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a financial instrument issued in the form of shares is mandatorily redeemable if it embodies an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date ( or dates ) or upon an event certain to occur . a financial instrument that embodies a conditional obligation to redeem the instrument by transferring assets upon an event not certain to occur becomes mandatorily redeemable-and , therefore , becomes a liability-if that event occurs , the condition is resolved , or the event becomes certain to occur . the series b preferred stock and series b1 preferred stock requires the company to redeem such preferred stock on the fifth anniversary of the issuance of the series b preferred stock and series b1 preferred stock if the redemption would not be subject to the existing restrictions under the company 's senior credit agreement and if the company is not prohibited from completing such redemption under nevada law . sec reporting requirements provide that any possible redemption outside of the control of the company requires the preferred stock to be classified outside of permanent equity . f-16 stock based compensation the company accounts for stock-based expense and activity in accordance with fasb asc topic 718 , which establishes accounting for equity instruments exchanged for services . under story_separator_special_tag strategy and plan of operations the principal elements of our strategy include : expand feedstock supply volume . we intend to expand our feedstock supply volume by growing our collection and aggregation operations . we plan to increase the volume of feedstock we collect directly by developing new relationships with generators and working to displace incumbent collectors ; increasing the number of collection personnel , vehicles , equipment , and geographical areas we serve ; and acquiring collectors in new or existing territories . we intend to increase the volume of feedstock we aggregate from third-party collectors by expanding our existing relationships and developing new vendor relationships . we believe that our ability to acquire large feedstock volumes will help to cultivate new vendor relationships because collectors often prefer to work with a single , reliable customer rather than manage multiple relationships and the uncertainty of excess inventory . broaden existing customer relationships and secure new large accounts . we intend to broaden our existing customer relationships by increasing sales of used motor oil and re-refined products to these accounts . in some cases , we may also seek to serve as our customers ' primary or exclusive supplier . we also believe that as we increase our supply of feedstock and re-refined products that we will secure larger customer accounts that require a partner who can consistently deliver high volumes . re-refine higher value end products . we intend to develop , lease , or acquire technologies to re-refine our feedstock supply into higher-value end products . we believe that the expansion of our facilities and our technology , and investments in additional technologies , will enable us to upgrade feedstock into end products , such as lubricating base oil , that command higher market prices than the current re-refined products we produce . pursue selective strategic relationships or acquisitions . we plan to grow market share by consolidating feedstock supply through partnering with or acquiring collection and aggregation assets . such acquisitions and or partnerships could increase our revenue and provide better control over the quality and quantity of feedstock available for resale and or upgrading as well as providing additional locations for the implementation of tcep , if we deem such commercially reasonable . in addition , we intend to pursue further vertical integration opportunities by acquiring complementary recycling and processing technologies where we can realize synergies by leveraging our customer and vendor relationships , infrastructure , and personnel , and by eliminating duplicative overhead costs . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > our general and administrative expenses consist primarily of salaries and other employee-related benefits for executive , administrative , legal , financial and information technology personnel , as well as outsourced and professional services , rent , utilities , and related expenses at our headquarters , as well as certain taxes . depreciation and amortization expenses our depreciation and amortization expenses are primarily related to the fixed assets and intangible assets acquired in connection with the vertex holdings , l.p. ( formerly vertex energy , l.p. ) , a texas limited partnership ( “ holdings ” ) , omega refining , llc 's ( “ omega refining ” ) and warren ohio holdings co. , llc , f/k/a heartland group holdings , llc ( “ heartland ” ) , acadiana recovery , llc ( “ acadiana ” ) , nickco recycling , inc. ( “ nickco ” ) , ygriega environmental services , llc ( “ ygriega ” ) and specialty environmental services ( “ ses ” ) and crystal energy , llc acquisitions . depreciation and amortization expense attributable to cost of revenues reflects the depreciation and amortization of the fixed assets at our refineries along with rolling stock at our collection branches . depreciation and amortization expense attributable to operating expenses reflects depreciation and amortization related to our corporate and administrative offices along with internet technology ( it ) related items and intangibles . 64 results of operations for the three months ended december 31 , 2020 compared to the three months ended december 31 , 2019 set forth below are our results of operations for the three months ended december 31 , 2020 , as compared to the same period in 2019. three months ended december 31 , 2020 2019 $ change % change revenues $ 40,067,300 $ 42,588,302 $ ( 2,521,002 ) ( 6 ) % cost of revenues ( exclusive of depreciation and amortization shown separately below ) 33,544,666 31,045,027 2,499,639 8 % depreciation and amortization attributable to costs of revenues 1,359,032 1,390,651 ( 31,619 ) ( 2 ) % gross profit * 5,163,602 10,152,624 ( 4,989,022 ) ( 49 ) % selling , general and administrative expenses 7,171,616 6,652,623 518,993 8 % depreciation and amortization attributable to operating story_separator_special_tag in our street collections were up 9 % for the three months ended december 31 , 2020 as compared to the same period in 2019 , the cost of the oil collected per gallon was down 92 % and revenue was up 49 % as a result of increased charges for our services from the prior period in our street collections . the reduction in collection costs is a function of route efficiencies and increased volumes of collections when compared to fixed costs across our collection operations . overall , this provided an additional 4 % of gross margin to the business or approximately $ 0.7 million for the three-month period ended december 31 , 2020. one of our key initiatives continues to be a focus on growing our own volumes of collected material and displacing the third-party oil processed in our facilities . we had selling , general and administrative expenses of $ 7,171,616 for the three months ended december 31 , 2020 , compared to $ 6,652,623 from the prior year 's period , an increase of $ 518,993 or 8 % from the prior period . this increase is primarily due to the additional selling , general and administrative expenses incurred during the period as a result of increased personnel costs , legal expenses , and insurance expenses related to our expansion of trucks and facilities through organic growth . 66 we had depreciation and amortization attributable to operating expenses of $ 482,869 for the three months ended december 31 , 2020 , compared to $ 455,953 for the three months ended december 31 , 2019 , a decrease of $ 26,916 , mainly due to some of our assets becoming fully depreciated . we had total other expense of $ 451,900 for the three months ended december 31 , 2020 , compared to total other expense of $ 1,671,958 for the three months ended december 31 , 2019. the main reason for the decrease in other expenses for 2020 was the loss of $ 205,565 during 2020 , compared to the loss of $ 819,239 during 2019 , on change in value of derivative liability , in connection with certain warrants granted in june 2015 and may 2016 , as described in greater detail in `` note 14. preferred stock and temporary equity `` to the consolidated financial statements included herein under `` part ii '' - '' item 8- financial statements and supplementary data '' . the company also received a total of $ 21.0 million from the tensile transaction during 2020 , of which approximately $ 9.0 million was used to pay down our debt obligations . due to this , we had a lower balance owed under our line of credit and term loan , along with a lower interest rate on the term debt outstanding for the three months ended december 31 , 2020 , compared to 2019. we had loss before income taxes of $ 2,942,783 for the three months ended december 31 , 2020 compared to income before income taxes of $ 1,372,090 for the three months ended december 31 , 2019. the decrease in income was mainly due to the decrease in gross profit and the increase in selling , general and administrative expenses as discussed above , partially offset by a reduction in interest expense and a reduction in change on derivative warrant liability related to the non-cash adjustment relating to the value of the june 2015 and may 2016 warrants , as discussed above . the june 2015 warrants have expired as of december 31 , 2020. we had a net loss attributable to vertex energy , inc. of $ 3,391,952 for the three months ended december 31 , 2020 , compared to net income attributable to vertex energy , inc. of $ 1,434,202 for the three months ended december 31 , 2019. the decrease in net income was primarily due to lower volumes and compressed spreads in the business . 67 each of our segments ' gross profit ( deficit ) during the three months ended december 31 , 2020 and 2019 were as follows : three months ended december 31 , 2020 2019 $ change % change black oil revenues $ 21,165,739 $ 36,215,635 $ ( 15,049,896 ) ( 42 ) % cost of revenues ( exclusive of depreciation and amortization shown separately below ) 15,955,589 24,822,137 ( 8,866,548 ) ( 36 ) % depreciation and amortization attributable to costs of revenues 1,072,575 1,102,062 ( 29,487 ) ( 3 ) % gross profit * $ 4,137,575 $ 10,291,436 $ ( 6,153,861 ) ( 60 ) % three months ended december 31 , 2020 2019 $ change % change refining and marketing revenues $ 13,494,715 $ 3,745,290 $ 9,749,425 260 % cost of revenues ( exclusive of depreciation and amortization shown separately below ) 13,434,600 2,883,187 10,551,413 366 % depreciation and amortization attributable to costs of revenues 128,660 147,898 ( 19,238 ) ( 13 ) % gross profit ( deficit ) * $ ( 68,545 ) $ 714,205 $ ( 782,750 ) ( 110 ) % three months ended december 31 , 2020 2019 $ change % change recovery revenues $ 5,406,846 $ 2,627,377 $ 2,779,469 106 % cost of revenues ( exclusive of depreciation and amortization shown separately below ) 4,154,477 3,339,703 814,774 24 % depreciation and amortization attributable to costs of revenues 157,797 140,691 17,106 12 % gross profit ( deficit ) * $ 1,094,572 $ ( 853,017 ) $ 1,947,589 228 % * the company changed its presentation of gross profit , beginning in its quarterly report on form 10-q for the quarter ended september 30 , 2020 , to include depreciation and amortization of our refineries . this change in presentation had no effect on the previously reported results of operations . the disclosures above have been retroactively adjusted from the prior presentations to include depreciation and amortization of our refineries .
| results of operations description of material financial line items : revenues we generate revenues from three existing operating segments as follows : black oil - revenues for our black oil segment are comprised primarily of product sales from our re-refineries and feedstock sales ( used motor oil ) which are purchased from generators of used motor oil such as oil change shops and garages , as well as a network of local and regional suppliers . volumes are consolidated for efficient delivery and then sold to third-party re-refiners and fuel oil blenders for the export market . in addition , through used oil re-refining , we re-refine used oil into different commodity products . through the operations at our marrero , louisiana facility , we produce a vacuum gas oil ( vgo ) product from used oil re-refining which is then sold via barge to crude refineries to be utilized as an intermediate feedstock in the refining process , as well as to the marine fuels market . through the operations at our columbus , ohio facility , the ownership of 65 % of which was transferred to tensile in connection with the heartland spv ( discussed above under “ part i ” - “ item 1. business ” - “ prior material acquisitions and transactions ” ) , effective january 1 , 2020 , we produce a base oil finished product which is then sold via truck or rail car to end users for blending , packaging and marketing of lubricants . refining and marketing - the refining and marketing segment generates revenues relating to the sales of finished products . the refining and marketing segment gathers hydrocarbon streams in the form of petroleum distillates , transmix and other chemical products that have become off-specification during the transportation or refining process . these feedstock streams are purchased from pipeline operators , refineries , chemical processing facilities and third-party providers , and 63 then processed at a third-party facility under our direction .
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overview cdw corporation , a fortune 500 company and member of the s & p 500 index , is a market-leading provider of integrated information technology ( `` it '' ) solutions to small , medium and large business , government , education and healthcare customers in the us , the uk and canada . our broad array of offerings ranges from discrete hardware and software products to integrated it solutions such as mobility , security , data center optimization , cloud computing , virtualization and collaboration . we are technology `` agnostic , '' with a solutions portfolio including more than 100,000 products and services from more than 1,000 leading and emerging brands . our solutions are delivered in physical , virtual and cloud-based environments through approximately 6,800 customer-facing coworkers , including sellers , highly-skilled technology specialists and advanced service delivery engineers . we are a leading sales channel partner for many original equipment manufacturers ( `` oems '' ) , software publishers and cloud providers ( collectively , our `` vendor partners '' ) , whose products we sell or include in the solutions we offer . we provide our vendor partners with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage , technical expertise and extensive customer access . we have three reportable segments , corporate , small business and public . our corporate segment primarily serves us private sector business customers with more than 250 employees . our small business segment primarily serves us private sector business customers with up to 250 employees . our public segment is comprised of government agencies and education and healthcare institutions in the us . we also have two other operating segments : cdw uk and cdw canada , each of which do not meet the reportable segment quantitative thresholds and , accordingly , are included in an all other category ( `` other '' ) . we may sell all or only select products that our vendor partners offer . each vendor partner agreement provides for specific terms and conditions , which may include one or more of the following : product return privileges , price protection policies , purchase discounts and vendor incentive programs , such as purchase or sales rebates and cooperative advertising reimbursements . we also resell software for major software publishers . our agreements with software publishers allow the end-user customer to acquire software or licensed products and services . in addition to helping our customers determine the best software solutions for their needs , we help them manage their software agreements , including warranties and renewals . a significant portion of our advertising and marketing expenses are reimbursed through cooperative advertising programs with our vendor partners . these programs are at the discretion of our vendor partners and are typically tied to sales or other commitments to be met by us within a specified period of time . for a discussion of results for the year ended december 31 , 2017 , see `` 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 , 2018 , filed with the securities and exchange commission on february 27 , 2019. trends and key factors affecting our financial performance we believe the following key factors may have a meaningful impact on our business performance , influencing our ability to generate sales and achieve our targeted financial and operating results : general economic conditions are a key factor affecting our results as they impact our customers ' willingness to spend on information technology . this is particularly the case for our corporate and small business customers , as their purchases tend to reflect confidence in their business prospects , which are driven by their discrete perceptions of business and general economic conditions . additionally , changes in trade policy and product constraints from suppliers could have an adverse impact on our business . there is uncertainty regarding whether the rapidly evolving coronavirus could impact our supply chain causing product constraints , which could have an adverse impact on our business . there continues to be substantial uncertainty regarding the impact of the uk 's exit from the european union ( `` eu '' ) ( referred to as `` brexit '' ) . potential adverse consequences of brexit such as global market uncertainty , volatility in currency exchange rates , greater restrictions on imports and exports between uk and eu countries and increased regulatory complexities could have a negative impact on our business , financial condition and results of operations . to date , cdw uk has not experienced significant changes in the buying behavior of its customers even with the uncertainty related to the ultimate terms of 28 brexit . we have established a presence in the netherlands to support cdw uk 's broader growth opportunities in the eu and to help address future developments , as needed , for brexit . changes in spending policies , budget priorities and funding levels are a key factor influencing the purchasing levels of government , healthcare and education customers . technology trends drive customer purchasing behaviors in the market . current technology trends are focused on delivering greater flexibility and efficiency , as well as designing it securely . these trends are driving customer adoption of solutions such as those delivered via cloud , software defined architectures and hybrid on-premise and off-premise combinations , as well as the evolution of the it consumption model to more `` as a service '' offerings , including device as a service and managed services . key business metrics we monitor a number of financial and non-financial measures and ratios on a regular basis in order to track the progress of our business and make adjustments as necessary . story_separator_special_tag interest expense , net interest expense , net in 2019 was $ 159 million , an increase of $ 10 million , compared to $ 149 million in 2018 . this increase was primarily due to paying an effective interest rate on the term loan in 2019 that exceeded the capped rate in 2018 and higher interest expense to finance the scalar acquisition . income tax expense income tax expense was $ 213 million in 2019 , compared to $ 198 million in 2018 . the effective income tax rate , expressed by calculating income tax expense as a percentage of income before income taxes , was 22.4 % and 23.5 % for 2019 and 2018 , respectively . for 2019 , the effective tax rate differed from the us federal statutory rate primarily due to state income taxes , partially offset by tax credits , excess tax benefits on equity-based compensation and a tax benefit related to cdw canada 's acquisition of scalar . for 2018 , the effective tax rate differed from the us federal statutory rate primarily due to state income taxes , partially offset by excess tax benefits on equity-based compensation . the 2019 effective tax rate was lower than 2018 primarily due to tax credits , higher excess tax benefits on equity-based compensation and a discrete tax benefit related to cdw canada 's acquisition of scalar . non-gaap financial measure reconciliations we have included reconciliations of non-gaap operating income , non-gaap operating income margin , non-gaap income before income taxes , non-gaap net income , and net sales growth on a constant currency basis for the years ended december 31 , 2019 and 2018 below . 33 non-gaap operating income excludes , among other things , charges related to the amortization of acquisition-related intangible assets , equity-based compensation and the associated payroll taxes , and acquisition and integration expenses . non-gaap operating income margin is defined as non-gaap operating income as a percentage of net sales . non-gaap income before income taxes and non-gaap net income exclude , among other things , charges related to acquisition-related intangible asset amortization , equity-based compensation , acquisition and integration expenses , and the associated tax effects of each . net sales growth on a constant currency basis is defined as net sales growth excluding the impact of foreign currency translation on net sales compared to the prior period . non-gaap operating income , non-gaap operating income margin , non-gaap income before income taxes , non-gaap net income and net sales growth on a constant currency basis are considered non-gaap financial measures . generally , a non-gaap financial measure is a numerical measure of a company 's performance or financial position that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with gaap . non-gaap measures used by management may differ from similar measures used by other companies , even when similar terms are used to identify such measures . we believe these measures provide analysts , investors and management with helpful information regarding the underlying operating performance of our business , as they remove the impact of items that management believes are not reflective of underlying operating performance . management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business . non-gaap operating income non-gaap operating income was $ 1,368 million for the year ended december 31 , 2019 , an increase of $ 151 million , or 12.5 % , compared to $ 1,217 million for the year ended december 31 , 2018 . as a percentage of net sales , non-gaap operating income was 7.6 % and 7.5 % for the years ended december 31 , 2019 and 2018 , respectively . replace_table_token_10_th ( 1 ) includes amortization expense for acquisition-related intangible assets , primarily customer relationships , customer contracts and trade names . ( 2 ) includes other expenses such as payroll taxes on equity-based compensation . 34 non-gaap net income non-gaap net income was $ 902 million for the year ended december 31 , 2019 , an increase of $ 108 million , or 13.6 % , compared to $ 794 million for the year ended december 31 , 2018 . replace_table_token_11_th ( 1 ) income tax on non-gaap adjustments includes excess tax benefits associated with equity-based compensation and the impact of global intangible low tax income ( `` gilti '' ) due to equity-based compensation and amortization of intangibles . ( 2 ) includes amortization expense for acquisition-related intangible assets , primarily customer relationships , customer contracts and trade names . ( 3 ) includes a $ 3 million discrete tax benefit related to cdw canada 's acquisition of scalar . ( 4 ) includes other expenses such as payroll taxes on equity-based compensation . net sales growth on a constant currency basis net sales increased $ 1,791 million , or 11.0 % , to $ 18,032 million for the year ended december 31 , 2019 , compared to $ 16,241 million for the year ended december 31 , 2018 . net sales on a constant currency basis , which excludes the impact of foreign currency translation , increased $ 1,860 million , or 11.5 % . replace_table_token_12_th ( 1 ) there were 254 selling days for each of the years ended december 31 , 2019 and 2018 . ( 2 ) represents the effect of translating the prior period results of cdw uk and cdw canada at the average exchange rates applicable in the current year . seasonality while we have not historically experienced significant seasonality throughout the year , sales in our corporate segment , which primarily serves us private sector business customers with more than 250 employees , are typically higher in the fourth quarter than in other quarters due to customers spending their remaining technology budget dollars at the end of the year .
| results of operations results of operations , in dollars and as a percentage of net sales are as follows : replace_table_token_7_th net sales net sales by segment , in dollars and as a percentage of total net sales , and the year-over-year dollar and percentage change in net sales are as follows : replace_table_token_8_th ( 1 ) there were 254 selling days for each of the years ended december 31 , 2019 and 2018 . total net sales for the year ended december 31 , 2019 increased $ 1,792 million , or 11.0 % , to $ 18,032 million , compared to the prior year . excluding the impact of foreign currency fluctuations , constant currency net sales growth was 11.5 % . for additional information , see `` non-gaap financial measure reconciliations '' below regarding constant currency net sales growth . for the year ended december 31 , 2019 , net sales growth reflected growth across all major product categories , particularly client devices ( defined as notebooks/mobile devices and desktops ) , software and services . additionally , eleven months of results from scalar , which was acquired on february 1 , 2019 , contributed to our net sales growth . for additional information , see note 17 ( segment information ) to the accompanying consolidated financial statements . 31 corporate segment net sales for the year ended december 31 , 2019 increased $ 657 million , or 9.6 % , compared to the year ended december 31 , 2018 . growth was primarily driven by client devices and software . small business segment net sales for the year ended december 31 , 2019 increased by $ 151 million , or 11.1 % , compared to the year ended december 31 , 2018 . growth was primarily driven by client devices and software .
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we believe that the 9 following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations , 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 . revenue recognition a portion of our product sales result from fixed-price construction contracts . in these instances , we are usually in the role of a subcontractor , but in some cases may enter into a contract directly with the end-user of the products . our contract arrangements normally do not contain a general right of return relative to the delivered items . sales resulting from fixed-price construction contracts are generated under multiple-element arrangements that require separate units of accounting and estimates regarding the fair value of individual elements . the company has determined that its multiple-element arrangements that qualify as separate units of accounting are ( 1 ) product sales and ( 2 ) installation services . there is objective and reliable evidence of fair value for both the product sales and installation services , and allocation of arrangement consideration for each of these units is based on their relative fair values . each of these elements represents individual units of accounting , as the delivered item has value to a customer on a stand-alone basis . the company 's products are regularly sold on a stand-alone basis to customers which provides vendor-specific objective evidence of fair value . the fair value of installation services is separately calculated using expected costs of installation services . many times the value of installation services is calculated using price quotations from subcontractors to the company , who perform installation services on a stand-alone basis . assuming all other criteria for revenue recognition have been met , we recognize revenue for product sales at the date of shipment . product sales resulting from purchase orders involve a purchase order received by us from our dealers or our stocking distributor . this category includes product sales for standard products , as well as products which require some customization . these sales are recognized under the terms of the purchase order which generally are freight on board ( fob ) shipping point and do not include rights of return . accordingly , these sales are recognized at the time of shipment . allowance for doubtful accounts evaluation of the allowance for doubtful accounts involves management judgments and estimates . we evaluate the collectability of our trade accounts receivable based on a number of factors . in circumstances where management is aware of a customer 's inability to meet its financial obligations to us , or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected , a specific reserve for bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount we believe will ultimately be collected . in addition to specific customer identification of potential bad debts , a general reserve for bad debts is estimated and recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding . inventories the majority of inventories are valued at the lower of cost or market under the last-in , first-out ( lifo ) method . the lifo method allocates the most recent costs to cost of products sold , and , therefore , recognizes into operating results fluctuations in raw materials and other inventory costs more quickly than other methods . inventories at our international subsidiaries are measured on the first-in , first-out ( fifo ) method . pension benefits we sponsor pension plans covering all employees who met eligibility requirements as of april 30 , 2005. these pension plans were amended as of april 30 , 2005 , no further benefits have been , or will be , earned under the plans subsequent to the amendment date , and no additional participants have been , or will be , added to the plans . several statistical and other factors , which attempt to anticipate future events , are used in calculating the expense and liability related to the pension plans . these factors include assumptions about the discount rate used to calculate and determine benefit obligations and expected return on plan assets within certain guidelines . the actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions , higher or lower withdrawal rates , or longer or shorter life spans of participants . these differences may significantly affect the amount of pension income or expense recorded by us in future periods . self-insurance reserves the company 's domestic operations are self-insured for workers compensation and health-care . the company has purchased specific stop-loss insurance to limit claims above a certain amount . estimated workers compensation losses were accrued during the fiscal year and are subject to retroactive loss adjustments . estimated medical reserves were accrued for claims incurred but not 10 reported ( ibnr ) using assumptions based upon historical loss experiences . the company 's exposure reflected in the self-insurance reserves varies depending upon market conditions in the insurance industry , availability of cost-effective insurance coverage , and actual claims versus estimated future claims . story_separator_special_tag purchase of the noncontrolling interest in our subsidiary . the majority of the april 30 , 2017 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2018 , with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner . story_separator_special_tag this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016. the company adopted this standard effective may 1 , 2017. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in november 2015 , the fasb issued asu 2015-17 , income taxes balance sheet classification of deferred taxes. this guidance eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position . instead , the update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016 , with early adoption permitted prospectively or retrospectively . the company early adopted this guidance prospectively beginning with the consolidated balance sheet at april 30 , 2016. prior periods were not retrospectively adjusted . in february 2016 , the fasb issued asu 2016-2 , leases. this guidance 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 . 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 . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2018. the company will adopt this standard in fiscal year 2020. the company has not yet determined the effect , if any , that the adoption of this standard will have on the company 's financial position or results of operations . 13 in march 2016 , the fasb issued asu 2016-9 , stock compensation improvements to employee share-based payment accounting. this guidance simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016. the company adopted this standard effective may 1 , 2017. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in june 2016 , the fasb issued asu 2016-13 , measurement of credit losses on financial instruments , which replaces the current incurred loss method used for determining credit losses on financial assets , including trade receivables , with an expected credit loss method . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2019. the company will adopt this standard in fiscal year 2021. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in august 2016 , the fasb issued asu 2016-15 , cash flow classification of certain cash receipts and cash payments , which clarifies guidance on classification of certain transactions in the statement of cash flows , including classification of debt prepayments , debt extinguishment costs and contingent consideration payments after a business combination . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017. the company will adopt this standard in fiscal year 2019. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in november 2016 , the fasb issued asu 2016-18 , statement of cash flows restricted cash , which requires that the statement of cash flows reconcile the change during the period in total cash , cash equivalents and restricted cash . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017. the company will adopt this standard in fiscal year 2019. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations in january 2017 , the fasb issued asu 2017-04 , simplifying the test for goodwill impairment , which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2019. the company will adopt this standard in fiscal year 2021. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in march 2017 , the fasb issued asu 2017-07 , compensation retirement benefits improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , which requires that the service cost component of net periodic pension cost is presented in the same line as other compensation costs arising from services rendered by the respective employees during the year . the other components of net periodic pension cost are required to be presented in the income statement separately from the service cost component and outside of earnings from operations . this guidance allows for the service cost component to be eligible for capitalization when applicable . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017. the company will adopt
| results of operations sales for fiscal year 2017 were $ 138.6 million , an increase of 8 % from fiscal year 2016 sales of $ 128.7 million . domestic sales for fiscal year 2017 were $ 113.1 million , an increase of 9.7 % from fiscal year 2016 sales of $ 103.0 million . the increase in domestic sales was attributable to increased activity across our dealer and distribution networks as well as with end-users . international sales for fiscal year 2017 were $ 25.5 million , relatively unchanged from fiscal year 2016 sales of $ 25.6 million . sales for fiscal year 2016 were $ 128.7 million , an increase of 8 % from fiscal year 2015 sales of $ 118.8 million . domestic sales for fiscal year 2016 were $ 103.0 million , an increase of 11 % from fiscal year 2015 sales of $ 93.1 million . the increase in domestic sales was attributable to growth throughout the year from our dealers and distribution network . international sales for fiscal year 2016 were $ 25.6 million , relatively unchanged from fiscal year 2015 sales of $ 25.7 million . our order backlog was $ 113.5 million at april 30 , 2017 , as compared to $ 100.5 million at april 30 , 2016 and $ 90.1 million at april 30 , 2015. gross profit represented 19.2 % , 18.4 % and 18.3 % of sales in fiscal years 2017 , 2016 and 2015 , respectively . the increase in gross profit margin for fiscal year 2016 was primarily due to favorable operating leverage from higher volumes being produced and manufacturing productivity improvements . operating expenses were $ 20.1 million , $ 18.0 million and $ 16.5 million in fiscal years 2017 , 2016 and 2015 , respectively , and 14.5 % , 14.0 % and 13.9 % of sales , respectively .
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in most instances , we charge clients on a time-and-materials basis and recognize revenues in the period when we provide our services . we charge consultants ' time at hourly rates , which vary from consultant to consultant depending on a consultant 's position , experience , expertise , and other factors . we derive a portion of our revenues from fixed-price engagements . revenues from fixed-price engagements are recognized using a proportional performance method based on the ratio of costs incurred , substantially all of which are labor-related , to the total estimated project costs . we generate substantially all of our professional services fees from the work of our own employee consultants and a portion from the work of our non-employee experts . factors that affect our professional services revenues include the number and scope of client engagements , the number of consultants we employ , the consultants ' billing rates , and the number of hours our consultants work . revenues also include reimbursements , which include reimbursements for travel and other out-of-pocket expenses , outside consultants , and other reimbursable expenses . our costs of services include the salaries , bonuses , share-based compensation expense , and benefits of our employee consultants . our bonus program awards discretionary bonuses based on our revenues and profitability and individual performance . costs of services also include out-of-pocket and other expenses , and the salaries of support staff whose time is billed directly to clients , such as librarians , editors , and programmers , as well as the amounts billed to us by our non-employee experts for services rendered while completing a project . selling , general , and administrative expenses include salaries , bonuses , share-based compensation expense , and benefits of our administrative and support staff , fees to non-employee experts for generating new business , office rent , marketing , and other costs . utilization and seasonality we derive the majority of our revenues from the number of hours worked by our employee consultants . our utilization of those employee consultants is one key indicator that we use to measure our operating performance . we calculate utilization by dividing the total hours worked by our employee consultants on engagements during the measurement period by the total number of hours that our 27 employee consultants were available to work during that period . utilization was 74 % , 74 % , and 76 % , for fiscal 2016 , fiscal 2015 , and fiscal 2014 , respectively . we experience certain seasonal effects that impact our revenue . concurrent vacations or holidays taken by a large number of consultants can adversely impact our revenue . for example , we usually experience fewer billable hours in our fiscal third quarter , as that is the summer vacation season for most of our offices , and in our fiscal fourth quarter , as that is the quarter that typically includes the december holiday season . international operations revenues outside of the u.s. accounted for approximately 22 % , 20 % , and 22 % , of our total revenues in fiscal 2016 , fiscal 2015 , and fiscal 2014 , respectively . revenue by country is detailed in note 11 to our notes to consolidated financial statements . noncontrolling interest please refer to the `` principles of consolidation '' in note 1 of our notes to consolidated financial statements contained in this form 10-k. critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( `` u.s. gaap '' ) . the preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets and liabilities , as well as related disclosure of contingent assets and liabilities , at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . estimates in these consolidated financial statements include , but are not limited to , allowances for accounts receivable and unbilled services , revenue recognition on fixed price contracts , depreciation of property and equipment , share-based compensation , valuation of acquired intangible assets , impairment of long-lived assets , goodwill , accrued and deferred income taxes , valuation allowances on deferred tax assets , accrued compensation , accrued exit costs , and other accrued expenses . these items are monitored and analyzed by management for changes in facts and circumstances , and material changes in these estimates could occur in the future . changes in estimates are recorded in the period in which they become known . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from our estimates if our assumptions based on past experience or our other assumptions do not turn out to be substantially accurate . a summary of the accounting policies that we believe are most critical to understanding and evaluating our financial results is set forth below . this summary should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this annual report on form 10-k. revenue recognition and accounts receivable allowances . we derive substantially all of our revenues from the performance of professional services . the contracts that we enter into and operate under specify whether the engagement will be billed on a time-and-materials or a fixed-price basis . these engagements generally last three to six months , although some of our engagements can be much longer in duration . each contract must be approved by one of our vice presidents . we recognize substantially all of our revenues under written service contracts when the fee is fixed or determinable , as the services are provided , and only in those situations where collection from the client is reasonably assured . story_separator_special_tag the current fungibility ratio , applicable to full-share grants made on or after april 30 , 2010 , is 1.83. the fungibility ratio applicable to full-share grants made before march 12 , 2008 was 1.8 , and the fungibility ratio applicable to full-share grants made from march 12 , 2008 and before april 30 , 2010 was 2.2. the fungibility ratio does not apply to grants of stock options . the maximum number of shares issuable under the 2006 equity plan is 4,874,000 , consisting of ( 1 ) 500,000 shares initially reserved for issuance under the 2006 equity plan , ( 2 ) 1,000,000 shares that either remained for future awards under our 1998 incentive and nonqualified stock option plan ( the `` 1998 option plan '' ) on april 21 , 2006 , the date our shareholders initially approved the 2006 equity plan , or were subject to stock options issued under the 1998 option plan that were forfeited or terminated after april 21 , 2006 , ( 3 ) 210,000 shares approved by our shareholders in 2008 , ( 4 ) 1,464,000 shares approved by our shareholders in 2010 , and ( 5 ) the 2,500,000 shares approved by our shareholders in 2012 reduced by the 800,000 shares cancelled by our board of directors on april 22 , 2016 , as reported in the current report on form 8-k that we filed on april 27 , 2016. as of december 31 , 2016 , there were 60,221 shares of our common stock available for award grants under the 2006 equity incentive plan , calculated as follows : replace_table_token_7_th deferred compensation . we account for performance based cash awards using a prospective accrual method . under the requirements of asc topic 710 , `` compensation general '' ( `` asc topic 710 '' ) to the extent the terms of the contract attribute all or a portion of the expected future benefits to a period of service greater than one year , the cost of those benefits are accrued over the period of the employee or non-employee 's service in a systematic and rational manner . we have implemented a process that requires the liability to be re-evaluated on a quarterly basis . the required service period typically ranges from three to six years starting at the beginning of the awards performance measurement period . a recipient of such an award is expected to be affiliated with cra for the entire service period . if a recipient terminates affiliation with cra during the 30 measurement period , the amount paid will be determined in accordance with the recipient 's specific contract provisions . valuation of goodwill and other intangible assets . we account for our acquisitions under the purchase method of accounting . goodwill represents the purchase price of acquired businesses in excess of the fair market value of net assets acquired . intangible assets that are separate from goodwill and have determinable useful lives are valued separately . these intangible assets typically consist of non-competition agreements , customer relationships , customer lists , developed technology , and trademarks , which are generally amortized on a straight-line basis over their estimated remaining useful lives of four to ten years . in accordance with asc topic 350 , `` intangiblesgoodwill and other '' ( `` asc topic 350 '' ) , goodwill and intangible assets with indefinite lives are not subject to amortization , but are monitored annually as of october 15th for impairment , or more frequently , as necessary , if events or circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount . for our fiscal 2016 goodwill impairment analysis , we operate under one reporting unit , which is consulting services . prior to april 13 , 2016 , we operated under two reporting units , which were consulting services and gnu . under asc topic 350 , in performing the first step of the goodwill impairment testing and measurement process , we compare the estimated value of each of our reporting units to its net book value to identify potential impairment . we estimate the fair value of our consulting business utilizing our market capitalization , plus an appropriate control premium , less prior to fiscal 2016 , the estimated fair value of gnu . market capitalization is determined by multiplying our shares outstanding on the test date by the market price of our common stock on that date . we determine the control premium utilizing data from publicly available premium studies for the trailing four quarters for public company transactions in our industry group . if the estimated fair value of a reporting unit is less than its net book value , the second step is performed to determine if goodwill is impaired . if through the impairment evaluation process a reporting unit determines that goodwill has been impaired , an impairment charge would be recorded in our consolidated income statement . gnu incurred an impairment loss during the fourth quarter of fiscal 2015. cra 's consulting services did not incur an impairment loss related to goodwill during fiscal 2016 , fiscal 2015 or fiscal 2014. the estimated fair value of cra 's consulting services was greater than its carrying value as of october 15 th in each of these fiscal years . the re-measurement of a reporting unit 's fair value and that of its underlying assets and liabilities is classified as a level 3 fair value assessment due to the significance of unobservable inputs developed using specific information from the reporting units . the fair value adjustment to goodwill , which resulted in gnu 's impairment charge in the fourth quarter of fiscal 2015 , was computed as the difference between its fair value and the fair value of its underlying assets and liabilities .
| results of operations the following table provides operating information as a percentage of revenues for the periods indicated : replace_table_token_8_th fiscal 2016 compared to fiscal 2015 our fiscal year end is the saturday nearest december 31 of each year . our fiscal years periodically contain 53 weeks rather than 52 weeks . fiscal 2016 and fiscal 2015 were both 52-week years . revenues . revenues increased by $ 21.2 million , or 7.0 % , to $ 324.8 million for fiscal 2016 from $ 303.6 million for fiscal 2015. revenue growth was driven by an increase in average consulting headcount during fiscal 2016 compared to fiscal 2015 , while utilization remained flat at 74 % for fiscal 2016 and fiscal 2015. offsetting this increase , gnu revenue decreased $ 2.9 million in fiscal 2016 as compared to fiscal 2015 , principally due to the cessation of its operations in april 2016. overall , revenues outside of the u.s. represented approximately 22 % and 20 % of total revenues for fiscal 2016 and fiscal 2015 , respectively . revenues derived from fixed-price engagements increased to 17 % of total revenues for fiscal 2016 as compared with 14 % for fiscal 2015. these percentages of revenue derived from fixed-price engagements depend largely on the proportion of our revenues derived from our management consulting business , as the management consulting business typically has a higher concentration of fixed-price service engagements . costs of services . costs of services increased by $ 19.7 million , or 9.5 % , to $ 227.4 million for fiscal 2016 from $ 207.7 million for fiscal 2015. these increased costs were driven by the salaries and fringe benefits of our increased consulting headcount , as well as increases in incentive compensation and forgivable loan amortization .
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the determination of the amount of the provision for loan losses charged to operations reflects management 's current judgment about the credit quality of the loan portfolio and takes into consideration changes in lending policies and procedures , changes in economic and business conditions , changes in the nature and volume of the portfolio and in the terms of loans , changes in the experience , ability and depth of lending management , changes in the volume and severity of past due , non-accrual and adversely classified or graded loans , changes in the quality of the loan review system , changes in the value of underlying collateral for collateral-dependent loans , the existence and story_separator_special_tag general the following discussion is intended to provide information to facilitate the understanding and assessment of the consolidated financial condition and results of operations of the bancorp and its subsidiaries . it should be read in conjunction with the audited consolidated financial statements and notes appearing elsewhere in this annual report on form 10-k. the bank offers a wide range of financial services . it currently operates 21 branches in southern california , 11 branches in northern california , eight branches in new york state , one branch in massachusetts , two branches in texas , three branches in washington state , three branches in illinois , one branch in new jersey , one branch in nevada , one branch in hong kong and two representative offices ( one in shanghai , china , and one in taipei , taiwan ) . the bank is a commercial bank , servicing primarily individuals , professionals , and small to medium-sized businesses in the local markets in which its branches are located . the financial information presented herein includes the accounts of the bancorp , its subsidiaries , including the bank , and the bank 's consolidated subsidiaries . all material transactions between these entities are eliminated . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities at the date of our consolidated financial statements . actual results may differ from these estimates under different assumptions or conditions . certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . management believes the following are critical accounting policies that require the most significant judgments and estimates used in the preparation of the consolidated financial statements : allowance for credit losses the determination of the amount of the provision for credit losses charged to operations reflects management 's current judgment about the credit quality of the loan portfolio and takes into consideration changes in lending policies and procedures , changes in economic and business conditions , changes in the nature and volume of the portfolio and in the terms of loans , changes in the experience , ability , and depth of lending management , changes in the volume and severity of past due , non-accrual , and adversely classified or graded loans , changes in the quality of the loan review system , changes in the value of underlying collateral for collateral-dependent loans , the existence and effect of any concentrations of credit and the effect of competition , legal and regulatory requirements , and other external factors . the nature of the process by which we determine the appropriate allowance for loan losses requires the exercise of considerable judgment . the allowance is increased by the provision for loan losses and decreased by charge-offs when management believes the uncollectibility of a loan is confirmed . subsequent recoveries , if any , are credited to the allowance . a weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies , bankruptcies , or defaults , and a higher level of non-performing assets , net charge-offs , and provision for loan losses in future periods . 38 the total allowance for credit losses consists of two components : specific allowances and general allowances . to determine the adequacy of the allowance in each of these two components , we employ two primary methodologies , the individual loan review analysis methodology and the classification migration methodology . these methodologies support the basis for determining allocations between the various loan categories and the overall adequacy of our allowance to provide for probable losses inherent in the loan portfolio . these methodologies are further supported by additional analysis of relevant factors such as the historical losses in the portfolio , and environmental factors which include trends in delinquency and non-accrual , and other significant factors , such as the national and local economy , the volume and composition of the portfolio , strength of management and loan staff , underwriting standards , and the concentration of credit . the bank 's management allocates a specific allowance for “ impaired credits , ” in accordance with accounting standard codification ( “ asc ” ) section 310-10-35. for non-impaired credits , a general allowance is established for those loans internally classified and risk graded pass , minimally acceptable , special mention , or substandard based on historical losses in the specific loan portfolio and a reserve based on environmental factors determined for that loan group . the level of the general allowance is established to provide coverage for management 's estimate of the credit risk in the loan portfolio by various loan segments not covered by the specific allowance . story_separator_special_tag if the fair value of a reporting unit exceeds its carrying amount , goodwill of that reporting unit is not considered impaired , and “ step two ” of the impairment test is not necessary . if the carrying amount of a reporting unit exceeds its fair value , step two of the impairment test is performed to determine the amount of impairment . step two of the impairment test compares the carrying amount of the reporting unit 's goodwill to the “ implied fair value ” of that goodwill . the implied fair value of goodwill is computed by assuming all assets and liabilities of the reporting unit would be adjusted to the current fair value , with the offset as an adjustment to goodwill . this adjusted goodwill balance is the implied fair value used in step two . an impairment charge is recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value . valuation of other real estate owned ( oreo ) real estate acquired in the settlement of loans is initially recorded at fair value , less estimated costs to sell . specific valuation allowances on other real estate owned are recorded through charges to operations to recognize declines in fair value subsequent to foreclosure . gains on sales are recognized when certain criteria relating to the buyer 's initial and continuing investment in the property are met . 40 story_separator_special_tag serif ; font-size : 10pt '' > decrease in rate : the average cost of interest bearing liabilities decreased 30 basis points from 1.39 % in 2012 to 1.09 % in 2013 due primarily to a decrease of 16 basis points in the average cost of time deposits to 0.80 % in 2013 from 0.96 % in 2012 and a decrease of 21 basis points in average cost of securities sold under agreements to repurchase to 3.88 % in 2013 from 4.09 % in 2012. the decline in rate caused interest expense to decline by $ 10.4 million . ● change in the mix of interest-bearing liabilities : average interest bearing deposits of $ 6.33 billion increased to 83.9 % of total interest-bearing liabilities in 2013 compared to 79.9 % in 2012. offsetting the increases , average securities sold under agreements to repurchase decreased to 12.9 % of total interest-bearing liabilities in 2013 compared to 17.5 % in 2012 . 42 our taxable-equivalent net interest margin , defined as taxable-equivalent net interest income to average interest-earning assets , increased 5 basis points to 3.33 % in 2013 from 3.28 % in 2012. the increase in net interest margin from the prior year primarily resulted from decreases in the rate on interest bearing deposits and the prepayment of securities sold under agreements to repurchase . net interest income increased $ 7.6 million , or 2.4 % , from $ 313.7 million in 2011 to $ 321.3 million in 2012. taxable-equivalent net interest income , using a statutory federal income tax rate of 35 % , totaled $ 323.5 million in 2012 , compared with $ 316.0 million in 2011 , an increase of $ 7.5 million , or 2.4 % . interest income on tax-exempt securities was $ 4.2 million , or $ 6.4 million on a tax-equivalent basis , in 2012 compared to $ 4.2 million , or $ 6.5 million on a tax-equivalent basis , in 2011. the increase in net interest income was due primarily to the decreases in interest expense paid for time deposits and the prepayment of federal home loan bank advances and securities sold under agreements to repurchase . average loans for 2012 were $ 7.10 billion , a $ 134.5 million , or a 1.9 % , increase from $ 6.96 billion in 2011. compared with 2011 , average commercial loans increased $ 284.0 million , or 17.1 % , and average residential mortgage loans increased $ 91.6 million , or 8.0 % . offsetting the above increases was a decrease of $ 121.1 million , or 3.2 % , in average commercial mortgage loans and a decrease of $ 118.0 million , or 37.3 % , in average real estate construction loans . average investment securities were $ 2.35 billion in 2012 , a decrease of $ 270.5 million , or 10.3 % , from 2011 , due primarily to decreases of u.s. agency securities of $ 325.7 million . average interest bearing deposits were $ 6.23 billion in 2012 , an increase of $ 83.7 million , or 1.4 % , from $ 6.14 billion in 2011 primarily due to increases of $ 238.9 million in all deposit types , offset primarily by decreases of $ 155.2 million in brokered time deposits . average fhlb advances and other borrowings decreased $ 280.9 million , or 88.2 % , to $ 37.7 million in 2012 from $ 318.6 million in 2011 , primarily due to prepayments of fhlb advances in 2012. average securities sold under agreements to repurchase decreased $ 86.9 million , or 6.0 % , to $ 1.36 billion in 2012 from $ 1.45 billion in 2011 , primarily due to prepayments of securities sold under agreements to repurchase in 2012. taxable-equivalent interest income decreased $ 23.9 million , or 5.2 % , to $ 432.0 million in 2012 primarily due to decline in volume on investment securities and decreases in loan yields and by a change in the mix of interest-earning assets as discussed below : ● increase in volume : average interest-earning assets increased $ 37.1 million , or 0.4 % , to $ 9.87 billion in 2012 , compared with the average interest-earning assets of $ 9.84 billion in 2011. the increase in average loans balance of $ 134.5 million in 2012 and increase in average interest bearing deposits of $ 253.6 million , offset by decreases in average investment securities of $ 270.4 million and decreases in average federal funds sold and securities purchased under agreements to resell of $ 69.5 million , contributed to the slight increase in interest income .
| results of operations overview for the year ended december 31 , 2013 , we reported net income attributable to common stockholders of $ 113.5 million , or $ 1.43 per diluted share , compared to net income attributable to common stockholders of $ 101.0 million , or $ 1.28 per share , in 2012 , and net income attributable to common stockholders of $ 83.7 million , or $ 1.06 per share , in 2011. the $ 12.5 million increase in net income from 2012 to 2013 was primarily the result of decreases in oreo expenses of $ 15.4 million , increases in gains on sale of securities of $ 9.4 million , decreases in dividends on preferred stock of $ 6.8 million , decreases in litigation expenses of $ 5.8 million , and increases in commissions from wealth management of $ 2.3 million , offset by increases in prepayment penalties on the prepayment of securities sold under an agreement to repurchase of $ 10.5 million , increases in salaries and incentive compensation expense of $ 9.9 million , decreases in the reversal for credit losses of $ 6.0 million , and increases in tax expense of $ 4.3 million . the return on average assets in 2013 was 1.17 % , improving from 1.11 % in 2012 , and from 0.94 % in 2011. the return on average stockholders ' equity was 8.00 % in 2013 , improving from 7.48 % in 2012 , and from 6.78 % in 2011. highlights ● diluted earnings per share increased 11.7 % to $ 1.43 per share for the year ended 2013 compared to $ 1.28 per share for the year ended 2012 . ● strong growth in loans – total loans increased $ 655.4 million , or 8.8 % , during 2013 , to $ 8.1 billion at december 31 , 2013 , compared to $ 7.4 billion at december 31 , 2012 .
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2.2 plan of conversion of sensus healthcare , llc – incorporated by reference to exhibit 2.2 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 3.1 amended and restated certificate of incorporation of sensus healthcare , inc. – incorporated by reference to exhibit 3.1 to the company 's amendment no . 2 to registration statement on form s-1 ( filed 3/25/16 ) ( no . 333-209451 ) . 3.2 bylaws of sensus healthcare , inc. – incorporated by reference to exhibit 3.2 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 4.1 warrant agreement of sensus healthcare , llc , dated as of february 1 , 2013 , by and among anderson strudwick , inc. , investors capital alliance , llc and sensus healthcare , llc – incorporated by reference to exhibit 4.1 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 4.2 assignment of warrant agreement , dated as of march 31 , 2012 , by and among anderson strudwick , inc. , investors capital alliance , llc and sensus healthcare , llc – incorporated by reference to exhibit 4.2 of the company 's amendment no . 4 to registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 4.3 amendment no . 1 to warrant agreement of sensus healthcare , llc , dated as of march 31 , 2016 , by and between sensus healthcare , inc. and investors capital alliance , llc – incorporated by reference to exhibit 4.5 of the company 's registration statement on form s-1 ( filed 5/19/16 ) ( no . 333-209451 ) . 4.4 amendment no . 2 to warrant agreement of sensus healthcare , llc , dated as of april 30 , 2016 , by and between sensus healthcare , inc. and investors capital alliance , llc – incorporated by reference to exhibit 4.6 of the registrants form s-1/a ( filed 5/19/16 ) ( no . 333-209451 ) . 4.5 amendment no . 3 to warrant agreement of sensus healthcare , llc , dated as of may 27 , 2016 , by and between sensus healthcare , inc. and investors capital alliance , llc – incorporated by reference to exhibit 4.2 of the company 's quarterly report on form 10-q ( filed 8/15/16 ) ( no . 001-37714 ) . 4.6 form of warrant agreement of sensus healthcare , llc , dated as of february 1 , 2013 , by and between sensus healthcare , llc and certain investors – incorporated by reference to exhibit 4.4 of the company 's registration statement story_separator_special_tag you should read the following management 's discussion and analysis ( “ md & a ” ) in conjunction with the information set forth within the financial statements and related notes included in this annual report on form 10-k. the following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition , and how our performance during 2016 compares with the prior year . throughout this section , sensus healthcare , inc. is referred to as “ company , ” “ we , ” “ us , ” or “ our. ” caution concerning forward-looking statements this annual report on form 10-k , including this md & a section , contains “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. these forward-looking statements include , among others , statements about our beliefs , plans , objectives , goals , expectations , estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors , many of which are beyond our control . the words “ may , ” “ could , ” “ should , ” “ would , ” “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” “ target , ” “ goal , ” and similar expressions are intended to identify forward-looking statements . all forward-looking statements , by their nature , are subject to risks and uncertainties . our actual future results may differ materially from those set forth in our forward-looking statements . please see the introductory note and item 1a risk factors of this annual report for a discussion of factors that could cause our actual results to differ materially from those in the forward-looking statements . however , other factors besides those listed in item 1a risk factors or discussed in this annual report also could adversely affect our results , and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties . any forward-looking statements made by us or on our behalf speak only as of the date they are made . we do not undertake to update any forward-looking statement , except as required by applicable law . components of our results of operations we manage our business globally within one reportable segment , which is consistent with how our management reviews our business , prioritizes investment and resource allocation decisions and assesses operating performance . revenue our sales primarily relate to sales of our devices . we recognize product revenue upon shipment provided that there is persuasive evidence of an arrangement , there are no uncertainties regarding customer acceptance , the sales price is fixed and determinable , and collection of the resulting receivable is reasonably assured . we do not provide a right of return related to product sales . revenues for service contracts are recognized over the service contract period on a straight-line basis . story_separator_special_tag inflation inflation has not had a material impact on net sales , revenues or income from continuing operations for our two most recent years as a result of historically low levels of inflation . significant trends and uncertainties impacting our business many third party payors follow coverage decisions and payment amounts determined by the centers for medicare and medicaid services , or cms , which administers the u.s. medicare program , in setting their coverage and reimbursement policies . effective january 1 , 2015 and 2016 , the total reimbursement for an episode of care remained similar to the reimbursement in prior years . story_separator_special_tag style= '' font-family : times new roman , times , serif '' > payment of accumulated dividends to our former preferred stockholders . we regularly evaluate our cash requirements for current operations , commitments , capital requirements and business development transactions , and we may elect to raise additional funds for these purposes in the future . as of december 31 , 2016 , we had approximately $ 11.5 million in cash , cash equivalents and short-term corporate bonds as well as a $ 3.0 million line of credit which serve as a source of liquidity for our cash needs . cash flows the following table provides a summary of our cash flows for the periods indicated : replace_table_token_3_th cash flows from operating activities net cash used in operating activities was $ 851,024 for the year ended december 31 , 2016 , consisting of a net loss of $ 346,448 and an increase in net operating assets of $ 1,601,413 , offset by non-cash charges of $ 1,096,837. the increase in net operating assets was primarily due to the increase in sales resulting in an increase in accounts receivable as well as an increase in inventory and prepaid expenses and an increase in account payable and accrued expenses . non-cash charges consisted primarily of stock compensation expense and depreciation and amortization . net cash used in operating activities was $ 1,339,343 for the year ended december 31 , 2015 , was primarily due to the net loss $ 237,267 , the increase in accounts receivable for $ 1,663,980 , less an increase in accounts payable for $ 1,226,425. cash flows from investing activities net cash used in investing activities was $ 7,852,140 due to the purchase of debt securities held-to-maturity for $ 7,566,142 and $ 285,998 for acquisition of property and equipment during the year ended december 31 , 2016. cash was used in investing activities for $ 196,190 for the year ended december 31 , 2015 for acquisition of property and equipment . 41 cash flows from financing activities net cash provided by financing activities was $ 8,680,573 during the year ended december 31 , 2016 , of which $ 10,523,440 was the net proceeds of the ipo , $ 1,132,538 from the exercise of warrants , less $ 2,552,701 used for the payment of dividends to former preferred investors and $ 422,702 used for the repayment of outstanding borrowing under the line of credit . net cash provided by financing activities was $ 2,061,888 during the year ended december 31 , 2015 mostly from issuance of common stock in a private placement . indebtedness on march 12 , 2013 , we entered into a two-year $ 3.0 million revolving credit facility with silicon valley bank . the credit facility was amended and extended effective march 12 , 2015 through may 12 , 2017. the maximum borrowing was reduced to $ 1.5 million and was limited by our eligible borrowing base of 80 % of eligible accounts receivable . on september 21 , 2016 , a second amendment to the credit facility extended the facility through september 21 , 2017 , increased the maximum borrowing to $ 2.0 million and expanded the eligible accounts receivables to include certain international receivables . interest , at prime plus 0.75 % ( 4.50 % at december 31 , 2016 ) , is payable monthly with outstanding principal and interest due on the maturity date . the facility is secured by all of our assets and limits the amount of additional indebtedness , restricts the sale , disposition or transfer of assets of the company and requires the maintenance of a certain monthly adjusted quick ratio restrictive covenant and minimum quarterly ebitda restrictive covenant , as defined in the agreement . approximately $ 423,000 was outstanding under the revolving credit facility at december 31 , 2015 and $ 0 at december 31 , 2016. we pay commitment fees of 0.25 % per annum on the average unused portion of the line of credit . contractual obligations and commitments our only long-term contractual commitment is the lease of our office space in boca raton , florida . in july 2016 , we renewed our lease and expanded our office space from 4,551 to 8,028 square feet . the lease expires in september 2022 and lease payments increase by 3 % annually . future minimum lease payments as of december 31 , 2016 are as follows : replace_table_token_4_th off-balance sheet arrangements we did not have during the periods presented , and do not currently have , any off-balance sheet arrangements . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the u.s. , or gaap . we have identified certain accounting policies as critical to understanding our financial condition and results of our operations . for a detailed discussion on the application of these and other accounting policies , see the notes to our financial statements included in this annual report on form 10-k. 42 jobs act we qualify as an “ emerging growth company ” pursuant to the provisions of the jobs act . for as long as we are an “ emerging growth company , ” we may take advantage of
| results of operations replace_table_token_2_th 39 year ended december 31 , 2016 compared to the year ended december 31 , 2015 total revenue . total revenue was $ 14,811,175 for the year ended december 31 , 2016 compared to $ 10,273,094 for the year ended december 31 , 2015 , an increase of $ 4,538,081 , or 44.2 % . the growth in revenue was attributable to an increase in the volume of systems sold as well as a higher percentage of sales of the higher priced srt-100 vision product in the current year , which has a higher average selling price . total cost of sales . cost of sales was $ 4,965,372 for the year ended december 31 , 2016 compared to $ 3,692,829 for the year ended december 31 , 2015 , an increase of $ 1,272,543 , or 34.5 % . the increase in cost was due to a greater number of systems sold during the year ended december 31 , 2016 compared to the corresponding period in 2015. gross profit . gross profit was $ 9,845,803 for the year ended december 31 , 2016 compared to $ 6,580,265 for the year ended december 31 , 2015 , an increase of $ 3,265,538 or 49.6 % , for the reasons discussed above . our overall gross profit margin was 66.5 % in the year ended december 31 , 2016 compared to 64.1 % in the corresponding period in 2015 due to increased sales of the higher margin vision product . selling and marketing . selling and marketing expense was $ 4,915,440 for the year ended december 31 , 2016 compared to $ 3,748,391 for the year ended december 31 , 2015 , an increase of $ 1,167,049 or 31.1 % . the increase was primarily attributable to an increase in sales personnel as well as increased advertising and other marketing expenses . selling and marketing expense is expected to increase in 2017 as we continue to increase the size of our direct sales force .
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note 15 disclosures about fair value of financial instruments the company is party to story_separator_special_tag the following discussion and analysis provides information about the financial condition and results of operations of the company for the years ended december 31 , 2014 , 2013 and 2012. this discussion and analysis should be read in conjunction with the company 's consolidated financial statements and accompanying notes and other selected financial data presented elsewhere in this report . executive overview cass provides payment and information processing services to large manufacturing , distribution and retail enterprises from its offices/locations in st. louis , missouri , columbus , ohio , boston , massachusetts , greenville , south carolina , wellington , kansas , jacksonville , florida , and breda , netherlands . the company 's services include freight invoice rating , payment processing , auditing , and the generation of accounting and transportation information . cass also processes and pays energy invoices , which include electricity and gas as well as waste and telecommunications expenses , and is a provider of telecom expense management solutions . cass extracts , stores , and presents information from freight , energy , telecommunication and environmental invoices , assisting its customers ' transportation , energy , environmental and information technology managers in making decisions that will enable them to improve operating performance . the company receives data from multiple sources , electronic and otherwise , and processes the data to accomplish the specific operating requirements of its customers . it then provides the data in a central repository for access and archiving . the data is finally transformed into information through the company 's databases that allow client interaction as required and provide internet-based tools for analytical processing . the company also , through cass commercial bank , its st. louis , missouri-based bank subsidiary , provides banking services in the st. louis metropolitan area , orange county , california , colorado springs , colorado , and other selected cities in the united states . in addition to supporting the company 's payment operations , the bank provides banking services to its target markets , which include privately-owned businesses and churches and church-related ministries . the specific payment and information processing services provided to each customer are developed individually to meet each customer 's requirements , which can vary greatly . in addition , the degree of automation such as electronic data interchange , imaging , work flow , and web-based solutions varies greatly among customers and industries . these factors combine so that pricing varies greatly among the customer base . in general , however , cass is compensated for its processing services through service fees and investment of account balances generated during the payment process . the amount , type , and calculation of service fees vary greatly by service offering , but generally follow the volume of transactions processed . interest income from the balances generated during the payment processing cycle is affected by the amount of time cass holds the funds prior to payment and the dollar volume processed . both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management . other factors will also influence revenue and profitability , such as changes in the general level of interest rates , which have a significant effect on net interest income . the funds generated by these processing activities are invested in overnight investments , investment grade securities , and loans generated by the bank . the bank earns most of its revenue from net interest income , or the difference between the interest earned on its loans and investments and the interest paid on its deposits and other borrowings . the bank also assesses fees on other services such as cash management services . industry-wide factors that impact the company include the willingness of large corporations to outsource key business functions such as freight , energy , telecommunication and environmental payment and audit . the benefits that can be achieved by outsourcing transaction processing , and the management information generated by cass ' systems can be influenced by factors such as the competitive pressures within industries to improve profitability , the general level of transportation costs , deregulation of energy costs , and consolidation of telecommunication providers . economic factors that impact the company include the general level of economic activity that can affect the volume and size of invoices processed , the ability to hire and retain qualified staff , and the growth and quality of the loan portfolio . the general level of interest rates also has a significant effect on the revenue of the company . as discussed in greater detail in item 7a , quantitative and qualitative disclosures about market risk , a decline in the general level of interest rates can have a negative impact on net interest income . 15 table of contents on january 6 , 2012 , the company acquired the assets of waste reduction consultants , inc. , a provider of environmental expense management services . this acquisition positions the company to expand its portfolio of services for controlling facility-related expenses and accelerates cass ' leadership position as a back-office business processor . the results of operations for this new service are included in the information services business segment . in 2014 , total fee revenue and other income increased $ 3,335,000 , or 4 % , net interest income after provision for loan losses decreased $ 946,000 , or 2 % , and total operating expenses increased $ 1,328,000 , or 2 % . these results were driven by a 3,344,000 , or 7 % , increase in items processed and $ 3,382,792,000 , or 10 % , increase in dollars processed in 2014. this positive performance in 2014 was mainly attributed to a large number of new customers in the transportation expense management operation , driven by both successful marketing efforts and the solid market leadership position held by cass . story_separator_special_tag this positive performance in 2014 was mainly attributed to a large number of new customers in the transportation expense management operation , driven by both successful marketing efforts and the solid market leadership position held by cass . conversely , performance in the facility expense management operation was hampered , despite a high number of new customer wins , as competitor consolidation in the energy sector continued to impair customer retention . net interest income after provision for loan losses decreased $ 946,000 , or 2 % , due to the decrease in the net interest margin on a tax equivalent basis from 3.63 % in 2013 to 3.43 % in 2014. the increase in average earning assets was the result of increases in accounts and drafts payable and deposits . gains from the sale of securities were $ 23,000 in 2014 and $ 4,024,000 in 2013. bank service fees were down $ 83,000 , or 7 % , and other income was up $ 797,000. operating expenses increased $ 1,328,000 , or 2 % , primarily due to salary and technology expense increases . the results of 2013 compared to 2012 include the following significant items : payment and processing fee revenue increased as the number of transactions processed increased . this increase was due to increased activity from new customers . net interest income after provision for loan losses decreased $ 2,140,000 , or 5 % , due to the decrease in the net interest margin on a tax equivalent basis from 4.00 % in 2012 to 3.63 % in 2013. the decrease in average earning assets was the result of a decrease in accounts and drafts payable , partially offset by an increase in deposits . gains from the sale of securities were $ 4,024,000 in 2013 and $ 2,635,000 in 2012. bank service fees were down $ 57,000 , or 4 % , and other income was approximately the same as last year . operating expenses increased $ 3,753,000 , or 5 % , primarily in the area of salaries and benefits resulting from the increase in business volume . 17 fee revenue and other income the company 's fee revenue is derived mainly from transportation and facility payment and processing fees . as the company provides its processing and payment services , it is compensated by service fees which are typically calculated on a per-item basis and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income . processing volumes , fee revenue and other income were as follows : replace_table_token_6_th * includes energy , telecom and environmental fee revenue and other income in 2014 compared to 2013 include the following significant pre-tax components : transportation transaction volume increased 7 % during the year , primarily due to increased activity from new customers . expense management transaction volume increased 6 % . overall , revenues for the year were up primarily due to new business in the transportation sector . gains on sales of investment securities were down significantly because the company held on to its investments . fee revenue and other income in 2013 compared to 2012 include the following significant pre-tax components : transportation transaction volume increased 11 % during the past year , primarily due to increased activity from new customers . expense management transaction volume increased 7 % . overall , revenues for the year were up primarily due to new business in the transportation sector . gains on sales of investment securities were up significantly as the company took advantage of market gains . net interest income net interest income is the difference between interest earned on loans , investments , and other earning assets and interest expense on deposits and other interest-bearing liabilities . net interest income is a significant source of the company 's revenues . the following table summarizes the changes in tax-equivalent net interest income and related factors : replace_table_token_7_th * presented on a tax-equivalent basis using a tax rate of 35 % in all years . net interest income in 2014 compared to 2013 : the decrease in net interest income was caused by a decrease in net interest margin . the decrease in net interest margin was due to the lack of satisfactory investment alternatives in this historically low interest rate environment . more information is contained in the tables below and in item 7a of this report . total average loans increased $ 4,402,000 , or less than 1 % , to $ 663,824,000. loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the company 's highest yielding earning assets for any given maturity . total average investment in securities increased $ 26,990,000 , or 9 % . the investment portfolio will expand and contract over time as the company manages its liquidity and interest rate position . all purchases were made in accordance with the company 's investment policy . interest bearing deposits in other financial institutions increased $ 14,591,000 , or 12 % . total average federal funds sold and other short-term investments decreased $ 2,144,000 , or 2 % . the bank 's total average interest-bearing deposits increased $ 11,019,000 , or 3 % , compared to the prior year . average rates paid on interest-bearing liabilities decreased from .69 % to .58 % as a result of the continued low interest rate environment . 18 table of contents net interest income in 2013 compared to 2012 : the decrease in net interest income was caused by a decrease in net interest margin . the decrease in net interest margin was due to the lack of satisfactory investment alternatives in this historically low interest rate environment . more information is contained in the tables below and in item 7a of this report .
| summary of loan loss experience replace_table_token_12_th 1 although specific allocations exist , the entire allowance is available to absorb losses in any particular loan category . 2 includes unallocated of $ 767,000 and $ 822,000 in 2014 and 2013 , respectively . 22 table of contents nonperforming assets nonperforming loans are defined as loans on non-accrual status and loans 90 days or more past due but still accruing . nonperforming assets include nonperforming loans plus foreclosed real estate . troubled debt restructurings are not included in nonperforming loans unless they are on non-accrual status or past due 90 days or more . it is the policy of the company to continually monitor its loan portfolio and to discontinue the accrual of interest on any loan for which collection is not probable . subsequent payments received on such loans are applied to principal if collection of principal is not probable ; otherwise , these receipts are recorded as interest income . interest on nonaccrual loans , which would have been recorded under the original terms of the loans , was approximately $ 108,000 and $ 180,000 for the years ended december 31 , 2014 and 2013 , respectively . of this amount , approximately $ 77,000 and $ 131,000 was actually recorded as interest income on such loans during the years ended december 31 , 2014 and 2013 , respectively . total nonaccrual loans at december 31 , 2014 consists of two loans totaling $ 488,000 that relate to businesses/churches that have weak financial positions and or are in liquidation . allocations of the allowance for loan losses have been established for the estimated loss exposure . there were no foreclosed assets at december 31 , 2014 and december 31 , 2013. the company does not have any foreign loans . the company 's loan portfolio does not include a significant amount of single family real estate mortgages , as the company does not market its services to retail customers .
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as consideration for the inclusion of sage-689 in the license granted by cydex , the company paid to cydex $ story_separator_special_tag f financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. 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 anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . “ risk factors ” and under “ forward-looking statements ” in this annual report on form 10-k. we caution readers not to place undue reliance on any forward-looking statements made by us , which speak only as of the date they are made . we disclaim any obligation , except as specifically required by law and the rules of the securities and exchange commission , or sec , to publicly update or revise any such statements to reflect any change in our expectations or in events , conditions or circumstances on which any such statements may be based , or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements . we are a clinical-stage biopharmaceutical company committed to developing and commercializing novel medicines to treat life-altering central nervous system , or cns , disorders , where there are no approved therapies or existing therapies are inadequate . we have a portfolio of product candidates with a current focus on modulating two critical cns receptor systems , gaba and nmda . the gaba receptor family , which is recognized as the major inhibitory neurotransmitter in the cns , mediates downstream neurologic and bodily function via activation of gaba a receptors . the nmda-type receptors of the glutamate receptor system are a major excitatory receptor system in the cns . dysfunction in these systems is implicated in a broad range of cns disorders . we are targeting cns indications where patient populations are easily identified , clinical endpoints are well-defined , and development pathways are feasible . the following table summarizes the status of our development programs as of the date of this annual report . our lead product candidate , brexanolone ( usan ) for intravenous , or iv , use , is a proprietary formulation of allopregnanolone , a naturally occurring neuroactive steroid that acts as a positive allosteric modulator of gaba a receptors . we are developing brexanolone iv as a treatment for postpartum depression , or ppd . ppd is a common biological complication of childbirth , and is characterized by significant depressive symptoms that typically commence during the third trimester of pregnancy or in the months following childbirth . in november 2017 , we announced positive results from two blinded , placebo-controlled phase 3 clinical trials of brexanolone iv in ppd . we anticipate filing a new drug application , or nda , with the united states food and drug administration , or fda , in the first half of 2018 seeking approval to market and sell brexanolone iv as a treatment for ppd . our most advanced next-generation product candidate is sage-217 , a novel neuroactive steroid that , like brexanolone , is a positive allosteric modulator of gaba a receptors , targeting both synaptic and extrasynaptic gaba a receptors . we are currently developing sage-217 as a potential treatment for major depressive disorder , or mdd , bipolar 70 depression , ppd , parkinson 's disease and sleep disorders . in the fourth quarter of 2017 , we announced positive results from a blinded , placebo-controlled phase 2 clinical trial of sage-217 in the treatment of mdd . the fda has granted breakthrough therapy designation to sage-217 in the treatment of mdd . we expect to initiate additional clinical trials of sage-217 in mdd , and to commence initial clinical development of sage-217 in bipolar depression , in 2018. we are also currently conducting a blinded , placebo-controlled phase 2 clinical trial of sage-217 in ppd , and anticipat e reporting top-line results from this trial in the fourth quarter of 2018. in addition , we continue to advance our sage-217 development efforts in indications beyond our mood disorder program . in 2017 , we completed two open-label clinical trials of sage -217 in parkinson 's disease . based on the results of these trials , we expect to initiate a placebo-controlled phase 2 clinical trial of sage-217 in parkinson 's disease patients with residual tremor in 2018. in early 2018 , we also completed a placebo-contr olled , exploratory clinical trial studying the impact of sage-217 on sleep in healthy volunteers using a 5-hour phase advance model of insomnia . based on the results of this trial , we plan to initiate clinical development of sage-217 in sleep disorders in 2018. we may also explore the development of sage-217 in other indications . in addition to sage-217 , we have a portfolio of other novel compounds that target gaba a receptors , including sage-324 and sage-689 which are at earlier stages of development wit h a focus on both acute and chronic cns disorders . our second area of focus is the development of novel compounds that target the nmda receptor . the first product candidate selected for development from this program is sage-718 , an oxysterol-based positive allosteric modulator of the nmda receptor . our initial areas of focus for development of sage-718 will be indications involving nmda receptor hypofunction . examples of these potential areas for future evaluation include certain types , aspects or subpopulations of a number of diseases such as depression , alzheimer 's disease , attention deficit hyperactivity disorder , schizophrenia , huntington 's disease , and neuropathic pain . story_separator_special_tag research and development expenses consist primarily of : personnel costs , including salaries , benefits , stock-based compensation and travel expenses , for employees engaged in research and development functions ; expenses incurred under agreements with contract research organizations , or cros , and sites that conduct our non-clinical studies and clinical trials ; expenses associated with manufacturing materials for use in clinical trials and developing external manufacturing capabilities ; costs of outside consultants engaged in research and development activities , including their fees , stock-based compensation and travel expenses ; other expenses related to our non-clinical studies and clinical trials and expenses related to our regulatory activities ; and payments made under our third-party license agreements . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . we have been developing our product candidates and focusing on other research and development programs , including exploratory efforts to identify new compounds , target validation for identified compounds and lead optimization for our earlier-validated programs . our direct research and development expenses are tracked on a program-by-program basis , and consist primarily of external costs , such as fees paid to investigators , central laboratories , cros and contract manufacturing organizations , or cmos , in connection with our non-clinical studies and clinical trials ; third-party license fees related to our product candidates ; and fees paid to outside consultants who perform work on our programs . we do not allocate employee-related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and , as such , are separately classified as unallocated research and development expenses . research and development activities are central to our business . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we continue or initiate clinical trials and non-clinical studies for certain product candidates , and pursue later stages of clinical development of our product candidates . we can not determine with certainty the duration and costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any of our product candidates , if approved for marketing and sale . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , size , rate of progress , and expense of our ongoing as well as any additional clinical trials , non-clinical studies , and other research and development activities ; future clinical trial and non-clinical study results ; decisions by regulatory authorities related to our product candidates ; uncertainties in clinical trial enrollment rate or design ; significant and changing government regulation ; and the receipt and timing of regulatory approvals , if any . 73 a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials or need to enroll ad ditional patients , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of personnel costs , including salaries , benefits , stock-based compensation and travel expenses , for our executive , finance , business , commercial , corporate development and other administrative functions . general and administrative expenses also include expenses incurred under agreements with third parties relating to evaluation , planning and preparation for a potential commercial launch ; facilities and other related expenses , including rent , depreciation , maintenance of facilities , insurance and supplies ; and professional fees for audit , tax and legal services , including legal expenses to pursue patent protection of our intellectual property . we anticipate that our general and administrative expenses , including payroll and related expenses , will increase in the future as we continue to increase our headcount to support the expected growth in our business , expand our operations and organizational capabilities and prepare for the potential commercialization of brexanolone iv , if approved , and our other product candidates , if successfully developed . we also anticipate increased expenses associated with general operations , including costs related to audit , tax and legal services , director and officer insurance premiums , and investor relations costs . critical accounting policies and significant judgments and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets , liabilities , revenue , costs and expenses , and related disclosures . we believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and , therefore , consider these to be our critical accounting policies . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions .
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_6_th 76 research and development expenses replace_table_token_7_th research and development expenses for the year ended december 31 , 2017 were $ 210.3 million , compared to $ 120.8 million for the year ended december 31 , 2016. the increase of $ 89.5 million was primarily due to the following : an increase of $ 25.6 million in expenses related to our brexanolone program , due to the continued advancement of the program in clinical development , including conduct of the phase 3 clinical trials in srse and the phase 3 clinical trials in ppd ; conduct of supporting clinical pharmacology studies ; an increase in chemistry , manufacturing and control , or cmc , work in preparation for a potential filing for regulatory approval ; and an estimate of future remaining costs for the close-out of the phase 3 clinical trial in srse . no expenses related to payments to consultants and licensors upon achievement of certain clinical development milestones were incurred in the year ended december 31 , 2017. expenses related to payments to consultants and licensors upon achievement of certain clinical development milestones were $ 0.8 million for the year ended december 31 , 2016 ; an increase of $ 25.7 million in expenses related to conduct of our phase 2 clinical trials of sage-217 in mdd , essential tremor , parkinson 's disease and ppd , conduct of supporting clinical pharmacology studies and production of clinical supply to support these clinical trials ; a decrease of $ 0.8 million in expenses related to conduct of our phase 1 clinical trial of sage-718 due to the timing of certain activities ; an increase of $ 4.0 million in expenses related to research and development programs and discovery efforts focused on
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the company 's three reportable segments are the flavors & fragrances group and the color group , which are managed on a product-and-services basis , and the asia pacific group , which is managed on a geographic basis . the company 's corporate expenses and restructuring and other costs are included in the “ corporate & other ” category . the company 's 2016 diluted earnings per share from continuing operations were $ 2.74 in 2016 and $ 2.32 in 2015. included in the 2016 and 2015 results , were $ 26.1 million and $ 43.6 million , respectively , of restructuring and other costs , or 47 cents per share and 73 cents per share , respectively . adjusted diluted earnings per share , which exclude these restructuring and other costs , were $ 3.21 in 2016 and $ 3.05 in 2015 ( see discussion below regarding non-gaap financial measures and the company 's restructuring activities and divestiture ) . the company 's net cash provided by operating activities was $ 222.5 million in 2016 , an increase from the $ 128.0 million reported in 2015. the company 's total debt decreased to $ 603 million as of december 31 , 2016 , from $ 634.2 million as of december 31 , 2015. since 1962 , the company has continued without interruption to pay a quarterly cash dividend . in 2016 , the company increased the quarterly dividend by 3 cents per share from 27 cents to 30 cents per share , or $ 1.20 per share on an annualized basis . in addition , the company repurchased $ 50.1 million of company stock in 2016 , which is in addition to the $ 176.6 million repurchased in 2015. additional information on the results is included below . story_separator_special_tag held for sale of land , buildings and equipment of $ 7.2 million related to the 2014 restructuring plan . in addition , $ 19.5 million of inventory , receivables and other assets are included in assets held for sale related to the anticipated sale of the european natural ingredients business . the company also has $ 3.8 million of liabilities held for sale related to the anticipated sale of the european natural ingredients business . the company recorded total restructuring costs of $ 11.1 million , $ 42.8 million and $ 98.4 million in the years ended december 31 , 2016 , 2015 and 2014 , respectively , in accordance with gaap and based on an internal review of the affected facilities and consultation with legal and other advisors . since initiating the 2014 restructuring plan , the company has incurred $ 95 million of non-cash related restructuring costs and $ 57 million of cash related restructuring costs for a total of $ 152 million of restructuring costs through december 31 , 2016. the company expects to incur approximately $ 20 million of additional non-cash related restructuring costs and $ 2 million of additional cash related restructuring costs for a total of $ 22 million of additional restructuring costs , by the end of 2017 . 18 index the company expects that the closure and sale of these operations will significantly lower the company 's operating costs over the next few years . upon initiating the plan , the company estimated the annual cost reductions to be approximately $ 30 million , when fully implemented . the u.s. dollar has strengthened considerably since the initiation of the plan , and as a result the dollar value of the cost savings has been reduced . in 2015 , the company identified additional cost savings opportunities , and as a result of these actions , the current estimate of annual cost savings is approximately $ 27 million . the company has also implemented price increases to further mitigate the impact of foreign currency movements . since initiating the plan , the company has realized total savings of approximately $ 22 million as of december 31 , 2016 , of which $ 9.1 million was recognized in 2016. the remaining savings are expected to be realized in 2017. the company intends to continue to optimize production at the consolidating sites after the completion of the restructuring activities . in connection with the 2014 restructuring plan , the company approved a plan to dispose of a certain business , located near leipzig , germany , within the color segment . production ceased in 2014 and the business met the criteria to be reported as a discontinued operation . in 2016 , the facility and remaining assets were sold for a gain of $ 0.2 million . in addition , the entity was liquidated resulting in a reclassification of the cumulative translation adjustment related to that entity of $ 3.3 million into net earnings . divestiture in 2016 , the board of directors authorized management to explore strategic alternatives for a production facility and certain related business lines within the flavors & fragrances segment in strasbourg , france . as of december 31 , 2016 , the company has recorded assets held for sale of inventory and other assets of $ 14.8 million and $ 1.5 million of liabilities held for sale related to the sale . in addition , the company recorded a non-cash impairment charge of $ 10.8 million during 2016 , in selling and administrative expense , reducing the carrying value of the long-lived assets for this facility to zero . an estimate of the fair value of this business less cost to sell was determined to be lower than its carrying value . the difference between the fair value and its carrying value exceeded the existing net book value of the long-lived assets . in addition , the company incurred $ 0.7 million of outside professional fees and other related costs as a result of the then anticipated divestiture . on january 6 , 2017 , the company completed the sale of this facility and certain related business lines for approximately $ 12.5 million . story_separator_special_tag the lower operating income in latin america was primarily due to higher raw material costs ( $ 2.6 million ) , higher manufacturing and other costs ( $ 1.9 million ) and the unfavorable impact of exchange rates ( $ 1.2 million ) partially offset by higher selling prices ( $ 2.6 million ) and volume and product mix ( $ 2.3 million ) . segment operating margin increased 60 basis points in 2016 to 15.5 % from 14.9 % in 2015. color revenue for the color segment was $ 502.1 million in 2016 , and $ 480.0 million in 2015 , an increase of 4.6 % . foreign exchange rates reduced segment revenue by 2.9 % in 2016. the increase in revenue was primarily due to higher revenue in non-food colors ( $ 22.0 million ) and food and beverage colors ( $ 0.2 million ) . the higher revenue in non-food colors was primarily due to higher volumes ( $ 27.5 million ) , primarily in cosmetic colors and specialty inks , partially offset by the unfavorable impact of exchange rates ( $ 3.7 million ) and lower selling prices ( $ 1.9 million ) . the higher revenue in food and beverage colors was primarily due to higher selling prices ( $ 8.8 million ) and volumes ( $ 1.3 million ) partially offset by the impact of unfavorable exchange rates ( $ 10.0 million ) . gross margin for the color segment increased 140 basis points to 41.9 % in 2016 from 40.5 % in 2015. the increase was primarily due to higher volumes and product mix , selling prices and lower manufacturing costs partially offset by the unfavorable impact of exchange rates and higher raw material costs . segment operating income for the color segment was $ 104.8 million in 2016 and $ 96.6 million in 2015 , an increase of 8.5 % . foreign exchange rates reduced segment operating income by 2.5 % in 2016. the higher segment operating income was due to higher non-food colors ( $ 7.2 million ) and food and beverage colors ( $ 1.0 million ) . the higher operating income for non-food colors was primarily due to volume and product mix ( $ 14.3 million ) , partially offset by higher manufacturing and other costs ( $ 4.2 million ) , lower selling prices ( $ 1.9 million ) , higher raw material costs ( $ 0.6 million ) and the unfavorable impact of exchange rates ( $ 0.6 million ) . the higher profit for food and beverage colors is primarily due to higher selling prices ( $ 8.8 million ) , volume and product mix ( $ 2.8 million ) and savings associated with the 2014 restructuring plan ( $ 0.5 million ) , partially offset by higher raw material costs ( $ 4.8 million ) , manufacturing and other costs ( $ 4.6 million ) and the unfavorable impact of exchange rates ( $ 1.8 million ) . segment operating margin was 20.9 % in 2016 and 20.1 % in 2015 . 21 index asia pacific revenue for the asia pacific segment was $ 127.5 million in 2016 , and $ 116.7 million in 2015 , an increase of 9.3 % . foreign exchange rates reduced segment revenue by 1.3 % in 2016. the higher segment revenue was due to higher volumes ( $ 9.6 million ) and selling prices ( $ 2.9 million ) partially offset by the unfavorable impact of exchange rates ( $ 1.7 million ) . gross margin for the asia pacific segment decreased 10 basis points to 37.7 % in 2016 from 37.8 % in 2015. the decrease was primarily due to higher manufacturing costs and raw material costs partially offset by higher selling prices and volumes and product mix . segment operating income for the asia pacific segment was $ 25.2 million in 2016 and $ 23.7 million in 2015 , an increase of 6.2 % . foreign exchange rates reduced segment operating income by 1.9 % in 2016. the higher segment operating income was a result of volume and product mix ( $ 4.5 million ) and higher selling prices ( $ 2.9 million ) , partially offset by higher manufacturing and other costs ( $ 5.2 million ) , raw material costs ( $ 0.2 million ) and the unfavorable impact of exchange rates ( $ 0.5 million ) . segment operating margin was 19.7 % in 2016 and 20.3 % in 2015. corporate & other the corporate & other expenses were $ 67.9 million in 2016 and $ 75.8 million in 2015 , a decrease of 10.5 % , primarily due to lower restructuring and other costs ( $ 17.5 million ) partially offset by higher performance based executive compensation ( $ 7.6 million ) and professional services ( $ 3.5 million ) . the company evaluates segment performance before restructuring and other costs , and reports all of the restructuring and other costs in corporate & other . restructuring and other costs were $ 26.1 million and $ 43.6 million in 2016 and 2015 , respectively . results of continuing operations 2015 vs. 2014 revenue sensient 's revenue was $ 1.4 billion in both 2015 and 2014. the impact of foreign exchange rates reduced consolidated revenue by 7.4 % in 2015. gross profit the company 's gross margin was 33.0 % in 2015 and 33.7 % in 2014. included in the cost of products sold are $ 6.1 million and $ 1.9 million of restructuring costs for 2015 and 2014 , respectively . the decrease in the gross margin is primarily due to the lower volumes in the color segment 's specialty inks business and higher restructuring costs . restructuring costs reduced gross margin by 50 basis points and 20 basis points in 2015 and 2014 , respectively .
| results of continuing operations 2016 vs. 2015 revenue sensient 's revenue was approximately $ 1.4 billion in both 2016 and 2015. the impact of foreign exchange rates reduced consolidated revenue by 2 % in 2016. gross profit the company 's gross margin was 34.4 % in 2016 and 33.0 % in 2015. included in the cost of products sold are $ 2.1 million and $ 6.1 million of restructuring costs for 2016 and 2015 , respectively . the increase in the gross margin is primarily a result of higher selling prices and volumes , mainly in the color segment , savings associated with the 2014 restructuring plan ( $ 7.9 million ) and reduced restructuring costs , partially offset by higher raw material costs and manufacturing costs . restructuring costs reduced gross margin by 10 basis points and 50 basis points in 2016 and 2015 , respectively . selling and administrative expenses selling and administrative expense as a percent of revenue was 21.0 % in 2016 and 20.9 % in 2015. restructuring and other costs of $ 24.0 million and $ 37.5 million for 2016 and 2015 , respectively , were included in selling and administrative expense . selling and administrative expense as a percent of revenue in 2016 were comparable to 2015 as a result of higher performance based executive compensation ( $ 7.6 million ) and professional fees ( $ 6.2 million ) , partially offset by lower restructuring and other costs ( $ 13.5 million ) . restructuring and other costs increased selling and administrative expense as a percent of revenue by 180 basis points and 270 basis points in 2016 and 2015 , respectively . operating income operating income was $ 185.6 million in 2016 and $ 166.3 million in 2015. operating margins increased to 13.4 % in 2016 from 12.1 % in 2015. restructuring and other costs reduced operating margins by 190 basis points and 320 basis points in 2016 and 2015 , respectively .
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in connection with its acquisition of sococare , the company also borrowed $ 5.0 million under a term loan ( the “ term loan ” ) under the 2013 loan and security agreement in october 2013. monthly interest-only payments were due on the advance at the prime rate plus 1.50 % through september 2014. principal and interest payments are due in equal monthly installments from october 2014 through the maturity of the term loan in march 2017. as of december 31 , 2015 and 2014 , approximately $ 2.5 million and $ 4.5 million , respectively , in principal amount of this term loan was outstanding and is included as notes payable in the consolidated balance sheets . the 2013 loan and security agreement contains certain covenants , including the requirement that the company maintain $ 7.5 million of cash deposited with the lender for the term of the 2013 loan and security agreement . the company was in compliance with these covenants as of december 31 , 2015. the 2013 loan and security agreement remains senior to other debts , including the debt issued under the 2014 loan and security agreement discussed below . 2014 loan and security agreement the company had a term loan facility of $ story_separator_special_tag you should read the following discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report . overview we are a pioneer and leading provider of cloud software for contact centers , facilitating approximately three billion interactions between our more than 2,000 clients and their customers per year . we believe we achieved this leadership position through our expertise and technology , which has empowered us to help organizations of all sizes transition from legacy on-premise contact center systems to our cloud solution . our solution , which is comprised of our vcc cloud platform and applications , allows simultaneous management and optimization of customer interactions across voice , chat , email , web , social media and mobile channels , either directly or through our apis . our vcc cloud platform routes each customer interaction to an appropriate agent resource , and delivers relevant customer data to the agent in real-time to optimize the customer experience . unlike legacy on-premise contact center systems , our solution requires minimal up-front investment and can be rapidly deployed and adjusted depending on our client 's requirements . since founding our business in 2001 , we have focused exclusively on delivering cloud contact center software . we initially targeted smaller contact center opportunities with our telesales team and , over time , invested in expanding the breadth and depth of the functionality of our cloud platform to meet the evolving requirements of our clients . in 2009 , we made a strategic decision to expand our market opportunity to include larger contact centers . this decision drove further investments in research and development and the establishment of our field sales team to meet the requirements of these larger contact centers . we believe this shift has helped us diversify our client base while significantly enhancing our opportunity for future revenue growth . to complement these efforts , we have also focused on building client awareness and driving adoption of our solution through marketing activities , which include internet advertising , digital marketing campaigns , social marketing , trade shows , industry events and telemarketing . we provide our solution through a saas business model with recurring subscriptions . we offer a comprehensive suite of applications delivered on our vcc cloud platform that are designed to enable our clients to manage and optimize interactions across inbound and outbound contact centers . we primarily generate revenue by selling subscriptions and related usage of our vcc cloud platform . we charge our clients monthly subscription fees for access to our solution , primarily based on the number of agent seats , as well as the specific functionalities and applications our clients deploy . we define agent seats as the maximum number of named agents allowed to concurrently access our solution . our clients typically have more named agents than agent seats , and multiple named agents may use an agent seat , though not simultaneously . substantially all of our clients purchase both subscriptions and related telephony usage from us . a small percentage of our clients subscribe to our platform but purchase telephony usage directly from wholesale telecommunications service providers . we do not sell telephony usage on a stand-alone basis to any client . the related usage fees are based on the volume of minutes for inbound and outbound interactions . we also offer bundled plans , generally for smaller deployments , where the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and , in some cases , canada . we offer monthly , annual and multiple-year contracts to our clients , generally with 30 days ' 45 notice required for changes in the number of agent seats . our clients can use this notice period to rapidly adjust the number of agent seats used to meet their changing contact center volume needs , including to reduce the number of agent seats to zero . as a general matter , this means that a client can effectively terminate its agreement with us upon 30 days ' notice . our larger clients typically choose annual contracts , which generally include an implementation and ramp period of several months . fixed subscription fees , including bundled plans , are generally billed monthly in advance , while related usage fees are billed in arrears . for the years ended december 31 , 2015 , 2014 and 2013 , subscription and related usage fees accounted for 96 % , 97 % and 98 % of our revenue , respectively . the remainder was comprised of professional services revenue from the implementation and optimization of our solution . story_separator_special_tag ( 3 ) included in general and administrative expense . the $ 2.8 million represents a credit recorded in the second quarter of 2014 following a favorable ruling from a state 's revenue authority . the $ 2.0 million represents an expense recorded in the third quarter of 2014 for an accrued liability for the then tentative fcc civil penalty . see note 11 of the notes to the consolidated financial statements under item 8 of this form 10-k. ( 4 ) included in cost of revenue . the 2014 amount represents an immaterial out of period adjustment recorded in the fourth quarter of 2014 for 2008 through 2013 . ( 5 ) included in general and administrative expense . the 2015 amount represent immaterial out of period adjustments recorded in the first two quarters of 2015 for 2011 through 2014. the 2014 amount represents an out of period adjustment recorded in the fourth quarter of 2014 for 2008 through 2013 . 47 key components of our results of operations revenue our revenue consists of subscription and related usage as well as professional services . we consider our subscription and related usage to be recurring revenue . this recurring revenue includes fixed subscription fees for the delivery and support of our vcc cloud platform , as well as related usage fees . the related usage fees are based on the volume of minutes for inbound and outbound client interactions . we also offer bundled plans , generally for smaller deployments , where the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and , in some cases , canada . we offer monthly , annual and multiple-year contracts for our clients , generally with 30 days ' notice required for changes in the number of agent seats . our clients can use this notice period to rapidly adjust the number of agent seats used to meet their changing contact center volume needs , including to reduce the number of agent seats to zero . as a general matter , this means that a client can effectively terminate its agreement with us upon 30 days ' notice . fixed subscription fees , including plans with bundled usage , are generally billed monthly in advance , while variable usage fees are billed in arrears . fixed subscription fees are recognized on a straight-line basis over the applicable term , predominantly the monthly contractual billing period . support activities include technical assistance for our solution and upgrades and enhancements on a when and if available basis , which are not billed separately . variable subscription related usage fees for non-bundled plans are billed in arrears based on client-specific per minute rate plans and are recognized as actual usage occurs . we generally require advance deposits from clients based on estimated usage . all fees , except usage deposits , are non-refundable . in addition , we generate professional services revenue from assisting clients in implementing our solution and optimizing use . these services include application configuration , system integration and education and training services . professional services are primarily billed on a fixed-fee basis and are typically performed by us directly . in limited cases , our clients choose to perform these services themselves or engage their own third-party service providers to perform such services . professional services are recognized as the services are performed using the proportional performance method , with performance measured based on labor hours , provided all other criteria for revenue recognition are met . cost of revenue our cost of revenue consists primarily of personnel costs ( including stock-based compensation ) , fees that we pay to telecommunications providers for usage , usf contributions and other regulatory costs , depreciation and related expenses of the servers and equipment , costs to build out and maintain co-location data centers , and allocated office and facility costs and amortization of acquired technology . cost of revenue can fluctuate based on a number of factors , including the fees we pay to telecommunications providers , which vary depending on our clients ' usage of our vcc cloud platform , the timing of capital expenditures and related depreciation charges and changes in headcount . we expect to continue investing in our network infrastructure and operations and client support function to maintain high quality and availability of service . as our business grows , we expect to realize economies of scale in network infrastructure , personnel and client support . operating expenses we classify our operating expenses as research and development , sales and marketing and general and administrative expenses . research and development . our research and development expenses consist primarily of salary and related expenses ( including stock-based compensation ) for personnel related to the development of improvements and expanded features for our services , as well as quality assurance , testing , product management and allocated overhead . we expense research and development expenses as they are incurred except for internal use software development costs that qualify for capitalization . we believe that continued investment in our solution is important for our future growth , and we expect research and development expenses to increase in absolute dollars in the foreseeable future , although these expenses as a percentage of our revenue are expected to decrease over time . sales and marketing . sales and marketing expenses consist primarily of salaries and related expenses ( including stock-based compensation ) for employees in sales and marketing , sales commissions , as well as advertising , marketing , corporate communications , travel costs and allocated overhead . we expense the costs of sales commissions associated with the acquisition or renewal of client contracts as incurred in the period the contract is acquired or the renewal occurs . we believe it is important to continue investing in sales and marketing to continue 48 to generate revenue growth .
| results of operations for the years ended december 31 , 2015 , 2014 and 2013 based on the consolidated statements of operations and comprehensive loss set forth in this annual report , the following table sets forth our operating results as a percentage of revenue for the periods indicated : replace_table_token_8_th comparison of the years ended december 31 , 2015 and 2014 revenue year ended december 31 , 2015 2014 $ change % change ( in thousands , except percentages ) revenue $ 128,868 $ 103,102 $ 25,766 25 % the increase in revenue for 2015 compared to 2014 was primarily attributable to our larger clients , driven by an increase in our sales and marketing activities and our improved brand awareness . for the years ended december 31 , 2015 and 2014 , the majority of our revenues were from our larger clients . our average pricing remained relatively consistent between these periods . cost of revenue replace_table_token_9_th the increase in cost of revenue for 2015 compared to 2014 was primarily due to a $ 4.0 million increase in cash-based personnel costs driven by increased headcount , a $ 1.4 million increase in third party hosted software costs due to increased client activities , a $ 1.1 million increase in usf contributions and other federal telecommunication service fees primarily due to increased client usage , a $ 0.9 million increase in facility-related costs , and a $ 0.8 million increase in depreciation expenses due to additional investments in equipment to support 50 current and expected future client growth . these increases were offset in part by a $ 3.6 million decrease in telecommunication carrier costs relating to our clients ' long distance call usage due to improved usage efficiencies .
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it also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity 's equity instruments or that may be settled by the issuance of those equity instruments . we determine the value of stock issued at the date of grant . we also determine at the date of grant the value of stock at fair market value or the value of services rendered ( based on contract or otherwise ) whichever is more readily determinable . shares issued to employees are expensed upon issuance . stock based compensation for employees is account for using the stock based compensation topic of the fasb asc . we use the fair value method for equity instruments granted to employees and will use the black scholes model for measuring the fair value of options , if issued . the stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed ( measurement date ) and is recognized over the vesting periods . advertising costs - advertising costs incurred in the normal course of operations are expensed as incurred . research and development costs - research and development costs are charged to expense as incurred . new accounting pronouncements - in december 2011 , the financial accounting standards board , or fasb , issued accounting standards update , or asu , 2011-12 , deferral of the effective date for amendments to the presentation of reclassification of items out of accumulated other comprehensive income . in june 2011 , the fasb issued asu 2011-05 , comprehensive income : presentation of comprehensive income , which requires an entity to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . it eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders ' equity . asu 2011-05 does not change the items which must be reported in other comprehensive income , how such items are measured or when they must be reclassified to net income . asu 2011-12 only defers those changes in asu 2011-05 that relate to the presentation of reclassification adjustments . both asus are effective for interim and annual periods beginning after december 15 , 2011. our adoption of this asu is not expected to have a material impact on our consolidated financial statements . in september 2011 , the fasb issued asu no . 2011-08 , testing goodwill for impairment , which provides entities testing goodwill for impairment to now have an option of performing a qualitative assessment before having to calculate the fair value of a reporting unit . if an entity determines , on the basis of qualitative factors , that the fair value of the reporting unit is more-likely-than-not less than the carrying amount , the existing quantitative impairment test is required . otherwise , no further impairment testing is required . this asu is effective for fiscal years beginning after december 15 , 2011. our adoption of this asu is not expected to have a material impact on our consolidated financial statements . f-11 1. description of business , history and summary of significant policies ( continued ) in may 2011 , the fasb issued asu 2011-04 , fair value measurement : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss , which converges common fair value measurement and disclosure requirements in accordance with gaap and international financial reporting standards , or ifrs . this asu is effective for interim and annual periods beginning after december 15 , 2011. our adoption of this asu is not expected to have a material impact on our consolidated financial statements . in january 2010 , the fasb issued asu 2010-06 , improving disclosures about fair value measurements , which requires additional information in the roll-forward of level 3 assets and liabilities , including the presentation of purchases , sales , issuances and settlements on a gross basis . this asu impacts disclosures only . we adopted this asu in the first quarter of 2011 . 2. fixed assets fixed assets consist of the following : replace_table_token_7_th 3. intangible assets intangible assets consist of the following : replace_table_token_8_th intangible assets are amortized over their useful lives ranging from periods of 5 to 15 years . f-12 4. notes payable – related parties as of december 31,2011 as of december 31 , 2010 note payable due to a shareholder of the company , bearing interest at 8.5 % , renewable annually upon prepayment of one year 's interest , due on demand and unsecured . 501,000 501,000 note payable due to a director of the company and shareholder , bearing no interest , due on demand and unsecured . 21,000 21,000 note payable due to a director of the company and shareholder , bearing no interest , due on demand and unsecured . 16,000 16,000 $ 538,000 $ 538,000 5. convertible note payable convertible note payable as of december 31 , 2011 and 2010 consists of a $ 10,000 convertible promissory note to one individual . the note is past due ( march 2007 ) , accrues interest at 6 % per annum , and at the investors ' option until the repayment date may be converted to shares of the company 's common stock at a price of $ 1.00 per share . story_separator_special_tag if we are unable to convert our debts into equity , we may be forced to use any capital we raise to reduce our indebtedness instead of costs associated with expanding our business , which will slow our rate of expansion . during the fourth quarter of 2011 , we certified our newest card processing platform . our platform expansion has related primarily to the design and development of our processing systems and related software applications and card management platform . we expect to continue our practice of investing an appropriate level of resources to maintain , enhance and extend the functionality of our proprietary systems and existing software applications , to develop new and innovative software applications and systems in response to the needs of our customers , and to enhance the capabilities surrounding our infrastructure . in addition , we intend to offer products and services that are compatible with new and emerging delivery channels . as part of our platform expansion development process , we evaluate current and emerging technology for applicability to our existing and future software platform . to this end , we engage with various hardware and software vendors in evaluation of various infrastructure components . where appropriate , we use third-party technology components in the development of our software applications and service offerings . third-party software may be used for highly specialized business functions , which we may not be able to develop internally within time and budget constraints . our principal target markets for processing services include prepaid card issuers , retail and private-label issuers , small third-party processors , and small and mid-size financial institutions in the united states and in emerging international markets . to date , wehave focused on extensive development and limited sales activities in each of our target markets , as well as putting in place the infrastructure and processes to be able to scale the business successfully . historically , most of the company 's sales have resulted from prospects contacting us based on an online search . however , the company plans to devote more extensive resources to sales and marketing activities in the future . we sell our products directly to customers in the u.s. but may work with a small number of resellers and third parties in international markets to identify , sell and support targeted opportunities . story_separator_special_tag style= '' line-height : 1.25 ; text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > the following table sets forth the major sources and uses of cash for our last two fiscal years ended december 31 , 2010 and 2011 : replace_table_token_1_th comparison of fiscal 2011 and 2010 in fiscal 2011 and 2010 , we financed our operations primarily through internally generated funds . operating activities provided used $ 225,922 of cash in 2011 , as compared to $ 64,325 of cash in fiscal 2010. major non-cash items that affected our cash flow from operations in 2011 were non-cash charges of $ 43,508 for depreciation and amortization . our operating assets and liabilities used $ ( 33,707 ) of cash , most of which resulted from a decrease use in our accounts receivable of $ 394,567 , and a decrease in our payables and accrued liabilities of ( $ 424,304 ) . major non-cash items that affected our cash flow from operations in 2010 were non-cash charges of $ 109,115 for depreciation and amortization and impairment on intangible assets of $ 30,802. our operating assets and liabilities used ( $ 34,646 ) of cash , most of which resulted from an increase in our accounts receivable of $ 1,644,887 , and an increase in our payables and accrued liabilities of $ 1,581,733. investing activities used $ 199,310 of cash in 2011 , as compared to $ 2,988 of cash in 2010 , all of which related to platform expansion and the purchase of equipment used in our business . financing activities supplied ( used in ) $ 5,000 of cash in 2011 as compared to ( $ 22,026 ) of cash in 2010. substantially all of the cash used in financing activities both years was from the repayment of notes payable . liquidity and sources of financing in both 2011 and 2010 , our operations were focused on developing our pharmaceutical debit card , which were financed largely from notes issued in 2008. in 2010 , revenues from our pharmaceutical debit card had reached the point that we were able to operate at a breakeven level from operations . we believe that our available cash on hand at december 31 , 2011 of $ 63,826 and revenues anticipated for the remainder of 2012 will be sufficient to sustain our operations for the next twelve months , provided that we are not required to pay any material amount of our delinquent accounts payable , accrued interest or our current notes payable . we will seek to obtain additional capital during the next twelve months through an equity offering . we also plan to request that some of our creditors convert their debt into equity to improve our financial position . however , there is no assurance we will be able to obtain additional capital as required , or obtain the capital on acceptable terms and conditions . we plan to use the proceeds to finance our entry into other markets for our debit cards , and to repay indebtedness . our failure to obtain new capital will delay our entry into new markets , but will not jeopardize our ability to remain in business . 32 going concern our financial statements have been presented on the basis that we continue as a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . these factors create an uncertainty about our ability to continue as a going concern . the financial statements do not include any adjustments that
| results of operations fiscal years ended december 31 , 2011 and 2010 revenues for the year ended december 31 , 2011 were $ 3,300,213 , a decrease of $ 1,047,618 compared to the year ended december 31 , 2010 , when revenues were $ 4,347,831. the decrease in revenue is due to a decrease in processing of program cards compared to the prior year . program card load transactions for the year ended december 31 , 2011 approximated 925,000 compared to approximately 717,000 for the year ended december 31 , 2010. in particular , more pharmaceutical companies are beginning to recognize the substantial benefits of providing drug samples by means of debit card rather than distributing actual samples to doctors . see “ item 1. business – pharmaceutical sampling market – allegiancerx card. ” we expect our revenues for the short term to trend upward . while we continue to gain new pharmaceutical companies as clients , we have seen the average size of programs decline due to the economy . over the longer term , we expect our revenues to trend upward as the economy improves and as we roll out additional debit card products utilizing our processing platform . we also expect our revenues to increase in future periods as we increase our sales in markets other than pharmaceuticl debit cards . 30 cost of revenues for the year ended december 31 , 2011 were $ 2,403,125 , a decrease of $ 1,047,618 compared to the year ended december 31 , 2010 , when cost of revenues were $ 3,608,116. our cost of revenues have decreased primarily due to a decrease in transaction processing fees . cost of revenues constituted approximately 74 % and 83 % of total revenues in 2011 and 2010 , respectively .
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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 , 2018 , filed with the united states ( “ u.s. ” ) securities and exchange commission on february 19 , 2019. business transocean ltd. ( together with its subsidiaries and predecessors , unless the context requires otherwise , “ transocean , ” “ we , ” “ us ” or “ our ” ) is a leading international provider of offshore contract drilling services for oil and gas wells . as of february 12 , 2020 , we owned or had partial ownership interests in and operated 45 mobile offshore drilling units , including 28 ultra-deepwater floaters , 14 harsh environment floaters and three midwater floaters . as of february 12 , 2020 , we were constructing two ultra-deepwater drillships . we provide contract drilling services in a single , global operating segment , which involves contracting our mobile offshore drilling fleet , related equipment and work crews primarily on a dayrate basis to drill oil and gas wells . we specialize in technically demanding regions of the offshore drilling business with a particular focus on ultra-deepwater and harsh environment drilling services . our drilling fleet is one of the most versatile fleets in the world , consisting of drillships and semisubmersible floaters used in support of offshore drilling activities and offshore support services on a worldwide basis . our contract drilling services operations are geographically dispersed in oil and gas exploration and development areas throughout the world . although rigs can be moved from one region to another , the cost of moving rigs and the availability of rig-moving vessels may cause the supply and demand balance to fluctuate somewhat between regions . still , significant variations between regions do not tend to persist long term because of rig mobility . our fleet operates in a single , global market for the provision of contract drilling services . the location of our rigs and the allocation of resources to operate , build or upgrade our rigs are determined by the activities and needs of our customers . significant events debt issuances —on february 1 , 2019 , we issued $ 550 million aggregate principal amount of 6.875 % senior secured notes due february 2027 ( the “ 6.875 % senior secured notes ” ) , and we received $ 539 million aggregate cash proceeds , net of discount and issue costs . on may 24 , 2019 , we issued $ 525 million aggregate principal amount of 5.375 % senior secured notes due may 2023 ( the “ 5.375 % senior secured notes ” ) , and we received $ 517 million aggregate cash proceeds , net of discount and issue costs . on january 17 , 2020 , we issued $ 750 million aggregate principal amount of 8.00 % senior unsecured notes due february 2027 ( the “ 8.00 % senior notes ” ) , and we received $ 743 million aggregate cash proceeds , net of issue costs . see “ —liquidity and capital resources—sources and uses of liquidity. ” early debt retirement —during the year ended december 31 , 2019 , we completed cash tender offers to purchase certain notes ( the “ 2019 tendered notes ” ) . in the year ended december 31 , 2019 , we made an aggregate cash payment of $ 522 million to settle the validly tendered 2019 tendered notes and recognized a loss of $ 18 million associated with the retirement of debt . see “ —liquidity and capital resources—sources and uses of liquidity. ” during the year ended december 31 , 2019 , we repurchased in the open market $ 434 million aggregate principal amount of certain of our debt securities . we made an aggregate cash payment of $ 449 million and recognized an aggregate net loss of $ 23 million associated with the retirement of such debt . see “ —operating results ” and “ —liquidity and capital resources—sources and uses of liquidity. ” debt redemption —on january 17 , 2020 , we provided a notice to redeem in full our outstanding 9.00 % senior notes due july 2023 ( the “ 9.00 % senior notes ” ) , and on february 18 , 2020 , we made a payment of $ 767 million , including the make-whole provision , to redeem the notes and in the three months ending march 31 , 2020 , we expect to recognize a loss of approximately $ 66 million associated with the retirement of debt . see “ —liquidity and capital resources—sources and uses of liquidity. ” impairments —in the year ended december 31 , 2019 , we recognized an aggregate loss of $ 583 million primarily associated with the impairment of three ultra-deepwater floaters , along with related assets , which we determined were impaired at the time we classified the assets as held for sale . see “ —operating results. ” fleet expansion —we hold a 33.0 percent interest in orion holdings ( cayman ) limited ( together with its subsidiary , “ orion ” ) , the company that , through its wholly owned subsidiary , owns the harsh environment floater transocean norge . in august 2019 , orion completed construction of the rig and placed it into service . one of our subsidiaries operates the rig under a short-term bareboat charter to complete a six-well drilling contract for one of our customers . see “ —liquidity and capital resources—drilling fleet. ” - 26 - in october 2019 , we agreed with samsung heavy industries co. , ltd. ( “ shi ” ) to cancel the construction contracts for two ultra-deepwater drillships in exchange for the parties terminating their respective obligations and liabilities under the contracts and our subsidiaries releasing to shi their respective interests in the rigs . see “ —liquidity and capital resources—drilling fleet. story_separator_special_tag the average daily revenue for our fleet was as follows : replace_table_token_5_th our average daily revenue fluctuates relative to market conditions and our revenue efficiency . the average daily revenue may be affected by revenues for lump sum bonuses or demobilization fees received from our customers . our total fleet average daily revenue is also affected by the mix of rig classes being operated , as deepwater floaters , midwater floaters and high-specification jackups are typically contracted at lower dayrates compared to ultra-deepwater floaters and harsh environment floaters . we no longer operate deepwater floaters or high-specification jackups . we include newbuilds in the calculation when the rigs commence operations upon acceptance by the customer . we remove rigs from the calculation upon disposal or classification as held for sale , unless we continue to operate rigs subsequent to sale , in which case we remove the rigs at the time of completion or novation of the contract . - 28 - revenue efficiency —revenue efficiency is defined as actual contract drilling revenues , excluding revenues for contract terminations and reimbursements , for the measurement period divided by the maximum revenue calculated for the measurement period , expressed as a percentage . maximum revenue is defined as the greatest amount of contract drilling revenues , excluding revenues for contract terminations and reimbursements , the drilling unit could earn for the measurement period , excluding amounts related to incentive provisions . the revenue efficiency rates for our fleet were as follows : replace_table_token_6_th our revenue efficiency rate varies due to revenues earned under alternative contractual dayrates , such as a waiting-on-weather rate , repair rate , standby rate , force majeure rate or zero rate , that may apply under certain circumstances . our revenue efficiency rate is also affected by incentive performance bonuses or penalties . we include newbuilds in the calculation when the rigs commence operations upon acceptance by the customer . we exclude rigs that are not operating under contract , such as those that are stacked . rig utilization —rig utilization is defined as the total number of operating days divided by the total number of rig calendar days in the measurement period , expressed as a percentage . the rig utilization rates for our fleet were as follows : replace_table_token_7_th our rig utilization rate declines as a result of idle and stacked rigs and during shipyard and mobilization periods to the extent these rigs are not earning revenues . we include newbuilds in the calculation when the rigs commence operations upon acceptance by the customer . we remove rigs from the calculation upon disposal , classification as held for sale . accordingly , our rig utilization can increase when idle or stacked units are removed from our drilling fleet . - 29 - story_separator_special_tag positions and adjustments to our deferred taxes for operating structural changes made in the u.s. in the year ended december 31 , 2018 , such discrete items were primarily related to the u.s. transition tax on non-u.s. earnings . in the years ended december 31 , 2019 and 2018 , our effective tax rate , excluding discrete items , was ( 30.7 ) percent and ( 29.2 ) percent , respectively , based on loss before income tax expense . our effective tax rate decreased in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to the recognition of significant uncertain tax benefits , partially offset by increased tax expense related to the adoption of a new operating structure , which will reduce our exposure to the u.s. base erosion and anti-abuse tax and other cash taxes in the u.s. to a lesser extent , our effective tax rate decreased due to changes in the relative blend of income from operations in certain jurisdictions . due to factors related to our operating activities and organizational structure , our income tax expense does not change proportionally with our income before income taxes . significant decreases in our income before income taxes typically lead to higher effective tax rates , while significant increases in income before income taxes can lead to lower effective tax rates , subject to the other factors impacting income tax expense noted above . with respect to the effective tax rate calculation for the year ended december 31 , 2019 , a significant portion of our income tax expense was generated in countries in which income taxes are imposed on gross revenues , with the most significant of these countries being angola and india . conversely , the countries in which we incurred the most significant income taxes during this period that were based on income before income tax include the u.s. , switzerland , the united kingdom ( “ u.k. ” ) and norway . our rig operating structures further complicate our tax calculations , especially in instances where we have more than one operating structure for the taxing jurisdiction and , thus , more than one method of calculating taxes depending on the operating structure utilized by the rig under the contract . for example , two rigs operating in the same country could generate significantly different provisions for income taxes if they are owned by two different subsidiaries that are subject to differing tax laws and regulations in the respective country of incorporation . see notes to consolidated financial statements—note 12—income taxes . - 31 - liquidity and capital resources sources and uses of cash at december 31 , 2019 , we had $ 1.8 billion in unrestricted cash and cash equivalents and $ 558 million in restricted cash and cash equivalents . in the year ended december 31 , 2019 , our primary sources of cash were as follows : ( 1 ) net cash proceeds from the issuance of debt , ( 2 ) net cash provided by operating activities and ( 3 ) proceeds from maturities of short-term investments . our primary uses of cash were as follows : ( a ) repayments of debt , ( b ) capital expenditures and ( c ) investments in unconsolidated affiliates .
| operating results year ended december 31 , 2019 compared to the year ended december 31 , 2018 the following is an analysis of our operating results . see “ —performance and other key indicators ” for definitions of operating days , average daily revenue , revenue efficiency and rig utilization . replace_table_token_8_th “ nm ” means not meaningful . contract drilling revenues —contract drilling revenues increased for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to the following : ( a ) approximately $ 265 million resulting from operations acquired in the ocean rig udw inc. ( “ ocean rig ” ) , a cayman islands exempted company with limited liability and songa offshore se ( “ songa ” ) , a european public company limited by shares , or societas europaea , existing under the laws of cyprus acquisitions , ( b ) approximately $ 95 million resulting from the reactivation of two rigs , ( c ) approximately $ 65 million resulting from higher revenue efficiency and ( d ) approximately $ 65 million resulting from the operations of a newbuild ultra-deepwater drillship and a harsh environment semisubmersible placed into service in 2018 and 2019 , respectively . these increases were partially offset by the following : ( a ) approximately $ 190 million resulting from rigs sold or classified as held for sale , ( b ) approximately $ 125 million resulting from contract early terminations and cancellations recognized in the year ended december 31 , 2018 , ( c ) approximately $ 65 million resulting from reduced activity and ( d ) approximately $ 45 million resulting from lower dayrates .
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some of the risks that are foreseen by management are outlined above within item 1a. , “ risk factors ” . item 1a . constitutes an integral part of this report , and readers are strongly encouraged to review this section closely in conjunction with md & a . md & a basis of discussion - impact of divestiture in september 2015 , we sold our cyber-security business , marketed under the invotas brand , to certain former management personnel , resulting in a gain on the sale of $ 3.7 million , which is included in restructuring and reorganization charges in our 2015 income statement . the impact of invotas to our business prior to the divestiture date was not material . we retained a minority interest in the business such that the results of operations from the business are not included in our financial statements subsequent to the divestiture date . in february 2016 , this business was acquired by a third-party . based on the terms of our agreement with former management personnel , we received additional consideration contingent upon a liquidation event , as defined in the agreement , resulting in an additional gain on the sale of $ 6.6 million , which reduced our 2016 restructuring and reorganization charges in our income statement . key impact of u.s. tax cuts and jobs act on december 22 , 2017 , the u.s. tax cuts and jobs act ( the “ tax reform act ” ) was passed into legislation . the tax reform act amends the internal revenue code , reducing the corporate income tax rate , changing or eliminating certain income tax deductions and credits and provides sweeping change to how u.s. companies are taxed on their international operations . the tax reform act is generally effective for tax years beginning after december 31 , 2017 ; however , certain provisions of the tax reform act have effective dates beginning in 2017. the tax reform act reduces the u.s. maximum rate of income taxation from 35 % to 21 % applicable to taxable years beginning after december 31 , 2017. we currently expect our effective income tax rates going forward to be in the range of 26 % to 28 % percent . this represents an estimated improvement of 10 to 11 percentage points for 2018 had the new legislation not been enacted , which represents an estimated net income benefit for us of approximately $ 10 to $ 11 million for 2018. we plan to invest about one-fourth of this benefit back into our business , with this investment directed almost entirely towards our employees in the form of higher wages , fringe benefits , and training and development programs . at this time , we expect the remaining three-quarters of this benefit to fall to the bottom line in 2018 , thereby , resulting in higher net income for the year had the tax reform act not been enacted . see note 7 to our financial statements for additional impacts of the tax reform act . the overall anticipated impacts of the tax reform act ( including our effective income tax rate going forward ) are based on our current assessments and underlying estimates . we may encounter changes in these assessments and estimates , or come across unforeseen additional items in the future not currently contemplated by us that may result in changes to our current anticipated impacts of the tax reform act ( including our effective income rate going forward ) . we undertake no duty to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . impact of new revenue accounting pronouncement the fasb has issued asu 2014-09 , revenue from contracts with customers ( topic 606 ) . in august 2015 , the fasb issued asu 2015-14 revenue from contracts with customers ( topic 606 ) : deferral of the effective date which deferred the effective date of asu 2014-09 for one year . in december 2016 , the fasb issued asu 2016-20 technical corrections and improvements to topic 606 , revenue from contracts with customers ( collectively referred to as asu 606 ) . collectively , asu 606 is a single comprehensive model which supersedes nearly all existing revenue recognition guidance under u.s. gaap . under the new guidance , revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services . asu 606 also requires additional disclosure about the nature , amount , timing , and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . 22 we adopted this asu 606 in january of 2018 , utilizing the cumulative effect approach . in conjunction with the adoption of this asu , we recorded a cumulative adjustment increasing beginning retained earnings ( net of tax ) by approximately $ 7 million , primarily related to contracts that we were required to defer revenue as we did not have vsoe for certain un delivered elements . we do not anticipate asu 606 will have a material impact on our revenues in 2018 and beyond , as the new revenue accounting rules under asu 606 are fairly consistent with our current policies and guidelines based on the nature of our cl ient contracts . beginning in 2018 , certain deferred contract costs that are currently included in our client contracts and other current and non-current assets on our consolidated balance sheet will be reclassified and presented separately as a non-current client contract asset , net of related amortization . the adoption of this asu also results in a reclassification of investments in client contracts on our consolidated statement of cash flows to operating activities from investing activities , which if applicable to 2017 would have decreased operating cash flows and increased investing cash flows by approximately $ 12 million . management overview results of operations . story_separator_special_tag certain of the per-unit fees include volume-based pricing tiers , and are subject to annual inflationary price escalators . the new agreement includes incentives for charter to convert additional customer accounts onto our acp customer care and billing solution . the new agreement includes minimum commitments for the number of charter customer accounts to be serviced on acp . the new agreement contains certain rights and obligations of both parties , including the following key items : ( i ) the termination of the agreement under certain conditions ; ( ii ) various service level commitments ; and ( iii ) remedies and limitation on liabilities associated with specified breaches of contractual obligations . under the new agreement , we provided charter with a pricing discount in-line with the extended contract term through december 31 , 2021 , and the roll out of additional products and services by charter . as a result , we anticipate our annual revenues from charter under the new agreement to be relatively consistent on a go forward basis . the anticipated revenue impact of the new agreement in both the near and long term is only an estimate and may vary depending on the actual level of products and services consumed by charter and a variety of factors . we undertake no duty to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . a copy of the new agreement along with the original charter and time warner agreements and related amendments , with confidential information redacted , are included in the exhibits to our periodic filings with the sec . 24 dish . dish is our third largest client . for 2017 and 2016 , revenues from dish were $ 89 million and $ 102 million , respecti vely , representing approximately 11 % and 13 % of our total revenues , with the decrease in revenues driven mainly by the net loss of dish customers utilizing their satellite services . on august 11 , 2017 , we entered into an amendment to our current agreement with dish network corporation ( “ dish ” ) ( the “ amended agreement ” ) . the key terms and conditions of the amended agreement are as follows : the amended agreement extends our contractual relationship with dish for an additional four years , through december 31 , 2021. consistent with the previous agreements , the fees generated under the amended agreement will be based primarily on monthly per unit charges for our cloud and related solutions , and other various ancillary services . certain of the per-unit fees are subject to annual inflationary price escalators . the amended agreement includes minimum commitments for the number of dish customer accounts to be serviced on acp . the amended agreement contains certain rights and obligations of both parties , including the following key items : ( i ) the termination of the agreement under certain conditions ; ( ii ) various service level commitments ; and ( iii ) remedies and limitation on liabilities associated with specified breaches of contractual obligations . under the amended agreement , we provided dish a small per-unit pricing discount in-line with the extended contract term through december 31 , 2021 , and the roll out of additional products and services by dish . as a result , our revenues from dish under the new agreement going forward are highly dependent on the number of customer accounts dish maintains on our platform , and the level of additional products and services dish may choose to purchase from us . the anticipated revenue impact of the amended agreement in both the near and long term is only an estimate and may vary depending on the actual level of products and services consumed by dish and a variety of other factors . we undertake no duty to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . the dish agreement and related amendments , with confidential information redacted , is included in the exhibits to our periodic filings with the sec . stock-based compensation expense stock-based compensation expense is included in the following captions in our income statement ( in thousands ) : replace_table_token_8_th see notes 2 and 11 to our financial statements for additional discussion of our stock-based compensation expense . 25 amortization of acquired intangible assets amortization of acquired intangible assets is included in the following captions in our income statement ( in thousands ) : replace_table_token_9_th see note 4 to our financial statements for additional discussion of our amortization of acquired intangible assets . critical accounting policies the preparation of our financial statements in conformity with accounting principles generally accepted in the u.s. requires us to select appropriate accounting policies , and to make judgments and estimates affecting the application of those accounting policies . in applying our accounting policies , different business conditions or the use of different assumptions may result in materially different amounts reported in our financial statements . we have identified the most critical accounting policies that affect our financial position and the results of our operations . these critical accounting policies were determined by considering our accounting policies that involve the most complex or subjective decisions or assessments . the most critical accounting policies identified relate to : ( i ) revenue recognition ; ( ii ) impairment assessments of long-lived assets ; ( iii ) income taxes ; and ( iv ) loss contingencies . these critical accounting policies , as well as our other significant accounting policies , are disclosed in the notes to our financial statements . revenue recognition . the revenue recognition policy that involves the most complex or subjective decisions or assessments that may have a material impact on our business ' operations relates to the accounting for certain software license and services arrangements . for the 2017 , 2016 , and 2015 , software and services revenues was approximately 8 % , 10 % , and 12 % , respectively , of our total revenues .
| detailed discussion of results of operations total revenues . total revenues for : ( i ) 2017 were $ 789.6 million , a 4 % increase from $ 761.0 million for 2016 ; and ( ii ) 2016 were $ 761.0 million , a 1 % increase from $ 752.5 million for 2015. the 4 % year-over-year increase in total revenues between 2017 and 2016 can be mainly attributed to the 7 % increase in our cloud and related solutions revenues , driven largely by the conversion of new customer accounts onto acp during the year ( primarily from comcast ) , and increases in revenues from recurring managed services arrangements , with these increases reduced by lower software and services revenues . we continue to work towards converting more of our software and services arrangements into more long-term recurring revenue managed services engagements . the 1 % year-over-year increase in total revenues between 2016 and 2015 can be attributed to the 5 % growth of our cloud and related solutions revenues , driven primarily from continued conversions of customer accounts onto acp , and increases in revenues from recurring managed services arrangements . these increases more than offset the decline in our software and services and maintenance revenues , and negative foreign currency movements of approximately $ 5 million . the components of total revenues , discussed in more detail below , are as follows : replace_table_token_10_th cloud and related solutions revenues . cloud and related solutions revenues for : ( i ) 2017 increased 7 % to $ 651.0 million , from $ 606.9 million for 2016 ; and ( ii ) 2016 increased 5 % to $ 606.9 million , from $ 577.4 million for 2015. these year-over-year increases in cloud and related solutions revenues can be mainly attributed to the conversion of customer accounts onto acp and increases in revenues from recurring managed services arrangements .
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we will include option periods or exclude termination options in future lease payments for ground story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this form 10-k. general 36 we are an externally-advised reit that was incorporated under the general corporation law of the state of maryland on february 14 , 2003. we focus on acquiring , owning , and managing primarily office and industrial properties . on a selective basis , we may make long term industrial and office mortgage loans ; however , we do not have any mortgage loans receivable currently outstanding . our properties are geographically diversified and our tenants cover a broad cross section of business sectors and range in size from small to very large private and public companies , many of which are corporations that do not have publicly-rated debt . we have historically entered into , and intend in the future to enter into , purchase agreements primarily for real estate having net leases with remaining terms of approximately seven to 15 years and built in rental rate increases under a net lease , the tenant is required to pay most or all operating , maintenance , repair and insurance costs and real estate taxes with respect to the leased property . we actively communicate with buyout funds , real estate brokers and other third parties to locate properties for potential acquisition or to provide mortgage financing in an effort to build our portfolio . we target secondary growth markets that possess favorable economic growth trends , diversified industries , and growing population and employment . all references to annualized generally accepted accounting principles ( “ gaap ” ) rent are rents that each tenant pays in accordance with the terms of its respective lease reported evenly over the non-cancelable term of the lease . as of february 12 , 2020 : we owned 122 properties totaling 14.6 million square feet of rentable space in 28 states ; our occupancy rate was 97.0 % ; the weighted average remaining term of our mortgage debt was 5.2 years and the weighted average interest rate was 4.4 % ; and the average remaining lease term of the portfolio was 7.2 years ; business environment in the u.s. vacancy rates have decreased for both office and industrial properties in most markets , as increased user demand has led to improved conditions . vacancy rates in many markets have been reduced to levels last seen at the peak before the most recent u.s. recession and rental rates have increased in most primary and secondary markets . reports from national research firms reflect that the industrial supply and demand relationship still appears to be in equilibrium , but that office supply and demand in select markets may be moving towards a slight increase in vacancy . interest rates have been volatile and although interest rates are still low by historical standards , lenders have varied on their required spreads over the last several quarters ; however , they appear to have somewhat stabilized with recent federal reserve announcements . third quarter 2019 statistics reflect that single property listings and investment sales volume are lower as compared to the prior year 's same period . additionally , preliminary research data suggests that the fourth quarter 2019 investment volume may be less than that of the same quarter for 2018. completing the eleventh year of the current cycle , some national research firms are estimating that both pricing and investment sales volume may be peaking , with the possible exception of industrial properties . from a macro-economic perspective , the strength of the global economy and u.s. economy continue to be uncertain . the long-term impact of tax reform in the u.s. continues to be unknown at this time , although the lowering of the corporate tax rate is generally expected to be beneficial and the overall u.s. economy appears to be healthy . finally , the continuing uncertainty surrounding the ability of the federal government to address its fiscal condition in both the near and long term as well as other geo-political issues has increased domestic and global instability . these developments could cause interest rates and borrowing costs to rise , which may adversely affect our ability to access both the equity and debt markets and could have an adverse effect on our tenants as well . all of our variable rate debt is based upon the one month libor rate , although libor is currently anticipated to be phased out during late 2021. libor is expected to transition to a new standard rate , sofr , which will incorporate repo data collected from multiple data sets . the intent is to adjust the sofr to minimize differences between the interest that a borrower would be paying using libor versus what it will be paying using sofr . we are currently monitoring the transition , as we can not assess whether sofr will become a standard rate for variable rate debt . any further changes or reforms to the determination or supervision of libor may result in a sudden or prolonged increase or decrease in reported libor , which could have an adverse impact on the market for libor-based debt , or the value of our portfolio of libor-indexed , floating-rate debt . we continue to focus on re-leasing vacant space , renewing upcoming lease expirations , re-financing upcoming loan maturities , and acquiring additional properties with associated long-term leases . currently , we only have two partially vacant buildings and three fully vacant buildings , with one of these fully vacant buildings classified as held for sale as of december 31 , 2019 . story_separator_special_tag 2019 financing activity during the year ended december 31 , 2019 , we partially repaid one mortgage collateralized by three properties , releasing one of the collateralized properties that we sold on january 31 , 2019 , and fully repaid four mortgages collateralized by eight properties , all of which are summarized below ( dollars in thousands ) : aggregate fixed rate debt repaid weighted average interest rate on fixed rate debt repaid $ 31,385 4.55 % aggregate variable rate debt repaid weighted average interest rate on variable rate debt repaid $ 13,600 libor + 2.47 % during the year ended december 31 , 2019 , we issued 11 mortgages , collateralized by 11 properties , which are summarized below ( dollars in thousands ) : aggregate fixed rate debt issued weighted average interest rate on fixed rate debt $ 69,650 ( 1 ) 3.90 % 39 ( 1 ) we issued $ 10.6 million of fixed rate debt in connection with one property acquired on december 27 , 2018 , with a maturity date of february 8 , 2029 . the interest rate is fixed at 4.7 % for the first seven years of the mortgage . after the fixed interest rate period expires , we have the option to adjust the interest rate to a fixed interest rate equal to 1.8 % , plus the three-year treasury rate per annum , or a variable interest rate equal to 1.8 % , plus the 30 day libor rate per annum . on may 31 , 2019 , we issued $ 21.6 million of floating rate debt swapped to fixed rate debt of 3.42 % in connection with refinancing mortgage debt on one property with a new maturity date of june 1 , 2024 . we issued $ 8.9 million of fixed rate debt in connection with our june 18 , 2019 property acquisition with a maturity date of june 18 , 2024 and a rate of 4.35 % . we issued $ 4.8 million of fixed rate debt in connection with our december 16 , 2019 property acquisition with a maturity date of december 10 , 2026 and a rate of 3.97 % . we issued $ 4.2 million of fixed rate debt in connection with our december 17 , 2019 property acquisition with a maturity date of december 17 , 2026 and a rate of 3.97 % . we issued an aggregate of $ 19.5 million of fixed rate debt in connection with our six property portfolio acquisition december 17 , 2019 , with a maturity date of january 1 , 2027 and a rate of 3.75 % . on january 27 , 2020 , we issued an aggregate of $ 18.3 million of fixed rate debt in connection with the three property industrial portfolio acquired on this same date . the maturity date is february 1 , 2030 and the interest rate is 3.625 % . during the year ended december 31 , 2019 , we extended the maturity dates of two mortgages , collateralized by four properties , which are summarized below ( dollars in thousands ) : aggregate variable rate debt extended weighted average interest rate on variable rate debt extended weighted average extension term $ 12,561 libor + 2.51 % 2.4 years on july 2 , 2019 , we amended , extended and upsized our credit facility , increasing the term loan from $ 75.0 million to $ 160.0 million , inclusive of a delayed term loan draw component whereby we can incrementally borrow on the term loan up to the $ 160.0 million commitment , and increasing the revolver from $ 85.0 million to $ 100.0 million . the term loan has a new five-year term , with a maturity date of july 2 , 2024 , and the revolver has a new four-year term , with a maturity date of july 2 , 2023. the interest rate for the credit facility was reduced by 10 basis points at each of the leverage tiers . we entered into multiple interest rate cap agreements on the amended term loan , which cap libor ranging from 2.50 % to 2.75 % , to hedge our exposure to variable interest rates . we used the net proceeds derived from the amended credit facility to repay all previously existing borrowings under the revolver . we incurred fees of approximately $ 1.3 million in connection with the credit facility amendment . the bank syndicate is now comprised of keybank , fifth third bank , u.s. bank national association , the huntington national bank , goldman sachs bank usa , and wells fargo bank , national association ( “ wells fargo bank ” ) . 2019 equity activities common stock atm program on december 3 , 2019 , we entered into the common stock sales agreement , with the common stock sales agents , pursuant to which we may sell shares of our common stock in an aggregate offering price of up to $ 250.0 million . previously , we had a common stock atm program with cantor that was terminated upon entering into the common stock sales agreement . under these programs , during the year ended december 31 , 2019 , we sold 3.0 million shares of common stock , raising $ 64.5 million in net proceeds . as of december 31 , 2019 , we had a remaining capacity to sell up to $ 237.5 million of common stock under the common stock sales agreement . the proceeds from these issuances were used to acquire real estate , repay outstanding debt and for other general corporate purposes .
| results of operations the weighted average yield on our total portfolio , which was 8.5 % and 8.7 % at december 31 , 2019 and 2018 , respectively , is calculated by taking the annualized straight-line rents , reflected as lease revenue on our consolidated statements of operations , of each acquisition as a percentage of the acquisition cost . the weighted average yield does not account for the interest expense incurred on the mortgages placed on our properties or other types of existing indebtedness . a comparison of our operating results for the year ended december 31 , 2019 and 2018 is below ( dollars in thousands , except per share amounts ) : 45 replace_table_token_6_th same store analysis for the purposes of the following discussion , same store properties are properties we owned as of january 1 , 2018 , which have not been subsequently vacated or disposed . acquired and disposed properties are properties which were either acquired , disposed of or classified as held for sale at any point subsequent to december 31 , 2017 . properties with vacancy are properties that were fully vacant or had greater than 5 % vacancy , based on square footage , at any point subsequent to january 1 , 2018 . 46 operating revenues replace_table_token_7_th lease revenues consist of rental income and operating expense recoveries earned from our tenants . lease revenues from same store properties increased for the year ended december 31 , 2019 , primarily due to increased operating expense recoveries from leases with base year expense stops at certain of our properties that were running above their base year , coupled with increased operating expense recoveries from amortizing capital improvements paid for by our tenants at certain properties .
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in some cases you can identify forward-looking statements by terminology such as “ may , ” “ might , ” “ will , ” “ would , ” “ should , ” “ could ” or the negative thereof . generally , the words “ anticipate , ” “ believe , ” “ continue , ” “ expect , ” “ intend , ” “ estimate , ” “ project , ” “ plan ” and similar expressions identify forward-looking statements . in particular , statements about our expectations , beliefs , plans , objectives , assumptions or future events or performance contained are forward-looking statements . we have based these forward-looking statements on our current expectations , assumptions , estimates and projections . while we believe these expectations , assumptions , estimates and projections are reasonable , such forward-looking statements are only predictions and involve known and unknown risks , uncertainties and other factors , many of which are outside of our control , which could cause our actual results , performance or achievements to differ materially from any results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and other factors include , but are not limited to , the following : the impact of the covid-19 pandemic on our inpatient and outpatient volumes , or disruptions caused by other pandemics , epidemics or outbreaks of infectious diseases ; the impact of an increase in uninsured and underinsured patients or the deterioration in the collectability of the accounts of such patients on our results of operations , particularly as the unemployment rate and number of underinsured patients have increased as a result of the covid-19 pandemic ; costs of providing care to our patients , including increased staffing , equipment and supply expenses resulting from the covid-19 pandemic ; our significant indebtedness , our ability to meet our debt obligations , and our ability to incur substantially more debt ; our ability to implement our business strategies , especially in light of the covid-19 pandemic ; the impact of payments received from the government and third-party payors on our revenue and results of operations ; difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of our acquisitions and joint ventures ; our ability to recruit and retain quality psychiatrists and other physicians , nurses , counselors and other medical support personnel ; the impact of competition for staffing on our labor costs and profitability ; the impact of increases to our labor costs ; the occurrence of patient incidents , which could result in negative media coverage , adversely affect the price of our securities and result in incremental regulatory burdens and governmental investigations ; our future cash flow and earnings ; our restrictive covenants , which may restrict our business and financing activities ; our ability to make payments on our financing arrangements ; the impact of the economic and employment conditions on our business and future results of operations ; the impact of adverse weather conditions , including the effects of hurricanes ; compliance with laws and government regulations ; the impact of claims brought against us or our facilities including claims for damages for personal injuries , medical malpractice , overpayments , breach of contract , securities law violations , tort and employee related claims ; the impact of governmental investigations , regulatory actions and whistleblower lawsuits ; any failure to comply with the terms of the cia ; 39 the impact of healthcare reform in the u.s. and abroad , including the potential repeal , replacement or modification of the patient protection and affordable care act ; the impact of our highly competitive industry on patient volumes ; our dependence on key management personnel , key executives and local facility management personnel ; our acquisition , joint venture and de novo strategies , which expose us to a variety of operational and financial risks , as well as legal and regulatory risks ; the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations ; our potential inability to extend leases at expiration ; the impact of controls designed to reduce inpatient services on our revenue ; the impact of different interpretations of accounting principles on our results of operations or financial condition ; the impact of environmental , health and safety laws and regulations , especially in locations where we have concentrated operations ; the risk of a cyber-security incident and any resulting violation of laws and regulations regarding information privacy or other negative impact ; the impact of laws and regulations relating to privacy and security of patient health information and standards for electronic transactions ; our ability to cultivate and maintain relationships with referral sources ; the impact of a change in the mix of our earnings , adverse changes in our effective tax rate and adverse developments in tax laws generally ; changes in interpretations , assumptions and expectations regarding recent tax legislation , including provisions of the cares act and additional guidance that may be issued by federal and state taxing authorities ; failure to maintain effective internal control over financial reporting ; the impact of fluctuations in our operating results , quarter to quarter earnings and other factors on the price of our securities ; the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients ; the impact of value-based purchasing programs on our revenue ; and those risks and uncertainties described from time to time in our filings with the sec . given these risks and uncertainties , you are cautioned not to place undue reliance on such forward-looking statements . these risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements . story_separator_special_tag for the year ended december 31 , 2020 , we recorded $ 32.8 million of other income related to $ 34.9 million of phsse funds received from april through december 2020. our recognition of this income in the fourth quarter of 2020 was based on revised guidance in the consolidated appropriations act , 2021 enacted in december 2020. depreciation and amortization . depreciation and amortization expense was $ 95.3 million for the year ended december 31 , 2020 , or 4.6 % of revenue , compared to $ 87.9 million for the year ended december 31 , 2019 , or 4.4 % of revenue . interest expense . interest expense was $ 158.1 million for the year ended december 31 , 2020 compared to $ 187.3 million for the year ended december 31 , 2019. the decrease in interest expense was primarily a result of lower interest rates applicable to our variable-rate debt . debt extinguishment costs . debt extinguishment costs were $ 7.2 million for the year ended december 31 , 2020 represented $ 1.4 million of cash charges and $ 5.8 million of non-cash charges recorded in connection with the redemption of the 6.125 % senior notes and the 5.125 % senior notes , the issuance of 5.000 % senior notes and the fourth repricing facilities amendment . loss on impairment . loss on impairment of $ 4.8 million for the year ended december 31 , 2020 represents a non-cash long-lived asset impairment charge of $ 4.2 million and $ 0.6 million related to indefinite-lived asset impairment related to closed facilities in the u.s. loss on impairment of $ 27.2 million for the year ended december 31 , 2019 represents a non-cash long-lived asset impairment charge of $ 27.2 million related to two closed u.s. facilities . transaction-related expenses . transaction-related expenses were $ 11.7 million for the year ended december 31 , 2020 compared to $ 21.2 million for the year ended december 31 , 2019. transaction-related expenses represent costs incurred in the respective periods primarily related to termination , restructuring , strategic review , management transition and other similar costs incurred in the respective periods , as summarized below ( in thousands ) : replace_table_token_5_th discontinued operations . loss from discontinued operations for the year ended december 31 , 2020 was $ 812.4 million compared to income from discontinued operations of $ 56.8 million for the year ended december 31 , 2019. the year ended december 31 , 2020 included a loss on sale of $ 867.3 million and a non-cash long-lived asset impairment charge of $ 20.2 million related to the decision to close certain u.k. elderly care facilities . the year ended december 31 , 2019 included a non-cash long-lived asset impairment charge of $ 27.2 million related to the closure of certain u.k. facilities . provision for income taxes . for the year ended december 31 , 2020 , the provision for income taxes was $ 40.6 million , reflecting an effective tax rate of 22.1 % , compared to $ 25.1 million , reflecting an effective tax rate of 32.0 % , for the year ended december 31 , 2019. the decrease in the effective tax rate for the year ended december 31 , 2020 was primarily attributable to the release of a state valuation allowance related and permitting benefits generated from the application of federal net operating loss carryback provisions within the cares act . the federal net operating loss legislation within the cares act allows net operating losses generated in tax years 2018 through 2020 to be carried back at a 35 % tax rate to offset income in tax years prior to 2018 ( 21 % for tax years after 2017 ) , resulting in a permanent benefit . 43 year ended december 31 , 2019 compared to the year ended december 31 , 2018 revenue . revenue increased $ 103.7 million , or 5.4 % , to $ 2,008.4 million for the year ended december 31 , 2019 from $ 1,904.7 million for the year ended december 31 , 2018. the increase related primarily to additions to beds in our existing facilities and ongoing demand for our services . same facility revenue increased by $ 106.7 million , or 5.8 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , resulting from same facility growth in patient days of 3.2 % and an increase in same facility revenue per day of 2.5 % , consistent with the same facility patient day growth in 2018 , the growth in same facility patient days for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 resulted from the addition of beds to our existing facilities and ongoing demand for our services . salaries , wages and benefits . salaries , wages and benefits ( “ swb ” ) expense was $ 1,107.4 million for the year ended december 31 , 2019 compared to $ 1,049.3 million for the year ended december 31 , 2018 , an increase of $ 58.2 million . swb expense included $ 17.3 million and $ 22.0 million of equity-based compensation expense for the years ended december 31 , 2019 and 2018 , respectively . excluding equity-based compensation expense , swb expense was $ 1,090.1 million , or 54.2 % of revenue , for the year ended december 31 , 2019 , compared to $ 1,027.3 million , or 53.8 % of revenue , for the year ended december 31 , 2018. same facility swb expense was $ 986.3 million for the year ended december 31 , 2019 , or 50.4 % of revenue compared to $ 926.4 million for the year ended december 31 , 2018 , or 50.1 % of revenue . professional fees . professional fees were $ 118.5 million for the year ended december 31 , 2019 , or 5.9 % of revenue , compared to $ 110.0 million for the year ended december 31 , 2018 , or 5.8 % of revenue .
| results of operations the following table illustrates our consolidated results of operations for the respective periods shown ( dollars in thousands ) : replace_table_token_3_th 41 at december 31 , 2020 , we operated 227 behavioral healthcare facilities with approximately 9,900 beds in 40 states and puerto rico and 345 behavioral healthcare facilities with approximately 8,200 beds in the u.k. we reported , for all periods presented , results of operations and cash flows of the u.k. operations as discontinued operations in the accompanying financial statements . the following table sets forth percent changes in same facility operating data for our u.s. facilities for the years ended december 31 , 2020 and 2019 compared to the previous years : replace_table_token_4_th ( a ) results for the periods presented include facilities we have operated more than one year and exclude certain closed services . ( b ) average length of stay is defined as patient days divided by admissions . ( c ) adjusted ebitda is defined as income before provision for income taxes , equity-based compensation expense , debt extinguishment costs , legal settlements expense , loss on impairment , transaction-related expenses , interest expense and depreciation and amortization . management uses adjusted ebitda as an analytical indicator to measure the performance and to develop strategic objectives and operating plans . adjusted ebitda is commonly used as an analytical indicator within the health care industry , and also serves as a measure of leverage capacity and debt service ability . adjusted ebitda should not be considered as a measure of financial performance under gaap , and the items excluded from adjusted ebitda are significant components in understanding and assessing financial performance . because adjusted ebitda is not a measurement determined in accordance with gaap and is thus susceptible to varying calculations , adjusted ebitda , as presented , may not be comparable to other similarly titled measures of other companies . year ended december 31 , 2020 compared to the year ended december 31 , 2019 revenue .
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statements in the following discussion may include forward-looking statements . these forward-looking statements involve risks and uncertainties . see “ item 1a . risk factors , ” for additional discussion of these factors and risks . business overview despite the declining demand for energy services during 2015 , the august 2014 acquisition by our compression division of compressor systems , inc. ( `` csi '' ) resulted in growth in consolidated revenues during 2015 compared to the prior year . the revenues of our compression division , primarily through cclp , reflected growth during 2015 compared to the prior year , as the august 4 , 2014 , closing date of the acquisition of csi ( the `` csi acquisition '' ) resulted in a full year of activity during 2015 compared to approximately five months during the prior year . increased offshore clear brine fluids ( `` cbf '' ) and completion services activity , including from a customer project associated with a new completion fluids technology that was introduced during the first half of 2015 , was more than offset by the decreased demand for onshore water management services and resulted in overall decreased revenues by the fluids division . despite the decrease in revenues , fluids division gross profit increased , primarily due to improved margins associated with the mix of cbf products and services , particularly for offshore completion fluids products and services associated with our new completion fluid technology . the growth in consolidated revenues , which was a result of the august 2014 acquisition of csi , occurred despite the continuing overall industry market challenges as a result of lower oil and natural gas commodity prices compared to early 2014. oil and natural gas prices have weakened further in early 2016. the previous declines in commodity prices resulted in many of our customers reducing or suspending their near-term capital expenditure plans during 2015 and further reducing or suspending their near-term capital expenditures in 2016. throughout the industry , drilling and completion activity continues to decrease , putting increased competitive pressure on several of our businesses . in addition to the decreased activity levels of the water management business of our fluids division , the current market environment has also negatively impacted our production testing and offshore services segments , as well as the low-horsepower production enhancement services operations and all compressor equipment sales operations of our compression division . as a result , during the fourth quarter of 2015 , we recorded $ 221.2 million of impairment charges , primarily for our compression and production testing divisions , reflecting the decreased fair values of identified assets , including compression and other equipment , goodwill , and other intangible assets . in early 2016 , we continue to respond aggressively to the current challenging industry environment with cost reduction actions for each of our businesses , which have included additional reductions in headcount , deferral of wage increases , wage reductions , renegotiation of vendor contracts , and other cost restructuring measures . these steps have resulted in improved profitability for certain of our businesses , particularly our offshore services segment , which reported increased profitability compared to the prior year period despite a significant decrease in revenues . as a result of the above factors , as well as from decreased maritech excess decommissioning costs compared to the prior year period , 2015 consolidated gross profit increased 99.1 % compared to the corresponding prior year period , with only a minimal increase in revenues . given the lower demand for certain of our products and services in the current oil and natural gas services market environment , the expected level of future consolidated operating cash flows , which we have historically used to fund our growth and liquidity needs , has become more uncertain . while remaining committed to a long-term growth strategy , our near-term focus during this period of reduced demand is to preserve and enhance liquidity through strategic operating and financial measures . in addition to cost structure rationalization and working capital management , we have also focused on capital structure enhancements designed to strengthen our consolidated balance sheet . on november 20 , 2015 , we issued and sold $ 125.0 million in aggregate principal amount of our 11.0 % senior notes due november 5 , 2022 ( the “ series 2015 senior notes '' ) , enabling us to pay the $ 25.0 million purchase price pursuant to a tender offer which commenced on november 5 , 2015 , ( the “ tender offer ” ) to purchase for cash up to $ 25.0 million aggregate principal amount of certain of our outstanding series 2010-a senior notes and series 2010-b senior notes ( collectively , the “ series 2010 senior notes ” ) , and to prepay in full all amounts owed in respect of the $ 90.0 million principal amount outstanding of our series 2006-a senior notes due april 30 , 2016. in addition , we entered into an amendment of the senior secured note purchase agreement , resulting in the extension of the maturity date of the $ 50.0 million of our senior secured notes due april 1 , 2017 ( the `` senior secured notes '' ) issued thereunder from 2017 to 2019. as a result of these transactions , we have repaid and 30 extended the maturity dates of a significant portion of tetra 's total long-term debt without significantly increasing the amount of tetra 's net borrowings . we believe the steps taken , including the cost reduction steps discussed above , have enhanced our capital structure and operating cash flows and will continue to enhance our operating cash flows in the future . story_separator_special_tag partially offsetting these decreased water management service revenues , fluids division revenues increased during 2015 from increased cbf and associated product sales and services revenues from u.s. gulf of mexico well completion projects primarily for a single customer using new completion fluid technology introduced earlier in 2015. although demand for the fluids division 's cbf products is driven primarily by completion activity rather than drilling activity , the gulf of mexico rig count is a useful indicator of future demand for offshore cbf products . the gulf of mexico rig count dropped during 2015 as a result of low oil and natural gas prices and remains low in early 2016. demand for certain of the fluids division 's products and services , particularly for its manufactured products and for its cbf products in offshore and international markets , has been less affected by current low oil and natural gas prices than has the onshore operations . the fluids division has also been negatively affected by regulatory restrictions in the past and may continue to be affected by future regulatory restrictions . our production testing division generates revenues and cash flows by performing frac flowback , production well testing , offshore rig cooling , early production , and other associated services and products . the primary markets served by the production testing division include many of the major oil and gas producing regions in the united states , mexico , and canada , as well as in oil and gas basins in certain regions in south america , africa , europe , the middle east , and australia . the production testing division 's production testing operations are generally driven by the demand for natural gas and oil and the resulting levels of drilling and completion activities in the markets that the production testing division serves . many of the markets served by the production testing division are characterized by high lifting costs for oil and natural gas , such as in certain unconventional shale gas and oil reservoirs and located in certain basins in the u.s. , canada , and certain other international markets . as a result of decreased oil and natural gas commodity prices , and the corresponding declines in the drilling and capital expenditures and plans of its customers , production testing activity levels have declined , particularly in certain markets in which it operates that are characterized by higher lifting costs . the production testing segment 's revenues decreased by $ 58.9 million in 2015 compared to 2014 , due to decreased overall market activity . the impact of decreased oil and natural gas pricing has negatively impacted demand for services in each of our areas of operations , including certain shale reservoir markets that were a source of revenue growth during the past several years . increased competition for decreased industry activity negatively affected pricing levels for services , although the division has successfully expanded its domestic customer base compared to the prior year . as a result of the continued decline in oil and natural gas prices , many of the production testing division 's customers have 32 announced further reductions or suspensions of their drilling and capital expenditure plans for 2016 and these actions are expected to further reduce demand for services . our compression division generates revenues and cash flows by providing compression services and equipment for natural gas and oil production , gathering , transportation , processing , and storage . the compression division 's equipment and parts sales business includes the fabrication and sale of standard compressor packages , custom-designed compressor packages , and oilfield fluid pump systems designed and fabricated by the compression division 's facilities as well as the sale of compressor package parts and components manufactured by third-party suppliers . the compression division 's aftermarket services business provides compressor package operations , reconfiguration , and maintenance services . the compression division provides its services and equipment to a broad base of natural gas and oil exploration and production , midstream , transmission , and storage companies operating throughout many of the onshore producing regions of the united states and in a number of foreign countries , including mexico , canada and argentina . compression division revenues increased $ 175.1 million in 2015 as compared to 2014 , primarily attributable to a full twelve months of impact from csi 's operations in the current year compared to approximately five months of activity in the prior year due to the august 4 , 2014 , acquisition of csi , by which the compression division significantly expanded its scope of operations . compression division revenues , particularly for sales of compressor packages , have decreased during the last half of 2015 due to reduced customer demand , as also reflected by the current reduced customer fabrication backlog for csi compressor packages . compression division service revenues have also been negatively affected by current low oil and natural gas pricing , resulting in decreased demand for low-horsepower compression services in liquids-rich and dry gas markets . however , utilization of mid- and high-horsepower compressor packages has been less impacted by current oil and natural gas pricing . the decrease in demand for new compressor sales and low-horsepower compression services , due to reduced oil and natural gas prices , is expected to continue going forward until such commodity pricing improves . our offshore division consists of two operating segments : offshore services and maritech . the offshore services segment generates revenues and cash flows by performing ( 1 ) downhole and subsea services such as oil and gas well plugging and abandonment and workover services , ( 2 ) decommissioning and certain construction services utilizing heavy lift barges and various cutting technologies with regard to offshore oil and gas production platforms and pipelines , and ( 3 ) conventional and saturated diving services . the services provided by the offshore services segment are marketed to offshore operators , primarily in the u.s. gulf of mexico .
| results of operations the following data should be read in conjunction with the consolidated financial statements and the associated notes contained elsewhere in this report . 2015 compared to 2014 consolidated comparisons replace_table_token_7_th consolidated revenues during 2015 increased compared to the prior year due to increased revenues for the compression division as a result of the csi acquisition . the impact of the csi acquisition , which resulted in the increased compression division revenues of approximately $ 175.1 million during 2015 , greatly expanded the division 's operations , allowing it to participate in the compression market at a broader level . each of our other segments reported decreased revenues , due to the impact of reduced oil and natural gas prices and the corresponding decrease in industry activity levels . fluids division revenues decreased , as decreased onshore water management services and manufactured product sales revenues more than offset the increased offshore completion services and cbf product sales revenues . our production testing and offshore services segments reported significantly decreased revenues during the current year , primarily due to the impact of decreased industry demand and activity levels in each of the domestic and international markets we serve , largely caused by decreased oil and natural gas prices . see divisional comparisons section below for additional discussion . consolidated gross profit increased during the current year compared to the prior year , primarily due to the results of our fluids and offshore services segments . the increase in fluids division gross profit was primarily due to the mix of cbf products and services , particularly for u.s. gulf of mexico completion fluids products and services and increased profitability from our manufactured products operations .
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the duties and responsibilities of a member of the committee are in addition to his or her duties as a member of story_separator_special_tag the following discussion of our consolidated results of operations and cash flows for the years ended december 31 , 2018 , 2017 and 2016 and consolidated financial condition as of december 31 , 2018 and 2017 should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. certain year-to-year comparisons for the year ended december 31 , 2017 , and certain amounts as of december 31 , 2017 , reflect adjustments made to certain amounts for such period and date . see note 3 to notes to consolidated financial statements . overview we are a leading global media company that , through our television and radio segments , reaches and engages u.s. hispanics across acculturation levels and media channels . additionally , our digital segment , whose operations are located primarily in spain , mexico , argentina and other countries in latin america , reaches a global market . our operations encompass integrated marketing and media solutions , comprised of television , radio and digital properties and data analytics services . for financial reporting purposes , we report in three segments based upon the type of advertising medium : television broadcasting , radio broadcasting and digital media . our net revenue for the year ended december 31 , 2018 was $ 297.8 million . of that amount , revenue attributed to our television segment accounted for 51 % , revenue attributed to our digital media segment accounted for 27 % , and revenue attributed to our radio segment accounted for 22 % . we own and or operate 55 primary television stations located primarily in california , colorado , connecticut , florida , kansas , massachusetts , nevada , new mexico , texas and washington , d.c. we own and operate 49 radio stations in 16 u.s. markets . our radio stations consist of 38 fm and 11 am stations located in arizona , california , colorado , florida , nevada , new mexico and texas . we also operate entravision solutions as our national sales representation division , through which we sell advertisements and syndicate radio programming to more than 100 markets stations across the united states . we also provide digital advertising solutions that allow advertisers to reach primarily online hispanic audiences worldwide . we operate a proprietary technology and data platform that delivers digital advertising in various advertising formats that allows advertisers to reach audiences across a wide range of internet-connected devices on our owned and operated digital media sites ; the digital media sites of our publisher partners ; and on other digital media sites we access through third-party platforms and exchanges . we generate revenue primarily from sales of national and local advertising time on television stations , radio stations and digital media platforms , and from retransmission consent agreements that are entered into with mvpds . advertising rates are , in large part , based on each medium 's ability to attract audiences in demographic groups targeted by advertisers . we recognize advertising revenue when commercials are broadcast and when display or other digital advertisements record impressions on the websites of our third party publishers or as the advertiser 's previously agreed-upon performance criteria are satisfied . we do not obtain long-term commitments from our advertisers and , consequently , they may cancel , reduce or postpone orders without penalties . we pay commissions to agencies for local , regional and national advertising . for contracts directly with agencies , we record net revenue from these agencies . seasonal revenue fluctuations are common in our industry and are due primarily to variations in advertising expenditures by both local and national advertisers . our first fiscal quarter generally produces the lowest net revenue for the year . in addition , advertising revenue is generally higher during presidential election years ( 2016 , 2020 , etc . ) , resulting from significant political advertising and , to a lesser degree , congressional mid-term election years ( 2018 , 2022 , etc . ) , resulting from increased political advertising , compared to other years . we refer to the revenue generated by agreements with mvpds as retransmission consent revenue , which represents payments from mvpds for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming . we recognize retransmission consent revenue earned as the television signal is delivered to the mvpd . our fcc licenses grant us spectrum usage rights within each of the television markets in which we operate . we regard these rights as a valuable asset . with the proliferation of mobile devices and advances in technology that have freed up excess spectrum capacity , the monetization of our spectrum usage rights has become a significant part of our business in recent years . we generate revenue from agreements associated with these television stations ' spectrum usage rights from a variety of sources , including but not limited to agreements with third parties to utilize excess spectrum for the broadcast of their multicast networks ; charging fees to accommodate the operations of third parties , including moving channel positions or accepting interference with broadcasting operations ; and modifying and or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements . revenue generated by such agreements is recognized over the period of the lease or when we have relinquished all or a portion of our spectrum usage rights for a station or have relinquished our rights to operate a station on the existing channel free from interference . in addition , we will consider strategic acquisitions of television stations to further this strategy from time to time , as well as additional monetization opportunities expected to arise as the television broadcast industry anticipates advances in atsc 3.0 . story_separator_special_tag the following is a summary of the purchase price allocation for the acquisition of television stations kmir-tv and kpse-ld ( in millions ) : property and equipment $ 2.9 intangible assets subject to amortization 3.6 goodwill 4.6 fcc licenses 9.9 the goodwill , which is not expected to be deductible for tax purposes , is assigned to the television segment and is attributable to the stations ' workforce and expected synergies from combining the stations ' operations with our own . 51 the following unaudited pro forma information for the years ended december 31 , 2017 and 2016 has been prepared to give effect to the acquisition of television stations kmir-tv and kpse-ld as if the acquisition had occurred on january 1 , 2016. this pro forma information does not purport to represent what the actual results of operations of the company would have been had this acquisition occurred on such date , nor does it purport to predict the results of operations for any future periods . replace_table_token_6_th ( 1 ) amount reported as of and for the year ended december 31 , 2017 has been revised . see note 3 to notes to consolidated financial statements . kmcc-tv on january 16 , 2018 , we completed the acquisition of television station kmcc-tv , which serves the las vegas , nevada area , for an aggregate $ 3.6 million . the transaction was treated as an asset acquisition with the majority of the purchase price recorded in “ intangible assets not subject to amortization ” on our consolidated balance sheet . smadex on june 11 , 2018 , we completed the acquisition of smadex , a mobile programmatic solutions provider and demand-side platform that delivers performance-based solutions and data insights for marketers . the transaction was treated as a business acquisition in accordance with the guidance of asu 2017-01. we acquired smadex to expand its technology platform , broaden its digital solutions offering and enhance its execution of performance campaigns . the transaction was funded from cash on hand for an aggregate cash consideration of $ 3.5 million , net of $ 1.2 million of cash acquired . the following is a summary of the initial purchase price allocation for the company 's acquisition of smadex ( unaudited ; in millions ) : accounts receivable $ 0.9 other current assets 0.4 intangible assets subject to amortization 2.0 goodwill 3.6 current liabilities ( 2.8 ) long-term liabilities ( 0.2 ) deferred tax ( 0.4 ) the fair value of assets acquired includes trade receivables of $ 0.9 million . the gross amount due under contract is $ 0.9 million , all of which is expected to be collectible . 52 during the year ended december 31 , 2018 , smadex generated net revenue and expenses of $ 6.4 million and $ 5.8 million , respectively , which are included in our consolidated statements of operations . the goodwill , which is not expected to be deductible for tax purposes , is assigned to the digital segment and is attributable to the smadex workforce and expected synergies from combining its operations with those of our own . the following unaudited pro forma information for the years ended december 31 , 2018 and 2017 has been prepared to give effect to the acquisition of smadex as if the acquisition had occurred on january 1 , 2017. this pro-forma information does not purport to represent what the actual results of operations of the company would have been had this acquisition occurred on such date , nor does it purport to predict the results of operations for future periods . replace_table_token_7_th the unaudited pro forma information for the year ended december 31 , 2018 was adjusted to exclude acquisition fees and costs of $ 0.4 million , which were expensed in connection with the acquisition . 53 results of operations separate financial data for each of the company 's operating segments is provided below . segment operating profit ( loss ) is defined as operating profit ( loss ) before corporate expenses and foreign currency ( gain ) loss . the company evaluates the performance of its operating segments based on the following ( in thousands ) : replace_table_token_8_th * percentage not meaningful . 54 ( 1 ) amount reported as of and for the year ended december 31 , 2017 has been revised . see note 3 to notes to consolidated financial statements . ( 2 ) consolidated adjusted ebitda means net income ( loss ) plus gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation included in operating and corporate expenses , net interest expense , other income ( loss ) , non-recurring cash expenses , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses , syndication programming amortization less syndication programming payments , revenue from fcc spectrum incentive auction less related expenses , expenses associated with investments , acquisitions and dispositions and certain pro-forma cost savings . we use the term consolidated adjusted ebitda because that measure is defined in our 2017 credit facility and does not include gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation , net interest expense , other income ( loss ) , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses , syndication programming amortization and does include syndication programming payments , revenue from fcc spectrum incentive auction less related expenses , expenses associated with investments , acquisitions and dispositions and certain pro-forma cost savings . since consolidated adjusted ebitda is a measure governing several critical aspects of our 2017 credit facility , we believe that it is important to disclose consolidated adjusted ebitda to our investors .
| highlights during 2018 , our consolidated revenue decreased to $ 297.8 million from $ 536.0 million in the prior year , primarily as a result of the absence of significant revenue from spectrum usage rights , which were $ 263.9 million in 2017 in connection with our participation in the fcc auction for broadcast spectrum . however , we continue to experience growth in our digital segment and in retransmission consent revenue in our television segment . our audience shares remained strong in the nation 's most densely populated hispanic markets . net revenue for our television segment decreased to $ 152.9 million in 2018 , from $ 412.0 million in 2017. this decrease of approximately $ 259.1 million was primarily the result of the absence of significant revenue from spectrum usage rights , which were $ 263.9 million in 2017 in connection with our participation in the fcc auction for broadcast spectrum . in addition , the decrease was due to decreases in national and local advertising revenue , as part of a trend for advertising to move increasingly from traditional media , such as television , to new media , such as digital media . the overall decrease was partially offset by an increase in political advertising revenue , which was not material in 2017 , and an increase in retransmission consent revenue . we generated a total of $ 35.1 million and $ 31.4 million in retransmission consent revenue in 2018 and 2017 , respectively . we anticipate that retransmission consent revenue for the full year 2019 will be greater than it was for the full year 2018 and will continue to be a growing source of net revenues in future periods .
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these dealers are located throughout the continental united states and in several international markets . dealers either remit payment upon receipt of the product or finance their inventory through third-party floor plan lenders , who pay marine products generally within ten days of delivery of the products to the dealers . we manage our company by focusing on the execution of the following business and financial strategies : ● manufacturing high-quality , stylish , and innovative powerboats for our dealers and retail consumers , ● providing our independent dealer network appropriate incentives , training , and other support to enhance their success and their customers ' satisfaction , thereby facilitating their continued relationship with us , ● managing our production and dealer order backlog to optimize operating results and reduce risk in the event of a downturn in sales of our products , ● maintaining a flexible , variable cost structure which can be reduced quickly when deemed appropriate , ● focusing on the competitive nature of the boating business and designing our products and strategies in order to grow and maintain profitable market share , ● monitoring the recreational boat market for strong complementary product lines which we may enter through new product development or acquisition , ● extending our brand name recognition to enhance the success of new boat models that complement our existing offerings , ● improving our sales and profits by increasing the utilization of our manufacturing capacity , ● monitoring the activities and financial condition of our dealers and of the third-party floor plan lenders who finance our dealers ' inventories , ● maximizing stockholder return by optimizing the balance of cash invested in the company 's productive assets , the payment of dividends to stockholders , and the repurchase of the company 's common stock on the open market , and ● aligning the interests of our management and stockholders . in executing these strategies and attempting to optimize our financial returns , management closely monitors dealer orders and inventories , the production mix of various models , and indications of near term demand such as consumer confidence , interest rates , dealer orders placed at our annual dealer conferences , and retail attendance and orders at annual winter boat show exhibitions . we also consider trends related to certain key financial and other data , including our historical and forecasted financial results , market share , unit sales of our products , average selling price per boat , and gross profit margins , among others , as indicators of the success of our strategies . marine products ' financial results are affected by consumer confidence — because pleasure boating is a discretionary expenditure , interest rates — because many retail customers finance the purchase of their boats , and other socioeconomic and environmental factors such as availability of leisure time , consumer preferences , demographics and the weather . during 2017 , several segments of the recreational boating industry improved due to stable consumer confidence and improving residential real estate markets , as well as a stable financing environment for dealers and consumers . overall industry retail sales of outboard recreational boats improved during 2017 , although sterndrive unit sales declined . our net sales improved in 2017 compared to 2016 due to higher unit sales of our robalo sport fishing boats , coupled with higher unit sales of our chaparral h2o models and sales of our chaparral surf series and new larger ssx models . we achieved higher net sales , as well as increased gross profit and operating profit in 2017 compared to 2016. management will continue to monitor retail demand among the various segments in the recreational boat market , dealer inventory levels and the availability of dealer and consumer financing for the purchase of our products and adjust our production levels as deemed appropriate . we continuously monitor our market share in the 18 to 33 foot sterndrive category as one indicator of the success of our strategies and the market 's acceptance of our products . for the 12 month period ended september 30 , 2017 ( latest data available to us ) , chaparral 's market share in the 18 to 33 foot sterndrive category was 16.7 percent compared to 14.7 percent during the same period in 2016 ; the highest market share in this category . chaparral 's market share in the 18 to 20 foot category was 12.6 percent during this period in 2017 , and its market share in the 21 to 33 foot category was 18.6 percent . chaparral 's market share concentrations within these size ranges has remained relatively consistent during the past several years . for the 12 month period ended september 30 , 2017 , robalo 's share of the 16 to 30 foot outboard sport fishing boat market was 5.3 percent . for the same period , chaparral 's share of the 20 to 24 foot jet boat market was approximately 13.1 percent . we will continue to monitor our market share and believe it to be important , but we believe that maximizing profitability takes precedence over growing our market share . furthermore , as we continue to expand the breadth of our product offerings within our core category and new categories , we consider our overall market share across the various powerboat categories to be of greater importance to the long-term health of our company than our market share within any specific type of recreational boat . 19 outlook we believe that recreational boating retail demand in many segments of the industry continue to improve . attendance and sales during the 2018 winter boat shows were moderately higher than the 2017 winter boat show season , residential real estate markets have improved , consumer confidence has stabilized , and fuel prices have declined . a potential impediment to improving boat sales , however , is the increase in market interest rates . since most consumers finance their boat purchases , higher interest rates increase the cost of boat ownership . story_separator_special_tag million in inventories to support higher production levels in the current year ; and a $ 1.8 million favorable change in other accrued expenses largely attributable to the timing of payments related to retail incentives and warranty claims . cash provided by investing activities was $ 22.6 million in 2016 compared to $ 2.5 million used for investing activities in 2015. the increase in cash used for investing activities is primarily due to increased sales of marketable securities , primarily used to fund the tender offer during the fourth quarter of 2016. cash used for financing activities increased $ 34.1 million in 2016 primarily due to the tender offer completed in the fourth quarter of 2016 , partially offset by a decrease in open market share repurchases in 2016 compared to 2015. the company paid a $ 0.04 per share special dividend in the fourth quarter of 2015. cash requirements management expects that capital expenditures during 2018 will be approximately $ 2.1 million . the company participates in a multiple employer retirement income plan , sponsored by rpc . during 2017 , the company did not make a cash contribution to this plan in order to achieve the company 's funding objective . we expect that additional contributions by the company to the retirement income plan of approximately $ 100 thousand will be made in 2018. on january 23 , 2018 , the board of directors approved a quarterly cash dividend of $ 0.10 per common share payable march 9 , 2018 to stockholders of record at the close of business on february 9 , 2018. marine products expects to benefit from the tax reform enacted during the fourth quarter of 2017. marine products estimates that its annual effective tax rate in 2018 will be in the low 20 percent range . since marine products believes that it will generate continued positive financial results , the company expects to benefit from this lower tax rate through increased earnings in 2018. the company has an agreement with one employee that provides for a monthly payment equal to 10 percent of profits ( defined as pretax income before goodwill amortization and certain allocated corporate expenses ) . in january 2008 , the board of directors authorized an additional 3,000,000 shares that the company may repurchase for a total aggregate authorization of 8,250,000 shares . the company repurchased 345,678 shares in the open market during 2017. as of december 31 , 2017 , the company has repurchased under this program a total of 5,736,948 shares in the open market and there are 2,513,052 shares that remain available for repurchase . the company has entered into agreements with third-party floor plan lenders where it has agreed , in the event of default by a dealer , to repurchase mpc boats repossessed from the dealer . these arrangements are subject to maximum repurchase amounts and the associated risk is mitigated by the value of the boats repurchased . there were no material repurchases of dealer inventory during 2017 or 2016. see further information regarding repurchase obligations in “ note 9 : commitments and contingencies ” of the consolidated financial statements . the company believes that the liquidity provided by its existing cash and cash equivalents , marketable securities , and cash expected to be generated from operations will provide sufficient capital to meet its requirements for at least the next twelve months . the company 's decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position and the expected amount of cash to be provided by operations . contractual obligations the following table summarizes the company 's contractual obligations as of december 31 , 2017 : replace_table_token_6_th ( 1 ) operating leases represent agreements for warehouse space , and various office and operating equipment . ( 2 ) as part of the normal course of business the company enters into purchase commitments to manage its various operating needs . however , the company does not have any obligations that are non-cancelable or subject to a penalty if canceled . 23 ( 3 ) the company has agreements with various third-party lenders where it guarantees varying amounts of debt for qualifying dealers on boats in dealer inventory . as of december 31 , 2017 , there are no payables outstanding to floor plan lenders . fair value measurements the company 's assets and liabilities measured at fair value are classified in the fair value hierarchy ( level 1 , 2 or 3 ) based on the inputs used for valuation . assets and liabilities that are traded on an exchange with a quoted price are classified as level 1. assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as level 2. the company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as level 3. for defined benefit plan and supplemental executive retirement plan ( “ serp ” ) investments measured at net asset value , the values are computed using inputs such as cost , discounted future cash flows , independent appraisals and market based comparable data or on net asset values calculated by the fund and not publicly available . off balance sheet arrangements to assist dealers in obtaining financing for the purchase of its boats for inventory , the company has entered into agreements with various third-party floor plan lenders whereby the company guarantees varying amounts of debt for qualifying dealers on boats in dealer inventory . the company 's obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third-party lender .
| results of operations replace_table_token_4_th year ended december 31 , 2017 compared to year ended december 31 , 2016 net sales . marine products ' net sales increased by $ 26.0 million or 10.8 percent in 2017 compared to 2016. the increase was primarily due to a 5.0 percent increase in the number of boats sold , as well as an increase in parts and accessories sales , coupled with a 4.7 percent increase in the average gross selling price per boat . unit sales increased due to higher sales of our robalo outboard sport fishing boats , as well as increased unit sales of our chaparral h20 models and our chaparral surf series models , partially offset by decreases in unit sales of our vortex jet boat models . average selling prices increased primarily due to a model mix which included increased sales of our larger boats , including new larger ssx models . domestic net sales were $ 250.4 million , an increase of 13.7 percent compared to the prior year . international sales decreased 20.2 percent during 2017 compared to 2016 primarily due to the strength of the u.s. dollar . cost of goods sold . cost of goods sold increased 9.1 percent in 2017 compared to 2016. as a percentage of net sales , cost of goods sold decreased to 77.9 percent in 2017 , compared to 79.1 percent in 2016 , primarily due to a model mix which included increased sales of our larger models , coupled with improved manufacturing efficiencies due to higher production volumes . selling , general and administrative expenses . selling , general and administrative expenses increased 6.7 percent in 2017 compared to 2016 primarily due to an increase in incentive compensation consistent with improved operating results , partially offset by lower warranty expense due to favorable warranty claims experience .
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if our collaborators ask us to continue performing work in a collaboration beyond the initial period of performance , we extend our amortization period to correspond to the new extended period of performance . the revenue we recognize could be materially different if different estimates prevail . f-10 from time to time , we may enter into separate agreements at or near the same time with the same customer . we evaluate such agreements to determine whether they should be accounted for individually as distinct arrangements or whether the separate agreements are , in substance , a single multiple element story_separator_special_tag overview we are the leading company in antisense drug discovery and development , exploiting a novel drug discovery platform we created to generate a broad pipeline of first-in-class drugs . antisense technology provides a direct route from genomics to drugs . our strategy is to do what we do bestto discover unique antisense drugs . the efficiency and broad applicability of our drug discovery platform allows us to discover and develop antisense drugs to treat a wide range of diseases , including cardiovascular , severe and rare , neurologic and metabolic diseases and cancer . our partnering strategy provides us the flexibility to license each of our drugs at the optimal time to maximize the near- and long-term value of each drug . in this way , we can expand our pipeline and our partners ' pipelines with antisense drugs that address significant medical needs while remaining small and focused . our strong financial position is a result of the successful execution of our business strategy as well as our focused research and development capabilities . our flagship product , kynamro ( mipomersen sodium ) injection , is on the market in the united states for patients with hofh . patients with hofh are at high cardiovascular risk and can not reduce their ldl-c sufficiently with currently available lipid-lowering therapies . in january 2013 , the fda approved the marketing application for kynamro for patients with hofh . marketing applications for kynamro are under review by the ema and other regulatory authorities . genzyme is executing a comprehensive plan to address a global commercial market that consists of patients who are in desperate need of new treatment options . genzyme has substantial expertise in successfully marketing drugs in the united states and internationally for severe and rare diseases and plans to leverage its infrastructure in these markets . by concentrating marketing and sales efforts on lipid specialists and physicians who refer patients to these specialists , genzyme plans to quickly reach patients with hofh in the united states . to maximize the value of our drugs and technologies , we have a multifaceted partnering strategy . we form traditional partnering alliances that enable us to discover and conduct early development of new drugs , outlicense our drugs to partners , such as genzyme , and build a broad base of license fees , milestone payments and royalty income . we also form preferred partner transactions that provide us with a vested partner , such as astrazeneca , biogen idec and gsk , early in the development of a drug . typically , the drugs we partner early in development are in therapeutic areas of high risk , like rare diseases , or in areas where phase 2 results would likely not provide a significant increase in value , like cancer . this strategy allows us to develop drugs that could have significant commercial potential with a knowledgeable and committed partner while avoiding the cost of later-stage clinical studies . as in all of our partnerships , we benefit financially from upfront payments , development , regulatory and commercial milestones , licensing fees and royalties from these partnerships . this allows us to expand and broaden our drug discovery efforts to new disease targets in therapeutic areas that are outside of our expertise or in areas where our partners will provide tools and resources that will complement our drug discovery efforts . for example , through our oncology partnership with astrazeneca , we are capitalizing on astrazeneca 's development experience and research in oncology . the broad applicability of our drug discovery technology and the clinical successes of the drugs in our pipeline continue to create new partnering opportunities . for example , in 2012 , we formed three strategic alliances with biogen idec to discover and develop antisense drugs for the treatment of neurologic diseases , and a strategic alliance with astrazeneca to discover and develop antisense drugs to treat cancer . in total during 2012 , we received $ 96 million from biogen idec and astrazeneca in upfront payments and have the potential to earn more than $ 2 billion in future milestone payments and licensing fees . since 2007 , our partnerships have generated an aggregate of more than $ 975 million in payments from upfront and licensing fees , equity purchase payments , milestone payments and research and development funding . in addition , for our current partnered programs we have the potential to earn $ 5.1 billion in future milestone payments . we also have the potential to share in the future commercial success of our inventions and drugs resulting from these partnerships through earn out , profit sharing , or royalty arrangements . we also work with a consortium of smaller companies that can exploit our drugs and technologies . we call these smaller companies our satellite companies . in this way , we benefit from the disease-specific expertise of our satellite company partners , who are advancing drugs in our pipeline in areas that are outside of our core focus . in addition , we can maintain our broad rna technology leadership through collaborations with companies such as alnylam and regulus , a company we co-founded with alnylam focused on microrna therapeutics . story_separator_special_tag we use the following hierarchy of values to estimate the selling price of each deliverable : ( i ) vendor-specific objective evidence of fair value ; ( ii ) third-party evidence of selling price ; and ( iii ) best estimate of selling price , or besp . the besp reflects our best estimate of what the selling price would be if we regularly sold the deliverable on a stand-alone basis . we recognize the revenue allocated to each unit of accounting as we deliver the related goods or services . if we determine that we should treat certain deliverables as a single unit of accounting , then we recognize the revenue ratably over our estimated period of performance . in december 2012 , we entered into a collaboration agreement with astrazeneca to discover and develop antisense therapeutics against five cancer targets . as part of the collaboration , we received a $ 25 million upfront payment and are eligible to receive a $ 6 million payment in the second quarter of 2013 assuming the research program is continuing . we are also eligible to receive milestone payments , license fees for the research program targets and royalties on any product sales of drugs resulting from this collaboration . in exchange , we granted astrazeneca an exclusive license to develop and commercialize isis-stat3 rx and isis-az1 rx . we also granted astrazeneca options to license up to three drugs under a separate research program . we are responsible for completing an ongoing clinical study of isis-stat3 rx and ind-enabling studies for isis-az1 rx . astrazeneca will be responsible for all other global development , regulatory and commercialization activities for isis-stat3 rx and isis-az1 rx . in addition , if astrazeneca exercises its option for any drugs resulting from the research program , astrazeneca will assume global development , regulatory and commercialization responsibilities for such drug . since this agreement has multiple elements , we evaluated the deliverables in this arrangement and determined that certain deliverables , either individually or in combination , have stand-alone value . below is a list of the four separate units of accounting under our agreement : · the exclusive license we granted to astrazeneca to develop and commercialize isis-stat3 rx for the treatment of cancer ; · the development services we will perform for isis-stat3 rx ; · the exclusive license we granted to astrazeneca to develop and commercialize isis-az1 rx and the research services we will perform for isis-az1 rx ; and · the option to license up to three drugs under a research program and the research services we will perform for this program . we determined that the isis-stat3 rx license had stand-alone value because it is an exclusive license that gives astrazeneca the right to develop isis-stat3 rx or to sublicense its rights . in addition , isis-stat3 rx is currently in development and it is possible that astrazeneca or another third party could conduct clinical trials without assistance from us . as a result , we consider the isis-stat3 rx license and the development services for isis-stat3 rx to be separate units of accounting . we recognized the revenue allocated to the isis-stat3 rx license on the date of the agreement because that is when we delivered the license . we will recognize the revenue allocated to the development services for isis-stat3 rx over the period of time we perform services . the isis-az1 rx license is also an exclusive license . because of the early stage of research for isis-az1 rx , we believe that our knowledge and expertise with antisense technology is essential for astrazeneca or another third party to successfully develop isis-az1 rx . as a result , we concluded that the isis-az1 rx license does not have stand-alone value and we combined the isis-az1 rx license and related research services into one unit of accounting . we will recognize revenue for the combined unit of accounting over the period of time we perform services . we determined that the options under the research program did not have stand-alone value because astrazeneca can not develop or commercialize drugs resulting from the research program until astrazeneca exercises the respective option or options . as a result , we considered the research options and the related research services as a combined unit of accounting . we will recognize revenue for the combined unit of accounting over the period of our performance . we determined that the allocable arrangement consideration was the $ 25 million upfront payment because it was the only payment that was fixed and determinable when we entered into the agreement . there was considerable uncertainty at the date of the agreement as to whether we would earn the milestone payments , royalty payments , payments for manufacturing clinical trial materials or payments for finished drug product . as such , we did not include those payments in the allocable consideration . 53 we allocated the $ 25 million upfront payment based on the relative besp of each unit of accounting . we engaged a third party , independent valuation expert to assist us with determining besp . we estimated the selling price of the licenses granted for isis-stat3 rx and isis-az1 rx by using the relief from royalty method . under this method , we estimated the amount of income , net of taxes , for each drug . we then discounted the projected income for each license to present value . the significant inputs we used to determine the projected income of the licenses included : · estimated future product sales ; · estimated royalties on future product sales ; · contractual milestone payments ; · expenses we expect to incur ; · income taxes ; and · an appropriate discount rate .
| results of operations years ended december 31 , 2012 and december 31 , 2011 revenue total revenue for the year ended december 31 , 2012 was $ 102.0 million compared to $ 99.1 million for 2011. our revenue fluctuates based on the nature and timing of payments under agreements with our partners , including license fees , milestone-related payments and other payments . for example , in 2012 , we recognized revenue from new sources in connection with the license for isis-stat3 rx which we granted to astrazeneca under our recently announced strategic alliance on rna therapeutics for cancer , our three new collaborations with biogen idec and the kynamro fda acceptance milestone from genzyme . at the same time , in 2012 , revenue from amortization of the upfront payments associated with the genzyme collaboration ended as planned midyear . we earned a $ 25 million milestone payment from genzyme in january 2013 for fda approval of kynamro and a $ 7.5 million milestone payment from gsk in february 2013 for the initiation of a phase 2/3 study for isis-ttr rx . we will reflect both of these milestone payments in our first quarter 2013 financial results . research and development revenue under collaborative agreements research and development revenue under collaborative agreements for the year ended december 31 , 2012 was $ 99.1 million compared to $ 96.2 million for 2011. in 2012 , we recognized revenue from new sources in connection with our collaboration with astrazeneca , our three new collaborations with biogen idec and the kynamro fda acceptance milestone from genzyme . at the same time , in 2012 , revenue from amortization of the upfront payments associated with the genzyme collaboration ended as planned midyear .
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the share repurchase program is subject to prevailing market conditions and other considerations and may be suspended or discontinued at any time . treasury stock . in addition to open story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes contained herein and the information included in our other filings with the securities and exchange commission . this discussion includes `` forward-looking statements '' within the meaning of section 27a of the securities act and section 21e of the exchange act . all statements in this annual report on form 10-k other than statements of historical fact are forward-looking statements . these forward-looking statements involve known and unknown risks and uncertainties . our actual results may differ materially from those projected or assumed in such forward-looking statements . among the factors that could cause actual results to differ materially are the risk factors discussed under item 1a . all forward-looking statements and risk factors included in this document are made as of the date of this report , based on information available to us as of such date . we assume no obligation to update any forward-looking statement or risk factor . overview we are a global provider of cash access services and related equipment and services to the gaming industry . our products and services : ( a ) provide gaming establishment patrons access to cash through a variety of methods , including automated teller machine ( `` atm '' ) cash withdrawals , credit card cash access transactions , point-of-sale ( `` pos '' ) debit card transactions , check verification and warranty services and money transfers ; ( b ) provide cash access devices and related services , such as slot machine ticket redemption and jackpot kiosks to the gaming industry ; ( c ) provide products and services that improve credit decision-making , automate cashier operations and enhance patron marketing activities for gaming establishments ; and ( d ) provide online payment processing solutions for gaming operators in states that offer intra-state , internet-based gaming and lottery activities . factors affecting comparability : our consolidated financial statements included in this report that present our financial condition and results of operations reflect the following transactions and events : in may 2013 , we entered into a second amendment to our credit agreement that reduces the interest rate on borrowings under the term loan facility from libor plus a margin of 5.5 % ( subject to a minimum libor rate of 1.50 % ) to libor plus a margin of 3.0 % ( subject to a minimum libor rate of 1.0 % ) . in the second quarter 2012 , card associations implemented a reduction in the interchange fees paid by issuing banks on atm transactions , thereby decreasing the amount of revenue on our atm transactions . in november 2011 , we acquired substantially all of the assets of mca processing llc . mca was a provider of atm , debit card and credit card cash access services to gaming establishments and also manufactured , sold , licensed and serviced redemption kiosk devices . the results of operations of mca processing have been reflected in the applicable business segment financial information following this acquisition . in october 2011 , the durbin amendment , which imposes caps on the amount of debit card interchange fees , was implemented , and materially reduced the amount of interchange expense that we incurred for pin-based and signature based debit card transactions during the fourth quarter of 2011 and the full years 2012 and 2013 , as described in more detail in the trends section below . in march 2011 , gca and holdings entered into the senior credit facility , consisting of a $ 210.0 million term loan facility and a $ 35.0 million revolving credit facility . all $ 210.0 million of available borrowings under the term loan facility and $ 4.0 million of available borrowings under the revolving credit facility were borrowed concurrent with the establishment of the senior credit facility and we used substantially 43 all of these proceeds to repay indebtedness under our existing senior secured credit facilities and the senior subordinated notes . as a result of the above transactions and events , the results of operations and earnings per share in the periods covered by the consolidated financial statements may not be directly comparable . trends our strategic planning and forecasting processes include the consideration of economic and industry-wide trends that may impact our business . we have identified the more material positive and negative trends affecting our business as the following : although the gaming sector in the united states has experienced revenue declines over the last several years , in 2012 , it stabilized , and modestly improved in 2013. the implementation of the durbin amendment in october 2011 , and the implementation by the card associations of a reduction in the interchange fees paid by issuing banks on atm transactions in 2012 ; both had a material impact on our financial performance in 2012. this is due to the decrease in the amount of interchange expense that we are required to pay on both pin-based and signature-based debit card transactions and the decrease in revenue on our atm transactions . although these changes have been mostly realized , our exposure to various fees imposed by financial services , network card associations and other industry providers can significantly affect our profitability . gaming activity continues to expand into more domestic and international markets . there continues to be a migration from the use of traditional paper checks and cash to electronic payments . the credit markets in the u.s. and around the world are volatile and unpredictable . we are facing increased competition from smaller competitors in the gaming cash access market and face additional competition from gaming equipment manufacturers and systems providers . this increased competition has resulted in pricing pressure and margin erosion with respect to our core cash access products and services . story_separator_special_tag costs and expenses cost of revenues ( exclusive of depreciation and amortization ) increased by $ 16.5 million , or 4 % , to $ 436.1 million for the year ended december 31 , 2012 as compared to the prior year . this was primarily due to the additional revenues discussed previously ; however , the other significant impact on our cost of revenues ( exclusive of depreciation and amortization ) was a decrease in the interchange costs associated with the implementation of the durbin amendment in october of 2011. operating expenses increased by $ 6.3 million , or 9 % , to $ 75.8 million for the year ended december 31 , 2012 as compared to the prior year . this was primarily due to higher payroll and related expenses and atm processing and direct costs related to the increased revenue from the mca acquisition for the year ended december 31 , 2012 as compared to the prior year . depreciation expenses decreased by $ 1.1 million , or 14 % , to $ 6.8 million for the year ended december 31 , 2012 as compared to the prior year . this was primarily due to lower charges as certain fixed assets were fully depreciated for the year ended december 31 , 2012 as compared to the prior year . amortization expenses increased by $ 1.1 million , or 13 % , to $ 9.8 million for the year ended december 31 , 2012 as compared to the prior year . this was primarily due to the mca acquisition and amortization of capitalized internal software costs for the year ended december 31 , 2012 as compared to the prior year . primarily as a result of the factors described above , operating income increased by $ 17.7 million , or 46 % , to $ 56.0 million for the year ended december 31 , 2012 as compared to the prior year . the operating margin increased to 10 % for the year ended december 31 , 2012 from 7 % for the prior year . interest expense , net of interest income , decreased by $ 4.1 million , or 21 % , to $ 15.5 million for the year ended december 31 , 2012 as compared to the prior year . the prior year figures included approximately $ 1.8 million that was associated with the debt refinancing in march of 2011 , ( $ 1.0 million loss on early extinguishment of debt and $ 0.8 million of defeasance costs related to the debt ) , and the remaining savings in 2012 came from a $ 3.5 million reduction in interest charges due to the lower outstanding debt balance . this decrease in interest expense was partially offset by a $ 0.3 million increase in interest charges related to a higher average outstanding balance on the vault cash supplied by wells fargo and a slightly higher average cash usage rate ; and an interest charge associated with the change in fair value of the interest rate cap acquired in january 2012 of approximately $ 0.9 million . income tax expense was $ 14.8 million , an increase of $ 5.2 million , for the year ended december 31 , 2012 as compared to the prior year . this was primarily due to the increase in income from operations before income tax expense of $ 21.7 million . the provision for income tax reflected an effective income tax rate of 36.5 % for the year ended december 31 , 2012 , which was greater than the statutory federal rate of 35.0 % primarily due to state taxes and the non-deductible , non-cash compensation expenses related to stock options . the provision for income tax reflected an effective income tax rate of 51.2 % for the prior year , which was greater than the statutory federal rate of 35.0 % primarily due to the negative impact by the expiration of certain equity awards to former officers , the re-valuation of our deferred tax assets due to a decrease in the effective state tax rate , the increase in the valuation allowance on state net operating loss carry forwards and an increase in the effect of stock options in proportion to lower pre-tax income amounts . primarily as a result of the foregoing , net income was $ 25.7 million , an increase of $ 16.6 million , or 181 % , for the year ended december 31 , 2012 as compared to the prior year . 49 critical accounting policies the preparation of our financial statements in conformity with united states generally accepted accounting principles ( `` gaap '' ) requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities in our consolidated financial statements . the sec has defined a company 's critical accounting policies as the ones that are most important to the portrayal of the financial condition and results of operations , and which require management to make the most difficult and subjective judgments , often as a result of the need to make estimates about matters that are inherently uncertain . based on this definition , we have identified our critical accounting policies as those addressed below . we also have other key accounting policies that involve the use of estimates , judgments and assumptions . you should review the notes to our consolidated financial statements for a summary of these policies . we believe that our estimates and assumptions are reasonable , based upon information presently available ; however , actual results may differ from these estimates under different assumptions or conditions . goodwill . we had approximately $ 180.1 million in net unamortized goodwill on our consolidated balance sheets at december 31 , 2013 resulting from our acquisitions of other businesses . we test for impairment annually on a reporting unit basis , as of october 1 , or more often under certain circumstances .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 the following table sets forth the consolidated results of operations and percentages of total revenue ( in thousands ) : replace_table_token_6_th total revenues total revenues decreased by $ 2.0 million , or 0 % , to $ 582.4 million for the year ended december 31 , 2013 as compared to the prior year . this was due to lower atm and check services revenues , partially offset by higher kiosk sales and an increase in cash advance revenues for the year ended december 31 , 2013 as compared to the prior year . cash advance revenues increased by $ 3.6 million , or 2 % , to $ 231.1 million for the year ended december 31 , 2013 as compared to the prior year . this was primarily due to higher international cash advance revenues for the year ended december 31 , 2013 as compared to the prior year . atm revenues decreased by $ 17.1 million , or 6 % , to $ 286.0 million for the year ended december 31 , 2013 as compared to the prior year . this was primarily due to lost business and lower transaction volume for the year ended december 31 , 2013 as compared to the prior year . check services revenues decreased by $ 3.8 million , or 15 % , to $ 21.6 million for the year ended december 31 , 2013 as compared to the prior year . this was primarily due to lost business and a decrease in the number of check services transactions processed for the year ended december 31 , 2013 as compared to the prior year . 46 other revenues increased by $ 15.2 million , or 54 % , to $ 43.7 million for the year ended december 31 , 2013 as compared to the prior year .
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we caution that assumptions , expectations , projections , intentions or beliefs about future events may , and often do , vary 40 from actual results and the differences can be material . some of the key factors that could cause actual results to vary from our expectations include changes in oil and natural gas prices , the timing of planned capital expenditur es , availability of acquisitions , joint ventures and dispositions , uncertainties in estimating proved reserves and forecasting production results , potential failure to achieve production from development projects , operational factors affecting the commence ment or maintenance of producing wells , the condition of the capital and financial markets generally , as well as our ability to access them , and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affe cting our business , as well as those factors discussed below and elsewhere in this report , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see cautionary sta tement regarding forward-looking statements and item 1a . risk factors . executive overview strategy and 2017 outlook we are a growth-oriented independent oil and gas company engaged in the acquisition and development of oil and gas reserves through an active and diversified program that includes the acquisition , drilling and development of undeveloped leases , asset and corporate acquisitions and , to a lesser extent , exploration activities , with our current primary assets located in the midland basin of west texas , the eagle ford trend of south texas and the williston basin of north dakota . future growth in assets , earnings , cash flows and common share values will be dependent upon our ability to acquire , discover and develop commercial quantities of oil and natural gas reserves that can be produced for a profit and to assemble an oil and natural gas reserve base with an estimated market value exceeding its acquisition , development and production costs . historically , we have operated in more than one basin and have shifted our capital expenditures among basins to take advantage of regional changes in market conditions , such as commodity prices ( net of transportation differentials ) and availability and costs of services and equipment , thus promoting profitable growth . with the closing of the bold contribution agreement , we will direct the majority of our capital budget to the permian basin . the majority of our efforts are currently focused on development of our acreage positions in our primary asset locations . in addition , it is essential that , over time , our personnel expand our current projects and or generate additional projects so that we have the potential to economically replace our production and increase our estimated proved reserves . the impact of the recent oil and gas price downturn , which began in 2014 , may have long-term effects on our business , as well as the industry as a whole . despite the prevailing low oil and natural gas prices , we believe we were able to achieve certain accretive company goals in 2016 which included , but were not limited to : converting a large portion of our acreage to held by production ( “ hbp ” ) status , while improving our lease expiration profile to minimize near-term lease expirations ; lowering our operating costs and general and administrative costs , in total and on a unit of production basis ; increasing efficiencies and significantly decreasing our drilling and completion costs , generally beyond reductions in the prevailing in the industry ; completing a corporate acquisition , with production and undeveloped acreage that is substantially all hbp and which facilitated our initial entry into the permian basin , and executing the bold contribution agreement , which when closed will significantly expand our permian basin holdings and establish us as an operator with added current production and a substantial drilling inventory on leases that are largely hbp . at december 31 , 2016 , approximately 74 % of our operated eagle ford and substantially all our bakken acreage was held-by-production . of the approximately 9,900 remaining total gross undeveloped acres prospective for the eagle ford , upper eagle ford , austin chalk and possibly other objectives , approximately 4,700 net acres could expire in 2017. we anticipate that our current and future drilling plans , along with the selected lease extensions , will extend the majority of the leases scheduled to expire . for 2017 , we intend to conduct operations within our available cash flows and availability under our reserve-based credit agreement . we expect to resume our drilling and completion operations in our operated eagle ford project in gonzales county in the second quarter of 2017 along with selected participations in non-operated activities in west texas and in north dakota . while conducting these operations within our available liquidity , we will continue to pursue our business strategy . following is a brief outline of our current plans : pursue attractive asset or corporate acquisitions ; maintain and expand our acreage positions and drilling inventory ; 41 pending adequate commodity prices , continue the development of our acreage positions in the eagle ford trend of south texas , horizontal wolfcamp trend of west texas and the williston basin of north dakota ; generate additional oil-weighted development projects ; and obtain additional capital as available and needed , or offer our common stock in exchange for acquisitions . story_separator_special_tag this acreage supports 13 gross eagle ford drilling locations . we expect to initiate drilling on this acreage in the second quarter of 2017. on may 18 , 2016 , we acquired lynden energy corp. ( “ lynden ” ) in an all-stock transaction through an arrangement ( the “ lynden arrangement ” ) instead of a customary merger because lynden is incorporated in british columbia , canada . we acquired all the outstanding shares of common stock of lynden through a newly formed subsidiary , with lynden surviving in the transaction as a wholly-owned subsidiary of the company . we issued 3,700,279 shares of our common stock to the holders of lynden common stock in the transaction . story_separator_special_tag subsequently entered into an agreement with the rig contractor to terminate our contract . per the terms of the agreement , a termination fee for the remaining commitment on the contract was due and the termination fees were retroactively applied back to january 2016 , when we suspended our daily drilling and temporarily idled our contracted drilling rig . in connection with the termination , we issued a three-year amortizing promissory note with an original principal amount of $ 5.1 million , which was equivalent to the unpaid idle charges and the termination fee . impairment as a result of large commodity price declines and in spite of our operating achievements , we recognized $ 24.3 million noncash asset impairments in 2016 that have negatively impacted our results of operations and equity . the impairments recorded in 2016 consisted of $ 3.9 million to unproved properties , $ 2.9 million to proved properties and $ 17.5 million to goodwill . depreciation , depletion and amortization ( “ dd & a ” ) dd & a decreased for the year ended december 31 , 2016 by $ 5.3 million , or 17 % relative to the comparable period in 2015 , due to lower production volumes and reduced net book value in the 2016 period as a result of the significant impairments recognized at the 44 end of 2015. the reserve decreases that lead to the impairments were primarily attributable to lower average o il and natural gas prices in 2016. general and administrative expense ( “ g & a ” ) these expenses consist primarily of employee remuneration , professional and consulting fees and other overhead expenses . g & a decreased by $ 0.3 million for the year ended december 31 , 2016 relative to the comparable period in 2015. the decrease was primarily due to salary and benefits reductions taken during 2016. stock-based compensation stock-based compensation includes the expense associated with the 2016 grants of restricted stock units ( “ rsus ” ) to employees and non-employee directors . for the year ended december 31 , 2016 we recognized expense of $ 3.3 million related to the rsu grants . the comparable prior period had no stock-based compensation expense since there were not any previously granted rsus or other equity based compensation granted . transaction costs transaction costs consist primarily of professional and consulting fees associated with the lynden arrangement completed on may 18 , 2016 and the bold contribution agreement entered on november 7 , 2016. interest expense , net interest expense includes commitment fees , amortization of deferred financing costs , and interest on outstanding indebtedness . interest expense for the year ended december 31 , 2016 was $ 1.3 million compared to $ 0.7 million for the comparable period in 2015. the $ 0.6 million increase in interest expense was due to higher amortization of deferred financing costs and increased fees due to a larger credit facility . ( loss ) gain on derivative contract , net for the ended december 31 , 2016 , we recorded a net loss on derivative contracts of $ 6.6 million , consisting of net realized gains on settlements of $ 3.2 million and unrealized mark-to-market losses of $ 9.8 million . for the ended december 31 , 2015 , we recorded a net gain on derivative contracts of $ 6.4 million , consisting of net realized gains on settlements of $ 6.3 million and unrealized mark-to-market gains of $ 0.1 million . the primary reason for the current period loss as compared to the prior year gain is due to in improved commodity price environment in the latter part of 2016. income tax expense ( benefit ) for the year ended december 31 , 2016 , we recorded $ 0.5 million of income tax expense related to lynden . our corporate structure requires the filing of two separate consolidated u.s. federal income tax returns . taxable income of earthstone , excluding the lynden subsidiaries can not be offset by tax attributes , including net operating losses of the lynden subsidiaries , nor can taxable income of the lynden subsidiaries be offset by tax attributes of earthstone , excluding the lynden subsidiaries . excluding the lynden subsidiaries , we have recorded significant income tax benefits in 2016 and 2015 resulting from property impairments which has resulted in a deferred tax asset . because the future realization of this deferred tax asset could not be assured , we recorded a valuation allowance against our deferred tax asset of $ 12.2 million and $ 23.8 million in years ended december 31 , 2016 and 2015 , respectively . 45 year ended december 31 , 2015 compared to the year ended december 31 , 2014 replace_table_token_16_th ( 1 ) prices presented exclude any effects of oil and natural gas derivatives . oil revenues for the year ended december 31 , 2015 , oil revenues increased by $ 5.1 million or 15 % relative to the comparable period in 2014. of the increase , $ 22.1 million was attributable to increased volume , which was offset by $ 17.0 million attributable to a decrease in our realized price .
| results of operations year ended december 31 , 2016 , compared to the year ended december 31 , 2015 replace_table_token_15_th ( 1 ) prices presented exclude any effects of oil and natural gas derivatives . oil revenues for the year ended december 31 , 2016 , oil revenues decreased by approximately $ 5.5 million or 14 % relative to the comparable period in 2015. of the decrease , approximately $ 4.5 million was attributable to a decrease in our realized price and $ 1.0 million was attributable to decreased volume . our average realized price per bbl decreased from $ 44.09 for the year ended december 31 , 2015 to $ 39.13 or 11 % for the year ended december 31 , 2016. we had net decrease in the volume of oil sold of 26 mbbls . the midland basin 43 properties we acquired in the arrangement provided an additional 139 mbbls and our southern gonzales and northern karnes county assets that we acquired and began development on provided an additional 56 mbbls . these increases however , were offset b y declines on our operated eagle ford of 197 mbbls , our non-operated eagle ford of 6 mbbls and bakken/three forks properties of 10 mbbls . the remaining volume decrease was due to normal production declines and variability in sales volumes on our other pro perties mainly in texas and north dakota . natural gas revenues for the year ended december 31 , 2016 , natural gas revenues decreased by $ 0.4 million or 8 % relative to the comparable period in 2015. substantially all of the $ 0.4 million decrease was attributable to the decrease in our realized price .
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overview we are a commercial-stage company engaged in the discovery and development of drugs that treat severe metabolic , oncologic and psychiatric disorders by modulating the effects of the hormone cortisol . since 2012 , we have marketed korlym ® ( mifepristone ) for the treatment of patients who suffer from cushing 's syndrome , a disease caused by excess cortisol activity . we have discovered more than 500 proprietary , selective cortisol modulators in four structurally distinct series . our lead compounds have entered the clinic as potential treatments for a variety of serious disorders - cushing 's syndrome , solid tumors ( including advanced , high-grade serous ovarian cancer , metastatic pancreatic cancer and castration-resistant prostate cancer ) , weight gain caused by antipsychotic medications , and non-alcoholic steatohepatitis ( “ nash ” ) . cushing 's syndrome korlym . we sell korlym in the united states , using experienced sales representatives to call on physicians caring for patients with endogenous cushing 's syndrome ( hypercortisolism ) . because many people who suffer from cushing 's syndrome are undiagnosed or inadequately treated , we have developed and continue to refine and expand programs to educate physicians and patients about screening for hypercortisolism and the role korlym can play in treating the disorder . we also have a field-based force of medical science liaisons . we use one specialty pharmacy and one specialty distributor to distribute korlym and provide logistical support to physicians and patients . our policy is that no patient with cushing 's syndrome will be denied access to korlym for financial reasons . to help us achieve that goal , we fund our own patient support programs and donate money to independent charitable foundations that help patients pay for all aspects of their cushing 's syndrome care , whether or not that care includes taking korlym . relacorilant . we are conducting a phase 3 trial of our proprietary , selective cortisol modulator , relacorilant , as a treatment for hypercortisolism . relacorilant 's phase 3 trial ( “ grace ” ) , is expected to enroll 130 patients at sites in the united states , canada , europe and israel . each patient in grace will receive relacorilant for 22 weeks . those who exhibit pre-specified improvements in hypertension or glucose metabolism will then enter a twelve-week , double-blind , “ randomized withdrawal ” phase , in which half of the patients will continue receiving relacorilant and the rest will receive placebo . grace 's primary endpoints are the rate and degree of relapse in patients receiving placebo compared to those continuing treatment with relacorilant . we also plan to conduct a placebo-controlled , double-blind , phase 3 trial of relacorilant to treat patients whose cushing 's syndrome is caused by an adrenal tumor . the fda and the european commission ( “ ec ” ) have designated relacorilant as an orphan drug for the treatment of cushing 's syndrome . in the united states , orphan designation confers tax credits , reduced regulatory fees and , provided we obtain approval , seven years of exclusive marketing rights for relacorilant in the treatment of cushing 's syndrome , with limited exceptions . benefits of orphan drug designation by the ec are similar , and include reduced regulatory fees and , if we obtain approval , ten years of exclusive marketing rights in the european union ( “ eu ” ) for the treatment of cushing 's syndrome . additional benefits in the eu include protocol assistance from the european medicines agency ( “ ema ” ) and access to the eu 's centralized marketing authorization procedure . oncology many types of solid tumors express gr and are potential targets for cortisol modulation therapy , among them pancreatic , ovarian , castration-resistant prostate and adrenocortical cancer . 28 relacorilant in patients with solid tumors . we are conducting a controlled phase 2 trial of relacorilant in combination with abraxane in patients with advanced , high-grade serous ovarian tumors . the trial is expected to enroll 180 patients at sites in the united states and europe . two thirds of the patients will receive relacorilant plus abraxane . the rest will receive abraxane alone . the primary endpoint is progression-free survival ( “ pfs ” ) , as measured using the response evaluation criteria in solid tumors ( recist ) . we plan to conduct a phase 3 trial of relacorilant plus abraxane to treat patients with metastatic pancreatic cancer . relacorilant has been designated an orphan drug by both the fda and the ec for the treatment of pancreatic cancer . cortisol modulators in patients with castration-resistant prostate cancer . we are conducting an open label , dose-finding trial of our proprietary , selective cortisol modulator exicorilant combined with xtandi in patients with metastatic crpc . investigators at the university of chicago are conducting a dose-finding trial of relacorilant combined with xtandi in the same patient population . we are providing relacorilant . in addition to patents covering its composition of matter , we own united states patents covering the use of exicorilant to treat crpc . metabolic diseases antipsychotic-induced weight gain and nash . we are conducting a double-blind , placebo-controlled phase 1b trial testing miricorilant 's activity in attenuating antipsychotic-induced weight gain . the first part of this trial enrolled 66 healthy subjects , each of whom received ten mg per day of olanzapine and either placebo or miricorilant ( 600 mg ) . the duration of the trial was 14 days . the trial 's second stage is testing a miricorilant dose of 900 mg. planned enrollment is 30 healthy subjects . we are conducting a phase 2 , double-blind , placebo-controlled trial of miricorilant in the reversal of antipsychotic-induced weight gain . we expect to enroll 100 patients with schizophrenia at 20 sites in the united states . study participants will continue to receive their established antipsychotic medication and will have either miricorilant or placebo added to their regimen for 12 weeks . the trial 's primary endpoint is reduction in weight . story_separator_special_tag during the year ended december 31 , 2019 , we also acquired 0.5 million shares at a cost of $ 6.1 million in satisfaction tax withholding requirements for the settlement of employee option exercises . we had no such transactions in 2018 and 2017 . because we extinguished the financing agreement in 2017 , we made no payments under it in 2019 and 2018 , compared to payments of $ 15.1 million during the year ended december 31 , 2017 . we had an accumulated deficit of $ 23.6 million and $ 117.7 million in 2019 and 2018 , respectively . contractual obligations and commitments the following table presents our estimates of obligations under contractual agreements as of december 31 , 2019 . replace_table_token_4_th ( 1 ) as of december 31 , 2019 , we had commitments to purchase $ 0.6 million of api from pcas . ( 2 ) on october 23 , 2019 , we amended our office lease to add more space and extend its term . effective october 1 , 2019 , the lease term was extended from march 31 , 2020 through march 31 , 2022 for the original office space and on april 1 , 2020 the lease term will begin for the additional space through march 31 , 2022. at december 31 , 2019 , the remaining minimum rental payments due under the lease were $ 4.7 million . 31 ( 3 ) in december 2013 , we entered into an agreement with quotient sciences limited ( “ quotient ” ) , a clinical research organization , to assist in the management and conduct of our phase 1 studies of miricorilant and our other selective cortisol modulators . at december 31 , 2019 , the total non-cancelable commitment under the agreement was approximately $ 0.4 million . we have other contractual payment obligations and purchase commitments , the timing of which are contingent on future events , including the initiation and completion of manufacturing projects . in march 2014 , we entered into a long-term agreement with one contract manufacturer , pcas to produce mifepristone , the api for korlym . on july 25 , 2018 , we amended this agreement to add a second manufacturing site and extend its term to december 31 , 2021 , with two one-year automatic renewals , unless either party provides 12 months advance written notice of its intent not to renew . the amendment provides exclusivity between pcas and corcept . if pcas is unable to meet our requirements , we may purchase mifepristone from another supplier . we have agreements with two third-party manufacturers to produce and bottle korlym tablets . we enter into contracts in the normal course of business with cros for preclinical studies and clinical trials . the contracts are cancellable , with varying provisions regarding termination . if a contract with a specific vendor were to be terminated , we would only be obligated for products and services we had received as of the effective date of the termination and any applicable cancellation fees . net operating loss carryforwards see note 9 , income taxes in our audited consolidated financial statements . off-balance sheet arrangements none . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with u.s. gaap , which requires us to make estimates and judgments that affect the amount of assets , liabilities and expenses we report . we base our estimates on historical experience and on other assumptions we believe to be reasonable . actual results may differ from our estimates . our significant accounting policies are described in note 1 , basis of presentation and summary of significant accounting policies , of the notes to consolidated financial statements included in part iv of this annual report on form 10-k. we believe the following accounting estimates and policies to be critical : net product revenue to determine net product revenue , we deduct from sales the cost of our patient co-pay assistance program and our estimates of ( i ) government chargebacks and rebates , ( ii ) discounts provided to our sd for prompt payment and ( iii ) reserves for expected returns . we record these estimates at the time we recognize revenue and update them as new information becomes available . our estimates take into account our understanding of the range of possible outcomes . if results differ from our estimates , we adjust our estimates , which changes our net product revenue and earnings . we report any changes in the period they become known to us , even if they concern transactions occurring in prior period . government rebates korlym is eligible for purchase by , or qualifies for reimbursement from , medicaid and other government programs that are eligible for rebates on the price they pay for korlym . to determine the appropriate amount to reserve against these rebates , we identify korlym sold to patients covered by government-funded programs , apply the applicable government discount to these sales and then estimate the portion of total rebates we expect will be claimed . we then ( i ) deduct this reserve from revenue in the period to which the rebates relate and ( ii ) include in accrued expenses on our consolidated balance sheet a current liability of equal amount . chargebacks although we sell korlym to the sd at full price , some of the government entities to which the sd sells receive a discount . the sd recovers such discounts by reducing its payment to us ( this reduction is called a “ chargeback ” ) . chargebacks sometimes relate to korlym sold to sd in prior periods . we deduct from our revenue in each period chargebacks claimed by the sd for korlym we sold to the sd that period . we also create a reserve for chargebacks we estimate the sd will claim in future periods against korlym it purchased in the current period but has not yet resold .
| results of operations net product revenue – net product revenue is gross product revenue from sales to our customers less deductions for estimated government rebates and chargebacks . net product revenue was $ 306.5 million for the year ended december 31 , 2019 , compared to $ 251.2 million for the year ended december 31 , 2018 and $ 159.2 million for the year ended december 31 , 2017 . the increases in net product revenue were primarily due to increased sales volume , as we shipped korlym to more patients . price increases represented approximately 41.6 percent , 14.3 percent and 16.6 percent of the increases in net revenue for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the increase in korlym 's price for the year ended december 31 , 2019 was due to a relative decrease in the number of patients covered by medicaid ( which reimburses korlym at a lower rate ) , a statutorily-mandated increase in the price paid by other government programs , and a price increase that took effect on august 1 , 2019. cost of sales – cost of sales includes the cost of api , tableting , packaging , personnel , overhead , stability testing and distribution . cost of sales was $ 5.5 million for the year ended december 31 , 2019 , as compared to $ 5.2 million in 2018 and $ 3.6 million in 2017 . for the year ended december 31 , 2019 , cost of sales was 1.8 percent of our net product revenue , as compared to 2.1 percent in 2018 and 2.2 percent in 2017 . cost of sales as a percentage of revenue declined due to an increase in the per-tablet price of korlym . the dollar value of our cost of sales increased in both years due to greater sales unit volumes .
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factors that could cause or contribute to these differences include those discussed below and in this annual report on form 10-k , particularly in “ risk factors ” and “ forward-looking statements. ” our industries and developments viavi is a global provider of network test , monitoring and assurance solutions to communications service providers , enterprises and their ecosystems , supported by a worldwide channel community including viavi velocity solution partners ( “ velocity ” ) . our velocity program allows us to optimize the use of direct or partner sales depending on application and sales volume . its strategy is to expand our reach into new market segments as well as expand our capability to sell and deliver solutions . our solutions deliver end-to-end visibility across physical , virtual and hybrid networks , enabling customers to optimize connectivity , quality of experience and profitability . viavi is also a leader in high performance thin film optical coatings , providing light management solutions to anti-counterfeiting , consumer and industrial , government and healthcare and other markets . on august 1 , 2015 , we completed the separation of our optical components and lasers business and created two publicly traded companies : an optical components and commercial lasers company named lumentum , consisting of our ccop segment and the waveready product line formerly within our ne segment ; and a network and service enablement and optical coatings company , renamed viavi , consisting of our network enablement ( “ ne ” ) and service enablement ( “ se ” ) , collectively ( “ nse ” ) and optical security and service ( “ osp ” ) segments . activities related to the lumentum business have been presented as discontinued operations in all periods of the company 's consolidated financial statements in this annual report on form 10-k and the accompanying disclosures , discussion and analysis herein pertains to the company 's continuing operations , unless noted otherwise . to serve our markets , during fiscal 2018 we operated the following business segments : network enablement service enablement optical security and performance products network enablement ne provides an integrated portfolio of testing solutions that access the network to perform build-out and maintenance tasks . these solutions include instruments , software and services to design , build , activate , certify , troubleshoot and optimize networks . they also support more profitable , higher-performing networks and facilitate time-to-revenue . our solutions address lab and production environments , field deployment and service assurance for wireless and fixed communications networks , including storage networks . our test instrument portfolio is one of the largest in the industry , with hundreds of thousands of units in active use by major network-equipment manufacturers ( “ nem s ” ) , operators and services providers worldwide . designed to be mobile , these products include instruments and software that access the network to perform installation and maintenance tasks . they help service provider technicians assess the performance of network elements and segments and verify the integrity of the information being transmitted across the network . these instruments are highly intelligent and have user interfaces that are designed to simplify operations and minimize the training required to operate them . our ne solutions are also used by nems in the design and production of next-generation network equipment . viavi also offers a range of product support and professional services designed to comprehensively address our customers ' requirements . these services include repair , calibration , software support and technical assistance for our products . we offer product and technology training as well as consulting services . our professional services , provided in conjunction with system integration projects , include project management , installation and implementation . ne customers include communication service providers ( “ csp s ” ) , nem s , government organizations and large corporate customers , such as major telecom , mobility and cable operators , chip and infrastructure vendors , storage-device manufacturers , storage-network and switch vendors , and deployed private enterprise customers . our customers include alcatel-lucent 28 international , américa móvil , s.a.b . de c.v. , at & t inc. , centurylink , inc. , cisco systems , inc. , comcast corporation , nokia solutions and networks , reliance industries , time warner inc. and verizon communications inc. service enablement se provides embedded systems and enterprise performance management solutions that give global csp s , enterprises and cloud operators visibility into network , service and application data . these solutions - which primarily consist of instruments , microprobes and software - monitor , collect and analyze network data to reveal the actual customer experience and identify opportunities for new revenue streams and network optimization . our portfolio of se solutions addresses the same lab and production environments , field deployment and service assurance for wireless and fixed communications networks , including storage networks , as our ne portfolio . our solutions let carriers remotely monitor performance and quality of network , service and applications performance throughout the entire network . this provides our customers with enhanced network management , control , and optimization that allow network operators to initiate service to new customers faster , decrease the need for technicians to make on-site service calls , help to make necessary repairs faster and , as a result , lower costs while providing higher quality and more reliable services . remote monitoring decreases operating expenses , while early detection helps increase uptime , preserve revenue , and helps operators better monetize their networks . se customers include similar csps , nems , government organizations , large corporate customers , and storage-segment customers that are served by our ne segment . optical security and performance products our osp segment leverages its core optical coating technologies and volume manufacturing capability to design , manufacture , and sell products targeting anti-counterfeiting , consumer and industrial , government , healthcare and other markets . our security offerings for the currency market include ovp® , ovmp® and banknote thread substrates . story_separator_special_tag the aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements from the current fiscal year , which may change the pattern and timing of revenue recognition for these elements but will not change the total revenue recognized for the arrangement . to the extent a deliverable ( s ) in a multiple-element arrangement is subject to specific guidance ( for example , software that is subject to the authoritative guidance on software revenue recognition ) , we allocate the fair value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the specific guidance . some of our product offerings include hardware that are integrated with or sold with software that delivers the functionality of the equipment . we believe this equipment is not considered software-related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition . hardware revenue from hardware sales is typically recognized when the product meet delivery criteria . services revenue from services and system maintenance is recognized on a straight-line basis over the services term . revenue from professional service engagements is recognized once its delivery obligation is fulfilled . revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the delivery period . we also generate service revenue from hardware repairs and calibration which is recognized as revenue upon completion of the service . software the company 's software arrangements generally consist of a perpetual license fee , installation services and post-contract support ( “ pcs ” ) as well as other non-software deliverables . 30 vsoe of fair value for pcs is established based on the renewal rate or the bell curve methodology . non-software and software-related arrangements are bifurcated based on a relative selling price using besp . the software related elements are bifurcated into separate units of accounting if vsoe of fair value has been established for the undelivered element ( s ) and the functionality of the delivered element ( s ) is not dependent on the undelivered element ( s ) . revenue from multiple-element software arrangements that include installation services is deferred until installation service obligation for the software solution is fulfilled . if vsoe has been established for the undelivered elements , the software , installation services and non-software elements are recognized upon completion of delivery and the pcs is recognized ratably over the remaining support contract term . if vsoe has not been established for the undelivered element , the software related elements are recognized ratably over the remaining support period . investments the company 's investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities , recorded at fair value . the cost of securities sold is based on the specific identification method . unrealized gains and losses resulting from changes in fair value on available-for-sale investments , net of tax , are reported as a separate component within our consolidated statements of stockholders ' equity . unrealized gains or losses on trading securities resulting from changes in fair value are recognized in current earnings . our short-term investments are classified as current assets , include certain securities with stated maturities of longer than twelve months , are highly liquid and available to support current operations . the company periodically reviews these investments for impairment . if a debt security 's market value is below amortized cost and the company either intends to sell the security or it is more likely than not that the company will be required to sell the security before its anticipated recovery , we record an other-than-temporary impairment charge to current earnings for the entire amount of the impairment . if a debt security 's market value is below amortized cost and the company does not expect to recover the entire amortized cost of the security , the company separates the other-than-temporary impairment into the portion of the loss related to credit factors , or the credit loss portion , and the portion of the loss that is not related to credit factors , or the non-credit loss portion . the credit loss portion is the difference between the amortized cost of the security and our best estimate of the present value of the cash flows expected to be collected from the debt security . the non-credit loss portion is the residual amount of the other-than-temporary impairment . the credit loss portion is recorded as a charge to income ( loss ) , and the non-credit loss portion is recorded as a separate component of other comprehensive income ( loss ) . inventory valuation we assess the value of our inventory on a quarterly basis and write down those inventories that are obsolete or in excess of our forecasted usage to their estimated realizable value . our estimates of realizable value are based upon our analysis and assumptions including , but not limited to , forecasted sales levels by product , expected product life cycle , product development plans and future demand requirements . our product line management personnel play a key role in our excess review process by providing updated sales forecasts , managing product transitions and working with manufacturing to maximize recovery of excess inventory . if actual market conditions are less favorable than our forecasts or actual demand from our customers is lower than our estimates , we may be required to record additional inventory write-downs . if actual market conditions are more favorable than anticipated , inventory previously written down may be sold , resulting in lower cost of sales and higher income from operations than expected in that period . business combinations we use the acquisition method of accounting under the authoritative guidance on business combinations . each acquired company 's operating results are included in our consolidated financial statements beginning on the date of acquisition . the purchase price is equivalent to the fair value of consideration transfered .
| results of operations the results of operations for the current period are not necessarily indicative of results to be expected for future periods . the following table summarizes selected consolidated statements of operations items as a percentage of net revenue : replace_table_token_5_th 34 financial data for fiscal 2018 , 2017 and 2016 the following table summarizes selected consolidated statement of operations items ( in millions , except for percentages ) : replace_table_token_6_th foreign currency impact on results of operations while the majority of our net revenue and operating expenses are denominated in u.s. dollar , a portion of our international operations are denominated in currencies other than the u.s. dollar . changes in foreign exchange rates may significantly affect revenue and expenses . while we use foreign currency hedging contracts to mitigate some foreign currency exchange risk , these activities are limited in the protection that they provide us and can themselves result in losses . we have presented below “ constant dollar ” comparisons of our net sales and operating expenses which exclude the impact of currency exchange rate fluctuations . constant dollar net revenue and operating expenses are non-gaap financial measures , which is information derived from consolidated financial information but not presented in our financial statements prepared in accordance with u.s. gaap . our 35 management believes these non-gaap measures , when considered in conjunction with the corresponding u.s. gaap measures , may facilitate a better understanding of changes in net revenue and operating expenses . fiscal 2018 and 2017 if currency exchange rates had been constant in fiscal 2018 and 2017 , our consolidated net revenue in “ constant dollars ” would have decreased by approximately $ 12.8 million , or 1.5 % of net revenue , which primarily impacted our ne and se segments .
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the company has entered into various license agreements that provide revenues based on guaranteed minimum royalty payments with additional royalty revenues based on a percentage of defined sales . guaranteed minimum royalty payments ( fixed revenue ) are recognized on a straight-line basis over the term of the contract , as defined in each license agreement . earned royalties and earned royalties in excess of the fixed revenue ( variable revenue ) are recognized as income during the period corresponding to the licensee 's sales . earned royalties in excess of fixed revenue are only recognized when the company is reasonably certain that the guaranteed minimums payments for the period will be exceeded . at september 30 , 2020 , the company has no future performance obligations . allocation of transaction price in our current business model we do not have contracts with customers which have multiple elements as revenue is driven purely by online product sales or purchase order based product sales . however , at times in the past , the company had entered into contracts with customers wherein there were multiple elements that may have disparate revenue recognition patterns . in such instances , the company must allocate the total transaction price to these various elements . this is achieved by estimating the standalone selling price of each element , which is the price at which we sell a promised good or service separately to a customer . in circumstances where we have not historically sold relevant products or services on a standalone basis , the company utilizes the most situationally appropriate method of estimating standalone selling price . these methods include ( i ) an adjusted market assessment approach , wherein we refer to prices from our competitors for similar goods or serves and adjust those prices as necessary to reflect our typical costs and margins , ( ii ) an expected cost plus margin approach , wherein we forecast the costs that we will incur in satisfying the identified performance obligation and adding an appropriate margin to such costs , and ( iii ) a residual approach , wherein we adjust the total transaction price to remove all observable standalone selling prices of other goods or services included in the contract and allocate the entirety of the remaining contract amount to the remaining obligation . revenue recognition the company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer , which is upon shipping ( and is typically fob shipping ) which is when our performance obligation is met . net sales are comprised of gross revenues less product returns , trade discounts and customer allowances , which include costs associated with off-invoice mark-downs and other price reductions , as well as trade promotions . these incentive costs are recognized at the later of the date on which the company recognizes the related revenue or the date on which the company offers the incentive . the company currently offers a 60 day , money back guarantee . in regard to sales for services provided , the company records revenue when the customer has accepted services and the company has a right to payment . based on the contracted services , revenue is recognized when the company invoices customers for completed services at agreed upon rates or revenue is recognized over a fixed period of time during which the service is performed . f-14 disaggregated revenue our product revenue is generated primarily through two sales channels , consumer ( e-commerce ) and wholesale channels . we also generate service related sales , although this type of revenue is not a primary focus . we believe that these categories appropriately reflect how the nature , amount , timing and uncertainty of revenue and cash flows are impacted by economic factors . a description of our principal revenue generating activities are as follows : - consumer ( e-commerce ) sales - consumer products sold through our online and telephonic channels . revenue is recognized story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the risk factors , cautionary notice regarding forward-looking statements and business sections in this report . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . our future operating results , however , are impossible to predict and no guaranty or warranty is to be inferred from those forward-looking statements . overview cbdmd owns and operates the nationally recognized cbd brands cbdmd and paw cbd . our cbdmd brand of products includes over 100 skus of high-grade , premium cbd products , including cbd tinctures , cbd gummies , cbd topicals , cbd capsules , cbd bath bombs , cbd bath salts , and cbd sleep aids , and our paw cbd brand of products includes over 49 skus of veterinarian-formulated products including tinctures , chews , and topicals in varying strengths and formulas . story_separator_special_tag as the adverse impact of covid-19 on our company , industry , and country continues , our ability to meet customer demands for products may be impaired or , similarly , our customers may experience adverse business consequences due to the covid-19 pandemic . reduced demand for products or impaired ability to meet customer demand ( including as a result of disruptions at our transportation service providers , third-party manufacturing partners or vendors ) could have a material adverse effect on our business , operations and financial performance . while we are not able to estimate the ultimate impact of the covid-19 pandemic on our financial condition and future results of operations , depending on the prolonged impact of the covid-19 outbreak , this situation could have a significant adverse effect on our future reported results of operations . as indicated , we have implemented several initiatives allowing us to increase our online direct to consumer sales to date , which we will continue to use as we evaluate changes in the wholesale channel . the extent to which the coronavirus impacts our results and financial condition , however , will depend on future developments , which are highly uncertain and can not be predicted , including new information that may emerge and the actions to contain and treat its impacts , among others . discontinued operations effective september 30 , 2019 , we discontinued operations of four business subsidiaries : ee1 , im1 , bpu and level h & w . these subsidiaries accounted for our licensing , entertainment , and products segments prior to fiscal 2019. therefore , the results of operations related to these subsidiaries for the company are reported as discontinued operations . continuing operations discussed below refer to the company 's cbd business unless otherwise indicated , and prior periods in such discussion have been restated to reflect results excluding ee1 , im1 , bpu and level h & w . see note 16 , “ discontinued operations ” , of the notes to consolidated financial statements elsewhere in this report for additional information . as a result , the discussion below is of our continuing operations , which is comprised of the cbd business . 21 story_separator_special_tag at september 30 , 2020 , as compared to $ 50,600,000 at september 30 , 2019 , respectively . during fiscal 2020 we had a decrease in value of $ 29,780,000 of the continent liability and a reclassification out of the liability of $ 4,620,000 for issuance of the first marking period earnout shares . the decrease of $ 29,780,000 is recorded as other expense in our consolidated statement of operations appearing later in this report . we utilize both a market approach and a monte carlo simulation in valuing the contingent liability and a key input in both of those methods is the stock price . the main driver of the change in the value of the contingent liability was the decrease of our common stock price , which was $ 2.00 at september 30 , 2020 as compared to $ 3.96 on september 30 , 2019. we expect to continue to record changes in the non-cash contingent liability through the balance of the earnout period . 24 realized and unrealized gain ( loss ) on marketable and other securities we value investments in marketable securities at fair value and record a gain or loss upon sale at each period in realized and unrealized gain ( loss ) on marketable securities . for fiscal 2020 and fiscal 2019 we recorded $ ( 172,066 ) and $ ( 102,716 ) of realized and unrealized gain ( loss ) on marketable and other securities . in addition , we recorded an impairment for fiscal 2019 of $ 502,560 on investment other securities . the discontinued operations recorded a realized and unrealized gain ( loss ) of $ ( 2,337,280 ) in fiscal 2019 , which is included in the net income ( loss ) from discontinued operations on the statement of operations . for fiscal 2020 we had an impairment on other securities of $ 600,000 as well as an impairment of $ 160,000 against other account receivable representing an investment other security that was to be received . liquidity and capital resources we had cash and cash equivalents on hand of $ 14,824,644 and working capital of $ 16,023,174 at september 30 , 2020 , as compared to cash on hand of $ 4,689,966 and working capital of $ 12,033,157 at september 30 , 2019. our current assets increased approximately 50.6 % at september 30 , 2020 from september 30 , 2019 , and is primarily attributable to an increase in cash and prepaid expenses , offset by a decrease in accounts receivable , marketable and other securities , merchant reserve , inventory , and assets from discontinued operations . our current liabilities increased approximately 107.2 % at september 30 , 2020 from september 30 , 2019. this increase is primarily attributable to increases in accrued expenses , note payable , ppp loan , and operating lease short term liability offset by decreases in accounts payable . during fiscal 2020 we used cash primarily to fund our operations . we do not have any commitments for capital expenditures . we have a commitment for cumulative cash dividends at an annual rate of 8 % payable monthly in arrears for the prior month to our preferred shareholders , when , and as declared . we have multiple endorsement or sponsorship agreements for varying time periods up through december 2022 and provide for financial commitments from our company based on performance/participation ( see note 13 commitments and contingencies ) . we have sufficient working capital to fund our operations .
| results of operations the following tables provide certain selected consolidated financial information for the periods presented : replace_table_token_2_th the following tables provide certain selected unaudited consolidated financial information for the three months ended september 30 , 2020 and 2019 : replace_table_token_3_th sales we record product sales primarily through two main delivery channels , direct to consumers via online capabilities ( e-commerce ) and direct to wholesalers utilizing our internal sales team . in addition , we can record revenue upon delivery of services ( consulting , marketing and brand strategy ) . the following table provides information on the contribution of net sales by type of sale to our total net sales for fiscal 2020 and fiscal 2019. replace_table_token_4_th of our total net sales as indicated above , during fiscal 2020 and fiscal 2019 our paw cbd line accounted for net sales of $ 4,492,833 and $ 1,931,653 , respectively . in addition , the following table provides information on the contribution of net sales by type of sale to our total net sales for the fourth quarter of fiscal 2020 and fiscal 2019 ( unaudited ) . replace_table_token_5_th 22 total net sales during the fourth quarter of fiscal 2020 represents a 22.6 % increase from prior year and sequential quarterly growth of 10.0 % . while wholesale sales were down 28.4 % during the fourth quarter of fiscal 2020 compared to prior year , as covid-19 impacted retailers , wholesale sales represented a 29.1 % sequential quarterly growth . consumer sales during the fourth quarter represents a 58.8 % year over year growth and 4.4 % sequential quarterly growth . cost of sales our cost of sales includes costs associated with distribution , fill and labor expense , components , manufacturing overhead , third-party providers , and outbound freight for our product sales ( consumer and wholesale sales ) , and includes labor for our service sales .
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the company is under no duty , and expressly disclaims any responsibility to , update any of the forward-looking statements contained in this form 10-k. overview fiscal 2004 review the company continues to build upon the foundation that was established by the management team in fiscal 2002 when a corporate-wide reorganization plan was initiated ( see corporate reorganization and company history below ) . in conjunction with this reorganization , the company implemented several improved business processes and strategies in order to : refocus the company 's efforts on the core business of control systems and solutions ; establish fiscal responsibility and cost containment to strengthen our financial position ; introduce new products that provide content and control solutions to reclaim market share ; and implement development , sales and marketing strategies to produce long-term revenue growth . prior to fiscal 2004 , the company made significant progress towards these objectives . the company continued to build upon these accomplishments during fiscal 2004 as follows : introduced over 40 new products among 3 product families to significantly upgrade and enhance the company 's product portfolio ; acquired media access solutions and introduced the associated max product line , a new series of integrated content servers which are complimentary to the existing product base and are designed to store , manage and distribute large quantities of digital audio and digital video ; 14 strengthened our financial position , generating operating cash flow of $ 10.8 million , which allowed the company to pay off its bank debt as of march 31 , 2004 while carrying a cash balance of $ 9.4 million into fiscal 2005 ; created several key internal sales and marketing management positions to compliment our manufacturing representative base ; and entered into an exclusive agreement with rgb communications to distribute amx products in the united kingdom . new products accounted for more than 33 % of revenue for fiscal 2004 and made a significant contribution to the 4 % year over year revenue growth . the company has implemented several additional sales and marketing initiatives in order to improve communications with end users , to further develop market applications for amx products , and to sell the value of amx products and solutions in the areas of device , asset , and content control . the company continues to refine its manufacturing outsourcing strategy . this and other operational improvements made since fiscal 2001 have produced improved profit margins . however , the company may leverage the improved profit margins in the future to generate additional top-line growth . these recent accomplishments enabled the company to produce 4 % revenue growth over fiscal 2003 and report $ 0.50 diluted income per share versus $ 0.28 per share for fiscal 2003. although the domestic economy continues to impact revenues , the company has returned to profitability , is generating operating cash flows , and has made significant progress on the goals and objectives that management believes will produce long-term revenue and earnings growth . corporate reorganization and company history during fiscal 2000 and 2001 , the company changed its name to panja inc. and invested significant resources in broadband internet appliance products and a retail distribution strategy for such products . during this period , the company diverted its marketing and development efforts from its core business to focus on this broadband strategy . during this same period , the company also spent considerable resources on two additional projects : 1 ) the implementation of a new enterprise resource planning system , and 2 ) the move into new headquarter facilities in richardson , texas . certain aspects of the internet growth segment ultimately began to lose momentum and the company struggled to implement its new consumer broadband strategy . at the same time , the company began to see an erosion of the sales growth of its core product offerings because marketing and development efforts in fiscal 2000 and 2001 had been diverted to focus on the broadband strategy . as a result of these developments , the company implemented a corporate-wide restructuring plan in the fourth quarter of fiscal 2001 which included the decision to discontinue the consumer broadband division and its retail distribution strategy . as a result of the restructuring and other business and economic trends in the fourth quarter of fiscal 2001 , the company recorded restructuring and other charges of approximately $ 5.2 million to record severance costs , to record inventory and receivable reserves , and to write-off other assets . in conjunction with the company 's return to its core business strategy , and as a result of customer feedback , the company returned to doing business as amx corporation and formally changed its name at the 2001 shareholder meeting . in conjunction with the restructuring , new management was recruited in most key functional areas of the company . this new management team continued to improve the company 's infrastructure and reposition the company for the future based on current market and business trends . as a result , the company recorded additional charges of approximately $ 8.2 million during the second quarter of fiscal 2002. these charges included reserves for inventory obsolescence of $ 2.4 million , a charge of $ 0.7 million taken to write-off certain assets , additional receivable related reserves of $ 0.5 million , a write-off of miscellaneous intangibles of $ 0.3 15 million , and a valuation allowance against deferred tax assets of $ 4.2 million . story_separator_special_tag the company has stop loss insurance coverage in effect to cover the costs of medical claims over certain deductible amounts for any given plan year for an individual claimant or in the aggregate . however , the trend of medical claims may significantly and unexpectedly change , in which case the company 's liability for unpaid claims may no longer be accurate . this could cause the company to either increase or decrease its expense in a material amount in the period the change occurs . income taxes the measurement of deferred income tax assets is adjusted by a valuation allowance , if necessary , to recognize future tax benefits only to the extent , based on available evidence , that it is more likely than not that such benefits will be realized . an increase or decrease in the estimated valuation allowance recorded against the company 's deferred tax assets would increase or decrease net income in the period such determination was made . recent accounting pronouncements in december 2003 , the sec issued staff accounting bulletin ( sab ) no . 104 , revenue recognition , which supercedes sab 101 , revenue recognition in financial statements . sab 104 primarily rescinds the accounting guidance contained in sab 101 related to multiple-element revenue arrangements that was superceded as a result of the issuance of eitf 00-21. the adoption of sab 104 did not have an impact on amx corporation 's consolidated results of operations or financial position . 17 story_separator_special_tag dealers . the distributors were able to buffer the dealers from some of the historical operational issues that resulted from the company 's focus on its broadband initiative . as a result , these issues had a lesser impact on the company 's international channel , which was up 9 % over fiscal 2002. gross margins . gross margins for the year ended march 31 , 2003 were 51 % , up from 47 % in the year ended march 31 , 2002. fiscal 2002 margins were negatively impacted by the aforementioned inventory obsolescence charges of $ 2.4 million taken in september 2001. excluding the obsolescence charges recorded in september 2001 , fiscal 2002 margins were 50 % . the margin improvement is a reflection of lower costs in the company 's manufacturing operations as a result of the continued implementation of the company 's outsourcing strategy , vendor consolidation , and management directed operational efficiencies . selling and marketing expense . selling and marketing expenses declined significantly to $ 20.7 million or 25 % of net sales compared to $ 27.8 million or 32 % of net sales for the year ended march 31 , 2002. the decrease in selling and marketing expenses is primarily a result of cost control initiatives launched in the latter half of fiscal 2002 , including reduced headcount in the company 's domestic and international sales organizations . research and development expense . research and development expenses were $ 9.2 million or 11 % of net sales compared to $ 6.9 million or 8 % of net sales for fiscal 2002. the company increased its fiscal 2003 research and development spending significantly over prior year levels to expand its product portfolio in order to drive long-term sales growth . general and administrative expense . general and administrative expenses were $ 8.4 million or 10 % of net sales compared to $ 8.5 million or 10 % of net sales for the year ago period . excluding the aforementioned charges of $ 0.6 million recorded in september 2001 to reserve receivables and write-off certain intangible assets , fiscal 2002 general and administrative expenses were $ 7.9 million or 9 % of net sales . the increase in general and administrative expenses in fiscal 2003 is primarily a result of increased salary and incentive compensation expense , offset by lower professional service fees . interest expense . interest expense was $ 0.4 million or 0.5 % of net sales compared to $ 0.7 million or 0.8 % of net sales for fiscal 2002. this decline is primarily attributable to lower average outstanding balances on the company 's revolving line of credit during fiscal 2003 . 20 income tax expense . the company 's effective tax rate was approximately 9 % for the fiscal year ended march 31 , 2003. the tax provision of $ 302,000 recorded for the year principally represented foreign taxes on the company 's u.k. subsidiary . the company does not currently record a tax provision or benefit on its u.s. operations because the company recorded a full valuation allowance on its deferred tax assets . as a result , as the company incurs domestic tax expense or benefit , an offsetting decrease or increase is recorded to the valuation allowance . the company assesses the realizability of its deferred tax assets on an ongoing basis and will eliminate the valuation allowance when warranted based on sustained profitable operating results . net income ( loss ) . for the reasons described above , the company generated net income of $ 3.1 million or $ 0.28 per diluted share for the fiscal year ended march 31 , 2003 compared to a net loss of $ 5.3 million or $ 0.48 per diluted share for the fiscal year ended march 31 , 2002. liquidity and capital resources in the twelve months ended march 31 , 2004 , the company generated $ 10.8 million of cash from operations , including net income of $ 6.1 million . other significant components of operating cash flows included non-cash related items of $ 3.9 million and an increase in payables and other accrued expenses of $ 3.5 million , offset by an increase in receivables of $ 1.8 million , an increase in inventory of $ 0.4 million , and increases in prepaid and other current assets of $ 0.5 million . in the twelve months ended march 31 , 2003 , the company generated $ 10.8 million
| results of operations the following table contains the company 's consolidated statements of operations for each of the three years in the period ended march 31 , 2004 ( in thousands ) : replace_table_token_2_th fiscal 2004 results compared to fiscal 2003 revenue . the company recorded revenue during the fiscal years ended march 31 , 2004 and 2003 as follows ( in thousands ) : replace_table_token_3_th total revenue increased 4 % over fiscal 2003. total commercial revenue was up 3 % compared to prior year revenue , consisting of a 9 % increase in international commercial revenue , offset by a slight decline in domestic commercial revenue . the residential channel reported 14 % revenue growth over fiscal 2003. the company has recently made significant investments in research and development , and has launched a number of new products during the last 18 to 24 months , including 40 new products that began shipping in december 2003. the company has also increased its sales , marketing and training initiatives to educate the marketplace about these new products . these products and initiatives have had a positive impact on the company 's revenue , particularly in the international commercial and residential channels . the impact to the domestic commercial channel has not been as favorable , primarily a result of the poor economic conditions in the united states . additionally , domestic commercial revenue continues to experience some of the residual impact of the company 's focus on the 18 broadband initiative in fiscal 2000 and 2001 , as well as the other operational issues in those years . internationally , the company markets its products using a two-tier structure . the company 's distributors were able to buffer the dealers and end-users from some of these historical operational issues . therefore , these issues did not have the same impact on the international channel .
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the following discussion should be read in conjunction with the consolidated financial statements and related notes that appear in part ii – item 8. financial statements and supplementary data of this annual report on form 10-k. overview the year 2020 represented a transformative period in our company 's 173-year history . during the year , we completed the vertical integration of our legacy iron ore pellet business with the acquisitions of steelmakers ak steel and arcelormittal usa , becoming the largest flat-rolled steel producer in north america . our new unique , vertically integrated business model provides a competitive advantage over other steelmakers that procure a larger proportion of their steelmaking raw materials from external sources , and allows us to control our production from upstream mining to downstream stamping and tubing . we believe the acquisitions give us a leading position in the highly desirable automotive end market , where we supply best-in-class volumes , quality and delivery performance , and give us the most comprehensive flat steel product offering in the industry . due to the much larger operational footprint we now have , we anticipate synergies of approximately $ 310 million from asset optimization , economies of scale and streamlining overhead , over half of which has already been set in motion . we are now focused on maximizing the value of the iron ore pellets we produce from our legacy and recently acquired mines in michigan and minnesota . a majority of the pellets we produce is dedicated to internal consumption , and we do not rely on external sources of pellets . as such , our new steelmaking segment captures effectively all of the production activity in the steelmaking process , which begins at our mines . in 2020 , we also completed construction of and began production at our state-of-the-art direct reduction plant in toledo , ohio . this facility produces high-quality hbi , and is the first of its kind in the great lakes region . our hbi provides a high-quality and environmentally friendly alternative to the scrap and imported pig iron that our potential customers currently utilize . we expect to begin selling this product to third parties during the first quarter of 2021 and reach nameplate capacity at our direct reduction plant during the second quarter of 2021. along with these notable accomplishments , we have been able to successfully navigate through the covid-19 pandemic while preserving the health and safety of both our workforce and our company for the long term . the covid-19 pandemic caused its fair share of challenges , as disruptions in demand led to lower sales output and necessitated the unplanned idling of certain production facilities . these production outages , along with the lower 45 demand and lower prices that came as a result of the pandemic , generated weaker results during the year than what we would normally expect . as the demand environment began to recover , our results in the second half of the year improved dramatically and operations at temporarily idled facilities resumed . now , with steel prices and scrap prices in the u.s. recently reaching all-time highs , we believe our decisive actions and accomplishments during 2020 will allow us to deliver strong financial results and free cash flow in 2021. we also believe our new vertically integrated business model is well-equipped to navigate and succeed through future pricing or demand volatility that is common in our industry . despite the ongoing pandemic , we also continued our best practices from both a safety and environmental standpoint . during 2020 , our safety trir ( including contractors ) was 0.92 per 200,000 hours worked . on environmental matters , we recently made a commitment to reduce ghg emissions 25 % by 2030 from 2017 levels , a higher reduction target than our competitors and a demonstration of the newfound leadership role we plan to take in the domestic steel industry . recent developments acquisition of arcelormittal usa on december 9 , 2020 , pursuant to the terms of the am usa transaction agreement , we purchased arcelormittal usa from arcelormittal . in connection with the closing of the am usa transaction , as contemplated by the terms of the am usa transaction agreement , arcelormittal 's former joint venture partner in kote and tek exercised its put right pursuant to the terms of the kote and tek joint venture agreements . as a result , we purchased all of such joint venture partner 's interests in kote and tek . following the closing of the am usa transaction , we own 100 % of the interests in kote and tek . the assets of arcelormittal usa acquired by us at the closing of the am usa transaction include six steelmaking facilities , eight finishing facilities , three cokemaking operations , two iron ore mining and pelletizing operations and one coal mining complex . refer to note 3 - acquisitions for additional information . financing transactions on december 9 , 2020 , we entered into the abl amendment . the abl amendment modified the abl facility to , among other things , increase the amount of tranche a revolver commitments available thereunder by an additional $ 1.5 billion and increase certain dollar baskets related to certain negative covenants that apply to the abl facility . after giving effect to the abl amendment , the aggregate principal amount of tranche a revolver commitments under the abl facility is $ 3.35 billion and the aggregate principal amount of tranche b revolver commitments under the abl facility remains at $ 150 million . on february 11 , 2021 , we sold 20 million of our common shares , and the indirect , wholly owned subsidiary of arcelormittal to which approximately 78 million common shares were issued as part of the consideration paid by us in connection with the closing of the am usa transaction sold 40 million common shares , in each case at a price per share to the underwriter of $ 16.12 , in an underwritten public offering . story_separator_special_tag miscellaneous – net miscellaneous – net increased by $ 33 million for the year ended december 31 , 2020 , as compared to the prior year , which was primarily due to an increase in expenses incurred at our toledo direct reduction plant , primarily related to the hiring and training of employees leading up to the start of production . other income ( expense ) interest expense , net interest expense , net increased by $ 137 million for the year ended december 31 , 2020 , as compared to the prior year , primarily due to the incremental debt that we incurred in connection with the ak steel merger . the increase was offset partially by an increase in capitalized interest , primarily related to the construction of the toledo direct reduction plant . gain ( loss ) on extinguishment of debt the gain ( loss ) on extinguishment of debt of $ 130 million for the year ended december 31 , 2020 primarily relates to the repurchase of $ 748 million aggregate principal amount of our outstanding senior notes of various series using the net proceeds from the issuance of an additional $ 555 million aggregate principal amount of our 9.875 % 2025 senior secured notes on april 24 , 2020 and other sources of cash . this compares to a loss on extinguishment of debt of $ 18 million for the year ended december 31 , 2019 , primarily related to the redemption of all of our then-outstanding 4.875 % 2021 senior notes and the repurchase of $ 600 million aggregate principal amount of our 5.75 % 2025 senior notes . refer to note 8 - debt and credit facilities for further details . other non-operating income the increase of $ 54 million in other non-operating income primarily relates to an increase in net periodic benefit credits other than service cost component predominantly due to the expected return on assets resulting from the acquisitions and increased asset values for the plans held in 2019. refer to note 10 - pensions and other postretirement benefits for further details . income taxes our effective tax rate is affected by permanent items , primarily depletion . it also is affected by discrete items that may occur in any given period , but are not consistent from period to period . the following represents a summary of our tax provision and corresponding effective rates : replace_table_token_3_th 50 a reconciliation of our income tax attributable to continuing operations compared to the u.s. federal statutory rate is as follows : replace_table_token_4_th the increase in income tax benefit in 2020 , as compared to the prior year , is directly related to the increase in the pre-tax book loss year-over-year . the luxembourg legal entity reduction relates to initiatives resulting in the dissolution of entities and settlement of related financial instruments in the year ended december 31 , 2019. the 2019 nol deferred tax asset reduction resulted in tax expense of $ 846 million , which was fully offset by a decrease in the valuation allowance . see note 12 - income taxes for further information . adjusted ebitda we evaluate performance based on adjusted ebitda , which is a non-gaap measure . this measure is used by management , investors , lenders and other external users of our financial statements to assess our operating performance and to compare operating performance to other companies in the steel industry , although it is not necessarily comparable to similarly titled measures used by other companies . in addition , management believes adjusted ebitda is a useful measure to assess the earnings power of the business without the impact of capital structure and can be used to assess our ability to service debt and fund future capital expenditures in the business . 51 the following table provides a reconciliation of our net income ( loss ) to adjusted ebitda : ( in millions ) year ended december 31 , 2020 2019 net income ( loss ) $ ( 81 ) $ 293 less : interest expense , net ( 238 ) ( 101 ) income tax benefit ( expense ) 111 ( 18 ) depreciation , depletion and amortization ( 308 ) ( 85 ) total ebitda $ 354 $ 497 less : ebitda from noncontrolling interests 1 $ 56 $ — gain ( loss ) on extinguishment of debt 130 ( 18 ) severance costs ( 38 ) ( 2 ) acquisition-related costs excluding severance costs ( 52 ) ( 7 ) amortization of inventory step-up ( 96 ) — impact of discontinued operations 1 ( 1 ) total adjusted ebitda $ 353 $ 525 1 ebitda of noncontrolling interests includes $ 41 million for income and $ 15 million for depreciation , depletion and amortization for the year ended december 31 , 2020. the following table provides a summary of our adjusted ebitda by segment : replace_table_token_5_th the year ended december 31 , 2020 results were unfavorably impacted by decreased customer demand resulting from the impacts of the covid-19 pandemic . as a result of the covid-19 pandemic , we incurred temporary idle-related costs resulting from production curtailments , excluding idle depreciation , depletion and amortization expense , of approximately $ 214 million during 2020. adjusted ebitda from corporate and eliminations primarily relates to selling , general and administrative expenses at our corporate headquarters .
| results of operations overview for the year ended december 31 , 2020 , we had a net loss of $ 81 million . for the years ended december 31 , 2019 and 2018 , we had net income of $ 293 million and $ 1,128 million , respectively . our total revenues , diluted eps and adjusted ebitda were as follows : see `` — results of operations — adjusted ebitda '' below for a reconciliation of our net income ( loss ) to adjusted ebitda . revenues revenues from iron products made up 100 % of our revenues by product line for the year ended december 31 , 2019 . 48 during the year ended december 31 , 2020 , our consolidated revenues were approximately $ 5.4 billion , an increase of approximately $ 3.4 billion , or 169 % , compared to 2019. the increase was due to the addition of $ 4.0 billion in revenues as a result of the acquisitions , partially offset by a decrease in revenue from iron products of $ 655 million resulting from lower sales volumes of 6.9 million long tons compared to 2019. the lower sales volumes of iron products in 2020 , as compared to 2019 , were partially due to the diversion of pellets for internal consumption following the acquisitions . overall , we experienced lower customer demand during 2020 as a result of the reduced manufacturing activity caused by the covid-19 pandemic .
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our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under “ risk factors ” and “ forward-looking statements ” and elsewhere in this annual report on form 10-k. general lincoln educational services corporation and its subsidiaries ( collectively , the “ company ” , “ we ” , “ our ” and “ us ” , as applicable ) provide diversified career-oriented post-secondary education to recent high school graduates and working adults . the company , which currently operates 23 schools in 14 states , offers programs in automotive technology , skilled trades ( which include hvac , welding and computerized numerical control and electronic systems technology , among other programs ) , healthcare services ( which include nursing , dental assistant , medical administrative assistant and pharmacy technician , among other programs ) , hospitality services ( which include culinary , therapeutic massage , cosmetology and aesthetics ) and business and information technology ( which includes information technology and criminal justice programs ) . the schools operate under lincoln technical institute , lincoln college of technology , lincoln college of new england , lincoln culinary institute , and euphoria institute of beauty arts and sciences and associated brand names . most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study . five of the campuses are destination schools , which attract students from across the united states and , in some cases , from abroad . the company 's other campuses primarily attract students from their local communities and surrounding areas . all of the campuses are nationally or regionally accredited and are eligible to participate in federal financial aid programs by the u.s. department of education ( the “ doe ” ) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid . our business is organized into three reportable business segments : ( a ) transportation and skilled trades , ( b ) healthcare and other professions ( “ hops ” ) , and ( c ) transitional , which refers to businesses that have been or are currently being taught out . in november 2015 , the board of directors of the company approved a plan for the company to divest the 18 campuses then comprising the hops segment due to a strategic shift in the company 's business strategy . the company underwent an exhaustive process to divest the hops schools which proved successful in attracting various purchasers but , ultimately , did not result in a transaction that our board believed would enhance shareholder value . by the end of 2017 , we had strategically closed seven underperforming campuses leaving a total of 11 campuses remaining under the hops segment . the company believes that the closures of the aforementioned campuses has positioned the hops segment and the company to be more profitable going forward as well as maximizing returns for the company 's shareholders . the combination of several factors , including the inability of a prospective buyer of the hops segment to close on the purchase , the improvements the company has implemented in the hops segment operations , the closure of seven underperforming campuses and the change in the united states government administration , resulted in the board reevaluating its divestiture plan and the determination that shareholder value would more likely be enhanced by continuing to operate our hops segment as revitalized . consequently , the board of directors has abandoned the plan to divest the hops segment and the company now intends to retain and continue to operate the remaining campuses in the hops segment . the results of operations of the campuses included in the hops segment are reflected as continuing operations in the consolidated financial statements . in 2016 , the company completed the teach-out of its hartford , connecticut , fern park , florida and henderson ( green valley ) , nevada campuses , which originally operated in the hops segment . in 2017 , the company completed the teach-out of its northeast philadelphia , pennsylvania ; center city philadelphia , pennsylvania ; west palm beach , florida ; brockton , massachusetts ; and lowell , massachusetts schools , which also were originally in our hops segment and all of which were taught out and closed by december 2017 and are included in the transitional segment as of december 31 , 2017 . 35 index on august 14 , 2017 , new england institute of technology at palm beach , inc. , a wholly-owned subsidiary of the company , consummated the sale of the real property located at 2400 and 2410 metrocentre boulevard east , west palm beach , florida , including the improvements and other personal property located thereon ( the “ west palm beach property ” ) to tambone companies , llc ( “ tambone ” ) , pursuant to a previously disclosed purchase and sale agreement ( the “ west palm sale agreement ” ) entered into on march 14 , 2017. pursuant to the terms of the west palm sale agreement , as subsequently amended , the purchase price for the west palm beach property was $ 15.8 million . as a result , the company recorded a gain on the sale in the amount of $ 1.5 million . story_separator_special_tag although similar courses have comparable tuition rates , the tuition rates vary among our numerous programs . the majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses . the largest of these programs are title iv programs which represented approximately 78 % and 79 % of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by students during 2017 and 2016 , respectively . the higher education act of 1965 , as amended ( the “ hea ” ) requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 rule . we extend credit for tuition and fees to many of our students that attend our campuses . our credit risk is mitigated through the students ' participation in federally funded financial aid programs unless students withdraw prior to the receipt by us of title iv program funds for those students . under title iv programs , the government funds a certain portion of a student 's tuition , with the remainder , referred to as “ the gap , ” financed by the students themselves under private party loans , including credit extended by us . the gap amount has continued to increase over the last several years as we have raised tuition on average for the last several years by 2-3 % per year and restructured certain programs to reduce the amount of financial aid available to students , while funds received from title iv programs increased at lower rates . 36 index the additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity . however , we believe that these risks are somewhat mitigated due to the following : · our internal financing is provided to students only after all other funding resources have been exhausted ; thus , by the time this funding is available , students have completed approximately two-thirds of their curriculum and are more likely to graduate ; · funding for students who interrupt their education is typically covered by title iv funds as long as they have been properly packaged for financial aid ; and · creditworthy criteria to demonstrate a student 's ability to pay . the operating expenses associated with an existing school do not increase or decrease proportionally as the number of students enrolled at the school increases or decreases . we categorize our operating expenses as : · educational services and facilities . major components of educational services and facilities expenses include faculty compensation and benefits , expenses of books and tools , facility rent , maintenance , utilities , depreciation and amortization of property and equipment used in the provision of education services and other costs directly associated with teaching our programs excluding student services which is included in selling , general and administrative expenses . · selling , general and administrative . selling , general and administrative expenses include compensation and benefits of employees who are not directly associated with the provision of educational services ( such as executive management and school management , finance and central accounting , legal , human resources and business development ) , marketing and student enrollment expenses ( including compensation and benefits of personnel employed in sales and marketing and student admissions ) , costs to develop curriculum , costs of professional services , bad debt expense , rent for our corporate headquarters , depreciation and amortization of property and equipment that is not used in the provision of educational services and other costs that are incidental to our operations . selling , general and administrative expenses also includes the cost of all student services including financial aid and career services . all marketing and student enrollment expenses are recognized in the period incurred . critical accounting policies and estimates our discussions of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or gaap . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period . on an ongoing basis , we evaluate our estimates and assumptions , including those related to revenue recognition , bad debts , fixed assets , goodwill and other intangible assets , income taxes and certain accruals . actual results could differ from those estimates . the critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not result in significant management judgment in the application of such principles . we believe that the following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management 's estimates , assumptions and judgment in the preparation of our consolidated financial statements . revenue recognition . revenues are derived primarily from programs taught at our schools . tuition revenues , textbook sales and one-time fees , such as nonrefundable application fees and course material fees , are recognized on a straight-line basis over the length of the applicable program as the student proceeds through the program , which is the period of time from a student 's start date through his or her graduation date , including internships or externships that take place prior to graduation , and we complete the performance of teaching the student which entitles us to the revenue . other revenues , such as tool sales and contract training revenues are recognized as services are performed or goods are delivered .
| consolidated results of operations 41 index revenue . revenue decreased by $ 20.5 million , or 6.7 % , to $ 285.6 million for the year ended december 31 , 2016 from $ 306.1 million for the year ended december 31 , 2015. the decrease in revenue can mainly be attributed to the closure of campuses in our transitional segment during 2016 , which accounted for $ 11.8 million , or 57.3 % of the total revenue decline , and a lower carry in population , which has been one of the main contributing factors to the declines in revenue over the past several years . we started 2016 with approximately 1,400 fewer students than we had on january 1 , 2015 , which led to an 8.6 % decline in average student population to approximately 11,900 as of december 31 , 2016 from 13,000 in the comparable period of 2015. partially offsetting the revenue decline from lower student population was a 2.0 % increase in average revenue per student mainly attributable to shifts in our program mix . student start results decreased by 6.0 % to approximately 13,200 from 14,100 for the year ended december 31 , 2016 as compared to the prior year comparable period . excluding the transitional segment , student starts were down 1.8 % . the decline in student starts was mainly a result of the underperformance of one campus . excluding this one campus and the transitional segment , our starts for the year ended december 31 , 2016 would have remained essentially flat as compared to 2015. for a general discussion of trends in our student enrollment , see “ seasonality and outlook ” below . educational services and facilities expense . our educational services and facilities expense decreased by $ 7.2 million , or 4.8 % , to $ 144.4 million for the year ended december 31 , 2016 when compared to $ 151.6 million in the prior year comparable period .
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on august 8 , 2007 , through our joint venture with carlyle , we acquired a 25.0 % indirect noncontrolling interest in the crowne plaza hollywood beach resort , a newly renovated 311-room hotel in hollywood , florida . on october 29 , 2007 , we acquired a hotel in tampa , florida , formerly known as the tampa clarion hotel , which went through an extensive renovation and re-opened in march 2009 as the crowne plaza tampa westshore . on april 24 , 2008 , we acquired the hampton marina hotel in hampton , virginia , which has been renovated and was converted to the crowne plaza hampton marina in october 2008. on november 13 , 2013 , we acquired the crowne plaza houston downtown in houston , texas . 46 our hotel portfolio currently consists of eleven full-service , primarily upscale and upper-upscale hotels with 2,683 rooms , which operate under well-known brands such as hilton , crowne plaza , sheraton and holiday inn . ten of these hotels , totaling 2,372 rooms , are 100 % owned by subsidiaries of the operating partnership . we also own a 25.0 % indirect non-controlling interest in the crowne plaza hollywood beach resort through a joint venture with carlyle . as of december 31 , 2013 , we owned the following hotel properties : replace_table_token_9_th we conduct substantially all our business through the operating partnership , sotherly hotels lp . the company is the sole general partner of the operating partnership and owns an approximate 78.1 % interest in the operating partnership , with the remaining interest being held by limited partners who were contributors of our original hotel properties and related assets . to qualify as a reit , neither the company nor the operating partnership can operate our hotels . therefore , our wholly-owned hotel properties are leased to our trs lessee , a wholly-owned subsidiary of the operating partnership , which then engages a hotel management company to operate the hotels under a management agreement . our trs lessee has engaged mhi hotels services to manage our hotels . our trs lessee , and its parent , mhi hospitality trs holding , inc. , are consolidated into each of our financial statements for accounting purposes . the earnings of mhi hospitality trs holding , inc. are subject to taxation similar to other c corporations . key operating metrics in the hotel industry , room revenue is considered the most important category of revenue and drives other revenue categories such as food , beverage , catering , parking and telephone . there are three key performance indicators used in the hotel industry to measure room revenues : occupancy , or the number of rooms sold , usually expressed as a percentage of total rooms available ; average daily rate , or adr , which is total room revenue divided by the number of rooms sold ; and revenue per available room or revpar , which is total room revenue divided by the total number of available rooms . revpar changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in adr . for example , an increase in occupancy at a hotel would lead to additional variable operating costs ( such as housekeeping services , laundry , 47 utilities , room supplies , franchise fees , management fees , credit card commissions and reservations expense ) , but could also result in increased non-room revenue from the hotel 's restaurant , banquet or parking facilities . changes in revpar that are primarily driven by changes in adr typically have a greater impact on operating margins and profitability as they do not generate all the additional variable operating costs associated with higher occupancy . we also use ffo , adjusted ffo and hotel ebitda as measures of our operating performance . see non-gaap financial measures . story_separator_special_tag style= '' margin-top:0pt ; margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > 49 realized and unrealized loss on warrant derivative . the realized and unrealized loss on the warrant derivative for the year ended december 31 , 2013 increased approximately $ 0.2 million , or 8.8 % , to approximately $ 2.2 million compared to the unrealized loss of approximately $ 2.0 million for the year ended december 31 , 2012. the losses are predominantly attributable to the increase in market price of the underlying common stock . with the redemption of the warrants in the fourth quarter 2013 , we do not expect any further charges . impairment of investment in hotel properties , net . the impairment of investment in hotel properties , net for the years ended december 31 , 2013 and 2012 was $ 611,000 and $ 0 , respectively . our review of possible impairment at one of our hotel properties revealed an excess of current carrying cost over the estimated undiscounted future cash flows of $ 611,000 , as of december 31 , 2013. income tax provision . the income tax provision for the year ended december 31 , 2013 increased approximately $ 0.2 million , or 16.9 % , to approximately $ 1.5 million compared to an income tax provision of approximately $ 1.3 million for the year ended december 31 , 2012. the income tax provision is primarily derived from the operations of our trs lessee . our trs lessee realized greater operating income for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. net loss . net loss for the year ended december 31 , 2013 decreased approximately $ 1.5 million , or 28.2 % , to approximately $ 3.8 million compared to net loss of approximately $ 5.3 million for the year ended december 31 , 2012 as a result of the operating results discussed above . story_separator_special_tag equity in the income of the joint venture was approximately $ 0.2 million for the year ended december 31 , 2012 compared to equity in the loss of joint venture of 51 approximately $ 0.1 million for the year ended december 31 , 2011 and represents our 25.0 % share of the net income of the crowne plaza hollywood beach resort . the improvement was attributable to a 12.6 % increase in net operating income as well as a curtailment of unrealized losses on hedging activities . for the year ended december 31 , 2012 , the crowne plaza hollywood beach resort reported occupancy of 79.2 % , adr of $ 147.37 and revpar of $ 116.66. this compares with results reported by the hotel for the year ended december 31 , 2011 of occupancy of 79.4 % , adr of $ 133.29 and revpar of $ 105.82. unrealized loss on warrant derivative . the unrealized loss on the warrant derivative for the year ended december 31 , 2012 increased approximately $ 0.7 million , or 54.8 % , to approximately $ 2.0 million compared to the unrealized loss of approximately $ 1.3 million for the year ended december 31 , 2011. the current year loss was predominantly attributable to the increase in market price of the underlying common stock whereas the prior year loss was predominantly attributable to the modification to the warrant agreement in december 2011 whereby the exercise price will be adjusted for any and all dividends declared and paid after december 31 , 2011. income tax provision . the income tax provision for the year ended december 31 , 2012 increased approximately $ 0.4 million , or 43.7 % , to approximately $ 1.3 million compared to approximately $ 0.9 million for the year ended december 31 , 2011. the income tax provision is primarily derived from the operations of our trs lessee . our trs lessee realized greater operating income for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. net loss . net loss for the year ended december 31 , 2012 decreased approximately $ 1.2 million , or 17.7 % , to approximately $ 5.3 million compared to net loss of approximately $ 6.5 million for the year ended december 31 , 2011 as a result of the operating results discussed above . sources and uses of cash the following narrative discusses our sources and used of cash for the year ended december 31 , 2013. operating activities . our principal source of cash to meet our operating requirements , including distributions to unit holders of the operating partnership and stockholders of the company as well as debt service ( excluding debt maturities ) , is the operations of our hotels . cash flow provided by operating activities for the year ended december 31 , 2013 was approximately $ 9.6 million . we expect that cash on hand and the net cash provided by operations will be adequate to fund our operating requirements , monthly and quarterly scheduled payments of principal and interest ( excluding any balloon payments due upon maturity of a debt ) and the payment of dividends ( distributions ) to the stockholders of the company ( the unitholders of the operating partnership ) in accordance with federal income tax laws which require us to make annual distributions , as qualifying distributions , to the company 's stockholders of at least 90.0 % of its reit taxable income ( determined without regard to the dividends-paid deduction and by excluding its net capital gains , and reduced by certain non-cash items ) . investing activities . in november 2013 , we spent approximately $ 30.7 million to purchase the crowne plaza houston downtown . during 2013 , we spent approximately $ 4.9 million on capital expenditures at our properties , of which approximately $ 2.4 million related to the routine replacement of furniture , fixtures and equipment , and approximately $ 2.5 million related to renovations of our properties in philadelphia , pennsylvania and jacksonville , florida . we also contributed approximately $ 2.2 million in reserves required by the lenders of the crowne plaza hampton marina , doubletree by hilton raleigh brownestone university , hilton wilmington riverside , hilton savannah desoto , hilton philadelphia airport and sheraton louisville riverside according to the provisions of the loan agreements . we also received reimbursement from those reserves of approximately $ 1.7 million for capital expenditures related to those properties . on december 27 , 2013 , the joint venture entity that owns the crowne plaza hollywood beach entered into a credit and security agreement and other loan documents with bank of america , n.a . to refinance the mortgage 52 on that property . subsequent to the refinance , we received a distribution of approximately $ 5.6 million , bringing the total distributions from the joint venture to approximately $ 6.6 million for the year ended december 31 , 2013. financing activities . on march 26 , 2013 , the company used the net proceeds of the mortgage on the doubletree by hilton raleigh brownstone-university to redeem 1,902 shares of preferred stock for an aggregate redemption price of approximately $ 2.1 million plus the payment of related accrued and unpaid cash and stock dividends . the redemption resulted in a prepayment fee of approximately $ 0.2 million . on june 17 , 2013 , we provided approximately $ 0.9 million in cash collateral to the lender for the crowne plaza jacksonville riverfront in order to comply with the terms of the loan agreement following the property 's failure to meet its debt service coverage test for the period ended march 31 , 2013. on september 25 , 2013 , we received back a portion of the cash collateral of approximately $ 0.2 million as a result of improvement in the property 's debt service coverage ratio . on june 28 , 2013 , we entered into an agreement with townebank to extend the maturity of the mortgage on the crowne plaza hampton marina in hampton , virginia .
| results of operations comparison of year ended december 31 , 2013 to year ended december 31 , 2012 the following table illustrates the key operating metrics for the years ended december 31 , 2013 and 2012 for our 10 wholly-owned properties ( actual properties ) as well as the nine wholly-owned properties that were under our control during all of 2013 and 2012 ( same-store properties ) . accordingly , the same-store data does not reflect the performance of the crowne plaza houston downtown , which was acquired in november 2013. replace_table_token_10_th revenue . total revenue for the year ended december 31 , 2013 was approximately $ 89.4 million , an increase of approximately $ 2.1 million , or 2.3 % , from total revenue for the year ended december 31 , 2012 of approximately $ 87.3 million . approximately $ 1.4 million of the increase is attributable to our acquisition of the crowne plaza houston downtown . within the remainder of the portfolio , revenue increases were strongest at our doubletree by hilton brownstone university and the sheraton louisville riverfront properties . these increases offset revenue decreases at our properties in hampton , virginia ; jacksonville , florida ; laurel , maryland and tampa , florida . room revenues at our properties for the year ended december 31 , 2013 increased approximately $ 2.0 million , or 3.3 % , to approximately $ 62.8 million compared to room revenues for the year ended december 31 , 2012 of approximately $ 60.8 million . approximately $ 0.9 million of the increase is attributable to our acquisition of the crowne plaza houston downtown . within the remainder of the portfolio , room revenue increases were strongest at our doubletree by hilton brownstone university ; hilton wilmington riverside and the sheraton louisville riverfront properties . these increases offset revenue decreases at our properties in hampton , virginia ; jacksonville , florida ; laurel , maryland and tampa , florida .
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we are also responsible for , and will indemnify and hold integrated biopharma harmless from , any liability for our non-income taxes and our breach of any obligation or covenant under the terms of the tax responsibility allocation agreement , and in certain other circumstances as provided therein . in addition to the allocation of liability for our taxes , the terms of the agreement also provide for other tax matters , including tax refunds , returns and audits . item 14. principal story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with our financial statements and the notes thereto and other information included elsewhere in this annual report on form 10-k. forward-looking information and factors that may affect future results the following discussion contains forward-looking statements within the “ safe harbor ” provisions of the private securities litigation reform act of 1995. all statements contained in the following discussion , other than statements that are purely historical , are forward-looking statements . forward-looking statements can be identified by the use of forward-looking terminology such as “ believes , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ potential , ” “ anticipates , ” “ plans , ” or “ intends ” or the negative thereof , or other variations thereof , or comparable terminology , or by discussions of strategy . forward-looking statements are based upon management 's present expectations , objectives , anticipations , plans , hopes , beliefs , intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties that could cause actual results , events or developments to be materially different from those indicated in such forward-looking statements , including the risks and uncertainties set forth in item 1a - risk factors . these risks and uncertainties should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements . as such , no assurance can be given that the future results covered by the forward-looking statements will be achieved . 30 overview we are a biotechnology company focused on commercializing our proprietary technologies and product candidates and providing product development and manufacturing services to clients and collaborators . the company 's technologies constitute a proprietary , transformative platform for development and production of biologics in hydroponically grown green plants . stated simply , ibio 's technologies harness the natural protein production capability that plants use to sustain their own growth , and direct it instead to produce proteins for a range of applications including for vaccines and biopharmaceuticals . the company 's technologies can be used to produce a wide array of biologics and also to create and produce proprietary derivatives of preexisting products with improved properties . the company has used its technologies and its collaborative relationships to demonstrate the applicability of its technologies to a diverse range of product candidates including products against fibrotic diseases , vaccines , enzyme replacements , monoclonal antibodies , and recombinant versions of marketed products that are currently derived from human blood plasma . in addition to the broad array of biological products that can be produced with the company 's technologies we believe our technologies offer other advantages that are not available with conventional manufacturing systems . these anticipated advantages may include reduced production time and lower operating costs . further , we believe that the capital investment required to create facilities that will manufacture proteins using the company 's technologies will be substantially less than the capital investment which would be required for the creation of similar capacity facilities utilizing conventional manufacturing methods dependent upon animal cells , bacterial fermenters and chicken eggs . additionally , operating costs in a manufacturing facility using ibio 's platform are expected to be reduced significantly in comparison to conventional manufacturing processes due to the rapid nature of our production cycle and the elimination of the expenses associated with the operation and maintenance of bioreactors , fermenters , sterile liquid handling systems and other expensive equipment which is not required in connection with the use of the company 's technologies . among the company 's proprietary technologies are the patented ibiolaunch technology , the patented ibiomodulator technology , and additional newer and more advanced technologies . bio-manguinhos/fiocruz , or fiocruz , a unit of the oswaldo cruz foundation , a central agency of the ministry of health of brazil , is sponsoring the development an ibiolaunch-produced yellow fever vaccine to replace the vaccine it currently makes in chicken eggs for the populations of brazil and more than 20 other nations . these advances are occurring subsequent to the demonstration of safety of ibiolaunch-produced vaccine candidates against each of the h1n1 “ swine ” flu virus and the h5n1 avian flu virus in successfully completed phase 1 clinical trials . we developed our ibiomodulator technology based on the use of a modified form of the cellulose degrading enzyme lichenase from clostridium thermocellum , a thermophilic and anaerobic bacterium . ibiomodulator enables an adjuvant component to be fused directly to preferred recombinant antigens to create a single protein for use in vaccine applications . the ibiomodulator platform has been shown to be applicable to a range of vaccine proteins and can significantly modify the immune response to a vaccine in two important ways . animal efficacy studies have demonstrated that it can increase the strength of the initial immune response to a vaccine antigen ( as measured by antibody titer ) and also extend the duration of the immune response . these results suggest the possibility that use of the ibiomodulator platform may lower vaccine antigen requirements and enable fewer doses to establish prolonged protective immunity . in addition to technology developed for ibio pursuant to agreements with fraunhofer u.s.a. , inc. , ibio 's more recently developed technologies provide us with higher expression yields of certain proteins and increased efficiency in adapting gene sequences to achieve specific product objectives . story_separator_special_tag we plan to fund our future business operations using cash on hand , through proceeds from the sale of additional equity and other securities and through proceeds realized in connection with license and collaboration arrangements and operation of the company 's new subsidiary , ibio cmo . on may 15 , 2015 , we entered into a common stock purchase agreement ( the “ 2015 aspire purchase agreement ” ) with aspire capital fund , llc , an illinois limited liability company ( referred to below as “ aspire capital ” ) pursuant to which we have the option to require aspire capital to purchase up to an aggregate of $ 15.0 million of shares of our common stock ( the “ purchase shares ” ) upon and subject to the terms of the 2015 aspire purchase agreement . the description of the 2015 aspire purchase agreement and other information included under the heading “ aspire capital – 2015 facility ” set forth in note 11 of the consolidated financial statements included in this report is incorporated into this item 7 by reference . no shares have been sold under the 2015 aspire purchase agreement as of the date of the filing of this report . despite the proceeds that we may receive pursuant to the 2015 aspire purchase agreement , we may still need additional capital to fully implement our business , operating and development plans for periods beyond june 30 , 2017 . 33 on november 20 , 2014 , we filed with the securities and exchange commission a registration statement on form s-3 under the securities act , which was declared effective by the securities and exchange commission on december 2 , 2014. this registration statement allows us , from time to time , to offer and sell shares of common stock , shares of preferred stock , debt securities , units comprised of shares of common stock , preferred stock , debt securities and warrants in any combination , and warrants to purchase common stock , preferred stock , debt securities and or units , up to a maximum aggregate amount of $ 100 million of such securities . on may 29 , 2015 , we filed a prospectus supplement to the registration statement registering $ 15.0 million of our common stock that we may issue and sell to aspire capital from time to time pursuant to the 2015 aspire purchase agreement , together with the 450,000 commitment shares issued to aspire capital in consideration for entering into the 2015 aspire purchase agreement . we currently have no other firm agreements with any third parties for the sale of our securities pursuant to this registration statement . we can not be certain that funding will be available on favorable terms or available at all . to the extent that we raise additional funds by issuing equity securities , our stockholders may experience significant dilution . if we are unable to raise funds when required or on favorable terms , we may have to : a ) significantly delay , scale back , or discontinue the product application and or commercialization of our proprietary technologies ; b ) seek collaborators for our technology and product candidates on terms that are less favorable than might otherwise be available ; c ) relinquish or otherwise dispose of rights to technologies , product candidates , or products that we would otherwise seek to develop or commercialize ; or d ) possibly cease operations . on january 13 , 2016 , the company entered into a contract manufacturing joint venture with an affiliate ( the “ eastern affiliate ” ) of eastern capital limited ( “ eastern ” ) , a stockholder of the company . the eastern affiliate contributed $ 15 million in cash for a 30 % interest in the company 's subsidiary ibio cmo llc ( “ ibio cmo ” ) . the company retained a 70 % interest in ibio cmo and contributed a royalty bearing license which grants ibio cmo a non-exclusive license to use the company 's proprietary technologies for research purposes and an exclusive u.s. license for manufacturing purposes . on january 13 , 2016 , the company also entered into share purchase agreements with eastern pursuant to which eastern agreed to purchase 10 million shares of the company 's common stock at $ 0.622 per share . the closing for the sale of 3,500,000 of such shares occurred on january 25 , 2016. the closing for the remaining 6,500,000 shares occurred in april 2016. in addition , eastern agreed to exercise warrants it previously acquired to purchase 1,784,000 shares of the company 's common stock at $ 0.53 per share . as of the date of the filing of this report , ibio cmo has received $ 15 million for the capitalization of ibio cmo and the company has received approximately $ 7.2 million from eastern for the acquisition of 10 million shares of common stock and the exercise of the warrants . prior to the issuance of the shares of common stock pursuant to the purchase agreements with eastern , eastern beneficially owned approximately 30 % of the company 's common stock , as reported in the company 's annual report on form 10-k for the fiscal year ended june 30 , 2015 , filed with the sec on october 13 , 2015 , calculated in accordance with the sec 's beneficial ownership rules . as of the closing of the purchase agreements with eastern and the simultaneous exercise by eastern of its warrants to purchase ibio common stock , eastern beneficially owned approximately 38 % of the company 's outstanding shares of common stock . see note 11 in the consolidated financial statements for a further description of the transactions .
| results of operations revenue gross revenue for 2016 and 2015 was approximately $ .95 million and $ 1.85 million , respectively , a decrease of $ .9 million . revenue has been primarily attributable to technology services provided to bio-manguinhos/fiocruz ( “ fiocruz ” ) in connection with the development by fiocruz of a yellow fever vaccine using our ibiolaunch technology . to fulfill our obligations , we engaged fraunhofer usa inc. ( “ fraunhofer ” ) as a subcontractor to perform the services required . during 2013 , the company , fiocruz and fraunhofer were awaiting approval by the brazilian government of a contract amendment reflecting a new work plan . during this waiting period , no revenues were recognized by the company in connection with services provided to fiocruz through the subcontract arrangement with fraunhofer . in june 2014 , the company , fiocruz and fraunhofer amended their collaboration and license agreement reflecting the new work plan and work was resumed by fraunhofer for the company to continue development of a yellow fever vaccine using the company 's ibiolaunch technology . in 2016 , revenue was lower due to laboratory tasks performed pursuant to the agreement with fiocruz nearing completion , in some cases being completed and , therefore , requiring less total work than previously necessary . research and development expenses research and development expenses for 2016 and 2015 were approximately $ 3.2 million and $ 3.5 million , respectively , a decrease of $ .3 million . research and development expenses in 2015 include a reconciliation for services rendered prior to october 1 , 2014. in 2016 , expenses were increased to reflect the addition of ibio cmo operations and decreased due to changes in the laboratory work with fiocruz for a net decrease of $ .3 million . 32 general and administrative expenses general and administrative expenses for 2016 and 2015 were approximately $ 7.7 million and $ 5.0 million , respectively , an increase of $ 2.7 million .
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65 recent accounting pronouncements the following table provides a brief description of accounting standards that could have a material impact to the company 's consolidated financial statements upon adoption : standard description required date of adoption effect on financial statements standards adopted in 2019 asu 2016-02 , leases this asu creates asu topic 842 , leases , and supersedes topic 840 , leases . the new guidance requires lessees to record a right-of-use asset and a corresponding liability equal to the present value of future rental payments on their balance sheets for all leases with a term greater than one year . there are not significant changes to lessor accounting ; however , there are certain improvements made to align lessor accounting with the lessee accounting model and topic 606 , revenue from contracts with customers . this guidance expands both quantitative and qualitative required disclosures . this asu is required to be adopted on a modified retrospective basis and allows for practical expedients and elections in conjunction with implementation . the company may elect some of the expedients upon the adoption date , which may be applied prospectively or retrospectively . january 1 , 2019 the company adopted this asu as of january 1 , 2019 including the election of the practical expedients , allowing for existing leases to be accounted for consistent with current guidance , with the exception of balance sheet recognition for lessees . a modified retrospective transition approach was utilized , applying the new standard to all leases existing at the date of initial application . at january 1 , 2019 the company recognized a right-of-use asset and corresponding lease liability of $ 9.0 million . this computation is based , primarily , on the present value story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the company . the following discussion and analysis should be read in conjunction with the company 's consolidated financial statements and the accompanying notes contained in this annual report on form 10-k. summary bar harbor bankshares recorded 2019 net income of $ 23 million , or $ 1.45 per diluted share , compared to $ 33 million , or $ 2.12 per diluted share , in 2018. acquisition , restructuring and other expenses after taxes totaled $ 0.46 per diluted share in 2019 related to one-time costs associated with the company 's branch acquisition and balance sheet optimization initiatives . adjusted income ( non-gaap measure ) in 2019 was $ 30 million , or $ 1.91 per diluted share , and $ 35 million , or $ 2.25 per diluted share , for the same period of 2018. in 2019 the company repositioned the balance sheet , expanded its footprint within central maine and achieved record revenues of $ 119 million on higher interest and fee income . the company also completed a strategic review of its balance sheet and operations ( “ strategic review ” ) and executed several initiatives that reduced the company 's cost of funds in the second half of 2019 and improved its interest rate risk and overall capital position . on october 25 , 2019 , the company completed the acquisition of eight branches within central maine . the company used the net deposit proceeds to extinguish approximately $ 140 million of higher cost fhlb borrowings . these transactions changed the company 's balance sheet profile and funding needs . therefore , the company decided to terminate its interest rate caps on $ 90 million of rolling three-month fhlb borrowings . the losses from the interest rate caps were reclassified from other comprehensive income to net income , with no further dilution to equity . additional fhlb borrowings were paid off with the proceeds from executing a deleveraging and remix strategy that included the sale of $ 92 million of lower yielding securities . in the fourth quarter 2019 , the company completed a $ 40 million subordinated debt issuance which replaced $ 22 million of higher cost subordinated notes that were called . the offering was more than two times oversubscribed , driven by one of the most effective executions for 2019 , and presented an opportunity to upsize the deal . the strategic review also included a branch optimization exercise that evaluated fixed assets , staffing models , and business and operational processes that included the closure of five branches effective december 31 , 2019. results of this exercise are expected to be fully accretive starting in the first quarter 2020. total assets were $ 3.7 billion in 2019 , increasing $ 61 million from 2018. loans totaled $ 2.6 billion , increasing $ 151 million from 2018 , primarily due to the branch acquisition and organic commercial loan growth . credit quality remains strong with the ratio of non-accruing loans to total loans at 0.44 % at december 31 , 2019 compared to 0.73 % at december 31 , 2018. deposits totaled $ 2.7 billion at the end of 2019 , increasing 8.6 % from 2018 due to the branch acquisition . return on assets in 2019 was 0.62 % compared to 0.93 % in 2018 , while adjusted return on assets ( non-gaap measure ) was 0.82 % in 2019 compared to 0.99 % in 2018. in a similar trend , return on equity was 5.82 % in 2019 from 9.22 % in 2018 and adjusted return on equity ( non-gaap measure ) was 7.65 % in 2019 from 9.79 % in 2018 . 40 comparison of financial condition at december 31 , 2019 and 2018 summary the company offers a competitive mix of loan and deposit products to serve the retail and commercial markets in its footprint . loans and investment securities are the company 's primary earning assets and net interest income from these products is its primary revenue source . story_separator_special_tag the company and the bank remained well-capitalized under regulatory guidelines at period end as further described in note 13 - shareholders ' equity and earnings per common share on the consolidated financial statements . 43 comparison of operating results for the years ended december 31 , 2019 and 2018 summary net income in 2019 was $ 23 million compared to $ 33 million in 2018 and included acquisition , restructuring and other expense charges of $ 8 million and $ 2 million , respectively . the non-gaap measure of adjusted earnings in 2019 was $ 30 million compared to $ 35 million in 2018. net income and adjusted earnings in 2019 benefited from expanded yields on earning assets and non-interest income growth , offset by higher cost of funds . results for 2019 include operations from the branch acquisition as of the october 25 , 2019 effective date . net interest income net interest income is the principal component of the company 's income stream and represents the difference or spread between interest generated from earning assets and the interest expense paid on deposits and borrowed funds . fluctuations in market interest rates as well as volume and mix changes in earning assets and interest-bearing liabilities can materially impact net interest income . net interest income for 2019 was $ 90 million compared with $ 91 million in 2018. interest income was $ 135 million , up 6 % from $ 127 million in 2018 as average earning assets grew $ 70 million . the net interest margin was 2.78 % in 2019 compared to 2.87 % in the prior year . purchase loan accretion contributed 10 and 11 basis points to the margin in 2019 and 2018 , respectively . yields expanded across all loan categories as variable rate products in the first half of 2019 repriced to higher rates driven by the 2018 short-term hikes . the 2019 yield on securities improved by 19 basis points reflecting the benefit of portfolio remix strategies and associated security sales in the second half of 2019. these improvements in interest from earning assets were offset by a higher cost of interest bearing liabilities , especially in the first half of 2019 , which was also driven by short-term rate hikes in late 2018. while the cost of interest bearing liabilities increased 30 basis points to 1.61 % on a year-over-year basis , the same costs improved to 1.42 % in the fourth quarter due to executing deleveraging strategies associated with the branch acquisition and securities sales . loan loss provision the level of the allowance is a critical accounting estimate , which is subject to uncertainty . the provision for loan losses is a charge to earnings in an amount sufficient to maintain the allowance for loan losses at a level deemed adequate by the company . the provision was $ 2 million in 2019 compared to $ 3 million in 2018. the decrease is primarily due to lower charge-offs in 2019 as compared to prior year reflecting continued improvement in credit quality . non-interest income non-interest income are fees that fundamental to the company 's profitability through revenue diversification in the forms of trust and treasury management services , customer service fees , customer loan derivatives , and secondary market mortgage sales . non-interest income for 2019 increased to $ 29 million from $ 28 million in 2018 driven primarily by customer loan derivative income , which increased to $ 2 million in 2019 compared to $ 860 thousand in 2018. the increase in these fees is attributable to the company 's continued focus on the complexity of the financial needs of its customers and related commercial loan growth in 2019. customer service fees also contributed to the overall increase in non-interest income growing by $ 589 thousand in 2019. the increase is due to higher transaction volume principally from the deposit base obtained through the branch acquisition . trust and investment management fee income in 2019 was relatively flat with 2018. however , assets under management increased to $ 2.0 billion in 2019 compared to $ 1.7 billion in 2018 primarily due wealth management accounts that were obtained through the branch acquisition . non-interest expense non-interest expense was $ 90 million in 2019 compared to $ 76 million in 2018. the increase in 2019 includes $ 3 million related to the branch acquisition , a $ 3 million reclassification of losses on the interest rate cap derivative from other comprehensive income and $ 3 million related to branch optimization and other strategic review expenses . salary and employee benefits expenses increased by $ 4 million due to postretirement benefit revaluations on lower discount rates and an increase in full time equivalent employees ( “ ftes ” ) . ftes totaled 460 at the end of 2019 compared with 445 at the end of 2018 , which includes employees from the branch acquisition . 44 income tax expense the effective tax rate decreased to 15.7 % in 2019 from 18.7 % in 2018 due to a higher proportion of tax-advantaged income to taxable income , which was driven by overall lower net income in 2019 as compared to 2018. comparison of operating results for the years ended december 31 , 2018 and 2017 summary net income in 2018 was $ 32.9 million , up 27 % compared to $ 26.0 million in 2017. adjusted income increased to $ 35.0 million in 2018 , up 9 % from $ 32.1 million in 2017. the increase in net income reflects the positive organic growth during 2018. net interest income net interest income decreased year-over-year by $ 1.3 million to $ 90.9 million on a higher cost of funds while interest income increased 9.8 % to $ 11.4 million as yields on earning assets expanded . interest income increases are being driven by a focus on variable rate loan origination and shifts in the securities portfolio .
| summary of significant accounting policies of the consolidated financial statements in this annual report on form 10-k , in june 2016 , the fasb issued asu no . 2016-13 , “ financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments. ” the asu requires companies to measure all expected credit losses for financial assets held at the reporting date based on historical experience , current conditions , and reasonable and supportable forecasts . the company is in the process of finalizing the required changes to loan loss estimation methodologies and processes as a result of the new accounting guidance . also , the company is finalizing its control environment regarding the new processes , data validations , and model validation . other assets the company has other assets identified on its balance sheet consisting of premises and equipment , other real estate owned , goodwill , other intangible assets , bank-owned life insurance , net deferred tax assets and other assets . these assets totaled $ 303 million at the end of 2019 compared to $ 272 million as of december 31 , 2018. the increase is primarily from the branch acquisition adding $ 4 million of premises and equipment , $ 19 million of goodwill , and $ 2 million of other intangibles . contributing to the increase was a $ 9 million right-of-use asset recorded in connection with the implementation of asu no . 2016-02 for lease accounting described further in note 17 - leases of the consolidated financial statements in this annual report on form 10-k .
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acquisition-related contingent consideration consists of our future royalty obligations on future net sales of iclusig and certain potential milestone story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ selected consolidated financial data ” and the consolidated financial statements and related notes included elsewhere in this report . a discussion of our financial performance for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 appears below under the captions “ results of operations ” and “ liquidity and capital resources. ” a discussion of our financial performance for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 can be found under the same captions in item 7 of our annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on february 14 , 2019 , which is available free of charge on the sec 's website at www.sec.gov and our investor relations website at investor.incyte.com/financial-information/annual-reports . these website addresses are intended to be inactive , textual references only . none of the materials on , or accessible through , these websites are part of this report or are incorporated by reference herein . overview incyte is a biopharmaceutical company focused on the discovery , development and commercialization of proprietary therapeutics . our global headquarters is located in wilmington , delaware . we conduct our european clinical development and commercial operations from our offices in geneva , switzerland and lausanne , switzerland , and we conduct our japanese operations from our office in tokyo . jakafi ( ruxolitinib ) is our first product to be approved for sale in the united states . it is an oral jak1 and jak2 inhibitor and was approved by the u.s. food and drug administration ( fda ) in november 2011 for the treatment of patients with intermediate or high-risk myelofibrosis , in december 2014 for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea and in may 2019 for the treatment of steroid‐refractory acute graft‐versus‐host disease ( gvhd ) in adult and pediatric patients 12 years and older . myelofibrosis and polycythemia vera are both rare blood cancers , and gvhd is an adverse immune response to an allogeneic hematopoietic stem cell transplant . in june 2016 , we acquired from ariad pharmaceuticals , inc. ( ariad ) all of the outstanding shares of ariad pharmaceuticals ( luxembourg ) s.à.r.l. , the parent company of ariad 's european subsidiaries responsible for the 57 development and commercialization of iclusig in the european union and other countries , including switzerland , norway , turkey , israel and russia . we obtained an exclusive license to develop and commercialize iclusig in those countries . iclusig is approved in the european union for the treatment of patients with chronic myeloid leukemia and philadelphia-positive acute lymphoblastic leukemia who are resistant to or intolerant of certain second-generation bcr-abl inhibitors and all patients who have the t3151 mutation . under our collaboration agreement with novartis international pharmaceutical ltd. , novartis received exclusive development and commercialization rights to ruxolitinib outside of the united states for all hematologic and oncologic indications and sells ruxolitinib outside of the united states under the name jakavi . in april 2016 , we amended this agreement to provide that novartis has exclusive research , development and commercialization rights outside of the united states to ruxolitinib ( excluding topical formulations ) in the gvhd field . under our collaboration agreement with eli lilly and company , lilly received exclusive worldwide development and commercialization rights to our second oral jak1 and jak2 inhibitor , baricitinib , for inflammatory and autoimmune diseases . in january 2016 , lilly submitted a new drug application ( nda ) to the fda and a marketing authorization application ( maa ) to the european medicines agency for baricitinib as treatment for rheumatoid arthritis . in february 2017 , we and lilly announced that the european commission approved baricitinib as olumiant for the treatment of moderate-to-severe rheumatoid arthritis in adult patients who have responded inadequately to , or who are intolerant to , one or more disease-modifying antirheumatic drugs . in july 2017 , japan 's ministry of health , labor and welfare granted marketing approval for olumiant for the treatment of rheumatoid arthritis in patients with inadequate response to standard-of-care therapies . in june 2018 , the fda approved the 2mg dose of olumiant for the treatment of adults with moderately-to-severely active rheumatoid arthritis who have had an inadequate response to one or more tumor necrosis factor inhibitor therapies . since we began our drug-discovery and development activities in early 2002 , we have filed numerous investigational new drug ( ind ) applications and progressed multiple internally developed proprietary compounds into clinical development . two new drug applications ( ndas ) seeking marketing approval for drug candidates discovered by incyte are currently under review by the fda ; the nda for pemigatinib was submitted by incyte in september 2019 and the nda for capmatinib was submitted by novartis in december 2019. license agreements and business relationships we establish business relationships , including collaborative arrangements with other companies and medical research institutions to assist in the clinical development and or commercialization of certain of our drugs and drug candidates and to provide support for our research programs . we also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to our business from other companies and medical research institutions . below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies . novartis in november 2009 , we entered into a collaboration and license agreement with novartis . story_separator_special_tag in april 2019 , we elected to end additional co-funding of the development of baricitinib in all 59 indications , effective as of january 1 , 2019. pursuant to the terms of the lilly agreement , we will continue to receive base tiered royalties on global net sales of olumiant in all indications , as well as pro-rated incremental royalties , as described above . in march 2016 , we entered into an amendment to the agreement with lilly that allows us to engage in the development and commercialization of ruxolitinib in the gvhd field . upon execution of the amendment , we paid lilly an upfront payment of $ 35.0 million and lilly is eligible to receive up to $ 40.0 million in regulatory milestone payments relating to ruxolitinib in the gvhd field . in may 2019 , the approval of jakafi in steroid-refractory acute gvhd triggered a $ 20.0 million milestone payment to lilly . in february 2017 , the european commission announced the approval of baricitinib as olumiant , triggering a $ 65.0 million milestone payment from lilly . in july 2017 , japan 's mhlw granted marketing approval for olumiant , triggering a $ 15.0 million milestone payment from lilly . in december 2017 , we recognized a $ 30.0 million milestone payment for the first patient treated in the atopic dermatitis phase iii program for baricitinib . in june 2018 , the fda approved the 2mg dose of olumiant , triggering a $ 100.0 million milestone payment from lilly . in september 2018 , we recognized a $ 20.0 million milestone payment for the first patient treated in the systemic lupus erythematosus phase iii program for baricitinib . the lilly agreement will continue until lilly no longer has any royalty payment obligations or , if earlier , the termination of the agreement in accordance with its terms . royalties are payable by lilly on a product-by-product and country-by-country basis until the latest to occur of ( i ) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country , ( ii ) the expiration of regulatory exclusivity for the licensed product in such country and ( iii ) a specified period from first commercial sale in such country of the licensed product by lilly or its affiliates or sublicensees . the agreement may be terminated by lilly for convenience , and may also be terminated under certain other circumstances , including material breach . agenus in january 2015 , we entered into a license , development and commercialization agreement with agenus inc. and its wholly-owned subsidiary , 4-antibody ag ( now known as agenus switzerland inc. ) , which we collectively refer to as agenus . under this agreement , the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using agenus ' antibody discovery platforms . in february 2017 , we and agenus amended this agreement . under the terms of this agreement , as amended , we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against gitr , ox40 , lag-3 and tim-3 . in addition to the initial four program targets , we and agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration , and in november 2015 , three more targets were added . targets may be designated profit-share programs , where all costs and profits are shared equally by us and agenus , or royalty-bearing programs , where we are responsible for all costs associated with discovery , preclinical , clinical development and commercialization activities . the programs relating to gitr and ox40 and two of the undisclosed targets were profit-share programs until february 2017 , while the other targets currently under collaboration are royalty-bearing programs . the february 2017 amendment converted the programs relating to gitr and ox40 to royalty-bearing programs and removed from the collaboration the profit-share programs relating to the two undisclosed targets , with one reverting to us and one reverting to agenus . should any of those removed programs be successfully developed by a party , the other party will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15 % rate on global net sales . there are currently no profit-share programs . for each royalty-bearing product other than gitr and ox40 , agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 % . for gitr and ox40 , agenus will be eligible to receive 15 % royalties on global net sales . under the february 2017 amendment , we paid agenus $ 20.0 million in accelerated milestones relating to the clinical development of the gitr and ox40 programs . agenus is eligible to receive up to an additional $ 510.0 million in future contingent development , regulatory and commercialization milestones across all programs in the collaboration . the agreement may be terminated by us for convenience upon 12 months ' notice and may also be terminated under certain other circumstances , including material breach . 60 takeda ( ariad ) in june 2016 , we acquired from ariad pharmaceuticals , inc. all of the outstanding shares of ariad pharmaceuticals ( luxembourg ) s.à.r.l. , the parent company of ariad 's european subsidiaries responsible for the development and commercialization of iclusig in the european union and other countries . we obtained an exclusive license to develop and commercialize iclusig in europe and other select countries . ariad was subsequently acquired by takeda pharmaceutical company limited in 2017. as such , takeda will be eligible to receive from us tiered royalties on net sales of iclusig in our territory and up to $ 135.0 million in potential future oncology development and regulatory approval milestone payments , together with additional milestone payments for non-oncology indications , if approved , in our territory .
| results of operations years ended december 31 , 2019 and 2018 we recorded net income for the year ended december 31 , 2019 of $ 446.9 million and net income for the year ended december 31 , 2018 of $ 109.5 million . on a per share basis , basic net income was $ 2.08 and diluted net income was $ 2.05 for the year ended december 31 , 2019. on a per share basis , basic net income was $ 0.52 and diluted net income was $ 0.51 for the year ended december 31 , 2018. revenues replace_table_token_2_th our product revenues , net for the years ended december 31 , 2019 and 2018 , were $ 1.8 billion and $ 1.5 billion , respectively . the increase in jakafi product revenues was comprised of a volume increase of $ 204.5 million and a price increase of $ 93.5 million . our product revenues may fluctuate from period to period due to our customers ' purchasing patterns over the course of a year , including as a result of increased inventory building by customers in advance of expected or announced price increases . product revenues are recorded net of estimated product returns , pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks , prompt pay discounts and distribution fees and co-pay assistance . our revenue recognition policies require estimates of the aforementioned sales allowances each period . the following table provides a summary of activity with respect to our sales allowances and accruals : replace_table_token_3_th government rebates and chargebacks are the most significant component of our sales allowances .
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81 american river bankshares and subsidiaries notes to consolidated financial statements ( continued ) 3. fair value measurements ( continued ) the following methods were used to estimate the fair value of each class of financial instrument above : available-for-sale securities – fair values for investment securities are based on quoted market prices , if available , and are considered level 1 , or evaluated using pricing models that vary by asset class and incorporate available trade , bid and other market information and are considered level 2. pricing applications apply available information , as applicable , through processes such as benchmark curves , benchmarking to like securities , sector groupings and matrix pricing . impaired loans – the fair value of collateral dependent impaired loans adjusted for specific allocations of story_separator_special_tag cautionary statements regarding forward-looking statements certain matters discussed or incorporated by reference in this annual report on form 10-k including , but not limited to , matters described in “ item 7 - management 's discussion and analysis of financial condition and results of operations , ” are “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , as amended , section 27a of the securities act of 1933 , as amended , and subject to the safe-harbor provisions of the private securities litigation reform act of 1995. such forward-looking statements may contain words related to future projections including , but not limited to , words such as “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” “ would , ” and variations of those words and similar words that are subject to risks , uncertainties and other factors that could cause actual results to differ materially from those projected . factors that could cause or contribute to such differences include , but are not limited to , the following : ( 1 ) the duration of financial and economic instability and actions taken by the united states congress and governmental agencies , including the united states department of the treasury , to deal with challenges to the u.s. financial system ; ( 2 ) the risks presented by a continued economic recession , which could adversely affect credit quality , collateral values , including real estate collateral , investment values , liquidity and loan originations and loan portfolio delinquency rates ; ( 3 ) variances in the actual versus projected growth in assets and return on assets ; ( 4 ) potential continued or increasing loan and lease losses ; ( 5 ) potential increasing levels of expenses associated with resolving non-performing assets as well as regulatory changes ; ( 6 ) changes in the interest rate environment including interest rates charged on loans , earned on securities investments and paid on deposits and other borrowed funds ; ( 7 ) competitive effects ; ( 8 ) potential declines in fee and other noninterest income earned associated with economic factors as well as regulatory changes ; ( 9 ) general economic conditions nationally , regionally , and within our operating markets could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth at historical rates and maintain the quality of our earning assets ; ( 10 ) changes in the regulatory environment including government intervention in the u.s. financial system ; ( 11 ) changes in business conditions and inflation ; ( 12 ) changes in securities markets , public debt markets , and other capital markets ; ( 13 ) potential data processing and other operational systems failures or fraud ; ( 14 ) potential continued decline in real estate values in our operating markets ; ( 15 ) the effects of uncontrollable events such as terrorism , the threat of terrorism or the impact of the military conflicts in afghanistan and iraq and the conduct of the war on terrorism by the united states and its allies , worsening financial and economic conditions , natural disasters , and disruption of power supplies and communications ; ( 16 ) changes in accounting standards , tax laws or regulations and interpretations of such standards , laws or regulations ; ( 17 ) projected business increases following any future strategic expansion could be lower than expected ; ( 18 ) the goodwill we have recorded in connection with acquisitions could become impaired , which may have an adverse impact on our earnings ; ( 19 ) the reputation of the financial services industry could experience further deterioration , which could adversely affect our ability to access markets for funding and to acquire and retain customers ; ( 20 ) the efficiencies we may expect to receive from any investments in personnel and infrastructure may not be realized ; and ( 21 ) downgrades in the credit rating of the united states by credit rating agencies . the factors set forth under “ item 1a - risk factors ” in this report and other cautionary statements and information set forth in this report should be carefully considered and understood as being applicable to all related forward-looking statements contained in this report , when evaluating the business prospects of the company and its subsidiaries . forward-looking statements are not guarantees of performance . by their nature , they involve risks , uncertainties and assumptions . the future results and shareholder values may differ significantly from those expressed in these forward-looking statements . you are cautioned not to put undue reliance on any forward-looking statement . any such statement speaks only as of the date of this report , and in the case of any documents that may be incorporated by reference , as of the date of those documents . story_separator_special_tag the company conducted an analysis to assess the need for a valuation allowance at december 31 , 2013 , and determined that no valuation allowance was required . as part of this assessment , all available evidence , including both positive and negative , was considered to determine whether based on the weight of such evidence , a valuation allowance on the company 's deferred tax assets was needed . a valuation allowance is deemed to be needed when , based on the weight of the available evidence , it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of a deferred tax asset will not be realized . the future realization of the deferred tax asset depends on the existence of sufficient taxable income within the carryback and carry forward periods . the benefit of a tax position is recognized in the financial statements in the period during which , based on all available evidence , management believes it is more likely than not that the position will be sustained upon examination , including the resolution of appeals or litigation processes , if any . tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination . only tax positions that meet the more-likely-than-not recognition threshold are recognized . the election has been made to record interest expense related to tax exposures in tax expense , if applicable , and the exposure for penalties related to tax exposures in tax expense , if applicable . overview the company recorded net income in 2013 of $ 3,057,000 , a decrease of $ 150,000 ( 4.37 % ) from $ 3,207,000 in 2012 diluted earnings per share for 2013 and 2012 were $ 0.34. for 2013 , the company realized a return on average equity of 3.38 % and a return on average assets of 0.52 % , as compared to 3.42 % and 0.55 % for 2012. net income for 2012 was $ 703,000 ( 28.1 % ) higher than the $ 2,504,000 recorded in 2011. in 2011 , diluted earnings per share were $ 0.25 , return on average assets was 0.43 % and return on average equity was 2.74 % . table one below provides a summary of the components of net income for the years indicated ( dollars in thousands ) : table one : components of net income replace_table_token_4_th * fully taxable equivalent basis ( fte ) under accounting principles generally accepted in the united states of america all share and per share data is adjusted for stock dividends and stock splits . there were no stock dividends or stock splits in 2013 , 2012 or 2011. during 2013 , total assets of the company decreased $ 3,636,000 ( 0.6 % ) to a total of $ 592,753,000 at year-end . at december 31 , 2013 , net loans totaled $ 251,747,000 , down $ 374,000 ( 0.1 % ) from the ending balance on december 31 , 2012. deposits increased $ 5,434,000 or 1.1 % during 2013 resulting in ending deposit balances of $ 483,690,000. shareholders ' equity decreased $ 6,974,000 or 7.4 % during 2013 , to end the year at $ 87,020,000. the company ended 2013 with a leverage capital ratio of 11.9 % and a total risk-based capital ratio of 23.2 % compared to a leverage capital ratio of 12.8 % and a total risk-based capital ratio of 25.1 % at the end of 2012 . 38 story_separator_special_tag style= '' text-indent : 0in ; font : 10pt times new roman , times , serif ; text-align : left ; vertical-align : top '' > ( 2 ) includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2013 , 2012 and 2011 . ( 3 ) net interest margin is computed by dividing net interest income by total average earning assets . 40 replace_table_token_6_th replace_table_token_7_th ( 1 ) the average balance of non-accruing loans and leases is immaterial as a percentage of total loans and leases and has been included in net loans and leases . ( 2 ) loan and lease fees of $ 119,000 , $ 174,000 and $ 95,000 for the years ended december 31 , 2013 , 2012 and 2011 , respectively , have been included in the interest income computation . ( 3 ) includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2013 , 2012 and 2011 . ( 4 ) the rate/volume variance has been included in the rate variance . provision for loan and lease losses the company provided $ 200,000 for loan and lease losses in 2013 as compared to $ 1,365,000 for 2012. net loan and lease losses for 2013 were $ 635,000 as compared to $ 2,625,000 in 2012. in 2013 , net loan and lease losses as a percentage of average loans outstanding were 0.25 % compared to 0.93 % in 2012. in 2011 , the company provided $ 3,625,000 for loan and lease losses and net charge-offs were $ 4,168,000. the level of non-performing loans and leases , which began to increase during the recent economic cycle , reached a high of $ 22,571,000 at december 31 , 2010 , but has decreased to $ 1,979,000 at december 31 , 2013. while the level of nonperforming loans and leases has decreased , there remains a challenging economy in the company 's
| results of operations net interest income and net interest margin net interest income represents the excess of interest and fees earned on interest earning assets ( loans , securities , federal funds sold and interest-bearing deposits in other banks ) over the interest paid on deposits and borrowed funds . net interest margin is net interest income expressed as a percentage of average earning assets . the company 's fully taxable equivalent net interest margin was 3.45 % in 2013 , 3.91 % in 2012 , and 4.36 % in 2011. the fully taxable equivalent net interest income was down $ 2,023,000 ( 10.3 % ) in 2013 compared to 2012. the fully taxable equivalent net interest income was down $ 2,127,000 ( 9.7 % ) in 2012 compared to 2011. the fully taxable equivalent interest income component decreased from $ 21,597,000 in 2012 to $ 19,170,000 in 2013 , representing a 11.2 % decrease . the decrease in the fully taxable equivalent interest income for 2013 compared to the same period in 2012 is comprised of two components - rate ( down $ 1,395,000 ) and volume ( down $ 1,032,000 ) . the rate decrease can be attributed to the overall lower interest rate environment and lower average loan balances replaced with higher average investment securities . while forgone interest on nonaccrual loans has decreased , it continues to negatively impact the yield on earning assets . during 2013 , foregone interest income on nonaccrual loans was approximately $ 327,000 , compared to foregone interest of $ 715,000 during 2012. the average balance of earning assets increased 1.5 % from $ 504,533,000 in 2012 to $ 511,868,000 in 2013 ; however , the company continues to see a change in the average earning asset mix . there was an increase in investment securities , offset by a decrease in loan balances . principal reductions from loan balances were invested into investment securities .
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references as used herein , unless the context requires otherwise , to ( i ) the “ company , ” “ we , ” “ us , ” or “ our ” refer to wmih corp. ( formerly wmi holdings corp. ) and its subsidiaries on a consolidated basis ; ( ii ) “ wmih ” refers only to wmih corp. , without regard to its subsidiaries ; ( iii ) “ wmihc ” refers only to wmi holdings corp. , without regard to its subsidiaries ; ( iv ) “ wmmrc ” refers to wm mortgage reinsurance company , inc. ( a wholly-owned subsidiary of wmih ) ; and ( v ) “ wmiic ” refers to wmi investment corp. ( formerly , a wholly-owned subsidiary of wmih ) . forward-looking statements and other statements as discussed under “ forward-looking statements ” at the beginning of this annual report on form 10-k and “ risk factors ” in item 1a of part i of this annual report on form 10-k , actual results may differ materially from the results contemplated by forward-looking statements . we are not undertaking any obligation to update forward-looking statements or other statements we may make in the following discussion or elsewhere in this document , even though these statements may be affected by events or circumstances occurring after the forward-looking statements were made . therefore , you should not rely on these statements being current as of any time other than the time at which this document was filed with the sec . overview our business strategy and operating environment wmih corp. ( “ wmih ” ) is a corporation duly organized and existing under the laws of the state of delaware . on may 11 , 2015 , wmih merged with its parent corporation , wmi holdings corp. , a washington corporation ( “ wmihc ” ) , with wmih as the surviving corporation in the merger . this transaction occurred as part of the reincorporation of wmihc from the state of washington to the state of delaware effective may 11 , 2015. wmih , formerly known as wmi holdings corp. ( “ wmihc ” ) and washington mutual , inc. ( “ wmi ” ) , is the direct parent of wm mortgage reinsurance company , inc. ( “ wmmrc ” ) and , until its dissolution on january 18 , 2017 , as more fully described in item 1 under “ wmiic ” of part i of this annual report on form 10-k and in note 15 : subsequent events , to the consolidated financial information in part ii , item 8 of this annual report on form 10-k , wmi investment corp. ( “ wmiic ” ) , which had no operations , assets or liabilities since we emerged from bankruptcy . since emergence from bankruptcy on march 19 , 2012 ( the “ effective date ” ) , we have had limited operations other than wmmrc 's legacy reinsurance business , which is being operated in runoff mode . we continue to operate wmmrc 's business in runoff mode , and our primary strategic objective has been to identify and consummate one or more acquisitions of an operating business , either through a merger , purchase , business combination or other form of acquisition , and grow our business . we have sought to identify and evaluate acquisition opportunities of varying sizes across an array of industries for the purpose of facilitating an acquisition of one or more operating businesses . wmih has worked with our strategic partner , an affiliate of kkr & co. lp , to identify , consider and evaluate potential mergers , acquisitions , business combinations and other strategic opportunities . during the year ended december 31 , 2017 , we focused primarily on acquisition targets in the financial services industry , including companies with consumer finance , commercial finance , specialty finance , leasing and insurance operations . on february 12 , 2018 , wmih , nationstar mortgage holdings inc. , a delaware corporation that is currently listed on the new york stock exchange under the ticker “ nsm ” ( “ nationstar ” ) , and wand merger corporation , a delaware corporation and a wholly-owned subsidiary of wmih ( “ merger sub ” ) , entered into an agreement and plan of merger ( the “ merger agreement ” ) , pursuant to which , subject to the satisfaction or waiver of the conditions set forth therein , merger sub will merge with and into nationstar ( the “ nationstar transaction ” or the “ merger ” ) , with nationstar continuing as the surviving corporation and a wholly-owned subsidiary of wmih . the merger has been unanimously approved by the boards of directors of wmih and nationstar . the merger is expected to close in the second half of 2018. with respect to our current operations , the company operates a single business through its subsidiary , wmmrc , whose sole activity is the reinsurance of mortgage insurance policies . wmmrc has been operated in runoff mode since september 26 , 2008. since that date , wmmrc has not underwritten any new policies ( and by extension any new risk ) . wmmrc , through predecessor companies , began reinsuring risks in 1997 and continued reinsuring risks through september 25 , 2008 . 27 all of wmmrc 's reinsuran ce agreements are on an excess of loss basis , except for a certain reinsurance treaty with genworth mortgage insurance corporation entered into during 2007 , which is reinsured on a 50 % quota share basis . pursuant to the excess of loss reinsurance treaties , wmmrc reinsures a second loss layer which ranges from 5 % to 10 % of the risk in force in excess of the primary mortgage insurer 's first loss percentages which range from 4 % to 5 % . each calendar year , or book year , is treated separately from other years whe n calculating losses . story_separator_special_tag the loss contract reserve was established at a value of $ 63.1 million on march 19 , 2012 as a result of our reorganization . the decrease in the loss contract reserve during the years ended december 31 , 2017 , 2016 and 2015 totaled $ 5.6 million , $ 4.0 million and $ 2.9 million , respectively , and resulted in a corresponding decrease in expense of the same amount during the respective periods . the loss contract reserve is expected to remain at zero due to the runoff nature of wmmrc and the earlier than projected timing of assets being released from trust accounts held at wmmrc . for the year ended december 31 , 2017 , our investment portfolio reported net investment income of $ 6.7 million , as compared to net investment income of $ 2.2 million and $ 0.9 million for the years ended december 31 , 2016 and 2015 , respectively . the components of the investment income are more fully described below in the net investment income section . the primary variances occurred due to changes in the interest rate environment , including improved short-term returns . general and administrative expenses for the year ended december 31 , 2017 , our general and administrative expenses totaled $ 14.5 million , compared to $ 7.0 million and $ 20.9 million during the same periods in 2016 and 2015 , respectively . we experienced elevated amounts of general and administrative expenses in 2017 and 2015 , as compared to the same periods in 2016. the 2017 increased costs were primarily due to fees and expenses incurred in connection with our efforts to amend the original series b preferred stock and the evaluation of several potential acquisition opportunities . the 2015 increase was primarily the result of our efforts to evaluate , structure , negotiate and finance an acquisition which was not completed , satisfy the original series b preferred stock post-closing covenants , including our reincorporation from washington to delaware , make effective a resale registration statement on form s-3 and list wmih 's shares of common stock on the nasdaq capital market . interest expense for the years ended december 31 , 2017 , december 31 , 2016 and december 31 , 2015 , we incurred $ 1.8 million , $ 2.6 million and $ 3.7 million of total interest expense , respectively , all of which was payable on the outstanding principal amount of the runoff notes . the amount of runoff interest expense continued to decrease each year , as expected , due to the fact that the outstanding runoff notes were reduced each year . the first lien notes were fully redeemed on april 15 , 2015 , and the second lien notes were fully redeemed on september 29 , 2017. the indentures pertaining to these notes were satisfied and discharged . 31 gain ( loss ) on change in fair value of derivative the fair value of the derivative embedded conversion feature was revalued each reportable balance sheet date with the decrease or increase , as the case may be , in fair value being reported in the consolidated statements of operations as gain or ( loss ) on change in fair value of derivative embedded conversion feature . the primary factors affecting the fair value of the embedded conversion feature were the probability of a qualified acquisition occurring and the timing related thereto ; our stock price ; and our stock price volatility . as of and for the year ended december 31 , 2017 , the fair value of the derivative asset decreased by a total of $ 80.7 million due to a reclassification of the final december 31 , 2017 fair market value of $ 108.9 million to equity , due to its modification , and the fair market value change of $ 28.2 million being recorded as other income . the fair market value of the embedded derivative on january 5 , 2015 , the date the original series b preferred stock was issued , totaled $ 66.2 million . this amount reduced the carrying value of the original series b preferred stock and continues to reduce the recorded value . during the year ended december 31 , 2016 , the fair value increased by $ 201.5 million resulting in a gain and the derivate liability becoming a derivative asset . during the year ended december 31 , 2015 , the fair value of the derivative liability increased by $ 54.6 million resulting in the recognition of a loss of the same amount . net income ( loss ) net operating loss for the year ended december 31 , 2017 totaled $ 2.5 million compared to net operating income of $ 0.1 million for the year ended december 31 , 2016 and a net operating loss of $ 15.1 million for the year ended december 31 , 2015. for the year ended december 31 , 2017 , we reported net income attributable to common and participating stockholders of $ 7.8 million . this result compares to $ 183.7 million of net income attributable to common and participating stockholders for the year ended december 31 , 2016 and to net loss attributable to common and participating stockholders of $ 79.6 million for the year ended december 31 , 2015. the primary factors impacting the change in net operating ( loss ) income and net income ( loss ) attributable to common and participating stockholders for the year ended december 31 , 2017 compared to the results of operations for the year ended december 31 , 2016 , and for the year ended december 31 , 2016 compared to the results of operations for the year ended december 31 , 2015 , are summarized in the tables below .
| results of op erations for the years ended december 31 , 2017 , 2016 and 2015 for the year ended december 31 , 2017 , we reported a net operating loss of $ 2.5 million . this result compares to net operating income of $ 0.1 million and a net operating loss of $ 15.1 million for the years ended december 31 , 2016 and december 31 , 2015 , respectively . for the year ended december 31 , 2017 we reported net income attributable to common and participating stockholders of $ 7.8 million . this result compares to net income attributable to common and participating stockholders of $ 183.7 million for the year ended december 31 , 2016 , and to net loss attributable to common and participating stockholders of $ 79.6 million for the year ended december 31 , 2015. this $ 175.9 million negative change and $ 263.3 million positive change in financial results when comparing the year ended 2017 to 2016 , and the year ended 2016 to 2015 , respectively , is primarily due to the change in fair market value of an embedded derivative . the embedded derivative was recorded as a result of the variable conversion feature in our original series b preferred stock and the change in fair market value is reflected as the other income or expense item “ change in fair value of derivative embedded conversion feature ” which resulted in $ 28.2 million of other income , $ 201.5 million of other income and $ 54.6 million of other expense for the years ended december 31 , 2017 , december 31 , 2016 and december 31 , 2015 , respectively . the net impact on the financial results from the change in fair value of the embedded derivative over the three years ended december 31 , 2017 it has existed was net other income of $ 175.1 million which also increased equity through retained earnings .
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the matters discussed in these forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this form 10-k , particularly in “ risk factors ” and “ cautionary statement concerning forward-looking statements. ” management 's discussion and analysis , which we refer to as “ md & a , ” of our results of operations , financial condition and cash flows should be read together with the audited consolidated financial statements and accompanying notes included under item 8 , `` financial statements and supplementary data , '' to provide an understanding of our financial condition , changes in financial condition and results of our operations . we believe the assumptions underlying the consolidated financial statements are reasonable . however , the consolidated financial statements included herein may not necessarily reflect our results of operations , financial position and cash flows in the future or what they would have been had we been an independent publicly-traded company during all of the periods presented . our business we are a market leader and global supplier of advanced micro-acoustic , audio processing and specialty component solutions , serving the mobile consumer electronics , communications , medical , military , aerospace and industrial markets . we use our leading position in micro-electro-mechanical systems ( `` mems '' ) microphones and strong capabilities in speaker , receiver and audio processing technologies to optimize audio systems and improve the user experience in smartphones , tablets and wearables . we are also the leader in acoustics components used in hearing aids and have a strong position in high-end oscillators ( timing devices ) and capacitors . our focus on our customers , combined with our unique technology , proprietary manufacturing techniques , rigorous testing and global scale , enables us to deliver innovative solutions that optimize the user experience . our business segments we are organized into two reportable segments based on how management analyzes performance , allocates capital and makes strategic and operational decisions . these segments were determined in accordance with financial accounting standards board ( `` fasb '' ) accounting standards codification topic 280 - segment reporting and are comprised of ( i ) mobile consumer electronics ( “ mce ” ) and ( ii ) specialty components ( “ sc ” ) . the segments are aligned around similar product applications serving our key end markets , to enhance focus on end market growth strategies . mce designs and manufactures innovative acoustic products , including microphones , speakers , receivers , integrated modules and audio processing technologies used in several applications that serve the handset , tablet and other consumer electronic markets . locations include the corporate office in itasca , illinois ; sales , support and engineering facilities in north america , europe and asia ; and manufacturing facilities in asia . sc specializes in the design and manufacture of specialized electronic components used in medical and life science applications , as well as high-performance solutions and components used in communications infrastructure and a wide variety of other markets . sc 's transducer products are used principally in hearing aid applications within the commercial audiology markets , while its oscillator products predominantly serve the telecom infrastructure market and its capacitor products are used in applications including radio , radar , satellite , power supplies , transceivers and medical implants serving the defense , aerospace , telecommunication and life sciences markets . locations include the corporate office in itasca , illinois ; sales , support and engineering facilities are located in north america , europe and asia . we sell our products directly to original equipment manufacturers ( `` oems '' ) and to their contract manufacturers and suppliers and to a lesser extent through distributors worldwide . on july 1 , 2015 , we completed our acquisition of all of the outstanding shares of common stock ( “ shares ” ) of audience , inc. ( `` audience '' ) , a leading provider of intelligent voice and audio solutions that improve voice quality and the user experience in mobile devices . for additional information on the audience acquisition , refer to note 2. acquisition of the notes to our consolidated financial statements . 28 on february 11 , 2016 , we announced our intent to sell the speaker and receiver product line in our mobile consumer electronics segment . while we 've made operational improvements to this product line over the past several years , we do not believe this product line can leverage our long-term investment in semiconductor and software design capabilities . by exiting this product line , we anticipate meaningful improvements to our overall gross and operating margins while reducing capital expenditure investments and improving free cash flow . as a result , the company expects to reclassify the assets , liabilities and results of the operations of the product line to discontinued operations in the first quarter of 2016. knowles has not entered into any definitive agreement for the sale of the product line and there can be no assurance that knowles will complete a sale in a timely manner or at all . during the fourth quarter of 2015 , knowles recorded a pre-tax impairment charge of $ 191.5 million resulting from the carrying value of the speaker and receiver product line 's net assets being less than their fair-market value . for the twelve months ended december 31 , 2015 , the speaker and receiver product line had revenues of $ 235.0 million and losses before income taxes of $ 272.4 million . results of operations prior to the separation on february 28 , 2014 , our historical financial statements and segment information were prepared on a stand-alone basis and were derived from dover 's consolidated financial statements and accounting records . story_separator_special_tag the decrease in gross profit was primarily due to lower average selling prices , lower fixed overhead absorption and unfavorable product mix , partially offset by lower inventory charges in the current year , benefits from productivity initiatives , favorable foreign currency translations and cost savings from the vienna action . 2014 versus 2013 gross profit for the year ended december 31 , 2014 was $ 232.7 million , compared with $ 427.9 million for the year ended december 31 , 2013 , a decrease of $ 195.2 million or 45.6 % . gross profit margin ( gross profit as a percentage of revenues ) for the year ended december 31 , 2014 was 20.4 % , compared with 35.2 % for the year ended december 31 , 2013 . the decline was primarily due to lower average selling prices on mature products and lost production and shipments , as well as warranty and inventory charges , related to the mems microphone that was placed on hold . the decrease in gross profit margin for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was also driven by higher fixed asset accelerated depreciation and related inventory charges and restructuring charges of $ 48.1 million , mainly associated with the cessation of manufacturing operations at our vienna , austria facility and shorter product life cycles at our beijing , china facility . lastly , the decrease was due to ramp-up costs associated with new product introductions , higher production transfer costs of $ 15.6 million to support the migration of operations into new and existing lower-cost asian manufacturing facilities and a $ 15.0 million charge related to the resolution of customer claims for products no longer produced . these unfavorable effects were partially offset by cost savings from overall restructuring actions . non-gaap gross profit for the year ended december 31 , 2014 was $ 335.8 million , compared with $ 450.1 million for the year ended december 31 , 2013 , a decrease of $ 114.3 million or 25.4 % . non-gaap gross profit margin ( non-gaap gross profit as a percentage of revenues ) for the year ended december 31 , 2014 was 29.4 % , as compared with 37.1 % for the year ended december 31 , 2013 . the decline was primarily due to lower average selling prices on mature products , the impacts of the mems microphone that was placed on hold and ramp-up costs associated with new product introductions . these unfavorable effects were partially offset by cost savings from overall restructuring actions . research and development expenses 2015 versus 2014 research and development expenses for the years ended december 31 , 2015 and 2014 were $ 112.1 million and $ 83.0 million , respectively . research and development expenses as a percentage of revenues for the years ended december 31 , 2015 and 2014 were 10.3 % and 7.3 % , respectively . the increase in research and development expenses as a percentage of revenues was primarily driven by our recently acquired audience research and development operations of $ 21.5 million , lower revenue and an increase in new product development spending . 2014 versus 2013 research and development expenses for the years ended december 31 , 2014 and 2013 were $ 83.0 million and $ 82.6 million , respectively . research and development expenses as a percentage of revenues for the years ended december 31 , 2014 and 2013 were 7.3 % and 6.8 % , respectively . selling and administrative expenses 2015 versus 2014 selling and administrative expenses for the year ended december 31 , 2015 were $ 208.1 million , compared with $ 196.5 million for the year ended december 31 , 2014 , an increase of $ 11.6 million or 5.9 % . selling and administrative expenses as a percentage of revenues for the year ended december 31 , 2015 were 19.2 % , compared with 17.2 % for the year ended december 31 , 2014 . the increase in selling and administrative expenses as a percentage of revenues was mainly due to our recently acquired audience operations of $ 19.6 million , lower revenue and transaction-related expenses incurred related to the acquisition of audience , partially offset by lower legal expenses primarily in connection with intellectual property litigation which has been settled and cost savings from the vienna action . 33 2014 versus 2013 selling and administrative expenses for the year ended december 31 , 2014 were $ 196.5 million , compared with $ 193.0 million for the year ended december 31 , 2013 , an increase of $ 3.5 million or 1.8 % . selling and administrative expenses as a percentage of revenues for the year ended december 31 , 2014 were 17.2 % , compared with 15.9 % for the year ended december 31 , 2013 . included in selling and administrative expenses were corporate allocations from our former parent of $ 3.4 million and $ 23.6 million for the years ended december 31 , 2014 and 2013 , respectively , which represent administration of treasury , employee compensation and benefits , public and investor relations , internal audit , corporate income tax , supply chain and legal services through the separation date . in 2014 , we also incurred our own costs related to such support functions as part of being an independent company for the majority of the year . the increase in selling and administrative expenses was mainly due to increased legal expenses primarily in connection with intellectual property litigation which has been settled . impairment of intangible assets 2015 during 2015 , an impairment charge of $ 143.3 million was recorded for the speaker and receiver product line within the mce business segment as the product line lacked a future path to profitability . refer to note 4. impairment of the notes to our consolidated financial statements under item 8 , `` financial statements and supplementary data `` for information regarding impairments of intangible assets .
| results of operations for the year ended december 31 , 2015 compared with the years ended december 31 , 2014 and december 31 , 2013 in addition to the gaap financial measures included herein , we have presented certain non-gaap financial measures . we use non-gaap measures as supplements to our gaap results of operations in evaluating certain aspects of our business and our board of directors and executive management team focus on non-gaap items as key measures of our performance for business planning purposes . these measures assist us in comparing our performance between various reporting periods on a consistent basis , as these measures remove from operating results the impact of items that , in our opinion , do not reflect our core operating performance . we believe that our presentation of non-gaap financial measures is useful because it provides investors and securities analysts with the same information that we use internally for purposes of assessing our core operating performance . the company does not consider these non-gaap financial measures to be a substitute for the information provided by gaap financial results . for a reconciliation of these non-gaap financial measures to the most directly comparable gaap financial measures , see the reconciliation included herein . 29 replace_table_token_6_th ( 1 ) on july 1 , 2015 , the company issued 3.2 million shares to former holders of audience shares and for the conversion of vested in-the-money audience stock options . the company also converted unvested in-the-money audience stock options and restricted stock units for an aggregate of 461,371 shares of its common stock . on february 28 , 2014 , dover stockholders of record as of the close of business on february 19 , 2014 received one share of knowles common stock for every two shares of dover 's common stock held as of the record date .
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we encourage you to review the risks and uncertainties , discussed in “ item 1a . risk factors ” and “ cautionary note regarding forward-looking statements , ” included elsewhere in this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements or implied in historical results and trends . the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. overview we are a clinical and preclinical stage oncology focused rnai nanoparticle drug development company utilizing a novel technology that achieves systemic delivery for target specific protein inhibition for any gene product that is over-expressed in disease . our drug delivery and antisense technology , called dnabilize ® , is a platform that uses p-ethoxy , which is a dna backbone modification that is intended to protect the dna from destruction by the body 's enzymes when circulating in vivo , incorporated inside of a neutral charged lipid bilayer . we believe this combination allows for high efficiency loading of antisense dna into non-toxic , cell-membrane-like structures for delivery of the antisense drug substance into cells . in vivo , the dnabilize ® delivered antisense drug substances are systemically distributed throughout the body to allow for reduction or elimination of proteins in blood diseases and solid tumors . dnabilize ® is a registered trademark of the company . using dnabilize® as a platform for drug development and manufacturing , we currently have three antisense drug candidates in development to treat at least five different cancer disease indications . our lead drug candidate , prexigebersen ( pronounced prex ” i je ber ' sen ) , is in the efficacy portion of a phase 2 clinical trial for aml in combination with ldac and in combination with decitabine . on march 6 , 2019 , we announced intended amendments to this phase 2 clinical trial to , among other things , add prexigebersen in combination with decitabine for mds and close prexigebersen in combination with ldac . in addition , preclinical efficacy studies are underway for triple combination prexigebersen , decitabine and venclexta in aml . prexigebersen is also being studied in the safety portion of a phase 2a clinical trial for cml in combination with dasatinib . prexigebersen was shown to enhance chemotherapy efficacy in preclinical solid tumor models , and we intend to file an ind application for prexigebersen in solid tumors in 2019 . 52 our second drug candidate , bp1002 , targets the protein bcl-2 , which is responsible for driving cell survival in up to 60 % of all cancers . we are currently preparing an ind application for bp1002 in addition to completing additional ind enabling studies . we intend to initiate a phase 1 clinical trial of bp1002 in refractory/relapsed lymphoma and cll patients once we receive approval from fda . our third drug candidate , bp1003 , targets the stat3 protein and is currently in preclinical development in a pancreatic patient derived tumor model . preclinical models have shown bp1003 to successfully penetrate pancreatic tumors and to significantly enhance the efficacy of standard frontline treatments . our lead indication for bp1003 is pancreatic cancer due to the severity of this disease and the lack of effective , life-extending treatments . we intend to initiate ind enabling studies of bp1003 in 2019. our dnabilize® technology-based products are available for out-licensing or partnering . we intend to apply our drug delivery technology template to new disease-causing protein targets as a means to develop new nanoparticle antisense rnai drug candidates . we have a new product identification template in place to define a process of scientific , preclinical , commercial and intellectual property evaluation of potential new drug candidates for inclusion into our drug product development pipeline . as we expand , we will look at indications where a systemic delivery is needed and antisense rnai nanoparticles can be used to slow , reverse or cure a disease , either alone or in combination with another drug . on july 19 , 2017 , we announced that the uspto issued a notice of allowance for claims related to dnabilize® , including its use in the treatment of cancers , autoimmune diseases and infectious diseases . we have certain intellectual property as the basis for our current drug products in clinical development , prexigebersen , bp1002 and bp1003 . we are developing rnai antisense nanoparticle drug candidates based on our own patented technology to treat cancer and autoimmune disorders where targeting a single protein may be advantageous and result in reduced patient adverse effects as compared to small molecule inhibitors with off-target and non-specific effects . we have composition of matter and method of use intellectual property for the design and manufacture of antisense rnai nanoparticle drug products . on january 14 , 2019 , we entered into an underwriting agreement with h.c. wainwright & co. , llc relating to an underwritten public offering of 429,616 shares of our common stock for gross proceeds of approximately $ 1.1 million under our shelf registration statement on form s-3 ( file no . 333-215205 ) , which became effective on january 9 , 2017 ( the “ 2019 underwritten offering ” ) . the offering price to the public in the 2019 underwritten offering was $ 2.60 per share , and h.c. wainwright & co. , llc agreed to purchase the shares in the 2019 underwritten offering from the company pursuant to the underwriting agreement at a price of $ 2.418 per share . additionally , we issued warrants to purchase up to 25,777 shares of our common stock in a private placement to h.c. wainwright & co. , llc as compensation for its services as underwriter in connection with the 2019 underwritten offering . story_separator_special_tag our research and development expenses consist of : · expenses related to research and development personnel , including salaries and benefits , travel and stock-based compensation ; · external research and development expenses incurred under arrangements with third parties , such as contract research organizations , clinical investigative sites , laboratories , manufacturing organizations and consultants ; · license fees ; and · costs of materials used during research and development activities . costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with generally accepted accounting policies ( “ gaap ” ) . advance payments , including nonrefundable amounts , for goods or services that will be used or rendered for future research and development activities are deferred and capitalized . such amounts will be recognized as an expense as the related goods are delivered or the related services are performed . if the goods will not be delivered , or services will not be rendered , then the capitalized advance payment is charged to expense . we expect research and development expenses associated with the completion of the associated clinical trials to be substantial and to increase over time . the successful development of our drug candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete development of our drug candidates or the period , if any , in which material net cash inflows from our drug candidates may commence . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : · the rate of progress , results and costs of completion of ongoing clinical trials of our drug candidates ; · the size , scope , rate of progress , results and costs of completion of any potential future clinical trials and preclinical trials of our drug candidates that we may initiate ; · competing technological and market developments ; 54 · the performance of third-party manufacturers and suppliers ; · the ability of our drug candidates , if they receive regulatory approval , to achieve market success ; and · disputes or other developments relating to proprietary rights , including patents , litigation matters and our ability to obtain patent protection for our drug candidates . a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a drug candidate or if we experience significant delays in enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses our general and administrative expenses consist primarily of salaries and benefits for management and administrative personnel , professional fees for legal , accounting and other services , travel costs and facility-related costs such as rent , utilities and other general office expenses . story_separator_special_tag roman , times , serif ; margin : 0 ; text-indent : 0.5in '' > financing activities . net cash provided by financing activities for the year ended december 31 , 2018 was $ 1.2 million from the 2018 registered direct offering and 2018 private placement , both as described below . 56 for the year ended december 31 , 2017 operating activities . net cash used in operating activities for the year ended december 31 , 2017 was $ 8.0 million . net cash used in operating activities consisted primarily of the net loss for the period of $ 7.0 million and an increase in current assets of $ 0.2 million . our net cash used in operating activities is partially offset by non-cash stock-based compensation expense of $ 0.8 million and technology license amortization and depreciation expenses of $ 0.4 million . the change in fair value of the warranty liability of $ 2.4 million partially offset by loss on extinguishment of the warranty liability of $ 0.4 million , did not have an impact on net cash used in operating activities during the period . investing activities . net cash used in investing activities for the year ended december 31 , 2017 consisted of capital expenditures totaling $ 0.5 million which were primarily related to equipment purchases for our new research and development laboratory . financing activities . net cash provided by financing activities for the year ended december 31 , 2017 was $ 5.1 million . net cash provided by financing activities consisted of $ 3.6 million from the 2017 registered direct offering and $ 1.5 million from the warrant exercises , both as described below . 2017 shelf registration statement on december 20 , 2016 , we filed a shelf registration on form s-3 with the sec , which was declared effective by the sec on january 9 , 2017 ( file no . 333-215205 ) ( the “ 2017 shelf registration statement ” ) , at which time the offering of unsold securities under a previous shelf registration statement on form s-3 filed with the sec , which was declared effective by the sec on january 13 , 2014 ( file no . 333-192102 ) ( the “ 2014 shelf registration statement ” ) , was deemed terminated pursuant to rule 415 ( a ) ( 6 ) under the securities act .
| results of operations comparisons of the year ended december 31 , 2018 to the year ended december 31 , 2017 revenue . we had no revenue for the year ended december 31 , 2018. we had $ 37,000 revenue in the year ended december 31 , 2017. the decrease in revenue represents the completion in 2017 of a fixed fee service agreement with a preclinical stage biotechnology company in connection with a development project involving our dnabilize® technology . payments received prior to the company 's performance of work are recorded as deferred revenue and recognized as revenue once the work is performed . research and development expenses . our research and development expense was $ 4.6 million for the year ended december 31 , 2018 , a decrease of $ 0.9 million compared to the year ended december 31 , 2017. the decrease in research and development expense was primarily due to decreased salaries and benefits expense . the following table sets forth our research and development expenses ( in thousands ) : replace_table_token_2_th general and administrative expenses . our general and administrative expense was $ 3.4 million for the year ended december 31 , 2018 , a decrease of $ 0.1 million compared to the year ended december 31 , 2017. the decrease in general and administrative expense was primarily due to decreased professional and consulting fees . the following table sets forth our general and administrative expenses ( in thousands ) : replace_table_token_3_th impairment of technology license . we recorded an impairment of our technology license of $ 0.6 million for the year ended december 31 , 2018. there were no technology license impairments for the year ended december 31 , 2017 . 55 net operating loss .
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the corporate and other segment includes activities of the holding company , financing expenses , net realized gains ( losses ) on investments , interest income earned from short-term investments held , interest income from excess surplus of insurance subsidiaries not allocated to other segments , run-off asbestos business , and additional costs associated with excess of loss reinsurance and ceded to certain subsidiaries in the london market between 1995 and 1997. the corporate and other segment also includes the amortization of deferred gains associated with the portions of the sales of ffg and ltc , which were sold through reinsurance agreements as described below . the following discussion covers the twelve months ended december 31 , 2011 ( twelve months 2011 ) , twelve months ended december 31 , 2010 ( twelve months 2010 ) and twelve months ended december 31 , 2009 ( twelve months 2009 ) . please see the discussion that follows , for each of these segments , for a more detailed analysis of the fluctuations . 38 executive summary net income increased $ 266,662 to $ 545,839 for twelve months 2011 from $ 279,177 for twelve months 2010. twelve months 2010 included a $ 306,381 non-cash goodwill impairment charge . absent this charge , net income decreased $ 39,719 or 7 % . the decline is primarily attributable to decreased net income in our assurant specialty property segment mainly due to an increase in reportable catastrophe losses of $ 87,673 ( after-tax ) in twelve months 2011 and declines in net income at our assurant health and assurant employee benefits segments . partially offsetting these items was improved net income in our assurant solutions segment and an $ 80,000 release of a capital loss valuation allowance related to deferred tax assets during twelve months 2011. assurant solutions net income increased to $ 141,553 for twelve months 2011 from $ 103,206 for twelve months 2010. twelve months 2010 included an intangible asset impairment charge of $ 30,948 ( after-tax ) related to a client notification of non-renewal of a block of domestic service contract business . consumer spending remains sluggish in the u.s. and economic uncertainty persists in europe . however , revenues from our service contract offerings , including wireless , especially in latin america , are expanding . client contract renewals remain strong , driven by our ability to respond to evolving customer needs . preneed sales increased in 2011 compared with 2010 , primarily due to our strong relationship with sci . total net earned premiums and fees declined slightly in 2011 due to an approximate $ 160,000 reduction in premiums from the continued run-off of the domestic credit business and service contracts sold through former clients . overall , modest premium growth is expected in 2012 , even with the recent notification of an upcoming loss of a domestic wireless client . we continue to allocate resources to the wireless business due to its potential for growth and its intersection with our core capabilities . assurant specialty property net income decreased $ 119,222 , to $ 305,065 for twelve months 2011 from $ 424,287 for twelve months 2010. the decline is primarily due to an increase in reportable catastrophe losses of $ 87,673 ( after-tax ) in twelve months 2011. there are fewer mortgage loans originating in the u.s. and foreclosures are projected to increase . despite these trends , our alignment with market leaders , specifically specialty servicers , has allowed us to gain new portfolios , which have helped to offset a decline of loans in the overall marketplace . this was evident during the fourth quarter of 2011 as our clients gained new loan portfolios , mitigating the overall decrease in the number of tracked loans . we placed a significant portion of our reinsurance program in january 2012 , including issuing a new catastrophe bond . the integration of the june 2011 suredeposit acquisition has allowed us to expand our product offerings in the multi-family housing market . we expect net earned premiums and fees in 2012 to be consistent with 2011 amounts , reflecting growth in multi-family housing and a modest decline in lender-placed homeowners premiums . as our product mix changes , we anticipate our expense and non-catastrophe loss ratios will rise . overall results are subject to catastrophe losses , changes in placement rates for lender-placed policies , and mortgage loan origination volume . assurant health net income decreased to $ 40,886 for twelve months 2011 from $ 54,029 for twelve months 2010. the decrease was partly attributable to accrued premium rebates of $ 27,033 ( after-tax ) associated with the mlr requirement included in the affordable care act for our comprehensive health coverage business . our 2011 operating costs dropped significantly due to organizational and operational expense initiatives that will better position us to succeed under health care reform . we have redesigned many of our products in response to health care reform . sales of lower cost products , offering more limited benefits than traditional major medical insurance , grew in 2011 and we expect that trend to continue in 2012. our new relationship with aetna signature administrators ® broadens the network of health care providers to which our major medical customers have access and improves affordability of those products , while improving engagement with our distributers . we expect this new relationship to improve our major medical sales . beginning in 2012 , any favorable loss development relative to 2011 reserves will increase the mlr rebate liability instead of flowing into earnings as was the case in 2011. assurant employee benefits net income decreased to $ 43,113 for twelve months 2011 from $ 63,538 for twelve months 2010. lower results were primarily attributable to less favorable disability and life insurance loss 39 experience , partially offset by improved dental insurance experience . story_separator_special_tag if the actual loss ratios , calculated in a manner prescribed by the hhs , are less than the required mlr , premium rebates are payable to the policyholders by august 1 of the subsequent year . the assurant health loss ratio reported on page 63 ( the gaap loss ratio ) differs from the loss ratio calculated under the mlr rules ( mlr loss ratio ) specified under the affordable care act . the most significant differences include : the mlr loss ratio is calculated separately by state and legal entity ; the mlr loss ratio calculation includes credibility adjustments for each entity , which are not applicable to the gaap loss ratio ; the mlr loss ratio calculation applies only to some of our health insurance products , while the gaap loss ratio applies to the entire portfolio , including products not governed by the affordable care act ; the mlr loss ratio includes quality improvement expenses , taxes and fees ; changes in reserves are treated differently in the mlr loss ratio calculation ; and the premium rebate amounts are considered adjustments to premiums for gaap reporting whereas they are reported as additions to incurred claims in the mlr rebate estimate calculations . assurant health has estimated the 2011 impact of this regulation and recorded a premium rebate accrual of $ 41,589 for twelve months 2011. the premium rebate accrual was based on our interpretation of definitions and calculation methodologies outlined in the hhs interim final regulation released december 1 , 2010 , technical corrections released december 29 , 2010 and the hhs final regulation released december 7 , 2011. additionally , the premium rebate accrual was based on separate projection models for the individual medical and 41 small group businesses using projections of expected premiums , claims , and enrollment by state , legal entity , and market for medical business subject to mlr requirements for the mlr reporting year . in addition , the projection models include quality improvement expenses , state assessments and taxes . we estimated the 2011 full-year premium rebate accrual to be $ 41,589 ; however , further emerging regulations and interpretations from hhs as well as additional loss experience on claims incurred in 2011 could cause the actual premium rebate to differ . we will not know the actual premium rebate amount with certainty until mid-2012 ; it will be based on actual premium and claim experience for all of 2011. the estimated liability may also need to be adjusted for any further regulatory clarifications or transition relief granted for states in which we do business . the premium rebate is presented as a reduction of net earned premiums in the consolidated statement of operations and included in unearned premiums in the consolidated balance sheets . reserves reserves are established in accordance with gaap using generally accepted actuarial methods and reflect judgments about expected future claim payments . calculations incorporate assumptions about inflation rates , the incidence of incurred claims , the extent to which all claims have been reported , future claims processing , lags and expenses and future investment earnings , and numerous other factors . while the methods of making such estimates and establishing the related liabilities are periodically reviewed and updated , the calculation of reserves is not an exact process . reserves do not represent precise calculations of expected future claims , but instead represent our best estimates at a point in time of the ultimate costs of settlement and administration of a claim or group of claims , based upon actuarial assumptions and projections using facts and circumstances known at the time of calculation . many of the factors affecting reserve adequacy are not directly quantifiable and not all future events can be anticipated when reserves are established . reserve estimates are refined as experience develops . adjustments to reserves , both positive and negative , are reflected in the statement of operations in the period in which such estimates are updated . because establishment of reserves is an inherently complex process involving significant judgment and estimates , there can be no certainty that ultimate losses will not exceed existing claim reserves . future loss development could require reserves to be increased , which could have a material adverse effect on our earnings in the periods in which such increases are made . 42 the following table provides reserve information for our major product lines for the years ended december 31 , 2011 and 2010 : replace_table_token_11_th for a description of our reserving methodology , see note 12 to the consolidated financial statements included elsewhere in this report . long duration contracts reserves for future policy benefits represent the present value of future benefits to policyholders and related expenses less the present value of future net premiums . reserve assumptions reflect best estimates for expected investment yield , inflation , mortality , morbidity , expenses and withdrawal rates . these assumptions are based on our experience to the extent it is credible , modified where appropriate to reflect current trends , industry experience and provisions for possible unfavorable deviation . we also record an unearned revenue reserve which represents premiums received which have not yet been recognized in our income statements . historically , premium deficiency testing has not resulted in a material adjustment to deferred acquisition costs or reserves except for discontinued products . such adjustments could occur , however , if economic or mortality conditions significantly deteriorated . risks related to the reserves recorded for certain discontinued individual life , annuity , and long-term care insurance policies have been 100 % ceded via reinsurance . while the company has not been released from the contractual obligation to the policyholders , changes in and deviations from economic and mortality assumptions used in the calculation of these reserves will not directly affect our results of operations unless there is a default by the assuming reinsurer .
| results of operations assurant consolidated overview the table below presents information regarding our consolidated results of operations : replace_table_token_16_th ( 1 ) includes amortization of dac and voba and underwriting , general and administrative expenses . 55 year ended december 31 , 2011 compared to the year ended december 31 , 2010 net income increased $ 266,662 , or 96 % , to $ 545,839 for twelve months 2011 from $ 279,177 for twelve months 2010. twelve months 2010 included a $ 306,381 non-cash goodwill impairment charge . absent this charge , net income decreased $ 39,719 or 7 % . the decline is primarily attributable to decreased net income in our assurant specialty property segment mainly due to an increase in reportable catastrophe losses of $ 87,673 ( after-tax ) in twelve months 2011 and declines in net income at our assurant health and assurant employee benefits segments . partially offsetting these items was improved net income in our assurant solutions segment and an $ 80,000 release of a capital loss valuation allowance related to deferred tax assets during twelve months 2011. year ended december 31 , 2010 compared to the year ended december 31 , 2009 net income decreased $ 151,397 , or 35 % , to $ 279,177 for twelve months 2010 from $ 430,574 for twelve months 2009. twelve months 2010 includes $ 107,075 ( after-tax ) of improved segment results and $ 66,300 ( after-tax ) of increased realized gains on investments , compared with twelve months 2009. however , results decreased primarily due to a non-cash goodwill impairment charge of $ 306,381 in twelve months 2010 compared with an $ 83,000 non-cash goodwill impairment charge in twelve months 2009. in addition , twelve months 2009 includes an $ 83,542 ( after-tax ) favorable legal settlement . 56 assurant solutions overview the table below presents information regarding assurant solutions ' segment results of operations : replace_table_token_17_th ( 1 ) this includes emerging products and run-off products lines .
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this warrant will expire on april 26 , 2018. for financial reporting purposes , the $ 6,000 funded by the lender on march 15 , 2013 was allocated first to the fair value the warrant that totaled approximately $ 563 and the balance was reduced further by the lender 's costs and fees , resulting in an initial carrying value of the loan of approximately $ 5,300 . the company used a level 3 fair value measurement to determine fair value of the warrant obligation , which has significant unobservable inputs as defined in accounting standards codification 820 “ fair value measures ” . during the story_separator_special_tag the following discussion contains forward-looking statements , which involve risks and uncertainties . our actual results could differ from those anticipated in these forward-looking statements as a result of various factors , including those set forth above under the caption “ risk factors ” . you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements for the year ended december 31 , 2014 and the related notes appearing in part ii item 8 of this report . story_separator_special_tag our management 's discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our judgments related to accounting estimates . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 3 to our financial statements included in this annual report , we believe that the following accounting policies and significant judgments and estimates relating to revenue recognition , stock-based compensation charges , and fair value of warrants are most critical to aid you in fully understanding and evaluating our reported financial results . 29 revenue recognition we consider revenue to be earned when all of the following criteria are met : persuasive evidence a sales arrangement exists ; delivery has occurred or services have been rendered ; the price is fixed or determinable ; and collectability is reasonably assured . our agreements with dermatologists regarding the melafind system combine the elements noted above with a future service obligation . under our leased-based model , we placed the melafind systems with dermatologists for their exclusive use , but retained ownership of the melafind systems . during 2013 and 2014 , under the leased-based method , we generated revenue from usage based on the number of patient sessions and lesions examined . additionally , we typically charged an initial installation fee for each melafind system which covered training , delivery , initial supplies , maintenance and the right to use the melafind system . in accordance with the accounting guidance regarding multiple-element arrangements , we allocated total contract consideration to each element based upon the relative standalone selling prices of each element , and recognized the associated revenue for each element as delivery occurred or over the related service period , generally expected to be two years . revenues associated with undelivered elements were deferred until delivery occurred or services rendered . the significant judgments we made related to allocation of the contract consideration to each element whereby changes in the standalone selling price could impact the amount of revenue recognized in a specific period and estimates of uncollectible accounts receivables . in december 2013 , we amended our business model from solely a leased-based model to include a capital sales option for the melafind system . under this model , we recognize revenues for product sales when title and risk of loss transfers to customers , which is after installation and training , and when reliable estimates of sales allowances and warranties can be made and collectability is reasonably assured . we will regularly review the information related to these estimates and adjust the reserves accordingly . inventories inventories consist of finished products and raw materials that are stated at the lower of cost ( first-in , first-out ) or market value . we reserve for specific inventory items that are no longer being used in the devices and monitor this at each reporting date . throughout the year , we deferred repairs of certain of our melafind system units that we determined were unlikely to be sold during the next several periods . we estimated the cost to restore our system units to sellable condition and created a repair reserve amounting to $ 0.5 million at december 31 , 2014. stock-based compensation we record compensation expense associated with stock options , restricted stock awards and other forms of equity compensation in accordance with fasb asc 718 , compensation-stock compensation . the fair value of an equity award is determined at the date of grant using the black-scholes model and the fair value of the equity award is expensed over the service period . the most significant inputs used to value an equity award include current stock price , the amount the employee must pay to acquire the equity award , volatility rate , interest rate and estimated term . for equity awards that vest upon achieving a defined milestone , the underlying compensation charge is recorded when it is probable that the milestone will be achieved . it is then amortized over the estimated period to satisfy vesting requirements . story_separator_special_tag the new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services . asu 2014-09 is effective for public entities for annual reporting periods beginning after december 15 , 2016 and interim periods within those periods . early adoption is not permitted . companies may use either a full retrospective or a modified retrospective approach to adopt asu 2014-09. we are currently assessing the impact that adopting this new accounting guidance will have on our consolidated financial statements and footnote disclosures . year ended december 31 , 2014 compared with year ended december 31 , 2013 revenue revenue increased $ 0.4 million , or 80 % , to $ 0.9 million for the year ended december 31 , 2014 compared with revenue of $ 0.5 million for the year ended december 31 , 2013. this increase is the result of $ 0.5 million in melafind system sales revenue under our capital sales model , partially offset by a decline in deferred placement revenue . our first commercial sale occurred in the second quarter of 2014. no new lease agreements were signed in 2014 . 31 cost of revenue cost of revenue increased $ 0.6 million , or 14 % , to $ 4.9 million for the year ended december 31 , 2014 compared with $ 4.3 million for the year ended december 31 , 2013. this increase is primarily due to an increase of $ 1.1 million of inventory reserves resulting from improvements made in the design of the melafind sysem , our decision to defer repairs of certain of our melafind system units that we determined were unlikely to be sold during the next several periods , and an increase of $ 0.4 million in cost of melafind systems sold under our capital sale model . this was offset by approximately $ 0.6 million in reduced depreciation expense and $ 0.3 million in various other items . costs of revenue were primarily made up of direct costs associated with the manufacture of the units sold during the year , technical support costs and depreciation expense of the melafind systems leased . certain product quality and manufacturing overhead costs associated with supporting the contract manufacturers of melafind are allocated to costs of goods sold . research and development expense research and development ( “ r & d ” ) expenses decreased 58 % to approximately $ 1.6 million for the year ended december 31 , 2014 compared with $ 3.8 million for the year ended december 31 , 2013. the decrease is the result the cost reduction plan initiated in august 2013. ongoing r & d efforts are concentrating on future product enhancements . selling , general and administrative expense selling , general and administrative ( “ sg & a ” ) expenses decreased $ 4.5 million , or 29 % , to approximately $ 11.0 million for the year ended december 31 , 2014 compared with $ 15.5 million for the year ended december 31 , 2013. the decrease is the result of salary and headcount decreases , as well as a reduction in stock based compensation expense , decreases in consulting and temporary help and further cost reduction initiatives . impairment of long-lived assets during year ended december 31 , 2013 , our marketing focus shifted to large cancer centers and high risk patients , and we recorded an impairment charge of approximately $ 1.0 million against our melafind systems previously placed in locations that did not fit this profile . we anticipate that the affected systems will ultimately be redeployed . interest expense interest expense increased to $ 2.4 million for the year ended december 31 , 2014 compared with $ 0.6 million for the year ended december 31 , 2013. in 2014 , interest expense related primarily to the issuance of our 4 % convertible debentures in july and the subsequent conversion of approximately $ 1.6 million in debentures in october 2014 , and included $ 1.9 million in amortization of debt discount , $ 0.3 million in interest payments , and $ 0.2 million in amortization of deferred financing costs . the conversion of the debentures resulted in approximately $ 1.2 million of accelerated interest expense included in the total . in 2013 , interest expense was incurred by a $ 6 million senior debt financing we raised in march 2013 and prepaid in september 2013 ( see footnote 9 “ debt ” ) . change in fair value of warrant liability the change in fair value of our warrant liability is a benefit of $ 8.1 million for the year ended december 31 , 2014 , compared to a charge of $ 0.3 million for the year ended december 31 , 2013. the change is primarily due to additional liability warrants being issued in the february 2014 financing , with the current benefit being directly related to the reduction in our stock price for the period ( see note 10 “ recurring fair value measurements ” ) . write-off of unamortized loan costs on march 15 , 2013 , we executed loan documents with hercules technology growth capital inc. , a venture capital lender , whereby we borrowed $ 6.0 million . as the result of our election to prepay the loan on september 10 , 2013 , the unamortized loan discount , fee and deferred financing costs were expensed resulting in a write-off of unamortized loan costs of approximately $ 1.0 million ( see note 9 “ debt ” ) . 32 registration rights liquidating damages in connection with the february 5 , 2014 financing , we granted to the purchasers resale registration rights with respect to the shares of common stock underlying the series a preferred stock and the warrants pursuant to the terms of a registration rights agreement .
| overview we are a medical device company dedicated to designing and developing innovative software-driven technology for the early detection and prevention of skin cancer . we are focused on the commercialization of our flagship product , the melafind system , or melafind , as well as the further design and development of this technology . melafind is a non-invasive , point-of-care ( i.e . in the doctor 's office ) instrument to aid in the detection of melanoma . the system features a hand-held component that emits light of multiple wavelengths to capture digital data from clinically atypical pigmented skin lesions . the data are then analyzed utilizing sophisticated classification algorithms , ‘ trained ' by our proprietary database of melanomas and benign lesions . this result provides information to assist in the management of the patient 's disease , including information useful in the decision on whether to biopsy the lesion . in november 2011 , we received a pma from the fda for melafind , having already received ce mark approval in september 2011 in europe . on march 7 , 2012 , we installed the first commercial melafind system . we initially marketed the melafind system primarily to aesthetic dermatologists through a lease program in which users paid an upfront placement fee and periodic usage fees . in 2013 , because our launch objectives were not realized , we reviewed our marketing strategy . revenues amounting to $ 0.5 million and $ 0.3 million in 2013 and 2012 , respectively , did not meet our expectations , and due to the nature of the lease agreements we continued to record high cost of sales .
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these estimates consider all available evidence including the expected future cash flows discounted at the effective interest rate of the financing lease , fair value of collateral , and other relevant factors , as appropriate . financing leases are 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 currently have healthcare investments in the u.s. , europe and australia . 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 generally range from 0.5 % to 3 % . in addition , most of our leases and loans also include rate increases based on the general rate of inflation if greater than the minimum contractual increases . only less than 3 % of our properties do not have either a minimum escalator or an escalator based on inflation . beyond rent or mortgage interest , our leases and loans typically require our tenants to pay all operating costs and expenses associated with the facility . finally , we may acquire a profits or other equity interest in our tenants that gives us a right to share in the tenant 's income or loss . we selectively make loans to certain of our operators through our trss , which the operators use for acquisitions and working capital . we consider our lending business an important element of our overall business strategy for two primary reasons : ( 1 ) it provides opportunities to make income-earning investments that yield attractive risk-adjusted returns in an industry in which our management has expertise , and ( 2 ) by making debt capital available to certain qualified operators , we believe we create for our company a competitive advantage over other buyers of , and financing sources for , healthcare facilities . at december 31 , 2019 , our portfolio ( including real estate assets in joint ventures ) consisted of 359 properties leased or loaned to 42 operators , of which four are under development and 11 are in the form of mortgage loans . 2019 highlights in 2019 , we invested in approximately $ 4.5 billion in healthcare real estate assets . these significant investments enhanced the size and scale of our healthcare portfolio , while expanding our geographic footprint in the u.s. and europe , and entering into new territories such as australia . these investments also extended our lease and loan maturity schedule . to fund these new investments , we raised $ 2.5 billion in proceeds from equity sales during 2019 , received proceeds of $ 837 million from an australian term loan facility in june 2019 , and completed $ 900 million and £1 billion senior unsecured notes offerings in july and december 2019 , respectively . in addition to the record breaking acquisition year , we generated returns to our shareholders of 39 % during 2019 , outpacing the returns of several key indexes , as noted in item 5 of this annual report on form 10-k. our return included an increase to our dividend to $ 0.26 per share per quarter in 2019 , which is the 5 th year in a row for such an increase . a summary of our 2019 highlights is as follows : acquired real estate assets or commenced development projects totaling more than $ 4.5 billion , as noted below : invested in three acute care hospitals and one irf for an aggregate investment of approximately $ 135 million . one of the acute care hospitals is located in big spring , texas and leased to steward pursuant to the existing master lease agreement . the second facility , located in poole , england , is leased to bmi healthcare ( “ bmi ” ) . the third acute care facility is located in watsonville , california and is leased to halsen healthcare . the irf is located in germany and leased to affiliates of median kliniken s.à r.l . ( “ median ” ) ; invested in a portfolio of 13 acute care campuses and two additional properties in switzerland for a combined purchase price of approximately chf 236.6 million , effected through our purchase of a 46 % stake in a swiss healthcare real estate company , infracore sa . these facilities are leased to swiss medical network . additionally , we purchased a 4.9 % stake in aevis victoria sa , previous majority shareholder of infracore , for chf 47 million ; acquired 11 hospitals in australia for a purchase price of approximately aud $ 1.2 billion plus stamp duties and registration fees of aud $ 66.6 million . these facilities are leased to healthscope ; acquired seven community hospitals in kansas for approximately $ 145.4 million . story_separator_special_tag 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 , which strengthened our balance sheet , reduced interest rates , and funded acquisitions . finally , we increased our dividend to $ 0.24 per share per quarter in 2017. 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 ; 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 lifepoint ; and executed agreements totaling more than $ 150 million with circle 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 . to fund our over $ 2.2 billion of asset investments , while lowering our average interest cost , we successfully refinanced approximately $ 0.6 billion of debt and generated proceeds of approximately $ 2.5 billion from the sale of 43.1 million shares in an equity offering and through new issuances of unsecured notes . details of such activities are as follows : replaced our previous unsecured credit facility with a $ 1.3 billion unsecured revolving loan facility , a $ 200 million unsecured term loan facility , and a 200 million unsecured term loan facility ; redeemed our 5.750 % senior unsecured notes due 2020 using proceeds from our 200 million term loan and cash on hand ; completed a 500 million senior unsecured notes offering in march 2017 and used a portion of the proceeds to pay off our 200 million term loan ; completed a $ 1.4 billion senior unsecured notes offering in september 2017 at a rate of 5.000 % and used a portion of the proceeds to redeem our 6.375 % senior unsecured notes due 2022 ; 46 prepaid the principal amount of the mortgage loan on our property in kansas city , missouri at par in the amount of $ 12.9 million ; and completed an underwritten public offering of 43.1 million shares of our common stock , resulting in net proceeds of $ 548 million , after deducting offering expenses . critical accounting policies in order to prepare financial statements in conformity with generally accepted accounting principles ( “ gaap ” ) in the u.s. , we must make estimates about certain types of transactions and account balances . we believe that our estimates of the amount and timing of credit losses , fair value adjustments ( either as part of a purchase price allocation or impairment analyses ) , and periodic depreciation of our real estate assets , along with our assessment as to whether an entity that we do business with should be consolidated with our results , have significant effects on our financial statements . each of these items involves estimates that require us to make subjective judgments . we rely on our experience , collect historical and current market data , and develop relevant assumptions to arrive at what we believe to be reasonable estimates . under different conditions or assumptions , materially different amounts could be reported related to the critical accounting policies described below . in addition , application of these critical accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties and , as a result , actual results could materially differ from these estimates . see note 2 to item 8 of this annual report on form 10-k for more information regarding our accounting policies and recent accounting developments . our accounting estimates include the following : credit losses : losses from rent receivables : for all leases , we continuously monitor the performance of our existing tenants including , but not limited to : admission levels and surgery/procedure volumes by type ; current operating margins ; ratio of our tenants ' operating margins both to facility rent and to facility rent plus other fixed costs ; trends in revenue , cash collections , patient mix ; and the effect of evolving healthcare regulations on tenants ' profitability and liquidity . losses from operating lease receivables : we utilize the information above along with the tenants ' payment and default history in evaluating ( on a property-by-property basis ) whether or not a provision for losses on outstanding billed rent and or straight-line rent receivables is needed . a provision for losses on rent receivables ( including straight-line rent receivables ) is ultimately recorded when it becomes probable that the receivable will not be collected in full . the provision is an amount which reduces the receivable to its estimated net realizable value based on a determination of the eventual amounts to be collected either from the debtor or from existing collateral , if any . losses on financing lease receivables : allowances are established for financing lease receivables based upon an estimate of probable losses on a property-by-property basis .
| results of operations our operating results may vary significantly from year-to-year due to a variety of reasons including acquisitions made during the year , incremental revenues and expenses from acquisitions made in the prior year , revenues and expenses from completed development properties , property disposals , annual escalation provisions , foreign currency exchange rate changes , new or amended debt agreements , issuances of shares through an equity offering , impact from accounting changes , etc . thus , our operating results for the current year are not necessarily indicative of the results that may be expected in future years . year ended december 31 , 2019 compared to the year ended december 31 , 2018 net income for the year ended december 31 , 2019 , was $ 374.7 million compared to net income of $ 1.02 billion for the year ended december 31 , 2018. this decrease is primarily due to the approximate $ 720 million of gains on the sales of real estate recognized in 2018 from the disposal of five properties in the u.s. and the joint venture transaction with primotop described in note 3 to item 1 of this annual report on form 10-k. this decrease is partially offset by approximately $ 70 million more in revenues from new investments in 2019. ffo , after adjusting for certain items ( as more fully described in the section titled “ non-gaap financial measures ” in “ management 's discussion and analysis of financial condition and results of operations ” in item 7 of this annual report on form 10-k ) , was $ 557.4 million , or $ 1.30 per diluted share for 2019 , as compared to $ 501.0 million , or $ 1.37 per diluted share , for 2018. this increase in ffo dollars is primarily due to incremental revenue from new investments in 2019 , while ffo per share is lower due to approximately 145 million
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for story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the consolidated financial statements and the accompanying footnotes . md & a includes the following sections : business natus is a leading provider of newborn care and neurology healthcare products and services used for the screening , diagnosis , detection , treatment , monitoring and tracking of common medical ailments in newborn care , hearing impairment , neurological dysfunction , epilepsy , sleep disorders , neuromuscular diseases and balance and mobility disorders . 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 2016 we completed two acquisitions , neuroquest , llc ( “ neuroquest ” ) and retcam imaging systems ( “ retcam ” ) . we expect to continue to pursue opportunities to acquire other businesses in the future . in january 2017 , we acquired otometrics , our largest acquisition in terms of purchase price and size of business acquired . otometrics reported 2016 revenue , in u.s. dollars , of approximately $ 100 million . year 2016 overview in 2016 , we completed the acquisitions mentioned above for total cash consideration of $ 15.2 million . these acquisitions allowed us to diagnose and monitor a range of ophthalmic maladies in premature infants and to offer patients a more convenient way to complete routine eeg testing . our consolidated revenue increased by $ 6.0 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. this increase was driven by acquisitions , organic growth in our domestic neurology business and peloton hearing screening business , and revenue from the venezuela contract , partially offset by weakness in our international neurology markets and the impact of the ship hold on certain newborn care products . net income was $ 42.6 million , or $ 1.29 per diluted share in the year ended december 31 , 2016 , compared with net income of $ 37.9 million , or $ 1.14 per diluted share in 2015. this increase in income was primarily the result of increased revenue and gross profit . we incurred $ 1.5 million of restructuring charges in 2016 , as compared to $ 2.1 million in 2015 , as we continue to eliminate redundant costs . the higher charges in 2015 were due to higher severance costs related to reduction of workforce in europe . 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 28 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 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 . hearing screening and ambulatory eeg monitoring revenue is recorded when the procedure is performed at the estimated net realizable value based on contractual agreements with payers and historical collections . certain revenue transactions include multiple element arrangements . we allocate revenue in these arrangements to each unit of accounting using the relative selling price method . story_separator_special_tag if any of our products contain defects , we may be required to incur additional repair and remediation costs . service for domestic customers is provided by company-owned service centers that perform all service , repair , and calibration services . service for international customers is provided by a combination of company-owned facilities and vendors on a contract basis . a warranty reserve is included in accrued liabilities for the expected future costs of servicing products . additions to the reserve are based on management 's best estimate of probable liability . we consider a combination of factors including material and labor costs , regulatory requirements , and other judgments in determining the amount of the reserve . the reserve is reduced as costs are incurred to honor existing warranty and regulatory obligations . share-based compensation we recognize share-based compensation expense associated with employee stock options under the single-option straight line method over the requisite service period , which is generally a four-year vesting period and ten-year contractual term pursuant to asc topic 718 , compensation-stock compensation . see note 14 of our consolidated financial statements . for employee stock options , the value of each option is estimated on the date of grant using the black-scholes option pricing model , which was developed for use in estimating the value of freely traded options . 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 . rsas and rsus for non employees ( board of directors ) vest over a one-year period ; 100 % on the first anniversary . 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 . 30 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 . we elected to early adopt accounting standard update ( “ asu ” ) 2016-09 in the first quarter of 2016. additional information regarding the early adoption is contained in note 1- organization and significant accounting policies of our consolidated financial statements included in this report . in 2015 and 2014 , the cash flow from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for employee options ( excess tax benefits ) was classified as a cash inflow from financing activities and a cash outflow from operating activities in our statements of cash flows . we treated tax deductions from certain stock option exercises as being realized when they reduced taxes payable in accordance with relevant tax law . story_separator_special_tag style= '' line-height:120 % ; padding-top:18px ; text-indent:36px ; font-size:10pt ; '' > restructuring restructuring costs decreased during the year ended december 31 , 2016 compared to the prior year . in 2015 we experienced higher expenses related to facilities consolidation and severance expense compared to 2016 in which restructuring charges related mostly to the abandonment of two facilities . 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 expense , net of $ 0.3 million in 2016 , compared to $ 1.0 million in 2015. we reported $ 0.3 million of foreign currency exchange losses in 2016 versus $ 1.4 million in 2015. this increase was driven primarily by the declining value of foreign currencies in which we transact . interest expense was $ 0.4 million in 2016 compared to $ 0.3 million in 2015. this was offset by interest income of $ 0.3 million in 2016 which was $ 0.3 million more than the amount reported for 2015. provision for income tax the effective tax rate ( “ etr ” ) for 2016 was 22.4 % as compared to 27.6 % for 2015. the lower effective tax rate in 2016 compared with 2015 is primarily due to the effect from adoption of asu 2016-09 which resulted in excess tax benefits being recorded in income tax expense as discrete items , lower state tax expense , reduction of certain uncertain tax positions , and the change in geographic mix of income , offset by additional tax expense related to the settlement of a tax audit in a foreign jurisdiction. , 33 comparison of 2015 and 2014 revenue replace_table_token_16_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 driven 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 in our domestic market .
| 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_12_th 31 comparison of 2016 and 2015 revenue replace_table_token_13_th for the year ended december 31 , 2016 , neurology revenue increased by 1 % compared to the prior year with the growth in our domestic market partly offset by a decline in our international markets . devices and systems revenue remained constant for the year ended december 31 , 2016 compared to the prior year . supplies revenue for 2016 decreased 3 % compared to the prior year due mainly to softness in our domestic market . services revenue increased by 40 % compared to the prior year due mainly to the acquisition of neuroquest in march 2016 to complement our gnd and monarch acquisitions . for the year ended december 31 , 2016 , newborn care revenue increased by 3 % compared to the prior year with growth in both international and domestic markets . devices and systems revenue remained flat year over year , as revenue generated from the retcam acquisition and the venezuela contract was offset by lower revenue from hearing devices , due to peloton cannibalization , voluntary ship holds , and lower revenue on incubators and warmers , due to exiting the u.s. market , and lower revenue from brain injury devices , due to higher revenue from china in 2015 that did not repeat in 2016. supplies revenue for the twelve-month period decreased 5 % compared to the prior year mainly due to our ability to convert customers over to our peloton screening service business . services revenue increased by 45 % compared to the prior year due mainly to the growth in peloton and our neometrics data management services .
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we use words such as anticipates , believes , expects , future , intends , and similar expressions to identify forward-looking statements . forward-looking statements reflect management 's current expectations and are inherently uncertain . actual results could differ materially for a variety of reasons , including , among others , fluctuations in foreign exchange rates , changes in global economic conditions and consumer spending , world events , the rate of growth of the internet and online commerce , the amount that amazon.com invests in new business opportunities and the timing of those investments , the mix of products sold to customers , the mix of net sales derived from products as compared with services , the extent to which we owe income taxes , competition , management of growth , potential fluctuations in operating results , international growth and expansion , the outcomes of legal proceedings and claims , fulfillment and data center optimization , risks of inventory management , seasonality , the degree to which the company enters into , maintains , and develops commercial agreements , acquisitions , and strategic transactions , payments risks , and risks of fulfillment throughput and productivity . in addition , the current global economic climate amplifies many of these risks . these risks and uncertainties , as well as other risks and uncertainties that could cause our actual results to differ significantly from management 's expectations , are described in greater detail in item 1a of part i , risk factors. overview our primary source of revenue is the sale of a wide range of products and services to customers . the products offered on our consumer-facing websites primarily include merchandise and content we have purchased for resale from vendors and those offered by third-party sellers , and we also manufacture and sell kindle devices . generally , we recognize gross revenue from items we sell from our inventory as product sales and recognize our net share of revenue of items sold by other sellers as services sales . we also offer other services such as aws , fulfillment , publishing , digital content subscriptions , advertising , and co-branded credit cards . our financial focus is on long-term , sustainable growth in free cash flow 1 per share . free cash flow is driven primarily by increasing operating income and efficiently managing working capital 2 and capital expenditures . increases in operating income primarily result from increases in sales of products and services and efficiently managing our operating costs , partially offset by investments we make in longer-term strategic initiatives . to increase sales of products and services , we focus on improving all aspects of the customer experience , including lowering prices , improving availability , offering faster delivery and performance times , increasing selection , increasing product categories and service offerings , expanding product information , improving ease of use , improving reliability , and earning customer trust . we also seek to efficiently manage shareholder dilution while maintaining the flexibility to issue shares for strategic purposes , such as financings , acquisitions , and aligning employee compensation with shareholders ' interests . we utilize restricted stock units as our primary vehicle for equity compensation because we believe they align the interests of our shareholders and employees . in measuring shareholder dilution , we include all vested and unvested stock awards outstanding , without regard to estimated forfeitures . total shares outstanding plus outstanding stock awards were 470 million and 468 million at december 31 , 2012 and 2011 . 1 free cash flow , a non-gaap financial measure , is defined as net cash provided by operating activities less purchases of property and equipment , including capitalized internal-use software and website development , both of which are presented on our consolidated statements of cash flows . see results of operationsnon-gaap financial measures below . 2 working capital consists of accounts receivable , inventory , and accounts payable . 18 we seek to reduce our variable costs per unit and work to leverage our fixed costs . our variable costs include product and content costs , payment processing and related transaction costs , picking , packaging , and preparing orders for shipment , transportation , customer service support , costs necessary to run aws , and a portion of our marketing costs . our fixed costs include the costs necessary to run our technology infrastructure ; to build , enhance , and add features to our websites , our kindle devices , and digital offerings ; and to build and optimize our fulfillment centers . variable costs generally change directly with sales volume , while fixed costs generally increase depending on the timing of capacity needs , geographic expansion , category expansion , and other factors . to decrease our variable costs on a per unit basis and enable us to lower prices for customers , we seek to increase our direct sourcing , increase discounts available to us from suppliers , and reduce defects in our processes . to minimize growth in fixed costs , we seek to improve process efficiencies and maintain a lean culture . because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle 3 . on average , our high inventory velocity means we generally collect from consumers before our payments to suppliers come due . inventory turnover 4 was 9 , 10 , and 11 for 2012 , 2011 , and 2010. we expect variability in inventory turnover over time since it is affected by several factors , including our product mix , the mix of sales by us and by other sellers , our continuing focus on in-stock inventory availability and selection of product offerings , our investment in new geographies and product lines , and the extent to which we choose to utilize outsource fulfillment providers . story_separator_special_tag forecasts of future cash flow are based on our best estimate of future net sales and operating expenses , based primarily on expected category expansion , pricing , market segment share , and general economic conditions . certain estimates of discounted cash flows involve businesses and geographies with limited financial history and developing revenue models . changes in these forecasts could significantly change the amount of impairment recorded , if any . during the year , management monitored the actual performance of the business relative to the fair value assumptions used during our annual goodwill impairment test . for the periods presented , no triggering events were identified that required an update to our annual impairment test . as a measure of sensitivity , a 10 % decrease in the fair value of any of our reporting units as of december 31 , 2012 would have had no impact on the carrying value of our goodwill . 20 financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine our discount rate and through our stock price that we use to determine our market capitalization . during times of volatility , significant judgment must be applied to determine whether credit or stock price changes are a short-term swing or a longer-term trend . as a measure of sensitivity , a prolonged 20 % decrease from our december 31 , 2012 , closing stock price would not be an indicator of possible impairment . stock-based compensation we measure compensation cost for stock awards at fair value and recognize it as compensation expense over the service period for awards expected to vest . the fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock . the estimation of stock awards that will ultimately vest requires judgment for the amount that will be forfeited , and to the extent actual results or updated estimates differ from our current estimates , such amounts will be recorded as a cumulative adjustment in the period estimates are revised . we consider many factors when estimating expected forfeitures , including employee class , economic environment , and historical experience . we update our estimated forfeiture rate quarterly . a 1 % change to our estimated forfeiture rate would have had an approximately $ 22 million impact on our 2012 operating income . our estimated forfeiture rates at december 31 , 2012 and 2011 , were 27 % and 28 % . we utilize the accelerated method , rather than the straight-line method , for recognizing compensation expense . for example , over 50 % of the compensation cost related to an award vesting ratably over four years is expensed in the first year . if forfeited early in the life of an award , the compensation expense adjustment is much greater under an accelerated method than under a straight-line method . income taxes we are subject to income taxes in the u.s. and numerous foreign jurisdictions . significant judgment is required in evaluating and estimating our provision and accruals for these taxes . during the ordinary course of business , there are many transactions for which the ultimate tax determination is uncertain . our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates , by losses incurred in jurisdictions for which we are not able to realize the related tax benefit , by changes in foreign currency exchange rates , by entry into new businesses and geographies and changes to our existing businesses , by acquisitions ( including integrations ) and investments , by changes in the valuation of our deferred tax assets and liabilities , or by changes in the relevant tax , accounting , and other laws , regulations , administrative practices , principles , and interpretations , with a number of countries actively considering changes in this regard . in addition , we are subject to audit in various jurisdictions , and such jurisdictions may assess additional income tax liabilities against us . although we believe our tax estimates are reasonable , the final outcome of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals . developments in an audit or litigation could have a material effect on our operating results or cash flows in the period or periods for which that development occurs , as well as for prior and subsequent periods . recent accounting pronouncements see item 8 of part ii , financial statements and supplementary datanote 1description of business and accounting policiesrecent accounting pronouncements. 21 liquidity and capital resources cash flow information is as follows ( in millions ) : replace_table_token_4_th our financial focus is on long-term , sustainable growth in free cash flow . free cash flow , a non-gaap financial measure , was $ 395 million for 2012 , compared to $ 2.1 billion and $ 2.5 billion for 2011 and 2010. see results of operationsnon-gaap financial measures below for a reconciliation of free cash flow to cash provided by operating activities . the decrease in free cash flow in 2012 and 2011 , compared to the comparable prior year periods , was primarily due to increased capital expenditures partially offset by higher operating cash flows . operating cash flows and free cash flows can be volatile and are sensitive to many factors , including changes in working capital , the timing and magnitude of capital expenditures , and our net income . working capital at any specific point in time is subject to many variables , including seasonality , inventory management and category expansion , the timing of cash receipts and payments , vendor payment terms , and fluctuations in foreign exchange rates .
| results of operations we have organized our operations into two principal segments : north america and international . we present our segment information along the same lines that our chief executive officer reviews our operating results in assessing performance and allocating resources . net sales net sales include product and services sales . product sales represent revenue from the sale of products and related shipping fees and digital content where we are the seller of record . services sales represent third-party seller fees earned ( including commissions ) and related shipping fees , digital content subscriptions , and non-retail activities . net sales information is as follows ( in millions ) : replace_table_token_5_th sales increased 27 % , 41 % , and 40 % in 2012 , 2011 , and 2010 , compared to the comparable prior year periods . changes in currency exchange rates impacted net sales by $ ( 854 ) million , $ 1.1 billion , and $ ( 86 ) million for 2012 , 2011 , and 2010. for a discussion of the effect on sales growth of exchange rates , see effect of exchange rates below . 24 north america sales grew 30 % , 43 % , and 46 % in 2012 , 2011 , and 2010 , compared to the comparable prior year periods . the sales growth in each year primarily reflects increased unit sales , partially offset by a higher percentage of sales by marketplace sellers . increased unit sales were driven largely by our continued efforts to reduce prices for our customers , including from our shipping offers , by sales in faster growing categories such as electronics and other general merchandise , by increased in-stock inventory availability , and by increased selection of product offerings . international sales grew 23 % , 38 % , and 33 % in 2012 , 2011 , and 2010 , compared to the comparable prior year periods . the sales growth in each year primarily reflects increased unit sales , partially offset by a higher percentage of sales by marketplace sellers .
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we adopted asu 2016-09 on january 1 , 2017. since we have a full valuation allowance against our u.s. net deferred tax assets , the adoption of this standard for recognition of the tax effect of deductions for employee share awards in excess of compensation costs ( windfall ) did not have a material impact on our consolidated financial story_separator_special_tag statements below regarding future events or performance are forward-looking statements within the meaning of the private securities litigation reform act of 1995. our actual results could be quite different from those expressed or implied by the forward-looking statements . factors that could affect results are discussed more fully under the item 1a , entitled risk factors , and elsewhere in this annual report . although forward-looking statements help to provide complete information about us , readers should keep in mind that forward-looking statements may not be reliable . readers are cautioned not to place undue reliance on the forward-looking statements . we undertake no duty to update any forward-looking statements made herein after the date of this annual report . the following discussion should be read in conjunction with the consolidated financial statements contained herein and the notes thereto , along with the section entitled critical accounting policies and estimates , set forth below . overview and business segments our business is comprised of two segments : our osur business consists of the development , manufacture , marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary technologies , as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types . our molecular collections systems or dnag business consists of the manufacture and sale of specimen collection kits that are used to collect , stabilize , transport and store samples of genetic material for molecular testing in the consumer genetic , clinical genetic , academic research , pharmacogenomics , personalized medicine , microbiome and animal genetics markets . our osur diagnostic products include tests that are performed on a rapid basis at the point of care and tests that are processed in a laboratory . these products are sold in the united states and internationally to various clinical laboratories , hospitals , clinics , community-based organizations and other public health organizations , distributors , government agencies , physicians ' offices , and commercial and industrial entities . we also manufacture and sell medical devices used for the removal of benign skin lesions by cryosurgery or freezing . these cryosurgical products are sold in both professional and over-the-counter ( otc ) markets in north america , europe , central and south america , and australia . our dnag or molecular collection systems business is operated by our subsidiary , dna genotek inc. ( dnag ) , a company based in ottawa , canada . dnag 's oragene ® dna sample collection kit provides an all-in-one system for the collection , stabilization , transportation and storage of dna from human saliva . we also sell research use only sample collection products into the microbiome and tuberculosis markets and we offer our customers a suite of genomics and microbiome services called genofind tm , which range from package customization and study design optimization to extraction , analysis and reporting services . we serve customers worldwide , including many leading research universities and hospitals . recent developments litigation settlement effective february 6 , 2017 , we settled our patent infringement and breach of contract litigation against ancestry.com dna llc ( ancestry ) and its contract manufacturer . under a settlement and license agreement executed by the parties , ancestry agreed to pay a settlement fee of $ 12.5 million which we received in the first quarter of 2017 and recorded as a gain on litigation settlement in our consolidated statement of income . in addition , we granted ancestry a royalty-bearing , non-exclusive , worldwide license to certain patents and patent applications related to the collection of dna in human saliva . the license granted to ancestry is limited to saliva dna collection kits sold or used as part of ancestry 's genetic testing service offerings and does not cover the sale or use of collection kits outside of ancestry 's business . the settlement and license agreement also provides us with a royalty-free , non-exclusive license to patents related to ancestry 's existing saliva dna collection kit . 62 gates foundation in june 2017 , we entered into a charitable support agreement with the bill & melinda gates foundation ( gates foundation ) that enables us to offer our oraquick ® hiv self-test at an affordable price in 50 developing countries in africa and asia with funding from the gates foundation . the funding will consist of support payments tied to the volume of product we sell and reimbursement of certain related costs . the agreement has a four-year term and will enable non-governmental organizations in the eligible countries that receive funding from government or public sector agencies and donors to access our hiv self-test at reduced pricing . the funding from the gates foundation will be in an aggregate amount not to exceed $ 20.0 million over the four-year term or $ 6.0 million each year of the agreement . who prequalification in july 2017 , our oraquick ® hiv self-test was prequalified by the world health organization ( who ) . who prequalification indicates that diagnostic tests for high burden diseases meet global standards of quality , safety , and efficacy , in order to optimize use of health resources and improve health outcomes . who prequalification enables governmental organizations implementing hiv self-test pilots and programs to access international funding to purchase our test . self-testing project in africa in july 2017 , our oraquick ® hiv self-test was selected by unitaid and population services international ( psi ) for use in phase ii of the hiv self-testing in africa ( star ) project . story_separator_special_tag other revenues in 2016 included $ 18.9 million in exclusivity payments received under our abbvie hcv co-promotion agreement and $ 2.3 million in barda funding . our co-promotion agreement with abbvie was terminated on december 31 , 2016 and no further revenues were recognized under this agreement after that date . consolidated net revenues from products sold to customers outside of the united states were $ 45.6 million and $ 28.4 million , or 27 % and 22 % of total net revenues , during the years ended december 31 , 2017 and 2016 , respectively . because the majority of our international sales are denominated in u.s. dollars , the impact of fluctuating foreign currency exchange rates was not material to our total consolidated net revenues . net revenues by segment osur segment the table below shows the amount of total net revenues ( dollars in thousands ) generated by our osur segment . replace_table_token_7_th infectious disease testing market sales to the infectious disease testing market increased 28 % to $ 61.9 million in 2017 from $ 48.4 million in 2016. this increase resulted from higher sales of our oraquick ® hcv product and higher international sales of our oraquick ® hiv self-test , partially offset by a decline in domestic sales of our professional oraquick ® hiv product . the table below shows a breakdown of our total net oraquick ® hiv and hcv product revenues ( dollars in thousands ) during 2017 and 2016. replace_table_token_8_th 65 domestic oraquick ® hiv sales decreased 21 % to $ 17.0 million for the year ended december 31 , 2017 from $ 21.5 million for the year ended december 31 , 2016. this reduction was primarily the result of competitive losses tied to pricing , the loss of sales to point-of-care hiv tests perceived to be more sensitive , and the cdc 's testing guidelines recommending the use of competing fourth generation automated hiv immunoassays performed in a laboratory . we anticipate that future domestic sales of our professional hiv product will continue to be negatively affected by the cdc testing guidelines , changes in government funding , and continued product and price competition . international sales of our oraquick ® hiv products during 2017 rose 115 % to $ 11.3 million from $ 5.2 million in 2016. this increase was largely due to the continued shipment of product in support of an hiv self-testing program in africa , and higher sales of our professional product into certain areas of africa , asia , and latin america , partially offset by a decline in sales in the middle east and europe . funding under the charitable support agreement with the gates foundation began in the third quarter of 2017 and product revenues in 2017 included approximately $ 1.0 million of support payments under that agreement . sales of our oraquick ® in-home hiv test in 2017 of $ 6.8 million increased 8 % compared to $ 6.3 million in 2016 , largely due to expansion of public health programs that use our in-home test and additional shelf placement of the product in the home diagnostic section of certain retail pharmacies . domestic oraquick ® hcv sales increased 14 % to $ 8.4 million in 2017 from $ 7.4 million in 2016 primarily due to higher sales to our u.s. public health customers in support of hcv testing program expansion , higher sales to non-acute healthcare offices , and increased sales to hospitals . international oraquick ® hcv sales increased 156 % to $ 17.0 million in 2017 from $ 6.6 million in 2016 , largely due to continued product shipments to a foreign government to support a nationwide hcv testing and treatment program and increased sales in asia and africa , partially offset by the loss of a multi-national humanitarian organization customer who switched to a competitive product due to pricing . as discussed above , we were recently notified that our supply contract with the foreign government will not be renewed and it is unclear whether this government will fulfill the remaining purchase obligations under the existing contract . during 2017 , we recorded $ 11.8 million in revenue from this contract . it is uncertain if we will record revenues of this magnitude in 2018 , if at all . risk assessment market sales to the risk assessment market decreased 3 % to $ 12.6 million for the year ended december 31 , 2017 from $ 13.1 million for the year ended december 31 , 2016 , primarily as a result of a reduction of inventory maintained by one of our largest customers and lab closings due to consolidations occurring in the laboratory service industry , partially offset by higher sales resulting from increased drug testing in the pain management and drug treatment markets . cryosurgical systems market sales of our cryosurgical systems products ( which includes both the physicians ' office and otc markets ) decreased 7 % to $ 12.3 million in 2017 from $ 13.2 million in 2016 . 66 the table below shows a breakdown of our total net cryosurgical systems revenues ( dollars in thousands ) generated in each market during 2017 and 2016. replace_table_token_9_th sales of our histofreezer ® product to physicians ' offices in the united states decreased 3 % to $ 5.4 million in the 2017 from $ 5.5 million 2016 , primarily due to timing of orders placed by our distributors and loss of sales due to competing private label products . these declines in sales were partially offset by increased sales into new markets and additional business generated by our new mid-tier distributors . international sales of our histofreezer ® product increased 3 % to $ 797,000 in 2017 from $ 771,000 in 2016. sales of our private-label wart removal product in the u.s. retail market decreased to $ 1.2 million in 2017 from $ 1.4 million in 2016. sales volume in 2016 was higher as a result of initial stocking orders for a new large pharmacy customer during that period .
| consolidated operating results consolidated gross margin was 69 % for the year ended december 31 , 2016 compared to 67 % for the comparable period of 2015. gross margin for 2016 increased primarily due to the higher abbvie exclusivity revenues . 72 consolidated operating income in 2016 was $ 20.3 million , a $ 12.2 million increase from the $ 8.1 million of operating income reported in 2015. operating income in 2016 benefited as compared to the prior year from higher revenues , improved gross margins and lower sales and marketing and research and development costs , partially offset by higher general and administrative expenses . operating income by segment osur segment osur 's gross margin was 69 % in 2016 compared to 66 % in 2015. osur 's margin in 2016 was positively impacted by the increase in other revenues and lower scrap and spoilage costs . research and development expenses decreased 21 % to $ 7.0 million in 2016 from $ 8.9 million in 2015 , largely as a result of a $ 1.4 million payment received to settle a claim against one of our raw material suppliers . this settlement was recorded as a reduction in research and development expense . sales and marketing expenses decreased 20 % to $ 21.3 million in 2016 from $ 26.6 million in 2015 , primarily as a result of lower detailing and other expenses associated with our oraquick ® hcv co-promotion agreement with abbvie , as well as lower staffing costs . general and administrative expenses increased 12 % to $ 22.6 million in 2015 from $ 20.1 million in 2015 due increased consulting , severance , and other staffing-related costs . all of the above contributed to osur 's operating income of $ 15.6 million for 2016 , which included non-cash charges of $ 2.7 million for depreciation and amortization and $ 5.6 million for stock-based compensation .
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the terms of the warrants provide that the 112 radius health , inc. notes to financial statements ( continued ) ( in thousands , except share and per share amounts ) 8. loan and security agreement ( continued ) exercise price may be adjusted in the event the company issues shares of the series a-1 at a price lower than $ 81.42 per share . as a result of an anti-dilution adjustment effected in connection with the issuance of the new series story_separator_special_tag you should read the following discussions in conjunction with our consolidated financial statements and related notes included in this report . this discussion includes forward-looking statements that involve risk and uncertainties . as a result of many factors , such as those set forth under `` risk factors , '' actual results may differ materially from those anticipated in these forward-looking statements . executive overview we are a science-driven biopharmaceutical company focused on developing novel differentiated therapeutics for patients with osteoporosis as well as other serious endocrine-mediated diseases . our lead product candidate is abaloparatide ( ba058 ) , a bone anabolic for the treatment of osteoporosis delivered via subcutaneous injection , which we refer to as abaloparatide-sc . we are currently in phase 3 development of abaloparatide-sc and expect to announce top-line data from this study in late 2014. if the results are positive , we plan to submit a new drug application , or nda , in the united states , and a marketing authorization application , or maa , in europe , in mid-2015 . we hold worldwide commercialization rights to abaloparatide-sc , other than in japan , and with a favorable regulatory outcome , we anticipate our first commercial sales of abaloparatide-sc will take place in 2016. we are leveraging our investment in abaloparatide-sc to develop abaloparatide-td . we expect this line extension will provide improved patient convenience by enabling administration of abaloparatide through a short-wear-time transdermal patch . we have recently completed a successful phase 2 proof of concept study . our current clinical product portfolio also includes a novel oral agent , rad1901 at higher doses , a selective estrogen receptor down-regulator/degrader , or serd . we are developing rad1901 for the treatment of breast cancer brain metastases , or bcbm , and at lower doses as a selective estrogen-receptor modulator , or serm , for the treatment of vasomotor symptoms such as hot flashes . in 2014 , we expect to commence a phase 1 clinical trial to evaluate rad1901 for the treatment of bcbm , and we previously completed a successful phase 2 clinical trial of rad1901 for the treatment of vasomotor symptoms . abaloparatide abaloparatide is a novel synthetic peptide analog of parathyroid hormone-related protein , or pthrp , that we are developing as a bone anabolic treatment for osteoporosis . osteoporosis is a disease that affects nearly 10 million people in the united states , with an additional approximately 43 million people at increased risk for the disease . it is characterized by low bone mass and structural deterioration of bone tissue , which leads to greater fragility and an increase in fracture risk . anabolic 71 agents , like forteo ( teriparatide ) , are used to increase bone mineral density , or bmd , and to reduce the risk of fracture . we believe abaloparatide has the potential to increase bmd and bone quality to a greater degree and at a faster rate than other approved drugs for the treatment of osteoporosis . we are developing two formulations of abaloparatide : abaloparatide-sc is an injectable subcutaneous formulation of abaloparatide . in august 2009 , we announced positive phase 2 data that showed abaloparatide-sc produced faster and greater bmd increases at the spine and the hip with substantially less hypercalcemia than forteo ( teriparatide ) , which is the only approved subcutaneous injectable anabolic agent for the treatment of osteoporosis in the united states . a subsequent phase 2 clinical trial announced in january 2014 also confirmed the results of our first clinical trial by demonstrating that abaloparatide-sc produces bmd increases from baseline in the spine and hip that are comparable to our earlier phase 2 clinical trial . in april 2011 , we commenced a phase 3 clinical trial of abaloparatide-sc . enrollment was completed in march 2013 , and we expect to announce top-line data at the end of the fourth quarter of 2014. assuming a favorable outcome , we plan to use the results from this phase 3 clinical trial to support a new drug application , or nda , with the u.s. food and drug administration , or fda , and believe we could obtain approval of the nda in 2016. abaloparatide-td is a line extension of abaloparatide sc in the form of a convenient , short-wear-time ( approximately five minutes ) transdermal patch . in a recent phase 2 clinical trial , abaloparatide-td demonstrated a statistically significant mean percent increase from baseline in bmd as compared to placebo at the lumbar spine and at the hip . these results demonstrated a clear proof of concept by achieving a dose dependent increase in bmd . following additional formulation development work , we intend to advance an optimized abaloparatide-td product in additional clinical studies and to a phase 3 bridging study and to subsequently submit for approval . we hold worldwide commercialization rights to abaloparatide-td technology . in april 2011 , we began the dosing of subjects in a pivotal phase 3 clinical study managed by nordic bioscience clinical development vii a/s , or nordic , at certain clinical sites operated by the center for clinical and basic research , a leading global cro with extensive experience in global osteoporosis registration studies . we designed this phase 3 study to enroll a total of 2,400 patients to be randomized equally to receive daily doses of one of the following : 80 micrograms ( µg ) of abaloparatide , a matching placebo , or the approved dose of 20 µg of forteo for 18 months . story_separator_special_tag a change in the outcome of any of these variables with respect to the development of any of our product candidates could mean a significant change in the cost and timing associated with the development of that product candidate . abaloparatide-sc is our only product candidate in late stage development , and our business currently depends heavily on its successful development , regulatory approval and commercialization . we have not submitted an nda to the fda or comparable applications to other regulatory authorities . obtaining approval of an nda is an extensive , lengthy , expensive and uncertain process , and any approval of abaloparatide-sc may be delayed , limited or denied for many reasons , including : we may not be able to demonstrate that abaloparatide is safe and effective as a treatment for osteoporosis to the satisfaction of the fda ; the results of our clinical studies may not meet the level of statistical or clinical significance required by the fda for marketing approval ; the fda may disagree with the number , design , size , conduct or implementation of our clinical studies ; the clinical research organization , or cro , that we retain to conduct clinical studies may take actions outside of our control that materially adversely impact our clinical studies ; the fda may not find the data from preclinical studies and clinical studies sufficient to demonstrate that abaloparatide 's clinical and other benefits outweigh its safety risks ; the fda may disagree with our interpretation of data from our preclinical studies and clinical studies or may require that we conduct additional studies ; the fda may not accept data generated at our clinical study sites ; the fda may require development of a risk evaluation and mitigation strategy , or rems , as a condition of approval ; if our nda is reviewed by an advisory committee , the fda may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the fda require , as a condition of approval , additional preclinical studies or clinical studies , limitations on approved labeling or distribution and use restrictions ; or the fda may identify deficiencies in the manufacturing processes or facilities of our third-party manufacturers . in addition , the fda may change its approval policies or adopt new regulations . for example , on february 15 , 2012 , we received a letter from the fda stating that , after internal consideration , the agency believes that a minimum of 24-months of fracture data is necessary for approval of new products for the treatment of postmenopausal osteoporosis , and our ongoing abaloparatide-sc pivotal phase 3 clinical study is designed to produce fracture data based on an 18-month primary endpoint . based on our discussions with the fda , we believe that continued use of the 18-month primary endpoint will be acceptable , provided that our nda includes the 24-month fracture data derived from a 6-month extension of the abaloparatide 80 µg and placebo groups in our phase 3 clinical study that will receive an approved alendronate ( generic fosamax ) therapy for osteoporosis management . we plan to submit the nda with the 24-month fracture data . we can not be certain that the fda will be supportive of this plan , will not change this approval policy again , or adopt other approval policies or regulations that adversely affect any nda that we may submit . 74 financial overview research and development expenses research and development expenses consist primarily of clinical testing costs , including payments in cash and stock made to contracted research organizations , or cros , salaries and related personnel costs , fees paid to consultants and outside service providers for regulatory and quality assurance support , licensing of drug compounds and other expenses relating to the manufacture , development , testing and enhancement of our product candidates . we expense our research and development costs as they are incurred . none of the research and development expenses in relation to our product candidates are currently borne by third parties . our lead product candidate is abaloparatide and it represents the largest portion of our research and development expenses for our product candidates . we began tracking program expenses for abaloparatide-sc in 2005 , and program expenses from inception to december 31 , 2013 were approximately $ 144.0 million . we began tracking program expenses for abaloparatide-td in 2007 , and program expenses from inception to december 31 , 2013 were approximately $ 29.6 million . we began tracking program expenses for rad1901 in 2006 , and program expenses from inception to december 31 , 2013 were approximately $ 15.5 million . we began tracking program expenses for rad140 in 2008 , and program expenses from inception to december 31 , 2013 were approximately $ 5.2 million . these expenses relate primarily to external costs associated with manufacturing , preclinical studies and clinical trial costs . costs related to facilities , depreciation , stock-based compensation and research and development support services are not directly charged to programs as they benefit multiple research programs that share resources . we expect that future development costs related to the abaloparatide-sc and abaloparatide-td programs will increase through possible marketing approval in the united states for abaloparatide-sc in the mid-2016 and for abaloparatide-td in mid-2020 . for abaloparatide-sc , we estimate that future development costs may exceed $ 71.0 million , including $ 35.0 million for clinical costs , $ 23.0 million for license and milestone payments and nda submission fees , $ 12.0 million for manufacturing costs and $ 1.0 million for preclinical costs . for abaloparatide-td , we estimate that future development costs may exceed $ 45.0 million , including $ 35.0 million for clinical costs , $ 8.0 million for manufacturing costs , and $ 2.0 million for preclinical costs and nda submission fees .
| results of operations the following discussion summarizes the key factors our management team believes are necessary for an understanding of our financial statements . 79 years ended december 31 , 2013 and december 31 , 2012 replace_table_token_5_th research and development expenses for the year ended december 31 , 2013 , research and development expense was $ 60.5 million compared to $ 55.0 million for the year ended december 31 , 2012 , an increase of $ 5.6 million , or 10 % . during the year ended december 31 , 2013 , we incurred professional contract services associated with the development of abaloparatide-sc and abaloparatide-td of $ 57.4 million , compared to $ 50.7 million for the year ended december 31 , 2012. this increase was primarily the result of additional expenses incurred for the enrollment of patients in our phase 3 clinical trial of abaloparatide-sc , which began dosing of patients in april 2011 and completed enrollment in march 2013 , and for the enrollment of patients in our phase 2 clinical trial of abaloparatide-td , which began dosing patients in september 2012 and completed patient visits in august 2013. we expect that abaloparatide-sc expenses will decrease over the course of the clinical study as patients complete treatment . in addition , there will be variability from quarter to quarter in the costs for abaloparatide-sc , driven primarily by the euro/dollar exchange rate and fluctuations in the value of the convertible preferred stock issuable to nordic under the stock issuance agreement , which is more fully described below under `` research and development agreements . '' general and administrative expenses for the year ended december 31 , 2013 , general and administrative expense was $ 6.8 million compared to $ 9.5 million for the year ended december 31 , 2012 , a decrease of $ 2.6 million , or 28 % .
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our it enterprise network and information assurance capabilities for the it services market , we began managing our cyber security network testing operation as part of our integrated network solutions segment rather than our government communications systems segment . as a result , we reassigned $ 2.4 million of goodwill ( determined on a relative fair value basis ) to our integrated network solutions segment from our government communications systems segment . the historical results , discussion and presentation of our business segments as set forth in this report have been adjusted to reflect the impact of this change to our business segment reporting structure for all periods presented in this report . in the third quarter of fiscal 2012 , our board of directors approved a plan to exit cis , which provided remote cloud hosting , and to dispose of the related assets , and we completed the sale of the remaining assets of cis in the first quarter of fiscal 2014. in the fourth quarter of fiscal 2012 , our board of directors approved a plan to divest broadcast communications , which provided digital media management solutions in support of broadcast customers , and we completed the sale of broadcast communications in the third quarter of fiscal 2013. both cis and broadcast communications were formerly part of our integrated network solutions segment . for additional information regarding discontinued operations , see note 3 : discontinued operations in the notes . except for disclosures related to our cash flows , or unless otherwise specified , disclosures in this report relate solely to our continuing operations . financial information with respect to all of our other activities , including corporate costs not allocated to the operating segments or discontinued operations , is reported as part of the unallocated corporate expense or non-operating income ( loss ) line items in our consolidated financial statements and accompanying notes . value drivers of our business we remain focused on our two core value drivers excellence and innovation and following our acquisition of exelis , we are focused on a third value driver successfully integrating exelis to maximize the benefits of the transformative acquisition . 39 our company-wide commitment to excellence is embodied in our harris business excellence ( hbx ) program , which provides the framework and tools that empower every employee to drive continuous improvement in business performance and customer satisfaction . hbx incorporates standardized , industry-proven processes and tools based on the principles of lean and six sigma . since implementation , we have made significant strides in customer satisfaction , productivity and asset velocity through our efforts to optimize processes , eliminate waste , reduce costs and enhance quality across our company , including in manufacturing , field operations , direct and indirect material sourcing and other supply chain areas , overhead functions and working capital initiatives . one method we use to drive continuous improvement is value engineering continuously evaluating new materials , processes and technologies to insert into products already in production , helping to reduce costs and improve both quality and customer satisfaction . innovation is at the core of our success , and research and development ( r & d ) investment represents the foundation for innovation . our r & d investments are focused on leveraging our existing technology portfolio to introduce new solutions or expand customer-centric features and functions on existing solutions . innovation also leads to natural extensions of our core capabilities for capturing new opportunities in adjacent markets . innovation provides differentiation and a key competitive advantage for us . we have adopted a portfolio management approach to optimize investment at the company level rather than the business unit level and ensure our investment in r & d is cost-effective and supports innovation across the entire company . we have introduced standardized processes and common metrics to track progress and gauge success , and we have established core technology centers to more fully leverage r & d investment across our company . innovation at harris also includes introducing new business models to the marketplace to provide our customers with innovative solutions at lower costs . for example , in the tactical communications market , we provide a commercial off-the-shelf approach that entails investing our own r & d funds to provide new mission-critical communications at a much faster pace and lower cost compared to the lengthy development cycle of the traditional program-of-record approach . we also partnered with the faa to provide a fully-managed service for the faa fti network that provides mission-critical network capabilities to connect controllers and pilots and is deployed at approximately 4,500 faa sites across the u.s. , resulting in significantly higher bandwidth and uptime at half the cost of the traditional approach . we also are at the forefront of a unique piggyback approach of using commercially-hosted satellite payloads to provide multiple missions on satellites , speeding time-to-mission and lowering costs compared to the traditional model of building and launching separate exquisite satellites for each mission requirement . our commitment to excellence and innovation carries through to our acquisition of exelis and the integration process . our goal is to maximize the benefits of the acquisition , which is transformative for harris , creating significantly greater scale and bringing together two engineering-driven companies and workforces with similar cultures that value technology leadership . together , the two companies ' complementary technologies and capabilities strengthen core franchises and provide new opportunities for innovation to solve our customers ' most complex challenges . the integration process represents a significant opportunity to achieve synergy savings , and we already have consolidated headquarters and announced plans to consolidate tactical radio facilities . story_separator_special_tag this resulted in a u.s. national defense spending cap of approximately $ 520 billion for gfy 2014 and approximately $ 521 billion for gfy 2015. passing the 2-year , bipartisan budget act of 2013 provided more certainty in the budget planning process for both gfy 2014 and 2015 and gave the dod flexibility in deciding priorities . for gfys 2016 through 2021 , however , the bipartisan budget act of 2013 retained the previous budget caps and across-the-board spending reduction methodology as provided under the budget control act of 2011. absent any new legislation modifying the sequester caps , gfy16 will return to full sequestration , and there remains uncertainty regarding how sequester cuts would be applied in gfy 2016 and beyond . even under full sequestration , though , the national defense spending cap would be approximately $ 523 billion for gfy 2016 , which is higher than the cap for gfy 2015. alternatively , under the president 's budget request dated february 2015 , which ignores spending caps , national defense spending for gfy 2016 would also be higher at approximately $ 534 billion . 41 government oversight and risk : as a u.s. government contractor , we are subject to u.s. government oversight . the u.s. government may investigate our business practices and audit our compliance with applicable rules and regulations . depending on the results of those investigations and audits , the u.s. government could make claims against us . under u.s. government procurement regulations and practices , an indictment or conviction of a government contractor could result in that contractor being fined and or suspended from being able to bid on , or from being awarded , new u.s. government contracts for a period of time . similar government oversight exists in most other countries where we conduct business . for a discussion of risks relating to u.s. government contracts and subcontracts , see item 1. business principal customers ; government contracts and item 1a . risk factors of this report . we are also subject to other risks associated with u.s. government business , including technological uncertainties , dependence on annual appropriations and allotment of funds , extensive regulations and other risks , which are discussed in item 1a . risk factors and item 3. legal proceedings of this report . state and local : we also provide products to state and local government agencies that are committed to protecting our homeland and public safety . the public safety market was highly competitive and relatively weak during fiscal 2015 after having concluded an upgrade cycle primarily related to the federal communications commission 's narrow-banding mandate that drove higher-than-average market demand . future market opportunities include upgrading aging analog infrastructure to new digital standards , as well as opportunities associated with next-generation lte solutions for high data-rate applications , an emerging market in the early stages of development . international : we believe there is continuing international demand from military and government customers for tactical radios , public safety communications , electronic warfare equipment , air traffic management , electronic attack and release systems , isr , as well as for turnkey managed satellite communications solutions for government , energy and maritime markets . we believe we can leverage our domain expertise and proven technology provided in the u.s. to further expand our international business . commercial : we are leveraging proven technologies and capabilities for government applications into attractive commercial markets . after a long history of providing satellite antennas , space electronics , and payload technology to the government market , we are applying that same technology and capability in the commercial space market . similarly , we provide turnkey managed satellite communications solutions not only to government customers in remote and harsh locations but also for commercial energy and maritime customers . also , an initiative is underway to leverage our success in providing weather ground system technology for the government market into commercial markets such as agriculture , which relies heavily on advanced forecasting capabilities and other weather information . we believe that our experience , technologies and capabilities are well aligned with the demand and requirements of the markets noted above in this report . however , we remain subject to the spending levels , pace and priorities of the u.s. government as well as international governments and commercial customers , and to general economic conditions that could adversely affect us , our customers and our suppliers . we also remain subject to other risks associated with these markets , including technological uncertainties , adoption of our new products and other risks that are discussed below in this report under forward-looking statements and factors that may affect future results and in item 1a . risk factors of this report . 42 operations review consolidated results of operations replace_table_token_6_th * not meaningful revenue fiscal 2015 compared with fiscal 2014 : the increase in revenue in fiscal 2015 compared with fiscal 2014 was primarily due to our acquisition of exelis in the fourth quarter of fiscal 2015 , partially offset by lower revenue in our integrated network solutions segment . revenue in our government communications systems segment was modestly higher and mostly offset by lower revenue in our rf communications segment . the $ 210 million decrease in revenue in our integrated network solutions segment was primarily due to lower revenue from u.s. government customers , primarily on the navy/marine corps intranet ( nmci ) and u.s. air force network centric solutions programs . 43 fiscal 2014 compared with fiscal 2013 : the decrease in revenue in fiscal 2014 compared with fiscal 2013 was primarily due to lower revenue in our integrated network solutions segment , while modestly lower revenue in our rf communications segment offset modestly higher revenue in our government communications systems segment . the $ 113 million decrease in revenue in our integrated network solutions segment was primarily due to lower revenue from u.s. government customers across the
| discussion of business segment results of operations rf communications segment replace_table_token_7_th fiscal 2015 compared with fiscal 2014 : segment revenue in fiscal 2015 included tactical communications revenue of $ 1.315 billion , a 1 percent increase from $ 1.307 billion in fiscal 2014 ; and public safety and professional communications revenue of $ 460 million , a 12 percent decrease from $ 521 million in fiscal 2014. the increase in tactical communications revenue was primarily due to higher revenue in international markets , mostly offset by lower revenue from dod customers . the decrease in public safety and professional communications revenue was primarily due to continued market weakness . the increase in segment gross margin percentage in fiscal 2015 compared with fiscal 2014 was primarily due to a more favorable mix of segment revenue within the rf communications segment ( a higher percentage of higher-margin tactical communications revenue compared with public safety and professional communications revenue ) and retirement of risk on a large international program . the increase in segment esa percentage in fiscal 2015 compared with fiscal 2014 was primarily due to the impact of lower revenue . the decrease in segment operating income and the slight increase in operating income as a percentage of revenue ( operating margin percentage ) in fiscal 2015 compared with fiscal 2014 reflected the items discussed above regarding this segment . segment orders were $ 1.65 billion for fiscal 2015 , including $ 1.24 billion in tactical communications and $ 415 million in public safety and professional communications , compared with $ 1.63 billion for fiscal 2014 , including $ 1.13 billion in tactical communications and $ 497 million in public safety and professional communications .
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the following discussion provides an analysis of the results for each of our operating segments , an overview of our liquidity and capital resources and other items related to our partnership . the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this annual report on form 10-k for the year ended december 31 , 2012. recent developments bridgetex pipeline company , llc . in november 2012 , we formed bridgetex pipeline company , llc ( “ bridgetex ” ) , a joint venture with affiliates of occidental petroleum corporation . bridgetex was formed to construct and operate the bridgetex pipeline , a 400-mile pipeline capable of transporting 300,000 barrels per day of permian basin crude oil from colorado city , texas for delivery to our east houston , texas terminal ; a 50-mile pipeline between east houston and texas city , texas ; and approximately 2.6 million barrels of storage . we expect to spend approximately $ 600 million for our 50 % ownership interest in bridgetex . we are serving as construction manager and will serve as operator of bridgetex upon its completion , which is expected in mid-2014 . sale of claim against mf global inc . in october 2011 , mf global holdings ltd. , the parent of mf global inc. ( “ mf global ” ) , filed for bankruptcy protection under chapter 11 of the u.s. bankruptcy laws , and a trustee was appointed to oversee the liquidation of mf global under the securities investor protection act . at that time , mf global served as our sole clearing agent for new york mercantile exchange ( `` nymex '' ) futures contracts . we transferred our existing trading positions at mf global to a new clearing agent in november 2011. as of the date of transfer of our account , mf global owed us $ 29.4 million . we subsequently received $ 23.6 million as partial payment of the amount owed to us . in december 2012 , we sold our remaining claim of $ 5.8 million to a third party for $ 5.4 million . the buyer of the claim assumed the risk of ultimate collectability of the claim subject to the accuracy of typical representations and warranties from us related to the claim . we charged the $ 0.4 million loss we sustained from the sale of this receivable to operating expense . debt offering . in november 2012 , we issued $ 250.0 million of 4.20 % notes due december 1 , 2042 in an underwritten public offering . the notes were issued for the discounted price of 99.3 % of par . we have used or intend to use the net proceeds from this offering of approximately $ 245.8 million , after underwriting discounts and offering expenses , for general partnership purposes , including capital expenditures and investments in interest-bearing securities or accounts . cash distribution . in january 2013 , the board of directors of our general partner declared a quarterly cash distribution of $ 0.50 per unit for the period of october 1 , 2012 through december 31 , 2012. this quarterly cash distribution was paid on february 14 , 2013 to unitholders of record on february 6 , 2013. the total distributions paid on 226.7 million limited partner units outstanding was $ 113.3 million . pipeline acquisition . on february 22 , 2013 , we announced an agreement to acquire approximately 800 miles of refined petroleum products pipeline from plains all american pipeline , l.p. for $ 190 million . subject to regulatory approvals , we expect the acquisition to close during the second quarter of 2013. we expect to fund the acquisition with cash on hand and , if necessary , with borrowings under our revolving credit facility . 35 overview our petroleum pipeline system and petroleum terminals generate the majority of our operating margin from the transportation and storage services we provide to our customers . the revenues generated from these businesses are significantly influenced by demand for refined petroleum products and crude oil . in addition , we generate operating margin from commodity-related activities . operating expenses are principally fixed costs related to routine maintenance and system integrity as well as field and support personnel . other costs , including power , fluctuate with volumes transported on our pipeline and stored in our terminals . a prolonged period of high petroleum prices or a recessionary economic environment could lead to a reduction in demand and result in lower shipments on our pipeline system and reduced demand for our terminal services . fluctuations in the prices of petroleum products impact the amount of cash our petroleum pipeline system generates from its blending and fractionation activities . in addition , increased maintenance regulations , higher power costs and higher interest rates could decrease the amount of cash we generate . see item 1a— risk factors for other risk factors that could impact our results of operations , financial position and cash flows . petroleum pipeline system . our petroleum pipeline system is comprised of a common carrier pipeline that provides transportation , storage and distribution services for petroleum products in 14 states from texas through the midwest to colorado , north dakota , minnesota , wisconsin and illinois . through direct refinery connections and interconnections with other interstate pipelines , our petroleum pipeline system can access approximately 44 % of u.s. refining capacity . in 2012 , the petroleum pipeline system generated 73 % of its revenues , excluding the sale of petroleum products , primarily through transportation tariffs for petroleum volumes shipped . these tariffs vary depending upon where the product originates , where ultimate delivery occurs and any applicable discounts . all interstate transportation rates and discounts are in published tariffs filed with the federal energy regulatory commission ( “ ferc ” ) . story_separator_special_tag 38 transportation and terminals revenues increased by $ 77.3 million , resulting from : an increase in petroleum pipeline system revenues of $ 53.9 million resulting from : ◦ an 11 % increase in transportation volumes , mainly due to increases in crude oil and gasoline shipments . crude oil shipments increased 67 % resulting from deliveries to additional locations that have been connected to our pipeline system and increased deliveries to existing customers . gasoline volumes increased 7 % attributable primarily to higher volumes on our south texas pipeline system due to increased demand and new incentive tariffs put in place to attract volumes ; ◦ a slight increase in the average per-barrel tariff rate , going from $ 1.082 to $ 1.086 , as the tariff rate increases we implemented in july 2011 and 2012 were mostly offset by more crude oil and south texas movements , which ship at a lower rate than our other shipments ; and ◦ higher leased storage revenue due to new tanks added to our system during 2011 and 2012. an increase in petroleum terminals revenues of $ 19.1 million primarily due to leasing tanks constructed throughout 2011 , including new crude oil storage at cushing , oklahoma , and higher rates at our marine terminals ; and an increase in ammonia pipeline system revenues of $ 4.1 million primarily because of higher average rates resulting from our mid-year tariff increases and more volumes transported as 2011 shipments were negatively impacted by certain hydrostatic testing completed that year . operating expenses increased $ 22.1 million , resulting from : an increase in petroleum pipeline system expenses of $ 25.2 million primarily due to lower product overages ( which reduce operating expenses ) , additional asset integrity work , an increase in property taxes , higher personnel costs and higher losses on various asset retirements and replacements , which were partially offset by impairment charges in 2011 for a system terminal we closed and a potential air emission fee accrual in 2011 ; an increase in petroleum terminals expenses of $ 2.2 million primarily due to higher losses on various asset retirements and replacements , higher personnel costs and higher operating taxes , partially offset by an accrual recognized in 2011 for potential air emission fees with no corresponding charge in the current period ; and a decrease in ammonia pipeline system expenses of $ 5.3 million primarily due to lower asset integrity costs as 2011 included expenses for certain hydrostatic testing conducted during that year . product sales revenues primarily resulted from our petroleum products blending activities , terminal product gains and transmix fractionation . for 2011 and a portion of 2012 , product sales revenues also resulted from product marketing and linefill management associated with our houston-to-el paso pipeline section . we utilize nymex contracts to hedge against changes in the price of petroleum products we expect to sell in the future . the period change in the mark-to-market value of these contracts that are not designated as hedges for accounting purposes , the effective portion of the change in value of matured nymex contracts that qualified for hedge accounting treatment and any ineffectiveness of nymex contracts that qualify for hedge accounting treatment are also included in product sales revenues . we use butane futures agreements to hedge against changes in the price of butane we expect to purchase in future periods . the period change in the mark-to-market value of these futures agreements , which were not designated as hedges , are included as adjustments to product purchases . product margin decreased $ 5.9 million between periods primarily due to unrealized losses on nymex contracts in 2012 ( compared to unrealized gains in 2011 ) resulting from increasing product prices in the current year , offset by increased volumes and profits from our petroleum products blending activities primarily as a result of expanding our blending operations , particularly at our east houston facility . see other items–commodity derivative agreements–product sales revenues below for more information about our nymex contracts . equity earnings decreased $ 3.8 million from 2011 primarily due to an anticipated settlement of a tariff claim against osage pipe line company , llc ( “ osage ” ) ( see note 16— commitments and contingencies—osage complaint in the notes to consolidated financial statements for more information regarding this claim ) . depreciation and amortization expense increased $ 6.8 million in 2012 primarily due to expansion capital projects placed into service over the past two years . 39 g & a expense increased $ 10.7 million between periods primarily due to higher personnel costs and an increase in long-term equity-based incentive compensation costs resulting from above-target payout estimates and a higher price for our limited partner units . interest expense , net of interest income and interest capitalized , increased $ 6.1 million in 2012. our average outstanding debt increased to $ 2.2 billion for 2012 from $ 2.1 billion for 2011 primarily due to borrowings for expansion capital expenditures , including $ 250.0 million of 4.25 % senior notes issued in august 2011 and $ 250.0 million of 4.20 % senior notes issued in november 2012. our weighted-average interest rate of 5.3 % at december 31 , 2012 was essentially unchanged from our weighted-average interest rate at december 31 , 2011 . 40 year ended december 31 , 2010 compared to year ended december 31 , 2011 replace_table_token_10_th ( a ) product margin does not include depreciation or amortization expense . ( b ) excludes capacity leases . 41 transportation and terminals revenues increased by $ 99.8 million , resulting from : an increase in petroleum pipeline system revenues of $ 53.8 million . revenues from the south texas pipelines we acquired in september 2010 contributed $ 16.8 million of this increase .
| results of operations above , the change in equity-based compensation is discussed in footnote 2 to the table above and a discussion of our maintenance capital expenditures is provided in capital requirements below . the change in dcf from commodity-related adjustments was primarily due to the impact of product price changes during each period on economic hedges that do not qualify for hedge accounting treatment . 43 liquidity and capital resources cash flows and capital expenditures net cash provided by operating activities was $ 424.7 million , $ 577.3 million and $ 645.1 million for the years ended december 31 , 2010 , 2011 and 2012 , respectively . the $ 67.8 million increase from 2011 to 2012 was primarily attributable to : ◦ a $ 28.9 million increase in net income , excluding the increase in non-cash depreciation and amortization expense ; ◦ a $ 79.5 million increase primarily resulting from higher prices and volumes of inventory purchases in 2011 as compared to 2012 ; specifically , a $ 37.0 million decrease in inventory in 2012 , primarily due to the sale of our houston-to-el paso pipeline section linefill working inventory , versus a $ 42.5 million increase in inventory in 2011 ; and ◦ a $ 35.9 million increase resulting from a $ 16.1 million increase in cash from energy commodity derivatives contracts , net of derivatives deposits in 2012 , versus a $ 19.8 million decrease in cash from energy commodity derivatives contracts , net of derivatives deposits in 2011 primarily due to lower product prices and a decrease in the number of nymex commodity contracts during 2012. these increases were partially offset by : ◦ a $ 31.4 million decrease resulting from a $ 11.2 million decrease in accounts payable in 2012 versus a $ 20.2 million increase in accounts payable in 2011 primarily due to the timing of invoices paid to vendors and suppliers ;
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( 3 ) these options were granted under the 2019 plan and vest upon achievement of certain performance conditions , such as consummating licensing agreements and entering into r & d collaboration agreements . ( 4 ) these options were canceled and re-granted under the 2019 plan in the same amounts and under the same terms as the original grants . these options were originally granted on february 26 , 2019 . 26,000 vested on december 31 , 2019 , and the balance vests in 3 equal installments of 26,000 on each of december 31 , 2020 , december 31 , 2021 and december 31 , 2022 . ( 5 ) these options were canceled and re-granted under the 2019 plan in the same amounts and under the same terms as the original grants . these options were originally granted on february 26 , 2019 . 49,125 vested on december 31 , 2019 , and the balance vests in 3 equal installments of 49,125 on each of december 31 , 2020 , december 31 , 2021 and december 31 , 2022 . ( 6 ) these options were granted under our 2019 plan and vest in 4 equal installments of 25,000 on each of december 31 , 2020 , december 31 , 2021 , december 31 , 2022 and december 31 , 2023 . ( 7 ) these options were granted under our 2019 plan and vest in 4 equal installments of 47,500 on each of december 31 , 2020 , december 31 , 2021 , december 31 , 2022 and december 31 , 2023 . 44 outstanding equity awards at fiscal year-end the following table sets forth information concerning stock options and stock awards held by the neos as of august 31 , 2020. replace_table_token_10_th ( 1 ) on august 8 , 2012 , 72,000 options were granted to each of nadav kidron and miriam kidron under the second amended and restated 2008 stock incentive plan , or the 2008 plan , at an exercise price of $ 4.08 per share ; 21,000 of such options vested immediately on the date of grant and the remainder vested in seventeen equal monthly installments , commencing on august 31 , 2012. the options have an expiration date of august 8 , 2022 . ( 2 ) on april 9 , 2014 , 47,134 options were granted to each of nadav kidron and miriam kidron under the 2008 plan at an exercise price of $ 12.45 per share ; 15,710 of such options vested on april 30 , 2014 and the remainder vested in eight equal monthly installments , commencing on may 31 , 2014. the options have an expiration date of april 9 , 2024 . ( 3 ) on june 30 , 2017 , 147,000 options were granted to nadav kidron under the 2008 plan at an exercise price of $ 7.77 per share ; 49,000 of such options vested on december 31 , 2017 and the remainder vest in two equal installments of 49,000 on each of december 31 , 2018 and december 31 , 2019 , subject to the company share price reaching the target of $ 9.50 and $ 12.50 per share , respectively . the options expire on june 30 , 2027. as of august 31 , 2020 , 98,000 options were forfeited . 45 ( 4 ) on january 31 , 2018 , 97,000 options were granted to nadav kidron under the 2008 plan at an exercise price of $ 8.14 per share ; 48,500 of such options vested on each of january 1 , 2019 and january 1 , 2020 and the reminder vest in two equal installments of 24,250 on each of january 1 , 2021 and january 1 , 2022. the options expire on january 31 , 2028 . ( 5 ) on june 30 , 2017 , 69,999 options were granted to miriam kidron under the 2008 plan at an exercise price of $ 7.77 per share ; such options vested in 3 equal installments story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere herein and in our consolidated financial statements . in addition to our consolidated financial statements , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ cautionary statement regarding forward-looking statements ” and “ item 1a . risk factors. ” overview of operations we are a pharmaceutical company currently engaged in the research and development of innovative pharmaceutical solutions , including an orally ingestible insulin capsule to be used for the treatment of individuals with diabetes , and the use of orally ingestible capsules or pills for delivery of other polypeptides . an overview of our current clinical studies can be found in “ item 1. business - research and development. ” story_separator_special_tag variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . the company used significant judgment when it determined the first step of variable consideration . 25 comparison of fiscal 2020 to fiscal 2019 the following table summarizes certain statements of operations data for us for the twelve month periods ended august 31 , 2020 and 2019 : replace_table_token_3_th revenues revenues consist of proceeds related to the license agreement that are recognized over the period from which the company is entitled to the respective payments and through june 2023. story_separator_special_tag in any case of transfer of manufacturing out of israel , the grant recipient is required to pay royalties at an increased rate , which may be substantial , and the aggregate repayment amount is increased up to 120 % , 150 % or 300 % of the grant , depending on the portion of the total manufacturing volume that is performed outside of israel . the approval we received from the iia for the license agreement was subject to payment of increased royalties and an increased ceiling , all in accordance with the provisions of the r & d law . the r & d law further permits the iia , among other things , to approve the transfer of manufacturing rights outside of israel in exchange for the import of different manufacturing into israel as a substitute , in lieu of the increased royalties . the r & d law also provides that know-how developed under an approved research and development program may not be transferred or licensed to third parties in israel without the approval of the research committee . such approval is not required for the sale or export of any products resulting from such research or development . the r & d law further provides that the know-how developed under an approved research and development program may not be transferred or licensed to any third parties outside israel absent iia approval which may be granted in certain circumstances as follows : ( a ) the grant recipient pays to the iia a portion of the sale or license price paid in consideration for the purchase or license of such iia-funded know-how or the price paid in consideration for the sale of the grant recipient itself , as the case may be , in accordance with certain formulas included in the r & d law ; ( b ) the grant recipient receives know-how from a third party in exchange for its iia-funded know-how ; or ( c ) such transfer of iia-funded know-how is made in the context of iia approved research and development cooperation projects or consortia . 27 the r & d law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient . the r & d law requires the grant recipient to notify the iia of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-israeli entity becoming an interested party in the recipient , and requires the new non-israeli interested party to undertake to the iia to comply with the r & d law . in addition , the rules of the iia may require the provision of additional information or representations in respect of certain such events . for this purpose , “ control ” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company . a person is presumed to have control if such person holds 50 % or more of the means of control of a company . “ means of control ” refers to voting rights or the right to appoint directors or the chief executive officer . an “ interested party ” of a company includes a holder of 5 % or more of its outstanding share capital or voting rights , its chief executive officer and directors , someone who has the right to appoint its chief executive officer or at least one director , and a company with respect to which any of the foregoing interested parties holds 25 % or more of the outstanding share capital or voting rights or has the right to appoint 25 % or more of the directors . failure to meet the r & d law 's requirements may subject us to mandatory repayment of grants received by us ( together with interest and penalties ) , as well as expose us to criminal proceedings . in addition , the israeli government may from time to time audit sales of products which it claims incorporate technology funded through iia programs which may lead to additional royalties being payable on additional products . general and administrative expenses general and administrative expenses include the salaries and related expenses of our management , consulting costs , legal and professional fees , travel expenses , business development costs , insurance expenses and other general costs . general and administrative expenses increased by 14 % from $ 3,722,000 for fiscal 2019 to $ 4,232,000 for fiscal 2020. the increase in costs incurred related to general and administrative activities during fiscal 2020 , is primarily attributable to an increase in costs related to the directors and officers insurance policy and an increase in legal expenses and increase in stock-based compensation costs and is partially offset by a decrease in travel expenses and a decrease in costs related to patents . during fiscal 2020 , as part of our general and administrative expenses , we incurred expenses of $ 714,000 related to stock-based compensation costs , as compared to an expense of $ 591,000 during fiscal 2019. the increase is mainly attributable to new grants during fiscal 2020. financial income , net net financial income , was $ 246,000 for fiscal 2020 as compared to net financial income of $ 576,000 for fiscal 2019. the decrease is mainly attributable to a decrease in the fair market value of some investments .
| results of operations critical accounting policies our significant accounting policies are more fully described in the notes to our accompanying consolidated financial statements . we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 24 valuation of options and warrants : we grant options to purchase shares of our common stock to employees and consultants and have and may in the future issue warrants in connection with some of our financings and to certain other consultants . we account for share-based payments to employees , directors and consultants in accordance with the guidance that requires awards classified as equity awards to be accounted for using the grant-date fair value method . the fair value of share-based payment transactions is based on the black scholes option-pricing model or monte carlo model when appropriate and is recognized as an expense over the vesting period .
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the company granted 294 stock options during fiscal 2015. the compensation cost that has been charged story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. overview we were founded in 1990 as a beauty retailer at a time when prestige , mass and salon products were sold through distinct channels department stores for prestige products , drug stores and mass merchandisers for mass products and salons and authorized retail outlets for professional hair care products . we developed a unique specialty retail concept that offers all things beauty , all in one place tm , a compelling value proposition and a convenient and welcoming shopping environment . we believe our strategy provides us with the competitive advantages that have contributed to our financial performance . we are currently the largest beauty retailer in the united states and the premier beauty destination for cosmetics , fragrance , skin care products , hair care products and salon services . we focus on providing affordable indulgence to our guests by combining unmatched product breadth , value and convenience with the distinctive environment and experience of a specialty retailer . key aspects of our business include : our ability to offer our guests a unique combination of more than 20,000 beauty products across the categories of prestige and mass cosmetics , fragrance , haircare , skincare , bath and body products and salon styling tools , as well as a full-service salon in every store featuring hair , skin and brow services ; our focus on delivering a compelling value proposition to our guests across all of our product categories ; and convenience , as our stores are predominantly located in convenient , high-traffic locations such as power centers . the continued growth of our business and any future increases in net sales , net income and cash flows is dependent on our ability to execute our six strategic imperatives : 1 ) acquire new guests and deepen loyalty with existing guests , 2 ) differentiate by delivering a distinctive and personalized guest experience across all channels , 3 ) offer relevant , innovative and often exclusive products that excite our guests , 4 ) deliver exceptional services in three core areas : hair , skin health and brows , 5 ) grow stores and e-commerce to reach and serve more guests and 6 ) invest in infrastructure to support our guest experience and growth , and capture scale efficiencies . we believe that the expanding u.s. beauty products and salon services industry , the shift in distribution channel of prestige beauty products from department stores to specialty retail stores , coupled with ulta beauty 's competitive strengths , positions us to capture additional market share in the industry . 28 comparable sales is a key metric that is monitored closely within the retail industry . our comparable sales have fluctuated in the past and we expect them to continue to fluctuate in the future . a variety of factors affect our comparable sales , including general u.s. economic conditions , changes in merchandise strategy or mix and timing and effectiveness of our marketing activities , among others . over the long-term , our growth strategy is to increase total net sales through increases in our comparable sales , by opening new stores and by increasing sales in our e-commerce channel . operating profit is expected to increase as a result of our ability to expand merchandise margin and leverage our fixed store costs with comparable sales increases and operating efficiencies offset by incremental investments in people , systems and supply chain required to support a more than 1,200 store chain with a successful e-commerce business and competitive omni-channel capabilities . global economic conditions economic conditions in the u.s. continue to be uneven . fiscal stress in europe and economic uncertainty in the u.s. related to deficit issues , potential tax increases and federal spending cuts have resulted in significant fluctuations in the financial markets . while the u.s. credit markets have stabilized and credit availability has improved compared to the recent recessionary period , economic growth is expected to continue to be weak . consumer spending habits are affected by levels of unemployment , unsettled financial markets , weakness in housing and real estate , higher interest rates , fuel and energy costs and consumer perception of economic conditions , among others . sudden negative changes in one or more of the factors that affect consumer spending could adversely affect consumer spending levels which could lead to reduced consumer demand for our merchandise and adversely affect our sales levels and financial performance . basis of presentation we have determined the operating segments on the same basis that we use to internally evaluate performance . we have combined our three operating segments : retail stores , salon services and e-commerce , into one reportable segment because they have a similar class of consumers , economic characteristics , nature of products and distribution methods . net sales include store and e-commerce merchandise sales as well as salon service revenue . we recognize merchandise revenue at the point of sale in our retail stores and e-commerce sales are recorded based on delivery of merchandise to the guest . merchandise sales are recorded net of estimated returns . salon service revenue is recognized at the time the service is provided . gift card sales revenue is deferred until the guest redeems the gift card . company coupons and other incentives are recorded as a reduction of net sales . comparable sales reflect sales for stores beginning on the first day of the 14th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one month grand opening period . story_separator_special_tag selling , general and administrative expenses sg & a expenses increased $ 115.6 million , or 19.4 % , to $ 712.0 million in fiscal 2014 compared to $ 596.4 million in fiscal 2013. as a percentage of net sales , sg & a expenses decreased 30 basis points to 22.0 % in fiscal 2014 compared to 22.3 % in fiscal 2013. the leverage in sg & a expenses is primarily attributed to : 60 basis points in variable store and marketing expense leverage attributed to cost efficiencies and higher sales volume ; offset by 30 basis points deleverage in corporate overhead expense primarily driven by higher variable compensation , consulting and depreciation expense . pre-opening expenses pre-opening expenses decreased $ 2.9 million , or 16.8 % , to $ 14.4 million in fiscal 2014 compared to $ 17.3 million in fiscal 2013. during fiscal 2014 , we opened 100 new stores , remodeled nine stores and relocated two stores . during fiscal 2013 , we opened 127 new stores , remodeled seven stores and relocated four stores . interest income , net interest income , net was $ 0.9 million in fiscal 2014 , compared to $ 0.1 million in fiscal 2013. interest income results from short-term investments with maturities of twelve months or less from the date of purchase . interest expense represents various fees related to the credit facility . we did not utilize our credit facility during fiscal 2014 or 2013. income tax expense income tax expense of $ 154.2 million in fiscal 2014 represents an effective tax rate of 37.5 % , compared to fiscal 2013 tax expense of $ 124.9 million and an effective tax rate of 38.1 % . the lower tax rate in fiscal 2014 is primarily due to a decrease in state taxes compared to fiscal 2013. net income net income increased $ 54.3 million , or 26.8 % , to $ 257.1 million in fiscal 2014 compared to $ 202.8 million in fiscal 2013. the increase in net income was primarily due to an increase in gross profit of $ 195.6 million , which was offset by a $ 115.6 million increase in sg & a expenses and a $ 29.3 million increase in income tax expense . 33 liquidity and capital resources our primary cash needs are for capital expenditures for new , relocated and remodeled stores , increased merchandise inventories related to store expansion and new brand additions , supply chain improvements , share repurchases and for continued improvement in our information technology systems . our primary sources of liquidity are cash on hand , short-term investments and cash flows from operations , including changes in working capital , and borrowings under our credit facility . the most significant component of our working capital is merchandise inventories reduced by related accounts payable and accrued expenses . our working capital needs are greatest from august through november each year as a result of our inventory build-up during this period for the approaching holiday season . this is also the time of year when we are at maximum investment levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease agreements . based on past performance and current expectations , we believe that cash on hand , short-term investments , cash generated from operations and borrowings under the credit facility will satisfy the company 's working capital needs , capital expenditure needs , commitments and other liquidity requirements through at least the next 12 months . the following table presents a summary of our cash flows for fiscal years 2015 , 2014 and 2013 : replace_table_token_11_th operating activities operating activities consist of net income adjusted for certain non-cash items , including depreciation and amortization , non-cash stock-based compensation , realized gains or losses on disposal of property and equipment and the effect of working capital changes . merchandise inventories were $ 761.8 million at january 30 , 2016 , compared to $ 581.2 million at january 31 , 2015 , representing an increase of $ 180.6 million or 31.1 % . average inventory per store increased 16.1 % compared to prior year . the increase in inventory is primarily due to the following : approximately $ 75 million due to the addition of 100 net new stores opened since january 31 , 2015 ; approximately $ 62 million due to increased sales , new brand additions and incremental inventory for in-store prestige brand boutiques ; and approximately $ 43 million due to the opening of the company 's fourth distribution center in greenwood , indiana . we had a current tax liability of $ 12.7 million at the end of fiscal 2015 compared to $ 19.4 million at the end of fiscal 2014. the decrease in taxes payable is primarily due to an increase in tax deductible stock option exercises and a decrease in state taxes . deferred rent liabilities were $ 321.8 million at january 30 , 2016 , an increase of $ 27.7 million compared to $ 294.1 million at january 31 , 2015. deferred rent includes deferred construction allowances , future rental increases and rent holidays which are all recognized on a straight-line basis over their respective lease term . the increase is primarily due to the addition of 100 net new stores opened since january 31 , 2015. investing activities we have historically used cash primarily for new and remodeled stores , supply chain investments , short-term investments and investments in information technology systems . investment activities for capital expenditures 34 were $ 299.2 million in fiscal 2015 , compared to $ 249.1 million and $ 226.0 million in fiscal 2014 and 2013 , respectively .
| results of operations our fiscal years are the 52 or 53 week periods ending on the saturday closest to january 31. the company 's fiscal years ended january 30 , 2016 , january 31 , 2015 and february 1 , 2014 were 52 week years and are hereafter referred to as fiscal 2015 , fiscal 2014 and fiscal 2013 . 30 as of january 30 , 2016 , we operated 874 stores across 48 states . the following tables present the components of our consolidated results of operations for the periods indicated : replace_table_token_9_th replace_table_token_10_th fiscal year 2015 versus fiscal year 2014 net sales net sales increased $ 682.7 million , or 21.1 % , to $ 3,924.1 million in fiscal 2015 compared to $ 3,241.4 million in fiscal 2014. salon service sales increased $ 33.7 million , or 19.2 % to $ 209.2 million compared to $ 175.5 million in fiscal 2014. e-commerce sales increased $ 71.2 million , or 47.5 % , to $ 221.1 million compared to $ 149.9 million in fiscal 2014. the net sales increases are due to the opening of 100 net new stores in 2015 and a 11.8 % increase in comparable sales . non-comparable stores , which include stores opened in fiscal 2015 as well as stores opened in fiscal 2014 , which have not yet turned comparable , contributed $ 306.5 million of the net sales increase , while comparable stores contributed $ 376.2 million of the total net sales increase . 31 the 11.8 % comparable sales increase consisted of a 10.0 % increase at the company 's retail and salon stores and a 47.5 % increase in the company 's e-commerce business . the inclusion of the e-commerce business resulted in an increase of approximately 180 basis points to the company 's consolidated same store sales calculation for fiscal 2015 and 2014. the total comparable sales increase included a 3.4 % increase in average ticket and an 8.4 % increase in transactions .
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net interest income is the difference between interest income , which is the income we earn on our loans and investments , and interest expense , which is the interest we pay on our deposits and borrowings . 56 provision for loan losses . the allowance for loan losses is a valuation allowance for probable incurred credit losses . the allowance for loan losses is increased through charges to the provision for loan losses . loans are charged against the allowance when management believes that the collectability of the principal loan amount is not probable . recoveries on loans previously charged-off , if any , are credited to the allowance for loan losses when realized . it is likely we will incur elevated provision for loan losses and charge-offs due to the adverse impact of the covid-19 pandemic on the economy of our market area and our customers . non-interest income . our primary sources of non-interest income are banking fees and service charges , insurance , employee benefits and wealth management services income . our non-interest income also includes net gain or losses on equity securities , net gain or losses on sales and calls of available for sale securities , net gains in cash surrender value of bank owned life insurance , net gain or loss on disposal of assets , other gains and losses , and miscellaneous income . non-interest expense . our non-interest expenses consist of salaries and employee benefits , net occupancy and equipment , data processing , advertising and marketing , federal deposit insurance premiums , professional fees , and other general and administrative expenses . salaries and employee benefits consist primarily of salaries and wages paid to our employees , payroll taxes , and expenses for worker 's compensation and disability insurance , health insurance , retirement plans and other employee benefits , as well as commissions and other incentives . net occupancy and equipment expenses , which are the fixed and variable costs of buildings and equipment , consist primarily of depreciation charges , rental expenses , furniture and equipment expenses , maintenance , real estate taxes and costs of utilities . depreciation of premises and equipment is computed using a straight-line method based on the estimated useful lives of the related assets or the expected lease terms , if shorter . data processing expenses are fees we pay to third parties for use of their software and for processing customer information , deposits and loans . advertising and marketing includes most marketing expenses including multi-media advertising ( public and in-store ) , promotional events and materials , civic and sales focused memberships , and community support . federal deposit insurance premiums are payments we make to the fdic for insurance of our deposit accounts . professional fees includes legal and other consulting expenses . other expenses include expenses for office supplies , postage , telephone , insurance and other miscellaneous operating expenses . income tax expense ( benefit ) . our income tax expense ( benefit ) is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities . deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and the tax basis of assets and liabilities , computed using enacted tax rates . a valuation allowance , if needed , reduces deferred tax assets to the amounts expected to be realized . recent developments covid-19 pandemic in early january 2020 , the world health organization issued an alert that a novel coronavirus outbreak was emanating from the wuhan province in china . later in january , the first death related to the novel coronavirus , identified as coronavirus disease 2019 ( “ covid-19 ” ) , occurred in the united states . over the course of the next several weeks , the outbreak continued to spread to various regions of the world prompting the world health organization to declare covid-19 a global pandemic on march 11 , 2020. in the united states , the rapid spread of the covid-19 virus invoked various federal and state , including new york state , authorities to make emergency declarations and issue executive orders to 57 limit the spread of the disease . measures included restrictions on international and domestic travel , restrictions on business operations , limitations on public gatherings , implementation of social distancing protocols , school closings , orders to shelter in place and mandates to close all non-essential businesses to the public . during the fourth fiscal quarter of 2020 ( the quarter ending june 30 , 2020 ) , some of these restrictions were removed and some non-essential businesses were allowed to re-open in a limited capacity , adhering to social distancing and disinfection guidelines . however , these restrictions and other consequences of the pandemic have resulted in significant adverse effects for many different types of businesses and have resulted in a significant number of layoffs and furloughs of employees in our market area . the direct and indirect effects of the covid-19 pandemic have resulted in dramatic reductions in the level of economic activity in our market area and have severely hampered the ability for businesses and consumers to meet their current repayment obligations . concerns about the spread of the disease and its anticipated negative impact on economic activity , severely disrupted both domestic and international financial markets prompting central banks around the world to inject significant amounts of monetary stimulus into their economies . in the united states , the federal reserve system 's federal open market committee , swiftly cut the target federal funds rate to a range of 0 % to 0.25 % , including a 50 basis point reduction in the target federal funds rate on march 3 , 2020 and an additional 100 basis point reduction on march 15 , 2020. in addition , the federal reserve rolled out various market support programs to ease the stress on financial markets . story_separator_special_tag the bank continues to evaluate its liquidity needs and has access to borrow funds through the ppplf if deemed necessary . from a credit risk and lending perspective , the company has taken actions to identify and assess its covid-19 related credit exposures based on asset class and borrower type . no specific covid-19 related credit impairment was identified within the company 's investment securities portfolio , including the company 's municipal securities portfolio , during fiscal 2020. with respect to the company 's lending activities , the company implemented customer payment deferral programs to assist both consumer and commercial borrowers that may be experiencing financial hardship due to covid-19 related challenges , whereby short-term deferrals of payments ( generally three to six months ) have been provided . through june 30 , 2020 , the company granted payment deferral requests for consumer borrowers related to 110 loans representing $ 27.4 million of the company 's residential mortgage , home equity loans and lines of credit , and consumer loan balances , and for commercial borrowers related to 144 loans representing $ 170.3 million of the company 's commercial loan balances . loans in deferment status will continue to accrue interest during the deferment period unless otherwise classified as nonperforming . consistent with industry regulatory guidance , borrowers that were otherwise current on loan payments that were granted covid-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral period and not classified as troubled-debt restructured loans during fiscal 2020. borrowers that were delinquent in their payments to the bank prior to requesting a covid-19 related financial hardship payment deferral were reviewed on a case by case basis for troubled debt restructure classification and non-performing loan status . in the instances where the bank granted a payment deferral to a delinquent borrower , the borrower 's delinquency status was frozen as of march 20 , 2020 , and their loans will continue to be reported as delinquent during the deferment period based on their delinquency status as of march 20 , 2020. the company anticipates that the number and amount of covid-19 deferral agreements will decrease during the first fiscal quarter of 2021. while the deferrals are still ongoing , it is difficult to assess whether a customer will be able to perform under the original terms of the loan once the deferral period expires . once these deferrals expire , it may become apparent that more customers than expected are unable to perform and the company may be required to make additional provisions for loan losses . the company 's fiscal 2020 financial results were adversely impacted by the effects of the pandemic , which contributed to an increase in the provision for loan losses . the covid-19 crisis is expected to continue to adversely impact the company 's financial results , as well as demand for its services and products during the first fiscal quarter of 2021 and beyond . the short and long-term implications of the covid-19 crisis , and related monetary and fiscal stimulus measures , on the company 's future revenues , earnings results , allowance for loan losses , capital reserves , and liquidity are unknown at this time . at this point , the extent to which covid-19 may impact our future financial condition or results of operations is uncertain and not currently estimable , however the impact could be material . potentially fraudulent activity during the first fiscal quarter of 2020 ( the quarter ending september 30 , 2019 ) , the company became aware of potentially fraudulent activity associated with transactions conducted in the company 's first fiscal quarter of 2020 by an 59 established business customer of the bank . the customer and various affiliated entities ( collectively , the “ mann entities ” ) had numerous accounts with the bank . the transactions in question relate both to deposit and lending activity with the mann entities . for the fraudulent activity related to the mann entities , the bank 's potential exposure with respect to its deposit activity was approximately $ 18.5 million . in the first fiscal quarter of 2020 , the bank exercised its rights pursuant to state and federal law and the relevant account agreements to set off approximately $ 16.0 million from accounts held by the mann entities at the bank . the set off was to partially cover overdrafts/negative account balances that primarily resulted from another bank returning/calling back $ 15.6 million in checks on august 30 , 2019 , that the mann entities had deposited into and then withdrawn from their accounts at the bank the day before . in the first fiscal quarter of 2020 , the bank recognized a charge to non-interest expense in the amount of $ 2.5 million based on the net negative deposit balance of the various mann entities ' accounts after the setoffs . no additional charges to non-interest expense were recognized during the year ended june 30 , 2020 , related to the transactions with the mann entities . with respect to the bank 's lending activity with the mann entities , its potential exposure was approximately $ 15.8 million ( which represents the bank 's participation interest in the approximately $ 35.8 million commercial loan relationships for which the bank is the originating lender ) . in the first fiscal quarter of 2020 , the bank recognized a provision for loan losses in the amount of $ 15.8 million , related to the charge-off of the entire principal balance owed to the bank related to the mann entities ' commercial loan relationships . during the third fiscal quarter of 2020 , the bank recognized a partial recovery in the amount of $ 1.7 million related to the charge-off of the mann entities ' commercial loan relationships , which was credited to the allowance for loan losses . no additional charges to the provision for loan losses were recognized during the year ended june 30 , 2020 , related to the transactions with the mann entities .
| summary of critical accounting policies the discussion and analysis of the financial condition and results of operations are based on our financial statements , which are prepared in conformity with u.s. gaap . the preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the reported amounts of income and expenses . we consider the accounting policies discussed below to be critical accounting policies . the estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions , resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies . as an “ emerging growth company ” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies . we intend to take advantage of the benefits of this extended transition period . accordingly , our financial statements may not be comparable to companies that comply with such new or revised accounting standards . the following represent our critical accounting policies : allowance for loan losses . the allowance for loan losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the relevant balance sheet date . the amount of the allowance is based on significant estimates , and the ultimate losses may vary from such estimates as more information becomes available or conditions change .
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base salaries are reviewed annually , but are not necessarily increased if the compensation committee believes that ( 1 ) our executives are currently compensated at proper levels in light of company performance or external market factors , or ( 2 ) an increase or addition to other elements of compensation would be more appropriate in light of our objectives . annual cash incentive awards purpose and operation annual cash incentive payments , which we also refer to as cash bonuses , are a key component of each named executive officer 's annual compensation package . this annual incentive plan is based on a balanced scorecard that is used to measure our performance . the bonus targets for each of the named executive officers , which are expressed as a percentage of base salary , are listed below : executive officer 2017 target bonus ( as a % of base salary ) paul m. rady 120 % glen c. warren , jr. 100 % alvyn a. schopp 85 % kevin j. kilstrom 85 % ward d. mcneilly 85 % michael n. kennedy 80 % 40 performance metrics the following table identifies the selected financial , operational and strategic performance metrics for the 2017 annual incentive program , the relative weightings for each category , and the threshold , target and maximum bonus levels for each metric , as well as the actual performance levels achieved with respect to each metric : replace_table_token_7_th ( 1 ) equal weighting among performance metrics for each performance category . ( 2 ) excludes $ 98 million ebitdax impact from previously disclosed contractual disputes relating to natural gas sales contracts . ( 3 ) represents well-by-well net capital costs divided by well-by-well net reserves for all company-operated wells completed in 2017 . ( 4 ) includes marketing revenues and expenses . ( 5 ) excludes non-cash stock-based compensation . ( 6 ) includes drilling and completion , leasehold acquisitions , water and midstream capital . excludes proved property acquisitions . ( 7 ) target for these items is at the discretion of the compensation committee , taking into account specific actions and plans incurred throughout the course of the year . the compensation committee determines the amount of progress in each case and considers the actions taken by management and the level of contribution to the overall success of the company . 41 2017 scorecard results although our actual performance indicated a payout calculation of 132 % , the compensation committee determined that payouts under the 2017 annual incentive scorecard should be capped at 80 % of target for messrs. rady and warren and 100 % of target for messrs. schopp , kilstrom , mcneilly and kennedy . the compensation committee elected for the 2017 bonuses to be paid in march 2018. the table below reflects the results of our 2017 annual incentive scorecard : replace_table_token_8_th long-term equity-based incentive awards restricted stock unit awards and performance share units the compensation committee granted restricted stock unit awards and performance share unit awards under the antero resources corporation long-term incentive plan ( the “ ar ltip ” ) to each of our named executive officers in april 2017. the restricted stock unit awards will vest pro rata on each of the first four anniversaries of the date of grant . the performance share unit awards will be earned based upon our three-year total shareholder return relative to our selected peer group , as described below . in each case , the applicable named executive officer must remain continuously employed by us from the grant date through the applicable vesting date . all of the restricted stock units and performance share unit awards will also vest in full upon a termination of a named executive officer 's employment due to his death or disability . the performance share units awarded in 2017 will be earned , if at all , based upon the company 's three-year total shareholder return performance measured against a selected peer group of onshore publicly traded oil and gas companies that are reasonably similar to us in terms of size and operations . in order to achieve a payout under the performance share unit awards , our total shareholder return performance relative to the peer group over the performance period must rank at or above the 30th percentile for a story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report . the information provided below supplements , but does not form part of , our financial statements . this discussion contains forward‑looking statements that are based on the views and beliefs of our management , as well as assumptions and estimates made by our management . actual results could differ materially from such forward‑looking statements as a result of various risk factors , including those that may not be in the control of management . for further information on items that could impact our future operating performance or financial condition , please read see “ item 1a . risk factors. ” and the section entitled “ cautionary statement regarding forward‑looking statements. ” we do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law . references in this annual report on form 10‑k to “ armm , ” “ we , ” “ our , ” “ us ” or like terms , when referring to periods prior to may 4 , 2017 , refer to our predecessor , antero resources midstream management llc . story_separator_special_tag as our sole source of revenue , any change in antero midstream 's cash distributions will have a direct financial impact on us . distributions to the idrs began in the fourth quarter of 2015 and have increased significantly since that time as the idrs have been entitled to a greater marginal percentage interest in distributions . in addition , our historical results of operations do not reflect the incremental expenses we are now incurring as a result of being a publicly traded company . our historical results of operations also reflect a u.s. federal corporate tax rate of 35 % . effective january 1 , 2018 , the u.s. federal corporate tax rate was reduced from 35 % to 21 % . accordingly , our historical results of operations will reflect a higher u.s. federal corporate tax rate in comparison to our future financial results . 24 story_separator_special_tag 12pt ; border-top:1pt none # d9d9d9 ; border-bottom:1pt none # d9d9d9 ; text-indent:36pt ; text-align : justify ; text-justify : inter-ideograph ; line-height:100 % ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > the difference between income tax expense and expected income tax expense computed by applying the federal statutory rate of 35 % to pre-tax income is caused by nondeductible ipo expenses and the effect of state income taxes . net income and comprehensive income . net income and comprehensive income increased from net income of $ 0.8 million for the year ended december 31 , 2015 to net income of $ 9.7 million for the year ended december 31 , 2016. the increase was primarily due to an increase in equity in earnings of antero midstream , partially offset by the increase in the provision for income taxes in 2016. capital resources and liquidity sources and uses of cash as a result of our interest in idr llc , we will receive at least 94 % of the cash distributions paid by antero midstream on its idrs . our interest in the idr distributions is our only cash-generating asset . we expect that income attributable to the idr distributions from antero midstream will be adequate to meet our working capital requirements and expected quarterly cash distributions for at least the next twelve months . at december 31 , 2017 we had a working capital deficit due to our income tax payable , which is based on equity in earnings from unconsolidated affiliates for the year ended december 31 , 2017. the cash distribution attributable to our equity in earnings for the three months ended december 31 , 2017 will be received in the first quarter of 2018 when antero midstream declares and pays the cash distribution for the fourth quarter , and will be received prior to the due date of our tax payment . on january 16 , 2018 , 26 antero midstream declared a cash distribution that included an idr distribution of $ 23.8 million payable to idr llc on february 13 , 2018. the following table and discussion present a summary of our combined net cash provided by ( used in ) operating activities and financing activities for the periods indicated : replace_table_token_5_th cash flows provided by operating activities net cash provided by operating activities was $ 0.3 million , $ 9.5 million , and $ 28.1 million for the years ended december 31 , 2015 , 2016 , and 2017 , respectively . the increase in cash flows from operating activities in 2017 from 2016 of $ 18.6 million was due to an increase in distributions from antero midstream of $ 43.1 million in 2017 compared to 2016 , partially offset by a $ 5.5 million increase in general and administrative expenses ( primarily attributable to the ipo ) and a $ 19.1 million payment in 2017 for 2016 and 2017 income taxes . these changes , together with other working capital items , resulted in the net increase in cash provided by operating activities . the increase in cash flows from operating activities in 2016 from 2015 of $ 9.2 million was due to an increase in distributions from antero midstream of $ 10.1 million in 2016 compared to 2015 , partially offset by a $ 0.8 million increase in general and administrative expenses . cash flows used in investing activities we did not have any investing cash flows activities during the years ended december 31 , 2015 , 2016 or 2017. cash flows used in financing activities net cash used in financing activities for the year ended december 31 , 2017 consisted of $ 15.7 million in pre-ipo income distributed to antero investment prior to its liquidation and $ 16.0 million in quarterly cash distributions to our shareholders . net cash used in financing activities for the year ended december 31 , 2015 consisted of $ 0.2 million in pre-ipo income distributed to antero investment prior to its liquidation . we did not have any financing cash flows activities during the year ended december 31 , 2016. critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions , or if different assumptions had been used . we evaluate our estimates and assumptions on a regular basis . we base our estimates on historical experience and 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
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2017 replace_table_token_3_th equity in earnings of antero midstream partners lp . equity in earnings of antero midstream increased from $ 16.9 million for the year ended december 31 , 2016 to $ 69.7 million for the year ended december 31 , 2017. antero midstream 's per-unit distribution increased in the year ended december 31 , 2017 from the year ended december 31 , 2016 , resulting in an increase in distributions on the idrs . in addition , idr llc receives a portion of antero midstream distributions based on a tiered approach , in which the percentage received of the total distribution increases at certain levels . the highest tier , in which cash distributions to antero midstream 's unitholders exceeds $ 0.255 per common unit it any quarter , entitles idr llc to 50 % of said distribution . this tier was met in each quarter of 2017 , opposed to only the third and fourth quarter of 2016 , which contributed to the increase in our equity in earnings of antero midstream . general and administrative expenses . general and administrative expenses increased from $ 0.8 million for the year ended december 31 , 2016 to $ 6.2 million for the year ended december 31 , 2017. during the year ended december 31 , 2016 , we did not incur any significant general and administrative costs ; however , during the year ended december 31 , 2017 we incurred approximately $ 5.1 million of general and administrative costs in connection with our ipo and $ 1.1 million of expenses related to being a public company . equity-based compensation expenses .
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the bank owns : first bank financial services , inc. shen-valley land holdings , llc first national ( va ) statutory trust ii ( trust ii ) first national ( va ) statutory trust iii ( trust iii and , together with trust ii , the trusts ) first bank financial services , inc. invests in entities that provide title insurance and investment services . shen-valley land holdings , llc was formed to hold other real estate owned and future office sites . the trusts were formed for the purpose of issuing redeemable capital securities , commonly known as trust preferred securities and are not included in the company 's consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the trusts qualify as variable interest entities . products , services , customers and locations the bank offers loan , deposit , and wealth management products and services . loan products and services include consumer loans , residential mortgages , home equity loans , and commercial loans . deposit products and services include checking accounts , treasury management solutions , savings accounts , money market accounts , certificates of deposit , and individual retirement accounts . wealth management services include estate planning , investment management of assets , trustee under an agreement , trustee under a will , individual retirement accounts , and estate settlement . customers include small and medium-sized businesses , individuals , estates , local governmental entities , and non-profit organizations . the bank 's office locations are well-positioned in attractive markets along the interstate 81 , interstate 66 , and interstate 64 corridors in the shenandoah valley , central regions of virginia , and the city of richmond . within this market area , there are diverse types of industry including medical and professional services , manufacturing , retail , warehousing , federal government , hospitality , and higher education . the bank 's products and services are delivered through 14 bank branch offices located throughout the shenandoah valley and central regions of virginia , a loan production office , and a customer service center in a retirement village . the branch offices are comprised of 13 full service retail banking offices and one drive-thru express banking office . for the location and general character of each of these offices , see item 2 of this form 10-k. many of the bank 's services are also delivered through the bank 's mobile banking platform , its website , www.fbvirginia.com , and a network of atms located throughout its market area . revenue sources and expense factors the primary source of revenue is from net interest income earned by the bank . net interest income is the difference between interest income and interest expense and typically represents between 70 % and 80 % of the company 's total revenue . interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets . the bank 's interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid . in addition to net interest income , noninterest income is the other source of revenue for the company . noninterest income is derived primarily from service charges on deposits , fee income from wealth management services , and atm and check card fees . primary expense categories are salaries and employee benefits , which comprised 56 % of noninterest expenses during 2019 , followed by occupancy and equipment expense , which comprised 14 % of noninterest expenses . historically , the provision for loan losses has also been a primary expense of the bank . the provision is determined by factors that include net charge-offs , asset quality , economic conditions , and loan growth . changing economic conditions caused by inflation , recession , unemployment , or other factors beyond the company 's control have a direct correlation with asset quality , net charge-offs , and ultimately the required provision for loan losses . 25 overview of financial performance and condition net income decreased by $ 579 thousand to $ 9.6 million , or $ 1.92 per diluted share , for the year ended december 31 , 2019 , compared to $ 10.1 million , or $ 2.04 per diluted share , for the same period in 2018 . return on average assets was 1.23 % and return on average equity was 13.19 % for the year ended december 31 , 2019 , compared to 1.34 % and 16.36 % , respectively , for the year ended december 31 , 2018 . the $ 579 thousand decrease in net income for the year ended december 31 , 2019 resulted primarily from a $ 605 thousand , or 7 % , decrease in noninterest income and a $ 557 thousand , or 2 % , increase in noninterest expenses , compared to the same period of 2018 . these unfavorable variances were partially offset by a $ 384 thousand , or 1 % , increase in net interest income , a $ 150 thousand decrease in provision for loan losses , and a $ 49 thousand decrease in income tax expense . net interest income increased from higher average earning asset balances , which was partially offset by a lower net interest margin . average earning asset balances increased 3 % , while the net interest margin decreased 5 basis points to 3.88 % for the year ended december 31 , 2019 , compared to 3.93 % for the same period in 2018 . noninterest income decreased primarily from lower service charges on deposit accounts , income from bank owned life insurance , and other operating income . noninterest expense increased primarily from higher salaries and employee benefits expense , marketing expense , legal and professional fees , and other operating expense . for a more detailed discussion of the company 's performance , see `` net interest income , '' `` noninterest income , '' `` noninterest expense '' and `` income taxes '' below . story_separator_special_tag the evaluation also considers the following risk characteristics of each loan portfolio class : 1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral . real estate construction and land development loans carry risks that the project may not be finished according to schedule , the project may not be finished according to budget , and the value of the collateral may , at any point in time , be less than the principal amount of the loan . construction loans also bear the risk that the general contractor , who may or may not be a loan customer , may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project . other real estate loans carry risks associated with the successful operation of a business or a real estate project , in addition to other risks associated with the ownership of real estate , because repayment of these loans may be dependent upon the profitability and cash flows of the business or project . commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business . in addition , there is risk associated with the value of collateral other than real estate which may depreciate over time and can not be appraised with as much reliability . consumer and other loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral , if any . these loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles . they are also likely to be immediately and adversely affected by job loss , divorce , illness , personal bankruptcy , or other changes in circumstances . the allowance for loan losses consists of specific and general components . the specific component relates to loans that are classified as impaired , and is established when the discounted cash flows , fair value of collateral less estimated costs to sell , or observable market price of the impaired loan is lower than the carrying value of that loan . for collateral dependent loans , an updated appraisal is ordered if a current one is not on file . appraisals are typically performed by independent third-party appraisers with relevant industry experience . adjustments to the appraised value may be made based on recent sales of like properties or general market conditions among other considerations . the general component covers loans that are not considered impaired and is based on historical loss experience adjusted for qualitative factors . the historical loss experience is calculated by loan type and uses an average loss rate during the preceding twelve quarters . the qualitative factors are assigned by management based on delinquencies and asset quality , national and local economic trends , effects of the changes in the value of underlying collateral , trends in volume and nature of loans , effects of changes in the lending policy , the experience and depth of management , concentrations of credit , quality of the loan review system , and the effect of external factors such as competition and regulatory requirements . the factors assigned differ by loan type . the general allowance estimates losses whose impact on the portfolio has yet to be recognized by a specific allowance . allowance factors and the overall size of the allowance may change from period to period based on management 's assessment of the above described factors and the relative weights given to each factor . for further information regarding the allowance for loan losses , see notes 1 and 4 to the consolidated financial statements included in this form 10-k. 28 lending policies general in an effort to manage risk , the bank 's loan policy gives loan amount approval limits to individual loan officers based on their position within the bank and level of experience . the management loan committee can approve new loans up to their authority . the board loan committee approves all loans which exceed the authority of the management loan committee . the full board of directors must approve loans which exceed the authority of the board loan committee , up to the bank 's legal lending limit . the board loan committee currently consists of five directors , four of which are non-management directors . the board loan committee approves the bank 's loan policy and reviews risk management reports , including watch list reports and concentrations of credit . the board loan committee meets on a monthly basis and the chairman of the committee then reports to the board of directors . residential loan originations are primarily generated by mortgage loan officer solicitations and referrals by employees , real estate professionals , and customers . commercial real estate loan originations and commercial and industrial loan originations are primarily obtained through direct solicitation and additional business from existing customers . all completed loan applications are reviewed by the bank 's loan officers . as part of the application process , information is obtained concerning the income , financial condition , employment , and credit history of the applicant . the bank also participates in commercial real estate loans and commercial and industrial loans originated by other financial institutions that are typically outside its market area . in addition , the bank has purchased consumer loans originated by other financial institutions that are typically outside its market area . loan quality is analyzed based on the bank 's experience and credit underwriting guidelines depending on the type of loan involved . except for loan participations with other financial institutions , real estate collateral is valued by independent appraisers who have been pre-approved by the board loan committee .
| results of operations general net interest income represents the primary source of earnings for the company . net interest income equals the amount by which interest income on interest-earning assets , predominantly loans and securities , exceeds interest expense on interest-bearing liabilities , including deposits , other borrowings , subordinated debt , and junior subordinated debt . changes in the volume and mix of interest-earning assets and interest-bearing liabilities , as well as their respective yields and rates , are the components that impact the level of net interest income . the net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets . the provision for loan losses , noninterest income , and noninterest expense are the other components that determine net income . noninterest income and expense primarily consists of income from service charges on deposit accounts , revenue from wealth management services , atm and check card income , revenue from other customer services , income from bank owned life insurance , general and administrative expenses , amortization expense , and other real estate owned ( expense ) income . net interest income for the year ended december 31 , 2019 , net interest income increased $ 384 thousand , or 1 % , to $ 28.0 million , compared to $ 27.6 million for the same period in 2018 . the increase resulted from higher average earning asset balances , which was partially offset by a lower net interest margin . average earning asset balances increased 3 % , while the net interest margin decreased 5 basis points to 3.88 % for the year ended december 31 , 2019 , compared to 3.93 % for the same period in 2018 .
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the transmontaigne note began to accrue interest on november 15 , 2005 at the prime rate plus 2 % . in connection with the transmontaigne note , rzb finance , llc ( “ rzb ” ) provided a consent and the brownsville navigation district issued an estoppel letter . rio vista used the proceeds from the transmontaigne note to fund certain expenses associated with the psa 's and for working capital purposes . if the lpg asset sales does not occur and rio vista does not pay the transmontaigne note as provided for above , rio vista is required to convey title to the collateral to transmontaigne and to lease the collateral from transmontaigne for $ 10,000 per month until such time as rio vista pays the $ 1.3 million , in addition to the lease payments , to transmontaigne . in the event of a conveyance of the title to the collateral , no further interest payments will be required under the transmontaigne note . when the $ 1.3 million is repaid to transmontaigne , if ever , the lease payments will cease and title to the collateral will be re-conveyed to rio vista . the closing of the lpg asset sale is subject to several conditions , including transmontaigne 's satisfactory completion of its due diligence review , including financial , business , environmental and legal , assignment of lpg related contracts , and the modification of lpg related permits and the related mexican governmental approvals . certain of the conditions to closing were not met by october 31 , 2005. the psa 's provide that any party may terminate the agreements if closing did not occur on or before october 31 , 2005. none of the parties have elected to terminate the agreements and the parties continue to work towards the closing of the lpg asset sale . there can be no assurance that the lpg asset sale will be completed according to the terms contained in the psa 's or according to different terms or at all . even if the lpg asset sale is completed , rio vista may be unable to resume payment of minimum quarterly distributions or to pay the arrearages of such distributions , in order to maintain cash reserves necessary for the conduct of business . a continued delay of or inability to close the lpg asset sale could have a material adverse effect on penn octane 's and rio vista 's business , financial condition and results of operations . in connection with the lpg asset sale , penn octane filed a definitive proxy statement with the securities exchange commission ( “ sec ” ) on september 27 , 2005 in connection with the requirement to obtain approval for the lpg asset sale from penn octane 's stockholders . on october 26 , 2005 , penn octane held a special meeting of stockholders at which the stockholders approved the lpg asset sale . 23 table of contents in connection with the lpg asset sale , rio vista filed a definitive proxy statement with the sec on september 27 , 2005 in connection with the requirement to obtain approval for the lpg asset sale from rio vista 's unitholders . in addition , in order to permit rio vista 's continued existence following the lpg asset sale , rio vista 's proxy statement contained a proposal to amend a provision in its partnership agreement to remove the requirement to dissolve upon a sale of all or substantially all of its assets . on october 26 , 2005 , rio vista held a special meeting of unitholders at which the unitholders approved the lpg asset sale and the amendment to its partnership agreement . if the lpg asset sale is completed , rio vista intends to use the proceeds to fund working capital requirements and to pursue transactions intended to enhance unitholder value . overview rio vista energy partners l.p. ( “ rio vista ” ) , a delaware limited partnership , was formed by penn octane corporation ( “ penn octane ” ) on july 10 , 2003 and was a wholly owned subsidiary of penn octane until september 30 , 2004 , the date that penn octane completed a series of transactions involving ( i ) the transfer of substantially all of its owned pipeline and terminal assets in brownsville , texas and matamoros , mexico and certain immaterial liabilities ( the “ assets ” ) to rio vista operating partnership l.p. ( “ rvop ” ) ( ii ) the transfer of penn octane 's 99.9 % interest in rvop to rio vista and ( iii ) the distribution of all of its limited partnership interests ( the “ common units ” ) in rio vista to its common stockholders ( the “ spin-off ” ) , resulting in rio vista becoming a separate public company . the common units represented 98 % of rio vista 's outstanding capital and 100 % of rio vista 's limited partnership interests . the remaining 2 % , which is the general partner interest , is owned and controlled by rio vista gp llc ( the “ general partner ” ) , a wholly owned subsidiary of penn octane . the general partner is responsible for the management of rio vista . common unitholders do not participate in the management of rio vista . rio vista energy partners l.p. and its consolidated subsidiaries ( not including the general partner ) are hereinafter referred to as “ rio vista ” . as a result of the spin-off , rio vista is engaged in the purchase , transportation and sale of liquefied petroleum gas ( “ lpg ” ) . story_separator_special_tag although rio vista is not aware of the total amount of lpg actually being produced by pemex from the burgos basin , it is aware that pemex has constructed and is operating two new cryogenic facilities at the burgos basin which it believes may have a capacity of producing up to 12 million gallons of lpg per month . rio vista also believes that pemex intends to install two additional cryogenic facilities , with similar capacity , to be operational in 2006. rio vista is not aware of the capacity at which the current cryogenic facilities are being operated . furthermore , rio vista is not aware of the actual gas reserves of the burgos basin or the gas quality , each of which could significantly impact lpg production amounts . during june 2004 , valero l.p. , ( ” valero ” ) began operation of a newly constructed lpg terminal facility in nuevo laredo , mexico and a newly constructed pipeline connecting the terminal facility in nuevo laredo , mexico to existing pipelines in juarez , texas which connect directly to valero energy corporation 's corpus christi , texas and three rivers , texas refineries . valero originally contracted with pmi under a five year agreement to deliver approximately 6.3 million gallons ( of which 3.2 million gallons were previously delivered by truck from three rivers , texas ) of lpg per month . during july 2005 , valero announced that it had entered into a new agreement with pmi which provides for double the amount of lpg previously contracted for with pmi . during 2004 , a pipeline operated by el paso energy between corpus christi , texas and hidalgo county , texas was closed . historically these facilities had supplied approximately 5.0 million gallons of lpg per month to rio vista 's strategic zone . rio vista is not aware of any future plans for these facilities . during 2003 , pmi constructed and began operations of a refined products cross border pipeline connecting a pipeline running from pemex 's cadereyta refinery in monterey , mexico to terminal facilities operated by transmontaigne , inc. , in brownsville , texas . the pipeline crosses the u.s.-mexico border near the proximity of rio vista 's u.s. - mexico pipelines . in connection with the construction of the pipeline , pmi utilizes an easement from rio vista for an approximate 21.67 acre portion of the pipeline . under the terms of the easement , pmi has agreed that it will not transport lpg through october 15 , 2017 . 26 table of contents story_separator_special_tag noshade= '' '' size= '' 2 '' style= '' color : black '' / > table of contents other income ( expense ) . other income ( expense ) was $ ( 101,000 ) for the period october 1 , 2004 through december 31 , 2004 and is comprised of interest costs allocated to rio vista by penn octane in connection with the rzb credit facility . mexican income tax . rio vista incurred $ 22,000 of mexican income tax expense related to its mexican subsidiaries . liquidity and capital resources general . rio vista commenced operations on october 1 , 2004 and only had nominal cash at the time of the spin-off . rio vista pays all of its direct costs and expenses , and rio vista reimburses penn octane for cost and expenses paid by penn octane on behalf of rio vista . as discussed below , rio vista sells lpg to pmi and purchases the lpg from penn octane . rio vista 's lpg supply agreement with penn octane provides that it pays penn octane for lpg purchased upon receipt of the proceeds from sales to pmi . rio vista intends to distribute any “ available cash ” as defined in its partnership agreement to its unitholders on a quarterly basis . rio vista has a loss from operations for the year ended december 31 , 2005 and has a deficit in working capital . rio vista is dependent on penn octane 's ability to deliver adequate quantities of lpg at an acceptable price for ultimate sale to pmi , to provide credit to rio vista for such purchases and to provide management of its operations . currently , rio vista 's only source of revenue is from sales of lpg to pmi and it operates under a short-term sale agreement with pmi which provides for monthly volumes which are materially less than penn octane 's historical monthly volumes and margins . as a result , penn octane 's and rio vista 's gross profit have been materially reduced and may continue to decline and their cash flow and available credit may be insufficient to absorb such additional reductions in gross profit . the lpg asset sale has not closed and the transmontaigne note will be due on the earlier of the time of closing or 120 days following demand by transmontaigne ( see note d to the consolidated financial statements ) . rio vista has guaranteed certain of penn octane 's obligations . substantially all of rio vista 's and penn octane 's assets are pledged or committed to be pledged as collateral on $ 1.1 million of penn octane 's existing debt , the rzb credit facility and the transmontaigne note , and therefore , both rio vista and penn octane may be unable to obtain additional financing collateralized by those assets . penn octane 's report of independent registered public accounting firm on the consolidated financial statements of penn octane at december 31 , 2005 contains an explanatory paragraph which describes an uncertainty about penn octane 's ability to continue as a going concern .
| results of operations rio vista commenced operations on october 1 , 2004. the following discussion of revenues is based on a comparison of rio vista 's sales to pmi for the period october 1 , 2004 through december 31 , 2004 and the year ended december 31 , 2005 to sales made to pmi by penn octane during the period october 1 , 2003 through december 31 , 2003 and the year ended july 31 , 2004 , respectively . since all costs of rio vista are not comparative with prior period results reported by penn octane , no comparative discussion has been made but rather a discussion of the components comprising these costs . year ended december 31 , 2005 compared with penn octane 's sales to pmi the year ended july 31 , 2004. revenues . revenues for the year ended december 31 , 2005 , were $ 120.9 million compared with $ 141.9 million for the comparative period one year earlier , a decrease of $ 21.2 million or 14.9 % . of this decrease , $ 79.5 million was attributable to decreased volumes of lpg sold to pmi during the year ended december 31 , 2005 , partially offset by $ 58.4 million attributable to increases in average sales prices of lpg sold to pmi during the year ended december 31 , 2005. cost of goods sold . cost of goods sold for the year ended december 31 , 2005 was $ 118.3 million . the cost of goods sold for lpg purchased from penn octane was determined in accordance with the lpg supply agreement . costs of goods sold also included other direct costs related to rio vista 's lpg operations , including costs associated with operating the brownsville and matamoros terminal facilities . selling , general and administrative expenses .
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our foreign regulatory deposits are assets held in trust in jurisdictions where there is a legal and regulatory requirement to maintain funds locally in order to protect policyholders . story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes beginning on page f-1 . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in the forward looking statements as a result of various factors described in this report . story_separator_special_tag the following table summarizes the above referenced loss reserve development as respects to prior year loss reserves by line of business for the year ended december 31 , 2013 : replace_table_token_9_th in determining appropriate reserve levels for the year ended december 31 , 2013 , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no significant changes in methodologies were made to estimate the reserves since the last reporting date ; however , at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate . consistent with prior reserve valuations , as claims data becomes more mature for prior accident years , actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data . while prior accident years ' net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years , this does not imply that more recent accident years ' reserves also will develop favorably ; pricing , reinsurance costs , legal environment , general economic conditions including changes in inflation and many other factors impact management 's ultimate loss estimates . 46 when determining reserve levels , we recognize that there are several factors that present challenges and uncertainties to the estimation of net loss reserves . examples of these uncertainties include changes to the reinsurance structure and potential increases in inflation . our net retained losses vary by product and they have generally increased over time . to properly recognize these uncertainties , actuarial reviews have given significant consideration to the paid and incurred bornhuetter-ferguson ( bf ) methodologies . compared with other actuarial methodologies , the paid and incurred bf methods assign smaller weight to actual reported loss experience , with the greatest weight assigned to an expected or planned loss ratio . the expected or planned loss ratio has typically been determined using various assumptions pertaining to prospective loss frequency and loss severity . in setting reserves at december 31 , 2013 , we continued to consider the paid and incurred bf methods for recent years . our loss reserve estimates gradually blend in the results from development and frequency/severity methodologies over time . for general liability estimates , our own loss experience is not deemed fully credible for several years after the end of an accident year . we rely primarily on the bf methods during that period . for property business , our loss reserve estimates also blend in the results from development and frequency/severity methodologies over time . for property lines , in contrast to general liability estimates , we give greater weight to development methods starting at the end of the accident year where loss reporting and claims closing patterns settle more quickly . for the run-off lines segment , in determining appropriate reserve levels , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no changes in key assumptions were made to estimate the reserves since the last reporting date . consolidated gross reserves for loss and loss adjustment expense were $ 3,230.3 million ( including $ 128.6 million of reserves attributable to argo international 's trade capital providers ) , $ 3,223.5 million ( including $ 161.6 million of reserves attributable to the trade capital providers ) and $ 3,291.1 million ( including $ 196.6 million of reserves attributable to the trade capital providers ) as of december 31 , 2013 , 2012 and 2011 , respectively . management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . in 2011 , we entered into two reinsurance transactions with a special purpose reinsurance company which provided coverage through the issuance of two catastrophe bond transactions . the reinsurance transactions provide coverage for selected events . the initial catastrophe bond cover expired on december 31 , 2012. the second catastrophe bond cover expired on december 31 , 2013. in accordance with generally accepted accounting principles in the united states ( gaap ) , we are accounting for these covers as derivatives , and as such , present the financial statement impact in a separate line item other reinsurance-related expensesin our consolidated statements of income ( loss ) . other reinsurance-related expenses totaled $ 19.2 million , $ 27.3 million and $ 5.9 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . as management views these coverages as reinsurance protection , we treat the financial statement effects of these covers as ceded premium for the purposes of calculating our loss , expense and combined ratios . consolidated underwriting , acquisition and insurance expenses were $ 510.8 million , $ 464.5 million and $ 425.7 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the decrease in the consolidated expense ratio for 2013 as compared to 2012 was primarily attributable to reduced fixed costs as a percentage of earned premiums , partially offset by increased equity compensation expense due to the impact of the increase in our stock price on cash-settled equity awards . story_separator_special_tag included in losses and loss adjustment expenses for the year ended december 31 , 2012 was $ 12.6 million in catastrophe losses from storm activity in the united states , including $ 8.2 million from hurricane isaac and $ 2.6 million from superstorm sandy . offsetting these catastrophe losses was $ 48.0 million of net favorable loss reserve development on prior accident years primarily attributable to $ 39.2 million of favorable development in the general and products liability lines of business . included in losses and loss adjustment expenses for the year ended december 31 , 2011 was $ 7.6 million in catastrophe losses from storm activity in the united states , including the alabama and joplin , missouri tornados and hurricane irene . offsetting these catastrophe losses was $ 33.8 million of net favorable loss reserve development on prior accident years primarily resulting from $ 30.2 million of favorable development in the general and products liability lines of business . the decline in the expense ratio for the year ended december 31 , 2013 as compared to the same period in 2012 was primarily attributable to the increase in earned premiums , without a corresponding increase in fixed costs . the increase in the expense ratio for the year ended december 31 , 2012 as compared to the same period in 2011 was primarily attributable to declining earned premiums . commercial specialty the following table summarizes the results of operations for the commercial specialty segment : replace_table_token_11_th the decline in gross written and earned premiums for the year ended december 31 , 2013 as compared to the same periods ended 2012 and 2011 was primarily due to reduced writings in our retail business and public entity units due to planned reductions as we exited unprofitable accounts and implemented underwriting initiatives , partially offset by increasing rates . gross written premiums for our retail business declined to $ 75.6 million for the year ended december 31 , 2013 compared to $ 98.7 million for the same period ended 2012. gross written premiums for our public entity unit declined to $ 99.9 million for the year ended december 31 , 2013 compared to $ 124.4 million for the same period in 2012. partially offsetting these declines was increased gross written premiums in our surety business and commercial programs units , as these business units continue to expand . 49 included in losses and loss adjustment expense for the year ended december 31 , 2013 was $ 4.0 million in catastrophe losses for storm activity in the united states . included in losses and loss adjustment expense for the year ended december 31 , 2013 was $ 7.4 million related to current accident year large losses in our retail , commercial programs and public entity businesses . additionally , included in losses and loss adjustment expenses was $ 1.1 million in net unfavorable loss reserve development on prior accident years , primarily attributable to $ 16.2 million of unfavorable development in general liability due to increases in claim severity and $ 2.0 million of unfavorable development in automobile liability , offset by favorable development of $ 9.5 million in workers compensation and $ 6.8 million of favorable development in short-tail lines . included in losses and loss adjustment expenses for the year ended december 31 , 2012 was $ 16.7 million in catastrophe losses from storm activity in the united states , including $ 8.8 million from superstorm sandy . in addition , commercial specialty experienced several large non-cat property losses during the year . the commercial specialty segment had net unfavorable loss reserve development on prior accident years of $ 22.2 million primarily attributable to $ 31.5 million of unfavorable development in general liability due to increases in claim severity and $ 5.5 million of unfavorable development in the automobile liability lines of business . partially offsetting this unfavorable development was $ 10.1 million of favorable development in workers compensation . included in losses and loss adjustment expenses for the year ended december 31 , 2011 was $ 21.0 million in catastrophe losses from storm activity in the united states , including hurricane irene and the alabama and joplin , missouri tornados . the commercial specialty segment had net unfavorable loss reserve development on prior accident years of $ 8.4 million primarily driven by $ 16.3 million of unfavorable development in general liability due to increases in claim severity and $ 2.0 million of unfavorable development in short-tail lines . partially offsetting the unfavorable reserve development was $ 5.9 million of favorable development in workers compensation and $ 3.7 million of favorable development in an assumed directors and officers program . the decline in the expense ratio for the year ended december 31 , 2013 as compared to 2012 and 2011 was primarily attributable to a shift of select functions from risk bearing activities to non risk-bearing activities , as we began to develop our fee-based business . the increase in the expense ratio for the years ended december 31 , 2012 as compared to the same period in 2011 was primarily attributable to the reductions in earned premiums outpacing the reductions in total underwriting expenses . as noted above , in 2013 we began to focus on the development of our fee-based operations . as a result , the expenses associated with the fee-based operations have outpaced the income received for these activities , resulting in net fee expense for the year ended december 31 , 2013. international specialty the following table summarizes the results of operations for the international specialty segment : replace_table_token_12_th 50 gross written and earned premiums increased for the year ended december 31 , 2013 in comparison to the same periods in 2012 and 2011 primarily as a result of continued growth in our brazil operations and in our excess casualty and professional lines units , while gross written premiums for the property reinsurance lines remained consistent .
| consolidated results of operations for the year ended december 31 , 2013 , we reported net income of $ 143.2 million , or $ 5.14 per fully diluted share . for the year ended december 31 , 2012 , we reported net income of $ 52.3 million , or $ 1.83 per fully diluted share . for the year ended december 31 , 2011 , we reported net loss of $ 81.9 million , or ( $ 2.74 ) per fully diluted share . 44 the following is a comparison of selected data from our operations : replace_table_token_8_th the increase in gross written and earned premiums for the year ended december 31 , 2013 as compared to the same periods ended 2012 and 2011 was primarily attributable to growth in our united states and syndicate 1200 segments , coupled with the start up of our brazil operations . earned premiums for our united states segments increased to $ 759.9 million ( on gross written premiums of 1,016.8 million ) for the year ended december 31 , 2013 compared to $ 718.4 million ( on gross written premiums of $ 957.3 million ) and $ 721.2 million ( on gross written premiums of $ 913.3 million ) for the same periods in 2012 and 2011 , respectively . the increase in earned premiums was primarily attributable to growth in our excess and surplus lines segment . partially offsetting these increases were declines in our commercial specialty segment due to planned reduction in our retail and public entity units . earned premiums for our syndicate 1200 segment increased to $ 401.7 million ( on gross written premiums of $ 583.9 million ) from $ 320.8 million ( on gross written premiums of $ 533.4 million ) and $ 259.3 million ( on gross written premiums of $ 438.5 million ) for the same periods ended 2012 and 2011 , respectively .
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hierarchical levels , which are defined by asc 820-10-35 , are directly related to the amount of subjectivity associated with the inputs story_separator_special_tag the following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in item 8 of this annual report on form 10-k. a detailed discussion of the results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 is not included herein and can be found in the management 's discussion and analysis section in the 2019 annual report on form 10-k filed with the sec on march 13 , 2020 . 20 overview trinity place holdings inc. which we refer to in this report as “ trinity , ” “ we , ” “ our , ” or “ us ” , is a real estate holding , investment , development and asset management company . our largest asset is currently a property located at 77 greenwich street in lower manhattan ( “ 77 greenwich ” ) . 77 greenwich was previously a vacant building that we demolished . it is under development as a mixed-use project consisting of a 90-unit residential condominium tower , retail space and a new york city elementary school . we also own a newly built 105-unit , 12-story multi-family property located at 237 11 th street in brooklyn , new york ( “ 237 11 th ” ) , acquired in may 2018 , and , through joint ventures , a 50 % interest in a newly built 95-unit multi-family property known as the berkley , located at 223 north 8 th street , brooklyn ( “ the berkley ” ) and a 10 % interest in a newly built 234-unit multi-family property located one block from the berkley at 250 north 10 th street ( “ 250 north 10 th ” ) acquired in january 2020 , also in brooklyn , new york . in addition we own a property occupied by retail tenants in paramus , new jersey . see item 2. properties for a more detailed description of our properties . in addition to our real estate portfolio , we also control a variety of intellectual property assets focused on the consumer sector , a legacy of our predecessor , syms corp. ( “ syms ” ) . we also had approximately $ 232.0 million of federal net operating loss carry forwards ( “ nols ” ) at december 31 , 2020 , which can be used to reduce our future taxable income and capital gains . we continue to evaluate new investment opportunities , with a focus on newly constructed multi-family properties in new york city as well as properties in close proximity to public transportation in the greater new york metropolitan area . we consider investment opportunities involving other types of properties and real estate related assets , as well as repurchases of our common stock , taking into account our cash position , liquidity requirements , and our ability to raise capital to finance our growth . in addition , we may selectively consider potential acquisition , development and fee-based opportunities , as well as disposition , sale or consolidation opportunities . impact of covid-19 the impact of the recent outbreak of covid-19 on our results and operations has been and will continue to be significant . the extent of the impact going forward will largely depend on future developments , which are highly uncertain and can not be predicted , including the severity and duration of the outbreak , in new york city in particular , the success of actions taken to contain or treat covid-19 , actions taken by governmental entities , companies and individuals in response to the pandemic and reactions to such actions , the impact on local and broader economic activity and capital markets from the covid-19 pandemic and new information that emerges with respect to the foregoing and other aspects of covid-19 . the extent to which the covid-19 pandemic will impact the company 's business , operations and financial results in the future will depend on numerous evolving factors that the company is not able to predict at this time , including , but not limited to , the impact on sales of residential condominium units at our most significant asset , 77 greenwich , which has been material , the impact on the timing for construction of 77 greenwich and completion of the remediation and restoration project at 237 11 th ; the impact on the timing of the 237 11 th litigation due to backlog in the new york city court system and the slowdown in judicial proceedings , and the receipt of any payments we may receive in connection with the litigation ; our ability to obtain maturity extensions and covenant modifications on acceptable terms ; increased operating costs related to cleaning and disinfecting our properties ; the effect of the pandemic on the company 's tenants and their ability to make rental payments ; and the effect of the eviction moratorium ( in effect from march 2020 through may 1 , 2021 , subject to further extension ) imposed by new york state and the impact of decisions of the nyc rent guidelines board on our ability to raise rents . these developments and events have and will continue to adversely impact the company 's business , financial condition , results of operations and stock price , which has been and is anticipated to continue to be material , although in recent months we have seen indications of a recovery in the new york city real estate market and improvements in the financing markets , including early indications of robust interest in the refinancing of our two loans maturing in june 2021 and january 2022 , respectively . see note 1 – business to our consolidated financial statements and part ii . item 1a . risk factors , of this annual report on form 10-k for further information . story_separator_special_tag we recorded $ 306,000 in tax expense for the year ended december 31 , 2020 compared to $ 128,000 in tax in expense for the year ended december 31 , 2019. net income attributable to common stockholders increased by approximately $ 8.7 million to $ 6.5 million for the year ended december 31 , 2020 from a loss of $ 2.2 million for the year ended december 31 , 2019 as a result of the changes discussed above , principally the gain on sale of the school condominium to the sca . liquidity and capital resources we currently expect that our principal sources of funds to meet our short-term and long-term liquidity requirements for working capital and funds for acquisition and development or redevelopment of properties , tenant improvements , leasing costs , and repayments of outstanding indebtedness will include some or all of the following : ( 1 ) cash on hand ; ( 2 ) proceeds from new debt financings , increases to existing debt financings and or other forms of secured or unsecured debt financing ; ( 3 ) proceeds from equity or equity-linked offerings , including rights offerings or convertible debt or equity or equity-linked securities issued in connection with debt financings ; ( 4 ) cash flow from operations ; and ( 5 ) net proceeds from divestitures of properties or interests in properties . cash flow from operations is primarily dependent upon the occupancy level of our portfolio , the net effective rental rates achieved on our leases , the collectability of rent , operating escalations and recoveries from our tenants and the level of operating and other costs . as of december 31 , 2020 , we had total cash and restricted cash of $ 16.1 million , of which approximately $ 6.5 million was cash and cash equivalents and approximately $ 9.6 million was restricted cash . as of december 31 , 2019 , we had total cash and restricted cash of $ 18.7 million , of which approximately $ 9.2 million was cash and cash equivalents and approximately $ 9.5 million was restricted cash . restricted cash represents amounts required to be restricted under our loan agreements , letters of credit ( see note 10 – loans payable and secured line of credit to our consolidated financial statements for 24 further information ) , deposits on residential condominium sales at 77 greenwich and tenant related security deposits . in addition , cash and cash equivalents includes cash which , together with availability under our line of credit , is required to be maintained to meet certain liquidity requirements under the 77 greenwich construction facility , described below . this liquidity requirement , inclusive of cash and line of credit availability , decreased to $ 10.0 million when we closed on the conveyance of the school condominium to the sca in april 2020 and decreases further upon the achievement of certain construction related milestones at 77 greenwich . corporate credit facility in december 2019 , we entered into a credit agreement ( the “ corporate credit facility ” ) with an affiliate of a global institutional investment management firm as initial lender ( the “ ccf lender ” ) and trimont real estate advisors , llc , as administrative agent ( the “ corporate facility administrative agent ” ) , pursuant to which the ccf lender agreed to extend us credit in multiple draws aggregating $ 70.0 million , which may be increased by $ 25.0 million subject to satisfaction of certain conditions and the consent of the ccf lender . draws under the corporate credit facility may be made during the 32-month period following the closing date of the corporate credit facility ( the “ closing date ” ) . the corporate credit facility matures on december 19 , 2024 , subject to extensions until december 19 , 2025 and june 19 , 2026 , respectively , under certain circumstances . the proceeds of the corporate credit facility may be used for investments in certain multi-family apartment buildings in the greater new york city area and certain non-residential real estate investments approved by the ccf lender in its reasonable discretion , as well as in connection with certain property recapitalizations and in specified amounts for general corporate purposes and working capital . the corporate credit facility bears interest at a rate per annum equal to the sum of ( i ) 5.25 % and ( ii ) a scheduled interest rate ( the “ cash pay interest rate ” ) based on six-month periods from the closing date , which cash pay interest rate , from the closing date until the six-month anniversary of the closing date initially equaled 4.0 % and increases by 125 basis points in each succeeding six-month period , subject to increase during the extension periods . a $ 2.45 million commitment fee was payable 50 % on the initial draw with the remaining 50 % payable as amounts under the corporate credit facility are drawn , with any remaining balance due on the last date of the draw period , and a 1.0 % exit fee is payable in respect of corporate credit facility repayments . as of december 31 , 2020 , we had paid $ 1.85 million of the commitment fee . the corporate credit facility may be prepaid at any time subject to a prepayment premium on the portion of the corporate credit facility being repaid . at december 31 , 2020 , the corporate credit facility had an outstanding balance of $ 35.75 million and an effective interest rate of 9.5 % . accrued interest totaled approximately $ 1.5 million at december 31 , 2020. the corporate credit facility was undrawn at december 31 , 2019 . ( see note 10 – notes payable and secured line of credit to our consolidated financial statements for further discussion ) .
| results of operations results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 rental revenues in total decreased by approximately $ 3.1 million to $ 993,000 for the year ended december 31 , 2020 from $ 4.1 million for the year ended december 31 , 2019. this consisted of a decrease in rent revenues by approximately $ 2.7 million to $ 911,000 for the year ended december 31 , 2020 from $ 3.6 million for the year ended december 31 , 2019 , as well as a decrease in tenant reimbursements by approximately $ 397,000 to $ 82,000 for the year ended december 31 , 2020 from $ 479,000 for the year ended december 31 , 2019. the decrease in total revenues and its related components was partially due to the sale of the west palm beach , florida property ( approximately $ 1.2 million ) in november 2019 as well as lower occupancy , lower face rents and increased rent concessions at 237 11 th due to certain construction related defects that are being repaired . 22 other income of $ 263,000 consisted mainly of the sca construction supervision fees we recognized since the closing on the sale of the school condominium to the sca in april 2020. property operating expenses increased by approximately $ 2.8 million to $ 8.2 million for the year ended december 31 , 2020 from $ 5.3 million for the year ended december 31 , 2019. the increase was principally due to expenses associated with 237 11 th , including approximately $ 7.1 million in costs incurred during the year ended december 31 , 2020 to repair the construction related defects .
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equity method investment : on december 29 , 2003 , the bank entered into a limited partner subscription agreement with midland corporate tax credit xvi limited story_separator_special_tag overview management 's discussion and analysis represents an overview of the financial condition and results of operations , and highlights the significant changes in the financial condition and results of operations , as presented in the accompanying consolidated financial statements for vist financial corp. ( the `` company '' ) , a financial holding company , and its wholly-owned subsidiaries , vist bank ( the `` bank '' ) , vist insurance , llc ( `` vist insurance '' ) , and vist capital management , llc ( `` vist capital management '' ) . on january 25 , 2012 , the company entered into a definitive merger agreement under which tompkins financial corporation will acquire vist financial corp. vist bank will operate as a subsidiary of tompkins financial with a separate banking charter , local management team , and local board of directors . the transaction is expected to close early in the third quarter of 2012 , subject to required regulatory approvals and other customary conditions , including required shareholder approval . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( `` us gaap '' ) . us gaap is complex and require management to apply significant judgment to various accounting , reporting and disclosure matters . management must use assumptions and estimates to apply these principles where actual measurement is not possible or practical . actual results may differ from these estimates under different assumptions or conditions . in management 's opinion , the most critical accounting policies and estimates impacting the company 's consolidated financial statements are listed below . these policies are critical because they are highly dependent upon subjective or complex judgments , assumptions and estimates . changes in such estimates may have a significant impact on the financial statements . for a complete discussion of the company 's significant accounting policies , see the footnotes to the consolidated financial statements and discussion throughout this form 10-k. goodwill and other intangible assets the company had goodwill and other intangible assets of $ 19.8 million at december 31 , 2011 , related to the acquisition of its banking , insurance and wealth management companies . the company utilizes a third party valuation service to perform its goodwill impairment test both on an interim and annual basis . a fair value is determined for the banking and financial services , insurance services and investment services reporting units . if the fair value of the reporting business unit exceeds the book value , then no impairment write down of goodwill is necessary ( a step one evaluation ) . if the fair value is less than the book value , then an additional test ( a step two evaluation ) is necessary to assess goodwill for potential impairment . as a result of the goodwill impairment valuation analysis , the company determined that a $ 25.1 million goodwill impairment write-off for all of its reporting units was necessary for the year ended december 31 , 2011. for additional information , refer to note 8goodwill and other intangible assets of the consolidated financial statements . reporting unit valuation is inherently subjective , with a number of factors based on assumption and management judgments . among these are future growth rates , discount rates and earnings capitalization rates . changes in assumptions and results due to economic conditions , industry factors and reporting business unit performance could result in different assessments of the fair value and could result in impairment charges in the future . 19 framework for interim impairment analysis the company utilizes the following framework from fasb asc 350 `` intangiblesgoodwill & other '' to evaluate whether an interim goodwill impairment test is required , given the occurrence of events or if circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . examples of such events or circumstances include : a significant adverse change in legal factors or in the business climate ; an adverse action or assessment by a regulator ; unanticipated competition ; a loss of key personnel ; a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of ; financing transactions , '' of a significant asset group within a reporting unit ; and recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit . when applying the framework above , management additionally considers that a decline in the company 's market capitalization could reflect an event or change in circumstances that would more likely than not reduce the fair value of reporting business unit below its carrying value . however , in considering potential impairment of goodwill , management does not consider the fact that our market capitalization is less than the carrying value of our company to be determinative that impairment exists . this is because there are factors , such as our small size and small market capitalization , which do not take into account important factors in evaluating the value of our company and each reporting business unit , such as the benefits of control or synergies . consequently , management 's annual process for evaluating potential impairment of our goodwill ( and evaluating subsequent interim period indicators of impairment ) involves a detailed level analysis and incorporates a more granular view of each reporting business unit than aggregate market capitalization , as well as significant valuation inputs . annual and interim impairment tests and results management estimates fair value annually utilizing multiple methodologies which include discounted cash flows , comparable companies and comparable transactions . story_separator_special_tag management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record , and the amount of the shortfall in relation to the principal and interest owed . impairment is measured on a loan by loan basis for commercial and commercial real estate loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . revenue recognition for insurance activities insurance revenues are derived from commissions and fees . commission revenues , as well as the related premiums receivable and payable to insurance companies , are recognized the later of the effective date of the insurance policy or the date the client is billed , net of an allowance for estimated policy cancellations . the reserve for policy cancellations is periodically evaluated and adjusted as necessary . commission revenues related to installment premiums are recognized as billed . commissions on premiums billed directly by insurance companies are generally recognized as income when received . contingent commissions from insurance companies are generally recognized as revenue when the data necessary to reasonably estimate such amounts is obtained . a contingent commission is a commission paid by an insurance company that is based on the overall profit and or volume of the business placed with the insurance company . fee income is recognized as services are rendered . stock-based compensation fasb accounting standards codification ( `` asc '' ) 718 , `` share-based payment '' addresses the accounting for share-based payment transactions subsequent to 2006 in which an enterprise receives employee services in exchange for ( a ) equity instruments of the enterprise or ( b ) liabilities that are based on the fair value of the enterprise 's equity instruments or that may be settled by the issuance of such equity instruments . fasb asc 718 requires an entity to recognize the grant-date fair-value of stock options and its other equity-based compensation issued to the employees in the consolidated statements of operations . the revised statement generally requires that an entity account for those transactions using the fair-value-based method , and eliminates the intrinsic value method of accounting in apb opinion no . 25 . `` accounting for stock issued to employees , '' which was permitted under fasb asc 718 , as originally issued . effective january 1 , 2006 , the company adopted fasb asc 718 using the modified prospective method . any additional impact the adoption of this statement will have on our results of operations will be determined by share-based payments granted in future periods . derivative financial instruments the company maintains an overall interest rate risk-management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused 22 by interest rate volatility . the company 's goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest margin is not , on a material basis , adversely affected by movements in interest rates . as a result of interest rate fluctuations , hedged assets and liabilities will appreciate or depreciate in market value . the effect of this unrealized appreciation or depreciation will generally be offset by income or loss on the derivative instruments that are linked to the hedged assets and liabilities . the company views this strategy as a prudent management of interest rate sensitivity , such that earnings are not exposed to undue risk presented by changes in interest rates . by using derivative instruments , the company is exposed to credit and market risk . if the counterparty fails to perform , credit risk exists to the extent of the fair value gain in a derivative . when the fair value of a derivative contract is positive , this generally indicates that the counterparty owes the company , and , therefore , creates a repayment risk for the company . when the fair value of a derivative contract is negative , the company owes the counterparty and , therefore , it has no repayment risk . the company minimizes the credit ( or repayment ) risk in the derivative instruments by entering into transactions with high quality counterparties . market risk is the adverse effect that a change in interest rates , currency , or implied volatility rates has on the value of a financial instrument . the company manages the market risk associated with interest rate contracts by establishing and monitoring limits as to the types and degree of risk that may be undertaken . the company periodically measures this risk by using value-at-risk methodology ( refer to note 14 of the consolidated financial statements for information on interest rate swap and interest rate cap agreements the company has used to manage its exposure to interest rate risk ) . investment securities impairment evaluation management evaluates investment securities for other-than-temporary impairment at least on a quarterly basis , and more frequently when economic or market concerns warrant such evaluation . factors that may be indicative of impairment include , but are not limited to , the following : fair value below cost and the length of time adverse condition specific to a particular investment rating agency activities ( e.g.
| overview . net income for the twelve months ended december 31 , 2010 was $ 3,984,000 , as compared to $ 607,000 for the same period in 2009. return on average assets was 0.29 % for 2010 , as compared to 0.05 % for 2009. return on average shareholder 's equity was 3.02 % for 2010 , as compared to 0.51 % for 2009. the discussion that follows explains the changes in the components of net income when comparing the twelve months ended december 31 , 2010 , to the same period in 2009. net interest income net interest income , our primary source of revenue , is the amount by which interest income on loans , investments and interest-earning cash balances exceeds interest incurred on deposits and other non-deposit sources of funds , such as repurchase agreements and borrowings from the fhlb and other correspondent banks . the amount of net interest income is affected by changes in interest rates and by changes in the volume and mix of interest-sensitive assets and liabilities . net interest income and corresponding yields are presented in the discussion and analysis below on a fully taxable-equivalent basis . income from tax-exempt assets , primarily loans to or securities issued by state and local governments , is adjusted by an amount equivalent to the federal income taxes which would have been paid if the income received on these assets was taxable at the statutory rate of 34 % . net interest margin is the difference between the gross ( tax-effected ) yield on earning assets and the cost of interest bearing funds as a percentage of earning assets .
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see note 11 for a discussion of the assumptions used by the company in determining the grant date fair value of options granted under the black-scholes option pricing model , as well as a summary of the stock option activity under the company 's stock-based compensation plans for the year ended december 31 , 2017 . income taxes income taxes are recorded in accordance with asc topic 740 , income taxes ( asc 740 ) , which provides for deferred taxes using an asset and liability approach . the company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included in item 15 of this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under `` risk factors '' and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . please also refer to the section under heading `` forward-looking statements . '' overview we are a leading biopharmaceutical company in the discovery and development of tgf-beta therapeutics to treat serious and rare diseases . our research focuses on key natural regulators of cellular growth and repair , particularly the transforming growth factor-beta , or tgf-beta , protein superfamily . by combining our discovery and development expertise , including our proprietary knowledge of the tgf-beta superfamily , and our internal protein engineering and manufacturing capabilities , we have generated several innovative therapeutic candidates , all of which encompass novel potential first-in-class mechanisms of action . we have focused and prioritized our research and development activities within three key therapeutic areas : hematologic , neuromuscular and pulmonary . if successful , these candidates could have the potential to significantly improve clinical outcomes for patients across these areas of high , unmet need . luspatercept , our lead program , and sotatercept , are partnered with celgene corporation , or celgene . luspatercept is an erythroid maturation agent designed to promote red blood cell production through a novel mechanism , and is being developed to treat chronic anemia and associated complications in myelodysplastic syndromes , or mds , beta-thalassemia , and myelofibrosis . celgene is currently conducting two phase 3 clinical trials with luspatercept ; one for the treatment of patients with lower-risk mds , known as the `` medalist '' trial , and another for the treatment of patients with beta-thalassemia , also known as the `` believe '' trial . celgene has recently initiated a phase 2 trial in non-transfusion-dependent beta-thalassemia patients , referred to as the `` beyond '' trial . we further expect celgene to initiate a phase 3 clinical trial , the `` commands '' trial , in first-line , lower-risk mds patients in the first half of 2018. enrollment is also currently ongoing in a phase 2 clinical trial for the treatment of patients with myelofibrosis , a rare bone marrow disorder . if luspatercept were to receive regulatory approval for each of these indications in the united states and europe , we believe that there is an aggregate sales opportunity for this product in excess of $ 2 billion . for sotatercept , we announced in september 2017 that celgene granted us the rights to fund , develop , and lead the global commercialization of sotatercept in pulmonary hypertension , including pulmonary arterial hypertension , or pah . pah is a rare and chronic , rapidly progressing disorder characterized by the constriction of small pulmonary arteries , resulting in abnormally high blood pressure in the pulmonary arteries . if sotatercept is commercialized to treat pah and we recognize such revenue , then celgene will be eligible to receive a royalty in the low 20 % range on global net sales . in certain circumstances celgene may recognize revenue related to the commercialization of sotatercept in pah , and in this scenario we will be eligible to receive a royalty from celgene such that the economic position of the parties is equivalent to the scenario in which we recognize such revenue . we expect to initiate a phase 2 clinical trial for the treatment of patients with pah in the first half of 2018. for luspatercept and , outside of pulmonary hypertension , sotatercept , celgene is responsible for paying 100 % of the development costs for all clinical trials . we may receive a maximum of $ 545.0 million for the potential development , regulatory and commercial milestone payments . if luspatercept and , outside of pulmonary hypertension , sotatercept are commercialized , we are eligible to receive a royalty on net sales in the low-to-mid 20 % range and we have a co-promotion right in north america , for which our commercialization costs will be entirely funded by celgene . we are independently developing our wholly-owned neuromuscular candidate , ace-083 . ace-083 is designed for the treatment of focal muscle disorders , and we are currently conducting phase 2 clinical trials with ace-083 in patients with facioscapulohumeral dystrophy , or fshd , as well as in patients with charcot-marie-tooth disease , or cmt . in january 2018 , we announced preliminary results for the first two cohorts in part 1 of the phase 2 clinical trial with ace-083 in patients with fshd showing marked increases in the mean total muscle volume of the muscles treated with ace-083 measured using magnetic resonance imaging , or mri . story_separator_special_tag the duration , costs and timing of clinical trials and development of our therapeutic candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; future clinical trial results ; potential changes in government regulation ; and the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a therapeutic candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate . for example , if the u.s. food and drug administration , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of the clinical development of therapeutic candidates , or if we experience significant delays in the enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . from inception through december 31 , 2017 , we have incurred $ 554.8 million in research and development expenses . we plan to increase our research and development expenses for the foreseeable future as we continue the development of our tgf-beta platform therapeutic candidates , the discovery and development of preclinical therapeutic candidates , and the development of our clinical programs . expenses associated with luspatercept , and outside of pulmonary hypertension , sotatercept , are reimbursed 100 % by celgene . these reimbursements are recorded as revenue . we are expensing the costs of a phase 1 clinical trial for ace-2494 , and phase 2 clinical trials for luspatercept , sotatercept , dalantercept , and ace-083 , of which the luspatercept clinical trials are reimbursed by celgene , and the dalantercept clinical trials are being discontinued . with respect to the luspatercept phase 3 clinical trials directly conducted by celgene , we do not incur and are not reimbursed for expenses related to these development activities . 53 we manage certain activities such as clinical trial operations , manufacture of therapeutic candidates , and preclinical animal toxicology studies through third-party cros . the only costs we track by each therapeutic candidate are external costs such as services provided to us by cros , manufacturing of preclinical and clinical drug product , and other outsourced research and development expenses . we do not assign or allocate to individual development programs internal costs such as salaries and benefits , facilities costs , lab supplies and the costs of preclinical research and studies . our external research and development expenses during the years ended december 31 , 2017 , 2016 and 2015 , were as follows : replace_table_token_4_th _ ( 1 ) expenses associated with luspatercept and , outside of pulmonary hypertension , sotatercept , are reimbursed 100 % by celgene . ( 2 ) development of dalantercept is being discontinued . ( 3 ) other expenses include unallocated employee and contractor-related expenses , facility expenses , lab supplies and miscellaneous expenses . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , operational , finance and human resource functions and other general and administrative expenses including directors ' fees and professional fees for accounting and legal services . we continue to incur expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and securities and exchange commission , or sec , requirements , director and officer insurance premiums , and investor relations costs associated with being a public company . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our therapeutic candidates . additionally , if and when we believe regulatory approval of a therapeutic candidate appears likely , to the extent that we are undertaking commercialization of such therapeutic candidate ourselves , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operation . other income ( expense ) , net other income ( expense ) , net consists primarily of the re-measurement gain or loss associated with the change in the fair value of our common stock warrant liabilities and interest income earned on cash , cash equivalents and investments . to estimate the fair value of our liability-classified warrants , we use either the monte carlo simulation framework , which incorporates future financing events over the remaining life of the warrants to purchase common stock , or for certain re-measurement dates , due to the warrants being deeply in the money , the black-scholes option pricing model . we base the estimates in the pricing models , in part , on subjective assumptions , including stock price volatility , risk-free interest rate , dividend yield , and the fair value of the preferred stock or common stock underlying the warrants . the black-scholes option pricing model was used at december 31 , 2017 . 54 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , accrued expenses and stock-based compensation . we also utilize significant estimates and assumptions in determining the fair value of our liability-classified warrants to purchase common stock .
| results of operations comparison of the years ended december 31 , 2017 and 2016 replace_table_token_5_th 58 revenue . we recognized revenue of $ 13.5 million in the year ended december 31 , 2017 , compared to $ 27.8 million in the year ended december 31 , 2016 . all of the revenue in both periods was derived from the celgene agreements . the $ 14.3 million decrease was primarily due to the receipt of a $ 15.0 million milestone payment from celgene for the initiation of a phase 3 clinical trial with luspatercept in 2016 , offset in part by an increase in cost-sharing revenue of $ 0.7 million primarily related to an increase in reimbursement for personnel compared to the prior year . research and development expenses . research and development expenses were $ 89.7 million in the year ended december 31 , 2017 , compared to $ 68.6 million in the year ended december 31 , 2016 . the $ 21.1 million increase was primarily due to an increase in personnel expenses totaling $ 13.5 million to support development of our wholly-owned therapeutic candidates and preclinical programs , which includes an increase in stock-based compensation expense of $ 6.1 million . other increases include clinical trial and toxicology expenses of $ 6.5 million and miscellaneous research and drug supply of $ 2.0 million . these increases were partially offset by a decrease in-licensing expense related to payments that we made in connection with the achievement of a milestone in 2016 totaling $ 0.9 million . general and administrative expenses . general and administrative expenses were $ 33.7 million in the year ended december 31 , 2017 , compared to $ 25.3 million in the year ended december 31 , 2016 .
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accounting for hybrid financial instruments and derivatives is discussed more fully in notes6 and 7. fair value of financial instruments the carrying amount of financial instruments including cash and cash equivalents , accounts receivable , accounts payable and accrued expenses approximated fair value as of december 31 , 2010 and 2009 due to the relatively short maturity of these instruments . the carrying amount of the company 's debt outstanding , other than the secured convertible promissory notes described in note 6 , approximates their fair values as of december 31 , 2010 and 2009 because interest rates on these instruments approximate the interest rate on debt with similar terms available to the company . the company records the secured convertible promissory notes and related warrants at fair value as more fully discussed in note 7. warranty costs the company provides warranties on the engineering and construction management services it provides . the company has not had to provide warranty services in the past , and management does not anticipate significant warranty liability for work performed through december 31 , 2010. therefore , no allowance for warranty costs has been recorded . f-12 kl energy corporation notes to consolidated financial statements ( 1 ) nature of business and significant accounting policies ( continued ) net loss per common share sfas no . 128 , “ earnings per share ” provides for the calculation of “ basic ” and “ diluted ” earnings per share . basic earnings per share includes no dilution and is story_separator_special_tag financial condition and results of operation this discussion should be reviewed in conjunction with our audited financial statements and accompanying notes included in this report for the years ended december 31 , 2010 and 2009. critical accounting policies and estimates : trade receivables trade receivables are carried at original invoice less an estimate made for doubtful receivables based on a periodic review of all outstanding amounts . management of the company has established an allowance for doubtful accounts based on their estimate of uncollectible accounts and is established based on historical performance that is tracked by the company on an ongoing basis . trade receivables are written off when deemed uncollectible . recoveries of trade receivables previously written off are recorded when received . long-lived assets property , plant and equipment is recorded at cost . depreciation expense is computed using the straight–line method over the estimated useful lives of the assets , generally three to five years except for leasehold improvements which are amortized over the remaining lease term . costs incurred relating to construction-in-progress for plant facilities are capitalized when those costs are for the active development of the facility . depreciation commences when the construction activity is completed and the additional assets are available for use . the company assesses the realization of long-lived assets for potential impairment when events and circumstances warrant such a review . revenue and cost recognition revenue from joint development and funded research arrangements are accounted for using the proportional performance method under which revenue is recognized over the service term of such arrangements . if estimated total costs on this contract indicate a loss , we charge the entire estimated loss to operations in the period in which the loss becomes known . the cumulative effect of revisions to revenue , and estimated costs to complete this contract , are recorded in the accounting period in which the events indicating a loss or change in estimates are known and the loss can be reasonably estimated . amounts billed in excess of revenue recognized are included on the consolidated balance sheet in deferred income . revenue from feedstock testing results from agreements with third parties for the company to perform extensive tests to determine if the customer 's feedstock is a viable candidate for use in the production of cellulosic ethanol . the standard agreement requires that the customer pay 50 % of the testing fee upon signing the feedstock testing agreement and the remaining 50 % when the company delivers a final report to the customer explaining the test results and conclusions . feedstock testing revenues , and related expenses , are only recognized when this report is delivered . 24 revenue from fixed price contracts is recognized on the percentage-of-completion method , measured by the percentage of costs incurred to date to estimated total costs for each contract . this method is used because management considers expended costs to be the best available measure of progress on these contracts . contract costs include all direct material , subcontract and labor costs , and those indirect costs related to contract performance , such as labor , supply , tool , and depreciation costs . operating costs are charged to expense as incurred . revenue is reported net of sales tax collected . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions and final contract settlements , may result in revisions to costs and income and are recognized in the period in which the revisions are determined . pre-contract costs directly associated with a specific contract are deferred as incurred in anticipation of that contract if recovery of these costs is determined to be probable . conversely , if it appears unlikely that we will obtain the contract , all previously deferred costs are expensed . such costs include consultant expenses for project development , technology improvements , facility engineering and feedstock evaluation expenses . based on our percentage-of-completion revenue recognition policy , revenues and costs associated with approved change orders are adjusted when company and customer approvals of the change order are obtained . for unpriced or unapproved change orders , recovery must be deemed probable , if the future event or events necessary for recovery are likely to occur , at which time revenues and costs associated with the unpriced or unapproved change orders are adjusted . story_separator_special_tag our total assets as of december 31 , 2010 were approximately $ 8,361,000. during 2010 , we received additional capital of $ 3,350,000 ( before expenses ) from private placements of our common stock and $ 5,980,000 ( excluding the conversion of approximately $ 322,000 in other debt and before expenses ) from convertible debt to fund operating activities and allow our borrowing commitments to remain current . the company expects to rely on funds raised from these recent private placements , as well as future equity and debt offerings to implement our growth plan and meet our liquidity needs going forward . while we continue to seek additional financing , there are currently no specific arrangements for any external financing of debt or equity and we are not certain whether any such financing would be available on terms acceptable to us , if at all . 26 we estimate that our average monthly operating expenses will be approximately $ 450,000 per month or $ 5.4 million over the next twelve months . such costs primarily consist of approximately 50 % in personnel wages and benefits , approximately 35 % in legal , audit , fund-raising , public relations , etc . consulting fees and travel expenses , approximately 10 % in debt payments and the remainder , net of feedstock testing income , is primarily for wbe plant operations and laboratory expenses . we believe that cash on hand and the recent borrowings in november 2010 , other firm commitments , and continuing discussions with existing as well as new interested investors , will adequately provide for the operating activities of the company for the remainder of calendar 2011. in their report dated march 17 , 2011 , the company 's auditors indicated there was substantial doubt about the company 's ability to continue as a going concern without any adequate fund-raising . accordingly , unless we raise additional working capital , obtain project financing and or revenues grow to support our business plan , we may be unable to remain in business . line of credit ; loans we are a guarantor for and making payments with respect to a note payable by wbe to security national bank which had a balance of $ 1,271,751 at december 31 , 2010. a principal payment of $ 500,000 was made in february 2009. pursuant to an amendment executed during the first quarter of 2010 , principal and interest payments of $ 17,560 are due to be made from march 2010 until the maturity date of march 2011 , which may be extended on an annual basis if the company is in compliance with the note terms . this note bears interest at 6.5 % and is secured by substantially all of the assets of wbe and guaranteed by certain wbe members and the company . the company has a subordinated unsecured note payable to a current shareholder and former officer of the company totaling $ 426,589 and $ 560,000 at december 31 , 2010 and 2009 , respectively . this note has a variable interest rate , which was 5 % at december 31 , 2010 and 2009 , respectively , with interest paid quarterly . this note was unsecured and did not have a specified due date . in february 2009 , the note was modified to require principal payments of $ 10,000 per month , beginning september 2009 , over a 60 month term . the principal payments are scheduled to be $ 120,000 in each of 2011 , 2012 , 2013 , and $ 66,589 in 2014. as security for our obligations under this note , we granted to the lender a security interest in our current and future accounts receivable . in addition , if the company receives additional equity financing , we are obligated to pay 5 % of such proceeds towards principal payments on this note . as of december 31 , 2010 , this entire obligation is included in current maturities of subordinated debt-related party in the consolidated balance sheets due to additional equity financings received by the company . we also had a secured promissory note payable to lansing securities corp. in the amount of $ 250,000 at 10 % interest . the maturity date of this loan has passed and the note and accrued interest was converted in november 2010 into a secured convertible promissory note with 10 % interest payable quarterly . the new secured note matures july 31 , 2011. the company had total current liabilities of approximately $ 18,088,000 at december 31 , 2010 , which included convertible promissory notes payable of approximately $ 11,434,000 , current maturities of long-term debt of approximately $ 1,286,000 and current maturities of subordinated debt – related party of approximately $ 427,000 , accounts payable of approximately $ 1,804,000 , deferred revenue of approximately $ 2,035,000 ( primarily related to the petrobras project ) , accrued payroll and other liabilities of approximately $ 785,000 ( primarily legal fees of approximately $ 122,000 , arbitration accruals of approximately $ 305,000 , accounting and audit fees of approximately $ 80,000 , other professional fees of approximately $ 136,000 and accrued interest and operating expenses of approximately $ 142,000 ) as well as current liabilities of discontinued operations of approximately $ 316,000 ( the settlement of which is dependent on the resolution of several litigation issues ) . we had total long-term liabilities of approximately $ 7,105,000 at december 31 , 2010 includes approximately $ 7,092,000 in a warrant derivative liability and approximately $ 12,000 in long-term debt related to equipment financing . our total liabilities were approximately $ 25,192,000 as of december 31 , 2010. on october 9 , 2008 , we issued a $ 250,000 loan to o2diesel corporation ( “ o2d ” ) , a business partner , and accounted for this transaction by increasing note receivable and decreasing cash for that amount .
| annual results of operations revenue the company recorded approximately $ 4,069,000 in revenue for the year ended december 31 , 2010 compared to zero revenue in the prior year . this increase in revenue is primarily attributable to the petrobras sugarcane bagasse project and an increase in feedstock feasibility testing for potential future customers ( aggregating approximately $ 2,428,000 ) as well as approximately $ 1,641,000 of revenue recognition of previously deferred income on the mre construction management and engineering services contract . project development services expenses the company recorded approximately $ 859,000 of project development services costs for the year ended december 31 , 2010 , compared to an absence of these costs in the prior year . this increase in these costs is attributable to the petrobras project and an increase in customer feedstock feasibility testing . general and administrative expenses general and administrative expenses of approximately $ 2,982,000 for the year ended december 31 , 2010 compared to $ 4,022,000 for the year ended december 31 , 2009 , a decrease of approximately $ 1,040,000 or 26 % . this significant improvement was primarily attributable to decreases in personnel costs of $ 1,014,000 , bad debts of $ 138,000 , and the reduction in consulting fees of $ 420,000. these reduced costs were partially offset by higher professional fees and expenses of approximately $ 222,000 ( primarily project engineering ( $ 138,000 ) and business development ( $ 165,000 ) consulting fees offset by lower audit and accounting fees of $ 81,000 ) , stock compensation expense of approximately $ 168,000 , higher legal fees of approximately $ 416,000 attributable to litigation , including a $ 220,000 accrual for arbitration awards , and approximately $ 25,000 in other overhead costs .
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we presently own twenty-seven ( 27 ) patents including ( i ) our remote power patent covering the delivery of power over ethernet cables for the purpose of remotely powering network devices , such as wireless access ports , ip phones and network based cameras ; ( ii ) our mirror worlds patent portfolio relating to foundational technologies that enable unified search and indexing , displaying and archiving of documents in a computer system ; ( iii ) our cox patent portfolio relating to enabling technology for identifying media content on the internet and taking further action to be performed based on such identification ; and ( iv ) our qos patents covering systems and methods for the transmission of audio , video and data in order to achieve high quality of service ( qos ) over computer and telephony networks . in addition , we continually review opportunities to acquire or license additional intellectual property . we have been actively engaged in the licensing of our remote power patent ( u.s. patent no . 6,218,930 ) . as of march 1 , 2016 , we have entered into twenty ( 20 ) license agreements with respect to our remote power patent which , among others , include license agreements with cisco systems , inc. , extreme networks , inc. , netgear , inc. , microsemi corporation , motorola solutions , inc. , nec corporation , samsung electronics co. , ltd. , huawei technologies co. , ltd and shoretel , inc. and several other major data networking equipment manufacturers . our current strategy includes continuing our licensing efforts with respect to our remote power patent and our efforts to monetize our cox patent portfolio and our mirror worlds patent portfolio which we acquired in 2013. in addition , we continue to seek to acquire additional intellectual property assets to develop , commercialize , license or otherwise monetize such intellectual property . our strategy includes working with inventors and patent owners to assist in the development and monetization of their patented technologies . we may also enter into strategic relationships with third parties to develop , commercialize , license or otherwise monetize their intellectual property . our acquisition strategy is to focus on acquiring high quality patents which management believes have the potential to generate significant licensing opportunities as we have achieved with respect to our remote power patent . our remote power patent generated licensing revenue in excess of $ 82,000,000 from may 2007 through december 31 , 2015 . 33 on february 28 , 2013 , as part of our acquisition strategy , we acquired from dr. ingemar cox , a technology leader in digital watermarking content identification , digital rights management and related technologies , four patents ( as well as a pending patent application ) for a purchase price of $ 1,000,000 in cash and 403,226 shares of our common stock . in addition , we are obligated to pay dr. cox 12.5 % of the net proceeds generated by us from licensing , sale or enforcement of the patents ( see note j [ 2 ] to our financial statements included in this annual report ) . since the acquisition of the cox patent portfolio in february 2013 we have been issued seven additional patents as part of the cox patent portfolio . on may 21 , 2013 , mirror worlds technologies , llc , our wholly-owned subsidiary , acquired the mirror worlds patent portfolio consisting of all of the patents previously owned by mirror worlds , llc ( which subsequently changed its name to looking glass llc ) including nine issued united states patents and five pending applications ( one of which was issued in november 2013 ) covering foundational technologies that enable unified search and indexing , displaying and archiving of documents in a computer system . the consideration we paid for the mirror worlds patent portfolio consisted of ( i ) $ 3,000,000 in cash , ( ii ) 5 - year warrants to purchase 875,0 0 0 shares of our common stock at an exercise price of $ 1.40 per share , and ( iii ) 5 - year warrants to purchase 875,000 shares of our common stock at an exercise price of $ 2.10 per share . as part of the acquisition we also entered into an agreement with recognition interface , llc ( `` recognition '' ) , an entity that financed the commercialization of the mirror worlds patent portfolio , pursuant to which we are obligated to pay recognition certain percentages ( ranging from 10 % -20 % ) of net proceeds at certain levels of net proceeds realized by us from the monetization of the mirror worlds patent portfolio ( see note h [ 2 ] to our financial statements included in this annual report ) . the validity of our remote power patent and certain patents within our mirror worlds patent portfolio and cox patent portfolio are currently being challenged in patent infringement litigation pending in the courts and proceedings at the uspto ( see `` legal proceedings '' on pages 25-28 of this annual report and below ) . if certain claims of our remote power patent are ultimately determined to be invalid , such a determination would have a material adverse effect on our business , financial condition and results of operations as our current revenue stream is largely dependent upon the continued validity of certain claims of our remote power patent . if certain of our patents within our mirror worlds patent portfolio or cox patent portfolio are ultimately determined to be invalid , such a determination could have a material adverse effect on our ability to grow our revenue and profits in the future . on may 22 , 2013 , through our wholly-owned subsidiary , mirror worlds technologies , llc , we initiated patent litigation against apple inc. , microsoft , inc. , hewlett-packard company , lenovo group ltd. , lenovo ( united states ) , inc. , dell , inc. , best buy co. , inc. , samsung electronics america , inc. and samsung telecommunications america l.l.c. story_separator_special_tag on july 24 , 2014 , the petitioners in the ipr proceeding each filed a notice of appeal of the patent board 's decision to the united states court of appeals for the federal circuit . on august 5 , 2015 , the united states court of appeals for the federal circuit affirmed the decision of the ptab in our favor rejecting a challenge to the patentability of our remote power patent . on february 16 , 2015 , sony corporation of america filed a petition for covered business method review ( cbm ) and a request for an ex parte reexamination with the uspto seeking to invalidate certain claims of our remote power patent . on april 3 , 2015 , the uspto issued an order granting sony 's request for an ex parte reexamination . on july 1 , 2015 , the ptab of the uspto issued a decision in our favor denying institution of the covered business method review and rejected sony 's challenge to the patentability of our remote power patent . on november 9 , 2015 , the uspto issued reexamination certificate c2 , rejecting sony 's challenge to the validity of our remote power patent . ( see `` legal proceedings '' at page 29 ) . during the year ended december 31 , 2015 , we wrote-off in full our investment of $ 576,000 in lifestreams technologies corporation ( see note d to our financial statements included in this annual report ) which has been included in general and administrative expenses in our consolidated statements of operations and comprehensive income for the year ended december 31 , 2015. our investment in lifestreams technologies corporation had a carrying value of $ 576,000 at december 31 , 2014. the carrying value of the investment was initially measured at cost and has been entirely written-off as of december 31 , 2015 to reflect management 's assessment of the fair value of the investment . at december 31 , 2015 , we had federal , state and local net operating loss carryforwards ( nols ) totaling approximately $ 19,603,000 expiring through 2029 , with a future tax benefit of approximately $ 6,819,000. at december 31 , 2015 and december 31 , 2014 , $ 4,958,000 and $ 4,743,000 , respectively , was recorded as deferred tax assets on our balance sheet . at each report date , management considers new evidence , both positive and negative , of its view of the future realization of deferred tax assets . based upon taxable income for the year ended december 31 , 2015 , we recorded a provision for income taxes of $ 1,729,000 which included a reduction to our deferred tax assets of $ 1,636,000. in addition , at december 31 , 2015 based upon additional taxable income to be realized in future years from pending legal proceedings and related license agreements , management determined that there was sufficient positive evidence to conclude that it was more likely than not that additional deferred taxes of approximately $ 1,851,000 were realizable . accordingly , after reducing the deferred tax asset by $ 1,636,000 based on the effective tax applied against 2015 taxable net income , this amount was offset by a reduction in our valuation allowance on our deferred tax assets resulting in a net deferred tax benefit of $ 215,000 recorded on our consolidated statement of operations . to the extent that we earn income in the future , the company will report income tax expense and such expense attributable to federal income taxes will reduce the tax asset reflected on the balance sheet . management will continue to evaluate the recoverability of the nol and adjust the deferred tax asset appropriately . utilization of nol credit carryforwards can be subject to a 36 substantial annual limitation due to ownership change limitations that could occur in the future , as required by section 382 of the internal revenue code of 1986 , as amended , as well as similar state provisions . the 2014 provision for income taxes includes an approximate $ 17,000 benefit arising from a reclassification adjustment for a previously unrealized loss on a security classified as available-for-sale and its realized loss in the year ended december 31 , 2014. the personal holding company ( `` phc '' ) rules under the internal revenue code impose a 20 % tax on a phc 's undistributed personal holding company income ( `` phc income '' , which means , in general , taxable income subject to certain adjustments ) . for a corporation to be classified as a phc , it must satisfy two tests : ( i ) that more than 50 % in value of its outstanding shares must be owned directly or indirectly by 5 or fewer individuals at anytime during the second half of the year ( after applying constructive ownership rules to attribute stock owned by entities to their beneficial owners and among certain family members and other related parties ) ( the `` ownership test '' ) and ( ii ) at least 60 % of its adjusted ordinary gross income for a taxable year consists of dividends , interest , royalties , annuities and rents ( the `` income test '' ) . during the second half of 2015 ( as well as prior years ) , we did not meet the ownership test . due to the significant number of shares held by our largest shareholders , we will continually assess our share ownership to determine whether it meets the ownership test . if the ownership test were met and the income generated by us were determined to constitute `` royalties '' within the meaning of the income test , we would constitute a phc and we would be subject to a 20 % tax on the amount of any phc income ( which can not be offset by nols ) that we do not distribute to our shareholders .
| results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 revenue . we had revenue of $ 16,565,000 for the year ended december 31 , 2015 ( `` 2015 '' ) as compared to revenue of $ 12,309,000 for the year ended december 31 , 2014 ( `` 2014 '' ) , which was related to revenue from our licensees pursuant to license agreements for our patents . the increase in revenue of $ 4,256,000 or 35 % for 2015 was due primarily to new licensees for our patent portfolios . revenue for 2014 includes $ 3,281,000 of revenue from cisco as a result of our audit of cisco for prior periods ( see note l to our financial statements in this annual report ) . exclusive of revenue from the cisco audit in 2014 , revenue from licensees for 2015 increased $ 7,537,000 or 84 % as compared to 2014 which was primarily due to four new licenses aggregating $ 6,440,000 of additional revenue and increased revenue from existing licensees for 2015. operating expenses . operating expenses for 2015 were $ 12,638,000 as compared to $ 9,586,000 for 2014. we had costs of revenue of $ 5,506,000 and $ 3,510,000 for 2015 and 2014 , respectively . included in the costs of revenue for 2015 were contingent legal fees and expenses of $ 4,564,000 payable to our patent litigation counsel ( see note h [ 1 ] to our financial statements included herein ) and $ 886,000 of incentive bonus compensation payable to our chairman and chief executive officer pursuant to his employment agreement ( see note i [ 1 ] to our financial statements included in this annual report ) . included in the costs of revenue for 2014 were contingent legal fees and expenses of $ 2,737,000 payable to our patent litigation counsel and $ 614,000 of incentive bonus compensation payable to our chairman and chief executive officer pursuant to his employment agreement .
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polymer segment sbcs are highly-engineered synthetic elastomers , which we invented and commercialized over 50 years ago . we developed the first unhydrogenated styrenic block copolymers ( “ usbc ” ) in 1964 and the first hydrogenated styrenic block copolymers ( “ hsbc ” ) in the late 1960s . our sbcs enhance the performance of numerous products by imparting greater flexibility , resilience , strength , durability , and processability , and are used in a wide range of applications , including adhesives , coatings , consumer and personal care products , sealants , lubricants , medical , packaging , automotive , paving , roofing , and footwear products . our polymers are typically formulated or compounded with other products to achieve improved , customer-specific performance characteristics in a variety of applications . we seek to maximize the value of our product portfolio by emphasizing complex or specialized polymers and innovations that yield higher margins than more commoditized products . we sometimes refer to these complex or specialized polymers or innovations as being more “ differentiated. ” we believe our sbc products offer many characteristics that help our customers drive towards their sustainability goals . among others , our sbcs may offer features such as greater recyclability , increased durability that reduces the costly need for maintenance and replacement , and alternatives to less environmentally friendly materials , such as pvcs . our usbc paving and roofing applications provide a sustainable alternative by increasing durability , which extend road and roof life . our products are also found in medical applications , personal care products such as disposable diapers , oil additives , gels , and various other consumer goods . our products are also used to impart tack and shear properties in a wide variety of adhesive products and to impart characteristics such as flexibility and durability in sealants and corrosion resistance in coatings . our hsbc offerings are often the more sustainable choice when compared to alternatives . among other features , our hsbcs can offer improved recyclability of polyethylene-terephthalate and polypropylene streams , and function as replacements for less sustainable alternatives such as pvc , mainly in medical applications . prior to the sale of our cariflex tm business , we produced cariflex isoprene rubber and isoprene rubber latex . our cariflex products are based on synthetic polyisoprene polymer and do not contain natural rubber latex or other natural rubber products making them an ideal substitute for natural rubber latex , particularly in applications with high purity requirements such as medical , healthcare , personal care , and food contact . cariflex is included in the results of operations through march 6 , 2020. on march 6 , 2020 , we completed the sale of our cariflex business to daelim industrial co , ltd. ( “ daelim ” ) . as part of the sale , we entered into a multi-year isoprene rubber supply agreement ( “ irsa ” ) with daelim . in accordance with the irsa , we will supply isoprene rubber to daelim for a period of five years , with an optional extension for an additional five years . as the irsa product sales are at cost , we deferred approximately $ 180.6 million of the aggregate purchase price for our cariflex business . the deferred income will be amortized into revenue as a non-cash transaction when the products are sold . see note 4 disposition and exit of business activities for further discussion of the irsa . chemical segment we manufacture and sell high value sustainable products primarily derived from pine wood pulping co-products . we refine and further upgrade two primary feedstocks , crude tall oil ( “ cto ” ) and crude sulfate turpentine ( “ cst ” ) , both of which are co-products of the wood pulping process , into value-added biobased specialty chemicals . we refine cto through a distillation process into four primary constituent fractions : tall oil fatty acids ( “ tofa ” ) ; tall oil rosin ( “ tor ” ) ; distilled tall oil ( “ dto ” ) ; and tall oil pitch . we further upgrade tofa and tor into derivatives such as dimer acids , polyamide resins , rosin 34 resins , dispersions , and disproportionated resins . we refine cst into terpene fractions , which can be further upgraded into specialty terpene resins . the various fractions and derivatives resulting from our cto and cst refining process provide for distinct functionalities and properties , determining their respective applications and end markets . we focus our resources on three product groups : adhesives , performance chemicals , and tires . within our product groups , our products are sold into a diverse range of submarkets , including packaging , tapes and labels , pavement marking , high performance tires , fuel additives , oilfield and mining , coatings , metalworking fluids and lubricants , inks , and flavor and fragrances , among others . while this business is based predominantly on the refining and upgrading of cto and cst , we have the capacity to use both hydrocarbon-based raw materials , such as alpha-methyl-styrene , rosins , and gum rosins where appropriate and , accordingly , are able to offer tailored solutions for our customers . recent developments and known trends our business is subject to a number of known risks and uncertainties , some of which are a result of recent developments . covid-19 pandemic . the continued global impact of covid-19 has resulted in various emergency measures to combat the spread of the virus . we continue to monitor the progression of the covid-19 pandemic on a daily basis , and we have a dedicated covid-19 crisis management team that meets regularly . the safety and well-being of our employees , stakeholders , and the communities in which we operate remains our primary concern . while our essential manufacturing plant and research and development laboratory personnel remain on-site , many of our other employees around the world are working remotely . story_separator_special_tag specifically , in periods of rising raw material costs , reported gross profit will be higher under fifo than under ecrc . conversely , in periods of declining raw material costs , reported gross profit will be lower under fifo than under ecrc . in recognition of the fact that the cost of raw materials affects our results of operations and the comparability of our results of operations , we provide the difference , or spread , between fifo and ecrc to arrive at our adjusted ebitda . international operations and currency fluctuations . we operate a geographically diverse business , serving customers in numerous countries from thirteen manufacturing facilities on three continents . our sales and production costs are mainly denominated in u.s. dollars , brazilian real , euro , japanese yen , swedish krona , and ntd . from time to time , we use hedging strategies to reduce our exposure to currency fluctuations . we generated our revenue from customers located in the following regions : replace_table_token_9_th seasonality . seasonal changes and weather conditions typically affect our sales of products in our paving , pavement markings , roofing , and construction applications , which generally results in higher sales volumes in the second and third quarters of the calendar year compared to the first and fourth quarters of the calendar year . sales for our other product applications tend to show relatively little seasonality . 36 kraton corporation consolidated statements of operations ( in thousands , except per share data ) replace_table_token_10_th story_separator_special_tag selected financial data for a reconciliation of u.s. gaap diluted earnings ( loss ) per share to adjusted diluted earnings per share . segment results polymer segment . our polymer segment is comprised of our sbcs and other engineered polymers business . chemical segment . our chemical segment is comprised of our pine-based specialty products business . 38 polymer segment replace_table_token_11_th ( 1 ) our cariflex revenue includes sales through march 6 , 2020. we continue to sell isoprene rubber to daelim under the irsa . sales under the irsa are transacted at cost . included in adjusted ebitda is the amortization of non-cash deferred income of $ 18.5 million for the year ended december 31 , 2020 , which represents revenue deferred until the products are sold under the irsa . ( 2 ) see item 6. selected financial data for a reconciliation of u.s. gaap operating income to non-gaap adjusted ebitda . ( 3 ) defined as adjusted ebitda as a percentage of revenue . year ended december 31 , 2020 compared to year ended december 31 , 2019 revenue for the polymer segment was $ 857.6 million for the year ended december 31 , 2020 compared to $ 1,053.0 million for the year ended december 31 , 2019. the decrease was due to lower sales volumes driven by the divestiture of our cariflex business in march 2020 and lower average sales prices resulting from lower raw material costs across all product lines . the positive effect from changes in currency exchange rates between the periods was $ 2.5 million . polymer segment sales volume % change year ended december 31 , 2020 performance products 2.2 % specialty polymers 5.2 % isoprene rubber 100.0 % subtotal 5.5 % cariflex ( 80.4 ) % total ( 1.4 ) % sales volumes were 291.8 kilotons for the year ended december 31 , 2020 , a decrease of 4.2 kilotons , or 1.4 % . the decrease is largely attributable to the divestiture of our cariflex business , partially offset by the commencement of the irsa during the first quarter of 2020. specialty polymers volumes increased 5.2 % primarily driven by demand recovery in asia . while we experienced the impacts of covid-19 during the first half of 2020 , the demand recovered during the second half of the year . the 2.2 % increase in performance products sales volumes was driven by higher sales into adhesives applications , as well as improved paving and roofing demand within north america . cost of goods sold was $ 627.3 million for the year ended december 31 , 2020 compared to $ 820.4 million for the year ended december 31 , 2019 , a decrease of $ 193.1 million , or 23.5 % . the decrease in cost of goods sold reflects lower volumes and fixed costs as a result of the divestiture of our cariflex business , lower average raw material costs , and lower maintenance and turnaround expense . additionally , the cost of consumed raw materials were lower , which has lower average costs on a fifo measurement basis of accounting . these impacts were partially offset by higher sales volumes in our specialty polymers and performance products product lines and the commencement of the irsa during the first quarter of 2020. additionally , changes in currency exchange rates between the periods resulted in a positive impact of $ 2.6 million . for the year ended december 31 , 2020 , the polymer segment operating income was $ 56.8 million compared to $ 57.3 million for the year ended december 31 , 2019. for the year ended december 31 , 2020 , the polymer segment generated adjusted ebitda ( non-gaap ) of $ 167.5 million compared to $ 188.2 million for the year ended december 31 , 2019. the decrease in adjusted ebitda ( non-gaap ) is mainly attributed to the divestiture of our cariflex business in march 2020 , in addition to the factors described above . however , 39 on a comparative basis , excluding the net impact of $ 44.3 million attributable to the disposition of our cariflex business , adjusted ebitda ( non-gaap ) would have been approximately 18.0 % higher for the year ended december 31 , 2020. the positive effect from changes in currency exchange rates between the periods was $ 5.1 million . see item 6. selected financial data for a reconciliation of u.s. gaap operating income to adjusted ebitda ( non-gaap ) .
| consolidated results year ended december 31 , 2020 compared to year ended december 31 , 2019 revenue was $ 1,563.2 million for the year ended december 31 , 2020 compared to $ 1,804.4 million for the year ended december 31 , 2019 , a decrease of $ 241.3 million , or 13.4 % . revenue for the polymer segment decreased $ 195.4 million , driven by lower sales volumes due to the divestiture of our cariflex business in march 2020. revenue for the chemical segment decreased $ 45.9 million . for additional information regarding the changes in revenue , see our segment disclosures below . cost of goods sold was $ 1,165.3 million for the year ended december 31 , 2020 compared to $ 1,390.0 million for the year ended december 31 , 2019 , a decrease of $ 224.7 million , or 16.2 % . cost of goods sold decreased $ 193.1 million for the polymer segment driven by lower volumes due to the divestiture of our cariflex business in march 2020. cost of goods sold for the chemical segment decreased $ 31.6 million . for additional information regarding the changes in cost of goods sold , see our segment disclosures below . selling , general , and administrative expenses were $ 161.9 million for the year ended december 31 , 2020 compared to $ 149.8 million for the year ended december 31 , 2019. the $ 12.1 million increase is primarily attributable to higher transaction , acquisition , and restructuring costs related to the divestiture of our cariflex business and higher employee related costs , partially offset by reduced fixed costs initiatives . 37 depreciation and amortization was $ 126.0 million for the year ended december 31 , 2020 compared to $ 136.2 million for the year ended december 31 , 2019. the decrease of $ 10.1 million was primarily attributable to the divestiture of our cariflex business .
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amortizable intangible assets the total gross story_separator_special_tag this document contains forward-looking statements , based on numerous assumptions and subject to risks and uncertainties , such as statements regarding sales , gross profit margin , stock-based compensation , capital expenditures , amortization or effective tax rates at any future time or for any future period . although the company believes that the forward-looking statements are reasonable , it does not and can not give any assurance that its beliefs and expectations will prove to be correct . many factors could significantly affect the company 's operations and cause the company 's actual results to be substantially different from the company 's expectations . see “ item 1a - risk factors. ” actual results might differ materially from results suggested by any forward-looking statements in this report . the company does not have an obligation to publicly update any forward-looking statements , whether as a result of the receipt of new information , the occurrence of future events or otherwise . the following is a discussion and analysis of the consolidated financial condition and results of operations , unless stated otherwise , for the company for the years ended december 31 , 2014 , 2013 and 2012 , and of certain factors that may affect the company 's prospective financial condition and results of operations . the following should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere herein . overview the company designs , manufactures and sells building construction products that are of high quality and performance , easy to use and cost-effective for customers . it operates in three business segments determined by geographic region ; north america , europe and asia/pacific . the north america segment sells both wood and concrete construction products and has been highly dependent on housing starts . the company has made efforts to be less dependent on new housing construction by expanding its line of concrete construction products . north america concrete construction product sales increased 20 % in 2014 from 2012 , partly due to recent acquisitions . the europe segment also sells both wood and concrete construction products and until recently relied primarily on wood construction products . europe concrete constructions products sales decreased slightly in 2014 from 2012 , primarily due the loss of sales from exiting the heavy-duty mechanical anchor market . the asia/pacific segment also sells both wood and concrete construction products with concrete construction product sales increasing over 91 % in 2014 from 2012 . this increase in concrete construction product sales was partly responsible for the segment reporting a profit for 2014. the asia/pacific segment , though growing year-over-year , is not significant to the company 's overall performance . the company continues to invest in its strategic initiatives , such as expanding its offering of concrete construction products , including specialty chemicals and wood construction products , particularly its truss plate and software offerings . in support of these initiatives , the company expects to hire additional personnel and commit additional resources in 2015. the company generally manufactures products and incurs costs in the areas where sales occur . therefore , for each of the company 's foreign operations the local currency is the functional currency and each foreign operation transacts primarily in its functional currency . the company does not currently plan to enter into foreign currency contracts to hedge its exposure to foreign exchange rates . the administrative & all other segment primarily includes expenses such as self-insured workers compensation claims costs for employees of the company 's venting business , which was sold in 2010 , stock-based compensation for certain members of management , interest expense , foreign exchange gains or losses and income tax expense , as well as income and expenses related 26 to real estate activities , such as rental income and depreciation expense on the company 's facility in vacaville , california , which the company has leased to a third party for a 10-year term expiring in august 2020. from 2012 to 2014 , net sales increased to $ 752.1 million from $ 656.2 million . the company had net income of $ 63.5 million for 2014 compared to net income of $ 41.9 million for 2012 . diluted net income per common share was $ 1.29 for 2014 compared to $ 0.87 for 2012 . income from operations increased to $ 99.3 million in 2014 from $ 61.7 million in 2012 . the increased net sales were primarily driven by increased building activity in 2014 compared to 2012. net sales net sales increased to $ 752.1 million in 2014 from $ 656.2 million in 2012 , reflecting improved economic conditions primarily in north america . segment net sales : ◦ north america — net sales increased to $ 613.8 million in 2014 from $ 522.9 million in 2012 with above average increases in the united states . the net sales increases in north america were mostly due to increases in unit sales volume in both wood and concrete construction products from increased building activity , and partly due to the acquisition of the tj® shear brace ( “ shear brace ” ) product line in february 2013 . ◦ europe — net sales increased to $ 123.2 million in 2014 from $ 122.5 million in 2012 , due to the effects of foreign currency translation , offset by the loss of net sales from exiting the heavy-duty mechanical anchor business in 2012 . ◦ asia/pacific — net sales increased to $ 15.1 million in 2014 from $ 10.8 million in 2012 partly due to new sales offices operating in new zealand , south africa and thailand and the expansion of the concrete construction product line . sales channels and products groups : ◦ net sales to contractor distributors and lumber dealers increased significantly in 2014 compared to 2012 . story_separator_special_tag see “ critical accounting policies and estimates — goodwill impairment testing . '' disposal of assets the company did not dispose of any material assets during 2014 compared to 2013 when the company realized a $ 2.8 million net loss on the liquidation of its irish subsidiary , partly offset by a $ 1.4 million gain on the sale of its carbonwrap product line . provision for income taxes the effective income tax rate in 2014 was 36.0 % , as compared to 37.5 % in 2013. the decrease in the effective income tax rate was due to increased manufacturing deductions for certain types of expenditures , a solar tax credit for installing solar panels at one of the company 's facilities , and reduced operating losses in 2014 in the europe and asia/pacific segments for which no tax benefit was recorded . based on current information and subject to future events and circumstances , the company estimates that its 2015 effective tax rate will be between 36 % and 38 % . 31 comparison of the years ended december 31 , 2013 and 2012 net sales increased 7.5 % to $ 705.3 million for 2013 from $ 656.2 million for 2012. the company had net income of $ 51.0 million for 2013 compared to net income of $ 41.9 million for 2012. diluted net income per common share was $ 1.05 for 2013 compared to diluted net income of $ 0.87 per common share for 2012. income from operations increased 32.0 % to $ 81.5 million in 2013 from $ 61.7 million in 2012. the following table shows the change in the company 's operations from 2012 to 2013 , and the increases or decreases for each category by segment . ( in thousands ) replace_table_token_10_th net sales the following table shows net sales by segment for the years ended december 31 , 2012 and 2013 : ( in thousands ) replace_table_token_11_th the following table shows segment net sales as percentages of total net sales for the years ended december 31 , 2012 and 2013 : replace_table_token_12_th segment net sales : ◦ north america — the 9.5 % increase in net sales accounted for all of the overall increase and resulted from increased sales volume , including from the acquisitions of fox industries and automatic stamping , while average prices for the year were down 2.3 % . 32 ◦ europe — the 3.9 % decrease in net sales resulted from the company exiting the heavy-duty mechanical anchor business , reduced sales volumes due to difficult economic conditions and a slight price decrease , partly offset by the acquisition of s & p clever . europe net sales were not materially affected by currency translations . ◦ asia/pacific — net sales in the asia/pacific segment , although relatively small , increased as the company expanded its presence in the region and with additional concrete construction product sales . asia/pacific net sales were not materially affected by currency translations . consolidated net sales channels and product groups : ◦ net sales to contractor distributors , dealer distributors and lumber dealers increased in 2013 , compared to 2012 , while net sales to home centers decreased , partly as a result of the loss of lowe 's as a customer in the second quarter of 2012. lowe 's accounted for $ 11.7 million in net sales in 2012 . ◦ excluding lowe 's , net sales to home centers decreased 4 % in 2013 , compared to 2012 , while net sales to the company 's largest customer decreased slightly in 2013 , compared to 2012 . ◦ wood construction product sales represented 85 % of total company sales in both 2013 and 2012 . ◦ concrete construction product sales represented 15 % of total company sales in both 2013 and 2012. gross profit the following table shows gross profit by segment for the years ended december 31 , 2012 and 2013 : ( in thousands ) replace_table_token_13_th the following table shows gross profit percentages by segment for the years ended december 31 , 2012 and 2013 : replace_table_token_14_th gross profit increased to $ 313.5 million in 2013 from $ 282.5 million in 2012. gross profit as a percentage of net sales increased to 44.5 % in 2013 from 43.0 % in 2012. north america — gross profit margin increased slightly to 46.7 % in 2013 from 46.5 % in 2012 , due to lower material costs as a percentage of sales . concrete construction product sales , which have a lower gross profit margin than wood construction product sales , were 13 % of north america sales in each of 2013 and 2012. europe — gross profit margin increased to 37.0 % in 2013 from 30.8 % in 2012 , as a result of decreases in all elements of costs of sales as a percentage of sales , primarily due to exiting the lower-margin heavy-duty mechanical anchor business in 2012 , which included $ 2.3 million in severance expense , $ 1.0 million loss on the liquidation of inventory and $ 0.2 million in accelerated depreciation expense . product mix — the gross profit margin differential between wood construction products and concrete construction products decreased from 17 % in 2012 to 13 % in 2013 , primarily due to reduced concrete construction product costs due to exiting the heavy-duty mechanical anchor business . research and development and engineering expense research and development and engineering expense increased 2.6 % to $ 36.8 million in 2013 from $ 35.9 million in 2012 , primarily due to increases of $ 5.2 million in personnel costs from hiring an in-house software development team , $ 0.9 million in cash profit sharing , $ 0.6 million in depreciation expense , $ 0.3 million in stock-based compensation and $ 0.3 million in communication and 33 computer expense , partly offset by a decrease of $ 6.4 million in professional fees that resulted from replacing a third-party development company contracted by the company in 2012 with an in-house software development team .
| results of operations the following table sets forth , for the years indicated , the percentage of net sales of specified items in the company 's consolidated statements of operations . replace_table_token_4_th comparison of the years ended december 31 , 2014 and 2013 net sales increased 6.6 % to $ 752.1 million for 2014 from $ 705.3 million for 2013 . the company had net income of $ 63.5 million for 2014 , compared to net income of $ 51.0 million for 2013 . diluted net income per common share was $ 1.29 for 2014 , compared to diluted net income of $ 1.05 per common share for 2013 . income from operations increased 21.8 % to $ 99.3 million in 2014 from $ 81.5 million in 2013 . the following table shows the change in the company 's operations from 2013 to 2014 , and the increases or decreases for each category by segment . ( in thousands ) replace_table_token_5_th 28 net sales the following table shows net sales by segment for the years ended december 31 , 2013 and 2014 : ( in thousands ) replace_table_token_6_th the following table shows segment net sales as percentages of total net sales for the years ended december 31 , 2013 and 2014 : replace_table_token_7_th segment net sales : ◦ north america - net sales increased 7.2 % in 2014 compared to 2013 , primarily due to increased unit sales volumes , while average prices for the year were down 0.6 % . ◦ europe - net sales increased 4.6 % in 2014 compared to 2013 , mostly due to increased unit sales volumes and the effects of foreign currency translations , partly offset by slightly lower average selling prices . however , sales growth has trended lower in the last two quarters of 2014 , consistent with declining economic activity in the region , and european currencies have weakened against the united states dollar .
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also , story_separator_special_tag ( dollars in thousands , except per share amounts ) overview we are a holding company and are engaged principally in : the manufacture and sale of cigarettes in the united states through our liggett group llc and vector tobacco inc. subsidiaries , the sale of electronic cigarettes in the united states through our zoom e-cigs llc subsidiary , and the real estate business through our new valley llc subsidiary , which is seeking to acquire additional operating companies and real estate properties . new valley owns 70.59 % of douglas elliman , which operates the largest residential brokerage company in the new york metropolitan area . all of our tobacco operations ' unit sales volume in 2014 , 2013 and 2012 was in the discount segment , which management believes has been the primary growth segment in the industry for over a decade . the significant discounting of premium cigarettes in recent years has led to brands , such as eve , that were traditionally considered premium brands to become more appropriately categorized as discount , following list price reductions . our tobacco subsidiaries ' cigarettes are produced in 117 combinations of length , style and packaging . liggett 's current brand portfolio includes : eagle 20 's — a brand positioned in the deep discount segment for long-term growth re-launched as a national brand in 2013 , pyramid — the industry 's first deep discount product with a brand identity re-launched in the second quarter of 2009 , grand prix — re-launched as a national brand in 2005 , liggett select — a leading brand in the deep discount category , eve — a leading brand of 120 millimeter cigarettes in the branded discount category , and usa and various partner brands and private label brands . in 1999 , liggett introduced liggett select , one of the leading brands in the deep discount category . liggett select represented 4.5 % in 2014 , 5.5 % in 2013 and 7.0 % in 2012 of liggett 's unit volume . in september 2005 , liggett repositioned grand prix to distributors and retailers nationwide . grand prix represented 5.6 % in 2014 , 7.2 % in 2013 and 9.6 % in 2012 of liggett 's unit volume . in april 2009 , liggett repositioned pyramid as a box-only brand with a new low price to specifically compete with brands which are priced at the lowest level of the deep discount segment . pyramid is now the largest seller in liggett 's family of brands with 61.1 % of liggett 's unit volume in 2014 , 65.5 % in 2013 and 62.7 % in 2012 . in january 2013 , liggett repackaged and relaunched eagle 20 's to distributors and retailers on a national basis . eagle 20 's is marketed to compete with brands positioned in the deep discount segment . eagle 20 's represented 13.4 % in 2014 and 6.6 % in 2013 of liggett 's unit volume . according to management science associates , liggett held a share of approximately 11.8 % of the overall discount market segment for 2014 compared to 11.6 % for 2013 and 12.1 % for 2012 . under the master settlement agreement ( “ msa ” ) reached in november 1998 with 46 states and various territories , the three largest cigarette manufacturers must make settlement payments to the states and territories based on how many cigarettes they sell annually . liggett , however , is not required to make any payments unless its market share exceeds 1.65 % of the u.s. cigarette market . additionally , vector tobacco has no payment obligation unless its market share exceeds approximately 0.28 % of the u.s. market . liggett 's and vector tobacco 's payments under the msa are based on each company 's incremental market share above the minimum threshold applicable to such company . we believe that our tobacco subsidiaries have gained a sustainable cost advantage over their competitors as a result of the settlement . the discount segment is a challenging marketplace , with consumers having less brand loyalty and placing greater emphasis on price . liggett 's competition is now divided into two segments . the first segment is made up of the three largest manufacturers of cigarettes in the united states , philip morris usa inc. , r.j. reynolds tobacco company , and lorillard tobacco company . the three largest manufacturers , while primarily premium cigarette based companies , also produce and sell discount cigarettes . the second segment of competition is comprised of a group of smaller manufacturers and importers , most of which sell deep discount cigarettes . our largest competitor in this segment is commonwealth brands , inc. ( a wholly-owned subsidiary of imperial tobacco plc ) . 33 recent developments liggett credit facility . on january 14 , 2015 , our subsidiaries , liggett group llc ( “ liggett ” ) and 100 maple llc ( “ maple ” ) , entered into a third amended and restated credit agreement ( the “ credit agreement ” ) , dated as of january 14 , 2015 , with wells fargo bank , national association ( “ wells fargo ” ) , as agent and lender . the credit agreement governs a $ 60,000 credit facility ( the “ credit facility ” ) that consists of a revolving credit facility of up to $ 60,000 borrowing capacity ( the “ revolver ” ) and a $ 3,600 term loan ( the “ term loan ” ) that is within the $ 60,000 commitment under the credit facility and reduces the amount available under the revolver . story_separator_special_tag 125 greenwich street . in august 2014 , new valley invested $ 7,308 for an approximate 78.5 % interest in nv greenwich llc . the investment in nv greenwich is a variable interest entity and new valley is the primary beneficiary . as a result of the consolidation of nv greenwich llc , new valley carries its investment at $ 9,308 and has non-controlling interest of $ 2,000 related to the investment . nv greenwich llc ultimately owns 13.3 % 125 greenwich jv llc . the joint venture plans to develop a residential condominium tower in lower manhattan . the investment in 125 greenwich jv llc is a variable interest entity ; however , nv greenwich llc is not the primary beneficiary . nv greenwich llc accounts for this investment under the equity method of accounting . nv greenwich llc 's maximum exposure to loss as a result of its investment in 125 greenwich street was $ 7,308 at december 31 , 2014 . 9040 sunset boulevard . in october 2014 , new valley invested $ 5,604 for an approximate 48.5 % interest in 9040 sunset boulevard . the joint venture plans to develop a hotel and condominium complex . the investment is a variable interest entity ; however , new valley is not the primary beneficiary . new valley accounts for this investment under the equity method of accounting . new valley 's maximum exposure to loss as a result of its investment in 9040 sunset boulevard was $ 5,604 at december 31 , 2014 . stock compensation . on july 23 , 2014 , we granted our president and chief executive officer an award of 1,050,000 shares of our common stock subject to performance-based vesting . the award shares will be issued pursuant to the terms of an agreement that provides that both a performance requirement and a continued employment requirement must be met over a seven -year performance period to earn vested rights with respect to the award shares . the maximum potential amount of the award shares reflects recognition of the ceo 's contributions as ceo since january 1 , 2006 and the value of his management and real estate expertise to us . we will expense the value of the grant of approximately $ 20,780 over an estimated seven -year period . recent developments in smoking-related litigation the cigarette industry continues to be challenged on numerous fronts . new cases continue to be commenced against liggett and other cigarette manufacturers . liggett could be subjected to substantial liabilities and bonding requirements from litigation relating to cigarette products . adverse litigation outcomes could have a negative impact on our ability to operate due to their impact on cash flows . we and our liggett subsidiary , as well as the entire cigarette industry , continue to be challenged on numerous fronts , particularly with respect to the engle progeny cases in florida . it is possible that there could be adverse developments in pending cases including the certification of additional class actions . an unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation . in addition , an unfavorable outcome in any tobacco-related litigation could have a material adverse effect on our consolidated financial position , results of operations or cash flows . liggett could face difficulties in obtaining a bond to stay execution of a judgment pending appeal . engle progeny settlement . on october 23 , 2013 , a settlement was reached between us and approximately 4,900 engle progeny plaintiffs and their counsel . pursuant to the terms of the settlement , liggett will pay a total of approximately $ 110,000 , with approximately $ 61,600 paid in a lump sum , which was paid in 2014 and the balance to be paid in installments over the next 14 years , with a cost of living adjustment beginning in year eight . we recorded a charge of $ 86,213 for the year ended december 31 , 2013 in connection with the proposed settlement . of this amount , $ 25,213 is related to certain payments discounted to their present value because the timing and amounts of such payments are fixed and determinable . the present value of the installment payments was computed using an 11 % annual discount rate . the installment payments total approximately $ 48,000 on an undiscounted basis . our future payments are estimated to be approximately $ 3,500 per annum though 2028 , with a cost of living adjustment in 2021. notwithstanding the comprehensive nature of the engle progeny settlement , approximately 320 plaintiffs did not participate in the settlement and , therefore , we and liggett may still be subject to periodic adverse judgments which could have a material adverse affect on the our consolidated financial position , results of operations and cash flows . critical accounting policies general . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , 35 disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses . significant estimates subject to material changes in the near term include impairment charges , inventory valuation , deferred tax assets , allowance for doubtful accounts , promotional accruals , sales returns and allowances , actuarial assumptions of pension plans , the estimated fair value of embedded derivative liabilities , settlement accruals , long-term investments and impairments , accounting for investments in equity securities , and litigation and defense costs . actual results could differ from those estimates . revenue recognition . revenues from sales of cigarettes and e-cigarettes are recognized upon the shipment of finished goods when title and risk of loss have passed to the customer , there is persuasive evidence of an arrangement , the sale price is determinable and collectibility is reasonably assured . we provide an allowance for expected sales returns , net of any related inventory cost recoveries .
| results of operations the following discussion provides an assessment of our results of operations , capital resources and liquidity and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report . the consolidated financial statements include the accounts of vgr holding , liggett , vector tobacco , liggett vector brands , new valley and other less significant subsidiaries . 38 our significant business segments were tobacco and real estate for the three years ended december 31 , 2014 , 2013 and 2012 and e-cigarette for the years ended december 31 , 2014 and 2013 . the tobacco segment consists of the manufacture and sale of cigarettes . the real estate segment includes the company 's investments in consolidated and non-consolidated real estate businesses . the e-cigarette segment consists of the manufacture and sale of our zoom e-cigarettes . as a result of the amount of operating losses of our e-cigarette business as of september 30 , 2014 , when compared to the remaining components of the company 's corporate and other segment , the company has reevaluated its operating segments and has separated the e-cigarette 's segment 's operations from the corporate and other segment for previously reported 2014 periods and from the tobacco segment for the previously reported 2013 periods . thus , prior period information has been recast to conform to the current presentation . this change did not have an impact to the company 's historical consolidated results . the accounting policies of the segments are the same as those described in the summary of significant accounting policies and can be found in note 1 to our consolidated financial statements . replace_table_token_4_th _ ( 1 ) operating income includes $ 1,419 of income from npm settlement and $ 2,475 of litigation settlement charges and judgment expense .
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the words “ may , ” “ believe , ” “ intend , ” “ will , ” “ anticipate , ” “ expect , ” “ estimate , ” “ project , ” “ future , ” “ plan , ” “ strategy , ” “ probable , ” “ possible , ” or “ continue , ” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters , often identify forward-looking statements . for these statements , deep well claims the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act of 1995. the forward-looking statements in this annual report include , among others , statements with respect to : ● our current business strategy ; ● our future financial position and projected costs ; ● our projected sources and uses of cash ; ● our plan for future development and operations , including the building of all-weather roads ; ● our drilling and testing plans ; ● our proposed plans for further thermal in-situ development or demonstration project or projects ; ● the sufficiency of our capital in order to execute our business plan ; ● our reserves and resources estimates ; ● the timing and sources of our future funding ; ● the quantity and value of our reserves ; ● the intent to issue a distribution to our shareholders ; ● our or our operator 's objectives and plans for our current sagd project ; ● our plans for development of our sawn lake properties ; ● production levels from our current sagd project ; ● costs of our current sagd project ; ● funding from the farmee to pay our costs for the current sagd project in connection with the farmout agreement ; 17 ● additional sources of funding from the farmout agreement ; ● funding from the farmee to cover our monthly operating expenses ; ● our access and availability to third-party infrastructure ; ● present and future production of our properties ; ● our ability to extend our remaining lease past its primary expiration date ; and ● expectations regarding the ability of our company and its subsidiaries to raise capital and to continually add to reserves through acquisitions and development . these forward-looking statements are based on the beliefs and expectations of our management and are subject to significant risks and uncertainties . if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize , actual results may differ materially from current expectations and projections . factors that could cause actual results to differ materially from those set forward in the forward-looking statements include , but are not limited to : ● changes in general business or economic conditions ; ● changes in governmental legislation or regulation that affect our business ; ● our ability to obtain necessary regulatory approvals and permits for the development of our properties , including obtaining the required water licenses from alberta environment to withdraw water for our thermal operations ; ● changes to the greenhouse gas reduction program and other environmental and climate change regulations which are adopted by provincial or federal governments of canada or which are being considered , which may also include cap and trade regimes , carbon taxes , increased efficiency standards , each of which could increase compliance costs and impose significant penalties for non-compliance ; ● increase in taxes and changes to existing legislation affecting governmental royalties or other governmental initiatives ; ● future marketing and transportation of our produced bitumen ; ● our ability to receive approvals from the aer for additional tests to further evaluate the wells on our lands ; ● our farmout agreement and joint operating agreements ; ● opposition to our regulatory requests by various third parties ; ● actions of aboriginals , environmental activists and other industrial disturbances ; ● the costs of environmental reclamation of our lands ; ● availability of labor or materials or increases in their costs ; ● the availability of sufficient capital to finance our business or development plans on terms satisfactory to us ; ● adverse weather conditions and natural disasters affecting access to our properties and well sites ; ● risks associated with increased insurance costs or unavailability of adequate coverage ; ● volatility in market prices for oil , bitumen , natural gas , diluent and natural gas liquids . a decline in oil prices could result in a downward revision of our future reserves and a ceiling test write-down of the carrying value of our oil sands properties , which could be substantial and could negatively impact our future net income and stockholders ' equity ; ● competition ; ● changes in labor , equipment and capital costs ; ● future acquisitions or strategic partnerships ; ● the risks and costs inherent in litigation ; ● imprecision in estimates of reserves , resources and recoverable quantities of oil , bitumen and natural gas ; ● product supply and demand ; ● changes and amendments in the canadian oil and gas evaluation handbook and or the petroleum resources management system to general disclosure of reserves and resources standards and specific annual reserves and resources disclosure requirements for reporting issuers with oil and gas activities ; ● future appraisal of potential bitumen , oil and gas properties may involve unprofitable efforts ; ● the ability to meet minimum level of requirements and obtain approval from alberta energy to continue our oil sands leases beyond their expiry dates ; ● the ability to pay future escalating oil sands lease rents on our continued leases ; ● changes in general business or economic conditions ; ● risks associated with the finding , determination , evaluation , assessment and measurement of bitumen , oil and gas deposits or reserves ; ● geological , technical , drilling and processing problems ; ● third party performance of obligations under contractual arrangements ; ● failure story_separator_special_tag the words “ may , ” “ believe , ” “ intend , ” “ will , ” “ anticipate , ” “ expect , ” “ estimate , ” “ project , ” “ future , ” “ plan , ” “ strategy , ” “ probable , ” “ possible , ” or “ continue , ” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters , often identify forward-looking statements . for these statements , deep well claims the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act of 1995. the forward-looking statements in this annual report include , among others , statements with respect to : ● our current business strategy ; ● our future financial position and projected costs ; ● our projected sources and uses of cash ; ● our plan for future development and operations , including the building of all-weather roads ; ● our drilling and testing plans ; ● our proposed plans for further thermal in-situ development or demonstration project or projects ; ● the sufficiency of our capital in order to execute our business plan ; ● our reserves and resources estimates ; ● the timing and sources of our future funding ; ● the quantity and value of our reserves ; ● the intent to issue a distribution to our shareholders ; ● our or our operator 's objectives and plans for our current sagd project ; ● our plans for development of our sawn lake properties ; ● production levels from our current sagd project ; ● costs of our current sagd project ; ● funding from the farmee to pay our costs for the current sagd project in connection with the farmout agreement ; 17 ● additional sources of funding from the farmout agreement ; ● funding from the farmee to cover our monthly operating expenses ; ● our access and availability to third-party infrastructure ; ● present and future production of our properties ; ● our ability to extend our remaining lease past its primary expiration date ; and ● expectations regarding the ability of our company and its subsidiaries to raise capital and to continually add to reserves through acquisitions and development . these forward-looking statements are based on the beliefs and expectations of our management and are subject to significant risks and uncertainties . if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize , actual results may differ materially from current expectations and projections . factors that could cause actual results to differ materially from those set forward in the forward-looking statements include , but are not limited to : ● changes in general business or economic conditions ; ● changes in governmental legislation or regulation that affect our business ; ● our ability to obtain necessary regulatory approvals and permits for the development of our properties , including obtaining the required water licenses from alberta environment to withdraw water for our thermal operations ; ● changes to the greenhouse gas reduction program and other environmental and climate change regulations which are adopted by provincial or federal governments of canada or which are being considered , which may also include cap and trade regimes , carbon taxes , increased efficiency standards , each of which could increase compliance costs and impose significant penalties for non-compliance ; ● increase in taxes and changes to existing legislation affecting governmental royalties or other governmental initiatives ; ● future marketing and transportation of our produced bitumen ; ● our ability to receive approvals from the aer for additional tests to further evaluate the wells on our lands ; ● our farmout agreement and joint operating agreements ; ● opposition to our regulatory requests by various third parties ; ● actions of aboriginals , environmental activists and other industrial disturbances ; ● the costs of environmental reclamation of our lands ; ● availability of labor or materials or increases in their costs ; ● the availability of sufficient capital to finance our business or development plans on terms satisfactory to us ; ● adverse weather conditions and natural disasters affecting access to our properties and well sites ; ● risks associated with increased insurance costs or unavailability of adequate coverage ; ● volatility in market prices for oil , bitumen , natural gas , diluent and natural gas liquids . a decline in oil prices could result in a downward revision of our future reserves and a ceiling test write-down of the carrying value of our oil sands properties , which could be substantial and could negatively impact our future net income and stockholders ' equity ; ● competition ; ● changes in labor , equipment and capital costs ; ● future acquisitions or strategic partnerships ; ● the risks and costs inherent in litigation ; ● imprecision in estimates of reserves , resources and recoverable quantities of oil , bitumen and natural gas ; ● product supply and demand ; ● changes and amendments in the canadian oil and gas evaluation handbook and or the petroleum resources management system to general disclosure of reserves and resources standards and specific annual reserves and resources disclosure requirements for reporting issuers with oil and gas activities ; ● future appraisal of potential bitumen , oil and gas properties may involve unprofitable efforts ; ● the ability to meet minimum level of requirements and obtain approval from alberta energy to continue our oil sands leases beyond their expiry dates ; ● the ability to pay future escalating oil sands lease rents on our continued leases ; ● changes in general business or economic conditions ; ● risks associated with the finding , determination , evaluation , assessment and measurement of bitumen , oil and gas deposits or reserves ; ● geological , technical , drilling and processing problems ; ● third party performance of obligations under contractual arrangements ; ● failure
| results of operations the following table sets forth summarized financial information : replace_table_token_4_th 15 there was no production volumes or revenues for the fiscal years ending september 30 , 2019 and 2018 , due to a majority of our company 's joint venture partners voting to temporarily suspend operations of the sagd project at the end of february 2016. in accordance with the farmout agreement we entered into on july 31 , 2013 , the farmee has agreed to provide up to $ 40,000,000 in funding for our portion of the costs for the sagd project in return for a net 25 % working interest in two oil sands leases where we had a working interest of 50 % before the execution of the farmout agreement . under the terms of the farmout agreement the farmee is required to provide funding to cover the monthly administrative expenses of our company provided that such funding shall not exceed $ 30,000 per month . the farmee shall continue to cover our company 's administrative costs up to $ 30,000 per month until completion in all substantial respects of the sagd project agreement entered into between the company and the operator of the sagd project . our net operating margin after operating expenses is zero , under the farmout agreement , any negative operating cash flows are reimbursed to us to fund our share of the sagd project . therefore , the total share of the capital costs and operating expenses of our company 's joint sagd project , has been funded in accordance with the farmout agreement , at a net cost to our company of $ nil .
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alcoa is a global company operating in 30 countries . based upon the country where the point of sale occurred , the u.s. and europe generated 51 % and 26 % , respectively , of alcoa 's sales in 2013. in addition , alcoa has investments and operating activities in , among others , australia , brazil , china , guinea , iceland , russia , and saudi arabia , all of which present opportunities for substantial growth . governmental policies , laws and regulations , and other economic factors , including inflation and fluctuations in foreign currency exchange rates and interest rates , affect the results of operations in these countries . management review of 2013 and outlook for the future in 2013 , growth in global aluminum demand reached 7 % , which was consistent with management 's projection at the end of 2012 ; however , lme pricing levels declined on average 9 % year-over-year . the continued weakness in the primary aluminum market led management to review existing high cost capacity for potential curtailment or shut down , resulting in 277 kmt of capacity taken offline in 2013 with another potential 183 kmt to be removed in 2014. additionally , from a nonoperational perspective , the outlook for the smelting operations led to two significant , unusual noncash negative impacts to alcoa 's results related to the impairment of goodwill and the potential future realizability of certain deferred tax assets . the company was able to more than offset cost headwinds with continued net productivity improvements across all operations . additionally , the midstream and downstream operations continue to grow revenue through share gains and innovation while generating significant profits for the company . management continued its focus on liquidity and cash flows generating incremental improvements in procurement efficiencies , overhead rationalization , working capital , and disciplined capital spending . these actions enabled alcoa to decrease debt while maintaining a stable level of cash on hand , resulting in a strengthened balance sheet . the following financial information reflects some key measures of alcoa 's 2013 results : sales of $ 23,032 and loss from continuing operations of $ 2,285 , or $ 2.14 per diluted share ; total segment after-tax operating income of $ 1,217 , of which 80 % was generated from the midstream and downstream operations ; cash from operations of $ 1,578 , reduced by pension contributions of $ 462 ; capital expenditures of $ 1,193 , under $ 1,500 for the fourth consecutive year ; cash on hand at the end of the year of $ 1,437 , in excess of $ 1,400 for the fifth consecutive year ; decrease in total debt of $ 510 , and a decline of $ 2,259 since 2008 ; and debt-to-capital ratio of 38.1 % . in 2014 , management is projecting continued growth ( increase of 7 % ) in the global consumption of primary aluminum , consistent with that of the last two years . all regions , except europe , are expected to have three-to-eight percent increases in aluminum demand over 2013 with china ( 10 % ) expected to have the highest growth rate in 2014. after considering forecasted added production , along with few industry-wide capacity curtailments , management anticipates a balanced aluminum market . for alumina , growth in global consumption is estimated to be 9 % , and supply is expected to slightly exceed overall demand due to new capacity in australia , saudi arabia , and india , combined with added production in china . management also anticipates improved market conditions for value-add products in the aerospace , building and construction , packaging , and automotive global end markets , despite declines in certain regions . aerospace is expected to be driven by large commercial aircraft , as well as strength in regional and business jets . as it relates to building and 51 construction , awarded nonresidential contracts are up in north america while the decline in europe is slowing down . the packaging market continues to see a conversion from steel cans to aluminum cans for existing products and the emergence of new products is increasing . for automotive , growth continues in both the u.s. , as automakers strive to meet stricter emissions regulations , and china , due to a higher percentage of the population driving automobiles . conversely , management expects a decline in the industrial gas turbine global end market due to pressure from low price coal in europe and rising gas prices in the u.s. in the commercial transportation global end market , growth in the u.s. , as orders and backlog have increased significantly , is expected to be offset by declines in europe , due to regulatory change in emissions requirements . on a company-wide basis , management has established and is committed to achieving the following specific goals in 2014 : generating incremental savings over those realized in the previous five years from procurement , overhead , and working capital programs ; generating positive cash flow from operations that will exceed capital spending ; and achieving a debt-to-capital ratio between 30 % and 35 % . looking ahead over the next one to three years , management will focus on new strategic targets that build on the ones established three years ago . previously , these targets included lowering alcoa 's refining and smelting operations on the cost curve to the 23rd ( from 30th ) and 41st ( from 51st ) percentiles , respectively , by 2015 and driving revenue growth , while improving margins that exceed historical levels , in the midstream ( increase of $ 2,500 ) and downstream ( increase of $ 1,600 ) operations by 2013. management made significant progress on the 2010 targets as described below . at december 31 , 2013 , alcoa 's refining operations were in the 27th percentile , a three-percentage point improvement , and smelting operations were in the 43rd percentile , an eight-percentage point improvement , on the respective cost curves . story_separator_special_tag the decisions on the soderberg lines for baie comeau and massena east are part of a 15-month review of 460 kmt of smelting capacity initiated by management in may 2013 for possible curtailment , while the decision on the fusina smelter is in addition to the capacity being reviewed . factors leading to all three decisions were in general focused on achieving sustained competitiveness and included , among others : lack of an economically viable , long-term power solution ( italy ) ; changed market fundamentals ; other existing idle capacity ; and restart costs . the remaining 183 kmt of smelting capacity subject to this review is expected to be completed during the first half of 2014 ( see primary metals in segment information below ) . as such , future restructuring charges may be recognized if the decision to shut down more capacity is made in 2014. in 2013 , exit costs related to these actions included $ 114 for the layoff of approximately 550 employees ( primary metals segment ) , including $ 83 in pension costs ; accelerated depreciation of $ 58 ( baie comeau ) and asset impairments 55 of $ 18 ( fusina and massena east ) representing the write-off of the remaining book value of all related properties , plants , and equipment ; and $ 55 in other exit costs . additionally in 2013 , remaining inventories , mostly operating supplies and raw materials , were written down to their net realizable value resulting in a charge of $ 9 ( $ 6 after-tax ) , which was recorded in cost of goods sold on the statement of consolidated operations . the other exit costs of $ 55 represent $ 48 in asset retirement obligations and $ 5 in environmental remediation , both triggered by the decisions to permanently shut down and demolish these structures , and $ 2 in other related costs . as of december 31 , 2013 , approximately 1,020 of the 1,660 employees were separated . the remaining separations for the 2013 restructuring programs are expected to be completed by the end of 2014. in 2013 , cash payments of $ 33 were made against layoff reserves related to the 2013 restructuring programs . 2012 actions . in 2012 , alcoa recorded restructuring and other charges of $ 172 ( $ 106 after-tax and noncontrolling interests ) , which were comprised of the following components : $ 85 ( $ 33 after-tax and noncontrolling interest ) related to the civil portion of a legal matter ; $ 47 ( $ 29 after-tax and noncontrolling interests ) for the layoff of approximately 800 employees ( 390 in the engineered products and solutions segment , 250 in the primary metals segment , 85 in the alumina segment , and 75 in corporate ) , including $ 10 ( $ 7 after-tax ) for the layoff of an additional 170 employees related to the previously reported smelter curtailments in spain ( see 2011 actions below ) ; $ 30 ( $ 30 after-tax ) in asset impairments and $ 6 ( $ 6 after-tax ) for lease and contract termination costs due to a decision to exit the lithographic sheet business in bohai , china ; $ 11 ( $ 11 after-tax ) in costs to idle the portovesme smelter ( see 2011 actions below ) ; $ 10 ( $ 8 after-tax ) in other asset impairments ; a net charge of $ 4 ( $ 4 after-tax and noncontrolling interests ) for other miscellaneous items ; and $ 21 ( $ 15 after-tax and noncontrolling interests ) for the reversal of a number of layoff reserves related to prior periods , including $ 10 ( $ 7 after-tax ) related to the smelters in spain . the reversal related to the smelters in spain is due to lower than expected costs based on agreements with employee representatives and the government , as well as a reduction of 55 in the number of layoffs due to the anticipation of the restart of a portion of the previously curtailed capacity based on an agreement with the spanish government that will provide interruptibility rights ( i.e . compensation for power interruptions when grids are overloaded ) to the smelters during 2013. a portion of this reversal relates to layoff costs recorded at the end of 2011 ( see 2011 actions below ) and a portion of this reversal relates to layoff costs recorded during 2012 ( see above ) . as of december 31 , 2013 , the separations associated with 2012 restructuring programs were essentially complete . in 2013 and 2012 , cash payments of $ 17 and $ 16 , respectively , were made against layoff reserves related to the 2012 restructuring programs . 2011 actions . in 2011 , alcoa recorded restructuring and other charges of $ 281 ( $ 181 after-tax and noncontrolling interests ) , which were comprised of the following components : $ 127 ( $ 82 after-tax ) in asset impairments and $ 36 ( $ 23 after-tax ) in other exit costs related to the permanent shutdown and planned demolition of certain idled structures at two u.s. locations ( see below ) ; $ 93 ( $ 68 after-tax and noncontrolling interests ) for the layoff of approximately 1,600 employees ( 820 in the primary metals segment , 470 in the global rolled products segment , 160 in the alumina segment , 20 in the engineered products and solutions segment , and 130 in corporate ) , including the effects of planned smelter curtailments ( see below ) ; $ 23 ( $ 12 after-tax and noncontrolling interests ) for other asset impairments , including the write-off of the carrying value of an idled structure in australia that processed spent pot lining and adjustments to the fair value of the one remaining foil location while it was classified as held for sale due to foreign currency movements ; $ 20 ( $ 8 after-tax and noncontrolling interests ) for a litigation matter related to the former st. croix location ; a net charge of $
| earnings summary loss from continuing operations attributable to alcoa for 2013 was $ 2,285 , or $ 2.14 per diluted share , compared with income from continuing operations attributable to alcoa of $ 191 , or $ 0.18 per share , in 2012. the decrease of $ 2,476 in the results from continuing operations was mostly due to an impairment of goodwill , a discrete income tax charge for valuation allowances on certain deferred tax assets , and charges for the resolution of a legal matter . other significant changes in the results from continuing operations included the following : lower realized prices for aluminum in the upstream and midstream businesses , higher input costs across three of the four segments , the absence of a gain on the sale of u.s. hydroelectric power assets , and restructuring and other charges related to the permanent shutdown of smelter capacity . these other changes were mostly offset by net productivity improvements , net favorable foreign currency movements , the absence of both a net charge for certain environmental remediation matters and a charge for the civil portion of a legal matter , and stronger volumes in three of the four segments . income from continuing operations attributable to alcoa for 2012 was $ 191 , or $ 0.18 per share , compared with $ 614 , or $ 0.55 per share , in 2011. the decline of $ 423 in the results from continuing operations was primarily due to the following : lower realized prices for aluminum and alumina , higher input costs , and charges for the civil portion of a legal matter and certain environmental remediation matters .
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a disagreement or a `` reportable event `` as described in items 304 ( a ) ( 1 ) ( iv ) and ( v ) , respectively , of regulation s-k. item 9a : controls and procedures evaluation of disclosure controls and procedures we intend to maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the securities exchange act of 1934 , as amended , is recorded , processed , summarized and reported within the specified time periods and accumulated and communicated to our management , including our chief executive officer ( `` principal executive officer `` ) and our chief financial officer ( `` principal financial officer `` ) , as appropriate , to allow timely decisions regarding required disclosure . our management , with the participation of our principal executive and financial officers , conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures ( as defined in rules 13a- 15 ( e ) and 15d- 15 ( e ) under the exchange act ) . based on this evaluation , our principal executive and financial officer concluded that , as of june 30 , 2017 , our disclosure controls and procedures were not effective , for the reasons discussed below , to ensure that information required to be disclosed by us in the reports we file or submit under the exchange act is ( i ) recorded , processed , summarized , and reported within the time periods specified in the sec rules and forms , and ( ii ) is accumulated and communicated to our management , including our principal executive and financial officers , as appropriate to allow timely decisions regarding required disclosure . management 's 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 ) under the exchange act ) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with gaap . due to 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 the risk that controls may become inadequate due to changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . under the supervision and with the participation of our management , including our principal executive and financial officers , we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the committee of sponsoring organizations of the treadway commission in internal control—integrated framework ( 2013 ) . in connection with our evaluation , we identified a material weakness in our internal control over financial reporting as of june 30 , 2017. a material weakness is a deficiency , or combination of deficiencies , that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner . the material weakness related to our company was due to not having the adequate personnel to address the reporting requirements of a public company and to fully analyze and account for our transactions . we do not believe that this material weakness has resulted in deficient financial reporting because we have worked through the year end close process performing additional review and analysis to assure compliance with accounting principles generally accepted in the united states ( `` gaap `` ) and sec reporting requirements . accordingly , while we identified a material weakness in our system of internal control over financial reporting as of june 30 , 2017 , we believe that we have taken reasonable steps to ascertain that the financial information contained in this report is in accordance with gaap . we are committed to remediating the control deficiencies that constitute the material weaknesses by implementing changes to story_separator_special_tag forward-looking statements statements made in this form 10-k which are not purely historical are forward-looking statements with respect to the goals , plan objectives , intentions , expectations , financial condition , results of operations , future performance and business of grow condos . such forward-looking statements include those that are preceded by , followed by or that include the words `` may '' , `` would '' , `` could '' , `` should '' , `` expects '' , `` projects '' , `` anticipates '' , `` believes '' , `` estimates '' , `` plans '' , `` intends '' , `` targets '' or similar expressions . forward-looking statements involve inherent risks and uncertainties , and important factors ( many of which are beyond our control ) that could cause actual results to differ materially from those set forth in the forward-looking statements , including the following : general economic or industry conditions nationally and or in the communities in which we conduct business ; legislation or regulatory requirements , including environmental requirements ; conditions of the securities markets ; competition ; our ability to raise capital ; changes in accounting principles , policies or guidelines ; financial or political instability ; acts of war or terrorism ; and other economic , competitive , governmental , regulatory and technical factors affecting our operations , products , services and prices . accordingly , results actually achieved may differ materially from expected results in these statements . forward- looking statements speak only as of the date they are made . grow condos does not undertake , and specifically disclaims , any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements . financial statements theconsolidated financial statements which are a part of this report are as of june 30 , story_separator_special_tag a disagreement or a `` reportable event `` as described in items 304 ( a ) ( 1 ) ( iv ) and ( v ) , respectively , of regulation s-k. item 9a : controls and procedures evaluation of disclosure controls and procedures we intend to maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the securities exchange act of 1934 , as amended , is recorded , processed , summarized and reported within the specified time periods and accumulated and communicated to our management , including our chief executive officer ( `` principal executive officer `` ) and our chief financial officer ( `` principal financial officer `` ) , as appropriate , to allow timely decisions regarding required disclosure . our management , with the participation of our principal executive and financial officers , conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures ( as defined in rules 13a- 15 ( e ) and 15d- 15 ( e ) under the exchange act ) . based on this evaluation , our principal executive and financial officer concluded that , as of june 30 , 2017 , our disclosure controls and procedures were not effective , for the reasons discussed below , to ensure that information required to be disclosed by us in the reports we file or submit under the exchange act is ( i ) recorded , processed , summarized , and reported within the time periods specified in the sec rules and forms , and ( ii ) is accumulated and communicated to our management , including our principal executive and financial officers , as appropriate to allow timely decisions regarding required disclosure . management 's 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 ) under the exchange act ) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with gaap . due to 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 the risk that controls may become inadequate due to changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . under the supervision and with the participation of our management , including our principal executive and financial officers , we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the committee of sponsoring organizations of the treadway commission in internal control—integrated framework ( 2013 ) . in connection with our evaluation , we identified a material weakness in our internal control over financial reporting as of june 30 , 2017. a material weakness is a deficiency , or combination of deficiencies , that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner . the material weakness related to our company was due to not having the adequate personnel to address the reporting requirements of a public company and to fully analyze and account for our transactions . we do not believe that this material weakness has resulted in deficient financial reporting because we have worked through the year end close process performing additional review and analysis to assure compliance with accounting principles generally accepted in the united states ( `` gaap `` ) and sec reporting requirements . accordingly , while we identified a material weakness in our system of internal control over financial reporting as of june 30 , 2017 , we believe that we have taken reasonable steps to ascertain that the financial information contained in this report is in accordance with gaap . we are committed to remediating the control deficiencies that constitute the material weaknesses by implementing changes to story_separator_special_tag forward-looking statements statements made in this form 10-k which are not purely historical are forward-looking statements with respect to the goals , plan objectives , intentions , expectations , financial condition , results of operations , future performance and business of grow condos . such forward-looking statements include those that are preceded by , followed by or that include the words `` may '' , `` would '' , `` could '' , `` should '' , `` expects '' , `` projects '' , `` anticipates '' , `` believes '' , `` estimates '' , `` plans '' , `` intends '' , `` targets '' or similar expressions . forward-looking statements involve inherent risks and uncertainties , and important factors ( many of which are beyond our control ) that could cause actual results to differ materially from those set forth in the forward-looking statements , including the following : general economic or industry conditions nationally and or in the communities in which we conduct business ; legislation or regulatory requirements , including environmental requirements ; conditions of the securities markets ; competition ; our ability to raise capital ; changes in accounting principles , policies or guidelines ; financial or political instability ; acts of war or terrorism ; and other economic , competitive , governmental , regulatory and technical factors affecting our operations , products , services and prices . accordingly , results actually achieved may differ materially from expected results in these statements . forward- looking statements speak only as of the date they are made . grow condos does not undertake , and specifically disclaims , any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements . financial statements theconsolidated financial statements which are a part of this report are as of june 30 ,
| results of operations revenues during the fiscal years ended june 30 , 2017 and 2016 , respectively we have recorded net revenues of $ 143,441 and $ 106,533 respectively . operating expenses our consolidated operating expenses for the fiscal years ended june 30 , 2017 and 2016 were as follows : replace_table_token_1_th our general and administrative expenses include rent , telephone , internet services , banking charges , salaries , stock based compensation , consulting fees and miscellaneous office costs . during the comparative fiscal years ended june 30 , 2017 and 2016 , the company experienced a substantial decrease in general and administrative expenses as a result of stock based compensation expense recorded in fiscal 2016 of $ 28,862,140 as compared to ( $ 5,936 ) during the current fiscal year . included in stock based compensation in the fiscal year ended june 30 , 2016 was $ 25,000,000 in compensation associated with the issuance of 5,000,000 preferred shares to directors as compensation , as well as an additional $ 3,862,140 in expenses recorded relative to shares issued for non-employee services , common shares issued to directors as compensation , and certain stock options granted . during fiscal 2017 , stock based compensation includes shares issued for non-employee services and certain shares issued to directors valued at $ 26,081 offset by the revaluation at time of vesting of an option issued to a consultant recorded in the prior fiscal year totaling $ 32,017 , resulting in a gain of $ 5,936. professional fees increased from $ 70,372 during fiscal 2016 to $ 137,214 in fiscal 2017 as the company was required to re-audit its fiscal 2016 results , and also reported increased legal fees year over year .
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forward-looking statements generally can be identified by the use of forward-looking terminology such as `` anticipate , '' `` believe , '' `` continue , '' `` estimate , '' `` expect , '' `` forecast , '' `` intend , '' `` may , '' `` plan , '' `` project , '' `` should , '' `` will , '' and other similar words or phrases , or the negative thereof , unless the context requires otherwise . these statements reflect management 's current views with respect to future events and are subject to risks and uncertainties , both known and unknown , including , but not limited to , those described in the `` risk factors '' section of this annual report . see also `` cautionary statement regarding forward-looking statements . '' our actual results may vary materially from those anticipated in forward-looking statements . we caution investors not to place undue reliance on any forward-looking statements . recent events on january 27 , 2017 , the company announced that its board of directors declared a $ 0.10 per share quarterly cash dividend on the outstanding common stock of the company payable on april 10 , 2017 to shareholders of record at the close of business on march 20 , 2017. overview we are one of the largest independent non-oem ( original equipment manufacturer ) aircraft parts designers and manufacturers of commercial aerostructures in the world , based on annual revenues , as well as the largest independent supplier of aerostructures to boeing . in addition , we are one of the largest independent suppliers of aerostructures to airbus . boeing and airbus are the two largest aircraft oems in the world . aerostructures are structural components , such as fuselages , propulsion systems and wing systems for commercial and military aircraft . for the twelve months ended december 31 , 2016 , we generated net revenues of $ 6,792.9 million and net income of $ 469.7 million . we are organized into three principal reporting segments : ( 1 ) fuselage systems , which includes forward , mid and rear fuselage sections , ( 2 ) propulsion systems , which includes nacelles , struts/pylons and engine structural components , and ( 3 ) wing systems , which includes wings , wing components , flight control surfaces and other miscellaneous structural parts . all other activities fall within the all other segment , principally made up of sundry sales of miscellaneous services , tooling contracts , and sales of natural gas through a tenancy-in-common with other companies that have operations in wichita , kansas . the fuselage systems segment manufactures products at our facilities in wichita , kansas and kinston , north carolina , with an assembly plant in saint-nazaire , france for the a350 xwb program . the propulsion systems segment manufactures products at our facility in wichita , kansas . the wing systems segment manufactures products at our facilities in tulsa and mcalester , oklahoma ; prestwick , scotland ; subang , malaysia ; and kinston , north carolina . fuselage systems , propulsion systems , wing systems and all other represented approximately 52 % , 26 % , 22 % and less than 1 % , respectively , of our net revenues for the twelve months ended december 31 , 2016. market trends the financial health of the commercial airline industry has a direct and significant effect on our commercial aircraft programs . the global industry is believed to have achieved a net profit in 2016 , which marked the seventh straight year of overall airline profit . 2017 is expected to continue the pattern of profitability , though the overall profit is forecasted to decline slightly relative to 2016. key drivers of airline profitability , and consequently , demand for commercial aircraft include airline passenger and cargo traffic trends . principal factors influencing traffic levels are economic growth and political stability . any significant downturn in global or regional economic stability , or exogenous shocks such as warfare , terrorism or a pandemic , could suppress traffic and negatively affect demand for our key customers ' products . demand for commercial aerostructures is driven by demand for new aircraft . the combined boeing and airbus backlogs have increased more than 80 % since december 2009. the year-end 2016 combined backlog was 12,589 aircraft . high backlog levels are expected to continue to drive increasing production forecasts in the near term from both boeing and airbus . management 's focus the company 's focus is on ensuring that our quality and operational and cost performance are world class . as part of our efforts to position the company for future success , we completed several key initiatives in 2016 by focusing on restructuring and reducing our internal costs , continued execution on the a350 program , and cash generation with disciplined cash deployment . 40 as we continue to position the company for future success , our focus in 2017 will revolve around executing our supply chain strategy , improving our productivity , and meeting our customers ' requirements for production rate changes . additionally , we will strive to become more innovative by investing in technology and automation . these investments will be aimed at reducing costs and allowing us to meet increasing production rates on many of our programs as well as ensuring we are remaining competitive for the next generation of aircraft . additionally , we will focus on positioning ourselves for growth within both the commercial and defense markets . considering the strong demand for commercial aircraft and the expected continued need for defense aircraft for the foreseeable future , both markets offer possibilities for growth . new and maturing programs we are currently performing work on several new and maturing programs , which are in various stages of development . story_separator_special_tag as part of the november 2014 moa , boeing and spirit established interim prices for certain b787 shipsets , and the parties agreed to negotiate future rate increases , recurring prices , and other issues across multiple programs during 2015. since we were unable to reach agreement with boeing on these issues by the end of 2015 , once the parties agree upon appropriate pricing for the b787-9 , boeing will be entitled to a retroactive adjustment on certain b787 payments which were based on the interim pricing . the amount we received that is subject to a retroactive adjustment was recorded as deferred revenue , and has not been recognized by us as revenue . we are engaged in discussions with boeing concerning how to determine the subsequent b787-9 and initial b787-10 prices , and have not yet reached agreement . our ability to successfully negotiate fair and equitable prices for these models as well as overall b787 delivery volumes and rate investments , and our ability to achieve forecasted cost improvements on all b787 models , are key factors in achieving the projected financial performance for this program . for b787-9 and b787-10 deliveries in our second b787 contract block , we have applied the applicable accounting guidance for unpriced change orders in estimating total block revenues which will be updated as part of the company 's estimate at completion process until the final pricing is negotiated . pending final price negotiations , we have estimated revenue for b787-9 and b787-10 deliveries to include assumptions around changes from the contract configuration baseline for each b787 model . see note 2 `` summary of significant accounting policies , '' for additional detail . boeing legacy programs on april 8 , 2014 , we entered into a memorandum of agreement with boeing that established pricing terms for the b737 , b747 , b767 and b777 programs for the period commencing on april 1 , 2014 and ending on december 31 , 2015 , under the company 's long-term supply contract with boeing covering products for such programs . the new pricing terms were not applied to the period prior to april 1 , 2014. the new prices do not apply to the 737 max , for which recurring pricing has not yet been agreed . since the parties have been unable to agree upon pricing on the b737 , b747 , b767 and b777 programs for the periods beyond 2015 , an interim payment mechanism has been triggered for deliveries under the supply contract commencing january 1 , 2016. this interim payment mechanism is based upon existing prices , adjusted using a quantity-based price adjustment formula and specified annual escalation . the interim payment mechanism is subject to adjustment when follow-on pricing is agreed upon . prices for commercial derivative models are to be negotiated in good faith by the parties based on then-prevailing market conditions . if the parties can not agree on price , then they must engage in dispute resolution pursuant to agreed-upon procedures . in february 2016 , spirit 's contract with boeing , which allowed spirit to manufacture and sell spare parts to parties other than boeing using boeing intellectual property , was not renewed . this contract was not a material component of our business . program inventory program inventory as a percentage of total assets was 28 % , 31 % and 34 % at december 31 , 2016 , 2015 and 2014 , respectively . the change in inventory in 2016 was primarily due to a decline in inventory for the a350 xwb program , primarily driven by an increase in the forward loss provision due to forward loss charges recognized during 2016. under the percentage-of-completion method of contract accounting , investments in new and maturing contracts , including contractual pre-production costs and recurring production costs in excess of the projected average cost to manufacture all units in the contract block , initially accumulate in inventory for the related contract . typically once production has reached a point where the cost to produce a shipset falls below such projected average cost , the inventory balance for such program begins to decrease . deferred inventory costs are evaluated for recoverability through their inclusion in the total costs used in the calculation of each contract block 's estimated profit margin . when the estimated total contract block costs exceed total estimated contract block revenues , a forward loss is recorded and an inventory reserve is established . divestiture of gulfstream g280 and g650 work packages in december 2014 , we entered into an agreement to transfer the gulfstream g280 and g650 wing work packages at our oklahoma facilities to triumph . spirit paid triumph $ 160.0 million in cash at closing of the transaction , which occurred on 42 december 30 , 2014. we continue to supply certain parts and services to triumph under a supply agreement entered into in connection with the transaction . basis of presentation the financial statements include spirit 's financial statements and the financial statements of its majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the united states of america . investments in business entities in which we do not have control , but have the ability to exercise influence over operating and financial policies , are accounted for by the equity method . our joint venture , taikoo spirit aerosystems composite co. ltd. ( `` tsaccl '' ) is accounted for by this method . kansas industrial energy supply company ( `` kiesc '' ) , a tenancy-in-common with other wichita companies established to purchase natural gas , is fully consolidated as spirit owns 77.8 % of the entity 's equity . all intercompany balances and transactions have been eliminated in consolidation . the company 's u.k. subsidiary uses local currency , the british pound , as its functional currency ; the malaysian subsidiary uses the british pound and our singapore subsidiary uses the singapore dollar . all other foreign subsidiaries and branches use the u.s. dollar as their functional currency .
| results of operations the following table sets forth , for the periods indicated , certain of our operating data : replace_table_token_4_th _ ( 1 ) see `` twelve months ended december 31 , 2016 as compared to twelve months ended december 31 , 2015 '' for detailed discussion of operating data . ( 2 ) see `` twelve months ended december 31 , 2015 as compared to twelve months ended december 31 , 2014 '' for detailed discussion of operating data . comparative shipset deliveries by model are as follows : replace_table_token_5_th _ 47 ( 1 ) third quarter 2016 a320 deliveries have been updated to include composite units . a320 deliveries were 135 and 427 for the three and nine month periods ended september 29 , 2016 , respectively . ( 2 ) airbus publicly announced reduction in a330 production rate . ( 3 ) in december 2014 , spirit divested the gulfstream g280 and g650 wing work packages to triumph . for purposes of measuring production or shipset deliveries for boeing aircraft in a given period , the term `` shipset '' refers to sets of structural fuselage components produced or delivered for one aircraft in such period . for purposes of measuring production or shipset deliveries for airbus and business/regional jet aircraft in a given period , the term `` shipset '' refers to all structural aircraft components produced or delivered for one aircraft in such period . for the purposes of measuring wing shipset deliveries , the term `` shipset '' refers to all wing components produced or delivered for one aircraft in such period . other components which are part of the same aircraft shipsets could be produced or shipped in earlier or later accounting periods than the components used to measure production or shipset deliveries , which may result in slight variations in production or delivery quantities of the various shipset components in any given period .
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the estimated fair value of receivables , prepaids and other , accounts payable and payable to licensor approximate their carrying amounts due to the relatively short maturity of these instruments . u.s. gaap defines fair value as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date . this guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value . the hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs . the three levels of inputs used to measure fair value are as follows : · level 1 – quoted prices in active markets for identical assets or liabilities . · level 2 – observable inputs other than quoted prices included in level 1 , such as quoted prices for similar assets and liabilities in active markets ; quoted prices for identical or similar assets and liabilities in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data . · level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities . this includes certain pricing models , discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs . f- 12 the guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . we have segregated all financial assets and liabilities that are measured at fair value on a recurring basis ( at least annually ) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below . financial assets and liabilities measured at fair value on a recurring basis as of december 31 , 2016 and december 31 , 2015 are summarized below : replace_table_token_16_th replace_table_token_17_th note 7 – stockholders ' equity 2016 financing on november 1 , 2016 , we closed an underwritten public offering of 6,000,000 shares of common stock , at a public offering price of $ 7.00 per share . on november 23 , 2016 , we closed a follow-on offering of 293,889 shares as permitted by the underwriting agreement at the same offering price of $ 7.00 per share . the gross proceeds to the company were $ 44,057,000 , before deducting the underwriting discounts and commissions and estimated offering expenses payable by the company . 2015 financing on july 31 , 2015 we closed an upsized $ 15.5 million direct placement of registered common stock with institutional investors , including soros fund management and perceptive life science fund , and two members of our board of directors . the financing was comprised of 2.83 million shares of our common stock at a price of $ 5.50 per share . during the second quarter we received additional financing of $ 4.6 million through warrant exercises of our $ 5.00 warrants . f- 13 on may 11 , 2015 we closed a $ 10 million private placement of common stock consisting of 1,250,000 shares of story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes included in this form 10-k. abeona therapeutics inc. ( together with our subsidiaries , “ we ” , “ our ” , “ abeona ” or the “ company ” ) is a delaware corporation . we are a clinical stage biopharmaceutical company developing gene therapies for life-threatening rare genetic diseases . our lead programs are abo-102 ( aav-sgsh ) and abo-101 ( aav-naglu ) , adeno-associated virus ( aav ) based gene therapies for sanfilippo syndrome ( mps iiia and iiib , respectively ) . we are also developing eb-101 ( gene-corrected skin grafts ) for recessive dystrophic epidermolysis bullosa ( rdeb ) , eb-201 for epidermolysis bullosa ( eb ) , abo-201 ( aav-cln3 ) gene therapy for juvenile batten disease ( jncl ) , abo-202 ( aav-cln1 ) gene therapy for treatment of infantile batten disease ( incl ) , and abo-301 ( aav-fancc ) for fanconi anemia ( fa ) disorder and abo-302 using a novel crispr/cas9-based gene editing approach to gene therapy for rare blood diseases . in addition , we have a plasma-based protein therapy platform , , using our proprietary sdf tm ( salt diafiltration ) ethanol-free process . story_separator_special_tag justify '' > we have devoted substantially all of our efforts and resources to research and development conducted on our own behalf . the following table summarizes research and development spending by project category , which spending includes , but is not limited to , payroll and personnel expense , lab supplies , preclinical expense , development cost , clinical trial expense , outside manufacturing expense and consulting expense : replace_table_token_2_th ( 1 ) cumulative spending from inception of the company or project through december 31 , 2016 . ( 2 ) includes other projects which the company is no longer focused . due to uncertainties and certain of the risk factors described above , including those relating to our ability to successfully commercialize our drug candidates , our ability to obtain necessary additional capital to fund operations in the future , our ability to successfully manufacture our products and our product candidates in clinical quantities or for commercial purposes , government regulation to which we are subject , the uncertainty associated with preclinical and clinical testing , intense competition that we face , market acceptance of our products and protection of our intellectual property , it is not possible to reliably predict story_separator_special_tag future spending or time to completion by project or product category or the period in which material net cash inflows from significant projects are expected to commence . if we are unable to timely complete a particular project , our research and development efforts could be delayed or reduced , our business could suffer depending on the significance of the project and we might need to raise additional capital to fund operations , as discussed in the risk factors above , including without limitation those relating to the uncertainty of the success of our research and development activities and our ability to obtain necessary additional capital to fund operations in the future . as discussed in such risk factors , delays in our research and development efforts and any inability to raise additional funds could cause us to eliminate one or more of our research and development programs . we plan to continue our policy of investing any available funds in certificates of deposit , money market funds , government securities and investment-grade interest-bearing securities . we do not invest in derivative financial instruments . we do not believe inflation or changing prices have had a material impact on our revenue or operating costs in the past three years . climate change we do not believe there is anything unique to our business which would result in climate change regulations having a disproportional effect on us as compared to u.s. industry overall . 33 critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period . in applying our accounting principles , we must often make individual estimates and assumptions regarding expected outcomes or uncertainties . as you might expect , the actual results or outcomes are often different than the estimated or assumed amounts . these differences are usually minor and are included in our consolidated financial statements as soon as they are known . our estimates , judgments and assumptions are continually evaluated based on available information and experience . because of the use of estimates inherent in the financial reporting process , actual results could differ from those estimates . receivables receivables are reported in the balance sheets at the outstanding amount net of an allowance for doubtful accounts . we continually evaluate the creditworthiness of our customers and their financial condition and generally do not require collateral . the allowance for doubtful accounts is based upon reviews of specific customer balances , historic losses , and general economic conditions . as of december 31 , 2016 and 2015 , no allowance was recorded as all accounts were considered collectible . licensed technology we maintain licensed technology on our consolidated balance sheet until either the licensed technology agreement underlying it is completed or the asset becomes impaired . when we determine that an asset has become impaired or we abandon a project , we write down the carrying value of the related intangible asset to its fair value and take an impairment charge in the period in which the impairment occurs . generally licensed technology is amortized over the life of the patent or the agreement . we test our intangible assets for impairment on an annual basis , or more frequently if indicators are present or changes in circumstance suggest that impairment may exist . events that could result in an impairment , or trigger an interim impairment assessment , include the receipt of additional clinical or nonclinical data regarding our drug candidate or a potentially competitive drug candidate , changes in the clinical development program for a drug candidate or new information regarding potential sales for the drug . in connection with each annual impairment assessment and any interim impairment assessment , we compare the fair value of the asset as of the date of the assessment with the carrying value of the asset on our consolidated balance sheet . in 2016 and 2015 , we did not impair any licensed technology . goodwill as of december 31 , 2016 , goodwill of $ 32.5 million was recorded on the company 's balance sheet . the implied fair value of goodwill represented the excess of the abeona ohio 's value over and above the fair value of its tangible assets and identifiable intangible assets . in accordance with accounting standards codification ( “ asc ” ) no . 350 — intangibles — goodwill and other , goodwill is not amortized , but is rather tested annually for impairment and whenever changes in circumstances occur that would indicate impairment . in 2016 and 2015 , we did not impair any goodwill . contingent consideration liability there was a contingent valuation on three milestones in connection with the acquisition of abeona ohio . per the merger agreement with abeona ohio , each milestone would consist of either cash , our stock or a combination of both , at the company 's election , equivalent to a stated dollar amount . the fair value of the probability of achieving all three milestones was initially estimated at $ 6,489,000. the first milestone of receiving ind allowance from the fda to initiate a phase 1 clinical study from mps iiia or mps iiib by november 15 , 2015 was not met . the company recognized $ 3,898,000 in miscellaneous income for change in fair value of our contingent consideration liability in 2015. the second milestone upon dosing of first-patient-in second phase i clinical study for mps iiia or mps iiib was not met . the third milestone upon earliest of ( i ) dosing of first-patient-in phase ii clinical study for mps iiia or mps iiib and ( ii ) receipt of international regulatory approval was not
| results of operations comparison of years ended december 31 , 2016 and december 31 , 2015 our licensing revenue for the years ended december 31 , 2016 and 2015 was $ 602,000. we recognize licensing revenue over the period of the performance obligation under our licensing agreements . we recorded royalty revenue for mugard of $ 287,000 for the year ended december 31 , 2016 and $ 438,000 for the same period of 2015 , a decrease of $ 151,000. we licensed mugard to amag and norgine and currently receive quarterly royalties under our agreements . total research and development spending for the year ended december 31 , 2016 was $ 10,655,000 , as compared to $ 4,715,000 for the same period of 2015 , an increase of $ 5,940,000. the increase in expenses was primarily due to : · increased development work for the manufactured product for abo-102 and other gene therapy products ( $ 2,999,000 ) ; · increased clinical costs for our clinical trial for abo-102 and preparation for other clinical trials ( $ 593,000 ) ; · increased salary and related costs ( $ 1,538,000 ) from the hiring of scientific staff ; · increased stock based compensation expense for granted stock options ( $ 454,000 ) ; and · other net increases in research spending ( $ 356,000 ) .
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the guidance clarifies how a principal market is determined , addresses the fair value measurement of instruments with offsetting market or counterparty credit risk and the concept of valuation premise and highest and best use , extends the prohibition of blockage factors to all three levels of the fair value hierarchy , and requires additional disclosures . this guidance is effective for interim and annual periods beginning after december 15 , 2011. differences in fair value measurement resulting from the application of the guidance will be recognized in income in the period of adoption as a change in estimate . disclosure requirements will be recognized prospectively . changes in valuation techniques and related inputs as a result of the application of the guidance in addition to an estimate of the total effect of the changes , if practicable , will be disclosed in the period of adoption . the application of this guidance is not expected to have a significant impact on the financial position , results of operations or cash flows of the company . in june 2011 , the fasb issued a standard that requires comprehensive story_separator_special_tag story_separator_special_tag text-align : justify '' > non-interest income remained level for 2011 compared to 2010. trust and investment management fees increased 16 % over the prior year period due to higher average assets under management resulting primarily from new client additions . fees on sales of investment products increased 8 % due to an increase in managed assets and higher sales of financial products while income from visa check transactions increased 9 % as the volume of such transactions continued to increase . these increases were largely offset by a decrease in insurance commissions of 11 % brought about by a change in the timing of the recognition of renewal premiums that was implemented in the first quarter of 2010. in addition , service charges on deposits declined 8 % as a result of the impact of recently enacted legislation on overdraft fees and income from mortgage banking activities decreased 12 % due primarily to lower accrued gains on mortgage commitments in 2011 compared to 2010. non-interest expenses increased 4 % compared to the prior year due largely to a 7 % increase in salaries and benefits expense . other non-interest expense increased 8 % due primarily to losses on sales of other real estate owned and loan work out expenses . non-performing assets decreased to $ 83.6 million at december 31 , 2011 compared to $ 97.7 million at december 31 , 2010. non-performing assets represented 2.25 % of total assets at december 31 , 2011 compared to 2.78 % at december 31 , 2010. the ratio of net charge-offs to average loans and leases was .66 % for 2011 , compared to 1.27 % for 2010. critical accounting policies the company 's consolidated financial statements are prepared in accordance with generally accepted accounting principles ( “ gaap ” ) in the united states of america and follow general practices within the banking industry . application of these principles requires management to make estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions , and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements may reflect different estimates , assumptions , and judgments . certain policies inherently rely to a greater extent on the use of estimates , assumptions , and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions , and judgments are necessary for assets and liabilities that are required to be recorded at fair value . a decline in the value of assets required to be recorded at fair value will warrant an impairment write-down or valuation allowance to be established . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources , when readily available . the following accounting policies comprise those policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results : · allowance for loan and lease losses ; · goodwill impairment ; · accounting for income taxes ; · fair value measurements , including assessment of other than temporary impairment ; · defined benefit pension plan . allowance for loan and lease losses the allowance for loan and lease losses is an estimate of the losses that are inherent in the loan and lease portfolio at the balance sheet date . the allowance is based on the basic principle that a loss be accrued when it is probable that the loss has occurred at the date of the financial statements and the amount of the loss can be reasonably estimated . management believes that the allowance is adequate . however , its determination requires significant judgment , and estimates of probable losses in the lending portfolio can vary significantly from the amounts actually observed . while management uses available information to recognize probable losses , future additions or reductions to the allowance may be necessary based on changes in the loans and leases comprising the portfolio and changes in the financial condition of borrowers , resulting from changes in economic conditions . in addition , various regulatory agencies , as an integral part of their examination process , and independent consultants engaged by the company periodically review the loan and lease portfolio and the allowance . such reviews may result in additional provisions based on their judgments of information available at the time of each examination . story_separator_special_tag with respect to its insurance reporting unit , the company elected to engage a third-party valuation firm to determine the fair value of this reporting unit to utilize in the “ step one ” test for potential goodwill impairment . the company and the valuation firm determined that a combination of the income approach and the market approach were most appropriate in valuing the fair value of this unit and determined that the “ step two test ” for impairment was not necessary . at december 31 , 2011 there was no evidence of impairment of goodwill or intangibles in any of the company 's reporting units . 24 other intangible assets represent purchased assets that a lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract , asset , or liability . other intangible assets have finite lives and are reviewed for impairment annually . these assets are amortized over their estimated useful lives on a straight-line basis over varying periods that initially did not exceed 15 years . accounting for income taxes the company accounts for income taxes by recording deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities . the judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws . if actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized , there can be no assurance that additional expenses will not be required in future periods . the company 's accounting policy follows the prescribed authoritative guidance that a minimal probability threshold of a tax position must be met before a financial statement benefit is recognized . the company recognized , when applicable , interest and penalties related to unrecognized tax benefits in other non-interest expenses in the consolidated statements of income ( loss ) . assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management 's analysis of tax regulations and interpretations . significant judgment may be involved in applying the applicable reporting and accounting requirements . management expects that the company 's adherence to the required accounting guidance may result in increased volatility in quarterly and annual effective income tax rates due to the requirement that any change in judgment or measurement of a tax position taken in a prior period be recognized as a discrete event in the period in which it occurs . factors that could impact management 's judgment include changes in income , tax laws and regulations , and tax planning strategies . fair value measurements the company measures certain financial assets and liabilities at fair value in accordance with applicable accounting standards . significant financial instruments measured at fair value on a recurring basis are investment securities available-for-sale , residential mortgages held for sale and commercial loan interest rate swap agreements . loans where it is probable that the company will not collect all principal and interest payments according to the contractual terms are considered impaired loans and are measured on a nonrecurring basis . the company conducts a quarterly review for all investment securities that have potential impairment to determine whether unrealized losses are other-than-temporary . valuations for the investment portfolio are determined using quoted market prices , where available . if quoted market prices are not available , valuations are based on pricing models , quotes for similar investment securities , and , where necessary , an income valuation approach based on the present value of expected cash flows . in addition , the company considers the financial condition of the issuer , the receipt of principal and interest according to the contractual terms and the intent and ability of the company to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value . the above accounting policies with respect to fair value are discussed in further detail in “ note 21-fair value ” to the consolidated financial statements . defined benefit pension plan the company has a qualified , noncontributory , defined benefit pension plan . the plan was frozen for existing entrants after december 31 , 2007 and all benefit accruals for employees were frozen as of december 31 , 2007 based on past service . future salary increases and additional years of service will no longer affect the defined benefit provided by the plan although additional vesting may continue to occur . several factors affect the net periodic benefit cost of the plan , including ( 1 ) the size and characteristics of the plan population , ( 2 ) the discount rate , ( 3 ) the expected long-term rate of return on plan assets and ( 4 ) other actuarial assumptions . pension cost is directly related to the number of employees covered by the plan and other factors including salary , age , years of employment , and the terms of the plan . as a result of the plan freeze , the characteristics of the plan population should not have a materially different effect in future years . the discount rate is used to determine the present value of future benefit obligations . the discount rate is determined by matching the expected cash flows of the plan to a yield curve based on long term , high quality fixed income debt instruments available as of the measurement date , which is december 31 of each year . the discount rate is adjusted each year on the measurement date to reflect current market conditions .
| overview net income for the sandy spring bancorp , inc. and subsidiaries ( the “ company ” ) for the year ended december 31 , 2011 totaled $ 34.1 million ( $ 1.41 per diluted share ) , compared to net income of $ 23.5 million ( $ 1.05 per diluted share ) for the prior year . these results reflect the following events : · the provision for loan and lease losses was a charge of $ 1.4 million for 2011 compared to a charge of $ 25.9 million for 2010. this declining trend was due mainly to a continuing lower level of historical net charge-offs , which is a principal component in the application of the company 's allowance methodology , together with a decline in non-performing assets . · average deposits for the year ended december 31 , 2011 remained level compared to the prior year , reflecting an 11 % increase in noninterest-bearing deposits that was offset by a 3 % decrease in interest-bearing deposits compared to 2010. deposit balances at december 31 , 2011 increased 4 % compared to the prior year end . this increase was driven mainly by a 15 % increase in noninterest-bearing deposits . · average total loans for the year ended december 31 , 2011 declined 3 % compared to the prior year due largely to decreases in commercial business and consumer loans . however , total loans at december 31 , 2011 increased 4 % compared to the balance at december 31 , 2010. this improvement , which occurred late in 2011 , was driven primarily by growth in all commercial loan lines and residential mortgage loans and was partially offset by a decline in consumer loans . · net interest income decreased 2 % in 2011 compared to the prior year .
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the company 's 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 form 10-k , particularly under the headings “ risk factors ” and “ forward looking statements. ” introduction the company provides credit protection products to the u.s. and international public finance ( including infrastructure ) and structured finance markets . the company applies its credit underwriting judgment , risk management skills and capital markets experience to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments . if an obligor defaults on a scheduled payment due on an obligation , including a scheduled principal or interest payment ( “ debt service ” ) , the company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation . obligations insured by the company include bonds issued by u.s. state or municipal governmental authorities ; notes issued to finance international infrastructure projects ; and asset-backed securities issued by special purpose entities . the company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations . the company guarantees obligations issued principally in the u.s. and the u.k. the company also guarantees obligations issued in other countries and regions , including australia and western europe . executive summary this executive summary of management 's discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this annual report . for a more detailed description of events , trends and uncertainties , as well as the capital , liquidity , credit , operational and market risks and the critical accounting policies and estimates affecting the company , this annual report should be read in its entirety . economic environment business conditions have been difficult for the entire financial guaranty insurance industry since mid-2007 , and the industry continues to face challenges in maintaining its market penetration . after a number of years in which assured guaranty was essentially the only active financial guarantor , a second monoline guarantor insured a number of small and medium-size issuances in 2013. the company believes that the presence of a new financial guaranty insurer led to marginally higher overall insurance penetration of the u.s. municipal bond market while also displacing the company in certain insured transactions . the overall economic environment in the u.s. has consistently , albeit slowly , recovered over the last few years in a volatile market environment . indicators such as lower mortgage delinquency rates and increasing housing prices reflected gradual improvement in the housing market . notably , the stock market rose to record levels during 2013. still , unemployment rates remained relatively high , leading the federal reserve to maintain its program of quantitative easing to keep interest rates low and stimulate economic activity . although the federal reserve began to taper its quantitative easing program in december 2013 , management expects the federal reserve to do so at a measured pace and to employ conventional methods to maintain a low interest environment until it considers the unemployment problem addressed . a persistently low interest rate environment would continue to present challenges for the financial guaranty industry but could help stabilize municipal issuance volume following a 15 % decline in new issuances in 2013. although few municipalities have fully rebuilt reserves to pre-recession levels , most have been taking steps to address the ongoing fiscal challenges they have experienced since the global credit crisis of 2008 and the ensuing recession . this includes , in many cases , significant unfunded pension and retiree healthcare liabilities . revenues at the state level have been rebounding in general , and while the strength of the housing recovery varies from region to region , property tax and other revenues have stabilized for most local governments . although municipal defaults remain rare , a small number of municipal credits have sought , though not always obtained , bankruptcy protection . 72 municipal bankruptcy is an area of law that is relatively undeveloped due to the relatively low frequency of such cases . the company has been active in efforts to resolve municipal bankruptcy cases involving jefferson county , alabama and the cities of stockton , california , and detroit , michigan . it has also been closely monitoring legal proceedings in other municipal bankruptcy cases in various states . in the cases of jefferson county and stockton , as well as the receivership of harrisburg , pennsylvania , final or preliminary settlements have been reached . the publicity surrounding high-profile defaults and bankruptcy filings , especially those few where bond insurers are paying claims , provides evidence of the value of bond insurance ; the company believes this may stimulate demand for its product , especially at the retail level . the company is also closely following developments in the commonwealth of puerto rico , which has significant economic challenges . although recent announcements and actions by the current governor and his administration indicate officials of the commonwealth are focused on measures that are intended to help puerto rico operate within its financial resources and maintain its access to capital markets , puerto rico faces high debt levels , a declining population and an economy that has been in recession since 2006. for additional information on the company 's exposure to puerto rico , please refer to `` insured portfolio– exposure to puerto rico '' below . although annual new-money issuance volume in the u.s. public finance market changed little from 2012 to 2013 , total new issue volume decreased in 2013 because refunding volume decreased approximately 30 % . additionally , the political appetite for incurring new debt was constrained as municipal budgets are still in a recovery mode from the financial recession . story_separator_special_tag net income for 2013 increased to $ 808 million from $ 110 million in 2012 due primarily to unrealized gains on credit derivatives , compared to unrealized losses in 2012 , lower loss and loss adjustment expenses and higher fg vie gains . the unrealized gains on credit derivatives for 2013 were due to the termination of two large policies , the run-off of par outstanding and underlying asset price appreciation , while in 2012 , the unrealized losses were due to the decline in the credit spreads on agc and agm . in 2013 , the fg vie gains were the result of r & w benefits on several vie assets as a result of settlements with various counterparties during the year . the decline in loss and loss adjustment expenses is due to lower u.s. rmbs losses and lower non-u.s. public finance losses ( 2012 included losses on european exposures ) , partially offset by u.s. public finance losses . net earned premiums in 2013 declined compared to 2012 due to the scheduled amortization of the insured portfolio . operating income and adjusted book value in 2013 , operating income , a non-gaap financial measure , was $ 609 million , compared with $ 535 million in 2012. the increase in operating income was primarily due to lower loss expense . as of december 31 , 2013 , adjusted book value and adjusted book value per share , both of which are non-gaap financial measures , were $ 9.0 billion and $ 49.58 , respectively , compared to $ 9.2 billion and $ 47.17 as of december 31 , 2012. share repurchases in 2013 reduced adjusted book value , but increased adjusted book value per share by $ 1.84. see note 19 , shareholders ' equity , of the financial statements and 74 supplementary data for additional detail about the common shares that the company has repurchased in 2013 and see `` –non-gaap financial measures '' below for a description of these non-gaap financial measures . key business strategies in 2013 , the company 's key business strategies were comprised of : loss mitigation ; new business development ; and the development of a strategy to manage capital more efficiently within the assured guaranty group . loss mitigation the company continued its risk remediation strategies in 2013 , which lowered losses and improved its rating agency capital position . the company believes that it is often in a better position to manage the risks in its insured portfolio and to mitigate losses from troubled credits than a bondholder or security holder would be , due to its knowledge about the terms of the insured transactions , its surveillance and workout resources and , in some instances , the remedies available to it as an insurer . in an effort to recover losses the company experienced in its insured u.s. rmbs portfolio , the company pursues r & w providers by enforcing r & w provisions in contracts , negotiating agreements with r & w providers relating to those provisions and , where appropriate , initiating litigation against r & w providers . see note 6 , expected loss to be paid , of the financial statements and supplementary data , for a discussion of the r & w settlements the company has entered into and the litigation proceedings the company has initiated against r & w providers and other parties . in 2013 , the company entered into several rmbs settlements that contributed $ 289 million to the r & w development . the company 's loss mitigation efforts in respect of its u.s. rmbs exposure over the past several years have resulted in r & w providers paying or agreeing to pay , pursuant to settlement agreements and or following favorable court decisions , an aggregate of $ 3.6 billion ( gross of reinsurance ) in respect of r & w . the company believes these results are significant and will enable it to pursue more effectively r & w providers for u.s. rmbs transactions it has insured . in addition , the company has been focused on the quality of servicing of the mortgage loans underlying its insured rmbs transactions . servicing influences collateral performance and ultimately the amount ( if any ) of the company 's insured losses . the company has established a group to mitigate rmbs losses by influencing mortgage servicing , including , if possible , causing the transfer of servicing or establishing special servicing arrangements . “ special servicing ” is an industry term referencing more intense servicing applied to delinquent loans aimed at mitigating losses ; special servicing arrangements provide incentives to a servicer to achieve better performance on the mortgage loans it services . as of december 31 , 2013 , the company 's net insured par of the transactions subject to a servicing transfer was $ 2.3 billion and the net insured par of the transactions subject to a special servicing arrangement was $ 843 million . in the public finance and infrastructure finance arena , the company has been able to negotiate consensual restructurings with various obligors . during 2013 , the company reached agreements with respect to its exposures to mashantucket pequot tribe ; jefferson county , alabama ; stockton , california and harrisburg , pennsylvania . the agreement with respect to stockton , california is still subject to bankruptcy court approval . in connection with the jefferson county and harrisburg settlements , the company insured new revenue bonds for both municipalities , and the premium it was paid was included as part of the 2013 pvp below . see “ selected u.s. public finance transactions ” in note 6 , expected loss to be paid , of the financial statements and supplementary data , for a discussion of the respective arrangements reached . the company is also continuing to purchase attractively priced big obligations that it has insured .
| consolidated cash flow summary replace_table_token_59_th claims paid on consolidated fg vies are presented in the consolidated cash flow statements as a component of paydowns on fg vie liabilities in financing activities as opposed to operating activities . excluding consolidated fg vies , cash inflows from operating activities in 2013 compared to cash outflows for 2012 were mainly due to lower claim payments ( net of r & w recoveries ) , partially offset by lower premiums due to lower business production and higher taxes in 2013. excluding consolidated fg vies , cash outflows from operating activities for 2012 compared to cash inflows for 2011 were mainly due higher net claim payments in 2012 , offset in part by cash received on two commutations of $ 190 million . losses 119 paid in 2012 include claims related to greek sovereign exposures . cash inflows from operating activities in 2011 were due mainly to cash proceeds received from the company 's settlement agreement with bank of america . investing activities were primarily net sales ( purchases ) of fixed-maturity and short-term investment securities . investing cash flows in 2013 , 2012 and 2011 include inflows of $ 663 million , $ 545 million and $ 760 million for fg vies , respectively . the 2013 amount also include proceeds from sales of third party surplus notes and other invested assets . in 2012 the company paid $ 91 million to acquire mac and received $ 56 million from a payment of a note receivable . financing activities consisted primarily of paydowns of fg vie liabilities . financing cash flows in 2013 , 2012 and 2011 include outflows of $ 511 million , $ 724 million and $ 1,053 million for fg vies , respectively .
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in 2016 , operating ebitda decreased by 21 % to $ 185.7 million from $ 234.0 million in 2015 , primarily as a result of lower pulp sales realizations and sales volumes , only being partially offset by lower fiber prices and the reversal of wastewater fee accruals at our german mills . sensitivities our earnings are sensitive to , among other things , fluctuations in : nbsk pulp price . nbsk pulp is a global commodity that is priced in dollars , whose markets are highly competitive and cyclical in nature . as a result , our earnings are sensitive to nbsk pulp price changes . based upon our 2017 sales volume ( and assuming all other factors remained constant ) , each $ 10.00 per tonne change in nbsk list pulp prices yields a change in operating ebitda of approximately $ 12.0 million . lumber price . lumber pricing is priced in markets which are highly competitive and cyclical in nature . as a result , our earnings are sensitive to lumber price changes . based upon our 2017 sales volume , and adjusting for the friesau facility operating for a full year and assuming all other factors remained constant , each $ 10.00 per mfbm change in lumber price yields a change in operating ebitda of approximately $ 4.0 million . fiber price . our main raw material is fiber in the form of wood chips , pulp logs and sawlogs . fiber is a commodity and both prices and supply are cyclical . as a result , our operating costs are sensitive to fiber price changes . for our pulp segment , based upon our 2017 fiber costs , and assuming all other factors ( 73 ) remained constant , each 1 % change in per unit fiber price yields a change in annual operating costs of approximately $ 4.0 million . for our wood products segment , based upon our 2017 fiber costs , adjusting for the friesau facility operating for a full year and assuming all other factors remained constant , each 1 % change in per unit fiber price yields a change in annual operating costs of approximately $ 1.0 million . foreign exchange . our operating costs are in euros for our german mills and canadian dollars for our celgar mill . as a result , our operating costs will fluctuate with changes in the value of the dollar relative to the euro and canadian dollar . based on our 2017 operating costs , and adjusting for the friesau facility operating for a full year , each $ 0.01 change in the value of the dollar relative to the euro and the canadian dollar yields a total change in annual operating costs of approximately $ 10.0 million . our european lumber , energy and chemical sales are made in local currencies and , as a result , decline in dollar terms when the dollar strengthens . based on our 2017 lumber , energy and chemical revenues , and adjusting for the friesau facility operating for a full year , each $ 0.01 change in the value of the dollar relative to the euro and the canadian dollar yields a total change in lumber , energy and chemical revenues of approximately $ 2.0 million . the above sensitivity analysis provides only a limited point-in-time view of the nbsk pulp price , lumber price , fiber price and foreign exchange rates discussed . the actual impact of the underlying price and rate changes may differ materially from that shown in the sensitivity analysis . seasonal influences . we are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors . these factors are common in the nbsk pulp and lumber industries . we generally have weaker pulp demand in europe during the summer holiday months and in china in the period relating to its lunar new year . we typically have a seasonal build-up in raw material inventories in the early winter months as the mills build up their fiber supply for the winter when there is reduced availability . liquidity and capital resources summary of cash flows replace_table_token_21_th ( 1 ) includes cash from issuance of 2024 senior notes and 2026 senior notes of $ 550.0 million , less note issuance costs of $ 11.6 million , and redemption of senior notes of $ 234.9 million in 2017. excluding such note issuances and redemptions , cash used in financing activities was $ 14.7 million . ( 2 ) includes proceeds from $ 300.0 million of 2026 senior notes issued in december 2017 which were used to redeem , on january 5 , 2018 , $ 300.0 million of 2022 senior notes . excluding the redemption , the net increase was $ 2.4 million . we operate in a cyclical industry and our operating cash flows vary accordingly . our principal operating cash expenditures are for labor , fiber , chemicals and debt service . working capital levels fluctuate throughout the year and are affected by maintenance downtime , changing sales patterns , seasonality and the timing of receivables and the payment of payables and ( 74 ) expenses . generally , finished goods inventories are increased prior to scheduled maintenance downtime to maintain sales volume while production is stopped . our fiber inventories exhibit seasonal swings as we increase pulp log , sawlog and wood chip inventories to ensure adequate supply of fiber to our mills during the winter months . changes in sales volume can affect the level of receivables and influence overall working capital levels . we believe our management practices with respect to working capital conform to common business practices . cash flows from operating activities cash from operations includes : cash received from customers ; cash paid to employees and suppliers ; cash paid for interest on our debt ; and cash paid or received for taxes . cash provided by operating activities in 2017 was story_separator_special_tag in 2016 , operating ebitda decreased by 21 % to $ 185.7 million from $ 234.0 million in 2015 , primarily as a result of lower pulp sales realizations and sales volumes , only being partially offset by lower fiber prices and the reversal of wastewater fee accruals at our german mills . sensitivities our earnings are sensitive to , among other things , fluctuations in : nbsk pulp price . nbsk pulp is a global commodity that is priced in dollars , whose markets are highly competitive and cyclical in nature . as a result , our earnings are sensitive to nbsk pulp price changes . based upon our 2017 sales volume ( and assuming all other factors remained constant ) , each $ 10.00 per tonne change in nbsk list pulp prices yields a change in operating ebitda of approximately $ 12.0 million . lumber price . lumber pricing is priced in markets which are highly competitive and cyclical in nature . as a result , our earnings are sensitive to lumber price changes . based upon our 2017 sales volume , and adjusting for the friesau facility operating for a full year and assuming all other factors remained constant , each $ 10.00 per mfbm change in lumber price yields a change in operating ebitda of approximately $ 4.0 million . fiber price . our main raw material is fiber in the form of wood chips , pulp logs and sawlogs . fiber is a commodity and both prices and supply are cyclical . as a result , our operating costs are sensitive to fiber price changes . for our pulp segment , based upon our 2017 fiber costs , and assuming all other factors ( 73 ) remained constant , each 1 % change in per unit fiber price yields a change in annual operating costs of approximately $ 4.0 million . for our wood products segment , based upon our 2017 fiber costs , adjusting for the friesau facility operating for a full year and assuming all other factors remained constant , each 1 % change in per unit fiber price yields a change in annual operating costs of approximately $ 1.0 million . foreign exchange . our operating costs are in euros for our german mills and canadian dollars for our celgar mill . as a result , our operating costs will fluctuate with changes in the value of the dollar relative to the euro and canadian dollar . based on our 2017 operating costs , and adjusting for the friesau facility operating for a full year , each $ 0.01 change in the value of the dollar relative to the euro and the canadian dollar yields a total change in annual operating costs of approximately $ 10.0 million . our european lumber , energy and chemical sales are made in local currencies and , as a result , decline in dollar terms when the dollar strengthens . based on our 2017 lumber , energy and chemical revenues , and adjusting for the friesau facility operating for a full year , each $ 0.01 change in the value of the dollar relative to the euro and the canadian dollar yields a total change in lumber , energy and chemical revenues of approximately $ 2.0 million . the above sensitivity analysis provides only a limited point-in-time view of the nbsk pulp price , lumber price , fiber price and foreign exchange rates discussed . the actual impact of the underlying price and rate changes may differ materially from that shown in the sensitivity analysis . seasonal influences . we are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors . these factors are common in the nbsk pulp and lumber industries . we generally have weaker pulp demand in europe during the summer holiday months and in china in the period relating to its lunar new year . we typically have a seasonal build-up in raw material inventories in the early winter months as the mills build up their fiber supply for the winter when there is reduced availability . liquidity and capital resources summary of cash flows replace_table_token_21_th ( 1 ) includes cash from issuance of 2024 senior notes and 2026 senior notes of $ 550.0 million , less note issuance costs of $ 11.6 million , and redemption of senior notes of $ 234.9 million in 2017. excluding such note issuances and redemptions , cash used in financing activities was $ 14.7 million . ( 2 ) includes proceeds from $ 300.0 million of 2026 senior notes issued in december 2017 which were used to redeem , on january 5 , 2018 , $ 300.0 million of 2022 senior notes . excluding the redemption , the net increase was $ 2.4 million . we operate in a cyclical industry and our operating cash flows vary accordingly . our principal operating cash expenditures are for labor , fiber , chemicals and debt service . working capital levels fluctuate throughout the year and are affected by maintenance downtime , changing sales patterns , seasonality and the timing of receivables and the payment of payables and ( 74 ) expenses . generally , finished goods inventories are increased prior to scheduled maintenance downtime to maintain sales volume while production is stopped . our fiber inventories exhibit seasonal swings as we increase pulp log , sawlog and wood chip inventories to ensure adequate supply of fiber to our mills during the winter months . changes in sales volume can affect the level of receivables and influence overall working capital levels . we believe our management practices with respect to working capital conform to common business practices . cash flows from operating activities cash from operations includes : cash received from customers ; cash paid to employees and suppliers ; cash paid for interest on our debt ; and cash paid or received for taxes . cash provided by operating activities in 2017 was
| selected 2017 highlights in 2017 : we achieved record pulp , energy and chemical production and sales volumes ; ( 66 ) higher pulp prices and sales volumes contributed to strong net income of $ 70.5 million and operating ebitda * of $ 252.3 million ; our friesau sawmill performed ahead of plan ; and we increased our quarterly cash dividend 9 % to $ 0.125 per share . * see - summary financial highlights for a reconciliation of net income to operating ebitda . current market environment in 2017 , pulp prices in europe , china and north america increased compared to 2016 as a result of continued steady demand . at december 31 , 2017 , nbsk list prices in europe , china and north america were approximately $ 1,030 , $ 890 and $ 1,205 per admt , respectively . as at december 31 , 2017 , the nbsk pulp market was balanced with world producer inventories at about 30 days ' supply . we believe the new pulp production capacity that has or is coming online did not materially adversely impact the market in 2017 as a result of steady demand growth and diminishing supply and quality of recycled fiber . further , we expect some of the new capacity will not hit the market in a meaningful amount until 2018. as a result , we currently expect overall steady pulp demand in the near term . currently both the european and u.s. lumber markets are strong and prices are near multi-year highs and are expected to remain steady in the near term . summary financial highlights replace_table_token_17_th ( 67 ) ( 1 ) see non-gaap financial measures for a description of operating ebitda and operating ebitda margin , their limitations and why we consider them to be useful measures . the following table provides a reconciliation of net income to operating income and operating ebitda for the years indicated : replace_table_token_18_th ( 2 ) redemption of 2019 senior notes .
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our advanced sensors and integrated sensor systems enable the gathering and analysis of critical information through a wide variety of applications in commercial , industrial , and government markets worldwide . our goal is to both enable our customers to benefit from the valuable information produced by advanced sensing technologies and to deliver sustained superior financial performance for our shareholders . we create value for our customers by improving personal and public safety and security , providing advanced intelligence , surveillance , reconnaissance , and tactical defense capabilities , facilitating air , ground , and maritime-based situational awareness , detecting electrical , mechanical and building envelope problems , displaying process irregularities , detecting volatile organic gas emissions , and enhancing advanced driver-assistance systems and autonomous driving solutions , as well as a variety of other uses of thermal and other sensing technologies . our business model and range of solutions allow us to sell products to various end markets , including industrial , original equipment manufacturing , military , homeland security , enterprise , infrastructure , and environmental . we sell off-the-shelf products in configurations to suit specific customer requirements in an efficient , timely , and affordable manner , and support those customers with training and ongoing support and services . centered on the design of products for low-cost manufacturing and high-volume distribution , our commercial operating model has been developed over time and provides us with a unique ability to adapt to market changes and meet our customers ' needs . international revenue accounted for approximately 45 percent , 47 percent and 47 percent of our revenue in 2019 , 2018 and 2017 , respectively . we anticipate that international sales will continue to account for a significant percentage of revenue in the future . we have exposure to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the united states dollar relative to other currencies . factors contributing to this variability include significant manufacturing activity in europe , significant sales denominated in currencies other than the united states dollar , and cross currency fluctuations between such currencies as the united states dollar , euro , swedish kronor and british pound sterling . the impact of those fluctuations is reflected throughout our consolidated financial statements , but in the aggregate , did not have a material impact on our results of operations in 2019 . we experience fluctuations in orders and sales due to seasonal variations and customer sales cycles , such as the seasonal pattern of contracting by the united states and certain foreign governments , the desire of customers to take delivery of equipment prior to fiscal year ends due to funding considerations , and the tendency of commercial enterprises to fully utilize annual capital budgets prior to expiration . such events have resulted and could continue to result in fluctuations in quarterly results in the future . as a result of such quarterly fluctuations in operating results , we believe that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance . we expect that macroeconomic factors , including fluctuations in spending by united states government agencies , rate of gdp growth in certain geographic markets , and fluctuations in foreign currency exchange rates , will continue to impact our financial results and may render predictions regarding future performance difficult to make . in addition , in 2019 we successfully wrapped up several large multi-year programs that provided solid revenue contributions over the past several years . while we have successfully won significant new programs , these new programs require investments in research and development and compliance to be successful , and investments in these programs will not directly translate into corresponding revenue until late 2021 and beyond . we also selectively pursue the acquisition of businesses and investments at attractive valuations that will expand or complement our current portfolio and allow access to new customers or technologies . we also may explore the divestiture of businesses that no longer meet our needs or strategy or that could perform better outside of our organization . in pursuing our business strategy , we routinely conduct discussions , evaluate targets and enter into agreements regarding possible acquisitions , divestitures , ventures and equity investments . we continue to build upon our strong market position , meeting the needs of our wide range of customers and are investing for long-term growth through the execution of our strategic priorities . to better position us to deliver long-term growth we launched a strategy-driven restructuring plan ( `` project be ready '' ) in february 2020. this initiative aims to simplify our product portfolio and better align resources with higher growth opportunities while reducing costs . we have discontinued certain non-core consumer centric product lines within the outdoor and tactical systems business and , in february 2020 , we committed to a plan to sell our raymarine non-thermal maritime electronics business , subject to certain conditions of the proposed transaction and customary regulatory approvals . the business is being actively marketed and we intend to complete the sale within 2020. in addition , we will restructure our business units by consolidating from three business units to two by integrating the remaining businesses within the commercial business unit into the industrial business unit beginning in the first quarter of 2020 . 38 critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . story_separator_special_tag we also use discounted cash flow analyses , which are based on significant judgments related to risk adjusted discount rates , terminal growth rates , and the weighted average cost of capital ( “ wacc ” ) and are developed by the management for planning purposes based on current known business and market conditions , macroeconomic indicators as well as future anticipated industry trends . intangible assets are amortized using the method that best reflects how their economic benefits are utilized , or , if a pattern of economic benefits can not be reliably determined , are amortized using a straight-line methodology over their estimated useful lives . intangible assets with indefinite useful lives are evaluated annually for impairment , or more frequently if required when circumstances indicate that the carrying amounts may not be recoverable . impairment exists when the carrying value is greater than the expected undiscounted future cash flows expected to be provided by the asset group . if impairment exists , the asset group is written down to its fair value . see note 10 , `` intangibles assets `` of the notes to the consolidated financial statements in item 8 for additional information and discussion on impairment charges of $ 1.2 million recognized during the year ended december 31 , 2019 . the company did not recognize any impairment charges on intangible assets during the years ended december 31 , 2018 and 2017 . goodwill . effective january 1 , 2019 , we adopted the requirements of asu 2017-04 , `` intangibles-goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment . '' goodwill represents the excess purchase price of an acquired enterprise over the estimated fair value of identifiable net assets acquired . we assess goodwill for potential impairment at the reporting unit level during the third quarter of each year , or whenever events or circumstances indicate that the carrying value of these assets may exceed their fair value . we may assess qualitative factors to make this determination , or bypass such a qualitative assessment and proceed directly to testing goodwill for impairment using a one-step process . as a result of the adoption of asu 2017-04 , if we determine that the goodwill is impaired , it is no longer required to compare the implied fair value of the reporting unit goodwill associated with the carrying amount of that goodwill , which is commonly referred to as step 2. we elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value . when performing a qualitative assessment , we consider factors including , but not limited to , current macroeconomic conditions , industry and market conditions , the competitive environment , changes in the market for our products and services , regulatory and political developments and entity specific factors such as strategies and financial performance and other events relevant to the entity or reporting unit under evaluation . if , based on our review of qualitative factors , it is more likely than not that the fair value of a reporting unit is less than its carrying value , ( of if we elected to bypass assessing the qualitative factors ) we would perform a quantitative impairment test to identify goodwill impairment and measure the amount of goodwill impairment loss to be recognized ( if any ) by comparing the fair value of a reporting unit with its carrying amount . an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit 's fair value ; however , the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit . our impairment tests performed in the current year did not indicate an impairment of goodwill in any of our reporting units with the exception of our outdoor and tactical systems ( `` ots '' ) reporting unit which is part of our commercial business unit ( `` cbu '' ) operating segment . based on the assessment of qualitative factors in the fourth quarter , it was determined that it was more likely than not that the fair value was less than the carrying value for our ots reporting unit . as such , a quantitative impairment test was performed that resulted in a goodwill impairment of $ 6.5 million recorded in the cbu operating segment during the fourth quarter . refer to note 9 , `` goodwill `` of the notes to the consolidated financial statements in item 8 for further discussion . contingencies . we are subject to the possibility of loss contingencies arising in the normal course of business . we consider the likelihood of loss or impairment of an asset or the incurrence of a liability , as well as our ability to reasonably estimate the amount of loss in determining loss contingencies . an estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount can be reasonably estimated . we regularly evaluate current information available to us to determine whether such accruals and disclosures should be adjusted . income taxes . we account for income taxes using the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of the assets and liabilities measured using the enacted tax rates in effect in the years in which the differences are expected to reverse . valuation allowances against deferred tax assets are recorded when a determination is made that the deferred tax assets 40 are not more likely than not to be realized in the future . in making that determination , on a jurisdiction by jurisdiction basis , we estimate our future taxable income based upon historical operating results and external market data .
| segment operating results the three reportable operating segments are : industrial business unit , government and defense business unit , and commercial business unit . the following discusses the operating results of each of our segments for the three year periods ended december 31 , 2019 , 2018 and 2017 , respectively . industrial industrial business unit operating results are as follows ( in millions , except percentages ) : replace_table_token_3_th industrial business unit revenue increased by 2.8 percent in 2019 compared to 2018 . earnings from operations increased by 11.1 percent in 2019 compared to 2018 . the increase in revenue was predominately attributable to strong growth across the cooled cores product lines partially offset by declines in the integrated imaging systems ( `` iis '' ) businesses . the increases in earnings from operations and corresponding operating margin were predominately attributable to favorable product mix led by the oem business and productivity initiatives to improve manufacturing efficiency and decrease product costs across all divisions . the increase in backlog in 2019 compared to 2018 was primarily attributed to a substantial award from a large aerospace and defense customer . industrial business unit revenue increased by 6.8 percent in 2018 compared to 2017. earnings from operations increased by 8.5 percent in 2018 compared to 2017. the increase in both revenue and earnings from operations was predominately attributable to strong growth across the oem automotive , cooled camera cores , and uas product lines . the decline in backlog in 2018 compared to 2017 was primarily attributed to productivity initiatives executed during the year to reduce lead times for customer deliveries of our machine vision and volume hand-held product lines .
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merchant price-disclosed services : merchant revenues for the company 's merchant price-disclosed services are derived from transactions story_separator_special_tag the following discussion should be read in conjunction with our financial statements , including the notes to those statements , included elsewhere in this form 10-k , and the section entitled `` special note regarding forward-looking statements '' in this form 10-k. as discussed in more detail in the section entitled `` special note regarding forward-looking statements , '' this discussion contains forward-looking statements which involve risks and uncertainties . our actual results may differ materially from the results discussed in the forward-looking statements . factors that might cause those differences include , but are not limited to , those discussed in `` risk factors . '' overview we are a leading online travel company that offers our customers hotel room reservations at over 210,000 hotels worldwide through the booking.com , priceline.com and agoda brands . in the united states , we also offer our customers reservations for car rentals , airline tickets , vacation packages , destination services and cruises through the priceline.com brand . we offer car rental reservations worldwide through rentalcars.com ( formerly known as traveljigsaw ) , which we acquired in may 2010. we launched our business in the united states in 1998 under the priceline.com brand and have since expanded our operations to include the booking.com , agoda and rentalcars.com companies . our principal goal is to serve our customers with worldwide leadership in online hotel and rental car reservations . our business is driven primarily by international results . during the year ended december 31 , 2011 , our international business ( the significant majority of which is generated by booking.com ) represented approximately 78 % of our gross bookings ( an operating and statistical metric referring to the total dollar value , generally inclusive of all taxes and fees , of all travel services purchased by our customers ) , and approximately 88 % of our consolidated operating income . given that the business of our international operations is primarily comprised of hotel reservation services , gross profit earned in connection with the reservation of hotel room nights represents a substantial majority of our gross profit . our priceline.com brand in the u.s. offers merchant name your own price ® travel services ( sometimes referred to as `` opaque '' travel services ) , which are recorded in revenue on a `` gross '' basis and have associated cost of revenue . retail , or price-disclosed , travel services offered by both our u.s. and international brands are recorded in revenue on a `` net '' basis and have no associated cost of revenue . therefore , revenue increases and decreases are impacted by changes in the mix of our revenues between name your own price ® and retail travel services . gross profit reflects the net margin earned for both our name your own price ® and retail travel services . consequently , gross profit has become an increasingly important measure of evaluating growth in our business . at present , we derive substantially all of our gross profit from the following sources : commissions earned from price-disclosed hotel room reservations , rental cars , cruises and other travel services ; transaction gross profit and customer processing fees from our price-disclosed merchant hotel room and rental car reservation services ; transaction gross profit and customer processing fees from our name your own price ® hotel room reservation , rental car and airline ticket services , as well as our vacation packages service ; global distribution system ( `` gds '' ) reservation booking fees related to both our name your own price ® airline ticket , hotel room reservation and rental car services , and price-disclosed airline tickets and rental car services ; and other gross profit derived primarily from selling advertising on our websites . over the last several years we have experienced strong growth in the number of hotel room night reservations booked through our hotel reservation services . we believe this growth is the result of , among other things , the broader shift of travel purchases from offline to online , the high growth of travel overall in emerging markets such as asia-pacific and south america , and the continued innovation and execution by our teams around the world to build hotel supply , content and distribution and to improve the customer experience on our websites . we experienced exceptionally strong year-over-year growth during 2011. however , given the sheer size of our hotel reservation business , we believe it is highly likely that our year-over-year growth rates will generally decelerate on a quarterly sequential basis in the future . thus far during the first quarter of 2012 , we experienced deceleration in year-over-year hotel room night reservation growth as compared to the year-over-year growth rate 33 in the fourth quarter of 2011. we expect to experience further deceleration in growth rates throughout 2012 and beyond . in addition , many governments around the world , including the u.s. and certain european governments , are operating at very large financial deficits . governmental austerity measures aimed at reducing deficits could impair the economic recovery and adversely affect travel demand . weak economic growth and elevated unemployment rates in the economies of such countries could cause , contribute to , or be indicative of , deteriorating macro-economic conditions . recently , we have experienced volatility in the growth rates for transactions booked and cancellations for our international business . we have also observed a decline in transaction growth rates and weaker trends in hotel average daily rates ( `` adrs '' ) for certain southern european countries , likely due to the impact of weak economic conditions and sovereign debt concerns . this volatility makes it more difficult to predict longer-term trends and the future impact of macro-economic weakness on our business . finally , higher oil prices are contributing to higher airline ticket prices and are likely to adversely impact consumer discretionary funds available to be spent on travel . story_separator_special_tag and agoda utilize online search and affiliate marketing as the principal means of generating traffic to their websites , our online advertising expense has increased significantly over recent years , a trend we expect to continue throughout 2012 and beyond . in addition , certain newer markets in which we operate that are i n earlier stages of development have lower operating margins compared to more mature markets , which could have a negative impact on our overall margins as these markets increase in size over time . also , we intend to continue to invest in hotel additions . many of these newer properties we add , especially in highly penetrated markets , may have fewer rooms or lower adrs , and may appeal to a smaller subset of customers ( for example , hostels and bed and breakfasts ) and therefore may also negatively impact our margins over time . another impact of the growing importance of booking.com , agoda and rentalcars.com is our increased exposure to foreign currency exchange risk . because we are conducting a significant and growing portion of our business outside the united states and are reporting our results in u.s. dollars , we face exposure to adverse movements in currency exchange rates as the financial results of our international operations are translated from local currency ( principally the euro and the british pound sterling ) into u.s. dollars upon consolidation . a strengthening of the euro increases our euro-denominated net assets , gross bookings , gross profit , operating expenses , and net income as expressed in u.s. dollars , while a weakening of the euro decreases our euro-denominated net assets , gross bookings , gross profit , operating expenses , and net income as expressed in u.s. dollars . greece , ireland , portugal and certain other european union countries with high levels of sovereign debt have had difficulty refinancing their debt . concern around devaluation or abandonment of the euro common currency , or that sovereign default risk may be more widespread and could include the u.s. , has led to significant volatility in the exchange rate between the euro , the u.s. dollar and other currencies . we generally enter into derivative instruments to minimize the impact of short-term currency fluctuations on our consolidated operating results . however , such derivative instruments are short term in nature and not designed to hedge against currency fluctuation that could impact our foreign currency denominated gross bookings , revenue or gross profit ( see note 5 to the consolidated financial statements for additional information on our derivative contracts ) . for example , while revenue from our international operations grew on a local currency basis by approximately 70 % for the year ended december 31 , 2011 compared to the same period in 2010 , as a result of the positive impact of currency exchange rates , revenue from our international operations as reported in u.s. dollars grew 79 % year-over-year . domestic trends . competition in domestic online travel remains intense and traditional online travel companies are creating new promotions and consumer value features in an effort to gain competitive advantage . in particular , the competition to provide `` opaque '' hotel services to consumers , an area in which priceline.com has been a leader , has become more intense over the recent past . for example , in the fourth quarter of 2010 , expedia began making opaque hotel room reservations available on its principal website under the name `` expedia unpublished rates '' and has been supporting the initiative with a national television advertising campaign . in addition , in 2009 , travelocity launched an opaque price-disclosed hotel booking service that allows customers to book rooms at a discount . as with our name your own price ® hotel booking service , for these services , the name of the hotel is not disclosed until after purchase . we believe these new offerings , in particular expedia unpublished rates , have adversely impacted the market share and year-over-year growth rate for our opaque hotel service , which experienced a modest decline in room night reservations in 2011 compared to 2010. in addition , hotels are increasingly offering discounted hotel room reservations through `` daily deal '' websites such as groupon and living social . if expedia or travelocity are successful in growing their opaque hotel service , and or `` daily deal '' websites are successful in garnering a sizable share of discounted hotel bookings , we may have less consumer demand for our opaque hotel service over time and we are likely to face more competition for access to the limited supply of discounted hotel room rates . as a result , we believe our share of the discount hotel market in the u.s. could further decrease . we believe that for a number of reasons , including the recent significant year-over-year increase in retail airfares , consumers are engaging in increased shopping behavior before making a travel purchase than they engaged in previously . increased shopping behavior reduces our advertising efficiency and effectiveness because traffic becomes less likely to result in a purchase on our website , and such traffic is more likely to be obtained through paid online advertising channels than through free direct channels . 35 while demand for online travel services in the u.s. continues to experience annualized growth , we believe that the domestic market share of third-party distributors is impacted in part by a concerted initiative by travel suppliers to direct customers to their own websites in an effort to reduce distribution expenses and establish more direct control over their pricing . the launch of room key discussed above is demonstrative of such efforts . in addition , certain suppliers have attempted to charge additional fees to customers who book airline reservations through an online channel other than their own website .
| results of operations year ended december 31 , 2010 compared to year ended december 31 , 2009 operating and statistical metrics gross bookings resulting from hotel room night reservations , rental car days and airline tickets sold through our domestic and international operations for the years ended december 31 , 2010 and 2009 were as follows ( numbers may not total due to rounding ) : 46 replace_table_token_19_th gross bookings increased by 46.6 % for the year ended december 31 , 2010 , compared to the same period in 2009 , principally due to 52.3 % growth in hotel room night reservations . the 67.3 % increase in international gross bookings was attributable to growth in international hotel room night reservations for booking.com and agoda ( growth on a local currency basis was approximately 73 % ) . international gross bookings for the year ended december 31 , 2010 include $ 185 million of gross bookings of traveljigsaw gross bookings since its acquisition in may 2010. domestic gross bookings increased by 14.3 % for the year ended december 31 , 2010 , compared to the same period in 2009 , primarily due to increases in price-disclosed and name your own price ® hotel room night reservations , and increases in average airline fares , and increases in price-disclosed and name your own price ® rental car days . gross bookings resulting from hotel room night reservations , rental car days and airline tickets sold through our agency and merchant models for the years ended december 31 , 2010 and 2009 were as follows ( numbers may not total due to rounding ) : replace_table_token_20_th agency gross bookings increased 49.9 % for the year ended december 31 , 2010 , compared to the same period in 2009 , due to growth in the sale of booking.com and priceline.com hotel room night reservations and an increase in average airline fares . our u.s. agency hotel room reservations benefited from the integration of u.s. hotels from the booking.com
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biogen idec in august 2012 , we entered into a collaboration and license agreement with biogen idec pursuant to which we and biogen idec have agreed to collaborate on micro rna biomarkers for multiple sclerosis , or ms. under the terms of the agreement , we granted biogen idec an exclusive , royalty free , worldwide story_separator_special_tag you should read the following discussion and analysis together with item 6. selected financial data and our financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption item 1a . risk factors. 55 overview we are a biopharmaceutical company focused on discovering and developing first-in-class drugs that target micro rnas to treat a broad range of diseases . micro rnas are recently discovered , naturally occurring ribonucleic acid , or rna , molecules that play a critical role in regulating key biological pathways . scientific research has shown the improper balance , or dysregulation , of micro rnas is directly linked to many diseases . we believe we have assembled the leading position in the micro rna field , including expertise in micro rna biology and oligonucleotide chemistry , a broad intellectual property estate , key opinion leaders and disciplined drug discovery and development processes . we refer to these assets as our micro rna product platform . we are using our micro rna product platform to develop chemically modified , single-stranded oligonucleotides that we call anti-mirs . we use these anti-mirs to modulate micro rnas and by doing so return diseased cells to their healthy state . we believe micro rnas may be transformative in the field of drug discovery and that anti-mirs may become a new and major class of drugs with broad therapeutic application much like small molecules , biologics and monoclonal antibodies . we are currently optimizing anti-mirs in five distinct programs both independently and with our strategic alliance partners , glaxosmithkline plc , or gsk , sanofi and astrazeneca ab , or astrazeneca . we anticipate that we will nominate at least two clinical development candidates in 2013 and file two inds , with the u.s. food and drug administration , or fda , in 2014. in april 2008 , we entered into a product development and commercialization agreement with gsk . under the terms of the agreement , we agreed to develop four programs of interest to gsk in the areas of inflammation and immunology and granted gsk an option to obtain an exclusive worldwide license to develop , manufacture and commercialize products in each program . we are responsible for the discovery , optimization and development of anti-mir product candidates in each program through proof-of-concept , defined as the achievement of relevant efficacy and safety endpoints in the first clinical trial designed to show efficacy , safety and tolerability , unless gsk chooses to exercise its option at an earlier stage . upon entering into the agreement , we received an upfront payment of $ 15.0 million as an option fee , and gsk loaned $ 5.0 million to us under a convertible note . in connection with the expansion of the alliance to include mir-122 for the treatment of hepatitis c virus infection , or hcv , in february 2010 , gsk made an upfront payment to us of $ 3.0 million and loaned an additional $ 5.0 million to us pursuant to a second convertible note . we are eligible to receive up to $ 144.5 million in preclinical , clinical , regulatory and commercialization milestone payments for each of the four micro rna programs under our alliance with gsk . we are also eligible to receive tiered royalties as a percentage of annual sales which can increase up to the low end of the 10 to 20 % range . these royalties are subject to reduction upon the expiration of certain patents or introduction of generic competition into the market , or if gsk is required to obtain licenses from third parties to develop or commercialize products under the alliance . under our strategic alliance with gsk , we earned a $ 500,000 milestone payment in each of may 2009 and july 2011. in june 2010 , we entered into a collaboration and license agreement with sanofi , which we subsequently amended , restated and superseded in july 2012. under the terms of the agreement , we have agreed to collaborate with sanofi to develop and commercialize licensed compounds targeting four micro rna alliance targets initially focused in the field of fibrosis and have granted sanofi an exclusive license to develop and commercialize products under the alliance . the agreement specified that mir-21 would be the first micro rna alliance target in the field of fibrosis . under the terms of the agreement , we received an upfront payment of $ 25.0 million , which was allocated to the research programs . in addition , sanofi purchased $ 10.0 million of our series b convertible preferred stock . we also received $ 5.0 million for one year of research and development funding . subsequently , we received a $ 5.0 million payment for research and development funding following each of the first and second anniversaries of our entry into the agreement in june 2010. we may be entitled to receive additional annual payments under the agreement to support our work on the research plan . we are also entitled to receive preclinical , clinical , regulatory and commercialization milestone payments of up to $ 640.0 million in the aggregate for all alliance product candidates . we are also entitled to receive royalties based on a percentage of net sales which will range from the mid-single digits to the low end of the 10 to 20 % range , depending upon the target and the volume of sales . story_separator_special_tag in the future , we may generate revenue from a combination of license fees and other upfront payments , research and development payments , milestone payments , product sales and royalties in connection with strategic alliances . we expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of our achievement of preclinical , clinical , regulatory and commercialization milestones , if at all , the timing and amount of payments relating to such milestones and the extent to which any of our products are approved and successfully commercialized by us or our strategic alliance partners . if our strategic alliance partners do not elect or otherwise agree to fund our development costs pursuant to our strategic alliance agreements , or we or our strategic alliance partners fail to develop product candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenues , and our results of operations and financial position would be adversely affected . research and development expenses research and development expenses consist of costs associated with our research activities , including our drug discovery efforts , the preclinical development of our therapeutic programs , and our micro rna biomarker program . our research and development expenses include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; external research and development expenses incurred under arrangements with third parties , such as contract research organizations , or cros , consultants and our scientific advisory board ; license and sublicense fees ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . we expense research and development costs as incurred . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received . 58 to date , we have conducted research on many different micro rnas with the goal of understanding how they function and identifying those that might be targets for therapeutic modulation . at any given time we are working on multiple targets , primarily within our five therapeutic areas of focus . our organization is structured to allow the rapid deployment and shifting of resources to focus on the best targets based on our ongoing research . as a result , in the early phase of our development , our research and development costs are not tied to any specific target . however , we are currently spending the vast majority of our research and development resources on our lead development programs . since our inception in january 2009 , we have grown from 15 research and development personnel to 52 and have spent a total of approximately $ 66.8 million in research and development expenses through december 31 , 2012. we expect our research and development expenses to increase for the foreseeable future as we advance our research programs toward the clinic and initiate clinical trials . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . we or our strategic alliance partners may never succeed in achieving marketing approval for any of our product candidates . the probability of success for each product candidate may be affected by numerous factors , including preclinical data , clinical data , competition , manufacturing capability and commercial viability . under our strategic alliance with gsk , we may be responsible for the development of product candidates through clinical proof-of-concept , depending on the time at which gsk may choose to exercise its option to obtain an exclusive license to develop , manufacture and commercialize product candidates on a program-by-program basis . under our strategic alliance with sanofi , we are responsible for the development of product candidates up to initiation of phase 1 clinical trials , after which time sanofi would be responsible for the costs of clinical development and commercialization and all related costs . under our strategic alliance agreement with astrazeneca , we are responsible for certain research and development activities with respect to each alliance target under a mutually agreed upon research and development plan until the earlier to occur of ind approval in a major market or the end of the research term under the agreement . we also have several independent programs for which we are responsible for all of the research and development costs , unless and until we partner any of these programs in the future . most of our product development programs are at an early stage , and successful development of future product candidates from these programs is highly uncertain and may not result in approved products . completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict . we anticipate 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 our ability to maintain or enter into new strategic alliances with respect to each program or potential product candidate , the scientific and clinical success of each future product candidate , as well as ongoing assessments as to each future product candidate 's commercial potential . we will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our various programs . general and administrative expenses general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , legal , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses , travel expenses and professional fees for auditing , tax and legal services .
| results of operations comparison of the years ended december 31 , 2012 and 2011 the following table summarizes the results of our operations for the years ended december 31 , 2012 and 2011 , together with the year-over-year changes in those items in dollars ( in thousands ) : replace_table_token_3_th revenue under strategic alliances and grants we recognized revenue of $ 12.7 million for the year ended december 31 , 2012 compared to $ 13.8 million for the year ended december 31 , 2011. our revenue during these periods consisted primarily of amortization of 62 upfront payments received from the sanofi and gsk strategic alliances , which we amortize monthly on a straight-line basis over our estimated period of performance . revenue recognized from the amortization of payments from the sanofi strategic alliance was $ 10.0 million for each of the years ended december 31 , 2012 and 2011. revenue recognized from the amortization of payments from the gsk strategic alliance decreased to $ 2.0 million for the year ended december 31 , 2012 from $ 3.7 million for the year ended december 31 , 2011. this reduction was due to the june 2012 amendment of the collaboration agreement which extended our estimated period of performance and the resulting amortization period , applied on a prospective basis . in addition , we entered into a strategic alliance with astrazeneca , which included an upfront payment of $ 3.0 million which will be amortized over an estimated performance period of 48 months .
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the maximum term of options under the 2018 plan is ten years ( or five years in the case of isos story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the risk factors section of this annual report on form 10-k , our actual results could differ materially from the results described , in or implied , by these forward-looking statements . overview our mission is to cure duchenne muscular dystrophy , or dmd , a genetic muscle-wasting disease predominantly affecting boys , with symptoms that usually manifest between three and five years of age . dmd is a progressive , irreversible and ultimately fatal disease that affects approximately one in every 3,500 to 5,000 live male births and has an estimated prevalence of 10,000 to 15,000 cases in the united states alone . dmd is caused by mutations in the dystrophin gene , which result in the absence or near-absence of dystrophin protein . dystrophin protein works to strengthen muscle fibers and protect them from daily wear and tear . without functioning dystrophin and certain associated proteins , muscles suffer excessive damage from normal daily activities and are unable to regenerate , leading to the build-up of fibrotic , or scar , and fat tissue . there is no cure for dmd and , for the vast majority of patients , there are no satisfactory symptomatic or disease-modifying treatments . our lead product candidate , sgt-001 , is a gene transfer under development to restore functional dystrophin protein expression in patients ' muscles . based on our preclinical program that included multiple animal species of different phenotypes and genetic variations , we believe the mechanism of action of sgt-001 , if our clinical trials prove to be successful , has the potential to slow or even halt the progression of dmd , regardless of the type of genetic mutation or stage of the disease . since our inception , we have devoted substantial resources to identifying and developing sgt-001 and our other product candidates , developing our manufacturing processes , organizing and staffing our company and providing general and administrative support for these operations . we have incurred significant losses every year since our inception . we do not have any products approved for sale . to date , we have not generated any revenue . our ability to eventually generate any product revenue sufficient to achieve profitability will depend on the successful development , approval and eventual commercialization of sgt-001 and our other product candidates . if successfully developed and approved , we intend to commercialize sgt-001 in the united states and european union and may enter into licensing agreements or strategic collaborations in other markets . if we generate product sales or enter into licensing agreements or strategic collaborations , we expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of any product sales , license fees , milestone payments and other payments . if we fail to complete the development of sgt-001 and our other product candidates in a timely manner or obtain regulatory approval of them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . in november 2017 , we initiated a phase i/ii clinical trial for sgt-001 , called ignite dmd , and in february 2018 we dosed the first patient , a nonambulatory adolescent . on march 14 , 2018 , we announced that ignite dmd was placed on full clinical hold following a serious adverse event reported in the clinical trial . we have halted enrollment and dosing in ignite dmd and are awaiting the formal clinical hold letter from the fda . due to our significant research and development expenditure , licensing and patent investment , and general administrative costs associated with our operations , we have generated substantial operating losses in each period since our inception . our net losses were $ 53.2 million , $ 23.8 million and $ 6.7 million , for the years ended december 31 , 2017 , 2016 and 2015 , respectively . as of december 31 , 2017 , we had an accumulated members ' 85 deficit of $ 124.3 million . we expect to incur significant expenses and increasing operating losses for the foreseeable future . as we seek to develop and commercialize sgt-001 and our other product candidates , we anticipate that our expenses will increase significantly and that we will need substantial additional funding to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity financings , debt financings or other sources , which may include licensing agreements or strategic collaborations . we may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms , if at all . if we fail to raise capital or enter into such agreements as and when needed , we may have to significantly delay , scale back or discontinue the development or commercialization of sgt-001 or our other product candidates . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or determine when or if we will be able to achieve or maintain profitability . story_separator_special_tag and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development expenses as incurred . we recognize costs for certain development activities , such as preclinical research and development , based on an evaluation of the progress to completion of 87 specific tasks using information and data provided to us by our vendors , collaborators and third-party service providers . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses . we typically use our employee and infrastructure resources across our product candidates . we track outsourced development costs and milestone payments made under our licensing arrangements by product candidates , but we do not allocate personnel costs , license payments made under our licensing arrangements or other internal costs to product candidates on a program-specific basis . these costs are included in unallocated research and development expenses in the table below . the following table summarizes our research and development expenses by product candidates for the respective periods : replace_table_token_4_th we can not determine with certainty the duration , costs and timing of clinical trials of sgt-001 and our other product candidates or if , when or to what extent we will generate revenue from the commercialization and sale of any our product candidates for which we obtain marketing approval or our other research and development expenses . we may never succeed in obtaining marketing approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , expense and results of any clinical trials of sgt-001 or other product candidates and other research and development activities that we may conduct ; the imposition of regulatory restrictions on clinical trials , including full and partial clinical holds and the time and activities required to lift any such holds ; uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates ; significant and changing government regulation and regulatory guidance ; potential additional studies or clinical trials requested by regulatory agencies ; the timing and receipt of any marketing approvals ; and the expense of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase for the foreseeable future as we proceed with clinical trials for sgt-001 , initiate clinical trials for product candidates other than sgt-001 and continue to identify and develop additional product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including equity-based compensation , for personnel in our executive , finance , business development and administrative functions . 88 general and administrative expenses also include legal fees relating to patent and corporate matters , professional fees for accounting , auditing , tax and consulting services , insurance costs , travel expenses , and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of office facilities and other operating costs . we expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel headcount to support our research and development activities and activities related to the potential commercialization of sgt-001 and our other product candidate . we also expect to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance costs and investor and public relations costs . other income ( expense ) revaluation of preferred unit tranche rights included in the terms of the redeemable preferred unit purchase agreement was a right , which we refer to as the redeemable preferred tranche right , granted to the holders of the redeemable preferred units issued in december 2013. the redeemable preferred tranche right obligated the holders to purchase , and provided the holders with the right to purchase , additional redeemable preferred units under certain circumstances . the redeemable preferred tranche right was transferrable by the investors . the terms of the series 1 senior preferred unit purchase agreement , as amended on september 1 , 2017 , also contained a right , which we refer to as the series 1 tranche right . the series 1 tranche right obligated the holders of the series 1 senior preferred units to purchase 1,973,430 series 2 senior preferred units at a purchase price of $ 12.67 per unit in the event we achieved certain preclinical milestones . in addition , the holders of a majority of the series 1 senior preferred units had the right to require the holders of the series 1 senior preferred units to purchase the series 2 senior preferred units at any time prior to december 1 , 2017. the series 1 tranche right was subject to certain transfer rights . we concluded that the redeemable preferred tranche right and the series 1 tranche right , together the tranche rights , met the definition of a freestanding financial instrument as the tranche rights were legally detachable and separately exercisable from the redeemable preferred units and the series 1 senior preferred units . therefore , we allocated the net proceeds between the tranche rights and the redeemable preferred units or the series 1 senior preferred units . the tranche rights were initially recorded at fair value and are re-measured at fair value each reporting period .
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_5_th research and development expenses replace_table_token_6_th research and development expenses for the year ended december 31 , 2017 were $ 39.9 million , compared to $ 20.1 million for the year ended december 31 , 2016. the increase of $ 19.8 million in research and development costs was due to a $ 10.8 million increase in clinical and preclinical research and manufacturing costs related to our lead product candidate sgt-001 , $ 0.6 million increase in costs related to our other product candidates and $ 8.4 million increase in unallocated research and development costs due primarily to increased compensation and headcount . general and administrative expenses general and administrative expenses were $ 15.0 million for the year ended december 31 , 2017 , compared to $ 5.5 million for the year ended december 31 , 2016. the increase of $ 9.5 million was primarily due to in an increase in equity-based compensation of $ 3.9 million , an increase of $ 2.9 million in professional fees related to our initial public offering , an increase of $ 2.1 million in personnel-related expenses and an increase of $ 0.6 million in other corporate expenses . the increase in equity-based compensation of $ 3.9 million during the year ended december 31 , 2017 was primarily due to a charge associated with the exchange of certain of our vested common units in connection with the recapitalization of our company and our merger with solid gt on march 29 , 2017 .
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in december 2019 , the company issued $ 400.0 million of 2.800 % senior notes due 2024 and $ 600.0 million of 3.450 % senior notes due 2030 , the proceeds of which were used to fund the december 2019 call and redemption of the $ 700.0 million story_separator_special_tag in part ii of our annual report on form 10-k for the year ended december 31 , 2019 , for additional information regarding results of operations for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018 , and segment operating results for 2019 as compared to 2018 . 34 segment operating results ( dollars in thousands ) replace_table_token_5_th steel operations segment steel operations consist of our six eaf steel mills , producing steel from ferrous scrap and scrap substitutes , utilizing continuous casting , automated rolling mills with numerous value-added downstream steel coating and processing operations . our steel operations sell directly to end-users , steel fabricators , and service centers . these products are used in numerous industry sectors , including the construction , automotive , manufacturing , transportation , heavy and agriculture equipment , and pipe and tube ( including octg ) markets ( see item 1. business ) . steel operations accounted for 74 % and 76 % of our consolidated net sales during 2020 and 2019 , respectively . steel operations shipments ( tons ) : replace_table_token_6_th 35 segment results 2020 vs. 2019 covid-19 negatively impacted our steel operations during 2020 , most notably in the second quarter . domestic steel demand and raw material supply were robust early in the year , but demand from many steel consuming industries and scrap generation significantly reduced during the second quarter 2020 , as the automotive sector and its supply chain temporarily closed . as a result , a significant amount of higher-cost domestic steel production was idled . as travel restrictions and stay at home orders were lifted , and the broader manufacturing base restarted mid-year , steel demand quickly recovered , resulting in steel operations segment shipments decreasing only 1 % in 2020 , as compared to 2019 , reflecting the overall strong steel demand environment . as demand improved in the second half of 2020 , some domestic steel production remained idled . when coupled with extremely low steel inventory levels throughout the supply chain , flat roll steel index prices increased over $ 500 per ton from august through the end of the year . however , overall steel segment operations average selling prices decreased 8 % , or $ 69 per ton , in 2020 compared to 2019. net sales for the steel operations segment decreased 9 % in 2020 when compared to 2019 , due to the 8 % decrease in average steel selling prices and minimal decline in shipments . metallic raw materials used in our eafs represent our single most significant steel manufacturing cost , generally comprising approximately 50 to 60 % of our steel mill operations ' manufacturing costs . our metallic raw material cost per net ton consumed in our steel mills decreased $ 25 , or 9 % , in 2020 compared to 2019 . as a result of average selling prices decreasing more than scrap costs , metal spread ( which we define as the difference between average steel selling prices and the cost of ferrous scrap consumed in our steel mills ) decreased 8 % in 2020 compared to 2019. due to this metal spread contraction , coupled with the slight decrease in shipments , operating income for the steel operations decreased 14 % , to $ 889.5 million , in 2020 compared to 2019 . 36 metals recycling operations segment metals recycling operations includes both ferrous and nonferrous scrap metal processing , transportation , marketing , brokerage , and scrap management services . in august 2020 , we completed the acquisition of zimmer , whose post-acquisition operations are included in 2020 results . our steel mills utilize a large portion ( approximately 69 % in 2020 and 66 % in 2019 ) of the ferrous scrap sold by our metals recycling operations as raw material in our steelmaking operations , and the remainder is sold to other consumers , such as other steel manufacturers and foundries . metals recycling operations accounted for 11 % of our consolidated net sales during 2020 and 2019. metals recycling operations shipments : replace_table_token_7_th segment results 2020 vs. 2019 as stated previously , our metals recycling operations benefitted from a rebound in manufacturing in steel consuming industries during the second half of 2020. scrap flows increased as temporary closures of domestic automotive and other steel consuming manufacturers and their related supply chain were lifted . in addition , domestic steel mill utilization rates rose from the trough experienced in the second quarter 2020 , resulting in increased ferrous scrap demand and significantly higher selling prices . however , net sales for our metals recycling operations decreased 4 % in 2020 as compared to 2019 , as total annual shipments decreased , most notably in the second quarter . ferrous scrap average selling prices increased 10 % during 2020 compared to 2019 , while nonferrous pricing was flat year over year . ferrous metal spread ( which we define as the difference between average selling prices and the cost of purchased scrap ) increased 27 % , while nonferrous metal spread decreased 4 % in 2020 compared to 2019. metals recycling operations operating income in 2020 of $ 33.0 million increased 102 % from 2019 operating income of $ 16.3 million , due to ferrous metal spread expansion and positive operating results from our zimmer acquisition , which more than offset decreases in ferrous and nonferrous shipments . steel fabrication operations segment steel fabrication operations include seven new millennium building systems joist and deck plants located throughout the united states and in northern mexico . story_separator_special_tag we generated cash flow from operations of $ 987.0 million in 2020. operational working capital ( representing amounts invested in trade receivables and inventories , less current liabilities other than income taxes payable and debt ) increased $ 50.6 million ( 3 % ) to $ 1.7 billion at december 31 , 2020 , consistent with increased sales during the fourth quarter of 2020 , as compared to the fourth quarter of 2019. capital investments . during 2020 , we invested $ 1.2 billion in property , plant and equipment , primarily within our steel operations segment , compared with $ 451.9 million invested during 2019. the increase in 2020 versus 2019 primarily relates to our new southwest-sinton flat roll division , which represented $ 927.7 million in 2020. we enter 2021 with sufficient liquidity of $ 2.6 billion to provide for our planned 2021 capital requirements , including those necessary to finish construction of our new steel mill in sinton , texas . cash dividends . as a reflection of continued confidence in our current and future cash flow generation ability and financial position , we increased our quarterly cash dividend by 4 % to $ 0.25 per share in the first quarter 2020 ( from $ 0.24 per share in 2019 ) , resulting in declared cash dividends of $ 210.5 million during 2020 , compared to $ 209.5 million during 2019. we paid cash dividends of $ 209.2 million and $ 200.3 million during 2020 and 2019 , respectively . our board of directors , along with executive management , approves the payment of dividends on a quarterly basis . the determination to pay cash dividends in the future is at the discretion of our board of directors , after taking into account various factors , including our financial condition , results of operations , outstanding indebtedness , current and anticipated cash needs and growth plans . other . in february 2020 our board of directors authorized a share repurchase program of up to $ 500 million of our common stock , subsequent to the completion of a 2018 board authorized share repurchase program of up to $ 750 million of our common stock during the first quarter of 2020. under the share repurchase programs , purchases take place as and when we determine in open market or private transactions made based upon the market price of our common stock , the nature of other investment opportunities or growth projects , our cash flows from operations , and general economic conditions . the 2020 share repurchase program does not require us to acquire any specific number of shares , and may be modified , suspended , extended or terminated by us at any time . the 2020 share repurchase program does not have an expiration date . we repurchased 4.4 million shares of our common stock for $ 106.5 million during 2020 , all within the first quarter , fully expending the remaining purchases available under the 2018 program , leaving $ 444.0 million remaining available to purchase under the 2020 program . see part ii , item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities for additional information . our ability to meet our debt service obligations and reduce our total debt will depend upon our future performance which , in turn , will depend upon general economic , financial , business and ongoing covid-19 conditions , along with competition , legislation and regulatory factors that are largely beyond our control . in addition , we can not assure that our operating results , cash flows , access to credit markets and capital resources will be sufficient for repayment of our indebtedness in the future . we believe that based upon current levels of operations and anticipated growth , cash flows from operations , together with other available sources of funds , including borrowings under our revolver , if necessary , will be adequate for the next twelve months for making required payments of principal and interest on our indebtedness , funding working capital requirements , and anticipated capital expenditures noted above . 40 contractual obligations and other long-term liabilities we have the following minimum commitments under contractual obligations , including purchase obligations , as defined by the securities and exchange commission . a “ purchase obligation ” is defined as an agreement to purchase goods or services that is enforceable and legally binding 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 . other long-term liabilities are defined as long-term liabilities that are reflected on our balance sheet under generally accepted accounting principles . based on this definition , the following table includes only those contracts which include fixed or minimum obligations . it does not include normal purchases , which are made in the ordinary course of business . the following table provides aggregated information about outstanding contractual obligations and other long-term liabilities as of december 31 , 2020 ( in thousands ) : replace_table_token_8_th ( 1 ) the long-term debt payment information presented above assumes that our senior notes remain outstanding until maturity . refer to note 3. long-term debt to the consolidated financial statements elsewhere in this report for additional information regarding these transactions , and our long-term debt .
| other operations consolidated results 2020 vs. 2019 selling , general and administrative expenses . selling , general and administrative expenses increased 9 % , or $ 41.0 million , to $ 477.5 million during 2020 compared to 2019 , representing 5.0 % and 4.2 % of net sales , respectively . this increase relates primarily to non-capitalized expenses incurred during construction of our new southwest-sinton flat roll division . profit sharing expense was $ 61.7 million in 2020 , a decrease of $ 16.3 million from the $ 78.0 million earned during 2019. the company-wide profit sharing plan represents 8 % of pretax earnings ; therefore , our lower 2020 earnings resulted in lower profit sharing . interest expense , net of capitalized interest . during 2020 , interest expense of $ 94.9 million decreased $ 32.2 million from the $ 127.1 million incurred during 2019 due to decreased interest rates from our december 2019 , june 2020 , and october 2020 refinancing of $ 1.95 billion of high yield senior notes with lower interest senior notes , and increased capitalized interest in 2020 in conjunction with construction of our new southwest-sinton flat roll division . 38 other ( income ) expense , net . net other expense of $ 46.8 million in 2020 included $ 33.1 million of costs of premiums , write off of unamortized debt issuance costs , and other expenses related to the call and redemption of our 5 1/4 % senior notes due 2023 , 5.500 % senior notes due 2024 , and 4.125 % senior notes due 2025. net other income of $ 15.6 million in 2019 included interest income of $ 28.0 million associated with our invested cash and short-term investments , compared to only $ 9.0 million in 2020 , due to lower interest rates on decreasing invested cash and short-term investment balances in 2020. income tax expense .
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the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand our financial condition , changes in financial condition , and results of operations . this md & a contains forward-looking statements and should be read in conjunction with our consolidated financial statements , accompanying notes , and other financial information included in this report . executive overview first community bancshares , inc. ( the company ) is a financial holding company , headquartered in bluefield , virginia , that provides commercial banking services through its wholly-owned subsidiary first community bank ( the bank ) . the bank operates under the trade names first community bank in west virginia , virginia , and north carolina and people 's community bank , a division of first community bank , in tennessee . the bank has positioned itself as a regional community bank that provides an alternative to larger banks , which often place less emphasis on personal relationships , and smaller community banks , which lack the capital and resources to efficiently serve customer needs . the company provides insurance services through its wholly-owned subsidiary greenpoint insurance group , inc. ( greenpoint ) , which operates under the greenpoint name and under the trade names first community insurance services ( fcis ) and carolina insurers associates in north carolina , carr & hyde insurance and fcis in virginia , and fcis in west virginia . the bank offers wealth management and investment advice through its wholly-owned subsidiary first community wealth management ( fcwm ) and the bank 's trust division . our efforts are focused on building financial partnerships and creating enduring and complete relationships with businesses and individuals through a personal and local approach to banking and financial services . our operations are guided by a strategic plan focusing on organic growth that may be supplemented by strategic acquisitions . while our mission remains that of a community bank , management believes that entry into new markets may accelerate our growth rate by diversifying the demographics of our customer base and by generally increasing our sales and service network . economy the regional economies we operate in have shown positive and stable aspects . the following list summarizes economic activity in the regions we operate : west virginia and southwest virginia these economies have significant exposure to extractive industries , such as coal , timber , and natural gas . unemployment levels have generally been lower than the national average . central north carolina this economy has suffered in recent years due to foreign competition in the furniture and textile industries and consolidation in the financial services industry . despite these detractions , these economies continue to benefit from large regional and national companies operating in the triad and central piedmont regions . central virginia this economy has , in recent years , benefited from key corporate and government activities . eastern tennessee this economy continues to benefit from the stability of higher education , healthcare services , and tourism . competition we continue to encounter strong competition for growth in loans and deposits and increased market share . many of the markets we target are being entered into by other banks located in nearby and distant markets . the expansion of banks , credit unions , and other non-depository financial institutions over recent years has 33 intensified competitive pressures on core deposit generation and retention . competitive factors that influence our company include pressure on interest yields , product fees , loan structure , and loan terms ; however , we have countered these pressures with our relationship style of banking , competitive pricing , cost efficiencies , and disciplined approach to loan underwriting . recent acquisition and divestiture activity our consolidated financial statements reflect acquisition and divestiture activity from the transaction date ; therefore , comparisons between fiscal years are affected by varying levels of assets , liabilities , income , and expense . on may 31 , 2012 , we completed the acquisition of peoples bank of virginia ( peoples ) , a full service community bank headquartered in richmond , virginia . at acquisition , peoples had total assets of $ 275.76 million , loans of $ 184.84 million , and deposits of $ 232.75 million . goodwill recorded in the acquisition was $ 10.32 million . on june 8 , 2012 , we entered into a purchase and assumption agreement with loss share arrangements with the fdic to purchase certain assets and assume substantially all customer deposits and certain liabilities of waccamaw , a full service community bank headquartered in whiteville , north carolina . under the loss share agreements , the fdic covers 80 % of most loan and foreclosed real estate losses . at acquisition , waccamaw had total assets of $ 500.64 million , loans of $ 318.35 million , and deposits of $ 414.13 million . goodwill recorded in the acquisition was $ 10.62 million . on october 24 , 2014 , we completed the purchase of seven branches , six in southwestern virginia and one in central north carolina , from bank of america , national association . at acquisition , we assumed total deposits of $ 318.88 million for a deposit premium of $ 5.79 million . additionally , we purchased the real estate or assumed the leases associated with the branches . no loans were included in the transaction . on december 12 , 2014 , we completed the sale of thirteen branches , ten in southeastern north carolina and three in south carolina , to crescom bank ( crescom ) , headquartered in charleston , south carolina . at closing , crescom assumed total deposits of $ 215.19 million and purchased total loans of $ 70.04 million . we received a deposit premium from crescom of $ 6.45 million . the transaction excluded loans covered under fdic loss share agreements . story_separator_special_tag these uncertainties may result in material changes to the allowance for loan losses in the near term ; however , the amount of the change can not reasonably be estimated . the company 's allowance for loan losses consists of reserves assigned to specific loans and credit relationships and general reserves assigned to loans not separately identified that have been segmented into groups with similar risk characteristics using our internal risk grades . general reserve allocations are based on management 's judgments of qualitative and quantitative factors about macro and micro economic conditions reflected within the loan portfolio and the economy . factors considered in this evaluation include , but are not limited to , probable losses from loan and other credit arrangements , general economic conditions , changes in credit concentrations or pledged collateral , historical loan loss experience , and trends in portfolio volume , maturities , composition , delinquencies , and nonaccruals . historical loss rates for each risk grade of commercial loans are adjusted by environmental factors to estimate the amount of reserve needed by segment . individually significant loans require additional analysis that may include the borrower 's underlying cash flow and capacity for debt repayment , specific business conditions , and value of secondary sources of repayment ; consequently , this analysis may result in the identification of weakness and a corresponding need for a specific reserve . third-party collateral valuations are regularly obtained and evaluated to help management determine the potential credit impairment and the amount of impairment to record . internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment . the internal evaluation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs . when a third-party evaluation is received , it is reviewed for reasonableness . once the evaluation is reviewed and accepted , discounts are applied to fair market value , based on , but not limited to , our historical liquidation experience for like collateral , resulting in an estimated net realizable value . the estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve . specific reserves are generally recorded for impaired loans while third-party evaluations are in process and for impaired loans that continue to make some form of payment . while waiting for receipt of the third-party appraisal , we regularly review the relationship to identify any potential adverse developments and begin the tasks necessary to gain control of the collateral and prepare it for liquidation , including , but not limited to , engagement of counsel , inspection of collateral , and continued communication with the borrower . generally , the only difference between current appraised value , adjusted for liquidation costs , and the carrying amount of the loan , less the specific reserve , is any downward adjustment to appraised value that we determine appropriate , such as the costs to sell the property . impaired loans that do not meet certain criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value . based on prior experience , the company rarely returns loans to performing status after they have been partially charged off . impaired credits move quickly through the process towards ultimate resolution except in cases involving bankruptcy and various state judicial processes , which may extend the time for ultimate resolution . management uses an independent third party to assist in determining the changes in cash flows and the amount of possible impairment related to our purchased performing loans and pci loan pools . pci loan pools are evaluated separately from non-pci loans in the determination of the allowance . see note 6 , allowance for loan losses , to the consolidated financial statements in item 8 of this report . business combinations the company may engage in business combinations with other companies . under the acquisition method of accounting , all identifiable acquired assets , including purchased loans , and liabilities are recorded at fair value . fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information about the closing date fair values becomes available . management makes significant estimates and exercises significant judgment in accounting for business combinations . any excess of the purchase price over 36 the fair value of net assets acquired is recorded as goodwill . if the price of the acquired business is less than the net assets acquired , a gain on the purchase is recorded . financial assets and liabilities are typically valued using discount models that apply current discount rates to streams of cash flow . valuation methods require assumptions , which can result in alternate valuations , varying levels of goodwill , or bargain purchase gains , and in some cases amortization expense or accretion income . management must also make estimates for the useful or economic lives of certain acquired assets and liabilities . we review the purchased loan portfolio quarterly for changes in cash flows and possible impairment using input provided from an independent third party . management 's assumptions about purchased loans and intangible assets may significantly influence the allowance for loan losses . see note 2 , acquisitions , divestitures , and branching activity , and note 6 , allowance for loan losses , to the consolidated financial statements in item 8 of this report . the company may also engage in fdic-assisted business combinations . in 2012 , we entered into a purchase and assumption agreement with loss share arrangements with the fdic to purchase certain assets and assume substantially all customer deposits and certain liabilities of waccamaw . under the loss share agreements the fdic agreed to cover 80 % of covered assets , which consist of most loan and other real estate losses .
| results of operations net income the following table presents our net income and related information in the periods indicated : replace_table_token_4_th 2014 compared to 2013 . net income increased in 2014 primarily due to a recovery of provision for loan losses , a decrease in the net amortization related to the fdic indemnification asset , a decrease in other operating expenses , and a net gain on branch divestitures . these gains and expense decreases were offset by federal home loan bank ( fhlb ) debt prepayment fees , a net loss on the sale of securities , expenses related to acquisition and divestiture activity , a decrease in other operating income , and decrease in net interest income . 2013 compared to 2012 . net income decreased in 2013 due to net amortization related to the fdic indemnification asset , an increased provision for loan losses , a one-time contractual severance payment , and a decrease in other operating income resulting from an out-of-period adjustment in 2012. these decreases were offset by a reduction in merger related expenses and a decline in interest expense on deposits and borrowings . during our core system conversion in 2012 , we discovered that certain loan charge-offs reported in prior periods , beginning in 2007 , were overstated due to not recognizing the impact of interest payments that had been applied to principal for loans on nonaccrual status . the overstated charge-offs resulted in an overstated provision for loan losses and corresponding understated pre-tax income . management analyzed the error and determined that prior years were not materially misstated and correcting the error in 2012 would not materially misstate 2012 results . we recorded a $ 2.39 million increase ( out-of-period adjustment ) to other income in 2012 to correct the understatement of pre-tax income .
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as a result , the fair value of all outstanding unvested stock options that had been granted to non-employees as of january 1 , 2019 was remeasured on that date . the adoption of asu 2018-07 did not have a material effect on the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read “ cautionary note regarding forward-looking statements ” and item 1a . risk factors of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview introduction we are a clinical-stage biopharmaceutical company focused on developing and commercializing new chemical entities designed to alleviate pruritus by selectively targeting peripheral kappa opioid receptors , or kors . we are developing a novel and proprietary class of product candidates , led by korsuva ( cr845/difelikefalin ) , a first-in-class kor agonist that targets kors located in the peripheral nervous system and on immune cells . in our kalm-1 and kalm-2 phase 3 trials and two phase 2 trials , korsuva ( cr845/difelikefalin ) injection ( intravenous formulation ) has demonstrated statistically significant reductions in itch intensity and concomitant improvement in pruritus-related quality of life measures in hemodialysis patients with moderate-to-severe ckd-ap . we have partnered with vfmcrp , a joint venture between vifor pharma group and fresenius medical care , and vifor to commercialize korsuva ( cr845/difelikefalin ) injection in dialysis patients with ckd-ap in the u.s. under profit share agreements . we have partnered with vfmcrp to commercialize korsuva worldwide , excluding japan ( maruishi/sub-licensee kissei ) , and south korea ( ckdp ) . 80 cr845/difelikefalin has also demonstrated statistically significant pain reduction in clinical trials in patients with moderate-to-severe acute pain in the post-operative setting , without inducing many of the undesirable side effects typically associated with currently available opioid pain therapeutics . we retain rights to all korsuva/cr845 formulations and indications worldwide , excluding korsuva ( cr845/difelikefalin ) injection in dialysis patients with ckd-ap under our agreements with vfmcrp and vifor for u.s. and certain ex-u.s. territories in japan ( maruishi/sub-licensee kissei ) and south korea ( ckdp ) . the fda has conditionally accepted korsuva as the trade name for cr845/difelikefalin injection . in december 2020 , we submitted a nda to the fda for korsuva ( cr845/difelikefalin ) injection for the treatment of moderate-to-severe pruritus in hemodialysis patients , and in february 2021 , the nda was accepted by the fda . korsuva 's safety and efficacy have not been fully evaluated by any regulatory authority . we were incorporated and commenced operations in 2004 , and our primary activities to date have been organizing and staffing our company , developing our product candidates , including conducting preclinical studies and clinical trials of cr845/difelikefalin-based product candidates and raising capital . to date , we have financed our operations primarily through sales of our equity and debt securities and payments from license agreements . we have no products currently available for sale , and substantially all of our revenue to date has been revenue from license agreements , although we have received nominal amounts of revenue under research grants and the sale of clinical compound . collaboration and license agreements vifor ( international ) ltd. on october 15 , 2020 , we entered into the vifor agreement with vifor under which we granted vifor an exclusive license solely in the united states to use , distribute , offer for sale , promote , sell and otherwise commercialize korsuva ( cr845/difelikefalin ) injection for all therapeutic uses relating to the inhibition , prevention or treatment of itch associated with pruritus in hemodialysis and peritoneal dialysis patients in the united states . under the vifor agreement , we retain all rights with respect to the clinical development of , and activities to gain regulatory approvals of , korsuva ( cr845/difelikefalin ) injection in the united states . under the terms of the vifor agreement , we received from vifor an upfront payment of $ 100.0 million and an additional payment of $ 50.0 million for the purchase of an aggregate of 2,939,552 shares of our common stock at a price of $ 17.0094 per share , which represents a premium over a pre-determined average closing price of our common stock . upon u.s. regulatory approval of korsuva ( cr845/difelikefalin ) injection , we will also be eligible to receive an additional $ 50.0 million common stock investment at a 20 % premium to the 30-day trailing average price of our common stock as of such date . in addition , pursuant to the vifor agreement , we are eligible to receive payments of up to $ 240.0 million upon the achievement of certain sales-based milestones . the vifor agreement provides full commercialization rights in dialysis clinics to vifor in the united states under a profit-sharing arrangement . pursuant to the profit-sharing arrangement , we will generally be entitled to 60 % of the net profits ( as defined in the vifor agreement ) from sales of korsuva ( cr845/difelikefalin ) injection in the united states ( excluding sales to fresenius medical center dialysis clinics , compensation for which is governed by the vfmcrp agreement ) and vifor is entitled to 40 % of such net profits , subject to potential temporary adjustment in future years based on certain conditions . story_separator_special_tag maruishi pharmaceutical co. , ltd. in april 2013 , we entered into a license agreement with maruishi , or the maruishi agreement , under which we granted maruishi an exclusive license to develop , manufacture and commercialize drug products containing cr845/difelikefalin in japan in the acute pain and uremic pruritus fields . maruishi has a right of first negotiation for any 82 other indications for which we develop cr845/difelikefalin and , under certain conditions , maruishi may substitute another pruritus indication for the uremic pruritus indication originally included in its license from us . if we abandon development of cr845/difelikefalin and begin development of another kappa opioid receptor agonist that is covered by the claims of the patents we licensed to maruishi , such other agonist will automatically be included in the license to maruishi . maruishi is required to use commercially reasonable efforts , at its expense , to develop , obtain regulatory approval for and commercialize cr845/difelikefalin in japan . we are required to use commercially reasonable efforts , at our expense , to develop , obtain regulatory approval for and commercialize cr845/difelikefalin in the united states . under the terms of the maruishi agreement , we received a non-refundable and non-creditable upfront license fee of $ 15.0 million and are eligible to receive up to an aggregate of $ 10.5 million in clinical development and regulatory milestones , of which $ 2.5 million ( before contractual foreign currency exchange adjustments ) has been received as of december 31 , 2020. in january 2021 , we met the milestone criteria , as set forth in the maruishi agreement , for maruishi 's first initiation of a phase iii trial for uremic pruritus in japan . as a result , we received a milestone payment of $ 2.0 million ( $ 1.9 million after contractual foreign currency exchange adjustments ) from maruishi . we are also eligible to receive a one-time sales milestone of one billion yen when a certain sales level is attained . we also receive a mid-double-digit percentage of all non-royalty payments received by maruishi from its sublicensees , if any . we are also eligible to receive tiered royalties based on net sales , if any , with minimum royalty rates in the low double digits and maximum royalty rates in the low twenties . maruishi 's obligation to pay us royalties continues , on a product-by-product basis , until the expiration of the last-to-expire licensed patent covering such product or the later expiration of any market exclusivity period . the maruishi agreement continues until terminated . either we or maruishi may terminate the maruishi agreement for the other party 's breach of the agreement or bankruptcy . maruishi may terminate the agreement at any time at will . we may terminate the agreement as a whole if maruishi challenges the licensed patent rights , and we may terminate the agreement with respect to any indication if maruishi discontinues its development activities . in addition , in connection with the maruishi agreement , maruishi made an $ 8.0 million equity investment in our company . chong kun dang pharmaceutical corporation in april 2012 , we entered into a license agreement with ckdp , or the ckdp agreement , under which we granted ckdp an exclusive license to develop , manufacture and commercialize drug products containing cr845/difelikefalin in south korea . ckdp is required to use commercially reasonable efforts , at its expense , to develop , obtain regulatory approval for and commercialize cr845/difelikefalin in south korea . we are required to use commercially reasonable efforts , at our expense , to develop , obtain regulatory approval for and commercialize cr845/difelikefalin in the united states . under the terms of the ckdp agreement , we received a non-refundable and non-creditable $ 0.6 million upfront payment and are eligible to receive up to an aggregate of $ 3.8 million in development and regulatory milestones ( before south korean withholding taxes ) . in may 2020 , we met the milestone criteria , as set forth in the ckdp agreement , for completion of a phase 3 trial for uremic pruritus in the united states . as a result , in june 2020 , we received a milestone payment of $ 0.6 million ( net of south korean withholding tax ) from ckdp . as of december 31 , 2020 , we have received $ 2.3 million ( before south korean withholding tax ) of development and regulatory milestones . we are also eligible to receive a mid-double-digit percentage of all non-royalty payments received by ckdp from its sublicensees , if any , and tiered royalties ranging from the high single digits to the high teens based on net sales , if any . ckdp 's obligation to pay us royalties continues , on a product-by-product basis , until the expiration of the last-to-expire licensed patent covering such product or the later expiration of any market exclusivity period . the ckdp agreement continues until ckdp no longer has any obligation to pay us royalties on any product . either we or ckdp may terminate the ckdp agreement for the other party 's breach of the ckdp agreement or bankruptcy . ckdp may terminate the ckdp agreement if any of the licensed patent rights is invalid , unenforceable , is narrowed in scope or is deemed unpatentable , except as a result of a challenge by ckdp , or a third party commercializes a product containing a compound identical to cr845/difelikefalin without infringing any of the licensed patent rights in south korea . we may terminate the ckdp agreement if ckdp challenges the licensed patent rights or if a third party in south korea owns an issued patent that claims cr845/difelikefalin and ckdp 's sale of products would infringe that patent . in addition , in connection with the ckdp agreement , ckdp made a $ 0.4 million equity investment in our company . 83 manufacturing and license agreements enteris biopharma , inc. in august 2019 , we entered into the enteris license agreement with enteris .
| results of operations comparison of the years ended december 31 , 2020 , 2019 and 2018 revenue replace_table_token_4_th license and milestone fee revenue license and milestone fees revenue of $ 134.4 million for the year ended december 31 , 2020 was related to license fees of $ 111.6 million earned by us in connection with the vifor agreement that we entered into in october 2020 , license fees of $ 22.3 million earned by us in connection with the vfmcrp agreement , and $ 0.6 million ( net of south korean withholding taxes ) earned by us for achieving a development milestone under the ckdp agreement . license and milestone fees revenue of $ 19.7 million and $ 13.4 million for the years ended december 31 , 2019 and 2018 , respectively , were related to license fees earned by us during the respective periods in connection with the vfmcrp agreement ( see note 11 of notes to financial statements , collaboration and licensing agreements , in this annual report on form 10-k ) . 87 clinical compound revenue clinical compound revenue of $ 643 thousand for the year ended december 31 , 2020 was related to the sales of clinical compound to vfmcrp for $ 115 thousand and to maruishi for $ 528 thousand . clinical compound revenue of $ 140 thousand and $ 33 thousand for the years ended december 31 , 2019 and 2018 , respectively , related to the sale of clinical compound to maruishi .
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the transaction has been approved by both companies ' board of directors and the completion of the staples acquisition is subject to customary closing conditions including , among others , the approval of office depot shareholders and various regulatory approvals . certain existing debt agreements will require modification prior to closing . the transaction is anticipated to close before the end of 2015. refer to the company 's form 8-k filed february 4 , 2015 for additional information on the transaction . we can not guarantee that the staples merger will be completed or that , if completed , it will be exactly on the terms as set forth in the staples merger agreement . should the staples acquisition not be completed , the company will continue to be responsible for payment of commitments to current employees under retention arrangements and may either receive or pay a breakup fee , as provided for in the staples merger agreement . results of operations overview our business is comprised of three segments . the north american retail division includes our retail stores in the united states , including puerto rico and the u.s. virgin islands , which offer office supplies , technology products and solutions , business machines and related supplies , facilities products , and office furniture . most stores also have a copy and print center offering printing , reproduction , mailing and shipping . the north american business solutions division sells office supply products and services in canada and the united states , including puerto rico and the u.s. virgin islands . north american business solutions division customers are served through dedicated sales forces , through catalogs , telesales , and electronically through our internet sites . our international division sells office products and services through direct mail catalogs , contract sales forces , internet sites , and retail stores in europe and asia/pacific . the former officemax business in mexico is presented as an other segment . the integration of this business into the international division was suspended in the second quarter of 2014 due to the sale and it was managed and reported independently of the company 's other international businesses through the date of the sale . prior period segment information has been recast to reflect this change in reporting structure . a summary of factors important to understanding our results for 2014 is provided below . a more detailed comparison to prior years is included in the narrative that follows this overview . merger on november 5 , 2013 , the company completed its merger with officemax . officemax 's financial results since the merger date are included in our 2013 and 2014 consolidated statements of operations , affecting comparability of the full year amounts . due to the significance of the officemax results to the company , the officemax sales and operating expense categories , as well as the merger-related integration and restructuring activities in the twelve months of 2014 , are the main drivers of the changes in results of operations when compared to the 2013 results . 29 the impact of the merger on total company sales is as follows : replace_table_token_7_th due to the similarities in the underlying businesses under both banners ( office depot and officemax ) , the trends impacting the results are often the same or similar . in the division operating results discussion that follows , where the factors affecting the office depot banner business differ significantly from the factors affecting the officemax banner business compared to their operations in the fiscal year 2013 ( including period prior to the merger ) , separate explanations are provided . as the integration of the two companies ' systems , processes and offerings continues , the delineation of the contribution from the separate banners is diminishing ; however , providing the officemax banner component of sales remains relevant for 2014. during 2014 , we made significant progress on our integration activities . we are implementing our real estate strategy that anticipates closing at least 400 stores in north america through 2016 , of which we closed 168 in 2014. we completed modifications to two supply chain facilities to service both office depot and officemax banner customers and closed seven facilities . in the next two years , we expect to convert another six supply chain facilities to service both office depot and officemax banner customers , create or repurpose five locations , expand capacity in 12 existing facilities , and close another 12 locations . additionally , in 2014 , we converted over 50 stores to common point of sale systems , launched a combined company website ( www.officedepot.com ) , combined operating support functions , and made significant progress on identifying customer preferences and developing methods to reach them and service their needs . other significant factors impacting total company results and liquidity gross margin increased 10 basis points in 2014 compared to 2013 , following a 36 basis point decrease in the prior year to year comparison . an increase in gross margin in the north american retail division was partially offset by decreases in the other divisions . total company selling , general and administrative expenses increased in 2014 compared to 2013 , reflecting the addition of officemax operating expenses for the twelve months in 2014. selling and general and administrative expenses as a percentage of sales decreased 116 basis points , reflecting lower payroll and advertising expenses , as well as operational efficiencies and synergies from the merger . non-cash asset impairment charges of $ 88 million and $ 70 million were recorded in 2014 and 2013 , respectively . story_separator_special_tag in 2014 , the company closed the 19 grand & toy stores in canada that were added as part of the merger . because this decision was after the merger date , the fair value of assets for these locations recognized in purchase accounting has been written down to the amount recoverable through operations . the impairment charge of $ 1 million has been reflected in the asset impairments line in the consolidated statement of operations and as a corporate charge and is not included in determination of division operating income . these locations primarily serviced contract and other small business customers and , accordingly , were included in results of the north america business solutions division . international division replace_table_token_11_th sales in our international division in u.s. dollars increased 13 % in 2014 and remained flat in 2013 when compared to 2012 , as a result of the addition of officemax sales of $ 551 million in 2014 and $ 93 million in 2013. excluding the officemax sales , 2014 and 2013 sales would have decreased 2 % and 4 % , respectively . excluding the officemax sales , constant currency sales decreased 3 % in 2014 and 5 % in 2013. sales under the office depot banner in the contract and direct channels decreased in 2014. the contract channel sales decline reflects competitive market pressures , soft economic conditions in europe , the loss of certain contracts , discontinuation of low margin business , and reduced spend in the public sector across regions . the sales decline in the direct channel over the three years reflects the continued decline in catalog and call center sales , partially offset by online sales increases . the company anticipates the customer migration to online purchases and away from catalogs and call center sales will continue and has added functional capabilities , improved content and developed more effective marketing to grow the online business . the sales decline in 2013 also results from 34 competitive pressures and soft economic conditions in europe , as well as the discontinuation of certain less profitable contract accounts . retail sales were lower in 2013 , reflecting the disposition of stores in hungary in late 2012. division operating income totaled $ 53 million in 2014 , compared to $ 36 million in both 2013 and 2012. division operating income as a percentage of sales was 2 % in 2014 and 1 % for both 2013 and 2012. the improvement in division operating income reflects benefits from lower payroll and advertising , as well as benefits associated to prior restructuring activities under the office depot banner . division operating income in 2013 reflects the negative flow-through impact of lower sales , offset by the favorable impact of operational efficiencies , and the inclusion of a slightly positive officemax contribution in 2013 since the date of the merger . operating expenses decreased across the division in 2013 , reflecting benefits from current and prior period restructuring activities . during 2014 , the division announced a restructuring plan to align the organization from a geographic-focus to a channel-focus . the restructuring plan is intended to provide operational efficiency and allow enhanced customer service and is expected to benefit future division operating results . costs associated with restructuring activities , including employee termination benefits , lease obligations and other costs , are reported at the corporate level and discussed in the restructuring and other operating expenses , net section below . for u.s. reporting , the international division 's sales are translated into u.s. dollars at average exchange rates experienced during the year . the division 's reported sales were positively impacted from changes in foreign currency exchange rates by approximately $ 35 million and $ 52 million in 2014 and 2013 , respectively . internally , we analyze our international operations in terms of local currency performance to allow focus on operating trends and results . international division store count and activity is summarized below : replace_table_token_12_th ( 1 ) 38 of these stores relate to the termination of the thailand license agreement . ( 2 ) includes 249 stores operated by office depot de mexico , which the company sold its interest in during 2013 . ( 3 ) 22 companyowned stores and 93 stores operated by grupo officemax . ( 4 ) stores operated by grupo officemax , which the company sold its interest in the third quarter of 2014 . 35 other replace_table_token_13_th with the merger , we acquired the officemax joint venture business operating in mexico , grupo officemax . in august 2014 , we completed the sale of our interest in this business to our joint venture partner . in the second quarter of 2014 , due to the pending sale , the integration of this business into the international division was suspended and has since been managed and reported independently of the company 's other international businesses . prior period segment information has been recast to reflect this change in the reporting structure . since the company controlled the joint venture , the total grupo officemax results through the date of the sale are included in the consolidated statement of operations , with an apportionment of the period results to the noncontrolling interest based on their ownership percentage . the release of cumulative translation adjustments and transaction fees are included in merger , restructuring and other operating expenses , net in the consolidated statement of operations . the company adopted the new accounting standard on discontinued operations in the second quarter of 2014. while this is a disposal of all of our operations in mexico , it is not considered to have a major effect on our operations or financial results and , accordingly , it is not presented as discontinued operations . corporate the line items in our consolidated statements of operations impacted by these corporate activities are presented in the table below , followed by a narrative discussion of the significant matters .
| operating results discussion of additional income and expense items , including material charges and credits and changes in interest and income taxes follows our review of segment results . north american retail division replace_table_token_8_th sales in our north american retail division increased 41 % in 2014 and 3 % in 2013 , as a result of the addition of officemax sales of $ 2,526 million in 2014 and $ 384 million in 2013. excluding the officemax sales , sales would have decreased 5 % in both 2014 and 2013. the sales decline in each of the three years was impacted by store closures . the company believes that some shoppers continue to purchase in company stores that are in proximity to closed locations and online or through catalogs . online and catalog sales are reported in the north american business solutions division . while store closures result in lower sales in the north american retail division , they are typically lower performing stores and future division operating results may benefit . comparable sales in 2014 from the 973 office depot branded stores that were open for more than one year decreased 2 % . comparable sales for office depot branded stores in 2013 from the 1,071 stores that were open for more than one year decreased 4 % . transaction counts and average order values were lower each of the three years , consistent with the comparable store sales declines . lower transaction counts reflect lower customer traffic . the decline in average order values reflect , in part , declines in technology sales as customers continue to reduce purchases in this overall category , as well as due to lower average sale prices on certain computer products . additionally , sales of ink , toner , and paper declined in all years presented reflecting the highly-competitive market for sales of these products as consumers switch to an increasingly digital environment .
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statements containing the words `` anticipate , '' `` believe , '' `` could , '' `` estimate , '' `` expect , '' `` intend , '' `` may , '' `` plan , '' `` project , '' `` should , '' or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts . although we believe that the expectations , opinions , projections , and comments reflected in these forward-looking statements are reasonable , we can give no assurance that such statements will prove to be correct . a wide variety of potential risks , uncertainties , and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including , but not limited to : general economic conditions impacting our customers or potential customers ; our ability to execute a sale of our loan portfolio or another strategic transaction on favorable terms ; our ability to continue existing customer financing programs or to offer new customer financing programs ; changes in the delinquency status of our credit portfolio ; unfavorable developments in ongoing litigation ; increased regulatory oversight ; higher than anticipated net charge-offs in the credit portfolio ; the success of our planned opening of new stores and the updating of existing stores ; technological and market developments and sales trends for our major product offerings ; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and our employees ; our ability to fund our operations , capital expenditures , debt repayment and expansion from cash flows from operations , borrowings from our revolving credit facility , and proceeds from accessing debt or equity markets . additional risks and uncertainties are detailed in part i , item 1a . risk factors , of this annual report on form 10-k and other filings that we make with the sec . if one or more of these or other risks or uncertainties materialize ( or the consequences of such a development changes ) , or should our underlying assumptions prove incorrect , actual outcomes may vary materially from those reflected in our forward-looking statements . you are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date of this report . we disclaim any intention or obligation to update publicly or revise such statements , whether as a result of new information , future events or otherwise . all forward-looking statements attributable to us , or to persons acting on our behalf , are expressly qualified in their entirety by these cautionary statements . overview we encourage you to read this management 's discussion and analysis of financial condition and results of operations in conjunction with the accompanying consolidated financial statements and related notes . our fiscal year ends on january 31. references to a fiscal year refer to the calendar year in which the fiscal year ends . executive summary total revenues increased to $ 1.5 billion for fiscal year 2015 compared to $ 1.2 billion for fiscal year 2014. the increase in total revenue was primarily driven by new store openings , same store sales growth of 8.0 % and credit revenue as a result of the increase in the average balance of the customer receivable portfolio offset by a 20 basis point decrease in portfolio yield . retail gross margin for fiscal year 2015 was 40.5 % , an increase of 60 basis points over 39.9 % in the previous year . the expansion in retail margin was driven by a favorable shift in product mix with the higher-margin furniture and mattress category accounting for 30.4 % of product sales in the current year versus 26.0 % in the prior year . delivery , transportation and handling costs as a percentage of product sales and repair service agreement commissions ( the same basis used for calculating retail margins ) was 4.3 % , an increase of 60 basis points over 3.7 % in the previous year . the increase was primarily driven by the shift in product sales mix and the increase in promotional offerings of free delivery . selling , general and administrative expenses ( `` sg & a '' ) for fiscal year 2015 was $ 390.2 million , an increase of $ 86.8 million , or 28.6 % , over the prior year . the sg & a increase in the retail segment was primarily due to the opening of new stores resulting in higher sales-driven compensation , advertising costs , and facility-related costs . the sg & a increase in the credit segment is the result of the addition of collections personnel to service the 27.9 % increase in the customer receivable portfolio balance and anticipated near-term portfolio growth . provision for bad debts for fiscal year 2015 was $ 192.4 million , an increase of $ 96.2 million from the prior year . the year-over-year increase was impacted by the following : 30 a 37.2 % increase in the average receivable portfolio balance resulting from new store openings and same store growth over the past 12 months ; a 22.5 % increase in the balances originated during the year compared to the prior year ; an increase of 90 basis points in the percentage of customer accounts receivable balances greater than 60 days delinquent to 9.7 % at january 31 , 2015 . delinquency increased year-over-year across product categories , geographic regions , years of origination and many of the credit quality levels ; higher expected charge-offs over the next twelve-month period as losses are occurring at a faster pace than previously experienced , due to the increased number of new customers and continued elevation of our delinquency rates ; the decision to pursue collection of past and future charged-off accounts internally rather than selling charged off accounts to a third-party . story_separator_special_tag as a percent of segment revenues , sg & a for the retail segment in the current period increased 70 basis points as compared to the prior-year period primarily due to costs associated with store openings in new markets . the increase in sg & a for the credit segment was driven by the hiring of additional collections personnel to service the 27.9 % year-over-year increase in the customer receivable portfolio balance and anticipated near-term portfolio growth . provision for bad debts replace_table_token_14_th the year-over-year increase in provision for bad debts was impacted by the following : a 37.2 % increase in the average receivable portfolio balance resulting from new store openings and same store growth over the past 12 months ; a 22.5 % increase in the balances originated during the year compared to the prior year ; an increase of 90 basis points in the percentage of customer accounts receivable balances greater than 60 days delinquent to 9.7 % at january 31 , 2015 . delinquency increased year-over-year across product categories , geographic regions , years of origination and many of the credit quality levels ; higher expected charge-offs over the next twelve-month period as losses are occurring at a faster pace than previously experienced , due to the increased number of new customers and continued elevation of our delinquency rates ; the decision to pursue collection of past and future charged-off accounts internally rather than selling charged off accounts to a third-party . this change resulted in $ 7.6 million in additional provision recorded during the third quarter of fiscal 2015 as recoveries are expected to occur over an extended time period , which resulted in a reduction in expected cash recoveries over the next twelve months ; and the balance of customer receivables accounted for as troubled debt restructurings increased to $ 88.7 million , or 6.5 % of the total portfolio balance , driving $ 11.8 million of the increase in provision for bad debts . charges and credits replace_table_token_15_th during fiscal years 2015 and 2014 , we have closed and relocated a number of under-performing retail locations and have recorded the related charges . in connection with prior closures , we adjust the related lease obligations as more information becomes available . in addition , during fiscal year 2015 we had charges for severance and costs associated with legal and professional fees related to the company 's exploration of strategic alternatives and class action lawsuits . interest expense net interest expense for the year ended january 31 , 2015 increased by $ 14.0 million primarily due to an increase in the average debt balance outstanding and an increase in the effective interest rate . the increase in the effective interest rate was primarily due to our issuance of senior notes on july 1 , 2014 . 35 provision for income taxes replace_table_token_16_th the income tax rate for the year ended january 31 , 2015 included a tax benefit due to the reversal of the valuation allowance against our net deferred tax assets related to individual state net operating loss carryfforwards . year ended january 31 , 2014 compared to the year ended january 31 , 2013 revenues . the following table provides an analysis of retail net sales by product category in each period , including repair service agreement commissions and service revenues , expressed both in dollar amounts and as a percent of total net sales : replace_table_token_17_th the following provides a summary of items impacting our product categories during the year ended january 31 , 2014 , compared to the prior fiscal year : furniture and mattress sales growth was driven by a 67.6 % increase in unit sales and a 5.2 % increase in the average sales price . furniture sales climbed 82.9 % on a 76.7 % increase in unit volume with a modest increase in average selling price . mattress unit sales grew by 35.1 % with a 16.9 % increase in average selling price reflecting a shift to higher price-point merchandise ; home appliance sales increased during the period due to a 17.1 % increase in unit sales and a 9.5 % increase in the average selling price . laundry sales were up 34.7 % , refrigeration sales were up 27.8 % and cooking sales were up 28.2 % . this increase was partially offset by a 12.1 % decrease in room air conditioner sales as a result of milder temperatures in the region where our stores are located ; consumer electronic sales were up 23.5 % and average selling price increased 5.7 % on a same store basis . television sales increased 18.2 % , home theater sales rose 55.2 % and camera sales climbed 28.8 % , partially offset by a reduction in gaming hardware sales ; home office sales rose primarily as a result of expansion in both computer and tablet sales with a 10.8 % increase in the average selling price of computers ; the increase in repair service agreement commissions was driven primarily by increased retail sales ; and service revenue decreased by 6.5 % as a result of the outsourcing of certain warranty repair services . 36 the following table provides the change of the components of finance charges and other revenues : replace_table_token_18_th interest income and fees of the credit segment increased over the prior year level primarily driven by a 30.0 % increase in the average balance of the portfolio . portfolio interest and fee yield declined 70 basis points year-over-year as a result of increased short-term , no-interest financing . short-term , no interest option receivables averaged 32.2 % of the total portfolio balance for the year ended january 31 , 2014 , which compares to 21.0 % in the prior year . insurance commissions were favorably impacted by increased front-end commissions due to higher retail sales and increased retrospective commissions due to lower claims experience .
| results of operations the following tables present certain financial and other information , on a consolidated and segment basis : replace_table_token_5_th replace_table_token_6_th replace_table_token_7_th ( 1 ) the presentation of our costs and expenses may not be comparable to other retailers since we do not include the cost of delivery , transportation and handling costs as part of cost of goods . similarly , we include the cost of merchandising our products , including amounts related to purchasing the product , in selling , general and administrative expense . other retailers may include such costs as part of cost of goods . 32 ( 2 ) delivery , transportation and handling costs , previously included in selling , general and administrative expenses , is shown separately . ( 3 ) selling , general and administrative expenses include the direct expenses of the retail and credit operations , allocated overhead expenses , and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy , personnel , advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments . the reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5 % times the average portfolio balance for each applicable period . the amount of overhead allocated to each segment was $ 12.4 million , $ 11.4 million and $ 9.0 million for the years ended january 31 , 2015 , 2014 and 2013 , respectively . the amount of reimbursement made to the retail segment by the credit segment was $ 29.8 million , $ 21.7 million and $ 16.7 million for the years ended january 31 , 2015 , 2014 and 2013 , respectively . year ended january 31 , 2015 compared to the year ended january 31 , 2014 revenues .
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the company 's integrated platform is built upon expertise in payroll processing , employee benefits , workers ' compensation coverage , risk management and workplace safety programs , and human resource administration . we provide human resource management services , comprised principally of staffing services and peo services . we generate staffing services revenues primarily from short-term staffing , contract staffing , on-site management and direct placement services . our peo service fees are generated from contractual agreements with our peo clients under which we become a co-employer of our client 's workforce with responsibility for some or all of the client 's human resource functions . we recognize revenues from our staffing services for all amounts invoiced , including direct payroll , employer payroll-related taxes , workers ' compensation coverage and a service fee ( equivalent to a mark-up percentage ) . peo service fee revenues are recognized on a net basis in accordance with current accounting guidance for revenue recognition and principal/agent considerations . consequently , our peo service fee revenues represent the gross margin generated from our peo services after deducting the amounts invoiced to peo customers for direct payroll expenses such as salaries , wages , health insurance and employee out-of-pocket expenses incurred incidental to employment . these amounts are also excluded from cost of revenues . peo service fees also include amounts invoiced to our clients for employer payroll-related taxes and workers ' compensation coverage . through centralized operations at our headquarters in vancouver , washington , we prepare invoices weekly for our staffing services customers and following the end of each payroll processing cycle for peo clients . we invoice our customers and clients as each payroll is processed . payment terms for staffing customers are generally 30 days , while peo clients ' invoices are generally due on the invoice date . our business is concentrated in california and oregon and we expect to continue to derive a majority of our revenues from these markets in the future . revenues generated in our california and oregon offices accounted for 75 % of our total net revenues in 2011 , 69 % in 2010 and 67 % in 2009. consequently , any weakness in economic conditions or changes in the regulatory environments in these regions could have a material adverse effect on our financial results . we offer cash safety incentives to certain peo clients for maintaining safe-work practices in order to minimize workplace injuries . the cash incentive is based on a percentage of annual payroll and is paid annually to customers who meet predetermined workers ' compensation claims cost objectives . safety incentive payments are made only after closure of all workers ' compensation claims incurred during the customer 's contract period . the safety incentive expense is also netted against peo revenues on our statements of operations . - 27 - our cost of revenues is comprised of direct payroll costs for staffing services , employer payroll-related taxes and employee benefits and workers ' compensation . direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages . payroll taxes and employee benefits consist of the employer 's portion of social security and medicare taxes , federal and state unemployment taxes , and staffing services employee reimbursements for materials , supplies and other expenses , which are paid by the customer . workers ' compensation expense consists primarily of the costs associated with our self-insured workers ' compensation program , such as claims reserves , claims administration fees , legal fees , state administrative agency fees and excess insurance costs for catastrophic injuries . we also maintain separate workers ' compensation insurance policies for employees working in states where we are not self-insured . the largest portion of workers ' compensation expense is the cost of workplace injury claims . when an injury occurs and is reported to us , our respective independent tpa or our internal claims management personnel analyze the details of the injury and develop a case reserve , which becomes the estimate of the cost of the claim based on similar injuries and their professional judgment . we then record or accrue an expense and a corresponding liability based upon our estimate of the ultimate claim cost . as cash payments are made by our tpa against specific case reserves , the accrued liability is reduced by the corresponding payment amount . the tpa and our in-house claims administrators also review existing injury claims on an on-going basis and adjust the case reserves as new or additional information for each claim becomes available . our reserve includes a provision for both future anticipated increases in costs ( adverse loss development ) of the claims reserves for open claims and for claims incurred but not reported related to prior and current periods . this provision of the reserve is based upon an actuarial estimate provided by our third-party actuary . we believe our operational policies and internal claims reporting system help to limit the occurrence of unreported incurred claims . selling , general and administrative expenses represent both branch office and corporate-level operating expenses . branch operating expenses consist primarily of branch office staff payroll and personnel related costs , advertising , rent , office supplies , professional and legal fees and branch incentive compensation . corporate-level operating expenses consist primarily of executive and office staff payroll and personnel related costs , professional and legal fees , travel , occupancy costs , information systems costs and executive and corporate staff incentive compensation . depreciation and amortization represents depreciation of property and equipment and amortization of intangible assets consisting of the amortization of software costs , covenants not to compete , and if material , customer related intangibles . property and equipment are depreciated using the straight-line method over their estimated useful lives , which generally range from two to 39 years . intangible assets are amortized using the straight-line method over their estimated useful lives , which range from two to ten years . story_separator_special_tag at december 31 , 2011 , we had deferred income tax assets of $ 6.0 million we assess the realization of the deferred income tax assets as significant changes in circumstances may require adjustments during future periods . the amount of the deferred income tax assets actually realized could vary , if there are differences in the timing or amount of future reversals of existing deferred income tax assets or changes in the actual amounts of future taxable income as compared to operating forecasts . if our operating forecast is determined to no longer be reliable due to uncertain market conditions , our long-term forecast may require reassessment . as a result , in the future , a valuation allowance may be required to be established for all or a portion of the deferred income tax assets . such a valuation allowance could have a significant effect on our future results of operations and financial position . recent accounting pronouncements for a discussion of recent accounting pronouncements and their potential effect on the company 's results of operations and financial condition , refer to note 1 in the notes to the consolidated financial statements beginning at page f-7 of this annual report on form 10-k. - 30 - forward-looking information statements in this item or in items 1 and 1a of this report which are not historical in nature , including discussion of economic conditions in the company 's market areas and effect on revenue levels , the company 's agreement to purchase shares owned by the estate of william w. sherertz and certain shares owned by nancy sherertz , the effects of those transactions on the company 's liquidity and results , the potential for and effect of past and future acquisitions , the effect of changes in the company 's mix of services on gross margin , the adequacy of the company 's workers ' compensation reserves and allowance for doubtful accounts , the effect of the company 's formation and operation of two wholly owned fully licensed insurance subsidiaries and becoming self-insured for certain business risks , the financial stability of the company 's excess insurance carrier , the effectiveness of the company 's management information systems , payment of future dividends and the availability of financing and working capital to meet the company 's funding requirements , are forward-looking statements within the meaning of the private securities litigation reform act of 1995. such forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause the actual results , performance or achievements of the company or industry to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . such factors with respect to the company include difficulties associated with integrating acquired businesses and clients into the company 's operations , the company 's ability to retain current customers , economic trends in the company 's service areas , the potential for material deviations from expected future workers ' compensation claims experience , the effect of changes in the workers ' compensation regulatory environment in one or more of the company 's primary markets , collectibility of accounts receivable , the carrying values of deferred income tax assets and goodwill , which may be affected by the company 's future operating results , and the availability of capital or letters of credit necessary to meet state-mandated surety deposit requirements for maintaining the company 's status as a qualified self-insured employer for workers ' compensation coverage , among others . the company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments . results of operations the following table sets forth the percentages of total revenues represented by selected items in the company 's statements of operations for the years ended december 31 , 2011 , 2010 and 2009 , included in item 15 of this report . references to the notes to financial statements appearing below are to the notes to the company 's financial statements included in item 15 of this report . - 31 - replace_table_token_6_th we report peo revenues on a net basis because we are not the primary obligor for the services provided by our peo clients to their customers pursuant to our peo contracts . we present for comparison purposes the gross revenues and cost of revenues information for the years ended december 31 , 2011 and 2010 set forth in the table below . although not in accordance with generally accepted accounting principles in the united states ( gaap ) , management believes this information is more informative as to the level of our business activity and more illustrative of how we manage our operations , including the preparation of our internal operating forecasts , because it presents our peo services on a basis comparable to our staffing services . the presentation of revenues on a net basis and the relative contributions of staffing and peo revenues can create volatility in our gross margin percentage . the general impact of fluctuations in our revenue mix is described below . a relative increase in staffing revenues will typically result in a lower gross margin percentage . staffing revenues are presented at gross with the related direct costs reported in cost of sales . while staffing relationships typically have higher margins than peo relationships , an increase in staffing revenues and related costs presented at gross dilutes the impact of the net peo revenue on gross margin percentage . a relative increase in peo revenue will result in higher gross margin percentage . improvement in gross margin percentage occurs because incremental peo revenue dollars are reported as revenue net of all related direct costs .
| fluctuations in quarterly operating results we have historically experienced significant fluctuations in our quarterly operating results and expect such fluctuations to continue in the future . our operating results may fluctuate due to a number of factors such as a seasonality , wage limits on statutory payroll taxes , claims experience for workers ' compensation , demand for our services and competition and the effect of acquisitions . payroll taxes , as a component of cost of revenues , generally decline throughout a calendar year as the applicable statutory wage bases for federal and state unemployment taxes and social security taxes are exceeded on a per employee basis . our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers ' businesses in the agriculture , food processing and forest products-related industries . in addition , revenues in the fourth quarter may be affected by many customers ' practice of operating on holiday-shortened schedules . workers ' compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims . in addition , adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the company 's estimated worker 's compensation expense .
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the company currently operates two reportable business units , astro scientific and astral images corporation ( “ astral ” ) , and their efforts are focused on the following : astro scientific 1 st detect corporation ( “ 1 st detect ” ) is a supplier of chemical detection and analysis instrumentation . our next-generation solutions enable high performance trace detection of critical threats or compounds of interest to the security , defense , and healthcare markets using a small , fast , and inexpensive platform . the company has engaged chardan capital markets , llc to help maximize shareholder value at 1 st detect by investigating strategic alternatives . astrogenetix , inc. ( “ astrogenetix ” ) is developing next-generation vaccines and therapeutics using the unique environment of microgravity . astral images corporation astral images corporation ( “ astral ” ) restores , enhances , and digitizes film using its powerful artificial intelligence ( “ ai ” ) algorithms to remove dust , scratches , and defects while restoring and enhancing the original color and optimizing the resolution to be viewed in ultra-high definition ( “ uhd ” or “ 4k ” ) high dynamic range ( “ hdr ” ) . we are facilitating the shift from high definition ( “ hd , ” “ 2k , ” or “ 1080p ” ) resolution to 4k/hdr , the format in which the latest generation of digital video content is being distributed to the home . our business units astro scientific astro scientific is a technology incubator that commercializes innovative technologies . subsidiaries 1 st detect and astrogenetix currently reside in astro scientific : 1 st detect - 1 st detect develops , manufactures , and sells chemical analyzers for use in the airport security , military , and breath analysis markets . our chemical analyzers can identify chemicals with more accuracy and precision than competing analyzers given their extreme sensitivity and specificity . by leveraging a concept from oak ridge national laboratory and a preliminary design initiated by an engagement with the national aeronautics and space administration ( “ nasa ” ) to develop a mass spectrometer for the international space station , the company developed a chemical analyzer that enables real-time analytics that we believe to be significantly smaller , lighter , faster , and less expensive than competing analyzers . the majority of revenue in 1 st detect comes from working as a subcontractor on government contracts . the company works with prime contractors in adapting our technology to be used in enhancing the government 's detection capabilities for a variety of applications . 14 our efforts have resulted in a technology that has been or may be deployed in the following areas : security - explosive device detection in airports : there are currently approximately 25,000 ion mobility spectrometer ( “ ims ” ) instruments installed today , with most nearing their end of life . as the current generation of ims technology is replaced , we are positioning the company to be the best next-generation solution for this market . we have partnered with an incumbent provider of ims instrumentation to airports to deliver an instrument to the transportation and security administration ( “ tsa ” ) with far greater capabilities than ims . together with our partner , we were awarded a grant for the air cargo and next generation checkpoint program with the department of homeland security science and technology directorate ( “ dhs s & t ” ) , whereby we delivered the mass spectrometer portion of the instrument . we recently completed the first phase of the program and our technology was well received by tsa , but there is no guarantee of subsequent phases . we have therefore launched efforts internally to create a full product solution for the tsa called the tracer 1000 ms-etd as we work toward having the world 's first explosives trace detector ( “ etd ” ) driven by a mass spectrometer . with mass spectrometry being the gold standard of chemical detection , a mass spectrometry-based etd will significantly reduce the number of false positives and allow for a much more expansive library of compounds of interest as compared to ims-based etds . defense - military : the military is also looking to enhance its chemical detection capabilities and , on september 11 , 2014 , we announced that , together with battelle memorial institute ( “ battelle ” ) , one of the leading providers of instrumentation to the military , we were awarded a grant for the next generation chemical detector ( “ ngcd ” ) program with the department of defense 's ( “ dod ” ) joint program executive office for chemical and biological defense ( “ jpeo-cbd ” ) for one of the three variants in the ngcd program called the multi-sample identifier/multi-sample identifier collector variant . the first stage of the three stage program was completed in the fourth quarter of fiscal year 2017. if we win the procurement , the military will procure an estimated 770 units to be used for the following purposes : ◦ evaluating the presence of chemicals after suspected chemical release incidents ; ◦ continuously evaluating surface contamination following a chemical release to characterize contamination levels ; ◦ evaluating the presence of contamination at a sample site ; and ◦ confirming decontamination of potentially contaminated personnel and equipment . our portion of the contract was successfully completed ; however , battelle has indicated that they do not plan to pursue the next phase of the program . we are currently evaluating our options for remaining in the competition . healthcare - breath analysis : we have partnered with ut health san antonio ( “ uthsa ” ) in the development of the breathdetect 1000 , a mass spectrometry-based instrument that is being used to analyze human breath in real-time , enabling detection of bacterial infections in the respiratory tract within minutes . story_separator_special_tag revenue from certain long-term , integrated project management contracts to provide new prototypes and completion services is reported on the percentage-of-completion method of accounting . at the outset of each contract , we prepare a detailed analysis of our estimated cost to complete the project , and our progress is based on the percentage of cost incurred . risks related to service delivery , usage , productivity , and other factors are considered in the estimation process . the recording of profits and losses on long-term contracts requires an estimate of the total profit or loss over the life of each contract . this estimate requires consideration of total contract value , change orders , and claims , less costs incurred and estimated costs to complete . anticipated losses on contracts are recorded in full in the period in which they become evident . profits are recorded based upon the total estimated contract profit multiplied by the current percentage complete for the contract . as of june 30 , 2017 , there were not any unrecognized contract revenues or costs . 16 research and development research and development costs are expensed as incurred . income from the sale of prototype units in 1 st detect for the years ended june 30 , 2017 and 2016 was $ 12 thousand and $ 93 thousand , respectively , and was booked as an offset to research and development and will continue to be booked accordingly until the company transitions to full production . research and development expenses for the fiscal years ended june 30 , 2017 and 2016 were $ 5.6 million and $ 6.5 million , respectively . net loss per common share basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period . diluted net loss per share would be considered anti-dilutive ( see note 13 to the consolidated financial statements ) . cash and cash equivalents the company considers short-term investments with original maturities of three months or less to be cash equivalents . cash equivalents are comprised primarily of operating cash accounts , money market investments , and certificates of deposits . accounts receivable the carrying value of the company 's accounts receivable , net of the allowance for doubtful accounts , represents their estimated net realizable value . astrotech estimates the allowance for doubtful accounts based on type of customer , age of outstanding receivable , historical collection trends , and existing economic conditions . if events or changes in circumstances indicate that a specific receivable balance may be unrealizable , further consideration is given to the collectability of those balances , and the allowance is adjusted accordingly . receivable balances deemed uncollectible are written off against the allowance . the company anticipates collecting all unreserved receivables within one year . as of june 30 , 2017 and 2016 , there was no allowance for doubtful accounts deemed necessary . inventory the company computes inventory cost on a first-in , first-out basis , and inventory is valued at the lower of cost or market . the valuation of inventory also requires the company to estimate obsolete and excess inventory as well as inventory that is not of saleable quality . property and equipment property and equipment are stated at cost . all furniture , fixtures , and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets , which is generally five years . purchased software is typically depreciated over three years ; however , astral 's proprietary software , astral hdr ice , is being depreciated over seven years as this is management 's best estimate of useful life of this platform . leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease . repairs and maintenance are expensed when incurred . impairment of long-lived assets the company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . examples of such events could include competitors developing and marketing similar technology or changes in technical standards being released . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . recoverability of long-lived assets is dependent on a number of conditions , including uncertainty about future events and demand for our services . no impairments were identified in the years ended june 30 , 2017 or 2016 . fair value of financial instruments astrotech 's financial instruments consist of cash and cash equivalents , accounts receivable , accounts payable , investments , and accrued liabilities . the company 's management believes the carrying amounts of these assets and liabilities approximates their 17 fair value . for more information about the company 's accounting policies surrounding fair value instruments , see note 9 to the consolidated financial statements . available-for-sale investments investments that are designated as available-for-sale are reported at fair value , with unrealized gains and losses recorded in accumulated other comprehensive loss . the company determines the cost of investments sold based on a first-in , first-out cost basis at the individual security level .
| results of operations for the years ended june 30 , 2017 and 2016 selected financial data for the years ended june 30 , 2017 and 2016 of our continuing operations are as follows : replace_table_token_2_th revenue – total revenue decreased by $ 0.3 million , or 13 % , for the year ended june 30 , 2017 , compared to the year ended june 30 , 2016 . all of the fiscal year 2017 revenue was associated with research-based , fixed-price , government-related subcontract agreements , compared to the fiscal year 2016 revenue of $ 2.5 million for the same subcontract agreements . the decrease was primarily due to revenues of $ 0.2 million received in fiscal year 2016 associated with space-grade handrail manufacturing sales , an opportunity born from our legacy space business for which the company has unique expertise . these handrail manufacturing sales occur every one to three years ; no such sales were made in fiscal year 2017 . gross profit – gross profit is comprised of revenue less cost of revenue . cost of revenue is comprised of labor , materials , and overhead related to products manufactured for the subcontract agreements . cost of revenue decreased $ 1.0 million , or 45 % , for the year ended june 30 , 2017 , compared to the year ended june 30 , 2016 . gross profit increased $ 0.7 million , or 205 % , during the year ended june 30 , 2017 , compared to the year ended june 30 , 2016 , due to favorable changes to actual profit margins as a result of fewer production issues than anticipated . gross margin percentage increased 32 % for the year ended june 30 , 2017 , compared to the year ended june 30 , 2016 , due to favorable variances mentioned above .
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this discussion and analysis contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading risk factors and elsewhere in this report . overview we are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications , iot , consumer , industrial and automotive applications . we provide technology platforms for analog , mixed-signal , power , high voltage , non-volatile memory , and rf applications . we have a proven record with about 40 years of operating history , a portfolio of approximately 3,000 registered patents and pending applications and extensive engineering and manufacturing process expertise . our foundry services group provides specialty analog and mixed-signal foundry services mainly for fabless and idm semiconductor companies that primarily serve communications , iot , consumer , industrial and automotive applications . our standard products group includes our display solutions and power solutions business lines . our display solutions products provide flat panel display solutions to major suppliers of large and small rigid and flexible panel displays , and mobile , automotive applications and home appliances . our power solutions products include discrete and integrated circuit solutions for power management in communications , consumer , computing and industrial applications . our wide variety of analog and mixed-signal semiconductor products and manufacturing services combined with our mature technology platform allow us to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands . our design center and substantial manufacturing operations in korea place us at the core of the global electronics device supply chain . we believe this enables us to quickly and efficiently respond to our customers ' needs and allows us to better serve and capture additional demand from existing and new customers . to maintain and increase our profitability , we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce . we must understand our customers ' needs as well as the likely end market trends and demand in the markets they serve . we must balance the likely manufacturing utilization demand of our product businesses and foundry business to optimize our capacity utilization . we must also invest in relevant research and development activities and manufacturing capacity and purchase necessary materials on a timely basis to meet our customers ' demand while maintaining our target margins and cash flow . the semiconductor markets in which we participate are highly competitive . the prices of our products tend to decrease regularly over their useful lives , and such price decreases can be significant as new generations of products are introduced by us or our competitors . we strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products . in addition , we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence . demand for our products and services is driven by overall demand for communications , iot , consumer , industrial and automotive products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers . in order to mitigate the impact of market volatility on our business , we are diversifying our portfolio of products , customers , and target applications . we also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services . while we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history , existing manufacturing capacity and our 42 worldwide customer base , 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 completely fabless semiconductor companies , our internal manufacturing capacity provides us with greater control over manufacturing costs and the ability to implement process and production improvements for our internally manufactured products , which can favorably impact gross profit margins . story_separator_special_tag as a result , we recorded a $ 0.2 million net loss as early extinguishment loss on our consolidated statements of operations for the year ended december 31 , 2018. water treatment facility arrangement on june 29 , 2018 , we entered into an arrangement whereby we acquired a water treatment facility to support our fabrication facility in gumi , korea from sk hynix for $ 4.2 million , and sold it for $ 4.2 million to a third party management company that we have engaged to run the facility for a 10-year term . this arrangement is accounted for as a financing due to our korean subsidiary 's continuing involvement with the facility . as a result , on the acquisition date , we recorded the water treatment facility of $ 4.2 million as property , plant and equipment , net , which is depreciated over its useful life . we also recorded the related liabilities of $ 0.6 million as other current liabilities and $ 3.6 million as other non-current liabilities , which relates to the financing and service portion of the arrangement and is amortized using the effective interest method over the contract period . segment change in january 2018 , as part of our ongoing portfolio optimization effort to realign business processes and streamline our organizational structure , we transferred a portion of our non-oled display solutions business 44 from our standards products group to our foundry services group . the transferred non-oled display business has technical and business characteristics more closely aligned with our foundry services business than with our standard products business , which resided within our display solutions business line primarily as a result of a long standing customer relationship established in the past . the transferred non-oled display business represented $ 33.0 million of net sales for the year ended december 31 , 2018. the corresponding non-oled display business represented $ 30.3 million and $ 25.2 million of net sales for the years ended december 31 , 2017 and 2016 , respectively . tax audit in september 2017 , magnachip semiconductor ltd. ( msk ) , our korean operating subsidiary , was notified that the korean national tax service ( the knts ) would be examining the income- and non-income-based taxes of msk for its 2012 to 2014 tax years . the knts had conducted its audit , primarily focusing on non-income-based value added tax ( vat ) transactions associated with the periods with respect to which we previously restated our financial statements as a result of the independent investigation commenced by our audit committee in january 2014 ( the restatement ) . as a result , the aggregate tax and penalty assessment by the knts was $ 6.0 million , of which $ 3.3 million had already been accrued by us in our financial statements in connection with the restatement filed in 2015. such amount also included approximately $ 0.5 million related to employee withholding amounts and associated penalties , and to the extent any such tax obligation was that of msk 's employees . in addition , knts assessed an administrative fine of $ 2.0 million in connection with the above-described tax audit . in december 2017 , the knts concluded that no criminal charges would be brought against any current officers or directors of msk or msk itself . as a result , we took a charge of $ 4.2 million in the fourth quarter of 2017 related to this additional tax assessment and associated penalties and administrative fine . we recorded the $ 0.5 million related to employee withholding amounts as other receivables in our consolidated balance sheets as of december 31 , 2017 , as we expected to obtain reimbursement of the applicable amounts from those employees . of the $ 0.5 million , we have collected $ 0.1 million and established an allowance of $ 0.4 million and recorded it as selling , general and administrative expense for the three months ended september 30 , 2018. secondary offering on august 15 , 2017 , certain of our stockholders that are affiliates of avenue capital management ii , l.p. ( the selling stockholders ) closed an underwritten registered public offering of 4,088,978 shares of our common stock at a price per share of $ 11.10. we did not receive any proceeds from the sale of our common stock by the selling stockholders , but paid certain expenses in connection with such secondary offering pursuant to an existing contractual arrangement with the selling stockholders . events associated with the closure of our 6-inch fab and reduction of workforce in december 2014 , we announced that our board of directors had adopted a plan to close our 6-inch fab . during the fourth quarter of 2015 , we received an $ 8.2 million deposit for sale of machinery in conjunction with the planned closure of our 6-inch fab . according to this plan , the 6-inch fab was closed on february 29 , 2016. during the first quarter of 2016 , we completed all procedures necessary to sell all machineries in our closed 6-inch fab and recognized a $ 7.8 million restructuring gain from the related deposit of $ 8.2 million , net of certain direct selling costs . on april 4 , 2016 , we commenced a voluntary resignation program ( the program ) , which was available to certain manufacturing employees , including our 6-inch fab employees , through april 29 , 2016. as of april 29 , 2016 , 169 employees elected to resign under the terms of the program . we paid approximately $ 8 million for severance benefits , which are required by law and had already been fully accrued in our financial statements , in a lump sum during the second quarter of 2016. beginning in may 2016 , we also 45 began to pay a portion of the $ 4.2 million other termination benefits under the program , which were paid in equal monthly installments over twelve months .
| results by segment replace_table_token_9_th 58 replace_table_token_10_th net sales net sales were $ 750.9 million for the year ended december 31 , 2018 , a $ 71.2 million , or 10.5 % , increase compared to $ 679.7 million for the year ended december 31 , 2017. this increase was primarily attributable to an increase in revenue from our standard products group , which was offset in part by a decrease in revenue from our foundry services group . foundry services group . net sales from our foundry services group segment were $ 325.3 million for the year ended december 31 , 2018 , a $ 25.1 million , or 7.2 % , decrease compared to net sales of $ 350.4 million for the year ended december 31 , 2017. the decrease was primarily attributable to a decrease in demand of low margin product sales from a global power management ic foundry customer and a decrease in demand from a customer serving the low- to mid-range mobile phone market . this decrease was offset in part by an increase in sales of certain battery charger related products from a global power management ic foundry customer . standard products group . net sales from our standard products group segment were $ 425.4 million for the year ended december 31 , 2018 , a $ 96.3 million , or 29.3 % , increase compared to $ 329.1 million for the year ended december 31 , 2017. this increase was primarily attributable to an increase in revenue related to an improvement in mobile oled display driver ics due to the introduction of new oled smartphones by chinese manufacturers and higher demand for premium power products such as high-end mosfets and igbts primarily for tv and industrial applications . this increase was offset in part by a strategic reduction of our lower margin lcd business . all other .
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our two managing trustees are also managing trustees of sir and gov , and owners of reit management & research llc , or rmr , which is the business and property manager of us , sir , gov and aic , and a majority of our trustees are directors of aic . we use the income statement method to account for issuance of common shares of beneficial interest by sir and gov ( until march 15 , story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this annual report on form 10-k. overview we primarily own office buildings in cbd and suburban locations throughout the united states , consisting of 114 properties ( 184 buildings ) with a combined 35.5 million square feet ( excluding properties classified as held for sale ) . we also own 1.8 million square feet of space in 11 properties ( 11 buildings ) located in australia and 22,000,000 common shares , or approximately 44.2 % , of sir , a reit that primarily owns and invests in net leased , single tenant office and industrial properties throughout the united states and leased lands in hawaii . sir was a 100 % owned subsidiary of ours until march 12 , 2012 , on which date sir completed the sir ipo and became a publicly owned company with shares listed on the nyse . after the sir ipo , and until july 2 , 2013 , sir was one of our consolidated subsidiaries and we consolidated sir 's financial position and results of operations in our financial statements . on july 2 , 2013 , sir issued and sold to the public 10,500,000 of its common shares . prior to the completion of this offering , our 22,000,000 common shares of sir represented approximately 56.0 % of sir 's outstanding common shares , and sir was one of our consolidated subsidiaries . following the completion of this offering , our 22,000,000 common shares of sir represented approximately 44.2 % of sir 's outstanding common shares , and sir ceased to be our consolidated subsidiary . as a result of this offering , our investment in sir was reduced below 50 % ; consequently , effective july 2 , 2013 , we no longer consolidate sir but instead account for such investment using the equity method . under the equity method , we record our percentage share of net earnings of sir in our consolidated statements of operations . until march 15 , 2013 , we also owned 9,950,000 common shares of gov . we used the equity method to account for our ownership of gov . gov , a reit that primarily owns properties located throughout the united states that are majority leased to government tenants , was our wholly owned subsidiary until its initial public offering in june 2009 , or the gov ipo , when it became a publicly owned company with shares listed on the nyse . on march 15 , 2013 , we sold all 9,950,000 common shares that we owned of gov in a public offering for net proceeds of $ 239.6 million ( after deducting underwriters ' discounts and commissions and expenses ) . we recognized a gain on the sale of this equity investment of $ 66.3 million as a result of the per share sales price of this transaction being above our per share carrying value . we had previously recognized gains totaling approximately $ 53.2 million on subsequent sales by gov of its common shares , which reduced our percentage ownership of gov from approximately 49.9 % at the time of the gov ipo , until march 15 , 2013 when we sold our remaining common shares of gov . see note 12 to our notes to consolidated financial statements in part iv , item 15 of this annual report on form 10-k for further information regarding our agreements with sir and gov . since related/corvex publicly announced on february 26 , 2013 that they had accumulated common shares of the company , they have undertaken a series of actions in an effort to influence and control us , including publishing `` open '' letters to our board of trustees , announcing conditional , unfinanced purported offers to acquire all the company 's common shares , running a consent solicitation seeking to remove , without cause , all of the members of our board of trustees which the arbitration panel determined `` was not properly conducted and can not be validated '' and pursuing legal proceedings against the company , the board of trustees and rmr . the arbitration panel also 60 provided for an opportunity for related/corvex to conduct a new consent solicitation within a limited time period . related/corvex have filed a definitive solicitation statement with the sec for ( i ) a new consent solicitation for their proposal to remove , without cause , all of the members of our board of trustees , including the two recently added independent trustees , and ( ii ) in the event this removal proposal is successful , the solicitation of proxies for the election of seven nominees for new trustees proposed by related/corvex at a special meeting of shareholders which would be required for the election of replacement trustees . we have filed a definitive consent revocation statement in opposition to the related/corvex removal proposal . story_separator_special_tag as of december 31 , 2013 , approximately 6.5 % of our leased square feet and 5.8 % of our annualized rental revenue , determined as set forth below , are included in leases scheduled to expire through december 31 , 2014. renewed and new leases and rental rates at which available space may be relet in the future will depend on prevailing market conditions at the times these leases are negotiated . 62 lease expirations by year , as of december 31 , 2013 , are as follows ( square feet and dollars in thousands ) : replace_table_token_8_th ( 1 ) square feet is pursuant to existing leases as of december 31 , 2013 , and includes ( i ) space being fitted out for occupancy and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . excludes properties classified in discontinued operations . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to existing leases as of december 31 , 2013 , plus straight line rent adjustments and estimated recurring expense reimbursements ; includes some triple net lease rents and excludes lease value amortization . excludes properties classified in discontinued operations . rmr employs a tenant review process for us . rmr assesses tenants on an individual basis and does not employ a uniform set of credit criteria . in general , depending on facts and circumstances , rmr evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and , in some cases , information that is publicly available or obtained from third party sources . rmr also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized statistical rating organization . no material changes in portfolio wide tenant credit quality have occurred since december 31 , 2012. a principal source of funds for our operations is rents from tenants at our properties . rents are generally received from our tenants monthly in advance , except from our government tenants , who 63 usually pay rents monthly in arrears . as of december 31 , 2013 , tenants responsible for 1 % or more of our total annualized rental revenue were as follows ( square feet in thousands ) : replace_table_token_9_th ( 1 ) square feet is pursuant to existing leases as of december 31 , 2013 , and includes ( i ) space being fitted out for occupancy and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . excludes properties classified in discontinued operations . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to existing leases as of december 31 , 2013 , plus straight line rent adjustments and estimated recurring expense reimbursements ; includes some triple net lease rents and excludes lease value amortization . excludes properties classified in discontinued operations . investment and disposition activities over the past several years , our business plan has been increasingly focused on repositioning our portfolio towards high quality office buildings located in central business districts and away from suburban office and industrial properties . in early 2013 , we announced that we would offer for sale 40 primarily suburban office and industrial properties ( 94 buildings ) with a combined 6,673,851 square feet . during 2013 , we sold all of these properties for an aggregate sale price of $ 158.3 million , excluding closing costs . in addition , during 2013 we also sold a land parcel and three suburban office 64 and industrial properties ( 40 buildings ) with a combined 1,670,104 square feet for an aggregate sale price of $ 90.8 million , excluding closing costs and other adjustments . as of december 31 , 2013 , we have 45 properties ( 110 buildings ) with a combined 8,425,548 square feet classified as held for sale . we expect to sell these properties during 2014 ; however , no assurance can be given that any of these properties will be sold in that time period or at all , or what the ultimate terms of those sales may be . from time to time we may consider selling additional properties . on march 15 , 2013 , we sold all 9,950,000 common shares that we owned of gov in a public offering for $ 25.20 per common share , raising gross proceeds of $ 250.7 million ( $ 239.6 million after deducting underwriters ' discounts and commissions and expenses ) . we recognized a gain on this sale of an equity investment of $ 66.3 million as a result of the per share sales price of this transaction being above our per share carrying value . net proceeds from this sale were used to repay amounts outstanding under our revolving credit facility , which amounts were borrowed to fund , in part , the purchase of our senior notes that were tendered in the tender offer discussed below . for more information regarding these transactions , please see notes 4 and 6 to the notes to consolidated financial statements in part iv , item 15 of this annual report on form 10-k. financing activities in march 2013 , we issued 34,500,000 common shares ( including 4,500,000 common shares sold pursuant to the underwriters ' option to purchase additional shares ) in a public offering for $ 19.00 per common share , raising gross proceeds of $ 655.5 million ( $ 626.9 million after deducting underwriters ' discounts and commissions and expenses ) . net proceeds from this offering were used to repay indebtedness , including amounts borrowed under our revolving credit facility to fund , in part , the purchase of the senior notes that were tendered in the tender offer described below .
| results of operations year ended december 31 , 2012 , compared to year ended december 31 , 2011 replace_table_token_14_th ( 1 ) comparable properties consist of 191 properties ( 250 buildings ) we and sir owned continuously from january 1 , 2011 to december 31 , 2012 , excluding properties classified as held for sale . 74 ( 2 ) other properties consist of : ( i ) 25 properties ( 40 buildings ) and nine properties ( 18 buildings ) we and sir owned on december 31 , 2012 and 2011 , respectively , and which we and sir acquired during the period from january 1 , 2011 to december 31 , 2012. the nine properties owned on december 31 , 2011 are included in the 25 properties owned on december 31 , 2012 . ( 3 ) see note ( 3 ) on page 66 for further information regarding noi . calculation of ffo and normalized ffo replace_table_token_15_th ( 1 ) see note ( 1 ) on page 68 for further information regarding ffo and normalized ffo . 75 ( 2 ) as of december 31 , 2012 , we had 15,180 series d preferred shares outstanding that were convertible into 7,298 common shares and the effect of a conversion of our convertible preferred shares on ffo available for commonwealth reit common shareholders and normalized ffo available for commonwealth reit common shareholders per share is anti-dilutive for all periods presented . we refer to the 191 properties ( 250 buildings ) we owned continuously from january 1 , 2011 to december 31 , 2012 , excluding properties classified as held for sale , as comparable properties . we refer to the 25 properties ( 40 buildings ) and nine properties ( 18 buildings ) that we owned as of december 31 , 2012 and 2011 , respectively , which we acquired during the period from january 1 , 2011 to december 31 , 2012 , as acquired properties .
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on january 29 , 2014 , the company also entered into an agreement with joel ackerman , its chief executive officer and a director , and ronnie morris , its president and a director , both of whom bought securities from the company pursuant to the securities purchase agreements , that , if the company 's board of directors votes on a transaction , event or approval that would constitute a put option trigger event ( as defined in each of the securities purchase agreements ) , each of ackerman and morris shall either ( a ) recuse themselves from voting as a member of the board of directors on such transaction , event or approval or ( b ) be entitled to vote but forego exercising or receiving the benefit of their put right ( as defined in each of the securities purchase agreements ) . prior to the january 29 , 2014 amendments the put option trigger event ( as defined in each of the securities purchase agreements ) was outside of the company 's control . subsequent to the january 29 , 2014 amendments the put option trigger event is within the company 's control . this change resulted in the common stock related to the april 2011 private placement and the 2013 private placement to be reclassified from outside of permanent equity ( reflected under the caption “ redeemable common stock ” ) to inside permanent equity ( reflected in the captions “ common stock ” and “ additional paid-in capital ” ) for 2014. the warrants issued in connection with both the april 2011 private placement and january 2013 private placement contain certain exercise price reset provisions . under these provisions , the exercise price of the warrants may be adjusted downward should the company have future sales of its common stock for no consideration or for a consideration per share less than the per share price ( as such term is defined in the april 2011 private placement and january 2013 private placement ) . these exercise price reset provisions resulted in a downward adjustment to the exercise price of the warrants issued in the april 2011 private placement from $ 0.90 to $ 0.50 . the company has accounted for the warrants issued in connection with the april 2011 private placement and january 2013 private placement as a liability based on the exercise price reset provisions described above . this liability , which is recorded at fair value on the accompanying consolidated balance sheets , totaled $ 0.8 million at the time of the close of the january 2013 private placement agreement . as of april 30 , 2014 and 2013 , the fair value of these warrants was $ 2.01 million and $ 1.05 million , respectively . the change in fair value of these warrants has been , and will be , recognized as other income ( expense ) on the company 's consolidated statements of operations . the fair value of these warrants was calculated by the monte carlo simulation valuation method . assumptions used to calculate the fair value of these warrants were as follows : replace_table_token_19_th the company estimated the volatility based upon the applicable look-back periods or historical volatility observed for the company . for the risk-free rate the company used the yield on a t-bill with maturity closest to the expected time to the warrant expiration . in addition to the assumptions above , the company also takes into story_separator_special_tag results of operations you should read the following discussion and analysis together with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that are based on our current expectations , estimates , and projections about our business and operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under item 1a – “ risk factors ” and elsewhere in this annual report . overview and recent developments champions oncology , inc. is engaged in the development and sale of advanced technology solutions and products to personalize the development and use of oncology drugs . the company 's tumorgraft technology platform is a novel approach to personalizing cancer care , based upon the implantation of human tumors in immune-deficient mice . the company uses this technology , in conjunction with related products , to offer solutions for two customer groups : · our personalized oncology solutions , or pos , business , which provides services to physicians and patients looking for information to help guide the development of personalized treatment plans . 11 · our translational oncology solutions , or tos , business , which provides services to pharmaceutical and biotechnology companies seeking personalized approaches to drug development that will lower costs and increase the speed of developing new drugs , as well as increase the adoption of existing drugs . we plan to continue our efforts to expand our tumorgraft technology platform in order to expand our pos and tos programs . in fiscal 2012 , we modified our pos business strategy to focus on growing our core technology products , which includes tumorgraft implants and drug panels . as part of this strategy , which we continued to execute during fiscal 2014 , we lowered our prices for these products to increase the number of patients to whom we sell these products and increase the number of tumors in our tumorbank . we will continue to offer related personalized oncology products , such as the personalized tumor boards and gene sequencing , to our customers ; however , we expect future pos revenues to be driven by our core products . story_separator_special_tag prior to the january 29 , 2014 amendments , the put option trigger event ( as defined in each of the securities purchase agreements ) was outside of the company 's control . subsequent to the january 29 , 2014 amendments the put option trigger event is within the company 's control . this change resulted in the common stock related to the april 2011 private placement and the 2013 private placement to be reclassified from outside of permanent equity ( reflected under the caption “ redeemable common stock ” ) to inside permanent equity ( reflected in the captions “ common stock ” and “ additional paid-in capital ” ) for 2014. the warrants issued in connection with the private placement contain certain exercise price reset provisions . under these provisions , the exercise price of the warrants may be adjusted downward should the company have future sales of its common stock for no consideration or for a consideration per share less than the per share price ( as such term is defined in the securities purchase agreement ) . 14 cash flows the following discussion relates to the major components of our cash flows : cash flows from operating activities net cash used in operating activities was $ 3.4 million and $ 4.3 million for the years ended april 30 , 2014 and 2013 , respectively . the decrease of $ 0.9 million cash used in operations relates to an increase in revenues to cover operational expenses . the net loss increase was due primarily to an increase in non-cash stock based compensation and warrant expense . cash flows from investing activities cash used in investing activities was $ 0.2 million and $ 0.1 million for the years ended april 30 , 2014 and 2013 , respectively . these cash flows relate to the purchase of property and equipment . cash flows from financing activities net cash provided by financing activities was nil and $ 9.1 million for the years ended april 30 , 2014 and 2013 , respectively . these cash flows in 2013 primarily relate to the private placement of common stock and warrants that occurred on january 28 , 2013 , which is explained more in liquidity and capital resources , and the exercise of stock options and warrants . critical accounting policies we believe that of our significant accounting policies ( refer to the notes to consolidated financial statements contained in item 15 of this annual report ) , the following may involve a higher degree of judgment and complexity : general our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states or gaap . the preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of contingent assets and liabilities . significant estimates of the company include , among other things , accounts receivable realization , revenue recognition ( replacement of licensed tumors ) , valuation allowance for deferred tax assets , valuation of goodwill , and stock compensation and warrant assumptions . we have not identified any estimates that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty . we base our estimates on historical experience , our observance of trends in particular areas and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources . actual amounts could differ significantly from amounts previously estimated . revenue recognition we derive revenue from our pos and tos businesses . personalized oncology solutions assist physicians by providing information to help guide the development of personalized treatment plans for their patients using our core offerings , including testing oncology drugs and drug combinations on personalized tumorgrafts , and through other products . translational oncology solutions offer a tumorgraft platform to pharmaceutical and biotechnology companies using proprietary tumorgraft studies , which may be predictive of how drugs may perform in clinical settings . we recognize revenue when the following four basic criteria are met : ( i ) a contract has been entered into with our customers ; ( ii ) delivery has occurred ; ( iii ) the fee charged is fixed and determinable as noted in the contract ; and ( iv ) collectability is reasonably assured . for tos , we utilize a proportional performance revenue recognition model , under which we recognize revenue as performance occurs , based on the relative outputs of the performance that have occurred up to that point in time under the respective agreement , typically the delivery of reports and or data to our customers documenting the results of our testing protocols . when a pos or tos arrangement involves multiple elements , the items included in the arrangement ( deliverables ) are evaluated to determine whether they represent separate units of accounting . we perform this evaluation at the inception of an arrangement and as each item in the arrangement is delivered . generally , we account for a deliverable ( or a group of deliverables ) separately if : ( i ) the delivered item ( s ) has standalone value to the customer , and ( ii ) we have given the customer a general right of return relative to the delivered item ( s ) and the delivery or performance of the undelivered item ( s ) or service ( s ) is probable and substantially in our control .
| results of operations the following table summarizes our operating results for the periods presented below ( dollars in thousands ) : replace_table_token_3_th operating revenues operating revenues for the years ended april 30 , 2014 and 2013 were $ 11.6 million and $ 8.3 million , respectively , an increase of $ 3.3 million , or 38.8 % , primarily driven by the increase in tos revenue . 12 personalized oncology solutions revenues pos revenues were $ 2.3 million and $ 2.4 million for the years ended april 30 , 2014 and 2013 , respectively , a decrease of $ 0.1 million or 5.3 % . in 2014 we made a strategic decision to focus on growing our core pos revenues , implants and drug panels . core revenues were $ 1.8 million and $ 1.5 million for the years ended april 30 , 2014 and 2013 , respectively , an increase of 20 % . the number of implants during fiscal 2014 was 223 , an increase of 57 % over fiscal 2013. the number of patients for whom studies were completed was 87 for fiscal 2014 , an increase of 67 % over fiscal 2013. non-core revenues , consisting of tumor boards and sequencing , were $ 0.5 million and $ 0.9 million for the years ended april 30 , 2014 and 2013 , respectively , a decrease of 55 % . translational oncology solutions revenues tos revenues were $ 9.3 million and $ 5.9 million for the years ended april 30 , 2014 and 2013 , respectively , an increase of $ 3.4 million or 56.5 % .the increase was due primarily to growth in sales volume and customer mix of these products resulting from our continued sales and marketing efforts . cost of personalized oncology solutions pos cost of sales was $ 2.7 million for both years ended april 30 , 2014 and 2013. for the years ended april 30 , 2014 and 2013 , gross margins for pos were negative 21 % and negative 12 % , respectively .
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and subsidiary notes to consolidated financial statements ( continued ) deferred tax ( liabilities ) assets consist of the following : replace_table_token_27_th we have $ 3.0 million of state net operating loss carryforwards available as of march 30 , 2013. the carryforwards expire in varying amounts through 2033. based on all available evidence , we have determined that it is more likely than not that sufficient taxable income of the appropriate character within the carryforward period will exist for the realization of the tax benefits on existing state net operating loss carryforwards . we believe it is more likely than not that all other future tax benefits will be realized as a result of current and future income . a reconciliation between the u. s. federal statutory tax rate and the effective tax rate reflected in the accompanying financial statements is as follows : replace_table_token_28_th 49 monro muffler brake , inc. and subsidiary notes to consolidated financial statements ( continued ) the following is a rollforward of monro 's liability for income taxes associated with unrecognized tax benefits : replace_table_token_29_th the total amount of unrecognized tax benefits was $ 5.7 million at march 30 , 2013 , the majority of which , if recognized , would affect the effective tax rate . in the normal course of business , monro provides for uncertain tax positions and the related interest and penalties , and adjusts its unrecognized tax benefits and accrued interest and penalties accordingly . during the years ended march 30 , 2013 and march 31 , 2012 , we recorded a benefit from the reversal of accrued interest and penalties of approximately $ .2 million and $ .3 million , respectively , in income tax expense ; and during the year ended march 26 , 2011 , we recognized interest and penalties of approximately $ .3 million in income tax expense . additionally , we had approximately $ .5 million and $ .7 million of interest and penalties associated with uncertain tax benefits accrued as of march 30 , 2013 and march 31 , 2012 , respectively . monro is currently under state audit for the fiscal 2007 through 2010 tax years . it is reasonably possible that the examination phase of the audits for these years may conclude in the next 12 months , and that the related unrecognized tax benefits for tax positions taken regarding previously filed tax returns may change from those 50 monro muffler brake , inc. and subsidiary notes to consolidated financial statements ( continued ) recorded as liabilities for uncertain tax positions in monro 's consolidated financial statements as of march 30 , 2013. however , based on the status of the examinations , it is not possible to estimate the effect of any amount of such change to previously recorded uncertain tax positions . we file u.s. federal income tax returns and income tax returns in various state jurisdictions . monro 's fiscal 2011 and 2012 u.s. federal tax years and various state tax years remain subject to income tax examinations by tax authorities . note 9 stock ownership a summary of the changes in the number of shares of common stock , class c preferred stock and treasury stock is as follows : replace_table_token_30_th in march 2012 , monro 's board of directors approved a resolution to amend monro 's restated certificate of incorporation , subject to shareholder approval , to increase the number of authorized shares of common stock from 45,000,000 to 65,000,000. monro 's shareholders approved the increase at our annual shareholders ' meeting on august 7 , 2012. in november 2010 , the board of directors authorized a three-for-two stock split that was paid on december 23 , 2010 to shareholders of record as of december 13 , 2010. all share amounts have been adjusted for this stock split . holders of at least 60 % of the class c preferred stock must approve any action authorized by the holders of common stock . in addition , there are certain restrictions on the transferability of shares of class c preferred stock . in the event of a liquidation , dissolution or winding-up of monro , the holders of the class c preferred story_separator_special_tag the following table sets forth income statement data of monro expressed as a percentage of sales for the fiscal years indicated : replace_table_token_6_th forward-looking statements the statements contained in this annual report on form 10-k that are not historical facts , including ( without limitation ) statements made in this item and in item 1 business , may contain statements of future expectations and other forward-looking statements made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. when used in this annual report on form 10-k , the words anticipates , believes , contemplates , see , could , estimate , intend , plans and variations thereof and similar expressions , are intended to identify forward-looking statements . forward-looking statements are subject to risks , uncertainties and other important factors that could cause actual results to differ materially from those expressed . these factors include , but are not necessarily limited to , product demand , dependence on and competition within the primary markets in which monro 's stores are located , the need for and costs associated with store renovations and other capital expenditures , the effect of economic conditions , the impact of competitive services and pricing , parts supply restraints or difficulties , industry regulation , risks relating to leverage and debt service ( including sensitivity to fluctuations in interest rates ) , continued availability of capital resources and financing , disruption or unauthorized access to our computer systems , risks relating to protection of customer and employee personal data , risks relating to litigation, risks relating to integration of acquired businesses , including goodwill impairment and the risks set forth in item 1a . story_separator_special_tag the expected term of options granted is derived from the terms and conditions of the award , as well as historical exercise behavior , and represents the period of time that options granted are expected to be outstanding . the risk-free rate is calculated using the implied yield on zero-coupon u.s. treasury bonds with a remaining maturity equal to the expected term of the awards . we use historical data to estimate forfeitures . the dividend yield is based on historical experience and expected future changes . income taxes our provision for income taxes and effective tax rates are calculated by legal entity and jurisdiction and are based on a number of factors , including our income , tax planning strategies , differences between tax laws and accounting rules , statutory tax rates and credits , uncertain tax positions and valuation allowances . we use significant judgment and estimates in evaluating our tax positions . tax law and accounting rules often differ as to the timing and treatment of certain items of income and expense . as a result , the tax rate reflected in our tax return ( the current or cash tax rate ) is different from the tax rate reflected in our consolidated financial statements . some of the differences are permanent , while other differences are temporary as they reverse over time . we record deferred tax assets and liabilities for any temporary differences between the tax reflected in our consolidated financial statements and tax bases . we establish valuation allowances when we believe it is more-likely-than-not that some portion of our deferred tax assets will not be realized . at any one time , our tax returns for several tax years are subject to examination by u.s. federal and state taxing jurisdictions . we establish tax liabilities in accordance with the accounting guidance on income taxes . under the accounting guidance , the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained . an uncertain income tax position will not be recognized in the financial statements unless it is more-likely-than-not to be sustained . we adjust these tax liabilities , as well as the related interest and penalties , based on the latest facts and circumstances , including recently published rulings , court cases and outcomes of tax audits . to the extent our actual tax liability differs from our established tax liabilities for unrecognized tax benefits , our effective tax rate may be materially impacted . while it is often difficult to predict the final outcome of , the timing of , or the tax treatment of any particular tax position or deduction , we believe that our tax balances reflect the more-likely-than-not outcome of known tax contingencies . story_separator_special_tag of trading them in for new cars . while it appears that some repairs and tire purchases are being deferred , most can only be deferred for a period of time due to safety issues or state inspection requirements . when customers do come in to have their vehicles repaired , our belief that they spend more on average because the problem with their vehicle has worsened due to additional wear , as evidenced by an increase in the average sales per invoice for fiscal 2012 as compared to the prior year . gross profit for fiscal 2012 was $ 276.4 million or 40.3 % of sales as compared with $ 257.5 million or 40.4 % of sales for fiscal 2011. the decrease in gross profit for fiscal 2012 , as a percentage of sales , is due to several factors . total material costs increased as a percentage of sales as compared to the prior year . we experienced significant increases in oil and tire costs as compared to the prior year and , for competitive reasons , did not increase selling prices to the degree that would have preserved gross margin percentages at prior year levels . higher margin categories , such as brakes and exhaust , which had comparable store increases in the fiscal year , helped to slightly offset the effect of tire and oil cost increases , as did cost reductions obtained through the use of direct import products . distribution and occupancy costs decreased as a percentage of sales from the prior year as monro , with higher overall sales , was able to better leverage these largely fixed costs . labor costs decreased as a percentage of sales as compared to the prior year , mainly due to better control of payroll and improved labor efficiency as measured by sales per man hour . 24 operating expenses for fiscal 2012 were $ 185.0 million or 26.9 % of sales compared with $ 179.1 million or 28.1 % of sales for fiscal 2011. when removing the extra week in fiscal 2012 , operating expenses were 27.2 % of sales for fiscal 2012. the improvement in operating expenses as a percent of sales is largely due to focused cost control on higher sales . within operating expenses , over $ 8.3 million in selling , general and administrative ( sg & a ) expenses are directly attributed to increased direct store expenses such as manager pay , advertising and supplies related to the fiscal 2012 acquisition stores and a full year of expenses for the fiscal 2011 acquisition stores . on a comparable store basis , direct store expenses decreased $ 4.2 million ( net of an increase of $ 2.2 million in expense related to the 53 rd week ) as compared to the prior year , demonstrating that we experienced leverage in this line through focused cost control .
| results of operations fiscal 2013 as compared to fiscal 2012 sales for fiscal 2013 increased $ 45.4 million or 6.6 % to $ 732.0 million as compared to $ 686.6 million in fiscal 2012. the increase was due to an increase of $ 99.6 million related to new stores , of which $ 95.3 million came from the fiscal 2012 and fiscal 2013 acquisitions . offsetting this was a decrease in comparable store sales 22 of 7.3 % . additionally , there was a decrease in sales from closed stores amounting to $ 6.4 million . fiscal 2013 was a 52-week year , and therefore , there were 361 selling days as compared to 368 selling days in fiscal 2012. adjusting for days , comparable store sales were down 5.5 % . as occurred in previous years , we completed the bulk sale of approximately $ 2.4 million of slower moving inventory to icon international , a barter company , in exchange for barter credits . the margin recognized in these transactions is typically less than our normal profit margin . the barter transaction that occurred in fiscal 2013 decreased gross profit and operating expenses by .1 % of sales . during the year , 144 stores were added and 10 were closed . at march 30 , 2013 , we had 937 company-operated stores in operation . we believe that the decline in comparable store sales for fiscal 2013 resulted mainly from the continued weak u.s. economy . with the continuation of high gasoline prices , lack of consumer confidence and high unemployment , we believe that customers are continuing to defer tire purchases and service repairs , especially on higher ticket items . additionally , we believe that the milder winter weather this and last year also led to consumers deferring tire purchases .
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2. summary of significant accounting policies cash and cash equivalents cash and cash equivalents are represented by operating accounts or money market accounts maintained with insured financial institutions , including all short-term , highly-liquid investments with maturities of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could 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 ” included elsewhere in this report . all share and per share amounts presented herein have been restated to reflect the implementation of the 1-for-3 reverse stock split effected on january 21 , 2021 as if it had occurred at the beginning of the earliest period presented . business overview we are a provider of technologically-advanced telecom solutions to network operators , mobile device carriers , governmental units and other enterprises worldwide . we have assembled a portfolio of communications , power and niche technologies , capabilities and products that enable the upgrading of latent 3g networks to 4g and 4g-lte networks and will facilitate the rapid roll out of the 5g and “ next-generation ” ( “ ng ” ) networks of the future . we focus on special capabilities , including signal modulations , antennae , software , hardware and firmware technologies that enable increasingly efficient data transmission across the electromagnetic spectrum . our product solutions are complemented by a broad array of services , including technical support , systems design and integration , and sophisticated research and development programs . while we compete globally on the basis of our innovative technology , the breadth of our product offerings , our high-quality cost-effective customer solutions , and the scale of our global customer base and distribution , our primary focus is on the north american telecom infrastructure and service market . we believe we are in a unique position to rapidly increase our near-term domestic sales as we are among the few u.s.-based providers of telecommunications equipment and services . 35 corporate history we were incorporated in nevada on april 17 , 2014 , as a wholly owned subsidiary of macrosolve , inc. , an oklahoma corporation ( “ macrosolve ” ) , and effective april 30 , 2014 , in order to consolidate our operations into an entity incorporated in nevada , macrosolve merged with and into us . on june 3 , 2014 , we acquired drone aviation corp. through a share exchange transaction , and on march 26 , 2015 , drone aviation corp. merged with and into us . as a result of the share exchange and merger with drone aviation corp. , we acquired drone aviation corp. 's subsidiary , lighter than air systems corp. , which does business under the name drone aviation . on november 27 , 2019 , we completed the comsovereign acquisition in a stock-for-stock transaction with a total purchase price of approximately $ 75 million . the comsovereign acquisition was treated as a reverse merger for accounting purposes under u.s. gaap with comsovereign as the accounting acquirer and our company as the accounting acquiree . as a result , our audited consolidated financial statements included in this report are those of comsovereign from the date of its incorporation ( january 10 , 2019 ) through december 31 , 2019. the operations of our pre-acquisition business , which consisted primarily of the operations of drone aviation , are included in our consolidated operating results only from the date of acquisition of comsovereign , november 27 , 2019. comsovereign corp. was incorporated in the state of delaware on january 10 , 2019 and commenced operations through a series of acquisitions . on january 31 , 2019 , comsovereign acquired the capital stock of veo , a san diego , california-based research and development company innovating sip technologies for use in copper-to-fiber-to-copper switching , high-speed computing , high-speed ethernet , autonomous vehicle applications , mobile devices and 5g wireless equipment . on january 31 , 2019 , comsovereign acquired the capital stock of indurapower , a tucson , arizona-based developer and manufacturer of intelligent batteries and back-up power supplies for network systems and telecom nodes . it also provides power designs and batteries for the aerospace , marine and automotive industries . on march 4 , 2019 , comsovereign acquired the capital stock of silver bullet , a california-based engineering firm that designs and develops next generation network systems and components , including large scale network protocol development , software-defined radio systems and wireless network designs . on april 1 , 2019 , comsovereign acquired the equity securities of dragonwave , a dallas-based manufacturer of high-capacity microwave and millimeter point-to-point telecom backhaul radio units . dragonwave and its predecessor have been selling telecom backhaul radios since 2012 and its microwave radios have been installed in over 330,000 locations in more than 100 countries worldwide . according to a report by the u.s. federal communications commission , as of december 2019 , dragonwave was the second largest provider of licensed point-to-point microwave backhaul radios in north america . on april 1 , 2019 , comsovereign acquired the capital stock of lextrum , a tucson , arizona-based developer of full-duplex wireless technologies and components , including multi-reconfigurable rf antennae and software programs . this technology enables the doubling of a given spectrum band by allowing simultaneous transmission and receipt of radio signals on the same frequencies . on november 30 , 2019 , following our acquisition of comsovereign , we changed our corporate name to comsovereign holding corp. on march 6 , 2020 , our newly-formed subsidiary , sovereign plastics , acquired substantially all of the assets of a colorado springs , colorado-based manufacturer of plastic and metal components to third-party manufacturers . story_separator_special_tag to determine the performance obligation , we consider all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices . the timing of satisfaction of the performance obligation is not subject to significant judgment . we measure revenue as the amount of consideration expected to be received in exchange for transferring goods and services . we generally recognize product revenues at the time of shipment , provided that all other revenue recognition criteria have been met . we expect our revenues for the year ending december 31 , 2021 ( “ fiscal 2021 ” ) to materially exceed those of fiscal 2019 and 2020 , primarily due to our availability of working capital , including from a portion of the net proceeds of the equity offerings we completed in 2021 , for the purchase of parts and components and the manufacturing of products , primarily those of dragonwave , in quantities that greatly exceed the quantities that we were able to manufacture in 2019 and 2020. additionally , we expect to commence commercial production of new products in 2021 that we have previously produced in only limited quantities or as prototypes , including , among others , intelligent battery back-up power solutions for the telecom , aerospace and transportation industries and airborne high-bandwidth , lte-advanced and 5g aerostats . during the year ended december 31 , 2020 and fiscal 2019 , on a pro forma basis giving effect to the comsovereign acquisition as if such acquisition had occurred on january 10 , 2019 , approximately 18 % and 15 % , respectively , of our revenues were derived from sales outside of the united states . while our near-term focus is on the north american telecom and infrastructure and service market , a key element of our growth strategy is to expand our worldwide customer base and our international operations , initially through agreements with third-party resellers , distributors and other partners that can market and sell our products in foreign jurisdictions . we expect that over the short term our percentage of sales outside the united states may increase as we build up our domestic sales and service teams . notwithstanding such percentage increase , we expect the sales of tethered aerostats and drones will primarily be to the domestic market customers , primarily to the u.s. government and its agencies , even if such systems are for integration into foreign locations . cost of goods sold and gross profit our cost of goods sold is comprised primarily of the costs of manufacturing products , procuring finished goods from our third-party manufacturers , third-party logistics and warehousing provider costs , shipping and handling costs and warranty costs . we presently outsource the manufacturing of dragonwave 's microwave products to a single third-party manufacturer , benchmark , which manufactures our products from its facilities . cost of goods sold also includes costs associated with supply operations , including personnel-related costs , provision for excess and obsolete inventory , third-party license costs and third-party costs related to the services we provide . additionally , cost of goods sold does not include any depreciation and amortization expenses as we separate depreciation and amortization expense into its own category within operating expenses . gross profit has been and will continue to be affected by various factors , including changes in our supply chain and evolving product mix . the margin profile of our current products and future products will vary depending on operating performance , features , materials , manufacturer and supply chain . gross margin will vary as a function of changes in pricing due to competitive pressure , our third-party manufacturing , our production costs , costs of shipping and logistics , provision for excess and obsolete inventory and other factors . we expect our gross margins will fluctuate from period to period depending on the interplay of these various factors . operating expenses we classify our operating expense as research and development , sales and marketing , and general and administrative . personnel costs are the primary component of each of these operating expense categories , which consist of cash-based personnel costs , such as salaries , sales commissions , benefits and bonuses . additionally , we separate depreciation and amortization expense into its own category . 38 research and development in addition to personnel-related costs , research and development expense consists of costs associated with the design , development and certification of our products . we generally recognize research and development expense as incurred . development costs incurred prior to establishment of technological feasibility are expensed as incurred . we expect our research and development costs to continue to increase as we develop new products and modify existing products to meet the changes within the telecom landscape . sales and marketing in addition to personnel costs for sales , marketing , service and product management personnel , sales and marketing expense consists of the expenses associated with our training programs , trade shows , marketing programs , promotional materials , demonstration equipment , national and local regulatory approvals of our products , travel , entertainment and recruiting . we expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales , marketing , service and product management organization in support of our investment in our growth opportunities , whether through the development and rollout of new or modified products or through acquisitions . we expect our sales and marketing expense to increase materially in the year ending december 31 , 2021 as we ramp up our sales and marketing efforts to correspond to our increased production efforts relating to certain of our telecom products . general and administrative in addition to personnel costs , general and administrative expense consists of professional fees , such as legal , audit , accounting , information technology and consulting fees ; share-based compensation ; and facilities and other supporting overhead costs .
| results of operations replace_table_token_0_th ( 1 ) these are exclusive of depreciation and amortization year ended december 31 , 2020 compared to january 10 , 2019 ( inception ) to december 31 , 2019 from the date of its incorporation ( january 10 , 2019 ) until the date of its first acquisition , as described above , comsovereign had no business operations . comsovereign 's entire activity after its inception date through the date of consummation of the comsovereign acquisition was limited to the evaluation of and consummation of business acquisition transactions as well as preparatory actions , including manufacturing line readiness and subsidiary integration actions , which impeded the ability of dragonwave to have products manufactured and shipped during the period . for the period january 10 , 2019 ( inception ) to december 31 , 2019 , comsovereign generated only nominal revenues . total revenues for the year ended december 31 , 2020 , total revenues increased $ 4,714,624 , or 100 % , which were derived primarily from a full year of revenue from mobile network backhaul products , the acquisition of sovereign plastics and vnc , the test-market sale of certain high-performance after-market models of our intelligent batteries , and to a lesser extent , from a full year of revenue of our drone aviation aerostat products and accessories , which were included in our operating results after november 27 , 2019 , the date of the comsovereign acquisition . 40 cost of goods sold and gross profit for the year ended december 31 , 2020 , cost of goods sold increased $ 1,605,245 , or 54 % , which primarily consisted of the increases in payments to our contact manufacturer for the production of our mobile network backhaul products and the materials , parts and labor associated with the manufacturing of our intelligent batteries and plastics , all due directly related to our increase in revenues .
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- 78 - standard : share-based payment awards ( asu 2017-11 : earnings per share [ topic 260 ] ) description : the amended guidance clarifies which changes to the terms story_separator_special_tag financial condition and results of operations . introduction throughout management 's discussion and analysis ( “ md & a ” ) the term , the “ company ” , refers to the consolidated entity of pathfinder bancorp , inc. pathfinder bank and pathfinder statutory trust ii are wholly owned subsidiaries of pathfinder bancorp , inc. ; however , pathfinder statutory trust ii is not consolidated for reporting purposes ( see note 13 of the consolidated financial statements ) . pathfinder reit , inc. , pathfinder risk management company , inc. , and whispering oaks development corp. are wholly owned subsidiaries of pathfinder bank . pathfinder reit , inc. , ceased all operations in december 2017 and all of its assets and liabilities were transferred at that time to its parent entity , pathfinder bank . the cessation of pathfinder reit , inc. 's operations and the transfer of all assets and liabilities from pathfinder reit , inc. to pathfinder bank had no effect on the company 's consolidated financial position at december 31 , 2017 or results of operations for the year ended december 31 , 2017. the formal dissolution of pathfinder reit , inc. as a legal entity was completed in the first quarter of 2019. on october 16 , 2014 , pathfinder bancorp , mhc converted from the mutual to stock form of organization ( the “ conversion ” ) . in connection with the conversion , the company sold 2,636,053 shares of common stock to depositors at $ 10.00 per share . shareholders of pathfinder bancorp , inc. , a federal corporation ( “ pathfinder-federal ” ) , the company 's predecessor , received 1.6472 shares of the company 's common stock for each share of pathfinder-federal common stock they owned immediately prior to completion of the transaction . following the completion of the conversion , pathfinder-federal was succeeded by the company and pathfinder bancorp , mhc ceased to exist . the company had 4,362,328 and 4,280,227 shares outstanding at december 31 , 2018 and december 31 , 2017 , respectively . since the conversion , we have transformed from a traditional savings bank to a commercial bank . while not reducing our role as a leading originator of one-to-four family residential real estate loans within our marketplace , which had been our primary focus as a savings bank , we have substantially grown our business and commercial real estate loan portfolios over the past four years . as a commercial bank , we have been able to offer customized products and services to meet individual customer needs and thereby more definitively differentiate our services from those offered by our competitors . as a result , we have been able to create a substantially more diversified loan portfolio than the one that was in place before the conversion process began . when compared to the bank 's loan portfolio composition prior to the conversion , it is our view that this portfolio ( 1 ) significantly improves upon both the distribution of credit risk across a broader range of borrowers , industries and collateral types , and ( 2 ) is more likely to generate consistent net interest margins in a broader range of interest rate environments due to the portfolio 's increased percentage of shorter-term and or adjustable-rate assets . in a concurrent effort , the bank has been able to fund the high level of growth in our loan portfolios primarily with deposits gathered from our local community . we believe that we have gathered these deposits at a reasonable overall cost in terms of deposit interest rates , as well as at a reasonable overall level of related infrastructure and customer support service expenses . on june 1 , 2016 , pathfinder bank , a savings bank chartered by the nysdfs , merged into pathfinder commercial bank , a limited purpose commercial bank also chartered by the nysdfs . prior to the merger , pathfinder bank owned 100 % of pathfinder commercial bank . on that same date , nysdfs expanded the powers that it had previously granted to pathfinder commercial bank and chartered pathfinder commercial bank as a fully-empowered commercial bank . simultaneously , the entity that had operated as “ pathfinder commercial bank ” changed its name to “ pathfinder bank. ” as a result of this charter conversion and accompanying name change , the entity now known as “ pathfinder bank ” is a commercial bank with the full range of powers granted under a commercial banking charter in new york state . the merger , which had no effect on the company 's results of operations , converted the consolidated bank from a savings bank to a commercial bank and was completed in order to better align the bank 's charter with its long-term strategic focus . we have consistently emphasized developing our business and commercial banking franchise by offering products that are attractive to small- to medium-sized businesses in our market area . we differentiate our loan solutions and related services through the maintenance of high standards of customer service , solution flexibility and convenience . highlights of our business strategy are as follows : continuing emphasis on business banking . we intend to continue to use our branch office network and experienced commercial loan and deposit specialists to provide convenient commercial loan and deposit products and services to business customers . we believe that by continuing to develop our commercial relationships with small businesses we will offer a variety of services and deposit products that will provide a sustainable source of net interest income for the company and will become a growing source of fee income in the future . we will continue to introduce products and services designed to attract new business customers and increase the breadth of solutions that we can offer to our existing business customer base . story_separator_special_tag application of these principles requires management to make estimates , assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values , and information used to record valuation adjustments for certain assets and liabilities , are based on quoted market prices or are provided by other third-party sources , when available . when third party information is not available , valuation adjustments are estimated in good faith by management . the most significant accounting policies followed by the company are presented in note 1 to the consolidated financial statements . these policies , along with the disclosures presented in the other financial statement notes and in this discussion , provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified the allowance for loan losses , deferred income taxes , pension obligations , the evaluation of investment securities for other than temporary impairment , the annual evaluation of the company 's goodwill for possible impairment , and the estimation of fair values for accounting and disclosure purposes to be the accounting areas that require the most subjective and complex judgments . these areas could be the most subject to revision as new information becomes available . allowance for loan losses . the allowance for loan losses represents management 's estimate of probable loan losses inherent in the loan portfolio . determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment on the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and environmental factors , all of which may be susceptible to significant change . the company establishes a specific allowance for all commercial loans in excess of the total related credit threshold of $ 100,000 and single borrower residential mortgage loans in excess of the total related credit threshold of $ 300,000 identified as being impaired which are on nonaccrual and have been risk rated under the company 's risk rating system as substandard , doubtful , or loss . the company also establishes a specific allowance , regardless of the size of the loan , for all loans subject to a troubled debt restructuring agreement . in addition , an accruing substandard loan could be identified as being impaired . the measurement of impaired loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate , except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral , less costs to sell . at december 31 , 2018 , the bank 's position in impaired loans consisted of 44 loans totaling $ 6.0 million . of these loans , 23 loans , totaling $ 2.1 million , were valued using the present value of future cash flows method ; and 21 loans , totaling $ 3.9 million , were valued based on a collateral analysis . for all other loans , the company uses the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this report . deferred income tax assets and liabilities . deferred income tax assets and liabilities are determined using the liability method . under this method , the net deferred tax asset or liability is recognized for the future tax consequences . this is attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating and capital loss carry forwards . deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date . if current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized , a valuation allowance is established . the judgment about the level of future taxable income , including that which is considered capital , is inherently subjective and is reviewed on a continual basis as regulatory and business factors change . in prior years , management believed that it may not have been able to generate sufficient future taxable income in the form of capital gains to offset its capital loss carry forward position before those potential tax benefits expired .
| executive summary and results of operations the company reported net income of $ 4.0 million for 2018 , an increase of $ 540,000 , or 15.5 % , as compared to net income of $ 3.5 million for 2017. net income increased during 2018 , as compared to the previous year , due to an increase in net interest income before the provision for loan losses of $ 2.6 million , a reduction of income tax expense of $ 376,000 , and a reduction in the provision for loan losses of $ 272,000. these increases in net income were partially offset by an increase in noninterest expense of $ 2.5 million , and a decrease on total noninterest income of $ 250,000. basic and diluted earnings per share in 2018 were $ 0.97 and $ 0.94 , respectively , as compared to $ 0.86 and $ 0.83 in 2017 , respectively . return on average assets increased three basis points to 0.45 % in 2018 from 0.42 % in 2017. return on average equity increased 64 basis points to 6.33 % in 2018 as compared to 5.69 % in 2017. the increase in return on average assets in 2018 , as compared to the previous year , was primarily due to the rate of increase in net income being above the rate of increase in average assets .
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story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of the company and the notes thereto included elsewhere in this report , the `` special note regarding forward-looking statements '' in part i and `` item 1a . risk factors . '' story_separator_special_tag libor plus 1.9 % based on a 25-year amortization . we entered into an interest rate swap agreement with the lender as the counterparty that converts the variable interest rate ( based on libor ) to a fixed rate of 3.398 % per annum . in july 2017 , we purchased for $ 8.2 million a 26,500 square foot shopping center located in waldwick , nj . we funded the purchase with available cash and the assumption of an environmental remediation obligation in the amount of $ 3.3 million which is included in other liabilities on the october 31 , 2017 consolidated balance sheet . in march 2017 , we acquired an approximate 8.8 % equity interest in a newly formed entity , ub high ridge , llc , ( `` ub high ridge '' ) . ub high ridge owns a shopping center , anchored by a trader joe 's grocery store and two free standing commercial retail properties , one leased to jp morgan chase and the other to cvs . two of the properties are located in stamford , ct and one of the properties is located in greenwich , ct. the three properties total approximately 99,400 square feet . we are the managing member of ub high ridge and will lease and manage the properties . the properties were contributed by the former owners , along with $ 11.2 million in aggregate mortgage debt secured by two of the properties . the weighted average interest rate per annum on the two assumed mortgages is 3.63 % per annum . the contributors received ownership units of ub high ridge equal to the fair market value of the net assets contributed , which equity at formation was valued at $ 55.2 million . at formation of ub high ridge , the three properties combined were approximately 96.4 % leased . our initial equity investment in ub high ridge at formation totaled $ 5.5 million . the contributors of the three properties ( non-managing members of ub high ridge ) are entitled to receive an annual distribution on their invested capital , initially at the rate of 5.46 % per annum . we will retain all of the cash flow generated by the three properties after the payment of debt service and the aforementioned annual distribution to the non-managing members . the non-managing members have the right to require us to redeem their units of ownership in ub high ridge at prices defined in the governing agreement . at inception of ub high ridge , that price was $ 23.50 per unit of ownership of ub high ridge . also in march 2017 , we purchased for $ 3.1 million a free-standing 12,900 square foot commercial property located in fairfield , ct , which property is leased by walgreen 's . this property was sold in july 2017 ( see above ) . in march 2017 , we completed the sale of our white plains property for a price of $ 56.6 million and realized a gain on sale of the property in the amount of $ 19.5 million . in march 2017 , we , through a wholly-owned subsidiary , purchased for $ 7.1 million a 36,500 square foot grocery-anchored shopping center located in passaic , nj . in conjunction with the purchase , we assumed a mortgage note secured by the property in the amount of $ 3.5 million . in january 2017 , we purchased for $ 9.0 million a 38,800 square foot grocery-anchored shopping center located in derby , ct. known trends ; outlook we believe that shopping center reits face opportunities and challenges that are both common to and unique from other reits and real estate companies . as a shopping center reit , we are focused on certain challenges that are unique to the retail industry . in particular , we recognize the challenges presented by e-commerce to brick-and-mortar retail establishments , including our tenants . however , we believe that because consumers prefer to purchase food and other staple goods and services available at supermarkets in person , the nature of our properties makes them less vulnerable to the encroachment of e-commerce than other properties whose tenants may more directly compete with the internet . moreover , we believe the nature of our properties makes them less susceptible to economic downturns than other retail properties whose anchor tenants are not supermarkets or other staple goods providers . we note , however , that many prospective in-line tenants are seeking smaller spaces than in the past , as a result , in part , of internet encroachment on their brick-and-mortar business . when feasible , we actively work to place tenants that are less susceptible to internet encroachment , such as restaurants , fitness centers , healthcare and personal services . we continue to be sensitive to these considerations when we establish the tenant mix at our shopping centers , and believe that our strategy of focusing on supermarket anchors is a strong one . in the metropolitan tri-state area outside of new york city , demographics ( income , density , etc . ) remain strong and opportunities for new development , as well as acquisitions , are competitive , with high barriers to entry . we believe that this will remain the case for the foreseeable future , and have focused our growth strategy accordingly . as a reit , we are susceptible to changes in interest rates , the lending environment , the availability of capital markets and the general economy . for example , some experts are predicting an increased interest rate environment , which could negatively impact the attractiveness of reit stock to investors and our borrowing activities . story_separator_special_tag in addition , many of our non-anchor leases are for terms of less than ten years , which permits us to seek increases in rents upon renewal at then current market rates if rents provided in the expiring leases are below then existing market rates . most of our leases require tenants to pay a share of operating expenses , including common area maintenance , real estate taxes , insurance and utilities , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . critical accounting policies critical accounting policies are those that are both important to the presentation of the company 's financial condition and results of operations and require management 's most difficult , complex or subjective judgments . for a further discussion about the company 's critical accounting policies , please see note 1 to the consolidated financial statements of the company included in item 8 of this annual report on form 10-k. 15 liquidity and capital resources overview at october 31 , 2017 , we had cash and cash equivalents of $ 8.7 million , compared to $ 7.3 million at october 31 , 2016. our sources of liquidity and capital resources include operating cash flow from real estate operations , proceeds from bank borrowings and long-term mortgage debt , capital financings and sales of real estate investments . substantially all of our revenues are derived from rents paid under existing leases , which means that our operating cash flow depends on the ability of our tenants to make rental payments . in fiscal 2017 , 2016 and 2015 , net cash flow provided by operations amounted to $ 63.0 million , $ 62.1 million and $ 53.0 million , respectively . our short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures , debt service , management and professional fees , cash distributions to certain limited partners and non-managing members of our consolidated joint ventures , dividends paid to our preferred stockholders and regular dividends paid to our common and class a common stockholders , which we expect to continue . cash dividends paid on common and class a common stock for the years ended october 31 , 2017 and 2016 totaled $ 40.6 million and $ 37.1 million , respectively . historically , we have met short-term liquidity requirements , which is defined as a rolling twelve month period , primarily by generating net cash from the operation of our properties . we believe that our net cash provided by operations will continue to be sufficient to fund our short-term liquidity requirements , including payment of dividends necessary to maintain our federal income tax reit status . our long-term liquidity requirements consist primarily of obligations under our long-term debt , dividends paid to our preferred stockholders , capital expenditures and capital required for acquisitions . in addition , the limited partners and non-managing members of our five consolidated joint venture entities , ironbound , mclean , orangeburg , ub high ridge and ub dumont , have the right to require the company to repurchase all or a portion of their limited partner or non-managing member interests at prices and on terms as set forth in the governing agreements . see note 6 to the financial statements included in item 8 of this report on form 10-k. historically , we have financed the foregoing requirements through operating cash flow , borrowings under our unsecured revolving credit facility ( the `` facility '' ) , debt refinancings , new debt , equity offerings and other capital market transactions , and or the disposition of under-performing assets , with a focus on keeping our leverage low . we expect to continue doing so in the future . we can not assure you , however , that these sources will always be available to us when needed , or on the terms we desire . capital expenditures we invest in our existing properties and regularly make capital expenditures in the ordinary course of business to maintain our properties . we believe that such expenditures enhance the competitiveness of our properties . in fiscal 2017 , we paid approximately $ 9.7 million for property improvements , tenant improvements and leasing commission costs ( approximately $ 8.5 million representing property improvements and approximately $ 1.2 million related to new tenant space improvements , leasing costs and capital improvements as a result of new tenant spaces ) . the amount of these expenditures can vary significantly depending on tenant negotiations , market conditions and rental rates . we expect to incur approximately $ 6.0 million predominantly for anticipated capital improvements and leasing costs related to new tenant leases and property improvements during fiscal 2018. these expenditures are expected to be funded from operating cash flows , bank borrowings or other financing sources . financing strategy , unsecured revolving credit facility and other financing transactions our strategy is to maintain a conservative capital structure with low leverage levels by commercial real estate standards . mortgage notes payable and other loans of $ 297.1 million consist entirely of fixed-rate mortgage loan indebtedness with a weighted average interest rate of 4.2 % at october 31 , 2017. these mortgages are secured by 26 properties with a net book value of $ 568 million and have fixed rates of interest ranging from 3.5 % to 6.6 % . we may refinance our mortgage loans , at or prior to scheduled maturity , through replacement mortgage loans . the ability to do so , however , is dependent upon various factors , including the income level of the properties , interest rates and credit conditions within the commercial real estate market . accordingly , there can be no assurance that such re-financings can be achieved . at october 31 , 2017 , we had $ 4 million of variable-rate debt consisting of draws on our facility ( see below ) that was not fixed through an interest rate swap or otherwise . see `` item 7.a .
| executive summary overview we are a fully integrated , self-administered real estate company that has elected to be a reit for federal income tax purposes , engaged in the acquisition , ownership and management of commercial real estate , primarily neighborhood and community shopping centers , with a concentration in the metropolitan new york tri-state area outside of the city of new york . other real estate assets include office properties , single tenant retail or restaurant properties and office/retail mixed use properties . our major tenants include supermarket chains and other retailers who sell basic necessities . at october 31 , 2017 , we owned or had equity interests in 81 properties , which include equity interests we own in seven consolidated joint ventures and seven unconsolidated joint ventures , containing a total of 5.1 million square feet of gross leasable area ( `` gla '' ) . of the properties owned by wholly owned subsidiaries or joint venture entities that we consolidate , approximately 92.7 % was leased ( 93.3 % at october 31 , 2016 ) . of the properties owned by unconsolidated joint ventures , approximately 97.7 % was leased ( 98.4 % at october 31 , 2016 ) . we have paid quarterly dividends to our shareholders continuously since our founding in 1969 and have increased the level of dividend payments to our shareholders for 23 consecutive years . we derive substantially all of our revenues from rents and operating expense reimbursements received pursuant to long-term leases and focus our investment activities on community and neighborhood shopping centers , anchored principally by regional supermarket or pharmacy chains . we believe that because consumers need to purchase food and other types of staple goods and services generally available at supermarket or pharmacy-anchored shopping centers , the nature of our investments provides for relatively stable revenue flows even during difficult economic times .
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for derivatives designated as fair value hedges , the change in the estimated 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 5 % , while a limited number 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 , 2016 , our portfolio consisted of 231 properties leased or loaned to 30 operators , of which six are under development and 12 are in the form of mortgage loans . 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 . 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 or will be leased to median or its affiliates ; 48 index to financial statements 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 . see 2015 activity for a description of the initial median transaction ; completed the sale leaseback transaction with prime converting our existing mortgage loan on three general acute care hospitals and one free-standing emergency department in new jersey to real estate , for an aggregate investment of $ 115 million ; completed the sale leaseback transaction converting the remaining $ 93.3 million rcch acquisition loan on the olympia , washington property to real estate , including funding an additional $ 7 million ; and committed to purchase two acute care hospitals in washington and idaho for an aggregate purchase price of $ 105 million , which will be leased to rcch . story_separator_special_tag we use direct financing lease ( dfl ) accounting to record rent on certain leases deemed to be financing leases , per accounting rules , rather than operating leases . for leases accounted for as dfls , future minimum lease payments are recorded as a receivable . the difference between the future minimum lease payments and the estimated residual values less the cost of the properties is recorded as unearned income . 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 . in instances where we have a profits or equity interest in our tenants ' operations , we record income equal to our percentage interest of the tenants ' profits , as defined in the lease or tenants ' operating agreements , once annual thresholds , if any , are met . 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 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 . 52 index to financial statements 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 38.8 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 , 2016 ; 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 existing properties acquired for leasing purposes , we 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 values 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 valued as if vacant when acquired .
| 2015 highlights in 2015 , we invested or committed to invest approximately $ 1.8 billion in healthcare real estate assets . these significant investments greatly strengthened our portfolio through geographic , tenant and property type diversification . we expanded total assets by 51 % , increased revenues by 41 % , and lowered our general and administrative expense as a percentage of revenue to less than 10 % . a summary of our 2015 highlights is as follows : acquired ( 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 the original capella hospital portfolio ( now rcch ) including seven acute care hospitals throughout the u.s. and obtained a stake in their operations for a combined total of approximately $ 900 million . also , acquired an eighth facility ( kershaw ) for $ 35 million later in the year . completed the sale-leaseback transaction ( step 2 of the initial transaction in 2014 ) of 31 median facilities in germany for an aggregate purchase price of 646 million ; initiated long term relationship with axa real estate investment managers to co-invest with axa-advised accounts for the acquisition of acute care hospitals in spain and italy via a joint venture arrangement ; executed a $ 19 million agreement to develop an inpatient rehabilitation hospital in toledo , ohio , acquired an inpatient rehabilitation facility and a long-term acute care hospital in lubbock , texas for an aggregate purchase price of $ 31.5 million , and acquired an inpatient rehabilitation hospital in weslaco , texas for $ 10.7 million all leased to ernest ; completed $ 30 million mortgage financing to prime for a general acute care hospital in port huron , michigan and subsequently converted a portion of the loan to real estate for $ 20 million , which reduced the mortgage loan accordingly ;
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our useful life and residual value estimates take into consideration the impact of anticipated technological changes story_separator_special_tag cautionary note concerning forward-looking statements the discussion under this caption `` management 's discussion and analysis of financial condition and results of operations '' and elsewhere in this document , including , for example , under the `` risk factors '' and `` business '' captions , includes `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. all statements other than statements of historical fact , including statements regarding guidance ( including our expectations for the first quarter and full year of 2014 set forth under the heading `` outlook '' below ) , business and industry prospects or future results of operations or financial position , made in this annual report on form 10-k are forward-looking . words such as `` anticipate , '' `` believe , '' `` could , '' `` estimate , '' `` expect , '' `` goal , '' `` intend , '' `` may , '' `` plan , '' `` project , '' `` seek , '' `` should , '' `` will , '' and similar expressions are intended to further identify any of these forward-looking statements . forward-looking statements reflect management 's current expectations but they are based on judgments and are inherently uncertain . furthermore , they are subject to risks , uncertainties and other factors , that could cause our actual results , performance or achievements to differ materially from the future results , performance or achievements expressed or implied in those forward-looking statements . examples of these risks , uncertainties and other factors include , but are not limited to , those discussed in this annual report on form 10-k and , in particular , the risks discussed under the caption `` risk factors '' in part i , item 1a of this report . all forward-looking statements made in this annual report on form 10-k speak only as of the date of this document . readers are cautioned not to place undue reliance on such forward-looking statements . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . overview the discussion and analysis of our financial condition and results of operations has been organized to present the following : a review of our critical accounting policies and review of our financial presentation , including discussion of certain operational and financial metrics we utilize to assist us in managing our business ; a discussion of our results of operations for the year ended december 31 , 2013 compared to the same period in 2012 and the year ended december 31 , 2012 compared to the same period in 2011 ; a discussion of our business outlook , including our expectations for selected financial items for the first quarter and full year of 2014 ; and a discussion of our liquidity and capital resources , including our future capital and contractual commitments and potential funding sources . critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . ( see note 1. general and note 2. summary of significant accounting policies to our consolidated financial statements under item 8. financial statements and supplementary data ) . certain of our accounting policies are deemed `` critical , '' as they require management 's highest degree of judgment , estimates and assumptions . we have discussed these accounting policies and estimates with the audit committee of our board of directors . we believe our most critical accounting policies are as follows : ship accounting our ships represent our most significant assets and are stated at cost less accumulated depreciation and amortization . depreciation of ships is generally computed net of a 15 % projected residual value using the straight-line method over the estimated useful life of the asset , which is generally 30 years . the 30-year useful life of our newly constructed ships and 15 % associated residual value are both based on the weighted-average of all major components 36 of a ship . our useful life and residual value estimates take into consideration the impact of anticipated technological changes , long-term cruise and vacation market conditions and historical useful lives of similarly-built ships . in addition , we take into consideration our estimates of the weighted-average useful lives of the ships ' major component systems , such as hull , superstructure , main electric , engines and cabins . given the very large and complex nature of our ships , our accounting estimates related to ships and determinations of ship improvement costs to be capitalized require considerable judgment and are inherently uncertain . we do not have cost segregation studies performed to specifically componentize our ship systems . therefore , we estimate the costs of component systems based principally on general and technical information known about major ship component systems and their lives and our knowledge of the cruise vacation industry . we do not identify and track depreciation by ship component systems , but instead utilize these estimates to determine the net cost basis of assets replaced or refurbished . improvement costs that we believe add value to our ships are capitalized as additions to the ship and depreciated over the shorter of the improvements ' estimated useful lives or that of the associated ship . the estimated cost and accumulated depreciation of replaced or refurbished ship components are written off and any resulting losses are recognized in cruise operating expenses . during the first quarter of 2013 , we performed a review of the estimated useful lives and associated residual values of ships in our fleet approaching the last third of their estimated useful lives . story_separator_special_tag the estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require our significant judgment when making assumptions of expected revenues , operating costs , marketing , selling and administrative expenses , interest rates , ship additions and retirements as well as assumptions regarding the cruise vacation industry 's competitive environment and general economic and business conditions , among other factors . the principal assumptions used in the discounted cash flow model are projected operating results , weighted-average cost of capital , and terminal value . the discounted cash flow model uses our 2014 projected operating results as a base . to that base we add future years ' cash flows assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments beyond 2014 on the reporting unit . we discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital . if the fair value of the reporting unit exceeds its carrying value , no further analysis or write-down of goodwill is required . if the fair value of the reporting unit is less than the carrying value of its net assets , the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities , including both recognized and unrecognized tangible and intangible assets , based on their fair value . if necessary , goodwill is then written down to its implied fair value . the impairment review for indefinite-life intangible assets consists of a comparison of the fair value of the asset with its carrying amount . we estimate the fair value of our indefinite-life intangible assets , which consist of trademarks and trade names related to pullmantur , using a discounted cash flow model and the relief-from-royalty method . the royalty rate used is based on comparable royalty agreements in the tourism and hospitality industry . the discount rate used is comparable to the rate used in valuing the pullmantur reporting unit in our goodwill impairment test . if the carrying amount exceeds its fair value , an impairment loss is recognized in an amount equal to that excess . if the fair value exceeds its carrying amount , the indefinite-life intangible asset is not considered impaired . other intangible assets assigned finite useful lives are amortized on a straight-line basis over their estimated useful lives . we review our ships , aircraft and other long-lived assets for impairment whenever events or changes in circumstances indicate , based on estimated undiscounted future cash flows , that the carrying amount of these assets may not be fully recoverable . we evaluate asset impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . the lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships and at the aggregated asset group level for our aircraft . ( see note 2. summary of significant accounting policies to our consolidated financial statements under item 8. financial statements and supplementary data ) . if estimated future cash flows are less than the carrying value of an asset , an impairment charge is recognized to the extent its carrying value exceeds fair value . we estimate fair value based on quoted market prices in active markets , if available . if active markets are not available we base fair value on independent appraisals , sales price negotiations and projected future cash flows discounted at a rate estimated by management to be commensurate with the business risk . quoted market prices are 38 often not available for individual reporting units and for indefinite-life intangible assets . accordingly , we estimate the fair value of a reporting unit and an indefinite-life intangible asset using an expected present value technique . pullmantur during the fourth quarter of 2013 , we performed our annual impairment review of goodwill for pullmantur 's reporting unit . we did not perform a qualitative assessment but instead proceeded directly to the two-step goodwill impairment test . as a result of the test , we determined the fair value of the pullmantur reporting unit exceeded its carrying value by approximately 8 % resulting in no impairment to pullmantur 's goodwill . we also performed the annual impairment review of our trademarks and trade names using a discounted cash flow model and the relief-from-royalty method . based on the results of our testing , we did not record an impairment of pullmantur 's tradenames and trademarks for the year ended december 31 , 2013. during the fourth quarter of 2012 , we performed the annual impairment evaluation of our goodwill and trademarks and trade names and we recognized total impairment related charges of $ 413.9 million associated with our pullmantur brand . included in this amount was a 100 % valuation allowance of our deferred tax assets which resulted in a deferred income tax expense of $ 33.7 million recorded during the fourth quarter of 2012. in addition , pullmantur has a deferred tax liability that was recorded at the time of acquisition . this liability represents the tax effect of the basis difference between the tax and book values of the trademarks and trade names that were acquired at the time of the acquisition . due to the 2012 impairment charge related to these intangible assets , we reduced the deferred tax liability and recorded a deferred tax benefit of $ 5.2 million during the fourth quarter of 2012. the net $ 28.5 million impact of these adjustments was recognized in earnings during the fourth quarter of 2012 and was reported within other ( expense ) income in our statements of comprehensive income ( loss ) . in connection with the december 2013 agreement to sell a majority stake in pullmantur 's non-core businesses , we have agreed to retain certain long-lived assets , consisting of the aircraft owned and operated by pullmantur air .
| summary of significant accounting policies to our consolidated financial statements under item 8. financial statements and supplementary data for further information on recent accounting pronouncements . liquidity and capital resources sources and uses of cash cash flow generated from operations provides us with a significant source of liquidity . net cash provided by operating activities remained consistent at $ 1.4 billion . the primary drivers for 2013 include a $ 392.5 million increase in cash receipts from customer deposits and an $ 88.0 million increase in cash receipts from onboard spending , mostly offset by $ 69.7 million of cash received on the settlement of derivative financial instruments in 2012 which did not recur in 2013 and the timing of payments to vendors in 2013 as compared to 2012. net cash used in investing activities was $ 824.5 million for 2013 compared to $ 1.3 billion for 2012. during 2013 , our use of cash was primarily related to capital expenditures of $ 763.8 million , down from $ 1.3 billion for 2012. the decrease in capital expenditures is attributable to the delivery of a ship , celebrity reflection , in 2012 which did not recur in 2013 , partially offset by a higher level of ships under construction in 2013 compared to 2012. the decrease in capital expenditures was partially offset by investments of $ 70.6 million to our unconsolidated affiliates during 2013. in addition , during 2013 we paid $ 17.3 million on settlements on our foreign currency forward contracts , up from $ 10.9 million paid in 2012. net cash used in financing activities was $ 576.6 million for 2013 compared to $ 179.6 million for 2012. this change was primarily due to an increase of $ 295.2 million in repayments of debt , a decrease of $ 109.0 million in debt proceeds and an increase of $ 25.9 million paid
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly under the headings “ item 1a – risk factors ” and “ forward-looking statements. ” general we report our results through four segments : global housing , global lifestyle , global preneed and total corporate and other . total corporate and other includes activities of the holding company , financing and interest expenses , net realized gains ( losses ) on investments , interest income earned from short-term investments held and income ( expenses ) primarily related to the company 's frozen benefit plans . total corporate and other also includes the amortization of deferred gains and gains associated with the sales of fortis financial group ( `` ffg '' ) , our long term care ( `` ltc ' ) and the assurant employee benefits businesses through reinsurance agreements , integration and transaction expenses related to the pending acquisition of the warranty group ( see below ) and other unusual or infrequent items . additionally , the total corporate and other segment includes amounts related to the runoff of the assurant health business . as assurant health was a reportable segment in prior years , these amounts are disclosed for comparability . in addition , assurant employee benefits was a separate segment in 2016 and primarily includes the results of operations for the periods prior to its sale on march 1 , 2016. see note 4 for more information . the following discussion covers the year ended december 31 , 2017 ( “ twelve months 2017 ” ) , year ended december 31 , 2016 ( “ twelve months 2016 ” ) and year ended december 31 , 2015 ( “ twelve months 2015 ” ) . please see the discussion that follows , for each of these segments , for a more detailed comparative analysis . executive summary on january 8 , 2018 , the company entered into an amended and restated agreement and plan of merger ( the “ a & r merger agreement ” ) , with twg holdings limited , a bermuda limited company ( “ twg holdings , ” and together with its subsidiaries , “ twg ” ) , twg re , ltd. , a corporation incorporated in the cayman islands ( “ twg re ” ) , arbor merger sub , inc. , a delaware corporation and a direct wholly owned subsidiary of twg holdings ( “ twg merger sub ” ) and spartan merger sub , ltd. , a bermuda exempted limited company and a direct wholly owned subsidiary of assurant ( “ merger sub ” ) . under the terms of the a & r merger agreement and subject to the satisfaction or waiver of the conditions therein , assurant will acquire twg through a transaction in which merger sub will merge with and into twg , with twg continuing as the surviving corporation and as a wholly owned subsidiary of assurant . twg is a global provider of protection plans and related programs and a portfolio company of tpg capital , a private equity company . for more information regarding the pending transaction , see note 27 to the consolidated financial statements , included elsewhere in this report . consolidated net income decreased $ 45.8 million , or 8 % , to $ 519.6 million for twelve months 2017 from $ 565.4 million for twelve months 2016. the decrease includes a $ 266.5 million reduction in after-tax net gains from the 2016 sale of assurant employee benefits ( including net realized gains on investments and amortization of deferred gains in connection with the transaction ) and a $ 90.1 million after-tax increase in reportable catastrophes ( reportable catastrophe losses , net of reinsurance and client profit sharing adjustments , and including reinstatement and other premiums ) , mainly due to hurricanes harvey , irma and maria . these items were partially offset by a one-time $ 177.0 million tax benefit from the reduction of net deferred tax liabilities following the enactment of the u.s. tax cuts and jobs act . global housing net income decreased $ 91.2 million , or 48 % , to $ 97.4 million for twelve months 2017 from $ 188.6 million for twelve months 2016 , primarily due to an $ 88.1 million after-tax increase in reportable catastrophes mainly from hurricanes harvey , irma and maria . excluding reportable catastrophes , the decrease in net income was due to higher non-catastrophe loss experience and a reduction from our lender placed insurance business due to the ongoing normalization of placement rates . these decreases were partially offset by a reduction of lender placed regulatory expenses and profitable growth from our multifamily housing business . 38 net earned premiums and fees decreased $ 113.8 million to $ 2.18 billion for twelve months 2017 compared with twelve months 2016 , primarily due to lower placement rates in lender-placed insurance as well as the impact of reinstatement and other premiums from reportable catastrophes . reduced demand for originations and field services , along with lower client volumes , in our mortgage solutions business also contributed to the decline . the decrease was partially offset by revenue growth in our multi-family housing business . for 2018 , we anticipate global housing net income , excluding reportable catastrophes , to be down before taking into account recently enacted tax reform . further declines in lender-placed insurance are expected as the housing market continues to improve . we expect declines to be partially offset by continued growth in multi-family housing and improved performance in mortgage solutions . additional savings from ongoing expense management efforts are expected to be realized towards the end of 2018 and into 2019. net operating income is expected to increase after reflecting a lower effective tax rate of approximately 20 % , with a portion of the tax savings to be reinvested for future growth . story_separator_special_tag fluctuations in interest rates affect our returns on , and the market value of , fixed maturity and short-term investments . the fair market value of the fixed maturity securities in our investment portfolio and the investment income from these securities fluctuate depending on general economic and market conditions . the fair market value generally increases or decreases in an inverse relationship with fluctuations in interest rates , while net investment income realized by us from future investments in fixed maturity securities will generally increase or decrease with interest rates . we also have investments that are subject to pre-payment risk , such as mortgage-backed and asset-backed securities . interest rate fluctuations may cause actual net investment income and or cash flows from such investments to differ from estimates made at the time of investment . in periods of declining interest rates , mortgage prepayments generally increase and mortgage-backed securities , commercial mortgage obligations and bonds are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates . therefore , in these circumstances we may be required to reinvest those funds in lower-interest earning investments . our revenues may also be impacted by our ability to continue to grow in the markets in which we operate , including the mobile device insurance market , the renters insurance market and the field services and valuation markets . for example , our business is subject to volatility in mobile device trade-in volumes based on the release of new devices and carrier promotional programs , as well as to changes in the mobile device market dynamics . our lender-placed insurance revenues will also be impacted by changes in the housing market . expenses our expenses are primarily policyholder benefits , underwriting , general and administrative expenses and interest expense . policyholder benefits are affected by our claims management programs , reinsurance coverage , contractual terms and conditions , regulatory requirements , economic conditions , and numerous other factors . benefits paid or reserves required for future benefits could substantially exceed our expectations , causing a material adverse effect on our business , results of operations and financial condition . underwriting , general and administrative expenses consist primarily of commissions , premium taxes , licenses , fees , amortization of deferred costs , general operating expenses and income taxes . in connection with our transformation , we are undertaking various expense savings initiatives while also making investments in information technology , among other things , which will impact our expenses . we incur interest expense related to our debt . critical accounting estimates certain items in our consolidated financial statements are based on estimates and judgment . differences between actual results and these estimates could in some cases have material impacts on our consolidated financial statements . the following critical accounting policies require significant estimates . the actual amounts realized in these areas could ultimately be materially different from the amounts currently provided for in our consolidated financial statements . reserves reserves are established using generally accepted actuarial methods and reflect judgments about expected future claim payments . calculations incorporate assumptions about the incidence of incurred claims , the extent to which all claims have 40 been reported , reporting lags , expenses , inflation rates , future investment earnings , and other relevant factors . while the methods of making such estimates and establishing the related liabilities are periodically reviewed and updated , the estimation of reserves is subject to uncertainty given that management is using historical information and methods to help project future events and reserve outcomes . the recorded reserves represent management 's best estimate at a point in time of the ultimate costs of settlement and administration of a claim or group of claims , based upon actuarial assumptions and projections using facts and circumstances known at the time of calculation . many of the factors affecting reserve uncertainty are not directly quantifiable and not all future events can be anticipated when reserves are established . reserve estimates are refined as experience develops . adjustments to reserves , both positive and negative , are reflected in the consolidated statement of operations in the period in which such estimates are determined . because establishment of reserves is an inherently complex process involving significant judgment and estimates , there can be no certainty that future settlement amounts for claims incurred through the financial reporting date will not vary from reported claim reserves . future loss development could require reserves to be increased or decreased , which could have a material adverse or positive effect on our earnings in the periods in which such increases or decreases are made . see `` item 1a - risk factors - risks related to the company - our actual claims losses may exceed our reserves for claims , requiring us to establish additional reserves or to incur additional expense for settling unreserved liabilities , which could materially affect our results of operations , profitability and capital `` for more detail on this risk . the following table provides reserve information for our reporting segment lines for the years ended december 31 , 2017 and 2016 : replace_table_token_7_th for additional information regarding our reserves , see note 14 to the consolidated financial statements included elsewhere in this report . short duration contracts claims and benefits payable reserves for short duration contracts include ( 1 ) case reserves for known claims which are unpaid as of the balance sheet date ; ( 2 ) ibnr reserves for claims where the insured event has occurred but has not been reported to us as of the balance sheet date ; and ( 3 ) loss adjustment expense reserves for the expected handling costs of settling the claims . periodically , we review emerging experience and make adjustments to our reserves and assumptions where necessary . below are further discussions on the reserving process for our major short duration products . global housing and global lifestyle ultimate loss and loss adjustment expenses are estimated utilizing generally accepted actuarial loss reserving methods .
| results of operations assurant consolidated overview the table below presents information regarding our consolidated results of operations : replace_table_token_11_th year ended december 31 , 2017 compared to the year ended december 31 , 2016 net income decreased $ 45.8 million , or 8 % , to $ 519.6 million for twelve months 2017 from $ 565.4 million for twelve months 2016. the decrease was primarily related to $ 266.5 million of lower after-tax net gains , including a reduction in amortization of deferred gains and net realized gains on investments associated with the sale of assurant employee benefits . twelve months 2017 also included a $ 90.1 million after-tax increase in reportable catastrophes primarily in global housing , as previously mentioned . these items were partially offset by a one-time $ 177.0 million tax benefit from the reduction of net deferred tax liabilities following the enactment of the u.s. tax cuts and jobs act , a $ 51.6 million after-tax improvement in the results of our health run-off operations , and a $ 27.1 million tax benefit from the release of a reserve for uncertain tax positions . 47 additionally , the decrease was offset by a $ 25.6 million increase from global lifestyle , excluding reportable catastrophes , that was driven by higher contributions from the global connected living and vehicle protection businesses , lower lender placed insurance regulatory expenses and the absence of debt extinguishment expenses incurred in 2016. year ended december 31 , 2016 compared to the year ended december 31 , 2015 net income increased $ 423.8 million , or 299 % , to $ 565.4 million for twelve months 2016 from $ 141.6 million for twelve months 2015. the increase was primarily related to lower losses and exit-related charges from the wind-down of the assurant health runoff operations , a $ 248.0 million after-tax increase in amortization of deferred gains and gains on disposal of businesses and an additional $
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the increase in contingent consideration is attributable to opko renal resulting from an increase in the fair value of our contingent obligations due to changes in assumptions regarding the timing of successful achievement of future milestones driven by the fda approval of rayaldee in june 2016. the contingent consideration liabilities at december 31 , 2016 relate to potential amounts payable to former stockholders of curna , opko diagnostics , opko health europe and opko renal pursuant to our acquisition agreements in january 2011 , october 2011 , august 2012 and march 2013 , respectively . amortization of intangible assets . amortization of intangible assets was $ 64.4 million and $ 28.0 million , respectively , for the years ended december 31 , 2016 and 2015. amortization expense reflects the amortization of acquired intangible assets with defined useful lives . amortization of intangible assets for the year ended december 31 , 2016 also includes $ 8.0 million of amortization expense related to intangible assets for rayaldee . upon the fda 's approval of rayaldee in june 2016 , we reclassified $ 187.6 million of ipr & d related to rayaldee from in-process research and development to intangible assets , net in our consolidated balance sheet and began to amortize that asset . amortization of intangible assets for the year ended december 31 , 2016 includes $ 43.2 million and $ 2.5 million from bioreference and eirgen which we acquired in august 2015 and may 2015 , respectively , compared to $ 14.6 million and $ 1.7 million , respectively , for the comparable period of 2015. grant repayment . during the year ended december 31 , 2015 , we made a payment of $ 25.9 million to the office of the chief scientist of the israeli ministry of economy ( “ ocs ” ) in connection with repayment obligations resulting from grants previously made by the ocs to opko biologics to support development of hgh-ctp and the outlicense of the technology outside of israel . we did not have any such activity for the year ended december 31 , 2016. interest income . interest income for the years ended december 31 , 2016 and 2015 , 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 , 2016 and 2015 , was $ 7.4 million and $ 8.4 million , respectively . interest expense is principally related to interest incurred on the 2033 senior notes including amortization of related deferred financing costs and to the interest incurred on bioreference 's outstanding debt under its credit facility . the decrease in interest expense for the year ended december 31 , 2016 is due to a decrease in the average principal amount of the 2033 senior notes outstanding in 2016 compared to 2015. interest expense for the year ended december 31 , 2015 also reflects a non-cash write-off of deferred financing costs of $ 1.0 million as interest expense related to the exchange of $ 55.4 million principal of 2033 senior notes in 2015. this was partially offset by interest incurred on bioreference 's outstanding debt under its credit facility for the year ended december 31 , 2016 . 65 fair value changes of derivative instruments , net . fair value changes of derivative instruments , net for the years ended december 31 , 2016 and 2015 , were $ 2.8 million of income and $ 39.1 million of expense , respectively . fair value changes of derivative instruments , net related to non-cash income ( expense ) reflects the changes in the fair value of the embedded derivatives in the 2033 senior notes of $ 7.0 million of income and $ 36.6 million of expense for the years ended december 31 , 2016 and 2015 , respectively . fair value changes of derivative instruments , net for the year ended december 31 , 2016 also reflects $ 4.2 million of expense related to the change in the fair value of warrants and options to purchase additional shares of neovasc , cocrystal , arno and mabvax . other income and ( expense ) , net . other income and ( expense ) , net for the years ended december 31 , 2016 and 2015 , were $ 3.9 million and $ 7.7 million of income , respectively . other income ( expense ) , net for the year ended december 31 , 2016 primarily consists of a $ 2.5 million gain recognized in connection with the merger of sti and vbi , a $ 5.0 million gain recognized in connection with the settlement of a legal matter and foreign currency transaction gains recognized during the period , which was partially offset by a $ 4.8 million other-than-temporary impairment charge to write our investments in xenetic , arno and rxi down to their respective fair values . other income ( expense ) , net for the year ended december 31 , 2015 primarily consists of a $ 15.9 million gain recognized on the deconsolidation of sti in 2015 which was partially offset by a $ 7.3 million other-than-temporary impairment charge to write our investment in rxi down to its fair value . income tax benefit ( provision ) . our income tax benefit for the years ended december 31 , 2016 and 2015 was $ 56.1 million , and $ 113.7 million , respectively . the change in income taxes is primarily due to a $ 93.4 million release of opko 's valuation allowance in 2015 on our u.s. deferred tax assets as a result of the merger with bioreference and to changes in the geographic mix of revenues and expenses . in addition , income taxes in 2016 benefited from a favorable corporate tax rate reduction in israel . loss from investments in investees . we have made investments in other early stage companies that we perceive to have valuable proprietary story_separator_special_tag the increase in contingent consideration is attributable to opko renal resulting from an increase in the fair value of our contingent obligations due to changes in assumptions regarding the timing of successful achievement of future milestones driven by the fda approval of rayaldee in june 2016. the contingent consideration liabilities at december 31 , 2016 relate to potential amounts payable to former stockholders of curna , opko diagnostics , opko health europe and opko renal pursuant to our acquisition agreements in january 2011 , october 2011 , august 2012 and march 2013 , respectively . amortization of intangible assets . amortization of intangible assets was $ 64.4 million and $ 28.0 million , respectively , for the years ended december 31 , 2016 and 2015. amortization expense reflects the amortization of acquired intangible assets with defined useful lives . amortization of intangible assets for the year ended december 31 , 2016 also includes $ 8.0 million of amortization expense related to intangible assets for rayaldee . upon the fda 's approval of rayaldee in june 2016 , we reclassified $ 187.6 million of ipr & d related to rayaldee from in-process research and development to intangible assets , net in our consolidated balance sheet and began to amortize that asset . amortization of intangible assets for the year ended december 31 , 2016 includes $ 43.2 million and $ 2.5 million from bioreference and eirgen which we acquired in august 2015 and may 2015 , respectively , compared to $ 14.6 million and $ 1.7 million , respectively , for the comparable period of 2015. grant repayment . during the year ended december 31 , 2015 , we made a payment of $ 25.9 million to the office of the chief scientist of the israeli ministry of economy ( “ ocs ” ) in connection with repayment obligations resulting from grants previously made by the ocs to opko biologics to support development of hgh-ctp and the outlicense of the technology outside of israel . we did not have any such activity for the year ended december 31 , 2016. interest income . interest income for the years ended december 31 , 2016 and 2015 , 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 , 2016 and 2015 , was $ 7.4 million and $ 8.4 million , respectively . interest expense is principally related to interest incurred on the 2033 senior notes including amortization of related deferred financing costs and to the interest incurred on bioreference 's outstanding debt under its credit facility . the decrease in interest expense for the year ended december 31 , 2016 is due to a decrease in the average principal amount of the 2033 senior notes outstanding in 2016 compared to 2015. interest expense for the year ended december 31 , 2015 also reflects a non-cash write-off of deferred financing costs of $ 1.0 million as interest expense related to the exchange of $ 55.4 million principal of 2033 senior notes in 2015. this was partially offset by interest incurred on bioreference 's outstanding debt under its credit facility for the year ended december 31 , 2016 . 65 fair value changes of derivative instruments , net . fair value changes of derivative instruments , net for the years ended december 31 , 2016 and 2015 , were $ 2.8 million of income and $ 39.1 million of expense , respectively . fair value changes of derivative instruments , net related to non-cash income ( expense ) reflects the changes in the fair value of the embedded derivatives in the 2033 senior notes of $ 7.0 million of income and $ 36.6 million of expense for the years ended december 31 , 2016 and 2015 , respectively . fair value changes of derivative instruments , net for the year ended december 31 , 2016 also reflects $ 4.2 million of expense related to the change in the fair value of warrants and options to purchase additional shares of neovasc , cocrystal , arno and mabvax . other income and ( expense ) , net . other income and ( expense ) , net for the years ended december 31 , 2016 and 2015 , were $ 3.9 million and $ 7.7 million of income , respectively . other income ( expense ) , net for the year ended december 31 , 2016 primarily consists of a $ 2.5 million gain recognized in connection with the merger of sti and vbi , a $ 5.0 million gain recognized in connection with the settlement of a legal matter and foreign currency transaction gains recognized during the period , which was partially offset by a $ 4.8 million other-than-temporary impairment charge to write our investments in xenetic , arno and rxi down to their respective fair values . other income ( expense ) , net for the year ended december 31 , 2015 primarily consists of a $ 15.9 million gain recognized on the deconsolidation of sti in 2015 which was partially offset by a $ 7.3 million other-than-temporary impairment charge to write our investment in rxi down to its fair value . income tax benefit ( provision ) . our income tax benefit for the years ended december 31 , 2016 and 2015 was $ 56.1 million , and $ 113.7 million , respectively . the change in income taxes is primarily due to a $ 93.4 million release of opko 's valuation allowance in 2015 on our u.s. deferred tax assets as a result of the merger with bioreference and to changes in the geographic mix of revenues and expenses . in addition , income taxes in 2016 benefited from a favorable corporate tax rate reduction in israel . loss from investments in investees . we have made investments in other early stage companies that we perceive to have valuable proprietary
| results of operations for the years ended december 31 , 2017 and december 31 , 2016 replace_table_token_3_th the decrease in revenue from services is attributable to decreased reimbursement at bioreference 's genedx division and decreased volume and overall reimbursement at bioreference . revenue from services for the year ended december 31 , 2017 was also affected by adjustments to the estimated payment amounts from third-party payors and claims of overpayment , including as a result of payor error . the increase in revenue from products principally reflects an increase in revenue from opko chile , spain and eirgen . revenue from products in 2017 also reflects $ 9.1 million of revenue from sales of rayaldee , which was launched in the u.s. in november 2016. revenue from transfer of intellectual property decreased as a result of $ 50.0 million of revenue from the initial payment in the vfmcrp agreement for the year ended december 31 , 2016 , which was partially offset by $ 10.0 million of revenue from a milestone payment from our licensee , tesaro , for the year ended december 31 , 2017 . revenue from transfer of intellectual property for the years ended december 31 , 2017 and 2016 also reflects $ 57.8 million and $ 70.6 million , respectively , of revenue related to the pfizer transaction . costs of revenue . costs of revenue for the year ended december 31 , 2017 increased $ 8.6 million compared to the prior year . the decrease in cost of service revenue is attributable to decreased revenue at bioreference .
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54 bg staffing , inc. and subsidiaries notes to consolidated financial statements the coo 's employment agreement was effective as of august 1 , 2016 for one year , and remains in effect under successive one-year extensions unless terminated pursuant to its terms . in the event that her employment is terminated by the company without cause or by her for good reason , she will be entitled to an amount equal to six months of base salary and bonus . should there be a sale of the company that results in the termination of her employment or a material adverse change in her duties and responsibilities , she will be entitled to an amount equal to twelve months of base salary , bonus , and the amount of monthly cobra premiums for her and her story_separator_special_tag results of operations . the following discussion and analysis of our financial condition and results of operations , our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to risks , uncertainties and other factors including those described in “ item 1a . risk factors ” of this annual report on form 10-k. our actual results may differ materially from those contained in any forward-looking statements . you should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this annual report on form 10-k. our financial information may not be indicative of our future performance . overview we are a leading national provider of temporary staffing services and have completed a series of acquisitions including the acquisition of bg personnel , lp and b g staff services inc. in june 2010 , and substantially all of the assets of jna staffing , inc. in december 2010 , extrinsic , llc in december 2011 , american partners , inc. in december 2012 , instaff in june 2013 , d & w in march 2015 , vts in october 2015 , zycron in april 2017 and smart in september 2017. we operate within three industry segments : multifamily , professional , and commercial . we provide services to customers primarily within the united states of america . the multifamily segment provides front office and maintenance temporary workers to various apartment communities , in 23 states , via property management companies responsible for the apartment communities ' day to day operations . the professional segment provides skilled temporary workers on a nationwide basis for information technology ( `` it '' ) and finance and accounting customer projects . the commercial segment provides temporary workers primarily to logistics , distribution , and call center customers needing a flexible workforce in illinois , wisconsin , new mexico , texas , tennessee and mississippi . 24 story_separator_special_tag selling , general and administrative expenses : selling , general and administrative expenses in creased approximately $ 6.5 million ( 17.3 % ) related to a n in crease in multifamily of $ 2.8 million from growth , including $ 0.7 million of new office expansion , and a n in crease in professional of $ 3.1 million from zycron and $ 0.9 million from smart . depreciation and amortization : depreciation and amortization charges de creased approximately $ 0.4 million ( 6.5 % ) . the de crease in depreciation and amortization is primarily due to professional segment fully amortized intangible assets related to the 2011 extrinsic , llc acquisition of $ 1.1 million that was partially offset by an in crease in the professional segment intangible assets acquired in the zycron acquisition of $ 0.7 million . interest expense , net : interest expense , net de creased approximately $ 0.7 million ( 17.9 % ) primarily due to the de crease in the interest of $ 1.2 million related to the payoff of the 13 % subordinated debt , the de crease in contingent consideration discounts of $ 0.6 million , partially offset by the in crease of $ 0.7 million in the new term debt and the in crease of $ 0.3 million in the revolver . income taxes : income tax expense , net in creased approximately $ 4.4 million primarily due to the impact of the tcja which resulted in a re-measurement of the net deferred tax assets of $ 3.3 million and an increase of $ 1.1 million from increased pretax income . 27 fifty-two week fiscal year ended december 25 , 2016 ( fiscal 2016 ) compared with fifty-two week fiscal year ended december 27 , 2015 ( fiscal 2015 ) revenues : replace_table_token_11_th multifamily revenues : multifamily revenues increased approximately $ 14.8 million ( 34.3 % ) due to our continued focus on expansion outside of texas . revenue from branches outside of texas accounted for approximately $ 13.5 million of the increase and revenue from branches in texas increased approximately $ 1.3 million . the increase was due to a 28.8 % increase in billed hours and a 4.3 % increase in average bill rate . revenue from existing offices accounted for approximately $ 12.2 million of the increase and revenue from new offices provided approximately $ 2.6 million . professional revenues : professional revenues increased approximately $ 20.3 million ( 23.4 % ) . the vts acquisition contributed approximately $ 24.3 million of new revenues for 12 months in 2016 verses 3 months in 2015. this revenue increase was offset by a decrease in the other it divisions of $ 3.5 million due to a decrease of 3.5 % in billed hours and a 2.7 % decrease in average bill rate . the finance and accounting division decreased $ 0.5 million due to 0.9 % decrease in billed hours and a 2.8 % decrease in average bill rate for 12 months in 2016 verses 10 months in 2015. commercial revenues : commercial revenues increased approximately $ 1.2 million ( 1.4 % ) primarily from operations in texas . story_separator_special_tag during fiscal 2017 , net cash provided by operating activities was $ 18.1 million , a n in crease of $ 8.5 million compared with $ 9.5 million for fiscal 2016 . this in crease is primarily attributable to the re-measurement of the net deferred tax assets as a result of the tcja , timing of payments on accounts receivables and accrued payroll and expenses . during fiscal 2016 , net cash provided by operating activities was $ 9.5 million , a de crease of $ 2.3 million compared with $ 11.8 million for fiscal 2015 . this de crease is primarily attributable to timing of payments on accounts receivables and accrued payroll and expenses offset by higher net income . investing activities cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures . in fiscal 2017 , we paid $ 18.5 million in connection with the zycron acquisition , $ 6.0 million in connection with the smart acquisition and we made capital expenditures of $ 1.1 million mainly related to computer equipment and software purchased in the ordinary course of business . in fiscal 2016 , we made capital expenditures of $ 0.9 million mainly related to computer equipment purchased in the ordinary course of business . in fiscal 2015 , we paid $ 8.8 million in connection with the d & w acquisition in march 2015 , $ 10.0 million in connection with the vts acquisition in october 2015 and made capital expenditures of $ 0.6 million mainly related to computer equipment purchased in the ordinary course of business and furniture and fixtures related to the new corporate offices . 30 financing activities cash flows from financing activities consisted principally of borrowings and payments under our amended credit agreement , deferred financing costs related to our amended credit agreement , payment of dividends and contingent consideration paid . for fiscal 2017 , we received proceeds from the issuance of the $ 25.0 million term loan mainly to fund the zycron acquisition . we paid $ 8.7 million in cash dividends on our common stock , paid $ 4.0 million of contingent consideration related to the fiscal october 2015 vts acquisition , we reduced our revolving line of credit by $ 2.5 million , paid $ 1.1 million in principal payments on the term loan , and paid $ 1.1 million in deferred financing costs related to the amended credit agreement for fiscal 2016 , we increased borrowings on our revolving credit facility by $ 7.7 million and received net proceeds from issuance of common stock of $ 15.3 million to pay off amounts owing under a senior subordinated credit agreement of $ 15.3 million . we also paid $ 8.0 million in cash dividends on our common stock and $ 7.6 million of contingent consideration related to the fiscal march 2015 d & w acquisition & fiscal october 2015 vts acquisition . in fiscal 2015 , we increased borrowings under our revolving credit facility by $ 11.3 million and received net proceeds from issuance of common stock of $ 7.0 million . we paid $ 6.5 million in cash dividends on our common stock , decreased our debt and other long-term liabilities by $ 2.7 million using excess cash flows from operations , paid $ 0.9 million of contingent consideration primarily related to the fiscal june 2013 instaff and the fiscal december 2012 american partners acquisitions , and paid $ 0.7 million in deferred financing costs related to a credit agreement with tcb . credit agreements we had a credit agreement with tcb . the credit agreement provided for a revolving facility , maturing august 21 , 2019 , permitting us to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount , which was 85 % of eligible accounts , and tcb 's commitment of $ 35.0 million . in connection with the acquisition of the assets of zycron described above , on april 3 , 2017 , we entered into an amended and restated credit agreement ( the “ amended credit agreement ” ) with tcb with an aggregate commitment of $ 55.0 million . the amended credit agreement provides for the revolving facility , which permits us to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount , which is 85 % of eligible accounts , and tcb 's commitment of $ 35.0 million and also provides for a term loan maturing april 3 , 2022 ( the “ term loan ” ) in the amount of $ 20.0 million with principal payable quarterly , based on an annual percentage of the original principal amount as defined in the amended credit agreement . tcb may also make loans ( “ swing line loans ” ) not to exceed the lesser of $ 7.5 million or the aggregate commitment . additionally , the amended credit agreement provides for us to increase the commitment with a $ 20.0 million accordion feature . we borrowed $ 20.0 million on the term loan in conjunction with the closing of the zycron acquisition on april 3 , 2017. proceeds from the foregoing loan arrangements were used to pay off our existing indebtedness on the revolving credit facility under a credit agreement , dated as of august 21 , 2015 , as amended , with tcb . we borrowed $ 5.0 million on the accordion in conjunction with the closing of the smart acquisition on september 18 , 2017. the revolving facility and term loan bear interest either at the base rate plus the applicable margin or libor plus the applicable margin ( as such terms are defined in the amended credit agreement ) . swing line loans bear interest at the base rate plus the applicable margin . all interest and commitment fees are generally paid quarterly . additionally , we pay an unused commitment fee on the unfunded portion of the revolving facility .
| results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of revenues , and have been derived from our consolidated financial statements . replace_table_token_7_th 25 fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) compared with fifty-two week fiscal year ended december 25 , 2016 ( fiscal 2016 ) the fiscal 2017 consolidated statement of operations includes 39 weeks of zycron operations and 15 weeks of smart operations . revenues : replace_table_token_8_th multifamily revenues : multifamily revenues in creased approximately $ 13.8 million ( 23.8 % ) due to our continued geographic expansion plan . revenue from branches outside of texas accounted for approximately $ 8.9 million of the in crease and revenue from branches in texas in creased approximately $ 4.9 million . the in crease was due to a 16.4 % in crease in billed hours and a 6.0 % in crease in average bill rate . revenue from existing offices accounted for approximately $ 11.5 million of the in crease and revenue from new offices provided approximately $ 2.3 million . professional revenues : professional revenues in creased approximately $ 19.6 million ( 18.3 % ) , primarily from zycron , which contributed approximately $ 27.1 million of new revenues and from smart , which contributed approximately $ 3.2 million of new revenues . the remaining it group de creased $ 6.9 million and the remaining finance and accounting group de creased $ 3.7 million . the overall in crease was due to a 23.7 % in crease in billed hours , offset by de crease of 4.7 % in average bill rate . commercial revenues : commercial revenues de creased approximately $ 14.7 million ( 16.5 % ) primarily from operations in texas .
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through our discover bank subsidiary , we offer our customers credit card loans , private student loans , personal loans and deposit products . through our discover home loans , inc. subsidiary , we offer our customers home loans . through our dfs services llc subsidiary and its subsidiaries , we operate the discover network , the pulse network ( “ pulse ” ) and diners club international ( “ diners club ” ) . the discover network is a payment card transaction processing network for discover card-branded and network partner credit , debit and prepaid cards . pulse operates an electronic funds transfer network , providing financial institutions issuing debit cards on the pulse network with access to atms domestically and internationally , as well as point of sale terminals at retail locations throughout the u.s. for debit card transactions . diners club is a global payments network of licensees , which are generally financial institutions , that issue diners club branded credit cards and or provide card acceptance services . our primary revenues consist of interest income earned on loan receivables and fees earned from customers , merchants and issuers . the primary expenses required to operate our business include funding costs ( interest expense ) , loan loss provisions , customer rewards , and expenses incurred to grow , manage and service our loan receivables and networks . our business activities are funded primarily through consumer deposits , securitization of loan receivables and the issuance of unsecured debt . change in fiscal year on december 3 , 2012 , our board of directors approved a change in our fiscal year end from november 30 to december 31 of each year . the fiscal year change is effective beginning with our 2013 fiscal year , which began on january 1 , 2013 and will end on december 31 , 2013. as a result of the change , we will have a december 2012 fiscal month transition period , the results of which we will separately report in our quarterly report on form 10-q for the quarter ending march 31 , 2013 and in our annual report on form 10-k for the year ending december 31 , 2013. change in accounting principle related to off-balance sheet securitizations beginning with the first quarter of 2010 , we have included the trusts used in our securitization activities in our consolidated financial results in accordance with the financial accounting standards board ( `` fasb '' ) statement of financial accounting standards no . 166 , accounting for transfers of financial assets - an amendment of fasb statement no . 140 ( `` statement no . 166 '' ) ( codified under the fasb accounting standards codification ( `` asc '' ) section 860 , transfers and servicing ) and statement of financial accounting standards no . 167 , amendments to fasb interpretations no . 46 ( r ) ( `` statement no . 167 '' ) ( codified under asc section 810 , consolidation ) , which were effective for us on december 1 , 2009 , the beginning of our 2010 fiscal year . under statement no . 166 , the trusts used in our securitization transactions are no longer exempt from consolidation . statement no . 167 prescribes an ongoing assessment of our involvement in the activities of the trusts and our rights or obligations to receive benefits or absorb losses of the trusts that could be potentially significant in order to determine whether those entities will be required to be consolidated in our financial statements . based on our assessment , we concluded that we are the primary beneficiary of the discover card master trust i ( `` dcmt '' ) and the discover card execution note trust ( `` dcent '' ) ( the `` trusts '' ) and accordingly , we began consolidating the trusts on december 1 , 2009. using the carrying amounts of the trust assets and liabilities as prescribed by statement no . 167 , we recorded a $ 21.1 billion increase in total assets , a $ 22.4 billion increase in total liabilities and a $ 1.3 billion decrease in stockholders ' equity ( comprised of a $ 1.4 billion decrease in retained earnings offset by an increase of $ 0.1 billion in accumulated other comprehensive income ) . the significant adjustments to our statement of financial condition upon adoption of statements no . 166 and 167 are outlined below : consolidation of $ 22.3 billion of securitized loan receivables and the related debt issued from the trusts to third-party investors ; 47 reclassification of $ 4.6 billion of certificated retained interests classified as investment securities to loan receivables ; recording of a $ 2.1 billion allowance for loan losses , not previously required under gaap , for the newly consolidated and reclassified credit card loan receivables ; derecognition of the remaining $ 0.1 billion value of the interest-only strip receivable , net of tax , recorded in amounts due from asset securitization and reclassification of the remaining $ 1.6 billion of amounts due from asset securitization to restricted cash , loan receivables and other assets ; and recording of net deferred tax assets of $ 0.8 billion , largely related to establishing an allowance for loan losses on the newly consolidated and reclassified credit card loan receivables . beginning with the first quarter of 2010 , our results of operations no longer reflect securitization income , but instead report interest income , net charge-offs and certain other income associated with all securitized loan receivables and interest expense associated with debt issued from the trusts to third-party investors in the same line items in our results of operations as non-securitized credit card loan receivables and corporate debt . additionally , we no longer record initial gains on new securitization activity since securitized credit card loans no longer receive sale accounting treatment . also , there are no gains or losses on the revaluation of the interest-only strip receivable as that asset is not recognizable in a transaction accounted for as a secured borrowing . story_separator_special_tag congress or the administration may take actions as a result of these studies , or otherwise , that impact the student loan market in the future . legislation has been proposed in past congresses that would make it easier to discharge private student loan debt in bankruptcy , by repealing the current requirement that this relief is available only to those for whom repaying such loans would be an `` undue hardship . '' it is uncertain whether this legislation will be proposed again in 2013 and whether it will pass . even if such legislation passed congress , we believe our underwriting practices and the high percentage of our loans that have cosigners reduce potential risk to our business . any such actions , however , could cause us to restructure our private student loan product in ways that we may not currently anticipate . home loans . the cfpb has indicated that the mortgage industry is an area of supervisory focus and that it will concentrate its examinations and rulemaking efforts on the variety of mortgage-related topics required under the reform act including steering consumers to less favorable products , discrimination , abusive or unfair lending practices , predatory lending , origination disclosures , minimum mortgage underwriting standards , mortgage loan origination compensation and servicing practices . the cfpb recently published several final rules impacting the mortgage industry , including rules related to ability-to-repay , mortgage servicing and mortgage loan originator compensation . the ability-to-repay rule makes lenders liable if they fail to assess ability to repay under a prescribed test but also creates a safe harbor for so-called `` qualified mortgages . '' the `` qualified mortgages '' standards include a tiered cap structure that places limits on the total amount of certain fees that can be charged on a loan , a 43 % cap on debt-to-income ( i.e . , total monthly payments on debt to monthly gross income ) , exclusion of interest-only products and other requirements . the 43 % debt-to-income cap does not apply for the first seven years the rule is in effect for loans that are eligible for sale to fannie mae or freddie mac or eligible for government guarantee through the fha or the veterans administration . failure to comply with the ability-to-repay rule may result in possible cfpb enforcement action and special statutory damages plus actual , class action and attorney fee damages , all of which a borrower may claim in defense of a foreclosure action at any time . we are currently assessing the impact of these requirements on our mortgage business . it is uncertain what the impact of these requirements will be on the secondary market into which we sell mortgages we originate . 55 in addition , the federal reserve and other federal agencies have issued a proposed rule under the reform act that would exempt `` qualified residential mortgages '' from the reform act requirement that the securitizer of assets retain an economic interest in a portion of the assets . the final definition of what constitutes a `` qualified residential mortgage '' may impact the pricing and depth of the secondary mortgage market . at this time , we can not predict the final content of proposed rules issued by the regulatory agencies or the impacts they might have on our business practices or financial results . future regulatory initiatives that could significantly affect the mortgage industry include proposals to reform the housing finance market in the united states . these proposals , among other things , consider winding down the government-sponsored enterprises , fannie mae and freddie mac ( collectively , the `` gses '' ) . in addition , the fha may take action to further restrict the availability of fha loan products in order to shrink the fha 's presence in the mortgage market . the extent and timing of any regulatory reform or the adoption of any legislation regarding the gses , changes to the fha mortgage product , and or the home mortgage market , as well as any effect on our business and financial results , are uncertain at this time . payment networks following the implementation of the federal reserve regulations related to debit routing and fees in october 2011 and april 2012 , large competing networks began to implement new merchant and acquirer pricing and transaction routing strategies . we are closely monitoring the implementation of these strategies in order to assess their impact on our business and on competition in the marketplace . the u.s. department of justice is examining some of these competitor pricing strategies . while we are still assessing all of our options for responding to these developments , we currently expect that they will adversely impact pulse 's ability to compete for issuer participation and merchant and acquirer routing , resulting in fewer debit transactions being routed to pulse and a decline in the rate of pulse transaction volume growth . capital in june 2012 , the federal reserve approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to us and discover bank . the fdic and the occ subsequently approved these proposed rules . the proposed rules implement basel iii regulatory capital reforms and changes required by the reform act . `` basel iii '' refers to two consultative documents released by the basel committee on banking supervision in december 2009 , the rules text released in december 2010 and loss absorbency rules issued in january 2011 , which include significant changes to bank capital , leverage and liquidity requirements . the proposed rules received extensive comments .
| 2012 highlights net income was $ 2.3 billion compared to net income of $ 2.2 billion in 2011. total loans and credit card loans each grew 6 % while discover card sales volume grew 5 % from the prior year . credit card loan delinquencies decreased over the prior year with a delinquency rate for loans over 30 days past due of 1.86 % , compared to 2.38 % at the end of fiscal 2011. credit card net charge-offs decreased to 2.62 % , compared to the prior year net charge-off rate of 4.47 % . we began offering residential mortgage loans through discover home loans following our acquisition in june of substantially all of the operating and related assets of home loan center , a subsidiary of tree.com , inc. payment services continued to produce strong results with pretax income of $ 181 million , up 9 % over the prior year . transaction volume for the segment was $ 197 billion , an increase of 12 % over the prior year . we repurchased 34 million shares , or approximately 6 % , of our outstanding common stock for $ 1.2 billion . our capital market activities included issuances of approximately $ 5.4 billion in public credit card asset-backed securitizations and a $ 560 million preferred stock issuance . we also completed two private debt exchange offers involving an aggregate $ 822 million of outstanding debt . 2011 and 2010 highlights in december 2010 , we acquired slc , which added approximately $ 3.1 billion of private student loans to our portfolio , and in september 2011 , we acquired approximately $ 2.4 billion of private student loans from citi . our revenues were unfavorably impacted in 2011 and 2010 by the implementation of certain provisions of the card act , which included limitations on our ability to reprice accounts , the elimination of overlimit fees and a reduction in the amount of standard late fees .
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segment and geographic information operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker , or decision-making group , in making decisions on how to allocate resources and assess performance . our chief operating decision maker is the chief executive officer . our chief operating decision maker and we view our operations and manage our business as one operating segment . recent accounting pronouncements revenue from contracts with customers in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) , or asu 2014-09. subsequently , the fasb issued asu 2015-14 , revenue story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review `` item 1a , risk factors `` of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company committed to the fundamental transformation of patients ' lives through scientific leadership in the field of cellular metabolism , with the goal of making transformative , first- or best-in-class medicines . our therapeutic areas of focus are cancer and rare genetic diseases , or rgds , which are diseases that are directly caused by changes in genes or chromosomes , often passed from one generation to the next . most rgds are often associated with severe or life-threatening features . the incidence of a single rgd can vary widely but is generally very infrequent , usually equal to or less than one per 100,000 births . in both areas of cancer and rgds , we are seeking to unlock the biology of cellular metabolism as a platform to create transformative therapies . our first commercial cancer product is idhifa® . in august 2017 , the u.s. food and drug administration , or fda , granted our collaboration partner celgene corporation , or celgene , approval of idhifa® for the treatment of adult patients with relapsed or refractory acute myeloid leukemia , or r/r aml , and an isocitrate dehydrogenase 2 , or idh2 , mutation as detected by an fda-approved test . idhifa® , an oral targeted inhibitor of the mutated idh2 enzyme , is the first and only fda-approved therapy for patients with r/r aml and an idh2 mutation . our most advanced clinical cancer product candidates are ivosidenib , which targets mutated isocitrate dehydrogenase 1 , or idh1 , and ag-881 , which is a brain-penetrant pan-idh mutant inhibitor . these mutations are found in a wide range of hematological malignancies and solid tumors . in december 2017 , we submitted a new drug application , or nda , to the fda for ivosidenib for the treatment of patients with r/r aml and an idh1 mutation . we plan to submit an marketing authorization application , or maa , to the european medicines agency , or ema , for ivosidenib for idh1 mutant-positive r/r aml in the fourth quarter of 2018. our next most advanced cancer product candidate is ag-270 , an inhibitor of methionine adenosyltransferase 2a , or mat2a . we submitted an investigational new drug application , or ind , for ag-270 in november 2017 , and in december 2017 the fda concluded that we may proceed with our planned phase 1 dose-escalation trial of ag-270 in multiple tumor types carrying a methylthioadenosine phosphorylase , or mtap , deletion . our most advanced preclinical cancer product candidate is an inhibitor of the metabolic enzyme dihydroorotate dehydrogenase , or dhodh . we plan to submit an ind for our dhodh inhibitor for the treatment of hematologic malignancies in the fourth quarter of 2018. the lead product candidate in our rgd program , ag-348 , targets pyruvate kinase-r for the treatment of pyruvate kinase , or pk , deficiency . pk deficiency is a rare genetic disorder that often results in severe hemolytic anemia , jaundice and lifelong conditions associated with chronic anemia and secondary complications due to inherited mutations in the pyruvate kinase enzyme within red blood cells , or rbcs . we intend to initiate two global , pivotal trials of ag-348 in pk deficiency in the first half of 2018 : activate-t , a single arm trial of approximately 20 regularly transfused patients , is expected to initiate in the first quarter of 2018 , and activate , a 1:1 randomized , placebo-controlled trial of approximately 80 patients who do not receive regular transfusions , is expected to initiate in the second quarter of 2018. we also expect to initiate a phase 2 proof of concept trial of ag-348 in thalassemia in the fourth quarter of 2018. in addition to the aforementioned development programs , we are seeking to advance a number of early-stage discovery programs in the areas of cancer metabolism , rgds and metabolic immuno-oncology , or mio , a developing field which aims to modulate the activity of relevant immune cells by targeting critical metabolic nodes , thereby , enhancing the immune mediated anti-tumor response . celgene collaboration agreements 2016 agreement in may 2016 , we entered into the 2016 agreement with celgene , which is focused on mio , or the 2016 agreement . in addition to new programs identified under the 2016 agreement , both parties also agreed that all future development and commercialization of two remaining cancer metabolism programs discovered under the 2010 agreement , including ag-270 , our mat2a inhibitor , will be governed by the 2016 agreement . story_separator_special_tag the discovery phase of the 2010 agreement expired in april 2016. upon agreement to terminate the 2010 agreement , effective as of august 15 , 2016 , as to the program directed to the idh1 target , for which ivosidenib is the lead development candidate , the sole program remaining under the 2010 agreement is idhifa® , a co-commercialized licensed program for which celgene leads and funds global development and commercialization activities . we have exercised our right to participate in a portion of commercialization activities in the united states for idhifa® in accordance with the applicable commercialization plan . financial operations overview general since inception , our operations have primarily focused on organizing and staffing our company , business planning , raising capital , assembling our core capabilities in cellular metabolism , identifying potential product candidates , undertaking preclinical studies and conducting clinical trials . to date , we have financed our operations primarily through funding received from the 2010 agreement , the ag-881 agreements , the 2016 agreement , private placements of our preferred stock , our initial public offering of our common stock and concurrent private placement of common stock to an affiliate of celgene , and our follow-on public offerings . additionally , since inception , we have incurred significant operating losses . our net losses were $ 314.7 million , $ 198.5 million and $ 117.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . as of december 31 , 2017 , we had an accumulated deficit of $ 798.1 million . we expect to continue to incur significant expenses and operating losses over the next several years . our net losses may fluctuate significantly from year to year . we anticipate that our expenses will increase significantly as we continue to advance and expand clinical development activities for our lead programs : idhifa® , ivosidenib , ag-881 , ag-348 , and ag-270 ; continue to discover and validate novel targets and drug product candidates ; expand and protect our intellectual property portfolio ; and hire additional commercial , development and scientific personnel . revenue through december 31 , 2017 , we have not generated any revenue from product sales . all of our revenue to date has been derived from our collaborations or royalty revenue on sales of idhifa® . in the future , we will seek to generate revenue from a combination of product sales , royalties on product sales , cost reimbursements , milestone payments , and upfront payments to the extent we enter into future collaborations or licensing agreements . research and development expenses research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress . however , the successful development of our product candidates is highly uncertain . as such , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development and commercialize these product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from idhifa® , ivosidenib , ag-881 , ag-348 , ag-270 , or any of our other product candidates . this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainty of : establishing an appropriate safety profile with ind , and or nda enabling toxicology and clinical studies ; the successful enrollment in , and completion of , clinical trials ; the receipt of marketing approvals from applicable regulatory authorities ; establishing compliant commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , whether alone or in collaboration with others ; and 74 maintaining an acceptable safety profile of the products following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , and the development of our product candidates , which include : employee-related expenses including salaries , benefits and stock-based compensation expense ; expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research and development and both preclinical and clinical activities on our behalf , and the cost of consultants ; the cost of lab supplies and acquiring , developing and manufacturing preclinical and clinical study materials ; and facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and the maintenance of facilities , insurance and other operating costs . the following summarizes our most advanced programs : idhifa® idhifa® is an orally available , selective , potent inhibitor of the mutated idh2 protein , making it a highly targeted therapeutic candidate for the treatment of patients with cancers that harbor idh2 mutations , including those with aml , who have a historically poor prognosis . in august 2017 , the fda granted celgene approval of idhifa® for the treatment of adult patients with r/r aml and an idh2 mutation as detected by an fda-approved test . the fda has granted orphan drug designation for idhifa® for treatment of patients with aml and fast track designation for treatment of patients with aml that harbor an idh2 mutation , and the ema granted orphan drug designation for idhifa® for the treatment of aml .
| results of operations comparison of years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 , together with the changes in those items in dollars and as a percentage ( $ in thousands ) : replace_table_token_6_th revenue . for the year ended december 31 , 2017 , we recognized $ 43.0 million in revenue , which includes $ 41.1 million related to deliverables identified under the 2016 agreement and $ 1.9 million in royalty revenue earned under the 2010 agreement on celgene sales of idhifa® . for the year ended december 31 , 2016 , we recognized $ 69.9 million in revenue , which includes a $ 25.0 million milestone payment related to the initiation of the phase 3 idhentify trial of idhifa® under the 2010 agreement . research and development expense . the increase in research and development expenses was primarily attributable to net increases of $ 40.4 million in external services and $ 32.1 million in internal expenses ; both of these increases are inclusive of reimbursement of costs under our collaboration agreements recorded as a reduction of research and development expenses . our allocated research and development expenses , by major program , are outlined in the table below ( $ in thousands ) : replace_table_token_7_th ( 1 ) celgene and we agreed to terminate the 2010 agreement , effective as of august 15 , 2016 , as to the program directed to the idh1 target , for which ivosidenib is the lead development candidate . as a result of the termination , we obtained global development and commercial rights to ivosidenib and the idh1 program and expect to fund all future development and commercialization costs related to the program . for the year ended december 31 , 2016 , we earned reimbursements of $ 10.8 million related to efforts under this program .
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cash held with financial institutions may exceed the federal deposit insurance corporation insurance limits or similar limits in foreign jurisdictions . the company has not experienced any losses on its deposits of cash and cash equivalents . the company performs ongoing credit evaluations of its customers and , except for government tenders , group purchases and orders with a letter of credit , its industrial customers often provide a down payment . story_separator_special_tag basis of presentation we became an independent publicly-traded company in january 2017 following our separation from varian and subsequent distribution of shares of our common stock to varian shareholders . we are listed on the nasdaq global select market under the ticker “ vrex ” with 37.4 million shares of common stock having been distributed to varian shareholders . prior to the separation , we operated as part of varian and not as a stand-alone company . accordingly , certain shared costs have been allocated to us and are reflected as expenses in the accompanying financial statements for fiscal year 2016 and for part of fiscal year 2017. management considers the allocation methodologies used to be reasonable and appropriate reflections of the related expenses attributable to us for purposes of the carve-out financial statements ; however , the expenses reflected in these financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if we had operated as a separate stand-alone entity . the allocation methods include revenue , headcount , actual usage of services , and others . in addition , the expenses reflected in the financial statements may not be indicative of expenses that will be incurred by us in the future . our business our products are sold in three geographic regions : the americas , emea , and apac . the americas includes north america ( primarily the united states ) and latin america . emea includes europe , russia , the middle east , india and africa . apac includes asia and australia . revenues by region are based on the known final destination of products sold . on may 1 , 2017 , we completed the acquisition of the acquired detector business for net cash consideration of $ 271.8 million ( the “ acquired detector business ” ) . the acquisition consisted of perkinelmer medical holdings , inc. and dexela limited , together with certain assets of pki and its direct and indirect subsidiaries relating to digital flat panel x-ray detectors that serve as components for industrial , medical , dental and veterinary x-ray imaging systems . our business performance is measured in two reportable operating segments : medical and industrial . the segments align our products and service offerings with customer use in medical and industrial markets and are consistent with how resources are allocated and evaluated for financial performance by our chief operating decision maker . each operating segment is primarily evaluated for financial performance based on revenues and gross margin . medical in our medical business segment , we design , manufacture , sell and service x-ray imaging components for use in a range of radiographic and fluoroscopic imaging applications , computed tomography ( “ ct ” ) , mammography , oncology , cardiac , surgery , dental and computer-aided detection . we provide a broad range of x-ray imaging components for medical customers , including x-ray tubes , digital detectors , high voltage connectors , image-processing software and workstations , computer-aided diagnostic software , collimators , automatic exposure control devices , generators , ionization chambers and buckys . a significant portion of our revenues come from the sales of high-end x-ray tubes used in ct imaging and high-end dynamic digital detectors used in fluoroscopic and 3-d dental imaging applications . these upper-tier imaging components are characterized by increased levels of technological complexity , engineering and intellectual property that typically allow these products to have a higher sales price and gross margin . the digital detector market continues to mature from initial product introductions more than 15 years ago . for the past few years , we have experienced price erosion for these products , predominantly in the highly-competitive market for lower-tier radiographic detectors . we anticipate this trend will continue in the foreseeable future . our x-ray imaging components are primarily sold to imaging system original equipment manufacturer ( “ oem ” ) customers that incorporate them into their x-ray imaging systems for a number of modalities . to a much lesser extent , we also sell our x-ray imaging components to independent service companies , distributors and directly to end-users for replacement purposes . in china , the government is broadening the availability of healthcare services throughout the country . as a result , the number of diagnostic x-ray imaging systems , including ct , has grown significantly . for fiscal year 2018 , approximately 10 % of our revenues came from x-ray imaging components shipped to china-based oems and distributors . we are developing ct tubes and related subsystems for chinese oems as they introduce new ct imaging systems in china . we anticipate that china-based revenues will continue to increase as a percentage of our revenues . 38 industrial in our industrial business segment , we design , manufacture , sell and service products for use in security and industrial inspection applications , such as airport security , cargo screening at ports and borders and nondestructive examination in a variety of applications . the products include linatron ® x-ray linear accelerators , x-ray tubes , digital detectors , high voltage connectors and image-processing software that we generally sell to oem customers that incorporate these products into their x-ray inspection systems . the security market primarily consists of airport security ( screening of carry-on baggage , checked baggage and palletized cargo ) and cargo screening at ports and borders . the end customers for border protection systems are typically government agencies , many of which are in oil-based economies and war zones . story_separator_special_tag the outcome of this evaluation resulted in us revoking our assertion for current and future earnings for all countries while maintaining the assertion that historic earnings are indefinitely reinvested outside the u.s. due to the level of earnings available for repatriation , the treaty benefits applicable to jurisdictions in which those earnings are located , our u.s. state income tax profile , and the now favorable u.s. tax treatment of repatriated foreign earnings , no deferred tax liability is necessary and so has not been recorded related to the potential repatriation . as a number of states are still making legislative changes in response to the u.s. tax reform , and under the guidance provided by sab 118 , this estimate , as well as the assertion itself , are deemed provisional and subject to change until finalized no later than december 22 , 2018. discussion of results of operations for fiscal year 2017 and 2016 revenues replace_table_token_9_th medical revenues increased $ 51.1 million primarily due to $ 41.1 million in revenue from the acquired detector business . the remaining increase is due to higher sales of x-ray tubes in apac , partially offset by lower digital detector sales . industrial revenues increased $ 26.9 million primarily due to $ 20.2 million in revenue from the acquired detector business . the remaining increase is due to higher sales of industrial x-ray tubes and higher service and linear accelerator revenues for our security products . these increases in industrial revenues were partially offset by a decrease in revenue from industrial detectors . revenues by region replace_table_token_10_th 42 the americas revenues included $ 20.7 million in revenue from the acquired detector business , partially offset by lower sales of x-ray tubes . emea revenues included $ 31.2 million in revenue from the acquired detector business , as well as higher sales of security and industrial products . apac revenues included $ 9.3 million in revenue from the acquired detector business and higher sales of x-ray tubes , partially offset by lower sales of digital detectors . gross margin replace_table_token_11_th the decrease in total gross margin percentage was primarily due to higher amortization of intangible assets , a step-up inventory costs as a result of purchase price accounting related to the acquired detector business , and continued price erosion in digital detectors . the decrease in medical gross margin percentage was primarily due to the reasons stated above and higher sales of ct tubes in the prior-year . the decrease in industrial gross margin percentage was primarily due to the reasons stated above and a change in product mix . operating expenses replace_table_token_12_th ( 1 ) research and development expenses include $ 0.0 million and $ 1.2 million allocated to us by varian in fiscal years 2017 and 2016 , respectively . ( 2 ) selling , general and administrative expenses include $ 12.4 million and $ 37.7 million of corporate costs allocated to us by varian in fiscal years 2017 and 2016 , respectively . research and development the increase in research and development expenses in fiscal year 2017 was due to acceleration and development of ct x-ray tubes and digital detectors , and includes approximately $ 7.2 million related to the acquired detector business . selling , general and administrative selling , general and administrative expenses in fiscal year 2017 increased due to approximately $ 5.0 million of acquisition and integration related costs , increased marketing personnel expenses , partially offset by lower corporate and administration expenses as the prior year included costs allocated from varian . selling , general and administrative expenses includes approximately $ 7.7 million related to the acquired detector business . 43 interest and other income ( expense ) , net the following table summarizes our interest and other income ( expense ) , net : replace_table_token_13_th the increase in interest and other income ( expense ) , net was due to increases in interest expense as a result of borrowings under our credit agreement , partially offset by income from an equity method investment and foreign currency translation gains . interest and other income ( expense ) in fiscal year 2016 primarily represents allocations of varian 's interest expense and loss in an equity method investment . taxes on earnings replace_table_token_14_th the decrease in the effective tax rate for the current year results from a difference in the mix of earnings by jurisdiction and overall global tax structure for varex as a stand-alone company compared to the prior year when it was part of varian . it is also impacted by the benefit of adjustments to certain deferred tax assets and the release of valuation allowances in jurisdictions where increased earnings allowed for the utilization of net operating loss carryforwards . in general , our effective income tax rate differs from the u.s. federal statutory rate due to increases resulting from u.s. state income tax expense and earnings in certain foreign jurisdictions that are taxed currently in the u.s. these increases are partially offset by decreases due to earnings in foreign jurisdictions that are taxed at lower rates , a u.s. domestic production activities deduction , and research and development credits . liquidity and capital resources prior to the separation , varian provided financing , cash management and other treasury services to us . as part of varian , we were dependent upon varian for all of our working capital and financing requirements , as varian uses a centralized approach to cash management and financing of its operations . cash transferred to and from varian is reflected in net parent investment in the accompanying historical condensed consolidated financial statements . accordingly , none of varian 's cash , cash equivalents or debt at the corporate level has been assigned to us in the condensed consolidated financial statements . cash and cash equivalents included in the condensed consolidated balance sheets primarily reflect cash and cash equivalents from acquired entities that are specifically attributable to us . we assess our liquidity in terms of our ability to generate cash to fund our operating , including working capital and investing activities .
| fiscal year our fiscal year is the 52- or 53-week period ending on the friday nearest september 30. fiscal year 2018 was the 52-week period that ended september 28 , 2018 , fiscal year 2017 was the 52-week period ended september 29 , 2017 , and fiscal year 2016 was the 52- week period ended september 30 , 2016. set forth below is a discussion of our results of operations for fiscal years 2018 , 2017 and 2016. discussion of results of operations for fiscal year 2018 and 2017 revenues replace_table_token_3_th medical revenues increased $ 45.1 million primarily due to an increase in sales of high-end radiographic digital detectors with the addition of the acquired detector business , and from increased sales of x-ray tubes and high voltage cables . these increases in medical revenues were partially offset by a decrease in sales of 3-d dental digital detectors and low-end radiographic . notably , in fiscal year 2018 , we also saw an increase in shipments of ct tubes to our oem customers in china and expect the volume of such shipments to further increase in fiscal year 2019. industrial revenues increased $ 30.2 million due to increased sales of digital detectors from the addition of the acquired detector business , and from increased sales of high-voltage industrial cables . these increases were partially offset by a decrease of industrial digital detectors . 39 revenues by region replace_table_token_4_th the americas revenues increased $ 36.0 million primarily due to increased sales of digital detectors from the addition of the acquired detector business . emea revenues increased $ 35.0 million primarily due to increased sales of digital detectors from the addition of the acquired detector business partially offset by lower sales of security and inspection products and digital detectors .
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we continue to implement our strategies to gain market share against other suppliers and generate new customers , increase sales to existing customers and diversify our customer base by : expanding government and national account programs ; expanding our direct sales force and increasing their productivity , and opening new branch offices ; expanding and enhancing our metalworking capabilities to aggressively penetrate customers in heavy and light manufacturing ; increasing sales from existing customers and generating new customers by offering various value-added programs designed to reduce our customers ' costs , including vendor and customer managed inventory along with vending solutions ; expanding the number of product lines and skus offered , including generic private brand , and imported products ; improving our direct marketing programs ; continually developing technological innovations employing modern technologies to reduce our customers ' costs and utilizing extensive ecommerce capabilities , making it even easier and more appealing to do business with msc ; improving our excellent customer support service ; and selectively pursuing strategic acquisitions . during fiscal 2011 , we benefited from the more favorable economic and industry conditions as compared to fiscal 2010. we believe that our financial results for fiscal 2011 reflect increased market share and greater demand for our products , as well as the execution of our growth strategies to increase revenues . for the fiscal year ended august 27 , 2011 , net sales increased 19.5 % over the 2010 fiscal year . during the recent economic downturn , we took advantage of the depressed market conditions by taking market share from our smaller competitors , who have experienced profitability , liquidity , and operating cash flow challenges . we also increased our competitive advantages by investing in the growth of our business . these investments include , among other things , growth in our sales force , improvements to our electronic procurement tools , and productivity investments . these investments , combined with our strong balance sheet , extensive product assortment , high in-stock levels , same day shipping , and high levels of execution , have increased our competitive advantage over these smaller distributors . fiscal 2010 net sales increased 13.6 % over the 2009 fiscal year . the global economic recession negatively impacted our business in fiscal 2009 and continued through the first quarter of fiscal 2010. severe disruptions in the financial markets , together with tightening in the credit markets had a significant impact on our sales during this time as this affected our customers ' profitability levels and ability to raise debt or equity capital . this reduced the amount of liquidity available to our customers which , in turn , limited their ability to make purchases . this global economic recession had impacted both our core manufacturing customers and our national account and government program ( the large account customer ) . there was also uncertainty over the direction of the u.s. and global economies as a result of slower growth rates , higher unemployment and weak housing markets . throughout most of fiscal 2011 , there were encouraging trends in key economic indicators , such as the ism index and durable goods orders , which indicate industry conditions had generally begun to improve . however , we remain cautiously optimistic as we continue to monitor the economic conditions for their impact on our customers and markets and continue to assess both risks and opportunities that may affect our business . see the discussion below describing recent fluctuations in economic indicators and the possible impact on our future sales and margins . 21 we will continue to focus on expanding our large account customer business , which consists of our government and national account customers and has become an important component of our overall customer mix , revenue base , and planned business expansion . by expanding this business , which involves customers with multiple locations and high volume mro needs , we have diversified our customer base beyond small and mid-sized customers , thereby reducing the cyclical nature of our business . in addition to our focus on our large account customer business , we continue to plan for increasing the number of sales associates in existing markets and new markets . however , we will manage the timing of sales force increases and branch openings based on economic conditions . during fiscal 2011 , we opened a new branch in the charleston , south carolina area with their own sales force . sales related to this new branch did not have a significant impact on our total sales for fiscal 2011. we have increased the number of field sales associates to 1,051 ( including u.k. operations ) at august 27 , 2011 compared to 973 ( including u.k. operations ) at august 28 , 2010. our gross profit margin increased in fiscal 2011 to 46.5 % from 45.3 % in fiscal 2010. this is driven by increases in pricing implemented during the 2011 fiscal year , changes in customer and product mix , and increased vendor rebates . operating expenses increased 12.6 % in fiscal 2011 compared to fiscal 2010. this is a result of the increased sales volume related expenses ( primarily payroll and payroll related costs and freight expenses ) . the increase in payroll costs is primarily a result of the additional field sales associate headcount . the payroll related costs increase in fiscal 2011 , as compared to fiscal 2010 , primarily resulted from increased sales commissions , the reinstatement of our matching contribution under our 401 ( k ) savings plan , and increased other fringe benefit costs . medical costs of our self-insured group health plan increased as a result of the increased number of medical claims filed by participants . our income from operations as a percentage of net sales increased to 17.3 % for fiscal 2011 as compared to 14.3 % in fiscal 2010 as a result of increases in gross margin , productivity investments , and leveraging existing infrastructure , which were partially offset by an increase in operating expenses . story_separator_special_tag 24 gross profit replace_table_token_12_th gross profit margin increased in fiscal 2011 primarily as a result of the increase in pricing as well as increased vendor rebates , due to increased inventory purchases to support higher sales volumes . we incorporated a price increase on the first day of fiscal 2011 in conjunction with the release of our 2011 catalogs . in addition , we took an additional mid-year price adjustment , which is partially attributable to commodities inflation , which has begun to impact market pricing . however , price increases are constrained as we continue to experience aggressive pricing pressure from local and regional competition . in addition , customer mix has positively impacted gross profit margin in fiscal 2011 as compared to fiscal 2010 , as our business other than our large account customers , which we refer to as our remaining business , comprised a larger portion of our sales growth and our remaining business typically generates higher gross profit margins . the decrease in gross profit margin in fiscal 2010 is primarily a result of the change in customer and product mix , as our large account customers , which typically generate lower gross margins due to larger volume discounts , and also purchase more of our lower gross margin products as a percentage of their sales volume , constituted a larger portion of our total sales . operating expenses replace_table_token_13_th the increase in operating expenses in dollars for fiscal 2011 , as compared to fiscal 2010 , was primarily a result of increases in payroll and payroll related costs , freight , and acquisition-related and operating expenses . this is partially offset by a decrease in advertising expenses , resulting from reduced numbers of catalogs and brochures produced and mailed as we continue to refine our targeting as well as a shift of more of our business to electronic channels . the increase in operating expenses in dollars for fiscal 2010 as compared to fiscal 2009 was primarily a result of increases in payroll and payroll related costs and freight . this was partially offset by a decrease in advertising expenses resulting from the reduced number of brochures mailed . payroll and payroll related costs represented approximately 55.2 % , 55.9 % , and 53.0 % of total operating expenses in fiscal 2011 , fiscal 2010 , and fiscal 2009 , respectively . included in these costs are salary , incentive compensation , fringe benefits , and sales commission . these costs increased in fiscal 2011 as compared to fiscal 2010 as a result of increased sales commissions , an increase in fringe benefit costs , which includes the reinstatement of our matching contribution under our 401 ( k ) savings plan for all eligible associates , and an increase in our field sales associate staffing levels to support our growth initiatives . these costs increased for fiscal 2010 as compared to fiscal 2009 , primarily as a result of increased incentive compensation , sales commissions , medical costs , and an increase in staffing levels to support our growth initiatives . in addition , fiscal 2010 included the partial restoration of associate merit increases . we experienced an increase in the medical costs of our self-insured group health plan in fiscal 2011 as compared to fiscal 2010. this is primarily a result of an increase in the number of medical claims filed by participants which is driven by increased associate participation in the plan . the number of medical claims filed increased 6.5 % in fiscal 2011 as compared to fiscal 2010. the average cost per claim remained approximately the same in fiscal 2011 as compared to fiscal 2010. the number of medical claims filed increased 6.9 % in fiscal 2010 as compared to fiscal 2009. in addition , the average cost per claim increased by 25 9.8 % in fiscal 2010 as compared to fiscal 2009. while it is uncertain as to whether the medical costs will continue to increase in fiscal 2012 , medical cost inflation continues to rise as does the size of our insured population . freight costs represented approximately 15.6 % , 15.4 % , and 15.0 % of total operating expenses in fiscal 2011 , fiscal 2010 , and fiscal 2009 , respectively . these costs increased primarily as a result of increased sales volume . the decrease in operating expenses as a percentage of net sales for fiscal 2011 as compared to fiscal 2010 was primarily a result of productivity gains and the allocation of fixed expenses over a larger revenue base . the decrease in operating expenses as a percentage of net sales for fiscal 2010 , as compared to fiscal 2009 , was primarily a result of the allocation of fixed expenses over a larger revenue base , productivity gains , and the company 's cost containment initiatives . income from operations replace_table_token_14_th income from operations for fiscal 2011 was $ 349.8 million , an increase of $ 107.9 million , or 44.6 % compared to fiscal 2010 , and as a percentage of net sales , increased to 17.3 % in fiscal 2011 from 14.3 % in fiscal 2010. the dollar increase in income from operations for fiscal 2011 was primarily attributable to the increase in net sales and gross margins , offset in part by the increase in operating expenses as described above . for fiscal 2011 compared to fiscal 2010 , income from operations as a percentage of net sales increased due to productivity gains , the distribution of expenses over a larger revenue base , in addition to the increase in the gross margin percentage .
| results of operations net sales replace_table_token_8_th net sales increased 19.5 % , or approximately $ 330 million for the fiscal year ended 2011. we estimate that this increase is comprised of an increase in our large account customer programs of approximately $ 80 million and an increase in our remaining business of approximately $ 250 million . of the above $ 330 million increase in net sales , $ 280 million is volume and acquisition related and the remaining $ 50 million reflects improved price realization and other , which includes the effects of price increases , discounting , changes in sales and product mix , and other items . substantially all of the volume related growth was organic growth . net sales increased 13.6 % , or approximately $ 203 million for the fiscal year ended 2010. we estimate that this increase is comprised of an increase in our large account customer programs of approximately $ 148 million and an increase in our remaining business of approximately $ 55 million . of the above $ 203 million increase in net sales , $ 201 million is volume related and the remaining $ 2 million reflects improved price realization and other , which includes the effects of price increases , discounting , changes in sales and product mix , and other items . the table below shows the pattern to the change in our fiscal quarterly and annual average daily sales from the same periods in the prior fiscal year : average daily sales percentage change total company ( unaudited ) replace_table_token_9_th the trends noted above can be explained by our sales by customer type . approximately 70 % of our business has historically been with manufacturing customers and our non-manufacturing customers have historically represented approximately 30 % of our business .
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in addition , the company has an ownership interest in 22 operating properties , with approximately 3.7 million square feet of gla , through its cedar/riocan joint venture in which the company has a 20 % interest . the entire managed portfolio , including the cedar/riocan properties , was approximately 93.1 % leased at december 31 , 2011. during 2011 , in keeping with its stated goal of reducing overall leverage to an appropriate level by selling non-core and limited growth potential assets , the company determined ( 1 ) to completely exit the ohio market , principally the discount drug mart portfolio of drugstore/convenience centers , and concentrate on the mid-atlantic and northeast coastal regions ( four properties held for sale as of december 31 , 2011 ) , ( 2 ) to concentrate on grocery-anchored strip centers , by disposing of its mall and single-tenant/triple-net-lease properties ( 11 properties held for sale as of december 31 , 2011 ) , and ( 3 ) to focus on improving operations and performance at the company 's remaining properties , and to reduce development activities , by disposing of certain development projects , land acquired for development , and other non-core assets ( five properties held for sale/conveyance as of december 31 , 2011 ) . in addition , discontinued operations reflect the anticipated consummation of the homburg joint venture buy/sell transactions ( seven properties held for sale as of december 31 , 2011 ) . the company , organized as a maryland corporation , has established an umbrella partnership structure through the contribution of substantially all of its assets to the operating partnership , organized as a limited partnership under the laws of delaware . the company conducts substantially all of its business through the operating partnership . at december 31 , 2011 , the company owned 98.0 % of the operating partnership and is its sole general partner . the approximately 1.4 million op units are economically equivalent to the company 's common stock and are convertible into the company 's common stock at the option of the holders on a one-to-one basis . the company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to long-term leases . the company 's operating results therefore depend on the ability of its tenants to make the payments required by the terms of their leases . the company focuses its investment activities on supermarket-anchored community shopping centers . the company believes that , because of the need of consumers to purchase food and other staple goods and services generally available at such centers , its type of necessities-based properties should provide relatively stable revenue flows even during difficult economic times . 33 the cedar/riocan joint venture has acquired primarily stabilized supermarket-anchored properties in the company 's primary market areas . the company believes it gains additional benefits with tenants and vendors by having an interest in managing these additional properties within its primary markets . significant transactions on january 26 , 2012 , the company entered into a $ 300 million secured credit facility ( the credit facility ) . the credit facility amends , restates and consolidates the company 's prior $ 185 million stabilized property revolving credit facility ( $ 74,035,000 outstanding at december 31 , 2011 , bearing interest at 5.5 % per annum ) and its $ 150 million development property credit facility ( $ 92,282,000 outstanding at december 31 , 2011 , bearing interest at 2.5 % per annum ) that were due to expire on january 31 , 2012 and june 13 , 2012 , respectively . in anticipation of the new credit facility , the company determined to forego its one-year extension option applicable to the stabilized property credit revolving facility . 34 the table below details 2011 acquisitions and dispositions : acquisitions replace_table_token_18_th dispositions replace_table_token_19_th 35 discontinued operations , land dispositions and write-off of investment in unconsolidated joint venture in connection with management 's review of the company 's real estate investments , the company determined ( 1 ) to completely exit the ohio market , principally the discount drug mart portfolio of drugstore/convenience centers , and concentrate on the mid-atlantic and northeast coastal regions ( four properties held for sale as of december 31 , 2011 ) , ( 2 ) to concentrate on grocery-anchored strip centers , by disposing of its mall and single-tenant/triple-net-lease properties ( 11 properties held for sale as of december 31 , 2011 ) , and ( 3 ) to focus on improving operations and performance at the company 's remaining properties , and to reduce development activities , by disposing of certain development projects , land acquired for development , and other non-core assets ( five properties held for sale/conveyance as of december 31 , 2011 ) . in addition , discontinued operations reflect the anticipated consummation of the homburg joint venture buy/sell transactions ( seven properties held for sale as of december 31 , 2011 ) . the carrying values of the assets and liabilities of these properties , principally the net book values of the real estate and the related mortgage loans payable to be assumed by the buyers ( or conveyed to the mortgagee ) , have been reclassified as held for sale/conveyance on the company 's consolidated balance sheets at december 31 , 2011 and december 31 , 2010. in addition , the properties ' results of operations have been classified as discontinued operations for all periods presented . impairment charges relating to operating properties are included in discontinued operations in the accompanying statements of operations ; impairment charges relating to land parcels are included in operating income in the accompanying statements of operations . the impairment charge amounts included in operating income for 2010 and 2009 relate to properties transferred to the cedar/riocan joint venture . the following is a summary of these charges : replace_table_token_20_th impairment charges included in discontinued operations for 2011 included $ 11.1 million related to the discount drug mart portfolio , $ 33.1 million related to malls , $ 5.3 million related to single-tenant/triple-net-lease properties , $ 36.6 story_separator_special_tag in valuing an acquired property 's intangibles , factors considered by management include an estimate of carrying costs during the expected lease-up periods , such as real estate taxes , insurance , other operating expenses , and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand . management also estimates costs to execute similar leases , including leasing commissions , tenant improvements , legal and other related costs . the values of acquired above-market and below-market leases are recorded based on the present values ( using discount rates which reflect the risks associated with the leases acquired ) of the differences between the contractual amounts to be received and management 's estimate of market lease rates , measured over the terms of the respective leases that management deemed appropriate at the time of the acquisitions . such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal period ( s ) . the fair values associated with below-market rental renewal options are determined based on the company 's experience and the relevant facts and circumstances that existed at the time of the acquisitions . the values of above-market leases are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of below-market leases associated with the original non-cancelable lease terms are amortized 38 to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of the leases associated with below-market renewal options that are likely of exercise are amortized to rental income over the respective renewal periods . the value of other intangible assets ( including leasing commissions , tenant improvements , etc . ) is amortized to expense over the applicable terms of the respective leases . if a lease were to be terminated prior to its stated expiration or not renewed , all unamortized amounts relating to that lease would be recognized in operations at that time . management is required to make subjective assessments in connection with its valuation of real estate acquisitions . these assessments have a direct impact on net income , because ( i ) above-market and below-market lease intangibles are amortized to rental income , and ( ii ) the value of other intangibles is amortized to expense . accordingly , higher allocations to below-market lease liability and other intangibles would result in higher rental income and amortization expense , whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense . management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable . the review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment 's use and eventual disposition . these estimates of cash flows consider factors such as expected future operating income , trends and prospects , as well as the effects of leasing demand , competition and other factors . if an impairment event exists due to the projected inability to recover the carrying value of a real estate investment , an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value . a real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value , less the cost of a potential sale . depreciation and amortization are suspended during the period the property is held for sale . management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties . these assessments have a direct impact on net income , because an impairment loss is recognized in the period that the assessment is made . new accounting pronouncements see note 2 of notes to consolidated financial statements included in item 8 below for information relating to new accounting pronouncements . story_separator_special_tag w roman '' > equity in income of unconsolidated joint ventures was higher in 2011 as a result of an increase in operating results from the cedar/riocan joint venture , primarily lower acquisition transaction costs in 2011 compared to those incurred in 2010 , offset by nominal operating results in 2011 as compared with 2010 from the joint venture redevelopment property in philadelphia ( as more fully discussed elsewhere in this report ) . write-off of investment in unconsolidated joint venture relates to the aforementioned redevelopment joint venture , as more fully discussed elsewhere in this report . discontinued operations for 2011 and 2010 include the results of operations , impairment charges and gain on sales for properties sold or treated as held for sale/conveyance , as more fully discussed elsewhere in this report . the other column includes results for the following properties : replace_table_token_22_th 42 comparison 2010 to 2009 replace_table_token_23_th properties held in both periods . the company held 65 properties ( excluding held for sale/conveyance , ground-up and redevelopment properties ) throughout 2010 and 2009. total revenues were higher primarily as a result of increases in ( i ) base rent and recovery income at ground-up development properties ( $ 6.6 million ) , ( ii ) joint venture fee income ( $ 3.5 million ) , and ( iii ) base rent and recovery income at operating properties ( $ 0.8 million ) , which are partially off-set by decreases in ( iv ) amortization of intangible lease liabilities ( $ 3.6 million ) , ( v ) base rent and recovery income at redevelopment properties ( $ 1.3 million ) , ( vi ) straight-line rents ( $ 0.4 million ) , and ( vii ) percentage rent and other income ( $ 0.1 million ) .
| results of operations differences in results of operations between 2011 and 2010 , and between 2010 and 2009 , respectively , were primarily due to the company 's property disposition program resulting from its determination ( 1 ) to completely exit the ohio market , principally the discount drug mart portfolio of drugstore/convenience centers , and concentrate on the mid-atlantic and northeast coastal regions ( 10 properties sold in 2011 and four properties held for sale as of december 31 , 2011 ) , ( 2 ) to concentrate on grocery-anchored strip centers , by disposing of its mall and single-tenant/triple-net-lease properties ( three properties sold in 2011 and 11 properties held for sale as of december 31 , 2011 ) , and ( 3 ) to focus on improving operations and performance at the company 's remaining properties , and to reduce development activities , by disposing of certain development projects , land acquired for development , and other non-core assets ( four properties sold in 2011 and five properties held for sale/conveyance as 39 of december 31 , 2011 ) . in addition , the company determined not to proceed with the redevelopment of two vacant single-tenant , adjacent land parcels in philadelphia , pennsylvania ( one owned in joint venture and the other 100 % -owned by the company ) . since january 1 , 2009 , the company has sold , or has treated as held for sale/conveyance , 64 properties aggregating approximately 3.3 million square feet of gla . properties held for sale/conveyance also reflect the anticipated consummation of the homburg joint venture buy/sell transactions . as a result , in addition to an $ 8.0 million write-off of its redevelopment joint venture investment in june 2011 , the company has recorded impairment charges related to discontinued operations of $ 88.5 million , $ 39.8 million and $ 3.6 million during 2011 , 2010 and 2009 , respectively . results for 2011 also include management transition charges of approximately $ 6.5 million .
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our audit also included performing such other procedures as we considered necessary in the circumstances . we believe that our audit provides a reasonable basis for our opinion . definition and limitations of internal control over financial reporting a company 's internal control over financial reporting is a story_separator_special_tag the following analysis of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report . overview preit , a pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts ( “ reits ” ) in the united states , has a primary investment focus on retail shopping malls located in the eastern half of the united states , primarily in the mid-atlantic region . we currently own interests in 26 retail properties , of which 25 are operating properties and one is a development property . the 25 operating properties include 21 shopping malls and four other retail properties , have a total of 20.1 million square feet and are located in nine states . we and partnerships in which we hold an interest own 15.7 million square feet at these properties ( excluding space owned by anchors or third parties ) . there are 18 operating retail properties in our portfolio that we consolidate for financial reporting purposes . these consolidated properties have a total of 15.2 million square feet , of which we own 12.1 million square feet . the seven operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.9 million square feet of which 3.6 million square feet are owned by such partnerships . when we refer to “ same store ” properties , we are referring to properties that have been owned for the full periods presented and exclude properties acquired , disposed of , under redevelopment or designated as a non-core property during the periods presented . core properties include all operating retail properties except for exton square mall , valley view mall and fashion district philadelphia . “ core malls ” also excludes these properties as well as power centers and gloucester premium outlets . wyoming valley mall was conveyed to the lender of the mortgage loan secured by that property in september 2019. we have one property in our portfolio that is classified as under development ; however , we do not currently have any activity occurring at this property . fashion district philadelphia opened on september 19 , 2019. fashion district philadelphia is an aggregation of properties spanning three blocks in downtown philadelphia that were formerly known as gallery i , gallery ii and 907 market street . joining century 21 and burlington in 2019 were multiple dining and entertainment venues including market eats , a multi offering food court , city winery , amc theatres , and round 1 bowling & amusement . in addition , nike factory store , ulta , and h & m , opened philadelphia flagship stores at the property . through december 31 , 2019 we had incurred costs of $ 175.4 million relating to our share of the development costs of the project . we are a fully integrated , self-managed and self-administered reit that has elected to be treated as a reit for federal income tax purposes . in general , we are required each year to distribute to our shareholders at least 90 % of our net taxable income and to meet certain other requirements in order to maintain the favorable tax treatment associated with qualifying as a reit . our primary business is owning and operating retail shopping malls , which we do primarily through our operating partnership , preit associates , l.p. ( “ preit associates ” or the “ operating partnership ” ) . we provide management , leasing and real estate development services through preit services , llc ( “ preit services ” ) , which generally develops and manages properties that we consolidate for financial reporting purposes , and preit-rubin , inc. ( “ pri ” ) , which generally develops and manages properties that we do not consolidate for financial reporting purposes , including properties owned by partnerships in which we own an interest , and properties that are owned by third parties in which we do not have an interest . pri is a taxable reit subsidiary , as defined by federal tax laws , which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a reit under federal tax law . our revenue consists primarily of fixed rental income , additional rent in the form of expense reimbursements , and percentage rent ( rent that is based on a percentage of our tenants ' sales or a percentage of sales in excess of thresholds that are specified in the leases ) derived from our income producing properties . we also receive income from our real estate partnership investments and from the management and leasing services pri provides . our net loss decreased by $ 113.5 million to a net loss of $ 13 million for the year ended december 31 , 2019 from a net loss of $ 126.5 million for the year ended december 31 , 2018. the change in our 2019 results of operations was primarily due to lower impairment losses in 2019 , a gain on debt extinguishment in 2019 , partially offset by a $ 6.7 million decrease in same store lease termination revenue and a $ 7.6 million decrease in non same store net operating income due to four anchor store closings during 2018 and 2019 and associated co-tenancy concessions , as well as a decrease in lease revenue at exton square mall due to the sale of an outparcel in 2019 . we evaluate operating results and allocate resources on a property-by-property basis , and do not distinguish or evaluate our consolidated operations on a geographic basis . story_separator_special_tag these steps might include ( i ) making additional borrowings under our credit agreements ( assuming continued compliance with the financial covenants thereunder ) , ( ii ) obtaining construction loans on specific projects , ( iii ) selling properties or interests in properties with values in excess of their mortgage loans ( if applicable ) and applying the excess proceeds to fund capital expenditures or for debt reduction , ( iv ) obtaining capital from joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors , private equity investors or other reits , or ( v ) obtaining equity capital , including through the issuance of common or preferred equity securities if market conditions are favorable , or through other actions . capital improvements , redevelopment and development projects we might engage in various types of capital improvement projects at our operating properties . such projects vary in cost and complexity , and can include building out new or existing space for individual tenants , upgrading common areas or exterior areas such as parking lots , or redeveloping the entire property , among other projects . project costs are accumulated in “ construction in progress ” on our consolidated balance sheet until the asset is placed into service , and amounted to $ 106.0 million as of december 31 , 2019. as of december 31 , 2019 , we had unaccrued contractual and other commitments related to our capital improvement projects and development projects at our consolidated and unconsolidated properties of $ 75.2 million , including $ 33.1 million of commitments related to the redevelopment of fashion district philadelphia , in the form of tenant allowances and contracts with general service providers and other professional service providers . we expect to incur approximately $ 25.0 million in incremental leasing costs during 2020. in 2014 , we entered into a 50/50 joint venture with the macerich company ( “ macerich ” ) to redevelop fashion district philadelphia . as we redevelop fashion district philadelphia , operating results in the short term , as measured by sales , occupancy , real estate revenue , property operating expenses , noi and depreciation , will continue to be affected until the newly constructed space is completed , leased and occupied . 38 in january 2018 , we along with macerich , our partner in the fashion district philadelphia redevelopment project , entered into a $ 250.0 million term loan ( the “ fdp term loan ” ) . the initial term of the fdp term loan is five years , and bears interest at a variable rate of 2.00 % over libor . preit and macerich secured the fdp term loan by pledging their respective equity interests of 50 % each in the entities that own fashion district philadelphia . the entire $ 250.0 million available under the fdp term loan was drawn during the first quarter of 2018 , and we received an aggregate $ 123.0 million as a distribution of our share of the draw in 2018. in july 2019 , the fdp term loan was modified to increase the total maximum potential borrowings from $ 250.0 million to $ 350.0 million . a total of $ 51.0 million was drawn during the third quarter of 2019 and we received aggregate distributions of $ 25.0 million as our share of the draws . we also own one development property , but we do not expect to make any significant investment at this property in the short term . critical accounting policies critical accounting policies are those that require the application of management 's most difficult , subjective , or complex judgments , often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods . in preparing the consolidated financial statements , management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements , and the reported amounts of revenue and expenses during the reporting periods . in preparing the consolidated financial statements , management has utilized available information , including our past history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments , giving due consideration to materiality . management has also considered events and changes in property , market and economic conditions , estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments . actual results may differ from these estimates . in addition , other companies may utilize different estimates , which may affect comparability of our results of operations to those of companies in a similar business . the estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2019 , 2018 and 2017 , except as otherwise noted , and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods . we will continue to monitor the key factors underlying our estimates and judgments , but no change is currently expected . set forth below is a summary of the accounting policy that management believes is critical to the preparation of the consolidated financial statements . this summary should be read in conjunction with the more complete discussion of our accounting policies included in note 1 to our consolidated financial statements . asset impairment real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable . a property to be held and used is considered impaired only if management 's estimate of the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges , are less than the carrying value of the property .
| results of operations overview net loss for the year ended december 31 , 2019 was $ 13.0 million , compared to a net loss for the year ended december 31 , 2018 of $ 126.5 million . the change in our 2019 results of operations was primarily due to impairment losses in 2018 that did not recur in 2019. net loss for the year ended december 31 , 2018 was $ 126.5 million , compared to a net loss for the year ended december 31 , 2017 of $ 32.8 million . the change in our 2018 results of operations was primarily due to increased impairment losses in 2018 as compared to 2017 and dilution from asset sales . occupancy the tables below set forth certain occupancy statistics for our retail properties in total and our core malls as of december 31 , 2019 , 2018 and 2017 : replace_table_token_11_th ( 1 ) occupancy for all periods presented includes all tenants irrespective of the term of their agreement . ( 2 ) combined occupancy is calculated by using occupied gross leasable area ( “ gla ” ) for consolidated and unconsolidated properties and dividing by total gla for consolidated and unconsolidated properties . ( 3 ) retail portfolio includes all retail properties excluding fashion district philadelphia because that property was under redevelopment until it opened in september 2019 and has not yet stabilized . ( 4 ) core malls excludes fashion district philadelphia , exton square mall , valley view mall , wyoming valley mall , power centers and gloucester premium outlets . from 2018 to 2019 , total occupancy for our retail portfolio , including consolidated and unconsolidated properties ( and including all tenants irrespective of the term of their agreement ) , decreased 10 basis points to 92.6 % . from 2018 to 2019 , total occupancy for our core malls , including consolidated and unconsolidated properties , decreased 50 basis points to 95.5 % .
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our goal is to drive strong risk-adjusted 56 returns primarily through investments in ( i ) excess msrs , ( ii ) rmbs and non-agency rmbs call rights , as well as ( iii ) other related opportunistic investments . new residential 's investment guidelines are purposefully broad to enable us to make investments in a wide array of assets in diverse markets , including non-real estate related assets such as consumer loans . we generally target assets that generate significant current cash flows and or have the potential for meaningful capital appreciation . we aim to generate attractive returns for our stockholders without the excessive use of financial leverage . our portfolio is currently composed of servicing related assets , residential securities and loans and other investments . our asset allocation and target assets may change over time , depending on our manager 's investment decisions in light of prevailing market conditions . the assets in our portfolio are described in more detail below under “ —our portfolio. ” on may 15 , 2013 , newcastle completed the distribution of shares of new residential to newcastle stockholders of record as of may 6 , 2013. following the distribution , new residential is an independent , publicly-traded reit ( nyse : nrz ) . new residential completed a one-for-two reverse stock split in october 2014. the impact of this reverse stock split has been retroactively applied to all periods presented herein . 57 market considerations various market factors , which are outside of our control , affect our results of operations and financial condition . one such factor is developments in the u.s. residential housing market . the residential mortgage industry continues to undergo major structural changes that are transforming the way mortgages are originated , owned and serviced . historically , the majority of the approximately $ 10 trillion mortgage market has been serviced by large banks , which generally focus on conventional mortgages with low delinquency rates . this has allowed for low-cost routine payment processing and required minimal borrower interaction . following the credit crisis , the need for “ high-touch ” specialty servicers , such as nationstar , increased as loan performance declined , delinquencies rose and servicing complexities broadened . specialty servicers have proven more willing and better equipped to perform the operationally intensive activities ( e.g. , collections , foreclosure avoidance and loan workouts ) required to service credit-sensitive loans . since 2010 , banks have sold or committed to sell msrs totaling more than $ 2 trillion . an msr provides a mortgage servicer with the right to service a pool of mortgages in exchange for a portion of the interest payments made on the underlying mortgages . this amount typically ranges from 25 to 50 bps multiplied by the upb of the mortgages . approximately 74 % of msrs were owned by banks as of the third quarter of 2014 , according to inside mortgage finance . we expect this number to decline as banks face pressure to reduce their msr exposure as a result of heightened capital reserve requirements under basel iii , regulatory scrutiny and a more challenging servicing environment , among other reasons . as a result , we believe the volume of msr sales is likely to be elevated for some period of time . we estimate that msrs covering up to $ 150 billion of mortgages are currently for sale , which would require a capital investment of approximately $ 1 to 1.5 billion based on current pricing dynamics . we believe that non-bank servicers who are constrained by capital limitations will continue to sell a portion of the excess msrs or other servicing assets , such as advances . in addition , approximately $ 1 trillion of new loans are expected to be created annually , according to the mortgage bankers association . we believe this creates an opportunity to enter into “ flow arrangements , ” whereby loan originators agree to sell excess msrs on newly originated loans on a recurring basis ( often monthly or quarterly ) . given this combined dynamic , we believe $ 1 -2 trillion of msrs could be sold or available over the next few years . we believe that msrs are being sold at a discount to historical pricing levels , although increased competition for these assets has driven prices higher recently . there can be no assurance that we will make additional investments in excess msrs or that any future investment in excess msrs will generate returns similar to the returns on our original investments in excess msrs . interest rates have been volatile . in periods of rising interest rates , the rates of prepayments and delinquencies with respect to mortgage loans generally decline . generally , the value of our excess msrs is expected to increase when interest rates rise or delinquencies decline , and the value is expected to decrease when interest rates decline or delinquencies increase , due to the effect of changes in interest rates on prepayment speeds and delinquencies . prepayment speeds and delinquencies could increase in the current interest rate environment as a result of , among other things , a general economic recovery , government programs intended to foster refinancing activity or other reasons , which could reduce the value of our investments . moreover , the value of our excess msrs is subject to a variety of factors , as described under “ risk factors. ” in the fourth quarter of 2014 , the fair value of our investments in excess msrs ( directly and through equity method investees ) increased by approximately $ 0.5 million and the weighted average discount rate of the portfolio was reduced from 10.0 % to 9.6 % . the timing , size and potential returns of future investments in excess msrs may be less attractive than our prior investments in this sector due to a number of factors , most of which are beyond our control . story_separator_special_tag we believe that losses are highly correlated to unemployment ; therefore , we expect that an improvement in unemployment rates would improve the value of our investment , while deterioration in unemployment rates would result in a decline in its value . 59 our portfolio our portfolio is currently composed of servicing related assets , residential securities and loans and other investments , as described in more detail below . our asset allocation and target assets may change over time , depending on our manager 's investment decisions in light of prevailing market conditions . the assets in our portfolio are described in more detail below ( dollars in thousands ) . replace_table_token_9_th ( a ) net of impairment . ( b ) weighted average life is based on the timing of expected principal reduction on the asset . ( c ) the outstanding face amount of excess msrs , servicer advances , and consumer loans is based on 100 % of the face amount of the underlying residential mortgage loans , currently outstanding advances , and consumer loans respectively . servicing related assets excess msrs as of december 31 , 2014 , we had approximately $ 748.6 million estimated carrying value of excess msrs ( held directly and through joint ventures ) . as of december 31 , 2014 , our completed investments represent an effective 32.5 % to 80.0 % interest in the excess msrs ( held either directly or through joint ventures ) on pools of mortgage loans with an aggregate upb of approximately $ 248.7 billion . nationstar is the servicer of $ 245.7 billion upb of the loans underlying our investments in excess msrs to date , and our servicers earn a basic fee in exchange for providing all servicing functions . in addition , when nationstar sells excess msrs to us , it generally retains a 20 % to 35 % interest in the excess msrs and all ancillary income associated with the portfolios . in our capacity as owner of the excess msrs , we do not have any servicing duties , liabilities or obligations associated with the servicing of the portfolios underlying any of our excess msrs . however , we , through co-investments made by our subsidiaries , may separately agree to do so and have separately purchased the servicer advances , including the right to receive the basic fee component of related msrs , on the non-agency portfolios underlying our excess msr investments . see “ —servicer advances ” below . in december 2014 , we agreed to acquire ( the “ sls transaction ” ) 50 % of the excess msrs , all of the servicer advances and related basic fee portion of the msr ( the “ advance fee ” ) , and a portion of the call rights related to an underlying pool of residential mortgage loans with a upb of approximately $ 3.0 billion which is serviced by specialized loan servicing llc ( “ sls ” ) . fortress-managed funds acquired the other 50 % of the excess msrs . the aggregate purchase price was approximately $ 229.7 million . the par amount of the total advance commitments for the sls transaction are $ 219.2 million ( with related financing of $ 195.5 million ) . as of december 31 , 2014 , the closed portion of the purchase of $ 93.8 million included $ 8.4 million for 50 % of the excess msrs , $ 83.8 million for servicer advances and advance fee ( of which $ 74.3 million was financed as of december 31 , 2014 ) , and $ 1.6 million to fund a portion of the call rights on 57 of the 99 underlying securitization trusts . the remaining portion of the purchase price of $ 135.9 million included servicer advances and advance fee unfunded commitments of approximately $ 133.8 million that were funded in january 2015 ( with approximately $ 121.2 million of related financing ) and $ 2.1 million to fund the remaining portion of the call rights on 57 of the 99 underlying securitization trusts . sls will continue to service the loans in 60 exchange for a servicing fee of 10.75 bps and an incentive fee ( the “ incentive fee ” ) which is based on the ratio of the outstanding servicer advances to the upb of the underlying loans . each of our excess msr investments to date is subject to a recapture agreement with nationstar . under the recapture agreements , we are generally entitled to a pro rata interest in the excess msrs on any initial or subsequent refinancing by nationstar of a loan in the original portfolio . in other words , we are generally entitled to a pro rata interest in the excess msrs on both ( i ) a loan resulting from a refinancing by nationstar of a loan in the original portfolio , and ( ii ) a loan resulting from a refinancing by nationstar of a previously recaptured loan . the tables below summarize the terms of our investments in excess msrs completed as of december 31 , 2014 . summary of direct excess msr investments as of december 31 , 2014 replace_table_token_10_th ( a ) the msr is a weighted average as of december 31 , 2014 , and the excess msr represents the difference between the weighted average msr and the basic fee ( which fee remains constant ) . the average is weighted by the amortized cost basis of the mortgage loan portfolio . ( b ) as of december 31 , 2014 . ( c ) excess msr investments in which we also invested in related servicer advances , including the basic fee component of the related msr as of december 31 , 2014 ( note 6 to our consolidated financial statements included herein ) .
| results of operations we have a limited operating history and we acquired our first portfolio of excess msrs in december 2011 and as a result , a comparison of the year ended december 31 , 2012 against the one month ended december 31 , 2011 would not be meaningful . because we were not operating as a separate , stand-alone entity during the period from our formation to the date of our separation from newcastle , our results of operations for this period are not necessarily indicative of our future performance . the following tables summarize the changes in our results of operations from year-to-year ( dollars in thousands ) : comparison of results of operations for the years ended december 31 , 2014 and 2013 81 replace_table_token_27_th interest income interest income increased by $ 259.3 million primarily attributable to incremental interest income of ( i ) $ 185.8 million from servicer advances that we acquired subsequent to december 16 , 2013 ; ( ii ) $ 44.6 million from real estate loans , in which we made substantial new investments including those acquired through our exercise of call rights with respect to certain securitization trusts master serviced , or serviced , by nationstar subsequent to december 31 , 2013 ; ( iii ) $ 8.3 million from our acquisitions of excess msr investments during and after the year ended december 31 , 2013 , and ( iv ) an increase of $ 20.7 million from real estate securities during the year ended december 31 , 2014. interest expense interest expense increased by $ 125.7 million primarily attributable to incremental interest expense of ( i ) $ 107.1 million from notes payable for servicer advances that we acquired subsequent to december 16 , 2013 ; ( ii ) $ 11.1 million from repurchase agreements and notes payable on real estate loans , in which we made substantial new investments including those acquired through our exercise of call rights with respect to
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indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests . the amendments in this update are effective for fiscal years beginning after december 15 , 2019 , and interim periods within those fiscal years . the company expects the adoption of the standard will not have a material impact on its consolidated financial statements and disclosures . 2. earnings per common share basic earnings per share has been calculated by dividing net income attributable to air t , inc. stockholders by the weighted average number of common shares outstanding during each period . for purposes of calculating diluted earnings per share , shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive . 43 the computation of earnings per common share is as follows : replace_table_token_13_th 3. restricted cash the following table provides a reconciliation of cash , cash equivalents , and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the consolidated statements of cash flows : replace_table_token_14_th 4. cash surrender value of life insurance the company is the beneficiary of corporate-owned life insurance policies on certain former employees with a net cash surrender value of approximately $ 122,000 and $ 2,357,000 at march 31 , 2019 and march 31 , 2018 , respectively . in fiscal 2019 , the company received proceeds of approximately $ 2,300,000 , respectively through loans against the cash value of its life insurance policies . the loan balance is recorded net against the cash surrender value of life insurance in the accompanying condensed consolidated balance sheet at march 31 , 2019 . 5. investments in securities the company adopted asu 2016-01 as of april 1 , 2018. as a result of adoption of this guidance , the company now recognizes changes in fair value of these securities in the consolidated statements of income . during the year ended march 31 , 2019 , the company had gross unrealized gains aggregating to $ 71,000 and gross unrealized losses aggregating to $ 617,000 , which are included in the consolidated statements of income . all investments in marketable securities are priced using publicly quoted market prices and are considered level 1 fair value measurements . in june 2018 , the company invested $ 2,000,000 in a quota share reinsurance program in the form of participating notes . the investment period is three years ; subject to early redemption if applicable . due to an accumulation of severe and costly wildfires , tropical storms and earthquakes that took place globally in the second half of 2018 , the underlying contracts of our investment were adversely affected . the company recorded an impairment of $ 2,000,000 during the year ended march 31 , 2019 . 44 6. equity method investments on january 16 , 2018 , the company purchased approximately 1,133,000 shares of insignia at a price of $ 1.25 per share for a total cost of approximately $ 1,416,000 , which added to the 1,900,000 shares already owned at that date . after this purchase , the company owned approximately 26 % of insignia 's total common stock and the story_separator_special_tag story_separator_special_tag and administrative costs , and higher restructuring costs due to the closure of certain underperforming locations . operating income of the commercial aircraft , engines and parts segment improved by $ 11.4 million to $ 12.0 million from $ 0.6 million in the prior year due to contrail having record levels of sales driven by the sale of nine engines totaling $ 41.0 million offset by the increase in operating expenses as discussed below . the operating loss in the printing equipment and maintenance segment increased by $ 0.8 million to ( $ 1.4 million ) from ( $ 0.6 million ) in the prior year due to additional personnel costs due to increased headcount and contractor support . the operating loss in the corporate and other segment increased to ( $ 6.6 million ) from ( $ 3.5 million ) in the prior year . the prior year included a benefit of $ 1.2 million for foreclosed inventory surplus as part of the delphax bankruptcy . the operating loss in the current year is primarily attributable to corporate 's increased headcount , significant one-time professional fees , and restructuring costs . operating expenses increased by $ 51.5 million ( 27 % ) to $ 241.7 million in the fiscal year ended march 31 , 2019 compared to the prior year . the increase in operating expenses was primarily driven by the commercial aircraft , engines and parts segment which increased $ 40.4 million principally due to cost of sales related to the nine engines sold , and the acquisition of worthington in may 2018. operating expenses from the printing equipment and maintenance segment decreased by $ 2.6 million due to the bankruptcy of delphax canada in prior year . depreciation and amortization expenses increased by $ 5.3 million to $ 7.7 million in the fiscal year ended march 31 , 2019 compared to the prior year . the increase in depreciation and amortization expenses was primarily driven by the commercial aircraft , engines and parts segment which increased $ 5.1 million principally due to the depreciation of the four engines and two whole aircraft at contrail . story_separator_special_tag the maturity date may be shortened at any time by the company to any date not earlier than june 7 , 2024. on march 29 , 2019 , the company entered into that certain amended and restated credit agreement with minnesota bank & trust ( “ mbt ” ) , dated as of march 28 , 2019. the principal changes of the amended agreement are as follows : ( 1 ) the revolving credit facility increased to $ 17,000,000 ; ( 2 ) the rate was revised to the greater of ( a ) 4.00 % or ( b ) the sum of ( i ) the prime rate minus ( ii ) 1.00 % ; ( 3 ) three parties were added : ( a ) worthington acquisition , llc , a wholly-owned subsidiary of stratus aero partners llc , a wholly-owned subsidiary of the company ; ( b ) worthington aviation , llc , a wholly-owned subsidiary of worthington acquisition , llc ; and ( c ) worthington mro , llc , a wholly-owned subsidiary of worthington acquisition , llc ( collectively , the “ worthington entities ” ) . the additional funds were applied to repay indebtedness owed by the worthington entities under that certain loan agreement dated as of may 11 , 2018 to mbt . additionally , the related amended and restated guaranty in favor of mbt , dated as of march 28 , 2019 , amends that certain guaranty dated as of december 21 , 2017 , which also adds the worthington entities as parties . cash flows from operations , cash and cash equivalents , and the other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements . 27 cash flows following is a table of changes in cash flow for the respective years ended march 31 , 2019 and 2018 : replace_table_token_6_th cash provided by operating activities was $ 20.9 million in fiscal year 2019 compared to cash used in operating activities of ( $ 0.3 million ) in fiscal year 2018 principally due to higher net income generated in the current year and lower inventory levels due to increased sales compared to prior year . cash used in investing activities for fiscal year 2019 was $ 4 million less than the prior fiscal year due primarily to $ 4.2 million of proceeds recognized from sale of assets on lease that offset cash used in capital expenditures . cash provided by financing activities for fiscal year 2019 was $ 19.2 million less compared to the prior fiscal year . this was primarily due to decreased proceeds from term loans and increased payments on term loan offset by proceeds from loan against life insurance policies . off-balance sheet arrangements the company defines an off-balance sheet arrangement as any transaction , agreement or other contractual arrangement involving an unconsolidated entity under which a company has ( 1 ) made guarantees , ( 2 ) a retained or a contingent interest in transferred assets , ( 3 ) an obligation under derivative instruments classified as equity , or ( 4 ) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing , liquidity , market risk or credit risk support to the company , or that engages in leasing , hedging , or research and development arrangements with the company . the company is not currently engaged in the use of any of these arrangements . impact of inflation the company believes that inflation has not had a material effect on its manufacturing operations , because increased costs to date have been passed on to its customers . under the terms of its overnight air cargo business contracts the major cost components of its operations , consisting principally of fuel , crew and other direct operating costs , and certain maintenance costs are reimbursed by its customer . significant increases in inflation rates could , however , have a material impact on future revenue and operating income . seasonality the ground equipment sales segment business has historically been seasonal , with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season . other segments are not susceptible to material seasonal trends . critical accounting policies and estimates . the company 's significant accounting policies are described in note 1 of notes to consolidated financial statements in item 8. the preparation of the company 's consolidated financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions to determine certain assets , liabilities , revenues and expenses . management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions . the company 's estimates and assumptions could change materially as conditions within and beyond our control change . accordingly , actual results could differ materially from estimates . the company believes that the following are its most critical accounting policies : business combinations . the company accounts for business combinations in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 805 , business combinations . consistent with asc 805 , the company accounts for each business combination by applying the acquisition method . under the acquisition method , the company records the identifiable assets acquired and liabilities assumed at their respective fair values on the acquisition date . goodwill is recognized for the excess of the purchase consideration over the fair value of identifiable net assets acquired . included in purchase consideration is the estimated acquisition date fair value of any earn-out obligation incurred . for business combinations where non-controlling interests remain after the acquisition , assets ( including goodwill ) and liabilities of the acquired business are recorded at the full fair value and the portion of the acquisition date
| overview air t , inc. ( the “ company , ” “ air t , ” “ we ” or “ us ” or “ our ” ) is a holding company with a portfolio of operating businesses and financial assets . our goal is to prudently and strategically diversify air t 's earnings power and compound the growth in its free cash flow per share over time . we currently operate in six industry segments : ● overnight air cargo , which operates in the air express delivery services industry ; ● ground equipment sales , which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines , airports , the military and industrial customers ; ● ground support services , which provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers across the united states ; ● commercial aircraft , engines and parts , which manages and leases aviation assets ; supplies surplus and aftermarket commercial jet engine components ; provides commercial aircraft disassembly/part-out services ; commercial aircraft parts sales ; procurement services and overhaul and repair services to airlines and commercial aircraft companies ; ● printing equipment and maintenance , which designs , manufactures and sells advanced digital print production equipment and provides maintenance services to commercial customers ; and ● corporate and other , which acts as the capital allocator and resource for other segments . each business segment has separate management teams and infrastructures that offer different products and services . we evaluate the performance of our business segments based on operating income . 23 forward looking statements certain statements in this report , including those contained in “ overview , ” are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 with respect to the company 's financial condition , results of operations , plans , objectives , future performance and business .
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to offset its obligation , the company 's plan administrator purchases corporate-owned whole-life insurance contracts on certain team members . the cash surrender value of these policies at december 26 , 2010 , and december 27 , 2009 , was $ 2.5 million and $ 2.3 million , respectively , is included in other assets , net . as of december 26 , 2010 , the company had no story_separator_special_tag overview as of december 26 , 2010 , we owned and operated or franchised 450 red robin® restaurants in 40 states and canada , of which 314 were company-owned and 136 were operated under franchise . for the fiscal year 2011 , we plan to open 10 new company-owned red robin® restaurants and we believe our franchisees will open about three to four new restaurants . our primary source of revenue is from the sale of food and beverages at company-owned restaurants . we also earn revenue from royalties and fees from franchised restaurants . the following summarizes the operational and financial highlights of fiscal year 2010 and our 2011 outlook : comparable restaurant revenue . for the fifty-two weeks ended december 26 , 2010 , the 303 restaurants in our current comparable base experienced a 0.6 % decrease in sales from these same restaurants last year . this decrease was comprised of a 1.1 % increase in guest counts that was more than fully offset by a decrease in price and mix of 1.7 % . during fiscal 2010 , we experienced four quarters of positive guest counts , reversing the negative trend that began in early 2008 and continued in 2009. we attribute this increased guest count to our 2010 marketing efforts and a stronger macroeconomic environment . the decline in pricing is also primarily the result of our 2010 limited time offer ( `` lto '' ) promotions ' lower price point and negative revenue impact of changes in product mix . in the third and fourth quarter 2010 both guest counts and overall comparable sales were positive . marketing efforts . in 2010 , our marketing strategy was focused on product news with an emphasis on quality , value , and variety to drive guest traffic , retention , and loyalty , which are key components of our `` yummm '' ® advertising campaign . during 2010 , we launched three lto promotions featuring two products at a $ 6.99 price point ( $ 5.99 price point in the first lto promotion ) . for the fiscal year ended december 26 , 2010 , our television advertising support of our 2010 lto promotions increased our total marketing spend to $ 15.4 million . we believe our 2010 lto promotions , supported by national television and digital advertising , contributed to our increased guest counts and restaurant sales . restaurant sales and guest counts during the promotional campaigns ran higher than pre- and post-promotional periods . in addition , our guest counts exceeded reported competitor guest traffic after our tv campaign began . we will continue our lto promotional strategy supported with television advertising in 2011 which we expect to be equal to approximately 1.5 % of restaurant revenues in 2011 . 26 food costs . during 2010 , we saw an increase in the price of ground beef and produce compared to 2009 prices . we bought our ground beef on the spot market in 2010 at prices significantly in excess of 2009 prices . we experienced an increase in produce costs due to inclement weather during 2010. pricing on our overall commodity basket on a blended basis is expected to increase 3 % to 4 % in 2011. we will continue to see pressure from ground beef , which is expected to be above 2010 average price by between 10 % and 15 % . in response to these rising commodity costs , we are expecting to take about a 1.5 % price increase in april . we also expect to begin to see the benefit in 2011 from having consolidated our distribution system in 2010 and other cost reduction initiatives associated with project red . labor . labor costs as a percentage of revenue increased in fiscal year 2010 by 0.7 % as a percentage of restaurant revenues primarily due to increase in manager bonuses as a percentage of average restaurant sales volumes . labor costs are expected to be impacted in 2011 by minimum wage increases in certain states , in addition to increases in benefits and taxes . new restaurant openings . we opened 11 new company-owned restaurants during fiscal year 2010. in the near term , we are expecting 2011 development plans to be similar to 2010 as we seek to deploy our capital conservatively while maintaining restaurant growth . we plan on opening 10 new company-owned restaurants in 2011. we believe we will fund all 2011 costs for restaurant development to be funded from our operating cash flow . asset impairment . during the third quarter of fiscal 2010 , we determined that four company-owned restaurants were impaired . the company recognized a non-cash impairment pre-tax charge of $ 6.1 million related to the impairment of these four restaurants . we reviewed each restaurant 's past and present operating performance combined with projected future results , primarily through projected undiscounted cash flows , which indicated possible impairment . the carrying amount of each restaurant was compared to its fair value as determined by management . the impairment charge represents the excess of each restaurant 's carrying amount over its fair value . executive transition . stephen e. carley was appointed as chief executive officer of the company and as a member of the board , effective as of september 13 , 2010. in connection with the appointment of mr. carley as the company 's new chief executive officer , the company also announced the retirement of dennis b. mullen , the former chief executive officer . $ 2.6 million in pre-tax charges related to executive transition were recorded to selling , general and administrative expense primarily in the fiscal third quarter . story_separator_special_tag these increases were partially offset by $ 1.1 million decrease in bonuses at the corporate level and a $ 2.6 million decrease in stock compensation related primarily to the options tender offer during the first quarter of fiscal 2009. in 2009 , selling , general and administrative costs decreased $ 7.1 million , or a decrease of 0.5 % as a percent of revenue due to a decrease in marketing expenses of $ 7 million due to a reduced focus on national cable television advertising and a greater focus on digital and targeted direct advertising to promote product news and drive incremental guest traffic . additionally , travel costs decreased $ 1.9 million primarily due to a decrease in travel costs related to our reduced number of new restaurant openings and the associated training activities . offsetting these decreases was an increase in bonuses as 2008 performance-based bonuses were significantly reduced . franchise development replace_table_token_13_th franchise development costs include the costs of our franchise and operations support teams including salaries and benefits , travel and training expenses , and costs associated with our annual 33 leadership conference . franchise development costs as a percentage of total revenues were flat in 2010 compared to 2009 and were also flat in 2009 compared to 2008. pre-opening costs replace_table_token_14_th pre-opening costs , which are expensed as incurred , consist of the costs of labor , hiring , and training the initial work force for our new restaurants , travel expenses for our training teams , the cost of food and beverages used in training , marketing costs , lease costs incurred prior to opening , and other direct costs related to the opening of new restaurants . pre-opening costs for 2010 , 2009 , and 2008 reflect the opening of 11 , 15 , and 31 new restaurants , respectively . average per restaurant pre-opening costs represents total costs incurred for those restaurants that opened for business during the periods presented . the 2010 average per restaurant pre-opening costs increased moderately due to travel related costs . the 2009 average per restaurant pre-opening costs decreased over prior year due primarily to lower labor and travel costs of 15 % and 9 % , respectively , partially offset by an 11 % increase in occupancy costs for our new restaurant openings as well as conversion of existing restaurant and other retail structures for four of the restaurants opened during the year . asset impairment charge and restaurant closure costs during the third quarter of fiscal 2010 , we determined that four company-owned restaurants were impaired . the company recognized a non-cash pre-tax impairment charge of $ 6.1 million related to these four restaurants . we reviewed each restaurant 's past and present operating performance combined with projected future results , primarily through projected undiscounted cash flows , which indicated impairment . the carrying amount of each restaurant was compared to its fair value as determined by management . the impairment charge represents the excess of each restaurant 's carrying amount over its fair value . we closed three and four restaurants in fiscal 2010 and 2009 , respectively . the locations closed represented restaurants operating below acceptable profitability levels or were older restaurants whose leases were not extended or were in need of significant capital improvements that were not projected to provide acceptable returns in the foreseeable future . we recognized charges of $ 856,000 and $ 562,000 in fiscal 2010 and 2009 , respectively , related to lease terminations and other closing related costs . these three closed restaurants in 2010 were not part of the impairment charge taken in the third quarter of fiscal 2010. in 2008 we recognized $ 1.0 million of asset impairment charges related to the write-down of the carrying value of a portion of long-lived assets associated with the four restaurants closed in 2009. in addition to the impairment charges related to the restaurant closures , we recognized $ 0.9 million of non-cash impairment charges in 2008 for two restaurants that were not meeting acceptable cash flow levels . there were no asset impairment charges recognized in 2009. reacquired franchise costs as a result of the acquisition of the 15 restaurants during 2008 , we incurred a total charge of $ 451,000 , which is primarily related to avoided franchise fees . the guidance for accounting for business 34 combinations requires that a business combination between two parties that have a preexisting relationship be evaluated to determine if a settlement of a preexisting relationship exists . the $ 451,000 charge reflects the lower royalty rates applicable to certain of the acquired restaurants compared to a standard royalty rate the company would receive under the company 's current royalty agreements . see note 3 , acquisition of red robin franchised restaurants , in the notes to condensed consolidated financial statements for additional information regarding the acquisition and related charge . interest expense interest expense in 2010 , 2009 and 2008 was $ 5.1 million , $ 6.9 million , and $ 8.6 million , respectively . interest expense in 2010 was lower than 2009 due to reduced outstanding borrowings under our credit facility offset by a slightly higher weighted average interest rate of 3.0 % versus 2.8 % in 2009. interest expense in 2009 was lower than 2008 due to reduced outstanding borrowings under our credit facility and a lower weighted average interest rate of 2.8 % versus 4.0 % in 2008. we believe interest expense will increase in 2011 as we refinance our current credit facility at potentially higher interest rates .
| results of operations operating results for each period presented below are expressed as a percentage of total revenues , except for the components of restaurant operating costs , which are expressed as a percentage of restaurant revenues : replace_table_token_5_th certain percentage amounts in the table above do not total due to rounding as well as the fact that restaurant operating costs are expressed as a percentage of restaurant revenues , as opposed to total revenues . 29 total revenues replace_table_token_6_th ( 1 ) 2008 acquired restaurants refers to 15 franchised red robin® restaurants we acquired during 2008. beginning the third quarter of 2009 , these restaurants entered into the comparable restaurant population and their average weekly sales volume , from that time forward , are included in the comparable restaurant category . ( 2 ) percentage change of more than 100 % is considered not meaningful . restaurant revenue , which is comprised almost entirely of food and beverage sales , increased by $ 18.4 million , or 2.2 % , from fiscal year 2009. the significant factors contributing to our increase in restaurant revenue was revenue growth from our new restaurant openings offset by the 0.6 % decrease in sales from our comparable restaurants . restaurant revenues for restaurants not in the comparable sales base increased $ 21.3 million , of which $ 17.9 million was attributable to restaurants opened during fiscal year 2010. restaurants in the comparable sales base experienced a revenue decline of $ 3.0 million from prior year .
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during 2015 , we early adopted accounting standards update ( asu ) 2015-03 , “ simplifying the presentation of debt issuance costs , ” resulting in adjustments to our prior financial statements as noted in the caption ( debt issuance costs ) below . new accounting standards accounting standards recently adopted deferred taxes as o f d ecember 31 , 2015 , we early adopted asu 2015-17 , “ balance sheet classification of deferred taxes ” on a prospective basis ( i.e . , prior balance sheets were not adjusted ) . under asu 2015-17 , all deferred tax assets and liabilities are presented as noncurrent in our balance sheet . under prior guidance , deferred tax assets and liabilities story_separator_special_tag executive summary financial summary for 201 5 ( compared to 2014 ) § total revenues increased $ 428.0 million , or 14 % , to $ 3 , 4 2 2 .2 million § gross profit increased $ 270.0 million , or 46 % , to $ 857.5 million § aggregates freight-adjusted revenues increased $ 318.4 million , or 18 % , to $ 2,112.5 million § total shipments increased 10 % , or 15.9 million tons to 178.3 million tons ; same-store shipments increased 7 % § freight-adjusted sales price increased 7 % in total and on a same-store basis § segment gross profit increased $ 211.6 million , or 3 9 % to $ 755.7 million § incremental gross profit as a percentage of freight-adjusted revenues was 6 6 % ; on a same-store basis was 7 7 % § asphalt mix , concrete and calcium segment gross profit improved $ 58.4 million , collectively § sag increased $ 14.6 million and declin ed ( 0.7 percentage points or 70 basis points ) as a percentage of total revenues § earnings from continuing operations were $ 232.9 million , or $ 1.72 per diluted share , compared to earnings of $ 207.1 million , or $ 1.56 per diluted share , in 201 4 § discrete items in 2015 include : § a $ 6.5 million tax charge related to a foreign tax credit carryforward impairment § a $ 4.7 million tax benefit related to a state nol carryforwa rd § a pretax charge of $ 67.1 million for debt purchase costs § a pretax gain of $ 6.3 million on the sale of real estate and businesses § a pretax charge of $ 9.5 million associated with acquisitions and divestitures § a pretax charge of $ 5.2 million for asset impairment § a pretax charge of $ 5.0 million for restructuring § discrete items in 2014 include : § a pretax charge of $ 72.9 million for debt purchase costs § a pretax gain of $ 238.5 million on the sale of real estate and businesses § a pretax charge of $ 21.1 million associated with acquisitions and divestitures § a pretax charge of $ 1.3 million for restructuring § adjusted ebitda was $ 836.3 million , an increase of $ 231.6 million , or 3 8 % key drivers of value creation * source : moody 's analytics part i i 28 executive leadership team and our five core disciplines in 201 4 , we announced a n executive leadership team led by tom hill , c hairma n a nd chief executive officer . joining mr. hill o n the leadership team were john mcpherson ( executive vice president , chief financial and strategy officer ) , stan bass ( chief growth officer ) and michael mills ( chief administrative officer ) . each member of the executive leadership team has significant senior-level general and industry specific business experience . under the leadership of ou r e xecutive leadership team , we have instituted the following five core disciplines that we focus on daily : 1. sales and marketing excellence goal : remain the market supplier of choice in order to increase our market share while earning full and fair value for our products and services . execution : we are winning more than our fair share of large project bids by leveraging our scale and extensive strong customer relationships . 2. operational excellence goal : lead the markets safest and most efficient operations by successfully leveraging and driving cost efficiencies to achieve 60 % flow through of incremental aggregates revenue . execution : we are driving our cost of revenues down by leveraging our purchasing power and multi-modal logistic s network and by better managing inventory levels . in 2015 , we exceeded our long-term flow through goal of 60 % by achieving 77 % flow through of incremental aggregates revenue on a same-store basis . 3. s elling , administrative and general ( sag ) productivity goal : continue to leverage sag in order to achieve 6 % of revenues . execution : we are leveraging our recently reorganized central shared services and recently implemented common erp platform to reduc e a dministrative expenses and enable rapid integration of acquired operations . as a result , sag as a percentage of total revenues has decreased from 9 . 1 % in 201 4 to 8.4 % in 2015 . 4. capital productivity goal : drive improvement in capital turnover while maintaining the longer term health of our asset base . execution : we are improving capital turnover by maximizing the lifecycle value of land holdings and optimizing working capital and inventory levels . 5. portfolio management goal : continue to pursue attractive bolt-on acquisitions and selectively enter new markets that meet our growth profile while divesting non-core businesses . execution : in 2015 , we completed a swap of twelve ready-mixed concrete plants in california for thirteen asphalt plants primarily in arizona . we also acquired three aggregates facilities and seven ready-mixed concrete plants in arizona and new mexico . these transactions together with acquisitions completed in 2014 , position us as the # 1 aggregates supplier in the new mexico market and a leading aggregates supplier in arizona . story_separator_special_tag part i i 32 gaap does not define `` free cash flow , `` `` cash gross profit '' and `` earnings before interest , taxes , depreciation and amortization ” ( ebitda ) . thus , free cash flow should not be considered as an alternative to net cash provided by operating activities or any other liquidity measure defined by gaap . likewise , cash gross profit and ebitda should not be considered as alternatives to earnings measures defined by gaap . we present these metrics for the convenience of investment professionals who use such metrics in their analyse s a nd for shareholders who need to understand the metrics we use to assess performanc e. t he investment community often uses these metrics as indicators of a company 's ability to incur and service debt and to assess the operating performance of a company 's businesses . we use free cash flo w , c ash gross profit and ebitda to assess the operating performance of our various business units and the consolidated company . additionally , we adjust ebitda for certain items to provide a more consistent comparison of performance from period to period . we do not use these metrics as a measure to allocate resources . reconciliations of these metrics to their nearest gaap measures are presented below : free cash flow free cash flow is calculated by deduct ing purchases of property , plant & equipment from net cash provided by operating activities . replace_table_token_13_th cash gross profit c ash gross profit adds back noncash charges for depreciation , depletion , accretion and amortization to gross profit . cash gross profit per ton is computed by dividing cash gross profit by tons shipped . replace_table_token_14_th part i i 33 ebitda and adjusted ebitda ebitda is an acronym for earnings before interest , taxes , depreciation and amortization and excludes discontinued operations . we adjust ebitda for certain items to provide a more consistent comparison of performance from period to period . replace_table_token_15_th part i i 34 results of operations total revenues include sales of product to customers , net of any discounts and taxes , and freight and delivery revenues billed to customers . related freight and delivery costs are included in cost of revenues . this presentation is consistent with the basis on which we review our consolidated story_separator_special_tag ; width:98.08 % ; height:47.15pt ; padding:1.7pt 0pt '' valign= '' top '' > we routinely arrange the delivery of our aggregates to the customer . additionally , we incur transportation costs to move aggregates from the production site to remote distribution sites . these costs are passed on to our customers in the aggregates price . we remove these pass-through freight and transportation revenues ( and any other aggregates-derived revenues , such as landfill tipping fees ) from the freight-adjusted selling price for aggregates . see the reconciliation of non-gaap financial measures within this item 7 for a reconciliation of freight-adjusted revenues . our pricing environment continues to improve with the steady increase in demand . during 2015 , freight-adjusted sales price increased in all vulcan-served states . on a same-store basis , freight-adjusted sales price also increased 7 % . aggregates freight-adjusted revenues aggregates gross profit and cash gross profit in millions in millions aggregates unit shipments aggregates selling price and cash gross profit per ton t on s , i n millions freight-adjusted average sales price per ton 2 2 freight-adjust ed sales price is calculated as freight-adjusted revenues divided by aggregates unit shipments aggregates segment gross profit increased $ 211.6 million in 2015 from the prior year and gross profit as a percentage of freight-adjusted revenues increased 5.4 percentage points ( 54 0 basis points ) . the increase in aggregates segment gross profit resulted from higher volumes and better unit margins . aggregates segment unit cost of sales , excluding freight and delivery , declined 1 % in 2015 versus the prior year as lower diesel and energy costs offset higher fringe and overtime labor expenses and repair & maintenance costs . part i i 38 aggregates segment cash gross profit per ton increased 16 % to $ 5.52 in 2015. this measure continues to improve , reflecting our effective management of the three major profit drivers ( price for service ; sales and production mix ; operating efficiency and leverage ) . these efforts resulted in a record level of unit profitability that exceeds the level achieved in 2005 ( $ 3.28 per ton – our peak year for volume ) and in 20 14 ( $ 4 . 75 per ton – our previous high ) . this trend further highlights the earnings potential of our aggregates business as volumes recover . this aggregates earnings potential is further reflected in the flow-through rate . s ame-store aggregates freight-adjusted revenues increased $ 27 1.9 million in 2015 , while same-store gross profit for the segment increased $ 209.3 million , a flow-through rate of 77 % . we have consistently exceeded our stated long-term goal of a 60 % flow-through rate since volumes began to recover in the second half of 2013 . 2 . asphalt mix our year-over-year asphalt mix shipments : § increased 30 % in 201 5 § increased 8 % in 2014 § increased 3 % in 2013 the significant increase in asphalt mix shipments was largely attributable to the swap of our concrete operations in california for asphalt mix operations , primarily in arizona . on a same-store basis , asphalt mix shipments increased 10 % and gross profit increased $ 30.8 million . unit gross profit increased 58 % in 2015 , while unit cash gross profit increased 49 % to $ 9.80 per ton . this improvement resulted from the increased level of shipments , effective management of materials margins , and earnings from acquisitions completed since the first half of last year . asphalt mix segment sales asphalt mix gross profit and cash gross profit in millions in millions part i i 39 3 .
| results of operations . we discuss separately our discontinued operations , which consist s of our former chemicals business . the following table highlights significant components of our consolidated operating results including ebitda and adjusted ebitda . consolidated operating result highlights replace_table_token_16_th net earnings for 201 5 wer e $ 221.2 millio n ( $ 1.64 per diluted share ) c ompared to $ 204.9 millio n ( $ 1.54 per diluted share ) i n 201 4 and $ 24.4 million , or $ 0 . 19 per diluted share in 201 3 . e ach year 's results were impacted by discrete items as follows : § net earnings for 2015 include a pretax loss of $ 3.2 million ( net of $ 9.5 million of charges associated with acquisitions and divestitures ) related to the sale of real estate and businesses , a $ 5 . 0 pretax charge for restructuring , a $ 5.2 million pretax asset impairment loss , a pretax loss on debt purchase of $ 67.1 million presented as a component of interest expense ( see note 6 “ debt ” in item 8 “ financial statements and supplementary data ” ) , and a $ 6.5 million tax charge related to a foreign tax credit carryforward impairment .
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