag we currently are responsible for all costs incurred in the development of trofine tide , as well as milestone payments subject to achievement of development milestones . we use external service providers to manufacture our product candidates and for the majority of the services performed in connection with the preclinical and clinical development of pimavanserin . historically , we have used our internal research and development resources , including our employees and discovery infrastructure , across several projects and many of our costs have not been attributable to a specific project . accordingly , we have not reported our internal research and development costs on a project basis . to the extent that external expenses are not attributable to a specific project , they are included in other programs . the following table summarizes our research and development expenses for the years ended december 31 , 2018 , 2017 , and 2016 ( in thousands ) : replace_table_token_3_th although nuplazid was approved by the fda for the treatment of hallucinations and delusions associated with pd psychosis , at this time , due to the risks inherent in clinical development , we are unable to estimate with certainty the costs we will incur for the ongoing development of pimavanserin in additional indications , including those within dementia-related psychosis , schizophrenia and depression , and the development of trofinetide . due to these same factors , we are unable to determine with any certainty the anticipated completion dates for our current research and development programs . clinical development and regulatory approval timelines , probability of success , and development costs vary widely . while our current development efforts are primarily focused on advancing the development of pimavanserin in additional indications other than pd psychosis , 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 of the commercial potential of each opportunity and our financial position . we can not forecast with any degree of certainty which product opportunities will be subject to future collaborative or licensing arrangements , when such arrangements will be secured , if at all , and to what degree any such arrangements would affect our development plans and capital requirements . similarly , we are unable to estimate with certainty the costs we will incur for post-marketing studies that we committed to conduct in connection with fda approval of nuplazid . we expect our research and development expenses to increase and continue to be substantial as we conduct studies pursuant to our post-marketing commitments and pursue the development of pimavanserin in additional indications other than pd psychosis , including our studies within dementia-related psychosis , schizophrenia and depression indications and the development of trofinetide in rett syndrome . the lengthy process of completing clinical trials and supporting development activities and seeking regulatory approval for our product opportunities requires the expenditure of substantial resources . any failure by us or delay in completing clinical trials , or in obtaining regulatory approvals , could cause our research and development expenses to increase and , in turn , have a material adverse effect on our results of operations . selling , general and administrative expenses our selling , general and administrative expenses consist of salaries and other related costs , including stock-based compensation expense , for our commercial personnel , including our specialty sales force , our medical education professionals , and our personnel serving in executive , finance , business development , and business operations functions . also included in selling , general and administrative expenses are fees paid to external service providers to support our commercial activities associated with nuplazid , professional fees associated with legal and accounting services , costs associated with patents and patent applications for our intellectual property and charitable donations to independent charitable foundations that support parkinson 's disease patients 52 generally . we expect our selling , general and administrative expenses to increase in future periods to support commercial activities associated with nuplazid and our further development of pimavanserin in additional indications oth er than pd psychosis . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements . we have identified the accounting policies that we believe require application of management 's most subjective judgments , often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our actual results may differ substantially from these estimates under different assumptions or conditions . revenue recognition product sales , net effective january 1 , 2018 , we adopted asu 2014-09 , revenue from contracts with customers ( topic 606 ) , and applied all the related amendments to all of the contracts using the modified-retrospective method . while results for reporting periods beginning after january 1 , 2018 are presented under the new guidance , prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period . the accounting policy for revenue recognition for periods prior to january 1 , 2018 is described in note 2 of the notes to the consolidated financial statements included in our annual report . under topic 606 , we recognize revenue when our customer obtains control of promised goods or services , in an amount that reflects the consideration which we expect to receive in exchange for those goods or services .
| 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 quarterly and annual results of operations will be impacted for the foreseeable future by several factors , including the progress and timing of expenditures related to our commercial activities associated with nuplazid and the extent to which we generate revenue from product sales , our development of pimavanserin in additional indications other than pd psychosis , our development of trofinetide in rett syndrome , the progress and timing of expenditures related to studies pursuant to our post-marketing commitments , and the timing and amount of payments received pursuant to collaborations . further , we expect our sales allowances to vary from quarter to quarter due to fluctuations in our medicare part d coverage gap liability and the volume of purchases eligible for government mandated discounts and rebates , as well as changes in discount percentages that may be impacted by potential future price increases and other factors . 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 . 54 comparison of the years ended december 31 , 2018 and 2017 product sales , net net product sales , comprised of nuplazid , were $ 223.8 million and $ 124.9 million in 2018 and 2017 , respectively .
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the forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements . factors that might cause such a difference include , among other things , those set forth under “ risk factors ” and those appearing elsewhere in this form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date hereof . we assume no obligations to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements . readers are cautioned that any forward-looking statements are not guarantees of future performance . overview intl fcstone inc. and its consolidated subsidiaries ( “ we ” or the “ company ” ) form a financial services group employing 904 people in offices in twelve countries . the company 's services include comprehensive risk management advisory services for commercial customers ; execution of listed futures and options on futures contracts on all major commodity exchanges ; the sale of structured over-the-counter ( “ otc ” ) products in a wide range of commodities ; physical trading and hedging of precious and base metals and select other commodities ; trading of more than 130 foreign currencies ; market-making in international equities ; and debt origination and asset management . the company provides these services to a diverse group of more than 20,000 customers located in more than 100 countries , including producers , processors and end-users of nearly all widely-traded physical commodities ; commercial counterparties who are end-users of our products and services ; governmental and non-governmental organizations ; and commercial banks , brokers , institutional investors and major investment banks . as discussed in item 6 - selected financial data , u.s. gaap requires the company to carry derivatives at fair value but physical commodities inventory at the lower of cost or fair value . these requirements may have a significant temporary impact on our reported earnings . under u.s. gaap , gains and losses on commodities inventory and derivatives which the company intends to be offsetting are often recognized in different periods . additionally , in certain circumstances , u.s. gaap does not require us to reflect changes in estimated values of forward commitments to purchase and sell commodities . for these reasons , management primarily assesses the company 's operating results on a marked-to-market basis . management relies on these 28 adjusted operating results to evaluate the performance of the company 's commodities business segment and its personnel , as well as the overall company . additionally , the company focuses on mitigating exposure to market risk , ensuring adequate liquidity to maintain daily operations and making non-interest expenses variable , to the greatest extent possible . fiscal 2011 highlights record operating and adjusted operating revenues of $ 423.2 million and $ 414.8 million , respectively . fiscal year 2011 average customer segregated assets on deposit of $ 1.8 billion , a 61 % increase over fiscal year 2010. successful completion and integration of the acquisitions of hencorp futures , ambrian commodities limited and certain assets of hudson capital energy , llc . secured london metals exchange category two membership . opened new offices in shangai , china ; asuncion , paraguay ; maringa , brazil ; and porto alegre , brazil . fiscal 2011 otc contract volumes increased 126 % , from fiscal 2010. in october 2010 , completed the replacement of a one year , $ 75.0 million syndicated committed loan facility , with a $ 75.0 million three year syndicated committed loan facility , which was subsequently increased to $ 85.0 million in september 2011. recent events affecting the financial services industry on october 31 , 2011 , mf global holdings ltd. ( `` mf global '' ) , the parent company of the jointly registered futures commission merchant and broker-dealer , mf global inc. , filed a voluntary petition for relief under chapter 11 of the united states bankruptcy code . the company has no material exposure to mf global . the company has two wholly owned subsidiaries which introduced customers to mf global inc. following the bankruptcy filing , the cme group inc. selected fcstone , llc as one of five fcm 's chosen to transfer blocks of mf global customers to . during this process , fcstone , llc has opened accounts for the customers of these introducing brokers and completed the transfer of their positions . in conjunction with the block transfer and during the subsequent period , the company has opened over 2,300 new accounts for former mf global customers . in addition , on november 25 , 2011 , the company arranged with the trustee of mf global 's uk operations to acquire the metals division of mf global uk limited ( in special administration ) . as part of the arrangement , the company has received assignment of customer accounts and customer account documentation . additionally , the company has hired more than 50 professional staff based in london , new york , hong kong and sydney from mf global 's metals trading business based in london . the company anticipates that a substantial number of the customers of this metals trading business , which serves institutional investors and financial services firms in the americas , europe , and the asia-pacific region , will elect to become active trading customers of the company . as part of this transaction , intl fcstone ( europe ) has received approval from the london metals exchange ( `` lme '' ) to upgrade its lme category two membership to a lme category one ring dealing membership . at the time of mf global bankruptcy filing , it notified the cftc of potential deficiencies in customer segregated futures accounts held at mf global inc. the cftc has extensive regulations to provide for the safety and security of customer assets on deposit with fcms . story_separator_special_tag 2010 operating revenues vs. 2009 operating revenues the acquisition of fcstone was completed on september 30 , 2009 , therefore the results of fcstone are reflected in the results of operations for the company for the year ended september 30 , 2010 , but are not reflected in the year ended september 30 , 2009. the company 's operating revenues under u.s gaap for 2010 and 2009 were $ 269.0 million and $ 90.6 million , respectively . this 197 % increase in operating revenue is primarily a result of the fcstone acquisition . the operations of fcstone contributed $ 187.6 million in operating revenues for 2010. for the year ended august 31 , 2009 , fcstone reported total revenues of $ 248.9 million . there were increases in operating revenues of 576 % in the c & rm segment and 57 % in the foreign exchange segment , partially offset by a decrease of 47 % in the securities segment . the ces segment , which consists primarily of revenues from fcstone , contributed $ 61.8 million in operating revenues in 2010 , while the other segment contributed $ 8.9 million in operating revenues compared to $ 3.4 million in 2009. operating revenues increased in the c & rm segment in 2010 with both exchange-traded and otc contract volumes increasing in the soft commodities product line . additionally , our precious metals product line was affected by elevated prices , which constrained volumes and customer activity , and our base metals product line was positively affected by increased customer demand and wider spreads which augmented trading profits . operating revenues in the foreign exchange segment in 2010 were affected by narrower spreads , despite an increase in customer trade volumes , primarily with financial institutions . operating revenues in the securities segment in 2010 were affected by low levels of volume and volatility in the international equities markets , which had reached unprecedented levels in 2009. operating revenues in the ces segment in 2010 were constrained by continued low short-term interest rates , despite an increase in customer deposits , and adversely affected by a trading loss on positions acquired from an under-margined clearing customer . while the lack of demand and risk intolerance caused by the global financial crisis continues to adversely affect our debt arrangement and placement business , the acquisition of cibsa in argentina in april 2009 has increased our debt trading revenues . see 2010 vs. 2009 segment analysis below for additional information on activity in each of the segments . operating revenues for 2010 include a mark-to-market gain of $ 2.5 million on interest rate swap derivative contracts entered into during the year to manage a portion of our aggregate interest rate position . the company 's adjusted operating revenues were $ 275.0 million in 2010 , compared with $ 97.5 million in 2009 , an increase of $ 177.5 million . the only difference between operating revenues and adjusted operating revenues , a non-gaap measure , is the gross mark-to-market adjustment of $ 6.0 million and $ 6.9 million for 2010 and 2009 , respectively . the gross marked-to-market adjustment only affects the adjusted operating revenues in the c & rm segment . adjusted operating revenues are identical to operating revenues in all other segments . 2011 interest expense vs. 2010 interest expense interest expense : interest expense increased from $ 9.9 million for 2010 to $ 11.3 million for 2011 . this increase in interest expense was primarily driven by increases in the base metal product line and commodity financing business during 2011 , as well as an increase in quarterly commitment fees and amortizable line of credit fees on renewed and expanded committed credit facilities closed in the fourth quarter of 2010 and first quarter of 2011 . the increase in interest expense was partially offset by a decrease in interest on subordinated debt , as fcstone , llc , our futures commission merchant , repaid substantially all of its subordinated debt during the first six months of 2010 , and did not renew the subordinated credit facility . in 2008 , the company entered into two three-year interest rate swaps for a total notional value of $ 100 million , which were originally designated as cash flow hedges . the company previously discontinued hedge accounting for one of the swaps . hedge accounting for the remaining swap was discontinued during 2011 , which resulted in reclassifying a portion of the deferred loss to earnings during the year . during 2011 , both interest rate swap contracts , each with a notional value of $ 50 million , matured . see note 6 to the consolidated financial statements for further information . 2010 interest expense vs. 2009 interest expense interest expense : interest expense increased from $ 8.0 million in 2009 to $ 9.9 million in 2010. excluding interest expense in the operations of fcstone of $ 3.2 million , interest expense decreased by $ 1.3 million , or 16 % , as a result of both a decrease in average borrowings and lower interest rates . in 2008 , the company entered into two three-year interest rate swaps for a total notional value of $ 100 million . these were designated as cash flow hedges . the company discontinued hedge accounting for 32 one of the swaps during 2010 , which resulted in reclassifying a portion of the deferred loss to earnings during 2010. see note 6 to the consolidated financial statements for further information . the company pays a fixed 3.66 % ( on average ) , and receives a variable rate equal to one-month libor . one-month libor was lower than the fixed rate of 3.66 % paid by the company for much of 2010 , resulting in a net interest expense on the swaps . the effective portion of the change in cash flows from the hedge of the remaining forecasted payments during 2010 had the effect of increasing the company 's reported interest expense by $ 1.9 million .
| results of operations set forth below is the company 's discussion of the results of its operations , as viewed by management , for the fiscal years ended 2011 , 2010 and 2009 , respectively . this discussion refers to both u.s. gaap results and adjusted non-gaap marked-to-market information , in accordance with the information presented in item 6 , selected financial data . for the foreign exchange , securities , clearing and execution services ( `` ces '' ) and other segments , there are no differences between the u.s. gaap results and the adjusted non-gaap marked-to-market results . only the commodity and risk management services ( `` c & rm '' ) segment has differences between the u.s. gaap results and the adjusted non-gaap marked-to-market results . however , this means that there are differences between the u.s. gaap basis and the non-gaap marked-to-market basis total operating revenues , total contribution and net income . please note that any term below that contains the word ‘ adjusted ' refers to non-gaap , marked-to-market information . the discussion below relates only to continuing operations . all revenues and expenses , including income tax expense , relating to discontinued operations have been removed from disclosures of total revenues and expenses in all periods and are reflected net , within the income ( loss ) from discontinued operations amounts . financial overview the following table shows an overview of our financial results : financial overview ( unaudited ) 30 replace_table_token_4_th 2011 operating revenues vs. 2010 operating revenues the company 's operating revenues under u.s. gaap for 2011 and 2010 were $ 423.2 million and $ 269.0 million , respectively . this 57 % increase in operating revenue was primarily driven by a 95 % increase in the operating revenues in the c & rm segment .
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in addition to our core ltl services , we offer a broad range of value-added services including container drayage , truckload brokerage , supply chain consulting and warehousing . more than 95 % of our revenue has historically been derived from transporting ltl shipments for our customers , whose demand for our services is generally tied to industrial production and the overall health of the u.s. domestic economy . in analyzing the components of our revenue , we monitor changes and trends in our ltl services using the following key metrics , which exclude certain transportation and logistics services where pricing is generally not determined by weight , commodity or distance : ltl revenue per hundredweight – this measurement reflects the application of our pricing policies to the services we provide , which are influenced by competitive market conditions and our growth objectives . generally , freight is rated by a class system , which is established by the national motor freight traffic association , inc. light , bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense , heavy freight . fuel surcharges , accessorial charges , revenue adjustments and revenue for undelivered freight are included in this measurement . revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy ; however , we believe including it in our revenue per hundredweight metrics results in a better indicator of changes in our yields by matching total billed revenue with the corresponding weight of those shipments . revenue per hundredweight is a commonly-used indicator of pricing trends , but this metric can be influenced by other factors , such as changes in fuel surcharges , weight per shipment , length of haul and the class , or mix , of our freight . as a result , changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates . ltl weight per shipment – fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers , as well as changes in the number of units included in a shipment . generally , increases in weight per shipment indicate higher demand for our customers ' products and overall increased economic activity . changes in weight per shipment can also be influenced by shifts between ltl and other modes of transportation , such as truckload and intermodal , in response to capacity , service and pricing issues . fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight , as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight . average length of haul – we consider lengths of haul less than 500 miles to be regional traffic , lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic , and lengths of haul in excess of 1,000 miles to be national traffic . this metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics , and also allows for comparison with other transportation providers serving specific markets . by analyzing this metric , we can determine the success and growth potential of our service products in these markets . changes in length of haul generally have a direct effect on our revenue per hundredweight , as an increase in length of haul will typically cause an increase in revenue per hundredweight . our primary revenue focus is to increase “ density , ” which is shipment and tonnage growth within our existing infrastructure . increases in density allow us to maximize our asset utilization and labor productivity , which we measure over many different functional areas of our operations including linehaul load factor , pickup and delivery ( “ p & d ” ) stops per hour , p & d shipments per hour , platform pounds handled per hour and platform shipments per hour . in addition to our focus on density and operating efficiencies , it is critical for us to obtain an appropriate yield on the shipments we handle . we manage our yields by focusing on individual account profitability . we believe yield management and improvements in efficiency are key components in our ability to produce profitable growth . our primary cost elements are direct wages and benefits associated with the movement of freight , operating supplies and expenses , which include diesel fuel , and depreciation of our equipment fleet and service center facilities . we gauge our overall success in managing costs by monitoring our operating ratio , a measure of profitability calculated by dividing total operating expenses by revenue , which also allows for industry-wide comparisons with our competitors . 19 we continually upgrade our technological capabilities to improve our customer service and lower our operating costs . our technology provides our customers with visibility of their shipments throughout our network , increases the productivity of our workforce and provides key metrics that we use to monitor and enhance our processes . story_separator_special_tag increased our utilization of company employees and equipment . the additional freight density contributed to a slight improvement in our p & d and platform shipments per hour , which improved 1.1 % and 1.8 % , respectively from 2014. our aggregate productive labor costs increased to 27.9 % of revenue in 2015 as compared to 25.8 % in 2014 , while our other salaries and wages increased to 11.9 % of revenue in 2015 as compared to 11.5 % in 2014. employee benefit costs increased $ 44.9 million , or 13.2 % primarily due to an increase in the number of full-time employees eligible for benefits , certain enhancements to paid-time-off benefits and an increase in our workers compensation expense . these increases were partially offset by a reduction in expense for certain retirement benefit plans directly linked to the share price of our common stock . in the fourth quarter of 2015 our group health costs increased and we anticipate this trend to continue into 2016. story_separator_special_tag we regularly monitor the components of our pricing , including base freight rates and fuel surcharges . we also address any individual account profitability issues with our customers as part of our effort to minimize the negative impact on our profitability that would likely result from a rapid and significant change in any of our operating expenses . 23 operating costs and other expenses salaries , wages and benefits increased $ 210.5 million , or 18.0 % in 2014 due to a $ 170.4 million increase in salaries and wages and a $ 40.1 million increase in benefit costs . the increases in salaries and wages , excluding benefits , were primarily due to the 13.5 % increase in the average number of full-time employees over 2013 and the annual wage increases in 2013 and 2014. the increase in employees primarily related to our productive labor workforce , which was necessary to keep pace with our increased volumes during the year . in addition to the increase in employees , our costs were also impacted by a productivity decline in our platform operations that increased these costs as a percent of revenue . our aggregate productive labor costs increased to 25.8 % of revenue in 2014 as compared to 25.5 % in 2013 , while our other salaries and wages improved to 11.5 % of revenue in 2014 as compared to 11.7 % in 2013. employee benefit costs increased $ 40.1 million primarily due to the increase in the number of full-time employees eligible for benefits , which led to higher payroll-related taxes and paid time off benefits . our employee benefit costs also increased for certain retirement benefit plans directly linked to the improvement in our net income and the share price of our common stock . the cost for our health and dental benefit plans increased over 2013 , primarily due to an increase in the total number of eligible employees in the plans . this increase was partially offset by a reduction in the average cost per employee for these benefits in 2014 as compared to 2013. as a result , health and dental benefit expenses decreased as a percent of salaries and wages , which contributed to the overall improvement in total employee benefit costs as a percent of salaries and wages to 32.8 % for 2014 from 34.6 % for 2013. operating supplies and expenses increased $ 47.5 million in 2014 as compared to 2013 , although these costs as a percent of revenue improved to 15.5 % of revenue in 2014 from 16.5 % in 2013. the cost of diesel fuel , excluding fuel taxes , represents the largest component of operating supplies and expenses , and can vary based on both consumption and average price per gallon . our total miles driven in 2014 increased 16.4 % as compared to 2013 , which compared favorably to our diesel fuel consumption , which increased only 13.0 % during the same period . our consumption trends continued to improve due to certain operational initiatives to increase our average miles per gallon and the increased use of new fuel-efficient equipment . our cost of diesel fuel , excluding fuel taxes , also benefited from a decrease in our average cost per gallon of 4.3 % for 2014 from 2013. we do not use diesel fuel hedging instruments and are therefore subject to market price fluctuations . other operating supplies and expenses , excluding diesel fuel , remained relatively consistent as a percent of revenue between the periods compared . depreciation and amortization expense increased $ 19.4 million primarily due to the increase in depreciable assets acquired through our 2014 and 2013 capital expenditure plans . as a percent of revenue , our depreciation and amortization expense decreased to 5.3 % in 2014 as compared to 5.4 % in 2013. purchased transportation expense increased $ 22.9 million , or 21.5 % , in 2014 as compared to 2013. these costs , however , were relatively consistent as a percent of revenue between the periods compared . we primarily utilized purchased transportation services from third-party providers in 2014 to support our container drayage , truckload brokerage and international freight-forwarding services . to a lesser extent , we also utilized purchased transportation in our ltl operations to maximize the efficient movement of freight . miscellaneous expenses , net , increased $ 15.6 million in 2014 due to changes in our gains and losses recognized on the sale of operating assets , increased consulting costs associated with our ongoing technology enhancement efforts and increased legal costs . net gains on the sales of operating assets in 2014 were $ 0.7 million as compared to net gains of $ 5.7 million in 2013. our effective tax rate for 2014 was 38.1 % as compared to 37.3 % in 2013. our effective tax rates in 2014 and 2013 were favorably impacted by various tax credits , including credits for the use of alternative fuel in operations . our effective tax rate generally exceeded the federal statutory rate of 35 % due to the impact of state taxes , and to a lesser extent , certain other non-deductible items . 24 liquidity and capital resources a summary of our cash flows is presented below : replace_table_token_13_th the change in our cash flows provided by operating activities in 2015 from 2014 was due primarily to fluctuations within our working capital accounts , which include changes in income taxes , customer receivables and certain accrued liabilities . in addition , an increase in our net income and higher depreciation and amortization expenses in 2015 as compared to 2014 , as described above in “ results of operations , ” also resulted in increased cash flows provided by operating activities . the change in our cash flows provided by operating activities in 2014 from 2013 was due primarily to the significant improvement in our net income and higher depreciation and amortization expenses in 2014 as compared to 2013 , which is more fully described above in “ results of operations .
| results of operations the following table sets forth , for the years indicated , expenses and other items as a percentage of revenue from operations : replace_table_token_10_th ( 1 ) for the purpose of this table , interest expense is presented net of interest income . 20 2015 compared to 2014 key financial and operating metrics for 2015 and 2014 are presented below : replace_table_token_11_th in 2015 , we produced revenue growth of 6.6 % , increased net income by 13.9 % and increased diluted earnings per diluted share by 15.2 % . these results were achieved during a period of general softening in the domestic economic environment . we believe our revenue growth was primarily driven by an increase in tonnage attributable to winning additional market share , as our new and existing customers increasingly respond to the value of our premium service . our tonnage growth resulted from an increase in shipments , which was partially offset by the decline in weight per shipment . we believe our long-term strategy of providing industry-leading service continues to drive our market share growth , while also allowing us to remain committed to our disciplined yield management process . our tonnage growth during 2015 led to increased density within our freight movement operations and service center network . the additional freight density and our focus on operational efficiency led to productivity improvements in both of our platform and p & d operations . these improvements , when combined with our disciplined yield management process , generated a 100 basis-point improvement in our operating ratio in 2015 , which represents the sixth consecutive year that our operating ratio has improved at least 100 basis points . as a result , our net income and earnings per diluted share in 2015 were $ 304.7 million and $ 3.57 , respectively . revenue our revenue in 2015 increased $ 184.5 million , or 6.6 % as compared to 2014. ltl tonnage increased 7.4 % primarily due to the 11.6
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products include catalysts , absorbents , equipment and high-performance materials , devices for measurement , regulation , control and metering of gases and electricity , and metering and communications systems for water utilities and industries . software is provided to support process technologies supporting automation and to monitor a variety of industrial processes used in industries such as oil and gas , chemicals , petrochemicals , metals , minerals and mining industries . services are provided for installation and maintenance of products . safety and productivity solutions a global story_separator_special_tag ( dollars in millions , except per share amounts ) the following management 's discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of honeywell international inc. and its consolidated subsidiaries ( honeywell or the company ) for the three years ended december 31 , 2018. all references to notes relate to notes to consolidated financial statements in item 8. financial statements and supplementary data . on october 29 , 2018 , the company completed the tax-free spin-off to honeywell shareowners of its homes and global distribution business , part of home and building technologies ( renamed honeywell building technologies following the spin-off ) , into a standalone publicly-traded company , resideo technologies , inc. ( resideo ) . the assets and liabilities associated with resideo have been removed from the company 's consolidated balance sheet as of the effective date of the spin-off . the results of operations for resideo are included in the consolidated statement of operations through the effective date of the spin-off . on october 1 , 2018 , the company completed the tax-free spin-off to honeywell shareowners of its transportation systems business , part of aerospace , into a standalone publicly-traded company , garrett motion inc. ( garrett ) . the assets and liabilities associated with garrett have been removed from the company 's consolidated balance sheet as of the effective date of the spin-off . the results of operations for garrett are included in the consolidated statement of operations through the effective date of the spin-off . on october 1 , 2016 , the company completed the tax-free spin-off to honeywell shareowners of its resins and chemicals business , part of performance materials and technologies , into a standalone , publicly-traded company ( named advansix inc. ( advansix ) ) . the assets and liabilities associated with advansix have been removed from the company 's consolidated balance sheet as of the effective date of the spin-off . the results of operations for advansix are included in the consolidated statement of operations through the effective date of the spin-off . on september 16 , 2016 , the company completed the sale of the aerospace government services business , honeywell technology solutions inc ( htsi or government services business ) . the assets and liabilities associated with htsi have been removed from the company 's consolidated balance sheet as of the effective date of the sale . the results of operations for htsi are included in the consolidated statement of operations through the effective date of the sale . executive summary during 2018 , honeywell continued to deliver on our financial commitments and to create long-term shareowner value . we grew net sales 3 % to $ 41,802 million and grew income before taxes 8 % to $ 7,487 million . the improvement in year over year income before taxes was attributable to both sales growth as well as operational improvements that increased operating margins . we believe our ability to consistently grow earnings derives from the consistent , rigorous deployment of the honeywell operating system as well as a long history of identifying and investing in productivity initiatives . we have continued our focus on commercial excellence processes , such as velocity product development ( vpd ) , to drive higher sales at better margins . we are careful not to allow the attainment of short-term financial results to imperil the creation of long-term , sustainable shareowner value . hence , as part of the announcement in october 2017 of the results of our portfolio review , we affirmed our commitment to a strategy and investments that are intended to enable us to become one of the world 's leading software industrial companies . our refocused strategy and investments are intended to take better advantage of our core technological and software strengths in high growth businesses that participate in six attractive industrial end markets . each of these end markets is characterized by favorable global mega-trends including energy efficiency , infrastructure investment , urbanization and safety . 17 in 2018 we deployed capital of $ 7.6 billion , including the following : capital investment we invested over $ 0.8 billion in capital expenditures focused on high return projects . dividends in 2018 , we paid cash dividends of $ 2.3 billion and increased our annual dividend rate by 10 % , as we seek to continue to grow the dividend in line with earnings . the dividend increase in september 2018 marked the ninth consecutive double-digit increase since 2010. share repurchases we continue to repurchase our shares with the goal of keeping share count flat and by offsetting the dilutive impact of employee stock based compensation and savings plans . additionally , we seek to reduce share count via share repurchases as and when attractive opportunities arise . in 2018 , we repurchased 26.5 million shares for $ 4.0 billion . mergers and acquisitions we deployed approximately $ 0.5 billion during 2018 on acquisitions . consolidated results of operations net sales replace_table_token_4_th the change in net sales is attributable to the following : replace_table_token_5_th a discussion of net sales by segment can be found in the review of business segments section of this management 's discussion and analysis . the foreign currency translation impact in 2018 compared with 2017 was principally driven by the strengthening on average year over year of the euro against the u.s. dollar . the foreign currency translation impact in 2017 compared with 2016 was flat . story_separator_special_tag our 2019 areas of focus , most of which are applicable to each of our segments include : driving profitable growth through research and development and technological excellence to deliver innovative products that customers value , and through expansion and localization of our footprint in high growth regions ; executing on our strategy to become a software-industrial company , which for us means products and services that facilitate the connected plane , building and factory ; expanding margins by optimizing the company 's cost structure through manufacturing and administrative process improvements , repositioning , and other productivity actions ; executing disciplined , rigorous m & a and integration processes to deliver growth through acquisitions ; controlling corporate costs , including costs incurred for asbestos and environmental matters , pension and other post-retirement benefits ; and increasing availability of capital through strong cash flow conversion from effective working capital management and proactively managing debt levels to enable the company to smartly deploy capital for strategic acquisitions , dividends , share repurchases and capital expenditures . 20 story_separator_special_tag sales growth , mainly due to sales volume and a modest impact due to price . sales in safety increased 5 % ( increased 4 % organic ) due to increased sales volume in both industrial safety and retail . sales in productivity solutions increased 17 % ( increased 16 % organic ) primarily due to increased sales volume in intelligrated , sensing and iot , and productivity products . safety and productivity solutions segment profit increased primarily due to an increase in operational segment profit . the increase in operational segment profit was driven by higher sales volume and price . cost of products and services increased primarily due to higher organic sales . 2017 compared with 2016 safety and productivity solutions sales increased primarily due to acquisitions and organic sales volume . sales in safety increased 5 % ( increased 4 % organic ) due to increased sales volume in the industrial safety business , higher distribution in the retail business , and the favorable impact of foreign currency translation . sales in productivity solutions increased 36 % ( increased 6 % organic ) principally due to growth from acquisitions ( intelligrated was acquired in august 2016 ) . safety and productivity solutions segment profit increased due to an increase from operational segment profit and acquisitions . the increase in operational segment profit is driven by higher productivity , net of inflation , and sales volume . cost of products and services increased primarily due to acquisitions and higher sales volume offset by productivity , net of inflation . repositioning charges see note 3 repositioning and other charges of notes to consolidated financial statements for a discussion of our repositioning actions and related charges incurred in 2018 , 2017 and 2016. cash spending related to our repositioning actions was $ 285 million , $ 177 million and $ 228 million in 2018 , 2017 and 2016 , and was funded through operating cash flows . in 2019 , we expect cash spending for repositioning actions to be approximately $ 300 million and to be funded through operating cash flows . 25 liquidity and capital resources the company continues to manage its businesses to maximize operating cash flows as the primary source of liquidity . in addition to our available cash and operating cash flows , additional sources of liquidity include committed credit lines , short-term debt from the commercial paper market , long-term borrowings , access to the public debt and equity markets and the ability to access non-u.s. cash as a result of the u.s. tax reform . we continue to balance our cash and financing uses through investment in our existing core businesses , acquisition activity , share repurchases and dividends . cash flow summary our cash flows from operating , investing and financing activities , as reflected in the consolidated statement of cash flows , are summarized as follows : replace_table_token_20_th 2018 compared with 2017 cash provided by operating activities increased by $ 468 million primarily due to a $ 239 million increase in customer advances and deferred income and lower cash tax payments of $ 185 million . cash provided by investing activities increased by $ 4,601 million primarily due to a net $ 4,302 million decrease in investments , primarily short-term marketable securities , and a $ 620 million favorable change in settlements of foreign currency exchange contracts used as economic hedges on certain non-functional currency denominated monetary assets and liabilities , partially offset by an increase in cash paid for acquisitions of $ 453 million . cash used for financing activities increased by $ 1,516 million primarily due to an increase in net debt payments of $ 2,622 million , an increase in net repurchases of common stock of $ 1,364 million and an increase in cash dividends paid of $ 153 million , partially offset by net spin separation funding of $ 2,622 million net of spin-off cash . 2017 compared with 2016 cash provided by operating activities increased by $ 468 million primarily due to a $ 504 million increase in segment profit and a $ 294 million favorable impact from working capital ( favorable accounts payable partially offset by inventory and accounts receivable ) , partially offset by higher cash tax payments of $ 609 million . cash used for investing activities increased by $ 232 million primarily due to ( i ) a net $ 2,056 million increase in investments , primarily short-term marketable securities , ( ii ) an increase of $ 500 million of settlement payments of foreign currency exchange contracts used as economic hedges on certain non-functional currency denominated monetary assets and liabilities and ( iii ) a decrease in proceeds from the sales of businesses of $ 296 million ( most significantly honeywell technology solutions inc. in 2016 ) , partially offset by a decrease in cash paid for acquisitions of $ 2,491 million ( most significantly intelligrated in 2016 ) .
| review of business segments replace_table_token_11_th aerospace replace_table_token_12_th replace_table_token_13_th 2018 compared with 2017 aerospace sales increased due to organic sales growth , due to both volume and price , the favorable impact of foreign currency translation , the impact of the adoption of the new revenue 21 recognition accounting standard ( included within acquisitions , divestitures and other , net in the table above ) , offset by the spin-off of the transportation systems business on october 1 , 2018. commercial original equipment sales increased 14 % ( increased 11 % organic ) primarily due to increased demand from business aviation , and air transport and regional original equipment manufacturers ( oem ) , lower oem incentives and the impact from the classification of nonrecurring engineering and development funding resulting from the adoption of the new revenue recognition accounting standard . commercial aftermarket sales increased 5 % ( increased 5 % organic ) primarily due to growth in business aviation and air transport and regional . defense and space sales increased 15 % ( increased 15 % organic ) primarily driven by growth in u.s. and international defense . transportation systems sales decreased 17 % driven by divestiture impacts following its october 1 , 2018 spin-off . for the nine-month period prior to the spin-off , sales increased 7 % organic driven by higher volumes in light vehicle gas turbos and commercial vehicles . aerospace segment profit increased due to an increase in operational segment profit , the favorable impact of foreign currency translation , and the impact on service programs from the adoption of the new revenue recognition accounting standard , partially offset by the transportation systems divestiture . the increase in operational segment profit was driven primarily by higher organic sales volume , price , productivity net of inflation , and lower oem incentives , partially offset by the spin-off of the transportation systems business .
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based on this control determination , we consider the contractually-stated fees to serve as pricing mechanisms that reduce the cost of such commodity purchased upon receipt of the natural gas , rather than being story_separator_special_tag please read the following discussion of our financial condition and results of operations in conjunction with the financial statements and notes thereto included elsewhere in this report . in addition , please refer to the definitions page set forth in this report prior to item 1 — business . discussions of the year ended december 31 , 2018 and year-to-year comparisons of the year ended december 31 , 2019 and the year ended december 31 , 2018 can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of enlc 's annual report on form 10-k for the year ended december 31 , 2019. in this report , the terms “ company ” or “ registrant , ” as well as the terms “ enlc , ” “ our , ” “ we , ” “ us , ” or like terms , are sometimes used as abbreviated references to enlink midstream , llc itself or enlink midstream , llc together with its consolidated subsidiaries , including enlk and its consolidated subsidiaries . references in this report to “ enlink midstream partners , lp , ” the “ partnership , ” “ enlk , ” or like terms refer to enlink midstream partners , lp itself or enlink midstream partners , lp together with its consolidated subsidiaries , including the operating partnership . overview enlc is a delaware limited liability company formed in october 2013. enlc 's material assets consist of all of the outstanding common units of enlk and all of the membership interests of the general partner . all of our midstream energy assets are owned and operated by enlk and its subsidiaries . we primarily focus on providing midstream energy services , including : gathering , compressing , treating , processing , transporting , storing , and selling natural gas ; fractionating , transporting , storing , and selling ngls ; and gathering , transporting , stabilizing , storing , trans-loading , and selling crude oil and condensate , in addition to brine disposal services . our midstream energy asset network includes approximately 11,900 miles of pipelines , 22 natural gas processing plants with approximately 5.5 bcf/d of processing capacity , seven fractionators with approximately 290,000 bbls/d of fractionation capacity , barge and rail terminals , product storage facilities , purchasing and marketing capabilities , brine disposal wells , a crude oil trucking fleet , and equity investments in certain joint ventures . we manage and report our activities primarily according to the nature of activity and geography . we have five reportable segments : permian segment . the permian segment includes our natural gas gathering , processing , and transmission activities and our crude oil operations in the midland and delaware basins in west texas and eastern new mexico ; louisiana segment . the louisiana segment includes our natural gas and ngl pipelines , natural gas processing plants , natural gas and ngl storage facilities , and fractionation facilities located in louisiana and our crude oil operations in orv ; oklahoma segment . the oklahoma segment includes our natural gas gathering , processing , and transmission activities , and our crude oil operations in the cana-woodford , arkoma-woodford , northern oklahoma woodford , stack , and cnow shale areas ; north texas segment . the north texas segment includes our natural gas gathering , processing , and transmission activities in north texas ; and corporate segment . the corporate segment includes our unconsolidated affiliate investments in the cedar cove jv in oklahoma , our ownership interest in gcf in south texas , our derivative activity , and our general corporate assets and expenses . 66 we manage our consolidated operations by focusing on adjusted gross margin because our business is generally to gather , process , transport , or market natural gas , ngls , crude oil , and condensate using our assets for a fee . we earn our fees through various fee-based contractual arrangements , which include stated fee-only contract arrangements or arrangements with fee-based components where we purchase and resell commodities in connection with providing the related service and earn a net margin as our fee . we earn our net margin under our purchase and resell contract arrangements primarily as a result of stated service-related fees that are deducted from the price of the commodity purchase . while our transactions vary in form , the essential element of most of our transactions is the use of our assets to transport a product or provide a processed product to an end-user or marketer at the tailgate of the plant , pipeline , or barge , truck , or rail terminal . adjusted gross margin is a non-gaap financial measure and is explained in greater detail under “ non-gaap financial measures ” below . approximately 94 % of our adjusted gross margin was derived from fee-based contractual arrangements with minimal direct commodity price exposure for the year ended december 31 , 2020. our revenues and adjusted gross margins are generated from eight primary sources : gathering and transporting natural gas , ngls , and crude oil on the pipeline systems we own ; processing natural gas at our processing plants ; fractionating and marketing recovered ngls ; providing compression services ; providing crude oil and condensate transportation and terminal services ; providing condensate stabilization services ; providing brine disposal services ; and providing natural gas , crude oil , and ngl storage . the following customers individually represented greater than 10 % of our consolidated revenues . these customers represent a significant percentage of revenues , and the loss of the customer would have a material adverse impact on our results of operations because the revenues and adjusted gross margin received from transactions with these customers is material to us . story_separator_special_tag as a result of these decreases in producer activity , we experienced reduced volumes gathered , processed , fractionated , and transported on our assets in some of the regions that supply our systems during the first half of 2020. although volumes have since been restored nearly to pre-pandemic levels , capital investments by oil and natural gas producers remain at low levels . since the outbreak began , our first priority has been the health and safety of our employees and those of our customers and other business counterparties . in march , we implemented preventative measures and developed a response plan to minimize unnecessary risk of exposure and prevent infection , while supporting our customers ' operations , and we continue to follow these plans . we maintain a crisis management team for health , safety and environmental matters and personnel issues and a cross-functional covid-19 response team to address various impacts of the situation , as they develop . we also continue to follow modified business practices ( including discontinuing non-essential business travel , implementing work-from-home policies during high-transmission periods , and staggered work-from-home policies for employees who can execute their work remotely in order to reduce office density , and encouraging employees to adhere to local and regional social distancing recommendations ) to support efforts to reduce the spread of covid-19 and to conform to government restrictions and best practices encouraged by the centers for disease control and prevention , the world health organization , and other governmental and regulatory authorities . we also have promoted heightened awareness and vigilance , hygiene , and implementation of more stringent cleaning protocols across our facilities and operations . we continue to evaluate and adjust these preventative measures , response plans and business practices with the evolving impacts of covid-19 . there is considerable uncertainty regarding how long the covid-19 pandemic will persist and affect economic conditions and the extent and duration of changes in consumer behavior , such as the reluctance to travel , as well as whether governmental and other measures implemented to try to slow the spread of the virus , such as large-scale travel bans and restrictions , border 68 closures , quarantines , shelter-in-place orders , and business and government shutdowns that exist as of the date of this report will be extended or whether new measures will be imposed . a sustained significant decline in oil and natural gas exploration and production activities and related reduced demand for our services by our customers , whether due to decreases in consumer demand or reduction in the prices for oil , condensate natural gas and ngls or otherwise , would have a material adverse effect on our business , liquidity , financial condition , results of operations , and cash flows ( including our ability to make distributions to our unitholders ) . as of the date of this report , our efforts to respond to the challenges presented by the conditions described above and minimize the impacts to our business have yielded results . our systems , pipelines , and facilities have remained operational throughout the period . we have also moved quickly and decisively , and we continue to adapt and respond promptly , to implement strategies to reduce costs , increase operational efficiencies , and lower our capital spending . we reduced our capital expenditures in 2020 , including both growth and maintenance capital expenditures , to $ 262.6 million , a 65 % reduction from 2019 total capital spending . we have also reduced costs across our platform . we reduced our general and administrative and operating expenses by $ 142.6 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. we have not requested any funding under any federal or other governmental programs related to covid-19 to support our operations , and we do not expect to utilize any such funding . we are continuing to address concerns to protect the health and safety of our employees and those of our customers and other business counterparties , and this includes changes to comply with health-related guidelines as they are modified and supplemented . we can not predict the full impact that the covid-19 pandemic or the volatility in oil and natural gas markets related to covid-19 will have on our business , liquidity , financial condition , results of operations , and cash flows ( including our ability to make distributions to unitholders ) at this time due to numerous uncertainties . the ultimate impacts will depend on future developments , including , among others , the ultimate duration and persistence of the pandemic , the speed at which the population is vaccinated against the virus and the efficacy of the vaccines , the effect of the pandemic on economic , social and other aspects of everyday life , the consequences of governmental and other measures designed to prevent the spread of the virus , actions taken by members of opec+ and other foreign , oil-exporting countries , actions taken by governmental authorities , customers , suppliers , and other third parties , and the timing and extent to which normal economic , social and operating conditions resume . for additional discussion regarding risks associated with the covid-19 pandemic , see “ item 1a—risk factors—the ongoing coronavirus ( covid-19 ) pandemic has adversely affected and could continue to adversely affect our business , financial condition , and results of operations. ” regulatory developments on january 20 , 2021 , the biden administration came into office and immediately issued a number of executive orders related to the production of oil and gas that could affect our operations and those of our customers . on january 20 , 2021 , the acting secretary for the department of the interior signed an order effectively suspending new fossil fuel leasing and permitting on federal lands for 60 days .
| results of operations the tables below set forth certain financial and operating data for the periods indicated . we evaluate the performance of our consolidated operations by focusing on adjusted gross margin , while we evaluate the performance of our operating segments based on segment profit and adjusted gross margin , as reflected in the table below ( in millions , except volumes ) : replace_table_token_14_th replace_table_token_15_th replace_table_token_16_th 77 year ended december 31 , 2020 compared to year ended december 31 , 2019 gross margin . gross margin was $ 492.9 million for the year ended december 31 , 2020 compared to $ 576.3 million for the year ended december 31 , 2019 , a decrease of $ 83.4 million . the primary contributors to the total decrease were as follows ( in millions ) : permian segment . gross margin was $ 44.9 million for the year ended december 31 , 2020 compared to $ 25.7 million for the year ended december 31 , 2019 , an increase of $ 19.2 million primarily due to the following : ◦ adjusted gross margin in the permian segment increased $ 5.9 million , which was primarily driven by : a $ 5.9 million increase due to volume growth in our delaware basin crude assets . an $ 8.3 million increase related to volume growth from additional well connects on our midland basin gas assets . a $ 7.5 million increase related to volume growth from additional well connects on our delaware basin gas assets . these increases were partially offset by a $ 15.8 million decrease on our south texas assets primarily due to the expiration of an mvc provision in one of our contracts in july 2019 and the sale of the vex assets in october 2020 .
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for the year ended december 31 , 2014 , we offloaded , stored and or prepared for delivery 2.7 million 44 short tons of products and 309.8 million gallons of liquid materials . for the year ended december 31 , 2013 , we offloaded , stored and or prepared for delivery 2.1 million short tons of products and 246.7 million gallons of liquid materials . for the years ended december 31 , 2014 and 2013 , our materials handling segment accounted for 15 % of our adjusted gross margin for both periods . our other operations segment includes the marketing and distribution of coal conducted in our portland , maine terminal and commercial trucking . for the years ended december 31 , 2014 and 2013 , our other operations segment accounted for approximately 2 % and 3 % of our adjusted gross margin , respectively . we take title to the products we sell in our refined products , natural gas and other operations segments . we do not take title to any of the products in our materials handling segment . in order to manage our exposure to commodity price fluctuations , we use derivatives and forward contracts to maintain a position that is substantially balanced between product purchases and product sales . non-gaap financial measures we present the non-gaap financial measures ebitda and adjusted ebitda and adjusted gross margin in this annual report . for a description of how we define ebitda , and adjusted ebitda see part i , item 6selected financial data above . a reconciliation of ebitda and adjusted ebitda is presented on page 41. for a description of how we define adjusted gross margin see below . a reconciliation of adjusted gross margin is presented on page 50. how management evaluates our results of operations our management uses a variety of financial and operational measurements to analyze our performance . these measurements include : ( 1 ) adjusted gross margin and adjusted ebitda , ( 2 ) operating expenses , ( 3 ) selling , general and administrative ( or sg & a ) expenses and ( 4 ) heating degree days . operating expenses operating expenses are costs associated with the operation of the terminals and truck fleet used in our business . employee wages , pension and 401 ( k ) plan expenses , boiler fuel , repairs and maintenance , utilities , insurance , property taxes , services and lease payments comprise the most significant portions of our operating expenses . commencing on october 30 , 2013 , employee wages and related employee expenses included in our operating expenses are incurred on our behalf by our general partner and reimbursed by us . these expenses remain relatively stable independent of the volumes through our system but can fluctuate depending on the activities performed during a specific period . operating expenses have been recast to include the historical results of kildair for all periods presented where kildair was controlled by axel johnson selling , general and administrative expenses selling , general and administrative expenses ( sg & a ) include employee salaries and benefits , discretionary bonus , marketing costs , corporate overhead , professional fees , information technology and office space expenses . commencing on october 30 , 2013 , employee wages , related employee expenses and certain rental costs included in our sg & a expenses are incurred on our behalf by our general partner and reimbursed by us . we believe that our sg & a expenses will increase as a result of our becoming a publicly traded partnership . sg & a expenses have been recast to include the historical results of kildair for all periods presented where kildair was controlled by axel johnson heating degree days a degree day is an industry measurement of temperature designed to evaluate energy demand and consumption . degree days are based on how much the average temperature departs from a human comfort level 45 of 65°f . each degree of temperature above 65°f is counted as one cooling degree day , and each degree of temperature below 65°f is counted as one heating degree day . degree days are accumulated over the course of a year and can be compared to a monthly or a long-term average ( normal , ) to see if a month or a year was warmer or cooler than usual . degree days are officially observed by the national weather service and archived by the national climatic data center . for purposes of evaluating our results of operations , we use the normal heating degree day amount as reported by the noaa/national weather service for the new england oil home heating region over the period of 1981-2011. ebitda we define ebitda as net income ( loss ) before interest , income taxes , depreciation and amortization . ebitda is used as a supplemental financial measure by external users of our financial statements , such as investors , trade suppliers , research analysts and commercial banks to assess : the financial performance of our assets , operations and return on capital without regard to financing methods , capital structure or historical cost basis ; the ability of our assets to generate cash sufficient to pay interest on our indebtedness and make distributions to our equity holders ; repeatable operating performance that is not distorted by non-recurring items or market volatility ; and the viability of acquisitions and capital expenditure projects . ebitda is not prepared in accordance with gaap . ebitda should not be considered an alternative to net income ( loss ) , operating income , cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . story_separator_special_tag ebitda excludes some , but not all , items that affect net income ( loss ) and operating income . adjusted gross margin and adjusted ebitda management utilizes adjusted gross margin and adjusted ebitda to assist it in reviewing our financial results and managing our business segments . we define adjusted gross margin as net sales less cost of products sold ( exclusive of depreciation and amortization ) and decreased by total commodity derivative gains and losses included in net income ( loss ) and increased by realized commodity derivative gains and losses included in net income ( loss ) , in each case with respect to refined products and natural gas inventory and natural gas transportation contracts . we define adjusted ebitda as ebitda increased by unrealized hedging losses and decreased by unrealized hedging gains , in each case with respect to refined products and natural gas inventory and natural gas transportation contracts , decreased by gains on acquisition of businesses , increased by the write-off of deferred offering costs and adjusted for the net impact of bio-fuel excise tax credits . management believes that adjusted gross margin and adjusted ebitda provide information that reflects our market or economic performance . we trade , purchase and sell energy commodities with market values that are constantly changing , which makes it important for management to evaluate our performance , as well as our physical and derivative positions , on a daily basis . management reviews the daily operational performance of our supply activities , as well as our monthly financial results , on an adjusted gross margin and adjusted ebitda basis . adjusted gross margin and adjusted ebitda have no impact on reported volumes or net sales . adjusted gross margin and adjusted ebitda are used as supplemental financial measures by management to describe our operations and economic performance to investors , trade suppliers , research analysts and commercial banks to assess : the economic results of our operations ; the market value of our inventory and natural gas transportation contracts for financial reporting to our lenders , as well as for borrowing base purposes ; and repeatable operating performance that is not distorted by non-recurring items or market volatility . 46 adjusted gross margin and adjusted ebitda are not prepared in accordance with gaap . adjusted gross margin and adjusted ebitda should not be considered as alternatives to net income ( loss ) , income from operations , cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . hedging activities we economically hedge our inventory within the guidelines set in our risk management policy . in a rising commodity price environment , the market value of our inventory will generally be higher than the cost of our inventory . for gaap purposes , we are required to value our inventory at the lower of cost or market , or lcm . the hedges on this inventory will lose value as the value of the underlying commodity rises , creating hedging losses . because we do not utilize hedge accounting , gaap requires us to record those hedging losses in our statement of operations . in contrast , in a declining commodity price market we generally incur hedging gains . gaap requires us to record those hedging gains in our statement of operations . the refined products inventory market valuation is calculated daily using independent bulk market price assessments from major pricing services ( either platts or argus ) . these third-party price assessments are primarily based in new york harbor , or nyh , with our inventory values determined after adjusting the nyh prices to the various inventory locations by adding expected cost differentials ( primarily freight ) compared to a nyh supply source . our natural gas inventory is limited , with the valuation updated monthly based on the volume and prices at the corresponding inventory locations . the prices are based on the most applicable monthly inside ferc , or iferc , assessments published by platts near the beginning of the following month . similarly , we can economically hedge our natural gas transportation assets ( i.e. , pipeline capacity ) within the guidelines set in our risk management policy . although we do not own any natural gas pipelines , we secure the use of pipeline capacity to support our natural gas requirements by either leasing capacity over a pipeline for a defined time period or by being assigned capacity from a local distribution company for supplying our customers . as the spread between the price of gas between the origin and delivery point widens ( assuming the value exceeds the fixed charge of the transportation ) , the market value of the natural gas transportation contracts assets will increase . if the market value of the transportation asset exceeds costs , we can hedge or lock in the value of the transportation asset for future periods using available financial instruments . for gaap purposes , the increase in value of the natural gas transportation assets is not recorded as income in the statement of operations until the transportation is utilized in the future ( i.e. , when natural gas is delivered to our customer ) . as the value of the natural gas transportation assets increase , the hedges on the natural gas transportation assets lose value , creating hedging losses in our statement of operations . the natural gas transportation assets market value is calculated daily based on the volume and prices at the corresponding pipeline locations . the daily prices are based on trader assessed quotes which represent observable transactions in the market place , with the end-month valuations primarily based on platts prices where available or adding a location differential to the price assessment of a more liquid location . as described above , pursuant to gaap , we value our commodity derivative hedges at the end of each reporting period based
| results of operations the following table presents our volume , net sales and adjusted gross margin by segment , as well as our adjusted ebitda and information on weather conditions , for the years ended december 31 , 2014 , 2013 and 2012. our acquisition of kildair on december 9 , 2014 represents a transfer of entities under common control . the information presented herein has been recast to include the historical results of kildair for all periods presented where kildair was controlled by axel johnson , which commenced on october 1 , 2012. replace_table_token_7_th 50 ( 1 ) inventory is valued at the lower of cost or market . the fair value of the derivatives we use to economically hedge our inventory declines or appreciates in value as the value of the underlying inventory appreciates or declines , which creates unrealized hedging losses ( gains ) with respect to the derivatives that are included in net income ( loss ) . ( 2 ) the unrealized ( gain ) loss on natural gas transportation contracts represents our estimate of the change in fair value of the natural gas transportation contracts which are not recorded in net ( loss ) income until the transportation is utilized in the future ( i.e. , when natural gas is delivered to the customer ) , as these contracts are executory contracts that do not qualify as derivatives . as the fair value of the natural gas transportation contracts decline or appreciate , the offsetting physical or financial derivative will also appreciate or decline creating unmatched ' unrealized hedging losses ( gains ) in net ( loss ) income . ( 3 ) during the year ended december 31 , 2012 , we delayed the timing of our public offering and as a result , deferred offering costs of $ 8.9 million were charged against earnings . ( 4 ) for a discussion of the non-gaap financial measure adjusted ebitda , please read editda and adjusted ebitda beginning on page 40 .
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our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements because of various factors , including those described in the sections titled “ cautionary note regarding forward-looking statements , ” part i , item 1a , “ risk factors ” and elsewhere in this form 10-k. this section of this form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the annual report on form 10-k for the year ended december 31 , 2019. overview of business we are a global provider of highly engineered tubular services , tubular fabrication and specialty well construction and well intervention solutions to the oil and gas industry and have been in business for over 80 years . we provide our services and products to leading exploration and production companies in both offshore and onshore environments , with a focus on complex and technically demanding wells . we conduct our business through three operating segments : tubular running services . the trs segment provides tubular running services globally . internationally , the trs segment operates in the majority of the offshore oil and gas markets and also in several onshore regions with operations in approximately 40 countries on six continents . in the u.s. , the trs segment provides services in the active onshore oil and gas drilling regions , including the permian basin , eagle ford shale , haynesville shale , marcellus shale and utica shale , as well as in the u.s. gulf of mexico . our customers in these markets are primarily large exploration and production companies , including international oil and gas companies , national oil and gas companies , major independents and other oilfield service companies . tubulars . the tubulars segment designs , manufactures and distributes connectors and casing attachments for large od heavy wall pipe . additionally , the tubulars segment sells large od pipe originally manufactured by various pipe mills , as plain end or fully fabricated with proprietary welded or thread-direct connector solutions and provides specialized fabrication and welding services in support of offshore deepwater projects , including drilling and production risers , flowlines and pipeline end terminations , as well as long-length tubular assemblies up to 400 feet in length . the tubulars segment also specializes in the development , manufacture and supply of proprietary drilling tool solutions that focus on improving drilling productivity through eliminating or mitigating traditional drilling operational risks . cementing equipment . the ce segment provides specialty equipment to enhance the safety and efficiency of rig operations . it provides specialized equipment , services and products utilized in the construction , completion and abandonment of the wellbore in both onshore and offshore environments . the product portfolio includes casing accessories that serve to improve the installation of casing , centralization and wellbore zonal isolation , as well as enhance cementing operations through advance wiper plug and float equipment technology . abandonment solutions are primarily used to isolate portions of the wellbore through the setting of barriers downhole to allow for rig evacuation in case of inclement weather , maintenance work on other rig equipment , squeeze cementing , pressure testing within the wellbore , hydraulic fracturing and temporary and permanent abandonments . these offerings improve operational efficiencies and limit non-productive time if unscheduled events are encountered at the wellsite . 46 how we generate our revenue the majority of our services revenue is derived primarily from providing tubular services , which involves the handling and installation of multiple joints of pipe to establish a cased wellbore and the installation of smaller diameter pipe inside a cased wellbore . we also generate services revenue from our drilling tool offerings , as well as from well construction and well intervention services . in contrast , our products revenue is derived from sales of certain products , including large od pipe connectors and large od pipe manufactured by third parties directly to external customers , as well as from our well construction and well intervention product offerings . in addition , our customers typically reimburse us for transportation costs that we incur in connection with transporting our products and equipment from our staging areas to the customers ' job sites . outlook the full impact of the covid-19 outbreak and the resulting reduction in oil sector activity continues to evolve daily . however , with ongoing mass vaccination programs beginning to be deployed , we expect the market to respond positively throughout 2021. as covid-19 responses have normalized and the opec and russia production cut agreements have remained in place , demand is expected to continue to draw down stockpiles of supply . while it is uncertain how long depressed energy demand will last , we anticipate international and u.s. offshore demand for our products and services to moderately increase from current levels as more customer projects come back online in 2021. exploration and development spending continues to shift toward offshore and internationally focused projects , while u.s. land activity is anticipated to have a moderate recovery over the coming year . activity in the deepwater offshore market is expected to improve as delayed projects resume and new projects commence throughout 2021. as covid-19 has increased challenges relating to personnel logistics , our customer base has accelerated to our efficiency-based integrated technology that remove personnel from the rig site . with this , we continue to focus on deploying this differentiated technology across all markets with a focus on improving market share , asset utilization , and profitability . for our tubular running services segment , we expect the international offshore markets to see moderate growth in line with market trends , u.s. offshore to remain stable , and u.s. onshore operations to rebound slightly from 2020 as demand for oil improves . story_separator_special_tag the reduced demand for our services and products has had , and may continue to have , a material adverse impact on our business , results of operations and financial condition . in consideration of these risks , we are undertaking additional measures to protect liquidity . these measures include increased focus on collection of receivables , enhanced customer credit review , special measures to reduce risks of high-cost inventory items , and enhanced cash reporting requirements . our total capital expenditures are estimated to be approximately $ 25 million for 2021 , of which we expect approximately 90 % will be used for the purchase and manufacture of equipment and approximately 10 % for other property , plant and equipment , inclusive of capitalized enterprise resource planning software implementation costs . the actual amount of capital expenditures for the manufacture of equipment may fluctuate based on market conditions . during the years ended december 31 , 2020 , 2019 and 2018 , purchases of property , plant and equipment and intangibles were $ 28.5 million , $ 36.9 million and $ 56.5 million , respectively , all of which were funded from internally generated sources . we believe our cash on hand and cash flows from operations will be sufficient to fund our capital expenditure and liquidity requirements for the next twelve months . our board of directors has authorized a program to repurchase our common stock from time to time . approximately $ 38,502,322 remained authorized for repurchases as of december 31 , 2020 ; subject to the limitation set in our shareholder authorization for repurchases of our common stock , which is currently 10 % of the common stock outstanding as of april 30 , 2020. from the inception of this program in february 2020 through december 31 , 2020 , we repurchased 570,044 shares of our common stock for a total cost of approximately $ 1.5 million . this program was suspended during the second quarter of 2020 due to the impacts of covid-19 and commodity price declines and will be revisited when market conditions stabilize sufficiently to provide greater clarity to anticipated business results . the timing , declaration , amount of , and payment of any dividends is within the discretion of our board of managing directors subject to the approval of our board of supervisory directors and will depend upon many factors , including our financial condition , earnings , capital requirements , covenants associated with certain of our debt service obligations , legal requirements , regulatory constraints , industry practice , ability to access capital markets , and other factors deemed relevant by our board of managing directors and our board of supervisory 52 directors . we do not have a legal obligation to pay any dividend and there can be no assurance that we will be able to do so . credit facility asset based revolving credit facility on november 5 , 2018 , ficv , frank 's international , llc and blackhawk , as borrowers , and finv , certain of finv 's subsidiaries , including ficv , frank 's international , llc , blackhawk , frank 's international gp , llc , frank 's international , lp , frank 's international lp b.v. , frank 's international partners b.v. , frank 's international management b.v. , blackhawk intermediate holdings , llc , blackhawk specialty tools , llc , and trinity tool rentals , l.l.c. , as guarantors , entered into a five-year senior secured revolving credit facility ( the “ abl credit facility ” ) with jpmorgan chase bank , n.a. , as administrative agent ( the “ abl agent ” ) , and other financial institutions as lenders with total commitments of $ 100.0 million including up to $ 15.0 million available for letters of credit . subject to the terms of the abl credit facility , we have the ability to increase the commitments to $ 200.0 million . the maximum amount that the company may borrow under the abl credit facility is subject to a borrowing base , which is based on a percentage of certain eligible accounts receivable and eligible inventory , subject to customary reserves and other adjustments . all obligations under the abl credit facility are fully and unconditionally guaranteed jointly and severally by finv 's subsidiaries , including ficv , frank 's international , llc , blackhawk , frank 's international gp , llc , frank 's international , lp , frank 's international lp b.v. , frank 's international partners b.v. , frank 's international management b.v. , blackhawk intermediate holdings , llc , blackhawk specialty tools , llc , and trinity tool rentals , l.l.c. , subject to customary exceptions and exclusions . in addition , the obligations under the abl credit facility are secured by first priority liens on substantially all of the assets and property of the borrowers and guarantors , including pledges of equity interests in certain of finv 's subsidiaries , subject to certain exceptions . borrowings under the abl credit facility bear interest at finv 's option at either ( a ) the alternate base rate ( “ abr ” ) ( as defined therein ) , calculated as the greatest of ( i ) the rate of interest publicly quoted by the wall street journal , as the “ prime rate , ” subject to each increase or decrease in such prime rate effective as of the date such change occurs , ( ii ) the federal funds effective rate that is subject to a 0.00 % interest rate floor plus 0.50 % , and ( iii ) the one-month adjusted libo rate ( as defined therein ) plus 1.00 % , or ( b ) the adjusted libo rate ( as defined therein ) , plus , in each case , an applicable margin . the applicable interest rate margin ranges from 1.00 % to 1.50 % per annum for abr loans and 2.00 % to 2.50 % per annum for eurodollar loans and , in each case , is based on finv 's leverage ratio .
| results of operations the following table presents our consolidated results for the periods presented ( in thousands ) : replace_table_token_5_th ( 1 ) please see note 11—related party transactions in the notes to consolidated financial statements for further discussion . consolidated results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 revenue . revenue from external customers , excluding intersegment sales , for the year ended december 31 , 2020 , decreased by $ 189.6 million , or 32.7 % , to $ 390.4 million from $ 579.9 million for the year ended december 31 , 2019. revenue decreased across all of our segments as a result of the impact of covid-19 . revenue for our segments is discussed separately below under the heading “ operating segment results. ” 49 cost of revenue , exclusive of depreciation and amortization . cost of revenue for the year ended december 31 , 2020 , decreased by $ 104.9 million , or 25.2 % , to $ 312.1 million from $ 417.0 million for the year ended december 31 , 2019. the decrease was primarily due to lower activity levels across all segments , as well as due to productivity and cost efficiency actions . general and administrative expenses . general and administrative ( “ g & a ” ) expenses for the year ended december 31 , 2020 , decreased by $ 38.1 million , or 31.6 % , to $ 82.3 million from $ 120.4 million for the year ended december 31 , 2019 , due to cost savings associated with personnel reductions . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2020 decreased by $ 22.6 million , or 24.4 % , to $ 70.2 million from $ 92.8 million for the year ended december 31 , 2019 , as a result of a lower depreciable asset base . goodwill impairment .
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the lower of cost or market is determined based on net estimated realizable value after appropriate consideration is given to obsolescence , excessive levels , deterioration , and other factors . we continually review product inventories on hand , evaluating inventory levels relative to product demand , remaining shelf life , future marketing plans and other factors . we adjust our inventory to reflect situations in which the cost of inventory is not expected to be recovered . we record a reserve to adjust inventory to its net realizable value if ( i ) a product is close to expiration and not expected to be sold , ( ii ) when a project has reached its expiration date or ( iii ) when a product is not expected story_separator_special_tag this annual report on form 10-k contains forward-looking statements within the meaning of the federal securities laws . these statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements . for a detailed discussion of these risks and uncertainties , see the risk factors section in item 1a of part i of this form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this form 10-k. overview we are a biotechnology company with fully integrated commercial and drug development operations with a primary focus in oncology . our strategy is comprised of acquiring , developing and commercializing a broad and diverse pipeline of late-stage clinical and commercial products . we market two oncology drugs , zevalin ® and 56 fusilev ® and have two drugs , apaziquone and belinostat , in late stage development along with a diversified pipeline of novel drug candidates . we have assembled an integrated in-house scientific team , including formulation development , clinical development , medical research , regulatory affairs , biostatistics and data management , and have established a commercial infrastructure for the marketing of our drug products . we also leverage the expertise of our worldwide partners to assist in the execution of our strategy . apaziquone is presently being studied in two large phase 3 clinical trials for non-muscle invasive bladder cancer , or nmibc , under strategic collaborations with allergan , inc. , or allergan , nippon kayaku co. ltd. , or nippon kayaku , and handok pharmaceuticals co. ltd. , or handok . belinostat , is being studied in multiple indications including a phase 2 registrational trial for relapsed or refractory peripheral t-cell lymphoma , or ptcl , under a strategic collaboration with topotarget a/s or topotarget . our business strategy is comprised of the following initiatives : maximizing the growth potential of our marketed drugs , zevalin and fusilev . our near-term outlook largely depends on sales and marketing successes for our two marketed drugs . for zevalin , we stabilized sales in 2009 after several years of declining sales and continue to work on growing the zevalin brand , expand usage in non-hodgkins lymphoma and expand indications through additional trials . we intend to increase our sales and marketing activities related to zevalin as evidenced by the january 2012 agreement to acquire licensing rights to market zevalin outside of the u.s. for fusilev , we are working to expand usage in colorectal cancer . we have initiated and continue to build appropriate infrastructure and additional initiatives to facilitate broad customer reach and to address other market requirements , as appropriate . we have formed a dedicated commercial organization comprised of highly experienced and motivated sales representatives , account managers , and a complement of other support marketing personnel to manage the sales and marketing of these drugs . in addition our scientific department supports field activities through various m.d.s , ph.d.s and other medical science liaison personnel . for fusilev , which we launched in august 2008 , we were able to benefit from broad utilization in community clinics and hospitals and recognized a dramatic increase in sales beginning in the second half of 2010 due to a shortage of generic leucovorin . there has been a history of recurring and unreliable supply of generic leucovorin . in april 2011 , we received two fda approvals for fusilev . the first fda approval was for the use of fusilev in combination with 5-fluorouracil in the palliative treatment of patients with advanced metastatic colorectal cancer . the second fda approval was for a ready-to-use , or rtu , formulation of fusilev . we are now actively engaged in marketing fusilev for use in advanced metastatic colorectal cancer and have engaged a focused commercial sales organization to work with our commercial group to support efforts to grow fusilev sales . optimizing our development portfolio and maximizing the asset values of its components . while over the recent few years , we have evolved from a development-stage to a commercial-stage pharmaceutical company , we have maintained a highly focused development portfolio . our strategy with regard to our development portfolio is to focus on late-stage drugs and to develop them safely and expeditiously to the point of regulatory approval . we plan to develop some of these drugs ourselves or with our subsidiaries and affiliates , or secure collaborations with third parties such that we are able to suitably monetize these assets . we have assembled a drug development infrastructure that is comprised of highly experienced and motivated m.d.s , ph.d.s , clinical research associates and a complement of other support personnel to develop these drugs . story_separator_special_tag if we raise additional funds by issuing equity securities , the percentage ownership of our stockholders will be reduced , stockholders may experience additional dilution or such equity securities may provide for rights , preferences or privileges senior to those of the holders of our common stock . if additional funds are raised through the issuance of debt securities , the terms of such securities may place restrictions on our ability to operate our business . if and when appropriate , just as we have done in the past , we may pursue non-dilutive financing alternatives as well . in november 2011 , we received approval from the fda to remove the pre-treatment biodistribution evaluation requirement , commonly referred to as the bioscan . zevalin sales growth is largely dependent on the success of our repositioning campaign for zevalin , which we announced in december 2011 , at the american society for hematology conference in san diego . we believe that the removal of the bioscan requirement and the repositioning campaign could result in increased sales . in april 2011 fusilev was approved for the use in combination with 5-fluorouracil in the palliative treatment of patients with advanced metastatic colorectal cancer . we are now actively engaged in marketing fusilev for use in advanced metastatic colorectal cancer and have engaged a focused commercial sales organization to work with our commercial group to support efforts to grow fusilev sales . our expenditures for research and development or r & d consist of direct product specific costs ( such as up-front license fees , milestone payments , active pharmaceutical ingredients , clinical trials , patent related legal costs , and product liability insurance , among others ) and non-product specific , or indirect , costs ( such as personnel costs , rent , and utilities , among others ) . the following summarizes our research and development expenses for the periods indicated and include related stock-based charges , but not amortization of intangibles or expensing of in-process research and development costs . we charge all research and development expenses to operations as incurred . replace_table_token_6_th 59 our primary focus areas for the foreseeable future , and the programs that are expected to represent a significant part of our r & d expenditures , are the on-going registrational clinical trials of apaziquone and belinostat and additional clinical studies in supporting the expanded utilization of our fda products ( zevalin and fusilev ) . while we are currently focused on advancing these key product development programs , we continually evaluate our r & d programs of other pipeline products in response to the scientific and clinical success of each product candidate , as well as an ongoing assessment as to the product candidate 's commercial potential . our anticipated net use of cash for r & d in the fiscal year ending december 31 , 2012 , excluding the cost of stock compensation expenses and in-licensing or acquisitions of additional drugs , if any , is expected to range between approximately $ 38 and $ 42 million . under our various existing licensing agreements , we are contingently obligated to make various regulatory and business milestone payments . in connection with the development of certain in-licensed drug products , we anticipate the occurrence of certain of these milestones during 2012. upon successful achievement of these milestones , we will likely become obligated to pay during 2012 up to approximately $ 5.6 million , payable in cash or shares of common stock . further , while we do not receive any funding from third parties for research and development that we conduct , co-development and out-licensing agreements with other companies for any of our drug products may reduce our expenses . in this regard , we entered into a collaboration agreement with allergan whereby , commencing january 1 , 2009 , allergan has borne 65 % of the development costs of apaziquone . additionally , we entered into a collaboration agreement with topotarget , whereby , commencing february 2 , 2010 , topotarget bears , for belinostat , 100 % of the cup trial costs and 30 % of other development costs unrelated to the ptcl study . in addition to our present portfolio of drug product candidates , we continually evaluate proprietary products for acquisition . if we are successful in acquiring rights to additional products , we may pay up-front licensing fees in cash and or common stock and our research and development expenditures would likely increase . net cash provided by operating activities net cash provided by operating activities was $ 43.3 million for 2011 which includes net income in the period of $ 48.5 million adjusted for net non-cash credits of $ 20.7 million , offset primarily by a $ 30.9 million increase in accounts receivable as a result of increased product sales . net cash provided by investing activities net cash provided by investing activities of $ 746,000 in 2011 was primarily due to the $ 1.2 million net maturities of marketable securities which were partially offset by a $ 475,000 increase in property and equipment acquisitions . net cash provided by financing activities net cash provided by financing activities of $ 23.6 million in 2011 , primarily relates to the $ 24.8 million in proceeds from the issuance of common stock as a result of the exercise of approximately 3.7 million warrants and $ 5.8 million related to the exercise of stock options under our stock incentive plan and purchases of shares under our employee stock purchase plan . these provisions were partially offset by the $ 2.9 million purchase of treasury stock and $ 4.0 million repurchase of shares to satisfy minimum tax withholding for restricted stock vestings . 60 story_separator_special_tag fusilev sales were significantly lower than experienced in the first half of 2009. commencing late in the second quarter of 2010 , a similar disruption emerged and accordingly , in the second , third and fourth quarters of 2010 , sales of fusilev grew significantly .
| results of operations results of operations for fiscal 2011 compared to fiscal 2010 total revenues . total revenues increased $ 118.9 million , or 160.4 % , to $ 193.0 million in 2011 from $ 74.1 million in 2010. we recognized approximately $ 180.7 million of revenue from net product sales , of which $ 153.1 million related to sales of fusilev and $ 27.6 million related to sales of zevalin ( each net of estimates for promotional , price and other adjustments , including adjustment of the allowance for product returns ) . product revenues recorded for the year ended december 31 , 2010 were $ 60.9 million , of which $ 32.0 million related to sales of fusilev and $ 28.9 million related to sales of zevalin , a decrease of $ 1.3 million . revenues from the sales of fusilev have increased due to fda approval of fusilev for use in the treatment of advanced metastatic colorectal cancer received on april 29 , 2011 and a supply disruption of generic leucovorin . sales of fusilev initially grew significantly in the third and fourth quarter of 2010 and have continued through december 31 , 2011. we also recognized $ 12.3 million in 2011 and $ 13.2 million in 2010 of licensing revenues from the amortization of the $ 41.5 million upfront payment we received from allergan in 2008 and a $ 16.0 million upfront payment we received from nippon kayaku and handok in the first quarter of 2010. in january 2007 , we received approximately $ 0.9 million , representing our 50 % share of an economic interest that aeterna zentaris had from an arrangement with nippon kayaku for certain rights to ozarelix in japan and recognized the amount as deferred revenue .
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f-10 american equity investment life holding company notes to consolidated financial statements 1. significant accounting policies nature of operations american equity investment life holding company ( `` we `` , `` us `` , `` our `` or `` parent company `` ) , through its wholly-owned subsidiaries , american equity investment life insurance company ( `` american equity life `` ) , american equity investment life insurance company of new york ( `` american equity life of new york `` ) and eagle life insurance company ( `` eagle life `` ) , is licensed to sell insurance products in 50 states and the district of columbia at december 31 , 2019 . we operate solely in the insurance business . we market fixed index and fixed rate annuities . annuity deposits ( net of coinsurance ) collected in 2019 , 2018 and 2017 , by product type were as follows : replace_table_token_42_th agents contracted with us through two national marketing organizations accounted for more than 10 % of annuity deposits we collected during 2019 representing 24 % and 14 % , individually , of the annuity deposits collected . agents contracted with us through two national marketing organization accounted for more than 10 % of annuity deposits we collected during 2018 story_separator_special_tag december 31 , 2019 and 2018 , and our consolidated results of operations for the three years in the period ended december 31 , 2019 , and where appropriate , factors that may affect future financial performance . this analysis should be read in conjunction with our audited consolidated financial statements , notes thereto and selected consolidated financial data appearing elsewhere in this report . cautionary statement regarding forward-looking information all statements , trend analyses and other information contained in this report and elsewhere ( such as in filings by us with the sec , press releases , presentations by us or our management or oral statements ) relative to markets for our products and trends in our operations or financial results , as well as other statements including words such as `` anticipate '' , `` believe '' , `` plan '' , `` estimate '' , `` expect '' , `` intend '' and other similar expressions , constitute forward-looking statements . we caution that these statements may and often do vary from actual results and the differences between these statements and actual results can be material . accordingly , we can not assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements . factors that could contribute to these differences include , among other things : general economic conditions and other factors , including prevailing interest rate levels and stock and credit market performance which may affect ( among other things ) our ability to sell our products , our ability to access capital resources and the costs associated therewith , the fair value of our investments , which could result in impairments and other than temporary impairments , and certain liabilities , and the lapse rate and profitability of policies ; customer response to new products and marketing initiatives ; changes in federal income tax laws and regulations which may affect the relative income tax advantages of our products ; increasing competition in the sale of fixed annuities ; regulatory changes or actions , including those relating to regulation of financial services affecting ( among other things ) bank sales and underwriting of insurance products and regulation of the sale , underwriting and pricing of products ; and the risk factors or uncertainties listed from time to time in our filings with the sec . for a detailed discussion of these and other factors that might affect our performance , see item 1a of this report . story_separator_special_tag style= '' font-family : times new roman ; font-size:10pt ; '' > our ability to manage interest rates credited to policyholders and costs of the options purchased to fund the annual index credits on our fixed index annuities , our ability to manage the costs of acquiring new business ( principally commissions paid to agents and distribution partners and bonuses credited to policyholders ) , our ability to manage our operating expenses , and income taxes . earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the interest credited or the cost of providing index credits to the policyholder , or the `` investment spread . '' our investment spread is summarized as follows : replace_table_token_8_th the cost of money for fixed index annuities and average crediting rates for fixed rate annuities are computed based upon policyholder account balances and do not include the impact of amortization of deferred sales inducements . see critical accounting policies—deferred policy acquisition costs and deferred sales inducements . with respect to our fixed index annuities , the cost of money includes the average crediting rate on amounts allocated to the fixed rate strategy and expenses we incur to fund the annual index credits . proceeds received upon expiration of call options purchased to fund annual index credits are recorded as part of the change in fair value of derivatives , and are largely offset by an expense for interest credited to annuity policyholder account balances . see critical accounting policies - policy liabilities for fixed index annuities and financial condition - derivative instruments . aggregate investment spread increased during 2019 compared to 2018 due to an increase in the average yield on invested assets and a decrease in the cost of money . the increase in the average yield on investments was primarily attributable to our opportunistic replacement of lower yielding securities with higher yielding securities throughout 2018 as previously discussed . story_separator_special_tag net income for the year ended december 31 , 2017 was negatively impacted by $ 35.9 million related to the revaluation of our net deferred tax assets using the newly enacted federal tax rate as a result of tax reform . net income for the year ended december 31 , 2017 was also negatively impacted by an $ 18.4 million pretax loss on the extinguishment of our $ 400 million notes due 2021 ( the “ 2021 notes ” ) , which reduced net income by $ 10.8 million . see note 9 to our audited consolidated financial statements . net income is also impacted by the change in fair value of derivatives and embedded derivatives which fluctuates from year to year based upon changes in fair values of call options purchased to fund the annual index credits for fixed index annuities and changes in interest rates used to discount the embedded derivative liability . net income for the year ended december 31 , 2019 was negatively impacted by decreases in the discount rates used to estimate the fair value of our embedded derivative liabilities , the impact of which was partially offset by decreases in amortization of deferred policy acquisition costs and deferred sales inducements related to the change in fair value of derivatives and embedded derivatives . net income for the year ended december 31 , 2018 was positively impacted by increases in the discount rates used to estimate our embedded derivative liabilities while net income for the year ended december 31 , 2017 was negatively impacted by decreases in the discount rates used to estimate our embedded derivative liabilities the impacts of which were partially offset by changes in amortization of deferred policy acquisition costs and deferred sales inducements related to the change in fair value of derivatives and embedded derivatives . see change in fair value of derivatives , change in fair value of embedded derivatives , amortization of deferred sales inducements and amortization of deferred policy acquisition costs . we periodically revise the key assumptions used in the calculation of amortization of deferred policy acquisition costs and deferred sales inducements retrospectively through an unlocking process when estimates of current or future gross profits ( including the impact of realized investment gains and losses ) to be realized from a group of products are revised . in addition , we periodically revise the assumptions used in determining the liability for lifetime income benefit riders and the embedded derivative component of our fixed index annuity policy benefit reserves as experience develops that is different from our assumptions . net income for 2019 , 2018 and 2017 includes effects from revisions to assumptions as follows : replace_table_token_10_th we review these assumptions quarterly and as a result of these reviews , we made updates to assumptions during each year . in addition , we implemented an enhanced actuarial valuation system during 2019 , and as a result , our 2019 assumption updates include model refinements resulting from the implementation . the most significant assumption changes from the 2019 review were to lapse and utilization assumptions . we have credible lapse and utilization data based upon a comprehensive experience study spanning over 10 years on our products with lifetime income benefit riders and have experienced lapse rates that are lower than previously estimated . 22 lower lapse assumptions result in an expectation that more policies will remain in force than previously anticipated which results in a greater amount of benefit payments in excess of account value and the need for a greater liability for lifetime income benefit riders . the decrease in lapse rate assumptions also results in policies being in force for a longer period of time and an increase in expected gross profits as compared to previous estimates . the higher level of expected future gross profits results in an increase in the balances of deferred policy acquisition costs and deferred sales inducements . our experience study also indicated that the ultimate utilization of certain lifetime income benefit riders is expected to be less than our prior assumptions and the timing of utilization of lifetime income benefit riders is later than in our prior assumptions . we have reduced our ultimate utilization assumptions for fee riders from 75 % to 60 % and for no-fee riders from 37.5 % to 30 % , for policies issued in 2014 and prior years . the net effect of the utilization assumption revisions resulted in a decrease in the liability for lifetime income benefit riders and partially offset the increase in the reserve for lifetime income benefit riders from the change in lapse assumptions . in addition , we revised our assumptions regarding future crediting rates on policies . we are assuming a 3.80 % u.s. treasury rate with a 20 year mean reversion period . our assumption for aggregate spread is 2.60 % which translates to an ultimate discount rate of 2.90 % . while the aggregate spread of 2.60 % did not change from prior estimates , our estimates of the profitability of individual cohorts has changed with the use of an aggregate portfolio yield across all cohorts . this assumption revision resulted in a change in the allocation of profitability by cohort , which caused a reduction in the deferred policy acquisition costs and deferred sales inducements assets and partially offset the increase in the deferred policy acquisition costs and deferred sales inducements assets from the change in lapse assumptions . the most significant revisions to the calculation of the fair value of the embedded derivative component of our fixed index annuity policy benefit reserves in 2019 were to decrease lapse rate assumptions as noted above . the impact of the lapse rate assumption changes was partially offset by a decrease in the option budget from 3.10 % to 2.90 % as a result of a revised estimate of the cost of options over the 20 year mean reversion period .
| executive summary excellent customer service teamed with our ability to offer innovative insurance products that provide principal protection and lifetime income continued to result in significant sales of our annuity products . in 2019 , our sales were $ 5.0 billion which has resulted in cash and investments in excess of $ 59 billion at december 31 , 2019 . our sales for the last five years have ranged from $ 4.2 billion to $ 7.1 billion . we have applied a conservative investment strategy to the annuity deposits we manage which has provided reliable returns on our invested assets . our profitability has also been driven by maintaining an efficient operation . the economic and personal investing environments continued to be conducive for high sales levels as retirees and others look to put their money in instruments that will protect their principal and provide them with consistent cash flow sources in their retirement years . our sales increased in 2019 as compared to 2018 due to the launch of new products during 2018 and improvements in our competitive position in the accumulation and guaranteed income markets . these factors were partially mitigated by competitive pressures within each of our distribution channels . we continue to face a challenging environment for sales of fixed index annuities due to a highly competitive market . we continue to be in the midst of an unprecedented period of low interest rates and low yields for investments with the credit quality we prefer which presents a strong headwind to achieving our target rate for investment spread .
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we offer a wide selection of brand name and private label merchandise through our various channels : 'nordstrom ' branded full-line stores and online at www.nordstrom.com , 'nordstrom rack ' off-price stores , 'last chance ' clearance store , 'hautelook ' online private sale subsidiary , 'jeffrey ' boutiques and our 'treasure & bond ' philanthropic store . our stores are located in 31 states throughout the united states . in addition , we offer our customers a loyalty program along with a variety of payment products and services , including credit and debit cards . our 2012 results reflected the ongoing , consistent strength of our business . for the third consecutive year , we achieved double-digit growth in net sales and earnings per diluted share , added over one billion dollars in net sales and delivered same-store sales growth of over 7 % . these accomplishments reflect the high level of execution across all channels and our ongoing investments in improving the customer experience as we seek to enhance the merchandise offering , increase relevance with existing and new customers , and aggressively grow our online capabilities . e-commerce is our fastest-growing business . we continued to make investments to improve the experience online by expanding our merchandise selection , enhancing the website and mobile experience with improvements to search , navigation and checkout , and increasing the speed of fulfillment and delivery . these investments helped drive same-store sales growth of 37 % in our direct channel on top of last year 's 29 % growth . we also continue to grow through new opportunities to increase our market share . we announced plans for our initial entry into canada , beginning with four full-line stores and with the potential for a total of eight to 10 full-line stores and 15 to 20 rack stores . in addition , we are again increasing the pace of expansion of our rack stores with plans to grow to over 230 stores by the end of 2016. we also announced plans to open our first full-line store in manhattan , which will increase our exposure within a premiere retail market . our strong financial position enables us to invest in our stores through expansion , remodels and other initiatives to improve the customer experience . during 2012 , we opened one nordstrom full-line store , 15 nordstrom rack stores and relocated three nordstrom rack stores . increasingly , we are using technology as an enabler of service . as an example , we now have mobile point-of-sale devices at all of our full-line and rack stores to increase the speed at checkout and drive incremental volume . additionally , mobile devices in our full-line stores have virtually the same functionality as our cash registers , and we continue to make progress in creating a fully mobile store environment . our credit business also plays an important role in reaching new customers and strengthening existing customer relationships through our fashion rewards program , payment products and our ability to serve customers directly through our wholly owned credit services . the fashion rewards program contributes to our overall results , with members shopping more frequently and spending more on average than non-members . in 2012 , net sales from our members increased 23 % over the prior year . with the launch of our enhanced program in early 2012 , we opened over one million new accounts , and ended the year with 3.3 million active members , a 27 % increase over last year . our overall credit card portfolio also remains healthy , with delinquency and write-off trends at pre-recession levels . our ongoing focus on the customer drives the investments we are making to take advantage of multiple growth opportunities . the opportunities include canada , rack , e-commerce , manhattan and other new full-line stores and provide a platform to deliver sustainable , profitable growth . as our business and operating model evolves with our growth , we remain focused on our overall financial goals of achieving high single-digit total sales growth and mid-teens return on invested capital ( `` roic '' ) , as these measures correlate strongly with shareholder return . results of operations our reportable segments are retail and credit . our retail segment includes our nordstrom branded full-line stores and website , our nordstrom rack stores , our last chance clearance store and our other retail channels including hautelook , our jeffrey stores and our treasure & bond store . for purposes of discussion and analysis of our results of operations , we combine our retail segment results with revenues and expenses in the `` corporate/other '' column of our segment reporting footnote ( collectively , the `` retail business '' ) . we analyze our results of operations through earnings before interest and income taxes for our retail business and earnings before income taxes for credit , while interest expense and income taxes are discussed on a total company basis . similar to many other retailers , nordstrom follows the retail 4-5-4 reporting calendar , which included an extra week in the fourth quarter of 2012 ( the `` 53rd week '' ) . the analysis of our results of operations , liquidity and capital resources compares the 53 weeks in 2012 to the 52 weeks in 2011. however , the 53rd week is not included in same-store sales calculations . in 2012 , the 53rd week contributed approximately $ 0.04 to earnings per diluted share . 16 retail business summary the following table summarizes the results of our retail business for the past three fiscal years : replace_table_token_6_th retail business net sales replace_table_token_7_th 1 other retail includes our hautelook online private sale subsidiary , our jeffrey stores and our treasure & bond store . 2 4-wall sales per square foot is calculated as sales for nordstrom full-line , nordstrom rack , jeffrey and treasure & bond stores divided by their weighted-average square footage . story_separator_special_tag we hold this inventory in our warehouses for six months on average until the next selling season and it represents approximately 10 % of our total inventory at the end of 2012 compared with 3 % in 2011. on a per square foot basis , we ended the year with a 15.8 % increase in our ending inventory on a 9.0 % increase in sales compared with 2011. the increase in ending inventory per square foot relative to the increase in sales per square foot is primarily due to rack 's growth . gross profit – 2011 vs 2010 retail gross profit increased $ 501 in 2011 compared with 2010 primarily due to higher sales and merchandise margin , partially offset by increases in occupancy costs for stores opened during both 2011 and 2010 . our gross profit rate improved 54 basis points compared with 2010 primarily due to leveraging buying and occupancy costs on higher net sales . our increase in ending inventory per square foot of 13.3 % on an 8.5 % increase in sales per square foot is a result of our growth initiatives including expansion of our rack business . retail business selling , general and administrative expenses replace_table_token_9_th selling , general and administrative expenses – 2012 vs 2011 our retail selling , general and administrative expenses ( `` retail sg & a '' ) increased $ 359 in 2012 compared with 2011 . this increase reflects the investments we made to improve the customer experience across all channels and specifically in our e-commerce business as we expanded our capabilities and increased the speed of fulfillment and delivery . the increase also reflected higher sales volume and the opening of 16 stores in 2012 . our retail sg & a rate increased 18 basis points for 2012 compared with 2011 due to the increased investments , partially offset by leverage on increased sales . selling , general and administrative expenses – 2011 vs 2010 our retail sg & a expenses increased $ 395 in 2011 compared with 2010 . this increase reflects initiatives to improve the shopping experience across all channels and specifically to grow our e-commerce business . the increase was also due in part to higher sales volume and the opening of 22 stores in 2011 . as a result , our retail sg & a rate increased 84 basis points for 2011 compared with 2010 . we continued to leverage sg & a expense in our stores , with an improvement of approximately 35 basis points in 2011 , compared with 2010 . nordstrom , inc. and subsidiaries 19 credit segment the nordstrom credit and debit card products are designed to strengthen customer relationships and grow retail sales by providing loyalty benefits , valuable services and payment products . we believe that owning all aspects of our credit business allows us to build deeper relationships with our customers by fully integrating our rewards program with our retail stores and providing better service , which in turn fosters greater customer loyalty . our cardholders tend to visit our stores more frequently and spend more with us than non-cardholders , and we believe the nordstrom fashion rewards ® program helps drive sales in our retail segment . our nordstrom private label credit and debit cards can be used only in our nordstrom full-line and rack stores and on our website ( `` inside volume '' ) , while our nordstrom visa cards also may be used for purchases outside of nordstrom ( `` outside volume '' ) . cardholders participate in the nordstrom fashion rewards program through which customers accumulate points based on their level of spending . upon reaching a certain threshold , customers receive nordstrom notes ® , which can be redeemed for goods or services in our full-line stores , at nordstrom rack and online . fashion rewards customers receive a credit for complimentary alterations and a personal triple points day , in addition to early access to sales events . with increased spending , they can receive additional amounts of these benefits as well as access to exclusive fashion and shopping events . the table below provides a detailed view of the operational results of our credit segment , consistent with the segment disclosure provided in the notes to consolidated financial statements . in order to better reflect the economic contribution of our credit and debit card program , intercompany merchant fees are also included in the table below , which represents the estimated costs that would be incurred if our customers used third-party cards . interest expense is assigned to the credit segment in proportion to the amount of estimated debt and equity needed to fund our credit card receivables . based on our research , debt as a percentage of credit card receivables for other credit card companies ranges from 70 % to 90 % . as such , we believe a mix of 80 % debt and 20 % equity , as represented by the average credit card receivable investment metric below , is appropriate . replace_table_token_10_th 1 assumes 80 % of accounts receivable is funded with debt . 2 net of tax , calculated as a percentage of our average credit card receivable investment . 20 credit card revenues replace_table_token_11_th credit card revenues include finance charges , interchange fees , late fees and other revenue . finance charges represent interest earned on unpaid balances while interchange fees are earned from the use of nordstrom visa credit cards at merchants outside of nordstrom . late fees are assessed when a credit card account becomes delinquent . we consider an account delinquent if the minimum payment is not received by the payment due date . credit card revenues – 2012 vs 2011 credit card revenues increased $ 6 in 2012 compared with 2011 primarily due to an extra week ( the 53 rd week ) of revenue in 2012 as a result of our 4-5-4 retail reporting calendar .
| fourth quarter results replace_table_token_17_th nordstrom 's fourth quarter performance was consistent with the strong trends the company experienced throughout 2012 . net earnings for the fourth quarter of 2012 were $ 284 , or $ 1.40 per diluted share , compared with $ 236 , or $ 1.11 per diluted share , in 2011 . the 53 rd week contributed approximately $ 0.04 to earnings per diluted share in 2012 . nordstrom , inc. and subsidiaries 23 net sales the total net sales increase for the fourth quarter of 13.5 % was driven by the same-store sales increase of 6.3 % and the impact of the 53rd week , which contributed approximately $ 162 in additional net sales . nordstrom net sales for the fourth quarter of 2012 increased $ 273 , or 10.5 % compared with the same period in 2011 , with an increase in same-store sales of 6.1 % . both the number of items sold and the average selling price of our merchandise increased for the fourth quarter of 2012 , compared with the same period last year . category highlights for the quarter were men 's apparel , cosmetics , kids ' apparel and women 's apparel . full-line net sales for the quarter increased $ 147 , or 6.6 % compared with the same period in 2011 , with an increase in same-store sales of 2.2 % . the top-performing geographic regions for full-line stores for the quarter were the south and midwest . direct increased same-store sales 31 % in the fourth quarter on top of last year 's 35 % increase for the same period . direct sales growth continues to outpace the overall company , reflecting ongoing initiatives to improve the customer experience online .
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`` current gaap prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset is sold to an outside party . the amendments in asu 2016-16 eliminate the exception for an intra-entity transfer of an asset other than inventory , and allows recognition of the income tax consequences when the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included in part ii , item 8 of this form 10-k. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our results of operations may vary significantly from period-to-period . our revenues typically fluctuate due to the seasonality of our industry , customer buying patterns , product innovation , the nature and level of competition for health and fitness products , our ability to procure products to meet customer demand , the level of spending on , and effectiveness of , our media and advertising programs and our ability to attract new customers and maintain existing sales relationships . in addition , our revenues are highly susceptible to economic factors , including , among other things , the overall condition of the economy and the availability of consumer credit in both the u.s. and canada . our profit margins may vary in response to the aforementioned factors and our ability to manage product costs . profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture our products , product warranty costs , the cost of fuel , and changes in costs of other distribution or manufacturing-related services . our operating profits or losses may also be affected by the efficiency and effectiveness of our organization . historically , our operating expenses have been influenced by media costs to produce and distribute advertisements of our products on television , the internet and other media , facility costs , operating costs of our information and communications systems , product supply chain management , customer support and new product development activities . in addition , our operating expenses have been affected from time-to-time by asset impairment charges , restructuring charges and other significant unusual or infrequent expenses . as a result of the above and other factors , our period-to-period operating results may not be indicative of future performance . you should not place undue reliance on our operating results and should consider our prospects in light of the risks , expenses and difficulties typically encountered by us and other companies , both within and outside our industry . we may not be able to successfully address these risks and difficulties and , consequently , we can not assure you any future growth or profitability . for more information , see our discussion of risk factors located at part i , item 1a of this form 10-k. overview we are committed to providing innovative , quality solutions to help people achieve a fit and healthy lifestyle . our principal business activities include designing , developing , sourcing and marketing high-quality cardio and strength fitness products and related accessories for consumer use , primarily in the u.s. , canada , europe and asia . our products are sold under some of the most-recognized brand names in the fitness industry : nautilus ® , bowflex ® , octane fitness ® , schwinn ® and universal ® . we market our products through two distinct distribution channels , direct and retail , which we consider to be separate business segments . our direct business offers products directly to consumers through television advertising , the internet and catalogs . our retail business offers our products through a network of independent retail companies and specialty retailers with stores and websites located in the u.s. and internationally . we also derive a portion of our revenue from the licensing of our brands and intellectual property . net sales in 2018 were $ 396.8 million , a decrease of $ 9.4 million , compared to net sales of $ 406.2 million in 2017 . net sales of our direct segment decreased $ 34.5 million , or 15.7 % , compared to 2017 , primarily due to decreased consumer demand for our bowflex max trainer ® cardio products , partially offset by the introduction of the bowflex lateralx ® product line . net sales of our retail segment increased by $ 24.2 million , or 13.2 % in 2018 , compared to 2017 , reflecting sales increases across a variety of product offerings in the mass and specialty retail channels . income from continuing operations was $ 15.1 million , or $ 0.50 per diluted share , in 2018 , compared to $ 27.6 million , or $ 0.89 per diluted share , in 2017 . income from continuing operations in 2017 included a non-cash intangible asset impairment charge of $ 8.8 million , and a one-time tax benefit of $ 5.6 million related to the change in united states tax law that resulted in the reassessment of certain deferred tax assets and liabilities . net income was $ 14.7 million , or $ 0.48 per diluted share , in 2018 , compared to $ 26.3 million , or $ 0.85 per diluted share , in 2017 . business acquisition on december 6 , 2018 , we acquired certain assets of paofit holdings pte limited , its subsidiaries and related companies ( collectively , `` paofit '' ) for an aggregate purchase price of $ 2.8 million . the acquisition was funded with cash on hand . based primarily in singapore , the paofit business is focused on developing and distributing software applications known as runsocial ® 18 and ridesocial . the acquisition of paofit 's assets is expected to broaden our digital platform applications and deepen our talent pool . story_separator_special_tag 23 selling and marketing replace_table_token_8_th replace_table_token_9_th selling and marketing expenses in 2018 compared to 2017 were relatively flat year-over-year . the increase in selling and marketing in 2017 compared to 2016 was primarily due to a $ 5.5 million increase in media advertising , coupled with a $ 1.0 million increase in creative production costs related to hvt , partially offset by reductions in variable sales expenses of $ 5.8 million , mainly reduced financing fees . the slight increases in sales and marketing as a percentage of net sales in 2018 compared to 2017 , and in 2017 compared to 2016 , were primarily due to less efficient performance of media , resulting in increased media spends in 2018 and 2017 to achieve direct sales levels . media advertising expense of our direct business is the largest component of selling and marketing and was as follows : replace_table_token_10_th dollars in thousands year ended december 31 , change 2017 2016 $ % media advertising $ 65,130 $ 59,638 $ 5,492 9.2 % the return metrics we achieved on media performance declined in 2018 and 2017 , requiring approximately the same media investment to achieve lower direct net sales . we continue to closely monitor our media investments in order to optimize the investment and sales . general and administrative replace_table_token_11_th replace_table_token_12_th the increase in general and administrative in 2018 compared to 2017 was primarily due to increased legal expense . the decrease in general and administrative in 2017 compared to 2016 was primarily due to $ 1.5 million of savings related to lower integration and administrative costs related to octane , and a $ 1.3 million reduction in incentive and stock compensation expense , offset by increased litigation costs of $ 1.3 million . the increase in general and administrative as a percentage of net sales in 2018 compared to 2017 was primarily due to the increase in legal expenses and the lower total net sales . 24 the decrease in general and administrative as a percentage of net sales in 2017 compared to 2016 was primarily due to achieving cost synergies related to the octane fitness acquisition . research and development replace_table_token_13_th replace_table_token_14_th the increases in research and development in 2018 compared to 2017 , and in 2017 compared to 2016 , were primarily due to our investment in additional engineering and product development headcount as we continue to supplement our new product development resources required to innovate and broaden our product portfolio . asset impairment charge during the fourth quarter of 2017 , we identified impairment indicators in our octane fitness brand name originally acquired through the octane fitness acquisition on december 31 , 2015 . weakness in the specialty retail channel as a result of retailer consolidation had a negative impact on octane branded sales and projected growth trends . we utilized the relief-from-royalty method to quantify the impairment , resulting in an $ 8.8 million non-cash impairment charge for 2017 . the impairment charge was recorded in operating expenses on the consolidated statements of operations . interest expense interest expense of $ 1.1 million , $ 1.6 million and $ 1.9 million in 2018 , 2017 and 2016 , respectively , was primarily related to our term loan . other , net other , net primarily relates to the effect of currency exchange rate fluctuations with the u.s. and our foreign subsidiaries . in addition , 2017 included a gain of $ 0.2 million for an insurance reimbursement related to inventory loss . income tax expense replace_table_token_15_th replace_table_token_16_th income tax expense in all years was primarily attributable to the income generated domestically and internationally . income tax expense in 2018 benefited from the tax cuts and jobs act ( `` tcja '' ) , which reduced the u.s. federal corporate rate to 21 % . further , 2018 income tax expense included a $ 0.6 million state tax rate adjustment . this adjustment was associated with the 2017 provision to the tax returns and valuation allowance related to the state net operating loss deferred tax assets , which impacted the effective tax rate by 2.8 % . income tax expense in 2017 was partially offset by a $ 5.6 million income tax benefit related to the change in u.s. tax law that resulted in the revaluation of certain deferred tax assets and liabilities . income tax expense for 2016 included a release of previously unrecognized tax benefits of $ 2.7 million associated with certain non-u.s. filing positions , which resulted from completing the deregistration of a certain foreign entity . 25 the amount of valuation allowance offsetting our deferred tax assets was $ 1.2 million as of december 31 , 2018 . of the total remaining valuation allowance , $ 0.9 million primarily relates to domestic state tax credit carryforwards and state net operating loss carryforwards as we currently do not anticipate generating income of appropriate character to utilize those deferred tax assets . in addition , $ 0.3 million of the remaining valuation allowance relates to foreign net operating loss carryforwards . as of the end of fiscal year 2018 , there were no material changes to our foreign operations since december 31 , 2017 and , accordingly , we maintain our existing valuation allowance on foreign deferred income tax assets in such jurisdictions at december 31 , 2018 . refer to note 15 , income taxes , to our consolidated financial statements included in part ii , item 8 of this report for additional information . liquidity and capital resources as of december 31 , 2018 , we had $ 63.5 million of cash and investments , compared to $ 85.2 million as of december 31 , 2017 . cash provided by operating activities was $ 21.3 million for 2018 , compared to cash provided by operating activities of $ 35.0 million for 2017 .
| results of operations the discussion that follows should be read in conjunction with our consolidated financial statements and the related notes in this report . all comparisons to prior year results are in reference to continuing operations only in each period , unless otherwise indicated . results of operations information was as follows ( in thousands ) : replace_table_token_3_th 20 replace_table_token_4_th results of operations information by segment was as follows ( in thousands ) : replace_table_token_5_th 21 replace_table_token_6_th the following tables compare the net sales of our major product lines within each business segment ( in thousands ) : replace_table_token_7_th 22 year ended december 31 , 2017 2016 change % change direct net sales : cardio products ( 1 ) $ 197,683 $ 209,569 $ ( 11,886 ) ( 5.7 ) % strength products ( 2 ) 21,757 15,488 6,269 40.5 % 219,440 225,057 ( 5,617 ) ( 2.5 ) % retail net sales : cardio products ( 1 ) 143,020 135,562 7,458 5.5 % strength products ( 2 ) 40,855 42,358 ( 1,503 ) ( 3.5 ) % 183,875 177,920 5,955 3.3 % < td
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during the year ended september 30 , 2014 , we recorded an aggregate of $ 1.0 million of dividend income , net of estimated income taxes payable , which resulted from $ 0.2 million on our preferred equity investment in fdf , $ 0.7 million on our investment in fedcap partners , llc ( fedcap ) and $ 0.1 million on our preferred equity investment in funko . we generally record prepayment fees upon receipt of cash . prepayment fees are contractually due at the time of an investment 's exit , based on the prepayment fee schedule . during the year ended september 30 , 2015 , we did not receive any prepayment fees . during the year ended september 30 , 2014 , we received an aggregate of $ 0.5 million in prepayment fees from the early payoffs at par of one of our proprietary investments and six of our syndicated investments ( including one partial paydown ) . story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition , results of operations or percentage relationships for any future periods . except per share amounts , dollar amounts in the tables included herein are in thousands unless otherwise indicated . overview general we were incorporated under the maryland general corporation law on may 30 , 2001. we operate as an externally managed , closed-end , non-diversified management investment company , and have elected to be treated as a business development company ( bdc ) under the investment company act of 1940 , as amended ( the 1940 act ) . in addition , for federal income tax purposes we have elected to be treated as a regulated investment company ( ric ) under the internal revenue code of 1986 , as amended ( the code ) . as a bdc and a ric , we are subject to certain constraints , including limitations imposed by the 1940 act and the code . we were established for the purpose of investing in debt and equity securities of established private business operating in the united states ( u.s. ) . our investment objectives are to : ( 1 ) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time ; and ( 2 ) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . to achieve our investment objectives , our investment strategy is to invest in several categories of debt and equity securities , with each investment generally ranging from $ 5 million to $ 25 million , although investment size may vary , depending upon our total assets or available capital at the time of investment . we expect that our investment portfolio over time will consist of approximately 90.0 % debt investments and 10.0 % equity investments , at cost . as of september 30 , 2015 , our investment portfolio was made up of approximately 91.2 % debt investments and 8.8 % equity investments , at cost . we focus on investing in small and medium-sized private businesses in the u.s. that meet certain criteria , including , but not limited to , the following : the sustainability of the business ' free cash flow and its ability to grow it over time , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , reasonable capitalization of the borrower , including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and , to a lesser extent , the potential to realize appreciation and gain liquidity in our equity position , if any . we lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities . we seek to avoid investing in high-risk , early-stage enterprises . our targeted portfolio companies are generally considered too small for the larger capital marketplace . we invest by ourselves or jointly with other funds and or management of the portfolio company , depending on the opportunity . if we are participating in an investment with one or more co-investors , our investment is likely to be smaller than if we were investing alone . in july 2012 , the securities and exchange commission ( sec ) granted us an exemptive order that expands our ability to co-invest with certain of our affiliates by permitting us , under certain circumstances , to co-invest with gladstone investment corporation ( gladstone investment ) and any future business development company or closed-end management investment company that is advised ( or sub-advised if it controls the fund ) by our external investment adviser or any combination of the foregoing subject to the conditions in the sec 's order . we believe this ability to co-invest will continue to enhance our ability to further our investment objectives and strategies . in general , our investments in debt securities have a term of no more than seven years , accrue interest at variable rates ( generally based on the one-month london interbank offered rate ( libor ) ) and , to a lesser extent , at fixed rates . we seek debt instruments that pay interest monthly or , at a minimum , quarterly , have a success fee or deferred interest provision and are primarily interest only with all principal and any accrued but unpaid interest due at maturity . story_separator_special_tag in may , 2015 , we , through business loan , entered into a fifth amended and restated credit facility ( the credit facility ) , which increased the commitment amount from $ 137.0 million to $ 140.0 million , extended the revolving period end date by three years to january 19 , 2019 , decreased the marginal interest rate added to 30-day libor from 3.75 % to 3.25 % per annum , set the unused commitment fee at 0.50 % on all undrawn amounts , expanded the scope of eligible collateral , and amended certain other terms and conditions . in june 2015 , we through business loan , entered into certain joinder and assignment agreements with three new lenders to increase borrowing capacity under our credit facility by $ 30.0 million to $ 170.0 million . most recently , we issued 2.3 million shares of common stock for gross proceeds of $ 19.7 million in october and november 2015. refer to ( liquidity and capital resources revolving credit facility , and equity common stock ) for further discussion of our revolving line of credit and recent common stock offerings . although we were able to access the capital markets over the last year , we believe uncertain market conditions continue to affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity . the current volatility in the credit market and the uncertainty surrounding the u.s. economy have led to significant stock market fluctuations , particularly with respect to the stock of financial services companies like ours . during times of increased price volatility , our common stock may be more likely to trade at a price below our net asset value ( nav ) per share , which is not uncommon for bdcs like us . on november 20 , 2015 , the closing market price of our common stock was $ 8.68 , a 4.2 % discount to our september 30 , 2015 , nav per share of $ 9.06. when our stock trades below nav per common share , as it has fairly consistently over the last several years , our ability to issue equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock below nav per common share without first obtaining approval from our stockholders and our independent directors , other than through sales to our then-existing stockholders pursuant to a rights offering . at our annual meeting of stockholders held on february 12 , 2015 , our stockholders approved a proposal which authorizes us to sell shares of our common stock at a price below our then current nav per common share subject to certain limitations ( including , but not limited to , that the number of shares issued and sold pursuant to such authority does not exceed 25.0 % of our then outstanding common stock immediately prior to each such sale ) for a period of one year from the date of approval , provided that our board of directors ( our board of directors ) makes certain determinations prior to any such sale . with our board of directors ' subsequent approval , we issued shares of our common stock under an at-the-market program ( refer to recent developments at-the-market program ) and in an overnight offering in october 2015 with the overallotment closing in november 2015 at a price per share below the then current nav per share . the resulting proceeds , in part , will allow us to grow the portfolio by making new investments , generate additional income through new investments , and provide us additional equity capital to help ensure continued compliance with regulatory tests . refer to liquidity and capital resources equity common stock for further discussion of our common stock offerings . the current uncertain and volatile economic conditions may also continue to cause the value of the collateral securing some of our loans , as well as the value of our equity investments , to fluctuate , which has impacted and may continue to impact our ability to borrow under our credit facility . additionally , our credit facility contains covenants regarding the maintenance of certain minimum loan concentrations and net worth , which are affected by the decrease in value of our portfolio . failure to meet these requirements would result in a default which , if we are unable to obtain a waiver from our lenders , would cause an acceleration of our repayment obligations under our credit facility . as of september 30 , 2015 , we were in compliance with all of our credit facility 's covenants . regulatory compliance challenges in the current market are intensified for us by certain regulatory limitations under the code and the 1940 act , as well as contractual restrictions under the agreement governing our credit facility that further constrain our ability to access the capital markets . to qualify to be taxed as a ric , we must distribute at least 90.0 % of our investment company taxable income , which is generally our net ordinary income plus the excess of our net short-term capital gains over net long-term capital losses . because we are required to satisfy the ric annual stockholder distribution requirement , and because the illiquidity of many of our investments makes it difficult for us to finance new investments through the sale of current investments , our ability to make new investments is highly dependent upon external financing . our external financing sources include the issuance of equity securities , debt securities or other leverage , such as borrowings under our credit 44 facility .
| results of operations comparison of the year ended september 30 , 2015 to the year ended september 30 , 2014 replace_table_token_8_th nm = not meaningful investment income total interest income increased by 8.5 % for the year ended september 30 , 2015 , as compared to the prior year period . this increase was due primarily to the funding of several new investments during the period , partially offset by several early payoffs at par during the prior year . the level of interest income on our investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the year , multiplied by the weighted average yield . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2015 , was $ 319.1 million , compared to $ 280.4 million for the prior year , an increase of $ 38.7 million , or 13.8 % . the weighted average yield on our interest-bearing investments is based on the current stated interest rate on interest-bearing investments for the year ended september 30 , 2015 was 10.9 % compared to 11.5 % for the year ended september 30 , 2014 , inclusive of any allowances on interest receivables made during those periods . as of september 30 , 2015 , two portfolio companies were on non-accrual status , with an aggregate debt cost basis of approximately $ 26.4 million , or 7.1 % of the cost basis of all debt investments in our portfolio . during the quarter ended december 31 , 2014 , we sold our investment in midwest metal , which had been on non-accrual status . effective january 1 , 2015 , we placed gfrc holdings llc ( gfrc ) on non-accrual status and restored two tranches of sunshine media holdings ( sunshine ) debt to accrual status and effective april 1 , 2015 , we placed saunders on non-accrual status .
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short-term and variable lease costs were insignificant for 2019 and 2018 story_separator_special_tag executive overview while our business was materially affected by the covid-19 pandemic , resulting in significantly higher sales and profits in 2020 , the pandemic highlighted the importance of our multi-category portfolio and our decision to put our stores at the center of our strategy . in 2020 , we continued to make strategic investments to support our durable operating and financial model that further differentiates target and is designed to drive sustainable sales and profit growth . we have done this through an investment strategy focused on : elevating the shopping experiences and winning with high-touch service we remodeled 132 stores during 2020. we opened 30 new stores , including 29 additional small format stores in key urban markets and on college campuses . we invested significantly in our team , including a $ 15/hour minimum hourly wage for us team members , recognition bonuses , and certain other benefits in light of the covid-19 pandemic . we made significant investments in the health and safety of team members and guests . curation at scale we continued the steady stream of newness and exclusives across our assortment and continued to introduce new owned brands . we expanded the assortment of our food & beverage owned brand , good & gather tm , which launched in 2019 and has become our largest selling food brand . we announced a partnership with ulta beauty under which we will operate ulta beauty at target , a shop-in-shop experience debuting on target.com and in more than 100 target locations beginning in 2021 , with plans to scale to hundreds more over time . delivering ease and convenience through same-day services we expanded our digital fulfillment capabilities , including fresh and frozen food & beverage products added to order pickup and drive up . during 2020 , over 50 percent of our comparable digital sales growth was driven by same-day fulfillment options : order pickup , drive up , and delivery via shipt . story_separator_special_tag 300. similarly , we opened 29 new small format stores in 2020 , rather than the 36 previously announced . during the first quarter 2020 , we issued $ 2.5 billion of 5-year and 10-year notes in an effort to increase our cash on hand . additionally , we entered into a $ 900 million 364-day credit facility , increasing our total undrawn committed credit facilities to $ 3.4 billion . our operating performance during the second and third quarters of 2020 and financial position allowed us to repurchase $ 1.77 billion of debt before its maturity at a market value of $ 2.25 billion in october 2020 and terminate the 364-day credit facility in november 2020. note 17 to the consolidated financial statements and the liquidity and capital resources section provide additional information . sale of dermstore in february 2021 , we sold dermstore llc ( dermstore ) for approximately $ 350 million , subject to working capital and other closing adjustments . we expect to recognize a pre-tax gain in excess of $ 300 million in the first quarter of 2021. dermstore represented less than 1 percent of our consolidated revenues , operating income and net assets . analysis of results of operations replace_table_token_4_th replace_table_token_5_th note : gross margin rate is calculated as gross margin ( sales less cost of sales ) divided by sales . all other rates are calculated by dividing the applicable amount by total revenue . a discussion regarding results of operations and analysis of financial condition for the year ended february 1 , 2020 , as compared to the year ended february 2 , 2019 , is included in part ii , item 7 , md & a to our annual report on form 10-k for the fiscal year ended february 1 , 2020. target corporation 2020 form 10-k 19 management 's discussion and analysis analysis of operations index to financial statements sales sales include all merchandise sales , net of expected returns , and our estimate of gift card breakage . note 3 to the financial statements defines gift card `` breakage . '' we use comparable sales to evaluate the performance of our stores and digital channel sales by measuring the change in sales for a period over the comparable , prior-year period of equivalent length . comparable sales include all sales , except sales from stores open less than 13 months , digital acquisitions we have owned less than 13 months , stores that have been closed , and digital acquisitions that we no longer operate . comparable sales measures vary across the retail industry . as a result , our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies . digitally originated sales include all sales initiated through mobile applications and our websites . our stores fulfill the majority of digitally originated sales , including shipment from stores to guests , store order pickup or drive up , and delivery via shipt . digitally originated sales may also be fulfilled through our distribution centers , our vendors , or other third parties . sales growth – from both comparable sales and new stores – represents an important driver of our long-term profitability . we expect that comparable sales growth will drive the majority of our total sales growth . we believe that our ability to successfully differentiate our guests ' shopping experience through a careful combination of merchandise assortment , price , convenience , guest experience , and other factors will over the long-term drive both increasing shopping frequency ( traffic ) and the amount spent each visit ( average transaction amount ) . the increase in 2020 sales compared to 2019 is due to a 19.3 percent comparable sales increase and the contribution from new stores . the covid-19 pandemic has affected the amount and mix of sales across channels and categories . replace_table_token_6_th replace_table_token_7_th note : amounts may not foot due to rounding . story_separator_special_tag target corporation 2020 form 10-k 23 management 's discussion and analysis reconciliation of non-gaap financial measures index to financial statements we have also disclosed after-tax roic , which is a ratio based on gaap information , with the exception of the add-back of operating lease interest to operating income . we believe this metric is useful in assessing the effectiveness of our capital allocation over time . other companies may calculate roic differently , limiting the usefulness of the measure for comparisons with other companies . replace_table_token_15_th replace_table_token_16_th after-tax return on invested capital 23.5 % 16.0 % ( a ) represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases . calculated using the discount rate for each lease and recorded as a component of rent expense within sg & a expenses . operating lease interest is added back to operating income in the roic calculation to control for differences in capital structure between us and our competitors . ( b ) calculated using the effective tax rates for continuing operations , which were 21.2 percent and 22.0 percent for the trailing twelve months ended january 30 , 2021 , and february 1 , 2020 , respectively . for the trailing twelve months ended january 30 , 2021 , and february 1 , 2020 , includes tax effect of $ 1.4 billion and $ 1.0 billion , respectively , related to ebit , and $ 18 million and $ 19 million , respectively , related to operating lease interest . ( c ) total short-term and long-term operating lease liabilities included within accrued and other current liabilities and noncurrent operating lease liabilities , respectively . ( d ) average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period . target corporation 2020 form 10-k 24 management 's discussion and analysis analysis of financial condition index to financial statements analysis of financial condition liquidity and capital resources capital allocation we follow a disciplined and balanced approach to capital allocation based on the following priorities , ranked in order of importance : first , we fully invest in opportunities to profitably grow our business , create sustainable long-term value , and maintain our current operations and assets ; second , we maintain a competitive quarterly dividend and seek to grow it annually ; and finally , we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals . in response to covid-19 , we suspended our share repurchase program in march 2020. in november 2020 , we lifted the share repurchase suspension and , in february 2021 , began repurchasing shares . we believe our sources of liquidity will continue to be adequate to maintain operations , finance anticipated expansion and strategic initiatives , fund debt maturities , pay dividends , and execute purchases under our share repurchase program for the foreseeable future . we continue to anticipate ample access to commercial paper and long-term financing . our period-end cash and cash equivalents balance increased to $ 8.5 billion from $ 2.6 billion in 2019. our cash and cash equivalents balance includes short-term investments of $ 7.6 billion and $ 1.8 billion as of january 30 , 2021 , and february 1 , 2020 , respectively . our investment policy is designed to preserve principal and liquidity of our short-term investments . this policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less . we also place dollar limits on our investments in individual funds or instruments . operating cash flows operating cash flow provided by continuing operations was $ 10.5 billion in 2020 compared with $ 7.1 billion in 2019. the increase reflects stronger operating performance combined with higher payables leverage during 2020 due to increased inventory turnover driven by strong sales , compared with 2019. additionally , operating cash flows for 2020 reflect increased payroll-related liabilities , including the deferral of employer social security tax payments and higher incentive compensation . inventory year-end inventory was $ 10.7 billion , compared with $ 9.0 billion in 2019. inventory levels were higher as of january 30 , 2021 , compared with february 1 , 2020 , reflecting efforts to align inventory with sales trends . target corporation 2020 form 10-k 25 management 's discussion and analysis analysis of financial condition index to financial statements capital expenditures capital expenditures decreased in 2020 from the prior year as we modified plans for some of our strategic initiatives , including store remodels and new store openings , as a result of covid-19 . we have completed over 800 remodels since the launch of the current program in 2017 , including 132 in 2020. we expect to complete 150 full-store remodels and open 30 to 40 new stores during 2021. in addition to these cash investments , we entered into leases related to new stores in 2020 , 2019 , and 2018 with total future minimum lease payments of $ 764 million , $ 669 million , and $ 473 million , respectively , and new leases related to our supply chain with total future minimum lease payments of $ 442 million , $ 185 million , and $ 11 million , respectively . we expect capital expenditures in 2021 of approximately $ 4.0 billion to support remodels , new stores , and supply chain projects to add replenishment capacity and modernize the network , including sortation centers . beyond full-store remodels , we will invest in optimizing front-end space in our highest-volume locations , increasing the efficiency of our pickup and drive up services , as well as the build-out of ulta beauty shop-in-shops . we also expect to continue to invest in new store and supply chain leases .
| financial summary 2020 included the following notable items : gaap diluted earnings per share were $ 8.64. adjusted diluted earnings per share were $ 9.42. total revenue increased 19.8 percent , driven by an increase in comparable sales . comparable sales increased 19.3 percent , driven by a 15.0 percent increase in average transaction amount . ◦ comparable store originated sales grew 7.2 percent . ◦ comparable digital originated sales increased 145 percent . operating income of $ 6.5 billion was 40.4 percent higher than the comparable prior-year period . we repurchased $ 1.77 billion of debt before its maturity at a market value of $ 2.25 billion , resulting in a loss of $ 512 million . sales were $ 92.4 billion for 2020 , an increase of $ 15.3 billion , or 19.8 percent , from the prior year . operating cash flow provided by continuing operations was $ 10.5 billion for 2020 , an increase of $ 3.4 billion , or 48.3 percent , from $ 7.1 billion for 2019. target corporation 2020 form 10-k 17 management 's discussion and analysis executive overview & financial summary index to financial statements replace_table_token_3_th note : amounts may not foot due to rounding . adjusted diluted earnings per share from continuing operations ( adjusted eps ) , a non-gaap metric , excludes the impact of certain items . management believes that adjusted eps is useful in providing period-to-period comparisons of the results of our continuing operations . a reconciliation of non-gaap financial measures to gaap measures is provided on page 23 . we report after-tax return on invested capital ( roic ) from continuing operations because we believe roic provides a meaningful measure of our capital-allocation effectiveness over time . for the trailing twelve months ended january 30 , 2021 , after-tax roic was 23.5 percent , compared with 16.0 percent for the trailing twelve months ended february 1 , 2020. the calculation of roic is provided on page 24 .
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increasingly , the company is positioning itself as a system integrator , which capability provides the company with the potential to generate more substantive orders over a broader product base . the company has demonstrated an ability to incorporate added electronic flight bag functionality such as charting and mapping systems into its flat panel display systems ( `` fpds '' ) product line . the strategy , as both a manufacturer and integrator , is to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation , commercial , the united states department of defense ( `` dod '' ) /governmental , and foreign military markets . this approach , combined with the company 's industry experience , enables is & s to develop high-quality products and systems , reduce substantially product time to market , and achieve cost advantages over products offered by its competitors . the company 's sales are derived from the sale of its products to both the retrofit market and oems . customers include the dod and its commercial contractors , aircraft operators , aircraft modification centers , foreign militaries , and various oems . occasionally , is & s sells its products directly to dod ; however , the company sells its products primarily to commercial customers for end use in dod programs . sales to defense contractors are made on commercial terms , although some of the termination and other provisions of government contracts are applicable to these contracts . cost of sales related to product sales is comprised of material and components purchased from the company 's supplier base and direct in-house assembly labor and overhead costs . many components used in assembling the products are standard , although certain parts are manufactured to meet the company 's specifications . the overhead portion of cost of sales is comprised primarily of salaries and benefits , building occupancy costs , depreciation , supplies , and outside service costs related to production , purchasing , material control , and quality departments , and warranty costs . is & s cost of sales related to engineering-modification and development ( `` emd '' ) is comprised of engineering labor , consulting services , and other costs associated with specific design and development projects that are billable under specific customer agreements . the company intends to continue investing in development of new products that complement its current product offerings and will expense associated costs as they are incurred . selling , general and administrative expenses consist of sales , marketing , business development , professional services costs ; salaries and benefits for executive and administrative personnel ; facility , recruiting , legal and accounting costs ; and other general corporate expenses . is & s sells its products to agencies of the united states and foreign governments , aircraft operators , aircraft modification centers , and original equipment manufacturers . the company 's customers have been and may continue to be affected by the ongoing adverse economic conditions that currently exist both in the united states and abroad . such conditions may cause the company 's customers to curtail or delay spending on both new and existing aircraft . factors that can impact general economic conditions and the level of spending by is & s customers include , but are not limited to , general levels of consumer spending , increases in fuel and energy costs , conditions in the real estate and mortgage markets , labor and healthcare costs , access to credit , consumer confidence , and other 26 factors which can affect spending behavior . in addition , future spending by government agencies may be further reduced because of declining tax revenues associated with the present economic environment . if the company 's customers curtail or delay their spending , or are forced to declare bankruptcy or liquidate their operations because of adverse economic conditions , is & s 's revenues and results of operations will be negatively affected . however , the company believes that , in a declining economic environment , customers that may have elected to purchase newly manufactured aircraft , may be interested instead in retrofitting existing aircraft as a cost effective alternative , which will create a market opportunity for is & s 's products . on november 29 , 2011 , amr corporation , the parent company of american airlines , inc. and certain of its other u.s.-based subsidiaries filed voluntary petitions for chapter 11 reorganization in the u.s. bankruptcy court for the southern district of new york . the company 's revenues from american airlines , inc. accounted for 5 % , 8 % and 8 % total revenue for the fiscal years 2012 , 2011 and 2010 , respectively . as at september 30 , 2012 , orders from american airlines , inc. account for a material portion of the company 's backlog . ( see note 13commitments and contingencies in notes to consolidated financial statements attached ) . the company experienced reductions of personnel costs in fiscal 2012 and 2011 , primarily through resignation and retirements of employees who were not replaced , and a planned reduction in workforce . the reductions affected most departments in the company . story_separator_special_tag 2010. research and development . research and development expense increased $ 0.3 million , or 5.1 % , to $ 5.5 million or 21.4 % of net sales for fiscal 2011 from $ 5.2 million , or 20.7 % of net sales for fiscal 2010. this increase resulted from research and development investment incurred to win emd contracts , and is consistent with the company 's strategy to target a percentage of total sales in a given period , for the purposes of continued investment in on-going research and development . the company 's r & d expense consists primarily of payroll-related expenses of employees engaged in r & d activities , engineering related product materials and equipment and subcontracting costs . selling , general , and administrative . story_separator_special_tag on december 7 , 2012 the company 's board of directors declared a special cash dividend in the amount of $ 1.50 per share , payable on or about december 27 , 2012 to shareholders of record as of the close of business on december 17 , 2012. the aggregate amount of the payment to be made in connection with the dividend will be approximately $ 24.9 million . the company believes that its cash and cash equivalents after payment of the special cash dividend will still be sufficient to provide capital to fund operations for at least the next twelve months . further , is & s may need to develop and introduce new or enhanced products , to respond to competitive pressures , to invest in or acquire businesses or technologies , or to respond to unanticipated requirements or developments . if additional funds are raised through the issuance of equity securities , dilution to existing shareholders may result . if insufficient funds are available , the company may not be able to introduce new products or to compete effectively . 31 contractual obligations the company 's contractual obligations as of september 30 , 2012 mature as follows : replace_table_token_9_th * a `` purchase obligation '' is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms , including : fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . these amounts are primarily comprised of open purchase order commitments entered in the ordinary course of business with vendors and subcontractors pertaining to fulfillment of the company 's current order backlog . off-balance sheet arrangements the company has no off-balance sheet arrangements . inflation is & s does not believe inflation had a material effect on its financial position or results of operations during the past three years . however , it can not predict future effects of inflation . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period . the company 's most critical accounting policies are revenue recognition , income taxes , inventory valuation , share based compensation and warranty reserves . revenue recognition the company enters into sales arrangements with customers that , in general , provide for the company to design , develop , manufacture and deliver large flat-panel display systems , flight information computers , and advanced monitoring systems that measure and display critical flight information , including data relative to aircraft separation , airspeed , and altitude , as well as engine and fuel data measurements . the company 's sales arrangements may include multiple deliverables as defined in fasb asc topic 605-25 `` multiple-element arrangements '' ( `` asc topic 605-25 '' ) , which typically include design and engineering services and the production and delivery of the flat panel display and related components . the company includes any design and engineering services elements in emd sales and any functional upgrade and product elements in product sales on the accompanying consolidated statement of operations . to the extent that an arrangement contains software elements that are essential to the functionality of tangible products sold in the arrangement , the company recognizes revenue for the deliverables in 32 accordance with the guidance included in fasb accounting standards update 2009-14 , `` revenue arrangements that include software elements `` , ( `` asu 2009-14 '' ) , asu 2009-13 and fasb asc topic 605 , `` revenue recognition `` ( `` asc topic 605 '' ) . to the extent that an arrangement contains software components , which include functional upgrades , that are sold on a standalone basis and which the company has deemed outside the scope of the exception defined by asu 2009-14 , the company recognizes software revenue in accordance with asc topic 985 , `` software `` ( `` asc topic 985 '' ) . multiple element arrangements the company identifies all goods and or services that are to be delivered separately under such a sales arrangement and allocates revenue to each deliverable ( if more than one ) based on that deliverable 's selling price . the company then considers the appropriate recognition method for each deliverable . the company 's multiple element arrangements can include typically defined design and development activities and or functional upgrades , along with product sales . the company utilizes the selling price hierarchy that has been established by fasb accounting standards update 2009-13 , `` multiple-deliverable revenue arrangementsa consensus of the fasb emerging issues task force '' ( `` asu 2009-13 '' ) , which requires that the selling price for each deliverable be based on vendor-specific objective evidence if available , third-party evidence if vendor-specific objective evidence is not available , or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available . to the extent that an arrangement includes a deliverable for which estimated selling price is used , the company 's determines the best estimate of selling price by applying the same pricing policies and methodologies that would be used to determine the price to sell the deliverable on a standalone basis . to the extent that an arrangement contains defined design and emd activities as an identified deliverable in addition to products ( resulting in a multiple element arrangement ) , the company recognizes as emd revenue amounts earned during the design and development phase of the contract following the guidance included in fasb asc topic 605-35 , `` construction-type and production-type contracts '' ( `` asc topic 605-35 '' ) .
| results of operations the following table sets forth statement of operations data expressed as a percentage of total net sales for the fiscal years indicated ( some items may not add due to rounding ) : replace_table_token_6_th 27 fiscal year ended september 30 , 2012 compared to fiscal year ended september 30 , 2011 net sales . net sales decreased $ 1.2 million , or 4.5 % , to $ 24.5 million for fiscal 2012 from $ 25.7 million for fiscal 2011. for fiscal 2012 , product sales decreased $ 6.9 million and emd sales increased $ 5.7 million from fiscal 2011. the decrease in product sales was primarily the result of decreased shipments to customers who slowed or delayed their respective retrofit programs , while the increase in emd sales resulted from new customer design and emd programs . for fiscal 2012 and 2011 , the company recognized equal amounts of revenue and cost of $ 2.4 million and $ 0 , respectively , related to certain contracts for which a zero margin approach to applying the percentage of completion method is used in accordance with the guidance of financial accounting standards board accounting standards codification topic 605-35 , `` construction-type and production-type contracts '' , which substantially explains the lower gross profit percentage on emd revenues for the year ended september 30 , 2012 when compared to the year ended september 30 , 2011. cost of sales .
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overview introduction icahn enterprises l.p. ( “ icahn enterprises ” ) is a master limited partnership formed in delaware on february 17 , 1987. icahn enterprises holdings l.p. ( “ icahn enterprises holdings ” ) is a limited partnership formed in delaware on february 17 , 1987. references to `` company , '' `` we , '' `` our '' or `` us '' herein include both icahn enterprises and icahn enterprises holdings and their subsidiaries , unless the context otherwise requires . icahn enterprises owns a 99 % limited partner interest in icahn enterprises holdings . icahn enterprises g.p . inc. ( “ icahn enterprises gp ” ) , which is owned and controlled by mr. carl c. icahn , owns a 1 % general partner interest in each of icahn enterprises and icahn enterprises holdings . icahn enterprises holdings and its subsidiaries own substantially all of our assets and liabilities and conduct substantially all of our operations . therefore , the financial results of icahn enterprises and icahn enterprises holdings are substantially the same , with differences relating primarily to debt , as discussed further in note 11 , `` debt , '' to the consolidated financial statements , and to the allocation of the general partner interest , which is reflected as an aggregate 1.99 % general partner interest in the financial statements of icahn enterprises . in addition to the above , mr. icahn and his affiliates owned 97,764,251 , or approximately 93.2 % , of icahn enterprises ' outstanding depositary units as of december 31 , 2012 . we are a diversified holding company owning subsidiaries currently engaged in the following continuing operating businesses : investment , automotive , energy , gaming , railcar , food packaging , metals , real estate and home fashion . we also report the results of our holding company , which includes the results of certain subsidiaries of icahn enterprises and icahn enterprises holdings ( unless otherwise noted ) , and investment activity and expenses associated with the holding company . equity offerings in connection with a certain rights offering consummated during the first quarter of the year ending december 31 , 2012 , we distributed an aggregate 13,590,238 additional depositary units to unitholders that subscribed to the basic subscription rights and the over-subscription rights and we received proceeds of $ 500 million . of these additional depositary units distributed pursuant to the rights offering , mr. icahn and his affiliates received 12,995,584 additional depositary units . see note 14 , `` net income per lp unit -rights offering , '' to the consolidated financial statements for additional information regarding the rights offering . on february 28 , 2013 , icahn enterprises entered into an underwriting agreement ( the “ underwriting agreement ” ) with jefferies & company , inc. ( the “ underwriter ” ) , providing for the issuance and purchase of an aggregate of 3,174,604 depositary units representing limited partner interests in icahn enterprises at a price to the public of $ 63.00 per depositary unit ( the “ equity offering ” ) . the depositary units were delivered to the unitholders on march 6 , 2013 , raising $ 193 million , after deducting underwriting discounts , commissions and other offering related fees and expenses . in connection with this offering , our general partner made an aggregate contribution of $ 4 million to icahn enterprises and icahn enterprises holdings in order to maintain its aggregate 1.99 % general partner interest in icahn enterprises and icahn enterprises holdings . as a result of the newly issued shares in connection with the equity offering discussed above , mr. icahn and his affiliates owned approximately 90.5 % of the icahn enterprises ' outstanding depositary units as of the date of this report . see note 20 , `` subsequent events -equity offering , '' to the notes of the consolidated financial statements for further discussion . debt offerings on january 17 , 2012 , february 6 , 2012 and july 12 , 2012 , we issued an aggregate $ 1,000 million principal amount of the 8 % senior unsecured notes due 2018 ( such notes are collectively referred to as the “ 2012 additional notes ” ) . the 2012 additional notes constitute the same series of securities as the 8 % senior unsecured notes due 2018 for purposes of the indenture governing the notes and will vote together on all matters with such series . the 2012 additional notes have substantially identical terms as the 8 % senior unsecured notes due 2018 . ( the 8 % senior unsecured notes due 2018 together with the senior unsecured notes due 2016 are collectively referred to as the `` initial notes '' . ) see note 11 , `` debt , '' for further discussion . 93 acquisition of cvr energy , inc. on april 18 , 2012 , iep energy llc ( `` iep energy '' ) a majority owned subsidiary of icahn enterprises , and certain other affiliates of icahn enterprises ( or collectively , the iep parties ) , entered into a transaction agreement ( `` transaction agreement '' ) with cvr energy , inc. ( `` cvr '' ) , with respect to iep energy 's tender offer ( the `` offer '' ) to purchase all of the issued and outstanding shares of cvr 's common stock for a price of $ 30 per share in cash , without interest , less any applicable withholding taxes , plus one non-transferable contingent cash payment right for each share of cvr common stock ( the `` ccp '' ) , which represents the contractual right to receive an additional cash payment per share if a definitive agreement for the sale of cvr is executed on or prior to august 18 , 2013 and such transaction closes . the offer expired on may 4 , 2012. on may 7 , 2012 , we announced the results of the offer . a total of 48,112,317 shares of cvr common stock were validly tendered for $ 30 per share plus a contingent value right . story_separator_special_tag the onshore fund and the offshore master funds are collectively referred to herein as the “ investment funds. ” mr. icahn , along with his affiliates ( excluding icahn enterprises and icahn enterprises holdings ) , makes investments in the investment funds . as of december 31 , 2012 and 2011 , the total fair market value of investments in the investment funds made by mr. icahn and his affiliates was approximately $ 3.5 billion and $ 3.2 billion , respectively . incentive allocations and special profits interest allocations historically , our investment segment 's revenues were affected by the combination of fee-paying assets under management , or aum , and the investment performance of the investment funds . the general partners ' incentive allocations and special profits interest allocations earned from the investment funds were accrued on a quarterly basis and were allocated to the general partners at the end of the investment funds ' fiscal year ( or sooner on redemptions ) assuming there were sufficient net profits to cover such amounts . as more fully disclosed in a letter to investors in the investment funds filed with the sec on form 8-k on march 7 , 2011 , the investment funds returned all fee-paying capital to their investors during 2011. payments were funded through cash on hand and borrowings under existing credit lines . as a result , no further incentive allocations or special profits interest allocations will accrue for periods subsequent to march 31 , 2011. the general partners waived the special profits interest allocations and incentive allocations for our interests in the investment funds and mr. icahn 's direct and indirect holdings . we consolidate certain entities within our investment segment . as a result , in accordance with u.s. gaap , any special profits interest allocations , incentive allocations and earnings on investments in the investment funds are eliminated in consolidation . these eliminations have no impact on our net income ; however , our allocated share of the net income from the investment funds includes the amount of these allocations and earnings . as a result of the return of fee-paying capital as described above , a special profits interest allocation of $ 9 million was allocated to the general partners at march 31 , 2011. no further special profits interest allocation accrued in periods subsequent to march 31 , 2011. a special profits interest allocation of $ 45 million was made for the year ended december 31 , 2010. as a result of the return of fee-paying capital as described above , an incentive allocation of $ 7 million was allocated to the general partners at march 31 , 2011. no further incentive allocation will accrue in periods subsequent to march 31 , 2011. incentive allocations for the year ended december 31 , 2010 was $ 5 million . our interests in the investment funds as of december 31 , 2012 and 2011 , we had investments with a fair market value of approximately $ 2.4 billion and $ 3.1 billion , respectively , in the investment funds . our share of the investment funds ' net profit through our interests in the investment funds , excluding incentive allocations and special profits interest allocations earned , was $ 157 million , $ 871 million and $ 328 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . results of operations for our investment segment for the years ended december 31 , 2012 , 2011 and 2010 , prior to eliminations relating to its investment in tropicana , are presented below : replace_table_token_9_th returns the following table sets forth performance information for the investment funds for the comparative periods presented . these returns represent a weighted-average composite of the average returns , net of expenses for the investment funds . 96 replace_table_token_10_th ( 1 ) returns for the years ended december 31 , 2011 and 2010 were gross of special profits interest allocations and incentive allocations , but net of expenses for the investment funds . ( 2 ) the investments funds ' aggregate gross return would have been 20.2 % if the investment funds had elected not to distribute shares of cvr to our subsidiary iep energy in 2012 and if additional purchases had been made by the investment funds instead of by icahn enterprises . the investment funds ' aggregate gross return was 6.6 % for 2012. during 2012 , gains were primarily due to our long exposure to the equity markets that were primarily driven by certain core holdings , partially offset by losses due to defensive short positions . the investment funds ' aggregate gross return was 34.5 % for 2011. during 2011 , gains were primarily due to the investment funds ' long exposure to the equity markets that were primarily driven by certain core holdings . the investment funds ' aggregate gross return was 15.2 % for 2010. during 2010 , profits were primarily due to the investment funds ' long exposure in their core equity positions and , to a lesser extent , their long exposure to the credit markets , including fixed income , bank debt and derivative instruments , in the first half of 2010. the investment funds ' short exposure to both the equity and credit markets was a negative contributor to performance in the third quarter of 2010. during 2010 short exposure to credit was a positive contributor while short exposure to equity was a negative contributor . since inception in november 2004 , the investment funds ' gross return is 173 % , representing an annualized rate of return of 13 % through december 31 , 2012 . year ended december 31 , 2012 compared to the year ended december 31 , 2011 net gain from investment activities net realized and unrealized losses on the investment activities of the investment funds decreased by approximately $ 1.6 billion ( 83 % ) for the year ended december 31 , 2012 as compared to the prior year due to lower rates of return in the investment funds .
| other consolidated results of operations interest expense year ended december 31 , 2012 compared to the year ended december 31 , 2011 interest expense for icahn enterprises during 2012 increased by $ 86 million ( 20 % ) compared to 2011. interest expense for icahn enterprises holdings during 2012 increased by $ 86 million ( 20 % ) compared to 2011. the increase was primarily due to higher interest expense incurred on certain debt issued during the first and third quarter of 2012 and the inclusion of interest expense related to cvr 's debt effective may 4 , 2012 , offset in part by lower interest expense incurred on due to broker balances . year ended december 31 , 2011 compared to the year ended december 31 , 2010 interest expense for icahn enterprises during 2011 increased by $ 47 million ( 12 % ) as compared to 2010. interest expense for icahn enterprises holdings during 2011 increased by $ 48 million ( 12 % ) as compared to 2010. the increase was primarily due to higher interest expense incurred on certain debt issued on january 15 , 2010 and november 12 , 2010 and interest incurred on our due to broker balances . included in the increase in interest expense is interest expense related to our gaming segment for which no comparable prior year amount exists because , as discussed elsewhere , we consolidated tropicana effective november 15 , 2010. income tax expense year ended december 31 , 2012 compared to the year ended december 31 , 2011 for 2012 , icahn enterprises recorded an income tax benefit of $ 81 million on pre-tax income from continuing operations of $ 646 million compared to an income tax expense of $ 34 million on pre-tax income from continuing operations of $ 1,798 million for 2011. icahn enterprises ' effective income tax rate was ( 12.5 ) % and 1.9 % for 2012 and 2011 , respectively .
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at december 31 , 2013 we operate or manage 69 skilled nursing facilities with 8,943 beds in nine states and provide various services in one additional state . these operations are provided by separately funded and maintained subsidiaries . we provide health care services to patients in a variety of settings including skilled nursing facilities , managed care specialty units , sub-acute care units , alzheimer 's care units , assisted living centers , independent living centers , and homecare services . we also have a non-controlling ownership interest in a hospice care business that services nhc owned health care centers and others . in addition , we provide management services , accounting services and insurance services to third party owners of skilled nursing facilities . 33 executive summary earnings to monitor our earnings , we have developed budgets and management reports to monitor labor , census , and the composition of revenues . inflationary increases in our costs may cause net earnings from patient services to decline . medicare reimbursement rate changes in july 2012 , cms released its skilled nursing facility pps update for the fiscal year 2013 , which began october 1 , 2012. the notice provided a 1.8 % rate update , which reflects a 2.5 % market basket increase that is reduced under the aca by a 0.7 % multifactor productivity adjustment . cms estimated the update will increase overall payments to skilled nursing facilities in fiscal year 2013 by $ 670 million compared to fiscal year 2012 levels . the notice also provides an update to certain fiscal year 2012 policy changes involving recalibration of the parity adjustment , reallocation of group therapy time , and changes to the mds 3.0 patient assessment instrument . on april 1 , 2013 , the automatic 2 % cuts ( known as `` sequestration '' ) began for medicare providers . the resulting decrease in revenue on our consolidated statement of income was approximately $ 3,750,000 for the 2013 calendar year , or $ 1,250,000 per quarter . we are unable to predict the financial impact of other cuts congress may implement . however , such impact may be adverse and material to our future results of operations and cash flows . in july 2013 , cms released its skilled nursing facility pps update for the fiscal year 2014 , which began october 1 , 2013. the notice provided for a 1.3 % rate update , which reflects a 2.3 % market basket increase less a 0.5 % multifactor productivity adjustment and a 0.5 % adjustment to correct market basket forecasting errors in fiscal year 2012. cms estimates the update will increase overall payments to skilled nursing facilities in fiscal year 2014 by $ 470 million compared to fiscal year 2013 levels . the effect of the 2014 pps rate update on our revenues will be dependent upon our census and the mix of our patients at the pps pay rates . occupancy a primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities . the overall average census in owned and leased skilled nursing facilities for 2013 was 89.2 % compared to 90.1 % and 90.6 % in 2012 and 2011 , respectively . increased availability of assisted living facilities , as well as the rapid growth of home and community based services , has amplified the challenge of maintaining desirable patient census levels . management has undertaken a number of steps in order to best position our current and future health care facilities . this includes working internally to examine and improve systems to be most responsive to referral sources and payors . additionally , nhc is in various stages of partnerships with hospital systems , payors , and other post-acute alliances in positioning ourselves to be an active participant in the health delivery systems as they develop . 34 development and growth we are undertaking to expand our long-term care operations while protecting our existing operations and markets . the following table lists our recent construction and purchase activities . replace_table_token_9_th in the fourth quarter of 2013 , we opened a 90-bed skilled nursing facility in tullahoma , tennessee and began construction on a 92-bed skilled nursing facility and 60-unit assisted living community in sumner county , tennessee . in early 2014 , we anticipate starting construction on a 52-bed transitional care center in kingsport , tennessee and a 90-bed skilled nursing facility and an 80-unit assisted living community in nashville , tennessee . in addition , we entered into a partnership with rsf partners , inc. , and flournoy development , inc. to build and operate an 85-unit assisted living community ( `` camellia walk '' ) in augusta , georgia . camellia walk is currently under construction and plans to open in the second quarter of 2014. we also entered into a partnership with reliant healthcare , llc to develop and operate a 14-bed psychiatric hospital focusing on geriatric care in osage beach , missouri . this project is projected to open in the first or second quarter of 2014. also in 2013 , a con was approved that will be used to build a replacement center ( snf ) that would combine the current 92 beds of nhc hillview ( columbia , tn ) with 20 beds from the existing skilled nursing unit at maury regional medical center . the resulting replacement center would be a partnership between nhc and maury regional medical center . during 2014 we will also apply for certificates of need for additional beds in our markets and also evaluate the feasibility of expansion into new markets by building private pay health care centers or by the purchase of existing health care centers . we will also evaluate the feasibility of construction of new assisted living facilities in select markets . story_separator_special_tag we may receive payment for the unpaid and unrecognized management fees in whole or in part in the future only if cash flows from the operating and investing activities of the centers or proceeds from the sale of the centers are sufficient to pay the fees . there can be no assurance that such future cash flows will occur . the realization of such previously unrecognized revenue could cause our reported net income to vary significantly from period to period . we agree to subordinate our fees to the other expenses of a managed center because we believe we know how to improve the quality of patient services and finances of a long-term care center and because subordinating our fees demonstrates to the owner and employees of the managed center how confident we are of the impact we can have in making the center operations successful . we may continue to provide services to certain managed centers despite not being fully paid currently so that we may be able to collect unpaid fees in the future from improved operating results and because the incremental savings from discontinuing services to a center may be small compared to the potential benefit . also , we may benefit from providing other ancillary services to the managed center . see notes 2 , 3 and 4 to the consolidated financial statements regarding our relationships with national , nhi , and the recognition of management fees from long-term care centers owned by third parties . accrued risk reserves we are principally self-insured for risks related to employee health insurance , workers ' compensation and professional and general liability claims . our accrued risk reserves primarily represent the accrual for self-insured risks associated with employee health insurance , workers ' compensation and professional and general liability claims . the accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims . our policy with respect to a significant portion of our workers ' compensation and professional and general liability claims is to use an actuary to estimate our exposure for claims obligations ( for both asserted and unasserted claims ) . our health insurance reserve is based on our known claims incurred and an estimate of incurred but unreported claims determined by our analysis of historical claims paid . we reassess our accrued risk reserves on a quarterly basis . professional liability remains an area of particular concern to us . the entire health care industry has seen a dramatic increase in personal injury/wrongful death claims based on alleged negligence by nursing homes and their employees in providing care to residents . as of december 31 , 2013 , we and or our managed centers are defendants in 28 such claims inclusive of years 2003 through 2013. it remains possible that those pending matters plus potential unasserted claims could exceed our reserves , which could have a material adverse effect on our financial position , results of operations and cash flows . it is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period . we maintain insurance coverage for incidents occurring in all healthcare facilities owned or leased by us , and most healthcare facilities managed by us . the coverages include both primary policies and excess policies . in all years , settlements , if any , in excess of available insurance policy limits and our own reserves would be expensed by us . 37 credit losses certain of our accounts receivable from private paying patients and certain of our notes receivable are subject to credit losses . we have attempted to reserve for expected accounts receivable credit losses based on our past experience with similar accounts receivable and believe our reserves to be adequate . we continually monitor and evaluate the carrying amount of our notes receivable in accordance with asc topic 310 , receivables . it is possible , however , that the accuracy of our estimation process could be materially impacted as the composition of the receivables changes over time . we continually review and refine our estimation process to make it as reactive to these changes as possible . however , we can not guarantee that we will be able to accurately estimate credit losses on these balances . it is possible that future events could cause us to make significant adjustments or revisions to these estimates and cause our reported net income to vary significantly from period to period . uncertain tax positions uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment . we believe we have made adequate provision for unrecognized tax benefits related to uncertain tax positions including related penalties and interest . the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with limited need for management 's judgment in their application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . see our audited consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by generally accepted accounting principles . story_separator_special_tag was approximately $ 750,000 for the nine months of the 2013 calendar year , or $ 250,000 per quarter . 40 medicaid skilled nursing facilities effective july 1 , 2012 and for the fiscal year 2013 , the state of tennessee implemented specific individual nursing facility rate increases . the resulting increase in revenue beginning july 1 , 2012 was approximately $ 3,500,000 annually , or $ 875,000 per quarter . effective july 1 , 2013 and for the fiscal year 2014 , the state of tennessee implemented specific individual nursing facility rate increases .
| results of operations the following table and discussion sets forth items from the consolidated statements of income as a percentage of net revenues for the audited years ended december 31 , 2013 , 2012 and 2011. percentage of net revenues replace_table_token_10_th the following table sets forth the increase or ( decrease ) in certain items from the consolidated statements of income as compared to the prior period . period to period increase ( decrease ) replace_table_token_11_th approximately 65 % of our net patient revenues are derived from medicare , medicaid , and other government programs . as discussed above in the application of critical accounting policies section , amounts earned under these programs are subject to review by the medicare and medicaid intermediaries . see application of critical accounting policies for discussion of the effects that this revenue concentration and the uncertainties related to such revenues have on our revenue recognition policies . government program financial changes cost containment will continue to be a priority for federal and state governments for health care services , including the types of services we provide . government reimbursement programs such as medicare and medicaid prescribe , by law , the billing methods and amounts that health care providers may charge and be reimbursed to care for patients covered by these programs . congress has passed a number of laws that have effected major changes in the medicare and medicaid programs . the balanced budget act of 1997 sought to achieve a balanced federal budget by , among other things , reducing federal spending on medicare and medicaid to various providers .
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accounts receivable , net accounts receivable , net of allowance for doubtful accounts , consist of the following ( dollars in thousands ) : replace_table_token_22_th 4. property and equipment , net property and equipment consist of the following ( dollars in thousands ) : replace_table_token_23_th included in property and equipment are the following assets under capital leases ( dollars in thousands ) : replace_table_token_24_th depreciation expense was $ story_separator_special_tag story_separator_special_tag style= '' text-align : justify ; margin-top:6pt ; margin-bottom:0pt ; text-indent:0 % ; font-style : italic ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > summary the results of operations during fiscal 2016 compared with fiscal 2015 were impacted by the $ 94.6 million incremental inside sales contribution from 14 acquired and new supermarkets opened since may 2015 , offset by the additional week ( a 53 rd week ) in fiscal 2015 , and a same store sales decrease of 1.8 % resulting in part from food cost deflation and lower traffic . fuel sales decreased $ 25.6 million during fiscal 2016 , primarily as a result of a decrease in fuel retail prices . our operating expenses were impacted by $ 3.3 million of costs related to the acquisition and integration of the six acquired stores in eastern new york and north central massachusetts , $ 1.7 million of costs incurred in connection with a potential acquisition and $ 1.3 million of incremental legal and professional fees during fiscal 2016 related to the ongoing dispute and associated arbitration proceeding with the new york state teamsters conference pension and retirement fund . net sales the following table includes the components of our net sales for fiscal 2016 and fiscal 2015 . ( dollars in thousands ) replace_table_token_3_th inside sales increased due to the $ 94.6 million incremental contribution from 14 acquired and new supermarkets opened since may 2015. this increase was partially offset by $ 42.9 million of sales related to the additional week in fiscal 2015 , combined with a $ 2.4 million reduction in pharmacy sales attributable to the closure of 27 in-store pharmacies during january 2015. same store sales decreased 1.8 % primarily due to food cost deflation in certain categories , including meat and dairy , and competitive pressure to lower food prices in response , as well as lower traffic . additionally , a decline in federal funding for the supplemental nutritional assistance program ( “ snap ” ) had an estimated negative impact of 50 basis points on same store sales . same store sales is inside sales , excluding franchise revenue , for “ same stores , ” which are supermarkets that have been operating for at least 13 full four-week periods . sales related to the 27 closed in-store pharmacies have been excluded for purposes of calculating same store sales . to calculate the same store sales change , we used the 52-week period ended january 2 , 2016 , as this represents the most comparable period to the 52-week period ended december 31 , 2016. fuel sales decreased during fiscal 2016 compared with fiscal 2015 due to a 12.8 % decrease in the average retail price per gallon , net of applicable discounts , and a 3.8 % decrease in gallons sold , primarily due to the additional week in fiscal 2015 . - 16 - gross profit the following table includes a comparison of cost of goods sold , distribution costs and gross profit for fiscal 2016 and fiscal 2015 . ( dollars in thousands ) replace_table_token_4_th as a percentage of net sales , the decrease in cost of goods sold was due to a shift in product mix given the smaller proportion of relatively lower margin fuel sales . non-cash lifo inventory valuation income increased $ 0.3 million from $ 0.2 million during the fiscal 2015 to $ 0.5 million during fiscal 2016. excluding the impact of lifo adjustments , cost of goods sold as a percentage of inside sales was 67.6 % and 67.4 % , respectively , during fiscal 2016 and fiscal 2015. the increase in distribution costs was due to new stores , $ 1.4 million of costs associated with our august 2016 relocation to a new freezer warehouse facility , combined with a $ 0.6 million increase in self-insured workers ' compensation claims expense . these increases were partially offset by $ 2.5 million of incremental savings associated with the amendment of certain operating terms of our agreement with c & s , which became effective april 1 , 2015. this amount recorded in distribution costs is in addition to $ 0.6 million of savings classified in cost of goods sold related to the amended terms . operating expenses the following table includes a comparison of operating expenses for fiscal 2016 and fiscal 2015 . ( dollars in thousands ) replace_table_token_5_th wages , salaries and benefits the increase in wages , salaries and benefits as a percentage of net sales during fiscal 2016 compared with fiscal 2015 is largely attributable to the lower proportion of less labor intensive fuel sales driven by the reduction of retail fuel prices previously discussed . as a percentage of inside sales , wages , salaries and benefits increased nine basis points due to a $ 3.1 million increase in self-insured workers ' compensation claims expense and general wage increases , partially offset by a $ 3.3 million decrease in bonus expense based upon performance against budget metrics . selling and general expenses the decrease in selling and general expenses in fiscal 2016 compared with fiscal 2015 is primarily due to a $ 1.2 million decrease in self-insured general liability claims expense . - 17 - administrative expenses the increase in administrative expenses during fiscal 2016 was largely due to $ 1.6 million of costs related to the acquisition and integration of the six acquired stores in eastern new york and north central massachusetts and $ 1.7 million of costs incurred in connection with a potential acquisition . story_separator_special_tag sales related to the 27 closed in-store pharmacies have been excluded from both fiscal 2015 and fiscal 2014 for purposes of calculating same store sales . fuel sales decreased during fiscal 2015 compared with fiscal 2014 due to a 31.9 % decrease in the average retail price per gallon , net of applicable discounts , slightly offset by a 3.3 % increase in gallons sold , primarily due to the additional week in fiscal 2015 and the addition of five new fuel stations since february 2014 . - 19 - gross profit the following table includes a comparison of cost of goods sold , distribution costs and gross profit for fiscal 2015 and fiscal 2014 . ( dollars in thousands ) replace_table_token_7_th as a percentage of net sales , cost of goods sold decreased during fiscal 2015 compared with fiscal 2014 due to an improvement in profitability on fuel sales , combined with a shift in product mix given the smaller proportion of relatively lower margin fuel sales . non-cash lifo inventory valuation adjustments improved from $ 2.7 million of expense during fiscal 2014 to income of $ 0.2 million during fiscal 2015. excluding the impact of non-cash lifo adjustments , cost of goods sold as a percentage of inside sales was 67.4 % and 67.5 % , respectively , during fiscal 2015 and fiscal 2014. distribution costs were positively impacted by $ 4.5 million of savings associated with the amendment of certain operating terms of our agreement with c & s effective april 1 , 2015. this amount recorded in distribution costs is in addition to $ 1.1 million of savings classified in cost of goods sold related to the amended terms . this decrease was partially offset by a $ 1.4 million increase in self-insured workers ' compensation expense related to our warehouse and distribution associates driven largely by assumption changes in the most recent actuarial valuation of claims reserves , including the estimated future costs to settle currently outstanding claims . operating expenses the following table includes a comparison of operating expenses for fiscal 2015 and fiscal 2014 . ( dollars in thousands ) replace_table_token_8_th wages , salaries and benefits the increase in wages , salaries and benefits as a percentage of net sales during fiscal 2015 compared with fiscal 2014 is largely attributable to the lower proportion of less labor intensive fuel sales driven by the reduction of retail fuel prices previously discussed . as a percentage of inside sales , wages , salaries and benefits increased 44 basis points . the wages , salaries and benefits costs for fiscal 2015 reflect the $ 0.75 per hour minimum wage rate increase in new york state effective january 1 , 2015. additionally , we experienced a $ 3.3 million increase in bonus expense due to improved performance against bonus metrics . medical costs associated with non-union supermarket associates increased $ 2.5 million , and our pension contributions for supermarket associates increased $ 2.1 million as prescribed by our collective bargaining agreements . also , in connection with the january 2015 closure of 27 in-store pharmacies , we incurred $ 1.0 million of non-recurring severance costs . selling and general expenses the decrease in selling and general expenses in fiscal 2015 compared with fiscal 2014 is due to a $ 6.2 million decrease in utility costs attributable to lower commodity costs and usage . this decrease was partially offset by the impact of new supermarket and fuel location openings and the additional week in fiscal 2015 . - 20 - administrative expenses administrative expenses increased $ 14.0 million during fiscal 2015 compared with fiscal 2014 due to a $ 4.9 million increase in bonus expense reflecting improved performance against budget metrics . additionally , we incurred $ 4.6 million of legal and professional fees during fiscal 2015 related to the arbitration with the new york state teamsters conference pension and retirement fund discussed in note 13 to our consolidated financial statements contained in item 8 of this 10-k. the increase also reflects normal wage adjustments , increased corporate associate healthcare costs and increased depreciation expense related to software for our new point of sale system . rent expense , net rent expense reflects our rental expense for our supermarkets under operating leases , net of income we receive from various entities that rent space in our supermarkets under subleases . the increase in rent expense is due to new supermarket and fuel location openings that occurred during fiscal 2015. depreciation and amortization the increase in depreciation and amortization during fiscal 2015 compared with fiscal 2014 was due to incremental depreciation related to fiscal 2014 and fiscal 2015 capital expenditures , as well as the additional week in fiscal 2015. advertising as a percentage of net sales , advertising remained relatively consistent during fiscal 2015 compared with fiscal 2014. gain on sale of assets during january 2015 , we sold pharmacy scripts and inventory related to 27 of our in-store pharmacy locations for cash proceeds of $ 14.9 million . these pharmacies were then closed . a resulting gain on sale of assets of $ 11.0 million , net of the carrying value of sold inventory of $ 3.2 million and direct selling expenses of $ 0.7 million , was recognized in the consolidated statement of comprehensive loss for fiscal 2015. impairment during fiscal 2015 , we determined that the expected future cash flows associated with one supermarket location were insufficient to recover that location 's net book value of long-lived assets . as a result , the net book values of property and equipment assets were written down to their estimated fair values . a corresponding non-cash impairment charge of $ 2.2 million was recognized in the consolidated statement of comprehensive loss . no impairment was recognized during fiscal 2014. loss on debt extinguishment during june 2015 , we satisfied and discharged our obligations under our 2017 notes and redeemed $ 60.0 million of our 2018 notes .
| f financial condition and results of operations the following discussion should be read in conjunction with our audited consolidated financial statements and related notes and other financial information appearing elsewhere in this 10-k. company overview we are a leading supermarket retailer with supermarkets in upstate new york , northern pennsylvania , western vermont and north central massachusetts . introduced in 1962 , our tops brand is widely recognized as a strong retail supermarket brand name in our market area , supported by strong customer loyalty and attractive supermarket locations . as of december 31 , 2016 , we operated 172 full-service supermarkets , 171 under the tops banner and one under the orchard fresh banner , with an additional five supermarkets operated by franchisees under the tops banner . on november 14 , 2013 , morgan stanley private equity and other stockholders of holding ii , tops mbo corporation ( “ tops mbo co ” ) and holding ii signed a purchase and sale agreement pursuant to which tops mbo co agreed to purchase substantially all of the common stock of holding ii ( the “ management purchase ” ) . tops mbo co is substantially owned and controlled by members of our management and our directors . the management purchase closed effective december 1 , 2013. prior to the management purchase , members of management owned approximately 7 % of the outstanding equity interests in holding ii . as a result of the management purchase , members of our management and our directors beneficially own approximately 81 % of the outstanding equity interests of holding ii . basis of presentation we operate on a 52/53 week fiscal year ending on the saturday closest to december 30. our fiscal years include 13 four-week reporting periods , with an additional week in the thirteenth reporting period for 53-week fiscal years . our first quarter of each fiscal year includes four reporting periods , while the remaining quarters include three reporting periods .
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the company 's management , with the participation of the company 's principal executive officer and principal financial officer , evaluated the effectiveness of the company 's internal control over financial reporting as of september 30 , 2017. this evaluation was conducted using the criteria set forth by the committee of sponsoring organizations ( coso ) of the treadway commission in the 2013 internal control – integrated framework . based on its emulation , management concluded that our internal control over financial reporting was effective as of the end of the period covered by this annual report on form 10-k. this annual report on form 10-k does not include an attestation report of the company 's independent registered public accounting firm regarding the company 's internal control over financial reporting . management 's report on internal control over financial reporting was not subject to attestation by the company 's independent registered public accounting firm pursuant to the rules and regulations of the sec that permit the company to provide only its management 's report on internal control over financial reporting in this annual report on form 10-k. changes in internal control over financial reporting there has been no change in our internal control over financial reporting ( as such term is defined in rules 13a-15 ( f ) and 15d-15 ( f ) under the exchange act ) during the quarter ended september 30 , 2017 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . 46 item 9b other information not applicable . item 10 directors , executive officers and corporate governance following this table is a brief biographical description for each of or executive officers and directors , with a brief description of their business experience and present relationship to us as of september 30 , 2017 , together with all required relevant disclosures for the past five years . name position current term of office michael ferguson chairman director since 2017 jason s. slakter , m.d . chief executive officer , president and director officer since 2014 , director since 2015 orin hirschman director director since 2009 thomas riedhammer director director since 2013 june almenoff director director since 2013 sam backenroth chief financial officer and vice president of business development officer since 2010 the honorable michael ferguson , age 47 , joined ohr as a director and chairman of the board in may 2017. mr. ferguson is a senior advisor and leader of the federal policy team at baker hostetler llp , one of the nation 's largest law firms , and is a member of the board of directors of nanovibronix inc. he served for nearly a decade in the house of representatives and was a leader on a number of key healthcare and financial services policy initiatives to remove regulatory roadblocks to innovation . as vice chairman of the house health subcommittee , he led policy reforms including the creation of the medicare part d prescription drug benefit and pharmaceutical and medical device user fee reauthorizations . he also authored and shepherded passage of the lifespan respite care act of 2006 , which champions pioneering healthcare policies that improve treatment options for patients . after retiring from congress , mr. ferguson founded ferguson strategies , a government affairs and public policy consulting firm that served a wide range of clients , including fortune 500 companies and start-up firms . among his many honors and community services , he is currently chairman of the board of commissioners of the new jersey sports and exhibition authority , a senior fellow at the center for medicine in the public interest and a board member of the independent college fund of new jersey . mr. ferguson received a b.a . in government from the university of notre dame and a master of public policy degree from georgetown university . dr. jason s. slakter , age 59 , joined ohr as chief medical officer in may 2014 and was appointed director in january 2015. he was appointed president and chief executive office in september 2015. he was previously chief executive officer and co-founder of sks ocular llc . he is also the founder and director of the digital angiography reading center ( darc ) in new york , which is the largest center for ocular image evaluation for clinical trials of posterior segment disease with over 900 certified clinical sites in over 44 countries worldwide . dr. slakter has been involved extensively in the design and application of new diagnostic and treatment modalities for ophthalmic diseases . he has played a major role in the discovery , development and commercialization of treatments for age-related macular degeneration , diabetic retinopathy , retinal vascular disease , central serous chorioretinopathy and other retinal diseases . he has provided critical assistance in the design of clinical trials at all stages of development , and has participated in numerous meetings with the fda . dr. slakter served as chief medical officer for potentia pharmaceuticals from its inception through its acquisition by alcon laboratories , inc. ( novartis ) . dr. slakter is a member of the american ophthalmological society , the macula society , the retina society , and the american society of retina specialists , and was the founder and first editor-in-chief of retinal physician journal . he has been the recipient of many awards including the macula society 's richard and hinda rosenthal award for outstanding contribution to the treatment of ocular disease by an individual under the age of 45 , the 2003 helen keller manhattan league award , and life achievement honor award from the american academy of ophthalmology . story_separator_special_tag dr. slakter is a clinical professor of ophthalmology at new york university school of medicine and has also practiced at the vitreous-retina-macula consultants of new york for over 28 years . orin hirschman , age 48 , has served as a director of ohr since march 2009. mr. hirschman has over 25 years of experience in money management , leveraged buyouts , restructuring and venture capital . mr. hirshman has been the manager of aigh investment partners , lp since 2011. from 1994 until 2001 , mr. hirschman served as a co-manager of two private investment funds , adam smith investment partnerships and adam smith investment partners , ltd ( the “ adam smith funds ” ) . in addition to mr. hirschman 's private placement investments over the last 13 years , the adam smith funds , and aigh investment partners , lp , his experience in the securities industry includes tenures with wesray capital , the investment story_separator_special_tag general we are a clinical stage pharmaceutical company developing novel therapies for ophthalmic diseases . our lead clinical asset , topical squalamine ( also known as squalamine lactate ophthalmic solution , 0.2 % , or ohr-102 ) , is a novel therapeutic product which could provide a non-invasive therapy to improve vision outcomes beyond that achieved with current standard of care . we are evaluating squalamine in combination with lucentis® injections for the treatment of wet-amd . this is based on the data from a phase 2 clinical trial in wet-amd where a positive and clinically meaningful vision benefit was seen with squalamine combination therapy in classic containing choroidal neovascularization ( classic cnv ) as well as those subjects with occult neovascularization ( occult cnv ) less than 10mm 2 . we also have a sustained release platform technology we acquired in may 2014. the company will continue to incur ongoing operating losses , which are expected to increase substantially as it funds development and clinical testing of its pharmaceutical compounds . in addition , losses will be incurred in paying ongoing reporting expenses , including legal and accounting expenses , as necessary to maintain the company as a public entity . no projected date for potential revenues can be made , and the company is undercapitalized at present to completely develop , test and market any pharmaceutical product . until the company is able to generate significant revenue from its principal operations , it will remain classified as a development stage company . the company can give no assurance that it will be successful in such efforts or that its limited operating funds will be adequate to support the company 's operations , nor can there be any assurance of any additional funding being available to the company . management has concluded that there is substantial doubt about the entity 's ability to continue as a going concern . 28 liquidity and capital resources the company has limited working capital reserves with which to continue development of its pharmaceutical products and continuing operations . the company is reliant , at present , upon its capital reserves for ongoing operations and has no revenues . net working capital reserves decreased from the beginning of the 2016 fiscal year to the end by $ 712,691 ( to $ 8,090,451 from $ 8,803,142 ) primarily due to capital raised through the sale of common stock offset by continued costs for our research and development activities . at the end of fiscal 2017 , our quarterly cash burn increased to more than $ 5 million , which was higher than in fiscal 2016. we expect our cash burn to stabilize and then potentially decrease in fiscal 2018 with the completion of the ongoing mako study . management has concluded that due to the conditions described above , there is substantial doubt about the entity 's ability to continue as a going concern . we have evaluated the significance of the conditions in relation to our ability to meet our obligations and believe that our current cash balance will provide sufficient capital to continue operations into april 2018. at present , the company has no bank line of credit or other fixed source of capital reserves . should the company need additional capital in the future , it will be primarily reliant upon private or public placement of its equity or debt securities , or a transaction with a pharmaceutical partner , for which there can be no warranty or assurance that the company may be successful in such efforts . story_separator_special_tag share-based payments to employees , including grants of employee stock options , be recognized in the income statement based on their fair values . the company uses the blackscholes pricing model for determining the fair value of stock options and the stock price on the date of the grant for the fair value of restricted stock awards . in accordance with asc 505 , equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached , whichever is earlier . goodwill and intangibles the company evaluates goodwill and other finite-lived intangible assets in accordance with fasb asc topic 350 , “ intangibles — goodwill and other . ” goodwill is recorded at the time of an acquisition and is calculated as the difference between the total consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired . accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired , including in-process research and development ( “ ipr & d ” ) . goodwill is deemed to have an indefinite life and is not amortized , but is subject to annual impairment tests . if the assumptions and estimates used to allocate the purchase price are not correct ,
| results of operations for the fiscal year ended september 30 , 2017 , the company had no revenues and operating expenses of approximately $ 23,780,073. the loss from operations was comprised of $ 17,406,869 in research and development costs , $ 5,278,272 in general and administrative expenses , and $ 1,165,689 in depreciation and amortization . during the same period , the company recorded a gain on settlement of accounts payable of $ 70,757 , and had other expense , net items totaling $ 30,923. the net loss for the year ended september 30 , 2017 was $ 23,810,996. for the fiscal year ended september 30 , 2016 , the company had no revenues and operating expenses of approximately $ 24,596,053. the loss from operations was comprised of $ 16,460,714 in research and development costs , $ 7,656,327 in general and administrative expenses , and $ 1,189,276 in depreciation and amortization . during the same period , the company recorded a gain on settlement of accounts payable of $ 710,264 , a decrease in fair value of contingent consideration of $ 1,185,667 and had other income and expense , net items totaling $ 15,522. the net loss for the year ended september 30 , 2016 was $ 25,766,198. as noted above , the company had no revenues for fiscal year 2017 , and does not anticipate that it will have any revenues in fiscal year 2018. the operating expenses of the company decreased from fiscal year 2016 to fiscal year 2017 by $ 815,980. the company had an increase in research and development expenses as ongoing development costs and testing efforts for its pharmaceutical products continue . general and administrative decreased from 2016 to 2017. the company anticipates it will have higher expenditures in fiscal year 2018 , including clinical development costs , again with no offsetting revenues .
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a number of factors contributed to the souring of investor sentiment including geopolitical risks in russia and greece and a genuine deterioration of macro-economic data in continental europe . as a result , most european and emerging markets declined in 2014 as seen by the ftse 100 , which was down 2.7 % , and the msci emerging markets index , which declined 4.6 % . the u.s. market fell from its highs in mid-2014 , but still managed an impressive s & p 500 return of 11.4 % . japan was also positive in 2014 , with the nikkei 225 up 7.1 % , which was driven by the fiscal and monetary policy actions taken by the japanese government and central bank , respectively . the sell-off of risk assets benefited the us treasury market as investors sought the safety of us government bonds . yields on the 10- year and 30- year treasury reached historic lows benefiting returns of government bond indices . the barclays us aggregate bond index returned 6.0 % for the year . the table below summarizes the year ended december 31 returns based on price appreciation/ ( depreciation ) of several major market indices for 2014 , 2013 , and 2012 : replace_table_token_5_th throughout 2014 , we continued to execute our long-term strategy , which further improved our ability to serve clients , strengthened our investment performance , and helped to deliver competitive levels of operating income and margins . we also took advantage of opportunities in the market and invested in our products and capabilities , our brand , our global platform and our people in ways that strengthened our business and competitive position for long-term success . as a global investment management firm dedicated to delivering investment excellence to our clients , invesco is committed to further strengthening and enhancing our risk management approach . we believe a key factor in invesco 's ability to manage through the economic uncertainty of recent years was our integrated approach to risk management . invesco 's enterprise risk management approach is embedded in its management processes across the organization . broadly , our approach includes two governance structures - one for investments and another for business risk . 26 investment risk oversight is supported by the global performance measurement and risk group , which provides senior management and the board with insight into core investment risks , and the investment teams . business risk oversight is supported by the corporate risk management committee , which facilitates a focus on strategic , operational and other key business risks , and related committees . further , functional and geographic risk management committees maintain an ongoing risk assessment process that provides a bottom-up perspective on the specific risk areas existing in various domains of our business . as a result of our efforts in this area , standard & poor 's ratings services has designated our enterprise risk management rating as `` strong . '' in addition , we benefited from our long-term efforts to ensure a diversified base of assets under management . one of invesco 's core strengths , and a key differentiator for the company within the industry , is our broad diversification across client domiciles , asset classes and distribution channels . our geographical diversification recognizes growth opportunities in different parts of the world . this broad diversification mitigates the impact on invesco of different market cycles and enables the company to take advantage of growth opportunities in various markets and channels . in march 2014 , leadership of the u.k. equities team transitioned to mark barnett . mr. barnett and the team delivered strong investment performance to clients throughout 2014. although we experienced outflows in the u.k. as a result of the transition , dominated by a single client outflow of $ 13.1 billion , our u.k. and continental europe business grew and became more diversified throughout 2014 , with significant flows into fixed income , non-u.k. equities , real estate and multi-asset capabilities . in particular , u.k. retail achieved a record year of gross sales across a range of capabilities , demonstrating the strength and resilience of our business . the investment management industry is subject to extensive levels of ongoing regulatory oversight and examination . in the united states , united kingdom , and other jurisdictions in which the company operates , governmental authorities regularly make inquiries , hold investigations and administer market conduct examinations with respect to compliance with applicable laws and regulations . on april 28 , 2014 , the u.k. financial conduct authority ( fca ) announced a penalty of £18.6 million ( $ 31.1 million ) related to the settlement of an enforcement proceeding pertaining to the company 's compliance with certain fca rules and regulations for the period from may 2008 to november 2012. this charge , together with settlement-related legal costs of $ 0.5 million , reduced 2014 diluted earnings per share by $ 0.07. the company believes its current systems and controls now are adequate and in compliance with applicable rules and regulations . one of the company 's strategic imperatives is to harness the power of our global platform by improving effectiveness and efficiency , and allocating our resources to the opportunities that will best benefit clients and our business . consistent with this objective , during 2014 an initiative was undertaken to align the company 's location footprint to reflect current and future business needs . this resulted in the company recording business optimization initiative charges of $ 40.3 million that include $ 33.1 million associated with vacating leased properties and $ 7.2 million of staff severance . these charges reduced 2014 diluted earnings per share by $ 0.07. during 2014 , standard & poor 's ratings services upgraded the company 's senior unsecured debt rating to a/stable from a-/positive . also during 2014 , moody 's investors service upgraded their rating of the company 's debt to a2/stable from a3/stable . the upgrade reflected moody 's view that invesco has broken into the top tier of scale-enabled investment managers . story_separator_special_tag the narrative in each of these sections separately provides discussion of the underlying financial statement activity for the company , before consolidation of cip , as well as of the financial statement activity of cip . additionally , wherever a non-gaap measure is referenced , a disclosure will follow in the narrative or in the note referring the reader to the schedule of non-gaap information , where additional details regarding the use of the non-gaap measure by the company are disclosed , along with reconciliations of the most directly comparable u.s. gaap measures to the non-gaap measures . to further enhance the readability of the results of operations section , separate tables for each of the revenue , expense , and other income and expenses ( non-operating income/expense ) sections of the income statement introduce the narrative that follows , providing a section-by-section review of the company 's income statements for the periods presented . 28 summary operating information summary operating information for 2014 , 2013 and 2012 is presented in the table below . replace_table_token_6_th _ ( 1 ) on december 31 , 2013 , the company completed the sale of atlantic trust . the company has adopted a discontinued operations presentation for atlantic trust . amounts presented represent continuing operations and exclude atlantic trust , with the exception of net income attributable to common shareholders and diluted earnings per share . ( 2 ) net revenues is a non-gaap financial measure . net revenues are operating revenues plus our proportional share of the net revenues of our joint venture investments , less third-party distribution , service and advisory expenses , plus management and performance fees earned from cip , less other revenue recorded by cip , plus other reconciling items . see `` schedule of non-gaap information '' for the reconciliation of operating revenues to net revenues . ( 3 ) adjusted operating income and adjusted operating margin are non-gaap financial measures . adjusted operating margin is adjusted operating income divided by net revenues . adjusted operating income includes operating income plus our proportional share of the net operating income of our joint venture investments , the operating income impact of the consolidation of investment products , acquisition/disposition related adjustments , compensation expense related to market valuation changes in deferred compensation plans , and other reconciling items . see `` schedule of non-gaap information , '' for the reconciliation of operating income to adjusted operating income . ( 4 ) adjusted net income attributable to common shareholders and adjusted diluted eps are non-gaap financial measures . adjusted net income attributable to common shareholders is net income attributable to common shareholders adjusted to exclude the net income of cip , add back acquisition/disposition related adjustments , the net income impact of deferred compensation plans and other reconciling items . adjustments made to net income attributable to common shareholders are tax-effected in arriving at adjusted net income attributable to common shareholders . by calculation , adjusted diluted eps is adjusted net income attributable to common shareholders divided by the weighted average number of shares outstanding ( for diluted eps ) . see `` schedule of non-gaap information , '' for the reconciliation of net income attributable to common shareholders to adjusted net income attributable to common shareholders . ( 5 ) the debt-to-equity ratio excluding cip is a non-gaap financial measure . see the `` liquidity and capital resources '' section for a recalculation of this ratio and other important disclosures . 29 investment capabilities performance overview invesco 's first strategic priority is to achieve strong investment performance over the long-term for our clients . the table below presents the one- , three- and five-year performance of our actively managed investment products measured by the percentage of aum ahead of benchmark and aum in the top half of peer group . ( 1 ) replace_table_token_7_th _ ( 1 ) aum measured in the one- , three- , and five-year peer group rankings represents 60 % , 60 % , and 60 % of total invesco aum , respectively , and aum measured versus benchmark on a one- , three- , and five-year basis represents 71 % , 70 % , and 69 % of total invesco aum , respectively , as of december 31 , 2014 . peer group rankings are sourced from a widely-used third party ranking agency in each fund 's market ( lipper , morningstar , ima , russell , mercer , evestment alliance , sitca , value research ) and are asset-weighted in usd . rankings are as of prior quarter-end for most institutional products and preceding month-end for australian retail funds due to their late release by third parties . rankings for the most representative fund in each global investment performance standard ( gips ) composite are applied to all products within each gips composite . excludes passive products , closed-end funds , private equity limited partnerships , non-discretionary direct real estate , unit investment trusts fund-of-funds with component funds managed by invesco , stable value building block funds and clos . certain funds and products were excluded from the analysis because of limited benchmark or peer group data . had these been available , results may have been different . these results are preliminary and subject to revision . performance assumes the reinvestment of dividends . past performance is not indicative of future results and may not reflect an investor 's experience . as of december 31 , 2014 , 67 % , 77 % and 81 % of ranked actively managed assets performed in the top half of peer groups on a one-year , three-year and five-year basis respectively . the u.k. , continental european and global ex u.s. and emerging markets equities have also had strong relative performance , with 97 % or more of ranked assets beating their benchmark over three- and five-year periods .
| resulted in an increase to net income of $ 11.1 million before attribution to noncontrolling interests . invesco invests in only a portion of these products , and as a result this net gain is offset by amounts attributable to noncontrolling interests of $ 3.3 million , resulting in a net increase in net income attributable to common shareholders of $ 7.8 million , representing the changes in the market value of the company 's holding in its consolidated clos , which is reclassified into other gains/ ( losses ) from accumulated other comprehensive income upon consolidation . the consolidation of investment products during the year ended december 31 , 2013 resulted in an increase to net income of $ 36.0 million before attribution to noncontrolling interests . this net gain is offset by amounts attributed to noncontrolling interests of $ 44.7 million , resulting in a net decrease in net income attributable to common shareholders of $ 8.7 million . the consolidation of investment products during the year ended december 31 , 2012 resulted in a decrease to net income of $ 100.5 million before attribution to noncontrolling interests . this net loss is offset by amounts attributable to noncontrolling interests of $ 89.8 million , resulting in a net decrease in net income attributable to common shareholders of $ 10.7 million . 51 noncontrolling interests in consolidated entities represent the profit or loss amounts attributed to third party investors in cip . the impact of any gains or losses resulting from valuation changes in the investments and debt of cip attributable to the interests of third parties are offset by changes in gains and losses attributable to noncontrolling interests in consolidated entities in the consolidated financial statements and therefore do not have a material effect on the financial condition , operating results ( including earnings per share ) , liquidity or capital resources attributable to the company 's common shareholders .
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the company conducted its fiscal 2015 story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements , the information described under the caption “ risk factors ” in part i , item 1a of this report and our special note regarding forward-looking statements at the outset of this report . overview we are a developer , manufacturer and supplier of premium diagnostics products , medical imaging systems and surgical products with an emphasis on women 's health . we operate in four segments : diagnostics , breast health , gyn surgical and skeletal health . we sell and service our products through a combination of direct sales and service personnel and a network of independent distributors and sales representatives . we offer a wide range of diagnostic products which are used primarily to aid in the diagnosis of human diseases and screen donated human blood and plasma . our primary diagnostics products include our aptima family of assays , which run on our advanced instrumentation systems ( panther and tigris ) , our thinprep system , the rapid fetal fibronectin test and our procleix blood screening assays . the aptima family of assays is used to detect the infectious microorganisms that cause the common sexually transmitted diseases , or stds , chlamydia and gonorrhea , certain high-risk strains of human papillomavirus , or hpv , and trichomonas vaginalis , the parasite that causes trichomoniasis . the thinprep system is primarily used in cytology applications , such as cervical cancer screening , and the rapid fetal fibronectin test assists physicians in assessing the risk of pre-term birth . in blood screening , we develop and manufacture the procleix family of assays , which are used to detect various infectious diseases . the procleix blood screening assays also run on our panther and tigris systems . these blood screening products are marketed worldwide by our blood screening collaborator , grifols s.a. , or grifols , under grifols ' trademarks . our breast health products include a broad portfolio of breast imaging and related products and accessories , including digital and film-based mammography systems , computer-aided detection , or cad , for mammography and minimally invasive breast biopsy devices , breast biopsy site markers , and breast biopsy guidance systems . our most advanced breast imaging platform , dimensions , utilizes a technology called tomosynthesis to produce 3d images that show multiple contiguous slice images of the breast , which we refer to as the genius 3d mammography exam , as well as conventional 2d full field digital mammography images . our clinical results for fda approval demonstrated that conventional 2d digital mammography with the addition of 3d tomosynthesis is superior to 2d digital mammography alone for both screening and diagnostics . our gyn surgical products include our novasure endometrial ablation system , or novasure , and our myosure hysteroscopic tissue removal system , or myosure . the novasure system involves a trans-cervical procedure for the treatment of abnormal uterine bleeding . the myosure system is a tissue removal device that is designed to provide incision-less removal of fibroids , polyps , and other pathology within the uterus . our skeletal health segment offers discovery and horizon x-ray bone densitometers that assess the bone density of fracture sites ; and mini c-arm imaging systems that assist in performing minimally invasive surgical procedures on a patient 's extremities , such as the hand , wrist , knee , foot , and ankle . unless the context otherwise requires , references to we , us , hologic or our company refer to hologic , inc. and its consolidated subsidiaries . 37 results of operations the following table sets forth , for the periods indicated , the percentage of total revenues represented by items as shown in our consolidated statements of operations . all dollar amounts in tables are presented in millions . replace_table_token_3_th 38 fiscal year ended september 24 , 2016 compared to fiscal year ended september 26 , 2015 product revenues . replace_table_token_4_th we generated an increase in product revenues in fiscal 2016 compared to fiscal 2015 . the growth was across our three primary business segments on both a domestic and worldwide basis , while skeletal health experienced a decline domestically and internationally . product revenues increased 4.8 % in the current fiscal year compared to the prior fiscal year , as reported growth was partially offset by the negative foreign currency exchange impact of the strengthening u.s. dollar against a number of currencies , most notably the euro , australian dollar and uk pound . diagnostics product revenues increased 1.7 % in fiscal 2016 compared to fiscal 2015 primarily due to increases in molecular diagnostics of $ 28.6 million and cytology & perinatal of $ 8.1 million . these increases were partially offset by a decrease of $ 16.2 million in our blood screening business . the increase in molecular diagnostics products , and in particular our aptima family of assays , was primarily due to our increased installed base of panther instruments , which is driving higher volumes of assay testing . these increases were partially offset by a slight decline in average selling prices , a reduction in cervista hpv revenues as our larger customers transition to our panther system , a reduction in cystic fibrosis revenues as we discontinued the product at the end of the second quarter of fiscal 2016 , and a slight negative foreign currency exchange impact from the strengthening u.s. dollar on our sales denominated in foreign currencies . overall , we experienced revenue growth both domestically and internationally in our molecular diagnostics business . the increase in our cytology & perinatal products was primarily related to increases in instrument sales and perinatal volumes partially offset by a decrease in our thinprep products , where thinprep volumes increased slightly domestically and increased more modestly internationally , but international sales were negatively impacted by the strengthening u.s. dollar on our sales denominated in foreign currencies . story_separator_special_tag in addition , we generated an increase in domestic sales , which have higher average selling prices , while international sales declined in the current year compared to fiscal 2015. breast health 's product costs as a percentage of revenue decreased in fiscal 2016 compared to fiscal 2015 primarily due to the favorable product mix shift to our higher margin 3d dimensions system . our 3d dimensions systems have higher average sales prices than our 2d systems . in addition , we had higher software sales primarily due to our c-view product , which have higher gross margins than capital equipment sales , and we experienced favorable manufacturing variances . further , we generated an increase in domestic sales , which have higher average selling prices , while international sales declined in fiscal 40 2016 compared to fiscal 2015 resulting in an improved gross margin . we also had lower sales of our interventional breast solutions disposables and no sales from our mri breast coils product line , which was fully disposed during fiscal 2015. both of these product lines have lower gross margins than our digital mammography systems . gyn surgical 's product costs as a percentage of revenue decreased in fiscal 2016 compared to fiscal 2015 primarily due to an increase in sales volumes for both our myosure and novasure products resulting in favorable manufacturing variances , partially offset by product mix shift to our lower margin myosure products . in addition , the prior fiscal year included a $ 4.0 million charge to write-off certain inventory that would not be utilized . skeletal health 's product costs as a percentage of revenue increased in fiscal 2016 compared to fiscal 2015 primarily due to an overall decrease in revenues , partially offset by favorable manufacturing variances as we built additional inventory in anticipation of outsourcing the manufacturing of a majority of the division 's products to a third party . amortization of intangible assets . amortization of intangible assets relates to acquired developed technology . these intangible assets are generally amortized over their estimated useful lives of between 8.5 and 15 years using a straight-line method or , if reliably determinable , based on the pattern in which the economic benefits of the assets are expected to be consumed . the economic pattern is based on undiscounted future cash flows . the decrease in amortization expense in fiscal 2016 compared to fiscal 2015 was primarily due to lower amortization expense from intangible assets from the cytyc corporation acquisition , which are being amortized based on the pattern of economic use , and the full amortization of assets acquired in our suros acquisition . these decreases were partially offset due to the acceleration of amortization of the cystic fibrosis developed technology asset of $ 6.2 million in fiscal 2016 as a result of discontinuing this product . cost of service and other revenues . replace_table_token_7_th service and other revenues gross margin was 51.7 % in fiscal 2016 compared to 50.0 % in fiscal 2015 . within our breast health segment , the increase in gross margin is related to higher service contract conversion and renewal rates and higher installation and training revenues related to our increased sales of 3d dimensions systems . in addition , we had an increase in other revenue in our diagnostics segment primarily due to $ 9 million of royalty payments from licensing certain technology , which had no corresponding service costs . operating expenses . replace_table_token_8_th research and development expenses . research and development expenses increased 8.0 % in fiscal 2016 compared to fiscal 2015 primarily due to higher compensation , primarily in our breast health segment from additional headcount . there was also an increase in new product development spend in breast health , gyn surgical and skeletal health for prototype materials and consulting . at any point in time , we have a number of different research projects and clinical trials being conducted and the timing of these projects and related costs can vary from period to period . 41 selling and marketing expenses . selling and marketing expenses increased 14.4 % in fiscal 2016 compared to fiscal 2015 primarily due to higher compensation from an increase in headcount in diagnostics , gyn surgical and breast health , increased commissions as a result of higher sales , an increase in spending on a number of marketing initiatives primarily in our breast health and diagnostics businesses , higher medical education spend in gyn surgical and higher travel , trade show and meeting expenses . general and administrative expenses . general and administrative expenses increased 2.4 % in fiscal 2016 compared to fiscal 2015 primarily due to a $ 6.0 million charge for settling a legal fee dispute in the first quarter of fiscal 2016 , and to a lesser extent , due to higher salary and compensation from increased headcount , increased consulting and legal expenses for a number of corporate initiatives including organizational structure changes and finance operational improvements , an increase in information systems infrastructure and project costs , and an increase in stock-based compensation from implementing a retirement plan provision in our equity compensation plan in the fourth quarter . partially offsetting these increases was a decrease in the medical device excise tax of $ 16.9 million as a result of the protecting americans from tax hikes act of 2015 ( `` path '' ) , which went into effect december 15 , 2015 , and provides for a two-year moratorium on the 2.3 % excise tax imposed on the sale of medical devices in the united states on or after january 1 , 2016 through december 31 , 2017 , and lower tax fees . amortization of intangible assets . amortization of intangible assets results from customer relationships , trade names , and business licenses from our acquisitions .
| segment results of operations we report our business as four segments : diagnostics , breast health , gyn surgical and skeletal health . the accounting policies of the segments are the same as those described in the footnotes to the accompanying consolidated financial statements contained in item 15 of this annual report . we measure segment performance based on total revenues and operating income . revenues from product sales of each of these segments are described in further detail above . the discussion that follows is a summary analysis of total revenues and the primary changes in operating income or loss by segment . diagnostics . replace_table_token_9_th diagnostics revenues increased in fiscal 2016 compared to fiscal 2015 primarily due to the increase in product revenues discussed above . operating income for this business segment increased in fiscal 2016 compared to fiscal 2015 primarily due to increased gross profit and lower operating expenses . gross profit increased primarily due to increased aptima and cytology & perinatal product sales , partially offset by lower blood screening revenues , as discussed above , and an increase in other revenue primarily due to $ 9.0 million in payments received in fiscal 2016 under an agreement to license certain technology for which there were no corresponding costs . in addition , we had favorable manufacturing variances and lower production costs at our manufacturing facilities as we improve our operational effectiveness and renegotiate pricing with certain of our vendors . partially offsetting these improvements were unfavorable absorption variances , a mix shift in international sales to lower margin molecular diagnostic products , inventory related charges for discontinuing the cystic fibrosis product , the negative impact of the strengthening u.s. dollar on our sales denominated in foreign currencies , and the acceleration of amortization of the cystic fibrosis developed technology asset of $ 6.2 million . overall , the gross margin improved slightly to 49.5 % in fiscal 2016 from 49.3
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our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements because of various factors , including those described in the sections titled “ cautionary note regarding forward-looking statements , ” part i , item 1a , “ risk factors ” and elsewhere in this form 10-k. overview of business we are a global provider of highly engineered tubular services , tubular fabrication and specialty well construction and well intervention solutions to the oil and gas industry and have been in business for 80 years . we provide our services and products to leading exploration and production companies in both offshore and onshore environments , with a focus on complex and technically demanding wells . we conduct our business through four operating segments : international services . we currently provide our tubular services in approximately 50 countries on six continents . our customers in these international markets are primarily large exploration and production companies , including integrated oil and gas companies and national oil and gas companies , and other oilfield services companies . u.s. services . we provide tubular services in the active onshore oil and gas drilling regions in the u.s. , including the permian basin , eagle ford shale , haynesville shale , marcellus/utica shale , niobrara shale , woodford shale , green river basin and uintah basin , as well as in the u.s. gulf of mexico . tubular sales . we design , manufacture and distribute large od pipe , connectors and casing attachments and sell large od pipe originally manufactured by various pipe mills . we also provide specialized fabrication and welding services in support of offshore projects , including drilling and production risers , flowlines and pipeline end terminations , as well as long-length tubulars ( up to 300 feet in length ) for use as caissons or pilings . this segment also designs and manufactures proprietary equipment for use in our international and u.s. services segments . blackhawk . we provide well construction and well intervention services and products , in addition to cementing tool expertise , in the u.s. and mexican gulf of mexico , onshore u.s. and other select international locations . blackhawk 's customer base consists primarily of major and independent oil and gas companies as well as other oilfield services companies . how we generate our revenue the majority of our services revenues are derived primarily from providing tubular services , which involves the handling and installation of multiple joints of pipe to establish a cased wellbore and the installation of smaller diameter pipe inside a cased wellbore . in contrast , our product revenues are derived from sales of certain products , including large od pipe connectors and large od pipe manufactured by third parties , directly to external customers . our blackhawk revenues are derived from well construction and well intervention services and products . the revenues have historically been split evenly between service revenue and product revenue . in addition , our customers typically reimburse us for transportation costs that we incur in connection with transporting our products and equipment from our staging areas to the customers ' job sites . 36 outlook despite recent headwinds , in 2019 we expect to see increased customer spending globally on oil and natural gas exploration and production in response to the continued stabilization of commodity prices . much of the anticipated increase in spending will continue to be associated with u.s. onshore projects , although we anticipate the rate of spending outside of u.s. onshore to increase in 2019. activity in the deep and ultra-deep offshore markets is expected to see some modest improvement in 2019 , and pricing of newly sanctioned projects is estimated to be marginally higher than recent trends . in many international offshore shelf markets , we are seeing increased activity as operators are increasingly seeing improved economics at current commodity prices . in response , we will continue our efforts to expand products and services historically weighted to the u.s. market to international markets , reducing costs through operational efficiency gains and prioritizing projects that improve market share and profitability . for our offshore businesses , both in the u.s. and internationally , we expect the trend of the last few years of less predictable , shorter-term projects to stabilize , if not reverse slightly in 2019. in 2018 , we made significant market share gains globally and expect to continue to maintain those gains in certain markets , but competitive pricing is likely to persist that could result in lower growth in both revenue and margins . our onshore operations are expected to see sequential improvement , particularly in the u.s. onshore market , as drilling activity levels remain robust . the increase in demand for our services combined with a leaner cost structure is expected to result in higher revenues and improved profitability for this business in 2019. the tubular sales segment is primarily driven by specialized needs of our customers and the timing of projects , specifically in the gulf of mexico . we expect to benefit from increased sales in select international markets that are predicted to supplement our flat to slightly down outlook in the offshore gulf of mexico . the blackhawk segment product and service lines are expected to see meaningful improvement in 2019. the u.s. onshore products and services will likely improve significantly from the expansion of new physical presence into new basins previously underrepresented . the growth of blackhawk into international offshore markets is expected to see a significant sequential improvement as new equipment is built , certified and deployed in these markets . however , the u.s. gulf of mexico market expects to see continued headwinds as operator activity is expected to be flat to slightly down . overall , our market outlook continues to be modestly improved . the onshore markets in the u.s. are stable and we are expecting higher activity from select international offshore markets . story_separator_special_tag foreign currency gain ( loss ) for the year ended december 31 , 2017 changed by $ 12.9 million to a gain of $ 2.1 million from a loss of $ 10.8 million for the year ended december 31 , 2016. the change was primarily due to the devaluation of the nigerian naira during 2016. income tax expense ( benefit ) . income tax expense ( benefit ) for the year ended december 31 , 2017 changed by $ 98.6 million to an expense of $ 72.9 million from a benefit of $ 25.6 million for the year ended december 31 , 2016. the effective income tax rate was ( 84.3 ) % and 14.1 % for the years ended december 31 , 2017 and december 31 , 2016 , respectively . the change from 2016 to 2017 was primarily because of recording valuation allowances against our net deferred tax assets , and the reversal of deferred taxes associated with the derecognition of the tra . excluding these one-time items , the effective income tax rate and income tax expense ( benefit ) for 2017 would have been 57.4 % and $ ( 49.7 ) million , respectively . the change from 2016 to 2017 , excluding one-time items , is primarily due to changes in the jurisdictional mix of earnings . we are subject to many u.s. and foreign tax jurisdictions and many tax agreements and treaties among the various taxing authorities . our operations in these jurisdictions are taxed on various bases such as income before taxes , deemed profits ( which is generally determined using a percentage of revenues rather than profits ) and withholding taxes based on revenues ; consequently , the relationship between our pre-tax income from operations and our income tax provision varies from period to period . on december 22 , 2017 , the tax cuts and jobs act ( “ tax act ” ) was enacted into law . among the significant changes made by the act was the reduction of the federal income tax rate from 35 % to 21 % as well as the imposition of a one-time repatriation tax on deemed repatriated earnings of certain foreign subsidiaries . us gaap requires that the impact of the tax act be recognized in the period in which the law was enacted . because of the change in tax rate , the company recorded a $ 23.8 million reduction in the value of its deferred tax assets and liabilities . the reduction in value was fully offset by a corresponding change in valuation allowance . the net effect on total tax expense was zero . due to its legal structure , the company did not incur any liability with respect to the repatriation tax . 41 operating segment results the following table presents revenues and adjusted ebitda by segment ( in thousands ) : replace_table_token_6_th ( 1 ) adjusted ebitda is a supplemental non-gaap financial measure that is used by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . ( for a reconciliation of our adjusted ebitda , see “ —adjusted ebitda and adjusted ebitda margin. ” ) ( 2 ) includes all corporate general and administrative expenses . year ended december 31 , 2018 compared to year ended december 31 , 2017 international services revenue for the international services segment was $ 223.0 million for the year ended december 31 , 2018 , an increase of $ 16.2 million , or 7.9 % , compared to $ 206.7 million for the same period in 2017 , primarily due to activity improvements in offshore western hemisphere , asia pacific and the middle east , which were partially offset by lower activity levels in africa and decreased work scope in the north sea . adjusted ebitda for the international services segment was $ 35.5 million for the year ended december 31 , 2018 , an increase of $ 4.7 million , or 15.2 % , compared to $ 30.8 million for the same period in 2017 , primarily due to efficiency gains with higher revenues and upsell work in offshore western hemisphere , partially offset by decreased work scope in the north sea . prior year results were positively impacted by a tax credit that did not repeat in 2018. u.s. services revenue for the u.s. services segment was $ 148.9 million for the year ended december 31 , 2018 , an increase of $ 30.1 million , or 25.4 % , compared to $ 118.8 million for the same period in 2017 . onshore services revenue increased by $ 18.8 million as a result of improved activity from increased rig counts . the offshore business saw an increase in revenue of $ 11.3 million as a result of increased rig counts and higher service activity in the gulf of mexico . adjusted ebitda for the u.s. services segment was a loss of $ 18.1 million for the year ended december 31 , 2018 , a favorable change of $ 21.2 million , or 54.0 % , compared to a loss of $ 39.4 million for the same period in 2017 , primarily due to an increase in onshore services activity and lower corporate costs , partially offset by lower pricing for our offshore services . 42 tubular sales revenue for the tubular sales segment was $ 61.4 million for the year ended december 31 , 2018 , an increase of $ 3.2 million , or 5.5 % , compared to $ 58.2 million for the same period in 2017 , primarily as a result of increased cavern well activity and higher sales activity in mexico . adjusted ebitda for the tubular sales segment was $ 3.2 million for the year ended december 31 , 2018 , which was flat compared to 2017 , as increased profitability from improved activity levels was offset by higher manufacturing costs . blackhawk revenue for the blackhawk segment was $ 89.1 million for the year ended december 31 , 2018 , an increase of $ 18.1 million , or 25.5
| consolidated results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues . revenues from external customers , excluding intersegment sales , for the year ended december 31 , 2018 increased by $ 67.7 million , or 14.9 % , to $ 522.5 million from $ 454.8 million for the year ended december 31 , 2017 . revenues increased across all of our segments primarily as a result of improved activity levels , particularly in the western hemisphere . revenues for our segments are discussed separately below under the heading “ operating segment results. ” cost of revenues , exclusive of depreciation and amortization . cost of revenues for the year ended december 31 , 2018 increased by $ 39.7 million , or 12.8 % , to $ 350.1 million from $ 310.4 million for the year ended december 31 , 2017 . the increase was primarily due to higher activity levels and mix of work in the u.s. services and blackhawk segments , partially offset by productivity actions taken in 2017 and 2018. general and administrative expenses . general and administrative ( “ g & a ” ) expenses for the year ended december 31 , 2018 decreased by $ 8.1 million , or 5.0 % , to $ 155.6 million from $ 163.7 million for the year ended december 31 , 2017 , 39 primarily due to lower professional fees and stock-based compensation expense , as well as reduced expenses associated with aircraft sold in 2017. depreciation and amortization . depreciation and amortization for the year ended december 31 , 2018 decreased by $ 10.8 million , or 8.9 % , to $ 111.3 million from $ 122.1 million for the year ended december 31 , 2017 , as a result of a lower depreciable base due to decreased capital expenditures in recent years . severance and other charges ( credits ) , net .
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the company is evaluating the potential impact of adopting this standard on its consolidated financial statements . in february 2016 , the fasb issued asu no . 2016-02 , leases . the new standard establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes beginning on page f-1 of this annual report on form 10-k. this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors , including , but not limited to , those set forth under item 1a , risk factors , and elsewhere in this report . overview we develop sustained-release drug delivery products primarily for the treatment of chronic eye diseases . our products deliver drugs at a controlled and steady rate for months or years . we have developed three of only four sustained-release products approved by the united states ( u.s. ) food and drug administration ( fda ) for treatment of back-of-the-eye diseases . medidur for posterior segment uveitis , our lead product candidate , is in pivotal phase 3 clinical trials , and iluvien ® for diabetic macular edema ( dme ) , our lead licensed product , is sold in the u.s. and three european union ( eu ) countries . our product development program is focused primarily on utilizing our two core technology platforms to deliver drugs and biologics to treat chronic diseases . our strategy includes developing products independently while continuing to leverage our technology platforms through collaborations and license agreements as appropriate . medidur , our most advanced development product , is designed to treat chronic non-infectious uveitis affecting the posterior segment of the eye ( posterior segment uveitis ) for three years from a single injection . injected into the eye in an office visit , medidur is a tiny micro-insert that delivers a micro-dose of a corticosteroid to the back of the eye on a sustained basis . we are developing medidur independently . the first of medidur 's two phase 3 trials met its primary efficacy endpoint of prevention of recurrence of disease through six months with high statistical significance ( p less than 0.00000001 ; intent to treat analysis ) and achieved encouraging safety results . the same high statistical significance for efficacy and encouraging safety results were maintained through 12 months of follow-up . due to the high level of statistical significance achieved , we plan to file our eu marketing approval application ( maa ) based on data from the first phase 3 trial , rather than two trials . the maa is planned for the first quarter of 2017. enrollment in the second phase 3 trial is expected to be completed in october 2016. assuming favorable results , we plan to file a new drug application ( nda ) with the fda in the third quarter of 2017. a utilization study of our new smaller diameter 27-gauge medidur inserter , which is required for both our maa and nda , met its primary endpoint , ease of intravitreal administration . iluvien , our most recently approved product , is an injectable , sustained-release micro-insert that provides three years of treatment of dme from a single injection . iluvien is substantially the same design as medidur and delivers the same steroid , although it is injected using a 25-gauge inserter . iluvien was developed in collaboration with alimera sciences , inc. ( alimera ) and is licensed to and sold by alimera . we are entitled to a share of the net profits ( as defined ) from alimera 's sales of iluvien on a quarter-by-quarter , country-by-country basis . iluvien has been sold in the u.s. since 2015 , where it is indicated for the treatment of dme in patients previously treated with a course of corticosteroids without a clinically significant rise in intraocular pressure ( iop ) . iluvien has been sold in the united kingdom ( u.k. ) and germany since 2013 and in portugal since 2015. iluvien has marketing approvals in these and 14 other european countries for the treatment of chronic dme considered insufficiently responsive to available therapies . fda-approved retisert ® is an implant that provides sustained treatment of posterior segment uveitis for 30 months . implanted in a surgical procedure , retisert delivers the same corticosteroid as medidur but in a larger dose . retisert was co-developed with bausch & lomb to which it is licensed . we receive royalties from retisert sales . 41 we are seeking to develop products that use our durasert and tethadur technology platforms to deliver drugs and biologics to treat wet and dry age-related macular degeneration ( amd ) , glaucoma , osteoarthritis and other diseases . a sustained release , surgical implant to treat pain associated with severe knee osteoarthritis ( oa ) we developed in collaboration with hospital for special surgery is in an investigator-sponsored pilot study . we recently commenced the first of two investigational new drug ( ind ) -enabling studies of an injectable , bioerodible micro-insert we developed to provide sustained delivery of a tyrosine kinase inhibitor ( tki ) to treat wet amd . in the first quarter of fiscal 2017 , we consolidated all of our research and product development activities in our facility in the u.s. we have terminated the employment of all of our u.k. employees and expect to vacate our research facility in malvern , u.k. at the end of october . story_separator_special_tag as of june 30 , 2016 , our cro agreements provided for two phase 3 clinical trials and a utilization study of our proprietary inserter at an aggregate remaining cost of approximately $ 13.5 million , which we expect to increase as a result of pending and contemplated change orders . we can terminate the agreements at any time without penalty , and if terminated , we would be liable only for services through the termination date plus non-cancellable cro obligations to third parties . during fiscal 2016 , we recognized approximately $ 7.3 million of research and development expense attributable to our medidur phase 3 clinical trial program . changes in our estimates or differences between the actual level of services performed and our estimates may result in changes to our research and development expenses in future periods . 43 story_separator_special_tag subject to seasonal influences . recently adopted and recently issued accounting pronouncements new accounting pronouncements are issued periodically by the financial accounting standards board ( fasb ) and are adopted by us as of the specified effective dates . unless otherwise disclosed below , we believe that the impact of recently issued and adopted pronouncements will not have a material impact on our financial position , results of operations and cash flows or do not apply to our operations . in may 2014 , the fasb issued accounting standards update no . 2014-09 , revenue from contracts with customers ( topic 606 ) ( asu 2014-09 ) , which requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services to customers . the standard will replace most existing revenue recognition guidance in u.s. gaap . in august 2015 , the fasb issued asu 2015-14 , which officially deferred the effective date of asu 2014-09 by one year , while also permitting early adoption . as a result , asu 2014-09 will become effective on july 1 , 2018 , with early adoption permitted on july 1 , 2017. the standard permits the use of either the retrospective or cumulative effect transition method . we are evaluating the impact this standard will have on our consolidated financial statements . in august 2014 , the fasb issued asu 2014-15 , presentation of financial statementsgoing concern . asu 2014-15 provides guidance around management 's responsibility to evaluate whether there is substantial 46 doubt about an entity 's ability to continue as a going concern and to provide related footnote disclosures . for each reporting period , management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company 's ability to continue as a going concern within one year from the date the financial statements are issued . the new standard is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2016. as a result , asu 2014-15 will become effective on july 1 , 2017 , with early adoption permitted . we are evaluating the potential impact of adopting this standard on our consolidated financial statements . in february 2016 , the fasb issued asu no . 2016-02 , leases . the new standard establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . the new standard is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . as a result , asu 2016-02 will become effective on july 1 , 2019. a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available . we are currently evaluating the impact of the pending adoption of the new standard on our consolidated financial statements . in march 2016 , the fasb issued asu 2016-09 , compensationstock compensation ( topic 718 ) : improvements to employee share-based payment accounting . asu 2016-09 intends to simplify various aspects of how share-based payments are accounted for and presented in the financial statements . the main provisions include : all tax effects related to stock awards will now be recorded through the statement of operations instead of through equity , all tax-related cash flows resulting from stock awards will be reported as operating activities on the cash flow statement , and entities can make an accounting policy election to either estimate forfeitures or account for forfeitures as they occur . the amendments in asu 2016-09 are effective for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years , and may be applied prospectively with earlier adoption permitted . as a result , asu 2016-09 will become effective on july 1 , 2017. we are currently evaluating the impact of this guidance on our consolidated financial statements . liquidity and capital resources from fiscal 2012 through fiscal 2016 , we financed our operations primarily from sales of our equity securities and the receipt of license fees , milestone payments , research and development funding and royalty income from our collaboration partners . at june 30 , 2016 , our principal sources of liquidity consisted of cash , cash equivalents and marketable securities totaling $ 29.0 million . our cash equivalents are primarily invested in an institutional money market fund , and our marketable securities are invested in investment-grade corporate debt and commercial paper with short-term maturities .
| results of operations years ended june 30 , 2016 and 2015 replace_table_token_6_th revenues collaborative research and development revenue totaled $ 398,000 in fiscal 2016 compared to $ 25.4 million in fiscal 2015. this decrease was primarily attributable to recognition of the one-time $ 25.0 million fda-approval milestone earned for iluvien in september 2014. retisert royalty income increased by $ 68,000 , or 6 % , to $ 1.22 million in fiscal 2016 compared to $ 1.15 million in fiscal 2015. we do not expect retisert royalty income to increase significantly in the next fiscal year , and it may decline . we are entitled to share in net profits , on a country-by-country basis , from sales of iluvien by alimera . alimera initiated commercial sales of iluvien in the u.k. and germany in the fourth quarter of fiscal 2013 and in the u.s. and portugal in the third quarter of fiscal 2015. we earned $ 0 and $ 43,000 of iluvien net profits during fiscal 2016 and 2015 , respectively . in addition , during fiscal 2016 we received $ 157,000 from alimera attributable to a sublicense arrangement . we do not know when and if we will receive future net profit payments with respect to any country where alimera sells iluvien or payments with respect to countries where alimera sublicenses the sale of iluvien . see note 14 of notes to consolidated financial statements with respect to a dispute relating to the computation of iluvien net profits for 2014 , which may have implications for other years .
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tender offer on october 7 , 2008 , story_separator_special_tag you should read the following discussion together with the financial statements , including the related notes and the other financial information , contained in this annual report on form 10-k. executive overview we are a leading developer , owner and operator of branded gaming facilities and related lodging and entertainment facilities in regional markets in the united states . we have sought and established geographic diversity to limit the risks caused by weather , regional economic difficulties , gaming tax rates and regulations of local gaming authorities . we currently operate casinos in mississippi , louisiana , missouri , iowa , colorado and florida . we also operate a harness racing track at our casino in florida . 26 our operating results for the periods presented have been affected , both positively and negatively , by several factors discussed in detail below . our business has been and may continue to be adversely affected by the economic recession currently being experienced in the united states , as we are highly dependent on discretionary spending by our patrons . our historical operating results may not be indicative of our future results of operations because of these factors and the changing competitive landscape in each of our markets , as well as by factors discussed elsewhere herein . this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with and giving consideration to the following : items impacting income ( loss ) from continuing operations significant items impacting our income ( loss ) from continuing operations during the fiscal years ended april 25 , 2010 , april 26 , 2009 and april 27 , 2008 are as follows : replace_table_token_5_th hurricane and other insurance recoveries , net our insurance recoveries for fiscal 2009 include $ 92.2 million relating to the final settlement of our hurricane katrina claim at our biloxi property and other insurance recoveries . expense recoveries and other charges , net during fiscal 2010 , we recorded an other expense reduction of $ 6.8 million representing the discounted value of a receivable for reimbursement of development costs expensed in prior periods relating to a terminated plan to develop a casino in pittsburgh , pennsylvania . this receivable was recorded following our current assessment of collectability . as a result of our annual impairment tests of goodwill and long-lived intangible assets under asc 350 , we recorded impairment charges of $ 18.3 million at our black hawk property in fiscal 2009. the results from operations for fiscal 2009 also include a $ 11.9 million write-off of construction in progress at our biloxi property following our decision not to continue a previously anticipated construction project , and a $ 6.0 million charge following our termination of an agreement for a potential development of a casino in portland , oregon . fiscal 2008 results also include $ 6.5 million of charges related to the termination of our plans to develop a new casino in west harrison county , mississippi and the cancellation of construction projects in davenport , iowa and kansas city , missouri . opening/acquisition of new properties and pre-opening expenses during fiscal 2008 , our operating results were impacted by the opening of the gaming facility at our pompano location in april 2007 , the acquisition of our caruthersville , missouri casino in june 2007 and the opening of our waterloo , iowa casino in june 2007. the periods prior to the opening of each of our new casino operations were impacted by pre-opening expenses . gain ( loss ) on early extinguishment of debt during fiscal 2009 , we retired $ 142.7 million of our senior subordinated notes , through a tender offer , for a cash payment of $ 82.8 million utilizing the proceeds from our hurricane katrina settlement and repaid $ 35.0 million of our variable rate term loans as required under our senior secured credit facility . after expenses related to the elimination of deferred financing costs and transactions costs , we recognized a net pretax gain of $ 57.7 million related to these transactions . 27 we recorded a total of $ 15.3 million in losses associated with the early extinguishment of debt during fiscal 2008 , consisting of a $ 9.0 million call premium paid to retire $ 200.0 million of our 9 % senior subordinated notes , and $ 6.3 million of deferred financing costs associated with retired debt instruments . acquisition of noncontrolling interest on january 27 , 2008 , we acquired the 43 % minority interest in our black hawk , colorado casino properties for $ 64.8 million . in addition to the items in the table the following items also have had an impact on our operations or the comparability of our operating results between years : discontinued operations discontinued operations include the results of our lucaya , blue chip and coventry properties . during november 2009 we exited our lucaya casino . during fiscal 2010 , we completed the sale of our blue chip casino properties under a plan of administration and have no continuing involvement in its operation . during fiscal 2009 , we recorded a $ 1.4 million charge to reduce the blue chip assets held for sale to their estimated fair value . the administration process is expected to be completed during fiscal 2011. on april 23 , 2009 , we completed the sale of our assets and terminated our lease of arena coventry convention center relating to our casino operations in coventry , england . our lease termination costs and other expenses , net of cash proceeds from our assets sales , resulted in a pretax charge of $ 12.0 million recorded in fiscal 2009 related to our discontinued coventry operations . story_separator_special_tag other this includes expenses related to the change in fair value of our ineffective interest rate swap agreements . income tax ( provision ) benefit our income tax ( provision ) benefit from continuing operations and our effective income tax rate has been impacted by our settlement of certain tax liabilities for $ 4.7 million less than our estimated accrual , our amount of annual taxable income ( loss ) for financial 32 statement purposes as well as our percentage of permanent items in relation to such income or loss . effective income tax rates were as follows : replace_table_token_10_th fiscal 2009 compared to fiscal 2008 revenues revenues for the fiscal years 2009 and 2008 are as follows : replace_table_token_11_th casino revenues casino revenues decreased $ 36.6 million , or 3.4 % , in fiscal 2009 compared to fiscal 2008. we experienced a decrease in casino revenues at most of our properties primarily as a result of the continued deterioration in discretionary consumer spending in conjunction with poor economic conditions . our black hawk properties ' $ 24.2 million decline in casino revenues as compared to fiscal 2008 also reflects the impact of a statewide smoking ban effective for colorado casinos on january 1 , 2008. the $ 8.4 million decrease in casino revenues at our pompano slot facility also reflects the expansion of nearby competing native american casinos . decreases in our casino revenues were partially offset by increases in casino revenues of $ 20.5 million at our waterloo and caruthersville properties due to the casinos being opened for a full 12 months in fiscal 2009 compared to only 10 and nine months , respectively , in fiscal 2008. rooms revenue rooms revenue decreased $ 3.1 million , or 6.3 % , in fiscal 2009 compared to fiscal 2008 primarily resulting from decreased occupancy and lower average room rates as a result of reduced consumer demand for rooms . pari-mutuel , food , beverage and other revenues pari-mutuel , food , beverage and other revenues decreased $ 11.5 million , or 7.7 % in fiscal 2009 compared to fiscal 2008 corresponding to an overall reduction in casino revenues and due to decreases in consumer spending caused by current economic conditions . pari-mutuel commissions and fees earned at pompano decreased $ 3.2 million , or 16.8 % compared to the prior fiscal year due to decreases in wagering . these decreases were offset by increases at our waterloo and caruthersville properties due to the casinos being opened for a full 12 months in fiscal 2009 compared to only 10 and nine months , respectively , in fiscal 2008 . 33 promotional allowances promotional allowances , which are made up of complimentary revenues , cash points and coupons , are rewards that we give our loyal customers to encourage them to continue to patronize our properties . these allowances decreased by $ 5.3 million in fiscal 2009 compared to fiscal 2008 primarily due to a decrease in patrons . for fiscal 2009 and 2008 , promotional allowances as a percentage of casino revenues were 18.5 % and 18.4 % , respectively . operating expenses operating expenses for the fiscal years 2009 and 2008 are as follows : replace_table_token_12_th casino casino operating expenses increased nominally year over year . these expenses are primarily comprised of salaries , wages and benefits and other operating expenses of our casinos . casino properties opened in fiscal 2008 experienced a $ 7.8 million increase in year over year casino expenses while casino properties operating for both years experienced a $ 7.3 million reduction in casino expenses corresponding to an overall decrease in gaming revenues and management 's increased focus on cost management . gaming taxes state and local gaming taxes decreased by $ 15.4 million , or 5.4 % , in fiscal 2009 compared to fiscal 2008. this reduction in gaming taxes is primarily a result of a 3.4 % decrease in casino gaming revenue and changes in gaming revenues among states with differing gaming tax rates and refund of a $ 1.9 million in gaming taxes at our pompano facility following an agreement reached with the state of florida regarding the interpretation of the gaming tax calculation based on gaming taxes paid since pompano 's opening . pari-mutuel , food , beverage and other pari-mutuel , food , beverage and other expenses decreased $ 5.6 million , or 9.8 % , in fiscal 2009 as compared to fiscal 2008. a $ 2.4 million reduction in food and beverage expenses reflects a decrease in overall food and beverage revenues with food and beverage expenses as a percentage of gross food and beverage revenues remaining stable in both fiscal 2009 and 2008. food and beverage expenses consist primarily of the cost of goods sold , salaries , wages and benefits and other operating expenses of these departments . this decrease reflects the reductions in our food , beverage and other revenues . pari-mutuel operating costs of pompano decreased $ 3.1 million in fiscal 2009 compared to fiscal 2008. such costs consist primarily of compensation , benefits , purses , simulcast fees and other direct costs of track operations . the decreases in the current year as compared to prior year are a result of cost reductions related to our pari-mutuel operations . 34 marine and facilities these expenses include salaries , wages and benefits of the marine and facilities departments , operating expenses of the marine crews , maintenance of public areas , housekeeping and general maintenance of the riverboats and pavilions . marine and facilities expenses decreased $ 1.1 million , or 1.7 % , in fiscal 2009 compared to fiscal 2008 and is the result of headcount reductions and cost management . marketing and administrative these expenses include salaries , wages and benefits of the marketing and sales departments , as well as promotions , direct mail , advertising , special events and entertainment . administrative expenses include administration and human resource department expenses , rent , professional fees , insurance and property taxes .
| results of operations our results of continuing operations for the fiscal years ended april 25 , 2010 , april 26 , 2009 and april 27 , 2008 reflect the consolidated operations of all of our subsidiaries . our international operations , including coventry , blue chip and lucaya are presented as discontinued operations . the results for our fiscal years 2009 and 2008 have been reclassified to reflect the classification of all international operations as discontinued operations as well as to conform our financial presentation to our current year financial statement format . our lucaya operations were classified as discontinued operations in the third quarter of fiscal 2010 , our coventry and blue chip casino operations were classified as discontinued operations in the fourth quarter of fiscal 2009 . 28 our fiscal year ends on the last sunday in april . this fiscal year convention creates more comparability of our quarterly operations , by generally having an equal number of weeks ( 13 ) and weekend days ( 26 ) in each quarter . periodically , this convention necessitates a 53-week year . the fiscal years ended april 25 , 2010 , april 26 , 2009 and april 27 , 2008 were all 52-week years . isle of capri casinos , inc. ( in thousands ) replace_table_token_6_th note : this table excludes our international properties which have been classified as discontinued operations . ( 1 ) reflects results since the june 2007 acquisition effective date . ( 2 ) waterloo opened for operations in june 2007. reflects pre-opening expenses related to this property . 29 ( 3 ) insurance recoveries include business interruption proceeds of $ 62,932 , included in net revenues in fiscal 2009 . $ 61,845 of this amount relates to settlement for events that occurred prior to fiscal 2009 ( primarily hurricane katrina ) . ( 4 ) expense recoveries and other charges include expense recoveries , valuations and other charges .
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in may 2014 , the fasb issued a standard on revenue from contracts with customers . the new standard sets forth a single comprehensive model for recognizing and reporting revenue . the standard also requires additional story_separator_special_tag story_separator_special_tag 2 non-gaap operating margin is not a measurement of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information and a reconciliation to the most directly comparable gaap financial measures . 36 during 2016 , barring any unforeseen events , we expect the following factors to affect our business and our operating results : demand from our customers to help them meet their dual mandate of achieving cost savings while investing in transformation and innovation ; continued focus by customers on directing it spending towards cost containment projects , such as application maintenance , infrastructure services and business process services ; secular changes driven by evolving digital technologies and regulatory changes ; volatility in foreign currency rates ; and continued uncertainty in the world economy . in response to this environment , we plan to : continue to invest in our talent base and new service offerings including digital technologies and new delivery models ; partner with our existing customers to garner an increased portion of our customers ' overall it spend by providing innovative solutions ; focus on growing our business in europe , the middle east , the asia pacific and latin america regions , where we believe there are opportunities to gain market share ; increase our strategic customer base across all of our business segments ; opportunistically look for acquisitions that may improve our overall service delivery capabilities , expand our geographic presence and or enable us to enter new areas of technology ; focus on operating discipline in order to appropriately manage our cost structure ; and locate most of our new development center facilities in tax incentivized areas . business segments our four reportable business segments are : financial services , which includes customers providing banking/transaction processing , capital markets and insurance services ; healthcare , which includes healthcare providers and payers as well as life sciences customers including pharmaceutical , biotech and medical device companies ; manufacturing/retail/logistics , which includes consumer goods manufacturers , retailers , travel and other hospitality customers , as well as customers providing logistics services ; and other , which is an aggregation of industry operating segments each of which , individually , represents less than 10.0 % of consolidated revenues and segment operating profit . the other segment includes information , media and entertainment services , communications , and high technology operating customers . our chief operating decision maker evaluates cognizant 's performance and allocates resources based on segment revenues and operating profit . segment operating profit is defined as income from operations before unallocated costs . generally , operating expenses for each operating segment have similar characteristics and are subject to the same factors , pressures and challenges . however , the economic environment and its effects on industries served by our operating groups may affect revenue and operating expenses to different degrees . expenses included in segment operating profit consist principally of direct selling and delivery costs as well as a per seat charge for use of the development and delivery centers . certain selling , general and administrative expenses , excess or shortfall of incentive compensation for delivery personnel as compared to target , stock-based compensation expense , a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker . accordingly , such expenses are excluded from segment operating profit . we provide a significant volume of services to many customers in each of our business segments . therefore , a loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for that segment . however , no individual customer accounted for sales in excess of 10 % of our consolidated revenues during 2015 , 2014 or 2013 . in addition , the services we provide to our larger customers are often critical to the operations of such customers and we believe that a termination of our services would require an extended transition period with gradually declining revenues . 37 results of operations for the three years ended december 31 , 2015 the following table sets forth certain financial data for the three years ended december 31 , 2015 : replace_table_token_9_th _ ( 1 ) exclusive of depreciation and amortization expense . ( 2 ) non-gaap income from operations , non-gaap operating margin and non-gaap diluted earnings per share are not measurements of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information and a reconciliation to the most directly comparable gaap financial measure . revenue - overall . revenue increased by 21.0 % to $ 12,416.0 million during 2015 as compared to an increase of 16.1 % to $ 10,262.7 million in 2014 . in 2015 , revenue includes $ 724.5 million from trizetto , which we acquired in the fourth quarter of 2014 , as compared to $ 80.6 million in 2014. the increase in trizetto revenue represented 29.9 % of the year over year revenue growth in 2015. in both years , the remaining increase was primarily attributed to greater acceptance of our global delivery model among an increasing number of industries , continued interest in using our global delivery model as a means to reduce overall it and operations costs , increased customer spending on discretionary projects , and continued penetration in all our geographic markets . revenues from new customers contributed $ 195.4 million and $ 298.1 million , representing 9.1 % and 21.0 % of the year-over-year revenue growth for 2015 and 2014 , respectively . story_separator_special_tag revenue from our other segment grew 20.3 % or $ 201.6 million in 2014 , as compared to 2013 . in 2014 , growth within other was particularly strong among our telecommunication and high technology customers , where revenue increased by $ 93.3 million and $ 71.0 million , respectively , due to an increase in discretionary spending . in 2014 , revenue from customers added during that year was $ 30.8 million and represented 15.3 % of the year over year revenue increase in this segment . 39 revenue - geographic locations . revenues by geographic market , as determined by customer location , were as follows : replace_table_token_11_th north america continues to be our largest market representing 78.6 % of total 2015 revenue and accounting for $ 1,879.6 million of the $ 2,153.3 million revenue increase in 2015 . revenue growth among our north america customers includes $ 643.9 million year over year growth in trizetto revenue . in 2015 , revenue from europe grew 6.6 % , after a negative currency impact of 10.2 % , driven by the increasing acceptance of our global delivery model , partially offset by the recent strength of the u.s. dollar against the british pound , the euro and other currencies . in 2014 , revenue from europe grew 19.3 % , which included the full-year benefit of our acquisition of equinox consulting , which closed in the fourth quarter of 2013. the 2014 revenue growth in europe was driven by the strength of europe 's economy and the increasing acceptance of our global delivery model . in 2015 , revenue from our rest of world customers grew 29.9 % , after a negative currency impact of 9.2 % . in 2014 , revenue from our rest of world customers grew 23.6 % . in 2015 and 2014 , growth was primarily driven by the india , singapore , australia , japan and hong kong markets . we believe that europe , the middle east , the asia pacific and latin america regions will continue to be areas of significant investment for us as we see these regions as long term growth opportunities . cost of revenues ( exclusive of depreciation and amortization expense ) . our cost of revenues consists primarily of salaries , incentive-based compensation , stock-based compensation expense , payroll taxes , employee benefits , immigration and project-related travel for technical personnel , subcontracting and sales commissions related to revenues . our cost of revenues increased by 21.2 % or $ 1,299.1 million during 2015 as compared to an increase of 16.6 % or $ 875.6 million during 2014 . in both 2015 and 2014 , the increase was due primarily to an increase in compensation and benefits costs ( inclusive of the impact of higher incentive-based compensation costs ) , partially offset by the impact of the depreciation of the indian rupee versus the u.s. dollar , and lower realized losses on our cash flow hedges in 2015 compared to 2014 . in 2015 , compensation and benefit costs increased by $ 1,112.1 million as a result of the increase in the number of our service delivery personnel , including new trizetto employees , and higher incentive-based compensation costs in 2015 as compared to 2014 . in 2014 , the increase in compensation and benefit costs was $ 650.6 million as a result of the increase in the number of our service delivery personnel , partially offset by lower incentive-based compensation costs in 2014 as compared to 2013. selling , general and administrative expenses . selling , general and administrative expenses consist primarily of salaries , incentive-based compensation , stock-based compensation expense , payroll taxes , employee benefits , immigration , travel , marketing , communications , management , finance , administrative and occupancy costs . selling , general and administrative expenses , including depreciation and amortization , increased by 26.7 % or $ 597.1 million during 2015 as compared to an increase of 17.7 % or $ 336.9 million during 2014 . selling , general and administrative expenses , including depreciation and amortization , increased as a percentage of revenue to 22.8 % in 2015 as compared to 21.8 % in 2014 and 21.5 % in 2013 . in 2015 , the increase as a percentage of revenue was due primarily to an increase in compensation and benefit costs ( inclusive of the impact of higher incentive-based compensation costs ) and increases in depreciation and amortization due to recent acquisitions , partially offset by the impact of the depreciation of the indian rupee versus the u.s. dollar , and lower realized losses on our cash flow hedges in 2015 compared to 2014 . in 2014 , the increase as a percentage of revenue was due primarily to increases in compensation and benefit costs ( net of the impact of lower incentive-based compensation ) , professional services , including acquisition-related costs , and investments to grow our business , partially offset by the favorable impact of the depreciation of the indian rupee against the u.s. dollar and lower realized losses on our cash flow hedges in 2014 compared to 2013. income from operations and operating margin - overall . income from operations increased 13.6 % , or $ 257.1 million in 2015 as compared to an increase of 12.3 % or $ 207.0 million in 2014 . our operating margin decreased to 17.3 % of revenues in 40 2015 from 18.4 % of revenues in 2014 , due to increases in compensation and benefit costs ( inclusive of the impact of higher incentive-based compensation ) and increases in depreciation and amortization due to recent acquisitions , partially offset by the impact of the depreciation of the indian rupee against the u.s. dollar , lower realized losses on our cash flow hedges and decreases in certain operating expenses , including travel , in 2015 compared to 2014 .
| executive summary we are a leading provider of information technology ( it ) , consulting and business process services , dedicated to helping the world 's leading companies build stronger businesses . our clients engage us to help them operate more efficiently , provide solutions for critical business and technology problems , and to help them drive technology-based innovation and growth . our core competencies include : business , process , operations and it consulting , application development and systems integration , enterprise information management , application testing , application maintenance , it infrastructure services , and business process services . we tailor our services to specific industries and utilize an integrated global delivery model . this seamless global sourcing model combines industry-specific expertise , client service teams based on-site at the client locations and delivery teams located at dedicated near-shore and offshore global delivery centers . the following table sets forth key financial results for the years ended december 31 , 2015 and 2014 : replace_table_token_8_th the key drivers of our revenue growth in 2015 were as follows : our november 2014 acquisition of tz us parent inc. , or trizetto , contributed revenue of approximately $ 724.5 million in 2015 compared to $ 80.6 million in 2014 ; solid performance across all of our business segments with revenue growth of 16.7 % for financial services , 36.4 % for healthcare ( inclusive of trizetto revenue ) , 12.0 % for manufacturing/retail/logistics and 17.4 % for other ; sustained strength in the north american market where revenues grew 23.9 % ( inclusive of trizetto revenue ) as compared to 2014 ; continued penetration of the european and rest of world ( primarily the asia pacific ) markets . revenue from our customers outside the united states was negatively affected by the recent strength of the u.s. dollar against the british pound , the euro and other currencies .
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as disclosed in note 24 - correction of prior period errors of the audited consolidated financial statements , the company 's consolidated financial statements as of and for the year ended december 31 , 2019 , and the company 's unaudited interim condensed consolidated financial statements for each of the interim and year-to-date periods ended march 31 , 2020 , june 30 , 2020 , and september 30 , 2020 have been revised to give effect to the correction of certain errors we identified during the current year-end financial reporting process . as a result , the management 's discussion and analysis of the company 's financial condition and results of operation set forth below has been revised to give effect to the correction of these accounting errors . this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) contains the financial measures ebitda and adjusted ebitda , which are not presented in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . these non-gaap financial measures are being presented because management believes that they provide readers with additional insight into the company 's operational performance relative to earlier periods and relative to its competitors and they are key measures used by the company to evaluate its performance . the company does not intend for these non-gaap financial measures to be a substitute for any gaap financial information . readers of this md & a should use these non-gaap financial measures only in conjunction with the comparable gaap financial measures . a reconciliation of ebitda and adjusted ebitda to the most comparable gaap measure is provided in this md & a . business overview agrofresh is a global leader in delivering innovative food preservation and waste reduction solutions for fresh produce . the company is empowering the food industry with a range of integrated solutions designed to help growers , packers and retailers improve produce freshness and quality while reducing waste . agrofresh has key products registered in over 50 countries , and supports customers by protecting over 25,000 storage rooms globally . agrofresh 's solutions range from near-harvest with harvista tm and landspring tm to its flagship post-harvest smartfresh tm quality system . additional post-harvest freshness solutions include fungicides that can be applied to meet various customer operational requirements , in either a foggable ( actimist ) or liquid ( actiseal ) delivery form . to supplement our near- and post-harvest product solutions , our freshcloud digital technology platform includes analytical , diagnostic and tracking services that provide a range of value-added capabilities to help customers optimize the quality of their produce . beyond apples , smartfresh technology can provide ready-to-eat freshness for other fruits and vegetables including avocados , bananas , melons , tomatoes , broccoli and mangos . agrofresh is also providing customers with packaging-based advisory services and custom packaging solutions under the ripelock brand , which focuses on packaging-based freshness technology solutions for fruits and vegetables . in december 2017 , agrofresh acquired a controlling interest in tecnidex . with this acquisition , agrofresh expanded its industry-leading post-harvest presence into additional crops and increased its penetration of the produce market in southern europe , latin america and africa . for over 35 years , tecnidex has been helping fruit and vegetable producers offer clean , safe and high-quality products to its regional customers in 18 countries . through a portfolio of post-harvest fungicides , coatings and disinfectants , packinghouse equipment and associated consulting and after-sale services , tecnidex improves the quality and value of our customers ' fruit and vegetables while respecting the environment . tecnidex further diversified agrofresh 's revenue by allowing the company to provide solutions and service to the citrus industry . freshness is the most important driver of consumer satisfaction when it comes to produce and , at the same time , food waste is a major issue in the industry . about one third of the total food produced worldwide is lost or wasted each year . nearly 45 % of all fresh fruits and vegetables , 40 % of apples and 20 % of bananas , are lost to spoilage . agrofresh plays a key role in the value chain by offering products and services that maintain produce freshness and reduce waste . agrofresh 's flagship smartfresh quality system regulates the post-harvest ripening effects of ethylene , the naturally occurring plant hormone that triggers ripening in certain fruits and vegetables . smartfresh is naturally biodegradable , leaves no detectable residue and has been approved for use by many domestic and global regulatory organizations . harvista extends the company 's proprietary technology into the field , including treatment of cherries early in the growing season and near-harvest management of apples , pears and blueberries . freshcloud is our digital technology services platform , which continues to expand . launched in 2020 , freshcloud quality inspection is a proprietary cloud-based mobile quality management service that digitizes what was formerly a manual quality control process and captures , organizes and analyzes quality metrics in real time . landspring tm is an innovative 1-mcp technology targeted to transplanted vegetable seedlings . it is currently registered for use 28 tabl e of contents on tomatoes , peppers and 14 other crops in the us . it reduces transplant shock , resulting in less seedling mortality and faster crop establishment , which leads to a healthier crop and improved yields . agrofresh 's business is highly seasonal , driven by the timing of the apple and pear harvests in the northern and southern hemispheres . the first half of the year is when the southern hemisphere harvest occurs , and the second half of the year is when the northern hemisphere harvest occurs . since the northern hemisphere harvest of apples and pears is typically larger , a significant portion of our sales and profits are historically generated in the second half of the year . story_separator_special_tag for citrus crops , there are seasonal variations in this business due to the northern hemisphere citrus harvest , which spans from october to march . since the majority of the company 's sales are in northern hemisphere countries , a proportionately greater share of its revenue is realized during the second half of the year . there are also variations in the seasonal demands from year to year depending on weather patterns and crop size . this seasonality and variations in seasonal demand could impact the ability to compare results between periods . foreign currency exchange rates with a global customer base and geographic footprint , the company generates revenue and incurs costs in a number of different currencies , with the euro comprising the most significant non-u.s. currency . fluctuations in the value of these currencies relative to the u.s. dollar can increase or decrease the company 's overall revenue and profitability as stated in u.s. dollars , which is the company 's reporting currency . in certain instances , if sales in a given geography have been adversely impacted on a long-term basis due to foreign currency depreciation , the company has been able to adjust its pricing so as to mitigate the impact on profitability . domestic and foreign operations the company has both domestic and foreign operations . fluctuations in foreign exchange rates , regional growth-related spending in r & d and marketing expenses , and changes in local selling prices , among other factors , may impact the profitability of foreign operations in the future . critical accounting policies and use of estimates our discussion and analysis of results of operations and financial condition are based upon our financial statements . these financial statements have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements . we base our estimates and judgments on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis . actual results could differ from our estimates under different assumptions or conditions . our significant accounting policies , which may be affected by our estimates and assumptions , are more fully described in note 2 to the audited consolidated financial statements . an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the 30 tabl e of contents financial statements . management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the financial statements . goodwill as discussed in note 2- basis of presentation and summary of significant accounting policies in the audited consolidated financial statements , the company tests goodwill and identifiable intangible assets with indefinite lives for impairment as of december 31 of each year . intangibles are tested for impairment using a quantitative impairment model . we test goodwill for impairment by either performing a qualitative evaluation or a two-step quantitative test . the process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions as to our future cash flows , discount rate commensurate with the risks involved in the asset , future economic and market conditions , as well as other key assumptions . the amounts recorded in the financial statements related to goodwill are based on the best estimates and judgments of the company 's management , although actual outcomes could differ from our estimates . the company recorded goodwill with a carrying value of $ 6.9 million as of december 31 , 2020. the estimated fair value of the tecnidex reporting unit as of december 31 , 2020 is approximately 19 % greater than the carrying value of the reporting unit . a 1 % increase in the assumed discount rate would not cause an impairment of goodwill . other intangible assets we conduct our annual indefinite-lived intangible assets impairment assessment as of december 31 of each year unless conditions arise that would require a more frequent evaluation . in assessing the recoverability of indefinite-lived intangible assets , projections regarding estimated discounted future cash flows and other factors are made to determine if impairment has occurred . if we conclude that there has been impairment , we will write down the carrying value of the asset to its fair value . each year , we evaluate those intangible assets with indefinite lives to determine whether events and circumstances continue to support the indefinite useful lives . when testing indefinite-lived intangible assets for impairment , we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not ( more than 50 % ) that the fair value of an indefinite-lived intangible asset is less than its carrying amount . such qualitative factors may include the following : macroeconomic conditions industry and market considerations cost factors overall financial performance ; and other relevant entity-specific events based on the results of our annual impairment reviews , management recorded an impairment charge of $ 2.6 million on its smartfresh trade name for the year ended december 31 , 2018. in determining the fair value of the trade names , the company applied the relief from royalty methodology , which is based on the assumption that without ownership of the assets , the user of the trade names would have to make a stream of payments to the owner of the trade names in return for the rights to use the trade names . by acquiring the trade name , the user avoids those payments .
| results of operations the following table summarizes the results of operations : 33 tabl e of contents replace_table_token_1_th comparison of results of operations for the year ended december 31 , 2020 and the year ended december 31 , 2019. net sales net sales were $ 157.6 million for the year ended december 31 , 2020 , as compared to net sales of $ 170.1 million for the year ended december 31 , 2019. the impact of the change in foreign currency exchange rates compared to 2019 reduced revenue by $ 1.9 million . excluding this impact , revenue decreased approximately 6.2 % . the decrease in net sales was primarily due to lower volume of smartfresh sales on a smaller crop size and a decrease in ethylbloc sales due to covid-19 impacts , partially offset by growth in fungicides , harvista and diversification strategies . cost of sales cost of sales was $ 42.2 million for the year ended december 31 , 2020 , as compared to $ 45.0 million for the year ended december 31 , 2019. gross profit margin was 73.2 % in 2020 versus 73.5 % in 2019. despite a decrease in sales and related fixed costs leverage impact , margin was relatively consistent due to the positive effects of supply chain cost optimization initiatives . research and development expenses research and development expenses were $ 12.4 million for the year ended december 31 , 2020 , as compared to $ 14.1 million for the year ended december 31 , 2019. the decrease in research and development expenses was driven by the timing of projects . selling , general and administrative expenses selling , general and administrative expenses were $ 53.9 million for the year ended december 31 , 2020 , as compared to $ 59.4 million for the year ended december 31 , 2019 , a decrease of 9.4 % . included in selling , general and administrative expenses were $ 4.1 million in 2020 and $ 8.8
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investments in real estate evaluation of business combination or asset acquisition we evaluate each acquisition of real estate or in-substance real estate ( including equity interests in entities that predominantly hold real estate assets ) to determine whether the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination . an acquisition of an integrated set of assets and activities that does not meet the definition of a business is story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes thereto under “ item 15. exhibits and financial statement schedules ” in this annual report on form 10-k. forward-looking statements involve inherent risks and uncertainties regarding events , conditions , and financial trends that may affect our future plans of operations , business strategy , results of operations , and financial position . a number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements , including , but not limited to , those described under “ item 1a . risk factors ” in this annual report on form 10-k. we do not undertake any responsibility to update any of these factors or to announce publicly any revisions to any of the forward-looking statements contained in this or any other document , whether as a result of new information , future events , or otherwise . as used in this annual report on form 10-k , references to the “ company , ” “ alexandria , ” “ we , ” “ us , ” and “ our ” refer to alexandria real estate equities , inc. and its consolidated subsidiaries . executive summary operating results replace_table_token_27_th the operating results shown above include certain items related to corporate-level investing and financing decisions . refer to the tabular presentation of these items in the “ results of operations ” section under this item 7 for additional information . celebrating our 25th anniversary ; an important milestone in company history since our initial launch in january 1994 as a garage startup with a strategic business plan , $ 19 million in series a capital , and a unique vision to create a new kind of real estate company focused on serving the life science industry , we have grown into an investment-grade rated s & p 500 ® company , a recognized leader in life science cluster development , and a trusted partner to innovative companies , highly respected cities , and renowned institutions . from our initial public offering in may 1997 through december 31 , 2019 , we have generated a total shareholder return of 1,714 % and a total market capitalization of $ 26.3 billion as of december 31 , 2019 . a reit industry-leading , high-quality tenant roster 50 % of annual rental revenue from investment-grade or publicly traded large cap tenants . weighted-average remaining lease term of 8.1 years . continued growth in common stock dividend common stock dividend declared for the three months ended december 31 , 2019 of $ 1.03 per common share , aggregating $ 4.00 per common share for the year ended december 31 , 2019 , up 27 cents , or 7 % , over the year ended december 31 , 2018 ; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment . 71 strong internal growth ; highest leasing activity in our history and highest annual rental rate increases during the past 10 years total revenues of $ 1.5 billion , up 15.4 % , for the year ended december 31 , 2019 , compared to $ 1.3 billion for the year ended december 31 , 2018 . continued strong internal growth ; acquired vacancy from recent acquisitions provide opportunity to increase income from rentals and net operating income . net operating income ( cash basis ) of $ 951.8 million for the year ended december 31 , 2019 , increased by $ 121.2 million , or 14.6 % , compared to the year ended december 31 , 2018 . same property net operating income growth of 3.1 % and 7.1 % ( cash basis ) for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 . continued strong leasing activity during 2019 , representing the highest leasing activity in our history and rental rate growth over expiring rates on renewed and re-leased space during 2019 , representing our highest annual rental rate increases during the past 10 years : 2019 total leasing activity – rsf 5,062,722 lease renewals and re-leasing of space : rsf ( included in total leasing activity above ) 2,427,108 rental rate increases 32.2 % rental rate increases ( cash basis ) 17.6 % strong external growth ; disciplined allocation of capital to visible , highly leased value-creation pipeline since the beginning of 2019 , we have placed into service 2.1 million rsf of development and redevelopment projects , with weighted-average initial stabilized yields of 7.4 % and 6.9 % ( cash basis ) . significant near-term growth of annual net operating income ( cash basis ) , including our share of unconsolidated real estate joint ventures , of $ 55 million upon the burn-off of initial free rent on recently delivered projects . we commenced development and redevelopment projects aggregating 1.9 million rsf during the year ended december 31 , 2019 . during the year ended december 31 , 2019 , we leased 1.4 million rsf of development and redevelopment space . completed acquisitions refer to the “ acquisitions ” subsection of the “ investments in real estate ” section under “ item 2. properties ” in this annual report on form 10-k for information on our opportunistic acquisitions . story_separator_special_tag 73 subsequent events as of the date of this report , we completed acquisitions of four properties in 2020 for an aggregate purchase price of $ 341.2 million , comprising 800,346 rsf of operating and redevelopment opportunities strategically located across multiple markets . in january 2020 , we formed a real estate joint venture with boston properties , inc. , in which we are targeting a 51 % ownership interest over time . we are the managing member with the power to direct the activities that most significantly affect the economic performance of the joint venture , and will consolidate this joint venture pursuant to the applicable accounting standards . our partner contributed three office buildings and land supporting 260,000 square feet of future development , and we contributed one office building , one office/laboratory building , one amenity building , at 701 , 681 , and 685 gateway boulevard , respectively , and land supporting 377,000 square feet of future development . this future mega campus in our south san francisco submarket will aggregate 1.7 million rsf , approximately 50 % of which represents future development and redevelopment opportunities . in january 2020 , we entered into forward equity sales agreements to sell an aggregate of 6.9 million shares of our common stock ( including the exercise of an underwriters ' option ) at a public offering price of $ 155.00 per share , before underwriting discounts . we expect to settle these forward equity sales agreements in 2020 , and receive proceeds of approximately $ 1.0 billion , to be further adjusted as provided in the sales agreements , which will fund pending and recently completed acquisitions and the construction of our highly leased development projects . we expect to file a new atm program in the first quarter of 2020. operating summary same property net operating income growth favorable lease structure ( 1 ) strategic lease structure by owner and operator of collaborative life science , technology , and agtech campuses increasing cash flows percentage of leases containing annual rent escalations 95 % stable cash flows percentage of triple net leases 97 % lower capex burden percentage of leases providing for the recapture of capital expenditures 96 % rental rate growth : renewed/re-leased space margins ( 2 ) operating adjusted ebitda 70 % 68 % ( 1 ) percentages calculated based on rsf as of december 31 , 2019 . ( 2 ) represents percentages for the three months ended december 31 , 2019 . 74 execution of capital strategy during 2019 , we continued to execute on many of the long-term components of our capital strategy . some of our key accomplishments include the following : 2019 capital strategy key metrics as of december 31 , 2019 $ 26.3 billion of total market capitalization $ 19.5 billion of total equity capitalization $ 2.4 billion of liquidity ( 1 ) ( 1 ) in january 2020 , we entered into $ 1.0 billion of forward equity sales agreements . including the outstanding forward equity agreements , we had proforma liquidity of $ 3.4 billion . replace_table_token_29_th ( 1 ) due to the timing of two acquisitions that closed in december 2019 , we had a temporary 0.4x increase above our projected net debt and preferred stock to adjusted ebitda – fourth quarter of 2019 , annualized , for december 31 , 2019 . we remain committed to our guidance of net debt and preferred stock to adjusted ebitda – fourth quarter of 2020 , annualized , of less than or equal to 5.2x . replace_table_token_30_th ( 1 ) includes projects that have existing buildings which are generating or can generate operating cash flows . also includes development rights associated with existing operating campuses . key capital events in 2019 we had the following dispositions and sales of partial interests in core class a properties ( dollars in millions , except per rsf ) : replace_table_token_31_th 75 our issuances and repayments of debt included the following ( dollars in millions ) : replace_table_token_32_th ( 1 ) the remaining proceeds received from our debt issuances , after repayments of debt , were used to fund the construction of our value-creation pipeline and acquisitions completed during 2019. refer to note 3 – “ investments in real estate ” to our consolidated financial statements under item 15 in this annual report on form 10-k for additional information . in conjunction with the $ 350.0 million repayment of our unsecured senior bank term loan , during the three months ended september 30 , 2019 , we also terminated all of our interest rate hedge agreements aggregating $ 350.0 million with a weighted-average interest pay rate of 2.57 % and reclassified the entire loss on our interest rate hedge agreements aggregating $ 1.7 million from accumulated other comprehensive loss into interest expense in our consolidated statements of operations . in september 2019 , we established a commercial paper program with the ability to issue up to $ 750.0 million of commercial paper notes with a maximum maturity of 397 days from the date of issue . our commercial paper program is backed by our $ 2.2 billion unsecured senior line of credit , and at all times we expect to retain a minimum undrawn amount of borrowing capacity under our unsecured senior line of credit equal to any outstanding balance on our commercial paper program . we use borrowings under the program to fund short-term capital needs . as of december 31 , 2019 , we had no borrowings outstanding under our commercial paper program . during the year ended december 31 , 2019 , we issued 8.7 million shares of common stock and received net proceeds of $ 1.2 billion , as follows : issued an aggregate of 8.1 million shares of common stock , at a weighted-average price of $ 139.32 per share , for aggregate proceeds ( net of underwriters ' discounts ) of approximately $ 1.1 billion .
| results of operations we present a tabular comparison of items , whether gain or loss , that may facilitate a high-level understanding of our results and provide context for the disclosures included in our annual report on form 10-k. we believe such tabular presentation promotes a better understanding for investors of the corporate-level decisions made and activities performed that significantly affect comparison of our operating results from period to period . we also believe this tabular presentation will supplement for investors an understanding of our disclosures and real estate operating results . gains or losses on sales of real estate and impairments of held for sale assets are related to corporate-level decisions to dispose of real estate . gains or losses on early extinguishment of debt , gains or losses on early termination of interest rate hedge agreements , and preferred stock redemption charges are related to corporate-level financing decisions focused on our capital structure strategy . significant realized and unrealized gains or losses on non-real estate investments and impairments of real estate and non-real estate investments are not related to the operating performance of our real estate assets as they result from strategic , corporate-level non-real estate investment decisions and external market conditions . impairments of non-real estate investments are not related to the operating performance of our real estate as they represent the write-down of non-real estate investments when their fair values decline below their respective carrying values due to changes in general market or other conditions outside of our control .
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gaap ) . overview the company is a global designer , manufacturer and marketer of electrical , electronic and fiber optic connectors , interconnect systems , antennas , sensor and sensor-based products and coaxial and high-speed specialty cable . the company operates through two reporting segments : ( i ) interconnect products and assemblies and ( ii ) cable products and solutions . in 2015 , approximately 70 % of the company 's sales were outside the u.s. the primary end markets for our products are : · information technology and communication devices and systems for the converging technologies of voice , video and data communications ; · a broad range of industrial applications and traditional and hybrid-electric automotive applications ; and · commercial aerospace and military applications . the company 's products are used in a wide variety of applications by numerous customers . the company encounters competition in its markets and competes primarily on the basis of technology innovation , product quality , price , customer service and delivery time . there has been a trend on the part of oem customers to consolidate their lists of qualified suppliers to companies that have the ability to meet certain quality , delivery and other standards while maintaining competitive prices . the company has focused its global resources to position itself to compete effectively in this environment . the company believes that its global presence is an important competitive advantage as it allows the company to provide quality products on a timely and worldwide basis to its multinational customers . the company 's strategy is to provide its customers with comprehensive design capabilities , a broad selection of products and a high level of service on a worldwide basis while maintaining continuing programs of productivity improvement and cost control . the company focuses its research and development efforts through close collaboration with its oem customers to develop highly-engineered products that meet customer needs and have the potential for broad market applications and significant sales within a one-to three-year period . the company is also focused on controlling costs . the company does this by investing in modern manufacturing technologies , controlling purchasing processes and expanding into lower cost areas . the company 's strategic objective is to further enhance its position in its served markets by pursuing the following success factors : · pursue broad diversification ; · develop performance-enhancing interconnect solutions ; · expand global presence ; · control costs ; · pursue strategic acquisitions and investments ; and · foster collaborative , entrepreneurial management . in 2015 , the company reported net sales , operating income and net income attributable to amphenol corporation of $ 5,568.7 , $ 1,104.7 and $ 763.5 , respectively , up 4 % , 7 % and 8 % , respectively , from 2014. sales and profitability trends are discussed in detail in results of operations below . in addition , a strength of the company has been its ability to consistently generate cash . the company uses cash generated from operations to fund capital expenditures and acquisitions , repurchase shares of its common stock , pay dividends and reduce indebtedness . in 2015 , the company generated operating cash flow of $ 1,030.5 . 16 story_separator_special_tag .0001pt ; text-indent : .25in ; '' > other income , net , decreased to $ 16.4 in 2015 compared to $ 18.3 in 2014 , primarily related to lower interest income on cash , cash equivalents and short-term investments . the provision for income taxes was at an effective rate of 26.6 % in 2015 and 26.5 % in 2014. excluding the net impact of acquisition-related expenses , the company 's effective tax rate for both 2015 and 2014 was 26.5 % . 2014 compared to 2013 net sales were $ 5,345.5 for the year ended december 31 , 2014 compared to $ 4,614.7 for the year ended december 31 , 2013 , an increase of 16 % in both u.s. dollars and in local currencies and 8 % organically ( excluding both currency and acquisition impacts ) over the prior year . sales in the interconnect products and assemblies segment ( approximately 93 % of net sales ) increased 17 % in 2014 in both u.s. dollars and in local currencies and 8 % organically compared to 2013 ( $ 4,992.6 in 2014 versus $ 4,269.0 in 2013 ) . the sales growth was driven by increases in nearly all of our served markets with contributions from both organic growth and the company 's acquisition program ; partially offset by a small decrease in sales in the information technology and data communications equipment market . sales to the industrial market increased ( approximately $ 276.2 ) reflecting particular growth within the energy and heavy equipment markets driven by the impact of organic growth and acquisitions . sales to the automotive market increased ( approximately $ 271.2 ) , driven primarily by ongoing ramp ups of new , high-technology programs as well as higher vehicle production volumes and acquisitions . sales to the mobile networks market increased ( approximately $ 112.4 ) , primarily due to an increase in worldwide network build-outs . sales to the commercial aerospace market increased ( approximately $ 49.7 ) primarily due to increased demand resulting from higher production levels of next generation jetliners and acquisitions . sales to the mobile devices market increased ( approximately $ 46.6 ) primarily due to growth in smartphones and accessories . sales to the military market increased slightly ( approximately $ 3.5 ) . this was partially offset by reductions in sales to the information technology and data communications equipment market ( approximately $ 20.2 ) due to declining networking product sales partially offset by growth in storage and server products . story_separator_special_tag the components of working capital as presented on the accompanying consolidated statements of cash flow decreased $ 46.9 in 2015 due primarily to decreases in other current assets of $ 47.7 and increases in accrued liabilities of $ 44.2 , offset by increases in accounts receivable and inventory of $ 22.3 and $ 5.2 , respectively , and decreases in accounts payable of $ 17.5. the components of working capital increased $ 18.9 in 2014 due primarily to increases in accounts receivable , inventory , and other current assets of $ 111.5 , $ 51.6 and $ 10.0 , respectively , offset by increases in accounts payable and accrued liabilities of $ 66.8 and $ 87.3 , respectively . the components of working capital increased $ 26.3 in 2013 due primarily to increases in accounts receivable , inventory , and other current assets of $ 37.1 , $ 8.0 and $ 18.4 , respectively , offset by increases in accounts payable and accrued liabilities of $ 6.9 and $ 30.2 , respectively . the following represents the significant changes in the amounts as presented on the accompanying consolidated balance sheets in 2015 compared to 2014. accounts receivable decreased $ 19.1 to $ 1,104.6 primarily due to the effect of translation from exchange rate changes at december 31 , 2015 compared to december 31 , 2014 ( translation ) , partially offset by the impact of acquisitions . 19 days sales outstanding at december 31 , 2015 and 2014 were 71. inventories decreased $ 13.8 to $ 851.8 , primarily due to the impact of translation , partially offset by the impact of acquisitions . inventory days at december 31 , 2015 and 2014 were 79. land and depreciable assets , net , increased $ 18.8 to $ 609.5 as a result of capital expenditures of $ 172.1 and acquisitions , partially offset by depreciation of $ 131.8 , disposals and translation . goodwill increased $ 76.2 to $ 2,692.9 primarily as a result of three acquisitions in the interconnect products and assemblies segment completed during 2015 offset by translation . intangibles and other long-term assets decreased $ 20.3 primarily due to the amortization of intangible assets of $ 34.9 and translation , partially offset by additional identifiable intangible assets of $ 20.0 resulting from acquisitions during 2015. accounts payable decreased $ 30.6 to $ 587.8 , primarily as a result of translation , partially offset by the impact of acquisitions . payable days at december 31 , 2015 and 2014 were 54 and 57 , respectively . in 2015 , cash flow provided by operating activities of $ 1,030.5 , net sales and maturities of short-term investments of $ 335.9 , net borrowings of $ 153.6 and proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $ 80.6 were used to fund purchases of treasury stock of $ 248.9 , acquisition-related payments of $ 199.8 , capital expenditures ( net of disposals ) of $ 163.4 , dividend payments of $ 159.3 , and payments to shareholders of noncontrolling interests of $ 6.1 , which resulted in an increase in cash and cash equivalents of $ 823.1. translation had the impact of decreasing cash and cash equivalents by $ 54.8 in 2015. in 2014 , cash flow provided by operating activities of $ 880.9 , net borrowings of $ 528.9 and proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $ 130.1 were used to fund purchases of treasury stock of $ 539.4 , acquisition related payments of $ 518.2 , net capital expenditures of $ 203.5 , dividend payments of $ 101.9 , net purchases of short-term investments of $ 60.2 and payments to shareholders of noncontrolling interests of $ 3.6 , which resulted in an increase in cash and cash equivalents of $ 113.1. translation had the impact of decreasing cash and cash equivalents by $ 31.0 in 2014. at december 31 , 2015 and 2014 , the company had cash , cash equivalents and short-term investments of $ 1,760.4 and $ 1,329.6 , respectively . the majority of these amounts are located outside of the u.s. the company used approximately $ 1,179 , net of cash acquired , of its cash , cash equivalents and short-term investments to fund the fci acquisition on january 8 , 2016 , as described below . the company does not currently intend to repatriate the remainder of these funds . however , any repatriation of funds would result in the need to accrue and pay income taxes . the ability to generate cash from operating activities is one of the company 's fundamental financial strengths . as a result , the company has significant flexibility to meet its financial commitments . the company uses debt financing to lower the overall cost of capital and increase return on stockholders ' equity . the company has a history of borrowing funds domestically and has had the ability to borrow funds domestically at reasonable interest rates . the company 's debt financing includes the use of a commercial paper program , revolving credit facilities and senior notes as part of its overall cash management strategy . the revolving credit facility requires payment of certain annual agency and commitment fees and requires that the company satisfy certain financial covenants . at december 31 , 2015 , the company was in compliance with the financial covenants under the revolving credit facility . there were no borrowings under the revolving credit facility as of december 31 , 2015. in september 2014 , the company entered into a commercial paper program ( commercial paper program ) pursuant to which the company issues short-term unsecured commercial paper notes in one or more private placements . amounts available under the commercial paper program are borrowed , repaid and re-borrowed from time to time . the commercial paper program is rated a-2 by standard & poor 's and p-2 by moody 's and is backstopped by the revolving credit facility .
| results of operations the following table sets forth the components of net income attributable to amphenol corporation as a percentage of net sales for the periods indicated . replace_table_token_5_th 2015 compared to 2014 net sales were $ 5,568.7 for the year ended december 31 , 2015 compared to $ 5,345.5 for the year ended december 31 , 2014 , an increase of 4 % in u.s. dollars , 8 % in local currencies and 3 % organically ( excluding both currency and acquisition impacts ) over the prior year . sales in the interconnect products and assemblies segment ( approximately 94 % of net sales ) increased 5 % in 2015 in u.s. dollars , 8 % in local currencies and 3 % organically compared to 2014 ( $ 5,239.1 in 2015 versus $ 4,992.6 in 2014 ) . the sales growth was driven by increases in the automotive , mobile devices , industrial and information technology and data communications equipment markets , with contributions from both organic growth and the company 's acquisition program ; partially offset by decreases in sales in the mobile networks , commercial aerospace and military markets . sales to the automotive market increased ( approximately $ 190.9 ) , driven both by acquisitions and an expansion of our products across a diversified range of vehicles and onboard electronics . sales to the mobile devices market increased ( approximately $ 116.5 ) primarily due to growth in next generation laptops , mobile device accessories and production-related products . sales to the industrial market increased ( approximately $ 43.0 ) reflecting the benefit of acquisitions as well as growth in industrial battery and hybrid vehicle applications and growth in alternative energy applications , offset by significant declines in products sold into oil and gas exploration . sales to the information technology and data communications market increased ( approximately $ 17.6 ) , primarily due to the growth in products for server , web and data center applications , partially offset by declines in storage-related applications .
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except for historical information contained in these written or oral communications , such communications contain forward-looking statements . these include , for example , all references to 2013 or future years . new risk factors emerge from time to time and it is not possible for the company to predict all such risk factors , nor can it assess the impact of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . accordingly , forward-looking statements can not be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements , including , but not limited to the factors that are described in part i , item 1a under the caption of risk factors of this form 10-k , which section is incorporated herein by reference . the company is not required , and undertakes no obligation , to revise or update forward-looking statements or any factors that may affect actual results , whether as a result of new information , future events , or circumstances occurring after the date of this report . overview management 's discussion and analysis of financial condition and results of operations ( md & a ) is designed to provide a discussion of the company 's financial condition , results of operations , liquidity and certain other factors that may affect its future results from the perspective of management . the discussion that follows is intended to provide information that will assist in understanding the changes in the company 's financial statements from year to year , the primary factors that accounted for those changes , and how certain accounting principles , policies and estimates affect the company 's financial statements . md & a is provided as a supplement to , and should be read in conjunction with , the consolidated financial statements and the accompanying notes to the financial statements . md & a is presented in the following sections : · business overview · critical accounting estimates · consolidated results of operations · analysis of operating revenue and income by segment · liquidity and capital resources · contractual obligations , commitments , contingencies and off-balance-sheet arrangements · business outlook · other matters 19 business overview founded in 1882 , matson is a leading u.s. ocean freight carrier in the pacific . matson provides a vital lifeline to the island economies of hawaii , guam and micronesia , and operates a premium , expedited service from china to southern california . the company 's fleet of 17 vessels includes containerships , combination container and roll-on/roll-off ships and custom-designed barges . matson logistics , inc. , a wholly-owned subsidiary of matnav , was established in 1987 and extends the geographic reach of matson 's transportation network throughout the continental u.s. and china . logistics ' integrated , asset-light logistics services include rail intermodal , highway brokerage and warehousing . ocean transportation : the ocean transportation segment of matson 's business , which is conducted through matnav , is an asset-based business that generates revenue primarily through the carriage of containerized freight between various u.s. pacific coast , hawaii , guam , micronesia , china and other pacific island ports . also , the company has a 35 percent ownership interest in ssa terminals , llc through a joint venture between matson ventures , inc. , a wholly-owned subsidiary of matnav , and ssa ventures , inc. , a subsidiary of carrix , inc. ssat provides terminal and stevedoring services to various international carriers at six terminal facilities on the u.s. pacific coast and to matnav at several of those facilities . matson records its share of income in the joint venture in operating expenses within the ocean transportation segment , due to the operations of the joint venture being an integral part of the company 's business . logistics : the logistics segment of matson 's business , which is conducted through logistics , is an asset-light based business that is a provider of domestic and international rail intermodal service , long-haul and regional highway brokerage , specialized hauling , flat-bed and project work , less-than-truckload services , expedited freight services , and warehousing and distribution services . warehousing , packaging and distribution services are provided by matson logistics warehousing , inc. , a wholly-owned subsidiary of logistics . separation transaction : the separation was completed on june 29 , 2012. in the separation , the shareholders of holdings received one share of common stock of a & b for every share of holdings held of record as of june 18 , 2012. immediately following the separation , alexander & baldwin holdings , inc. changed its name to matson , inc. for accounting purposes , matson is the successor company to the former parent company . critical accounting estimates the company 's significant accounting policies are described in note 1 to the consolidated financial statements . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , upon which the md & a is based , requires that management exercise judgment when making estimates and assumptions about future events that may affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with certainty and actual results will , inevitably , differ from those critical accounting estimates . these differences could be material . story_separator_special_tag if management uses different assumptions or if different conditions occur in future periods , the company 's financial condition or its future operating results could be materially impacted . the company has not recorded any impairment related to its vessels for the years ended december 31 , 2012 , 2011 and 2010 , respectively . 21 additional information about the company 's vessels as of december 31 , 2012 is as follows : replace_table_token_4_th legal contingencies : the company 's results of operations could be affected by significant litigation adverse to the company , including , but not limited to , liability claims , antitrust claims , and claims related to coastwise trading matters . the company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated . management makes adjustments to these accruals to reflect the impact and status of negotiations , settlements , rulings , advice of counsel and other information and events that may pertain to a particular matter . predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from those estimates . in making determinations of likely outcomes of litigation matters , the company considers many factors . these factors include , but are not limited to , the nature of specific claims including unasserted claims , the company 's experience with similar types of claims , the jurisdiction in which the matter is filed , input from outside legal counsel , the likelihood of resolving the matter through alternative dispute resolution mechanisms and the matter 's current status . a detailed discussion of significant litigation matters is contained in note 11 to the consolidated financial statements . self-insured liabilities : the company is self-insured for certain losses including , but not limited to , employee health , workers ' compensation , general liability , real and personal property . where feasible , the company obtains third-party excess insurance coverage to limit its exposure to these claims . when estimating its self-insured liabilities , the company considers a number of factors , including historical claims experience , demographic factors , current trends , and analyses provided by independent third-parties . periodically , management reviews its assumptions and the analyses provided by independent third-parties to determine the adequacy of the company 's self-insured liabilities . the company 's self-insured liabilities contain uncertainties because management is required to apply judgment and make long-term assumptions to estimate the ultimate cost to settle reported claims and claims incurred , but not reported , as of the balance sheet date . if management uses different assumptions or if different conditions occur in future periods , the company 's financial condition or its future operating results could be materially impacted . goodwill : the company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . in estimating the fair value of a reporting unit , the company uses a combination of a discounted cash flow model and fair value based on market multiples of earnings before interest , taxes , depreciation and amortization ( ebitda ) . the discounted cash flow approach requires the company to use a number of assumptions , including market factors specific to the business , the amount and timing of estimated future cash flows to be generated by the business over an extended period of time , long-term growth rates for the business , and a discount rate that considers the risks related to the amount and timing of the cash flows . although the assumptions used by the company in its discounted cash flow model are consistent with the assumptions the company used to generate its internal strategic plans and forecasts , significant judgment is required to estimate the amount and timing of future cash flows from the reporting unit and the risk of achieving those cash flows . when using market multiples of ebitda , the company must make judgments about the comparability of those multiples in closed and proposed transactions . accordingly , 22 changes in assumptions and estimates , including , but not limited to , changes driven by external factors , such as industry and economic trends , and those driven by internal factors , such as changes in the company 's business strategy and its internal forecasts , could have a material effect on the company 's business , financial condition and results of operations . the company has not recorded any impairment related to its goodwill for the years ended december 31 , 2012 , 2011 and 2010 , respectively . pension and post-retirement estimates : the estimation of the company 's pension and post-retirement benefit expenses and liabilities requires that the company make various assumptions . these assumptions include the following factors : · discount rates · expected long-term rate of return on pension plan assets · salary growth · health care cost trend rates · inflation · retirement rates · mortality rates · expected contributions actual results that differ from the assumptions made with respect to the above factors could materially affect the company 's financial condition or its future operating results . the effects of changing assumptions are included in unamortized net gains and losses , which directly affect accumulated other comprehensive income . additionally , these unamortized gains and losses are amortized and reclassified to income ( loss ) over future periods . the 2012 net periodic costs for qualified pension and post-retirement plans were determined using discount rates of 4.8 percent and 4.9 percent , respectively . the benefit obligations for qualified pension and post-retirement benefit plans , as of december 31 , 2012 , were determined using discount rates of 4.2 percent and 4.3 percent , respectively .
| consolidated results of operations the following analysis of the consolidated financial condition and results of operations of matson , inc. and its subsidiaries ( collectively , the company ) should be read in conjunction with the consolidated financial statements and related notes thereto . 2012 vs. 2011 replace_table_token_5_th consolidated operating revenue for the year ended december 31 , 2012 increased $ 97.4 million , or 6.7 percent , compared to the year ended december 31 , 2011. this increase was principally due to $ 113.6 million in higher revenue for ocean transportation , partially offset by $ 16.2 million in lower revenue from logistics . the reasons for the operating revenue changes are described below , by business segment , in the analysis of operating revenue and income by segment . operating costs and expenses for the year ended december 31 , 2012 increased $ 79.3 million , or 5.7 percent , compared to the year ended december 31 , 2011. the increase was due to a $ 90.7 million increase in costs for the ocean transportation segment , which is inclusive of $ 8.6 million in separation costs , offset by a reduction of cost in logistics of $ 11.4 million . the reasons for the operating expense changes are described below , by business segment , in the analysis of operating revenue and income by segment . income tax expense during the year ended december 31 , 2012 was 38.8 percent of income from continuing operations before income tax as compared to 35.4 percent in 2011 and increased by $ 7.9 million compared with the year ended december 31 , 2011 due principally to certain non-recurring and non-deductible separation related transaction costs and the re-measurement of uncertain tax positions in 2012 as required as part of the separation tax accounting treatment . 24 the fourth quarter 2012 tax rate was less than the tax rates for each of the preceding quarters in 2012 for the following two reasons .
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62 note 4 : equity story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements as of december 29 , 2018 and december 30 , 2017 and for each of the three years in the period ended december 29 , 2018 and related notes , which are included in this annual report on form 10-k as well as with the other sections of this annual report on form 10-k , including “ part i , item 1 : business , ” “ part ii , item 6 : selected financial data ” and “ part ii , item 8 : financial statements and supplementary data. ” introduction we are a global semiconductor company primarily offering : x86 microprocessors , as standalone devices or as incorporated into an accelerated processing unit ( apu ) , chipsets , discrete and integrated graphics processing units ( gpus ) , and professional gpus ; and server and embedded processors , semi-custom system-on-chip ( soc ) products and technology for game consoles . we also license portions of our intellectual property ( ip ) portfolio . in this management 's discussion and analysis ( md & a ) , we will describe the results of operations and the financial condition for us and our consolidated subsidiaries , including a discussion of our results of operations for 2018 compared to 2017 and 2017 compared to 2016 , an analysis of changes in our financial condition and a discussion of our contractual obligations and off balance sheet arrangements . overview our 2018 financial results demonstrate the success of our strong product roadmap execution . customers continued to adopt our high performance products as new products accounted for over 65 % of our annual 2018 revenue . net revenue for 2018 was $ 6.5 billion , an increase of 23 % compared to 2017 net revenue of $ 5.3 billion . gross margin , as a percentage of net revenue for 2018 , was 38 % , a 4 % increase compared to 34 % in 2017. our operating income for 2018 improved to $ 451 million compared to operating income of $ 127 million for 2017. our net income for 2018 improved to $ 337 million compared to a net loss of $ 33 million in the prior year . we significantly expanded our desktop processor offerings in 2018 with the launch of our second-generation amd ryzen and high-end amd ryzen threadripper wx processors for gamers , creators and hardware enthusiasts . we announced the availability of our first desktop consumer and commercial ryzen and ryzen pro apus that combine our high-performance “ zen ” cpu and radeon “ vega ” graphics cores into a single chip . we also introduced the first entry-level processors based on our “ zen ” cpu and “ vega ” gpu cores for the consumer and commercial desktop pc market with the amd athlon and amd pro processors . in the notebook market , multiple customers launched premium consumer and commercial pcs featuring our mobile amd ryzen apus , including our first enterprise-class notebooks powered by our new amd ryzen pro apus . for the high-performance embedded markets , we introduced the amd epyc embedded 3000 processor and amd ryzen embedded v1000 processor families that bring new levels of computing and graphics performance to the thin client , digital signage , and infrastructure markets . cash , cash equivalents and marketable securities as of december 29 , 2018 were $ 1.16 billion , down from $ 1.18 billion at the end of 2017. principal amount of total debt as of december 29 , 2018 was $ 1.53 billion , compared to $ 1.70 billion as of december 30 , 2017. we intend the discussion of our financial condition and results of operations that follows to provide information that will assist in understanding our financial statements , the changes in certain key items in those financial statements from period to period , the primary factors that resulted in those changes , and how certain accounting principles , policies and estimates affect our financial statements . critical accounting estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( u.s. gaap ) . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements . we evaluate our estimates on an on-going basis , including those related to our revenue , inventories , goodwill impairments and income taxes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . although actual results have historically been reasonably consistent with 36 management 's expectations , the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions . management believes the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult , subjective and complex judgments . revenue recognition . in accordance with the adoption of the new revenue standard effective the beginning of the first quarter of 2018 , we now recognize revenue upon the shipment of the product to our distributors ( sell-in ) , rather than upon the resale of the product by our distributors to their customers ( sell-through ) . accordingly , we have established provisions for rights of return and price protection on unsold product held by our distributors . revenue allowances . we record a provision for estimated sales returns and allowances on product sales for estimated future price reductions and other customer incentives in the same period that the related revenues are recorded . we base these estimates on actual historical sales returns , historical allowances , historical price reductions , market activity and other known or anticipated trends and factors . story_separator_special_tag in january 2018 , the fasb released guidance on the accounting for tax on the global intangible low-taxed income ( gilti ) provisions of the tax reform act . the gilti provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations . the guidance allows companies to make an accounting policy election to either ( i ) account for gilti as a component of tax expense in the period in which they are subject to the rules ( the period cost method ) , or ( ii ) account for gilti in the company 's measurement of deferred taxes ( the deferred method ) . after completing the analysis of the gilti provisions , we elected to account for gilti using the period cost method . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2017 increased by $ 188 million , or 19 % , compared to $ 1.0 billion in 2016 . the increase was primarily due to a $ 136 million increase in product engineering and design related costs attributable to both segments , and higher annual employee incentives driven by improved financial performance . marketing , general and administrative expenses marketing , general and administrative expenses of $ 562 million in 2018 increased by $ 46 million , or 9 % , compared to $ 516 million in 2017 . the increase was primarily due to a $ 41 million increase in sales and marketing activities attributable to both segments and higher annual employee incentives driven by our improved financial performance . marketing , general and administrative expenses of $ 516 million in 2017 increased by $ 50 million , or 11 % , compared to $ 466 million in 2016 . the increase was primarily due to a $ 29 million increase in sales and marketing activities attributable to both segments and higher annual employee incentives driven by our improved financial performance . interest expense interest expense of $ 121 million in 2018 decreased by $ 5 million compared to $ 126 million in 2017 , primarily due to lower debt balances and lower weighted average interest rates . interest expense of $ 126 million in 2017 decreased by $ 30 million compared to $ 156 million in 2016 , primarily due to lower weighted average interest rates and lower debt balances . other income ( expense ) , net other income ( expense ) , net of zero in 2018 changed by $ 9 million compared to $ 9 million other expense , net in 2017 . the change from 2017 to 2018 was primarily due to $ 12 million higher interest income in 2018 mainly related to a withholding tax refund from a foreign jurisdiction . other expense , net of $ 9 million in 2017 changed by $ 89 million compared to $ 80 million other income , net in 2016 . the change from 2016 to 2017 was primarily due to the absence in 2017 of the substantial gain on sale of equity interests in atmp jv that was partially offset by loss on debt redemption in 2016. provision ( benefit ) for income taxes we recorded an income tax benefit of $ 9 million in 2018 and an income tax provision of $ 18 million and $ 39 million in 2017 and 2016 , respectively . the income tax benefit in 2018 was primarily due to a $ 36 million refund of withholding tax from a foreign jurisdiction related to a legal settlement from 2010 , offset by $ 13 million of u.s. income taxes resulting from the tax reform act , $ 7 million tax provision in foreign locations and $ 7 million of withholding taxes on cross-border transactions . the income tax provision in 2017 was primarily due to withholding taxes applicable to ip-related revenue and licensing gains from foreign locations . the income tax provision in 2016 was primarily due to $ 41 million of foreign taxes in profitable locations including $ 27 million attributable to a gain on the sale of 85 % of the ownership interest in the subsidiary operating a factory in suzhou and $ 9 million of withholding taxes on cross-border transactions where no foreign tax credit is expected to be realizable , offset by $ 2 million of tax benefits for canadian tax credits and the monetization of certain u.s. tax credits . 40 international sales international sales as a percentage of net revenue were 80 % in 2018 and 74 % in 2017 . the increase in international sales as a percentage of net revenue in 2018 compared to 2017 was primarily driven by a higher proportion of revenue from china and taiwan related to sales of our products within the computing and graphics segment . international sales as a percentage of net revenue were 74 % in 2017 and 79 % in 2016 . the decrease in international sales as a percentage of net revenue in 2017 compared to 2016 was primarily driven by a higher proportion of revenue from domestic sales of our desktop processors , graphics processors and semi-custom soc products . we expect that international sales will continue to be a significant portion of total sales in the foreseeable future . substantially all of our sales transactions were denominated in u.s. dollars . financial condition liquidity and capital resources as of december 29 , 2018 , our cash , cash equivalents and marketable securities were $ 1.16 billion compared to $ 1.18 billion as of december 30 , 2017 . the percentage of cash and cash equivalents held domestically was 88 % as of december 29 , 2018 , and 95 % as of december 30 , 2017 . our operating , investing and financing activities for fiscal 2018 , 2017 and 2016 were as follows : replace_table_token_6_th our aggregate principal debt obligations were $ 1.5 billion and $ 1.7 billion as of december 29 , 2018 and december 30 , 2017 , respectively .
| results of operations we report our financial performance based on the following two reportable segments : the computing and graphics segment and the enterprise , embedded and semi-custom segment . additional information on our reportable segments is contained in note 15 : segment reporting of the notes to financial statements ( part ii , item 8 of this form 10-k ) . our operating results tend to vary seasonally . historically , first quarter pc product sales were generally lower than fourth quarter sales and with respect to our semi-custom soc products for game consoles our sales pattern usually reflects higher sales in the second and third quarters compared to the first and fourth quarters . the following table provides a summary of net revenue and operating income ( loss ) by segment for 2018 , 2017 and 2016 . replace_table_token_4_th computing and graphics computing and graphics net revenue of $ 4.1 billion in 2018 increased by 39 % , compared to $ 3.0 billion in 2017 , primarily as a result of a 15 % increase in average selling price and a 17 % increase in unit shipments . the increase in average selling price and unit shipments was primarily driven by higher demand for our ryzen processors . computing and graphics net revenue of $ 3.0 billion in 2017 increased by 50 % , compared to $ 2.0 billion in 2016 as a result of a 38 % increase in average selling price and a 1 % increase in unit shipments . the increase in the average selling price was primarily driven by ryzen desktop processor and radeon graphics products sales . the increase in unit shipments was primarily attributable to higher demand for our radeon graphics products . computing and graphics operating income was $ 470 million in 2018 compared to operating income of $ 92 million in 2017 .
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for a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations , please see item 1a . risk factors of this report . we assume no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise , unless required by law . introduction we are the only publicly-traded asset management company that focuses exclusively on etps and are one of the leading etp sponsors in the world based on assets under management , or aum , with aum of $ 54.1 billion globally as of december 31 , 2018. an etp is a pooled investment vehicle that holds a basket of securities , financial instruments or other assets and generally seeks to track ( index-based ) or outperform ( actively managed ) the performance of a broad or specific equity , fixed income or alternatives market segment , commodity or currency ( or an inverse or multiple thereof ) . etps are listed on an exchange with their shares traded in the secondary market at market prices , generally at approximately the same price as the net asset value of their underlying components . etp is an umbrella term that includes exchange-traded funds , or etfs , exchange-traded notes and exchange-traded commodities . we focus on creating etfs for investors that offer thoughtful innovation , smart engineering and redefined investing . we have launched many first-to-market etfs in the united states and pioneered alternative weighting methods commonly referred to as smart beta. however , our u.s. listed etfs are not beta , but rather an investment innovation we call modern alpha . our modern alpha approach combines the outperformance potential of active management with the benefits of passive management to offer investors cost-effective funds that are built to perform . through our operating subsidiaries , we provide investment advisory and other management services to our etps collectively offering etps covering equity , commodity , fixed income , leveraged and inverse , currency and alternative strategies . in exchange for providing these services , we receive advisory fee revenues based on a percentage of the etps ' average daily aum . our expenses are predominantly related to selling , operating and marketing our etps . we have contracted with third parties to provide certain operational services for the etps . we distribute our etps through all major channels within the asset management industry , including brokerage firms , registered investment advisers , institutional investors , private wealth managers and discount brokers primarily through our sales force . our sales efforts are not directed towards the retail segment but rather are directed towards financial or investment advisers that act as intermediaries between the end-client and us . we strive to deliver a better investing experience through innovative solutions . continued investments in technology-enabled services and our advisor solutions program , which includes portfolio construction , asset allocation , practice management services and wealth management technology via the advisorengine platform , have been made to differentiate us in the market , expand our distribution and further enhance our relationships with financial advisors . executive summary over the last three years , negative investor sentiment toward our two-largest etfs ( hedj and dxj ) has overshadowed steps we have taken to broaden the diversification of our aum flows . during this time , we have 45 experienced net outflows of $ 23.8 billion from hedj and dxj . however , u.s. net inflows excluding hedj and dxj over the same timeframe were $ 6.3 billion , which we attribute to organic growth , recent investments in technology-enabled services including the rollout of our advisor solutions program in the fourth quarter of 2017. the acquisition of etfs , which had approximately $ 17.6 billion of aum at closing , provided us with immediate scale in europe , an industry leading position in european listed gold and commodity products , greater aum diversification globally , and profitability within our international business segment . a substantial portion of aum of etfs are in products backed by gold . these products historically have been negatively correlated with hedj and dxj . while we therefore may experience improved stability of aum and lower overall aum volatility we can provide no assurance that this will be the case . our financial results have fluctuated along with the changes in our aum . revenues were $ 218.9 million , $ 228.3 million and $ 274.1 million in 2016 , 2017 and 2018 , respectively . our strategic focus remains on diversifying and stabilizing our asset base by fostering deeper relationships through technology-driven solutions , increasing penetration within existing distribution channels and expanding into new distribution channels , continuing to grow our international business , offering innovative products and selectively pursing acquisitions or other strategic transactions . in addition to completing the etfs acquisition , other business highlights for 2018 include the following : throughout the year , our model portfolios have been made available in varying capacities on the platforms of key bank , oranj , interactive brokers and another large independent broker-dealer , in addition to being previously made available on the td ameritrade and envestnet platforms . in april 2018 , our advisor solutions platform was named fund innovation of the year at the 2018 mutual fund industry awards . in july 2018 , our u.s. listed etfs and our advisor solutions program were made available on the no-transaction fee product platform of cetera financial group , the second largest independent financial advisor network in the nation . this allows for cetera 's network of independent broker-dealers to access our diverse line-up of etf products with no transaction fees . in july 2018 and again in february 2019 , we expanded our offerings of our u.s. listed etfs on the schwab etf one source platform , one of the largest commission-free etf programs in the industry . schwab clients can buy and sell 65 of our u.s. listed etfs through the platform . story_separator_special_tag this fee-based approach lends itself to the adviser selecting no-load , lower-fee financial products , and in our opinion , better aligns advisers with the interests of their clients . since etfs generally charge lower fees than mutual funds , we believe this model shift , which we anticipate will remain in place even though the fiduciary rule was vacated , will benefit the etf industry . as major brokerage firms and asset managers encourage their advisers to move towards fee-based models , we believe overall usage of etfs likely will increase . regulation best interest . in april 2018 , the sec introduced a three-part regulatory package that would ( i ) prohibit broker-dealers from putting the financial or other interests of the broker-dealer ahead of the retail customer ; ( ii ) require both investment advisers and broker-dealers to provide disclosure highlighting details about their services and fee structures ; and ( iii ) establish a federal fiduciary standard for investment advisers . rule 6c-11 . in june 2018 , the sec proposed this rule which would , among other things ( i ) allow most etfs to operate without first obtaining exemptive relief , reducing the time and costs needed to bring products to market ; ( ii ) provide greater flexibility with respect to aspects of etf operations that exist under exemptive relief issued in recent years , including the use of custom baskets for creation and redemption transactions ; and ( iii ) require additional disclosures regarding etfs ' trading costs , including certain bid-ask spread information . the proposed rule also would rescind existing exemptive relief for etfs that are eligible to rely on the proposed rule . as proposed , rule 6c-11 would level the playing field for new entrants in some respects . however , we believe that the barriers to success in the etf industry remain unaffected and we are well positioned to take advantage of the flexibility that the rule would provide . in addition , we believe that the heightened focus on fiduciary and best interest standards will continue to increase investor awareness of the inherent benefits that etfs providetransparency , tax efficiency and liquiditywhich we believe will expand etfs ' competitiveness 49 generally ; and while we are not immune to fee pressure , we believe our proprietary approach and self-indexing differentiates us from the competition . additionally , while the shift toward fee-based models continues to take hold in the u.s. market as described above , regulatory initiatives in international markets are accelerating this trend in new markets . we believe regulations that discourage a commission model and mandate transparency of fees are conducive for etf growth . components of operating revenue advisory fees substantially all of our revenues are comprised of advisory fees we earn from our etps . these advisory fees are calculated based on a percentage of the etps ' average daily net assets . our weighted average fee rates by product category are as follows : commodity & currency : 43bps leveraged & inverse : 88bps international equity : 53bps fixed income : 24bps u.s. equity : 34bps alternatives : 50bps emerging market equity : 66bps we determine the appropriate advisory fee to charge for our etps based on the cost of operating each etp considering the types of securities the etps will hold , fees third-party service providers will charge us for operating the etps and our competitors ' fees for similar etps . from time to time , we implement voluntary waivers of a portion of our advisory fee . in addition , we earn a fee based on daily aggregate aum of our etps in exchange for bearing certain fund expenses . our advisory fee revenues may fluctuate based on general stock market trends , which include market value appreciation or depreciation , currency fluctuations against the u.s. dollar , increased competition and level of inflows or outflows from our etps . other income other income includes creation/redemption fees earned on our european non-ucits products and fees from licensing our indexes to third parties . components of operating expenses our operating expenses consist primarily of costs related to selling , operating and marketing our etps as well as the infrastructure needed to run our business . compensation and benefits employee compensation and benefits expenses are expensed when incurred and include salaries , incentive compensation , and related benefit costs . virtually all our employees receive incentive compensation that is based on our operating results as well as their individual performance . therefore , a portion of this expense will fluctuate with our business results . to attract and retain qualified personnel , we must maintain competitive employee compensation and benefit plans . we would expect changes in employee compensation and benefits expense to be correlated with changes in our revenues and net inflows . also included in compensation and benefits are costs related to equity awards granted to our employees . our executive management and board of directors strongly believe that equity awards are an important part of our 50 employees ' overall compensation package and that incentivizing our employees with equity in the company aligns the interest of our employees with that of our stockholders . we use the fair value method in recording compensation expense for equity based awards . under the fair value method , compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the vesting period .
| segment results the table below presents the net revenues , operating expenses and income before taxes of our u.s. business and international business reportable segments . replace_table_token_19_th 69 year ended december 31 , 2018 compared to year ended december 31 , 2017 u.s. business segment operating revenues of the u.s. business segment decreased 5.8 % from $ 217.5 million during the year ended december 31 , 2017 to $ 204.9 million in the comparable period in 2018. the decrease was attributable to net outflows from our two largest u.s. listed etfs , hedj and dxj , market depreciation and lower average u.s. listed etf advisory fees due to a change in product mix . these decreases were partly offset by net inflows into certain of our u.s. listed etfs ( including within our fixed income , u.s. equity , emerging markets and alternative strategy etfs ) . our average u.s. listed etf advisory fee was 0.48 % and 0.50 % during the years ended december 31 , 2018 and 2017 , respectively . operating expenses of the u.s. business segment decreased 2.5 % from $ 156.3 million during the year ended december 31 , 2017 to $ 152.4 million in the comparable period in 2018 due primarily to lower incentive compensation , partly offset by higher acquisition-related costs , higher third-party distribution fees and higher professional fees . other income/ ( expenses ) of the u.s. business segment were ( $ 14.6 ) million during the year ended december 31 , 2018 , which included impairments of ( $ 17.4 ) million and interest expense of ( $ 0.6 ) million . these expenses were partly offset by interest income of $ 3.1 million and other gains , net of $ 0.3 million . other income/ ( expenses ) were $ 9.3 million during the year ended december 31 , 2017 which included a settlement gain of $ 6.9 million and interest income of $ 2.8 million .
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the reserve is calculated in a manner similar to the general reserve for non-covered loans , while also considering the timing and likelihood that story_separator_special_tag the following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of bankunited , inc. and its subsidiary ( the `` company '' , `` we '' , `` us '' and `` our '' ) and should be read in conjunction with the consolidated financial statements , accompanying footnotes and supplemental financial data included herein . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections entitled `` forward-looking statements '' and `` risk factors . '' we assume no obligation to update any of these forward-looking statements . overview story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 28.32 at december 31 , 2017 , a 22.0 % increase from december 31 , 2016 . tangible book value per common share increased by 22.8 % over the same period , to $ 27.59 at december 31 , 2017 . these increases were impacted by the discrete income tax benefit recognized in the year ended december 31 , 2017 . 31 the company 's and the bank 's capital ratios exceeded all regulatory “ well capitalized ” guidelines . the charts below present the company 's and the bank 's regulatory capital ratios compared to regulatory guidelines as of december 31 , 2017 and 2016 : bankunited , inc : bankunited , n.a . : strategic priorities management has identified the following strategic priorities for our company : our strategic focus emphasizes safety and soundness , long-term profitability and sustainable balance sheet growth . 32 growth in core deposit relationships , further optimization of our deposit mix and management of the cost of funds , while targeting a loan to deposit ratio of under 100 % . we anticipate deposit growth exceeding loan growth for 2018 . continued organic loan growth in florida and the tri-state markets , both of which we believe to be attractive banking markets , as well as across our national lending platforms . we seek to maintain a loan portfolio diversified across geographies and product classes , predicated on a culture of disciplined credit underwriting . focus on a scalable and efficient operating model . we will opportunistically evaluate potential strategic acquisitions of financial institutions and complementary businesses . challenges confronting our company include : competitive market conditions for both loans and deposits in our primary geographic footprint may impact our ability to execute our balance sheet growth and profitability strategy . managing the cost of funds while growing deposits in a competitive , rising interest rate environment presents a strategic challenge . adding interest earning assets to the balance sheet at current market rates as higher yielding covered loans run off is likely to continue to put pressure on our net interest margin . uncertainty about the regulatory environment may present challenges in the execution of our business strategy and the management of non-interest expense . for additional discussion , see `` item 1. business—regulation and supervision . '' critical accounting policies and estimates our consolidated financial statements are prepared in accordance with gaap and follow general practices within the banking industry . application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances . these assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent , objective sources . we evaluate our estimates on an ongoing basis . use of alternative assumptions may have resulted in significantly different estimates . actual results may differ from these estimates . accounting policies are an integral part of our financial statements . a thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position . we believe that the critical accounting policies and estimates discussed below involve a heightened level of management judgment due to the complexity , subjectivity and sensitivity involved in their application . note 1 to the consolidated financial statements contains a further discussion of our significant accounting policies . allowance for loan and lease losses the alll represents management 's estimate of probable loan losses inherent in the company 's loan portfolio . determining the amount of the alll is considered a critical accounting estimate because of its complexity and because it requires significant judgment and estimation . estimates that are particularly susceptible to change that may have a material impact on the amount of the alll include : the amount and timing of expected future cash flows from aci loans and impaired loans ; the value of underlying collateral , which impacts loss severity and certain cash flow assumptions ; the selection of proxy data used to calculate loss factors ; our evaluation of loss emergence and historical loss experience periods ; our evaluation of the risk profile of various loan portfolio segments , including internal risk ratings ; and our selection and evaluation of qualitative factors . note 1 to the consolidated financial statements describes the methodology used to determine the alll . 33 accounting for acquired loans and the fdic indemnification asset a significant portion of the covered loans are residential aci loans . the accounting for aci loans requires the company to estimate the timing and amount of cash flows to be collected from these loans and to continually update estimates of the cash flows expected to be collected over the lives of the loans . story_separator_special_tag the mix of interest bearing liabilities is influenced by the company 's liquidity profile , management 's assessment of the desire for lower cost funding sources weighed against relationships with customers and growth requirements and is impacted by competition for deposits in the company 's markets and the availability and pricing of other sources of funds . net interest income is also impacted by the accounting for aci loans acquired in conjunction with the fsb acquisition . aci loans were initially recorded at fair value , measured based on the present value of expected cash flows . the excess of expected cash flows over carrying value , known as accretable yield , is recognized as interest income over the lives of the underlying loans . accretion related to aci loans is expected to continue to positively impact net interest income , the net interest margin and interest rate spread until termination of the single family shared-loss agreement , although the magnitude of the positive impact on the net interest margin and interest rate spread is expected to decline as aci loans comprise a declining percentage of total loans . the proportion of total loans represented by aci loans is declining as the aci loans are resolved and new loans are added to the portfolio . aci loans represented 2.4 % , 3.0 % and 4.6 % of total loans , including premiums , discounts and deferred fees and costs , at december 31 , 2017 , 2016 and 2015 , respectively . the impact of aci loan accounting on net interest income makes it difficult to compare our net interest margin and interest rate spread to those reported by other financial institutions . 35 the following table presents , for the years ended december 31 , 2017 , 2016 and 2015 , information about ( i ) average balances , the total dollar amount of taxable equivalent interest income from earning assets and the resultant average yields ; ( ii ) average balances , the total dollar amount of interest expense on interest bearing liabilities and the resultant average rates ; ( iii ) net interest income ; ( iv ) the interest rate spread ; and ( v ) the net interest margin . non-accrual and restructured loans are included in the average balances presented in this table ; however , interest income foregone on non-accrual loans is not included . interest income , yields , spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federal income taxes , at a federal tax rate of 35.0 % ( dollars in thousands ) : replace_table_token_7_th ( 1 ) on a tax-equivalent basis . the tax-equivalent adjustment for tax-exempt loans was $ 29.4 million , $ 23.3 million and $ 15.9 million , and the tax-equivalent adjustment for tax-exempt investment securities was $ 13.1 million , $ 10.5 million and $ 4.4 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . ( 2 ) at fair value except for securities held to maturity . the tax cuts and jobs act of 2017 was signed into law on december 22 , 2017 , reducing the statutory corporate federal income tax rate from 35 percent to 21 percent , effective january 1 , 2018. had this reduction in the federal income tax rate been applied in the determination of the tax-equivalent adjustments above for the year ended december 31 , 2017 , the yield on non-covered loans and total loans would have been reduced by 0.07 % , the yield on investment securities would have been reduced by 0.09 % and the yield on total interest earning assets , the interest rate spread and the net interest margin would each have been reduced by 0.08 % . 36 increases and decreases in interest income , calculated on a tax-equivalent basis , and interest expense result from changes in average balances ( volume ) of interest earning assets and liabilities , as well as changes in average interest rates . the following table shows the effect that these factors had on the interest earned on our interest earning assets and the interest incurred on our interest bearing liabilities for the years indicated . the effect of changes in volume is determined by multiplying the change in volume by the previous year 's average rate . similarly , the effect of rate changes is calculated by multiplying the change in average rate by the previous year 's volume . changes applicable to both volume and rate have been allocated to volume ( in thousands ) : replace_table_token_8_th year ended december 31 , 2017 compared to year ended december 31 , 2016 net interest income , calculated on a tax-equivalent basis , was $ 992.7 million for the year ended december 31 , 2017 compared to $ 904.2 million for the year ended december 31 , 2016 , an increase of $ 88.5 million . the increase in net interest income was comprised of an increase in tax-equivalent interest income of $ 153.8 million , offset by an increase in interest expense of $ 65.4 million . the increase in tax-equivalent interest income was comprised primarily of a $ 111.8 million increase in interest income from loans and a $ 40.0 million increase in interest income from investment securities . increased interest income from loans was attributable to a $ 2.0 billion increase in the average balance and a 0.04 % increase in the tax-equivalent yield to 5.15 % for the year ended december 31 , 2017 from 5.11 % for the year ended december 31 , 2016 . offsetting factors contributing to the increase in the yield on loans included : the tax-equivalent yield on non-covered loans increased to 3.75 % for the year ended december 31 , 2017 from 3.58 % for the year ended december 31 , 2016 . the most significant factor contributing to the increased yield on non-covered loans was increases in market interest rates .
| performance highlights in evaluating our financial performance , we consider the level of and trends in net interest income , the net interest margin , levels and composition of non-interest income and non-interest expense , performance ratios such as the return on average equity and return on average assets and asset quality ratios , particularly for the non-covered portfolio , including the ratio of non-performing loans to total loans , non-performing assets to total assets , and portfolio delinquency and charge-off trends . we consider growth in earning assets and deposits , trends in funding mix and cost of funds . we analyze these ratios and trends against our own historical performance , our budgeted performance and the financial condition and performance of comparable financial institutions . performance highlights include : net income for the year ended december 31 , 2017 was $ 614.3 million , or $ 5.58 per diluted share , compared to $ 225.7 million , or $ 2.09 per diluted share , for the year ended december 31 , 2016 . earnings for the year ended december 31 , 2017 generated a return on average stockholders ' equity of 23.36 % and a return on average assets of 2.13 % . the company recognized a discrete income tax benefit of $ 327.9 million during the year ended december 31 , 2017 , inclusive of an expected federal benef it of $ 295.0 million , est imated state benefits of $ 24.2 million and estimated interest of $ 8.7 million . excluding the effect of this discrete income tax benefit and related professional fees , net income for the year ended december 31 , 2017 was $ 291.3 million , diluted earnings per share was $ 2.65 , return on average stockholders ' equity was 11.08 % and return on average assets was 1.01 % .
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the wind down was completed in december 2015 and as such inverter engineering , manufacturing story_separator_special_tag certain statements set forth below under this caption constitute forward-looking statements . see “ business — special note regarding forward-looking statements ” in item 1 of this annual report on form 10-k for additional factors relating to such statements , and see “ risk factors ” in item 1a for a discussion of certain risks applicable to our business , financial condition and results of operations . overview we design , manufacture , sell , and support power conversion products that transform power into various usable forms . our products enable manufacturing processes that use thin film for various products , such as semiconductor devices , flat panel displays , thin film renewables , architectural glass , optical coating and consumer products decorative and functional coating . we also supply thermal instrumentation products for advanced temperature control in the thin film process for these same markets . our power control modules provide power control solutions for industrial applications where heat treatment and processing are used such as glass manufacturing , metal fabrication and treatment , material and chemical processing . our high voltage power supplies and modules are used in applications such as semiconductor ion implantation , scanning electron microscopy , chemical analysis such as mass spectrometry and various applications using x-ray technology and electron guns for both analytical and processing applications . our network of global service support centers provides a recurring revenue opportunity as we offer repair services , conversions , upgrades , and refurbishments and used equipment to companies using our products . as of december 31 , 2015 , we have discontinued our inverter engineering , manufacturing and sales of our inverter product line . as such , all inverter product revenues , costs , assets and liabilities are reported in `` loss from discontinued operations , net of income taxes '' in all periods in our consolidated statements of operations . as always , we enter 2016 looking to strengthen our position and grow revenue through new products , design wins , new applications and geographical growth , continuously emphasizing margin expansion , cash generation and cost improvement . 25 critical accounting estimates the preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) requires management to make judgments , assumptions , and estimates that affect the amounts reported . note 1. operations and summary of significant accounting policies and estimates in item 8 `` financial statements and supplementary data '' describes the significant accounting policies used in the preparation of our consolidated financial statements . the accounting positions described below are significantly affected by critical accounting estimates . such accounting positions require significant judgments , assumptions , and estimates to be used in the preparation of the consolidated financial statements , actual results could differ materially from the amounts reported based on variability in factors affecting these statements . revenue recognition we recognize revenue from product sales upon transfer of title and risk of loss to our customers provided that there is evidence of an arrangement , the sales price is fixed or determinable , and the collection of the related receivable is reasonably assured . in most transactions , we have no obligations to our customers after the date products are shipped , other than pursuant to warranty obligations . shipping and handling fees billed to customers , if any , are recognized as revenue . the related shipping and handling costs are recognized in cost of sales . we maintain a credit approval process and we make significant judgments in connection with assessing our customers ' ability to pay at the time of shipment . despite this assessment , from time to time , our customers are unable to meet their payment obligations . we continuously monitor our customers ' credit worthiness , and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified . while such credit losses have historically been within our expectations and the provisions established , a significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results . additionally , if our credit loss rates prove to be greater than we currently estimate , we record additional reserves for doubtful accounts . inventory we value our inventory at the lower of cost ( first-in , first-out method ) or market . we regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value , if less than cost , based primarily on our estimated forecast of product demand . demand for our products can fluctuate significantly . our industry is subject to technological change , new product development , and product technological obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand . therefore , any significant unanticipated changes in demand or technological developments in excess of our current estimates could have a significant impact on the value of our inventory and our reported operating results . warranty costs we provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue . we offer warranty coverage for a majority of our precision power products for periods typically ranging from 12 to 24 months after shipment . we warranted our inverter products for five to ten years and provided the option to purchase additional warranty coverage up to 20 years . the warranty expense accrued related to our standard inverter product warranties is now considered part of our discontinued operations and is recorded as such on our consolidated balance sheets . story_separator_special_tag 4 income taxes in item 8 `` financial statements and supplementary data . '' business environment and trends semiconductors investment in semiconductor capital equipment spending worldwide was essentially flat year over year in 2015. after entering into 2015 with a record first quarter sales to our semiconductor oem customers that continued near this level through q3 , there was a decrease in investments in q4 . even as the semi equipment industry experienced this pause , the trends of increased usage of mobility , connectivity and the cloud continue to increase demand for higher density memory , high speed logic devices and lower power consumption , which we expect to continue going forward . capital spending across the industry should lend itself to next-generation technologies , such as 3d devices , 3d packaging and multi-patterning in logic and foundry . the industry 's transition to 3d devices is generating increasing demand for rf power supplies and accessories . the growing number of steps associated with the deposition and etch processes is driving an increase in the number of process chambers per fab and higher content of more advanced power solutions per chamber . as etching processes become more challenging due to increasing aspect ratios in advanced 3d devices , more advanced rf technology that includes pulsing and increased control and instrumentation is needed . we are capitalizing on these trends and providing a broader range of more complex combinations of rf power and frequencies and launching more capable matching networks to manage and control the delivered power . industrial capital equipment in industrial applications , we remain focused on taking our products to new applications and world regions , increasing our penetration into asia , europe , and north america . we made gains across an array of industries ranging from defense to 27 analytical equipment . we believe large area lcd demand will continue in 2016 with an improved outlook for larger and higher definition tvs . we believe our power conversion technologies for both ac and dc sputtering are well-positioned in these markets and we will benefit from increased demand as panels with thin film technologies improve efficiencies . throughout 2015 , demand for our products used in many industrial thin film coating markets increased , particularly in industrial manufacturing areas for products such as automotive parts , machine tools , electro-magnetic interference films , aesthetic , optical and tribological coatings . we expect this demand to continue in 2016. ae will continue to strengthen its position in these markets through internal product development and potential acquisition of complimentary product lines . these complimentary products will also allow us to participate in emerging and established precision power conversion applications by delivering customers value through improved process control with more flexibility to address diverse application requirements . story_separator_special_tag style= '' line-height:120 % ; padding-top:9px ; text-align : justify ; text-indent:57px ; font-size:10pt ; '' > our gross profit was $ 216.9 million or 52.3 % of revenue in 2015 compared to $ 188.1 million or 51.2 % of revenue in 2014 . the increase was primarily driven by an increase in sales as we expand into new markets with higher margins and continue to drive design wins . gross profit was $ 188.1 million , or 51.2 % of revenue in 2014 and $ 145.6 million , or 48.6 % of revenue in 2013 . the increase in terms of absolute dollars was a result of higher sales . additionally , continuous improvement on manufacturing efficiencies is driving higher revenue . operating expense the following table summarizes our operating expenses as a percentage of sales for the years ended 2015 , 2014 and 2013 ( in thousands ) : replace_table_token_8_th we expect to continue to leverage our selling , general and administrative costs as revenues grow and expect to increase our investment in research and development . in june 2015 , we committed to a restructuring plan in relation to the wind down of our inverter business which concluded december 31 , 2015 and has been reflected as discontinued operation as of december 31 , 2015 . see note 3. discontinued operations in item 8 `` financial statements and supplementary data . '' as a result of discontinued operations , amounts of general corporate overhead which had previously been reflected in our inverter segment have been included in the total operating expense in the table above in all periods presented . in april 2014 , we committed to a restructuring plan to take advantage of additional cost savings opportunities in connection with our acquisitions and realignment to a single organizational structure based on product line . the plan called for consolidating certain facilities and rebranding of products to allow us to use our resources more efficiently . this plan was completed in the fourth quarter of 2014. in april 2013 , we committed to a restructuring plan to take advantage of additional cost saving opportunities in connection with our acquisition of refusol . the plan called for consolidating certain facilities , further centralizing our manufacturing and rationalizing certain products to most effectively meet customer needs . all activities under this restructuring plan were completed prior to december 31 , 2013. research and development the markets we serve constantly present opportunities to develop products for new or emerging applications and require technological changes driving for higher performance , lower cost , and other attributes that will advance our customers ' products . we believe that continued and timely development of new and differentiated products , as well as enhancements to existing products to support customer requirements , are critical for us to compete in the markets we serve . accordingly , we devote significant personnel and financial resources to the development of new products and the enhancement of existing products , and we expect these investments to continue . all of our research and development costs have been expensed as incurred .
| results of operations our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward . our results of operations include the results of pcm , hitek , and ultravolt from their respective acquisition dates of : january 27 , 2014 , april 12 , 2014 , and august 4 , 2014 , through december 31 , 2014 and the full year ended december 31 , 2015 . this discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , in item 8 of this annual report on form 10-k. reporting in fiscal 2015 as of december 31 , 2015 , advanced energy is organized as a single business unit , as we discontinued our inverter products , manufacturing and sales as of december 31 , 2015. see note 3. discontinued operations in item 8 `` financial statements and supplementary data . '' all prior periods disclosed have been recast to reflect continuing operations . results of discontinued operations are reflected in the `` loss from discontinued operations , net of income taxes '' in our consolidated statements of operations . we principally serve our oem and end customers in the semiconductor , flat panel display , high voltage , solar panel , and other capital equipment markets .
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story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and related notes thereto in item 8 . financial statements and supplementary data. the discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances . actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties , including those identified in uncertainty of forward-looking statements and information below and in item 1a . risk factors. introduction we are a leading provider of specialty contracting services , offering infrastructure solutions primarily to the electric power and natural gas and oil pipeline industries in north america and in select international markets . the services we provide include the design , installation , upgrade , repair and maintenance of infrastructure within each of the industries we serve , such as electric power transmission and distribution networks , substation facilities , renewable energy facilities and pipeline transmission and distribution systems and facilities . we also own fiber optic telecommunications infrastructure in select markets and license the right to use these point-to-point fiber optic telecommunications facilities to customers . we report our results under three reportable segments : ( 1 ) electric power infrastructure services , ( 2 ) natural gas and pipeline infrastructure services and ( 3 ) fiber optic licensing and other . this structure is generally focused on broad end-user markets for our services . our consolidated revenues for the year ended december 31 , 2012 were approximately $ 5.92 billion , of which 71 % was attributable to the electric power infrastructure services segment , 26 % to the natural gas and pipeline infrastructure services segment and 3 % to the fiber optic licensing and other segment . our customers include many of the leading companies in the industries we serve . we have developed strong strategic alliances with numerous customers and strive to develop and maintain our status as a preferred vendor to our customers . we enter into various types of contracts , including competitive unit price , hourly rate , cost-plus ( or time and materials basis ) , and fixed price ( or lump sum basis ) , the final terms and prices of which we frequently negotiate with the customer . although the terms of our contracts vary considerably , most are made on either a unit price or fixed price basis in which we agree to do the work for a price per unit of work performed ( unit price ) or for a fixed amount for the entire project ( fixed price ) . we complete a substantial majority of our fixed price projects , other than certain large transmission projects , within one year , while we frequently provide maintenance and repair work under open-ended unit price or cost-plus master service agreements that are renewable periodically . we recognize revenue on our unit price and cost-plus contracts as units are completed or services are performed . for our fixed price contracts , we record revenues as work on the contract progresses on a percentage-of-completion basis . under this method , revenue is recognized based on the percentage of total costs incurred to date in proportion to total estimated costs to complete the contract . fixed price contracts generally include retainage provisions under which a percentage of the contract price is withheld until the project is complete and has been accepted by our customer . for internal management purposes , we are organized into three internal divisions , namely , the electric power division , the natural gas and pipeline division and the fiber optic licensing division . these internal divisions are closely aligned with the reportable segments described above based on the predominant type of work provided by the operating units within each division . reportable segment information , including revenues and operating income by type of work , is gathered from each operating unit for the purpose of evaluating segment performance in support of our market strategies . these classifications of our operating unit revenues by type of work for segment reporting purposes can at times 36 index to financial statements require judgment on the part of management . our operating units may perform joint infrastructure service projects for customers in multiple industries , deliver multiple types of infrastructure services under a single customer contract or provide services across industries , for example , joint trenching projects to install distribution lines for electric power and natural gas customers . our integrated operations and common administrative support at each of our operating units requires that certain allocations , including allocations of shared and indirect costs , such as facility costs , indirect operating expenses including depreciation , and general and administrative costs , be made to determine operating segment profitability . corporate costs , such as payroll and benefits , employee travel expenses , facility costs , professional fees , acquisition costs and amortization related to certain intangible assets are not allocated . the electric power infrastructure services segment provides comprehensive network solutions to customers in the electric power industry . services performed by the electric power infrastructure services segment generally include the design , installation , upgrade , repair and maintenance of electric power transmission and distribution networks and substation facilities along with other engineering and technical services . this segment also provides emergency restoration services , including the repair of infrastructure damaged by inclement weather , the energized installation , maintenance and upgrade of electric power infrastructure utilizing unique bare hand and hot stick methods and our proprietary robotic arm technologies , and the installation of smart grid technologies on electric power networks . in addition , this segment designs , installs and maintains renewable energy generation facilities , in particular solar and wind , and related switchyards and transmission networks . story_separator_special_tag the results of valard have been included in our consolidated financial statements beginning on october 25 , 2010. seasonality ; fluctuations of results ; economic conditions our revenues and results of operations can be subject to seasonal and other variations . these variations are influenced by weather , customer spending patterns , bidding seasons , project timing and schedules , and holidays . typically , our revenues are lowest in the first quarter of the year because cold , snowy or wet conditions can cause delays on projects . in addition , many of our customers develop their capital budgets for the coming year during the first quarter and do not begin infrastructure projects in a meaningful way until their capital budgets are finalized . second quarter revenues are typically higher than those in the first quarter , as some projects begin , but continued cold and wet weather can often impact second quarter productivity . third quarter revenues are typically the highest of the year , as a greater number of projects are underway , and weather is more accommodating . generally , revenues during the fourth quarter of the year are lower than the third quarter but higher than the second quarter . many projects are completed in the fourth quarter , and revenues are often impacted positively by customers seeking to spend their capital budgets before the end of the year ; however , the holiday season and inclement weather can sometimes cause delays , reducing revenues and increasing costs . any 38 index to financial statements quarter may be positively or negatively affected by atypical weather patterns in a given part of the country , such as severe weather , excessive rainfall or warmer winter weather , making it difficult to predict these variations and their effect on particular projects quarter to quarter . additionally , our industry can be highly cyclical . as a result , our volume of business may be adversely affected by declines or delays in new projects in various geographic regions in the united states and canada . project schedules , particularly in connection with larger , longer-term projects , can also create fluctuations in the services provided , which may adversely affect us in a given period . the financial condition of our customers and their access to capital , variations in the margins of projects performed during any particular period , regional , national and global economic and market conditions , timing of acquisitions , the timing and magnitude of acquisition and integration costs associated with acquisitions , dispositions , fluctuations in our equity in earnings of unconsolidated affiliates and interest rate fluctuations are examples of items that may also materially affect quarterly results . accordingly , our operating results in any particular period may not be indicative of the results that can be expected for any other period . we and our customers continue to operate in an uncertain business environment , with heightened regulatory and environmental requirements , stringent permitting processes and only gradual recovery in the economy from recessionary levels . we are closely monitoring our customers and the effect that changes in economic and market conditions have had or may have on them . certain of our customers have reduced or delayed spending over the past three years , which we attribute primarily to regulatory and permitting hurdles and negative economic and market conditions , and we anticipate that these issues may continue to affect demand for some of our services in the near-term . however , we believe that most of our customers , many of whom are regulated utilities , remain financially stable in general and will be able to continue with their business plans in the long-term . you should read outlook and understanding margins for additional discussion of trends and challenges that may affect our financial condition , results of operations and cash flows . understanding margins our gross margin is gross profit expressed as a percentage of revenues , and our operating margin is operating income expressed as a percentage of revenues . cost of services , which is subtracted from revenues to obtain gross profit , consists primarily of salaries , wages and benefits to employees , depreciation , fuel and other equipment expenses , equipment rentals , subcontracted services , insurance , facilities expenses , materials and parts and supplies . selling , general and administrative expenses and amortization of intangible assets are then subtracted from gross profit to obtain operating income . various factors some controllable , some not impact our margins on a quarterly or annual basis . seasonal and geographical . as discussed previously , seasonal patterns can have a significant impact on margins . generally , business is slower in the winter months versus the warmer months of the year , resulting in lower productivity and consequently reducing our ability to cover fixed costs . this can be offset somewhat by increased demand for electrical service and repair work resulting from severe weather . additionally , project schedules , including when projects begin and when they are completed , may impact margins . the mix of business conducted in different parts of the country will also affect margins , as some parts of the country offer the opportunity for higher margins than others due to the geographic characteristics associated with the physical location where the work is being performed . such characteristics include whether the project is performed in an urban versus a rural setting or in a mountainous area or in open terrain . site conditions , including unforeseen underground conditions , can also impact margins . weather . adverse or favorable weather conditions can impact gross margins in a given period . for example , snow or rainfall in the areas in which we operate may negatively impact our revenues and margins due to reduced productivity , as projects may be delayed or temporarily placed on hold until weather conditions improve .
| consolidated results replace_table_token_7_th 2012 compared to 2011 revenues . revenues increased $ 1.73 billion , or 41.2 % , to $ 5.92 billion for the year ended december 31 , 2012 , primarily due to an increase in the number and size of electric and natural gas transmission projects as a result of overall increases in capital spending by our customers . electric power infrastructure services revenues increased $ 1.18 billion , or 39.2 % , to $ 4.21 billion and natural gas and pipeline infrastructure services revenues 41 index to financial statements increased $ 523.5 million , or 51.8 % , to $ 1.53 billion for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011. also contributing to the overall revenue increase was the contribution of $ 231.6 million in revenues from acquired businesses and an increase of $ 77.2 million in revenues from emergency restoration services during 2012 as compared to 2011. gross profit . gross profit increased $ 376.0 million , or 66.9 % , to $ 937.7 million for the year ended december 31 , 2012. this increase was primarily due to the impact of higher overall revenues earned across all segments during the current period . gross profit as a percentage of revenues increased to 15.8 % for the year ended december 31 , 2012 from 13.4 % for the year ended december 31 , 2011. contributing to the increase in gross margin from 2011 to 2012 were overall performance improvements across all segments during the year ended december 31 , 2012. in addition , the higher revenues earned during the current period also enhanced our ability to cover operating overhead costs .
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these statements involve known and unknown risks , uncertainties and other 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 . these statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties . factors that may cause our actual results to differ materially from those in the forward-looking statements include those factors described in item 1a . risk factors beginning on page 14 of this annual report on form 10-k. you should carefully review all of these factors , as well as the comprehensive discussion of forward-looking statements on page 1 of this annual report on form 10-k. 32 overview harvard bioscience consists of a lsrt business and a rmd business . our strategy for the lsrt segment focuses on creating value through combining tuckunder acquisitions with organic growth and operational improvements . in july 2011 , we acquired the preclinical business unit of cma microdialysis ab . in february 2012 , we acquired ahn biotechnologie gmbh . our lsrt strategy is to have a broad range of highly specialized but relatively inexpensive products that have strong positions in niche markets in life science research . we believe that : having a broad product offering reduces the risk of being dependent on a single technology ; having relatively inexpensive products reduces the volatility associated with expensive capital equipment ; and focusing on niche markets reduces head-to-head competition with the major instrument companies . we seek to grow this range of products through a combination of organic growth driven by internal development of new products , direct marketing , distribution channel expansion and the acquisition of closely related products . we use acquisitions to expand our product offerings because we believe we can use our well-established brands and distribution channels to accelerate the growth of these acquired products . we also believe that our expertise in operational management frequently allows us to improve profitability at acquired companies . in addition to driving growth in our core research markets , we have been investing to create new products to address what we believe is a long term growth opportunity in the emerging field of regenerative medicine . regenerative medicine is using stem cells to repair damaged organs and to grow organs outside the body for transplant . the u.s. department of health and human services has projected that the u.s. market for regenerative medicine may be $ 100 billion in the coming years . the government 's estimate appears to include the value of all regenerative medicine protocols and therapies , including potential cost savings versus current methodologies . our strategy is not to become a therapeutics company but instead to provide tools to researchers and clinicians in the field of regenerative medicine . these new tools currently fall into two main categories : bioreactors and synthetic scaffolds for growing tissue and organs outside the body ; and injectors for stem cell therapy . these new tools we are creating are being built on our existing technologiessuch as our market leading harvard apparatus precision syringe pumps and market leading hugo-sachs isolated organ systems . our strategy in our rmd business is to ( i ) create devices in collaboration with leading surgeons , researchers and clinicians , ( ii ) build these devices using our existing technologies and brands in an effort to reduce the investment needed to get the devices to market , and ( iii ) develop devices with significant medical value to allow us to participate on a per-procedure basis . our first regenerative medicine tool , the inbreath hollow organ bioreactor , was used to perform the world 's first human transplant of a regenerated bronchus . dr. paolo macchiarini et al reported this success in the lancet , a leading general medicine journal , in november 2008. we have licensed this product from dr. macchiarini 's team , and worked to make it a commercial device . we believe that it is the world 's first commercially available bioreactor that has been used to perform a human transplant of a regenerated organ . we believe it marks an important milestone in the development of the regenerative medicine field as the tools evolve from concepts to commercial quality products . during the first half of 2010 , one of our collaborators , dr. harald ott at massachusetts general hospital ( mgh ) succeeded in regenerating a lung and subsequently transplanting it into a rat . in collaboration with dr. ott and mgh , we designed and developed a novel bioreactor , lb-2 solid organ bioreactor , that was used to grow the lung . the work was published online in nature medicine in july 2010. the bioreactor used by dr. ott was a modified version of one of our market leading hugo sachs isolated organ systems . 33 in june 2011 , the inbreath bioreactor was used for the world 's first successful transplantation of a synthetic tissue engineered windpipe . for the first time in history , a patient was given a new trachea made from a synthetic scaffold seeded with his own stem cells in a bioreactor . the cells were grown on the scaffold inside the bioreactor for two days before transplantation into the patient . because the cells used to regenerate the trachea were the patient 's own , there has been no rejection of the transplant , and the patient is not taking immunosuppressive drugs . the patient had been suffering from late stage trachea cancer , which before this surgery would have been inoperable , and is now alive and well twenty months after the surgery . the operation was performed at the karolinska university hospital in huddinge , stockholm , by dr. paolo macchiarini of the karolinska university hospital and karolinska institutet , and colleagues . story_separator_special_tag our end user customers are research scientists at pharmaceutical and biotechnology companies , universities and government laboratories . revenue from catalog sales in any period is influenced by the amount of time elapsed since the last mailing of the catalog , the number of catalogs mailed and the number of new items included in the catalog . we launched our latest comprehensive catalog in march 2010 , with approximately 850 pages , 11,000 products and approximately 65,000 copies printed . revenues from direct sales to end users represented approximately 57 % and 58 % of our revenues for the years ended december 31 , 2012 and 2011 , respectively . products sold under brand names of distributors , including ge healthcare , are typically priced in the range of $ 5,000- $ 15,000. they are mainly scientific instruments like spectrophotometers and plate readers that analyze light to detect and quantify a wide range of molecular and cellular processes , or apparatus like gel electrophoresis units . we also use distributors for both our catalog products and our higher priced products , for sales in locations where we do not have subsidiaries or where we have distributors in place for acquired businesses . for the years ended december 31 , 2012 and 2011 , approximately 43 % and 42 % , respectively , of our revenues were derived from sales to distributors . for the year ended december 31 , 2012 , approximately 67 % of our revenues were derived from products we manufacture ; approximately 10 % were derived from complementary products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular experiment and approximately 23 % were derived from distributed products sold under our brand names . for the year ended december 31 , 2011 , approximately 62 % of our revenues were derived from products we manufacture and approximately 13 % were derived from complementary products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular experiment and approximately 25 % were derived from distributed products sold under our brand names . 35 for the years ended december 31 , 2012 and 2011 , approximately 41 % of our revenues were derived from sales made by our non-u.s. operations . a large portion of our international sales during these periods consisted of sales to ge healthcare , the distributor for our spectrophotometers and plate readers . ge healthcare distributes these products to customers around the world , including to many customers in the united states , from its distribution center in upsalla , sweden . as a result , we believe our international sales would have been a lower percentage of our revenues if we had shipped our products directly to our end-users . changes in the relative proportion of our revenue sources between catalog sales , direct sales and distribution sales are primarily the result of a different sales proportion of acquired companies . cost of product revenues . cost of product revenues includes material , labor and manufacturing overhead costs , obsolescence charges , packaging costs , warranty costs , shipping costs and royalties . our cost of product revenues may vary over time based on the mix of products sold . we sell products that we manufacture and products that we purchase from third parties . the products that we purchase from third parties have a higher cost of product revenues as a percent of revenue because the profit is effectively shared with the original manufacturer . we anticipate that our manufactured products will continue to have a lower cost of product revenues as a percentage of revenues as compared with the cost of non-manufactured products for the foreseeable future . additionally , our cost of product revenues as a percent of product revenues will vary based on mix of direct to end user sales and distributor sales , mix by product line and mix by geography . sales and marketing expenses . sales and marketing expense consists primarily of salaries and related expenses for personnel in sales , marketing and customer support functions . we also incur costs for travel , trade shows , demonstration equipment , public relations and marketing materials , consisting primarily of the printing and distribution of our catalogs , supplements and the maintenance of our websites . we may from time to time expand our marketing efforts by employing additional technical marketing specialists in an effort to increase sales of selected categories of products in our catalog . we may also from time to time expand our direct sales organizations in an effort to concentrate on key accounts or promote certain product lines . general and administrative expenses . general and administrative expense consists primarily of salaries and other related costs for personnel in executive , finance , accounting , information technology and human relations functions . other costs include professional fees for legal and accounting services , facility costs , investor relations , insurance and provision for doubtful accounts . research and development expenses . research and development expense consists primarily of salaries and related expenses for personnel and spending to develop and enhance our products . other research and development expense includes fees for consultants and outside service providers , and material costs for prototype and test units . we expense research and development costs as incurred . we believe that investment in product development is a competitive necessity and plan to continue to make these investments in order to realize the potential of new technologies that we develop , license or acquire for existing markets . additionally , we are working to develop new products aimed at long term opportunities in the emerging field of regenerative medicine . stock-based compensation expenses . stock-based compensation expense for the years ended december 31 , 2012 , 2011 and 2010 was $ 3.3 million , $ 2.9 million , and $ 2.8 million , respectively .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 revenues . revenues increased $ 2.3 million , or 2.1 % , to $ 111.2 million for the year ended december 31 , 2012 compared to $ 108.9 million for the same period in 2011. our ahn and cma acquisitions contributed 36 approximately $ 3.4 million , or 3.1 % , to the revenue increase for the year ended december 31 , 2012. the effect of a stronger u.s. dollar decreased our revenues by $ 1.2 million , or 1.1 % , compared with the same period in 2011. adjusting for the effects of foreign currency and acquisitions , revenues increased $ 0.1 million , or 0.1 % . our organic revenue growth was negatively impacted by our harvard apparatus and hoefer businesses . in harvard apparatus we experienced softer than expected academic and government research markets in both the u.s. and international markets . in hoefer we experienced a decline in revenue from ge healthcare ( gehc ) , which is hoefer 's largest customer . cost of product revenues . cost of product revenues increased $ 0.1 million , or 0.3 % , to $ 58.8 million for the year ended december 31 , 2012 compared with $ 58.6 million for the year ended december 31 , 2011. the increase in cost of product revenues included $ 2.5 million , or 4.3 % , attributable to our ahn and cma acquisitions . a stronger u.s. dollar caused a $ 0.6 million , or 1.1 % , favorable currency effect on cost of product revenues for the year ended december 31 , 2012. gross profit as a percentage of revenues increased to 47.2 % for the year ended december 31 , 2012 compared with 46.2 % for the same period in 2011. the increase in gross profit as a percentage of revenues was primarily due to a more favorable sales mix . sales and marketing expenses .
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loan origination and commitment fees , net of certain direct loan origination costs , are deferred and the net amount amortized as an adjustment of the related loan 's yield . the company is generally amortizing these amounts over the contractual life . however , for long-term , fixed-rate mortgages the company has anticipated prepayments and assumes an estimated economic life of 5 years or less . commitment fees and costs are generally based upon a percentage of a customer 's unused line of credit and fees related to standby letters of credit and are recognized over the commitment period when the likelihood of exercise is remote . if the commitment is subsequently exercised during the commitment period , the remaining unamortized commitment fee at the time of story_separator_special_tag the following is management 's discussion and analysis of the financial condition and results of operations of first busey and subsidiaries for the years ended december 31 , 2011 , 2010 , and 2009. it should be read in conjunction with item 1. business , item 6. selected financial data , the consolidated financial statements and the related notes to the consolidated financial statements and other data included in this annual report . critical accounting estimates critical accounting estimates are those that are critical to the portrayal and understanding of first busey 's financial condition and results of operations and require management to make assumptions that are difficult , subjective or complex . these estimates involve judgments , estimates and uncertainties that are susceptible to change . in the event that different assumptions or conditions were to prevail , and depending on the severity of such changes , the possibility of materially different financial condition or results of operations is a reasonable likelihood . first busey 's significant accounting policies are described in note 1 significant accounting policies in the notes to the consolidated financial statements . the majority of these accounting policies do not require management to make difficult , subjective or complex judgments or estimates or the variability of the estimates is not material . however , the following policies could be deemed critical : fair value of investment securities . securities are classified as held-to-maturity when first busey has the ability and management has the positive intent to hold those securities to maturity . accordingly , they are stated at cost , adjusted for amortization of premiums and accretion of discounts . first busey had no securities classified as held-to-maturity at december 31 , 2011 or 2010. securities are classified as available for sale when first busey may decide to sell those securities due to changes in market interest rates , liquidity needs , changes in yields on alternative investments , and for other reasons . they are carried at fair value with unrealized gains and losses , net of taxes , reported in other comprehensive income . all of first busey 's securities are classified as available for sale . for equity securities , unadjusted quoted prices in active markets for identical assets are utilized to determine fair value at the measurement date . for all other securities , we obtain fair value measurements from an independent pricing service . the fair value measurements consider observable data that may include dealer quotes , market spreads , cash flows , the u.s. treasury yield curve , live trading levels , trade execution data , market consensus prepayment speeds , credit information and the security 's terms and conditions , among other things . due to the limited nature of the market for certain securities , the fair value and potential sale proceeds could be materially different in the event of a sale . realized securities gains or losses are reported in securities gains ( losses ) , net in the consolidated statements of operations . the cost of securities sold is based on the specific identification method . declines in the fair value of available for sale securities below their amortized cost are evaluated to determine whether the loss is temporary or other-than-temporary . if the company ( a ) has the intent to sell a debt security or ( b ) will more likely than not be required to sell the debt security before its anticipated recovery , then the company recognizes the entire unrealized loss in earnings as an other-than-temporary loss . if neither of these conditions are met , the company evaluates whether a credit loss exists . the impairment is separated into ( a ) the amount of the total impairment related to the credit loss and ( b ) the amount of total impairment related to all other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings and the amount related to all other factors is recognized in other comprehensive income . the company also evaluates whether the decline in fair value of an equity security is temporary or other-than-temporary . in determining whether an unrealized loss on an equity security is temporary or other-than-temporary , management considers various factors including the magnitude and duration of the impairment , the financial condition and near-term prospects of the issuer , and the intent and ability of the company to hold the equity security to forecasted recovery . allowance for loan losses . first busey has established an allowance for loan losses which represents its estimate of the probable losses inherent in the loan portfolio as of the date of the financial statements . management has established an allowance for loan losses which reduces the total loans outstanding by an estimate of uncollectible loans . loans deemed uncollectible are charged against and reduce the allowance . a provision for loan losses is charged to current expense . this provision acts to replenish the allowance for loan losses and to maintain the allowance at a level that management deems adequate . 32 to determine the adequacy of the allowance for loan losses , a formal analysis is completed quarterly to assess the risk within the loan portfolio . story_separator_special_tag positive evidence includes the existence of taxes paid in available carry-back years , available tax planning strategies and the probability that taxable income will be generated in future periods , including 2011 and 2010 , while negative evidence includes a cumulative loss in 2009 and 2008 and general business and economic trends . we evaluated the recoverability of our net deferred tax asset and established a valuation allowance for certain state net operating loss and credit carryforwards that are not expected to be fully realized . management believes that it is more likely than not that the other deferred tax assets included in the accompanying consolidated financial statements will be fully realized . we have determined that no valuation allowance is required for any other deferred tax assets as of december 31 , 2011 , although there is no guarantee that those assets will be recognizable in future periods . we must assess the likelihood that any deferred tax assets will be realized through the reduction of taxes in future periods and establish a valuation allowance for those assets for which recovery is not more likely than not . in making this assessment , we must make judgments and estimates regarding the ability to realize the asset through the future reversal of existing taxable temporary differences , future taxable income , and the possible application of future tax planning strategies . the company 's evaluation gave consideration to the fact that all net operating loss carrybacks have been utilized . therefore , utilization of net operating loss carryforwards are dependent on implementation of tax strategies and continued profitability . 34 executive summary story_separator_special_tag in 2011 as compared to $ 3.33 billion in 2010. the decline in the average balance of earning assets was due primarily to the decrease in loans as we continue to actively remove under and non-performing loans from our loan portfolio . soft loan demand and strong competition also contributed to our lack of loan growth in 2011. cash and securities increased $ 295.2 million which offset a $ 435.9 million decline in average loans ; however , at a much lower yield . interest-bearing liabilities averaged $ 2.55 billion in 2011 , a decrease of $ 279.0 million from the average balance of $ 2.83 billion in 2010. the decrease in interest-bearing liabilities is due to a focus on reducing our non-core funding , which we were able to do in light of a decrease in our average loans and a continued increase in our average noninterest-bearing deposits during 2011. the decreases in 2010 compared to 2009 were for similar reasons as noted above , as we made strides in both 2011 and 2010 to strengthen our balance sheet and improve asset quality from the peak of non-performing loans at september 30 , 2009. interest income , on a tax-equivalent basis , decreased $ 23.4 million , or 14.8 % , to $ 134.7 million in 2011 from $ 158.2 million in 2010. interest income , on a tax-equivalent basis , decreased $ 28.5 million , or 15.3 % , to $ 158.2 million in 2010 from $ 186.7 million in 2009. the interest income declines in 2011 and 2010 were primarily related to decreases in loan volume . interest expense decreased during 2011 by $ 16.6 million , or 42.5 % , to $ 22.4 million from $ 39.0 million in 2010. interest expense decreased during 2010 by $ 31.1 million , or 44.3 % , to $ 39.0 million from $ 70.1 million in 2009. the decreases in interest expense during the past two years were primarily due to the declining deposit and debt interest rate environment present since 2008. additionally , as our loan balances declined during 2011 and 2010 and we increased noninterest-bearing deposits , we were able to reduce our non-core funding sources . 39 net interest income , on a tax-equivalent basis , decreased $ 6.8 million , or 5.74 % , in 2011 as compared to 2010. net interest income , on a tax-equivalent basis , increased $ 2.6 million , or 2.2 % , in 2010 as compared to 2009. net interest margin , our net interest income expressed as a percentage of average earning assets stated on a tax-equivalent basis , decreased to 3.52 % in 2011 from 3.58 % during 2010 , while 2010 showed an increase over 3.05 % in 2009. the net interest spread , also on a tax-equivalent basis , was 3.35 % in 2011 , relatively steady with 3.37 % in 2010 and up from 2.75 % in 2009. the net interest margin discussion above is based upon annual results and average balances , which do not fully explain the trends of the net interest margin during the year . the quarterly net interest margins are as follows : replace_table_token_8_th during 2009 and 2010 , the net interest margin generally showed gradual improvement . the net interest margin has held relatively steady during 2011 , but declined from levels of the last two quarters in 2010 due to the growth in low-yielding cash and cash equivalents , which was primarily a result of a decrease in loans . we continue to experience downward pressure on our yield in interest earning assets . we have limited ability to improve margin through funding rate decreases and we believe improvements in margin will be achieved in the short term through redeployment of our liquid funds at higher yields . plans were implemented during the latter half of 2011 to organically grow high quality loans through active investment in sales talent throughout 2012 . 40 other income replace_table_token_9_th nm=not meaningful total other income decreased $ 3.7 million in 2011 from 2010 and decreased $ 3.3 million in 2010 from 2009. the decrease in 2011 primarily related to a decline in gains on sales of loans while the decrease in 2010 was primarily due to a decline in other and remittance processing income , offset by increased gains on sales of loans .
| operating results replace_table_token_5_th operating performance first busey 's net income for the year ended december 31 , 2011 was $ 29.9 million and net income available to common stockholders was $ 24.5 million , or $ 0.29 per fully-diluted common share , as compared to net income of $ 23.2 million and net income available to common stockholders of $ 18.1 million , or $ 0.27 per fully-diluted common share , for the year ended december 31 , 2010. significant operating performance items were : · net interest income for the year ended december 31 , 2011 was $ 110.4 million compared to $ 117.2 million for the year ended december 31 , 2010 . · provision for loan losses decreased to $ 20.0 million in 2011 from $ 42.0 million in 2010 . · net interest margin decreased slightly to 3.52 % for 2011 as compared to 3.58 % for 2010 . · the efficiency ratio for 2011 was 59.03 % as compared to 55.91 % in 2010 . · firstech 's net income decreased to $ 1.4 million in 2011 from $ 1.8 million in 2010 . · busey wealth management 's net income decreased to $ 3.1 million in 2011 as compared to $ 3.3 million in 2010 . 35 asset quality our non-performing loans at december 31 , 2011 demonstrated consistent improvement for the eighth consecutive quarter . in addition , they are down significantly from the peak at september 30 , 2009 , when non-performing loans totaled $ 172.5 million and the allowance for loan losses to non-performing loans ratio was 69.58 % . we take great pride in our efforts to move these metrics toward optimal levels . we expect continued gradual improvement in our overall asset quality during 2012 ; however , this continues to be dependent upon market specific economic conditions .
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our $ 529 million , $ 439 million and $ 289 million of cash provided from operating activities in 2013 , 2012 and 2011 , respectively , were affected by cash increases/ ( decreases ) of $ ( 102 ) million , $ ( 94 ) million and $ ( 100 ) million , respectively , of changes in accounts receivable , $ ( 111 ) million , $ ( 76 ) million and $ ( 11 ) million , respectively , of changes in inventory and $ 128 million , $ 87 million and $ 9 million , respectively , in changes in accounts payable and accrued liabilities . in 2013 , the increases in accounts receivable and accounts payable and accrued liabilities reflect the increase in our revenue in 2013 . the increase in inventory in 2013 is consistent with the increase in our backlog over 2012 . in 2012 , the increase in accounts receivable was largely attributable to increased revenue in the fourth quarter of 2012 compared to the fourth quarter of 2011. the increase in inventory in 2012 was principally in our subsea products and rov segments : subsea products in preparation for production related to the higher backlog levels at december 31 , 2012 as compared to those at december 31 , 2011 ; and rov in anticipation of adding additional units . in 2012 , the changes in accounts payable and accrued expenses related to higher accruals for payroll and project costs and an increase in progress payments received from customers . in 2011 , the increase in accounts receivable was largely attributable to increased revenue in the fourth quarter of 2011 compared to the corresponding quarter of 2010 , and the mix of revenue with a higher percentage of our 2011 revenue coming from our international operations . in 2013 , we used a net of $ 378 million in investing activities , with $ 394 million used to make the capital expenditures and business acquisitions described above . in 2012 , we used $ 306 million in investing activities , with $ 310 million used to make the capital expenditures and business acquisitions described above . in 2011 , we used $ 483 million in investing activities , with $ 527 million used to make the capital expenditures and business acquisitions described above , while we received $ 44 million from the sales of assets , primarily our offshore production system , the ocean legend . in 2013 , we used $ 180 million in financing activities , principally for repayment against our revolving credit facility of $ 94 million and the payment of cash dividends of $ 91 million . in 2012 , we used $ 118 million in financing activities , principally for the payment of cash dividends of $ 75 million , repayment against our revolving credit facility of $ 26 million and common stock share repurchases of $ 19 million . in 2011 , we generated $ 55 million in financing activities . we borrowed $ 120 million under our revolving credit facility , and we used $ 49 million for the payment of cash dividends and $ 17 million for common stock share repurchases . in february 2010 , our board of directors approved a plan to repurchase up to 12,000,000 shares of our common stock . the timing and amount of any repurchases will be determined by our management . we expect that any shares repurchased under the plan will be held as treasury stock for future use . the plan does not obligate us to repurchase any particular number of shares . through december 31 , 2013 , we repurchased 3,100,000 shares at a cost of $ 86 million under the plan . as of december 31 , 2013 , we retained 2,636,644 shares we had repurchased . we expect that shares we reissue will be primarily in connection with our stock-based compensation plans . because of our significant foreign operations , we are exposed to currency fluctuations and exchange rate risks . we generally minimize these risks primarily through matching , to the extent possible , revenue and expense in the various currencies in which we operate . cumulative translation adjustments as of december 31 , 2013 relate primarily to our net investments in , including long-term loans to , our foreign subsidiaries . a stronger u.s. dollar against the u.k. pound sterling and the norwegian kroner would result in lower operating income . see item 7a – `` quantitative and qualitative disclosures about market risk . '' results of operations additional information on our business segments is shown in note 7 of the notes to consolidated financial statements included in this report . 27 oilfield . the table that follows sets out revenue and profitability for the business segments within our oilfield business . in the rov section of the table that follows , `` days available '' includes all days from the first day that an rov is placed in service until the rov is retired . all days in this period are considered available days , including periods when an rov is undergoing maintenance or repairs . our rovs do not have scheduled maintenance or repair that requires significant time when the rovs are not available for utilization . replace_table_token_12_th in response to continued increasing demand to support deepwater drilling and vessel-based inspection , maintenance and repair ( `` imr '' ) and installation work , we have continued to build new rovs . these new vehicles are designed for use around the world in water depths of 10,000 feet or more . we added 26 , 37 and 24 rovs in 2013 , 2012 and 2011 , respectively , while retiring 41 units over the three-year period and transferring two to our advanced technologies segment over that period . we have grown our rov fleet size to 304 at december 31 , 2013 from 289 at december 31 , story_separator_special_tag our $ 529 million , $ 439 million and $ 289 million of cash provided from operating activities in 2013 , 2012 and 2011 , respectively , were affected by cash increases/ ( decreases ) of $ ( 102 ) million , $ ( 94 ) million and $ ( 100 ) million , respectively , of changes in accounts receivable , $ ( 111 ) million , $ ( 76 ) million and $ ( 11 ) million , respectively , of changes in inventory and $ 128 million , $ 87 million and $ 9 million , respectively , in changes in accounts payable and accrued liabilities . in 2013 , the increases in accounts receivable and accounts payable and accrued liabilities reflect the increase in our revenue in 2013 . the increase in inventory in 2013 is consistent with the increase in our backlog over 2012 . in 2012 , the increase in accounts receivable was largely attributable to increased revenue in the fourth quarter of 2012 compared to the fourth quarter of 2011. the increase in inventory in 2012 was principally in our subsea products and rov segments : subsea products in preparation for production related to the higher backlog levels at december 31 , 2012 as compared to those at december 31 , 2011 ; and rov in anticipation of adding additional units . in 2012 , the changes in accounts payable and accrued expenses related to higher accruals for payroll and project costs and an increase in progress payments received from customers . in 2011 , the increase in accounts receivable was largely attributable to increased revenue in the fourth quarter of 2011 compared to the corresponding quarter of 2010 , and the mix of revenue with a higher percentage of our 2011 revenue coming from our international operations . in 2013 , we used a net of $ 378 million in investing activities , with $ 394 million used to make the capital expenditures and business acquisitions described above . in 2012 , we used $ 306 million in investing activities , with $ 310 million used to make the capital expenditures and business acquisitions described above . in 2011 , we used $ 483 million in investing activities , with $ 527 million used to make the capital expenditures and business acquisitions described above , while we received $ 44 million from the sales of assets , primarily our offshore production system , the ocean legend . in 2013 , we used $ 180 million in financing activities , principally for repayment against our revolving credit facility of $ 94 million and the payment of cash dividends of $ 91 million . in 2012 , we used $ 118 million in financing activities , principally for the payment of cash dividends of $ 75 million , repayment against our revolving credit facility of $ 26 million and common stock share repurchases of $ 19 million . in 2011 , we generated $ 55 million in financing activities . we borrowed $ 120 million under our revolving credit facility , and we used $ 49 million for the payment of cash dividends and $ 17 million for common stock share repurchases . in february 2010 , our board of directors approved a plan to repurchase up to 12,000,000 shares of our common stock . the timing and amount of any repurchases will be determined by our management . we expect that any shares repurchased under the plan will be held as treasury stock for future use . the plan does not obligate us to repurchase any particular number of shares . through december 31 , 2013 , we repurchased 3,100,000 shares at a cost of $ 86 million under the plan . as of december 31 , 2013 , we retained 2,636,644 shares we had repurchased . we expect that shares we reissue will be primarily in connection with our stock-based compensation plans . because of our significant foreign operations , we are exposed to currency fluctuations and exchange rate risks . we generally minimize these risks primarily through matching , to the extent possible , revenue and expense in the various currencies in which we operate . cumulative translation adjustments as of december 31 , 2013 relate primarily to our net investments in , including long-term loans to , our foreign subsidiaries . a stronger u.s. dollar against the u.k. pound sterling and the norwegian kroner would result in lower operating income . see item 7a – `` quantitative and qualitative disclosures about market risk . '' results of operations additional information on our business segments is shown in note 7 of the notes to consolidated financial statements included in this report . 27 oilfield . the table that follows sets out revenue and profitability for the business segments within our oilfield business . in the rov section of the table that follows , `` days available '' includes all days from the first day that an rov is placed in service until the rov is retired . all days in this period are considered available days , including periods when an rov is undergoing maintenance or repairs . our rovs do not have scheduled maintenance or repair that requires significant time when the rovs are not available for utilization . replace_table_token_12_th in response to continued increasing demand to support deepwater drilling and vessel-based inspection , maintenance and repair ( `` imr '' ) and installation work , we have continued to build new rovs . these new vehicles are designed for use around the world in water depths of 10,000 feet or more . we added 26 , 37 and 24 rovs in 2013 , 2012 and 2011 , respectively , while retiring 41 units over the three-year period and transferring two to our advanced technologies segment over that period . we have grown our rov fleet size to 304 at december 31 , 2013 from 289 at december 31 ,
| results of operations `` below ; projections relating to floating rigs to be placed in service and subsea tree orders ; the adequacy of our liquidity and capital resources to support our operations and internally generated growth initiatives ; our projected capital expenditures for 2014 ; our plans to add rovs to our fleet ; our intentions relating to the subsea support vessel scheduled for delivery in 2016 ; our belief that our goodwill will not be impaired during 2014 ; the adequacy of our accruals for uninsured expected liabilities from workers ' compensation , maritime employer 's liability and general liability claims ; our belief that our total unrecognized tax benefits will not significantly increase or decrease in the next 12 months ; our anticipated tax rates and underlying assumptions ; our expectations about the cash flows from our investment in medusa spar llc , and the factors underlying those expectations ; our expectations regarding shares repurchased under our share repurchase plan ; our backlog ; and our expectations regarding the effect of inflation in the near future . these forward-looking statements are subject to various risks , uncertainties and assumptions , including those we refer to under the headings `` cautionary statement concerning forward-looking statements `` and `` risk factors '' in part i of this report . although we believe that the expectations reflected in such forward-looking statements are reasonable , because of the inherent limitations in the forecasting process , as well as the relatively volatile nature of the industries in which we operate , we can give no assurance that those expectations will prove to have been correct . accordingly , evaluation of our future prospects must be made with caution when relying on forward-looking information . overview the table that follows sets out our revenue and operating results for 2013 , 2012 and 2011 .
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” except where the context otherwise requires , all references to “ we , ” “ us , ” and “ our ” ( and similar terms ) herein mean cpg international inc. overview we are a leading supplier of premium , low maintenance building products designed to replace wood , metal and other materials in the residential , commercial and industrial markets . with a focus on manufacturing excellence , proprietary technologies and quality , we have introduced our products through distribution networks to sizable markets increasingly converting to low maintenance materials . we have developed a number of branded products including azek® trim , azek moulding , azek deck , azek porch , azek rail , comtec and hiny hiders bathroom partition systems , and evertuff and tufftec locker systems . we operate the following two business units : azek building products inc. , or azek building products , manufactures exterior residential building products such as azek trim , azek moulding , azek deck , azek porch and azek rail for the residential and commercial building market . additionally azek building products produces celtec and other non-fabricated products for the industrial market ; and scranton products inc. , or scranton products , produces fabricated bathroom partition and locker systems under the comtec , santana , hiny hiders , evertuff and tufftec labels for the commercial market and seaboard® and flametec® and other non-fabricated products for special application industrial markets . on april 29 , 2006 , we completed the acquisition of santana holdings corporation , the direct parent of santana products , inc. for a purchase price of $ 36.0 million ( the “ santana acquisition ” ) . santana is included in the scranton products operating segment . on january 31 , 2007 , we completed the acquisition of pro-cell , llc , which owned and operated procell decking systems ( “ procell ” ) for a purchase price of $ 77.3 million ( “ procell acquisition ” ) . procell is included in the azek building products operating segment . for further discussion , see “ —acquisitions ” below . on february 29 , 2008 , we completed the acquisition of compos-a-tron manufacturing inc. ( “ composatron ” ) for $ 32.4 million ( “ composatron acquisition ” ) . composatron is included in the azek building products operating segment . for further discussion , see “ —acquisitions ” below . 27 our business the core of our operation has been to produce high-quality building products across all of the residential , commercial and industrial end markets we serve . in the last decade , our expertise in manufacturing has allowed us to successfully develop value-added , branded building products such as azek trim , comtec , evertuff , tufftec and celtec products , which offer accelerated volume growth and higher margins . our growth in excess of underlying markets has been the result of increasing penetration of the building and industrial end markets . we believe many of our products are still in the early stages of the material conversion opportunity as customers are increasingly choosing low maintenance products as opposed to more traditional materials including wood , fiber and steel . we have generally increased our margins through volume growth that has allowed us to self-fund investment in new technology and equipment that has enabled us to lower our manufacturing conversion costs . in addition , we have attained higher margins for our branded products through highly developed sales channels and continued product innovation . we continually look to utilize existing products and know-how for new applications , including the development of additional branded building products . over the nine years since their introduction , our azek building products have gained significant market acceptance and brand loyalty as a leader within the non-wood home exterior market . in 2008 , 2007 and 2006 , azek products have accounted for a majority of our net sales . through our two-step , dual distribution system , we have established an extensive network of distributors and dealers throughout the united states and canada . as of december 31 , 2008 , our distributors were selling our products to approximately 2,100 local stocking dealers who frequently request our products by brand name . in the first quarter of each year , we conduct an “ early buy ” sales promotion that encourages distributors to stock azek products through the use of incentive discounts . over the course of 2007 and 2008 , we have expanded azek building products through internal development of additional product offerings as well as through the procell acquisition in 2007 and the composatron acquisition in 2008. with the introduction of azek moulding and azek deck in 2007 and azek porch and azek rail in 2008 , we continued to establish ourselves as a premier provider of branded building products . our goal is to continue to expand our product offerings through the development of additional trim , moulding , railing and decking products , as well as through the introduction of additional product lines . across all of our target markets , we are focused on capitalizing on the functional advantages of our synthetic products relative to competing wood , fiber and metal products . in this regard , we have developed the leading brand in the synthetic bathroom and locker room products market , comtec . our product offerings which include comtec , capitol , hiny hiders , evertuff and tufftec brands , are sold to similar primary end-markets , which include schools , stadiums , prisons , retail locations and other high-traffic environments . through scranton product 's widely established distribution network , we are able to service our customers through representatives in all 50 states . in 2008 , we regained market share within the commercial building markets by actively engaging key dealers and sales representatives . our focus is also to continue to develop leading brands for 2009 including new locker designs as well as a line of fire rated partitions . story_separator_special_tag the procell business reports as part of our azek building products business unit . basis of presentation the accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america and the rules of the securities and exchange commission . our 29 consolidated financial statements include the accounts of cpg international inc. and its wholly owned subsidiaries . all significant intercompany accounts and transactions have been eliminated in consolidation . critical accounting policies the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and judgments that affect the amounts reported in the financial statements . on an ongoing basis , management evaluates its estimates , including those related to revenue recognition , allowance for doubtful accounts , inventories , vendor rebates , product warranties and goodwill and intangible assets . we base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . revenue recognition revenue is recognized in accordance with sec staff accounting bulletin no . 104 , “ revenue recognition in financial statements ” ( “ sab 104 ” ) . sab 104 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . revenues are recognized at the time product is shipped to the customer and title transfers . we accrue for sales returns , discounts and allowance for doubtful accounts based on a current evaluation of experience based on the stated collection terms . should actual experience differ from estimates , revisions to the reserves or allowances recorded would be required . allowance for doubtful accounts our allowance for doubtful accounts is based on management 's assessment of the business environment , customers ' financial condition , historical collection experience , accounts receivable aging and customer disputes . when circumstances arise or a significant event occurs that comes to the attention of management , the allowance is reviewed for adequacy and adjusted to reflect the change in the estimated amount to be received from the customer . changes in the allowance for doubtful accounts between december 31 , 2008 and december 31 , 2007 reflect management 's assessment of the factors noted above , including past due accounts , disputed balances with customers , and the financial condition of customers . the allowance for doubtful accounts is decreased when uncollectible accounts receivable balances are actually written off . inventories inventories ( mainly , petrochemical resin ) , are valued at the lower of cost or market , determined on a first-in , first-out basis ( “ fifo ” ) and reduced for slow-moving and obsolete inventory . inventory obsolescence write-downs are recorded for damaged , obsolete , excess and slow-moving inventory . at the end of each quarter , management within each business segment performs a detailed review of its inventory on an item by item basis and identifies which products are believed to be obsolete or slow-moving . management assesses the need for , and the amount of , an obsolescence write-down based on customer demand of the item , the quantity of the item on hand and the length of time the item has been in inventory . vendor rebates certain vendor rebates and incentives are earned by us only when a specified level of annual purchases are achieved . we account for vendor rebates in accordance with eitf 02-16 , accounting by a customer ( including a reseller ) for certain consideration received from a vendor . eitf 02-16 states that a rebate or refund of a specified amount of cash consideration that is payable pursuant to a binding arrangement ( only if a customer completes a specified cumulative level of purchases ) , should be recognized on a systematic and rational allocation 30 of the cash consideration offered to each of the underlying transactions that results in progress by the customer toward earning the rebate or refund , provided the amounts are probable and reasonably estimable . we record the incentives as a reduction to the cost of inventory . upon sale of inventory , the incentive is recognized as a reduction to cost of sales . we record such incentives during interim periods based on actual results achieved on a year-to-date basis and our expectation that purchase levels will be obtained to earn the rebate . product warranties we provide a 15-year limited warranty on our scranton products commercial building products and a 25-year limited warranty on azek trim and moulding products , and a lifetime limited warranty on azek deck and azek porch products sold for residential use . the warranty period for all other uses of azek deck and azek porch , including commercial use , is 25 years . azek canada products have a 20 year limited warranty for white railing and a 10 year limited warranty for colored railing . the scranton products warranty guarantees against breakage , corrosion and delamination . azek products are guaranteed against manufacturing defects that cause the products to rot , corrode , delaminate , or excessively swell from moisture . the azek canada warranty also guarantees against rotting , cracking , peeling , blistering or structural defects from fungal decay . warranty reserves require a high level of judgment as azek trim products have only been on the market for eight years and azek deck has only been on the market for four years , both of which are early in their product life cycles . management estimates warranty reserves based in part upon historical warranty costs , which have been immaterial thus far , as a proportion of sales by product line . management also considers various relevant factors , including its stated warranty policies and procedures as part of its evaluation of its liability .
| segment results of operations the following discussion provides a review of results for our two business segments : azek building products , which includes products such as azek and celtec , as well as other branded highly engineered , metal and wood replacement products ; and scranton products , which includes highly engineered fabricated products such as comtec and santana bathroom products and locker systems . the components of each segment are based on similarities in product line , production processes and methods of distribution and are considered reportable segments under sfas no . 131 , disclosures about segments of an enterprise and related information . corporate overhead costs , which include corporate payroll costs and corporate related professional fees , are not allocated to segments , and as such are discussed separately . 36 azek building products – year ended december 31 , 2008 compared with year ended december 31 , 2007 the following table summarizes certain financial information relating to the azek building products segment results that have been derived from the company 's consolidated financial statements : replace_table_token_6_th net sales . net sales decreased by $ 9.6 million or 4.5 % , to $ 204.4 million for the year ended december 31 , 2008 from $ 214.0 million for the same period in 2007. average selling price per pound for the year ended december 31 , 2008 was $ 1.26 as compared to $ 1.18 for the same period in 2007 due to the addition of azek rail and price increases that were implemented during the second and third quarters of 2008 in both the industrial and residential markets . we sold 162.1 million pounds of product during the year ended december 31 , 2008 , which was a 10.8 % decrease from the 181.7 million pounds sold during the comparable period in 2007. the acquisition of composatron , which contributed a 3.8 % increase in volume , was more than offset by declines in our residential and industrial markets .
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assumptions relating to the foregoing involve judgments with respect to , among other things , future economic , competitive and market conditions and future business decisions , all of which are difficult or impossible to predict accurately and many of which are beyond our control . although we believe that our assumptions underlying the forward-looking statements are reasonable , any of the assumptions could prove inaccurate and , therefore , there can be no assurance that the forward-looking statements included in this report will prove to be accurate . in light of the significant uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved . we undertake no obligation to revise or update publicly any forward-looking statements for any reason . overview we are a nevada corporation , formerly named blue moose media , inc. in october , 2011 , we changed our name to liqtech international , inc. for more than a decade we have developed and provided state-of-the-art technologies for gas and liquid purification using ceramic silicon carbide filters , particularly highly specialized filters for the control of soot exhaust particles from diesel engines and for liquid filtration . using nanotechnology , liqtech develops products using proprietary silicon carbide technology . liqtech 's products are based on unique silicon carbide membranes which facilitate new applications and improve existing technologies . in particular , liqtech systems a/s ( www.provital.dk ) , the company 's subsidiary , has developed a new standard of water filtration technology to meet the ever increasing demand for higher water quality . by incorporating liqtech 's sic liquid membrane technology with its longstanding systems design experience and capabilities it offers solutions to the most difficult water pollution problem . 19 acquisition of liqtech systems on the july 29 , 2014 , the company , through its subsidiary , liqtech int . dk , completed the acquisition of all of the issued and outstanding capital stock ( the `` shares '' ) of provital solutions a/s , a danish company ( now known as liqtech systems ) from masu a/s , a danish company ( `` masu '' ) controlled by sune mathiesen . in consideration for the shares , masu received cash consideration in the sum of dkk12,600,000 , that is , approximately $ 2,300,000 ( at july 28 , 2014 ) , and 4,044,782 shares of the company 's common stock ( the `` payment shares '' ) . two-thirds ( 2/3 ) of the payment shares were held in escrow and subject to achievement of certain milestones . the milestones were not achieved and such payment shares were forfeited and returned to treasury on december 31 , 2016 . 2016 developments on february 22 , 2016 , we announced that we received an approximately $ 2.0 million order for a groundwater treatment plant . the order is from the company synertech for a project in serbia . liqtech will deliver engineering and key components for precipitati on of arsenic , boron , iron and manganese and a complete ultra filtration system based on the company´s sic membranes . the order was delivered in the second quarter of 2016. on march 3 , 2016 , we announced that we received a $ 150,000 order from a new customer in the municipal pool market in france . the order was received by liqtech´s distributor lea technology group and was the first pool related system order from a french customer . on may 4 , 2016 , we announced that we had received a $ 2.0 million follow-on order for the ground water treatment plant in serbia that was announced by the company in february 2016. the total value of the project was $ 4.0 million and the order was delivered partly in the third quarter of 2016 and the last part is expected to delivered in the second quarter of 2017 . 20 on july 21 , 2016 , we announced that we had entered into a strategic relationship with one of the leading chinese companies for diesel particulate filters ( dpfs ) , kailong high technology co. ltd. , to provide kailong with advanced silicon carbide material f or dpf filters . the framework agreement was valued at $ 2.2 million with the first order of $ 0.375 million delivered in september 2016. on august 25 , 2016 , we announced that we had entered into a letter of intent to establish a diesel particulate filter c ompany in china , the agreement includes a technology transfer fee of $ 1.5 million , which is payable upon achievement of certain milestones , and a royalty of $ 2.25 per liter of dpfs . kailong believes the market potential for high quality emission control systems is significant in china and together with liqtech could scale to a capacity of 2 million liters in silicon carbide dpfs to serve the chinese and international market . the new china 6 standard for diesel vehicle emissions will likely put china on the forefront of emission standards in the world creating the need for better dpfs in china . on september 7 , 2016 , we announced that we had entered into a letter of intent ( loi ) to supply a $ 1.8 million filtration system for a 100,000 tons per year bioethanol plant to be located in harbin , heilongjiang , china . the loi is subject to execution of definitive documents and financing of the project from a chinese investment bank . the filtration system is based on the company´s ceramic membranes and its newly developed ro systems . on september 27 , 2016 , we announced that the company had received an order for silicon carbide diesel particulate filters from kailong high technology ( `` kailong '' ) for $ 2,360,000 as part of the framework agreement made between the parties . story_separator_special_tag included in the gross profit is depreciation of $ 1,437,787 and $ 1,630,531 for the years ended december 31 , 2015 and 2014 , respectively . expenses total operating expenses for the year ended december 31 , 2015 were $ 6,613,903 , representing a decrease of $ 674,852 , or 9.3 % , compared to $ 7,288,755 for the same period in 2014. this decrease in operating expenses is attributable to a decrease in selling and marketing expenses of $ 638,785 or 19.0 % , a decrease in general and administrative expenses of $ 204,347 or 6.8 % and , a decrease in non-cash compensation expenses of $ 203,498 or 35.5 % , is partially offset an increase in research and development expenses of $ 371,778 or 110.6 % compared to the same period in 2014. selling expenses for the year ended december 31 , 2015 were $ 2,721,781 compared to $ 3,360,566 for the same period in 2014 , representing a decrease of $ 638,785 or 19.0 % . this decrease is attributable to a cost reduction in selling expenses in general . furthermore , the increase of usd against euro and dkk of approximately 20 % from period to period has had a decreasing effect on our expenses , because a significant amount of our expenses is in euro and dkk . this decrease was partially offset by the inclusion of liqtech systems in the selling expenses for all the period ending december 31 , 2015. liqtech systems was part of the consolidated numbers from the date of acquisition on july 29 , 2014 . 24 general and administrative expenses for the year ended december 31 , 2015 were $ 2,814,747 compared to $ 3,019,094 for the same period in 2014 , representing a decrease of $ 204,347 , or 6.8 % . this decrease is attributable to an increase in general and administrative expenses in general due to the acquisition of liqtech systems offset by the increase of usd against euro and dkk of approximately 20 % from period to period as discussed above in selling expenses resulted in reduced general and administrative expenses for 2015. non-cash compensation expenses for the year ended december 31 , 2015 were $ 369,531 compared to $ 573,029 for the same period in 2014 , representing a decrease of $ 203,498 or 35.5 % . this decrease is primarily attributable to decreased non-cash compensation expense for restricted stocks and warrants for services performed granted to directors and consultants offset by stock compensation expense for options granted to employees . the following is a summary of our non-cash compensation : replace_table_token_7_th research and development expenses for the year ended december 31 , 2015 were $ 707,844 compared to $ 336,066 for the same period in 2014 , representing an increase of $ 371,778 , or 110.6 % . this increase is attributable to increased research and development expenditures for the period ended december 31 , 2015 compared to the same period in 2014 due to investing in new products , and the inclusion of liqtech systems for the entire period ending december 31 , 2015. liqtech systems was included in the consolidated numbers from the date of acquisition on july 29 , 2014. net loss net loss attributable to the company for the year ended december 31 , 2015 was a loss of $ 2,209,857 compared to a loss of $ 3,066,068 for the comparable period in 2014 , representing an improvement of $ 856,211. this increase was primarily attributable to an increase of $ 1,117,181 in our gross profit , a decrease in operating expenses of $ 674,852 , an increase in total other income of $ 107,007 and an decrease in income tax benefit of $ 1,004,765. the largest contributor to the decrease in operating expenses was a decrease in selling expenses of $ 638,785 or 19.0 % . liquidity and capital resources the accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the united states of america , which contemplate continuation of the company as a going concern . however , the company has limited cash and incurred significant recent losses raising substantial doubt about the ability of the company to continue as a going concern . as earlier announced the company has entered into an investment agreement with hunan yonker investment group for an usd 4 million investment in liqtech no later than april 15 , 2017. in the event that such funds are not received by april 15 , 2017 , the company will need to raise funds by the issuance of debt or equity . there can be no assurance that the company will be able to raise funds on terms that are favorable to the company or at all . in the event that the company is unable to raise funds , the company will be required to reduce or curtail operations . we have historically satisfied our capital and liquidity requirements through offerings of equity instruments , internally generated cash from operations and our available lines of credit . at the filing date , the company did not have any available lines of credit with any lender . at december 31 , 2016 , we had cash and restricted cash of $ 1,208,650 and working capital of $ 3,497,577 and at december 31 , 2015 , we had cash and restricted cash of $ 1,663,417 and working capital of $ 7,642,313. at december 31 , 2016 , our working capital decreased by $ 4,144,736 , compared to december 31 , 2015. total current assets were $ 8,506,321 and $ 12,983,004 at december 31 , 2016 and at december 31 , 2015 , respectively , and total current liabilities were $ 5,008,744 and $ 5,340,690 at december 31 , 2016 and at december 31 , 2015 , respectively . liqtech systems had previously a dkk 2,000,000 ( approximately $ 300,000 at september 30 , 2015 ) standby line of credit with a bank , subject to certain borrowing base limitations . outstanding borrowings are due on demand .
| results of operations results of operations for the year ended december 31 , 2016 compared to the year ended december 31 , 201 5 the following table sets forth our revenues , expenses and net income for the year ended december 31 , 2016 and 2015. replace_table_token_4_th revenues net sales for the year ended december 31 , 2016 were $ 13,906,394 compared to $ 15,812,587 for the same period in 2015 , representing a decrease of $ 1,906,193 , or 12 % . the decrease in sales consist of an increase in sales of dpfs of $ 739,488 , a decrease in sales of liquid filters of $ 2,615,931 and a decrease in sales of kiln furniture $ 29,751 respectively . the increase in demand for our dpfs is mainly due to an increase in market activity in china compared to the same period last year . the decrease in demand for our liquid filters and systems is due to a delay in certain business opportunities compared to the same period last year where various projects were realized . the decrease in demand for our kiln furniture is due to our decision to not focus on this product line anymore . 22 gross profit gross profit for the year ended december 31 , 2016 was $ 1,432,429 compared to $ 3,214,424 for same period in 2015 , representing a decrease of $ 1,781,995 , or 55 % . the decrease in gross profit was due to a lower sales activity for the year ended december 31 , 2016 compared to the same period in 2015 and an increase in the reserve for obsolete inventory . included in the gross profit is depreciation of $ 1,378,277 and $ 1,437,787 for the years ended december 31 , 2016 and 2015 , respectively .
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for businesses , the tax act reduces the corporate federal tax rate from a maximum of 35 % to a flat 21 % rate , effective january 1 , 2018. the rate change is administratively effective at the beginning of our fiscal year , using a blended rate for the annual period . as a result , the company 's blended federal statutory tax rate for the year is 33.7 % . the sec staff issued staff accounting bulletin no 118 ( story_separator_special_tag the following discussion and analysis of our financial condition and results of operations , and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes . it contains forward-looking statements ( which may be identified by words such as those described in “ risk factors—forward-looking statement risks ” in part i of this report ) , including statements regarding our intent , belief , or current expectations with respect to , among other things , trends affecting our financial condition or results of operations ( including our financial targets discussed below under “ management of operating performance and reporting ” and “ liquidity and capital resources ” ) ; backlog ; our industry ; government budgets and spending ; market opportunities ; the impact of competition ; and the impact of the scitor acquisition . such statements are not guarantees of future performance and involve risks and uncertainties , and actual results may differ materially from those in the forward-looking statements as a result of various factors . risks , uncertainties and assumptions that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly in “ risk factors ” in part i of this report . due to such risks , uncertainties and assumptions you are cautioned not to place undue reliance on such forward-looking statements , which speak only as of the date hereof . we do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future results or developments . we use the terms `` saic , '' the “ company , ” “ we , ” “ us ” and “ our ” to refer to science applications international corporation and its consolidated subsidiaries . references herein to “ former parent ” refer to leidos holdings , inc. ( formerly saic , inc. ) collectively with its consolidated subsidiaries . the company utilizes a 52/53 week fiscal year ending on the friday closest to january 31 , with fiscal quarters typically consisting of 13 weeks . fiscal 2016 began on january 31 , 2015 and ended on january 29 , 2016 , fiscal 2017 began on january 30 , 2016 and ended on february 3 , 2017 , and fiscal 2018 began on february 4 , 2017 and ended on february 2 , 2018 . the number of weeks for each quarter for fiscal 2018 , 2017 and 2016 are as follows : replace_table_token_5_th business overview we are a leading technology integrator providing full life cycle services and solutions in the technical , engineering and enterprise information technology ( it ) markets . we developed our brand by addressing our customers ' mission critical needs and solving their most complex problems for over 45 years . as one of the largest pure-play technical service providers to the u.s. government , we serve markets of significant scale and opportunity . our primary customers are the departments and agencies of the u.s. government . we serve our customers through approximately 1,300 active contracts and task orders and employ more than 15,000 individuals who are led by an experienced executive team of proven industry leaders . our long history of serving the u.s government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve . substantially all of our revenues and tangible long-lived assets are generated by or owned by entities located in the united states . 21 science applications international corporation economic opportunities , challenges and risks in fiscal 2018 , we generated greater than 95 % of our revenues from contracts with the u.s. government , including subcontracts on which we perform . our business performance is affected by the overall level of u.s. government spending and the alignment of our offerings and capabilities with the budget priorities of the u.s. government . a recently-passed omnibus appropriations measure increased discretionary federal spending by $ 143 billion above previous spending caps for government fiscal year ( gfy ) 2018 , providing additional business opportunities for the company . a budget agreement passed in february would extend and increase those spending levels for gfy 2019. but beyond that two-year window , there remains uncertainty on whether , and by how much , discretionary spending will be increased above the budget caps put in place in august 2011. without additional action , federal expenditures would decline sharply in gfy 2020. adverse changes in fiscal and economic conditions could materially impact our business . some changes that could have an adverse impact on our business include the implementation of future spending reductions ( including sequestration ) , government shutdowns , and issues related to required increases to the nation 's debt ceiling ( under current law , the debt ceiling will be reached in march 2019 ) . the u.s. government has increasingly relied on contracts that are subject to a competitive bidding process ( including indefinite delivery , indefinite quantity ( idiq ) , u.s. general services administration ( gsa ) schedules and other multi-award contracts ) which has resulted in greater competition and increased pricing pressure . we expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process . despite the budget and competitive pressures impacting the industry , we believe we are well positioned to protect and expand existing customer relationships and benefit from opportunities that we have not previously pursued . story_separator_special_tag 23 science applications international corporation story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > to fiscal 2018 primarily due to the absence of acquisition and integration costs in fiscal 2018 ( $ 10 million ) , lower lease exit costs ( $ 8 million ) , lower business development costs ( $ 8 million ) , lower amortization of intangible assets ( $ 5 million ) , and lower compensation expense ( $ 3 million ) . these decreases were partially offset by restructuring costs incurred in fiscal 2018 ( $ 7 million ) and updates to our disclosure statements . sg & a decreased $ 8 million , from fiscal 2016 to fiscal 2017 primarily due to lower amortization of intangible assets ( $ 8 million ) and a decrease in acquisition and integration costs ( $ 16 million ) . these decreases were partially offset by higher bid and proposal ( b & p ) activity to address a strong pipeline of opportunities ( $ 9 million ) , lease exit costs ( $ 5 million ) and the update to our disclosure statements . operating income . operating income as a percentage of revenues decreased to 5.7 % for fiscal 2018 , compared to 5.9 % for fiscal 2017 , primarily due to lower net favorable changes in estimates on contracts accounted for under the percentage-of-completion method and restructuring costs in fiscal 2018. these decreases were partially offset by lower sg & a costs as we continue to drive efficiencies across our operating structure . operating income as a percentage of revenues increased to 5.9 % for fiscal 2017 , compared to 5.3 % for fiscal 2016 , primarily due to a decrease in acquisition and integration costs ( $ 16 million ) , higher net favorable changes in estimates on contracts accounted for using the percentage-of completion method ( $ 9 million ) , cost savings initiatives ( $ 10 million ) , lower intangible asset amortization ( $ 8 million ) and increased revenue volume ( $ 12 million ) . these increases were partially offset by higher b & p activity ( $ 9 million ) and lease exit costs ( $ 5 million ) . net income . net income increased $ 36 million from fiscal 2017 to fiscal 2018 primarily due to lower income tax expense as a result of the adoption of asu 2016-09 , improvements to employee share-based payment accounting ( $ 22 million ) , a one-time benefit from the effect of the federal corporate tax rate change ( $ 17 million ) and lower interest expense . these increases were partially offset by lower operating income . net income increased $ 26 million from fiscal 2016 to fiscal 2017 primarily due to increased operating income ( $ 24 million , net of tax ) and a lower effective tax rate ( $ 7 million ) , partially offset by increased interest expense primarily due to one additional quarter of interest in the current year on additional borrowings . cash flows provided by operating activities . cash flows provided by operating activities were $ 217 million for fiscal 2018 which represented a decrease of $ 56 million from fiscal 2017 primarily due to the timing of customer collections ( $ 125 million ) , partially offset by an extra week of payroll in the prior year ( $ 30 million ) , a net reduction in working capital investments in marine corps platform integration and it services programs ( $ 18 million ) and excess tax benefits for stock based compensation in the current year ( $ 22 million ) . cash flows provided by operating activities were $ 273 million for fiscal 2017 which represented an increase from fiscal 2016 primarily due to a net reduction in working capital investments in marine corps platform integration and it services programs ( $ 34 million ) , strong customer receipts , and lower payments for acquisition and integration costs ( $ 13 million ) and income taxes ( $ 7 million ) . cash flows were also higher due to one additional quarter of operating activities of scitor . these increases were partially offset by higher interest payments due to one additional quarter of interest incurred on additional borrowings ( $ 13 million ) and one extra week of payroll in the current year . non-gaap measures internal revenue growth ( contraction ) , earnings before interest , taxes , depreciation and amortization ( ebitda ) , and adjusted ebitda are non-gaap financial measures . while we believe that these non-gaap financial measures may be useful in evaluating our financial information , they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with gaap . reconciliations , definitions , and how we believe these measures are useful to management and investors are provided below . other companies may define similar measures differently . 25 science applications international corporation internal revenue growth . internal revenue growth ( or internal revenue contraction if negative ) is utilized to evaluate revenue growth after the completion of acquisitions and other adjustments identified as impacting year over year comparability . internal revenue growth is calculated by comparing our reported revenues for the current year to the reported revenues for the prior year comparable period adjusted to include any pre-acquisition historical revenues of acquired businesses . we adjust current and prior year revenue to exclude the impact of revenue performed by our former parent company , leidos holdings , inc. ( “ former parent ” ) since revenues on pre-separation joint work are recorded equal to cost and are expected to decline over time ( see note 1 of the notes to the consolidated financial statements for information regarding our separation from former parent ) . for fiscal 2017 , a 53-week fiscal year , we have also adjusted revenue to exclude the estimated impact of the additional week in order to facilitate comparison to fiscal 2018 and fiscal 2016 , which are 52-week fiscal years .
| results of operations the primary financial performance measures we use to manage our business and monitor results of operations are revenues , operating income and cash flows from operating activities . the following table summarizes our results of operations : replace_table_token_6_th revenues . revenues increased $ 12 million from fiscal 2017 to fiscal 2018 primarily due to revenue on new contracts supporting nasa , the u.s. army , and the environmental protection agency ( epa ) ( $ 156 million ) , increased orders within our supply chain portfolio ( $ 56 million ) and higher revenue on platform integration programs ( $ 31 million ) . these increases were partially offset by one additional week in the prior year ( $ 88 million ) and completion of contracts and other net decreases across our portfolio ( $ 143 million ) , including the loss of an it integration contract supporting the dhs ( $ 46 million ) . revenues increased $ 127 million from fiscal 2016 to fiscal 2017 primarily due to revenues earned on contracts obtained through the acquisition of scitor ( which occurred in the second quarter of the prior year period ) , revenues on newly awarded programs including the amphibious combat vehicle and gsa enterprise operations programs ( $ 138 million ) as well as revenues due to one additional week in the current year period ( $ 88 million ) . these increases were partially offset by lower activity on our supply chain and logistics services programs as the result of the loss of two contracts in the prior year ( $ 75 million ) , the expected decline on the assault amphibious vehicle program as we near completion of the prototyping phase ( $ 25 million ) , and various other decreases across our contract portfolio due to programs that have ended or have experienced lower activity .
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we elected to early adopt this amended guidance in the first quarter of 2017. the primary impact of the adoption was the recognition of excess tax benefits in the income statement on a prospective basis , rather than apic . as a result , discrete tax benefits of $ 54 million were recognized in income tax expense in 2017. we also elected to adopt 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 . refer to financial note 29 , “ segments of business , ” to the consolidated financial statements appearing in this annual report on form 10-k for a description of these segments . 31 mckesson corporation financial review ( continued ) story_separator_special_tag investment was recorded in our financial results for 2017. commencing april 1 , 2017 , our proportionate share of the net income or loss from the joint venture including these transaction expenses will be recorded in “ other income , net ” in our consolidated statement of operations . refer to financial note 2 , “ healthcare technology net asset exchange , ” to the consolidated financial statements appearing in this annual report on form 10-k for additional information . excluding the gain on healthcare technology net asset exchange , 2017 operating expenses increased primarily due to a non-cash pre-tax charge of $ 290 million ( $ 282 million after-tax ) for goodwill impairment related to our eis business within our technology solutions segment and higher expenses due to our 2017 acquisitions . in connection with the healthcare technology net asset exchange , we are evaluating strategic options for our eis business . 2017 operating expenses benefited from lower restructuring charges and cost savings associated with a cost alignment plan implemented in the fourth quarter of 2016 and ongoing expense management efforts . 2016 operating expenses decreased primarily due to pre-tax gains of $ 103 million from the sale of two businesses and lower acquisition-related expenses , partially offset by pre-tax restructuring charges of $ 203 million relating to the 2016 cost alignment plan . additionally , 2015 operating expenses included a pre-tax and after-tax $ 150 million charge associated with the settlement of controlled substance distribution claims with the drug enforcement administration ( “ dea ” ) , department of justice ( “ doj ” ) and various u.s. attorney 's offices . income from continuing operations before income taxes increased in 2017 and 2016 compared with the prior years primarily due to lower operating expenses . our reported income tax rates were 23.4 % , 27.9 % and 30.7 % in 2017 , 2016 and 2015 . income tax expense for 2017 included discrete income tax benefits of $ 54 million related to the early adoption of the amended accounting guidance on share-based compensation . in 2017 , we sold various software and ancillary intellectual property relating to our technology solutions business between wholly owned legal entities within the mckesson group that are based in different tax jurisdictions and recognized a net tax benefit of $ 137 million prior to the contribution of these assets to change healthcare . loss from discontinued operations , net of tax , for 2017 includes an after-tax loss from discontinued operations of $ 113 million resulting from the 2017 first quarter sale of our brazilian pharmaceutical distribution business and for 2015 , included pre-tax non-cash impairment charges of $ 241 million ( $ 235 million after-tax ) associated with the same brazilian business . net income attributable to mckesson corporation was $ 5,070 million , $ 2,258 million and $ 1,476 million in 2017 , 2016 and 2015 and diluted earnings per common share attributable to mckesson corporation from continuing operations were $ 23.28 , $ 9.84 33 mckesson corporation financial review ( continued ) and $ 7.54 . diluted loss per common share attributable to mckesson corporation from discontinued operations were $ 0.55 , $ 0.14 and $ 1.27 in 2017 , 2016 and 2015 . on april 3 , 2017 , we completed our acquisition of covermymeds llc ( “ cmm ” ) for $ 1.3 billion and up to an additional $ 0.2 billion of contingent consideration payable based on cmm 's financial performance through the end of 2019. cmm provides electronic prior authorization solutions and is headquartered in columbus , ohio . refer to financial note 4 , “ business combinations ” to the consolidated financial statements appearing in this annual report on form 10-k. revenues : replace_table_token_6_th revenues increased 4 % and 7 % in 2017 and 2016 compared to the same periods a year ago primarily driven by our distribution solutions segment , which accounted for approximately 99 % of our consolidated revenues . story_separator_special_tag as of march 31 , 2017 and 2016 , pharmaceutical inventories at lifo did not exceed market . 35 mckesson corporation financial review ( continued ) technology solutions technology solutions segment 's gross profit decreased in 2017 and remained flat in 2016. gross profit for 2017 decreased due to one less month of gross profit from the core mts business , which was contributed to the joint venture on march 1 , 2017. this segment 's gross profit margin increased over the last two years . gross profit margin for 2017 increased primarily due to a decline in hospital software revenues , lower severance charges , ongoing cost management efforts and the prior year sales of businesses , partially offset by a lower margin from our hospital software business . gross profit margin for 2017 also benefited from lower depreciation and amortization expenses related to the core mts business ' assets , which were classified as held for sale since the second quarter of 2017. depreciation and amortization related to the long-lived assets ceased as of the date they were determined as held for sale . gross profit margin for 2016 benefited from the sale of our nurse triage business , transitioning of our workforce business within our international technology business to a third party , and higher pull-through of deferred revenue . these increases were partially offset by $ 49 million of pre-tax severance charges including charges associated with the 2016 cost alignment plan . additionally , in 2015 we recorded a $ 34 million pre-tax non-cash charge representing a catch-up in depreciation and amortization expenses associated with our workforce business within our international technology business . this business , which was previously designated as a discontinued operation , was reclassified to a continuing operation in 2015 when we decided to retain the business . operating expenses : replace_table_token_8_th ( 1 ) 2017 includes pre-tax restructuring charges associated with the 2016 cost alignment plan of $ 19 million and $ 5 million within our distribution solutions segment and corporate , and credits of $ 6 million within our technology solutions segment . 2016 includes pre-tax restructuring charges of $ 156 million , $ 30 million and $ 17 million within our distribution solutions segment , technology solutions segment and corporate . ( 2 ) 2017 excludes the pre-tax gain on healthcare technology net asset exchange , net , recorded within our technology solutions segment . ( 3 ) 2017 includes a non-cash pre-tax impairment charge of $ 290 million related to our eis business within our technology solutions segment . 2015 includes pre-tax claim and litigation charges of $ 150 million within our distribution solutions segment . operating expenses for 2017 and 2016 decreased 47 % and 7 % compared to the same periods a year ago . excluding favorable foreign currency effects of 2 % and 5 % , operating expenses decreased 45 % and 2 % for 2017 and 2016 . 2017 operating expenses benefited from a pre-tax gain of $ 3,947 million ( $ 3,018 million after-tax ) from the deconsolidation of the core mts business within our technology solutions segment as previously discussed . 2016 operating expenses were favorably affected by pre-tax gains of $ 103 million from the sale of two businesses and lower acquisition-related expenses , partially offset by pre-tax restructuring charges of $ 203 million . 36 mckesson corporation financial review ( continued ) on march 14 , 2016 , we committed to a cost alignment plan , which primarily consists of a reduction in workforce and business process initiatives that will be substantially implemented prior to the end of 2019. we expect to incur a total of $ 250 million to $ 270 million of pre-tax charges under this plan , of which $ 243 million primarily representing employee severance costs had been recorded from the inception of the plan through march 31 , 2017. estimated remaining charges primarily consist of exit-related costs and accelerated depreciation and amortization , which are largely attributed to our distribution solutions segment . the 2016 cost alignment plan generated approximately $ 170 million to $ 190 million of net pre-tax savings during 2017. we anticipate the 2016 cost alignment plan to generate an incremental $ 70 million to $ 90 million of net pre-tax savings during the fiscal year ending march 31 , 2018. additional information on our cost alignment plan is included in financial note 6 , “ restructuring ” to the consolidated financial statements appearing in this annual report on form 10-k. distribution solutions distribution solutions segment 's operating expenses increased 2 % in 2017 and decreased 7 % compared to the same periods a year ago . excluding favorable foreign currency effects of 3 % and 5 % , operating expenses increased 5 % in 2017 and decreased 2 % in 2016. operating expenses increased in 2017 primarily due to our acquisitions and higher acquisition-related expenses and intangible amortization , partially offset by lower restructuring charges and cost savings associated with the 2016 cost alignment plan , ongoing expense management efforts , a pre-tax gain from the sale of a business recorded in 2016 and lower bad debt expense . operating expense decreased in 2016 compared to the prior year primarily due to lower acquisition-related expenses relating to integration activities for our acquisitions and the sale of our zee medical business , including a pre-tax gain of $ 52 million . these decreases were partially offset by pre-tax charges of $ 156 million associated with the 2016 cost alignment plan , higher compensation and benefit costs and bad debt expense . operating expenses for 2015 included a $ 150 million charge associated with the settlement of controlled substance distribution claims . technology solutions technology solutions segment 's operating expenses and operating expenses as a percentage of revenues decreased in 2017 primarily due to a pre-tax gain of $ 3,947 million ( after-tax gain of $ 3,018 million ) from the deconsolidation of the core mts business .
| results of operations overview : replace_table_token_5_th revenues for 2017 and 2016 increased 4 % and 7 % compared to the same periods a year ago primarily due to market growth and expanded business with existing customers within our north america pharmaceutical distribution businesses . revenues for 2017 also increased due to our 2017 acquisitions including udg healthcare plc ( “ udg ” ) , biologics , inc. ( “ biologics ” ) , vantage oncology holdings , llc ( “ vantage ” ) and rexall health . market growth includes growing drug utilization , price increases and newly launched products , partially offset by price deflation associated with brand to generic drug conversion . gross profit decreased 1 % in 2017 and was flat in 2016 compared to the same periods a year ago . excluding unfavorable foreign currency effects of 1 % and 4 % , gross profit remained flat in 2017 and increased 4 % in 2016. gross profit margin decreased in 2017 primarily due to weaker pharmaceutical manufacturer pricing trends , the competitive sell-side pricing environment , our mix of business and lower compensation from a branded pharmaceutical manufacturer from our u.s. pharmaceutical distribution business . these decreases were partially offset by our acquisitions , lifo inventory credits , higher cash receipts from antitrust legal settlements and benefits from our global procurement arrangements . gross profit margin decreased in 2016 primarily due to a lower sell margin within our north america distribution business driven by increased customer sales volume with some of our largest customers , partially offset by higher buy margin including benefits from our global procurement arrangements , lower lifo-related inventory charges and higher cash receipts from antitrust legal settlements . gross profit included lifo-related inventory credits of $ 7 million in 2017 and charges of $ 244 million and $ 337 million in 2016 and 2015 . lifo credits were recognized in 2017 primarily due to the impact of lower price increases .
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on january 19 , 2016 , the company entered into exchange agreements ( the “ option exchange agreements ” ) ( note 6 ) with certain of its employees pursuant to which such employees agreed to return options to purchase an aggregate of up to 27,256 shares of common stock in consideration for restricted stock grants ( the “ restricted stock grants ” ) in the aggregate amount of 21,922 shares of common stock pursuant to the company 's 2011 equity incentive plan and 2014 equity incentive plan , as amended . the restricted stock grants are vested in full upon issuance . the company recorded an additional one time stock based compensation expense of approximately $ 122,000 as a result of the stock option exchange agreements . as of april 30 , 2017 , there was no unearned compensation costs related to stock options remaining . series a preferred shares in accordance with the series a purchase stock purchase agreement , on october 30 , 2015 , investors in the series a preferred stock exercised a right to purchase 20,000 shares of series a preferred stock and warrants ; gross proceeds of the transaction were $ 100,000 . in fiscal year ended april 30 , 2016 , holders of series a preferred stock converted 123,300 series a preferred shares into 51,375 shares of common stock . the converted value for each series a preferred share was approximately $ 11.84 which resulted in approximately $ 365,000 reduction to the series a preferred stock and a $ 365,000 offsetting increase to additional paid in capital in the april 30 , 2016 consolidated balance sheet . dividends on the series a preferred stock recorded in the year ended april 30 , 2016 were approximately $ 122,000 . the board of directors authorized accumulated dividends from the date of series a preferred stock issuance to be paid in the form of common stock . this resulted in the issuance of 11,603 common shares and a reduction of accumulated dividends of approximately $ 233,000 and offsetting increase of approximately $ 233,000 in additional paid in capital in the accompanying condensed balance sheet . the preferential cumulative dividends accrued at the rate of 8 % per annum . the dividends payable were paid in shares of common stock and were valued at the volume weighted average price of the company 's common stock over the ten ( 10 ) consecutive trading days ended on the second trading day immediately before the dividend payment date . during fiscal year ended april 30 , 2016 , all series a preferred stock were converted into common shares or exchanged for into series b preferred stock . ( see note 6 ) . no series a preferred stock were outstanding at april 30 , 2017 or april 30 , 2016 . 47 series b preferred shares on january 15 , 2016 the company entered into an agreement with the institutional bridge note holders to exchange their entire balance ( principal and accrued and unpaid interest ) of bridge notes originally issued on july 14 , 2014 through the issuance of 55,083 shares of series b preferred stock , having a value of $ 649,967 . the carrying value of principal and accrued interest extinguished was $ 672,000 resulting in a gain on extinguishment of $ 22,033 ( see note 6 ) . during the fiscal year ended april 30 , 2016 , the holders of series b preferred stock converted 4,125 series b preferred shares into 6,875 shares of common stock . the converted value for each series b preferred share was approximately $ 12.20 or $ 50,325 and resulted in an offsetting increase to additional paid in capital in the april 30 , 2016 consolidated balance sheet . during the fiscal year ended april 30 , 2017 , the holders of series b preferred stock converted 331,559 series b preferred shares into 552,598 shares of common stock . the converted value for each series b preferred share was approximately $ 12.20 or $ 4,045,007 and resulted in an offsetting increase to additional paid in capital in the april 30 , 2017 consolidated balance sheet . as of april 30 , 2017 there are no remaining outstanding series b preferred shares . series d preferred shares on august 3 , 2016 , the company entered into separate securities purchase agreements with accredited investors for the issuance and sale of the company 's newly designated 0 % series d convertible preferred stock which are convertible into shares of the company 's common stock , par value $ 0.001 per share . the series d preferred stock is governed by a certificate of designations , preferences and rights of the 0 % series d convertible preferred stock . each share of series d preferred stock was sold at a per share purchase price of $ 136.00 and converts into 25 shares of common stock , subject to adjustment for dividends and stock splits . on august 5 , 2016 , the company closed the private placement and sold story_separator_special_tag this item 7 , “ management 's discussion and analysis of financial condition and results of operations , ” and other parts of this form 10-k contain forward-looking statements , within the meaning of the private securities litigation reform act of 1995 , that involve risks and uncertainties . forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact . story_separator_special_tag common stock were issued to holders of usg 's series a preferred stock ; ● 466,678 shares of the company 's common stock were issued to holders of usg 's series b preferred stock ; ● 45,000.18 shares of the company 's newly designated series c convertible preferred stock , par value $ 0.001 per share ( the “ series c preferred stock ” ) , convertible into an aggregate of 4,500,180 shares of the company 's common stock that were to be issued to copper king , 45,500.18 shares of series c preferred stock were issued to copper king on the closing and 4,500.01 shares of series c preferred stock are to be held in escrow pursuant to the terms of the escrow agreement as further discussed below ; ● 452,359 five-year cashless warrants with an exercise price of $ 2.64 per share were issued to laidlaw & company ( uk ) ltd. ; ● 462,500 shares of common stock were issued to holders of usg common stock issued in connection with the closing of the keystone acquisition ; and ● 231,458 five-year options with an exercise price of $ 3.60 per share , which vest in 24 equal monthly installments commencing on the date of issuance were issued to holders of options issued in connection with the closing of the keystone acquisition ( collectively , the “ merger consideration ” ) . ● a minimum of 333,333 and a maximum of 583,333 shares of dataram 's common stock and warrants to purchase up to 62,500 shares of dataram 's common stock ( or such lesser amount depending on the size of the u.s. gold financing ) shall be issued to the placement agent in the u.s. gold financing ; 27 the company registered the shares of common stock issued to holders of outstanding shares of usg 's common stock , series a preferred stock , series b preferred stock and series c preferred stock together with the shares of common stock underlying the company 's newly designated series c preferred stock on a registration statement on form s-4 ( file number 333-215385 ) which registration statement was declared effective on march 7 , 2017. the merger has constituted a change of control or change in control , the majority of the board of directors changed with the consummation of the merger . the company issued to usg shares of common stock which represented approximately 91 % of the combined company . contractual obligations future minimum lease payments under non-cancelable operating leases ( with initial or remaining lease terms in excess of one year ) as of april 30 , 2017 are as follows : leases replace_table_token_5_th purchases at april 30 , 2017 , the company had open purchase orders outstanding totaling $ 350,000 , primarily for inventory items to be delivered in the first three months of the fiscal year ending april 30 , 2018. these purchase orders are cancelable . off-balance sheet arrangements we do not have , and do not have any present plans to implement , any off-balance sheet arrangements . recently issued accounting pronouncements see notes to consolidated financial statements ( note 3 ) critical accounting policies during december 2001 , the securities and exchange commission ( “ sec ” ) published a commission statement in the form of financial reporting release no . 60 which encouraged that all registrants discuss their most “ critical accounting policies ” in management 's discussion and analysis of financial condition and results of operations . the sec has defined critical accounting policies as those that are both important to the portrayal of a company 's financial condition and results , and that require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . while the company 's significant accounting policies are summarized in note 3 of notes to consolidated financial statements included in this annual report , management believes the following accounting policies to be critical : 28 revenue recognition - revenue is recognized when title passes upon shipment of goods to customers . the company 's revenue earning activities involve delivering or producing goods . the following criteria are met before revenue is recognized : persuasive evidence of an arrangement exists , shipment has occurred , selling price is fixed or determinable and collection is reasonably assured . the company does experience a minimal level of sales returns and allowances for which the company accrues a reserve at the time of sale in accordance with the revenue recognition – right of return topic of the fasb asc . estimated warranty costs are accrued by management upon product shipment based on an estimate of future warranty claims . research and development - research and development costs are expensed as incurred , including company-sponsored research and development and costs of patents and other intellectual property that have no alternative future use when acquired and in which we had an uncertainty in receiving future economic benefits . development costs of a computer software product to be sold , leased , or otherwise marketed are subject to capitalization beginning when a product 's technological feasibility has been established and ending when a product is available for general release to customers . technological feasibility of a computer software product is established when all planning , designing , coding and testing activities that are necessary to establish that the product can be produced to meet its design specifications ( including functions , features and technical performance requirements ) are completed . income taxes - the company utilizes the asset and liability method of accounting for income taxes in accordance with the provisions of the expenses – income taxes topic of the fasb asc . under the asset and liability method , deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement
| results of operations the following table sets forth consolidated operating data expressed as a percentage of revenues for the periods indicated . replace_table_token_3_th fiscal 2017 compared with fiscal 2016 revenues for the fiscal year ended april 30 , 2017 were $ 17,402,000 compared to $ 25,182,000 in the fiscal year ended april 30 , 2016 , a 31 % decrease . the company reduced sales resources associated with marginally profitable broker product line which resulted in approximately $ 3,300,000 decline in revenue . there was also a general weakness domestically for the company 's products . revenues for the fiscal years ended april 30 , 2017 and 2016 by geographic region were : replace_table_token_4_th * principally asia pacific region the company expects that the entire backlog on hand will be filled during the fiscal year ending april 30 , 2018 and mostly in the first quarter . the company 's backlog at april 30 , 2017 was $ 399,000. at april 30 , 2016 , the company 's backlog was $ 274,000. cost of sales was $ 14,468,000 in the fiscal year ended april 30 , 2017 or 83 % of revenues compared to $ 20,464,000 or 81 % of revenues in the fiscal year ended april 30 , 2016. the decrease in gross margin is the result of the company reducing selling prices trying to protect market share .
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in general , revenue associated with subscription licenses is recognized ratably over the term of the license commencing upon the later of the effective date of the arrangement or delivery of the first software product . subscription license revenue is allocated to product and maintenance revenue . the allocation to maintenance revenue is based on vendor specific objective evidence , or vsoe , of fair value of the undelivered maintenance that was established in connection with the sale of cadence 's term licenses that contain stated annual renewal rates . term licenses cadence 's term license arrangements offer customers the right to : access and use all software products delivered at the outset of an arrangement throughout the entire term of the arrangement , generally two to four years , with no rights to return ; and remix among the software products delivered at the outset of the arrangement , so long as the cumulative value of all products in use does not exceed the total license fee determined at the outset of the arrangement . these remix rights may be exercisable multiple times during the term of the arrangement . the right to remix all software products delivered pursuant to the license agreement is not considered an exchange or return of software because all software products have been delivered and the customer has the continuing right to use them . in general , product revenue associated with term licenses that include a stated annual maintenance renewal rate is recognized upon the later of the effective date of the arrangement or delivery of the software product and maintenance revenue is recognized ratably over the maintenance term . in general , product and maintenance revenue associated with term licenses that do not include a stated annual maintenance renewal rate is recognized story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k and with item 1a , risk factors. please refer to the cautionary language at the beginning of part i of this annual report on form 10-k regarding forward-looking statements . business overview we develop eda software , hardware , and silicon ip . we license software and ip , sell or lease hardware technology , provide maintenance for our software , ip and hardware and provide engineering and education services throughout the world to help manage and accelerate product development processes for electronics . our customers use our products and services to design and develop complex ics and electronics systems . during fiscal 2010 , we had orders of $ 956 million . we primarily generate revenue from licensing our eda software and ip , selling or leasing our hardware technology , providing maintenance for our products and providing engineering services . substantially all of our revenue is generated from ic and electronics systems manufacturers and designers and is dependent upon their commencement of new design projects . as a result , our revenue is significantly influenced by our customers ' business outlook and investment in the introduction of new products and the improvement of existing products . critical accounting estimates in preparing our consolidated financial statements , we make assumptions , judgments and estimates that can have a significant impact on our revenue , operating income ( loss ) and net income ( loss ) , as well as on the value of certain assets and liabilities on our consolidated balance sheets . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . at least quarterly , we evaluate our assumptions , judgments and estimates and make changes accordingly . historically , our assumptions , judgments and estimates relative to our critical accounting estimates have not differed materially from actual results . we believe that the assumptions , judgments and estimates involved in the accounting for revenue recognition , accounting for income taxes , allowance for doubtful accounts , valuation of intangible assets , valuation of goodwill and fair value have the greatest potential impact on our consolidated financial statements ; therefore , we consider these to be our critical accounting estimates . for information on our significant accounting policies , see note 2 to our consolidated financial statements . revenue recognition we begin to recognize revenue from licensing and supporting our software , ip and hardware products when all of the following criteria are met : we have persuasive evidence of an arrangement with a customer ; delivery of all specified products has occurred ; the fee for the arrangement is considered to be fixed or determinable , at the outset of the arrangement ; and collectibility of the fee is probable . significant judgment is involved in the determination of whether the facts and circumstances of an arrangement support that the fee for the arrangement is considered to be fixed or determinable and that collectibility of the fee is probable , and these judgments can affect the amount of revenue that we recognize in a particular reporting period . we must also make these judgments when assessing whether a contract amendment to a term arrangement ( primarily in the context of a license extension or renewal ) constitutes a concession . our experience has been that we are able to determine whether a fee is fixed or determinable for term licenses and we have established a history of collecting under the original contract without providing concessions on payments , products or services . 30 for installment contracts that do not include a substantial up-front payment , we consider that a fee is fixed or determinable only if the arrangement has payment periods that are equal to or less than the term of the licenses and the payments are collected in equal or nearly equal installments , when evaluated over the entire term of the arrangement . story_separator_special_tag changes in our business , tax laws or our interpretation of tax laws , and developments in current and future tax audits , could significantly impact the amounts provided for income taxes in our results of operations , financial position or cash flows . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis . we regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized . to make this assessment , we take into account predictions of the amount and category of taxable income from various sources and all available positive and negative evidence about these possible sources of taxable income . the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified . for example , a company 's current year or previous year losses are given more weight than its future outlook . for the years ended january 1 , 2011 and january 2 , 2010 , we concluded that a significant valuation allowance was required based on our evaluation and weighting of the positive and negative evidence . if , in the future , we determine that these deferred tax assets are more likely than not to be realized , a release of all or part , of the related valuation allowance could result in a material income tax benefit in the period such determination is made . for an additional description of the valuation allowance , see note 6 to our consolidated financial statements . we only recognize an income tax position in our financial statements that we judge is more likely than not to be sustained solely on its technical merits in a tax audit , including resolution of any related appeals or litigation processes . to make this judgment , we must interpret complex and sometimes ambiguous tax laws , regulations and administrative practices . if an income tax position meets the more likely than not recognition threshold , then we must measure the amount of the tax benefit to be recognized by determining the largest amount of tax benefit that has a greater than a 50 % likelihood of being realized upon effective settlement with a taxing authority that has full knowledge of all of the relevant facts . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible settlement outcomes . to determine if a tax position is effectively settled , we must also estimate the likelihood that a taxing authority would review a tax position after a tax examination has otherwise been completed . we must also determine when it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease in the 12 months after each fiscal year-end . these judgments are difficult because a taxing authority may change its behavior as a result of our disclosures in our financial statements or for other reasons . we must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances , changes in tax law , effectively settled issues under audit , and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . in addition , we are required by the irs to disclose uncertain tax positions taken on our federal tax return for fiscal 2010. we are also required to assess whether the earnings of our foreign subsidiaries will be indefinitely reinvested outside the united states . as of january 1 , 2011 , we had recognized a deferred tax liability of $ 5.2 million related to $ 8.6 million of earnings from certain foreign subsidiaries that are not considered indefinitely invested outside the united states . changes in our actual or projected operating results , tax laws or our interpretation of tax laws , foreign 32 exchange rates and developments in current and future tax audits could significantly impact the amounts provided for income taxes in our results of operations , financial position or cash flows . allowance for doubtful accounts we make judgments as to our ability to collect outstanding receivables and provide allowances for a portion of receivables when collection becomes doubtful . this allowance is based on our assessment of the creditworthiness of our customers , historical experience and the overall economic climate of the industries that we serve . while we believe that our allowance for doubtful accounts is adequate , we continue to monitor customer liquidity and other economic conditions , which may result in changes to our estimates regarding our ability to collect from our customers . changes in circumstances , such as an unexpected change in a customer 's ability to meet its financial obligation to us or a customer 's payment trends , are hard to predict and may require us to adjust our estimates of the recoverability of amounts due to us . these changes could have a material adverse effect on our business , financial condition and operating results . during fiscal 2009 , we increased the allowance for doubtful accounts by $ 21.6 million as a result of our assessment of the increased risk of customer delays or defaults on payment obligations .
| results of operations overview of fiscal 2010 financial results for fiscal 2010 , as compared to fiscal 2009 and fiscal 2008 , reflect the following : our customers remain cautious about making substantial new expenditures to purchase or lease eda products or services despite growth in the semiconductor industry and some stabilization in the overall economic environment during 2010 ; increased revenue recognized because of higher business levels due to the timing of contract renewals with existing customers and from contracts executed in prior years due to our continued transition to a ratable license mix , which began in the third quarter of fiscal 2008 ; a decrease in our bad debt expense due to the prior year increase in our allowance for doubtful accounts and the current year release of a portion of the reserve as a result of customer payments of certain receivables that were previously included in our allowance for doubtful accounts ; an increase in employee-related costs for commissions and other employee incentive compensation primarily resulting from improving business levels during fiscal 2010 , as compared to fiscal 2009 , partially offset by decreased costs as a result of our prior year restructuring plans and other expense reductions ; the acquisition of denali including an increase in deferred tax liabilities from the intangible assets acquired with denali and the resulting benefit for income taxes because of the release of valuation allowance against our deferred tax assets ; effective settlement of the irs examination of our federal income tax returns for the tax years 2000 through 2002 , which resulted in a benefit for income taxes of $ 147.9 million during fiscal 2010 ; the issuance of $ 350.0 million principal amount of our 2015 notes , and the repurchase of $ 100.0 million principal amount of our 2011 notes , and $ 105.5 million principal amount of our 2013 notes ; and on february 8 , 2011 and february 11 ,
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the august 2016 warrants include price protection provisions pursuant to which , subject to certain exempt issuances , the then exercise price of the august 2016 warrants will be adjusted in the event we issue shares of our common stock for consideration per share less than the then exercise price of the august 2016 warrants , to the lowest consideration per share for the shares issued or sold in such transaction . the price protection will be in effect until the earliest of ( i ) the termination date of the august 2016 warrants , ( ii ) such time as the warrants are exercised or ( iii ) contemporaneously with the listing of our shares of common stock on a registered national securities exchange . 40 in addition , in august 2016 , acuitas , agreed to exchange its existing promissory note for short-term senior promissory notes , in the aggregate principal amount of $ 2.8 million plus accrued interest , in the form substantially identical to the form of the august 2016 notes . acuitas also agreed to exchange certain of its outstanding warrants to purchase an aggregate of 2,028,029 shares of our common stock at an exercise price of $ 0.33 per share , for warrants to purchase an aggregate of 2,993,561 shares of our common stock at an exercise price of $ 1.10 per share , in the form substantially identical to the form of the august 2016 warrants . in december 2016 , we exchanged the august 2016 notes issued to the investors , which had an aggregate outstanding principal amount of $ 5.6 million , for ( i ) 8 % convertible debentures in the same principal amount due on march 15 , 2017 ( the “ debentures ” ) and ( ii ) five-year warrants to purchase shares of the company 's common stock in amount equal to forty percent ( 40 % ) of the initial number of shares of common stock issuable upon conversion of each investor 's debentures , at an exercise price of $ 1.10 per share ( the “ december 2016 warrants ” ) . the december 2016 warrants include a price protection provision pursuant to which , subject to certain exempt issuances , the then exercise price of the december 2016 warrants will be adjusted if the company issues shares of common stock at a price that is less than the then exercise price of the december 2016 warrants . such price protection provisions will remain in effect until the earliest of ( i ) the termination date of the december 2016 warrants , ( ii ) such time as the december 2016 warrants are exercised or ( iii ) contemporaneously with the listing of our shares of common stock on a registered national securities exchange . in december 2016 , we entered into an agreement with shamus pursuant to which the company received gross proceeds of $ 300,000 for the sale of ( i ) an 8 % series b convertible debenture due march 31 , 2017 ( the “ december 2016 convertible debenture ” ) and ( ii ) five-year warrants to purchase shares of the company 's common stock in an amount equal to seventy-five percent ( 75 % ) of the initial number of shares of common stock issuable upon the conversion of the december 2016 convertible debenture , at an exercise price of $ 0.85 per share ( the “ shamus warrants ” ) . the shamus warrants include price protection provisions pursuant to which , subject to certain exempt issuances , the then exercise price of the shamus warrants will be adjusted if the company issues shares of common stock at a price that is less than the then exercise price of the shamus warrants . such mechanism will remain in effect until the earliest of ( i ) the termination date of the shamus warrants , ( ii ) such time as the shamus warrants are exercised or ( iii ) contemporaneously with the listing of our shares of common stock on a registered national securities exchange . in january 2017 , we entered into a subscription agreement ( the “ subscription agreement ” ) with acuitas , pursuant to which the company will receive aggregate gross proceeds of $ 1,300,000 ( the “ loan amount ” ) in consideration of the issuance of ( i ) an 8 % series b convertible debenture due march 31 , 2017 ( the “ january 2017 convertible debenture ” ) and ( ii ) five-year warrants to purchase shares of the company 's common stock in an amount equal to one hundred percent ( 100 % ) of the initial number of shares of common stock issuable upon the conversion of the january 2017 convertible story_separator_special_tag forward-looking statements this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed due to factors such as , among others , limited operating history , difficulty in developing , exploiting and protecting proprietary technologies , intense competition and substantial regulation in the healthcare industry . additional information concerning factors that could cause or contribute to such differences can be found in the following discussion , as well as in item 1 . a . - “ risk factors . ” overview general we provide data analytics based specialized behavioral health management and integrated treatment services to health plans through our on trak solution . our on trak solution is designed to improve member health and at the same time lower costs to the insurer for underserved populations where behavioral health conditions are causing or exacerbating co-existing medical conditions . story_separator_special_tag if we discontinue operations , we may not have sufficient funds to pay any amounts to our stockholders . off-balance sheet arrangements as of december 31 , 2016 , we had no off-balance sheet arrangements . critical accounting estimates the discussion and analysis of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . u.s. gaap requires management to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and the disclosure of contingent assets and liabilities . we base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources . on an on-going basis , we evaluate the appropriateness of our estimates and we maintain a thorough process to review the application of our accounting policies . our actual results may differ from these estimates . we consider our critical accounting estimates to be those that ( 1 ) involve significant judgments and uncertainties , ( 2 ) require estimates that are more difficult for management to determine , and ( 3 ) may produce materially different results when using different assumptions . we have discussed these critical accounting estimates , the basis for their underlying assumptions and estimates , and the nature of our related disclosures herein with the audit committee of our board of directors . we believe our accounting policies related to share-based compensation expense , the estimation of the fair value of warrant liabilities , and the estimation of the fair value of our derivative liabilities involve our most significant judgments and estimates that are material to our consolidated financial statements . they are discussed further below . share-based compensation expense we account for the issuance of stock , stock options and warrants for services from non-employees based on an estimate of the fair value of options and warrants issued using the black-scholes pricing model . this model 's calculations include the exercise price , the market price of shares on grant date , weighted average assumptions for risk-free interest rates , expected life of the option or warrant , expected volatility of our stock and expected dividend yield . 24 the amounts recorded in the financial statements for share-based compensation expense could vary significantly if we were to use different assumptions . for example , the assumptions we have made for the expected volatility of our stock price have been based on the historical volatility of our stock , measured over a period generally commensurate with the expected term . if we were to use a different volatility than the actual volatility of our stock price , there may be a significant variance in the amounts of share-based expense from the amounts reported . the weighted average expected option term for the twelve months ended december 31 , 2016 and 2015 reflects the application of the simplified method set out in sec staff accounting bulletin no . 107 , which defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches . from time to time , we retain terminated employees as part-time consultants upon their resignation from the company . because the employees continue to provide services to us , their options continue to vest in accordance with the terms set forth under their original grants . due to the change in classification of the option awards , the options are considered modified at the date of termination . the modifications are treated as exchanges of the original awards in return for the issuance of new awards . at the date of termination , the unvested options are no longer accounted for as employee awards and are accounted for as new non-employee awards . the accounting for the portion of the total grants that have already vested and have been previously expensed as equity awards is not changed . there were no employees moved to consulting status for the twelve months ended december 31 , 2016. there was one employee moved to consulting status for the twelve months ended december 31 , 2015. the employee was 100 % vested at the date of termination so no entry was recorded , and the employee is no long a consultant as of december 31 , 2016. warrant liabilities we have issued warrants to purchase common stock in february 2012 , april 2015 , july 2015 , august 2016 , and december 2016. the warrants are being accounted for as liabilities in accordance with fasb accounting rules , due to anti-dilution provisions in some warrants that protect the holders from declines in our stock price , which is considered outside our control . the warrants are marked-to-market each reporting period , using the black-scholes pricing model , until they are completely settled or expire . the warrant liabilities were calculated using the black-scholes model based upon the following assumptions : replace_table_token_4_th for the year ended december 31 , 2016 , we recorded a net gain of $ 2.1 million , compared with a net gain of $ 11.7 million for the same period in 2015 , related to the revaluation of our warrant liabilities . we will continue to mark the warrants to market value each reporting period , using the black-scholes pricing model until they are completely settled or expire .
| results of operations the table below and the discussion that follows summarize our results of operations and certain selected operating statistics for the last two fiscal years ended december 31 , 2016 and 2015 : replace_table_token_3_th year ended december 31 , 2016 compared with year ended december 31 , 2015 summary of consolidated operating results loss from operations before provision for income taxes for the twelve months ended december 31 , 2016 was $ 17.9 million compared with $ 7.2 million for the twelve months ended december 31 , 2015. the increase in loss from operations was primarily due to the decrease in the change in fair value of warrants of $ 9.6 million , the increase in the change in fair value of derivative liability of $ 3.0 million , an increase in interest expense of $ 2.8 million , the increase in the loss on debt extinguishment of $ 2.2 million , offset by the decrease in the loss from operations of $ 2.3 million , and a decrease in the loss on the exchange of warrants of $ 4.4 million . 21 revenues during the twelve months ended december 31 , 2016 , we have launched on trak in several new populations , which has resulted in a significant increase in the number of patients enrolled in our solutions compared with the same period in 2015. for the twelve months ended december 31 , 2016 , enrollment increased by more than 57 % over the same period in 2015. recognized revenue increased by $ 4.4 million , or 162 % , for the year ended december 31 , 2016 , compared with the same period in 2015. we reserve a portion , and in some cases all , of the fees we receive related to enrolled members , as the fees are subject to performance guarantees or are received as case rates in advance at the time of enrollment .
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our policy towards taxes assessed by a government authority directly imposed on revenue producing transactions between a seller and a customer is , and has been , story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto . references herein to “ notes ” refer to the notes to our consolidated financial statements . each of the periods presented had fifty-two weeks . executive overview chico 's fas is a florida-based fashion company founded in 1983 on sanibel island , florida . the company reinvented the fashion retail experience by creating fashion communities anchored by service , which put the customer at the center of everything we do . as one of the leading fashion retailers in north america , chico 's fas is a company of three unique brands operating under the chico 's , white house black market ( “ whbm ” ) and soma brand names - each thriving in their own white space , founded by women , led by women , providing solutions that millions of women say give them confidence and joy . as of january 30 , 2021 , we operated 1,302 stores across 46 states , puerto rico and the united states ( “ u.s. ” ) virgin islands , and sold merchandise through 68 international franchise locations in mexico and 2 domestic airport locations . we sometimes refer to our chico 's and whbm brands collectively as our “ apparel group ” and refer to our soma and telltale brands collectively as “ soma. ” our distinct lifestyle brands typically serve the needs of fashion-savvy women 35 years and older . we earn revenue and generate cash through the sale of merchandise in our domestic retail stores , our various company-operated e-commerce websites , our call center ( which takes orders for all of our brands ) , through unaffiliated franchise partners and through third-party channels . we utilize an integrated , omnichannel approach to managing our business . we want our customers to experience our brands holistically and to view the various retail channels we operate as a single , integrated experience rather than as separate sales channels operating independently . this approach allows our customers to browse , purchase , return or exchange our merchandise through whatever sales channel and at whatever time is most convenient . as a result , we track total sales and comparable sales on a combined basis . exit of canada frontline operations on july 30 , 2020 , chico 's fas canada , co. , an immaterial subsidiary of the company , filed for bankruptcy with the ontario , canada office of the superintendent in bankruptcy . this action resulted in the permanent closure of four chico 's and six whbm boutiques in ontario , canada . the permanent closure of the canadian boutiques , which constitute all of the company 's canadian boutiques , was part of the company 's ongoing cost-savings measures taken to mitigate the impact of the novel strain of coronavirus ( “ covid-19 ” ) pandemic ( the “ covid-19 pandemic ” or the “ pandemic ” ) and address the operational and financial challenges associated with operating in canada . in connection with this effort , in the second quarter of fiscal 2020 , we exited our canada frontline operations and recorded on a net basis a non-material charge , including the realization of a cumulative foreign currency translation adjustment . 28 select financial results the following table depicts select financial results for fiscal 2020 , 2019 and 2018 : replace_table_token_6_th ( 1 ) all significant charges relate to the impact of the pandemic . less significant charges that may have been incurred are not reflected in the table above . ( 2 ) presented pre-tax . ( 3 ) primarily includes impairment on leasehold improvements at certain underperforming stores . ( 4 ) includes impairment on capitalized implementation costs related to our cloud computing arrangements and other technology-related assets . financial results loss per diluted share for fiscal 2020 was $ 3.11 compared to loss per diluted share of $ 0.11 in fiscal 2019. the fiscal 2020 net loss includes approximately $ 200 million in significant after-tax non-cash charges . the fiscal 2019 net loss includes the unfavorable impact of accelerated depreciation charges of approximately $ 8 million , after-tax , related to our retail fleet optimization plan and severance and other related net charges ( collectively , “ severance charges ” ) of approximately $ 2 million , after-tax , in connection with actions taken to reposition our then organizational structure . the fiscal 2018 net income includes the unfavorable impact of accelerated depreciation and impairment charges of approximately $ 8 million , after-tax , related to our retail fleet optimization plan , partially offset by the favorable tax benefit of approximately $ 5 million related to the tax cuts and jobs act of 2017 ( the “ tax act ” ) . current trends during fiscal 2020 , the company experienced varying degrees of business disruptions as a result of the pandemic , which had a material adverse impact on our business operations and operating results and operating cash flows during fiscal 2020. in response to the pandemic , the company took actions to reinforce its financial position and liquidity . specific actions include : significantly reducing capital and expense structures , centralizing key functions to create a nimbler organization to better align costs with expected sales ; suspending the quarterly dividend commencing april 2020 ; aligning inventory receipts with expected demand ; partnering with suppliers and vendors to reduce operating costs and extend payment terms ; and reviewing real estate and actively negotiating with landlords to deliver rent relief in the form of reductions , abatements and other concessions . the company also amended and extended its credit facility to strengthen its liquidity and enhance its financial stability . furthermore , our financial position and liquidity are being bolstered by robust digital performance across all brands . story_separator_special_tag these key measures include comparable sales , 30 gross margin as a percent of sales , diluted earnings per share and return on net assets ( “ rona ” ) . the following describes these measures . comparable sales comparable sales is an omnichannel measure of the amount of sales generated from products the company sells directly to the consumer relative to the amount of sales generated in the comparable prior-year period . comparable sales is defined as sales from stores open for the preceding twelve months , including stores that have been expanded , remodeled or relocated within the same general market and includes online and catalog sales , and beginning in the third quarter of fiscal 2019 , includes international sales . the company has historically viewed comparable sales as a key performance indicator to measure the performance of our business , however , due to varying degrees of business disruptions and periods of store closures or stores operating at reduced hours as a result of the pandemic during fiscal 2020 , we do not believe this is a meaningful measure for fiscal 2020. gross margin as a percentage of net sales gross margin as a percentage of net sales is computed as gross margin divided by net sales . we believe gross margin as a percentage of net sales is a primary metric to measure the performance of our business as it is used to determine the value of incremental sales , and to guide pricing and promotion decisions . diluted earnings per share earnings per share is determined using the two-class method when it is more dilutive than the treasury stock method . basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period , including participating securities . diluted earnings per share reflects the dilutive effect of potential common shares from non-participating securities such as stock options , performance stock units and restricted stock units . whereas basic earnings per share serves as an indicator of the company 's profitability , we believe diluted earnings per share is a primary metric provided it gauges the company 's quality of earnings per share assuming all potential common shares from non-participating securities are exercised . return on net assets rona is defined as ( a ) net income divided by ( b ) the “ five-point average ” ( based on balances at the beginning of the first quarter plus the final balances for each quarter of the fiscal year ) of net working capital less cash and marketable securities plus fixed assets . we believe rona is a primary metric as it helps to determine how well the company is utilizing its assets . as such , a higher rona could indicate that the company is using its assets and working capital efficiently and effectively . story_separator_special_tag of the cares act . liquidity and capital resources overview in response to the pandemic , the company has taken actions to reinforce its financial position and liquidity . specific actions include : significantly reducing capital and expense structures , centralizing key functions to create a nimbler organization to better align costs with expected sales ; suspending the quarterly dividend commencing april 2020 ; aligning inventory receipts with expected demand ; partnering with suppliers and vendors to reduce operating costs and extend payment terms ; and reviewing real estate and actively negotiating with landlords to deliver rent relief in the form of reductions , abatements and other concessions . in october 2020 , the company also amended and extended its credit facility to strengthen its liquidity and enhance its financial stability . the company anticipates satisfying its material cash requirements from its cash flows from operating activities , our cash and marketable securities on hand , capacity within our credit facility and other liquidity options . our ongoing capital requirements will continue to be primarily for enhancing and expanding our omnichannel capabilities , including investments in our stores ; information technology ; and supply chain . the following table summarizes cash flows for fiscal 2020 , 2019 and 2018 : replace_table_token_11_th ( 1 ) may not foot due to rounding . operating activities net cash used in operating activities in fiscal 2020 was $ 98 million compared to net cash provided by operating activities of $ 33 million for fiscal 2019. the change in net cash used in operating activities primarily reflects the fiscal 2020 net loss , partially offset by the suspension or reduction of rent payments commencing in april 2020 and reduced operational spending as sales declined . net cash provided by operating activities in fiscal 2019 was $ 33 million compared to $ 158 million for fiscal 2018. this $ 125 million decrease primarily reflects lower fiscal 2019 net income , a decline in share-based compensation and investments in cloud computing arrangement ( “ cca ” ) service contracts and soma inventory to fund growth . investing activities net cash provided by investing activities for fiscal 2020 was $ 34 million compared to net cash used in investing activities of $ 36 million for fiscal 2019 , reflecting a $ 47 million increase in net proceeds from the sale of marketable securities and reduced capital spend . net cash used in investing activities for fiscal 2019 was $ 36 million compared to $ 56 million for fiscal 2018 , primarily reflecting a $ 20 million decrease in purchases of property and equipment as we continue to invest in cca service contracts .
| results of operations net ( loss ) income and net ( loss ) income per diluted share for fiscal 2020 , the company reported a net loss of $ 360 million , or $ 3.11 loss per diluted share , compared to a net loss for fiscal 2019 of $ 13 million , or $ 0.11 loss per diluted share . results for fiscal 2020 were significantly impacted by the pandemic and included the following non-cash charges : 31 replace_table_token_7_th ( 1 ) all significant charges relate to the impact of the pandemic . less significant charges that may have been incurred are not reflected in the table above . ( 2 ) may not foot due to rounding . ( 3 ) presented pre-tax . ( 4 ) primarily includes impairment on leasehold improvements at certain underperforming stores . ( 5 ) includes impairment on capitalized implementation costs related to our cloud computing arrangements and other technology-related assets . net loss for fiscal 2019 was $ 13 million , or $ 0.11 loss per diluted share , compared to net income for fiscal 2018 of $ 36 million , or $ 0.28 loss per diluted share . the fiscal 2019 net loss includes the unfavorable impact of accelerated depreciation charges of approximately $ 8 million , after-tax , related to our retail fleet optimization plan and severance charges of approximately $ 2 million , after-tax , related to our then revised organizational structure . fiscal 2018 net income includes the unfavorable impact of impairment and accelerated depreciation charges of approximately $ 8 million , after-tax , related to our retail fleet optimization plan , partially offset by the favorable tax benefit of approximately $ 5 million related to the tax act . net sales the following table depicts net sales by chico 's , whbm and soma in dollars and as a percentage of total net sales for fiscal 2020 , 2019 and 2018 : replace_table_token_8_th ( 1 ) may not foot due to rounding .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth under “ risk factors ” and elsewhere in this annual report . overview geovax is a clinical-stage biotechnology company developing human vaccines using our novel platform technology . our current development programs are focused on hiv , hemorrhagic fever viruses , zika virus , and cancer immunotherapy . our hiv vaccine technology was developed in collaboration with researchers at emory university , the nih , and the cdc , and is exclusively licensed to us from emory university . we also have nonexclusive licenses to certain patents owned by the nih . our hemorrhagic fever and zika vaccines , and our cancer immunotherapy program , are being developed with technology licensed to us from the nih . 26 our most advanced hiv vaccine development efforts are focused on a preventive vaccine to address the clade b subtype of the hiv virus that is most prevalent in the developed world ( primarily north america and western europe ) . all of the clinical trials for our preventive hiv vaccine ( through phase 2a ) have been conducted by the hiv vaccine trials network ( hvtn ) with funding from the nih , and we expect additional clinical trials for this program to be funded by the nih . we have also begun preclinical studies to develop an hiv vaccine candidate for the clade c subtype of hiv prevalent in the developing world ( primarily sub-saharan africa and india ) ; this work is currently being supported by nih grants . our hemorrhagic fever vaccine development effort began in 2014 and we are currently conducting preclinical animal studies through a collaboration with the nih . our cancer immunotherapy program began in late 2015 and we are currently constructing vaccines to be evaluated and tested through a collaboration with the university of pittsburgh . our zika virus vaccine development effort began in early 2016 and we are currently constructing vaccines to be evaluated and tested through a collaborations with the university of georgia and with the cdc . we have neither received regulatory approval for any of our vaccine candidates , nor do we have any commercialization capabilities ; therefore , it is possible that we may never successfully derive significant product revenues from any of our existing or future development programs or product candidates . we expect for the foreseeable future our operations will result in a net loss on a quarterly and annual basis . as of december 31 , 2015 , we had an accumulated deficit of $ 32.5 million . critical accounting policies and estimates 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 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 , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates and adjusts the estimates as necessary . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . our significant accounting policies are summarized in note 2 to our consolidated financial statements for the year ended december 31 , 2015. we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition we recognize revenue in accordance with the sec 's staff accounting bulletin no . 101 , revenue recognition in financial statements , as amended by staff accounting bulletin no . 104 , revenue recognition , ( “ sab 104 ” ) . sab 104 provides guidance in applying u.s. generally accepted accounting principles ( “ gaap ” ) to revenue recognition issues , and specifically addresses revenue recognition for upfront , nonrefundable fees received in connection with research collaboration agreements . during 2015 , 2014 and 2013 , our revenue consisted of grant funding received from the nih . revenue from these arrangements is approximately equal to the costs incurred and is recorded as income as the related costs are incurred . in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) , which creates a new topic , accounting standards codification topic 606. the standard is principle-based and provides a five-step model to determine when and how revenue is recognized . the core principle is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asu 2014-09 is effective for the company beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption . we are currently evaluating the impact of the adoption of asu 2014-09 on our financial statements . 27 stock-based compensation we account for stock-based transactions in which the company receives services from employees , directors or others in exchange for equity instruments based on the fair value of the award at the grant date . compensation cost for awards of common stock is estimated based on the price of the underlying common stock on the date of issuance . compensation cost for stock options or warrants is estimated at the grant date based on each instrument 's fair value as calculated by the black-scholes option pricing model . story_separator_special_tag we intend to conduct the initial proof-of-concept animal studies during the first half of 2016. in addition to clinical trial support from the nih for our preventive hiv vaccines and collaborative research support from niaid for our hemorrhagic fever vaccine program , our operations have been partially funded by nih research grants for our hiv program . as of december 31 , 2015 , there was $ 100,469 of unused grant funds available for use during the first half of 2016. we are pursuing additional grants from the federal government for our vaccine development programs but can not be assured of success . cash flows from investing activities our investing activities have consisted predominantly of capital expenditures . capital expenditures for the years ended december 31 , 2015 , 2014 and 2013 , were $ 15,850 , $ 35,503 , and $ 86,603 , respectively . cash flows from financing activities net cash provided by financing activities was $ 2,679,810 , $ 873,400 , and $ 3,259,131 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . in january 2013 , we reduced the exercise price of 2,933,333 of certain stock purchase warrants from $ 0.75 to $ 0.60 per share . in consideration for the reduction of the exercise price , the holders of the warrants immediately exercised 1,766,667 of the warrants for cash , resulting in total proceeds to the company of $ 1,060,000. we also extended the expiration date of the 1,166,666 unexercised warrants . in may 2013 , we reduced the exercise price of the 1,166,666 remaining warrants from $ 0.60 to $ 0.50 per share . in consideration for the reduction of the exercise price , the holders of the warrants immediately exercised all of the remaining warrants for cash , resulting in total proceeds to the company of $ 583,333. in december 2013 , we sold 1,650 shares of our series b convertible preferred stock to a group of institutional investors for an aggregate purchase price of $ 1.65 million . net proceeds to the company , after deduction of transaction expenses , were approximately $ 1.6 million . in october 2014 , we entered into an agreement with certain warrant holders to purchase shares of our common stock with respect to the payment to them of a warrant exercise fee of $ 0.075 per share for each share purchased upon exercise of warrants held by them . in exchange for the fee , they immediately exercised warrants for an aggregate of 3,176,000 shares of our common stock , resulting in proceeds to us of $ 873,400 ( net of the exercise fee ) . in february 2015 , we sold shares of series c convertible preferred stock for an aggregate purchase price of $ 3.0 million . net proceeds to the company were approximately $ 2.7 million . as part of this transaction , we also issued several series stock purchase warrants . in february 2016 , we entered into an agreement with the warrant holders with respect to amending the terms of certain of these warrants . pursuant to the agreement , we extended the term of the warrants by six months ( to august 27 , 2016 ) , and we agreed to pay each warrant holder an exercise fee of $ 0.02916 per share for each share purchased upon exercise of the warrants . the warrant holders agreed to promptly exercise an aggregate of 3,664,588 the warrants , for which we received $ 238,198 in total net proceeds ( after deduction of the warrant exercise fee ) . the remaining warrants that expire on august 27 , 2016 , if exercised in full , would result in net cash proceeds to us ( after deduction of the warrant exercise fee ) of approximately $ 845,000 . 29 our capital requirements , particularly as they relate to our research and development activities , have been and will continue to be significant . we anticipate incurring additional losses for several years as we expand our clinical programs and proceed into higher cost human clinical trials . conducting clinical trials for our vaccine candidates in development is a lengthy , time-consuming and expensive process . we will not generate revenues from the sale of our technology or products for at least several years , if at all . for the foreseeable future , we will be dependent on obtaining financing from third parties in order to maintain our operations , including our clinical program . such capital may not be available on terms acceptable to the company or at all . if we fail to obtain additional funding when needed , we would be forced to scale back or terminate our operations , or to seek to merge with or to be acquired by another company . we expect that our current working capital combined with the remaining available funds from the nih grants will be sufficient to support our planned level of operations into the third quarter of 2016. we will require additional funds to continue our planned operations beyond that date . we are currently seeking sources of non-dilutive capital through government grant programs and clinical trial support , and we may also conduct additional offerings of our equity securities , although there can be no assurance that we will be able to do so . while we believe that we will be successful in obtaining the necessary financing to fund our operations through government grants and clinical trial support , exercise of stock purchase warrants , or other sources , there can be no assurances that such additional funding will be available to us on reasonable terms or at all . should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it , the consequences could have a material adverse effect on our business , operating results , financial condition and prospects .
| results of operations net loss we recorded net losses of $ 2,689,287 , $ 2,733,555 , and $ 2,284,943 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . our operating results typically fluctuate due to the timing of activities and related costs associated with our vaccine research and development activities and our general and administrative costs , as described in more detail below . grant revenue we recorded grant revenues of $ 428,081 , $ 882,956 , and $ 2,417,550 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . grant revenues relate to grants from the nih in support of our hiv vaccine development activities . we record revenue associated with these grants as the related costs and expenses are incurred . the difference in our grant revenues from period to period is directly related to our expenditures for activities supported by the grants , and can fluctuate significantly based on the timing of the related expenditures . there is an aggregate of approximately $ 100,469 in approved grant funds remaining and available for use as of december 31 , 2015 , which we anticipate recognizing as revenue during 2016. additional detail concerning our grant revenues is discussed below . in september 2007 , the nih awarded us an integrated preclinical/clinical aids vaccine development ( ipcavd ) grant entitled “ gm-csf-adjuvanted clade c dna/mva and mva/mva vaccines ” . the aggregate award ( including subsequent amendments ) totaled approximately $ 20.4 million . we recorded grant revenues of $ 75,464 , $ 624,689 , and $ 833,390 for the years ended december 31 , 2015 , 2014 and 2013 , respectively , related to this grant , and all funding pursuant to this grant has been utilized as of december 31 , 2015. in september 2012 , the nih awarded us a supplement to the 2007 ipcavd grant entitled “ immunogens and manufacturing ” to support our hiv/aids vaccine development program . the grant award was for approximately $ 1.9 million .
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the lien was removed when the loans were fully paid off in december 2019. in connection with the financing of the term b loan , we incurred $ 2.5 million in original interest discount and $ 4.9 million in debt issuance costs , which were being amortized to interest expense over the term of the loan using the effective interest method . as a result of the prepayments of $ 230.0 million in 2018 , $ 5.7 million of debt issuance costs were written off as a loss on the extinguishment of debt , which is presented as part of other income ( expense ) , net in our consolidated statements of operations . in december 2019 , we repaid the remaining principal balance of $ 13.8 million and wrote off the remaining unamortized debt issuance costs . convertible senior notes due 2025 on august 7 , 2017 , we completed a private placement of $ 192.5 million aggregate principal amount of our 2025 notes . the proceeds include the 2025 notes sold pursuant to the $ 17.5 million over-allotment option granted by us to the initial purchasers , which option was exercised in full . the 2025 notes were sold in a private placement to qualified institutional buyers pursuant to rule 144a under the securities act . the 2025 notes are senior unsecured obligations and bear interest at a rate of 2.5 % per year , payable semi-annually in arrears on february 15 and august 15 of each year , beginning on february 15 , 2018. the 2025 notes are convertible , based on the applicable conversion rate , into cash , shares of our common stock or a combination thereof , at our election . the initial conversion rate for the 2025 notes is 57.9240 shares of our common stock per $ 1,000 principal amount of the 2025 notes ( which is equivalent to an initial conversion price of approximately $ 17.26 per share ) , representing a 30.0 % conversion premium over the last reported sale price of the company 's common stock on august 1 , 2017 , which was $ 13.28 per share . the conversion rate is subject to customary anti-dilution adjustments in certain circumstances . the 2025 notes will mature on august 15 story_separator_special_tag operations management 's discussion and analysis ( “ md & a ” ) is intended to facilitate an understanding of our business and results of operations . this discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this annual report on form 10-k. 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 , our operating expenses , and future payments under our collaboration agreements , includes forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . such statements are based upon current expectations that involve risks and uncertainties . you should review the section entitled “ risk factors ” in item 1a of part i above 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 . see the section entitled “ special note regarding forward looking statements ” above for more information . management overview innoviva , inc. ( “ innoviva ” , the “ company ” , the “ registrant ” or “ we ” and other similar pronouns ) is a company with a portfolio of royalties that include respiratory assets partnered with glaxo group limited ( “ gsk ” ) , including relvar ® /breo ® ellipta ® ( fluticasone furoate/ vilanterol , “ ff/vi ” ) , anoro ® ellipta ® ( umeclidinium bromide/ vilanterol , “ umec/vi ” ) and trelegy ® ellipta ® ( the combination ff/umec/vi ) . under the long-acting beta2 agonist ( “ laba ” ) collaboration agreement , innoviva is entitled to receive royalties from gsk on sales of relvar ® /breo ® ellipta ® as follows : 15 % on the first $ 3.0 billion of annual global net sales and 5 % for all annual global net sales above $ 3.0 billion ; and royalties from the sales of anoro ® ellipta ® which tier upward at a range from 6.5 % to 10 % . innoviva is also entitled to 15 % of royalty payments made by gsk under its agreements originally entered into with us , and since assigned to theravance respiratory company , llc ( “ trc ” ) , including trelegy ® ellipta ® and any other product or combination of products that may be discovered or developed in the future under the laba collaboration agreement and the strategic alliance agreement with gsk ( referred to herein as the “ gsk agreements ” ) , which have been assigned to trc other than relvar ® /breo ® ellipta ® and anoro ® ellipta ® . our company structure and organization are tailored to our focused activities of managing our respiratory assets with gsk , the commercial and developmental obligations associated with the gsk agreements , intellectual property , licensing operations , and providing for certain essential reporting and management functions of a public company . as of december 31 , 2019 , we had six employees . our revenues consist of royalties and potential milestone payments , if any , from our respiratory partnership agreements with gsk . story_separator_special_tag forfeitures differed from those estimates . the estimated annual forfeiture rates for stock options , rsus and rsas are based on our historical forfeiture experience . story_separator_special_tag general and administrative expenses decreased by $ 12.2 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. the amount for the year ended december 31 , 2018 included $ 5.7 million cash severance costs in connection with certain members of senior management 's separation from the company and payment of $ 2.7 million to sarissa pursuant to a settlement agreement in february 2018. the amount for the year ended december 31 , 2017 included $ 8.1 million of net proxy contest and associated litigation costs . other expense , net , and interest income other expense , net , and interest income , as compared to the prior years , were as follows : replace_table_token_4_th * not meaningful other expense , net for the year ended december 31 , 2019 , mainly consists of the loss on the extinguishment of debt of $ 0.2 million in relation to the remaining principal balance payoff of our term b loan . other expense , net for the year ended december 31 , 2018 , mainly consists of the loss on the extinguishment of debt of $ 5.7 million in relation to the prepayments of our term b loan . other expense , net for the year ended december 31 , 2017 , primarily pertains to the loss on the extinguishment of debt of $ 7.3 million in relation to our redemptions of non-recourse notes due 2029 ( the “ 2029 notes ” ) . interest income increased in the year ended december 31 , 2019 compared to the years ended december 31 , 2018 and 2017 , primarily due to higher cash and investment balances . 34 interest expense interest expense , as compared to the prior years , was as follows : replace_table_token_5_th interest expense decreased for the year ended december 31 , 2019 , compared to the prior years primarily due to the lower average outstanding debt balance . see “ liquidity ” section below for further information . income taxes income tax benefit ( expense ) , net , as compared to the prior years , was as follows : replace_table_token_6_th * not meaningful as of december 31 , 2019 , 2018 and 2017 , we had net operating loss carryforwards for federal income taxes of $ 0.6 billion , $ 0.8 billion , and $ 1.0 billion , respectively . as of december 31 , 2019 , 2018 and 2017 , we had federal research and development tax credit carryforwards of $ 44.4 million , $ 44.8 million , and $ 45.2 million , respectively . for the year ended december 31 , 2019 , we recognized $ 41.9 million of income tax expense based on the taxable income generated during the year . for the year ended december 31 , 2018 , we recognized $ 196.1 million of income tax benefit after we evaluated whether it was more likely than not that some portion or all deferred tax assets would be realized in the future based on all available positive and negative evidence , including but not limited to our historical operating results and our expectation of future profitability , and concluded that we would be able to realize approximately $ 190.2 million and $ 5.9 million benefits of the u.s. federal and state deferred tax assets in the future , respectively . accordingly , we released our valuation allowance on these deferred tax assets as of december 31 , 2018. we had total unrecognized tax benefits of $ 15.3 million as of december 31 , 2019. total unrecognized tax benefits that , if recognized , would affect our effective tax rate were $ 8.0 million as of december 31 , 2019. our total unrecognized tax benefits as of december 31 , 2018 and 2017 were $ 15.4 million and $ 15.5 million , respectively . utilization of net operating loss and tax credit carryforwards is subject to rules , provided by the internal revenue code and similar state provisions , governing annual limitations tied to ownership changes . in addition , as a result of the passage of the tax cuts and jobs act , corporate tax rates in the united states decreased in 2018 , which resulted in the remeasurement of our deferred tax assets at the new statutory rate and a reduction in the value of our deferred tax assets in 2017. we conducted an analysis through september 30 , 2019 to determine whether an ownership change had occurred since inception . the study concluded that it is more likely than not that the company did not experience an ownership change during the testing period . however , notwithstanding the applicable annual limitations , we estimate that no portion of the net operating loss or credit carryforwards will expire before becoming available to reduce federal and state income tax liabilities . annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized . 35 net income attributable to noncontrolling interest net income attributable to noncontrolling interest , as compared to the prior years , was as follows : replace_table_token_7_th * not meaningful net income attributable to noncontrolling interest represents the 85 % share of net income in theravance respiratory company , llc for theravance biopharma . the year over year increases were primarily due to the growth in prescriptions and market share for trelegy ® ellipta ® . liquidity and capital resources liquidity since our inception , we have financed our operations primarily through private placements and public offerings of equity and debt securities and payments received under collaborative arrangements . for the year ended december 31 , 2019 , we generated gross royalty revenues from gsk of $ 274.8 million .
| financial highlights in the year ended december 31 , 2019 , the net income attributable to innoviva stockholders was $ 157.3 million , a decrease of $ 237.8 million from net income of $ 395.1 million in the year ended december 31 , 2018 , primarily due to the $ 196.1 million income tax benefit recognized in the year ended december 31 , 2018 as compared to the $ 41.9 million of income tax expense recognized in the year ended december 31 , 2019 as further described below . cash , cash equivalents , and marketable securities totaled $ 350.8 million as of december 31 , 2019 , an increase of $ 235.9 million from december 31 , 2018. the increase was primarily due to cash provided by operating activities of $ 257.5 million . collaborative arrangements with gsk laba collaboration in november 2002 , we entered into laba collaboration with gsk to develop and commercialize once-daily laba products for the treatment of copd and asthma ( the “ laba collaboration agreement ” ) . for the treatment of copd , the collaboration has developed three combination products : ● relvar ® /breo ® ellipta ® ( “ ff/vi ” ) ( breo ® ellipta ® is the proprietary name in the u.s. and canada and relvar ® ellipta ® is the proprietary name outside the u.s. and canada ) , a once-daily combination medicine consisting of a laba , vilanterol ( vi ) , and an inhaled corticosteroid ( “ ics ” ) , fluticasone furoate ( “ ff ” ) , ● anoro ® ellipta ® ( “ umec/vi ” ) , a once-daily medicine combining a long-acting muscarinic antagonist ( “ lama ” ) , umeclidinium bromide ( “ umec ” ) , with a laba , vilanterol ( vi ) , and 30 ● trelegy ® ellipta ® ( the combination ff/umec/vi ) , a once-daily combination medicine consisting of an ics , lama and laba .
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changes in the fair value of contingent consideration obligations , other than changes due to payments , are recognized as a ( gain ) loss on fair value remeasurement of contingent consideration in the condensed consolidated statements of operations . if determined to be an asset acquisition , the company accounts for the transaction under asc 805-50 , which requires the acquiring entity in an asset acquisition to recognize assets ( net assets ) based on the cost to the acquiring entity on a relative fair value basis , which includes transaction costs in addition to consideration given . story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth in part i , item 1a . risk factors , of this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . we are a science-led global biopharmaceutical company focused on the discovery , development and commercialization of clinically-differentiated medicines that provide benefits to patients with rare disorders . we have launched two rare disease products and have a global commercial footprint . our recent ability to commercialize products is the foundation that drives our continued investment in a robust pipeline of transformative medicines and our mission to provide access to best-in-class treatments for patients who have an unmet medical need . we have two products , translarna ( ataluren ) and emflaza ( deflazacort ) , for the treatment of duchenne muscular dystrophy , or dmd , a rare , life threatening disorder . translarna received marketing authorization from the european commission in august 2014 for the treatment of nonsense mutation duchenne muscular dystrophy , or nmdmd , in ambulatory patients aged five years and older in the 31 member states of the european economic area , or eea . during the year ended december 31 , 2017 , we recognized $ 145.2 million in sales of translarna . translarna is currently available for the treatment of nmdmd in over 25 countries on a commercial basis or through a reimbursed early access program , or eap program . we hold worldwide commercialization rights to translarna for all indications in all territories . emflaza is approved in the united states for the treatment of dmd in patients five years and older . during the year ended december 31 , 2017 , emflaza achieved net sales of $ 28.8 million . our marketing authorization for translarna in the eea is subject to annual review and renewal by the european commission following reassessment by the european medicines agency , or ema , of the benefit-risk balance of the authorization , which we refer to as the annual ema reassessment . this marketing authorization is further subject to a specific obligation to conduct and submit the results of a18-month , placebo-controlled trial , followed by an 18-month open-label extension , which we refer to together as study 041. the final report on the trial and open-label extension is to be submitted by us to the ema by the end of the third quarter of 2021. each country , including each member state of the eea , has its own pricing and reimbursement regulations . in order to commence commercial sale of product pursuant to our translarna marketing authorization in any particular country in the eea , we must finalize pricing and reimbursement negotiations with the applicable government body in such country . as a result , our commercial launch will continue to be on a country-by-country basis . we also have made , and expect to continue to make , product available under eap programs , both in countries in the eea and other territories . our ability to negotiate , secure and maintain reimbursement for product under commercial and eap programs can be subject to challenge in any particular country and can also be affected by political , economic and regulatory developments in such country . there is substantial risk that if we are unable to renew our eea marketing authorization during any annual renewal cycle , or if our product label is materially restricted , or if study 041 does not provide the data necessary to maintain our marketing authorization , we would lose all , or a significant portion of , our ability to generate revenue from sales of translarna in the eea and other territories . translarna is an investigational new drug in the united states . during the first quarter of 2017 , we filed a new drug application , or nda , for translarna for the treatment of nmdmd over protest with the united states food and drug administration , or fda . in october 2017 , the office of drug evaluation i of the fda issued a complete response letter for the nda , stating that it was unable to approve the application in its current form . in response , we filed a formal dispute resolution request with the office of new drugs of the fda . in february 2018 , the office of new drugs of the fda denied our appeal of the complete response letter . in its response , the office of new drugs recommended a possible path forward for the ataluren nda submission based on the accelerated approval pathway . this would involve a re-submission of an nda containing the current data on effectiveness of ataluren with new data to be generated on dystrophin production in nmdmd patients ' muscles . we intend to follow the fda 's recommendation and will collect such dystrophin data using newer technologies via procedures and methods that will be mutually agreeable to us and the fda . story_separator_special_tag since 2014 , we have also relied on revenue generated from net sales of translarna for the treatment of nmdmd in territories outside of the united states , and in may 2017 , we began to recognize revenue generated from net sales of emflaza for the treatment of dmd in the united states . as of december 31 , 2017 , we had an accumulated deficit of $ 814.1 million . we had a net loss of $ 79.0 million and $ 142.1 million for the fiscal years ended december 31 , 2017 and 2016 , respectively . 93 we anticipate that our expenses will increase in connection with our commercialization efforts in the united states , the eea and other territories , including the expansion of our infrastructure and corresponding sales and marketing , legal and regulatory , distribution and manufacturing and administrative and employee-based expenses . in addition to the foregoing , we expect to continue to incur significant costs in connection with study 041 and our open label extension trials of translarna for the treatment of nmdmd as well as our studies for nonsense mutation aniridia and nonsense mutation dravet syndrome/cdkl5 and our fda post-marketing requirements with respect to emflaza in the united states . we also expect to incur ongoing research and development expenses for our other product candidates , including our oncology program . in addition , we may incur substantial costs in connection with our efforts to advance our regulatory submissions . we have begun seeking and intend to continue to seek marketing authorization for translarna for the treatment of nmdmd in territories outside of the eea and we may also seek marketing authorization for translarna for other indications . these efforts may significantly impact the timing and extent of our commercialization expenses . we may seek to expand and diversify our product pipeline through opportunistically in-licensing or acquiring the rights to products , product candidates or technologies and we may incur expenses , including with respect to transaction costs , subsequent development costs or any upfront , milestone or other payments or other financial obligations associated with any such transaction , which would increase our future capital requirements . with respect to our outstanding convertible notes , cash interest payments are payable on a semi-annual basis in arrears , which will require total funding of $ 4.5 million annually . additionally , under the terms of our credit agreement cash interest payments are payable monthly in arrears . furthermore , as a result of our initial public offering in june 2013 , we have incurred and expect to continue to incur additional costs associated with operating as a public company including significant legal , accounting , investor relations and other expenses . additionally , we could be forced to expend significant resources in the defense of the pending securities class action lawsuits brought against us and certain of our current and former executive officers and the derivative lawsuits brought against us , as a nominal defendant , certain of our current and former executive officers and certain of our current and former directors , as described under part i , item 3. legal proceedings in this annual report on form 10-k. see also , “ the price of our common stock may be volatile and fluctuate substantially , which could result in substantial losses for purchasers of our common stock and lawsuits against us and our officers and directors ” under part ii , item 1a . risk factors - risks related to our common stock . we will need to generate significant revenues to achieve and sustain profitability , and we may never do so . accordingly , we may need to obtain substantial additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we could be forced to delay , reduce or eliminate our research and development programs or our commercialization efforts . story_separator_special_tag which led to the decline of research and development expense for that program in the years that followed . the successful development of our product and product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our clinical trials and other research and development activities ; the potential benefits of our product and product candidates over other therapies ; 95 our ability to market , commercialize and achieve market acceptance for our product or any of our product candidates that we are developing or may develop in the future , including our ability to negotiate pricing and reimbursement terms acceptable to us ; clinical trial results ; the terms and timing of regulatory approvals ; and the expense of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights . a change in the outcome of any of these variables with respect to the development of translarna or any other product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the ema or fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of translarna or any other product candidate or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . selling , general and administrative expense selling , general and administrative expenses consist primarily of salaries and other related costs for personnel , including share-based compensation expenses , in our executive , legal , business development , finance , accounting , information technology and human resource functions .
| financial operations overview to date , our net product sales have consisted solely of sales of translarna for the treatment of nmdmd in territories outside of the united states and sales of emflaza for the treatment of dmd in the united states . our process for recognizing revenue is described below under “ critical accounting policies and significant judgments and estimates—revenue recognition ” . roche and the sma foundation collaboration . in november 2011 , we entered into a license and collaboration agreement , or licensing agreement , with roche and the sma foundation pursuant to which we are collaborating with roche and the sma foundation to further develop and commercialize compounds identified under our spinal muscular atrophy program with the sma foundation . the research component of this agreement terminated effective december 31 , 2014. the licensing agreement included a $ 30 million upfront payment made in 2011 which was recognized on a deferred basis over the research term , and the potential for up to $ 460 million in milestone payments and royalties on net sales . in august 2013 , we announced the selection of a development candidate , rg7800 . the achievement of this milestone triggered a $ 10.0 million payment to us from roche , which we recorded as collaboration revenue for the year ended december 31 , 2013. in january 2014 , we initiated a phase 1 clinical program for rg7800 , which triggered a $ 7.5 million milestone payment to us from roche which we recorded as collaboration revenue for the year ended december 31 , 2014. in november 2014 , we announced that our joint development program in spinal muscular atrophy ( sma ) with roche and the sma foundation ( smaf ) has started a phase 2 study for rg7800 in adult and pediatric patients .
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to adopt the amendments , entities will be required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective . the company adopted this guidance on january 1 , 2018 and reclassed $ 11.9 million out of accumulated comprehensive income and into retained earnings . effective january 1 , 2018 , changes in the fair value of the company 's available-for-sale investments will be reported through earnings rather than through other comprehensive income . in february 2016 , the fasb issued asu 2016-02 , which amends the guidance in u.s. gaap for the accounting for story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in item 8 to this report . introduction on the spin-off date , gbl distributed to its stockholders all of the outstanding common stock of associated capital group , inc. ( “ ac ” ) and its subsidiaries along with certain cash and other assets . ac owns and operates , directly or indirectly , the alternatives and the institutional research businesses previously owned and operated by gbl . in the spin-off , each holder of gamco 's class a common stock ( “ class a stock ” ) of record as of 5:00 p.m. new york city time on november 12 , 2015 ( the “ record date ” ) , received one share of ac class a common stock for each share of gamco class a stock held on the record date . each record holder of gamco 's class b stock received one share of ac class b common stock for each share of gamco class b stock held on the record date . subsequent to the spin-off , gamco no longer consolidates the financial results of ac for the purposes of its own financial reporting and the historical financial results of ac have been reflected in the company 's consolidated financial statements as discontinued operations for all periods presented through the spin-off date . historical aum have similarly been adjusted to remove aum managed by ac . our revenues are highly correlated to the level of aum and fees associated with our various investment products , rather than our own corporate assets . aum , which are directly influenced by the level and changes of the overall equity markets , can also fluctuate through acquisitions , the creation of new products , the addition of new accounts or the loss of existing accounts . since various equity products have different fees , changes in our business mix may also affect revenues . at times , the performance of our equity products may differ markedly from popular market indices , and this can also impact our revenues . it is our belief that general stock market trends will have the greatest impact on our level of aum and hence , revenues . as of december 31 , 2017 , we had $ 43.1 billion of aum . we conduct our investment advisory business principally through : gamco ( institutional and private wealth management ) , and funds advisor ( funds ) . we also are a distributor of our open-end funds through our broker-dealer subsidiary g.distributors . organizational chart subsequent to the spin-off , this is the current organizational chart of the company . 2017 business and investment highlights · on february 14 , 2017 , the company launched the gabelli food of all nations nextshares tm , its second actively managed , non-transparent exchange traded managed fund . the fund is investing primarily in domestic and foreign companies in the food and beverage industry , which is a consolidating sector that includes many strong cash generators with pricing power . the fund will capitalize on a segment where we have accumulated and compounded knowledge . consumer companies have long been a core competency at gamco . 27 · during the first quarter of 2017 , the shareholders of the teton westwood mighty mitessm fund and the teton convertible securities fund voted to approve gabelli funds , llc as the sub-advisor . these assets are now included in the institutional & pwm – sub-advisory segment of our aum . · on july 10 , 2017 , standard & poor 's revised its outlook on gamco to stable from negative and reaffirmed its bbb- rating . · on july 19 , 2017 , we launched our 16th closed-end fund and second on the london stock exchange , the gabelli merger plus+ trust plc . the fund , which trades under the symbol gmp , raised $ 100 million . · on september 18 , 2017 , the ellsworth growth and income fund ltd. completed its initial preferred offering . the fund issued $ 30 million of 5.25 % series a cumulative preferred shares which are perpetual , non-callable for five years , and was issued at $ 25 per share . · on september 26 , 2017 , the gabelli multimedia trust completed its offering of $ 50 million of 5.125 % series e cumulative preferred stock . the preferred stock is perpetual , non-callable for five years , and was issued at $ 25 per share . · on october 26 , 2017 , the gamco natural resources , gold & income trust completed its offering of $ 30 million of 5.2 % series a cumulative preferred stock . the preferred stock is perpetual , non-callable for five years , and was issued at $ 25 per share . · during december 2017 , the company completed two rights offerings for two of its closed-end funds , the gabelli equity trust inc. and the gabelli global small and mid cap value trust , which raised a combined $ 203 million . both offerings were heavily oversubscribed . · net debt declined from $ 156.9 million at december 31 , 2016 to $ 37.4 million at december 31 , 2017 as we repaid the $ 110 million 4.5 % convertible note and $ 50 million of the 4 % ac note . story_separator_special_tag the face value of our debt consisted of $ 50 million of a 4 % pik note due to ac on november 30 , 2020 , $ 15 million of a 1.6 % note due to ac on february 28 , 2018 and $ 24.2 million of 5.875 % senior notes due june 1 , 2021. deferred compensation totaled $ 123.8 million as of december 31 , 2017 , of which $ 64.8 million is included as of december 31 , 2017 . $ 36.8 million is payable on july 1 , 2018 , $ 15.5 million is payable on april 1 , 2019 and $ 71.5 million is payable on january 1 , 2020. we will receive a tax benefit upon payment of the deferred compensation equal to federal and state rates in effect at the time of payment . equity was a negative $ 96.3 million on december 31 , 2017 compared to a negative $ 166.6 million on december 31 , 2016. we filed a shelf registration with the sec in 2015 which , among other things , provides us the flexibility to sell any combination of senior and subordinate debt securities , convertible debt securities , equity securities ( including common and preferred stock ) , and other securities up to a total amount of $ 500 million . the shelf is available through april 10 , 2018 , at which time it may be renewed . our short-term focus has been to use our cash flow to pay down our existing debt . during 2017 , we repaid the $ 110 million 4.5 % convertible note and $ 50 million of the 4 % ac note . we continue to opportunistically and strategically grow operating income . 29 story_separator_special_tag font-style : italic ; text-align : justify '' > expenses compensation : total compensation costs , which are largely variable in nature , increased $ 42.9 million , or 51.9 % , to $ 125.5 million in 2017 from $ 82.6 million in 2016. variable compensation costs , principally portfolio manager and relationship manager fees , increased $ 40.8 million to $ 97.4 million in 2017 from $ 56.6 million in 2016 and increased as a percent of revenues to 27.0 % in 2017 from 16.0 % in 2016. this is primarily due to the accounting for the vesting of the deferred cash compensation agreements ( “ dccas ” ) . absent the dccas , compensation expense was $ 133.1 million in 2017 as compared to $ 128.3 million in 2016. the dccas granted to the ceo are required to be amortized over their respective vesting periods . the 2016 dcca will be amortized over four years , the first half 2017 dcca will be amortized over eighteen months , and the fourth quarter 2017 dcca will be amortized over eighteen months . in the third quarter 2017 , there was no dcca . in 2016 , the full amount of the compensation was deferred , and expense was recorded for the 25 % vesting in that year . in 2017 , an additional 25 % of the deferred compensation from 2016 was recorded as well as 67 % of the first half 2017 dcca and 17 % of the fourth quarter 2017 dcca . the effect of the dccas and current non deferred compensation being recorded resulted in a $ 38.1 million increase in compensation in 2017 compared to 2016. variable compensation is also driven by revenue levels which increased in 2017 from 2016. fixed compensation costs increased slightly to $ 28.1 million in 2017 from $ 26.0 million in 2016. stock based compensation : stock based compensation was $ 8.7 million in 2017 , an increase of $ 4.7 million , as compared to $ 4.0 million in 2016. the increase primarily results from the acceleration of all but 19,400 rsas during 2017 for an additional expense of $ 6.8 million that would have been recognized in future years . management fee : in 2017 , management fee expense increased to $ 13.7 million versus $ 6.5 million in 2016. management fee expense is incentive-based and entirely variable in the amount of 10 % of the aggregate pre-tax profits which is paid to mr. gabelli ( or his designee ) in accordance with his employment agreement . most importantly , the dcca agreements reduced the management fee by $ 7.8 million in 2016 while 2017 was virtually unchanged . ( see page 36 ) distribution costs : distribution costs , which include marketing , promotion and distribution costs increased $ 0.2 million , or 0.5 % , to $ 44.4 million in 2017 from $ 44.2 million in 2016 driven by an increase in average open-end equity mutual funds aum of 0.4 % . other operating expenses : our other operating expenses were $ 23.2 million in 2017 compared to $ 23.9 million in 2016 , a decrease of $ 0.7 million or 2.9 % . lower donated securities expense of $ 1.7 million and legal expense of $ 0.7 million were slightly offset by an increase to the research services fee of $ 1.5 million . operating income and margin operating income decreased $ 46.8 million , or 24.4 % , to $ 145.0 million for 2017 versus $ 191.8 million in the prior year period . this decrease was primarily due to increased variable compensation expense relating to the dcca agreements of $ 45.9 million . operating margin was 40.2 % for the year ended december 31 , 2017 , versus 54.3 % in the prior year period . the decrease in operating margin was due primarily to higher variable compensation costs and management fee expense related to the dcca agreements . ( see page 36 ) operating income before management fee was $ 158.7 million for the year ended of 2017 , versus $ 198.3 million in the prior year . operating margin before management fee was 44.0 % in the 2017 period versus 56.2 % in the 2016 period .
| assets under management highlights we reported assets under management as follows ( dollars in millions ) : replace_table_token_8_th ( a ) compound annual growth rate . ( b ) adjusted to include assets of $ 96 million , $ 135 million , $ 141 million , and $ 270 million at december 31 , 2013 , 2014 , 2015 , and 2016 , respectively . our net cash inflows or outflows by product line were as follows ( in millions ) : replace_table_token_9_th ( a ) our net cash inflows or outflows for closed-end equity funds includes distributions , net of reinvestments , to fund holders of $ 483 million , $ 500 million , $ 461 million , $ 479 million , and $ 484 million in 2017 , 2016 , 2015 , 2014 , and 2013 , respectively . ( b ) adjusted to include inflows or outflows of $ 125 million , $ 10 million , $ 42 million , and ( $ 30 ) million in 2016 , 2015 , 2014 , and 2013 , respectively . replace_table_token_10_th 30 our net appreciation and depreciation by product line were as follows ( in millions ) : replace_table_token_11_th ( a ) adjusted to include appreciation and depreciation of $ 4 million , ( $ 4 ) million , ( $ 3 ) million , and $ 7 million in 2016 , 2015 , 2014 , and 2013 , respectively . aum at december 31 , 2017 were $ 43.1 billion , an increase of 8.6 % from aum of $ 39.7 billion at december 31 , 2016. equity aum were $ 41.2 billion on december 31 , 2017 , 7.9 % above the $ 38.2 billion on december 31 , 2016. we earn incentive fees for certain institutional client assets , assets attributable to certain preferred issues for our closed-end funds , our gdl fund ( nyse : gdl ) , the gabelli merger plus + trust plc ( lse : gmp ) and the gamco merger arbitrage fund .
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subject to the terms of the term loan agreement , the borrowers may request incremental term loans from time to time in an aggregate principal amount not to exceed at any time $ 300 million , with an equivalent principal amount in u.s. dollars being calculated for any incremental term loan denominated in canadian dollars . 51 on november 19 , 2013 , the story_separator_special_tag the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in item 8 of this annual report on form 10-k. company overview in 2014 , we strengthened our organization , operations and talent base , re-established organic sales growth in our core business , integrated three accretive acquisitions into our operations , and increased profitability . sales in creased $ 376.3 million , or 5.0 % , over the prior year . organic sales increased 5.6 % , acquisitions positively impacted consolidated sales by 1.4 % , and foreign currency exchange and number of workdays negatively impacted sales by 1.6 % and 0.4 % , respectively . cost of goods sold as a percentage of net sales was 79.6 % and 79.4 % in 2014 and 2013 , respectively . operating income of $ 466.2 million increased over the prior year 's adjusted results primarily due to growth in our core business and the integration of the acquired operations of laprairie , hazmasters and hi-line . net income attributable to wesco international , inc. increased approximately 9 % over the prior year 's adjusted results to $ 275.9 million . diluted earnings per share attributable to wesco international , inc. were $ 5.18 in 2014 , compared with adjusted diluted earnings per share of $ 4.82 in 2013 . our end markets consist of industrial firms , electrical and data communications contractors , utilities , and commercial organizations , institutions and governmental entities . our transaction types to these markets can be categorized as stock , direct ship and special order . stock orders are filled directly from existing inventory and represented approximately 50 % of total sales for 2014 and 2013 , respectively . approximately 39 % of our total sales were direct ship sales for both 2014 and 2013 . direct ship sales are typically custom-built products , large orders or products that are too bulky to be easily handled and , as a result , are shipped directly to the customer from the supplier . special orders are for products that are not ordinarily stocked in inventory and are ordered based on a customer 's specific request . special orders represent the remaining 11 % of total sales for 2014 and 2013 , respectively . we have historically financed our working capital requirements , capital expenditures , acquisitions , share repurchases and new branch openings through internally generated cash flow , debt issuances , borrowings under our credit facilities and funding through our receivables facility . cash flow we generated $ 251.2 million in operating cash flow during 2014 . cash provided by operating activities included net income of $ 275.4 million and adjustments to net income totaling $ 83.9 million . cash used in investing activities consisted primarily of aggregate payments of $ 133.8 million for the acquisitions of laprairie , hazmasters , and hi-line , purchases of capital assets totaling $ 20.5 million , partially offset by proceeds of $ 15.0 million from the sale of assets . financing activities during 2014 consisted of borrowings and repayments of $ 1,046.5 million and $ 1,059.7 million , respectively , related to our revolving credit facility , borrowings and repayments of $ 122.1 million and $ 145.7 million , respectively , related to our receivables facility , and repayments of $ 38.8 million related to our term loan facility . financing activities in 2014 also included borrowings and repayments on our various international lines of credit of $ 71.3 million and $ 57.8 million , respectively . free cash flow for the years ended december 31 , 2014 and 2013 was $ 230.7 million and $ 308.4 million , respectively . the following table sets forth the components of free cash flow : replace_table_token_6_th note : the table above reconciles cash flow provided by operations to free cash flow . free cash flow is a non-gaap financial measure provided by the company as an additional indicator of liquidity . capital expenditures are deducted from operating cash flow to determine free cash flow . free cash flow is available to provide a source of funds for any of the company 's financing needs . during the quarter ended september 30 , 2013 , a non-recurring contribution was made to fund the canadian eecol pension plan . this contribution was required pursuant to the terms of the share purchase agreement by which the company acquired eecol in 2012. eecol sellers fully funded this 19 contribution by way of a direct reduction in the purchase price at the date of acquisition . gaap requires the contribution to be shown as a reduction of operating cash flow , however , it is added back to accurately reflect free cash flow . financing availability as of december 31 , 2014 , the company had $ 637.7 million in total liquidity . available borrowing capacity under our revolving credit facility , which matures in august 2016 , was comprised of $ 290.1 million of availability under the u.s. sub-facility and $ 268.1 million of availability under the canadian sub-facility , with a maximum combined limit of $ 497.5 million . available borrowing capacity under our receivables facility was $ 70.0 million . the remaining liquidity was provided by invested cash of $ 70.2 million . at any time on or after september 15 , 2016 , the company may redeem all or a part of the 2029 debentures plus accrued and unpaid interest . for further discussion related to the debentures , refer to note 7 of our notes to the consolidated financial statements . story_separator_special_tag the determination of fair value involves significant management judgment and we apply our best judgment when assessing the reasonableness of financial projections . a possible indicator of goodwill impairment is the relationship of a company 's market capitalization to its book value . as of december 31 , 2014 , our market capitalization exceeded our book value and there were no indications of impairment with any of the company 's reporting units . intangible assets we account for certain economic benefits purchased as a result of our acquisitions , including customer relations , distribution agreements , technology and trademarks , as intangible assets . most trademarks have an indefinite life . we amortize all other intangible assets over a useful life determined by the expected cash flows produced by such intangibles and their respective tax benefits . useful lives vary between 2 and 20 years , depending on the specific intangible asset . insurance programs we use commercial insurance for auto , workers ' compensation , casualty and health claims as a risk sharing strategy to reduce our exposure to catastrophic losses . our strategy involves large deductible policies where we must pay all costs up to the deductible amount . we estimate our reserve based on historical incident rates and costs . income taxes we account for income taxes using the asset and liability method . under this method , deferred tax assets and liabilities result from ( i ) temporary differences in the recognition of income and expense for financial and income tax reporting requirements , and ( ii ) differences between the recorded value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases . deferred income tax assets are reduced by a valuation allowance if it is more-likely-than-not that some portion of the deferred income tax asset will not be realized . we evaluate all available evidence , both positive and negative , in determining whether a valuation allowance is needed . we recognize the tax benefit from an uncertain tax position only if it is at least more-likely-than-not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position . the amount of the tax benefit that is recognized is measured as the largest amount of benefit that is more-likely-than-not to be realized upon effective settlement . we will adjust the tax benefit recognized with regard to an uncertain tax position if our judgment changes as the result of the evaluation of new information not previously available . due to the subjectivity inherent in the evaluation of uncertain tax positions , the tax benefit ultimately recognized may materially differ from our estimate . we recognize interest related to uncertain tax benefits as part of interest expense . penalties are recognized as part of income tax expense . no provision is made for possible u.s. taxes on undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely . convertible debentures we separately account for the liability and equity components of our convertible debentures in a manner that reflects our nonconvertible debt borrowing rate . we estimate our non-convertible debt borrowing rate through a combination of discussions 21 with our financial institutions and review of relevant market data . the discounts to the convertible debenture balances are amortized to interest expense , using the effective interest method , over the implicit life of the debentures . stock-based compensation our stock-based employee compensation plans are comprised of stock options , stock-settled stock appreciation rights , restricted stock units , and performance-based awards . compensation cost for all stock-based awards is measured at fair value on the date of grant , and compensation cost is recognized , net of estimated forfeitures , over the service period for awards expected to vest . the fair value of stock options and stock-settled appreciation rights is determined using the black-scholes valuation model . the performance-based awards are valued based upon a monte carlo simulation model . expected volatilities are based on historical volatility of our common stock . we estimate the expected life of stock options and stock-settled stock appreciation rights using historical data pertaining to option exercises and employee terminations . the risk-free rate is based on the u.s. treasury yields in effect at the time of grant . the forfeiture assumption is based on our historical employee behavior , which we review on an annual basis . restricted stock units with vesting dependent upon service conditions are valued based on the market price on the grant date . no dividends are assumed for stock-based awards . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , as adjusted for the impact of the arcelormittal litigation recovery . net income . net income decreased by $ 1.1 million , or 0.4 % , to $ 275.4 million in 2014 , compared to $ 276.5 million in 2013 . net income in 2014 increased $ 20.9 million compared to adjusted net income of $ 254.5 million in 2013 . net income ( loss ) attributable to noncontrolling interest . net loss attributable to noncontrolling interest was $ 0.5 million in 2014 primarily due to foreign exchange losses on cash balances . net income attributable to noncontrolling interest totaled $ 0.1 million in 2013 . net income attributable to wesco international , inc . net income and diluted earnings per share attributable to wesco international , inc. on a consolidated basis totaled $ 275.9 million and $ 5.18 per share , respectively , in 2014 , compared with $ 276.4 million and $ 5.25 per share , respectively , in 2013 . adjusted net income attributable to wesco international , inc. and adjusted diluted earnings per share was $ 254.4 million and $ 4.82 , respectively , in 2013 .
| results of operations the following table sets forth the percentage relationship to net sales of certain items in our consolidated statements of comprehensive income for the periods presented . replace_table_token_7_th 2014 compared to 2013 net sales . sales in 2014 in creased 5.0 % to $ 7,889.6 million , compared with $ 7,513.3 million in 2013 . the increase in sales included positive impacts from organic growth and acquisitions of 5.6 % and 1.4 % , respectively , partially offset by the negative effects of foreign exchange rates and number of workdays of 1.6 % and 0.4 % , respectively . additionally , management estimates a price impact on net sales of approximately 0.5 % . the following table sets forth normalized organic sales growth : replace_table_token_8_th note : normalized organic sales growth is a non-gaap financial measure provided by the company to provide a better understanding of the company 's sales growth trends . normalized organic sales growth is calculated by deducting the percentage impact on net sales from acquisitions , foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales . cost of goods sold . cost of goods sold in creased 5.2 % in 2014 to $ 6,278.6 million , compared with $ 5,967.9 million in 2013 . cost of goods sold as a percentage of net sales was 79.6 % and 79.4 % in 2014 and 2013 , respectively . 22 selling , general and administrative ( “ sg & a ” ) expenses . sg & a expenses include costs associated with personnel , shipping and handling , travel , advertising , facilities , utilities and bad debts . sg & a expenses in creased by $ 80.0 million , or 8.0 % , to $ 1,076.8 million in 2014 . the increase in sg & a expenses is primarily due to higher employment related costs resulting from the growth in organic sales and the impact from the laprairie , hazmasters and hi-line acquisitions .
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34 overview fathom is a cloud-based , technology-driven platform-as-a-service company operating in the real estate industry . our primary operation , fathom realty ( as defined below ) , operates as a real estate brokerage company , working with real estate agents to help individuals purchase and sell residential and commercial properties , primarily in the south , atlantic , southwest , and western parts of the united states , with the intention of expanding into all states . fathom realty holdings , llc , a texas limited liability company ( “ fathom realty ” ) , is a wholly owned subsidiary of fathom holdings inc. that was formed on april 11 , 2011 and is headquartered in cary , north carolina . fathom realty owns 100 % of 28 subsidiaries , each an llc representing the state in which the entity operates ( e.g . fathom realty nj , llc ) . on august 4 , 2020 , the company completed an ipo of its common stock , which resulted in the issuance and sale of 3,430,000 shares of its common stock at a public offering price of $ 10.00 per share , generating net proceeds of $ 31.1 million after deducting underwriting discounts and other offering costs . on november 24 , 2020 , the company completed its acquisition of verus . verus partners with real estate brokerage firms and lender institutions to offer title and settlement solutions , as well as insurance premium services , associated with real estate transactions . verus operates as a technology enabled title agency offering a client-focused approach to real estate transactions in the south , atlantic and northeast parts of the united states . the acquisition of verus complements the company 's suite of services focused on title and settlement solutions , as well as insurance premium services , associated with real estate transaction in the residential real estate market , gives agents another distinct competitive advantage , and further positions the company to continue on our growth trajectory . covid-19 our business is dependent on the economic conditions within the markets in which we operate . changes in these conditions can have a positive or negative impact on our business . the economic conditions influencing the housing markets primarily include economic growth , interest rates , unemployment , consumer confidence , mortgage availability , and supply and demand . in periods of economic growth , demand typically increases resulting in increasing home sales transactions and home sales prices . similarly , a decline in economic growth , increasing interest rates and declining consumer confidence generally decreases demand . additionally , regulations imposed by local , state , and federal government agencies , and geopolitical instability , can also negatively impact the housing markets in which we operate . in december 2019 , a novel strain of coronavirus , covid-19 , was identified in wuhan , china . this new coronavirus has caused a global health emergency and was declared a pandemic by the world health organization in march 2020 ( “ covid-19 '' or the “ pandemic ” ) . in an effort to contain and slow the spread of covid-19 , governments implemented various measures , such as , ordering non-essential businesses to close , issuing travel advisories , cancelling large scale public events , ordering residents to shelter in place , and requiring the public to practice social distancing . in most states , real estate has been considered an essential business . we are continually monitoring the affects covid-19 could have on our business . we believe that in the states and regions in which we operate the social and economic impacts , which include , but are not limited to , the following , could have a significant bearing on our future financial condition , liquidity , and results of operations : ( i ) restrictions on in-person activities associated with residential real estate transactions arising from shelter-in-place , or similar isolation orders ; ( ii ) decline in consumer demand for in-person interactions and physical home tours ; and ( iii ) deteriorating economic conditions , such as increased unemployment rates , recessionary conditions , lower yields on individual investment portfolios , and more stringent mortgage financing conditions . in response to covid-19 , the company implemented cost-saving measures early on to include the elimination of non-essential travel and in-person training activities , and deferral of certain planned expenditures . 35 covid-19 has materially and adversely affected businesses worldwide . while the federal reserve 's quantitative easing and lowering of interest rates could offset some of the negative impacts on housing demand , it is too early to determine whether the lower interest rates can overcome the current economic concerns and rising uncertainty . according to the nar housing statistics , existing home sales saw a seasonal decrease of 3.9 % in december 2020 from the previous month , but actually increased 22.2 % in december 2020 compared to the previous year . we believe these trends were driven by declining mortgage rates , a decline in inventory , and an increasing demand for remote workspace , among other factors . despite the ongoing pandemic , the company 's transactions and base of agents increased during 2020. however , while the company believes it is well positioned in times of economic uncertainty , it is not able to estimate the effects of covid-19 on its results of operations , financial condition , or liquidity for the year ending december 31 , 2020 and beyond . if the pandemic continues , it might have a material adverse effect on the company 's financial condition , liquidity , and future results of operations . agents due to our low-overhead business model , which leverages our proprietary technology , we can offer our agents the ability to keep significantly more of their commissions compared to traditional real estate brokerage firms . we believe we offer our agents some of the best technology , training , and support available in the industry . story_separator_special_tag we are presenting the non-gaap measure of adjusted ebitda to assist investors in seeing our financial performance through the eyes of management , and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry . adjusted ebitda should not be considered in isolation from , or as a substitute for , financial information prepared in accordance with gaap . there are a number of limitations related to the use of adjusted ebitda compared to net income ( loss ) , the closest comparable gaap measure . some of these limitations are that : · adjusted ebitda excludes share-based compensation expense related to restricted stock awards and stock options , which have been , and will continue to be for the foreseeable future , significant recurring expenses in our business and an important part of our compensation strategy ; and · adjusted ebitda excludes certain recurring , non-cash charges such as depreciation and amortization of property and equipment and capitalized software costs , however , the assets being depreciated and amortized may have to be replaced in the future . the following tables present a reconciliation of adjusted ebitda to net income ( loss ) , the most comparable gaap financial measure , for each of the periods presented : replace_table_token_3_th 40 critical accounting policies and estimates discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities , revenue , and expenses at the date of the financial statements . generally , we base our estimates on historical experience and on various other assumptions in accordance with gaap that we believe to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . revenue recognition we apply the provisions of financial accounting standards board ( the “ fasb ” ) accounting standards codification ( “ asc ” ) topic 606 , “ revenue from contracts with customers ” ( “ asc 606 ” ) , and all related appropriate guidance . we recognize revenue under the core principle to depict the transfer of control to our customers in an amount reflecting the consideration to which we expect to be entitled . in order to achieve that core principle , we apply the following five step approach : ( 1 ) identify the contract with a customer ; ( 2 ) identify the performance obligations in the contract ; ( 3 ) determine the transaction price ; ( 4 ) allocate the transaction price to the performance obligations in the contract ; and ( 5 ) recognize revenue when a performance obligation is satisfied . our revenue consists of commissions charged to individual customers ( i.e . the seller or buyer of a residential property ) on each real estate transaction completed , net of any closing-cost reductions . we are contractually obligated to provide for the fulfillment of transfers of real estate between buyers and sellers . we provide these services ourselves and control the services of our agents necessary to legally transfer the real estate . as such , we are defined as the principal . as principal , we satisfy our obligation upon the closing of a real estate transaction . as principal , and upon satisfaction of our obligation , we recognize revenue in the gross amount of consideration we expect we are entitled to receive . we calculate the transaction price by applying the company 's portion of the agreed upon commission rate to the property 's selling price . we may provide services to the buyer , seller , or both parties to a transaction . when we provide services to the seller in a transaction , we recognize revenue for our portion of the commission , which is calculated as the sales price multiplied by the commission rate less the commission separately distributed to the buyer 's agent , or the “ sell ” side portion of the commission . when we provide services to the buyer in a transaction , we recognize revenue in an amount equal to the sales price for the property multiplied by the commission rate for the “ buy ” side of the transaction . in instances in which we represent both the buyer and the seller in a transaction , we recognize the full commission on the transaction . commissions revenue contains a single performance obligation that is satisfied upon the closing of a real estate transaction , at which point the entire transaction price is earned . we are not entitled to any commission until the performance obligation is satisfied and are not owed any commission for unsuccessful transactions , even if services have been provided . the company 's revenue also consists of fees charged for title , property settlement and title insurance services provided in association with property acquisitions . we provide the title and property settlement services ourselves and control the services before they are transferred to our customers since we are primarily responsible for fulfilling the promise and also have full discretion in establishing the price for the services . as such , we are defined as the principal . as principal , we satisfy our obligation upon the closing of a real estate transaction . upon satisfaction of our obligation , we recognize revenue in the gross amount of consideration we are entitled to receive .
| results of operations comparison of the years ended december 31 , 2020 and 2019 revenue years ended december 31 , change 2020 2019 dollars percentage revenue $ 176,784,060 $ 111,205,854 $ 65,578,206 59 % for the year ended december 31 , 2020 , revenue increased by approximately $ 65.6 million or 59 % , as compared with the year ended december 31 , 2019. this was primarily due to an increase in transaction volume from approximately 17,800 transactions for the year ended december 31 , 2019 to approximately 25,700 transactions for the year ended december 31 , 2020 , and revenue generated from property settlement and title insurance . our transaction volume increased primarily due to the growth in the number of agents contracted with us . furthermore , revenues from verus totaled approximately $ 0.2 million for the year ended december 31 , 2020 post-acquisition closing . 37 cost of revenue years ended december 31 , change 2020 2019 dollars percentage cost of revenue $ 166,365,736 $ 105,256,810 $ 61,108,926 58 % for the year ended december 31 , 2020 , cost of revenue increased by approximately $ 61.1 million , or 58 % , as compared with the year ended december 31 , 2019. cost of revenue primarily includes costs related to agent commissions , net of fees paid to us by our agents . these costs are generally correlated with recognized revenues . as such , the increase in cost of revenue compared to the same period in 2019 was primarily attributable to an increase in agent commissions paid due to higher transaction volume and rising home prices .
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in determining whether otti had occurred , the company considered the severity and duration of the decline in fair value , the length of time expected for recovery , story_separator_special_tag condition and results of operations replace_table_token_0_th 31 overview the following discussion provides information about the results of operations , financial condition , liquidity and capital resources of east west bancorp , inc. ( referred to herein on an unconsolidated basis as “ east west ” and on a consolidated basis as the “ company , ” “ we ” or “ ewbc ” ) , and its subsidiaries , including its subsidiary bank , east west bank and its subsidiaries ( referred to herein as “ east west bank ” or the “ bank ” ) . this information is intended to facilitate the understanding and assessment of significant changes and trends related to the company 's results of operations and financial condition . this discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes presented elsewhere in this form 10-k. company overview east west is a bank holding company incorporated in delaware on august 26 , 1998 and is registered under the bhc act . the company commenced business on december 30 , 1998 when , pursuant to a reorganization , it acquired all of the voting stock of the bank , which became its principal asset . the bank is an independent commercial bank headquartered in california that has a strong focus on the financial service needs of the asian-american community . through over 120 locations in the u.s. and greater china , the company provides a full range of consumer and commercial products and services through three business segments : consumer and business banking , commercial banking , with the remaining operations included in other . the company 's principal activity is lending to and accepting deposits from businesses and individuals . the primary source of revenue is net interest income , which is principally derived from the difference between interest earned on loans and debt securities and interest paid on deposits and other funding sources . as of december 31 , 2020 , the company had $ 52.16 billion in assets and approximately 3,200 full-time equivalent employees . for additional information on products and services provided by the bank , see item 1. business — banking services . corporate strategy we are committed to enhancing long-term shareholder value by executing on the fundamentals of growing loans , deposits and revenue , improving profitability , and investing for the future while managing risks , expenses and capital . our business model is built on customer loyalty and engagement , understanding of our customers ' financial goals , and meeting our customers ' financial needs through our diverse products and services . the company 's approach is concentrated on seeking out and deepening client relationships that meet our risk/return measures . this focus guides our decision-making across every aspect of our operations : the products we develop , the expertise we cultivate and the infrastructure we build to help our customers conduct businesses . we expect our relationship-focused business model to continue to generate organic growth and to expand our targeted customer bases . on an ongoing basis , we invest in technology to improve the customer user experience , strengthen critical business infrastructure , and streamline core processes , while appropriately managing operating expenses . our risk management activities are focused on ensuring that the company identifies and manages risks to maintain safety and soundness while maximizing profitability . coronavirus disease 2019 global pandemic the covid-19 pandemic has caused significant disruption around the world , as well as economic and financial market deterioration , which did not exist at the beginning of 2020. these economic and operating conditions caused by the covid-19 pandemic have created financial difficulties for many of the company 's commercial and consumer customers . as a result , some borrowers may not be able to satisfy their obligations to us . as many of the company 's loans are secured by real estate , a potential decline in the real estate markets could also negatively impact the company 's business , financial condition and the credit quality of the company 's loan portfolio . it has adversely affected , and is likely continue to adversely affect , our business , financial condition and results of operations . we can not predict at this time the scope and duration of the pandemic as the covid-19 pandemic has not yet been contained . while there have been various governmental and other responses to slow or control the spread of the covid-19 pandemic , and to mitigate its adverse impacts , such as stay-at-home orders , restrictions on business activities , economic relief for individuals and businesses , and monetary policy measures , these responses have met varying degrees of success , and it remains uncertain whether these actions will be successful as the pandemic continues . although effective vaccines have been developed , their distribution is still in the early stages and it is uncertain how long the process will take to complete , nationally or globally . 32 regulatory developments relating to the covid-19 pandemic coronavirus aid , relief , and economic security act — the cares act was enacted on march 27 , 2020 to lessen the economic impact of the covid-19 pandemic on individuals , businesses and local economies . the cares act initiatives included extended unemployment benefits , mortgage forbearance , the sba ppp and funding and authorization for the mslp . the company participated in the federal reserve 's mslp and funded $ 233 . 6 million in mslp loans as of december 31 , 2020. the related main street special purpose vehicle purchased participations in these loans which amounted to $ 221.9 million or 95 % . story_separator_special_tag additionally , under an interim final rule of the federal banking agencies , ppp loans that an institution pledges as collateral to the ppplf may be deducted from the institution 's average total consolidated assets for purposes of the tier 1 leverage ratio . federal reserve requirements — on march 26 , 2020 , the federal reserve reduced reserve requirement ratios to zero percent , eliminating the reserve requirement for all depository institutions , an action that provides liquidity in the banking system to support lending to households and businesses , in response to the economic stress stemming from the covid-19 pandemic . our response to the covid-19 pandemic in response to the pandemic , the company has implemented protocols and processes to execute its business continuity plans to help protect its employees and support its customers . the company is managing its response to the covid-19 pandemic according to its enterprise business continuity policy , which invokes centralized management of the crisis event and the integration of its response . the ceo and key members of the company 's management team meet regularly with senior executives to help drive decisions , communication and consistency of response across all businesses and functions . in addition , we have implemented measures to assist our employees and customers as discussed below : employees : the majority of the company 's employees are able to work from home . the company continues to evaluate its continuity plans and work-from-home strategy to best protect the health and safety of its employees . for employees with jobs that are required to be performed on-site , we have taken significant actions to ensure employee safety by providing personal protection equipment , adopting social distancing measures , placing visual safety reminders related to social distancing , implementing an enhanced cleaning program , installing plexiglass panels , and requiring temperature screenings and the wearing of masks for all employees . customers : we assisted our commercial , consumer and small business clients affected by the covid-19 pandemic through payment deferrals , suspension of foreclosures on certain residential mortgage loans , and participation in the sba ppp and the mslp . we intend to evaluate participation in additional new government-sponsored programs , as they are established . in addition , the company continues to make a wide range of banking services accessible to customers through mobile and other digital channels to reduce the need for in-person branch visits . impact on our financial position and results of operations — our financial position and results of operations are sensitive to the ability of our loan customers to meet loan obligations , the availability of our workforce and the decline in the value of assets held by us . while its effects continue to materialize , the covid-19 pandemic has resulted in a significant decrease in commercial activity throughout our operating footprint . this decrease in commercial activity has caused and may continue to cause our customers to be unable to meet existing payment or other obligations to us . the greatest impact of the covid-19 pandemic on our financial condition has been in the increase of the provision for credit losses and the allowance for loan losses . we recorded approximately $ 210.7 million of provision for credit losses during 2020 , bringing our allowance for loan losses to $ 620.0 million as of december 31 , 2020 , with an allowance for loan losses to loans held-for-investment ratio of 1.61 % . despite the impact of the increased provision for credit losses , we maintained solid profitability for the full year of 2020 , earning 1.16 % on return on average assets ( “ roa ” ) and 11.17 % on return on average equity ( “ roe ” ) . our capital ratios are strong , and we remain well-positioned from a liquidity perspective , enabling us to weather adverse economic scenarios while continuing to support our customers and invest in our business . for additional information , see item 7. md & a — risk management — credit risk management and — liquidity risk management , and — balance sheet analysis — regulatory capital and ratios in this form 10-k. further discussion of the potential impacts on our business from the covid-19 pandemic is provided under part i , item 1a — risk factors in this form 10-k . accounting standards update 2016-13 adoption on january 1 , 2020 , the company adopted asu 2016-13 , financial instruments — credit losses , which establishes a single allowance framework for all financial assets carried at amortized cost , and for certain off-balance sheet exposures . replacing the prior incurred loss model , this framework requires that management estimate credit losses over the full remaining expected life of a loan , and consider expected future changes in macroeconomic conditions . the adoption of cecl on january 1 , 2020 increased the allowance for loan losses by $ 125.2 million , and the allowance for unfunded credit commitments by $ 10.5 million , and an after-tax decrease to retained earnings of $ 98.0 million . 34 five-year summary of selected financial data ( $ and shares in thousands , except per share , ratio and headcount data ) 2020 2019 2018 2017 2016 summary of operations : net interest income before provision for credit losses ( 1 ) $ 1,377,193 $ 1,467,813 $ 1,386,508 $ 1,185,069 $ 1,032,638 noninterest income ( 2 ) 235,547 222,245 217,433 263,654 186,921 total revenue 1,612,740 1,690,058 1,603,941 1,448,723 1,219,559 provision for credit losses 210,653 98,685 64,255 46,266 27,479 noninterest expense ( 3 ) 716,322 747,456 720,990 667,357 619,892 income before income taxes 685,765 843,917 818,696 735,100 572,188 income tax expense ( 4 ) 117,968 169,882 114,995 229,476 140,511 net income ( 1 ) ( 2 ) ( 3 ) ( 4 ) $ 567,797 $ 674,035 $ 703,701 $ 505,624 $ 431,677 per common share : basic earnings $ 3.99 $ 4.63 $ 4.86 $ 3.50 $ 3.00 diluted earnings $ 3.97 $ 4.61 $ 4.81 $ 3.47 $ 2.97 dividends declared $ 1.10 $ 1.06 $ 0.86
| financial review noteworthy items about the company 's performance for 2020 included : earnings : 2020 net income was $ 567.8 million , or $ 3.97 per diluted share , compared with 2019 net income of $ 674.0 million , or $ 4.61 per diluted share , a decrease of $ 106.2 million or 16 % . the decrease primarily came from a higher provision for credit losses and lower net interest income , partially offset by a decrease in income tax expense . adjusted earnings : 2020 non-gaap net income was $ 565.2 million , or $ 3.95 per diluted share , a decrease of 20 % from 2019 non-gaap net income of $ 707.9 million , or $ 4.84 per diluted share . non-gaap adjustments in 2020 and 2019 exclude the impacts of the impairment , recoveries and income tax items related to the company 's investment in dc solar . for 2020 , dc solar-related adjustments consisted of $ 10.7 million in recoveries , $ 3.0 million of income tax expense related to the recoveries , and $ 5.1 million of income tax expense booked for an uncertain tax position . for 2019 , dc solar-related adjustments consisted of $ 7.0 million in impairment charge , $ 1.6 million in recovery , $ 1.6 million of income tax expense related to the impairment and recovery , and $ 30.1 million of income tax expense booked for the reversal of certain previously claimed tax credits . for additional detail , refer to the reconciliations of non-gaap measures presented under item 7. md & a — reconciliation of gaap to non-gaap financial measures in this form 10-k. revenue : revenue , or the sum of net interest income before provision for credit losses and noninterest income , was $ 1.61 billion in 2020 , compared with $ 1.69 billion in 2019 , a decrease of $ 77.3 million or 5 % .
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disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed in the reports that we file under the exchange act is accumulated and communicated to management , including the chief executive officer and chief financial officer , as appropriate , to allow timely decisions regarding required disclosure . in designing and evaluating the disclosure controls and procedures , management recognizes that any controls and procedures , no matter how well designed and operated , can provide only reasonable assurance of achieving the desired control objectives . due to the inherent limitations of control systems , not all misstatements may be detected . these inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake . additionally , controls can be circumvented by the individual acts of some persons , by collusion of two or more people , or by management override of the control . controls and procedures can only provide reasonable , not absolute , assurance that the above objectives have been met . as of december 31 , 2019 , we carried out an evaluation , with the participation of our management , including our chief executive officer and chief financial officer , of the effectiveness of the company 's disclosure controls and procedures as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934. based on that evaluation , our chief executive officer and chief financial officer concluded that the company 's disclosure controls and procedures were effective , at the reasonable assurance level , in ensuring that information required to be disclosed by the company in the reports that it files or submits under the exchange act is recorded , processed , summarized and reported , within the time periods specified in the sec 's rules and forms and is accumulated and communicated to management , including the chief executive officer and chief financial officer , as appropriate to allow timely decisions regarding required disclosure . internal control over financial reporting management 's annual report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in rule 13a-15 ( f ) and 15d-15 ( f ) under the securities exchange act of 1934. our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that : pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of the assets of the company ; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that receipts and expenditures of the company are being made only in accordance with authorizations of management and the board of directors of the company ; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of the company 's assets that could have a material effect on the financial statements . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or because of declines in the degree of compliance with policies or procedures . 60 index our management assessed the effectiveness of the company 's internal control over financial reporting as of december 31 , 2019 . in making this assessment , our management used the criteria set forth by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) in internal control-integrated framework ( 2013 ) . as of december 31 , 2019 , based on management 's assessment , the company 's internal control over financial reporting was effective . changes in internal control over financial reporting there have been no changes in the company 's internal control over financial reporting that occurred during the quarter ended december 31 , 2019 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . 61 index item 9b . other information . none . 62 index part iii item 10. directors , executive officers and corporate governance the response to this item is incorporated by reference from the discussion responsive thereto under the captions `` management and corporate and governance matters , `` `` section 16 ( a ) beneficial ownership reporting compliance , `` and `` code of conduct and ethics `` in the company 's proxy statement for the 2020 annual meeting of stockholders . item 11. executive compensation the response to this item is incorporated by reference from the discussion responsive thereto under the caption “ executive officer and director compensation , ” in the company 's proxy statement for the 2020 annual meeting of stockholders . item 12. security ownership of certain beneficial owners and management and related stockholder matters the response to this item is incorporated by reference from the discussion responsive thereto under the captions “ security ownership of certain beneficial owners and management ” and “ equity compensation plan information ” in the company 's proxy statement for the 2020 annual meeting of stockholders . story_separator_special_tag pursuant to the purchase agreement , lincoln park purchased 250,000 shares of common stock , at a price of $ 4.00 per share , for a total gross purchase price of $ 1.0 million ( the “ initial purchase ” ) upon commencement . thereafter , as often as every business day from and after one business day following the date of the initial purchase and over the 36-month term of the purchase agreement , we have the right , from time to time , at its sole discretion and subject to certain conditions , to direct lincoln park to purchase up to 100,000 shares of common stock , with such amount increasing as the closing sale price of the common stock increases ; provided lincoln park 's obligation under any single such purchase will not exceed $ 2,500,000 , unless we and lincoln park mutually agree to increase the maximum amount of such single purchase ( each , a “ regular purchase ” ) . if we direct lincoln park to purchase the maximum number of shares of common stock it then may sell in a regular purchase , then in addition to such regular purchase , and subject to certain conditions and limitations in the purchase agreement , we may direct lincoln park in an “ accelerated purchase ” to purchase an additional amount of common stock that may not exceed the lesser of ( i ) 300 % the number of shares purchased pursuant to the corresponding regular purchase or ( ii ) 30 % of the total number of shares of our common stock traded during a specified period on the applicable purchase date as set forth in the purchase agreement . under certain circumstances and in accordance with the purchase agreement , we may direct lincoln park to purchase shares in multiple accelerated purchases on the same trading day . as of december 31 , 2019 , the company had not made any sales of common stock to lincoln park under the purchase agreement other than the initial purchase . in february 2018 , we entered into a common stock sales agreement ( the `` sales agreement '' ) with h.c. wainwright & co. , llc ( `` hcw '' ) , as sales agent , in connection with an “ at the market offering ” under which we from time to time may offer and sell shares of our common stock , which was further amended in august 2018 , having an aggregate offering price of up to $ 25 million . in march 2019 , subsequent to the filing of our 2018 form 10-k , the aggregate market value of our outstanding common stock held by non-affiliates was approximately $ 52.8 million . pursuant to general instruction i.b.6 of form s-3 , since the aggregate market value of our outstanding common stock held by non-affiliates was below $ 75.0 million at the time of our 2018 form 10-k filing , the aggregate amount of securities that we were permitted to offer and sell at such time was reduced to $ 17.6 million ( or a maximum of 4.8 million shares ) , which was equal to one-third of the aggregate market value of our common stock held by non-affiliates at such time . subject to the terms and conditions of the sales agreement , hcw will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time , based upon our instructions , including any price , time or size limits specified by us . we have provided hcw with customary indemnification rights , and hcw will be entitled to a commission at a fixed commission rate equal to 3.0 % of the gross proceeds per share sold . we have no obligation to sell any of the shares and may at any time suspend sales under the sales agreement or terminate the sales agreement . the sales agreement will terminate upon the sale of all of the shares under the sales agreement unless terminated earlier by either party as permitted under the sales agreement . as of december 31 , 2019 , we issued 260,349 shares of common stock under the sales agreement for net proceeds of $ 1.3 million . while we continue to seek capital through a number of means , there can be no assurance that additional financing will be available on acceptable terms , if at all , and our negotiating position in capital generating efforts may worsen as existing resources are used . additional equity financing may be dilutive to our stockholders ; debt financing , if available , may involve significant cash payment obligations and covenants that restrict our ability to operate as a business ; our stock price may not reach levels necessary to induce option or warrant exercises ; and asset sales may not be possible on terms we consider acceptable . if we are unable to access capital necessary to meet our long-term liquidity needs , we may have to delay the expansion of our business or raise funds on terms that we currently consider unfavorable . seasonality 40 index we do not believe that our operations are seasonal in nature . off-balance sheet arrangements we do not have any off-balance sheet arrangements . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and judgments that affect the amounts reported in the financial statements . on an ongoing basis , we evaluate our estimates and assumptions . we base our estimates on historical experience and other assumptions believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results could differ from these estimates . an accounting policy is considered to
| results of operations year ended december 31 , 2019 compared to year ended december 31 , 2018 overall , net losses were $ 19.4 million and $ 16.2 million for the years ended december 31 , 2019 and 2018 , respectively . operating expenses for the year ended december 31 , 2019 , operating expenses totaled $ 20.1 million compared to $ 17.0 million for the year ended december 31 , 2018 , representing an increase of $ 3.1 million or 18 % . operating expenses comprise the following : research and development expenses were approximately $ 10.8 million for the year ended december 31 , 2019 compared to $ 7.6 million for the year ended december 31 , 2018 , representing an increase of approximately $ 3.2 million , or 42 % . research and development in both periods focused on the advancement of our ischemic repair platform and related to : ◦ ongoing registration-eligible study expenses for clbs12 in critical limb ischemia in japan , whereby we continue to focus spending on our patient enrollment , and anticipate completing enrollment in the first half of 2020 ; ◦ ongoing phase proof-of-concept study expenses for clbs16 in coronary microvascular dysfunction , whereby study enrollment was completed in the second quarter of 2019 , preliminary top-line results were reported in november 2019 and full results expected in the first half of 2020 ; and ◦ expenses associated with preparation our confirmatory phase 3 study of clbs14 in norda . in late 2019 , we projected that the phase 3 study would cost approximately $ 70 million in external expenses over the next several years to complete , and as a result , we elected to postpone the initiation of the study until we have confidence that we can access sufficient capital to allow us to complete the study uninterrupted .
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there is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of the expenses by anyone other than our board of directors and audit committee , which includes persons who may seek reimbursement , or a court of competent jurisdiction if such reimbursement is challenged . 46 item 12. security ownership of certain beneficial owners and management and related stockholder matters the following table sets forth information regarding the beneficial ownership of our shares of common stock as of december 31 , 2015 , by : ● each person known by us to be the beneficial owner of more than 5 % of our outstanding shares of common stock ; ● each of our officers and directors ; and ● all our officers and directors as a group . unless otherwise indicated , we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them . the following table does not reflect record of beneficial ownership of any shares of common stock issuable upon exercise of warrants as such securities are not exercisable or convertible within 60 days . replace_table_token_3_th * less than one percent . ( 1 ) unless otherwise indicated , the business address of each of the individuals is c/o quinpario partners llc , 12935 n. forty drive , suite 201 , st. louis , mo 63141 . ( 2 ) represents shares held by quinpario partners 2 , llc , our sponsor . quinpario partners llc is the managing member of quinpario partners 2 , llc . jeffry n. quinn , our chairman of the board , is the sole managing member of quinpario partners llc . consequently , mr. quinn may be deemed the beneficial owner of the securities held by our sponsor and has sole voting and dispositive control over such securities . mr. quinn disclaims beneficial ownership over any securities owned by our sponsor in which he does not have any pecuniary interest . ( 3 ) does not include any shares indirectly owned by this individual as a result of his/her membership interest in our sponsor . ( 4 ) the business address of aqr capital management llc is two greenwich plaza , greenwich , ct 06830. information derived from a schedule 13g filed on february 16 , 2016 . ( 5 ) the business address of bluemountain capital management , llc is 280 park avenue , 12 th floor , new york , ny 10017. information derived from a schedule 13g/a filed on february 2 , 2016 . ( 6 ) the business address of td asset management inc. is canada trust tower , bce place , 161 bay street , 35th floor , toronto , ontario , m5j 2t2 . information derived from a schedule 13g filed on february 11 , 2016 . ( 7 ) the business address of deutsche bank ag is taunusanlage 12 , 60325 frankfurt am main , federal republic of germany . information derived from a schedule 13g filed on february 16 , 2016 . ( 8 ) the business address of fir tree inc. is 505 fifth avenue , 23rd floor , new york , new york 10017. information derived from a schedule 13g filed on february 16 , 2016 . 47 the holders of the insider shares outstanding prior to january 22 , 2015 have agreed not to transfer , assign or sell any of the insider shares ( except to certain permitted transferees ) until ( 1 ) with respect to 80 % of the insider shares , the earlier of one year after the date of the consummation of our initial business combination or if after 150 days after our initial business combination the closing price of our shares of common stock equals or exceeds $ 12.00 per share ( as adjusted for share splits , share dividends , reorganizations and recapitalizations ) for any 20 trading days within any 30-trading day period commencing after our initial business combination and ( 2 ) with respect to the remaining 20 % of the insider shares , the date of the consummation of our initial business combination , or earlier , in either case , if , subsequent to our initial business combination , we consummate a liquidation , merger , share exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares for cash , securities or other property . if we are unable to effect a business combination and liquidate the trust account , none of our initial stockholders will receive any portion of the liquidation proceeds with respect to their insider shares . equity compensation plans as of december 31 , 2015 , we had no compensation plans ( including individual compensation arrangements ) under which equity securities were authorized for issuance . item 13. certain relationships and related transactions , and director independence insider shares in september 2014 , our sponsor purchased an aggregate of 10,062,500 shares of our common stock , for an aggregate purchase price of $ 25,000 . the managing member of the sponsor is quinpario partners llc , and the managing member of story_separator_special_tag the following discussion should be read in conjunction with our financial statements and footnotes thereto contained in this report . forward looking statements all statements other than statements of historical fact included in this form 10-k including , without limitation , statements regarding our financial position , business strategy and the plans and objectives of management for future operations , are forward looking statements . story_separator_special_tag when used in this form 10-k , words such as “ may , ” “ should , ” “ could , ” “ would , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ continue , ” or the negative of such terms or other similar expressions , as they relate to us or our management , identify forward looking statements . factors that might cause or contribute to such a discrepancy include , but are not limited to , those described in our other securities and exchange commission filings . such forward looking statements are based on the beliefs of management , as well as assumptions made by , and information currently available to , our management . no assurance can be given that results in any forward-looking statement will be achieved and actual results could be affected by one or more factors , which could cause them to differ materially . the cautionary statements made in this annual report on form 10-k should be read as being applicable to all forward-looking statements whenever they appear in this annual report . actual results could differ materially from those contemplated by the forward looking statements as a result of certain factors detailed in our filings with the securities and exchange commission . all subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph . overview we are a blank check company formed on july 15 , 2014 for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses or entities . we are actively searching for a target business for our initial business combination . we intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the private placement of the private placement warrants , our capital stock , debt or a combination of cash , stock and debt . the issuance of additional shares of common stock or preferred stock in our initial business combination : ● may significantly dilute the equity interest of our investors who would not have pre-emption rights in respect of any such issuance ; ● may subordinate the rights of holders of shares of common stock if we issue shares of preferred stock with rights senior to those afforded to our shares of common stock ; ● will likely cause a change in control if a substantial number of our shares of common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and most likely will also result in the resignation or removal of our present officers and directors ; and ● may adversely affect prevailing market prices for our securities . 34 similarly , if we issue debt securities , it could result in : ● default and foreclosure on our assets if our operating revenues after our initial business combination are insufficient to pay our debt obligations ; ● acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that required the maintenance of certain financial ratios or reserves and we breach any such covenant without a waiver or renegotiation of that covenant ; ● our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; and ● our inability to obtain additional financing , if necessary , if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding . story_separator_special_tag times , serif ; margin : 0 ; text-indent : 0.5in '' > we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than a monthly fee of $ 10,000 payable to quinpario partners llc for office space , administrative services and secretarial support . we began incurring these fees on january 15 , 2015 , the date our securities were first listed on the nasdaq capital market and will terminate upon the earlier of ( i ) the consummation of a business combination or ( ii ) our liquidation . critical accounting policies the preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the united states ( “ gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and revenue and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following as our critical accounting policies : redeemable common stock all of the 35,000,000 common shares sold as part of the units in the initial public offering ( the “ public shares ” ) contain a redemption feature which allows for the redemption of common shares per our liquidation or tender offer/stockholder approval provisions . in accordance with asc 480 , redemption provisions not solely within the control of the company require the security to be classified outside of permanent equity . ordinary liquidation events , which involve the redemption and liquidation of all of the entity 's equity instruments , are excluded from the provisions of asc 480. although the company does not specify a maximum redemption threshold , its amended and restated certificate of incorporation provides that in no event will the company redeem its public shares in an amount that would cause its net tangible assets ( stockholders ' equity ) to be less than $ 5,000,001 . 36 we recognize changes in redemption value immediately as they occur and will adjust the carrying value
| results of operations we have not generated any revenues to date . our entire activity from inception to the closing of our initial public offering on january 22 , 2015 was in preparation for that event . subsequent to the initial public offering , our activity has been limited to the evaluation of business combination candidates , and we will not be generating any operating revenues until the closing and completion of our initial business combination . we have generated , and expect to continue to generate , small amounts of non-operating income in the form of interest income on cash and cash equivalents . interest income is not expected to be significant in view of current low interest rates on u.s. treasury securities with maturities of 180 days or less . we expect to incur increased expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses . our net loss for the twelve months ended december 31 , 2015 was $ 371,927 , which consisted of operating costs , offset by interest income of $ 155,807 on the funds held in the trust account established in connection with the initial public offering ( “ trust account ” ) and $ 500,000 for the reimbursement of due diligence expenses that the company incurred in connection with evaluating a potential business combination that did not materialize . for the period of july 15 , 2014 ( inception ) through december 31 , 2014 , we had a net loss of $ 53,338. our operating expenses principally consisted of expenses related to our public filings and listing and to general operating expenses including printing , insurance and office expenses . until we consummate a business combination , we will have no operating revenues .
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these costs are amortized over the lives of the related debt as an addition to interest expense . for debt with defined principal re-payment terms , the deferred costs are amortized to produce a constant effective yield on the debt ( interest method ) and are included within debt , net story_separator_special_tag s unless otherwise indicated , references to our , we and us in this management 's discussion and analysis of financial condition and results of operations refer to medical properties trust , inc. and its consolidated subsidiaries , including mpt operating partnership , l.p. overview we were incorporated in maryland on august 27 , 2003 , primarily for the purpose of investing in and owning net-leased healthcare facilities . we also make real estate mortgage loans and other loans to our tenants . we conduct our business operations in one segment . we have healthcare investments in the u.s. and europe . we have operated as a reit since april 6 , 2004 , and accordingly , elected reit status upon the filing of our calendar year 2004 u.s. federal income tax return . our existing tenants are , and our prospective tenants will generally be , healthcare operating companies and other healthcare providers that use substantial real estate assets in their operations . we offer financing for these operators ' real estate through 100 % lease and mortgage financing and generally seek lease and loan terms on a long-term basis ranging from 10 to 15 years with a series of shorter renewal terms at the option of our tenants and borrowers . we also have included and intend to include in our lease and loan agreements annual contractual minimum rate increases . our existing portfolio 's minimum escalators range from 0.5 % to 4 % , while less than 3 % of our properties do not have an escalator . most of our leases and loans also include rate increases based on the general rate of inflation if greater than the minimum contractual increases . in addition to rent or mortgage interest , our leases and loans typically require our tenants to pay all operating costs and expenses associated with the facility . some leases also may require our tenants to pay percentage rents , which are based on the tenant 's revenues from their operations . finally , we may acquire a profits or other equity interest in our tenants that gives us a right to share in the tenant 's income or loss . we selectively make loans to certain of our operators through our trss , which the operators use for acquisitions and working capital . we consider our lending business an important element of our overall business strategy for two primary reasons : ( 1 ) it provides opportunities to make income-earning investments that yield attractive risk-adjusted returns in an industry in which our management has expertise , and ( 2 ) by making debt capital available to certain qualified operators , we believe we create for our company a competitive advantage over other buyers of , and financing sources for , healthcare facilities . at december 31 , 2017 , our portfolio consisted of 275 properties leased or loaned to 31 operators , of which three are under development and 14 are in the form of mortgage loans . 2017 highlights in 2017 , we invested or committed to invest approximately $ 2.2 billion in healthcare real estate assets . these significant investments enhanced the size and scale of our healthcare portfolio , while expanding our geographic footprint in the u.s. and extending our lease and mortgage loan maturity schedule . furthermore , we strategically sold an asset for proceeds totaling $ 64 million , raised $ 548 million in proceeds from a successful equity offering , and refinanced approximately $ 0.6 billion of debt in order to strengthen our balance sheet , reduce interest rates , and fund acquisitions . finally , we increased our dividend to $ 0.24 per share per quarter in 2017 the third year in a row for such an increase . a summary of our 2017 highlights is as follows : acquired real estate assets , entered into development agreements , entered into leases and made new loan investments , totaling more than $ 2.2 billion as noted below : acquired 17 inpatient rehabilitation hospitals and one acute care hospital in germany for a combined purchase price of 274 million . these facilities are leased to median or its affiliates ; 49 acquired 15 acute care hospitals , one rehabilitation hospital , and one behavioral health facility , completed mortgage financing on two acute care hospitals , and invested in an additional minority equity contribution in steward for an aggregate investment of $ 1.8 billion ; acquired an acute care hospital in lewiston , idaho for $ 87.5 million . this facility is leased to rcch ; acquired two acute care hospitals located in wheeling , west virginia and martins ferry , ohio for an aggregate purchase price of approximately $ 40 million . we simultaneously leased the facilities to alecto healthcare services llc ( alecto ) ; and executed agreements totaling more than $ 150 million with circle health group and surgery partners , inc. to develop acute care hospitals in birmingham , england and idaho falls , idaho , respectively . with these new investments , we expanded our gross assets to $ 9.5 billion , increased the total number of properties in our portfolio to 275 , and increased our total number of beds to more than 32 thousand , as of december 31 , 2017. sold the real estate of an acute care facility in muskogee , oklahoma , for a net gain of $ 7.4 million . story_separator_special_tag unearned income is deferred and amortized to income over the lease terms to provide a constant yield when collectability of the lease payments is reasonably assured . investments in dfls are presented net of unearned income . we begin recording base rent income from our development projects when the lessee takes physical possession of the facility , which may be different from the stated start date of the lease . also , during construction of our development projects , we are generally entitled to accrue rent based on the cost paid during the construction period ( construction period rent ) . we accrue construction period rent as a receivable with a 53 corresponding offset to deferred revenue during the construction period . when the lessee takes physical possession of the facility , we begin recognizing the deferred construction period revenue on the straight-line method over the remaining term of the lease . we receive interest income from our tenants/borrowers on mortgage loans , working capital loans , and other long-term loans . interest income from these loans is recognized as earned based upon the principal outstanding and terms of the loans . commitment fees received from lessee for development and leasing services are initially recorded as deferred revenue and recognized as income over the initial term of a lease to produce a constant effective yield on the lease ( interest method ) . commitment and origination fees from lending services are also recorded as deferred revenue initially and recognized as income over the life of the loan using the interest method . investments in real estate : we maintain our investments in real estate at cost , and we capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset . while our tenants are generally responsible for all operating costs at a facility , to the extent that we incur costs of repairs and maintenance , we expense those costs as incurred . we compute depreciation using the straight-line method over the weighted average useful life of approximately 39.1 years for buildings and improvements . when circumstances indicate a possible impairment of the value of our real estate investments , we review the recoverability of the facility 's carrying value . the review of the recoverability is generally based on our estimate of the future undiscounted cash flows , excluding interest charges , from the facility 's use and eventual disposition . our forecast of these cash flows considers factors such as expected future operating income , market and other applicable trends , and residual value , as well as the effects of leasing demand , competition and other factors . if impairment exists due to the inability to recover the carrying value of a facility on an undiscounted basis , such as was the case with our monroe and bucks facilities in 2014 , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the facility . we do not believe that the value of any of our facilities was impaired at december 31 , 2017 ; however , given the highly specialized aspects of our properties no assurance can be given that future impairment charges will not be taken . acquired real estate purchase price allocation : for properties acquired for leasing purposes , we currently account for such acquisitions based on business combination accounting rules . we allocate the purchase price of acquired properties to net tangible and identified intangible assets acquired based on their fair values . in making estimates of fair value for purposes of allocating purchase prices of acquired real estate , we may utilize a number of sources , including available real estate broker data , independent appraisals that may be obtained in connection with the acquisition or financing of the respective property , internal data from previous acquisitions or developments , and other market data . we also consider information obtained about each property as a result of our pre-acquisition due diligence , marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired . we record above-market and below-market in-place lease values , if any , for the facilities we own which are based on the present value of the difference between ( i ) the contractual amounts to be paid pursuant to the in-place leases and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases , measured over a period equal to the remaining non-cancelable term of the lease . we amortize any resulting capitalized above-market lease values as a reduction of rental income over lease term . we amortize any resulting capitalized below-market lease values as an increase to rental income over the lease term . because our strategy to a large degree involves the origination and acquisition of long-term lease arrangements at market rates with independent parties , we do not expect the above-market and below-market in-place lease values to be significant for many of our transactions . we measure the aggregate value of other lease intangible assets to be acquired based on the difference between ( i ) the property valued with new or in-place leases adjusted to market rental rates and ( ii ) the property 54 valued as if vacant when acquired . management 's estimates of value are made using methods similar to those used by independent appraisers ( e.g . , discounted cash flow analysis ) . factors considered by management in our analysis include an estimate of carrying costs during hypothetical expected lease-up periods , considering current market conditions , and costs to execute similar leases . we also consider information obtained about each targeted facility as a result of our pre-acquisition due diligence , marketing , and leasing activities in estimating the fair value of the intangible assets acquired .
| 2016 highlights in 2016 , we invested or committed to invest approximately $ 1.8 billion in healthcare real estate assets . these significant investments enhanced the size and quality of our healthcare portfolio , while improving our tenant concentration and expanding our geographic footprint in the u.s. furthermore , we strategically sold assets for proceeds totaling more than $ 800 million , refinanced $ 1 billion of debt , and sold 82.7 million shares generating proceeds of approximately $ 1.2 billion in order to strengthen our balance sheet , reduce leverage , and fund acquisitions . 50 a summary of our 2016 highlights is as follows : acquired real estate assets ( or committed to acquire real estate assets ) , entered into development agreements , entered into leases and made new loan investments , totaling more than $ 1.8 billion as noted below : acquired a portfolio of five acute care hospitals and completed mortgage financing on four acute care hospitals in massachusetts and invested in a minority equity contribution in steward for an aggregate investment of $ 1.25 billion ; acquired 12 inpatient rehabilitation hospitals in germany for a combined purchase price of 85.2 million and committed 174.6 million to acquire 14 additional inpatient rehabilitation hospitals . these facilities are leased to median or its affiliates ; acquired an acute care hospital in newark , new jersey , from prime for an aggregate purchase price of $ 63.0 million and committed to advance an additional $ 30 million to prime over a three-year period to be used solely for capital additions to the real estate ; any such addition will be added to the basis upon which the lessee will pay us rents ; closed on the final median property , as part of the initial median transaction , for a purchase price of 41.6 million .
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the decrease in our effective tax rate for 2018 compared with 2017 was due primarily to impacts of u.s. corporate tax reform . 54 as previously disclosed , we received an rar from the irs for the years 2010 , 2011 and 2012. the rar proposes to make significant adjustments that relate primarily to the allocation of profits between certain of our entities in the united states and the u.s. territory of puerto rico . in november 2017 , we received a modified rar that revised the irs 's calculation but continued to propose substantial adjustments . we disagree with the proposed adjustments and are pursuing resolution with the irs administrative appeals office , which currently has jurisdiction over the matter . if we deem necessary , we will vigorously contest the proposed adjustments through the judicial process . final resolution of this complex matter is not likely within the next 12 months and could have a material impact on our consolidated financial statements . we believe our accrual for income tax liabilities is appropriate based on past experience , interpretations of tax law and judgments about potential actions by tax authorities ; however , due to the complexity of the provision for income taxes , the ultimate resolution of any tax matters may result in payments substantially greater or less than amounts accrued . see summary of critical accounting policies—income taxes , and part iv—note 6 , income taxes , to the consolidated financial statements . financial condition , liquidity and capital resources selected financial data was as follows ( in millions ) : replace_table_token_18_th cash , cash equivalents and marketable securities we have global access to our $ 8.9 billion balance of cash , cash equivalents and marketable securities . the primary objective of our investment portfolio is to maintain safety of principal , prudent levels of liquidity and acceptable levels of risk . our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings , and it places restrictions on maturities and concentration by asset class and issuer . capital allocation consistent with the objective to optimize our capital structure , we seek to deploy our accumulated cash balances in an efficient manner , and we consider several alternatives such as payment of dividends , stock repurchases , repayment of debt and strategic transactions that expand our portfolio of products in areas of therapeutic interest . we intend to continue to invest in our business while returning capital to stockholders through the payment of cash dividends and stock repurchases , thereby reflecting our confidence in the future cash flows of our business . the timing and amount of future dividends and stock repurchases will vary based on a number of factors , including future capital requirements for strategic transactions , availability of financing on acceptable terms , debt service requirements , our credit rating , changes to applicable tax laws or corporate laws , changes to our business model and periodic determination by our board of directors that cash dividends and or stock repurchases are in the best interests of stockholders and are in compliance with applicable laws and the company 's agreements . in addition , the timing and amount of stock repurchases may also be affected by stock price and blackout periods , during which we are restricted from repurchasing stock . the manner of stock repurchases may include private block purchases , tender offers and market transactions . the board of directors declared quarterly cash dividends of $ 1.15 per share of common stock paid in 2017 , increased our quarterly cash dividend by 15 % to $ 1.32 per share of common stock paid in 2018 and increased our quarterly cash dividend by 10 % to $ 1.45 per share of common stock paid in 2019 . in december 2019 , the board of directors declared a cash dividend of $ 1.60 per share of common stock for the first quarter of 2020 , an increase of 10 % for this period , to be paid in march 2020. we also returned capital to stockholders through our stock repurchase program . during 2019 , we repurchased $ 7.6 billion of common stock and had cash settlements of $ 7.7 billion . in 2018 , we repurchased $ 17.9 billion of common stock and had cash settlements of $ 17.8 billion , which included 52.1 million shares of common stock repurchased through a $ 10.0 billion tender offer . in 2017 , we repurchased $ 3.1 billion of common stock and had cash settlements of $ 3.2 billion . in may 2019 and december 2019 , 55 our board of directors increased the amount authorized under our stock repurchase program by an additional $ 5.0 billion and $ 4.0 billion , respectively . as of december 31 , 2019 , $ 6.5 billion remained available under the stock repurchase program . as a result of stock repurchases and quarterly dividend payments , we have an accumulated deficit as of december 31 , 2019 and 2018. our accumulated deficit is not expected to affect our future ability to operate , repurchase stock , pay dividends or repay our debt given our continuing profitability and strong financial position . we believe that existing funds , cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital , capital expenditure and debt service requirements , our plans to pay dividends and repurchase stock and other business initiatives we plan to strategically pursue , including acquisitions and licensing activities . we anticipate that our liquidity needs can be met through a variety of sources , including cash provided by operating activities , sales of marketable securities , borrowings through commercial paper and or syndicated credit facilities and access to other domestic and foreign debt markets and equity markets . see part i , item 1a story_separator_special_tag the decrease in our effective tax rate for 2018 compared with 2017 was due primarily to impacts of u.s. corporate tax reform . 54 as previously disclosed , we received an rar from the irs for the years 2010 , 2011 and 2012. the rar proposes to make significant adjustments that relate primarily to the allocation of profits between certain of our entities in the united states and the u.s. territory of puerto rico . in november 2017 , we received a modified rar that revised the irs 's calculation but continued to propose substantial adjustments . we disagree with the proposed adjustments and are pursuing resolution with the irs administrative appeals office , which currently has jurisdiction over the matter . if we deem necessary , we will vigorously contest the proposed adjustments through the judicial process . final resolution of this complex matter is not likely within the next 12 months and could have a material impact on our consolidated financial statements . we believe our accrual for income tax liabilities is appropriate based on past experience , interpretations of tax law and judgments about potential actions by tax authorities ; however , due to the complexity of the provision for income taxes , the ultimate resolution of any tax matters may result in payments substantially greater or less than amounts accrued . see summary of critical accounting policies—income taxes , and part iv—note 6 , income taxes , to the consolidated financial statements . financial condition , liquidity and capital resources selected financial data was as follows ( in millions ) : replace_table_token_18_th cash , cash equivalents and marketable securities we have global access to our $ 8.9 billion balance of cash , cash equivalents and marketable securities . the primary objective of our investment portfolio is to maintain safety of principal , prudent levels of liquidity and acceptable levels of risk . our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings , and it places restrictions on maturities and concentration by asset class and issuer . capital allocation consistent with the objective to optimize our capital structure , we seek to deploy our accumulated cash balances in an efficient manner , and we consider several alternatives such as payment of dividends , stock repurchases , repayment of debt and strategic transactions that expand our portfolio of products in areas of therapeutic interest . we intend to continue to invest in our business while returning capital to stockholders through the payment of cash dividends and stock repurchases , thereby reflecting our confidence in the future cash flows of our business . the timing and amount of future dividends and stock repurchases will vary based on a number of factors , including future capital requirements for strategic transactions , availability of financing on acceptable terms , debt service requirements , our credit rating , changes to applicable tax laws or corporate laws , changes to our business model and periodic determination by our board of directors that cash dividends and or stock repurchases are in the best interests of stockholders and are in compliance with applicable laws and the company 's agreements . in addition , the timing and amount of stock repurchases may also be affected by stock price and blackout periods , during which we are restricted from repurchasing stock . the manner of stock repurchases may include private block purchases , tender offers and market transactions . the board of directors declared quarterly cash dividends of $ 1.15 per share of common stock paid in 2017 , increased our quarterly cash dividend by 15 % to $ 1.32 per share of common stock paid in 2018 and increased our quarterly cash dividend by 10 % to $ 1.45 per share of common stock paid in 2019 . in december 2019 , the board of directors declared a cash dividend of $ 1.60 per share of common stock for the first quarter of 2020 , an increase of 10 % for this period , to be paid in march 2020. we also returned capital to stockholders through our stock repurchase program . during 2019 , we repurchased $ 7.6 billion of common stock and had cash settlements of $ 7.7 billion . in 2018 , we repurchased $ 17.9 billion of common stock and had cash settlements of $ 17.8 billion , which included 52.1 million shares of common stock repurchased through a $ 10.0 billion tender offer . in 2017 , we repurchased $ 3.1 billion of common stock and had cash settlements of $ 3.2 billion . in may 2019 and december 2019 , 55 our board of directors increased the amount authorized under our stock repurchase program by an additional $ 5.0 billion and $ 4.0 billion , respectively . as of december 31 , 2019 , $ 6.5 billion remained available under the stock repurchase program . as a result of stock repurchases and quarterly dividend payments , we have an accumulated deficit as of december 31 , 2019 and 2018. our accumulated deficit is not expected to affect our future ability to operate , repurchase stock , pay dividends or repay our debt given our continuing profitability and strong financial position . we believe that existing funds , cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital , capital expenditure and debt service requirements , our plans to pay dividends and repurchase stock and other business initiatives we plan to strategically pursue , including acquisitions and licensing activities . we anticipate that our liquidity needs can be met through a variety of sources , including cash provided by operating activities , sales of marketable securities , borrowings through commercial paper and or syndicated credit facilities and access to other domestic and foreign debt markets and equity markets . see part i , item 1a
| results of operations product sales worldwide product sales were as follows ( dollar amounts in millions ) : replace_table_token_5_th future sales of our products will depend in part on the factors discussed in the overview , part i , item 1. business—marketing , distribution and selected marketed products—competition , in part i , item 1a . risk factors , and any additional factors discussed in the individual product sections below . in addition , for a list of our products ' significant competitors , see part i , item 1. business—marketing , distribution and selected marketed products—competition . enbrel total enbrel sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_6_th the increase in enbrel sales for 2019 was driven primarily by favorable impacts from changes in accounting estimates of sales deductions and an increase in net selling price , offset partially by lower unit demand . for 2020 , we expect the trend of lower unit demand to continue . the decrease in enbrel sales for 2018 was driven primarily by lower unit demand and net selling price . in april 2019 , the fda approved a second biosimilar version of enbrel , and we are involved in patent litigations with the two companies seeking to market their fda-approved biosimilar versions of enbrel . see part iv—note 19 , contingencies and commitments , to the consolidated financial statements . other companies are also developing proposed biosimilar versions of enbrel . companies with approved biosimilar versions of enbrel may seek to enter the u.s. market if we are not successful in our litigations , or even earlier . 48 neulasta ® total neulasta ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_7_th the decrease in global neulasta ® sales for 2019 was driven by the impact of biosimilar competition on net selling price and unit demand .
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royalties were recognized when reported to the company , which generally coincided with story_separator_special_tag note regarding forward-looking statements this report , including `` item 1 – business , '' `` item 1a – risk factors , '' and `` item 7 – management 's discussion and analysis of financial condition and results of operations , '' contains certain forward-looking statements that involve risks and uncertainties , including statements regarding our strategy , financial performance and revenue sources . we use words such as `` anticipate , '' `` believe , '' `` plan , '' `` expect , '' `` future , '' `` continue , '' `` intend '' and similar expressions to identify forward-looking statements . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under `` risk factors , '' beginning at page 12 and elsewhere in this form 10-k. although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update information contained in any forward-looking statement . these forward-looking statements include , without limitation , statements regarding the following : the effects that uncertain global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations ; the effects and amount of competitive pricing pressure on our product lines and modest pricing declines in certain of our more mature proprietary product lines ; our ability to moderate future average selling price declines ; the effect of product mix , capacity utilization , yields , fixed cost absorption , competition and economic conditions on gross margin ; the amount of , and changes in , demand for our products and those of our customers ; the impact of trade restrictions and changes in tariffs , including those impacting china ; our expectation that in the future we will acquire additional businesses that we believe will complement our existing businesses ; our expectation that in the future we will enter into joint development agreements or other business or strategic relationships with other companies ; the level of orders that will be received and shipped within a quarter , including the impact of our product lead times ; our expectation that our june 2019 days of inventory levels will be down 8 days to up 11 days compared to the march 2019 levels . our belief that our existing level of inventory will allow us to maintain competitive lead times and provide strong delivery performance to our customers ; the effect that distributor and customer inventory holding patterns will have on us ; our belief that customers recognize our products and brand name and use distributors as an effective supply channel ; anticipating increased customer requirements to meet voluntary criteria related to the reduction or elimination of substances in our products ; our belief that deferred cost of sales are recorded at their approximate carrying value and will have low risk of material impairment ; our belief that our direct sales personnel combined with our distributors provide an effective means of reaching our customer base ; the accuracy of our estimates of the useful life and values of our property , assets and other liabilities ; our ability to increase the proprietary portion of our analog and interface product lines and the effect of such an increase ; our belief that our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs ; the impact of any supply disruption we may experience ; our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs ; that we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions ; that our existing facilities will provide sufficient capacity to respond to increases in demand with modest incremental capital expenditures ; that manufacturing costs will be reduced by transition to advanced process technologies ; our ability to maintain manufacturing yields ; continuing our investments in new and enhanced products ; the cost effectiveness of using our own assembly and test operations ; our anticipated level of capital expenditures ; continuation and amount of quarterly cash dividends ; 33 that the atmel acquisition was structured in a manner that enabled us to utilize a substantial portion of the cash , cash equivalents , short-term investments and long-term investments held by certain of our foreign subsidiaries in a tax efficient manner and that our determinations with respect to the tax consequences of the acquisition are reasonable ; the sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements , and the effects that our contractual obligations are expected to have on them ; the impact of seasonality on our business ; our belief that our it system compromise has not had a material adverse effect on our business or resulted in any material damage to us ; the accuracy of our estimates used in valuing employee equity awards ; that the resolution of legal actions will not have a material effect on our business , and the accuracy of our assessment of the probability of loss and range of potential loss ; the recoverability of our deferred tax assets ; the adequacy of our tax reserves to offset any potential tax liabilities , having the appropriate support for our income tax positions and the accuracy of our estimated tax rate ; that we intend to pay the one-time transition tax over a period of eight years ; our belief that our determinations with respect to the tax consequences of the atmel acquisition are reasonable ; our belief that the expiration of any tax holidays will not have a material impact on our overall tax expense or effective tax rate ; our belief that the estimates used in preparing our consolidated financial statements are story_separator_special_tag failure to maintain effective internal controls could result in violations of applicable securities laws , stock exchange listing requirements , and the covenants under our debt agreements , subject us to litigation and investigations , negatively affect investor confidence in our financial statements , and adversely impact our stock price and ability to access capital markets . for additional information , refer to item 9a `` controls and procedures . '' it system compromise we have learned of an ongoing compromise of our computer networks by what is believed to be sophisticated hackers . we have engaged experienced legal counsel and a leading forensic investigatory firm with experience in such matters . we have taken steps to identify malicious activity on our network including a compromise of our network and , as of the date of this filing , we are implementing a containment plan . we are continuing to evaluate the effectiveness of the containment plan and the amount and content of the information that was compromised and to implement additional remedial actions . at this time , we do not believe that this it system compromise has had a material adverse effect on our business or resulted in any material damage to us . however , we are still evaluating the amount and type of data that was compromised and there can be no assurance as to what the impact of this it system compromise will be . as described above , in connection with the it system compromise , our management has concluded that we have a material weakness in our internal controls . strategy our goal is to be a worldwide leader in providing specialized semiconductor products for a wide variety of embedded control applications . our strategic focus is on embedded control solutions , including general purpose and specialized 8-bit , 16-bit , and 32-bit microcontrollers , 32-bit microprocessors , field-programmable gate array ( fpga ) products , a broad spectrum of high-performance linear , mixed-signal , power management , thermal management , discrete diodes and mosfets , radio frequency ( rf ) , timing , timing systems , safety , security , wired connectivity and wireless connectivity devices , as well as serial electrically erasable programmable read only memory ( eeprom ) , serial flash memories , parallel flash memories , serial electrically erasable random access memory ( eeram ) and serial static random access memory ( sram ) . we also license flash-ip solutions that are incorporated in a broad range of products . we provide highly cost-effective embedded control solutions that also offer the advantages of small size , high performance , extreme low power usage , wide voltage range operation , mixed signal integration and ease of development , thus enabling timely and cost-effective integration of our solutions by our customers in their end products . we license our superflash technology and other technologies to wafer 35 foundries , integrated device manufacturers and design partners throughout the world for use in the manufacture of advanced microcontroller products , gate array , radio frequency ( rf ) and analog products that require embedded non-volatile memory . we sell our products to a broad base of domestic and international customers across a variety of industries . the principal markets that we serve include consumer , automotive , industrial , aerospace , office communication , and computing . our business is subject to fluctuations based on economic conditions within these markets . our manufacturing operations include wafer fabrication , wafer probe and assembly and test . the ownership of a substantial portion of our manufacturing resources is an important component of our business strategy , enabling us to maintain a high level of manufacturing control resulting in us being one of the lowest cost producers in the embedded control industry . by owning wafer fabrication facilities and assembly and test operations , and by employing statistical process control techniques , we have been able to achieve and maintain high production yields . direct control over manufacturing resources allows us to shorten our design and production cycles . this control also allows us to capture a portion of the wafer manufacturing and the assembly and test profit margin . we do outsource a significant portion of our manufacturing requirements to third parties . our acquisition of microsemi significantly increased the amount of our outsourced manufacturing requirements . we employ proprietary design and manufacturing processes in developing our embedded control products . we believe our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs . while many of our competitors develop and optimize separate processes for their logic and memory product lines , we use a common process technology for both microcontroller and non-volatile memory products . this allows us to more fully leverage our process research and development costs and to deliver new products to market more rapidly . our engineers utilize advanced computer-aided design tools and software to perform circuit design , simulation and layout , and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently . we are committed to continuing our investment in new and enhanced products , including development systems , and in our design and manufacturing process technologies . we believe these investments are significant factors in maintaining our competitive position . our current research and development activities focus on the design of new microcontrollers , digital signal controllers , memory , analog and mixed-signal products , fpgas , timing systems , flash-ip , development systems , software and application-specific software libraries . we are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products . we market and sell our products worldwide primarily through a network of direct sales personnel and distributors . our distributors focus primarily on servicing the product and technical support requirements of a broad base of diverse customers .
| results of discontinued operations discontinued operations represent the mobile touch operations that we acquired as part of our acquisition of atmel . on november 10 , 2016 , we completed the sale of the mobile touch assets to solomon systech ( limited ) international , a hong kong based semiconductor company . the transaction included the sale of certain semiconductor products , equipment , customer list , backlog , patents , and a license to certain other intellectual property and patents related to atmel 's mobile touch product line . we also agreed to provide certain transition services to solomon systech . for financial statement purposes , the results of operations for this discontinued business have been segregated from those of the continuing operations and are presented in our consolidated financial statements as discontinued operations . net loss from discontinued operations for the year ended march 31 , 2017 was $ 6.0 million , consisting of a pre-tax loss from operations of $ 8.2 million and a pre-tax gain on sale of $ 0.6 million . 49 liquidity and capital resources we had $ 430.9 million in cash , cash equivalents and short-term investments at march 31 , 2019 , a decrease of $ 1.77 billion from the march 31 , 2018 balance . the decrease in cash , cash equivalents and short-term investments over this time period is primarily attributable to our acquisition of microsemi . net cash provided by operating activities was $ 1.67 billion for fiscal 2019 , $ 1.42 billion for fiscal 2018 and $ 1.06 billion for fiscal 2017 . the increase in net cash provided by operating activities in fiscal 2019 compared to fiscal 2018 was primarily due to cash provided by our acquisition of microsemi in fiscal 2019 .
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we expect to recognize approximately $ 0.8 million of the net actuarial loss reported in the following table as of december 31 , 2013 , as a component of net periodic benefit cost during 2014. replace_table_token_36_th as of december 31 , 2013 , the expected benefit payments required for each of the next five years and the five-year period thereafter for the domestic retirement plan are as follows : replace_table_token_37_th international retirement plans . certain of our foreign subsidiaries have defined benefit pension plans covering substantially all of their respective employees . as story_separator_special_tag management 's discussion and analysis of financial condition and results of operations is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations of the company together with its subsidiaries . the discussion and analysis presented below refers to , and should be read in conjunction with , the consolidated financial statements and accompanying notes included in item 8 of part ii of this annual report on form 10-k. overview owens & minor , inc. , along with its subsidiaries , ( we , us , or our ) is a leading national distributor of name-brand medical and surgical supplies and a healthcare logistics company . we report our business under two segments : domestic and international . the domestic segment includes all services in the united states relating to our role as a medical supply logistics company serving healthcare providers and manufacturers . the international segment , which is comprised of the movianto group ( movianto ) acquired on august 31 , 2012 , provides third-party logistics for the pharmaceutical , biotechnology and medical device industries in the european market . segment financial information is provided in note 20 of notes to the consolidated financial statements included in this annual report . story_separator_special_tag information technology and other transition services provided by the former owners of movianto which were substantially completed in 2013. sg & a expense increased by $ 165.4 million in the current year due to a full year of activity in movianto . domestic sg & a expense also increased over the prior year due to greater fee-for-service sales activity , increased costs to support strategic initiatives and higher costs associated with workers ' compensation , litigation and healthcare . during the second quarter of 2013 , we reached a settlement in the administrative proceedings before the california board of equalization related to certain municipal sales tax incentives . as a result , sg & a expenses were reduced in 2013 by a net amount of $ 4.3 million , which was fully offset by the increased costs noted above . in the future , the company expects to receive an ongoing tax incentive that will vary with eligible revenues generated by sales to california-based customers . more information about this incentive is provided in note 18 of notes to consolidated financial statements included in this annual report . depreciation and amortization expense increase in the current year was primarily related to warehouse equipment and information technology hardware and software acquired with movianto . in addition , depreciation and amortization increased $ 0.8 million in the domestic segment due to software enhancements for operational efficiency improvements . other operating income includes finance charge income of $ 6.0 million and $ 4.9 million in 2013 and 2012. the increase over the prior year was due to $ 1.6 million increase in income associated with product financing arrangements with customers in europe , $ 0.8 million in foreign exchange gains and a net $ 0.9 million in domestic charges incurred in 2012 associated with specific litigation matters and loss contingency expenses which did not recur in the current year . replace_table_token_9_th for 2013 , the decrease in interest expense was primarily from lower commitment fees in our new revolving credit facility effective june 2012 , partially offset by less interest income earned on cash and cash equivalents . replace_table_token_10_th the provision for income taxes , including income taxes on acquisition-related and exit and realignment charges , decreased from the prior year due to the impact of non-deductible acquisition-related costs in 2012 incurred as a result of the movianto acquisition as well as results of benefits recognized in the current year upon the conclusion of examinations of our 2009 and 2010 federal and certain state income tax returns . these benefits were partially offset by the impact of foreign taxes . 17 2012 compared to 2011 replace_table_token_11_th domestic segment revenue increased as a result of growth from existing customers . factors affecting the domestic segment growth rate included lower comparative utilization of healthcare services , reduced product price inflation and a lower level of government purchasing , as well as ongoing rationalization of certain of the company 's suppliers . the international segment revenue for 2012 includes activity since our acquisition on august 31 , 2012. replace_table_token_12_th the increases in gross margin dollars and gross margin percentage are primarily due to contributions by movianto for the four months since acquisition . these gains were partially offset by declines in the domestic segment due to customer mix , including lower margin on new contracts with large integrated health networks and competitive pressures . we value domestic segment inventory under the lifo method . had inventory been valued under the first-in , first-out ( fifo ) method , gross margin as a percentage of net revenue would have been higher by 5 basis points in 2012 and 16 basis points in 2011. replace_table_token_13_th sg & a expenses include labor , warehousing , handling and delivery costs associated with our distribution and third-party logistics services , as well as labor costs for our supply-chain consulting services . the costs to convert new customers to our information systems are generally incurred prior to the recognition of revenues . sg & a expenses increased as a result of the acquisition of movianto . story_separator_special_tag net cash used in financing activities was $ 82.0 million in 2013 , 68.4 million in 2012 , and $ 57.5 million in 2011. we paid dividends of $ 60.7 million , $ 55.7 million and $ 50.9 million and repurchased common stock under a share repurchase program for $ 18.9 million , $ 15.0 million and $ 16.1 million in the years ended december 31 , 2013 , 2012 and 2011. in addition , in 2011 we received proceeds of $ 4.0 million as a result of the termination of interest rate swaps . cash used by operating activities of discontinued operations was $ 0.3 million for 2011 , associated with administrative costs . capital resources . our sources of liquidity include cash and cash equivalents and a revolving credit facility . on june 5 , 2012 , we entered into a five-year $ 350 million credit agreement with wells fargo bank , n.a. , jpmorgan chase bank , n.a . and a syndicate of financial institutions ( the credit agreement ) . this agreement replaced an existing $ 350 million credit agreement set to expire on june 7 , 2013. under the credit agreement , we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $ 150 million . the interest rate , which is subject to adjustment quarterly , is based on the london interbank offered rate ( libor ) , the federal funds rate or the prime rate , plus an adjustment based on the better of our debt ratings or leverage ratio ( credit spread ) as defined by the credit agreement . we are charged a commitment fee of between 17.5 and 42.5 basis points on the unused portion of the facility . the terms of the credit agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage , including on a pro forma basis in the event of an acquisition . at december 31 , 2013 , we had no borrowings and letters of credit of $ 5.0 million outstanding on the revolving credit facility , leaving $ 345.0 million available for borrowing . we may utilize the revolving credit facility for long-term strategic growth , capital expenditures , working capital and general corporate purposes . if we were unable to access the revolving credit facility , it could impact our ability to fund these needs . during 2013 , we had no borrowings or repayments under the credit facilities . based on our leverage ratio at december 31 , 2013 , the interest rate under the new credit facility was libor plus 1.375 % . we have $ 200 million of senior notes outstanding , which mature in 2016 and bear interest at 6.35 % , payable semi-annually on april 15 and october 15. the revolving credit facility and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement . we believe we were in compliance with the debt covenants at december 31 , 2013 . 20 we earn a portion of our operating earnings in foreign jurisdictions outside the u.s. , which we consider to be indefinitely reinvested . accordingly , no u.s. federal and state income taxes and withholding taxes have been provided on these earnings . our cash , cash equivalents , short-term investments , and marketable securities held by our foreign subsidiaries totaled $ 22.2 million and $ 24.9 million as of december 31 , 2013 and 2012. we do not intend , nor do we foresee a need , to repatriate these funds or other assets held outside the u.s. in the future , should we require more capital to fund discretionary activities in the u.s. than is generated by our domestic operations and is available through our borrowings , we could elect to repatriate cash or other assets from foreign jurisdictions that have previously been considered to be indefinitely reinvested . upon distribution of these assets , we could be subject to additional u.s. federal and state income taxes and withholding taxes payable to foreign jurisdictions , where applicable . the irs on january 10 , 2014 released final regulations relating to the adjustment of inventory costs for certain sales-based vendor charge-backs and the allowable treatment of these charge-backs in tax lifo calculations . the company is currently analyzing the impact of this regulatory change on our tax lifo position , which could cause our related deferred tax liability to become due and payable , impacting future cash flow . we paid quarterly cash dividends on our outstanding common stock at the rate of $ 0.24 per share during 2013 , $ 0.22 per share during 2012 , and $ 0.20 per share during 2011. our annual dividend payout ratio for the three years ended december 31 , 2013 , based on adjusted eps , was in the range of 41.2 % to 50.5 % . in february 2014 , the board of directors approved a 4.2 % increase in the amount of our quarterly dividend to $ 0.25 per common share . we anticipate continuing to pay quarterly cash dividends in the future . however , the payment of future dividends remains within the discretion of the board of directors and will depend upon our results of operations , financial condition , capital requirements and other factors . in february 2011 , the board of directors authorized a share repurchase program of up to $ 50 million of our outstanding common stock to be executed at the discretion of management over a three-year period , expiring in february 2014. the program is intended to offset shares issued in conjunction with our stock incentive plan and may be suspended or discontinued at any time . during 2013 , we repurchased approximately 560 thousand shares at $ 18.9 million under this program . at december 31 , 2013 , we had purchased all shares authorized under this program .
| financial highlights . the following table provides a reconciliation of reported operating earnings , net income and diluted net income per common share to non-gaap measures used by management : replace_table_token_5_th use of non-gaap measures our management 's discussion and analysis contains financial measures that are not calculated in accordance with u.s. generally accepted accounting principles ( gaap ) . in general , the measures exclude items and charges that ( i ) management does not believe reflect our core business and relate more to strategic , multi-year corporate activities ; or ( ii ) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends . management uses these non-gaap financial measures internally to evaluate our performance , evaluate the balance sheet , engage in financial and operational planning and determine incentive compensation . management provides these non-gaap financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results and in comparing our performance to that of our competitors . however , the non-gaap financial measures used by us may be calculated differently from , and therefore may not be comparable to , similarly titled measures used by other companies . the non-gaap financial measures disclosed by us should not be considered a substitute for , or superior to , financial measures calculated in accordance with gaap , and the financial results calculated in accordance with gaap . 15 acquisition-related charges , pre-tax , of $ 3.5 million and $ 10.5 million in 2013 and 2012 are associated with movianto and $ 0.5 million in 2011 is related to the establishment of our joint venture in china . acquisition-related charges in 2013 primarily consist of costs to transition movianto 's information technology and other operations and administrative functions from the former owner .
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the amendment changes the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business . the asu is effective for annual periods , including interim periods within those annual periods , beginning after december 15 , 2017. early adoption is permitted story_separator_special_tag you should read the following discussion in conjunction with our consolidated financial statements and related notes beginning on page f-1 . in addition to historical information , this discussion contains forward-looking statements that involve risks and uncertainties . you should read “ item 1a . risk factors ” for a discussion of important factors that could cause our actual results to differ materially from our expectations . our fiscal year ends on june 30 , and references to a specific fiscal year are the twelve months ended june 30 of such year ( for example , `` fiscal 2017 `` refers to the year ended june 30 , 2017 ) . business overview we are a leading global supplier of asset optimization solutions that optimize asset design , operations and maintenance in complex , industrial environments . we combine decades of process modeling and operations expertise with big data machine-learning and analytics . our purpose-built software solutions improve the competitiveness and profitability of our customers by increasing throughput , energy efficiency , and production , reducing unplanned downtime , enhancing capital efficiency , and decreasing working capital requirements over the entire asset lifecycle to support operational excellence . 23 our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 35 years . we have developed our applications to design and optimize processes across three principal business areas : engineering , manufacturing and supply chain , and asset performance management . we are a recognized market and technology leader in providing process optimization and asset performance management software solutions for each of these business areas . we have established sustainable competitive advantages based on the following strengths : innovative products that can enhance our customers ' profitability and productivity ; long-term customer relationships ; large installed base of users of our software ; and long-term license contracts . we have approximately 2,100 customers globally . our customers consist of companies engaged in the process and other capital-intensive industries such as energy , chemicals , engineering and construction , as well as pharmaceuticals , transportation , power , metals and mining , pulp and paper , and consumer packaged goods . business segments we have two operating and reportable segments : i ) subscription and software and ii ) services . the subscription and software segment is engaged in the licensing of asset optimization software solutions and associated support services . the services segment includes professional services and training . key components of operations revenue we generate revenue primarily from the following sources : subscription and software revenue . we sell our software products to end users primarily under fixed-term licenses . we license our software products primarily through a subscription offering which we refer to as our aspenone licensing model , which includes software maintenance and support , known as our premier plus sms offering , for the entire term . our aspenone products are organized into three suites : 1 ) engineering ; 2 ) manufacturing and supply chain ; and 3 ) asset performance management . the aspenone licensing model provides customers with access to all of the products within the aspenone suite ( s ) they license . customers can change or alternate the use of multiple products in a licensed suite through the use of exchangeable units of measurement , called tokens , licensed in quantities determined by the customer . this licensing system enables customers to use products as needed and to experiment with different products to best solve whatever critical business challenges they face . customers can increase their usage of our software by purchasing additional tokens as business needs evolve . we provide customers technical support , access to software fixes and updates and the right to any new unspecified future software products and updates that may be introduced into the licensed aspenone software suite . our technical support services are provided from our customer support centers throughout the world , as well as via email and through our support website . we also license our software through point product arrangements with our premier plus sms offering included for the contract term , as well as perpetual license arrangements . services and other revenue . we provide training and professional services to our customers . our professional services are focused on implementing our technology in order to improve customers ' plant performance and gain better operational data . customers who use our professional services typically engage us to provide those services over periods of up to 24 months . we charge customers for professional services on a time-and-materials or fixed-price basis . we provide training services to our customers , including on-site , internet-based and customized training . 24 our services and other revenue consists of revenue related to professional services and training . the amount and timing of this revenue depend on a number of factors , including : whether the professional services arrangement was sold as a single arrangement with , or in contemplation of , a new aspenone licensing arrangement ; the number , value and rate per hour of service transactions booked during the current and preceding periods ; the number and availability of service resources actively engaged on billable projects ; the timing of milestone acceptance for engagements contractually requiring customer sign-off ; the timing of collection of cash payments when collectability is uncertain ; and the size of the installed base of license contracts . cost of revenue cost of subscription and software . story_separator_special_tag we believe this measure is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growth initiatives or to repay borrowings under the credit agreement , and it is a basis for comparing our performance with that of our competitors . the presentation of free cash flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity . free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of ( a ) purchases of property , equipment and leasehold improvements , ( b ) capitalized computer software development costs , ( c ) excess tax benefits from stock-based compensation , ( d ) non-capitalized acquired technology , and ( e ) other nonrecurring items , such as acquisition related payments and litigation related payments ( receipts ) . 26 the following table provides a reconciliation of gaap cash flow from operating activities to free cash flow for the indicated periods : replace_table_token_6_th fiscal 2017 compared to fiscal 2016 total free cash flow increased $ 22.1 million during fiscal 2017 as compared to the prior fiscal year primarily due to higher net income of $ 22.2 million . excess tax benefits are related to stock-based compensation tax deductions in excess of book compensation expense and reduce our income taxes payable . we have included the impact of excess tax benefits within free cash flow to be consistent with the treatment of other tax benefits . in fiscal 2017 , 2016 and 2015 , we acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of the acquired technology was expensed as research and development . we have excluded the payment for the acquired technology from free cash flow to be consistent with transactions where the acquired technology assets were capitalized . fiscal 2016 compared to fiscal 2015 total free cash flow decreased $ 58.5 million during fiscal 2016 as compared to the prior fiscal year primarily due to higher net income tax payments of $ 65.3 million . non-gaap operating income non-gaap operating income excludes certain non-cash and non-recurring expenses , and is used as a supplement to operating income presented on a gaap basis . we believe that non-gaap operating income is a useful financial measure because removing certain non-cash and other items provides additional insight into recurring profitability and cash flow from operations . 27 the following table presents our net income , as adjusted for stock-based compensation expense , non-capitalized acquired technology and amortization of purchased technology intangibles , and other items , such as acquisition related expenses , for the indicated periods : replace_table_token_7_th non-gaap operating income increased $ 3.1 million , or approximately 1 % , in fiscal year 2017 as compared to the prior year primarily due to a larger base of license arrangements recognized on a ratable basis amounting to $ 13.1 million . non-gaap operating income increased $ 34.3 million , or approximately 17 % , in 2016 as compared to the prior year due to an increase in revenue primarily due to a larger base of license arrangements recognized on a ratable basis amounting to $ 34.8 million . in fiscal 2017 , 2016 and 2015 , we acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of the acquired technology was expensed as research and development . we have excluded the expense of the acquired technology from non-gaap operating income to be consistent with transactions where the acquired assets were capitalized . 28 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2016 , partially offset by higher cost of revenue of $ 0.5 million related to projects accounted for under the completed contract method . gross profit margin on services and other revenue decreased from 18.3 % during fiscal 2015 to 11.6 % during fiscal 2016 primarily due to lower services and other revenue and flat costs . gross profit replace_table_token_13_th fiscal 2017 compared to fiscal 2016 31 gross profit increased by $ 11.7 million during fiscal 2017 as compared to the prior fiscal year and gross profit margin remained consistent at 90.1 % in fiscal 2017 compared to 89.7 % in fiscal 2016 . the year-to-year increase in gross profit was primarily attributable to the growth of our subscription and software revenue , while gross profit margin remained consistent . fiscal 2016 compared to fiscal 2015 gross profit increased by $ 32.9 million during fiscal 2016 as compared to the prior fiscal year and gross profit margin increased to 89.7 % in fiscal 2016 from 88.7 % in fiscal 2015 . the year-to-year increase in gross profit and gross margin was primarily attributable to the growth of our subscription and software revenue , as well as decreases in costs of subscription and software revenue . operating expenses selling and marketing expense replace_table_token_14_th fiscal 2017 compared to fiscal 2016 the year-over-year increase in selling and marketing expense in fiscal 2017 as compared to the prior fiscal year was primarily the result of higher commissions expense of $ 1.2 million , higher marketing costs of $ 1.0 million due to our biennial customer conference held in fiscal 2017 , and higher professional fees of $ 0.9 million , partially offset by lower sales conference costs of $ 1.6 million due to the holding of one sales conference in the current fiscal year compared to two sales conferences in the prior fiscal year , and lower stock-based compensation of $ 0.7 million . fiscal 2016 compared to fiscal 2015 the year-over-year decrease in selling and marketing expense in fiscal 2016 as compared to the prior fiscal year was primarily the result of lower commissions expense of $ 5.6 million , partially offset by higher compensation costs of $ 2.0 million , higher stock-based compensation of $ 1.3 million and higher overhead allocations of $ 1.1 million .
| results of operations the following table sets forth the results of operations , percentage of total revenue and the year-over-year percentage change in certain financial data for fiscal 2017 , 2016 and 2015 : replace_table_token_8_th revenue fiscal 2017 compared to fiscal 2016 total revenue increased by $ 10.6 million during fiscal 2017 as compared to the prior fiscal year . the increase was due to higher subscription and software revenue of $ 13.1 million , partially offset by lower services and other revenue of $ 2.5 million . fiscal 2016 compared to fiscal 2015 total revenue increased by $ 32.0 million during fiscal 2016 as compared to the prior fiscal year . the increase was due to higher subscription and software revenue of $ 34.8 million , partially offset by lower services and other revenue of $ 2.8 million . total revenue recognized during fiscal 2016 included $ 6.1 million related to the completion of customer arrangements recognized under completed contract accounting . this amount was recognized as $ 5.1 million of subscription and software revenue and $ 1.0 million of services and other revenue . we did not have a comparable event in fiscal 2015 . 29 subscription and software revenue replace_table_token_9_th fiscal 2017 compared to fiscal 2016 the increase in subscription and software revenue of $ 13.1 million during fiscal 2017 as compared to the prior fiscal year was primarily the result of the growth of our base of license arrangements being recognized on a ratable basis . fiscal 2016 compared to fiscal 2015 the increase in subscription and software revenue during fiscal 2016 as compared to the prior fiscal year was primarily the result of a larger base of license arrangements being recognized on a ratable basis .
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we consider an accounting estimate to be critical to the financial statements if ( i ) the estimate is complex in nature or requires a high degree of judgment and ( ii ) different estimates and assumptions were used , the results could have a material impact on the consolidated financial statements . on an ongoing basis , we evaluate our estimates and the application of our policies . we base our estimates on historical experience , current conditions and on various other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the policies that we believe are critical to the preparation of the consolidated financial statements are presented below . revenue recognition we recognize revenue when our customers obtain control of promised goods or services . the revenue recognized is the amount of consideration which we expect to receive in exchange for those goods or services . our contracts with customers are generally for products only and do not include other performance obligations . generally , we consider purchase orders , which in some cases are governed by master supply agreements , to be contracts with customers . the transaction price as specified on the purchase order or sales contract is considered the standalone selling price for each distinct product . to determine the transaction price at the time when revenue is recognized , we evaluate whether the price is subject to adjustments , such as for returns , discounts or volume rebates , which are stated in the customer contract , to determine the net consideration to which we expect to be entitled . revenue from product sales is recognized based on a point in time model when control of the product is transferred to the customer , which typically occurs upon shipment or delivery of the product to the customer and title , risk and rewards of ownership have passed to the customer . we have an immaterial amount of revenue that is recognized over time . payment terms typically range from zero to ninety days . shipping and handling activities that occur after the transfer of control to the customer are billed to customers and are recorded as sales revenue , as we consider these to be fulfillment costs . shipping and handling costs are expensed in the period incurred and included in cost of sales within the consolidated statements of operations . taxes collected on sales to customers are excluded from the transaction price . we generally provide a warranty that our products will substantially conform to the identified specifications . our liability typically is limited to either a credit equal to the purchase price or replacement of the non-conforming product . returns under warranty have historically been immaterial . we do not have contract assets or liabilities that are material . as permitted by the revenue recognition standard , revenue from contracts with customers , issued by the financial accounting standards board ( “ fasb ” ) , when the period of time between the transfer of control of the goods and the time the customer pays for the goods is one year or less , we do not consider there to be a significant financing component associated with the contract . inventory valuation inventories are stated at the lower of cost or net realizable value . the cost of inventories is determined using the fifo method . we periodically review inventory for both potential obsolescence and potential declines in anticipated selling prices . in this review , we make assumptions about the future demand for and market value of the inventory , and based on these assumptions estimate the amount of any obsolete , unmarketable , slow moving or overvalued inventory . we write down the value of our inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value . historically , such write-downs have not been material . if actual market conditions are less favorable than those projected by management at the time of the assessment , however , additional inventory write-downs may be required , which could reduce our gross profit and our earnings . 26 intangible assets and goodwill impairment we record tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting . amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition . we use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination . the determination of the fair value of intangible assets requires the use of significant judgment with regard to assumptions used in the valuation model . we estimate the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets . the projected cash flows are discounted to determine the fair value of the assets at the dates of acquisition . definite-lived intangible assets , which are comprised of trademarks , customer relationships and developed technologies , are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists , such as a significant reduction in cash flows associated with the assets . goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired . goodwill is not amortized and is subject to impairment testing annually , or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value . a reporting unit , for the purpose of the impairment test , is at or below the operating segment level , and constitutes a business for which discrete financial information is available and regularly reviewed by segment management . story_separator_special_tag we can not determine the impact of these potential developments on our current estimate of our share of liability for these existing and future claims . because reserves are limited to amounts that are probable and estimable as of a relevant measurement date , and there is inherent difficulty in projecting the impact of potential developments on our share of liability for these existing and future claims , the actual amount of these liabilities for existing and future claims could be different than the reserved amount . refer to note u of our notes to the consolidated financial statements ( “ note u ” ) for details on the respirator reserves and settlements . income taxes our business operations are global in nature , and we are subject to taxes in numerous jurisdictions . tax laws and tax rates vary substantially in these jurisdictions and are subject to change based on the political and economic climate in those countries . we file our tax returns in accordance with our interpretations of each jurisdiction 's tax laws . significant judgment is required in determining our worldwide provision for income taxes and recording the related tax assets and liabilities . in the ordinary course of our business , there are operational decisions , transactions , facts and circumstances , and calculations which make the ultimate tax determination uncertain . furthermore , our tax positions are periodically subject to challenge by taxing authorities throughout the world . we have recorded reserves for taxes and associated interest and penalties that may become payable in future years as a result of audits by tax authorities . any significant impact as a result of changes in underlying facts , law , tax rates , tax audit , or review could lead to adjustments to our income tax expense , our effective tax rate , and or our cash flow . we record benefits for uncertain tax positions based on an assessment of whether the position is more likely than not to be sustained by the taxing authorities . if this threshold is not met , no tax benefit of the uncertain tax position is recognized . if the threshold is met , the tax benefit that is recognized is the largest amount that is greater than 50 % likely of being realized upon ultimate settlement . this analysis presumes the taxing authorities ' full knowledge of the positions taken and all relevant facts , but does not consider the time value of money . we also accrue for interest and penalties on these uncertain tax positions and include such charges in the income tax provision in the consolidated statements of operations . additionally , we have established valuation allowances against a variety of deferred tax assets , including net operating loss carryforwards , foreign tax credits , and other income tax credits . valuation allowances take into consideration our ability to use these deferred tax assets and reduce the value of such items to the amount that is deemed more likely than not to be recoverable . our ability to utilize these deferred tax assets is determined in accordance with u.s. gaap . in jurisdictions where we have a three-year cumulative loss , we utilize recent historical results in order to assess the recoverability of deferred tax assets . where we have a three-year cumulative profit , we review our forecast of future taxable income in relation to actual results and expected future trends . we perform this review on a quarterly basis . failure to achieve our operating income targets , may change our assessment regarding the recoverability of our net deferred tax assets and such change could result in an increase in the valuation allowance being recorded against some or all of our net deferred tax assets . an increase in a valuation allowance would result in additional income tax expense , while a release of valuation allowances in periods when these tax attributes become realizable would reduce our income tax expense . 28 significant accounting policies we have other significant accounting policies that are discussed in note a in item 8 below . certain of these policies include the use of estimates , but do not meet the definition of critical because they generally do not require estimates or judgments that are as difficult or subjective to measure . however , these policies are important to an understanding of the consolidated financial statements . recently issued accounting pronouncements refer to the discussion in note b of our notes to the consolidated financial statements . story_separator_special_tag asset impairment charges , which primarily include charges associated with an impairment of goodwill or other long-lived assets . inventory reserve adjustment , which generally result from an evaluation performed as part of an impairment analysis . global restructuring activities , which include costs or benefits associated with cost reduction initiatives or plant closures and are primarily related to ( i ) employee termination costs , ( ii ) asset impairment charges associated with restructuring actions , ( iii ) costs to close facilities , including environmental costs and contract termination penalties and ( iv ) gains realized on the sale of land or equipment associated with restructured plants or locations . indirect tax settlement credits , which includes favorable settlements resulting in the recoveries of indirect taxes . acquisition and integration-related charges , which include transaction costs , redundant costs incurred during the period of integration , and costs associated with transitioning certain management and business processes to our processes . legal and environmental matters and reserves , which consist of costs or benefits for matters typically related to former businesses or that are otherwise incurred outside of the ordinary course of business . gains ( losses ) on sale of investments , which primarily relate to the sale of investments accounted for using the cost method . gains ( losses ) on sale of businesses . non-recurring gains ( losses ) on foreign exchange , which primarily relate to the impact of controlled currency devaluations on our net monetary assets denominated in that currency .
| results of operations cabot is organized into three reportable business segments : reinforcement materials , performance chemicals , and purification solutions . cabot is also organized for operational purposes into three geographic regions : the americas ; europe , middle east and africa ; and asia pacific . the discussions of our results of operations for the periods presented reflect these structures . our analysis of financial condition and operating results should be read with our consolidated financial statements and accompanying notes . unless a calendar year is specified , all references to years in this discussion are to our fiscal years ended september 30. this section discusses our fiscal 2020 and fiscal 2019 results of operations and year-to-year comparisons between fiscal 2020 and fiscal 2019. for the discussions of our fiscal 2018 results and year-to-year comparisons between fiscal 2019 and fiscal 2018 , refer to our discussions under the headings “ results of operations ” and “ cash flows and liquidity ” in item 7 of the company 's annual report on form 10-k for the fiscal year ended september 30 , 2019 , which was filed with the united states securities and exchange commission on november 22 , 2019. definition of terms and non-gaap financial measures when discussing our results of operations , we use several terms as described below . the term “ product mix ” refers to the mix of types and grades of products sold or the mix of geographic regions where products are sold , and the positive or negative impact this has on the revenue or profitability of the business and or segment . our discussion under the heading “ provision ( benefit ) for income taxes and reconciliation of effective tax rate to operating tax rate ” includes a discussion of our “ effective tax rate ” and our “ operating tax rate ” and includes a reconciliation of the two rates .
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among other things , the estimates 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 . refer to note 1 , `` summary of significant accounting policies , '' for further discussion on heartland 's critical accounting policies . the estimates and judgments that management believes have the most effect on heartland 's reported financial position and results of operations are as follows : allowance for loan losses the process utilized by heartland to estimate the allowance for loan losses is considered a critical accounting policy for heartland . the allowance for loan losses represents management 's estimate of identified and unidentified probable losses in the existing loan portfolio . therefore , the accuracy of this estimate could have a material impact on heartland 's earnings . the allowance for loan losses is determined using factors that include the overall composition of the loan portfolio , general economic conditions , types of loans , loan collateral values , past loss experience , loan delinquencies and probable losses from identified substandard and doubtful credits . our allowance for loan losses methodology includes the establishment of a dual risk rating system , which allows the utilization of a probability of default and loss given default for commercial and agricultural loans in the calculation of the allowance for loan losses . heartland 's allowance for loan losses methodology also utilizes a loss emergence period , which represents the average amount of time from the point that a loss is incurred to the point at which the loss is confirmed . the loss rates used in the allowance calculation are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks . in addition to the allowance methodology , our software also has the ability to perform stress testing and migration analysis on various portfolio segments . for loans individually evaluated and determined to be impaired , the allowance is allocated on a loan-by-loan basis as deemed necessary . these estimates reflect consideration of one of the following impairment measurement methods as of the evaluation date : the present value of expected future cash flows discounted at the loan 's effective interest rate ; or the fair value of the collateral if the loan is collateral dependent . all other loans , including individually evaluated loans determined not to be impaired , are segmented into groups of loans with similar risk characteristics for evaluation and analysis . loss rates for various collateral types of commercial and agricultural loans are based upon the realizable value historically received on the various types of collateral . for smaller commercial and agricultural loans , residential real estate loans and consumer loans , a historic loss rate is established for each group of loans based upon a twelve-quarter weighted moving average loss rate . the appropriateness of the allowance for loan losses is monitored on an ongoing basis by the loan review staff , senior management and the boards of directors of each bank . there can be no assurances that the allowance for loan losses will be adequate to cover all probable loan losses , but management believes that the allowance for loan losses was appropriate at december 31 , 2018. while management uses available information to provide for loan losses , the ultimate collectability of a substantial portion of the loan portfolio and the need for future additions to the allowance will be based on changes in economic conditions . should the economic climate deteriorate , borrowers may experience difficulty , and the level of nonperforming loans , charge-offs , and delinquencies could rise and require further increases in the provision for loan losses . in addition , various regulatory agencies , as an integral part of their examination process , periodically review the allowance for loan losses carried by the banks . such agencies may require us to make additional provisions to the allowance based upon their judgment about information available to them at the time of their examinations . business combinations , goodwill and core deposit intangibles we record all assets and liabilities purchased in an acquisition , including intangibles , at fair value . determining the fair value of assets and liabilities acquired often involves estimates based on third-party valuations , such as appraisals , or internal valuations based on discounted cash flow analyses or other valuation techniques that may include the use of estimates . goodwill and indefinite-lived assets are not amortized but are subject , at a minimum , to annual tests for impairment . in certain situations , interim impairment tests may be required if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . core deposit intangibles assets are amortized over their estimated useful lives using straight-line and accelerated methods and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount . the initial recognition of loans , goodwill and core deposit intangibles and subsequent impairment analysis require us to make subjective judgments concerning estimates of how the acquired assets will perform in the future using valuation methods , including discounted cash flow analyses . additionally , estimated cash flows may extend beyond five years and , by their nature , are difficult to determine over an extended timeframe . events and factors that may significantly affect the estimates include , among others , competitive forces , customer behaviors , changes in revenue growth trends , cost structures , technology , changes in discount rates and market conditions . in determining the reasonableness of cash flow estimates , heartland reviews historical performance of the underlying assets or similar assets in an effort to assess and validate assumptions utilized in its estimates . overview heartland is a multi-bank holding company providing banking , mortgage , wealth management , investments , insurance and consumer finance services to individuals and businesses . story_separator_special_tag the loan portfolios had a fair value of $ 67.2 million and were classified as held for sale as of december 31 , 2018. the transaction closed on january 11 , 2019 , and all of the citizens ' locations closed in february 2019. the pending branch sales and the sale of the citizens portfolios resulted in the reclassification of $ 96.0 million of loans and $ 106.4 million of deposits as held for sale as of december 31 , 2018. total assets of heartland were $ 11.41 billion at december 31 , 2018 , an increase of $ 1.60 billion or 16 % from $ 9.81 billion at year-end 2017 . included in this increase , at fair value , were $ 427.1 million of assets acquired in the signature bancshares , inc. transaction and $ 1.12 billion of assets acquired in the first bank lubbock bancshares , inc. transaction . exclusive of these transactions , total assets increased $ 52.8 million or 1 % since december 31 , 2017. securities represented 24 % of heartland 's total assets at december 31 , 2018 , compared to 25 % at year-end 2017 . total loans held to maturity were $ 7.41 billion at december 31 , 2018 , compared to $ 6.39 billion at year-end 2017 , an increase of $ 1.02 billion or 16 % . excluding $ 96.0 million of loans that were classified as held for sale in conjunction with the pending branch sales and the citizens transaction and $ 1.01 billion of loans acquired in 2018 , total loans held to maturity increased $ 106.7 million or 2 % since year-end 2017. total deposits were $ 9.40 billion as of december 31 , 2018 , compared to $ 8.15 billion at year-end 2017 , an increase of $ 1.25 billion or 15 % . this increase included $ 1.25 billion of deposits , at fair value , acquired in the signature bancshares , inc. and first bank lubbock bancshares , inc. transactions . as of december 31 , 2018 , heartland had $ 106.4 million of deposits classified as held for sale in conjunction with the pending branch sales . exclusive of these transactions , total deposits increased $ 104.8 million or 1 % since year-end 2017. common stockholders ' equity was $ 1.33 billion at december 31 , 2018 , compared to $ 990.5 million at year-end 2017 . book value per common share was $ 38.44 at december 31 , 2018 , compared to $ 33.07 at year-end 2017 . heartland 's unrealized gains and losses on securities available for sale , net of applicable taxes , were at an unrealized loss of $ 32.5 million at december 31 , 2018 , compared to an unrealized loss of $ 24.3 million at december 31 , 2017 . 2017 overview net income recorded for 2017 was $ 75.3 million compared to $ 80.3 million recorded in 2016 , a decrease of $ 5.1 million or 6 % . net income available to common stockholders was $ 75.2 million , or $ 2.65 per diluted common share , for the year ended december 31 , 2017 , compared to $ 80.1 million , or $ 3.22 per diluted common share , earned during 2016. return on average common equity was 8.63 % and return on average assets was 0.83 % for 2017 , compared to 11.80 % and 0.98 % , respectively , for 2016 . in response to the enactment of the tax cuts and jobs act on december 22 , 2017 , which reduced the corporate federal tax rate from a graduated maximum 35 % to a flat 21 % , heartland recorded a $ 10.4 million non-cash charge to income tax expense to adjust the value of its deferred tax assets and liabilities . excluding this charge to income tax expense , net income available to common stockholders for 2017 was $ 85.6 million or $ 3.01 per diluted common share . on july 7 , 2017 , heartland completed the acquisition of citywide banks of colorado , inc. , parent company of citywide banks , headquartered in aurora , colorado . simultaneous with the close , citywide banks merged into heartland 's centennial bank and trust subsidiary . the aggregate consideration was approximately $ 211.2 million , of which $ 58.6 million was cash , and the remainder was settled by delivery of 3,216,161 shares of heartland common stock . the combined entity operates as citywide banks . as of the close date , citywide banks of colorado , inc. had , at fair value , total assets of $ 1.49 billion , including $ 985.4 million in net loans outstanding , and $ 1.21 billion of deposits . the systems conversion for this transaction occurred on october 13 , 2017. on february 28 , 2017 , heartland completed the acquisition of founders bancorp , parent company of founders community bank , based in san luis obispo , california . based on heartland 's closing common stock price of $ 49.55 per share as of february 28 , 2017 , the aggregate consideration was $ 31.0 million , with 30 % of the consideration paid in cash and 70 % by delivery of heartland common stock . simultaneous with the closing of the transaction , founders community bank merged into heartland 's premier valley bank subsidiary . as of the close date , founders bancorp had , at fair value , total assets of $ 213.9 million , total loans of $ 96.4 million and total deposits of $ 181.5 million . the systems conversion for this transaction occurred two weeks after the closing . total assets were $ 9.81 billion at december 31 , 2017 , an increase of $ 1.56 billion or 19 % since year-end 2016 . included in this increase , at fair value , were $ 213.9 million of assets acquired in the founders bancorp transaction and $ 1.49 billion of assets acquired in the citywide banks of colorado , inc. transaction .
| results of operations net interest income net interest income is the difference between interest income earned on earning assets and interest expense paid on interest bearing liabilities . as such , net interest income is affected by changes in the volume and yields on earning assets and the volume and rates paid on interest bearing liabilities . net interest margin is the ratio of net interest income to average earning assets . net interest margin , expressed as a percentage of average earning assets , was 4.26 % ( 4.32 % on a fully tax-equivalent basis ) during 2018 , compared to 4.04 % ( 4.22 % on a fully tax-equivalent basis ) during 2017 and 3.95 % ( 4.13 % on a fully tax-equivalent basis ) during 2016 . the tax cuts and jobs act that passed on december 22 , 2017 , reduced the corporate federal tax rate from a graduated maximum 35 % to a flat 21 % . with the new 21 % corporate federal tax rate , the conversion factor to a fully tax-equivalent basis decreased in 2018. the decline had no impact on net interest income but caused net interest margin on a fully tax-equivalent basis to decrease . our success in maintaining net interest margin has been the result of an increase in average earning assets and a favorable deposit mix . also contributing to our ability to maintain net interest margin has been the amortization of purchase accounting discounts associated with acquisitions completed since 2015. for the years ended december 31 , 2018 , 2017 and 2016 , our net interest margin included 22 basis points , 18 basis points and 15 basis points , respectively , of purchase accounting discount amortization . the sale of the citizens ' loan portfolios is expected to negatively impact net interest margin by approximately 10 to 15 basis points in future years .
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trikes and tetrakes are made up of recombinant fusion proteins , can be designed to target any number of tumor antigens on hematologic malignancies , sarcomas or solid tumors and do not require patient-specific customization . as shown in the accompanying consolidated financial statements , the company has incurred an accumulated deficit of $ 567,332,000 through december 31 , 2019. on a consolidated basis , the company had cash and cash equivalents of $ 28,000 at december 31 , 201 9 . because our lack of funds , we will have to raise additional capital in order to fund our selling , general and administrative , and research and development expenses . there are no assurances that we will be able to raise the funds necessary to maintain our operations or to implement our business plan . the consolidated financial statements included in this annual report do not include any adjustments relating to the recoverability and classification of recorded assets , or the amounts and classification of liabilities that might be necessary in the event we can not continue our operations . corporate developments employment contracts on february 14 , 2018 , the company entered into the first amendment to the employment agreement with dr. clarence-smith , amending the employment agreement , dated september 1 , 2017 , between the company and dr. clarence-smith . under the first amendment , dr. clarence-smith 's title was revised to reflect her new position and included an annual salary of $ 500,000 , paid in equal monthly installments . all other terms of her original employment agreement remain unchanged . in october 2018 , dr. clarence-smith resigned from her position with the company . in connection with this resignation , the company entered into a separation agreement which superseded the employment agreement . on october 18 , 2018 , the company entered into a consultant agreement with anthony cataldo . the term of the consultant agreement shall remain in effect until september 30 , 2019. this agreement supersedes the consultant agreement dated february 14 , 2018 and will pay mr. cataldo $ 25,000 per month during the term of the agreement . on october 19 , 2018 , the company entered into an executive employment agreement with dr. raymond urbanski , reflecting his current position as chief executive officer of the company . under the terms of this agreement , dr. urbanski 's annual salary is essentially unchanged from his previous positions . dr. urbanski is also entitled to participate in the company 's bonus plans . under the executive employment agreement , the company has agreed that upon shareholder approval of a stock option plan , it will recommend to the board that the company grant dr. urbanski a non-qualified stock option to purchase 2,971,102 shares of the company 's common stock having an exercise equal to the fair market value of the shares on the date of the agreement . the stock option grant would vest according to the following schedule : ( i ) 1,250,000 fully vested shares upon signing of the agreement , ( ii ) 1,250,000 shares on january 1 , 2019 , and ( iii ) 471,102 shares on january 1 , 2020. on march 15 , 2019 , dr , urbanski resigned his position as chief executive officer , president and chairman of the board . trike agreements in march 2017 , we entered a new one-year sponsored research agreement with the university of minnesota . the purpose of this agreement is to determine toxicities and in vivo behavior in our trike technology , which we license from the university of minnesota . in june 2017 , we entered into a co-development partnership agreement with altor bioscience corporation in which the we will collaborate exclusively in the clinical development of a novel 161533 trike fusion protein for cancer therapies using our trike technology . license agreements pursuant to a patent license agreement with the id4 , dated december 31 , 2014 , we received a non-exclusive , worldwide license to certain intellectual property , including intellectual property related to treating a p62-mediated disease ( e.g. , multiple myeloma ) . on february 25 , 2015 , we licensed exclusive rights to three antibody-drug conjugates , or adcs , that mcit will prepare for further evaluation by gtbp as prospective therapeutics for the treatment of triple-negative breast cancer , and multiple myeloma and associated osteolytic bone disease . under the terms of the agreement , mcit will develop three adc product candidates which contain gtbp 's lead drug candidates oxs-2175 and oxs-4235 . 30 we executed an exclusive worldwide license agreement with daniel a. vallera , ph.d. and his associate ( jointly `` dr. vallera '' ) , to further develop and commercialize dt2219arl ( gtb-1550 ) , a novel therapy for the treatment of various human cancers . under the terms of the agreement , we receive exclusive rights to conduct research and to develop , make , use , sell , and import dt2219arl worldwide for the treatment of any disease , state or condition in humans . gtbp shall own all permits , licenses , authorizations , registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as dt2219arl , including without limitation the fda and the european agency for the evaluation of medicinal products in the european union . under the agreement , dr. vallera will receive an upfront license fee , royalty fees , and certain milestone payments . in july 2016 , we executed an exclusive worldwide license agreement with the regents of the university of minnesota , to further develop and commercialize cancer therapies using trike technology developed by researchers at the university to target nk cells to cancer . under the terms of the agreement , we received exclusive rights to conduct research and to develop , make , use , sell , and import trike technology worldwide for the treatment of any disease , state or condition in humans . story_separator_special_tag on september 24 , 2018 , gt biopharma , inc. ( the “ company ” ) entered into a securities purchase agreement with the purchasers identified on the signature pages thereto ( individually , a “ purchaser , ” and collectively , the “ purchasers ” ) pursuant to which the company has issued to the purchasers one year 10 % senior convertible debentures in an aggregate principal amount of $ 800,000 ( the “ debentures ” ) , which debentures shall be convertible into the company 's common stock , par value $ 0.001 per share ( the “ common stock ” ) , at an initial price of $ 2 per share . the issuance of the senior convertible debentures was made in reliance on the exemption provided by section 4 ( a ) ( 2 ) of the securities act of 1933 , as amended ( the “ securities act ” ) , for the offer and sale of securities not involving a public offering and regulation d promulgated under the securities act . on february 4 , 2019 , gt biopharma , inc. ( the “ company ” ) entered into a securities purchase agreement ( the “ purchase agreement ” ) with the 15 purchasers ( individually , a “ purchaser , ” and collectively , the “ purchasers ” ) , pursuant to which the company issued to the purchasers , on february 4 , 2019 , secured convertible notes in an aggregate principal amount of $ 1,352,224 ( the “ notes ” ) , consisting of gross proceeds of $ 1,052,224 and settlement of existing debt of $ 300,000 , which notes shall be convertible at any time after issuance into shares ( the “ conversion shares ” ) of the company 's common stock , par value $ 0.001 per share ( the “ common stock ” ) , at an initial conversion price of $ 0.60 per share ( the “ conversion price ” ) . the notes accrue interest at the rate of 10 % per annum and mature on august 2 , 2019. interest on the notes is payable in cash or , at a purchaser 's option , in shares of common stock at the conversion price . upon the occurrence of an event of default , interest accrues at 18 % per annum . the notes contain customary default provisions , including provisions for potential acceleration , and covenants , including negative covenants regarding additional indebtedness and dividends . the conversion price is subject to adjustment due to certain events , including stock dividends and stock splits , and is subject to reduction in certain circumstances if the company issues common stock or common stock equivalents at an effective price per share that is lower than the conversion price then in effect . the company may only prepay the notes with the prior written consent of the respective purchasers thereof . contemporaneously with the execution and delivery of the purchase agreement , on february 4 , 2019 , the company and certain of its wholly-owned subsidiaries entered into a security agreement ( the “ security agreement ” ) with alpha capital anstalt , as collateral agent on behalf of the purchasers , and with the purchasers , pursuant to which the purchasers have been granted a first-priority security interest in substantially all of the assets of the company and such subsidiaries securing ( i ) an aggregate principal amount of $ 1,352,224 of notes and ( ii ) an aggregate principal amount of $ 9,058,962 of the company 's 10 % senior convertible debentures issued on august 2 , 2018 , september 7 , 2018 and september 24 , 2018 held by such purchasers . the purchase agreement contains customary representations , warranties and covenants , including covenants , subject to certain exceptions , that the company , until the date on which less than 10 % of the notes are outstanding , shall not effect any variable rate transaction ( as defined in the purchase agreement ) and that , for as long as a purchaser holds any notes or conversion shares , the company shall amend the terms and conditions of the purchase agreement and the transactions contemplated thereby with respect to such purchaser to give such purchaser the benefit of any terms or conditions under which the company agrees to issue or sell any common stock or common stock equivalents that are more favorable to an investor than the terms and conditions granted to such purchaser under the purchase agreement and the transactions contemplated thereby . in addition , the company entered into a registration rights agreement ( the “ registration rights agreement ” ) with the purchasers , pursuant to which the company has agreed to file , within 14 days after february 4 , 2019 , one or more registration statements on form s-3 ( or , if form s-3 is not then available to the company , such form of registration that is then available to effect a registration for resale of the subject securities ) covering the resale of all conversion shares , subject to certain penalties set forth in the registration rights agreement . the form s-3 was filed by the company on february 14 , 2019 and became effective on march 11 , 2019 on may 22 , 2019 , gt biopharma , inc. ( the “ company ” ) entered into a securities purchase agreement ( the “ purchase agreement ” ) with the ten purchasers ( individually , a “ purchaser , ” and collectively , the “ purchasers ” ) , pursuant to which the company issued to the purchasers , on may 22 , 2019 , secured convertible notes in an aggregate principal amount of $ 1,300,000 ( the “ notes ” ) , which notes shall be convertible at any time after issuance into shares ( the “ conversion shares ” ) of the company 's common stock , par value $ 0.001 per share ( the “ common stock ” ) , at an initial conversion price of $ 0.35 per share ( the “ conversion price ” )
| results of operations research and development expenses during the years ended december 31 , 2019 and 2018 , we incurred $ 1.7 million and $ 9.1 million of research and development expenses , respectively . 2018 research and development costs were high due primarily to the addition of new employees , increased regulatory and preclinical consultant costs to support the gtb-3550 ind , higher costs to advance the cns portfolio and position the assets for licensing efforts , and higher preclinical and clinical expenses incurred at the university of minnesota to continue development of our immune-oncology assets . 2018 expenses also include non-cash compensation of $ 6.8 million . we anticipate our direct clinical and preclinical costs to continue to increase throughout 2020 , totaling approximately $ 12 to $ 15 million , as we have initiated the phase 1 clinical trial of our most advanced trike product candidate , gtb-3550 in january 2020 , and initiate ind-enabling activities for gtb-c3550 , and gtb-1615 later in 2020. selling , general and administrative expenses during the years ended december 31 , 2019 and 2018 , we incurred $ 9.7 million and $ 12.5 million of selling , general and administrative expenses , respectively . additional selling , general , and administrative expenses in 2018 were due to increased spending on investor relations campaigns to broaden awareness of the company , and increased legal costs primarily associated with regulatory and financing efforts . we anticipate selling , general and administrative expenses , excluding stock compensation , to range between $ 1 and $ 2 million in the coming quarters . loss on impairment for the year ended december 31 , 2018 , the company recorded an intangible asset impairment charge of $ 228.5 million related to the portfolio of cns ipr & d assets , which represents the excess carrying value compared to fair value . the impairment charge was the result of both internal and external factors .
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actual results and the timing of the events may differ materially from those contained in these forward looking statements due to many factors , including those discussed in the “ forward-looking statements ” set forth elsewhere in this quarterly report on form 10-q . we are not undertaking to update or revise any forward-looking statement , whether as a result of new information , future events or circumstances or otherwise . business overview and corporate structure shineco , inc. ( the “ company ” , “ we ” , “ us ” and “ our ” ) was incorporated in the state of delaware on august 20 , 1997. on december 30 , 2004 , the company acquired all of the issued and outstanding shares of beijing tenet-jove technological development co. , ltd. ( “ tenet-jove ” ) , a prc company , in exchange for our restricted shares of common stock . consequently , tenet-jove became our 100 % owned subsidiary and its operating business became that of the company . tenet-jove was incorporated on december 15 , 2003 under the laws of china and was officially granted the status of a wholly foreign-owned entity ( “ wfoe ” ) by chinese authorities on july 14 , 2006. this transaction was accounted for as a recapitalization . tenet-jove owns a 90 % interest of tianjin tenet huatai technological development co. , ltd. ( “ tenet huatai ” ) . on december 31 , 2008 , june 11 , 2011 and may 24 , 2012 , tenet-jove entered into a series of contractual agreements including an executive business cooperation agreement , a timely reporting agreement , an equity interest pledge agreement and executive option agreement ( collectively , the “ vie agreements ” ) , with each one of the following entities , ankang longevity pharmaceutical ( group ) co. , ltd. ( “ ankang longevity group ” ) , yantai zhisheng international freight forwarding co. , ltd. ( “ zhisheng freight ” ) , yantai zhisheng international trade co. , ltd. ( “ zhisheng trade ” ) , yantai mouping district zhisheng agricultural produce cooperative ( “ zhisheng agricultural ” ) and qingdao zhihesheng agricultural produce services. , ltd. ( “ qingdao zhihesheng ” ) . on february 24 , 2014 , tenet-jove entered into the same series of contractual agreements with shineco zhisheng ( beijing ) bio-technology co. , ltd. ( “ zhisheng bio-tech ” ) , which was incorporated in 2014. zhisheng bio-tech , zhisheng freight , zhisheng trade , zhisheng agricultural , and qingdao zhihesheng are collectively referred to herein as the “ zhisheng group. ” zhisheng agricultural has not had any significant business activities and thus we have deregistered it in 2017. we have transferred all assets , rights and liabilities to an affiliated entity , zhisheng freight . 31 pursuant to the vie agreements , tenet-jove has the exclusive right to provide to each of the zhisheng group entities and ankang longevity group consulting services related to their business operations and management . all these contractual agreements obligate tenet-jove to absorb a majority of the risk of loss from each of the zhisheng group entities and ankang longevity group 's activities and entitle tenet-jove to receive a majority of their residual returns . in essence , tenet-jove has gained effective control over each of the zhisheng group and ankang longevity group . based on these contractual arrangements , the zhisheng group and ankang longevity group are treated as variable interest entities ( “ vies ” ) under financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 810 “ consolidation ” . accordingly , the accounts of each of the zhisheng group entities and ankang longevity group are consolidated with those of tenet-jove . ankang longevity group has several subsidiaries . we carry out all of our business in china through our prc subsidiaries , our vies and their subsidiaries . on april 19 , 2017 , tenet-jove established xinjiang tiankunrunze biological engineering co. , ltd. ( “ tiankunrunze ” ) with registered capital of rmb 50.0 million ( us $ 7,262,000 ) and owns 65 % interest of tiankunrunze . on april 28 , 2017 , tiankunrunze established xinjiang tianzhuo technology development co. , ltd. ( “ tianzhuo ” ) with registered capital of rmb 10.0 million ( us $ 1,450,233 ) . on may 22 , 2017 , tiankunrunze established xinjiang tianhuihechuang agriculture development co. , ltd. ( “ tianhuihechuang ” ) with registered capital of rmb 10.0 million ( us $ 1,452,294 ) . on may 23 , 2017 , tiankunrunze established xinjiang tianxintongye biotechnology development co. , ltd. ( “ tianxintongye ” ) with registered capital of rmb 10.0 million ( us $ 1,451,615 ) . therefore , tenet-jove controls tiankunrunze and its wholly owned subsidiaries . on may 2 , 2017 , the company entered into a strategic cooperation agreement with beijing zhongke biorefinery engineering technology co. , ltd. ( “ biorefinery ” ) , a leading high-tech biomass refining company financially backed by the chinese academy of sciences institute of process engineering , to establish the institute of chinese apocynum industrial technology research ( “ icaitr ” ) . pursuant to the strategic cooperation agreement the two parties agreed to establish the icaitr , the company and biorefinery own 80 % and 20 % of the equity interests of icaitr , respectively . shineco invested rmb 5.0 million ( us $ 737,745 ) as the registered capital , and biorefinery will invest a technology patent for “ steam explosion degumming ” . on september 21 , 2017 , the company , through its wholly owned subsidiary tenet-jove , entered into a strategic cooperation agreement ( the “ agreement ” ) with mr. jianjun wang , who is experienced in apocynum planting , manufacturing and knowledgeable in apocynum market and administration procedures with relevant authorities in apocynum industry in china , to establish an apocynum industrial park in xinjiang , china . story_separator_special_tag these different business activities and products can potentially be integrated and benefit from one another . 33 financing activities on january 23 , 2018 , the company entered into a common stock purchase agreement ( the “ purchase agreement ” ) with ifg opportunity fund llc ( “ ifg fund ” ) whereby , the company had the right , from time to time in its sole discretion during the 24-month term of the purchase agreement , to direct ifg fund to purchase up to a total of us $ 15,000,000 of shares of common stock and an additional 22,222 shares of common stock ( the “ commitment shares ” ) as consideration for ifg to enter into the purchase agreement . the company and ifg fund , on january 23 , 2018 , entered into a registration rights agreement for certain registration rights in connection with the purchase agreement ( the “ registration rights agreement ” ) . the ifg fund offering was made pursuant to a prospectus supplement dated and filed with the securities and exchange commission ( “ sec ” ) on january 26 , 2018 and an accompanying prospectus dated november 21 , 2017 , under the company 's shelf registration statement on form s-3 declared effective by the sec on december 19 , 2017 ( file no . 333-221711 ) . on january 23 , 2018 , the company issued the commitment shares to ifg fund . on july 3 , 2018 , the company and ifg fund entered into a termination agreement , dated july 3 , 2018 effective as of july 3 , 2018 , to terminate the purchase agreement and the registration rights agreement . ifg retained the 22,222 commitment shares which were valued at us $ 434,000 and written off during the year ended june 30 , 2019. on september 27 , 2018 , the company entered into a securities purchase agreement with selected investors whereby the company agreed to sell up to 181,967 of common stock at a purchase price of us $ 9 per share , for gross proceeds to the company of approximately us $ 1,637,700 ( the “ 2018 offering ” ) . after deducting the offering cost , the net proceeds the company received was us $ 1,589,892. the 2018 offering closed on september 28 , 2018. the 2018 offering was made pursuant to the company 's effective registration statement on form s-3 ( registration statement no . 333-221711 ) previously filed with the sec and a prospectus supplement thereunder . on may 8 , 2019 , tnb , filed with the united states securities and exchange commission a notice of exempt offering of securities on form d regarding an offering ( “ offering ” ) of simple agreement for future tokens . tenet-jove intends to use the net proceeds from sales of the tokens to develop land and facilities for cultivating industrial hemp in china under a newly formed wholly owned subsidiary ( the “ operations ” ) . the minimum target amount in this private placement is $ 1,000,000. once shineco raises $ 1,000,000 , investors will have the option to convert smart contracts that represent preferred stock into shinceo 's common stock . for this , smart contracts that shall be convertible into common stock at the following ratio of 180:1. if shineco raises $ 1,000,000 in this private placement , then up to 55,556 shares of common stock will be issued pursuant to the following calculation if the smart contract holders choose to convert their smart contracts that represent preferred stock into shinceo 's common stock : 1. each smart contract is $ 0.1 ; 2 . $ 1,000,000 can get 10,000,000 smart contracts . ( $ 1,000,000 divided by 0.1 equals to 10,000,000 smart contracts . ) 3. the conversion ratio of smart contracts to common stock is 180:1 4. therefore , -10,000,000-smart-contracts-divided by 180 -equals-55,556-common stock . shineco plans to issue no more than 444,444 shares in connection with this transaction , specifically for the exchange of smart contracts . on september 5 , 2019 , the company entered into a securities purchase agreement with select investors whereby the company agreed to sell , and the investors agreed to purchase , up to 310,977 shares of common stock ( the “ shares ” ) at a purchase price of us $ 4.68 per share . the net proceeds that the company received was us $ 1,500,203. the offering is being made pursuant to the company 's effective registration statement on form s-3 ( registration statement no . 333-221711 ) previously filed with the securities and exchange commission and a prospectus supplement thereunder . 34 factors affecting financial performance we believe that the following factors will affect our financial performance : increasing demand for our products - the increasing demand for our agricultural products will have a positive impact on our financial position . we plan to develop new products and expand our distribution network as well as to grow our business through possible mergers and acquisitions of similar or synergetic businesses , all aimed at increasing awareness of our brand , developing customer loyalty , meeting customer demands in various markets and providing solid foundations for our continuous growth . as of the date of this report however , we do not have any agreements , undertakings or understandings to acquire any such entities and there can be no guarantee that we ever will . expansion of our sources of supply , production capacity and sales network - to meet the increasing demand for our products , we need to expand our sources of supply and production capacity . we plan to make capital improvements in our existing production facilities which would improve both their efficiency and capacity . in the short-run , we intend to increase our investment in our reliable supply network , personnel training , information technology applications and logistic system upgrades . we also participate in two non-equity investment opportunities through a vie , both of which we expect to provide us with new networks and platforms .
| overview the following table summarizes our results of operations for the years ended june 30 , 2020 and 2019 : replace_table_token_4_th 38 revenue currently , we have three revenue streams derived from our three major business segments . first , developing , manufacturing and distributing specialized fabrics , textiles and other by-products derived from an indigenous chinese plant apocynum venetum , known in chinese as “ luobuma ” or “ bluish dogbane ” , as well as luoboma raw materials processing , this segment is channeled through our wholly owned subsidiary , tenet-jove . second , processing and distributing traditional chinese medicinal herbal products as well as other pharmaceutical products ; this segment is conducted via our vie , ankang longevity group and its subsidiaries . third , planting , processing and distributing green and organic agricultural produce as well as growing and cultivation of yew trees ; this segment is conducted through our vies , the zhisheng group . the following table sets forth the breakdown of our revenue for each of our three segments , for the years ended june 30 , 2020 and 2019 , respectively : replace_table_token_5_th for the years ended june 30 , 2020 and 2019 , revenue from sales of luobuma products was us $ 168,241 and us $ 661,778 , respectively , which represented a decrease of us $ 493,537 or 74.58 % . the decrease of revenue from this segment was mainly due to the decrease in revenue from tenet-jove and tenet huatai . since the beginning of the year , we did not launch new products , and we mainly focused on clearing off our old stocks .
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a detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is outlined under `` forward-looking statements '' and `` item 1a . risk factors '' in this form 10-k. all table amounts are presented in thousands of dollars . throughout this discussion , we may refer to revenue growth on a constant currency basis . constant currency measures exclude the impact of changes in currency exchange rates from the prior period under comparison . we believe that excluding the impacts of currency exchange rates provides investors a better understanding of the underlying revenue performance . constant currency change is calculated by converting the current period non-u.s. dollar denominated revenue using the prior year 's exchange rate . where constant currency measures are not provided , the actual change and constant currency change are the same . management measures segment profitability and performance using segment earnings before interest and taxes ( ebit ) . segment ebit is calculated by deducting from segment revenue the related costs and expenses attributable to the segment . segment ebit excludes interest , taxes , general corporate expenses , restructuring charges , asset impairment charges , goodwill impairment charges and other items not allocated to a business segment . management believes that it provides investors a useful measure of operating performance and underlying trends of the business . segment ebit may not be indicative of our overall consolidated performance and therefore , should be read in conjunction with our consolidated results of operations . overview financial results summary - twelve months ended december 31 : replace_table_token_2_th replace_table_token_3_th 17 replace_table_token_4_th revenue increased 11 % in 2020 compared to 2019 , driven by a 28 % increase in business services revenue , primarily due to significantly higher volumes in our global ecommerce segment . this growth more than offset declines in all other revenue line items driven in part from the continuing impacts of covid-19 . within our business segments , global ecommerce revenue grew 41 % due to increased domestic parcel delivery and cross-border volumes , presort services revenue declined 2 % due to lower first class mail and marketing mail volumes and sendtech solutions revenue declined 7 % , primarily due to lower equipment sales and supplies revenue . global ecommerce ebit decreased 18 % and presort services ebit decreased 21 % from the prior year primarily driven by higher labor and transportation costs caused by increased demand and competition for these resources and increased costs and reduced productivity due to covid-19 . sendtech solutions ebit declined 10 % primarily due to lower revenue and higher credit loss provisions . prior year segment ebit was adversely impacted by $ 19 million related to a ransomware attack and current year segment ebit includes $ 13 million of insurance proceeds related to this attack . refer to results of operations section for further information . impacts of covid-19 the global spread of covid-19 and the efforts to contain it are adversely affecting global economies , impacting demand for a broad variety of goods and services and creating disruptions and shortages in supply chains . we implemented measures in our facilities to protect the health and safety of our employees and contractors , including staggering shifts and breaks to enhance social distancing , providing personal protection equipment , conducting temperature checks and sanitizing equipment and facilities multiple times a day . employees that have the ability to work remotely are doing so and corporate and local management continue to assess conditions to determine when , and how , these employees should return to their office locations . covid-19 has impacted our financial results in different ways in each of our businesses . global ecommerce has seen a significant increase in volumes due to the demand for ecommerce solutions in the current environment . however , this increase in volumes has resulted in higher postal costs driven by capacity constraints and higher labor and transportation costs as many companies are competing for these resources . at the start of the pandemic , presort services experienced a significant decline in both first class and marketing mail . however , while volumes for the full year 2020 were down from the prior year , we did see quarter over quarter improvement throughout the year . presort services was also impacted by higher labor costs . as a result of the health and safety measures implemented in all our commerce services facilities , we also incurred additional costs and reduced productivity . in sendtech solutions , the global shut-down of businesses and increase in the number of clients working remotely at the onset of covid-19 had a significantly adverse impact on demand for and usage of our mailing equipment and supplies , and our ability to perform on-site service and installations . we saw improving trends in equipment sales and supplies revenues quarter over quarter throughout 2020. as businesses continue to operate remotely , we are also seeing improvement in our cloud-enabled shipping and mailing solutions . outlook we continue to position ourselves for long-term success as a global technology company focused on shipping , mailing and related financial services . we are investing in market opportunities and new solutions and services across all our businesses , optimizing our operations and implementing cost savings initiatives to drive long-term value . our portfolio is shifting to higher growth markets and we expect margins to improve as we build scale and realize the full benefits of our investments and optimizations . within global ecommerce , we expect the accelerated market growth of ecommerce brought on by covid-19 to continue and anticipate revenue growth in 2021. we expect margin and profit improvements in 2021 from pricing initiatives and operational improvements within our facilities and network designed to drive efficiencies and increased productivity . within presort services , we expect the improving volume trends in the second half of 2020 to continue throughout 2021 through organic volume growth and acquisitions . story_separator_special_tag this was partially offset by a decrease in cash flows from discontinued operations of $ 47 million primarily due to the settlement of taxes related to the gain on the sale of our software solutions business in 2020. investing activities cash of $ 76 million was used in investing activities in 2020 compared to cash provided by investing activities of $ 458 million in 2019. cash flow from investing activities in 2019 includes $ 670 million from discontinued operations , primarily from proceeds of the sale of the software solutions business . cash used in investing activities of continuing operations was $ 73 million compared to $ 213 million in 2019. the improvement was due to lower capital expenditures of $ 32 million due to the prioritization and delay of certain investments in light of covid-19 and $ 58 million in proceeds from the surrender of company-owned life insurance policies ( $ 46 million ) and the sale of an equity investment ( $ 12 million ) . financing activities cash used in financing activities was $ 235 million in 2020 compared to $ 670 million in 2019. the improvement in cash flow was primarily due to lower net debt repayments of $ 351 million and lower stock repurchases of $ 105 million , partially offset by $ 28 million of higher premium payments and fees associated with the early extinguishment of debt . 22 debt and capitalization in february 2020 , we secured a five-year $ 850 million term loan maturing january 2025 ( the 2025 term loan ) . the 2025 term loan bears interest at libor plus 5.5 % and resets monthly . we have interest rate swap agreements with an aggregate notional amount of $ 500 million to mitigate the interest rate risk associated with $ 500 million of our variable-rate term loans . under the terms of the swap agreements , we pay fixed-rate interest of 0.4443 % and receive variable-rate interest based on one-month libor . the variable interest rate under the term loans and the swaps reset monthly . in march 2020 , we purchased under a tender offer $ 428 million of the october 2021 notes , $ 250 million of the may 2022 notes , $ 125 million of the april 2023 notes and $ 125 million of the march 2024 notes . a $ 37 million loss was incurred on the early redemption of debt . during 2020 , we repaid $ 52 million of principal related to our term loans in accordance with the terms of these loans . in 2021 , $ 63 million of our term loans is scheduled to mature . we have a $ 500 million secured revolving credit facility that expires in november 2024 ( the credit facility ) . the credit facility requires that we maintain a consolidated adjusted total leverage ratio ( as defined in the credit facility agreement ) and a consolidated adjusted interest coverage ratio ( as defined in the credit facility agreement ) , and comply with certain other nonfinancial covenants . compliance with covenants is determined at the end of each fiscal quarter . in the event of noncompliance with any of the covenants , borrowings under the credit facility , the 2024 term loan and the 2025 term loan ( collectively , the facilities ) may be accelerated ( subject to grace periods , as appropriate ) . for more information on our financial covenants refer to our exhibits . at december 31 , 2020 , we were in compliance with all covenants . in april 2020 , we borrowed $ 100 million under the credit faciltiy and repaid this amount in september 2020. at december 31 , 2020 and 2019 , there were no outstanding borrowings under the credit facility . borrowings under the facilities are secured by substantially all company assets and the assets of certain of our domestic subsidiaries , subject to customary exclusions and limitations set forth in the credit facility agreement and other executed loan documents . the credit facility agreement contains representations and warranties and affirmative and negative covenants that are usual and customary , including negative covenants that , among other things , limit our ability to incur additional debt , incur or permit liens on assets , make investments and acquisitions , consolidate or merge with any other company , engage in asset sales and make dividends and distributions . interest rates on certain notes are subject to adjustment based on changes in our credit ratings . as a result of credit rating downgrades in november 2019 and may 2020 , the interest rates on the october 2021 notes and april 2023 notes increased 0.25 % in the fourth quarter of 2020. on february 10 , 2021 , standard and poor 's downgraded our credit rating and the credit ratings of our secured and unsecured debt . as a result , the interest rates on the may 2022 notes and april 2023 notes will increase 0.25 % after their next interest payment date . further , on february 17 , 2021 , we announced that on february 22 , 2021 , we will redeem the october 2021 notes . interest rates on secured borrowings under the facilities are determined based on libor , which is expected to be phased out after 2021. at this time , no consensus exists as to what rate or rates will become accepted alternatives to libor . our credit documents include language to address the transition from libor to an alternative rate ; however , there are still many uncertainties about this transition and no assurances can be given that the transition to an alternate rate will not increase our cost of debt . we have a total of $ 2.1 billion of debt maturing within the next five years . we fully expect to be able to fund these maturities with cash or by refinancing through the u.s. capital markets .
| results of operations revenue and segment ebit global ecommerce global ecommerce includes the revenue and related expenses from domestic parcel services , cross-border solutions and digital delivery services . replace_table_token_5_th global ecommerce revenue increased 41 % in 2020 due to significantly higher volumes primarily attributable to a market shift to ecommerce solutions brought on by covid-19 . domestic parcel delivery volumes contributed revenue growth of 36 % and increased cross-border volumes contributed revenue growth of 5 % . gross margin decreased to 8.5 % from 14.1 % in the prior year due primarily to increased postal , transportation and labor costs resulting from capacity restraints and increased competition for transportation and labor resources due to the accelerated and sudden market growth in ecommerce solutions , investments to support this growth and incremental covid-19 related costs . segment ebit in 2020 was a loss of $ 83 million compared to a loss of $ 70 million in 2019 primarily due to the decline in gross margin , which reduced ebit by $ 30 million , partially offset by lower operating expenses of $ 5 million . prior year segment ebit was adversely impacted by $ 6 million as a result of a ransomware attack and current year segment ebit benefited from $ 6 million in net insurance proceeds received related to this attack . 19 presort services presort services includes revenue and related expenses from sortation services to qualify large volumes of first class mail , marketing mail , marketing mail flats and bound printed matter for postal worksharing discounts . replace_table_token_6_th presort services revenue decreased 2 % in 2020 compared to 2019 due to lower volumes of first class mail and marketing mail , driven primarily by covid-19 . incremental volumes from acquisitions during the year contributed revenue growth of 3 % . gross margin declined to 22.8 % from 25.8 % due to higher labor costs and incremental costs associated with covid-19 .
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2016-16 income taxes ( topic 740 ) : intra-entity transfers of assets other than inventory issued by the fasb which allows the recognition of deferred income taxes for an intra-entity asset transfer , other than inventory , when the transfer occurs . historically , recognition of the income tax story_separator_special_tag overview in april 2015 , the company initiated a restructuring plan in connection with organizational initiatives to create a more cost competitive cost structure and rebalance the company 's global skill set . during the years ended december 31 , 2017 , 2016 and 2015 , the company recognized charges and other costs of $ 146.8 million , $ 82.1 million and $ 118.5 million , respectively , in connection with this plan , principally related to a reduction in employees . the company reported a 2017 net loss attributable to unisys corporation of $ 65.3 million , or a loss of $ 1.30 per diluted share , compared with a 2016 net loss attributable to unisys corporation of $ 47.7 million , or a loss of $ 0.95 per diluted share . the company 's results of operations in the current year were impacted by higher cost reduction charges , higher interest expense principally caused by the issuance of the senior secured notes partially offset by savings derived from the cost reduction actions and lower income tax expense . the company 's underfunded defined benefit pension plan obligations decreased by approximately $ 390 million to $ 1.78 billion at december 31 , 2017 from $ 2.17 billion at december 31 , 2016 , principally due to higher pension plan assets partially offset by a decrease in discount rates . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > from 2015 was principally due to higher sales of the company 's proprietary enterprise software and servers in 2016 , lower cost reduction charges of $ 10.2 million and lower pension expense of $ 17.3 million . selling , general and administrative expenses were $ 426.5 million in 2017 ( 15.6 % of revenue ) , $ 455.6 million in 2016 ( 16.2 % of revenue ) and $ 519.6 million in 2015 ( 17.2 % of revenue ) . cost reduction charges of $ 33.6 million were recorded in 2017 compared with $ 38.0 million in 2016. exclusive of these charges , the decline was due to benefits derived from the cost reduction actions . research and development ( “ r & d ” ) expenses in 2017 were $ 47.2 million compared with $ 55.4 million in 2016 and $ 76.4 million in 2015 . the decline principally reflects savings due to cost reduction actions . pension expense for 2017 was $ 92.4 million compared with $ 82.7 million in 2016 and $ 108.7 million in 2015 . for 2018 , the company expects to recognize pension expense of approximately $ 72.8 million . the expected decrease in pension expense in 2018 compared with 2017 is principally due to a lower interest cost component of pension expense for the company 's u.s. defined benefit pension plans . the company records pension income or expense , as well as other employee-related costs such as payroll taxes and medical insurance costs , in operating income in the following income statement categories : cost of revenue ; selling , general and administrative expenses ; and research and development expenses . the amount allocated to each category is based on where the salaries of active employees are charged . effective january 1 , 2018 , the company approved an amendment to reorganize its u.s. defined benefit pension plan from one plan into two distinct plans . participants were divided between plans to maximize administrative efficiencies in compliance with all regulations . the company estimates administrative costs including pension benefit guaranty corporation ( “ pbgc ” ) premiums , and the resulting contributions to fund such costs , will be reduced by approximately $ 10 million per year through 2021. benefits offered to plans ' participants are unchanged . this amendment had no impact on the company 's consolidated results of operations and financial position for the year ended and as of december 31 , 2017. in 2017 , the company reported an operating profit of $ 4.6 million compared with an operating profit of $ 47.6 million in 2016 and an operating loss of $ 55.1 million in 2015 . the current year principally reflects higher cost reduction charges and higher pension expense partially offset by savings due to cost reduction actions . interest expense was $ 52.8 million in 2017 , $ 27.4 million in 2016 and $ 11.9 million in 2015 . the increase in 2017 compared with 2016 was principally caused by the issuance of senior secured notes ( see note 9 , “ debt , ” of the notes to consolidated financial statements ) . other income ( expense ) , net was expense of $ 23.9 million in 2017 , compared with income of $ 0.3 million in 2016 and income of $ 8.2 million in 2015 . included in 2017 were $ 11.8 million of net foreign currency losses related to exiting foreign countries in connection with the company 's restructuring plan and foreign exchange losses of $ 9.9 million . 2016 and 2015 included foreign exchange gains of $ 2.3 million and $ 8.1 million . income ( loss ) before income taxes in 2017 was a loss of $ 72.1 million compared with income of $ 20.5 million in 2016 and a loss of $ 58.8 million in 2015 . the ( benefit ) provision for income taxes in 2017 , 2016 and 2015 was $ ( 5.5 ) million , $ 57.2 million and $ 44.4 million , respectively . in 2017 , 2016 and 2015 , the provision for income taxes includes a benefit of $ 4.6 million , $ 16.4 million and $ 5.4 million , respectively , related to changes in judgment on the realizability of certain of its deferred tax assets . story_separator_special_tag this represents revenue from helping clients transform their business processes by developing and managing new leading-edge applications for select industries , offering advanced data analytics and modernizing existing enterprise applications . business process outsourcing ( “ bpo ” ) services . this represents revenue from the management of critical processes and functions for clients in target industries , helping them improve performance and reduce costs . technology . this represents revenue from designing and developing software and offering hardware and other related products to help clients reduce costs , improve security and flexibility and improve the efficiency of their data-center environments . the accounting policies of each business segment are the same as those followed by the company as a whole . intersegment sales and transfers are priced as if the sales or transfers were to third parties . accordingly , the technology segment recognizes intersegment revenue and manufacturing profit on software and hardware shipments to customers under services contracts . the services segment , in turn , recognizes customer revenue and marketing profits on such shipments of company software and hardware to customers . the services segment also includes the sale of software and hardware products sourced from third 21 parties that are sold to customers through the company 's services channels . in the company 's consolidated statements of income , the manufacturing costs of products sourced from the technology segment and sold to services customers are reported in cost of revenue for services . also included in the technology segment 's sales and operating profit are sales of software and hardware sold to the services segment for internal use in services engagements . the amount of such profit included in operating income of the technology segment for the years ended december 31 , 2017 , 2016 and 2015 was $ 6.3 million , $ 0.7 million and $ 9.2 million , respectively . the profit on these transactions is eliminated in corporate . the company evaluates business segment performance based on operating income exclusive of pension income or expense , restructuring charges and unusual and nonrecurring items , which are included in corporate . all other corporate and centrally incurred costs are allocated to the business segments based principally on revenue , employees , square footage or usage . see note 15 , “ segment information , ” of the notes to consolidated financial statements . information by business segment for 2017 , 2016 and 2015 is presented below : replace_table_token_4_th gross profit percent and operating income percent are as a percent of total revenue . customer revenue by classes of similar products or services , by segment , for 2017 , 2016 and 2015 is presented below : replace_table_token_5_th in the services segment , customer revenue was $ 2.3 billion in 2017 , $ 2.4 billion in 2016 and $ 2.6 billion in 2015 . foreign currency fluctuations had a negligible impact on revenue in 2017 compared with 2016 . revenue from cloud & infrastructure services was $ 1.3 billion in 2017 down 2.7 % compared with 2016 , and 2016 was down 10.6 % from 2015 . foreign currency fluctuations had a 1 -percentage-point positive impact on cloud & infrastructure services revenue in the current period compared with the year-ago period . 22 application services revenue decreased 5.9 % for 2017 compared with 2016 , and 2016 was down 1.1 % compared with 2015 . foreign currency fluctuations had a 1 -percentage-point positive impact on application services revenue in the current period compared with the year-ago period . business process outsourcing services revenue increased 4.4 % in 2017 compared with 2016 , and was down 13.1 % in 2016 compared with 2015 . foreign currency fluctuations had a 4 -percentage-point negative impact on business process outsourcing services revenue in the current period compared with the year-ago period . services gross profit percent was 16.8 % in 2017 compared with 16.2 % in 2016 and 15.8 % in 2015 . services operating income percent was 2.8 % in 2017 compared with 1.9 % in 2016 and 2.3 % in 2015 . in the technology segment , customer revenue decreased 0.2 % to $ 413.6 million in 2017 compared with $ 414.4 million in 2016 . revenue in 2016 increased 1.2 % compared with 2015 . foreign currency translation had a 1 -percentage-point positive impact on technology revenue in 2017 compared with 2016 . technology gross profit was 59.4 % in 2017 compared with 59.9 % in 2016 and 55.3 % in 2015 . technology operating income percent was 38.8 % in 2017 compared with 37.0 % in 2016 and 24.8 % in 2015 . new accounting pronouncements accounting pronouncements adopted effective january 1 , 2017 , the company adopted accounting standards update ( “ asu ” ) no . 2017-04 intangibles - goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment issued by the financial accounting standards board ( “ fasb ” ) which simplifies how an entity is required to test goodwill for impairment by eliminating step 2 from the goodwill impairment test . step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit 's goodwill with the carrying amount of that goodwill . under the amended guidance , an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount . an impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit 's fair value . adoption of this new guidance had no impact on the company 's consolidated results of operations and financial position . effective january 1 , 2017 , the company adopted asu no . 2016-18 statement of cash flows ( topic 230 ) - restricted cash issued by the fasb which requires companies to include amounts generally described as restricted cash or restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows .
| results of operations company results during 2017 , the company recognized charges in connection with its cost reduction plan and other costs of $ 146.8 million . the charges related to work-force reductions were $ 117.9 million , principally related to severance costs , and were comprised of : ( a ) a charge of $ 9.4 million for 542 employees and $ ( 1.3 ) million for changes in estimates in the u.s. and ( b ) a charge of $ 109.4 million for 2,274 employees , $ 8.2 million for additional benefits provided in 2017 and $ ( 7.8 ) million for changes in estimates outside the u.s. in addition , the company recorded charges of $ 28.9 million comprised of $ 4.7 million for idle leased facilities costs , $ 5.4 million for contract amendment and termination costs , $ 5.2 million for professional fees and other expenses related to the cost reduction effort , $ 1.8 million for net asset sales and write-offs and $ 11.8 million for net foreign currency losses related to exiting foreign countries . the 2017 charges were recorded in the following statement of income classifications : cost of revenue - services , $ 99.6 million ; cost of revenue - technology , $ 0.4 million ; selling , general and administrative expenses , $ 33.6 million ; research and development expenses , $ 1.4 million ; and other income ( expense ) , net , $ 11.8 million . during 2016 , the company recognized charges of $ 82.1 million in connection with this plan .
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this overview and the remainder of this management 's discussion and analysis supplements and should be read in conjunction with the consolidated financial statements of invesco ltd. and its subsidiaries ( collectively , the “ company ” or “ invesco ” ) and the notes thereto contained elsewhere in this annual report on form 10-k. global financial markets in 2017 saw strong returns resulting from healthy economic indicators , improving macroeconomic data , and the expectation for benefits from tax reform in the u.s. equity markets continued a rally that began the previous year as strong corporate earnings , low unemployment , and improving inflation measures helped to spur the strengthening outlook . in 30 the u.s. , higher interest rates and better jobs data helped the markets early in the year . the passing of tax reform , including a significant corporate tax rate reduction late in the year , led equity markets higher with the s & p finishing the year at all-time highs up 19.4 % . european markets similarly benefited from improving confidence and outlook for future growth , as the plan for the uk 's exit from the eu continued to take shape . the european central bank indicated the potential for a slowing of economic stimulus . the bank of england increased interest rates , which helped to push the ftse 100 higher , finishing the year up 7.6 % . strong corporate results in asia , continued optimism for global growth , and stability for japan 's government after the results of a snap election late in the year led the nikkei higher finishing the year up 19.1 % . bond markets were broadly positive during 2017. accommodative monetary policy drove corporate and high-yield bond outperformance , while government bonds underperformed on rising interest rate expectations and future changes in central bank policies . overall , the barclay 's u.s. aggregate bond index finished the year up 3.5 % . the table below summarizes the year ended december 31 returns based on price appreciation/ ( depreciation ) of several major market indices for 2017 , 2016 , and 2015 : replace_table_token_5_th the company 's financial results are impacted by the fluctuations in exchange rates against the u.s. dollar , as discussed in the `` foreign exchange impact on balance sheet , assets under management and results of operations '' section and the `` results of operations for the years ended december 31 , 2017 compared to december 31 , 2016 compared to december 31 , 2015 '' section below . throughout 2017 , we continued to execute on our long-term strategic objectives , which further improved our ability to serve clients , strengthened our investment performance and helped us deliver competitive levels of operating income and margins . we also took advantage of opportunities in the market and further invested in our products and capabilities , our global platform and our people in ways that strengthened our business and further differentiated us in the marketplace to help ensure our long-term success . in addition , we benefited from our long-term efforts to ensure a diversified base of assets under management . one of invesco 's core strengths , and a key differentiator for the company within the industry , is our broad diversification across client domiciles , asset classes and distribution channels . our geographical diversification allows us to recognize growth opportunities in various markets in different parts of the world . this broad diversification mitigates the impact on invesco of different market cycles . as of the filing of this report , invesco held credit ratings of a2/stable , a/negative and a-/stable from moody 's investor services moody 's , s & p , and fitch , respectively . one of the company 's strategic objectives is to harness the power of our global platform , improving effectiveness and efficiency by allocating our resources to the opportunities that will best benefit clients and our business . consistent with this objective , business optimization charges of $ 58.0 million were recorded in 2017 , including $ 30.0 million of staff severance costs recorded in employee compensation expense associated with a business transformation initiative . this is a continuation of efforts to transform several key business support functions to become more effective and efficient by leveraging shared service centers , outsourcing , automation of key processes and optimization of the company 's office footprint . given the size of the opportunity on certain initiatives , including outsourcing of back office functions , the optimization work will continue past the original targeted completion date , and spending has increased . this optimization work will make invesco a stronger company , further increasing the effectiveness and efficiency of our global platform and will allow us to fund crucial strategic initiatives . as of the end of 2017 , this initiative 31 had produced annualized run-rate expense savings of $ 43.8 million . these savings have helped offset acquisition and regulatory-related increases in operating expenses . incremental implementation costs in 2018 are estimated to be up to $ 35 million , and the initiative is expected to generate annualized run-rate expense savings of up to $ 65 million by completion . the investment management industry is subject to extensive levels of ongoing regulatory oversight and examination . in the u.s. , u.k. , and other jurisdictions in which the company operates , governmental authorities regularly make inquiries , conduct investigations and administer examinations with respect to compliance with applicable laws and regulations . the markets in financial instrument directive ( mifid ii ) became effective in europe in january 2018. invesco is committed to ensuring our investment professionals have access to the external research market in order to achieve our long-term investment performance goals . therefore , the company has announced that , beginning in january 2018 , external research costs incurred for mifid ii impacting funds and client accounts in europe have been absorbed by the company . we do not expect these costs to be material to the company 's financial statements . story_separator_special_tag wherever a non-gaap measure is referenced , a disclosure will follow in the narrative or in the note referring the reader to the schedule of non-gaap information , where additional details regarding the use of the non-gaap measure by the company are disclosed , along with reconciliations of the most directly comparable u.s. gaap measures to the non-gaap measures . to further enhance the readability of the results of operations section , separate tables for each of the revenue , expense , and other income and expenses ( non-operating income/expense ) sections of the income statement introduce the narrative that follows , providing a section-by-section review of the company 's income statements for the periods presented . summary operating information summary operating information for 2017 , 2016 and 2015 is presented in the table below . replace_table_token_6_th _ ( 1 ) net revenues is a non-gaap financial measure . net revenues are operating revenues plus our proportional share of the net revenues of our joint venture investments , less third-party distribution , service and advisory expenses , plus management and performance fees earned from cip . see `` schedule of non-gaap information '' for the reconciliation of operating revenues to net revenues . 33 ( 2 ) adjusted operating income and adjusted operating margin are non-gaap financial measures . adjusted operating margin is adjusted operating income divided by net revenues . adjusted operating income includes operating income plus our proportional share of the net operating income of our joint venture investments , the operating income impact of the consolidation of investment products , acquisition/disposition related adjustments , compensation expense related to market valuation changes in deferred compensation plans , and other reconciling items . see `` schedule of non-gaap information , '' for the reconciliation of operating income to adjusted operating income . ( 3 ) adjusted net income attributable to invesco ltd. and adjusted diluted eps are non-gaap financial measures . adjusted net income attributable to invesco ltd. is net income attributable to invesco ltd. adjusted to exclude the net income of cip , add back acquisition/disposition related adjustments , the net income impact of deferred compensation plans and other reconciling items . adjustments made to net income attributable to invesco ltd. are tax-effected in arriving at adjusted net income attributable to invesco ltd. by calculation , adjusted diluted eps is adjusted net income attributable to invesco ltd. divided by the weighted average number of shares outstanding ( for diluted eps ) . see `` schedule of non-gaap information , '' for the reconciliation of net income attributable to invesco ltd. to adjusted net income attributable to invesco ltd .. 34 investment capabilities performance overview invesco 's first strategic objective is to achieve strong investment performance over the long-term for our clients . as of december 31 , 2017 , 57 % , 64 % and 75 % of measured ranked actively managed assets performed in the top half of peer groups on a one-year , three-year and five-year basis respectively . the table below presents the one- , three- and five-year performance of our measured ranked actively managed investment products measured by the percentage of aum ahead of benchmark and aum in the top half of peer group . ( 1 ) replace_table_token_7_th ( 1 ) aum measured in the one- , three- , and five-year peer group rankings represents 56 % , 56 % , and 53 % of total invesco aum , respectively , and aum measured versus benchmark on a one- , three- , and five-year basis represents 70 % , 67 % , and 62 % of total invesco aum , respectively , as of december 31 , 2017 . peer group rankings are sourced from a widely-used third party ranking agency in each fund 's market ( lipper , morningstar , ia , russell , mercer , evestment alliance , sitca , value research ) and are asset-weighted in usd . rankings are as of prior quarter-end for most institutional products and preceding month-end for australian retail funds due to their late release by third parties . rankings for the most representative fund in each global investment performance standard ( gips ) composite are applied to all products within each gips composite . excludes passive products , closed-end funds , private equity limited partnerships , non-discretionary direct real estate , unit investment trusts , fund-of-funds with component funds managed by invesco , stable value building block funds and clos . certain funds and products were excluded from the analysis because of limited benchmark or peer group data . had these been available , results may have been different . these results are preliminary and subject to revision . performance assumes the reinvestment of dividends . past performance is not indicative of future results and may not reflect an investor 's experience . 35 foreign exchange impact on balance sheet , assets under management and results of operations a significant portion of our business is based outside of the u.s. the strengthening or weakening of the u.s. dollar against other currencies , primarily the pound sterling , canadian dollar , euro and japanese yen will impact our assets , liabilities , aum and reported revenues and expenses from period to period . the assets , liabilities and aum of foreign subsidiaries are translated at period end spot foreign currency exchange rates . the income statements of foreign currency subsidiaries are translated into u.s. dollars , the reporting currency of the company , using average foreign exchange rates .
| results of operations for the years ended december 31 , 2017 compared to december 31 , 2016 compared to december 31 , 2015 the discussion below includes the use of non-gaap financial measures . see “ schedule of non-gaap information ” for additional details and reconciliations of the most directly comparable u.s. gaap measures to the non-gaap measures . 2017 includes the results of the european etf business from the date of acquisition , august 18 , 2017. operating revenues and net revenues the main categories of revenues , and the dollar and percentage change between the periods , are as follows : replace_table_token_17_th * net revenues are operating revenues less third-party distribution , service and advisory expenses , plus our proportional share of net revenues from joint venture arrangements , plus management and performance fees earned from cip . see “ schedule of non-gaap information ” for additional important disclosures regarding the use of net revenues . operating revenues increased by 9.0 % in the year ended december 31 , 2017 to $ 5,160.3 million ( year ended december 31 , 2016 : $ 4,734.4 million ) . net revenues increased by 10.7 % in the year ended december 31 , 2017 to $ 3,754.9 million ( year ended december 31 , 2016 : $ 3,393.2 million ) . operating revenues decreased by 7.6 % in the year ended december 31 , 2016 to $ 4,734.4 million ( year ended december 31 , 2015 : $ 5,122.9 million ) . net revenues decreased by 6.9 % in the year ended december 31 , 2016 to $ 3,393.2 million ( year ended december 31 , 2015 : $ 3,643.2 million ) .
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when used in this report , the words believes , anticipates , may , expect , intend , estimate , project and similar expressions are intended to identify forward-looking statements , although not all forward-looking statements contain such words . in this report , the company discloses important factors that could cause actual results to differ materially from management 's expectations . for more information on these and other factors , see forward-looking information herein . the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with item 1a . 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 mitigate 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 2017 , the company established records for orders , sales , operating income , net income , diluted earnings per share and operating cash flow . the strengthening global economic environment compared to 2016 , contributions from recent acquisitions , and continued focus on and implementation of operational excellence initiatives , had a positive impact on 2017 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 . story_separator_special_tag p align= '' justify '' style= '' margin-top:12pt ; margin-bottom:0pt ; text-indent:4 % ; font-size:10pt ; font-family : times new roman '' > cost of sales for 2017 was $ 2,851.4 million or 66.3 % of net sales , an increase of $ 276.2 million or 10.7 % , compared with $ 2,575.2 million or 67.1 % of net sales for 2016. the cost of sales increase for 2017 was affected by the net sales increase noted above . cost of sales for 2017 and 2016 included the impact of the realignment costs and 2016 impairment charge detailed in the tables above . selling , general and administrative ( sg & a ) expenses for 2017 were $ 533.6 million or 12.4 % of net sales , an increase of $ 70.6 million or 15.2 % , compared with $ 463.0 million or 12.1 % of net sales in 2016. the increase in sg & a expenses for 2017 was primarily due to the increase in net sales noted above , a fourth quarter of 2017 $ 5.0 million charitable donation and a second quarter of 2017 $ 2.5 million equity-based compensation charge related to the accelerated vesting of restricted stock grants in association with the retirement of the company 's executive chairman of the board of directors . for 2016 , sg & a expenses included $ 1.6 million of realignment costs noted above . consolidated operating income was $ 915.1 million or 21.3 % of net sales for 2017 , an increase of $ 113.2 million or 14.1 % , compared with $ 801.9 million or 20.9 % of net sales in 2016. interest expense was $ 98.0 million for 2017 , an increase of $ 3.7 million or 3.9 % , compared with $ 94.3 million in 2016. the interest expense increase for 2017 was primarily due to the impact of private placement senior notes funded in the fourth quarter of 2016 , partially offset by lower average borrowings under the company 's revolving credit facility period over period . other expenses , net were $ 20.3 million for 2017 , an increase of $ 5.8 million , compared with $ 14.5 million in 2016. the other expenses , net increase for 2017 was primarily due to higher environmental-related expenses . 28 the effective tax rate for 2017 was 14.5 % , compared with 26.1 % in 2016. on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( the act ) . the act , which is also commonly referred to as u.s . tax reform , significantly changes u.s. corporate income tax laws by , among other things , reducing the u.s. corporate income tax rate to 21 % starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . as a result , in the fourth quarter of 2017 , the company recorded a net benefit of $ 91.6 million in the consolidated statement of income as a component of provision for income taxes . the $ 91.6 million net benefit consisted of a $ 185.8 million benefit resulting from the remeasurement of the company 's net deferred tax liabilities in the u.s. based on the new lower corporate income tax rate and a $ 94.2 million expense relating to the one-time mandatory tax on previously deferred earnings of certain non-u.s. subsidiaries that are owned either wholly or partially by a u.s. subsidiary of the company . also , included in the $ 94.2 million , the company recorded additional deferred tax liabilities of $ 13.3 million related to state income and foreign withholding taxes expected to be incurred when the cash amounts related to the mandatory tax are ultimately repatriated to the u.s. , offset by $ 1.0 million for a remeasurement of uncertain tax positions impacted by the mandatory tax inclusion . although the $ 91.6 million net benefit represents what the company believes is a reasonable estimate of the impact of the income tax effects of the act on the company 's consolidated financial statements as of december 31 , 2017 , it should be considered provisional . story_separator_special_tag results of operations for the fourth quarter of 2017 compared with the fourth quarter of 2016 net sales for the fourth quarter of 2017 were $ 1,143.1 million , an increase of $ 170.1 million or 17.5 % , compared with net sales of $ 973.0 million for the fourth quarter of 2016. the increase in net sales for the fourth quarter of 2017 was due to 9 % organic sales growth , a 6 % increase from acquisitions and favorable 2 % effect of foreign currency translation . segment operating income for the fourth quarter of 2017 was $ 253.0 million , an increase of $ 65.2 million or 34.7 % , compared with segment operating income of $ 187.8 million for the fourth quarter of 2016. the increase in segment operating income for the fourth quarter of 2017 resulted primarily from the increase in net sales noted above . segment operating income , as a percentage of net sales , increased to 22.1 % for the fourth quarter of 2017 , compared with 19.3 % for the fourth quarter of 2016. the increase in segment operating margins for the fourth quarter of 2017 resulted primarily from the net impact of the 2017 versus the 2016 realignment costs and 2016 impairment charge noted above . segment operating income and segment operating margins for the fourth quarter of 2017 and 2016 included the impact of the realignment costs and 2016 impairment charge detailed in the tables above . cost of sales for the fourth quarter of 2017 was $ 767.0 million or 67.1 % of net sales , an increase of $ 85.9 million or 12.6 % , compared with $ 681.1 million or 70.0 % of net sales for the fourth quarter of 2016. the cost of sales increase for the fourth quarter of 2017 was affected by the net sales increase noted above . cost of sales for the fourth quarter of 2017 and 2016 included the impact of the realignment costs and 2016 impairment charge detailed in the tables above . 30 the effective tax rate for the fourth quarter of 2017 was ( 20.8 ) % , compared with 24.9 % in the fourth quarter of 2016. in the fourth quarter of 2017 , the company recorded a net benefit of $ 91.6 million in the consolidated statement of income as a component of provision for income taxes related to the act . the $ 91.6 million net benefit consisted of a $ 185.8 million benefit resulting from the remeasurement of the company 's net deferred tax liabilities in the u.s. based on the new lower corporate income tax rate and a $ 94.2 million expense primarily relating mostly to the one-time mandatory tax on previously deferred earnings of certain non-u.s. subsidiaries that are owned either wholly or partially by a u.s. subsidiary of the company . the effective tax rates for 2017 and 2016 reflect the impact of foreign earnings , which are taxed at lower rates , tax benefits related to international and state tax planning initiatives and the release of uncertain tax position liabilities relating to certain statute expirations . net income for the fourth quarter of 2017 was $ 238.5 million , an increase of $ 129.4 million or 118.6 % , compared with $ 109.1 million for the fourth quarter of 2016. the fourth quarter of 2017 realignment costs reduced the fourth quarter of 2017 net income by $ 13.0 million and the net benefit related to the act increased fourth quarter of 2017 net income by $ 91.6 million . the fourth quarter of 2016 realignment costs and fourth quarter of 2016 impairment charge reduced the fourth quarter of 2016 net income by $ 17.0 million and $ 8.6 million , respectively . diluted earnings per share for the fourth quarter of 2017 were $ 1.03 , an increase of $ 0.56 or 119.1 % , compared with $ 0.47 per diluted share for the fourth quarter of 2016. the fourth quarter of 2017 realignment costs had the effect of reducing the fourth quarter of 2017 diluted earnings per share by $ 0.05 and the net benefit related to the act had the effect of increasing the fourth quarter of 2017 diluted earnings per share by $ 0.39. the fourth quarter of 2016 realignment costs and fourth quarter of 2016 impairment charge had the effect of reducing the fourth quarter of 2016 diluted earnings per share by $ 0.07 and $ 0.04 , respectively . segment results eig 's net sales totaled $ 741.5 million for the fourth quarter of 2017 , an increase of $ 125.5 million or 20.4 % , compared with $ 616.0 million for the fourth quarter of 2016. the net sales increase for the fourth quarter of 2017 was due to a 10 % increase from the 2017 acquisitions of mocon and rauland and 2016 acquisitions of nu instruments , brookfield and esp/surgex , 9 % organic sales growth and favorable 2 % effect of foreign currency translation . eig 's operating income was $ 191.1 million for the fourth quarter of 2017 , an increase of $ 50.0 million or 35.4 % , compared with $ 141.1 million for the fourth quarter of 2016. the increase in eig 's operating income for the fourth quarter of 2017 resulted primarily from the increase in net sales noted above . eig 's operating margins were 25.8 % of net sales for the fourth quarter of 2017 , compared with 22.9 % of net sales for the fourth quarter of 2016. the increase in eig 's operating margins for the fourth quarter of 2017 resulted primarily from the net impact of the 2017 versus the 2016 realignment costs and 2016 impairment charge noted above , as well as the benefits of the group 's operational excellence initiatives . eig 's operating income and operating margins for the fourth quarter of 2017 and 2016 included the impact of the realignment costs and 2016 impairment charge detailed in the tables above .
| highlights of 2017 were : orders for 2017 were $ 4,539.8 million , an increase of $ 691.0 million or 18.0 % , compared with $ 3,848.8 million in 2016. as a result , the company 's backlog of unfilled orders at december 31 , 2017 was a record $ 1,396.1 million . net sales for 2017 were $ 4,300.2 million , an increase of $ 460.1 million or 12.0 % , compared with $ 3,840.1 million in 2016. the increase in net sales for 2017 was due to 6 % organic sales growth , with 5 % organic sales growth in the electronic instruments group ( eig ) and 8 % organic sales growth in the electromechanical group ( emg ) , and a 6 % increase from the 2017 and 2016 acquisitions . net income for 2017 was $ 681.5 million , an increase of $ 169.3 million or 33.1 % , compared with $ 512.2 million in 2016. diluted earnings per share for 2017 were $ 2.94 , an increase of $ 0.75 or 34.2 % , compared with $ 2.19 per diluted share in 2016. cash flow provided by operating activities for 2017 was $ 833.3 million , an increase of $ 76.5 million or 10.1 % , compared with $ 756.8 million in 2016. during 2017 , the company spent $ 556.6 million in cash , net of cash acquired , to acquire three businesses : in february 2017 , acquired rauland-borg corporation ( rauland ) , a global provider of enterprise clinical and education communications solutions for hospitals , healthcare systems and educational facilities ; 24 in june 2017 , acquired mocon , inc. , a provider of laboratory and field gas analysis instrumentation to research laboratories , production facilities and quality control departments in food and beverage , pharmaceutical and industrial applications ; and in december 2017 , acquired arizona instrument llc , a provider of differentiated , high-precision moisture and gas measurement instruments in food , pharmaceutical and environmental markets .
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each state dictates the levels of insurance coverage that are mandatorily assigned to participating insurers within these markets . the total amount of such business an insurer must accept in a particular state is generally based on that insurer 's market share of voluntary business written within that state . in certain cases , white mountains is obligated to write business from shared market mechanisms at a future date based on its story_separator_special_tag the following discussion contains forward-looking statements . white mountains intends statements that are not historical in nature , which are hereby identified as forward-looking statements , to be covered by the safe harbor provisions of the private securities litigation reform act of 1995. white mountains can not promise that its expectations in such forward-looking statements will turn out to be correct . white mountains ' actual results could be materially different from and worse than its expectations . see forward-looking statements on page 90 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements . the following discussion also includes five non-gaap financial measures , adjusted comprehensive income , adjusted book value per share , adjusted capital , and esurance 's adjusted expense ratio and adjusted combined ratio , that have been reconciled to their most comparable gaap financial measures ( see page 64 ) . white mountains believes these measures to be more relevant than comparable gaap measures in evaluating white mountains ' financial performance and condition . results of operations for the years ended december 31 , 2011 , 2010 and 2009 overviewyear ended december 31 , 2011 versus year ended december 31 , 2010 white mountains ended 2011 with an adjusted book value per share of $ 542 , an increase of 23 % , including dividends , from december 31 , 2010. white mountains reported adjusted comprehensive income of $ 745 million in 2011 compared to adjusted comprehensive income of $ 141 million in 2010. the increase in adjusted book value per share in 2011 was driven by an $ 89 increase from the gain from the esurance sale , net of transaction related expenses . in addition , adjusted book value per share increased $ 17 in 2011 from the release of a valuation allowance against deferred tax assets in two luxembourg subsidiaries and $ 5 from share repurchases . white mountains ' investment return was 2.9 % in 2011 , a solid result given the short duration and conservative positioning of the investment portfolio . onebeacon reported strong underwriting results in its specialty business , somewhat offset by losses in run-off business , while sirius group reported breakeven underwriting results in 2011 , despite record economic losses from catastrophe events around the world . adjusted book value per share decreased $ 6 from a gaap other-than-temporary impairment write-down on the investment in symetra common shares . white mountains concluded that the accounting impairment on its investment in symetra common shares existed due to the prolonged low interest rate environment in which life insurance companies currently operate and not from reasons specific to symetra itself . as a result , white mountains does not believe that the accounting impairment equates to an impairment in symetra 's long-term intrinsic business value . see critical accounting estimates - white mountains ' investment in symetra common shares on page 88 for a more detailed discussion . foreign currency translation did not have a significant impact on adjusted book value per share in 2011. see foreign currency translation on page 43. onebeacon ended 2011 with a book value per share of $ 11.56 , an increase of 3 % , including dividends , from december 31 , 2010. onebeacon 's total gaap combined ratio was 96 % for 2011 compared to 100 % for 2010 , while its specialty insurance gaap combined ratio was 92 % for 2011 compared to 94 % for 2010. onebeacon 's total gaap combined ratio for 2011 was not impacted by loss reserve development , as favorable loss reserve development of $ 30 million ( 3 points ) in specialty business was essentially offset by adverse loss reserve development of $ 27 million ( 3 points ) in run-off business resulting from a detailed review of run-off expenses , principally unallocated loss adjustment expenses ( ulae ) , completed during the fourth quarter of 2011. onebeacon 's total gaap combined ratio for 2010 included a number of large losses , particularly from personal and non-specialty commercial lines businesses that onebeacon no longer writes . the improvement in onebeacon 's specialty insurance combined ratio for 2011 was primarily due to improved current accident year results . sirius group reported a gaap combined ratio of 100 % in 2011 compared to 94 % in 2010. both years were impacted by significant catastrophe losses as the 2011 gaap combined ratio included 24 points of catastrophe losses compared to 23 points in 2010. total net written premiums decreased 3 % to $ 1,979 million in 2011 from $ 2,025 million in 2010 , primarily due to lower net written premiums at onebeacon , partially offset by increases at sirius group . onebeacon 's net written premiums decreased 8 % to $ 1,063 million in 2011 , reflecting decreases from the commercial lines transaction and the personal lines transaction . onebeacon 's specialty insurance net written premiums increased 8 % in 2011 to $ 1,063 million , primarily due to new business and improved retention in several lines , particularly within the accident , government risk , energy and technology businesses . sirius group 's net written premiums increased 6 % to $ 916 million in 2011 , primarily due to increases in the accident and health and trade credit lines of business and foreign currency translation . story_separator_special_tag as a result of these transactions , the results of the esurance and autoone businesses and related transaction gains and losses are reported in discontinued operations in white mountains ' gaap financial statements . foreign currency translation a summary of the impact of foreign currency translation on white mountains ' consolidated financial results for the years ended december 31 , 2011 , 2010 and 2009 follows : replace_table_token_18_th ( 1 ) component of net realized and unrealized investments gains on the income statement . in connection with the sirius group reorganization and in light of global market conditions , white mountains significantly reduced its exposure to foreign currency translation gains and losses in 2011. see qualitative and quantitative disclosures about market risk - foreign currency exchange risk on page 92. i. summary of operations by segment white mountains conducts its operations through three segments : ( 1 ) onebeacon , ( 2 ) sirius group , and ( 3 ) other operations . while investment results are included in these segments , because white mountains manages the majority of its investments through its wholly-owned subsidiary , wm advisors , a discussion of white mountains ' consolidated investment operations is included after the discussion of operations by segment . white mountains ' segment information is presented in note 14 segment information to the consolidated financial statements . 43 onebeacon financial results for onebeacon for the years ended december 31 , 2011 , 2010 and 2009 follow : replace_table_token_19_th the following table presents onebeacon 's book value per share . replace_table_token_20_th during 2009 and 2010 , onebeacon completed two transactions ( the commercial lines transaction and the personal lines transaction ) that transformed it to a specialty insurance company . see note 2 significant transactions to the consolidated financial statements for a full description of these transactions . the transactions freed up significant capital , increased onebeacon 's financial flexibility and substantially reduced its catastrophe exposure . the following tables provide onebeacon 's gaap ratios , net written premiums and earned insurance premiums for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_21_th replace_table_token_22_th 44 replace_table_token_23_th ( 1 ) other is primarily businesses that are now in run-off or have been sold prior to 2011. accordingly , gaap ratios for 2011 are not meaningful . onebeacon resultsyear ended december 31 , 2011 versus year ended december 31 , 2010 onebeacon ended 2011 with a book value per share of $ 11.56 , an increase of 3 % , including dividends ( quarterly dividends of $ 0.21 per share and a special dividend of $ 1.00 per share paid in june 2011 ) , from december 31 , 2010. the increase includes a 3.0 % total return on invested assets for 2011. onebeacon 's results for 2011 were adversely impacted by a decline in the value of investment assets in onebeacon 's pension plan , the loss resulting from a debt tender on the obh senior notes , and the estimated loss on the autoone sale . onebeacon reported a gaap combined ratio of 96 % for 2011 compared to 100 % for 2010. the decrease in the combined ratio was primarily due to better current accident year results compared to 2010 , partially offset by lower net favorable loss reserve development . 2010 included several large losses , particularly from personal and non-specialty commercial lines businesses that onebeacon no longer writes . onebeacon 's total combined ratio for 2011 was not impacted by loss reserve development , as favorable loss reserve development of $ 30 million ( 3 points ) in specialty business , primarily due to lower than expected severity on non-catastrophe losses related to professional liability lines , multiple peril liability lines and other general liability lines , was essentially offset by adverse loss reserve development of $ 27 million ( 3 points ) in run-off business resulting from a detailed review of run-off expenses , principally ulae , completed during the fourth quarter of 2011. onebeacon is exploring various strategic alternatives with respect to its run-off business . onebeacon 's total combined ratio for 2010 included $ 57 million ( 4 points ) of favorable loss reserve development . onebeacon 's 2011 results included $ 37 million ( 4 points ) of current accident year catastrophe losses primarily related to hurricane irene , tornados in the southeastern and midwestern united states as well as storms and freezing weather in the northeastern and southwestern united states , compared to $ 55 million ( 4 points ) of current accident year catastrophe losses in 2010. onebeacon 's specialty combined ratio for 2011 decreased to 92 % from 94 % for 2010 , primarily due to lower current accident year non-catastrophe losses and other underwriting expenses , partially offset by higher catastrophe losses . the specialty combined ratio for 2011 included 4 points of catastrophe losses compared to 2 points in 2010. the specialty combined ratio included 3 points of favorable loss reserve development for both years . onebeacon 's net written premiums decreased 8 % to $ 1,063 million in 2011 , reflecting decreases from the commercial lines transaction and the personal lines transaction . onebeacon 's specialty net written premiums increased 8 % in 2011 to $ 1,063 million primarily due to new business and improved retention in several lines , particularly within the collector cars and boats , accident , government risk , energy and technology businesses . onebeacon 's other revenues in 2011 included a $ 12 million loss related to the repurchase of a portion of the obh senior notes . onebeacon 's other revenues in 2010 included a $ 9 million net gain on the personal lines transaction and $ 10 million of additional consideration related to the commercial lines transaction , partially offset by an $ 11 million loss related to the repurchase of a portion of the obh senior notes .
| review of consolidated results a summary of white mountains ' consolidated financial results for the years ended december 31 , 2011 , 2010 and 2009 follows : replace_table_token_17_th ( 1 ) as a result of white mountains ' adoption of the revisions to the guidance for variable interest entities under asu 2009-17 , effective january 1 , 2010 , white mountains no longer consolidates the results of tuckerman fund ii . see note 1 . 41 consolidated resultsyear ended december 31 , 2011 versus year ended december 31 , 2010 white mountains ' total revenues decreased 15 % to $ 2,178 million in 2011 compared to $ 2,567 million in 2010 , primarily due to lower earned insurance and reinsurance premiums , partially offset by higher net investment gains and lower losses at wm life re . earned premiums were down 14 % to $ 1,928 million in 2011 as a 28 % decrease at onebeacon , which was driven by the personal lines transaction and the commercial lines transaction , was partially offset by an 8 % increase at sirius group . excluding the $ 425 million of earned premiums in 2010 related to the exited businesses at onebeacon , white mountains ' earned premiums increased 6 % in 2011. net investment income was down 26 % to $ 185 million in 2011 , due primarily to lower fixed maturity yields and a reduction in invested assets from the personal lines transaction , obh senior notes repurchases at onebeacon and share repurchases . white mountains reported net realized and unrealized investment gains of $ 123 million in 2011 compared to $ 83 million in 2010. both periods were significantly impacted by foreign currency translation on u.s. dollar-denominated investments at sirius international , the effects of which are offset in other comprehensive income ( see impact of foreign currency on investment returns on page 51 ) .
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barter transactions the company enters into transactions that involve the exchange of advertising , in part , for other products and services , which are recorded at the lesser of estimated fair value of the advertising given or product or service received in accordance story_separator_special_tag this discussion and analysis contains statements that constitute forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the exchange act ) , and section 27a of the securities act of 1933 , as amended . all statements that are not statements of historical fact are forward-looking statements . the words expect , estimate , anticipate , predict , believe and similar expressions and variations thereof are intended to identify forward-looking statements . these statements appear in a number of places in this discussion and analysis and include statements regarding the intent , belief or current expectations of the company , its directors or its officers with respect to , among other things , trends affecting the company 's financial condition or results of operations and the outcome of contingencies such as litigation and investigations . readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties . more information regarding these risks , uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading risk factors in item 1a of this annual report on form 10-k ( the annual report ) . the company does not ordinarily make projections of its future operating results and undertakes no obligation ( and expressly disclaims any obligation ) to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . readers should carefully review this document and the other documents filed by the company with the securities and exchange commission ( the sec ) . this section should be read together with the consolidated and combined financial statements of news corporation and related notes set forth elsewhere in this annual report . introduction news corporation ( together with its subsidiaries , news corporation or the company ) is a global diversified media and information services company comprised of businesses across a range of media , including : news and information services , cable network programming in australia , digital real estate services , book publishing , digital education and pay-tv distribution in australia . the separation and distribution on june 28 , 2013 , the company completed the separation of its businesses ( the separation ) from twenty-first century fox , inc. ( 21st century fox ) . as of the effective time of the separation , all of the outstanding shares of the company were distributed to 21st century fox stockholders based on a distribution ratio of one share of company class a or class b common stock for every four shares of 21st century fox class a or class b common stock , respectively , held of record as of june 21 , 2013 ( the record date ) . following the separation , the company 's class a and class b common stock began trading independently on nasdaq , and cdis representing the company 's class a and class b common stock began trading on asx . in connection with the separation , the company entered into the separation and distribution agreement ( the separation and distribution agreement ) and certain other related agreements which govern the company 's relationship with 21st century fox following the separation . ( see note 13 to the consolidated and combined financial statements of news corporation for further information ) . subsequent to the distribution date , the company 's financial statements as of and for the fiscal years ended june 30 , 2014 and 2013 are presented on a consolidated basis , as the company became a separate consolidated group on june 28 , 2013. the company 's consolidated statement of operations for the fiscal year ended june 30 , 2014 reflects the company 's operations as a stand-alone company . the company 's consolidated balance sheets as of june 30 , 2014 and june 30 , 2013 consist of the company 's consolidated balances , subsequent to the separation . prior to the separation , the company 's combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of 21st century fox . the company 's 37 financial statements for the fiscal year ended june 30 , 2012 were prepared on a combined basis and presented as carve-out financial statements , as the company was not a separate consolidated group prior to the distribution date . these statements reflect the combined historical results of operations and cash flows of 21st century fox 's publishing businesses , its education division and other australian assets . the company 's consolidated and combined statements of operations for the fiscal years ended june 30 , 2013 and 2012 included allocations of general corporate expenses for certain support functions that were provided on a centralized basis by 21st century fox and not recorded at the business unit level , such as expenses related to finance , human resources , information technology , facilities , and legal , among others . these expenses were allocated to the company on the basis of direct usage when identifiable , with the remainder allocated on a pro rata basis of consolidated or combined revenues , operating income , headcount or other measures of the company . management believes the assumptions underlying these consolidated and combined financial statements , including the assumptions regarding allocating general corporate expenses from 21st century fox , are reasonable . story_separator_special_tag as a multi-platform news provider , the company recognizes the importance of maximizing revenues from new media , both in terms of paid-for content and in new advertising models , and continues to invest in its digital products . the development of technologies such as smartphones , tablets and similar devices and their related applications provides continued opportunities for the company to make its journalism available to a new audience of readers , introduce new or different pricing schemes , develop its products to continue to attract advertisers and or affect the relationship between publisher and consumer . the company continues to develop and implement strategies to exploit its content in new media channels , including the implementation of digital subscriptions . cable network programming the cable network programming segment consists of fox sports australia , which offers the following seven channels : fox sports 1 , fox sports 2 , fox sports 3 , fox footy , fox sports news , fuel tv and speed . revenue is primarily derived from monthly affiliate fees received from pay-tv providers ( mainly foxtel ) based on the number of subscribers . 40 fox sports australia competes primarily with espn , the fta channels and certain telecommunications companies in australia . the most significant operating expenses of the cable network programming segment are the acquisition and production expenses related to programming and the expenses related to operating the technical facilities of the broadcast operations . the expenses associated with licensing programming rights are recognized during the applicable season or event , which can cause results at the cable network programming segment to fluctuate based on the timing and mix of the company 's local and international sports programming . other expenses include marketing and promotional expenses related to improving the market visibility and awareness of the channels and their programming . additional expenses include salaries , employee benefits , rent and other routine overhead expenses . digital real estate services the digital real estate services segment sells online advertising services on its residential real estate and commercial property sites . significant expenses associated with these sites include development costs , advertising and promotional expenses , salaries , employee benefits and other routine overhead expenses . consumers are increasingly turning to the internet and mobile devices for real estate information . the digital real estate services segment 's success depends on its continued innovation to provide products and services that make its websites and mobile applications useful for consumers and real estate and mortgage professionals and attractive to its advertisers . book publishing the book publishing segment derives revenues from the sale of general fiction , nonfiction , children 's and religious books in the u.s. and internationally . the revenues and operating results of the book publishing segment are significantly affected by the timing of releases and the number of its books in the marketplace . the book publishing marketplace is subject to increased periods of demand during the end-of-year holiday season in its main operating geographies . this marketplace continues to change due to technical innovations , electronic book devices and other factors . each book is a separate and distinct product , and its financial success depends upon many factors , including public acceptance . major new title releases represent a significant portion of the book publishing segment 's sales throughout the fiscal year . print-based consumer books are generally sold on a fully returnable basis , resulting in the return of unsold books . in the domestic and international markets , the book publishing segment is subject to global trends and local economic conditions . operating expenses for the book publishing segment include costs related to paper , printing , authors ' royalties , editorial , promotional , art and design expenses . selling , general and administrative expenses include salaries , employee benefits , rent and other routine overhead . the book publishing business has been affected in recent years by new electronic distribution platforms and models and the company expects that electronic books ( e-books ) will represent an increasing portion of book publishing revenues in coming years . digital education the digital education segment , which consists of amplify , the brand for the company 's digital education business , is dedicated to creating technology solutions that transform the way teachers teach and students learn in three areas : amplify insight , amplify 's data and assessment business , which formerly operated under the brand wireless generation , inc. ( wireless generation ) , commenced operations in 2000 and was acquired in 41 fiscal 2011. amplify insight provides powerful assessment products and services to support teachers and school districts , including student assessment tools and analytic technologies , intervention programs , enterprise education information systems , and professional development and consulting services . amplify learning , amplify 's curriculum business , is developing digital content for k-12 english language arts , math and science , including software that will combine interactive , game-like experiences , rich , immersive media and sophisticated analytics to make the classroom teaching and learning experience more engaging , rigorous , personalized and effective . amplify learning 's digital curriculum incorporates the new common core state standards adopted by most states in the u.s. and is available for use on multiple platforms . amplify access , amplify 's platform business , is delivering a tablet-based distribution system to facilitate personalized instruction and enable anytime , anywhere learning . amplify access offers a bundle that includes a tablet designed for the k-12 market , instructional software and curated third-party content , as well as implementation support . significant expenses associated with the company 's digital education business include product development , salaries , employee benefits and other routine overhead . other the other segment primarily consists of general corporate overhead expenses , the corporate strategy and creative group and costs related to the u.k. newspaper matters .
| results of operations this section provides an analysis of the company 's results of operations for the three fiscal years ended june 30 , 2014 , respectively . this analysis is presented on both a consolidated or combined basis and a segment basis . in addition , a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed . liquidity and capital resources this section provides an analysis of the company 's cash flows for the three fiscal years ended june 30 , 2014 , respectively , as well as a discussion of the company 's financial arrangements and outstanding commitments , both firm and contingent , that existed as of june 30 , 2014 . 38 critical accounting policies this section discusses accounting policies considered important to the company 's financial condition and results of operations , and which require significant judgment and estimates on the part of management in application . in addition , note 2 to the accompanying financial statements summarizes the company 's significant accounting policies , including the critical accounting policy discussion found in this section . overview of the company 's businesses in the fourth quarter of fiscal 2014 , the company revised the composition of its reporting segments based on the guidance in accounting standards codification ( asc ) 280 , segment reporting , to present the digital education business as a separate segment . all prior periods have been reclassified to reflect the revised segment presentation . as a result of the change , the company reports its business in the following six segments : news and information services the news and information services segment includes the global print and digital product offerings of the wall street journal and barron 's publications , marketwatch.com , and the company 's suite of professional information products , including factiva , dow jones risk & compliance , dow jones newswires , dow jones private markets and djx .
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overall management , strategic development and financial control are maintained by the executive staff from our corporate headquarters located in salem , new hampshire . our long-term strategy is to build larger industrial platforms through a value creation system that assists management in meeting specific corporate and business unit financial and strategic performance goals in order to create , improve , and enhance shareholder value . the standex value creation system is a standard methodology which provides consistent tools used throughout the company in order to achieve our organization 's goal of transforming from its historic roots as a holding company to an efficient operating company . the standex value creation system employs four components : balanced performance plan , standex growth disciplines , standex operational excellence , and standex talent management . the balanced performance plan process aligns annual goals throughout the business and provides a standard reporting , management and review process . it is focused on setting and meeting annual and quarterly targets that support our short and long term goals . the standex growth disciplines use a set of tools and processes including market maps , growth lane ways , and market tests to identify opportunities to expand the business organically and through acquisitions . standex operational excellence employs a standard playbook and processes , including lean , to eliminate waste and improve profitability , cash flow and customer satisfaction . finally , the standex talent management process is an organizational development process that provides training , development , and succession planning for our employees throughout our worldwide organization . the standex value creation system ties all disciplines in the organization together under a common umbrella by providing standard tools and processes to deliver our business objectives . · it is our objective to grow larger and more profitable business units through both organic initiatives and acquisitions . we seek to identify and implement organic growth initiatives such as new product development , geographic expansion , introduction of products and technologies into new markets and applications , key accounts and strategic sales channel partners . also , we have a long-term objective to create sizable business platforms by adding strategically aligned or bolt on acquisitions to strengthen the individual businesses , create both sales and cost synergies with our core business platforms , and accelerate their growth and margin improvement . we look to create both sales and cost synergies within our core business platforms , accelerate growth and improve margins . we have a particular focus on identifying and investing in opportunities that complement our products and will increase the global presence and capabilities of our businesses . from time to time , we have divested , and likely will continue to divest , businesses that we feel are not strategic or do not meet our growth and return expectations . o as part of our ongoing strategy , we acquired all of the outstanding shares of oki sensor device corporation from oki electric industry co. , ltd. during the third quarter of fiscal year 2017. located in kofu city , japan , oki sensor device corporation is the world 's leading designer and supplier of magnetic reed switches . now named standex electronics japan corporation , ( standex electronics japan ) the acquisition enhances the company 's access to important asian markets and enables the company to offer a world class suite of reed switches and related magnetic solutions while continuing to serve standex electronics japan 's diverse distribution channels . standex electronics japan 's results are reported within our electronics segment . o during our second quarter of 2017 , we acquired horizon scientific , inc. , ( horizon scientific ) a south carolina-based supplier of laboratory refrigerators and freezers , as well as cryogenic equipment for the scientific , bio-medical and pharmaceutical markets . we have included the operating results of horizon scientific in our food service equipment segment in our condensed consolidated financial statements . horizon scientific expands our access to higher-margin refrigeration markets in the growing scientific sector that provides solutions for exacting temperature storage requirements . horizon scientific 's products complement the scientific offerings in our nor-lake division . o during the first quarter of fiscal year 2017 , we sold our u.s. roll plate and machinery ( rpm ) business , as it was not strategic , and did not meet our growth and return expectations . this divestiture also allows our engraving management to focus on higher growth and better return businesses within the segment . in preparation for this sale during the fourth quarter of 2016 , we adjusted the net assets of the business to their net realizable value . · we create customer intimacy by utilizing the standex growth disciplines to partner with our customers in order to develop and deliver custom solutions or engineered components . by partnering with our customers during long-term product development cycles , we become an extension of their development teams . through this partner , solve , deliver ® methodology , we are able to secure our position as a preferred long-term solution provider for our products and components . this strategy results in increased sales and operating margins that enhance shareholder returns . · standex operational excellence drives continuous improvement in the efficiency of our businesses , both on the shop floor and in the office environment . we recognize that our businesses are competing in a global economy that requires us to improve our competitive position . we have deployed a number of management competencies to drive improvements in the cost structure of our business units including operational excellence through lean enterprise , the use of low cost manufacturing facilities in countries such as mexico and china , the consolidation of manufacturing facilities to achieve economies of scale and leveraging of fixed infrastructure costs , alternate sourcing to achieve procurement cost reductions , and capital improvements to increase productivity . · the company 's strong historical cash flow has been a cornerstone for funding our capital allocation strategy . story_separator_special_tag we vacated and sublet the east lake facility for approximately the same aggregate lease costs for which we are obligated under the lease . second , we spent $ 1.2 million to gain organizational efficiencies within the food service equipment segment . finally , we spent $ 0.5 million in order to move our electronics facility in china due to government directives related to all businesses in the area where our facility was located . also during fiscal year 2017 , we incurred acquisition related expenses of $ 7.8 million comprised of three items . first , we recognized $ 2.1 million for deferred compensation earned by the horizon scientific seller during the year . the payments are contingent on the seller remaining an employee of the company and are therefore treated as compensation expense . second , we spent $ 2.7 million on investment banker fees for services provided in connection with the standex electronics japan transaction . third , we incurred $ 3.0 million for third party due diligence and legal expenses related to standex electronics japan and other acquisition activity . selling , general , and administrative expenses selling , general , and administrative expenses , ( sg & a ) for the fiscal year 2017 were $ 174.1 million , or 23.0 % , of sales compared to $ 170.2 million , or 22.6 % , of sales during the prior year . the increase in sg & a is primarily due to $ 5.6 million and $ 2.6 million of on-going sg & a expenses related to the horizon scientific and standex electronics japan businesses , respectively , which were not in prior year . these increases were partially offset by declines of $ 2.5 million from the divestiture of the rpm business , lower administrative compensation costs of $ 2.0 million , and lower variable expenses including commission and distribution costs . selling , general , and administrative expenses , ( sg & a ) for the fiscal year 2016 were $ 170.2 million or 22.6 % of sales compared to $ 165.8 million or 21.5 % of sales during the prior year . the increase in sg & a was due to higher health care expenses , compensation , along with sg & a embedded in the northlake business partially offset by declines in distribution expense . income from operations income from operations for the fiscal year 2017 was $ 65.0 million , compared to $ 70.3 million during the prior year . the decrease of $ 5.5 million is primarily to due acquisition related costs of $ 7.8 million , an increase in restructuring costs of $ 1.6 million , and overall organic sales volume declines . these decreases were partially offset by the positive performance of our horizon scientific and standex electronic japan acquisitions . discussion of the performance of each of our reportable segments is more fully explained in the segment analysis that follows . income from operations for the fiscal year 2016 decreased by $ 8.3 million or 10.6 % , when compared to the prior year . the decrease was a result of a $ 7.3 million non-cash loss incurred to adjust the net realizable value of the roll plate and machinery business , increases in health care and compensation expenses , partially offset by gross profit improvements due to business segment mix . discussion of the performance of each of our reportable segments is more fully explained in the segment analysis that follows . interest expense interest expense for the fiscal year 2017 was $ 4.0 million , an increase of $ 1.2 million as compared to the prior year . interest expense increases were due to higher borrowing costs and an increase in outstanding borrowings , primarily to fund acquisition activity . interest expense for the fiscal year 2016 was $ 2.9 million , a decrease of $ 0.3 million as compared to the prior year . the decrease was primarily due to lower average borrowings outstanding during the year . income taxes the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2017 was $ 15.4 million , or an effective rate of 24.8 % , compared to $ 16.3 million , or an effective rate of 23.8 % for the year ended june 30 , 2016 , and $ 20.9 million , or an effective rate of 27.4 % for the year ended june 30 , 2015. changes in the effective tax rates from period to period may be significant as they depend on many factors including , but not limited to , the amount of the company 's income or loss , the mix of income earned in the us versus outside the us , the effective tax rate in each of the countries in which we earn income , and any one-time tax issues which occur during the period . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2017 was impacted by the following items : ( i ) a provision of $ 0.4 million related to non-deductible transaction costs , ( ii ) a benefit of $ 0.6 million related to the r & d tax credit , and ( iii ) a benefit of $ 5.3 million due to the mix of income earned in jurisdictions with beneficial tax rates . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2016 was impacted by the following items : ( i ) a net benefit of $ 0.9 million related to a bargain-sale of idle property to a charitable organization , and ( ii ) a benefit of $ 0.7 million related to the r & d tax credit , and ( iii ) a benefit of $ 4.9 million due to the mix of income earned in jurisdictions with beneficial tax rates .
| discontinued operations in pursuing our business strategy , we have divested certain businesses and recorded activities of these businesses as discontinued operations . on march 30 , 2012 , the air distribution products group , ( adp ) was sold to a private equity buyer for consideration of $ 16.1 million consisting of $ 13.1 million in cash and a $ 3.0 million promissory note from the buyer . the note was secured by a mortgage on the adp real estate sold in the transaction in detroit lakes , mn , medina , ny , and powder springs , ga. during the first quarter 2016 , the private equity buyer of adp sold one of the facilities securing the note . the company released all mortgages on the properties and accepted an advanced payment of $ 2.8 million during october 2015 in order to reduce repayment risk and settle all obligations under the note . the company recorded a $ 0.2 million loss in discontinued operations during the first quarter 2016 related to this transaction . during 2014 , the company received notice that its obligations under a guarantee provided to the buyers of adp were triggered as a result of its withdrawal from both of the multi-employer pension plans in which adp previously participated . the last of these obligations were settled in july of fiscal year 2016 by a $ 0.5 million payment to the final multi-employer plan . the following table summarizes the company 's discontinued operations activity , by operation , for the years ended june 30 , ( in thousands ) : replace_table_token_14_th liquidity and capital resources at june 30 , 2017 , our total cash balance was $ 88.6 million , of which $ 76.6 million was held by foreign subsidiaries .
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special note regarding forward-looking statements this report on form 10-k contains certain “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995 , including statements concerning plans , objectives , future events or performance and assumptions and other statements that are other than statements of historical fact . forward-looking statements may be identified by reference to a future period or periods or by use of forward-looking terminology such as “ anticipates , ” “ believes , ” “ expects , ” “ intends , ” “ may , ” “ plans , ” “ pursue , ” “ views ” and similar terms or expressions . various statements contained in item 7 - “ management 's discussion and analysis of financial condition and results of operations ” and item 7a - “ quantitative and qualitative disclosures about market risk , ” including , but not limited to , statements related to management 's views on the banking environment and the economy , competition and market expansion opportunities , the interest rate environment , credit risk and the level of future non-performing assets and charge-offs , potential asset and deposit growth , future non-interest expenditures and non-interest income growth , and borrowing capacity are forward-looking statements . the company wishes to caution readers that such forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties that may adversely affect the company 's future results . the following important factors , among others , could cause the company 's results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein : ( i ) changes in interest rates could negatively impact net interest income ; ( ii ) changes in the business cycle and downturns in the local , regional or national economies , including deterioration in the local real estate market , could negatively impact credit and or asset quality and result in credit losses and increases in the company 's allowance for loan losses ; ( iii ) changes in consumer spending could negatively impact the company 's credit quality and financial results ; ( iv ) increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the company 's competitive position within its market area and reduce demand for the company 's products and services ; ( v ) deterioration of securities markets could adversely affect the value or credit quality of the company 's assets and the availability of funding sources necessary to meet the company 's liquidity needs ; ( vi ) changes in technology , including increased cyber-security risk and identity theft , could adversely impact the company 's operations and increase technology-related expenditures ; ( vii ) increases in employee compensation and benefit expenses could adversely affect the company 's financial results ; ( viii ) changes in laws and regulations that apply to the company 's business and operations , including without limitation the dodd-frank act , the jumpstart our business startups act ( the `` jobs act '' ) , the basel iii rules adopted by the federal banking regulators and the additional regulations that will be forthcoming as a result thereof , could cause the company to incur additional costs and adversely affect the company 's business environment , operations and financial results ; ( ix ) changes in accounting standards , policies and practices , as may be adopted or established by the regulatory agencies , the financial accounting standards board ( the “ fasb ” ) or the public company accounting oversight board could negatively impact the company 's financial results ; ( x ) our ability to enter new markets successfully and capitalize on growth opportunities , including the receipt of required regulatory approvals ; ( xi ) future regulatory compliance costs , including any increase caused by new regulations imposed by the consumer finance protection bureau ; and ( xii ) some or all of the risks and uncertainties described above in item 1a could be realized , which could have a material adverse effect on the company 's business , financial condition and results of operations . therefore , the company cautions readers not to place undue reliance on any such forward-looking information and statements . any forward-looking statements contained in this form 10-k are made as of the date hereof , and we undertake no duty , and specifically disclaim any duty , to update or revise any such statements , whether as a result of new information , future events or otherwise , except as required by applicable law . 38 overview executive summary strategically , our focus , as it always has been , is on organic growth , steady and consistent local branch expansion , and continually planning for and investing in our future . in late december , we broke ground on route 101a in nashua , nh on what will be our 23rd branch . this will be our second branch in nashua and sixth in southern new hampshire . 2015 was a very strong year of growth for the company . at december 31 , 2015 , total assets increased by $ 263.3 million , or 13 % , loans increased by $ 187.4 million , or 11 % , and deposits ( excluding brokered deposits ) increased by $ 228.0 million , or 14 % , over 2014 . of our $ 228.0 million in deposit growth , $ 177.8 million was in low cost checking and savings accounts and $ 49.5 million was in money market and certificates of deposit accounts . total assets under management now exceed $ 3 billion . net income for the year ended december 31 , 2015 was $ 16.1 million , an increase of $ 1.5 million , or 10 % , compared to the year ended december 31 , 2014 . story_separator_special_tag the company may also , from time to time , utilize overnight borrowings from correspondent banks to provide additional funding sources and to aid in the company 's asset liability management and interest rate risk positioning . additionally , funding for the company may be generated through the issuance of debt securities or equity transactions , including the dividend reinvestment and direct stock purchase plan , exercise of stock options , and occasionally the sale of new shares of the company 's common stock . these funds are used to originate loans , purchase investment securities , conduct operations , expand the branch network , and pay dividends to stockholders . the investment portfolio is primarily used to provide liquidity , manage the company 's asset-liability position and to invest excess funds , providing additional sources of revenue . total investments , one of the key components of earning assets , amounted to $ 300.4 million at december 31 , 2015 , and comprised 13 % of total assets at december 31 , 2015 compared to 12 % of total assets at december 31 , 2014 . since december 31 , 2014 , investments increased $ 55.3 million , or 23 % . enterprise 's main asset strategy is to grow loans , the largest component of earning assets , with a focus on high-quality commercial loans , which comprised 86 % of gross loans at december 31 , 2015 , and was consistent with the composition at december 31 , 2014 . total loans increased $ 187.4 million , or 11 % , since december 31 , 2014 and amounted to $ 1.86 billion , or 81 % of total assets at december 31 , 2015 compared to 83 % of total assets at december 31 , 2014 . management 's preferred strategy for funding asset growth is to grow low-cost deposits ( comprised of demand deposit accounts , interest and business checking accounts and traditional savings accounts ) . asset growth in excess of low cost deposits is typically funded through `` higher cost '' deposits ( comprised of money market accounts , commercial tiered rate or “ investment savings ” accounts and term certificates of deposit ) and wholesale funding ( brokered deposits and borrowed funds ) . at december 31 , 2015 , total deposits ( excluding brokered deposits ) amounted to $ 1.91 billion , representing , an increase of $ 228.0 million , or 14 % , over december 31 , 2014 balances . of our $ 228.0 million in deposit growth , $ 177.8 million was in low cost checking and savings accounts and $ 49.5 million was in money market and certificates of deposit accounts . wholesale funding amounted to $ 160.4 million at december 31 , 2015 , compared to $ 144.1 million at december 31 , 2014 . wholesale funding included fhlb advances of $ 40.7 million and $ 58.9 million at december 31 , 2015 and december 31 , 2014 , respectively , other borrowings of $ 13.0 million at december 31 , 2015 , and brokered deposits of $ 106.8 million and $ 85.2 million at december 31 , 2015 and december 31 , 2014 , respectively . the company had no other borrowings outstanding at december 31 , 2014 . 40 opportunities and risks the company 's ability to achieve its long-term strategic growth and market share objectives will depend in part upon the company 's continued success in differentiating itself in the market place and its ability to strengthen its competitive position . enterprise faces robust competition to attract and retain customers within existing and neighboring geographic markets . national and larger regional banks have a local presence in the company 's market area . these larger banks have certain competitive advantages , including greater financial resources and the ability to make larger loans to a single borrower . numerous local savings banks , commercial banks , cooperative banks and credit unions also compete in the company 's market area . the expanded commercial lending capabilities of credit unions and the shift to commercial lending by traditional savings banks means that both of these types of traditionally consumer-orientated institutions now compete for the company 's targeted commercial customers . in addition , the non-taxable status of credit unions allows them certain advantages as compared to taxable institutions such as enterprise . competition for loans , deposits and cash management services , investment advisory assets , and insurance business also comes from other businesses that provide financial services , including consumer finance companies , mortgage brokers and lenders , private lenders , insurance companies , securities brokerage firms , institutional mutual funds , registered investment advisors , internet based banks , non-bank payment and funding channels , and other financial intermediaries . consolidation within the industry , customer disenfranchisement with larger national/international banks , banks exiting certain business lines and or markets , the cost of compliance with new government regulations , and the continued low interest rate environment have and are expected to continue to have an impact on the regional competitive market . the company also faces increasing competition within its marketplace on the pricing of loans . this is expected to be an ongoing competitive challenge ; however , the company is committed to maintaining asset quality and focuses its sales efforts on building long-term relationships , rather than competing for individual transactions or easing loan terms . in addition , the increased use and advances in technology such as internet and mobile banking , non-bank payment channels , electronic transaction processing and cyber-security , are expected to have a significant impact on the future competitive landscape confronting financial service businesses . the company 's business model is to provide a full range of diversified financial products and services through a highly-trained staff of knowledgeable banking professionals , with in-depth understanding of our markets , commitment to open and honest communication with clients and dedication to active community service .
| results of operations comparison of years ended december 31 , 2014 and 2013 unless otherwise indicated , the reported results are for the year ended december 31 , 2014 with the “ comparable year ” or “ prior year ” being the year ended december 31 , 2013. average yields are presented on a tax equivalent basis . net income the company earned net income in 2014 of $ 14.7 million compared to $ 13.5 million for 2013 , an increase of 8 % . diluted earnings per share for 2014 was $ 1.44 compared to $ 1.36 for the prior year , which represented an increase of 6 % . in 2014 , the company 's financial results included increases in net interest income , non-interest income , and non-interest expenses , as compared to 2013. net income also benefited from an increase in net gains on sales of investment securities and a lower loan loss provision , as compared to the year ended december 31 , 2013. net interest income the company 's net interest income for the year ended december 31 , 2014 was $ 71.2 million compared to $ 65.8 million for the year ended december 31 , 2013 , an increase of $ 5.4 million , or 8 % . the increase in net interest income over the comparable year was due primarily to loan growth , partially offset by a decrease in margin . net interest margin the company 's margin was 4.02 % for the year ended december 31 , 2014 compared to 4.07 % for the prior year . net interest margin was 4.01 % for the quarter ended december 31 , 2014 , which is relatively consistent with the quarterly margin of 4.02 % at september 30 , 2014 and down slightly from 4.04 % at december 31 , 2013 .
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we offer global , full-featured , secure and flexible enterprise and supply chain solutions built for global manufacturing companies which can be delivered in the cloud , on premise or via a blended combination of certain sites on premise and others in the cloud . our mission is to provide best-in-class software that enables our customers to operate as effective enterprises where their business processes are running at peak efficiency and are perfectly aligned to their strategic goals . our solutions , called qad enterprise applications , enable measurement and control of key business processes and support operational requirements , including financials , manufacturing , demand and supply chain planning , customer management , business intelligence , business process management , supply chain execution , transportation management , service and support , enterprise asset management , analytics , enterprise quality management , interoperability , process and performance , and internationalization . we also focus on the foundation and technology of our applications , such as user interface and usability . we have four principal sources of revenue : subscription of enterprise applications through our cloud offering in a software as a service ( “ saas ” ) model as well as other hosted applications ; license purchases of enterprise applications ; maintenance and support , including technical support , training materials , product enhancements and upgrades ; professional services , including implementations , technical and application consulting , training , migrations and upgrades . we operate primarily in the following four geographic regions : north america , latin america , emea and asia pacific . in fiscal 2017 , approximately 47 % of our total revenue was generated in north america , 30 % in emea , 17 % in asia pacific and 6 % in latin america . the majority of our revenue is generated from global customers who have operations in multiple countries throughout the world . subscription , license and maintenance revenues are allocated to the region where the end user is located . services revenue is assigned based on the region where the services are performed . a significant portion of our revenue and expenses are derived from international operations which are primarily conducted in foreign currencies . as a result , changes in the value of foreign currencies relative to the u.s. dollar have impacted our results of operations and may impact our future results of operations . at january 31 , 2017 , we employed approximately 1,710 employees worldwide , of which 620 employees were based in north america , 530 employees in emea , 470 employees in asia pacific and 90 employees in latin america . our customer base and our target markets are primarily global manufacturing companies ; therefore , our results are heavily influenced by the state of the manufacturing economy on a global basis . as a result , our management team monitors several economic indicators , with particular attention to the global and country purchasing managers ' indexes ( “ pmi ” ) . the pmi is a survey conducted on a monthly basis by polling businesses that represent the makeup of respective sectors . since most of our customers are manufacturers , our revenue has historically correlated with fluctuations in the manufacturing pmi . global macro economic trends and manufacturing spending are important barometers for our business , and the health of the u.s. , western european and asian economies have a meaningful impact on our financial results . 32 we are transitioning our business model from traditional perpetual licensing to cloud based subscription and we have seen an acceleration of customer preference for cloud based solutions . during fiscal 2017 we closed most of our new customer deals in the cloud . in addition , we converted many of our existing customers from on-premise licenses to our cloud based solution . recurring revenue , which we define as subscription revenue plus maintenance revenue , accounted for 66 % of total revenue for fiscal 2017 , up from 62 % one year ago . by reducing our customers ' up-front costs and providing more flexibility in how customers gain access to and pay for our products , we expect our cloud business model will be more attractive to our customers than perpetual licenses . we anticipate this will increase our long-term revenue growth rate by increasing total subscriptions and customer value over time . as a result of our increased sales in the cloud , our license revenue is declining as a percentage of total revenue in comparison to prior years , a trend that we believe will continue . this is putting adverse pressure on short-term profitability as we invest to support growth of our cloud business and our sales and operational expenses are recognized ahead of revenue . fiscal 2017 operating results to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the changes in results from one period to another period using constant currency . in order to calculate our constant currency results , we apply the current foreign currency exchange rates to the prior period results . in the tables below , we present the change based on actual results in reported currency and in constant currency ( in thousands ) : replace_table_token_5_th in fiscal 2017 , our total revenue was adversely impacted by the strengthening of the u.s. dollar relative to other currencies . approximately 53 % of our total revenue is generated outside the u.s. and we expect that a significant portion of our business will continue to be conducted in currencies other than the u.s. dollar , particularly the euro . total revenue for fiscal 2017 was relatively consistent in total , but included an adverse currency impact of $ 4.6 million . in constant currency , total revenue increased by $ 4.7 million , driven by higher subscription revenue from our cloud offering . story_separator_special_tag we track our retention rate of cloud and maintenance by calculating the annualized revenue of customer sites with contracts up for renewal during the period compared to the annualized revenue associated with the customer sites that have canceled during the period . the percentage of revenue not canceled is our retention rate . conversions to the cloud are not considered cancellations for purposes of the maintenance retention rate calculation . maintenance revenue is generally billed on an annual basis and recognized ratably over the term of the agreement , typically twelve months . professional services revenue . our professional services business includes technical and application consulting and training , implementations , migrations and upgrades related to our solutions . in fiscal 2017 , on a constant currency basis , professional services revenue decreased by $ 3.1 million , or 4 % . a significant portion of our professional services revenue is generated from upgrade projects for existing customers . these projects are discretionary in nature and are affected by general economic conditions in the manufacturing industry and our customers ' businesses . consequently , global economic uncertainty can cause on-going projects to slow down , resulting in reduced monthly spend for our customers , while new projects can get delayed until conditions start to improve . we saw this effect in the first half of fiscal 2017 as several large engagements were delayed . however , during the second half of fiscal 2017 our professional services engagements replenished and services revenue increased in comparison to the first six months of fiscal 2017. as a result of these projects , we have put plans in place to add capacity through additional employees and partners in fiscal 2018. these hiring plans may impact our professional services margins in fiscal 2018. we manage our partners and subcontractors to supplement our internal resources , which provides us with the flexibility to contend with these fluctuations in demand and helps us mitigate low utilization rates in slow times . we believe this also helps us extend our global reach by keeping a higher number of partners engaged and knowledgeable about our products . our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions whether in the cloud or on-premise . consultants typically assist customers with the initial installation of a system , the conversion and transfer of the customer 's historical data into our software , and ongoing training , education , and system upgrades . we believe our professional services help customers implement our software more efficiently , support a customer 's success with our solution , strengthen our customer relationships , and add to our industry-specific knowledge base for use in future implementations and product innovations . our professional services margins tend to range from about breakeven to 10 % . we believe we offer competitive rates and view our professional services organization as a department supporting the implementation and deployment of our products which improves the overall customer experience . professional services margins lower our overall operating margin as professional services margins are inherently lower than margins for our subscription , license and maintenance revenues . professional services revenue may be impacted by currency fluctuations ; however , since we generally use local resources our costs are also impacted by similar currency fluctuations , providing a natural hedge . as a result , our professional services margins have not been significantly impacted by currency fluctuations . 34 although our professional services are optional , many of our customers use these services for some of their planning , implementation , or related needs . professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis . professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones . professional services revenue growth is contingent upon subscription and license revenue growth and customer upgrade cycles , which are influenced by the strength of general economic and business conditions and the competitive position of our software products . our professional services business has competitive exposure to offshore providers which could create the risk of pricing pressure , fewer customer orders and reduced gross margins . cash flow and financial condition . in fiscal 2017 , we generated cash flow from operating activities of $ 18.7 million . our cash and equivalents at january 31 , 2017 totaled $ 145.1 million , with all of the $ 14.2 million of debt on our balance sheet related to the mortgage of our headquarters . our primary uses of cash have been funding investment in research and development and funding operations to drive revenue and earnings growth . in addition , we use cash for acquisitions , dividend payments , share repurchase programs and other equity-related transactions . in fiscal 2018 , we anticipate that our priorities for use of cash will be developing sales and services resources and continued investment in research and development to drive and support growth and profitability . we will continue to evaluate acquisition opportunities that are complementary to our product footprint , solutions delivery and technology direction . we will also continue to assess share repurchases and dividend payments . we do not anticipate additional borrowing requirements in fiscal 2018. seasonal nature of deferred revenue , accounts receivable and operating cash flow . deferred revenue primarily consists of billings to customers for maintenance and subscription . when renewing maintenance we generally invoice our customers in annual cycles and when renewing subscription we generally invoice our customers quarterly or annually . we typically issue renewal invoices in advance of the renewal period . depending on timing , the initial invoice and the subsequent renewal invoice may occur in different quarters . this may result in an increase in deferred revenue and accounts receivable . there is a disproportionate weighting towards annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns . our fourth quarter has historically been our strongest quarter for new business and renewals .
| results of operations we operate in several geographical regions as described in note 12 “ business segment information ” within the notes to consolidated financial statements . in order to present our results of operations without the effects of changes in foreign currency exchange rates , we provide certain financial information on a “ constant currency basis ” , which is in addition to the actual financial information presented in the following tables . in order to calculate our constant currency results , we apply the current foreign currency exchange rates to the prior period results . 41 revenue replace_table_token_9_th replace_table_token_10_th total revenue . on a constant currency basis , total revenue was $ 278.0 million and $ 273.3 million for fiscal 2017 and 2016 , representing a $ 4.7 million , or 2 % , increase from the prior year . when comparing categories within total revenue at constant rates , our results for fiscal 2017 included an increase in subscription revenue partially offset by decreases in license fees and professional services revenue . maintenance and other revenue was generally flat on a constant currency basis . our customers are widely dispersed and no single customer accounted for more than 10 % of total revenue in any of the last three fiscal years . revenue outside the north america region as a percentage of total revenue was 53 % and 54 % for fiscal 2017 and 2016 , respectively . on a constant currency basis , total revenue increased in our north america , latin america and asia pacific regions and was flat in our emea region during fiscal 2017 when compared to the same period last year . our products are sold to manufacturing companies that operate mainly in the following six industries : automotive , consumer products , food and beverage , high technology , industrial products and life sciences .
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