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in 2012 , explosive metalworking accounted for 57 % of our net sales and 69 % of our income from operations before consideration of unallocated corporate expenses and stock-based compensation expense , which are not allocated to our business segments . our oilfield products and amk welding segments accounted for 39 % and 4 % , respectively , of our 2012 net sales , and 28 % and 3 % , respectively , of our income from operations before unallocated corporate expenses and stock-based compensation expense . in 2011 and 2010 , explosive metalworking accounted for 60 % and 64 % of our net sales , respectively , and 66 % and 60 % , respectively , of income from operations before unallocated corporate expenses and stock-based compensation expense . our 2012 net sales decreased by $ 7,324 , or 3.5 % , compared to 2011 net sales . this sales decline includes an unfavorable foreign exchange translation adjustment of $ 6,464 that relates principally to the strengthening of the u.s. dollar against the euro during 2012. excluding the impact of this foreign exchange adjustment , the decrease in our 2012 consolidated net sales was negligible . the year-to-year consolidated net sales decrease reflects sales decreases of $ 10,866 ( 8.6 % ) and $ 1,080 ( 10.9 % ) for our explosive metalworking and amk welding segments , respectively , that were partially offset by a sales increase of $ 4,622 ( 6.4 % ) for our oilfield products segment . as a result of an improvement in our consolidated gross margin rate to 29.6 % in 2012 from 26.5 % in 2011 , our 2012 consolidated gross profit increased by $ 4,262 , or 7.7 % , despite the 3.5 % drop in our consolidated net sales . this increase in gross profit was offset by a $ 5,078 , or 13.6 % , increase in our total operating expenses , resulting in a slight decrease in our consolidated income from operations to $ 17,403 in 2012 from $ 18,219 in the same period of 2011. this $ 816 decrease reflects increases of $ 1,381 and $ 859 in the operating income reported by our explosive metalworking and oilfield products segments , respectively , which were offset by a $ 1,131 decrease in amk welding 's operating income of and increases in unallocated corporate expenses and stock-based compensation expense of $ 879 and $ 1,046 , respectively . reported consolidated operating income for 2012 and for 2011 includes amortization expense of $ 6,210 and $ 5,707 , respectively , relating to purchased intangible assets associated with several acquisitions executed between november 2007 and january 2012. we reported net income of $ 11,696 in 2012 compared to $ 12,491 in 2011. impact of current economic situation on the company . we were only minimally impacted in 2008 by the global economic slowdown . however , during 2009 and 2010 , we experienced a significant slowdown in explosive metalworking sales to some of the markets we serve . the explosion-welded clad plate market is dependent upon sales of products for use by customers in a number of heavy industries , including oil and gas , chemicals and petrochemicals , aluminum production , power generation , shipbuilding , industrial refrigeration , alternative energy and hydrometallurgy . these industries tend to be cyclical in nature and the uneven worldwide economic recovery has affected many of these markets . while certain sectors continue to be slow , including alternative energy , hydrometallurgy and power generation , quoting activity in other end markets remains healthy , and we continue to track an extensive list of projects . while timing of new order inflow remains difficult to predict , our explosive metalworking segment benefited from the modest improvement during 2011 and 2012 in some of the industries it supplies and we believe that it is well-positioned to further benefit as global economic conditions improve . as a result of acquisitions made during 2009 , 2010 and 2012 and strong organic sales growth beginning in the third quarter of 2010 and continuing through the second quarter of 2012 , our oilfield products segment has grown into a second core business for us , generating 39 % of our consolidated net sales in 2012 as compared to only 13 % of our consolidated net sales in 2009. our explosive metalworking backlog was $ 46,398 at december 31 , 2012 compared to $ 44,564 at december 31 , 2011. based upon the december 31 , 2012 explosive metalworking backlog , recent quoting activity for this segment and expected year over year sales increases for both our oilfield products and amk welding business segments , we believe 26 that our 2013 consolidated net sales could increase by 8 % to 10 % from the $ 201,567 in consolidated net sales that we reported in 2012. net sales explosive metalworking 's revenues are generated principally from sales of clad metal plates and sales of transition joints , which are made from clad plates , to customers that fabricate industrial equipment for various industries , including oil and gas , petrochemicals , alternative energy , hydrometallurgy , aluminum production , shipbuilding , power generation , industrial refrigeration , and similar industries . while a large portion of the demand for our clad metal products is driven by new plant construction and large plant expansion projects , maintenance and retrofit projects at existing chemical processing , petrochemical processing , oil refining , and aluminum smelting facilities also account for a significant portion of total demand . oilfield products ' revenues are generated principally from sales of shaped charges , detonators and detonating cord , and bidirectional boosters and perforating guns to customers who perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities . amk welding 's revenues are generated from welding , heat treatment , and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets . story_separator_special_tag this decrease is principally attributable to a decline in rig count in both the united states and canada during last the first six months of 2012 which negatively affected our north america sales for this same period . 28 amk welding contributed $ 8,830 to 2012 sales ( 4.4 % of total sales ) versus sales of $ 9,910 in 2011 ( 4.7 % of total sales ) , a decrease of 10.9 % . this decrease reflects a $ 1,769 , or 24.2 % , decline in ground power sales that is attributable to a customer 's decision to discontinue new production work on a ground turbine platform that has accounted for a major portion of amk 's historical ground power revenues . we believe that amk can replace this lost revenue stream over time by developing new business opportunities with both existing and new customers in the aircraft engine , ground turbine , and oil and gas industries . gross profit replace_table_token_6_th gross profit increased by 7.7 % to $ 59,708 in 2012 from $ 55,446 in 2011 , including the negative impact of $ 1,555 in unfavorable foreign exchange translation adjustments relating principally to the strengthening of the u.s. dollar against the euro . our 2012 consolidated gross profit margin rate increased to 29.6 % from 26.5 % in 2011. the gross profit margin for explosive metalworking increased from 22.4 % in 2011 to 27.0 % in 2012. oilfield products ' gross margin increased to 34.8 % in 2012 from 33.4 % in 2011. the gross profit margin for amk welding decreased to 22.1 % in 2012 from 31.1 % in 2011. the significant improvement in the 2012 gross profit margin rate for our explosive metalworking segment relates to favorable changes in product mix as compared to 2011 combined with an improved pricing environment . as has been the case historically , we expect to see continued fluctuations in explosive metalworking 's quarterly gross margin rates in the future that result from fluctuations in quarterly sales volume and changes in product mix . the modest increase in oilfield products gross margin rate in 2012 relates principally to favorable changes in product/customer mix . the decrease in amk welding 's reported gross margin relates principally to differences in the rate at which amk welding absorbed its fixed manufacturing overhead costs based on the sales decrease discussed above . based upon the expected contribution to 2013 consolidated net sales by each of our three business segments , we expect our consolidated full year 2013 gross margin to be in a range of 27 % to 29 % as compared to the 29.6 % gross margin that we reported for 2012. general and administrative expenses replace_table_token_7_th general and administrative expenses increased by $ 2,430 , or 14.5 % , to $ 19,141 in 2012 from $ 16,711 in 2011. this increase includes increases of $ 1,438 in salaries and accrued incentive compensation due principally to the addition of kevin longe , chief operating officer , in july 2012 and the hiring of other administrative personnel during the year , an increase in stock-based compensation of $ 586 and a net increase of $ 406 in all other expense categories . the increase in our 2012 general and administrative expenses reflects the positive impact of $ 556 in favorable foreign exchange adjustments associated with the strengthening of the u.s. dollar against the euro . as a percentage of net sales , general and administrative expenses increased to 9.5 % in 2012 from 8.0 % in 2011. selling and distribution expenses replace_table_token_8_th 29 selling and distribution expenses , which include sales commissions of $ 1,592 in 2012 and $ 1,751 in 2011 , increased by 14.5 % to $ 16,954 in 2012 from $ 14,809 in 2011 , with this increase reflecting the positive impact of $ 361 in favorable foreign exchange translation adjustments . this increase in our selling and distribution expenses includes increased selling and distribution expenses of $ 1,159 at our u.s. divisions and $ 986 at our foreign divisions . the $ 1,159 increase in our u.s. selling and distribution expenses reflects a decrease in commission expense of $ 314 that was offset by an increase in salaries and accrued incentive compensation of $ 151 , an increase of $ 396 in stock-based compensation , an increase of $ 170 for legal expenses and a net increase of $ 756 in all other spending categories . the $ 986 increase in our foreign divisions ' selling and distribution expenses reflects increases of $ 556 and $ 155 for salary expense and sales commissions , respectively , and a net increase of $ 275 in all other spending categories . as a percentage of net sales , selling and distribution expenses increased to 8.4 % in 2012 compared to 7.1 % in 2011. our 2012 consolidated selling and distribution expenses include $ 6,795 and $ 9,058 for our explosive metalworking and oilfield products business segments , respectively . our 2011 consolidated selling and distribution expenses include $ 6,043 and $ 8,061 for our explosive metalworking and oilfield products business segments , respectively . the higher level of selling and distribution expenses for our oilfield products segment relative to its contribution to our consolidated net sales reflects the need , particularly in north america , to maintain a number of strategically located distribution centers that are in close proximity to areas which contain a large concentration of oilfields and enjoy a high volume of related oil and gas drilling activities . amortization expenses replace_table_token_9_th amortization expense relates to the amortization of values assigned to intangible assets in connection with our prior year acquisitions of dynaenergetics , lri , the two russian joint ventures , austin explosives and our january 3 , 2012 acquisition of trx industries . the $ 503 increase in 2012 amortization expenses reflects $ 894 in new amortization expense associated with the trx acquisition that was partially offset by favorable foreign currency translation effects .
| general and administrative expenses replace_table_token_14_th general and administrative expenses increased by $ 3,015 , or 22.0 % , to $ 16,711 in 2011 from $ 13,696 in 2010. excluding incremental general and administrative expenses of $ 547 that resulted from the acquisition of austin explosives and the russian joint ventures , our general and administrative expenses increased by $ 2,468 or 18.0 % . this increase includes increases of $ 781 and $ 456 in salaries and incentive compensation , respectively , an increase in legal fees of $ 293 , an increase in consulting fees of $ 227 relating to information technology projects , an increase of $ 221 in other outside professional service fees , a $ 146 increase in business development expenses , an increase of $ 128 in certain corporate governance and public-company expenses ( board of director fees , directors and officers insurance and other 33 investor relations expenses ) , and a net increase of $ 216 in all other expense categories . as a percentage of net sales , general and administrative expenses decreased to 8.0 % in 2011 from 8.9 % in 2010. selling and distribution expenses replace_table_token_15_th selling and distribution expenses , which include sales commissions of $ 1,751 in 2011 and $ 852 in 2010 , increased by 33.0 % to $ 14,809 in 2011 from $ 11,135 in 2010. excluding incremental selling and distribution expenses of $ 1,517 that resulted from the acquisition of austin explosives and the russian joint ventures , our selling and distribution expenses increased by $ 2,157 or 19.4 % . this increase in our selling and distribution expenses includes increased selling and distribution expenses of $ 1,160 at our u.s. divisions and $ 997 at our foreign divisions .
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in filing , prosecuting , enforcing and defending patent claims and other intellectual property rights ; and the costs of establishing or contracting for sales and marketing capabilities and commercialization activities if we obtain regulatory approval to market our product candidates . 53 other significant contractual obligations the following summarizes our scheduled long-term contractual obligations that may affect our future liquidity as of december 31 , 2013 ( in thousands ) : replace_table_token_7_th ( 1 ) in october 2011 , we entered into an agreement with kissei to perform research and development services relating to mn-221 in exchange for a non-refundable upfront payment of $ 2.5 million . we are responsible for all costs to be incurred in the performance of these services . the estimated remaining costs to be incurred in the performance of all such remaining services are included above . ( 2 ) we also enter into agreements with third parties to conduct our clinical trials , manufacture our product candidates , and perform data collection , analysis and other services in connection with our product development programs . as our payment obligations under these agreements depend upon the progress of our product development programs , we are unable at this time to estimate the future costs we might incur under these agreements . off-balance sheet arrangements at december 31 , 2013 , we did not have any relationship with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance variable interest , or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . in addition , we did not engage in trading activities involving non-exchange traded contracts . as a result , we are not exposed to any financing , liquidity , market or credit risk that could arise if we had engaged in such relationships . we do not have relationships and transactions with persons and entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed herein . 54 item 8. financial statements and supplementary data 55 report of independent registered public accounting firm the board of directors and stockholders of medicinova , inc. we have audited the accompanying consolidated balance sheets of medicinova , inc. as of december 31 , 2013 and 2012 , and the related consolidated statements of operations and comprehensive loss , stockholders ' equity , and cash flows for each of the two years in the period ended december 31 , 2013. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements . an audit also includes assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the consolidated financial position of medicinova , inc. , at december 31 , 2013 and 2012 , and the consolidated results of its operations and its cash flows for each of the two years in the period ended december 31 , 2013 in conformity with u.s. generally accepted accounting principles . we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) , medicinova , inc. 's internal control over financial reporting as of december 31 , 2013 , based on criteria established in internal control-integrated framework issued by the committee of sponsoring organizations of the treadway commission ( 1992 framework ) and our report dated march 27 , 2014 expressed an unqualified opinion thereon . ernst & young llp san diego , california march 27 , 2014 56 medicinova , inc. consolidated balance sheets replace_table_token_8_th see accompanying notes to consolidated financial statements . 57 medicinova , inc. consolidated statements of operations and comprehensive loss replace_table_token_9_th see accompanying notes to consolidated financial statements . 58 medicinova , inc. consolidated statements of stockholders ' equity replace_table_token_10_th see accompanying notes to consolidated financial statements . 59 medicinova , inc. consolidated statements of cash flows replace_table_token_11_th see accompanying notes to consolidated financial statements . 60 medicinova , inc. notes to consolidated financial statements 1. organization and summary of significant accounting policies organization and business the company was incorporated in the state of delaware in september 2000 and is a public company . the company 's common stock is listed in both the u.s. and japan and trades on the nasdaq global market and the jasdaq market of the tokyo stock exchange . the company is a biopharmaceutical company focused on acquiring and developing novel , small molecule therapeutics for the treatment of serious diseases with unmet medical needs with a commercial focus on the u.s. market . the company is currently focusing its development activities on mn-166 , ( ibudilast ) for the treatment of neurological disorders , mn-221 ( bedoradrine ) , for the treatment of acute exacerbations of asthma , mn-001 ( tipelukast ) for the treatment of nash ( nonalcoholic steatohepatitis ) , and mn-029 ( denibulin ) for the treatment of solid tumors . in december 2013 , the company received notice that a $ 6.0 million milestone had been achieved under its assignment of rights agreement with genzyme corporation , or genzyme ( see note 2 ) . prior to 2013 , the company was in story_separator_special_tag in filing , prosecuting , enforcing and defending patent claims and other intellectual property rights ; and the costs of establishing or contracting for sales and marketing capabilities and commercialization activities if we obtain regulatory approval to market our product candidates . 53 other significant contractual obligations the following summarizes our scheduled long-term contractual obligations that may affect our future liquidity as of december 31 , 2013 ( in thousands ) : replace_table_token_7_th ( 1 ) in october 2011 , we entered into an agreement with kissei to perform research and development services relating to mn-221 in exchange for a non-refundable upfront payment of $ 2.5 million . we are responsible for all costs to be incurred in the performance of these services . the estimated remaining costs to be incurred in the performance of all such remaining services are included above . ( 2 ) we also enter into agreements with third parties to conduct our clinical trials , manufacture our product candidates , and perform data collection , analysis and other services in connection with our product development programs . as our payment obligations under these agreements depend upon the progress of our product development programs , we are unable at this time to estimate the future costs we might incur under these agreements . off-balance sheet arrangements at december 31 , 2013 , we did not have any relationship with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance variable interest , or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . in addition , we did not engage in trading activities involving non-exchange traded contracts . as a result , we are not exposed to any financing , liquidity , market or credit risk that could arise if we had engaged in such relationships . we do not have relationships and transactions with persons and entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed herein . 54 item 8. financial statements and supplementary data 55 report of independent registered public accounting firm the board of directors and stockholders of medicinova , inc. we have audited the accompanying consolidated balance sheets of medicinova , inc. as of december 31 , 2013 and 2012 , and the related consolidated statements of operations and comprehensive loss , stockholders ' equity , and cash flows for each of the two years in the period ended december 31 , 2013. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements . an audit also includes assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the consolidated financial position of medicinova , inc. , at december 31 , 2013 and 2012 , and the consolidated results of its operations and its cash flows for each of the two years in the period ended december 31 , 2013 in conformity with u.s. generally accepted accounting principles . we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) , medicinova , inc. 's internal control over financial reporting as of december 31 , 2013 , based on criteria established in internal control-integrated framework issued by the committee of sponsoring organizations of the treadway commission ( 1992 framework ) and our report dated march 27 , 2014 expressed an unqualified opinion thereon . ernst & young llp san diego , california march 27 , 2014 56 medicinova , inc. consolidated balance sheets replace_table_token_8_th see accompanying notes to consolidated financial statements . 57 medicinova , inc. consolidated statements of operations and comprehensive loss replace_table_token_9_th see accompanying notes to consolidated financial statements . 58 medicinova , inc. consolidated statements of stockholders ' equity replace_table_token_10_th see accompanying notes to consolidated financial statements . 59 medicinova , inc. consolidated statements of cash flows replace_table_token_11_th see accompanying notes to consolidated financial statements . 60 medicinova , inc. notes to consolidated financial statements 1. organization and summary of significant accounting policies organization and business the company was incorporated in the state of delaware in september 2000 and is a public company . the company 's common stock is listed in both the u.s. and japan and trades on the nasdaq global market and the jasdaq market of the tokyo stock exchange . the company is a biopharmaceutical company focused on acquiring and developing novel , small molecule therapeutics for the treatment of serious diseases with unmet medical needs with a commercial focus on the u.s. market . the company is currently focusing its development activities on mn-166 , ( ibudilast ) for the treatment of neurological disorders , mn-221 ( bedoradrine ) , for the treatment of acute exacerbations of asthma , mn-001 ( tipelukast ) for the treatment of nash ( nonalcoholic steatohepatitis ) , and mn-029 ( denibulin ) for the treatment of solid tumors . in december 2013 , the company received notice that a $ 6.0 million milestone had been achieved under its assignment of rights agreement with genzyme corporation , or genzyme ( see note 2 ) . prior to 2013 , the company was in
| results of operations comparison of the years ended december 31 , 2013 and 2012 revenues we recognized approximately $ 6,003,000 of revenue for the year ending december 31 , 2013 of which $ 6,000,000 was related to a license arrangement acquired in december 2009 and $ 3,000 was related to research and development services delivered during the year . there were no expenses incurred during 2013 related to the milestone . we recognized approximately $ 803,000 in revenue for the year ended december 31 , 2012 related to research and development services delivered . in october 2011 we entered into an agreement with kissei to perform research and development services relating to mn-221 in exchange for a non-refundable upfront payment of $ 2.5 million . we assessed the deliverables in accordance with the authoritative guidance and concluded the existence of one deliverable , which was research and development services . the $ 2.5 million was initially recorded as deferred revenue . revenue was recorded in 2012 and 2013 as the research and development services were delivered . all expenses incurred during 2013 and 2012 related to these services were recorded as research and development expenses . research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2013 were $ 3.4 million , a decrease of $ 1.6 million compared to $ 5.0 million for the year ended december 31 , 2012. this decrease in research , development and patent expenses primarily related to a decrease of $ 3.4 million in spending on mn-221 primarily due to the completion of the mn-221-cl-007 clinical trial , partially offset by an increase in costs related to the mn-166 clinical trials of $ 1.3 million and an increase in unallocated employee costs of $ 0.4 million .
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f-12 3. additional balance sheet information accounts receivable at december 31 , 2020 and 2019 consisted of the following : replace_table_token_20_th accounts payable at december 31 , 2020 and 2019 consisted of the following : replace_table_token_21_th accrued liabilities at december 31 , 2020 and 2019 consisted of the following : replace_table_token_22_th 4. long-term debt bank debt : on february 15 , 2017 , the company and its lenders entered into a third amended and restated credit agreement ( the 2017 credit agreement ) with a maturity date of february 15 , 2021. the second amended and restated credit agreement and subsequent amendments were amended and restated by the 2017 credit agreement . pursuant to the terms and conditions of the 2017 credit agreement , the company has a revolving line of credit and letter of credit facility of up to $ 300 million subject to a borrowing base that is determined semi-annually by the lenders based upon the company 's financial statements and the estimated value of the company 's oil and gas properties , in accordance with the lenders ' customary practices for oil and gas loans . the credit facility is secured by substantially all of the company 's oil and gas properties . the 2017 credit agreement includes terms and covenants that require the company to maintain a minimum current ratio , total indebtedness to ebitdax ( earnings before depreciation , depletion , amortization , taxes , interest expense and exploration costs ) ratio and interest coverage ratio , as defined , and restrictions are placed on the payment of dividends , the amount of treasury stock the company may purchase , commodity hedge agreements , and loans and investments in its consolidated subsidiaries and limited partnerships . on december 22 , 2017 , the company and its lenders entered into a first amendment to the 2017 credit agreement . the credit agreement includes the addition of a new lender and retains all other aspects of the original credit agreement . as of the effective date of this amendment the company 's borrowing base was increased to $ 85 million . f-13 on july 17 , 2018 , the company and its lenders entered into a second amendment to the 2017 credit agreement . the credit agreement includes modifications for the borrowing base utilization margins and rates by type of borrowing , revises minimum quantifications for individual borrowings , reduces the overall percentage required for commodity hedge agreements , modifies the requirements placed on the company 's ability to purchase equity interests and retains all other aspects of the original credit agreement . as of the effective date of this amendment the story_separator_special_tag the following discussion is intended to assist you in understanding our results of operations and our present financial condition . our consolidated financial statements and the accompanying notes to the consolidated financial statements included elsewhere in this report contains additional information that should be referred to when reviewing this material . our subsidiaries are listed in note 1 to the consolidated financial statements . overview : we are an independent oil and natural gas company engaged in acquiring , developing and producing oil and natural gas . we presently own producing and non-producing properties located primarily in texas , and oklahoma . in addition , we own a substantial amount of well servicing equipment . all our oil and gas properties and interests are located in the united states . assets in our principal focus areas include mature properties with long-lived reserves and significant development opportunities as well as newer properties with development and exploration potential . we believe our balanced portfolio of assets and our ongoing hedging program position us well for both the current commodity price environment and future potential upside as we develop our attractive resource opportunities . our primary sources of liquidity are cash generated from our operations and our credit facility . we attempt to assume the position of operator in all acquisitions of producing properties and will continue to evaluate prospects for leasehold acquisitions and for exploration and development operations in areas in which we own interests . we continue to actively pursue the acquisition of producing properties . to diversify and broaden our asset base , we will consider acquiring the assets or stock in other entities and companies in the oil and gas business . our main objective in making any such acquisitions will be to acquire income producing assets to build stockholder value through consistent growth in our oil and gas reserve base on a cost-efficient basis . our cash flows depend on many factors , including the price of oil and gas , the success of our acquisition and drilling activities and the operational performance of our producing properties . we use derivative instruments to manage our commodity price risk . this practice may prevent us from receiving the full advantage of any increases in oil and gas prices above the maximum fixed amount specified in the derivative agreements and subjects us to the credit risk of the counterparties to such agreements . since all our derivative contracts are accounted for under mark-to-market accounting , we expect continued volatility in gains and losses on mark-to-market derivative contracts in our consolidated statement of operations as changes occur in the nymex price indices . market conditions and commodity prices : our financial results depend on many factors , particularly the price of natural gas and crude oil and our ability to market our production on economically attractive terms . commodity prices are affected by many factors outside of our control , including changes in market supply and demand , which are impacted by weather conditions , pipeline capacity constraints , inventory storage levels , basis differentials and other factors . in addition , our realized prices are further impacted by our derivative and hedging activities . story_separator_special_tag as of april 15 , 2021 , the company has $ 35.95 million in outstanding borrowings and $ 4.05 million in availability under this facility . the bank reviews the borrowing base semi-annually and , at their discretion , may decrease or propose an increase to the borrowing base relative to a re-determined estimate of proved oil and gas reserves . the next borrowing base review is scheduled for july 2021. our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement . we are currently in compliance with these covenants and expect to be in compliance over the next twelve months . if we do not comply with these covenants on a continuing basis , the lenders have the right to refuse to advance additional funds under the facility and or declare all principal and interest immediately due and payable . our borrowing base may decrease as a result of lower natural gas or oil prices , operating difficulties , declines in reserves , lending requirements or regulations , the issuance of new indebtedness or for other reasons set forth in our revolving credit agreement . in the event of a decrease in our borrowing base due to declines in commodity prices or otherwise , our ability to borrow under our revolving credit facility may be limited and we could be required to repay any indebtedness in excess of the re-determined borrowing base . 35 our credit agreement requires us to hedge a portion of our production as forecasted for the pdp reserves included in our borrowing base review engineering reports . accordingly , the company has in place the following swap and put agreements for oil and natural gas . replace_table_token_11_th on march 27 , 2020 , president trump signed into law the coronavirus aid , relief , and economic security act ( the cares act ) . the cares act , among other things , includes provisions relating to refundable payroll tax credits , deferment of employer side social security payments , net operating loss carryback periods , alternative minimum tax credit refunds , modifications to the net interest deduction limitations , increased limitations on qualified charitable contributions , and technical corrections to tax depreciation methods for qualified improvement property . the company 's activities include development and exploratory drilling . our strategy is to develop a balanced portfolio of drilling prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential . in 2016 , based upon the results of horizontal wells and historical vertical well performance , we decided to reduce the number of vertical wells in our drilling program and focus primarily on horizontal well drilling . we believe horizontal development of our resource base provides superior returns relative to vertical development , due to the ability of horizontals to come in contact with and drain from a greater volume of reservoir rock over more acreage , with less infrastructure , and thus at a lower cost of development per acre . in 2019 , we participated in the drilling of three horizontal wells in upton county , texas , adding significantly to our proved reserves , as these probable undeveloped locations were the initial test wells in the wolfcamp a the jo mill and the lower spraberry of this acreage . these tests proved-up these reservoirs for the 1,280 acre block in which they were drilled and led to the drilling of nine additional wells in 2020 and the first quarter of 2021. in early 2020 , six of the nine horizontals mentioned above were drilled , and in the first quarter of 2021 the remaining three were drilled . all nine wells are slated for completion and to be on production by the end of the second quarter of 2021. we have an average 47.5 % interest in these wells and our anticipated total investment is expected to be approximately $ 27 million . the successful development of these reservoirs has also proved-up locations to be drilled on our nearby 3,260-acre block in which the company holds between 14 % and 56 % interest . it is anticipated that development of as many as 54 additional horizontal wells on this 3,260-acre block will occur over the coming years . the cost of such development will be approximately $ 370 million with the company 's share being approximately $ 170 million . the actual number of wells that will be drilled , the cost , and the timing of drilling will vary based upon many factors , including commodity market conditions . also in 2020 , in upton county , texas , we participated for 8.3 % interest in the horizontal drilling of a well operated by pioneer natural resources that was completed and on production in july of 2020. our total net expenditure for this well was approximately $ 580,000. additional drilling and future development plans will be established based on an expectation of available cash flows from operations and availability of funds under our revolving credit facility . 36 the exploration , development and recent activities section in part i above describes in more detail the recent activities of the company . the focus of our future activity will be on the continued development of our resource 's potential in the west texas horizontal drilling program as well as our scoop-stack horizontal drilling program acreage in oklahoma in order to maximize cash flow and return on investment . the company maintains an acreage position of 19,679 gross ( 12,461 net ) acres in the permian basin in west texas , primarily in reagan , upton , martin and midland counties and we believe this acreage has significant resource potential in as many as 10 reservoirs , including benches of the spraberry , jo mill , and wolfcamp that support the potential drilling of as many
| results of operations : 2020 and 2019 compared we reported a net loss of $ 2.3 million for 2020 , or $ 1.16 per share , compared to net income of $ 3.5 million , or $ 1.72 per share for 2019. the current year net loss reflects decreases in production combined with commodity price decreases , increases in gains related to the sale of acreage and changes related to the valuation of derivative instruments . the significant components of income and expense are discussed below . oil , ngl and gas sales decreased $ 47.0 million , or 56 % to $ 37.0 million for the year ended december 31 , 2020 from $ 84.0 million for the year ended december 31 , 2019. crude oil , ngl and natural gas sales vary due to changes in volumes of production sold and realized commodity prices . our realized prices at the well head decreased an average of $ 17.02 per barrel , or 30.9 % on crude oil , decreased an average of $ 4.65 per barrel , or 29.3 % on ngl and decreased $ 0.25 per mcf , or 16.60 % on natural gas during 2020 as compared to 2019. our crude oil production decreased by 509,000 barrels , or 41.0 % to 733,000 barrels for the year ended december 31 , 2020 from 1,242,000 barrels for the year ended december 31 , 2019. our ngl production decreased by 137,000 or 23.9 % to 437,000 for the year ended december 31 , 2020 from 574,000 barrels for the year ended december 31 , 2019. our natural gas production decreased by 1,016 mmcf , or 23.1 % to 3,381 mmcf for the year ended december 31 , 2020 from 4,397 mmcf for the year ended december 31 , 2019. the decreases in crude oil , ngl and natural gas production volumes are a result of the natural decline of existing properties combined with the shut in of marginal properties due
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march 31 , 2018 as previously reported adjustment as revised revised consolidated statement of cash flow from operating activities amounts : net income $ 16,316,000 $ 2,510,000 $ 18,826,000 adjustments to reconcile net income to net cash used story_separator_special_tag the following discussion contains forward-looking statements , including , without limitation , our expectations and statements regarding our outlook and future revenues , expenses , results of operations , liquidity , plans , strategies and objectives of management and any assumptions underlying any of the foregoing . our actual results may differ significantly from those projected in the forward-looking statements . our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include , but are not limited to , those discussed in the section titled cautionary note regarding forward-looking statements and risk factors of this annual report on form 10-k. except as required by law , we assume no obligation to update the forward-looking statements or our risk factors for any reason . management overview we have been focused on implementing a multi-pronged platform for growth within the non-discretionary automotive aftermarket for the replacement parts and diagnostic testing industry , through organic growth and acquisitions . our investments in infrastructure and human resources , including the consolidation of our distribution in mexico and the significant expansion of manufacturing capacity , are expected to be transformative and scalable . as a result , gross profit and net income have been impacted , and our future performance and opportunities should be considered with these factors in mind . new products introduced through our growth strategies noted above include : ( i ) turbochargers through an acquisition in july 2016 ; ( ii ) brake power boosters in august 2016 ; ( iii ) the design and manufacture of diagnostics systems for alternators , starters , belt-start generators ( stop start and hybrid technology ) , and electric power trains for electric vehicles through an acquisition in july 2017 ; ( iv ) the design and manufacture of advanced power emulators ( ac and dc ) and custom power electronic products for the automotive and aerospace industries through an acquisition in december 2018 ; and ( v ) alternators and starters for medium truck , farm , and marine applications through an acquisition in january 2019. business acquisitions mechanical power conversion , llc on december 21 , 2018 , we completed the acquisition of certain assets and assumption of certain liabilities from mechanical power conversion , llc ( e & m ) , a privately held company operating as e & m power and engaged in the design and manufacture of advanced power emulators ( ac and dc ) and custom power electronic products , based in binghamton , new york . the addition of new products from e & m is expected to drive our revenue potential and increase our product portfolio . future activity of this business will be recorded via d & v electronics usa , operating as our registered dba ( doing business as ) entity . the acquisition was consummated pursuant to an asset purchase agreement for an initial cash purchase price of $ 4,417,000 , plus an additional working capital adjustment of $ 42,000 paid to the former owners of e & m . in addition , we are contingently obligated to make additional payments to the former owners of e & m up to an aggregate of $ 5,200,000 over the next 2-3 years . the initial fair value of the contingent consideration as of the acquisition date was $ 3,560,000 , determined using a probability weighted method and a monte carlo simulation model ( see note 5. acquisitions ) . any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense . during fiscal 2019 , we recorded an expense of $ 290,000 in general and administrative expenses due to the change in the fair value of the contingent consideration liability . dixie electric , ltd. on january 9 , 2019 , we completed the acquisition of all the equity interests of dixie electric , ltd ( dixie ) , a privately held manufacturer and remanufacturer of alternators and starters for automotive aftermarket non-discretionary replacement parts for heavy-duty truck , industrial , marine and agricultural applications , based in ontario , canada . the addition of dixie is expected to expand our heavy duty product portfolio . the initial cash purchase price was $ 8,049,000 , which was reduced by a provisional working capital adjustment of $ 71,000 , was paid to the former owners of dixie . in addition , we are contingently obligated to make additional payments to the former owners of dixie up to $ 1,130,000 over the next 2 years . the preliminary fair value of the contingent consideration as of the acquisition date was $ 840,000 , determined using a monte carlo simulation 21 model ( see note 5. acquisitions ) . any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense . during fiscal 2019 , we recorded an expense of $ 31,000 in general and administrative expenses due to the change in the fair value of the contingent consideration liability . segment reporting pursuant to the guidance provided under the fasb asc for segment reporting , we have identified our chief operating decision maker ( codm ) , reviewed the documents used by the codm , and understand how such documents are used by the codm to make financial and operating decisions . we have determined through this review process that due to recent acquisitions , our business comprises three separate operating segments . two of the operating segments meet all of the aggregation criteria , and will thus be aggregated . the remaining operating segment does not meet the quantitative thresholds for individual disclosure . story_separator_special_tag derivatives and hedging in august 2017 , the fasb issued guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity 's risk management activities in its financial statements . the amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current gaap . the new guidance is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years ; the guidance allows for early adoption in any interim period after issuance of the update . the early adoption of this guidance on january 1 , 2019 did not have any impact on our consolidated financial statements . improvements to nonemployee share-based payment accounting in june 2018 , the fasb issued guidance that expands the scope of asc 718 , compensation—stock compensation ( which previously only included share-based payments to employees ) to include share-based payments issued to nonemployees for goods or services . consequently , the accounting for share-based payments to nonemployees and employees will be substantially aligned . the amendments in this guidance are effective for public companies for fiscal years beginning after december 15 , 2018 , including interim periods within that fiscal year . early adoption is permitted , but no earlier than a company 's adoption date of asc 606. the adoption of this guidance on january 1 , 2019 did not have any impact on our consolidated financial statements . reporting comprehensive income in february 2018 , the fasb issued guidance that permits , but does not require , companies to reclassify the stranded tax effects of the act on items within accumulated other comprehensive income to retained earnings . this guidance is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption is permitted . the early adoption of this guidance on january 1 , 2019 did not have any impact on our consolidated financial statements . 23 new accounting pronouncements not yet adopted leases in february 2016 , the fasb issued new guidance that requires balance sheet recognition of a right-of-use asset and lease liability by lessees for all leases , other than leases with a term of 12 months or less if the short-term lease exclusion expedient is elected . the new guidance also requires new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements . the new guidance is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption is permitted . the new guidance requires a modified retrospective approach with optional practical expedients . the fasb provided entities with an additional transition method , which allows an entity to apply this guidance as of the beginning of the period of adoption instead of the beginning of the earliest comparative period presented in the entity 's financial statements . we will adopt this guidance on april 1 , 2019 using the additional transition method . we will be electing certain practical expedients permitted under the transition guidance , including the package of practical expedients , which will allow us not to reassess lease classification for leases that commenced prior to the adoption date . we will also be exempting leases with an initial term of 12 months or less from balance sheet recognition and , for all classes of assets , combining non-lease components with lease components . we anticipate the adoption of this new guidance will result in recognition of additional lease liabilities of approximately $ 53 million and corresponding right-of-use assets of approximately $ 51 million , which is net of $ 2 million in deferred rent currently included in other liabilities in the accompanying consolidated balance sheet , due to our recognition of all operating lease assets and liabilities on the consolidated balance sheet . the adoption of the new guidance will not have a material impact on our rent expense and consolidated statement of cash flows . however , we have material nonfunctional currency leases that could have a material impact on our consolidated statements of operations . as required for other monetary liabilities , lessees shall remeasure a foreign currency-denominated lease liability using the exchange rate at each reporting date , but as the right-of-use asset is a nonmonetary asset measured at historical rate , which is not affected by subsequent changes in the exchange rate . measurement of credit losses on financial instruments in june 2016 , the fasb issued an accounting pronouncement related to the measurement of credit losses on financial instruments . this pronouncement , along with a subsequent asu issued to clarify certain provisions of the new guidance , changes the impairment model for most financial assets and will require the use of an expected loss model for instruments measured at amortized cost . under this model , entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset , resulting in a net presentation of the amount expected to be collected on the financial asset . this pronouncement is effective for fiscal years , and for interim periods within those fiscal years , beginning after december 15 , 2019. we plan to adopt this pronouncement for our fiscal year beginning april 1 , 2020. we are currently evaluating the impact this guidance will have on our consolidated financial statements , as well as any impacts on our business processes , systems and internal controls . fair value measurements in august 2018 , the fasb issued guidance , which changes the disclosure requirements for fair value measurements by removing , adding and modifying certain disclosures . the standard is effective for financial statements issued for fiscal years beginning after december 15 , 2019. early adoption is permitted . we are currently evaluating the impact this guidance will have on our consolidated financial statements .
| results of operations the following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein . the following tables that are labeled as adjusted reflect the retrospective impact of adoption of asc 606 and the immaterial error corrections in previous year 's financial statements . 29 the following summarizes certain key operating data for the periods indicated : replace_table_token_4_th ( 1 ) finished goods turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending finished goods inventory values , for each fiscal year . we believe that this provides a useful measure of our ability to turn our inventory into revenues . fiscal 2019 compared with fiscal 2018 net sales and gross profit the following summarizes net sales and gross profit : replace_table_token_5_th net sales . our net sales for fiscal 2019 increased by $ 45,249,000 , or 10.6 % , to $ 472,797,000 compared with net sales for fiscal 2018 of $ 427,548,000 , reflecting strong growth in market share for our rotating electrical products . in addition , our net sales were positively impacted by sales of diagnostic equipment , which benefitted from our acquisitions of d & v electronics . we achieved record sales despite significant customer allowances related to new business and increased stock adjustment accruals , which were a reduction of our recognized sales ( as discussed below in the gross profit paragraph ) . sales mix for fiscal 2019 compared with 2018 for rotating electrical products represented 78.9 % versus 78.2 % ; wheel hubs , 15.7 % versus 16.9 % ; brake master cylinders , 1.7 % versus 2.2 % ; and other products , 3.8 % versus 2.7 % . gross profit .
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the following table summarizes our nols : june 30 , 2014 ( in thousands ) federal $ 86,644 state $ 32,803 our nol carryovers for federal income tax purposes begin to expire in the fiscal year ending june 30 , 2021. our nol carryovers for state income tax purposes began to expire in the fiscal year ended june 30 , 2013. deferred income taxes were not provided on undistributed earnings of certain foreign subsidiaries because such undistributed earnings are expected to be reinvested indefinitely . the following table summarizes our liability for uncertain tax positions for the fiscal year ended june 30 , 2014 ( in thousands ) : balance as of june 30 , 2013 $ 6,700 change in balances related to uncertain tax positions – balance as of june 30 , 2014 $ 6,700 at june 30 , 2014 , we had $ 6.7 million of gross unrecognized tax benefits . of the total unrecognized benefits at june 30 , 2014 , $ 6.6 million was recorded as a reduction to deferred tax assets , which caused a corresponding reduction in our valuation allowance of $ 6.6 million . to the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists , the recognition would reduce the effective tax rate . our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense . during the fiscal years ended june 30 , 2014 and 2013 we recorded an immaterial expense for interest and penalties related to income tax matters in the provision for income taxes . at june 30 , 2014 , we had approximately $ 141,000 of accrued interest and penalties related to uncertain tax positions . at june 30 , 2014 , our fiscal 2011 through 2014 tax years remain open to examination by the federal taxing jurisdiction and the fiscal 2010 through 2014 tax years remain open to examination by the state taxing jurisdictions . however , we have nols beginning in fiscal 2001 which would cause the statute of limitations to remain open for the year in which the nol was incurred . our fiscal 2007 through fiscal 2014 tax years remain open to examination by the foreign taxing authorities . we do not anticipate that the amount of unrecognized tax benefits as of june 30 , 2014 will significantly increase or decrease within the next 12 months . 8. commitments and contingencies leases we lease office equipment and office and warehouse facilities under non-cancelable capital and operating leases . the following schedule represents minimum lease payments for all non-cancelable operating and capital leases as of june 30 , 2014 : replace_table_token_37_th f- 18 the following table presents rent expense : replace_table_token_38_th 9. significant geographic , customer and supplier information the following table presents our sales within geographic regions as a percentage of net revenue : replace_table_token_39_th the following table presents sales to significant countries as a percentage of net revenue : replace_table_token_40_th customers the following table presents sales to our significant customers and related parties as a percentage of net revenue : story_separator_special_tag you should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in item 8 of this report , the “ risk factors ” included in item 1a of this report , as well as the cautionary note regarding forward looking statements described elsewhere in this report , before deciding to purchase , hold or sell our common stock . story_separator_special_tag 20 valuation of deferred income taxes we have recorded a valuation allowance to reduce our net deferred tax assets to zero , primarily due to historical net operating losses and uncertainty of generating future taxable income . we consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if we determine that it is more likely than not that we will realize a deferred tax asset that currently has a valuation allowance , we would be required to reverse the valuation allowance , which would be reflected as an income tax benefit in our consolidated statements of operations at that time . goodwill impairment testing in performing our goodwill impairment testing , we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , we conduct a two-step goodwill impairment test . the first step of the impairment test involves comparing the estimated fair value of our single reporting unit with its carrying value , including goodwill . if the carrying amount of the reporting unit exceeds the reporting unit 's fair value , we perform the second step of the analysis , which involves comparing the implied fair value of the reporting unit 's goodwill with the carrying value of that goodwill , the difference of which represents the impairment loss . the determination of the reporting unit 's fair value requires significant judgment and is based on management 's best estimate . we generally use valuation techniques based on our market capitalization and multiples of revenue for similar companies . in addition , management may consider the reporting unit 's expected future earnings , and a control premium , which is the amount that a buyer is willing to pay over the current market price of a company as indicated by the traded price per share ( i.e. , market capitalization ) , in order to acquire a controlling interest . if our actual financial results are not consistent with our assumptions and judgments used in estimating the fair value of our reporting unit , we may be exposed to goodwill impairment losses . story_separator_special_tag selling , general and administrative selling , general and administrative expenses consisted of personnel-related expenses including salaries and commissions , share-based compensation , facility expenses , information technology , trade show expenses , advertising and professional legal and accounting fees . the following table presents selling , general and administrative expenses : replace_table_token_5_th the decrease in selling , general and administrative expenses for fiscal 2014was primarily due to a reduction in advertising and marketing spending from fiscal 2013 when we increased spending on marketing initiatives for certain new product releases . we also incurred lower sales-related commission expenses in the current year period due to the lower net revenues in fiscal 2014 as compared to fiscal 2013. additionally , we further reduced expenses through cost cutting efforts near the end of fiscal 2013 which resulted in lower personnel-related expenses and professional fees during fiscal 2014. research and development research and development expenses consisted of personnel-related expenses including share-based compensation , as well as expenditures to third-party vendors for research and development activities , and product certification costs . the following table presents research and development expenses : replace_table_token_6_th overall , fiscal 2014 research and development expenses were flat with the prior year . fiscal 2014 expenses were impacted by slightly higher personnel-related expenses in the current year period primarily related to increased variable compensation and increased equipment depreciation and materials expenses related to new product development . these increases were offset by lower facilities costs and decreased product certification costs due to the timing and extent of recent development projects . 23 other expense , net other expense , net , is comprised primarily of foreign currency remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currency is the u.s. dollar . provision for income taxes the following table presents the income tax provision : replace_table_token_7_th the following table presents our effective tax rate based upon our income tax provision : replace_table_token_8_th we utilize the liability method of accounting for income taxes . the difference between our effective tax rate and the federal statutory rate resulted primarily from the effect of our domestic losses recorded without a tax benefit , as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate . we record net deferred tax assets to the extent we believe these assets will more likely than not be realized . as a result of our cumulative losses and uncertainty of generating future taxable income , we provided a full valuation allowance against our net deferred tax assets for fiscal 2014 and 2013. due to the “ change of ownership ” provision of the tax reform act of 1986 , utilization of our net operating loss ( “ nol ” ) carryforwards and tax credit carryforwards may be subject to an annual limitation against taxable income in future periods . as a result of the annual limitation , a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities . the following table summarizes our nols : june 30 , 2014 ( in thousands ) federal $ 86,644 state $ 32,803 our nol carryovers for federal income tax purposes begin to expire in the fiscal year ending june 30 , 2021. our nol carryovers for state income tax purposes began to expire in fiscal 2013. at june 30 , 2014 , our fiscal year ended june 30 , 2007 through fiscal year ended june 30 , 2014 tax years remain open to examination by federal , state , and foreign taxing authorities . however , we have nols beginning in the fiscal year ended june 30 , 2001 which would cause the statute of limitations to remain open for the year in which the nol was incurred . liquidity and capital resources liquidity the following table presents details of our working capital and cash and cash equivalents : replace_table_token_9_th 24 our principal sources of cash and liquidity include our existing cash and cash equivalents , amounts available under our credit facilities , and cash generated from operations . we believe that these sources will be sufficient to fund our current requirements for working capital , capital expenditures and other financial commitments for at least the next 12 months . we anticipate that the primary factors affecting our cash and liquidity are net revenue , working capital requirements and capital expenditures . management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased . we maintain cash and cash equivalents balances at certain financial institutions in excess of amounts insured by federal agencies . management does not believe this concentration subjects us to any unusual financial risk beyond the normal risk associated with commercial banking relationships . we frequently monitor the third-party depository institutions that hold our cash and cash equivalents . our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds . our future working capital requirements will depend on many factors , including the timing and amount of our net revenue , research and development expenses , and expenses associated with any strategic partnerships or acquisitions and infrastructure investments . we incurred a net loss of $ 933,000 and $ 2.8 million for fiscal 2014 and 2013 , respectively . we expect our existing cash and cash equivalents , amounts available under our credit facilities and cash generated from operations will be sufficient to fund our capital expenditures , our working capital and other cash requirements .
| overview lantronix , inc. ( the “ company , ” “ lantronix , ” “ we , ” “ our , ” or “ us ” ) designs , develops , markets and sells networking and communications products to make it easier and more cost effective for our customers to participate in the internet of things ( “ iot ” ) market . we provide solutions and services that enable machines , devices and sensors to be securely accessed , managed and controlled with a focus on the convergence of mobility with machine-to-machine ( “ m2m ” ) systems . we provide a broad portfolio of products intended to enhance the value of electronic devices or machines . our products are typically used by enterprise and commercial businesses , government institutions , telecommunication and utility companies , financial institutions , and individual consumers . we organize our solutions into two product lines based on how they are marketed , sold and deployed : oem modules and enterprise solutions . we conduct our business globally and manage our sales teams by geography , according to four regions : the americas ; europe , middle east , and africa ( “ emea ” ) ; asia pacific ; and japan . 19 recent accounting pronouncements refer to note 1 of notes to consolidated financial statements included in item 8 of this report for a discussion of recent accounting pronouncements . critical accounting policies and estimates the preparation of financial statements and related disclosures in accordance with u.s. generally accepted accounting principles requires us to make judgments , estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during the reporting period . we regularly evaluate our estimates and assumptions related to net revenue , allowances for doubtful accounts , sales returns and allowances , inventory valuation , valuation of deferred income taxes , goodwill valuation , warranty reserves , litigation and other contingencies .
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md & a is provided as a supplement to , and should be read in conjunction with , the company 's consolidated financial statements and accompanying notes . overview we were organized in the state of maryland on march 28 , 2014. we are a self-administered , self-managed healthcare reit that acquires and owns properties that are leased to hospitals , doctors , healthcare systems or other healthcare service providers . trends and matters impacting operating results management monitors factors and trends that it believes are important to the company and the reit industry in order to gauge their potential impact on the operations of the company . certain of the factors and trends that management believes may impact the operations of the company are discussed below . real estate investments during 2019 , the company invested in 15 real estate properties for an aggregate purchase price of approximately $ 152.0 million , including cash consideration of approximately $ 150.0 million . upon acquisition , the real estate properties were approximately 99.5 % leased in the aggregate with lease expirations through 2033 . 2020 real estate acquisitions subsequent to december 31 , 2019 , the company acquired three real estate properties totaling approximately 56,000 square feet for an aggregate purchase price of approximately $ 11.7 million and cash consideration of approximately $ 11.8 million . upon acquisition , the properties were 96.1 % leased in the aggregate with lease expirations through 2026 . these acquisitions were funded with cash on hand and proceeds from the company 's revolving credit facility . acquisition pipeline the company has two properties under definitive purchase agreements for an aggregate expected purchase price of approximately $ 6.3 million . the company 's expected aggregate returns on these investments range from approximately 9.4 % to 9.9 % . the company is currently performing due diligence procedures customary for these types of transactions . the company expects to close these properties in the first quarter of 2020 ; however , the company can not provide assurance as to the timing of when , or whether , these transactions will actually close . the company also has four properties under definitive purchase agreements , to be acquired after completion and occupancy , for an aggregate expected purchase price of approximately $ 73.4 million . the company 's expected aggregate returns on these investments range from approximately 9.5 % to 11.0 % . the company expects to close one of these properties with a purchase price of approximately $ 19.0 million during the first quarter of 2020 and the rest of these properties through the first half of 2021 ; however , the company can not provide assurance as to the timing of when , or whether , these transactions will actually close . the company anticipates funding these investments with cash from operations , through proceeds from its credit facility or from net proceeds from additional debt or equity offerings . 44 highland transition update highland hospital is expected to file a pre-packaged bankruptcy in the first quarter of 2020 , with an anticipated sale to the new operator , in order to facilitate the transfer of licenses . the new operator continues to manage highland hospital pursuant to a management agreement . the company will provide liquidity if required , secured by all assets of highland hospital , if needed , to ensure the sale transaction is finalized . the company 's lease with the new operator will become effective upon the closing of the anticipated bankruptcy sale . the company has received and anticipates continuing to receive monthly payments . the company does not anticipate any material adverse long-term effect to its cash flows or net income related to the transition or subsequent leasing of this facility . the company can not provide assurance as to the timing or whether , this transaction will actually close . purchase option provisions certain of the company 's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property . the purchase option provisions generally require the lessee to purchase the leased property at fair value or at an amount greater than the company 's gross investment in the leased property at the time of the purchase . at december 31 , 2019 , the company had gross investments of approximately $ 13.9 million in seven real estate properties with purchase options exercisable at december 31 , 2019 . atm program on november 5 , 2019 , the company entered into an amended and restated sales agency agreement ( the `` 2019 amended and restated sales agreement '' ) for its at-the-market offering program ( `` atm program '' ) with sandler o'neill & partners , l.p. , evercore group l.l.c. , suntrust robinson humphrey , inc. , bb & t capital markets , a division of bb & t securities , llc , fifth third securities , inc. and janney montgomery scott llc , as sales agents ( collectively , the “ agents ” ) , under which the company may issue and sell shares of its common stock , having an aggregate gross sales price of up to $ 360.0 million . the shares of common stock may be sold from time to time through or to one or more of the agents , as may be determined by the company in its sole discretion , subject to the terms and conditions of the agreement and applicable law . this 2019 amended and restated sales agreement amended and replaced the company 's agreement dated august 7 , 2018 ( the `` 2018 sales agreement '' ) with the agents , under which the company could sell shares of its common stock , having an aggregate gross sales price of up to $ 100.0 million . story_separator_special_tag revenues revenues increased approximately $ 12.3 million or 25.3 % , for the year ended december 31 , 2019 compared to the same period in 2018 due mainly to the following : acquisitions during 2019 contributed revenues of approximately $ 8.5 million in 2019 ; and acquisitions during 2018 contributed an increase in revenues of approximately $ 4.3 million in 2019. leases restructured from gross to net leases and certain expiring or terminated leases resulted in a reduction of revenue of approximately $ 0.5 million from 2018 to 2019 . 47 expenses property operating expenses increased approximately $ 2.3 million , or 23.0 % , for the year ended december 31 , 2019 compared to the same period in 2018 mainly due to the following : acquisitions during 2019 accounted for an increase of approximately $ 0.3 million in 2019 ; and acquisitions during 2018 accounted for an increase of approximately $ 1.5 million in 2019. increases in property taxes , utilities and other property operating expenses resulted in the remainder of the increase of approximately $ 0.5 million . general and administrative expenses increased approximately $ 2.1 million , or 37.0 % , for the year ended december 31 , 2019 compared to the same period in 2018 due mainly to compensation-related expenses and occupancy costs related to our employees and corporate office , including the amortization of non-vested restricted common shares issued under the 2014 incentive plan and expenses related to the addition of employees totaling approximately $ 1.7 million . also , professional fees increased approximately $ 0.3 million related mainly to additional compliance requirements of moving from an emerging growth company status to a large accelerated filer status . depreciation and amortization expense increased approximately $ 2.7 million , or 13.7 % , for the year ended december 31 , 2019 compared to the same period in 2018 due mainly to the following : depreciation and amortization related to properties acquired during 2019 accounted for an increase of approximately $ 2.2 million in 2019 ; depreciation and amortization related to properties acquired during 2018 accounted for an increase of approximately $ 2.5 million in 2019 ; real estate intangible assets acquired prior to 2018 that became fully depreciated resulted in a decrease of approximately $ 2.3 million in 2019 ; and depreciation related to tenant and other improvements accounted for an increase of approximately $ 0.3 million in 2019. gain on sale of real estate during the fourth quarter of 2018 , the company disposed of a 61,000 square foot physician clinic in alabama , received net proceeds of approximately $ 3.2 million , and recognized a gain of approximately $ 0.3 million . the company disposed of the property pursuant to the tenant 's exercise of its purchase option on the property . interest expense interest expense increased approximately $ 3.0 million , or 47.7 % , for the year ended december 31 , 2019 compared to the same period in 2018 due mainly to the following : in the first quarters of 2019 and 2018 , the company borrowed $ 75.0 million and $ 40.0 million in term loans , respectively . these term loans resulted in additional interest expense in 2019 of approximately $ 2.6 million ; 48 the company amended its credit facility in the first quarters of 2019 and 2018 resulting in additional financing fees which the company deferred and is amortizing . also , in 2019 , the company extended the term of the credit facility , which resulted in a net decrease in amortization expense of approximately $ 0.2 million . interest expense related to our revolving credit facility increased approximately $ 0.2 million due mainly to higher interest rates and a higher weighted average debt balance in 2019 compared to 2018. impairment of note receivable the company recorded a $ 5.0 million impairment in 2018 related to a mezzanine note with one of its operators . income tax ( expense ) benefit the company recorded income tax ( expense ) benefit in 2019 and 2018 related to the impairment of a mezzanine note in 2018 and a valuation allowance for the related deferred tax asset in 2019 and deferred compensation in both 2019 and 2018. year ended december 31 , 2018 compared to december 31 , 2017 see “ item 7. management 's discussion and analysis of financial condition and results of operations - results of operations ” in our 2018 annual report on form 10-k for a comparison of the year ended december 31 , 2018 compared to december 31 , 2017 . liquidity and capital resources the company monitors its liquidity and capital resources and relies on several key indicators in its assessment of capital markets for financing acquisitions and other operating activities as needed , including the following : leverage ratios and financial covenants included in our credit facility ; dividend payout percentage ; and interest rates , underlying treasury rates , debt market spreads and equity markets . the company uses these indicators and others to compare its operations to its peers and to help identify areas in which the company may need to focus its attention . sources and uses of cash the company derives most of its revenues from its real estate properties , collecting rental income and operating expense reimbursements based on contractual arrangements with its tenants . these sources of revenue represent our primary source of liquidity to fund our dividends , general and administrative expenses , property operating expenses , interest expense on our credit facility and other expenses incurred related to managing our existing portfolio and investing in additional properties . to the extent additional resources are needed , the company will fund its investment activity generally through equity or debt issuances either in the public or private markets or through proceeds from our credit facility . the company expects to meet its liquidity needs through cash on hand , cash flows from operations and cash flows from sources discussed above . the company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements .
| results of operations our results of operations are most significantly impacted each year by our acquisitions in and funding of our real estate investments , as well as expenses related to our employees , professional fees and other costs related to operating the reit and its related subsidiaries . as of december 31 , 2019 , we had invested approximately $ 602.9 million in 118 real estate properties , which are located in 32 states and total approximately 2.6 million square feet . during 2019 , we acquired 15 real estate properties which in the aggregate were 99.5 % leased for cash consideration of approximately $ 150.0 million . during 2018 , we acquired 19 real estate properties for cash consideration of approximately $ 45.2 million . 46 year ended december 31 , 2019 compared to december 31 , 2018 the table below shows our results of operations for the year ended december 31 , 2019 compared to the same period in 2018 and the effect of changes in those results from period to period on our net income . ( dollars in thousands ) for the year ended december 31 , increase ( decrease ) to net income 2019 2018 $ % revenues rental income ( 1 ) $ 58,269 $ 46,453 $ 11,816 25.4 % other operating interest 2,580 2,104 476 22.6 % 60,849 48,557 12,292 25.3 % expenses property operating 12,235 9,944 ( 2,291 ) ( 23.0 ) % general and administrative 7,719 5,634 ( 2,085 ) ( 37.0 ) % depreciation and amortization 22,225 19,539 ( 2,686 ) ( 13.7 < td style= '' vertical-align : bottom ; border-bottom:1px solid
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39 ohr pharmaceutical , inc. ( a development stage company ) notes to the financial statements september 30 , 2011 and 2010 note 10 – options ( continued ) below is a table summarizing the options issued and outstanding as of september 30 , 2011. replace_table_token_12_th note 11 – income taxes asc 740 requires the reduction of deferred tax assets by a valuation allowance if , based on the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the company 's opinion , it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset . accordingly , a valuation allowance equal to the deferred tax asset has been recorded . the total deferred tax asset is calculated by multiplying a 41 % combined marginal tax rate by the cumulative nol of $ 3,447,651 . the total valuation allowance is equal to the total deferred tax asset which includes derivative liabilities and other stock based compensation . the tax effects of significant items comprising the company 's net deferred taxes as of september 30 , 2011 and 2010 were as follows : 40 note 11 – income taxes ( continued ) replace_table_token_13_th the income tax provision differs from the amount of income tax determined by applying the combined u.s. federal and state income tax rates of 41 % to pretax income from continuing operations for the years ended september 30 , 2011 and 2010 due to the following : 2011 2010 book income ( loss ) from operations at combined statutory rates $ ( 2,091,623 ) $ 202,694 change in valuation allowance 2,091,623 ( 202,694 ) $ — $ — the company 's net operating loss carry forwards of approximately $ 3 , 447,651 expire in various years through 2030. the company has had numerous transactions in its common stock . such transactions may have resulted in a change in the company 's ownership , as defined in the internal revenue code section 382. such change may result in an annual limitation on the amount of the company 's taxable income that may be offset with its net operating loss carry forwards . the company has not evaluated the impact of section 382 , if any , on its ability to utilize its net operating loss carry forwards in future years . in july , 2006 , the fasb issued asc 740 , accounting for uncertainty in income taxes which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return . asc 740 provides guidance on the measurement , recognition , classification and disclosure of tax positions , along with accounting for the related interest and penalties . asc 740 became effective as of january 1 , 2007 and had no impact on the company 's financial statements . note 11 – subsequent events on october 31 , 2011 , the company agreed to extend the term of the 11,985,367 common stock purchase warrants , expiring october 31 , 2011 , to october 31 , 2012 , subject to certain amended provisions . these provisions include removal of the cashless exercise provision and early termination of the extension period in the event that ohr 's common stock trades at or above $ 1.50 for 5 consecutive days . the warrants are exercisable at $ 1.19 . on december 16 , 2011 , the company completed a private placement offering pursuant to which the company sold 1,833,342 shares of its common stock at a price of $ 0.60 per share for gross proceeds of $ 1,100,000 . purchasers of the shares also received an aggregate of 916,678 class j warrants to purchase common stock at an exercise price of $ 0.65 per share and exercisable for a period of 5 years . in accordance with asc 855 , management evaluated subsequent events through the date these financial statements were issued and the company had no additional material subsequent events to report . 41 part iii item 9 changes in and disagreements with accountants on accounting and financial disclosure none . item 9a controls and procedures the company 's management , including the chief story_separator_special_tag safe harbor statement certain statements contained in this report , including , without limitation , statements containing the words “ believes , ” “ anticipates , ” “ expects , ” “ intends , ” and words of similar import , constitute “ forward-looking statements ” as defined in the private securities litigation reform act of 1995 or by the securities and exchange commission in its rules , regulations and releases , regarding the company 's financial and business prospects . these forward-looking statements are qualified in their entirety by these cautionary statements , which are being made pursuant to the provisions of such act and with the intention of obtaining the benefits of the “ safe harbor ” provisions of such act . the company cautions investors that any forward-looking statements it makes are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements . we assume no obligation to update any forward-looking statements contained in this report , whether as a result of new information , future events or otherwise . any investment in our common stock involves a high degree of risk . for a general discussion of some of these risks in greater detail , see our “ risk factors ” on page 7 of this annual report . general the company is a biotechnology rollup company currently focused on development of the company 's previously acquired compounds . story_separator_special_tag the company also saw a decrease in interest expense of $ 19,060 from 2010 due to the full repayment of its short-term notes and convertible debentures issued by the company during 2009. the company anticipates it will have higher expenditures in fiscal year 2012 , including a full year of employee expenses and clinical development costs , again with no offsetting revenues . results of continuing operations for the year ended september 30 , 2011 reflect the following changes from the prior period : replace_table_token_1_th until the company experiences an increase in operations as it continues to implement its business plan , significant losses are expected to continue as the trend is reflected in the chart above . off-balance sheet arrangements the company has not entered into any off-balance sheet arrangements . tabular description of principal contracts the company is not engaged in any contract for sale or distribution of its product to date ; and , therefore , does not have any specific disclosure under this heading . story_separator_special_tag > on october 16 , 2007 , bbm agreed to sell substantially all of its assets ( primarily intellectual property and technology ) relating to broadband services to ships to private investors for $ 460,000 pursuant to an asset purchase agreement ( the “ asset purchase agreement ” ) . the company completed the transaction on november 1 , 2007 , after required stockholder approval under utah corporate law . in conjunction with the completion of the asset sale , bbm 's major customer has agreed to release the company of its obligation to pay accrued commissions of $ 45,000 as well as agreeing to withdraw its claim of $ 420,000. the company has limited core operating expenses as we have only two full-time employees . in connection with the hiring of our executive management team , we established an office in new york city . the office is being provided by an affiliate of mr. backenroth free of charge with the exception of minimal office related expenses . products and markets the company is a pharmaceutical rollup company currently focused on development of the company 's previously acquired compounds . with the addition of our executive management team in april 2010 , we have shifted our strategy accordingly to focus on the development of our two later stage lead products , ohr/avr 118 for the treatment of cancer cachexia , and squalamine eye drops for the treatment of wet-amd . we acquired ohr/avr118 in a secured party sale and squalamine from the genaera liquidating trust as part of the company 's previous strategy to create a rollup of undervalued biotechnology companies and assets product pipeline squalamine squalamine is an anti-angiogenic small molecule with a novel intracellular mechanism of action , that counteracts not only vascular endothelial growth factor but also other angiogenic growth factors including platelet derived growth factor ( ” pdgf ” ) and basic fibroblast growth factor . recent clinical evidence has shown pdgf to be an additional target for the treatment of wet age-related macular degeneration ( “ wet-amd ” ) . using an intravenous formulation in over 250 patients in phase i and phase ii trials for the treatment of wet-amd , squalamine demonstrated safety and biologic effect in both early stage and advanced wet-amd . ohr reformulated squalamine for ophthalmic indications from an intravenous infusion ( “ iv ” ) to a topical eye drop . the company plans on advancing its clinical wet-amd program with the novel topical formulation . the topical formulation is designed for enhanced uptake to the back of the eye and decreased potential for side effects . the previous iv formulation had been awarded fast track status and a special protocol assessment for a phase iii registration study from the u.s. food and drug administration ( “ fda ” ) . in phase ii intravenous clinical trials , stabilization or improvement in visual activity was observed in the vast majority of patients , with both early and advanced lesions responding and few drug-related ocular or systemic effects were observed . in a number of patients whose wet-amd had progressed to an advanced stage , the administration of squalamine produced beneficial effects and significant improvement in best corrected visual acuity . as opposed to the approved current standard of care therapy , squalamine does not require direct injection into the eye . the company has conducted preclinical testing on the novel topical formulation with the following results : ocular tolerance and toxicity : in a dose escalation safety study involving daily eye drop treatment in dutch belted rabbits over a 28 day period , the formulation proved safe , and exhibited no signs of ocular toxicity or changes in intraocular pressure . importantly , no macroscopic or histopathological changes to the ocular tissues were noted . biodistribution study : a single eye drop was administered to the front of the eye in dutch belted rabbits . at all evaluated timepoints , drug concentrations in the posterior sclera-choroid region behind the retina at the back of the eye exceeded the tissue concentrations of squalamine that are known to block the choroidal neovascularization process in wet-amd . the study results also demonstrated that the drug was undetectable in the anterior chamber of the eye ( aqueous humor ) , confirming that it does not penetrate through all the layers of the cornea or contact the lens . 21 additional preclinical testing is being conducted on the squalamine eye drop formulation to assess long term safety and ocular tissue biodistribution . the company expects to have the results available during fiscal year 2012 and potentially present results at scientific meetings and or in peer reviewed publications . additionally , squalamine has shown promise in the treatment of solid tumors such as ovarian cancer . in a phase iia study , patients with stage iii and iv refractory and resistant ovarian cancer received squalamine in conjunction with another chemotherapeutic agent , with approximately two
| summary of significant events on march 20 , 2009 , the company acquired in a secured party sale all the patents , related intellectual property , clinical data and other assets related to avr 118 ( renamed ohr/avr118 ) . ohr/avr118 is in an ongoing phase ii trial for the treatment of cachexia . the company also exercised its option to acquire the new technology and early stage pharmaceutical compounds from dr. s. z. hirschman , who joined the company as a consultant and chief scientific advisor . the company acquired the assets in the secured party sale with $ 100,000 in cash and by issuing a $ 500,000 principal amount 11 % convertible secured non-recourse debenture due june 20 , 2011 , and convertible at $ 0.40 per share ( the “ convertible debenture ” ) . the convertible debenture is secured by the acquired assets . the cash portion of the purchase price was financed by short-term loans from an affiliate of orin hirschman , a director of the company , and another current shareholder . the convertible debenture was paid in full on december 29 , 2010. on june 3 , 2009 , the company completed a financing in which the company sold 5,583,336 series b preferred shares with 5,583,336 class g warrants and 5,583,336 class f warrants attached . each share of preferred stock has the same voting rights of common shareholders and has a conversion feature where series b preferred shares can be converted into common shares at the conversion rate of 1 to 1. warrants included in each unit sold have a 5 year term with a strike price of $ 0.18. the company received $ 1,005,000 in cash in exchange for the units sold .
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dixie international sells all of our brands outside of the north american market . our business is primarily concentrated in areas of the soft floorcovering markets which include broadloom carpet , carpet tiles and rugs . however , over the past few years , there has been a significant shift in the flooring marketplace as hard surface products have grown at a rate much faster than soft surface products . we have responded to this accelerated shift to hard surface flooring by launching several initiatives in both our residential and commercial brands . our commercial brands offer luxury vinyl flooring ( “ lvf ” ) products under the calibré brand in the commercial markets . our residential brands , dixie home and masland residential , offer stainmaster® petprotect luxury vinyl flooring and our premium residential brand , fabrica , offers a high-end engineered wood line . for 2019 we are building on the momentum we gained by tripling our residential hard surface business in 2018 with the launch of trucor , our new solid polymer core or “ spc ” luxury vinyl flooring line . this latest addition to our rigid core luxury vinyl flooring offering is designed to create an extremely durable and waterproof luxury vinyl flooring product with a broader range of price points to meet the needs of various consumers . to facilitate this growth , in 2019 we are expanding our distribution of hard surface products to our west coast distribution center as well as our east coast service center . during 2018 , our net sales decreased 1.8 % compared with 2017. sales of residential products increased 3.6 % in 2018 versus 2017. residential soft surface sales were up 1.4 % in 2018 as compared to 2017 , while , we estimate , the industry was up in the low to mid-single digits . residential hard surface sales tripled in 2018 relative to sales in 2017. we anticipate the residential housing market , though having slowed recently , will have steady but moderate growth over the next several years . commercial product sales decreased 13.2 % during 2018. soft surface sales of commercial products were down 19.5 % , while , we believe , the industry was down in the mid-single digits . we anticipate the commercial market to be relatively flat in 2019. in 2018 , we had an operating loss of $ 15.8 million compared with an operating income of $ 3.9 million in 2017. the reduced sales volume in 2018 adversely affected our gross profit as we under absorbed our costs since we had increased our capacity anticipating higher volume production . in addition , we had rising raw material costs which , passed on to our customers through higher prices , were recovered after we experienced such cost increases . the majority of our higher costs were in the first and fourth quarters of the year as we suffered with reduced demand in those time periods . we reduced plant running schedules in the fourth quarter to reduce inventories to a more appropriate level . we incurred charges during the year totaling $ 14.1 million comprised of $ 2.7 million in inventory write-downs , $ 3.2 million in restructuring charges , $ 6.7 million in asset impairments , including the write-off of goodwill and intangibles , and a $ 1.5-million-dollar charge for settlement of a class action litigation . our debt declined by $ 5.2 million over the course of 2018. to offset those higher costs , we continued the implementation of our previously announced profit improvement plan ( “ the plan ” ) . the plan , begun in the fourth quarter of 2017 , resulted in the reduction of 284 associates during 2018 and is anticipated to result in the reduction of approximately 330 associates by the end of the first quarter of 2019. expenses related to the plan totaled approximately $ 9.2 million in 2018. the plan expenses included inventory write downs , restructuring costs , and asset impairments as we re-configured our commercial business and right sized our residential manufacturing operations for lower unit demand . total cost reductions as a result of the plan are expected to be over $ 17 million on an annual basis once fully implemented in 2019. we began the structural consolidation of our commercial business with the closure of our chickamauga tufting operation as we moved the equipment to other facilities . this plant closure , complete at the end of 2018 , lowered our cost and improved our response time to this segment of the marketplace . we began the process of exiting our commerce , california atlas tufting facilities this past fall and will be completely out of those commercial tufting operations by the end of the first quarter of 2019. the bulk of the atlas equipment was transferred to our atmore , alabama commercial tufting operation with various other items moved to our santa ana , california and eton , georgia operations . we moved our commercial rug operation and commercial samples support function from california to our saraland facility near mobile , alabama . we reduced our staffing to better match production to meet our demand in our atmore , eton , adairsville and roanoke facilities as we were able to take advantage of the increased productivity of our associates in these operations . in addition to the physical movement of equipment and inventory , we consolidated our commercial design functions in saraland as well as consolidated our entire sales support functions . our sales forces were merged to create atlas | masland contract , now equipped with a much broader product line and providing modular carpet tile , broadloom carpet , luxury vinyl flooring , and commercial wool and nylon rugs . this combined sales force has the added benefit of not only a broad product line but distinct design capabilities in custom products as well . in the fourth quarter of 2018 , our testing of goodwill indicated a full impairment of the value of the asset . story_separator_special_tag operations reflected operating income of $ 4.0 million in 2017 compared with an operating loss of $ 3.4 million in 2016. despite the improved sales volumes in 2017 , our gross profit was adversely affected by rising costs in raw materials and increased operating costs . we incurred startup costs related to several manufacturing initiatives including ( 1 ) adding yarn processing at our atmore , alabama facility , ( 2 ) installing a pre-coat line for our modular tile products , ( 3 ) completing our colormaster beck dye and skein dye consolidation , and ( 4 ) starting up our porterville yarn operation in california . with the completion of these initiatives , we have in place a foundation that will allow us to operate more efficiently and reduce waste costs . in addition , we incurred expenses related to our profit improvement plan during the year as we consolidated our two commercial brands . interest expense . interest expense increased $ 347 thousand in 2017 principally due to higher rates than a year ago . income tax provision ( benefit ) . on december 22 , 2017 , the president signed the tax cuts and jobs act ( the “ tax act ” ) . the tax act , among other things , lowered the u.s. corporate income tax rate from 35 % to 21 % effective january 1 , 2018. consequently , we wrote down our net deferred tax assets as of december 30 , 2017 by $ 8.2 million to reflect the estimated impact of the tax act . this amount included a charge of $ 1.8 million related to the re-measurement of certain net deferred tax assets using the lower u.s. corporate income tax rate and a charge of $ 6.4 million to increase our valuation allowance related to our net deferred tax asset . the majority of the increase in the valuation allowance is related to the revised treatment of net operating losses under the tax act . absent the impact of the tax act , our effective income tax benefit rate for 2017 would have been 36.4 % . our effective income tax rate was a benefit of 41.0 % in 2016. in 2016 , we increased our valuation allowances by $ 106 thousand related to state income tax loss carryforwards and state income tax credit carryforwards . additionally , 2016 included approximately $ 395 thousand of federal tax credits . 22 net loss . continuing operations reflected a loss of $ 9.3 million , or $ 0.59 per diluted share in 2017 , compared with a loss from continuing operations of $ 5.2 million , or $ 0.33 per diluted share in 2016. our discontinued operations reflected a loss of $ 233 thousand , or $ 0.01 per diluted share in 2017 compared with a loss of $ 131 thousand , or $ 0.01 per diluted share and income on disposal of discontinued operations of $ 60 thousand , or $ 0.00 per diluted share in 2016. including discontinued operations , we had a net loss of $ 9.6 million , or $ 0.60 per diluted share , in 2017 compared with a net loss of $ 5.3 million , or $ 0.34 per diluted share , in 2016. liquidity and capital resources during the year ended december 29 , 2018 , cash provided by operations was $ 5.1 million . inventories decreased $ 8.5 million , receivables decreased $ 3.8 million and accounts payable and accrued expenses decreased $ 4.2 million . inventories were planned more closely in 2018 and decreased with lower demand . receivables decreased on lower sales volume . in addition to items related to the general operating expenses , accounts payable and accrued expenses includes a liability of $ 1.5 million for settlement of a class action lawsuit and severances related to the profit improvement plan . capital asset acquisitions for the year ended december 29 , 2018 were $ 4.1 million . in 2018 proceeds from sale of equipment totaled $ 1.9 million , primarily related to assets in our plants that were closed as part of our profit improvement plan . approximately $ 389 thousand of equipment was acquired under capital leases and accounts payable . depreciation and amortization for the year ended december 29 , 2018 were $ 12.7 million . we expect capital expenditures to be approximately $ 6.0 million in 2019 while depreciation and amortization is expected to be approximately $ 13.0 million . planned capital expenditures in 2019 are primarily for new equipment . during the year ended december 29 , 2018 , cash used in financing activities was $ 2.9 million . we had borrowings of $ 1.5 million on the revolving credit facility and $ 3.3 million on notes payables and payments of $ 10.4 million on notes payable and lease obligations . we believe our operating cash flows , credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating conditions . as of december 29 , 2018 , the unused borrowing availability under our revolving credit facility was $ 31.9 million . our revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability is less than $ 16.5 million . as of the date hereof , our fixed coverage ratio was less than 1.1 to 1.0 , accordingly the unused availability accessible by us was $ 15.4 million ( the amount above $ 16.5 million ) at december 29 , 2018. significant additional cash expenditures above our normal liquidity requirements , significant deterioration in economic conditions or continued operating losses could affect our business and require supplemental financing or other funding sources . there can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us . see note 23 to our consolidated financial statements for additional information regarding liquidity and capital resources . debt facilities revolving credit facility .
| results of operations fiscal year ended december 29 , 2018 compared with fiscal year ended december 30 , 2017 replace_table_token_5_th net sales . net sales for the year ended december 29 , 2018 were $ 405.0 million compared with $ 412.5 million in the year-earlier period , a decrease of 1.8 % for the year-over-year comparison . sales of residential floorcovering products were up 3.6 % and sales of commercial floorcovering products decreased 13.2 % . the decrease in commercial net sales was due to distractions caused by the restructuring of our commercial operations and sales force during 2018. gross profit . gross profit , as a percentage of net sales , decreased 3.0 percentage points in 2018 compared with 2017. gross profit in 2018 was negatively impacted by inventory write downs of $ 2.7 million taken during the year as part of our profit improvement plan . selling and administrative expenses . selling and administrative expenses were $ 92.5 million in 2018 compared with $ 96.2 million in 2017 , or a decrease of .5 % as a percentage of sales . the improved results in the 2018 selling expenses are the result of changes made as part of our profit improvement plan . other operating expense , net . net other operating expense was an expense of $ 458 thousand in 2018 compared with expense of $ 441 thousand in 2017. facility consolidation and severance expenses , net . facility consolidation expenses were $ 3.2 million in 2018 compared with $ 636 thousand in the year-earlier period . facility consolidation expenses increased in 2018 as we continued our profit improvement plan , announced in 2017 , which includes the consolidation of our two commercial brands , consolidation of commercial manufacturing operations and sales forces , and an overall review of corporate wide operations and functions . as a result of this plan , we incurred expenses of $ 3.2 million during 2018 primarily related to facility consolidation expenses and severance costs .
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deposits increased $ 141.7 million from $ 669.4 million at september 30 , 2017 to $ 811.1 million at september 30 , 2018 , including deposits with a fair value of $ 91.8 million acquired in the fnbo merger . the bank recognized increases in time deposits of $ 11.8 million , noninterest-bearing checking accounts of $ 71.4 million , money market deposit accounts of $ 36.3 million and savings accounts of $ 30.6 million and decreases interest-bearing checking accounts of $ 8.5 million , when comparing the two years . brokered certificates of deposit totaled $ 118.7 million at september 30 , 2018 compared to $ 106.9 million at september 30 , 2017. we have continued to promote relationship oriented deposit accounts but at times also utilize brokered certificates of deposit as a lower cost alternative to retail time deposits . in addition , we have continued to develop and promote cash management services including sweep accounts and remote deposit capture in order to increase the level of commercial deposit accounts . we believe that the development and promotion of these products has made us more competitive in attracting commercial deposits during recent periods . the following table sets forth the balances of our deposit accounts at the dates indicated . replace_table_token_12_th 41 the following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of september 30 , 2018. jumbo certificates of deposit require minimum deposits of $ 100,000 . ( in thousands ) amount three months or less $ 4,894 over three through six months 5,153 over six through twelve months 9,236 over twelve months 24,625 total $ 43,908 borrowings . we use borrowings from the fhlb consisting of advances and borrowings under a line of credit arrangement to supplement our supply of funds for loans and investments . we also utilize retail repurchase agreements as a source of borrowings . the following table sets forth certain information regarding the bank 's use of fhlb borrowings . replace_table_token_13_th the outstanding balance of borrowings from the fhlb decreased $ 28.1 million , from $ 118.1 million at september 30 , 2017 to $ 90.0 million at september 30 , 2018. fhlb borrowings are primarily used to fund loan demand and to purchase available for sale securities . the following table sets forth certain information regarding the bank 's use of borrowings under retail repurchase agreements . replace_table_token_14_th on september 20 , 2018 , the company entered into a subordinated note purchase agreement in the principal amount of $ 20 million . the subordinated note initially bears a fixed interest rate of 6.02 % per year through september 30 , 2023 , and thereafter a floating rate , reset quarterly , equal to the three-month libor rate plus 310 basis points . all interest is payable quarterly and the subordinated note is scheduled to mature on september 30 , 2028. the subordinated note is an unsecured subordinated obligation of the company and may be repaid in whole or in part , without penalty , on or after september 30 , 2023. the subordinated note is intended to qualify as tier 2 capital for the company under regulatory guidelines . the subordinated note had a carrying value of $ 19.7 million , net of unamortized debt issuance costs of 339,000 , at september 30 , 2018 on the balance sheet of the consolidated financial statements . stockholders ' equity . stockholders ' equity increased $ 5.7 million , from $ 93.1 million at september 30 , 2017 to $ 98.8 million at september 30 , 2018. the increase is due to an increase in retained net income of $ 8.9 million during the year ended september 30 , 2018 partially offset by a $ 3.8 million decrease in accumulated other comprehensive income due to a decrease in the market value of available-for-sale securities . 42 results of operations for the years ended september 30 , 2018 , 2017 and 2016 story_separator_special_tag sequence : 45 ; value : 1 -- > 44 average balances and yields . the following tables present information regarding average balances of assets and liabilities , the total dollar amounts of interest income and dividends from average interest-earning assets , the total dollar amounts of interest expense on average interest-bearing liabilities , and the resulting annualized average yields and costs . the yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities , respectively , for the periods presented . nonaccrual loans are included in average balances only . loan fees are included in interest income on loans and are not material . tax exempt income on loans and investment securities for the 2018 , 2017 and 2016 periods has been adjusted to a tax equivalent basis using a federal marginal tax rate of 24.5 % , 34.0 % and 34.0 % , respectively . replace_table_token_15_th ( 1 ) includes fhlb borrowings , repurchase agreements and other long-term debt . 45 rate/volume analysis . the following table sets forth the effects of changing rates and volumes on our net interest income . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each . replace_table_token_16_th ( 1 ) includes fhlb borrowings , repurchase agreements and other long-term debt . provision for loan losses . the provision for loan losses increased $ 52,000 , or 4.0 % , from $ 1.3 million for the year ended september 30 , 2017 to $ 1.4 million for the year ended september 30 , 2018 due primarily to an story_separator_special_tag deposits increased $ 141.7 million from $ 669.4 million at september 30 , 2017 to $ 811.1 million at september 30 , 2018 , including deposits with a fair value of $ 91.8 million acquired in the fnbo merger . the bank recognized increases in time deposits of $ 11.8 million , noninterest-bearing checking accounts of $ 71.4 million , money market deposit accounts of $ 36.3 million and savings accounts of $ 30.6 million and decreases interest-bearing checking accounts of $ 8.5 million , when comparing the two years . brokered certificates of deposit totaled $ 118.7 million at september 30 , 2018 compared to $ 106.9 million at september 30 , 2017. we have continued to promote relationship oriented deposit accounts but at times also utilize brokered certificates of deposit as a lower cost alternative to retail time deposits . in addition , we have continued to develop and promote cash management services including sweep accounts and remote deposit capture in order to increase the level of commercial deposit accounts . we believe that the development and promotion of these products has made us more competitive in attracting commercial deposits during recent periods . the following table sets forth the balances of our deposit accounts at the dates indicated . replace_table_token_12_th 41 the following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of september 30 , 2018. jumbo certificates of deposit require minimum deposits of $ 100,000 . ( in thousands ) amount three months or less $ 4,894 over three through six months 5,153 over six through twelve months 9,236 over twelve months 24,625 total $ 43,908 borrowings . we use borrowings from the fhlb consisting of advances and borrowings under a line of credit arrangement to supplement our supply of funds for loans and investments . we also utilize retail repurchase agreements as a source of borrowings . the following table sets forth certain information regarding the bank 's use of fhlb borrowings . replace_table_token_13_th the outstanding balance of borrowings from the fhlb decreased $ 28.1 million , from $ 118.1 million at september 30 , 2017 to $ 90.0 million at september 30 , 2018. fhlb borrowings are primarily used to fund loan demand and to purchase available for sale securities . the following table sets forth certain information regarding the bank 's use of borrowings under retail repurchase agreements . replace_table_token_14_th on september 20 , 2018 , the company entered into a subordinated note purchase agreement in the principal amount of $ 20 million . the subordinated note initially bears a fixed interest rate of 6.02 % per year through september 30 , 2023 , and thereafter a floating rate , reset quarterly , equal to the three-month libor rate plus 310 basis points . all interest is payable quarterly and the subordinated note is scheduled to mature on september 30 , 2028. the subordinated note is an unsecured subordinated obligation of the company and may be repaid in whole or in part , without penalty , on or after september 30 , 2023. the subordinated note is intended to qualify as tier 2 capital for the company under regulatory guidelines . the subordinated note had a carrying value of $ 19.7 million , net of unamortized debt issuance costs of 339,000 , at september 30 , 2018 on the balance sheet of the consolidated financial statements . stockholders ' equity . stockholders ' equity increased $ 5.7 million , from $ 93.1 million at september 30 , 2017 to $ 98.8 million at september 30 , 2018. the increase is due to an increase in retained net income of $ 8.9 million during the year ended september 30 , 2018 partially offset by a $ 3.8 million decrease in accumulated other comprehensive income due to a decrease in the market value of available-for-sale securities . 42 results of operations for the years ended september 30 , 2018 , 2017 and 2016 story_separator_special_tag sequence : 45 ; value : 1 -- > 44 average balances and yields . the following tables present information regarding average balances of assets and liabilities , the total dollar amounts of interest income and dividends from average interest-earning assets , the total dollar amounts of interest expense on average interest-bearing liabilities , and the resulting annualized average yields and costs . the yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities , respectively , for the periods presented . nonaccrual loans are included in average balances only . loan fees are included in interest income on loans and are not material . tax exempt income on loans and investment securities for the 2018 , 2017 and 2016 periods has been adjusted to a tax equivalent basis using a federal marginal tax rate of 24.5 % , 34.0 % and 34.0 % , respectively . replace_table_token_15_th ( 1 ) includes fhlb borrowings , repurchase agreements and other long-term debt . 45 rate/volume analysis . the following table sets forth the effects of changing rates and volumes on our net interest income . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each . replace_table_token_16_th ( 1 ) includes fhlb borrowings , repurchase agreements and other long-term debt . provision for loan losses . the provision for loan losses increased $ 52,000 , or 4.0 % , from $ 1.3 million for the year ended september 30 , 2017 to $ 1.4 million for the year ended september 30 , 2018 due primarily to an
| overview . the company reported net income of $ 10.9 million ( $ 4.60 per common share diluted ) for the year ended september 30 , 2018 , compared to net income of $ 9.3 million ( $ 3.97 per common share diluted ) for the year ended september 30 , 2017. the increase in net income was due to increases in net interest income of $ 6.4 million and noninterest income of $ 4.7 million offset by an increase in noninterest expense of $ 8.1 million . net income increased to $ 9.3 million ( $ 3.97 per common share diluted ) for the year ended september 30 , 2017 compared to net income of $ 7.9 million ( $ 3.41 per common share diluted ) for the year ended september 30 , 2016. during the year ended september 30 , 2016 , the company recognized a $ 4.7 million historic structure rehabilitation tax credit related to its equity investment in a community-based economic development ( “ cbed ” ) project , which resulted in a net tax benefit of $ 2.3 million for the year . as a result of the recognition of the tax credit , the company also recognized a $ 4.2 million impairment loss in noninterest income during the year ended september 30 , 2016 related to the equity investment in the cbed project . the net impact of the tax benefit and the impairment loss was a $ 332,000 increase in net income for the year ended september 30 , 2016. during the year ended september 30 , 2016 , the company also recognized $ 2.0 million in other income related to the gain on sale of its commercial real estate development in new albany , indiana ( “ wesley commons ” ) . net interest income .
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the income approach is based on the long-term projected future cash flows . we discount the estimated cash flows to present value using a weighted average cost of capital that considers factors such as market assumptions , the timing of the cash flows and the risks inherent in those cash flows . we believe this approach is appropriate because it provides a fair value estimate based upon the expected long-term performance considering the economic and market conditions that generally affect our business . fair value is computed using several factors , including projected future operating results , economic projections , anticipated future cash flows , comparable marketplace data and the cost of capital . there are inherent uncertainties related to these factors and to our judgment in applying them in our analysis . however , we believe our methodology for estimating the fair value of these assets is reasonable . deferred income taxes deferred income taxes are based on the difference between the financial reporting and tax basis of assets and liabilities . the deferred income tax provision represents the change during the reporting period in the deferred tax assets and liabilities , net of the effect of acquisitions and dispositions . deferred tax assets include tax loss and credit carry-forwards and are reduced by a valuation allowance if , based on available evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . significant judgment is required in assessing the timing and amounts of deductible and taxable items . we establish reserves for uncertain tax positions when , despite our belief that our tax return positions are fully supportable , we believe that certain positions may be challenged and potentially disallowed . when facts and circumstances change , we adjust these reserves through our provision for income taxes . should interest and penalties be assessed by taxing authorities on any underpayment of income tax , such amounts would be accrued and classified as a component of provision for income taxes in our consolidated statements of operations . insured and self-insured claims we have retained a significant portion of the risks related to our health and welfare , automobile , general liability and workers ' compensation claims programs . the exposure for unpaid claims and associated expenses , including incurred but not reported losses , are based on an actuarial valuations and internal estimates . the accruals for these liabilities could be revised if future occurrences or loss developments significantly differ from our assumptions used . estimated recoveries associated with our insured claims are recorded as assets when we believe that the receipt of such amounts is probable . results of operations operating revenues our operating revenues set forth below are primarily generated from fees charged for our collection , transfer , disposal , and recycling and resource recovery services , and from sales of commodities by our recycling 41 index to financial statements and landfill gas-to-energy operations . revenues from our collection operations are influenced by factors such as collection frequency , type of collection equipment furnished , type and volume or weight of the waste collected , distance to the disposal facility or mrf and our disposal costs . revenues from our landfill operations consist of tipping fees , which are generally based on the type and weight or volume of waste being disposed of at our disposal facilities . fees charged at transfer stations are generally based on the weight or volume of waste deposited , taking into account our cost of loading , transporting and disposing of the solid waste at a disposal site . recycling revenues generally consist of tipping fees and the sale of recyclable commodities to third parties . the fees we charge for our collection , disposal , transfer and recycling services generally include fuel surcharges , which are indexed to current market costs for diesel fuel . we also provide additional services that are not managed through our solid waste business , including both our strategic business solutions ( wmsbs ) and energy and environmental services organizations , recycling brokerage services , landfill gas-to-energy services and expanded service offerings and solutions . we also offer portable self-storage and long distance moving services ; fluorescent bulb and universal waste mail-back through our lamptracker ® program ; portable restroom servicing under the name port-o-let ® ; and street and parking lot sweeping services . in addition , we hold interests in oil and gas producing properties . these operations are presented as other in the table below . our wheelabrator business , divested in december 2014 , provides waste-to-energy services and manages waste-to-energy facilities and independent power production plants . the following table summarizes revenues during the years ended december 31 ( in millions ) : replace_table_token_8_th the mix of operating revenues from our major lines of business is reflected in the table below for the years ended december 31 ( in millions ) : replace_table_token_9_th 42 index to financial statements the following table provides details associated with the period-to-period change in revenues ( dollars in millions ) : replace_table_token_10_th ( a ) calculated by dividing the amount of the current year increase or decrease by the prior year 's total company revenue adjusted to exclude the impacts of divestitures for the current year ( $ 12,931 million and $ 13,234 million for 2016 and 2015 , respectively ) . ( b ) the amounts reported herein represent the changes in our revenue attributable to average yield for the total company . we also analyze the changes in average yield in terms of related business revenues in order to differentiate the changes in yield attributable to our pricing strategies from the changes that are caused by market-driven price changes in commodities . story_separator_special_tag we experienced lower volumes in ( i ) our collection line of business , primarily due to competition and our pricing strategies ; ( ii ) our mrfs , primarily driven by the rationalization of our underperforming assets and our strategy to not renew municipal contracts that did not reflect current market conditions and ( iii ) our ancillary services businesses , primarily due to the loss of certain large accounts in our wmsbs organization and lower oil prices , which negatively affected both our oil and gas producing properties and our oilfield services business . these decreases in volumes were partially offset by increases in the municipal solid waste business driven by new business and improving market conditions that favorably affected our landfill and transfer lines of business . acquisitions and divestitures revenues increased $ 268 million and $ 174 million for the years ended december 31 , 2016 and 2015 , respectively , as compared with the prior year periods , due to acquisitions . the increase in revenues in 2016 was principally due to the acquired operations of sws in january 2016. the revenue increase in 2015 was principally due to the acquired operations of deffenbaugh in march 2015. these revenues were offset by revenue decreases of $ 30 million and $ 762 million for the years ended december 31 , 2016 and 2015 , respectively , as compared with the prior year periods , due to divestitures . the decrease in revenues in 2015 was primarily driven by the divestitures in 2014 of our wheelabrator business , our puerto rico operations and certain landfill and collection operations in our eastern canada area . operating expenses our operating expenses are comprised of ( i ) labor and related benefits ( excluding labor costs associated with maintenance and repairs discussed below ) , which include salaries and wages , bonuses , related payroll taxes , insurance and benefits costs and the costs associated with contract labor ; ( ii ) transfer and disposal costs , which include tipping fees paid to third-party disposal facilities and transfer stations ; ( iii ) maintenance and repairs relating to equipment , vehicles and facilities and related labor costs ; ( iv ) subcontractor costs , which include the costs of independent haulers who transport waste collected by us to disposal facilities and are affected by variables such as volumes , distance and fuel prices ; ( v ) costs of goods sold , which includes the cost to purchase recycling materials for our recycling business , including rebates paid to suppliers ; ( vi ) fuel costs , which represent the costs of fuel and oil to operate our truck fleet and landfill operating equipment ; ( vii ) disposal and franchise fees and taxes , which include landfill taxes , municipal franchise fees , host community fees , contingent landfill 45 index to financial statements lease payments and royalties ; ( viii ) landfill operating costs , which include interest accretion on landfill liabilities , interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets , leachate and methane collection and treatment , landfill remediation costs and other landfill site costs ; ( ix ) risk management costs , which include general liability , automobile liability , workers ' compensation and insurance and claim costs and ( x ) other operating costs , which include telecommunications , equipment and facility rent , property taxes , utilities and supplies . our operating expenses increased $ 255 million , or 3.1 % , when comparing 2016 with 2015 and decreased $ 771 million , or 8.6 % , when comparing 2015 with 2014. operating expenses as a percentage of revenues were 62.4 % in 2016 , 63.5 % in 2015 , and 64.3 % in 2014. the following table summarizes the major components of our operating expenses for the years ended december 31 ( dollars in millions ) : replace_table_token_13_th significant items affecting the comparison of operating expenses between periods reported include : labor and related benefits the increase in labor and related benefits in 2016 as compared with 2015 was due to ( i ) higher wages due to merit increases ; ( ii ) additional costs associated with the acquired operations of sws in january 2016 ; ( iii ) health and welfare cost increases ; ( iv ) an additional workday in 2016 and ( v ) higher incentive compensation costs . these cost increases were partially offset by ( i ) $ 51 million of charges in 2015 associated with the withdrawal from certain underfunded multiemployer pension plans and ( ii ) lower headcount and contract labor costs in 2016 due to operating efficiencies in our recycling line of business . the decrease in labor and related benefits in 2015 as compared with 2014 was due to ( i ) reduced costs of $ 88 million due to the divestitures in 2014 of our wheelabrator business , our puerto rico operations , and certain landfill and collection operations in our eastern canada area ; ( ii ) lower headcount and contract labor costs due to operating efficiencies in our recycling line of business and lower volumes in our collection line of business and ( iii ) lower health and welfare costs . these cost decreases were partially offset by ( i ) $ 51 million of charges in 2015 associated with the withdrawal from certain underfunded multiemployer pension plans ; ( ii ) higher wages due to merit increases and ( iii ) additional costs associated with the acquired operations of deffenbaugh in march 2015. transfer and disposal costs the increase in transfer and disposal costs in 2016 compared to 2015 was driven by acquisitions , primarily sws , and our overall increase in volumes .
| summary of contractual obligations the following table summarizes our contractual obligations as of december 31 , 2016 and the anticipated effect of these obligations on our liquidity in future years ( in millions ) : replace_table_token_29_th ( a ) environmental liabilities include final capping , closure , post-closure and environmental remediation costs recorded in our consolidated balance sheet as of december 31 , 2016 , without the impact of discounting and inflation . our recorded environmental liabilities for final capping , closure and post-closure will increase as we continue to place additional tons within the permitted airspace at our landfills . ( b ) these amounts represent the scheduled principal payments related to our long-term debt , excluding interest . ( c ) our debt obligations as of december 31 , 2016 include $ 473 million of tax-exempt bonds with term interest rate periods scheduled to expire within the next 12 months . if the re-offerings of the bonds are unsuccessful , then the bonds can be put to us , requiring immediate repayment . we have classified the anticipated cash flows for these contractual obligations based on the scheduled maturity of the borrowings for purposes of this disclosure . for additional information regarding the classification of these borrowings in our consolidated balance sheet as of december 31 , 2016 , refer to note 7 to the consolidated financial statements . ( d ) our recorded debt obligations include non-cash adjustments associated with discounts , premiums , deferred loan costs and fair value adjustments for interest rate hedging activities . these amounts have been excluded as they will not impact our liquidity in future periods . ( e ) our unrecorded obligations represent operating lease obligations and purchase commitments from which we expect to realize an economic benefit in future periods and interest payable on our debt .
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the increase in average realized sales price reflects both the impact of pricing increases we implemented in response to higher raw material costs as well as a shift in product mix . the decrease in sales volume also reflects a shift in product mix in addition to the impact of competitive pricing pressure . cost of goods sold cost of goods sold increased $ 102.4 million , or 4.8 % , for fiscal year 2006 compared to the prior year . the increase included a charge of $ 9.8 million to write-off obsolete spare parts and inventory during our second fiscal quarter due to a change in accounting estimate . the increase in cost of goods sold was offset by $ 22.1 million of curtailment gains related to negotiated changes in postretirement benefits for certain active employees . the remaining increase in cost of goods sold was primarily due to higher raw material costs , and to a lesser extent , increased utility and transportation costs . these cost increases were partially offset by reduced labor costs resulting from our reduction-in-force in april 2006. gross profit gross profit decreased $ 44.1 million , or 14.3 % , to $ 265.1 million for fiscal year 2006 compared to $ 309.1 million for fiscal year 2005. excluding the $ 9.8 million reserve for spare parts and inventory obsolescence and the $ 22.1 million of curtailment gains described above , the decrease in gross profit reflects our inability to pass through all raw material cost increases and optimize the pricing programs offered to our customers . as a percentage of net sales , gross profit decreased to 10.6 % in 2006 from 12.7 % in 2005. selling , general and administrative expenses selling , general and administrative expenses decreased $ 1.4 million , or 0.5 % , to $ 265.9 million in fiscal year 2006 compared to $ 267.3 million in fiscal year 2005. during fiscal year 2006 and 2005 , selling , general and administrative expenses included integration costs of $ 3.4 million and $ 25.2 million , respectively , related to the sf holdings acquisition . excluding the impact of reduced integration costs in 2006 , the increase in selling , general and administrative expenses of $ 20.4 million was primarily driven by an increase in severance related to the departure of certain senior executives and our reductions-in-force in april and december of 2006 , and costs associated with the expansion and upgrade of our order management system . as a percentage of net sales , selling , general and administrative expenses were 10.7 % for fiscal year 2006 versus 11.0 % for fiscal year 2005. impairment of goodwill during 2006 , we initiated a goodwill impairment test . this occurred as a result of ( i ) continuing net losses , ( ii ) significant increases in raw material costs and the impact of such increases on working capital and gross margin , and ( iii ) changes in our executive management team . as a result of these events , we determined that an impairment test of our north america and europe reporting units should be performed . the impairment test was performed as of july 2 , 2006 and , as a result , we recorded a goodwill impairment charge of approximately $ 228.5 million . loss ( gain ) on sale of property , plant and equipment loss on sale of property , plant and equipment was $ 5.0 million in fiscal year 2006 compared to a gain on sale of property , plant and equipment of $ 6.1 million in fiscal year 2005. the current year loss relates to the retirement of various machinery and equipment while the prior year includes a $ 6.8 million gain on the sale of land and buildings related to facilities previously closed as part of a consolidation of manufacturing , distribution and warehousing operations . 22 interest expense , net interest expense , net increased $ 18.2 million , or 25.0 % , to $ 90.7 million for fiscal year 2006 compared to $ 72.6 million for fiscal year 2005. this resulted primarily from higher interest rates in addition to higher outstanding borrowings driven by the $ 80.0 million of proceeds received during march 2006 under the second lien facility . income tax provision income tax provision was $ 55.1 million in fiscal year 2006 compared to a benefit of $ 9.0 million in fiscal year 2005. the provision in fiscal year 2006 included a $ 118.5 million income tax charge to record a valuation allowance for certain deferred tax assets , which was partially offset by the tax benefit generated from domestic operations . fiscal year 2005 compared to fiscal year 2004 on february 27 , 2004 , with an effective date of february 22 , 2004 , we acquired 100 % of the outstanding capital stock of sf holdings ( sf holdings acquisition ) . amounts for fiscal year 2004 include the results of sf holdings from february 22 , 2004 to january 2 , 2005. therefore , our discussion of 2005 results compared to 2004 results are partially driven by the effect of including sf holdings ' results for 12 months in 2005 versus 10 months in 2004. net sales net sales increased $ 320.7 million , or 15.2 % , to $ 2,431.6 million for fiscal year 2005 compared to $ 2,110.8 million for fiscal year 2004. this includes an increase of $ 187.0 million representing two additional months of sf holdings ' sales in 2005 versus 2004. the remaining increase in net sales of $ 133.7 million , or 6.3 % , reflects a 5.9 % increase in average realized sales price and a 0.4 % increase in sales volume as compared to the prior year . the increase in average realized sales price reflects the impact of pricing increases implemented in response to higher raw material costs . story_separator_special_tag capital expenditures during 2006 were $ 65.1 million compared to $ 53.1 million during 2005. included in capital expenditures during fiscal year 2006 was approximately $ 50 million for new equipment , which includes approximately $ 20 million for our new order management system . capital expenditures were primarily funded by borrowings under our revolving credit facilities . 24 financing cash flows net cash provided by financing activities during 2006 was $ 99.8 million compared to $ 24.5 million during 2005. the increase year over year is primarily driven by the $ 80.0 million of borrowings under our second lien facility . the following is a summary of long-term debt at december 31 , 2006 and january 1 , 2006 ( in thousands ) : replace_table_token_4_th ( 1 ) on december 22 , 2006 , we entered into the second amendment to our second lien which allowed additional borrowings of $ 50.0 million . subsequently , we received the $ 50.0 million in january 2007 and used the proceeds to pay down the outstanding borrowings on the revolving credit facility under our first lien . the following is a summary of our committed revolving credit facilities at december 31 , 2006 ( in thousands ) : replace_table_token_5_th ( 1 ) availability of the credit facilities is reduced by letters of credit issued under the facilities . in addition to the unused capacity under our revolving facilities , the term loan under our canadian credit facility had additional borrowing availability of cad $ 7.4 million ( approximately $ 6.3 million ) as of december 31 , 2006. second lien facility on march 31 , 2006 , we entered into a senior secured second lien credit agreement ( second lien ) . the second lien provides a secured term loan facility in the amount of $ 80.0 million ( second term loan ) . the proceeds of the second term loan were used to reduce amounts outstanding under our revolving credit facility under the first lien . the principal amount will be due upon maturity in february 2012. the second lien was subsequently amended by amendment no . 1 , dated october 13 , 2006 , and by amendment no . 2 , dated december 22 , 2006. amendment no . 2 to the second lien provides for an additional $ 50.0 million in borrowings and that such borrowings be used to reduce amounts outstanding under the revolving credit facility under our first lien , as discussed below . on january 5 , 2007 , we borrowed the additional $ 50.0 million and used the proceeds to pay down amounts outstanding under the revolving credit facility under our first lien . the second term loan bears interest , at our option , at a rate equal to the london inter-bank offer rate ( libor ) plus 6.25 % ( referred to as eurodollar rate loans ) ; or 5.25 % plus the higher of ( a ) the bank of america prime rate or 25 ( b ) the federal funds rate plus 1 / 2 of 1 % ( referred to as base rate loans ) . if we pay down the term loan prior to december 22 , 2007 , we are required to pay a call premium equal to 1 % of the principal amount prepaid . during the year ended december 31 , 2006 , the second term loan consisted of only eurodollar rate loans with a weighted average annual interest rate of 10.44 % . as of december 31 , 2006 , the interest rate for the second lien was 11.62 % . we were in compliance with all covenants under the second lien during the year ended december 31 , 2006 , except for those items described below under waiver and default. first lien facility on february 27 , 2004 , we entered into credit facilities comprised of a $ 150.0 million revolving credit facility maturing in 2010 and a $ 650.0 million term loan facility maturing on february 27 , 2011 ( collectively , the first lien ) . the revolving credit facility is principally used for working capital purposes , and the term loan facility was used to finance our acquisition of sf holdings and related transactions . the first lien was subsequently amended by amendment no . 1 , dated as of march 31 , 2005 , by amendment no . 2 , dated as of october 14 , 2005 , by amendment no . 3 and waiver dated as of march 27 , 2006 , by amendment no . 4 and waiver dated as of october 13 , 2006 and amendment no . 5 dated as of december 22 , 2006. the terms of the first lien , as amended , provide for scheduled principal payments of $ 1.625 million per quarter through november 27 , 2010 , with a balloon payment of $ 606.125 million due on february 27 , 2011. all mandatory quarterly payments have been made to date . for purposes of calculating interest , loans under the first lien are designated as eurodollar rate loans or , in certain circumstances , base rate loans . eurodollar rate loans bear interest at the british bankers association interest settlement rate for deposits in dollars plus a borrowing margin as described below under amendment no . 5. interest on eurodollar rate loans is payable at the end of the applicable interest period of one , two , three or six months , provided that if the applicable interest period is six months , interest also be paid at three months . base rate loans bear interest at ( a ) the greater of ( i ) the rate most recently announced by bank of america as its prime rate or ( ii ) the federal funds rate plus 1 / 2 of 1 % per annum , plus ( b ) a borrowing margin , as described below under amendment no .
| executive summary we are a leading global producer and marketer of disposable foodservice products including cups , lids , food containers , plates , bowls , portion cups , stirrers , straws , cutlery , napkins , placemats , tablecovers and disposable food packaging containers , with products available in plastic , paper and foam . we serve two primary customer groups , foodservice and consumer . sales to foodservice customers accounted for approximately 81 % of our net sales in 2006. sales to consumer customers accounted for approximately 19 % of our net sales in 2006. the principal raw materials for our plastic products are resins , including polystyrene , polypropylene and apet . resin prices are influenced by oil , natural gas , benzene and other input prices , increases or decreases in supply capacity and changes in demand . benzene prices , which are a major contributor to the cost of polystyrene , have remained elevated and volatile due to demand fluctuations for gasoline additive usage . the principal raw material used in our paper operations is solid bleached sulfate paperboard . paper prices are driven by global supply and demand as well as input costs for energy , fiber , chemicals , polyethylene and transportation . for the year ended december 31 , 2006 , we reported a $ 373.3 million net loss that includes the impairment of goodwill of $ 228.5 million and the establishment of a valuation allowance for deferred tax assets of $ 118.5 million . the goodwill impairment charges of $ 228.5 million were determined based on the results of an interim goodwill impairment test which was triggered by certain events , including the company 's continuing net losses , significant increases in raw material costs and the impact of such increases on working capital and gross margin , as well as changes in our executive management team .
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the company performed a quarterly qualitative assessment of factors related to goodwill impairment testing , which included consideration of general economic conditions , industry and market conditions such as general product demand , weather-related impacts and increasing labor costs in company-specific markets , overall financial performance , financial projections and changes in share price and market story_separator_special_tag of financial condition and results of operations throughout this section , the big 5 sporting goods corporation ( “ we , ” “ our , ” “ us ” ) fiscal years ended december 31 , 2017 , january 1 , 2017 and january 3 , 2016 are referred to as fiscal 2017 , 2016 and 2015 , respectively . the following discussion and analysis of our financial condition and results of operations for fiscal 2017 , 2016 and 2015 includes information with respect to our plans and strategies for our business and should be read in conjunction with the consolidated financial statements and related notes , the risk factors and the cautionary statement regarding forward-looking information included elsewhere in this annual report on form 10-k. our fiscal year ends on the sunday nearest december 31. fiscal 2017 and 2016 each included 52 weeks and fiscal 2015 included 53 weeks . overview we are a leading sporting goods retailer in the western united states , operating 435 stores and an e-commerce platform under the name “ big 5 sporting goods ” as of december 31 , 2017. we provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet . through our e-commerce platform , we also offer selected products online . e-commerce sales for fiscal 2017 , 2016 and 2015 were not material . our product mix includes athletic shoes , apparel and accessories , as well as a broad selection of outdoor and athletic equipment for team sports , fitness , camping , hunting , fishing , tennis , golf , winter and summer recreation and roller sports . we believe that over our 63-year history we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise . our stores carry a wide range of products at competitive prices from well-known brand name manufacturers , including adidas , coleman , columbia , everlast , new balance , nike , rawlings , skechers , spalding , under armour and wilson . we also offer brand name merchandise produced exclusively for us , private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise . we reinforce our value reputation through weekly print advertising in major and local newspapers , direct mailers and digital marketing designed to generate customer traffic , drive sales and build brand awareness . we also maintain social media sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers . throughout our history , we have emphasized controlled growth . in fiscal 2017 , we opened six new stores , two of which were relocations , and closed three stores , one of which was a relocation . in fiscal 2016 , we opened five new stores and closed 11 stores , one of which was a relocation . in fiscal 2015 , we opened five new stores and closed six stores , three of which were relocations . the following table summarizes our store count for the periods presented : replace_table_token_8_th ( 1 ) stores that are relocated are classified as new stores . sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales calculations . for fiscal 2018 , we anticipate opening approximately eight new stores and closing approximately three stores . 25 executive summary our lower earnings for fiscal 2017 compared to fiscal 2016 were mainly attributable to lower net sales and higher selling and administrative expense combined with an increased income tax provision resulting from the enactment of the tax cuts and jobs act ( “ tcja ” ) in december 2017 , partially offset by higher merchandise margins in fiscal 2017. our lower net sales in fiscal 2017 primarily reflected sales declines experienced in the fourth quarter as unseasonably dry and warm weather conditions negatively affected the sale of winter-related products , as well as softness in sales of firearm-related products throughout much of the year . net sales for fiscal 2017 decreased 1.1 % to $ 1,009.6 million compared to fiscal 2016. the decrease in net sales was primarily attributable to a reduction in sales from same stores and closed stores , partially offset by added sales from new stores . our same store sales decreased 1.2 % for fiscal 2017 versus the comparable period in fiscal 2016. same store sales comparisons to the prior year largely reflected sales declines in the fourth quarter of fiscal 2017 as unseasonably dry and warm weather conditions in most of our major markets had a significant negative effect on sales of cold-weather and snow-related products , which followed higher sales during the first half of fiscal 2017 after the liquidation and closure of certain major competitors in our markets that concluded in the third quarter of fiscal 2016. same store sales in fiscal 2017 reflected a decrease in our hard goods category , primarily firearm-related products . this decrease was partially offset by increases in our apparel and footwear categories . same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period , and same store sales comparisons exclude sales from stores closed during the comparable periods . gross profit for fiscal 2017 represented 32.0 % of net sales , compared with 31.8 % in the prior year . story_separator_special_tag 28 a reduction in sales from closed stores was partially offset by added sales from new stores that reflected the opening of 10 new stores since december 28 , 2014. same store sales increased 1.7 % for fiscal 2016 versus fiscal 2015. because same store sales comparisons to fiscal 2015 are made on a comparable 52-week basis , same store sales comparisons in fiscal 2016 were not materially impacted by the calendar shift from a 53-week year in fiscal 2015. our higher same store sales reflected the liquidation and closure of certain major competitors in the second half of fiscal 2016. for fiscal 2016 , same store sales in all of our major merchandise categories of hard goods , apparel and footwear increased compared to fiscal 2015. same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period , and same store sales comparisons exclude sales from stores closed during the comparable periods . although we experienced decreased customer transactions in our retail stores , the average sale per transaction increased in fiscal 2016 compared to fiscal 2015 , continuing to reflect a shift in our product mix to more branded merchandise . gross profit . gross profit decreased by $ 0.5 million to $ 324.5 million , or 31.8 % of net sales , in fiscal 2016 from $ 325.0 million , or 31.6 % of net sales , in fiscal 2015. the change in gross profit was primarily attributable to the following : net sales decreased by $ 7.9 million , or 0.8 % , in fiscal 2016 compared to fiscal 2015. distribution expense increased $ 1.2 million , or an unfavorable 16 basis points , primarily resulting from higher employee labor expense , and lower costs capitalized into inventory , partially offset by reduced freight costs . merchandise margins , which exclude buying , occupancy and distribution expense , increased by a favorable nine basis points from fiscal 2015. store occupancy expense for fiscal 2016 decreased by $ 1.1 million , or a favorable four basis points , year over year due primarily to decreased expense associated with a lower store count . selling and administrative expense . selling and administrative expense decreased by $ 3.4 million , or 1.1 % , to $ 295.0 million , or 28.9 % of net sales , in fiscal 2016 from $ 298.4 million , or 29.0 % of net sales , in fiscal 2015. the change in selling and administrative expense was primarily attributable to the following : selling and administrative expense for fiscal 2016 included one less week than fiscal 2015. store-related expense , excluding occupancy , decreased by $ 2.0 million primarily reflecting the following items : o reduced employee benefit-related expense of $ 2.2 million primarily related to lower health and welfare and workers ' compensation expense resulting from more favorable claims activity . o the favorable impact of one less fiscal week of payroll expense in fiscal 2016. o our labor expense continued to reflect the incremental impact of legislated minimum wage rate increases in california , where over fifty percent of our store operations are located . california previously enacted a minimum wage rate increase from $ 8.00 to $ 10.00 per hour , which was implemented in two separate increments with the first increase of $ 1.00 per hour effective in july 2014 and the second increase of $ 1.00 per hour effective in january 2016. in april 2016 , california passed legislation to enact additional minimum wage rate increases from $ 10.00 to $ 15.00 per hour to be implemented in annual increments through fiscal 2022 with annual increases of $ 0.50 per hour effective in fiscal 2017 and fiscal 2018 , and annual increases of $ 1.00 per hour effective in fiscal 2019 through fiscal 2022. advertising expense for fiscal 2016 decreased by $ 1.7 million , due primarily to lower newspaper advertising , partially offset by increases in digital marketing and other advertising programs . administrative expense increased by $ 0.2 million , primarily attributable to store closing costs of $ 1.2 million and higher expense associated with various it-related systems and services of $ 0.6 million , partially offset by proxy contest costs of $ 1.6 million in fiscal 2015. interest expense . interest expense decreased by $ 0.2 million , or 11.1 % , to $ 1.6 million in fiscal 2016 from $ 1.8 million in fiscal 2015. the decrease in interest expense reflected a decrease in average debt levels of $ 22.4 million to $ 47.2 million in fiscal 2016 from $ 69.6 million in fiscal 2015 , partially offset by an increase in average interest rates of approximately 30 basis points to 2.2 % in fiscal 2016 from 1.9 % in fiscal 2015 . 29 income taxes . the provision for income taxes was $ 11.1 million for fiscal 2016 c ompared with $ 9.5 million for fiscal 2015. this increase was primarily due to a higher effective tax rate and higher pre-tax income in fiscal 2016. our effective tax rate was 39.6 % for fiscal 2016 compared with 38.2 % for fiscal 2015. the higher effective t ax rate year over year reflected the write-off of deferred tax assets related to share-based compensation of $ 0.5 million , partially offset by an increase in work opportunity tax credits compared to fiscal 2015. liquidity and capital resources our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash on hand , cash flows from operations and borrowings from our revolving credit facility . we believe our cash on hand , future cash flows from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months .
| results of operations the following table sets forth selected items from our consolidated statements of operations by dollar and as a percentage of our net sales , and other financial data , for the periods indicated : replace_table_token_9_th ( 1 ) fiscal 2017 and 2016 each included 52 weeks and fiscal 2015 included 53 weeks . ( 2 ) cost of sales includes the cost of merchandise , net of discounts or allowances earned , freight , inventory reserves , buying , distribution center expense , including depreciation , and store occupancy expense . store occupancy expense includes rent , amortization of leasehold improvements , common area maintenance , property taxes and insurance . ( 3 ) selling and administrative expense includes store-related expense , other than store occupancy expense , as well as advertising , depreciation and amortization , expense associated with operating our corporate headquarters and impairment charges , if any . ( 4 ) same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period . for purposes of reporting same store sales comparisons to the prior year for fiscal 2017 and 2016 , we used comparable 52-week periods . for purposes of reporting same store sales comparisons to the prior year for fiscal 2015 , we used comparable 53-week periods . fiscal 2017 compared to fiscal 2016 net sales .
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doubtful. these are loans having a risk rating of 8. doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristic that the weaknesses make collection or liquidation in full , on the basis of currently existing facts , conditions , and values , highly story_separator_special_tag below for further discussion of the allowance for loan losses . in situations where , for economic or legal reasons related to a borrower 's financial condition , management may grant a concession to the borrower that it would not otherwise consider , the related loan is classified as a troubled debt restructuring ( tdr ) . management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loans reach nonaccrual status . these modified terms may include rate reductions , principal forgiveness , payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral . in cases where borrowers are granted new terms that provide for a reduction of either interest or principal , management measures any impairment on the restructuring as noted above for impaired loans . the bank had loans totaling $ 424,000 and $ 440,000 that were classified as tdrs as of december 31 , 2018 and 2017 , respectively . 35 management considers historical trends , industry trends , peer comparisons , as well as individual classified impaired loans , in addition to historical experience to evaluate the allowance for loan losses . our method for determining the allowance for loan losses is discussed more fully under provision and allowance for loan losses for the bank below . other real estate owned ( oreo ) consists of properties acquired through foreclosure or deed in lieu of foreclosure . these properties are carried at fair value less estimated costs to sell at the date of foreclosure establishing a new cost basis . these properties are subsequently accounted for at the lower of cost or fair value less estimated costs to sell . losses from the acquisition of property in full or partial satisfaction of loans are charged against the allowance for loan losses . subsequent write-downs , if any , are charged against expense . gains and losses on the sales of foreclosed properties are included in determining net income in the year of the sale . operating costs after acquisition are expensed . the bank had oreo totaling $ 2,430,000 and $ 2,650,000 as of december 31 , 2018 and 2017 , respectively . story_separator_special_tag style= '' margin-top:18pt ; margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > noninterest income of financial noninterest income has been and will continue to be an important factor for increasing our profitability . our management continues to review and consider areas where noninterest income can be increased . noninterest income ( excluding securities gains and losses ) consists of income from mortgage originations and sales , service fees , distributions from a title insurance agency in which we have an ownership interest , income from credit and debit card transactions , and fees generated by the investment services of investment . service fees consist primarily of monthly service and minimum account balance fees and charges on transactional deposit accounts , treasury management fees , overdraft charges , and atm service fees . the bank , through the mortgage division originates both conforming , non-conforming consumer residential mortgage , and reverse mortgage loans primarily in the region 2000 area as well as in charlottesville , harrisonburg , and roanoke . as part of the bank 's overall risk management strategy , all of the loans originated and closed by the mortgage division are presold to mortgage banking or other financial institutions . the mortgage division assumes no credit or interest rate risk on these mortgages . the mortgage division originated 555 mortgage loans , totaling approximately $ 115,331,000 during the year ended december 31 , 2018 as compared with 434 mortgage loans , totaling $ 89,522,000 in 2017. income improved with the increased origination volume , which is attributable in part to an improving residential real estate market throughout our footprint . beginning in 2013 we began operating the mortgage division with hybrid correspondent relationships that allow the bank to close loans in its name before an 39 investor purchases the loan . by using the bank 's funds to close the loan ( as compared to a broker relationship in which loans are funded by the purchaser of the mortgage ) , the bank is able to obtain better pricing due to the slight increase in risk . in 2017 and 2018 , the mortgage division continued to operate in an environment in which real estate values continued to improve . loans for new home purchases comprised 66 % of the total volume in 2017 as compared to 75 % in 2018. for the year ended december 31 , 2018 , the mortgage division accounted for 9.06 % of financial 's total revenue as compared with 8.57 % of financial 's total revenue for the year ended december 31 , 2017. mortgage contributed $ 514,000 and $ 515,000 to financial 's pre-tax net income in 2018 and 2017 , respectively . management anticipates that residential mortgage rates will remain steady and therefore low by historical standards throughout 2019. however , management also anticipates that if rates trend higher , the majority of the loan mix will continue to lean towards new home purchases and away from refinancing . in addition , the tax and jobs act is likely to increase the number of taxpayers that utilize the standard deduction , which could make smaller mortgage loans less attractive . management believes it is too early to assess the impact of the tax and jobs act on future mortgage production . the mortgage division continues to increase its market share in its service areas . story_separator_special_tag the bank has comprehensive policies and procedures which cover both commercial and consumer loan origination and management of credit risk . loans are underwritten in a manner that focuses on the borrower 's ability to repay . management 's goal is not to avoid risk , but to manage it and to include credit risk as part of the pricing decision for each product . the bank 's loan portfolio consists of commercial short-term lines of credit , term loans , mortgage financing and construction loans that are used by the borrower to build or develop real estate properties , and consumer loans . the consumer portfolio includes residential real estate mortgages , home equity lines and installment loans . loans , net of unearned income and the allowance , increased to $ 530,016,000 on december 31 , 2018 from $ 491,022,000 on december 31 , 2017. total loans , including loans held for sale increased to $ 536,267,000 on december 31 , 2018 from $ 498,400,000 on december 31 , 2017. the increase in total loans was partially due to enhanced marketing efforts and increased penetration into the charlottesville , harrisonburg , and roanoke markets . we anticipate that these offices will continue to add to our loan balances . the increase is also attributed to increased calling and sales efforts by our lenders . despite these factors , competition for qualified borrowers remains strong . as of december 31 , 2018 , the bank had $ 2,939,000 , or 0.55 % of its total loans , in non-accrual status compared with $ 4,309,000 , or 0.87 % of its total loans , at december 31 , 2017. management is continuing its efforts to reduce non-performing assets through enhanced collection efforts and the liquidation of underlying collateral . the bank attempts to work with borrowers on a case-by-case basis to attempt to protect the bank 's interests . however , despite our commitment , a reduction of non-accrual loans can be dependent on a number of factors , including improvements in employment , housing , and overall economic conditions at the local , regional and national levels . see asset quality below . 42 the following table summarizes the composition of the bank 's loan portfolio for the periods indicated by dollar amount : replace_table_token_7_th the following table sets forth the maturities of the loan portfolio at december 31 , 2018. replace_table_token_8_th deposits we experienced an increase in deposits from $ 567,493,000 at december 31 , 2017 to $ 612,043,000 at december 31 , 2018 , for an increase of 7.85 % . noninterest-bearing deposits increased $ 17,254,000 or 23.28 % from $ 74,102,000 at december 31 , 2017 to $ 91,356,000 at december 31 , 2018. the increase in non-interest-bearing deposits was due to the recent expansion into in charlottesville , harrisonburg , roanoke , and most recently , appomattox as well as increased and continued efforts to procure the primary checking accounts of our commercial loan customers . the increase can also be attributed to end of the year real estate and business closings related to our professional settlement accounts . interest-bearing deposits increased $ 27,296,000 , or 5.53 % , from $ 493,391,000 at december 31 , 2017 to $ 520,687,000 at december 31 , 2018. a total of $ 20,064,000 in brokered certificates of deposit was included in total time deposits at both december 31 , 2017 and december 31 , 2018 . 43 the following table sets forth the average deposit balances and the rates paid on deposits for the years indicated : replace_table_token_9_th 44 the following table includes a summary of maturities of cds greater than $ 100,000 : maturities of cd 's greater than $ 100,000 ( dollars in thousands ) less than three months three to six months six to twelve months greater than one year total at december 31 , 2018 $ 5,720 $ 19,071 $ 34,665 $ 46,315 $ 105,771 cash and cash equivalents cash and cash equivalents increased from $ 37,018,000 on december 31 , 2017 to $ 50,325,000 on december 31 , 2018. federal funds sold amounted to $ 23,600,000 on december 31 , 2018 compared to $ 16,751,000 on december 31 , 2017. fluctuations in federal funds sold generally are related to fluctuations in transactional accounts and professional settlement accounts as discussed above , and use of cash and cash equivalents to fund loan growth . investment securities the investment securities portfolio of the bank is used as a source of income and liquidity . the following table summarizes the fair value of the bank 's securities portfolio for the periods indicated : replace_table_token_10_th deposited funds are generally invested in overnight vehicles , including federal funds sold , until approved loans are funded . the decision to purchase investment securities is based on several factors or a combination thereof , including : a ) the fact that yields on acceptably rated investment securities ( s & p a rated or better ) are significantly better than the overnight federal funds rate ; b ) whether demand for loan funding exceeds the rate at which deposits are growing , which leads to higher or lower levels of surplus cash ; 45 c ) management 's target of maintaining a minimum of 6 % of the bank 's total assets in a combination of federal funds sold and investment securities ( aggregate of available-for-sale and held-to-maturity portfolios ) ; and d ) whether the maturity or call schedule meets management 's asset/liability plan . available-for-sale securities ( as opposed to held-to-maturity securities ) may be liquidated at any time as funds are needed to fund loans . liquidation of securities may result in a net loss or net gain depending on current bond yields available in the primary and secondary markets and the shape of the u.s. treasury yield curve . management is cognizant of its credit standards policy and does not feel pressure to maintain loan growth at the same levels as deposit growth and thus sacrifice credit quality in order to avoid security purchases .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 net income the net income for financial for the year ended december 31 , 2018 was $ 5,302,000 or $ 1.21 per basic and diluted share compared with net income of $ 2,922,000 or $ 0.67 per basic and diluted share for the year ended december 31 , 2017. note 13 of the consolidated financial statements provides additional information with respect to the calculation of financial 's earnings per share . the increase of $ 2,380,000 in 2018 net income compared to 2017 was due in large part to the following : i ) a decrease in income tax expense of $ 1,109,000 resulting primarily from the tax and jobs act of 2017 ; ii ) an increase in net interest income in the amount of $ 2,504,000 ; iii ) an increase in non-interest income of $ 508,000 , or 10.75 % ; iv ) a decrease in the provision for loan losses of $ 277,000 , or 27.90 % . these increases were partially offset by an increase in non-interest expenses of $ 2,018,000 , or 10.60 % . as discussed in more detail below , we charged off $ 1,064,000 in nonperforming loans during the year ended december 31 , 2018 as compared with $ 2,094,000 in 2017. the amount of the provision for loan losses was $ 716,000 in the year ended december 31 , 2018 as compared to $ 993,000 in 2017. these operating results represent a return on average stockholders ' equity of 9.74 % for the year ended december 31 , 2018 compared to 5.64 % for the year ended december 31 , 2017. the increase in net income was the primary reason for the increase in return on equity in 2018. the return on average assets for the year ended december 31 , 2018 was 0.81 % compared to 0.49 % in 2017. net interest
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if the future undiscounted cash flows expected to result from the use of the related assets are less than the carrying value of such assets , impairment is deemed to have occurred and a loss is recognized to reduce the carrying value of the intangible assets to fair value , which is determined by discounting estimated future cash flows . in addition to the impairment story_separator_special_tag except for the historical information contained herein , the matters discussed in this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) , including discussions of our product development plans , business strategies and market factors influencing our results , may include forward-looking statements that involve certain risks and uncertainties . actual results may differ from those anticipated by us as a result of various factors , both foreseen and unforeseen , including , but not limited to , our ability to continue to develop new products and increase systems sales in markets characterized by rapid technological evolution , consolidation and competition from larger , better-capitalized competitors . many other economic , competitive , governmental and technological factors could affect our ability to achieve our goals and interested persons are urged to review any risks that may be described in “ item 1a . risk factors ” as set forth herein , as well as in our other public disclosures and filings with the securities and exchange commission ( `` sec '' ) . this md & a is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k ( `` report '' ) in order to enhance your understanding of our results of operations and financial condition and should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and related notes thereto included elsewhere in this report . historical results of operations , percentage margin fluctuations and any trends that may be inferred from the discussion below are not necessarily indicative of the operating results for any future period . company overview quality systems , inc. , primarily through its nextgen healthcare subsidiary , provides technology-based solutions and services to the ambulatory care market in the united states . our solutions provide our clients with the ability to redesign patient care and other workflow processes while improving productivity through the facilitation of managed access to patient information . we help promote healthy communities by empowering physician practice success and enriching the patient care experience while lowering the cost of healthcare . we primarily derive revenue by developing and marketing software and services that automate certain aspects of practice management ( “ pm ” ) and electronic health records ( “ ehr ” ) for medical and dental practices . our software can be licensed on a perpetual , on-premise basis , hosted in a private cloud or , in certain instances , as a software-as-a-service ( “ saas ” ) solution . we market and sell our solutions through a dedicated sales force and to a much lesser extent , through resellers . our clients include single and small practice physicians , networks of practices such as physician hospital organizations ( “ phos ” ) , management service organizations ( “ msos ” ) , accountable care organizations ( “ acos ” ) , ambulatory care centers , community health centers and medical and dental schools . we also provide implementation , training , support and maintenance for software and complementary services such as revenue cycle management ( “ rcm ” ) and electronic data interchange ( “ edi ” ) . we have a history of developing new and enhanced technologies . over the course of a number of years , we have also made strategic acquisitions to complement and enhance our product portfolio in the ambulatory care , rcm , and hospital markets . in october 2015 , we divested our hospital solutions division . quality systems , inc. was incorporated in california in 1974. our principal offices are located at 18111 von karman ave. , suite 800 , irvine , california , 92612. our website is located at www.nextgen.com . we operate on a fiscal year ending on march 31. critical accounting policies and estimates the discussion and analysis of our consolidated financial statements 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 ( `` gaap '' ) . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect our reported amounts of assets , liabilities , revenue and expenses , and related disclosures . we base our assumptions , estimates and judgments on historical experience , current trends , and other factors we believe to be reasonable under the circumstances , and we evaluate these estimates on an ongoing basis . on a regular basis , we review the accounting policies and update our assumptions , estimates , and judgments , as needed , to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . actual results could differ materially from our estimates under different assumptions or conditions . to the extent that there are material differences between our estimates and actual results , our financial condition or results of operations will be affected . our significant accounting policies , as described in note 2 , “ summary of significant accounting policies ” of our notes to consolidated financial statements included elsewhere in this report , should be read in conjunction with management 's discussion and analysis of financial condition and results of operations . we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results because application of such policies require significant judgment regarding the effects of matters that are inherently uncertain and that affect our consolidated financial statements . story_separator_special_tag vsoe calculations are updated and reviewed on a quarterly or annual basis , depending on the nature of the product or service . we also must apply judgment in determining the appropriate timing and recognition of certain revenue deferrals . in certain transactions where collection risk is high , the revenue is deferred until collection occurs . if the fee is not fixed or determinable , then the revenue recognized in each period ( subject to application of other revenue recognition criteria ) will be the lesser of the aggregate amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using the residual method . we assess whether fees are considered fixed or determinable at the inception of the arrangement and negotiated fees generally are based on a specific volume of products to be delivered and not subject to change based on variable pricing mechanisms , such as the number of units copied or distributed or the expected number of users . although we currently believe that our approach to estimates and judgments as described herein is reasonable , actual results could differ and we may be exposed to increases or decreases in revenue that could be material . 29 reserves on accounts receivable we maintain reserves for potential sales returns and uncollectible accounts receivable . in aggregate , such reserves reduce our gross accounts receivable to its estimated net realizable value . our standard contracts generally do not contain provisions for clients to return products or services . however , we historically have accepted sales returns under certain circumstances . accordingly , we estimate sales return reserves , including reserves for returns and other credits , based upon the rate of historical returns by revenue type in relation to the corresponding gross revenues and recognize revenue , net of an allowance for sales returns . if we are unable to estimate the returns , revenue recognition may be delayed until the rights of return period lapses , provided also , that all other criteria for revenue recognition have been met . if we experience changes in practices related to sales returns or changes in actual return rates that deviate from the historical data on which our reserves had been established , our revenues may be adversely affected . allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients ' inability to make required payments are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances , net of deferred revenue and specifically reserved accounts . specific reserves are based on our estimate of the probability of collection for certain troubled accounts . accounts are written off as uncollectible only after we have expended extensive collection efforts . our allowances for doubtful accounts are based on our assessment of the collectibility of client accounts . we regularly review the adequacy of these allowances by considering internal factors such as historical experience , credit quality and age of the client receivable balances as well as external factors such as economic conditions that may affect a client 's ability to pay and review of major third-party credit-rating agencies , as needed . if a major client 's creditworthiness or financial condition were to deteriorate , if actual defaults are higher than our historical experience , or if other circumstances arise , our estimates of the recoverability of amounts due to us could be overstated , and additional allowances could be required , which could have an adverse impact on our operating results . although we currently believe that our approach to estimates and judgments as described herein is reasonable , actual results could differ and we may be exposed to increases or decreases in required reserves that could be material . software development costs software development costs , consisting primarily of employee salaries and benefits , incurred in the research and development of new software products and enhancements to existing software products for external sale are expensed as incurred , and reported as net research and development costs in the consolidated statements of comprehensive income , until technological feasibility has been established . after technological feasibility is established , any additional external software development costs are capitalized . amortization of capitalized software is recorded using the greater of the ratio of current revenues to the total of current and expected revenues of the related product or the straight-line method over the estimated economic life of the related product , which is typically three years . the total of capitalized software costs incurred in the development of products for external sale are reported as capitalized software costs within our consolidated balance sheets . we also incur costs to develop software applications for our internal-use and costs for the development of software as a service ( `` saas '' ) based products sold to our clients . the development costs of our saas-based products are considered internal-use for accounting purposes . our internal-use capitalized costs are stated at cost and amortized using the straight-line method over the estimated useful lives of the assets , which is typically three to seven years . application development stage costs generally include costs associated with internal-use software configuration , coding , installation and testing . costs related to the preliminary project stage and post-implementation activities are expensed as incurred . costs of significant upgrades and enhancements that result in additional functionality are also capitalized , whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred . capitalized software costs for developing saas-based products are reported as capitalized software costs within our consolidated balance sheets and capitalized software costs for developing our internal-use software applications are reported as equipment and improvements within our consolidated balance sheets . we periodically reassess the estimated economic life and the recoverability of our capitalized software costs .
| executive overview of our results the following are our key financial results for the fiscal year ended march 31 , 2016. refer to the discussion and analysis of our results in the sections below for additional details . revenues were $ 492.5 million recurring services revenue , consisting of consisting of software related subscription services , support and maintenance , rcm and related services , and edi and data services , comprised approximately 78 % of consolidated revenue consolidated gross profit was $ 266.9 million , or 54.2 % as a percentage of revenue cost of revenue was $ 225.6 million selling , general and administrative expenses were $ 156.2 million net research and development costs were $ 65.7 million amortization of acquired intangible assets were $ 5.4 million non-cash impairment charge of $ 32.2 million was recorded related to the write-off of capitalized software development costs income from operations income was $ 7.4 million effective tax rate was 10.5 % , impacted by permanent items such as the federal research and development tax credit , in relation to our pre-tax net income net income was $ 5.7 million , or $ 0.09 per share on both a basic and fully diluted basis operating cash flow was $ 40.8 million 34 results of operations the following table sets forth the percentage of revenue represented by each item in our consolidated statements of comprehensive income for the years ended march 31 , 2016 , 2015 , and 2014 ( certain percentages below may not sum due to rounding ) : replace_table_token_7_th 35 revenues the following table presents our consolidated revenues for the years ended march 31 , 2016 , 2015 , and 2014 ( in thousands ) : replace_table_token_8_th we generate revenue from sales of licensing rights and subscriptions to our software products , hardware and third party software products , support and maintenance services , revenue cycle management and related services ( `` rcm '' ) , electronic
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in 2016 , we generated $ 604.6 million in total revenue , with a revenue mix of : license revenue 14 % ; services revenue 77 % ; and hardware and other revenue 9 % . the company has three geographic reportable segments : the americas , emea , and apac . geographic revenue is based on the location of the sale . our international revenue was approximately $ 144.8 million , $ 131.3 million and $ 134.6 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively , which represents approximately 24 % , 24 % and 27 % of our total revenue for the years ended december 31 , 2016 , 2015 and 2014 , respectively . international revenue includes all revenue derived from sales to customers outside the united states . at december 31 , 2016 , we employed approximately 3,020 employees worldwide , of which 1,470 employees are based in the americas , 210 employees in emea , and 1,340 employees in apac ( including india ) . we have offices in australia , china , france , india , japan , the netherlands , singapore , and the united kingdom , as well as representatives in mexico and reseller partnerships in latin america , eastern europe , the middle east , south africa , and asia . global economic trends and industry factors global macro-economic trends , technology spending , and supply chain management market growth are important barometers for our business . in 2016 , approximately 76 % of our total revenue was generated in the united states , 11 % in emea , and the remaining balance in apac , canada , and latin america . in addition , gartner inc. , an information technology research and advisory company , estimates that nearly 80 % of every supply chain software solutions dollar invested is spent in north america and western europe ; consequently , the health of the u.s. and the western european economies has a meaningful impact on our financial results . we sell technology-based solutions with total pricing , including software and services , in many cases exceeding $ 1.0 million . our software often is a part of our customers ' and prospects ' much larger capital commitment associated with facilities expansion and business improvement . we believe that , given the lingering uncertainty in the global macro environment , the current sales cycles for large license sales of $ 1.0 million or greater in our target markets have been extended . the current business climate within the united states and geographic regions in which we operate continues to affect customers ' and prospects ' decisions regarding timing of strategic capital expenditures . delays with respect to such decisions can have a material adverse impact on our business , and may further intensify competition in our already highly competitive markets . in january 2017 , the international monetary fund ( imf ) provided a world economic outlook ( weo ) update maintaining its previous 2017 world economic growth forecast issued in october 2016 at 3.4 percent . the weo update noted “ after a lackluster outturn in 2016 , economic activity is projected to pick up pace in 2017 and 2018 , especially in emerging market and developing economies . however , there is a wide dispersion of possible outcomes around the projections , given uncertainty surrounding the policy stance of the incoming u.s. administration and its global ramifications. ” 22 the weo update projected that advanced economies , which represen t our primary revenue markets , would grow at about 1.9 percent in 2017 and 2.0 percent in 2018 , while the emerging and developing economies would grow at about 4.5 percent in 2017 and 4.8 percent in 2018. during the past three years , the overall trend has been steady for our large license sales , with recognized license revenue of $ 1.0 million or greater on 18 , 21 and 15 new contracts for 2016 , 2015 and 2014 , respectively . while we are encouraged by our 2016 and 2015 results , we , along with many of our customers , still remain cautious regarding the pace of global economic growth . we believe global economic volatility likely will continue to shape customers ' and prospects ' enterprise software buying decisions , making it challenging to forecast sales cycles for our products and the timing of large enterprise software license sales . revenue license revenue : license revenue , a leading indicator of our business performance , is primarily derived from software license fees customers pay for supply chain solutions . in 2016 , license revenue totaled $ 85.0 million , or 14 % of total revenue , with gross margins of 87.3 % . for the year ended december 31 , 2016 , americas , emea , and apac recognized $ 71.1 million , $ 9.2 million , and $ 4.7 million in license revenue , respectively . for the year ended december 31 , 2016 , the percentage mix of new to existing customers was approximately 35/65 . license revenue growth is influenced by the strength of general economic and business conditions and the competitive position of our software products . our license revenue generally has long sales cycles . in addition , the timing of the closing of a few large license transactions can have a material impact on our license revenues , operating profit , operating margins and earnings per share . for example , $ 1.1 million of license revenue in 2016 equates to approximately one cent of diluted earnings per share impact . our software solutions are focused on core supply chain commerce operations ( warehouse management , transportation management , labor management ) , inventory optimization and omni-channel operations ( e-commerce , retail store operations and point of sale ) , which are intensely competitive markets characterized by rapid technological change . we are a market leader in the supply chain management software solutions market as defined by industry analysts such as arc advisory group and gartner . story_separator_special_tag million , and $ 49.0 million , respectively . at december 31 , 2016 , our r & d organization totaled approximately 680 employees , located in the u.s. and india . we expect to continue to focus our r & d resources on the development and enhancement of our core supply chain , inventory optimization , omni-channel and point of sale software solutions . we offer what we believe to be the broadest solution portfolio in the supply chain solutions marketplace , to address all aspects of inventory optimization , transportation management , distribution management , planning , and omni-channel operations including order management , store inventory & fulfillment , call center and point of sale . we also plan to continue to enhance our existing solutions and to introduce new solutions to address evolving industry standards and market needs . we identify opportunities to further enhance our solutions and to develop and provide new solutions through our customer support organization , as well as through ongoing customer consulting engagements and implementations , interactions with our user groups , association with leading industry analysts and market research firms , and participation on industry standards and research committees . our solutions address the needs of customers in various vertical markets , including retail , consumer goods , food and grocery logistics service providers , industrial and wholesale , high technology and electronics , life sciences , and government . cash flow and financial condition for 2016 , we generated cash flow from operating activities of $ 139.3 million and have generated a cumulative total of $ 353.7 million for the three years ended december 31 , 2016. our cash and investments at december 31 , 2016 totaled $ 95.6 million , with no debt on our balance sheet . we currently have no credit facilities . during the past three years , our primary uses of cash have been funding investment in r & d and operations to drive earnings growth and repurchases of common stock . during 2016 , we repurchased approximately $ 158.4 million of manhattan associates ' outstanding common stock under the share repurchase program approved by our board of directors throughout the year . in 2017 , we anticipate that our priorities for use of cash will be in hiring , developing sales and services resources and continued investment in product development to extend our market leadership . we will continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction . we will also continue to weigh our share repurchase options against cash for acquisitions and investing in the business . we do not anticipate any borrowing requirements in 2017 for general corporate purposes . 24 story_separator_special_tag style= '' text-align : center ; margin-top:12pt ; margin-bottom:0pt ; text-indent:0 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 27 hardware and other sales of hardware increased $ 4.5 million to $ 34.0 million in 2016 compared to $ 29.5 million in 2015. sales of hardware increased $ 3.9 million to $ 29.5 million in 2015 compared to $ 25.6 million in 2014. the majority of hardware sales are derived from our americas segment . sales of hardware are largely dependent upon customer-specific desires , which fluctuate . other revenue represents reimbursements for professional service travel expenses that are required to be classified as revenue and are included in hardware and other revenue . reimbursements by customers for out-of-pocket expenses were approximately $ 18.3 million , $ 20.2 million , and $ 18.9 million for 2016 , 2015 and 2014 , respectively . cost of revenue replace_table_token_8_th cost of license cost of license consists of the costs associated with software reproduction ; hosting services ; media , packaging and delivery , documentation , and other related costs ; and royalties on third-party software sold with or as part of our products . in 2016 , cost of license increased by $ 0.9 million , or 9 % compared to 2015 principally due to a $ 1.2 million increase in cost of hosting offset by a $ 0.6 million decrease in cost of royalties over the prior year . in 2015 , cost of license increased by $ 2.8 million , or 40 % compared to 2014 principally due to a $ 1.7 million increase in cost of third-party software license fees and a $ 0.7 million increase in cost of hosting over the prior year . cost of services year 2016 compared with year 2015 cost of services consists primarily of salaries and other personnel-related expenses of employees dedicated to professional and technical services and customer support services . the $ 13.1 million , or 7 % , increase in cost of services in 2016 compared to 2015 was principally due increased headcount to support business growth resulting in a $ 15.1 million increase in compensation , other personnel-related and travel expenses . these personnel and other services operating expense increases were offset by a $ 3.3 million decrease in performance-based compensation expense . year 2015 compared with year 2014 cost of services consists primarily of salaries and other personnel-related expenses of employees dedicated to professional and technical services and customer support services . the $ 15.2 million , or 9 % , increase in cost of services in 2015 compared to 2014 was principally due increased headcount to support business growth resulting in a $ 13.5 million increase in compensation , other personnel-related and travel expenses as well as a $ 1.0 million increase in performance-based compensation expense . cost of hardware and other in 2016 , cost of hardware increased $ 2.2 million to $ 23.4 million from $ 21.2 million in 2015 on increased sales of hardware . in 2015 , cost of hardware increased $ 3.5 million to $ 21.2 million from $ 17.7 million in 2014 on increased sales of hardware .
| full year 2016 financial summary diluted earnings per share for the twelve months ended december 31 , 2016 was $ 1.72 , compared to $ 1.40 for the twelve months ended december 31 , 2015 ; consolidated revenue for the twelve months ended december 31 , 2016 was $ 604.6 million , compared to $ 556.4 million for the twelve months ended december 31 , 2015. license revenue was $ 85.0 million for the twelve months ended december 31 , 2016 , compared to $ 78.6 million for the twelve months ended december 31 , 2015 ; operating income was $ 194.3 million for the twelve months ended december 31 , 2016 , compared to $ 161.4 million for the twelve months ended december 31 , 2015 ; operating margins for 2016 were 32.1 % compared to operating margins of 29.0 % in 2015 ; cash flow from operations totaled $ 139.3 million for the full year 2016 compared to $ 120.2 million in 2015 ; cash and investments on hand at december 31 , 2016 was $ 95.6 million compared to $ 128.8 million at december 31 , 2015 ; during the twelve months ended december 31 , 2016 , the company repurchased approximately 2.8 million shares of manhattan associates common stock , reducing common shares outstanding by 3 % , under the share repurchase program authorized by our board of directors , for a total investment of $ 158.4 million ; and in january 2017 , our board of directors authorized the company to repurchase up to an aggregate of $ 50 million of the company 's common stock . results of operations the following table summarizes selected statement of income data for the years ended december 31 , 2016 , 2015 and 2014. replace_table_token_5_th 25 the company has three geographic reportable segments : the americas , emea , and apac . geographic revenue information is based on the lo cation of sale . the revenues represented below are from external customers only .
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therefore , we are no longer providing for u.s. taxes on a portion of our foreign earnings . the effective tax rate of 30.3 story_separator_special_tag certain statements in this annual report on form 10-k , including , without limitation , statements regarding the following matters are forward-looking statements made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995 : our business strategy ; our plans for future operations ; industry conditions ; our expectations about 2012 earnings per share and segment operating results , and the factors underlying those expectations , including our expectations about demand for our deepwater oilfield services and products as a result of the factors we specify in the `` overview '' below ; projections relating to floating rigs to be placed in service and subsea tree orders ; the adequacy of our liquidity and capital resources to support our operations and internally generated growth initiatives ; our projected capital expenditures for 2012 ; our plans to add rovs to our fleet ; our belief that our goodwill will not be impaired during 2012 ; the adequacy of our accruals for uninsured expected liabilities from workers ' compensation , maritime employer 's liability and general liability claims ; our belief that our total unrecognized tax benefits will not significantly increase or decrease in the next 12 months ; our expectations about the cash flows from our investment in medusa spar llc , and the factors underlying those expectations ; our backlog ; and our expectations regarding the effect of inflation in the near future . these forward-looking statements are subject to various risks , uncertainties and assumptions , including those we refer to under the headings `` risk factors '' and `` cautionary statement concerning forward-looking statements '' in part i of this report . although we believe that the expectations reflected in such forward-looking statements are reasonable , because of the inherent limitations in the forecasting process , as well as the relatively volatile nature of the industries in which we operate , we can give no assurance that those expectations will prove to have been correct . accordingly , evaluation of our future prospects must be made with caution when relying on forward-looking information . overview the table that follows sets out our revenue and operating results for 2011 , 2010 and 2009 . replace_table_token_10_th during 2011 , we generated approximately 89 % of our revenue , and 96 % of our operating income , from services and products we provided to the oil and gas industry . in 2011 , our revenue increased by 14 % , with the largest increase occurring in our subsea products segment . our subsea products segment revenue increased 40 % from higher umbilical plant throughput and specialty product sales . the $ 236 million consolidated net income we earned in 2011 was the highest in our history . the $ 35 million increase from 2010 net income was attributable to higher profit contributions from our subsea products segment , which had $ 34 million more operating income on $ 221 million more revenue , and our rov segment , which had $ 13 million more operating income on $ 93 million more revenue . 20 in 2011 , we invested in the following major capital projects : business acquisitions totaling $ 292 million , principally in our asset integrity and subsea products segments ; additions of and upgrades to our work-class rovs ; expenditures for added capacity and geographic expansion in our subsea products segment ; and conversion of the ocean patriot to a dynamically positioned saturation diving vessel and completion of its saturation diving system in our subsea projects business . we expect our 2012 diluted earnings per share to be in the range of $ 2.45 to $ 2.65 , as compared to $ 2.16 in 2011 . we anticipate continued international demand growth and a moderate rebound in overall activity in the u.s. gulf of mexico . compared to 2011 , in 2012 we are forecasting an increase in rov operating income as a result of a higher average fleet size and increased demand offshore west africa and in the u.s. gulf of mexico . we use our rovs in the offshore oil and gas industry to perform a variety of underwater tasks , including drill support , installation and construction support , pipeline inspection and surveys and subsea production facility inspection , repair and maintenance . the largest percentage of our rovs has historically been used to provide drill support services . therefore , the number of floating drilling rigs on hire is a leading market indicator for this business . the following table shows average floating rigs under contract and our rov utilization . replace_table_token_11_th demand for floating rigs is our primary driver of future growth prospects . according to industry data published by ods-petrodata , at the end of 2011 , there were 284 floating drilling rigs in the world , with 260 of the rigs under contract and 69 % of the rigs contracted through 2012. sixty-eight additional floating rigs were on order , with 45 scheduled to be delivered through 2013 , and 28 of these 68 have been contracted long-term , for an average term of approximately seven years . we estimate approximately 24 floating rigs will be placed in service during 2012 , and we have rov contracts on eight of those . competitors have the rov contracts on nine rigs , leaving seven contract opportunities . in addition to floating rig demand , subsea tree completions are another leading indicator of the strength of the deepwater market and the primary demand driver for our subsea products lines . according to industry data published by quest offshore resources , inc. , there were less than 600 subsea completions before 1990 , approximately 1,100 in the decade of the 1990s , approximately 3,100 in the decade of the 2000s , and quest forecasts over 5,000 for the decade of the 2010s . story_separator_special_tag if , after assessing the totality of events or circumstances , an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , performing the two-step impairment test is unnecessary . however , if an entity concludes otherwise , then it is required to perform the first step of the two-step impairment test . this update is effective for us january 1 , 2012 , and earlier adoption is permitted . we have elected to adopt this update early and apply it in 2011. the provisions of the update have not had a material effect on our financial position or results of operations . prior to this fasb update , we tested the goodwill attributable to each of our reporting units for impairment annually , or more frequently whenever events or changes in circumstances indicated that the carrying amounts may not have been appropriate . we estimated fair value of the reporting units using both an income approach , which considers a discounted cash flow model , and a market approach . for reporting units with significant goodwill , we do not believe our goodwill will be impaired during 2012 . loss contingencies . we self-insure for workers ' compensation , maritime employer 's liability and comprehensive general liability claims to levels we consider financially prudent , and beyond the self-insurance level of exposure , we carry insurance , which can be by occurrence or in the aggregate . we determine the level of accruals for claims exposure by reviewing our 22 historical experience and current year claim activity . we do not record accruals on a present-value basis . we review larger claims with insurance adjusters and establish specific reserves for known liabilities . we establish an additional reserve for incidents incurred but not reported to us for each year using our estimates and based on prior experience . we believe we have established adequate accruals for uninsured expected liabilities arising from those obligations . however , it is possible that future earnings could be affected by changes in our estimates relating to these matters . we are involved in various claims and actions against us , most of which are covered by insurance . we believe that our ultimate liability , if any , that may result from these claims and actions will not materially affect our financial position , cash flows or results of operations . income taxes . our tax provisions are based on our expected taxable income , statutory rates and tax-planning opportunities available to us in the various jurisdictions in which we operate . determination of taxable income in any jurisdiction requires the interpretation of the related tax laws . we are at risk that a taxing authority 's final determination of our tax liabilities may differ from our interpretation . our effective tax rate may fluctuate from year to year as our operations are conducted in different taxing jurisdictions , the amount of pre-tax income fluctuates and our estimates regarding the realizability of items such as foreign tax credits may change . in 2011 , 2010 and 2009 , we recorded reductions of income tax expense of $ 0.9 million , $ 1.0 million and $ 0.3 million , respectively , resulting from a combination of expiring statutes of limitations and the resolution of uncertain tax positions related to certain tax liabilities we recorded in prior years . current income tax expense represents either nonresident withholding taxes or the liabilities expected to be reflected on our income tax returns for the current year , while the net deferred income tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our balance sheet . we establish valuation allowances to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future . we currently have no valuation allowances . while we have considered estimated future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowances , changes in these estimates and assumptions , as well as changes in tax laws , could require us to provide for valuation allowances for our deferred tax assets . these provisions for valuation allowances would impact our income tax provision in the period in which such adjustments are identified and recorded . we account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements . we charged $ 0.4 million to income tax expense in 2011 for penalties and interest for uncertain tax positions , which brought our total liabilities for penalties and interest on uncertain tax positions to $ 4.4 million on our balance sheet at december 31 , 2011 . including associated foreign tax credits and penalties and interest , we have accrued a net total of $ 5.6 million in the caption `` other long-term liabilities '' on our balance sheet at december 31 , 2011 for unrecognized tax benefits . all additions or reductions to those liabilities affect our effective income tax rate in the periods of change . we do not believe that the total of unrecognized tax benefits will significantly increase or decrease in the next 12 months . for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1 to our consolidated financial statements . liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and internally-generated growth initiatives . at december 31 , 2011 , we had working capital of $ 483 million , including cash and cash equivalents of $ 106 million .
| results of operations information on our business segments is shown in note 7 of the notes to consolidated financial statements included in this report . 25 oil and gas . the table that follows sets out revenue and profitability for the business segments within our oil and gas business . replace_table_token_12_th in response to continued increasing demand to support deepwater drilling and construction and production maintenance work , we have continued to build new rovs . these new vehicles are designed for use around the world in water depths of 10,000 feet or more . we added 24 , 22 and 30 rovs in 2011 , 2010 and 2009 , respectively , while disposing of 35 units over the three-year period and transferring one to our advanced technologies segment in 2011. we plan to continue adding rovs at levels we determine appropriate to meet market opportunities . for 2011 , our rov revenue and operating income increased over 2010 from increased days on hire , as we had more systems available and had higher utilization due to increased international demand . our operating income margin decreased as a result of geographic mix , as our aggregate international rov operations have lower margins than our u.s. gulf of mexico operations . 26 for 2010 , our rov revenue and operating income increased 2 % over 2009 from increased revenue per day-on-hire . good cost controls helped us keep margin percentages flat despite lower utilization . we grew our rov fleet size to 267 at december 31 , 2011 from 260 at december 31 , 2010 and 248 at december 31 , 2009. we anticipate rov operating income to increase in 2012 as a result of an increase in days on hire , with an increase in our fleet utilization to 80 % or more , from increased demand offshore west africa and in the u.s. gulf of mexico .
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potential common share equivalents consist of restricted stock awards and the incremental common shares issuable upon the exercise of stock options and warrants . under the treasury stock method , unexercised in-the-money stock options are assumed to be exercised at the beginning of the period or at issuance , if later . the assumed proceeds are then used to purchase common shares at the average market price during the period . share-based payment awards that entitle story_separator_special_tag repligen and its subsidiaries , collectively doing business as repligen corporation ( repligen , we , our , or the company ) is a leading provider of advanced bioprocessing technology and solutions used in the process of manufacturing biologic drugs . our products are made to substantially increase biopharmaceutical manufacturing efficiencies and flexibility . as the global biologics market continues to experience strong growth and expansion , our customers primarily large biopharmaceutical companies and contract manufacturing organizations face critical production cost , capacity , quality and time pressures that our products are made to address . our commitment to bioprocessing is helping set new standards for the way our customers manufacture biologic drugs including monoclonal antibodies , recombinant proteins , vaccines and gene therapies . we are dedicated to inspiring advances in bioprocessing as a trusted partner in the production of biologic drugs that improve human health worldwide . our chromatography products feature pre-packed chromatography columns under our opus ® brand . opus columns , which we deliver to our customers pre-packed with their choice of chromatography resin , are single-campaign ( single-use ) disposable columns that replace the use of traditional ( more permanent ) glass columns used in downstream purification processes . by designing opus as an advanced and flexible option for the purification of biologics from process development through clinical-scale and some commercial manufacturing , repligen has become a leader in pre-packed columns . our filtration products offer a number of advantages to manufacturers of biologic drugs at volumes that span from pilot studies to clinical and commercial-scale production . xcell atf systems are used primarily in upstream perfusion ( continuous manufacturing ) processes to increase cell concentration and significantly improve biologic product yield from a bioreactor . to address increasing industry demand for plug-and-play technology , we developed and in 2016 launched single-use formats of the original stainless steel xcell atf device . in december 2016 , we acquired tangenx technology corporation ( tangenx ) , balancing our upstream xcell atf offering with a downstream portfolio of flat-sheet filters and cassettes used in biologic drug purification and formulation processes . the tangenx portfolio includes the single-use sius tff brand , providing customers with a high-performance , low-cost alternative to reusable tff products . in august 2017 , we completed our acquisition of spectrum . spectrum brands include the krosflo ® family of products , proconnex ® disposable flow-path products , tff systems and others . the spectrum acquisition significantly strengthened our filtration product line and diversifies our end markets beyond mabs to include vaccine , recombinant protein and gene therapies . we are a leading oem manufacturer and supplier of protein a ligands to life sciences companies . protein a ligands are an essential binding component of protein a chromatography resins used in the purification of virtually all monoclonal antibody ( mab ) based drugs on the market or in development that our customers sell to end users ( biopharmaceutical manufacturers ) for use in downstream purification of mabs . we also manufacture and sell growth factor products used to supplement cell culture media in order to increase cell growth and productivity in a bioreactor . customers use our products to produce initial quantities of drug for clinical studies and then scale-up to larger volumes as the drug progresses to commercial production following regulatory approval . detailed specifications for a drug 's manufacturing process are included in the applications that biopharmaceutical companies file for marketing approval with regulators , such as the u.s. food and drug administration and the european medicines agency , throughout the clinical trial process and prior to final commercial approval . as a result , products that become part of the manufacturing specifications of a late-stage clinical or commercial process can be very sensitive given the costs and uncertainties associated with displacing them . 30 critical accounting policies and estimates while our significant accounting policies are more fully described in the notes to our consolidated financial statements , we have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations . the impact of and any associated risks related to these policies on our business operations are discussed throughout management 's discussion and analysis of financial condition , including in the results of operations section , where such policies affect our reported and expected financial results . revenue recognition we generate revenue from the sale of bioprocessing products , equipment devices , and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries . under asc 606 , revenue from contracts with customers , revenue is recognized when , or as , obligations under the terms of a contract are satisfied , which occurs when control of the promised products or services is transferred to customers . revenue is measured as the amount of consideration the company expects to receive in exchange for transferring products or services to a customer ( transaction price ) . to the extent the transaction price includes variable consideration , the company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method , depending on the facts and circumstances relative to the contract . variable consideration is included in the transaction price if , in the company 's judgment , it is probable that a significant future reversal of cumulative revenue under the contract will not occur . story_separator_special_tag if these estimates or related assumptions change in the future , we may be required to record impairment charges . we generally calculate fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount rate . if the estimate of an intangible asset 's remaining useful life is changed , we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life . goodwill we test goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value . events that 32 would indicate impairment and trigger an interim impairment assessment include , but are not limited , to current economic and market conditions , including a decline in market capitalization , a significant adverse change in legal factors , business climate or operational performance of the business , and an adverse action or assessment by a regulator . our annual impairment test date is the last day of our fiscal year , december 31 st . while we currently operate as one operating segment , we perform our annual impairment test over each of the company 's two reporting units and concluded that goodwill was not impaired . accrued liabilities we estimate accrued liabilities by identifying services performed on our behalf , estimating the level of service performed and determining the associated cost incurred for such service as of each balance sheet date . for example , we would accrue for professional and consulting fees incurred with law firms , audit and accounting service providers and other third-party consultants . these expenses are determined by either requesting those service providers to estimate unbilled services at each reporting date for services incurred or tracking costs incurred by service providers under fixed fee arrangements . we have processes in place to estimate the appropriate amounts to record for accrued liabilities , which principally involve the applicable personnel reviewing the services provided . in the event that we do not identify certain costs that have begun to be incurred or we under or over-estimate the level of services performed or the costs of such services , the reported expenses for that period may be too low or too high . the date on which certain services commence , the level of services performed on or before a given date , and the cost of such services often require the exercise of judgment . we make these judgments based upon the facts and circumstances known at the date of the financial statements . a change in the estimated cost or volume of services provided could result in additional accrued liabilities . any significant unanticipated changes in such estimates could have a significant impact on our accrued liabilities and reported operating results . there have been no material adjustments to our accrued liabilities in any of the periods presented in the accompanying consolidated financial statements . stock-based compensation we use the black-scholes option pricing model to calculate the fair value of share-based awards on the grant date . the expected term of options granted represents the period of time for which the options are expected to be outstanding and is derived from our historical stock option exercise experience and option expiration data . for purposes of estimating the expected term , we have aggregated all individual option awards into one group , as we do not expect substantial differences in exercise behavior among our employees . the expected volatility is a measure of the amount by which our stock price is expected to fluctuate during the expected term of options granted . we determined the expected volatility based upon the historical volatility of our common stock over a period commensurate with the option 's expected term . the risk-free interest rate is the implied yield available on u.s. treasury zero-coupon issues with a remaining term equal to the option 's expected term on the grant date . we have never declared or paid any cash dividends on any of our capital stock and do not expect to do so in the foreseeable future . accordingly , we use an expected dividend yield of zero to calculate the grant-date fair value of a stock option . we recognize compensation expense on awards that vest based on service conditions on a straight-line basis over the requisite service period based upon the number of options that are ultimately expected to vest , and accordingly , such compensation expense has been adjusted by an amount of estimated forfeitures . we recognize compensation expense on awards that vest based on performance conditions based on our assessment of the probability that the performance condition will be achieved over the service period . forfeitures represent only the unvested portion of a surrendered option . forfeitures are estimated at the time of grant and revised , if necessary , 33 in subsequent periods if actual forfeitures differ from those estimates . based on an analysis of historical data , we have calculated an 8 % annual forfeiture rate for non-executive level employees , a 3 % annual forfeiture rate for executive level employees , and a 0 % forfeiture rate for non-employee members of the board of directors , which we believe are reasonable assumptions to estimate forfeitures . however , the estimation of forfeitures requires significant judgment 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 . for the years ended december 31 , 2018 , 2017 and 2016 , we recorded stock-based compensation expense of $ 10.2 million , $ 6.7 million and $ 4.6 million , respectively , for share-based awards granted under all of the company 's stock plans . as of december 31 , 2018 , there was $ 27.1 million of total unrecognized compensation cost related to unvested share-based awards .
| results of operations the following discussion of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the related footnotes thereto . revenues total revenues for years 2018 , 2017 , and 2016 were comprised of the following : replace_table_token_3_th product revenues since 2016 , we have been increasingly focused on selling our products directly to customers in the pharmaceutical industry and to our its contract manufacturers . these direct sales have increased to approximately 72 % of our product revenue during 2018. we expect that direct sales will continue to account for an increasing percentage of our product revenues . sales of our bioprocessing products can be impacted by the timing of large-scale production orders and the regulatory approvals for such antibodies , which may result in significant quarterly fluctuations . 34 product revenues were comprised of the following : replace_table_token_4_th ( 1 ) 2017 revenue for filtration , chromatography and other products includes revenue related to spectrum from august 1 , 2017 through december 31 , 2017 . ( 2 ) 2016 revenue for filtration products includes revenue related to tangenx from december 14 , 2016 through december 31 , 2016 . ( 3 ) 2016 revenue for chromatography products includes revenue related to atoll from april 1 , 2016 through december 31 , 2016. revenue from protein products includes our protein a ligands and cell culture growth factors . revenue from filtration products includes our xcell atf systems and consumables , krosflo filtration products and sius filtration products . revenue from chromatography products includes our opus and opus pd chromatography columns , chromatography resins and elisa test kits . other revenue primarily consists of revenue from the sale of our operating room products to hospitals as well as freight revenue .
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investment in real estate limited partnerships the bank has a 99.9 % ownership interest in story_separator_special_tag the following analysis is intended to provide the reader with a further understanding of the consolidated financial condition and results of operations of the corporation for the periods shown . for a full understanding of this analysis , it should be read in conjunction with other sections of this annual report on form 10-k , including part i , “ item 1. business ” , part ii , “ item 6. selected financial data ” and part ii , “ item 8. financial statements and supplementary data. ” information pertaining to 2017 was included in the corporation 's annual report on form 10-k for the fiscal year ended december 31 , 2018 , starting on page 55 under part ii , item 7 . “ management 's discussion and analysis of results of operations and financial condition , ” which was filed with the sec on february 26 , 2019. critical accounting policies and estimates accounting policies involving significant judgments , estimates and assumptions by management , which have , or could have , a material impact on the corporation 's consolidated financial statements are considered critical accounting policies . management considers the following to be its critical accounting policies : the determination of allowance for loan losses , the valuation of goodwill and identifiable intangible assets , the assessment of investment securities for impairment and accounting for defined benefit pension plans . allowance for loan losses establishing an appropriate level of allowance for loan losses necessarily involves a high degree of judgment . the level of the allowance is based on management 's ongoing review of the growth and composition of the loan portfolio , historical loss experience , estimated loss emergence period ( the period from the event that triggers the eventual default until the actual loss is recognized with a charge-off ) , current economic conditions , analysis of asset quality and credit quality levels and trends , the performance of individual loans in relation to contract terms and other pertinent factors . a methodology is used to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient allowance for loan losses . the methodology is described below . loss allocations are identified for individual loans deemed to be impaired in accordance with gaap . a loan is considered impaired when , based on current information and events , it is probable that the corporation will not be able to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . impaired loans include nonaccrual loans and loans restructured in a troubled debt restructuring . loss allocations for loans deemed to be impaired are measured using a discounted cash flow method based upon the loan 's contractual effective interest rate , or at the loan 's observable market price , or , if the loan is collateral dependent , at the fair value of the collateral . for collateral dependent loans for which repayment is dependent on the sale of the collateral , management adjusts the fair value for estimated costs to sell . for collateral dependent loans for which repayment is dependent on the operation of the collateral , such as accruing troubled debt restructured loans , estimated costs to sell are not incorporated into the measurement . management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the property . for loans that are collectively evaluated , loss allocation factors are derived by analyzing historical loss experience by loan segment over an established look-back period deemed to be relevant to the inherent risk of loss in the portfolios . loans are segmented by loan type , collateral type , delinquency status and loan risk rating , where applicable . these loss allocation factors are adjusted to reflect the loss emergence period . these amounts are supplemented by certain qualitative risk factors reflecting management 's view of how losses may vary from those represented by historical loss rates . these qualitative risk factors include : 1 ) changes in lending policies and procedures , including changes in underwriting standards and collection , charge-off , and recovery practices not considered elsewhere in estimating credit losses ; 2 ) changes in international , national , regional , and local economic and business conditions and developments that affect the collectability of the portfolio , including the condition of various market segments ; 3 ) changes in the nature and volume of the portfolio and in the terms of loans ; 4 ) changes in the experience , ability , and depth of lending management and other relevant staff ; 5 ) changes in the volume and severity of past due loans , the volume of nonaccrual loans , and the volume and severity of adversely classified or rated loans ; 6 ) changes in the quality of the institution 's loan review system ; 7 ) changes in the value of underlying collateral for collateral dependent loans ; 8 ) the existence and effect of any concentrations of credit , - 30 - management 's discussion and analysis and changes in the level of such concentrations ; and 9 ) the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the institution 's existing portfolio . because the methodology is based upon historical experience and trends , current economic data , as well as management 's judgment , factors may arise that result in different estimations . adversely different conditions or assumptions could lead to increases in the allowance . in addition , various regulatory agencies periodically review the allowance for loan losses . such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination . story_separator_special_tag when the fair value of an investment security is less than its amortized cost basis , the corporation assesses whether the decline in value is other-than-temporary . the corporation considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary . evidence considered in this assessment includes the reasons for impairment , the severity and duration of the impairment , changes in the value subsequent to the reporting date , forecasted performance of the issuer , changes in the dividend or interest payment practices of the issuer , changes in the credit rating of the issuer or the specific security and the general market condition in the geographic area or industry in which the issuer operates . future adverse changes in market conditions , continued poor operating results of the issuer , projected adverse changes in cash flows , which might impact the collection of all principal and interest related to the security , or other factors could result in further losses that may not be reflected in an investment 's current carrying value , possibly requiring an additional impairment charge in the future . in determining whether an other-than-temporary impairment has occurred for debt securities , the corporation compares the present value of cash flows expected to be collected from the security with the amortized cost of the security . if the present value of expected cash flows is less than the amortized cost of the security , then the entire amortized cost of the security will not be recovered ; that is , a credit loss exists , and an other-than-temporary impairment shall be considered to have occurred . when an other-than-temporary impairment has occurred , the amount of the other-than-temporary impairment recognized in earnings for a debt security depends on whether the corporation intends to sell the security or if it is more-likely-than-not that the corporation will be required to sell the security before recovery of its amortized cost less any current period credit loss . if the corporation intends to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of its amortized cost , the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the amortized cost and fair value of the security . if the corporation does not intend to sell or it is more-likely-than-not that it will not be required to sell the security before recovery of its amortized cost , the amount of the other-than-temporary impairment related to credit loss shall be recognized in earnings and the noncredit-related portion of the other-than-temporary impairment shall be recognized in other comprehensive income . there were no other-than-temporary impairment losses recognized for the year ended december 31 , 2019 . - 32 - management 's discussion and analysis defined benefit pension plans the determination of the defined benefit obligation and net periodic benefit cost related to our defined benefit pension plans requires estimates and assumptions such as discount rates , mortality , rates of return on plan assets and compensation increases . management evaluates the assumptions annually and uses an actuarial firm to assist in making these estimates . changes in assumptions due to market conditions , governing laws and regulations , or circumstances specific to the corporation could result in material changes to defined benefit pension obligation and net periodic benefit cost . see note 16 to the consolidated financial statements for additional information . overview the corporation offers a comprehensive product line of banking and financial services to individuals and businesses , including commercial , residential and consumer lending , retail and commercial deposit products , and wealth management services through its offices in rhode island , eastern massachusetts and connecticut ; its atms ; telephone banking ; mobile banking and its internet website ( www.washtrust.com ) . our largest source of operating income is net interest income , which is the difference between interest earned on loans and securities and interest paid on deposits and borrowings . in addition , we generate noninterest income from a number of sources , including wealth management services , mortgage banking activities and deposit services . our principal noninterest expenses include salaries and employee benefit costs , outsourced services provided by third-party vendors , occupancy and facility-related costs and other administrative expenses . we continue to leverage our strong regional brand to build market share and remain steadfast in our commitment to provide superior service . risk management the corporation has a comprehensive enterprise risk management ( “ erm ” ) program through which the corporation identifies , measures , monitors and controls current and emerging material risks . the board of directors is responsible for oversight of the erm program . the erm program enables the aggregation of risk across the corporation and ensures the corporation has the tools , programs and processes in place to support informed decision making , to anticipate risks before they materialize and to maintain the corporation 's risk profile consistent with its risk strategy . the board of directors has approved an erm policy that addresses each category of risk . the risk categories include : credit risk , interest rate risk , liquidity risk , price and market risk , compliance risk , strategic and reputation risk , and operational risk . a description of each risk category is provided below . credit risk represents the possibility that borrowers or other counterparties may not repay loans or other contractual obligations according to their terms due to changes in the financial capacity , ability and willingness of such borrowers or counterparties to meet their obligations . in some cases , the collateral securing the payment of the loans may be sufficient to assure repayment , but in other cases the corporation may experience significant credit losses which could have an adverse effect on its operating results .
| results of operations the following table presents a summarized consolidated statement of operations : replace_table_token_4_th the following table presents a summary of performance metrics and ratios : replace_table_token_5_th net income totaled $ 69.1 million in 2019 , compared to $ 68.4 million in 2018 . income before income taxes for 2019 increased by $ 1.5 million , or 2 % , from 2018 . this largely reflected increased mortgage banking activities and loan related derivative transactions , as well as growth in net interest income , partially offset by lower wealth management revenues and increased salaries and employee benefits expense and outsourced services expense . - 35 - management 's discussion and analysis average balances/net interest margin - fully taxable equivalent ( fte ) basis the following table presents average balance and interest rate information . tax-exempt income is converted to a fully taxable equivalent ( “ fte ” ) basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit . unrealized gains ( losses ) on available for sale securities and fair value adjustments on mortgage loans held for sale are excluded from the average balance and yield calculations . nonaccrual loans , as well as interest recognized on these loans , are included in amounts presented for loans . replace_table_token_6_th - 36 - management 's discussion and analysis interest income amounts presented in the preceding table include the following adjustments for taxable equivalency for the years indicated : replace_table_token_7_th net interest income net interest income , the primary source of our operating income , totaled $ 133.4 million and $ 132.3 million , respectively , for 2019 and 2018 . net interest income is affected by the level of , and changes in , interest rates , and changes in the amount and composition of interest-earning assets and interest-bearing liabilities .
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the consumer and industrial segments manufacture , market and distribute spices , seasoning mixes , condiments and other flavorful products throughout the world . our consumer segment sells to retail outlets , including grocery , mass merchandise , warehouse clubs , discount and drug stores under the mccormick brand and a variety of brands around the world , including lawry's , zatarain's , simply asia , thai kitchen , ducros , vahiné , schwartz , club house , kamis and koohinor . our industrial segment sells to food manufacturers and the foodservice industry both directly and indirectly through distributors . in each of our segments , we produce and sell many individual products which are similar in composition and nature . with their primary attribute being flavor , we regard the products within each of our segments to be fairly homogenous . it is impracticable to segregate and identify sales and profits for each of these individual product lines . we measure segment performance based on operating income excluding restructuring charges from our restructuring programs as this activity is managed separately from the business story_separator_special_tag story_separator_special_tag to our acquisitions in 2011 and a slightly higher weighted-average interest rate . replace_table_token_7_th the increase in the tax rate in 2011 was due to a lower level of net discrete tax benefits , decreased u.s. foreign tax credits in the current year as compared to the prior year , partially offset by a favorable mix of earnings among our different tax jurisdictions . discrete tax benefits in 2011 were $ 0.8 million compared to $ 20.1 million in 2010. the $ 20.1 million in 2010 was mainly due to a $ 13.9 million reversal of a tax accrual for a closed tax year . this tax accrual was recorded in a prior period based on uncertainties about the tax aspects of transactions related to the reorganization of our european operations and divestment of certain of our joint ventures . in 2010 , u.s. foreign tax credits included the impact of a $ 108.5 million repatriation of cash from foreign subsidiaries . due to the mix of foreign earnings related to this cash , the repatriation generated additional tax credits . in addition , see note 11 of the financial statements for a reconciliation of the u.s. federal statutory tax rate with the effective tax rate . replace_table_token_8_th income from unconsolidated operations decreased $ 0.1 million in 2011 compared to 2010. we increased income with our unconsolidated joint venture in india , eastern condiments , which was completed late in fiscal year 2010. this was offset 13 by investment spending behind our new joint venture in turkey and decreases in some of our smaller joint ventures . our largest joint venture , mccormick de mexico , had net income comparable to the prior year . while this business grew sales 12 % , profits were pressured by higher soybean oil cost and a weakening mexico peso in the fourth quarter of 2011. we expect this pressure on profits to continue into 2012. we own a 26 % share in our eastern condiments joint venture and on average own 50 % of our other unconsolidated joint ventures . in 2011 , sales of these joint ventures grew 32 % to $ 709 million ( at 100 % of these businesses ) with many products marketed under the mccormick name . the new eastern condiments joint venture added 18 % , while existing joint ventures increased sales by 14 % . our mccormick de mexico joint venture represents 58 % of the sales and 76 % of the net income of our unconsolidated joint ventures . we reported earnings per share of $ 2.79 in 2011 , compared to $ 2.75 in 2010. the following table outlines the major components of the change in diluted earnings per share from 2010 to 2011 : replace_table_token_9_th consumer business replace_table_token_10_th we grew consumer business sales 10.0 % in 2011 when compared to 2010. higher pricing added 5.1 % and favorable foreign exchange rates added 1.8 % . volume and product mix rose 3.1 % , which included a 2.6 % increase from acquisitions in 2011. in the americas , consumer business sales rose 8.2 % , primarily as a result of pricing actions which added 6.0 % . our acquisition of kitchen basics ® added 1.1 % to sales , other increases in volume and product mix added 0.4 % and favorable foreign exchange rates added 0.7 % . increased pricing unfavorably impacted volume and product mix during 2011. in addition , an estimated $ 10 million in sales shifted from the first quarter of 2011 into the fourth quarter of 2010 , as a result of customer purchases in advance of a late 2010 price increase . however , the impact of these reductions to volume and product mix were more than offset by a favorable impact of product innovation , brand marketing support and expanded distribution . new products introduced in 2011 included new recipe inspirations ® , grinders , grill mates and reduced sodium dry seasoning mixes . we had particular success with new zatarain 's frozen entrees which helped contribute to a 40 % increase in sales of zatarain 's frozen products . a portion of our incremental brand marketing support was directed toward a new advertising campaign for dry seasoning mixes , a hispanic marketing program that included sampling , and a digital marketing program behind grill mates which contributed to a 7 % unit increase in grill mates sales . new distribution was gained for both brand and private label items in a variety of retail channels that included grocery , warehouse clubs , dollar stores and drug chains . in europe , the middle east and africa ( emea ) , consumer business sales increased 13.5 % . our acquisition of kamis added 6.5 % to sales , favorable foreign exchange rates added 4.2 % and pricing actions added 2.8 % . story_separator_special_tag replace_table_token_13_th in 2010 , gross profit increased 6.8 % and gross profit margin rose 90 basis points . a significant part of this improvement was due to our cci program which lowered costs $ 54 million in 2010 of which $ 45 million improved gross profit . in addition , the industrial business continued to shift its mix of business toward more higher margin , value-added products . most raw and packaging material costs did not change significantly from 2009 through the first half of 2010. one exception was the lower cost of dairy ingredients which was passed through in lower pricing to industrial customers . in the second half of 2010 , input costs began to increase and unfavorably impacted gross profit margin in the fourth quarter . pricing actions were taken toward the end of the year and continued in 2011 to offset a portion of these increases . replace_table_token_14_th selling , general and administrative expenses in total dollars and as a percentage of net sales increased in 2010 compared to 2009. the increases were mainly driven by incremental brand marketing support to invest in the growth of our leading brands , as well as higher retirement benefit costs . sg & a in 2009 included $ 7.5 million of expenses related to the bankruptcy of a u.k. foodservice distributor . during 2010 we increased brand marketing support costs by $ 20.7 million or 14 % . the increased funding supported the launch of recipe inspirations , perfect pinch ® and other new products . we also drove sales with incremental spending behind our holiday cooking and baking advertising , support for the zatarain 's brand and information regarding the antioxidant levels in many spices and herbs . the increase in retirement benefit costs was primarily due to changes in actuarial assumptions . in 2005 , we announced a restructuring program to consolidate our global manufacturing , rationalize our distribution facilities , improve our go-to-market strategy and eliminate administrative redundancies . this restructuring program was completed in 2009. more details of the restructuring charges are discussed in note 10 of the financial statements . replace_table_token_15_th lower total average debt outstanding , coupled with lower short-term interest rates , led to a favorable variance in interest expense in 2010 when compared to 2009. in 2010 , we completed the pay down of debt from the 2008 lawry 's acquisition , primarily with cash generated from operations . 16 replace_table_token_16_th the decrease in the tax rate in 2010 was due to a higher level of net discrete tax benefits , increased u.s. foreign tax credits and a favorable mix of earnings among our different foreign tax jurisdictions . discrete tax benefits in 2010 were $ 20.1 million compared to $ 3.6 million in 2009. the $ 20.1 million in 2010 is mainly due to a $ 13.9 million reversal of a tax accrual for a closed tax year . this tax accrual was recorded in a prior period based on uncertainties about the tax aspects of transactions related to the reorganization of our european operations and divestment of certain of our joint ventures . u.s. foreign tax credits increased as a result of a $ 108.5 million repatriation of cash from foreign subsidiaries in the fourth quarter of 2010. due to the mix of foreign earnings related to this cash , the repatriation generated these tax credits . in addition , see note 11 of the financial statements for a reconciliation of the u.s. federal statutory tax rate with the effective tax rate . replace_table_token_17_th income from unconsolidated operations increased $ 9.2 million in 2010 compared to 2009. this increase was mainly due to the performance of our mccormick de mexico joint venture , which experienced a double-digit sales increase over the prior year . also , this joint venture benefited from lower soybean oil costs and favorable foreign currency exchange rates for 2010 compared to 2009. soybean oil is a main ingredient for mayonnaise , which is the leading product for this joint venture . in addition , our other smaller joint ventures experienced good growth in both sales and income in 2010. on average , in 2009 and 2010 we owned 50 % of our unconsolidated joint ventures . these joint ventures had 2010 annual sales of $ 538 million ( at 100 % of these businesses ) with many products marketed under the mccormick brand name . in 2010 , sales by these joint ventures increased 12 % and net income increased 49 % . we reported earnings per share of $ 2.75 in 2010 compared to $ 2.27 in 2009. the following table outlines the major components of the change in diluted earnings per share from 2009 to 2010 : replace_table_token_18_th consumer business replace_table_token_19_th in our consumer business higher volume and product mix added 3.1 % to sales , favorable foreign exchange rates increased sales 1.1 % and higher pricing added 0.4 % when compared to 2009. in the americas , consumer business sales rose 5.9 % , primarily as a result of higher volume and product mix which rose 4.1 % . foreign exchange rates in this region increased sales 1.1 % and pricing added 0.7 % . recipe inspirations , perfect pinch and other new product introductions contributed to this sales growth . we also increased brand marketing support to build consumer awareness and trial of these new products , as well as to support our broader line of spices and seasonings and other flavorful products . as a result , sales of gourmet items , grilling items , extracts , lawry 's products and zatarain 's products were particularly strong in 2010. distribution gains added to sales including new placement in a warehouse club retail channel in the u.s. and new distribution of billy bee ® honey products in canada . in the fourth quarter of 2010 , sales growth of our products in the u.s. exceeded the increase in consumer purchases at retail by 17 approximately 2 % .
| overview the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand mccormick & company incorporated , our operations and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes thereto contained in item 8 of this report . mccormick is a global leader in flavor . the company manufactures , markets and distributes spices , seasoning mixes , condiments and other flavorful products to the entire food industryretail outlets , food manufacturers and foodservice businesses . we currently manage our business in two operating segments , consumer and industrial as described in item 1 of this report . our strategy for growth is to increase sales and profit by investing in the business and fueling that investment with cci cost savings . our long-term annual growth objectives are to increase sales 4 % to 6 % , increase operating income 7 % to 9 % and increase earnings per share 9 % to 11 % . over time , we expect similar contributions to sales growth from our base businessdriven by brand marketing support , expanded distribution and category growth , from product innovation , and from acquisitions . in addition to sales growth , our comprehensive continuous improvement programcciis contributing to higher operating income and earnings per share . cci is our ongoing initiative to improve productivity and reduce costs throughout the organization . our business generates strong cash flow and we have a balanced use of cash , funding dividends , which have increased in each of the past 26 years , capital expenditures , acquisitions and share repurchases . each year , we expect a combination of acquisitions and share repurchases to add about 2 % to increased earnings per share . in 2011 , our financial results varied from these long-term goals .
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we deliver our products through physical retail , digital download , online platforms and cloud streaming services . we endeavor to be the most creative , innovative and efficient company in our industry . our core strategy is to capitalize on the popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range of genres . we focus on building compelling entertainment franchises by publishing a select number of titles for which we can create sequels and incremental revenue opportunities through add-on content , microtransactions and online play . most of our intellectual property is internally owned and developed , which we believe best positions us financially and competitively . we have established a portfolio of proprietary software content for the major hardware platforms in a wide range of genres , including action , adventure , family/casual , racing , role-playing , shooter , sports and strategy , which we distribute worldwide . we believe that our commitment to creativity and innovation is a distinguishing strength , enabling us to differentiate our products in the marketplace by combining advanced technology with compelling storylines and characters that provide unique gameplay experiences for consumers . we have created , acquired or licensed a group of highly recognizable brands to match the broad consumer demographics we serve , ranging from adults to children and game enthusiasts to casual gamers . another cornerstone of our strategy is to support the success of our products in the marketplace through innovative marketing programs and global distribution on platforms and through channels that are relevant to our target audience . our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third-parties . operating margins are dependent in part upon our ability to release new , commercially successful software products and to manage effectively their development costs . we have internal development studios located in australia , canada , china , czech republic , hungary , india , spain , south korea , the united kingdom , and the united states . software titles published by our rockstar games label are primarily internally developed . we expect rockstar games , our wholly-owned publisher of the grand theft auto , max payne , midnight club , red dead and other popular franchises , to continue to be a leader in the action / adventure product category and to create groundbreaking entertainment by leveraging our existing titles as well as by developing new brands . we believe that rockstar has established a uniquely original , popular cultural phenomenon with its grand theft auto series , which is the interactive entertainment industry 's most iconic and critically acclaimed brand and has sold-in over 280 million units . the latest installment , grand theft auto v , was released on sony 's ps3 and microsoft 's xbox 360 in september 2013 , on sony 's ps4 and microsoft 's xbox one in november 2014 , and on pc in april 2015. grand theft auto v includes access to grand theft auto online , which initially launched in october 2013. rockstar games is also well known for developing brands in other genres , including the l.a. noire , bully and manhunt franchises . rockstar games continues to expand on our established franchises by developing sequels , offering downloadable episodes , content and virtual currency , and releasing titles for smartphones and tablets . our 2k label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter , action , role-playing , strategy , sports and family/casual entertainment . we expect 2k to continue to develop new , successful franchises in the future . 2k 's internally owned and developed franchises include the critically acclaimed , multi-million unit selling bioshock , mafia , sid meier 's civilization and xcom series . 2k also publishes successful externally developed franchises , such as borderlands and evolve . 2k 's realistic sports simulation titles include our flagship nba 2k series , which continues to be the top-ranked nba basketball video game , and the wwe 2k professional wrestling series . we are continuing to execute on our growth initiatives in asia , where our strategy is to broaden the distribution of our existing products and expand our online gaming presence , especially in china and south korea . 2k has a multi-year license from the nba to develop an online version of the nba simulation game in china , taiwan , south korea and southeast asia . in october 2012 , nba 2k online , our free-to-play nba simulation game , which was co-developed by 2k and tencent , launched commercially on the tencent games portal in china . on december 14 , 2017 , we announced the formation of private division , our new label that is dedicated to bringing titles from top independent developers to market . private division will publish several upcoming titles based on new ip from renowned industry creative talent , including the previously announced ancestors : the humankind odyssey from panache digital game , a studio led by the creator of the assassin 's creed franchise patrice désilets ; an unannounced role-playing game ( `` rpg '' ) currently code-named project wight from the outsiders , a studio formed by ex-dice developers david goldfarb and ben cousins ; an unannounced rpg from obsidian entertainment led by tim cain and leonard boyarsky , co-creators of fallout ; and an 25 unannounced sci-fi first-person shooter from v1 interactive , a studio founded by halo co-creator marcus lehto . additionally , private division is the publisher of kerbal space program , which we acquired in may 2017. social point develops and publishes popular free-to-play mobile games that deliver high quality , deeply-engaging entertainment experiences , including its two most successful games , dragon city and monster legends . in addition , social point has a robust development pipeline with a number of exciting games planned for launch over the next two years . trends and factors affecting our business product release schedule . story_separator_special_tag net revenue earned outside of the united states decreased by $ 40.0 million and accounted for 41.3 % of our total net revenue in the fiscal year ended march 31 , 2018 , as compared to 43.9 % . the decrease in net revenue was due primarily to a decrease in net revenue from mafia iii , partially offset by higher net revenues from our nba 2k franchise . changes in foreign currency exchange rates increased net revenue and gross profit by $ 9.8 million and $ 6.7 million , respectively , in the fiscal year ended march 31 , 2018 as compared to the prior year . 29 operating expenses replace_table_token_11_th ( 1 ) includes stock-based compensation expense , which was allocated as follows ( in thousands ) : replace_table_token_12_th foreign currency exchange rates increased total operating expenses by $ 8.4 million in the fiscal year ended march 31 , 2018 as compared to the prior year . selling and marketing selling and marketing expenses decreased by $ 29.4 million in the fiscal year ended march 31 , 2018 as compared to the prior year , due primarily to $ 44.2 million in lower advertising expenses . advertising expenses were lower in the current year due primarily to the releases of mafia iii and civilization vi in october 2016 and battleborn in may 2016 , partially offset by higher marketing in the current year period for grand theft auto online and red dead redemption 2. the decrease was partially offset by higher personnel expenses , primarily due to higher incentive compensation expense . general and administrative general and administrative expenses increased by $ 36.4 million for the fiscal year ended march 31 , 2018 , as compared to the prior year , due primarily to ( i ) increases in personnel expenses , including stock and incentive compensation expense , due to additional headcount , including our acquisition of social point , ( ii ) increases in professional fees , related primarily to our management agreement with zelnickmedia as a result of the increase in our share price , ( iii ) increases in it related expenses from the purchase of computer hardware and software , and ( iv ) increases in rent expense due to new locations , including our new corporate headquarters in new york and for social point , as well as increased rent in other locations . this overall increase was partially offset primarily by a $ 6.5 million reduction of expense related to reversing a contingent consideration liability recognized in connection with the social point acquisition as we determined that the fair value of this contingent consideration was $ 0 based on the lower probability of social point achieving certain performance measures in the 24 -month period following the acquisition . general and administrative expenses for the fiscal years ended march 31 , 2018 and 2017 include occupancy expense ( primarily rent , utilities and office expenses ) of $ 18.2 million and $ 15.8 million , respectively , related to our development studios . research and development research and development expenses increased by $ 58.5 million for the fiscal year ended march 31 , 2018 , as compared to the prior year , due primarily to increased personnel expense due to ( i ) increased headcount , including our acquisition of social point , and ( ii ) higher stock-based compensation . these increases were partially offset by lower production expenses for titles that have not reached technological feasibility . depreciation and amortization depreciation and amortization expenses increased by $ 13.3 million for the fiscal year ended march 31 , 2018 , as compared to the prior year , due primarily to the recognition of a $ 11.3 million impairment charge as a result of our decision not to proceed with further development of a certain in-process research and development ( `` ipr & d '' ) intangible asset from our acquisition of social point . 30 business reorganization during the fiscal year ended march 31 , 2018 , we announced and initiated actions to implement a strategic reorganization at one of our labels . in connection with this initiative we incurred business reorganization expenses of $ 14.7 million for the fiscal year ended march 31 , 2018 , due primarily to employee separation costs with no corresponding costs in the prior year . although we may record additional expense or benefit in future periods to true-up estimates , we do not expect to incur additional reorganization costs in connection with this reorganization . see note 20 - business reorganization . interest and other , net replace_table_token_13_th interest and other , net was income of $ 1.0 million for the fiscal year ended march 31 , 2018 , as compared to an expense of $ 15.7 million for the fiscal year ended march 31 , 2017 . the increase was due primarily to a $ 20.7 million decrease in interest expense as a result of the settlement of our 1.75 % convertible notes in december 2016 and higher gains on early conversions of our 1.00 % convertible notes as well as higher interest income due to the nature of our investments and the rise of interest rates , partially offset by foreign exchange transaction losses for the fiscal year ended march 31 , 2018 as compared to foreign exchange transaction gains in the prior year . provision/benefit from income taxes on december 22 , 2017 , the u.s. enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( herein referred to as the `` act ” ) . the act makes broad and complex changes to the u.s. tax code that could materially affect us . the act reduces the u.s. federal corporate income tax rate from 35 % to 21 % , effective january 1 , 2018 and requires companies to pay a one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries .
| financial summary our net revenue for fiscal year ended march 31 , 2018 was led by titles from a variety of our top franchises , primarily grand theft auto , nba 2k , and wwe 2k . our net revenue increased to $ 1,792.9 million , an increase of $ 13.1 million or 0.7 % compared to the fiscal year ended march 31 , 2017 . for the fiscal year ended march 31 , 2018 , our net income was $ 173.5 million , as compared to a net income of $ 67.3 million in the prior year . diluted earnings per share for the fiscal year ended march 31 , 2018 was $ 1.54 , as compared to diluted income per share of $ 0.72 for the fiscal year ended march 31 , 2017 . our operating income for the fiscal year ended march 31 , 2018 increased compared to the operating income for fiscal year ended march 31 , 2017 , due primarily to higher gross profit due primarily to lower software development costs and royalties and product costs due to having released more titles in the prior year period , partially offset by higher research and development costs related to titles that have not reached technological feasibility . at march 31 , 2018 we had $ 809.0 million of cash and cash equivalents , compared to $ 943.4 million at march 31 , 2017 . the decrease in cash and cash equivalents from march 31 , 2017 was due primarily to cash used in financing and investing activities , partially offset by cash provided by operating activities . net cash used in financing activities was primarily related to repurchases of common stock under our share repurchase program and tax payments related to net share settlements of our restricted stock awards .
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pursuant to these terms , no shares of series iv class b stock were converted into common stock in 2012 or 2011. in the event of voluntary or involuntary liquidation , dissolution , or winding up of the company , holders of series v class b stock then outstanding are entitled to receive liquidating distributions of $ 4.40 per share , plus unpaid dividends after distribution obligations to series i class b stock , series ii class b stock , series iii class b stock , and series iv class b stock have been satisfied and prior to any distribution to the holders of the common stock . f-21 common stock the company is authorized to issue 100,000,000 shares of no par value common stock , of which 27,252,463 and 25,318,700 shares were outstanding at december 31 , 2012 and 2011 , respectively . the company has authorized a common stock repurchase plan structured to comply with rules 10b5-1 and 10b-18 under the securities exchange act of 1934. under the plan , the company purchased 67,102 shares in 2012. such purchased shares are recorded as treasury stock . 14. related party transactions the company has a license agreement with the chief executive officer of the company . see note 5. the chief executive officer of the company exercised a portion of his stock option in 2012. see note 12. during the years ended december 31 , 2012 , 2011 , and 2010 , the company paid $ 91,086 ; $ 96,787 ; and $ 75,831 , respectively , to a family member of its chief executive officer as an employee and consultant . during the year ended december 31 , 2010 , the company paid $ 20,350 to a director 's company for participating in clinical trials . the chief executive officer exchanged his preferred stock shares for common stock and cash in the fourth quarter of 2011 pursuant to the 2011 exchange offer on the same terms as were offered to all preferred stockholders . he received 86,607 shares of common stock and $ 95,843 in exchange for 5,000 shares of series iv preferred stock and 81,607 shares of series v preferred stock , and he waived a total of $ 58,110 in unpaid dividends in arrears . the company 's common stock had a closing stock price of $ 1.39 at november 4 , 2011 , the expiration date of the 2011 exchange offer . 15. stock options stock options the company has approved stock option plans for the granting of stock options to employees , directors , and consultants . options for the purchase of 3,100 shares of common stock remain outstanding under the 1999 stock option plan , which terminated pursuant to its terms in 2009. options for the purchase of 2,849,108 shares of common stock have been issued under the 2008 stock option plan , which authorized a total of 3,000,000 shares of common stock upon the exercise of stock options . options for the purchase of 2,433,981 shares under the 2008 stock option plan were outstanding as of december 31 , 2012. options for the purchase of 1,000,000 shares of common stock remain outstanding under an option granted to mr. thomas j. shaw . the compensation and benefits committee administers all plans and determines and or recommends to the board exercise prices at which options are granted . all executive compensation , including the granting of stock options , is determined by the compensation and benefits committee . shares issued upon exercise of options come from the company 's authorized but unissued common stock . the options vested over periods up to three years from the date of grant and generally expire ten years after the date of grant . unvested options issued under the 2008 stock option plan expire immediately after termination of employment . employee options a summary of director , story_separator_special_tag forward-looking statement warning certain statements included by reference in this filing containing the words could , may , believes , anticipates , intends , expects , and similar such words constitute forward-looking statements within the meaning of the private securities litigation reform act . any forward-looking statements involve known and unknown risks , uncertainties , and other factors that may cause our actual results , performance , or achievements to be materially different from any future results , performance , or achievements expressed or implied by such forward-looking statements . such factors include , among others , our ability to maintain liquidity , our maintenance of patent protection , the impact of current litigation , our ability to maintain favorable supplier arrangements and relationships , our ability to quickly increase capacity in response to an increase in demand , our ability to access the market , our ability to maintain or lower production costs , our ability to continue to finance research and development as well as operations and expansion of production , the increased interest of larger market players , specifically bd , in providing devices to the safety market , and other factors referenced in item 1a . risk factors . given these uncertainties , undue reliance should not be placed on forward-looking statements . overview we have been manufacturing and marketing our products since 1997. safety syringes comprised 99.1 % of our sales in 2012. we also manufacture and market the blood collection tube holder , iv safety catheter , and vanishpoint ® blood collection set . we currently provide other safety medical products in addition to safety products utilizing retractable technology . one such product is the patient safe ® syringe , which is uniquely designed to reduce the risk of bloodstream infections resulting from catheter hub contamination . story_separator_special_tag in the event that we become unable to purchase product from our outside supplier , double dove , we would need to find an alternate supplier for the 0.5ml insulin syringe , the 0.5ml autodisable syringe , and the 5ml and 10ml syringes and we would increase domestic production for the 1ml and 3ml syringes . in 1995 , we entered into a license agreement with thomas j. shaw for the exclusive right to manufacture , market , and distribute products utilizing automated retraction technology . this technology is the subject of various patents and patent applications owned by mr. shaw . the license agreement generally provides for quarterly payments of a 5 % royalty fee on gross sales . this license agreement was amended as of september 7 , 2012 to clarify and set forth the calculation and amount of the royalty , including in the event that we have sublicensed our products . 16 with increased volumes , our manufacturing unit costs have generally tended to decline . factors that could affect our unit costs include increases in costs by third party manufacturers , changing production volumes , costs of petroleum products , and transportation costs . increases in such costs may not be recoverable through price increases of our products . story_separator_special_tag t > liquidity at the present time , management does not intend to raise equity capital . due to the funds received from prior litigation settlements , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing as the primary ongoing sources of cash . our note to katie petroleum was paid in full in september 2012. our payments were approximately $ 37,000 per month . historical sources of liquidity we have historically funded operations primarily from the proceeds from revenues , private placements , litigation settlements , and loans . internal sources of liquidity margins and market access to routinely achieve break even quarters , we need minimal access to hospital markets which has been difficult to obtain due to the monopolistic marketplace which was the subject of our initial lawsuit and now also included in our second antitrust lawsuit against bd . we will continue to attempt to gain access to the market through our sales efforts , innovative technology , the introduction of new products , and , when necessary , litigation . we continue to focus on methods of upgrading our manufacturing capability and efficiency in order to reduce costs . fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable supplier arrangements and relationships could result in the need to manufacture all ( as opposed to 27.2 % ) of our products in the u.s. this could temporarily increase unit costs as we ramp up domestic production . the mix of domestic and international sales affects the average sales price of our products . generally , the higher the ratio of domestic sales to international sales , the higher the average sales price will be . typically international sales are shipped directly from china to the customer . purchases of product manufactured in china , if available , usually decrease the average cost of manufacture for all units . domestic costs , such as indirect labor and overhead , remain relatively constant . the number of units produced by us versus manufactured in china can have a significant effect on the carrying costs of inventory as well as cost of sales . we will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in china to achieve economic benefits as well as to maintain our domestic manufacturing capability . fluctuations in the cost of oil ( since our products are petroleum based ) and transportation and the volume of units purchased from double dove may have an impact on the unit costs of our product . increases in such costs may not be recoverable through price increases of our products . reductions in oil prices may not quickly affect petroleum product prices . 18 seasonality historically , unit sales have increased in the latter part of the year due , in part , to the demand for syringes during the flu season . cash requirements due to funds received from prior litigation settlements , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing as the primary ongoing sources of cash . in the event we continue to have only limited market access and cash generated from operations becomes insufficient to support operations , we would take additional cost cutting measures to reduce cash requirements . such measures could result in the reduction of units being produced , the reduction of workforce , the reduction of salaries of officers and other nonhourly employees , and the deferral of royalty payments . external sources of liquidity we have obtained several loans from our inception , which have , together with the proceeds from the sales of equities and litigation efforts , enabled us to pursue development and production of our products . given the current economic conditions , our ability to obtain additional funds through loans is uncertain . furthermore , the shareholders previously authorized an additional 5,000,000 shares of a class c preferred stock that could , if necessary , be designated and used to raise funds through the sale of equity . due to the current market price of our common stock , it is unlikely we would choose to raise funds by the sale of equity .
| results of operations the following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties . our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements . all period references are to our fiscal years ended december 2012 , 2011 , or 2010. dollar amounts have been rounded for ease of reading . comparison of year ended december 31 , 2012 and year ended december 31 , 2011 domestic sales accounted for 75.4 % and 83.0 % of the revenues in 2012 and 2011 , respectively . domestic revenues decreased 4.8 % principally due to a decrease in unit sales and a lower average price . domestic unit sales decreased 2.1 % . domestic unit sales were 64.0 % of total unit sales for 2012. international revenues increased from $ 5.4 million in 2011 to $ 8.3 million in 2012 , primarily due to higher volumes mitigated by lower average prices . overall unit sales increased 14.7 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times , as well as economic conditions . cost of sales increased $ 2.7 million due to greater sales volumes mitigated by a decrease of $ 1.5 million due to lower unit costs of manufacture . royalty expenses increased $ 49 thousand due to higher gross sales . gross profit margins decreased from 34.0 % in 2011 to 33.2 % in 2012. operating expenses increased 0.8 % from the prior year due to higher compensation in our sales and marketing department attributable to increasing sales and marketing staff and bonus pay as well as increased travel and entertainment expense . our litigation costs were higher in 2012. these increases in costs were reduced by lower costs of patents and bad debt expense .
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however , the company is unable to estimate the reasonably possible loss in excess of its accrual due to uncertainty in the following assumptions that underlie the company 's accrual and the possibility of losses in excess of such accrual : the amount of damages sought by the claimant , the company and claimant 's willingness to negotiate a settlement , the terms of settlements of other defendants with asbestos-related liabilities , the bankruptcy story_separator_special_tag ( in millions , except per share , average settlement cost per asbestos claim , employee , shareholder and statistical data ) introduction the following discussion summarizes the significant factors affecting the results of operations and financial condition of crown holdings , inc. ( the `` company '' ) as of and during the three-year period ended december 31 , 2017. this discussion should be read in conjunction with the consolidated financial statements included in this annual report . business strategy and trends the company 's strategy is to grow its businesses in targeted international growth markets , while improving operations and results in more mature markets through disciplined pricing , cost control and careful capital allocation . in december 2017 , the company announced that it has entered into an agreement to acquire signode industrial group , a leading global provider of transit packaging systems and solutions , for cash consideration of $ 3.91 billion . with the acquisition , the company will add a portfolio of premier transit and protective packaging franchises to its existing metal packaging businesses , thereby broadening and diversifying its customer base and significantly increasing cash flow . the company 's global beverage can business continues to be a major strategic focus for organic growth . for several years , global industry demand for beverage cans has been growing and this is expected to continue in the coming years . while emerging markets such as southeast asia and mexico have experienced higher growth rates due to rising per capita incomes and accompanying increases in beverage consumption , the more mature economies in europe and north america have also seen market expansion . this is being propelled by the growth of beverages such as energy drinks , teas , juices , sparkling waters and craft beer and an increased preference for cans over certain other forms of beverage packaging . in addition , the company 's acquisition of empaque in 2015 significantly increased its strategic position in beverage cans and its presence in the growing mexican market . global food and aerosol can sales unit volumes have been stable to declining in recent years primarily due to lower consumer spending . the company continues to benefit from the 2014 acquisition of mivisa which provided the company the leading position in spain , a major european agricultural market . while the opportunity for organic volume growth in the company 's mature markets is not comparable to that in targeted international growth markets , the company continues to generate strong returns on invested capital and significant cash flow from these businesses . the company monitors capacity across all of its businesses and , where necessary , may take action such as closing a plant or reducing headcount to better manage its costs . any or all of these actions may result in additional restructuring charges in the future which may be material . aluminum and steel prices can be subject to significant volatility and there has not been a consistent and predictable trend in pricing . as part of the company 's efforts to manage cost , it attempts to pass-through increases in the cost of aluminum and steel to its customers . the company 's ability to pass-through aluminum premium costs to its customers varies by market . there can be no assurance that the company will be able to recover from its customers the impact of any such increased costs . through 2020 , the company 's primary capital allocation focus will be to reduce leverage , as was successfully accomplished following the mivisa and empaque acquisitions . story_separator_special_tag lower material costs partially offset by a 6 % increase in sales unit volumes , which includes the impact of empaque for an additional six weeks . net sales would have been $ 133 higher using exchange rates in effect during 2015 . 27 crown holdings , inc. segment income increased primarily due to $ 41 from higher sales unit volumes , including the impact of an additional six weeks of empaque , improved cost performance , and a benefit of $ 11 from lower aluminum premium costs in brazil , partially offset by the impact of foreign currency translation and start-up costs at new facilities in mexico and new york as described above . segment income would have been $ 19 higher using exchange rates in effect during 2015. north america food the north america food segment manufactures steel and aluminum food cans and ends and metal vacuum closures and supplies a variety of customers from its operations in the u.s. , canada and mexico . the north american food can and closures market is a mature market which has experienced stable to slightly declining volumes in recent years . net sales and segment income in the north america food segment were as follows : replace_table_token_6_th year ended december 31 , 2017 compared to 2016 net sales increased primarily due to the pass-through of higher tinplate costs and 5 % higher sales unit volumes . segment income increased primarily due to product mix . year ended december 31 , 2016 compared to 2015 net sales decreased primarily due to lower sales unit volumes , the pass-through of lower tinplate costs and the impact of foreign currency translation . net sales would have been $ 14 higher using exchange rates in effect during 2015. segment income decreased primarily due to lower sales unit volumes partially offset by improved cost performance . story_separator_special_tag net sales and segment income in non-reportable segments were as follows : replace_table_token_10_th year ended december 31 , 2017 compared to 2016 net sales increased primarily due to the pass-through of higher tinplate costs in the company 's global aerosol businesses . segment income was comparable . the company announced the closure of a promotional packaging facility in europe in an effort to reduce cost . the company expects this action to result in annual cost savings of approximately $ 5 when completed in 2018 but there can be no assurance that these pre-tax savings will be realized . year ended december 31 , 2016 compared to 2015 net sales decreased primarily due to $ 46 from lower equipment sales , $ 45 from the divestiture of certain operations within the company 's european aerosol and promotional packaging businesses in 2015 , $ 20 from lower selling prices in the company 's aerosol and promotional packaging businesses , including the pass-through of lower tinplate prices , and the impact of foreign currency translation . net sales would have been $ 20 higher using exchange rates in effect during 2015. segment income decreased primarily due to $ 7 from lower sales in the company 's north america aerosol can business and the impact of foreign currency translation . segment income would have been $ 6 higher using exchange rates in effect during 2015. corporate and unallocated replace_table_token_11_th corporate and unallocated items decreased in 2017 compared to 2016 primarily due to $ 12 of lower pension costs and lower technology and other general corporate costs . the decrease was partially offset by a benefit of $ 8 due to the timing impact of hedge ineffectiveness in 2016 that did not recur in 2017 . 30 crown holdings , inc. corporate and unallocated items in 2016 included an $ 8 benefit related to the timing impact of hedge ineffectiveness as compared to a charge of $ 1 in 2015. additionally , corporate and unallocated expenses decreased due to $ 20 of lower pension costs , $ 7 of lower stock-based compensation expense and a 2015 charge of $ 6 related to fair value adjustments for the sale of inventory acquired in the acquisition of empaque . cost of products sold ( excluding depreciation and amortization ) cost of products sold ( excluding depreciation and amortization ) increased from $ 6,583 in 2016 to $ 6,952 in 2017 primarily due to the impact of higher raw material costs . cost of products sold ( excluding depreciation and amortization ) decreased from $ 7,116 in 2015 to $ 6,583 in 2016 primarily due to the impact of foreign currency translation and lower raw material costs partially offset by the impact of the empaque acquisition . cost of products sold would have been $ 214 higher using exchange rates in effect during 2015. cost of products sold ( excluding depreciation and amortization ) as a percentage of net sales was 80 % in 2017 , 79 % in 2016 and 81 % in 2015. depreciation and amortization depreciation and amortization was $ 247 in both 2017 and 2016. depreciation and amortization increased from $ 237 in 2015 to $ 247 in 2016 primarily due to the impact of recent capacity expansion and depreciation and amortization of fixed assets and intangible assets recorded in connection with the company 's acquisition of empaque in 2015 , partially offset by favorable currency translation . selling and administrative expense selling and administrative expense increased from $ 368 in 2016 to $ 371 in 2017 primarily due to higher general corporate costs . selling and administrative expense decreased from $ 390 in 2015 to $ 368 in 2016 primarily due to $ 12 from the impact of foreign currency translation and $ 7 from lower stock-compensation expense . provision for asbestos crown cork & seal company , inc. is one of many defendants in a substantial number of lawsuits filed throughout the u.s. by persons alleging bodily injury as a result of exposure to asbestos . during 2017 , 2016 and 2015 the company recorded charges of $ 3 , $ 21 and $ 26 to increase its accrual for asbestos-related costs and made asbestos-related payments of $ 30 in each year . the company currently expects 2018 payments to be approximately $ 30. see note l to the consolidated financial statements for additional information regarding the provision for asbestos-related costs . also see the critical accounting policies section of this “ management 's discussion and analysis of financial condition and results of operations ” for a discussion of the company 's policies with respect to asbestos liabilities . interest expense for the year ended december 31 , 2017 compared to 2016 , interest expense increased from $ 243 to $ 252 primarily due to increased average borrowing rates . for the year ended december 31 , 2016 compared to 2015 , interest expense decreased from $ 270 to $ 243 primarily due to lower average debt outstanding . taxes on income the company 's effective income tax rates were as follows : replace_table_token_12_th 31 crown holdings , inc. the higher effective tax rate in 2017 was primarily due to a net charge of $ 177 to recognize the provisional impact of the new u.s. federal tax reform legislation . the tax act imposed a limitation on the tax deduction for interest expense , net of interest income , to 30 % of a u.s. corporation 's adjusted taxable income . the tax act also changes certain provisions related to the taxation of non-u.s. subsidiary earnings . as a result , beginning in 2018 , the company will no longer record u.s. federal income tax on its share of foreign subsidiaries ( except for certain categories of passive and intangible income ) , nor will the company record a benefit for foreign tax credits related to that income . the company does not believe these changes will have a material effect on its effective tax rate .
| results of operations the key measure used by the company in assessing performance is segment income , a non-gaap measure generally defined by the company as income from operations adjusted to add back provisions for asbestos and restructuring and other , the impact of fair value adjustments related to the sale of inventory acquired in an acquisition and the timing impact of hedge ineffectiveness . the foreign currency translation impacts referred to in the discussion below were primarily due to changes in the euro and pound sterling in the company 's european segments , the brazilian real , canadian dollar and mexican peso in the company 's americas segments and the chinese renminbi and thai baht in the company 's asia pacific segment . the company calculates the impact of foreign currency translation by multiplying or dividing , as appropriate , current year u.s. dollar results by the current year average foreign exchange rates and then multiplying or dividing , as appropriate , those amounts by the applicable prior year average exchange rates . 26 crown holdings , inc. net sales and segment income replace_table_token_4_th year ended december 31 , 2017 compared to 2016 net sales increased primarily due to the pass-through of higher raw material costs , higher global beverage and food can sales unit volumes and the impact of foreign currency translation . net sales would have been $ 19 lower using exchange rates in effect during 2016. year ended december 31 , 2016 compared to 2015 net sales decreased primarily due to the impact of foreign currency translation and the pass-through of lower raw material costs . net sales would have been $ 277 higher using exchange rates in effect during 2015. discussion and analysis of net sales and segment income by segment follows .
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see notes 5 , 6 and 7. as of december 31 , 2010 , the company had $ 16,300 in r & d related expense for the clinical trial and accrued license payments payable of $ 25,000 for license maintenance fee and $ 49,218 for current and past patent expense due to the related party . cash and cash equivalents — the company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents . concentration of credit risk — financial instruments that potentially subject the company to a significant concentration of credit risk consist of cash . the company maintains its cash balances with one major commercial bank , jpmorgan chase bank . the balances are insured by the federal deposit insurance corporation up to $ 250,000 . as a result , as of december 31 , 2011 , $ 682,331 of the company 's cash balances was not covered by the fdic . as of december 31 , 2010 the company had $ 238,565 in cash on-hand , all of which was covered by federal deposit insurance corporation insurance . f- 9 intangible assets/impairment of long-lived assets — as of december 31 , 2011 , other assets totals $ 2,077,414 for the company 's two technology licenses , comprised of $ 2,868,877 in value acquiring the company 's technology licenses and its intellectual property , less accumulated amortization of $ 791,463 . the technology value consists of $ 859,710 in cash paid or accrued to be paid to md anderson , plus 3,138,889 shares of common stock granted to md anderson valued at $ 2,354,167 less $ 345,000 for impairment expense taken in december of 2011 ( see note 1 ) . this value is being amortized over a fifteen year ( 15 year ) period from november 7 , 2007 , the date that the technology licenses became effective . the company accounts for the impairment and disposition of its long-lived assets in accordance with generally accepted accounting principles ( gaap ) . long-lived assets are reviewed for events of changes in circumstances which indicate that their carrying value may not be recoverable . the company estimates that approximately $ 200,000 will be amortized per year for each future year for the current value of the technology licenses acquired until approximately 2022. as of december 31 , 2010 other assets totaled $ 2,464,067 comprised of $ 3,043,821 in value acquiring the company 's technology licenses and its intellectual property , less accumulated amortization of $ 579,754 . research and development costs — costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with gaap . advance payments , including nonrefundable amounts , for goods or services that story_separator_special_tag in addition to historical information , this report contains forward-looking statements that involve risks and uncertainties , which may cause our actual results to differ materially from plans and results discussed in forward-looking statements . we encourage you to review the risks and uncertainties , discussed in the section entitled item 1a “ risk factors , ” and the “ note regarding forward-looking statements , ” included in the beginning of this form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements or implied in historical results and trends . 33 the following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this form 10-k. overview we were formed under the name of ogden golf co. corporation . we terminated our retail golf store operations in december 2006. on february 14 , 2008 , we acquired bio-path , inc. ( “ bio-path subsidiary ” ) in a reverse merger transaction . in connection with the merger , we changed our name to bio-path holdings , inc. , we acquired bio-path subsidiary as a wholly owned subsidiary and we appointed new officers and directors . in connection with the merger , we also increased our authorized capital stock and adopted a stock incentive plan . the merger and related matters are further described in a form 8-k filed with the securities and exchange commission on february 19 , 2008. subsequent to the merger , we changed our fiscal year end from june 30th to december 31st . bio-path subsidiary was formed to finance and facilitate the development of novel cancer therapeutics . our plan was to acquire licenses for drug technologies from the university of texas m. d. anderson cancer center ( “ md anderson ” ) , to fund clinical and other trials for such technologies and to commercialize such technologies . bio-path has negotiated and executed three exclusive licenses ( “ license agreements ” ) for three lead products and nucleic acid delivery technology . these licenses specifically provide drug delivery platform technology with composition of matter intellectual property that enables systemic delivery of antisense , and formulation technology for delivery of small interfering rna ( “ sirna ” ) and small molecules for treatment of cancer . the company is currently developing only the liposomal antisense delivery technology and products . bio-path 's business plan is to act efficiently as an intermediary in the process of translating newly discovered drug technologies into authentic therapeutic drugs candidates . its strategy is to selectively license potential drug candidates for certain cancers , and , primarily utilizing the comprehensive drug development capabilities of md anderson , to advance these candidates into initial human efficacy trials ( phase iia ) , and out-license each successful potential drug to a pharmaceutical company . plan of operation see item 1 of this form 10-k. story_separator_special_tag conditions set forth in the purchase agreement including that a registration statement related to the transaction has been declared effective by the u.s. securities and exchange commission ( “ sec ” ) . story_separator_special_tag advance payments , including nonrefundable amounts , for goods or services that will be used or rendered for future r & d 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 . for the year 2011 , the company had $ 596,802 of costs classified as research and development expense and $ 544,000 of related party research and development expense . of the research and development expense totaling $ 596,802 , $ 211,709 was for amortization of the technology license , $ 66,098 was for stock options expense for individuals involved in research and development activities , $ 90,866 for drug product material expensed and the balance of approximately $ 228,129 was for drug product testing , advisory services and other r & d activities . of the $ 544,000 related party research and development expense , $ 149,000 was comprised of costs for clinical trial and hospital costs , $ 50,000 for technology license maintenance fees not capitalized in technology license-other assets and $ 345,000 in technology license impairment expense ( see note 2. related party ) . for the year 2010 , the company had $ 1,158,438 of costs classified as research and development expense and $ 41,000 of related party research and development expense . 37 stock-based compensation — the company has accounted for stock-based compensation under the provisions of gaap , which requires us to record an expense associated with the fair value of stock-based compensation . we currently use the black-scholes option valuation model to calculate stock based compensation at the date of grant . option pricing models require the input of highly subjective assumptions , including the expected price volatility . changes in these assumptions can materially affect the fair value estimate . in october of 2008 the company made stock option grants to management and officers to purchase in the aggregate 2,500,000 shares of the company 's common stock . terms of the stock option grants require that the individuals continue employment with the company over the vesting period of the option , fifty percent ( 50 % ) of which vested upon the date of the grant of the stock options and fifty percent ( 50 % ) of which will vest over 3 years from the date that the options were granted . as of the end of 2011 all of the 2,500,000 options are fully vested . the exercise price of the options is $ 1.40 a share . the company determined the fair value of the stock options granted using the black scholes model and expenses this value monthly based upon the vesting schedule for each stock option award . for purposes of determining fair value , the company used an average annual volatility of eighty four percent ( 84 % ) , which was calculated based upon taking a weighted average of the volatility of the company 's common stock and the volatility of similar biotechnology stocks . the risk free rate of interest used in the model was taken from a table of the market rate of interest for u. s. government securities for the date of the stock option awards and interpolated as necessary to match the appropriate effective term for the award . the total value of stock options granted to management and officers was determined using this methodology to be $ 2,485,000 , half of which was expensed at the date of grant and the balance fully vested during the fourth quarter of 2011. in december of 2008 the company made stock option grants for services over the next three years to purchase in the aggregate 100,000 shares of the company 's common stock . terms of the stock option grants require , among other things , that the individual continues to provide services over the vesting period of the option , which is three or four years from the date that each option granted to the individual becomes effective . the exercise price of the options is $ 0.30 a share . none of these stock options grants were for current management and officers of the company . the company determined the fair value of the stock options granted using the black scholes model and expenses this value monthly based upon the vesting schedule for each stock option award . for purposes of determining fair value , the company used an average annual volatility of eighty four percent ( 84 % ) , which was calculated based upon taking a weighted average of the volatility of the company 's common stock and the volatility of similar biotechnology stocks . the risk free rate of interest used in the model was taken from a table of the market rate of interest for u. s. government securities for the date of the stock option awards and interpolated as necessary to match the appropriate effective term for the award . the total value of stock options granted was determined using this methodology to be $ 21,450 , which will be expensed over the next four years based on the stock option vesting schedule . total stock option expense for the year 2011 being reported on totaled $ 382,918. total stock option expense for the year 2010 being reported on totaled $ 477,356. warrant grants . in april of 2008 the company awarded warrants for services to purchase in the aggregate 85,620 shares of the company 's common stock . the exercise price is $ 0.90 a share . the warrants were one hundred percent ( 100 % ) vested upon issuance and were expensed upfront as warrants for services . the fair value of the warrants expensed was determined using the same methodology as described above for stock options . the total value of
| results of operations results of operations for the twelve months ended december 31 , 2011 and december 31 , 2010. we have no operating revenues since our inception . our operating expenses for the twelve months ended december 31 , 2011 were $ 2,365,615 and included general and administrative expenses of $ 1,224,813 , research and development expense of $ 596,802 and related party research and development expense of $ 544,000 ( see note to financial statements for related party md anderson ) . the operating expense for the twelve month period ending december 31 , 2011 included amortization expense of $ 211,709 included in research and development expense , and $ 382,918 in stock option expense allocated between research and development expense and administrative expense . stock option expense represents the fair value of stock option grants awarded valued at the date of grant and allocated over the relevant vesting period . in addition , operating expense for the twelve month period ending december 31 , 2011 included $ 345,000 in technology impairment expense in related party research and development expense . 34 our operating expenses for the twelve months ended december 31 , 2010 were $ 2,326,429 comprised of general and administrative expenses of $ 1,126,991 , research and development expense of $ 1,158,438 and related party research and development expense of $ 41,000. the operating expense for the twelve month period ending december 31 , 2010 included amortization expense of $ 197,267 included in research and development expense , and $ 477,356 in stock option expense allocated between research and development expense and administrative expense . compared to the twelve month period ending december 31 , 2010 , operating expenses for the twelve month period ending december 31 , 2011 increased $ 39,186 due to higher administrative expense of $ 97,822 offset partially by $ 58,636 in lower research and development expense .
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, references to “ we , ” “ our , ” “ us , ” and “ our company ” refer to postal realty trust , inc. , a maryland corporation , together with our consolidated subsidiaries , including postal realty lp , a delaware limited partnership ( “ our operating partnership ” ) , of which we are the sole general partner and which we refer to in this section as our operating partnership . prior to the closing of our ipo on may 17 , 2019 , andrew spodek , our chief executive officer and a member of our board of directors ( the “ board ” ) , directly or indirectly controlled 190 properties owned by the predecessor that were contributed as part of the formation transactions ( as defined below ) . of these 190 properties , 140 were held indirectly by our predecessor through a series of holding companies , which we refer to collectively as “ uph. ” the remaining 50 properties were owned by mr. spodek through 12 limited liability companies and one limited partnership , which we refer to collectively as the “ spodek llcs. ” references to our predecessor consist of uph , the spodek llcs and nationwide postal management , inc. , a property management company whose management business we acquired in the formation transactions ( as defined below ) , collectively . this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks , uncertainties and assumptions . see “ cautionary statement regarding forward-looking statements ” for a discussion of the risks , uncertainties and assumptions associated with those statements . our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors , including , but not limited to , those in “ risk factors ” and included in other portions of this report . overview company we were formed as a maryland corporation on november 19 , 2018 and commenced operations upon completion of our ipo on may 17 , 2019 and the related formation transactions ( the “ formation transactions ” ) . we conduct our business through a traditional upreit structure in which our properties are owned by our operating partnership directly or through limited partnerships , limited liability companies or other subsidiaries . at the completion of our ipo and the formation transactions , we owned a portfolio of 271 postal properties located in 41 states comprising approximately of 872,000 net leasable interior square feet , all of which were leased to the usps . from may 17 , 2019 to december 31 , 2019 , we acquired 195 postal properties leased to the usps for approximately $ 57.5 million . as of december 31 , 2019 , our portfolio consisted of 466 owned postal properties , located in 44 states and comprising approximately 1.4 million net leasable interior square feet . 30 the following charts show certain statistics of our portfolio as of december 31 , 2019 : we are the sole general partner of our operating partnership through which our postal properties are directly or indirectly owned . as of march 25 , 2020 , we owned approximately 66.0 % of the outstanding common units of limited partnership interest in the operating partnership ( each , an “ op unit , ” and collectively , the “ op units ” ) including long term incentive units of the operating partnership ( each , an “ ltip unit ” and collectively , the “ ltip units ) . our board oversees our business and affairs . initial public offering on may 17 , 2019 , we completed our ipo , pursuant to which we sold 4,500,000 shares of our class a common stock , par value $ 0.01 per share ( our “ class a common stock ” ) , at a public offering price of $ 17.00 per share . we raised $ 76.5 million in gross proceeds , resulting in net proceeds to us of approximately $ 71.1 million after deducting approximately $ 5.4 million in underwriting discounts and before giving effect to $ 6.4 million in other expenses relating to our ipo . our class a common stock began trading on the new york stock exchange ( the “ nyse ” ) under the symbol “ pstl ” on may 15 , 2019. in connection with our ipo and the formation transactions , we also issued 1,333,112 op units , 637,058 shares of class a common stock and 27,206 shares of class b common stock , par value $ 0.01 per share ( our “ class b common stock ” or “ voting equivalency stock ” ) , to mr. spodek and his affiliates in exchange for the predecessor properties and interests . executive overview we are an internally managed reit with a focus on acquiring and managing properties leased to the usps . we believe the overall opportunity for consolidation that exists in the sector is very attractive . we continue to execute our strategy to acquire and consolidate postal properties that will generate strong earnings for our shareholders . emerging growth company we are an “ emerging growth company , ” as defined in the jumpstart our business startups act of 2012 ( the “ jobs act ” ) and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “ emerging growth companies , ” including not being required to comply with the auditor attestation requirements of section 404 of the sarbanes-oxley act of 2002 , reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved . story_separator_special_tag the expenses of owning and operating a property are not necessarily reduced when circumstances , such as market factors and competition , cause a reduction in income from the property . if revenues drop , we may not be able to reduce our expenses accordingly . costs associated with real estate investments generally will not be materially reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease . as a result , if revenues decrease in the future , static operating costs may adversely affect our future cash flow and results of operations . general and administrative general and administrative expenses include employee compensation costs ( including equity-based compensation ) , professional fees , legal fees , insurance , consulting fees , portfolio servicing costs and other expenses related to corporate governance , filing reports with the united states securities and exchange commission ( the “ sec ” ) and the nyse , and other compliance matters . our predecessor was privately owned and historically did not incur costs that we incur as a public company . in addition , while we expect that our general and administrative expenses will continue to rise as our portfolio grows , we expect that such expenses as a percentage of our revenues will decrease over time due to efficiencies and economies of scale . depreciation and amortization depreciation and amortization expense relate primarily to depreciation on properties and improvements and to amortization of certain lease intangibles . indebtedness and interest expense interest expense for our predecessor related primarily to three mortgage loans payable and related party interest-only promissory notes , see note 6. debt and note 7. loans payable — related party to the notes of the consolidated and combined consolidated financial statements . as a result of the formation transactions , we assumed certain indebtedness of the predecessor , a portion of which was repaid without penalty using a portion of the net proceeds from our ipo . on september 27 , 2019 , we entered into a credit agreement ( the “ credit agreement ” ) with people 's united bank , national association , individually and as administrative agent , bmo capital markets corp. , as syndication agent , and certain other lenders . the credit agreement provides for a senior revolving credit facility ( the “ credit facility ” ) with revolving commitments in an aggregate principal amount of $ 100.0 million and , subject to customary conditions , the option to increase the aggregate lending commitments under the agreement by up to $ 100.0 million ( the “ accordion feature ” ) . on january 30 , 2020 , we exercised a portion of the accordion feature to increase the maximum amount available under the credit facility to $ 150.0 million . we intend to use the credit facility for working capital purposes , which may include repayment of indebtedness , property acquisitions and other general corporate purposes . consistent with the method adopted by our predecessor , we amortize on a non-cash basis the deferred financing costs associated with its debt to interest expense using the straight-line method , which approximates the effective interest rate method over the terms of the related loans . any changes to the debt structure , including debt financing associated with property acquisitions , could materially influence the operating results depending on the terms of any such indebtedness . income tax benefit ( expense ) as a reit , we generally will not be subject to federal income tax on our net taxable income that we distribute currently to our stockholders . under the code , reits are subject to numerous organizational and operational requirements , including a requirement that they distribute each year at least 90 % of their reit taxable income , determined without regard to the deduction for dividends paid and excluding any net capital gains . if we fail to qualify for taxation as a reit in any taxable year and do not qualify for certain statutory relief provisions , our income for that year will be taxed at regular corporate rates , and we would be disqualified from taxation as a reit for the four taxable years following the year during which we ceased to qualify as a reit . even if we qualify as a reit for federal income tax purposes , we may still be subject to state and local taxes on our income and assets and to federal income and excise taxes on our undistributed income . additionally , any income earned by prm and any other trs we form in the future , will be subject to federal , state and local corporate income tax . lease renewal as of december 31 , 2019 , 20 of our leases were either in holdover status or expired on december 31 , 2019. see “ item 2. properties— lease expiration schedule ” . as of march 25 , 2020 , 32 leases were in holdover status representing $ 1.1 million of annual rental revenue for the year ended december 31 , 2019. we might not be successful in renewing the leases that are in holdover status or that are expiring in 2020 , or obtaining positive rent renewal spreads , or even renewing the leases on terms comparable to those of the expiring leases . if we are not successful , we will likely experience reduced occupancy , traffic , rental revenue and net operating income , which could have a material adverse effect on our financial condition , results of operations and ability to make distributions to shareholders . 33 story_separator_special_tag offset by a reduction in contractual interest expense on our mortgage debt due a repayment of indebtedness in connection with our ipo .
| results of operations comparison of the year ended december 31 , 2019 and december 31 , 2018 our results of operations for the year ended december 31 , 2019 include our consolidated results for the period from may 17 , 2019 through december 31 , 2019 and combined consolidated results of our predecessor for the period from january 1 , 2019 through may 16 , 2019. the year ended december 31 , 2018 reflects the results of our predecessor and accordingly may not be directly comparable thereto . we incurred a net loss of $ 2.0 million since our ipo on may 17 , 2019 , which includes a loss on early extinguishment of our predecessor 's debt of $ 0.2 million and equity-based compensation of approximately $ 1.0 million . in the discussion below , we have highlighted the impact of our ipo and the formation transactions , where applicable . replace_table_token_3_th revenues total revenues increased by $ 3.6 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase in revenue is attributable to the 81 properties that were acquired in connection with the formation transactions , as well as the 195 properties that were acquired since our ipo . rental income – rental income increased by $ 3.2 million year over year and is made up of $ 2.1 million related to the properties purchased by our predecessor and the properties acquired as part of the formation transactions as well as $ 1.1 million for the 195 properties that were acquired since our ipo . tenant reimbursements – tenant reimbursements increased $ 0.4 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to the acquisition of the 81 properties in connection with the formation transactions and the 195 properties that were acquired since our ipo .
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see `` special note regarding forward-looking statements . '' factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in `` risk factors . '' overview we are a life sciences company that has developed a next generation , ultra-sensitive digital immunoassay platform that advances precision health for life sciences research and diagnostics . our platform enables customers to reliably detect protein biomarkers in extremely low concentrations in blood , serum and other fluids that , in many cases , are undetectable using conventional , analog immunoassay technologies . it also allows researchers to define and validate the function of novel protein biomarkers that are only present in very low concentrations and have been discovered using technologies such as mass spectrometry . these capabilities provide our customers with insight into the role of protein biomarkers in human health that has not been possible with other existing technologies and enable researchers to unlock unique insights into the continuum between health and disease . we believe this greater insight will enable the development of novel therapies and diagnostics and facilitate a paradigm shift in healthcare from an emphasis on treatment to a focus on earlier detection , monitoring , prognosis and , ultimately , prevention . we are currently focusing our platform on protein detection , which we believe is an area of significant unmet need and where we have significant competitive advantages . in addition to enabling new applications and insights in protein analysis , we are also developing our simoa technology to detect nucleic acids in biological samples . we currently sell all of our products for life science research , primarily to laboratories associated with academic and governmental research institutions , as well as pharmaceutical , biotechnology and contract research companies , through a direct sales force and support organizations in north america and europe , and through distributors or sales agents in other select markets , including australia , china , japan , india , lebanon , singapore , south korea and taiwan . we grew our revenue from $ 12.2 million to $ 17.6 million in 2016 and to $ 22.9 million in 2017. our instruments are designed to be used either with assays fully developed by us , including all antibodies and supplies required to run the tests , or with `` homebrew '' kits where we supply some of the components required for testing , and the customer supplies the remaining required elements . accordingly , our installed instruments generate a recurring revenue stream . we believe that our recurring consumable revenue is driven by our customers ' ability to extract more valuable data using our platform and to process a large number of samples quickly with little hands-on preparation . while we expect the quanterix sr-x to generate lower consumables revenue per instrument than the simoa hd-1 analyzer due to its lower throughput , as the installed base of the simoa instruments increases , total consumables revenue overall is expected to increase . we believe that consumables revenue should be subject to less period-to-period fluctuation than our instrument sales revenue , and will become an increasingly important contributor to our overall revenue . as of december 31 , 2017 , we had cash and cash equivalents of $ 79.7 million , including $ 65.6 million in net proceeds from the sale of 4,916,480 shares of common stock in our initial public offering , or ipo atthe public offering price of $ 15.00 per share . prior to the ipo , we had financed our operations principally through private placements of our convertible preferred stock , borrowings from credit facilities and revenue from our commercial operations . 72 since inception , we have incurred net losses . our net loss was $ 27.0 million , $ 23.2 million , and $ 15.9 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . as of december 31 , 2017 , we had an accumulated deficit of $ 144.4 million and stockholders ' equity of $ 65.9 million . we expect to continue to incur significant expenses and operating losses at least through the next 24 months . we expect our expenses will increase substantially as we : expand our sales and marketing efforts to further commercialize our products ; expand our research and development efforts to improve our existing products and develop and launch new products ; hire additional personnel ; enter into collaboration arrangements , if any , or in-license other products and technologies ; add operational , financial and management information systems ; and incur increased costs as a result of operating as a public company . financial operations overview revenue we generate product revenue from sales of our simoa hd-1 analyzer and quanterix sr-x instruments and related reagents and other consumables . we currently sell our products for research use only applications and our customers are primarily laboratories associated with academic and governmental research institutions , as well as pharmaceutical , biotechnology and contract research companies . sales of our consumables have consistently increased due to an increasing number of simoa instruments being installed in the field , all of which require certain of our consumables to run customers ' specific tests . consumable revenue consists of sales of complete assays which are developed internally by us , plus sales of `` homebrew '' kits which contain all the elements necessary to run tests with the exception of the specific antibodies utilized which are separately provided by the customer . service and other revenue consists of testing services provided by us in our simoa accelerator laboratory on behalf of certain research customers , in addition to warranty and other service-based revenue . services provided in our simoa accelerator laboratory include sample testing , homebrew assay development and custom assay development . collaboration and license revenue consists of revenue associated with licensing our technology to third parties and for related services . story_separator_special_tag when installation is required , we account for the instrument and installation service as one unit of accounting and recognize revenue when installation is completed , assuming all other revenue recognition criteria are met . instrument transactions often have multiple elements , as discussed below . included with the purchase of an instrument is a one-year assurance type product warranty assuring that the instrument is free of material defects and will function according to specifications . in addition , the sale of an instrument includes an implied warranty which is promised to the customer during the pre-sales process , at the time that the sales quote is issued to the customer . the implied warranty is provided over the same one-year period as the standard warranty . the services included in the implied warranty are the same as those included in the extended service contracts , and include two bi-annual preventative maintenance service visits , minor hardware updates and software upgrades , additional training and troubleshooting , which is beyond the scope of the standard product warranty . the implied warranty has been identified by us as a separate deliverable and unit of accounting . consideration allocated to the implied one-year warranty is recognized over the one year period of performance as service and other revenue as described below . consideration allocated to any other elements is recognized as the goods are delivered or the services are performed . 75 service and other revenue service revenue includes revenue from the implied one-year service type warranty obligation , revenue from extended service contracts , research services performed on behalf of customers in our simoa accelerator laboratory , and other services that may be performed . revenue for extended warranty contracts is recognized ratably over the service period . revenue for the implied one-year service type warranty is initially deferred at the time of instrument revenue recognition and is recognized ratably over a 12-month period starting on the date of instrument installation . revenue for research and development services and other services is generally recognized based on proportional performance of the contract when our ability to complete project requirements is reasonably assured . most of these services are completed in a short period of time from the receipt of the customer 's order . when significant risk exists in our ability to fulfill project requirements , revenue is recognized upon completion of the contract . collaboration and license revenue collaboration and license revenue relates to our agreements with biomérieux and another diagnostic company . for a complete discussion of the accounting policies specific to these collaboration and license agreements , refer to note 11 to the consolidated financial statements included elsewhere in this annual report on form 10-k. multiple element arrangements many of our instrument sales involve the delivery of multiple products and services . the elements of an instrument sale typically include the instruments , installation ( when required ) , an implied one-year service type warranty , and in some cases , assays , consumables and other services . revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract . a delivered item is considered a separate unit of accounting when the delivered item has value to the customer on a stand-alone basis . in determining the units of accounting , management evaluates certain criteria , including whether the deliverables have standalone value . items are considered to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis . the consideration received is allocated among the separate units of accounting using the relative selling price method , and the applicable revenue recognition criteria are applied to each of the separate units . we determine the estimated selling price for deliverables within the arrangement using vendor-specific objective evidence ( vsoe ) of selling price , if available . if vsoe is not available , we consider whether third-party evidence is available . if third-party evidence of selling price or vsoe is not available , we use our best estimate of selling price for the deliverable . in order to establish vsoe of selling price , we must regularly sell the product or service on a standalone basis with a substantial majority priced within a relatively narrow range . if there are not a sufficient number of standalone sales such that vsoe of selling price can not be determined , then we consider whether third party evidence can be used to establish selling price . due to the lack of similar products and services sold by other companies within the industry , we have not established selling price using third-party evidence . for product and service sales , we determine our best estimate of selling price for instruments , consumables , services and assays using average selling prices over a rolling 12-month period coupled with an assessment of market conditions , as vsoe and third-party evidence can not be established . we recognize revenue for delivered elements only when we determine there are no uncertainties regarding customer acceptance . 76 distributor transactions in certain markets , we sell products and provide services to customers through distributors that specialize in life science products . in cases where the product is delivered to a distributor , revenue recognition generally occurs when title transfers to the distributor . the terms of sales transactions through distributors are generally consistent with the terms of direct sales to customers , except the distributors do not require our services to install the instrument at the end customer and perform the services for the customer that are beyond our standard warranty in the first year following the sale . these transactions are accounted for in accordance with our revenue recognition policy described above .
| results of operations comparison of the years ended december 31 , 2017 and december 31 , 2016 ( dollars in thousands ) : replace_table_token_11_th revenue revenue increased by $ 5.3 million , or 30 % , to $ 22.9 million for the year ended december 31 , 2017 as compared to $ 17.6 million for the year ended december 31 , 2016. product revenue consisted of sales of instruments totaling $ 6.5 million and sales of consumables and other products of $ 7.6 million for the year ended december 31 , 2017. product revenue consisted of sales of instruments totaling $ 6.2 million and sales of consumables and other products totaling $ 4.4 million for the year ended december 31 , 2016. average sales prices of instruments and consumables did not change materially in the year ended december 31 , 2017 as compared with the year ended december 31 , 2016. the increase in product revenue of $ 3.5 million was primarily due to the sale of more instruments in the twelve months ended december 31 , 2017 and increased sales of consumables . the installed base of simoa instruments increased from december 31 , 2016 to december 31 , 2017 , and as these additional instruments were used by customers , the consumable sales increased . the increase in service and other revenue of $ 2.7 million was due to increased services performed in our simoa accelerator laboratory ; more customers are using these services , and existing customers are using the accelerator laboratory more frequently .
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common stock at the annual meeting of shareholders of the company , held on december 15 , 2015 , the company 's shareholders approved the proposal to amend aceto 's certificate of incorporation to increase the total number of authorized shares of common stock from 40,000 shares to 75,000 shares . cash dividends of $ 0.065 per common share were paid in september , december , march and june of fiscal year 2017. cash dividends of $ 0.06 per common share were paid in september , december , march and june of fiscal years 2016 and 2015. on august 24 , 2017 , the company 's board of directors declared a regular quarterly dividend of $ 0.065 per share to be distributed on september 21 , 2017 to shareholders of record as of september 8 , 2017. on may 4 , 2017 , the board of directors of the company authorized the continuation of the story_separator_special_tag executive summary the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to provide the readers of our financial statements with a narrative discussion about our business . the md & a is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes . we are reporting net sales of $ 638,318 for the year ended june 30 , 2017 , which represents a 14.3 % increase from the $ 558,524 reported in the comparable prior year . gross profit for the year ended june 30 , 2017 was $ 140,792 and our gross margin was 22.1 % as compared to gross profit of $ 142,785 and gross margin of 25.6 % in the comparable prior year . our selling , general and administrative costs ( “ sg & a ” ) for the year ended june 30 , 2017 increased to $ 102,340 from $ 76,820 which we reported in the prior year . our net income decreased to $ 11,376 , or $ 0.35 per diluted share , compared to net income of $ 34,766 , or $ 1.18 per diluted share for the prior year . our financial position as of june 30 , 2017 , remains strong , as we had cash , cash equivalents and short-term investments of $ 57,726 , working capital of $ 251,355 and shareholders ' equity of $ 407,672. shareholders ' equity at june 30 , 2017 represents a $ 103,230 increase over our shareholders ' equity at june 30 , 2016 , principally reflecting net assets acquired in our product purchase agreement with lucid and citron and our profitability during the most recently completed fiscal year . our business is separated into three principal segments : human health , pharmaceutical ingredients and performance chemicals . products that fall within the human health segment include finished dosage form generic drugs and nutraceutical products . aceto sells generic prescription products and over-the-counter pharmaceutical products to leading wholesalers , chain drug stores , distributors and mass merchandisers . on december 21 , 2016 , rising completed the acquisition of certain generic products and related assets of entities formerly known as citron pharma llc ( “ citron ” ) , and its affiliate lucid pharma llc ( “ lucid ” ) . rising formed two subsidiaries to consummate the product acquisition – rising health , llc ( which acquired certain products and related assets of citron ) and acetris health , llc ( which acquired certain products and related assets of lucid ) . citron is a privately-held new jersey-based pharmaceutical company focused on developing and marketing generic pharmaceutical products in partnership with leading generic pharmaceutical manufacturers based in india and the u.s. lucid is a privately-held new jersey-based generic pharmaceutical distributor specializing in providing cost-effective products to various agencies of the u.s. federal government including the veterans administration and the defense logistics agency . lucid services 18 national contracts with the federal government , nearly all of which have 5-year terms . 27 aceto and rising health possess complementary asset-light business models , drug development and manufacturing partnerships and product portfolios . we believe that , consistent with our strategy of expanding our portfolio of finished dosage form generic products through product development partnerships and acquisitions of late stage assets , abbreviated new drug applications ( “ andas ” ) and complementary generic drug businesses , this product acquisition significantly expanded our roster of commercialized products and pipeline of products under development . in addition , we believe that this transaction greatly enhanced our size and stature within the generic pharmaceutical industry , expanded our partnership network and offers us opportunities to realize meaningful cost and tax efficiencies , as well as representing an integral component of aceto 's continued strategy to become a human health oriented company . aceto supplies the raw materials used in the production of nutritional and packaged dietary supplements , including vitamins , amino acids , iron compounds and biochemicals used in pharmaceutical and nutritional preparations . the pharmaceutical ingredients segment has two product groups : active pharmaceutical ingredients ( apis ) and pharmaceutical intermediates . we supply apis to many of the major generic drug companies , who we believe view aceto as a valued partner in their effort to develop and market generic drugs . the process of introducing a new api from pipeline to market spans a number of years and begins with aceto partnering with a generic pharmaceutical manufacturer and jointly selecting an api , several years before the expiration of a composition of matter patent , for future genericizing . we then identify the appropriate supplier , and concurrently utilizing our global technical network , work to ensure they meet standards of quality to comply with regulations . our client , the generic pharmaceutical company , will submit the anda for u.s. food and drug administration ( “ fda ” ) approval or european-equivalent approval . story_separator_special_tag in preparing these financial statements , we were required to make estimates and assumptions that affect the amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we regularly evaluate our estimates including those related to allowances for bad debts , partnered products , inventories , goodwill and indefinite-life intangible assets , long-lived assets , environmental and other contingencies , income taxes , stock-based compensation and purchase price allocation . we base our estimates on various factors , including historical experience , advice from outside subject-matter experts , and various assumptions that we believe to be reasonable under the circumstances , which together form the basis for our making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . since june 30 , 2017 , there have been no significant changes to the assumptions and estimates related to those critical accounting estimates and policies . we believe the following critical accounting policies affected our more significant judgments and estimates used in preparing these consolidated financial statements . revenue recognition we recognize revenue from sales of any product when it is shipped and title and risk of loss pass to the customer . we have no acceptance or other post-shipment obligations and we do not offer product warranties or services to our customers . sales are recorded net of estimated returns of damaged goods from customers , which historically have been immaterial , and sales incentives offered to customers . sales incentives include volume incentive rebates . we record volume incentive rebates based on the underlying revenue transactions that result in progress by the customer in earning the rebate . 29 the company has arrangements with various third parties , such as drug store chains and managed care organizations , establishing prices for its finished dosage form generics . while these arrangements are made between aceto and its customers , the customers independently select a wholesaler from which they purchase the products . alternatively , certain wholesalers may enter into agreements with the customers , with the company 's concurrence , which establishes the pricing for certain products which the wholesalers provide . upon each sale of finished dosage form generics , estimates of chargebacks , rebates , returns , government reimbursed rebates , sales discounts and other adjustments are made . these estimates are based on historical experience , future expectations , contractual arrangements with wholesalers and indirect customers , and other factors known to management at the time of accrual . these estimates are recorded as reductions to gross revenues , with corresponding adjustments either as a reduction of accounts receivable or as a liability for price concessions . under certain arrangements , aceto will issue a credit ( referred to as a “ chargeback ” ) to the wholesaler for the difference between the invoice price to the wholesaler and the customer 's contract price . as sales to the large wholesale customers increase or decrease , the reserve for chargebacks will also generally increase or decrease . the provision for chargebacks varies in relation to changes in sales volume , product mix , pricing and the level of inventory at the wholesalers . the company continually monitors the reserve for chargebacks and makes adjustments when management believes that expected chargebacks may differ from the actual chargeback reserve . the company estimates its provision for returns of finished dosage generics based on historical experience , product expiration dates , changes to business practices , credit terms and any extenuating circumstances known to management . while historical experience has allowed for reasonable estimations in the past , future returns may or may not follow historical trends . the company continually monitors the reserve for returns and makes adjustments when management believes that actual product returns may differ from the established reserve . generally , the reserve for returns increases as net sales increase . government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs . other rebates are offered to the company 's key chain drug store , distributor and wholesaler customers to promote customer loyalty and increase product sales . these rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period . other promotional programs are incentive programs offered to the customers . the company provides a provision for government reimbursed rebates and other rebates at the time of sale based on contracted rates and historical redemption rates . assumptions used to establish the provision include level of customer inventories , contract sales mix and average contract pricing . aceto regularly reviews the information related to these estimates and adjusts the provision accordingly . sales discount accruals are based on payment terms extended to customers . credits issued during a given period represent cash payments or credit memos issued to the company 's customers as settlement for the related reserve . management has the experience and access to relevant information that it believes is necessary to reasonably estimate the amounts of such deductions from gross revenues . the company regularly reviews the information related to these estimates and adjusts its reserves accordingly , if and when actual experience differs from previous estimates . allowance for doubtful accounts we maintain allowances for doubtful accounts relating to estimated losses resulting from customers being unable to make required payments . allowances for doubtful accounts are based on historical experience and known factors regarding specific customers and the industries in which those customers operate . if the financial condition of our customers were to deteriorate , resulting in their ability to make payments being impaired , additional allowances would be required . royalty income we have royalty agreements on certain products where third party pharmaceutical and agricultural protection companies market such products . we earn and collect royalty income based on percentages of net profits as defined in those agreements .
| results of operations fiscal year ended june 30 , 2017 compared to fiscal year ended june 30 , 2016 replace_table_token_4_th replace_table_token_5_th 33 net sales net sales increased $ 79,794 or 14.3 % , to $ 638,318 for the year ended june 30 , 2017 , compared with $ 558,524 for the prior year . we reported sales increases in our human health segment and decreases in our pharmaceutical ingredients and performance chemicals segment . human health products that fall within the human health segment include finished dosage form generic drugs and nutraceutical products . net sales for the human health segment increased by $ 87,360 for the year ended june 30 , 2017 , to $ 315,395 , which represents a 38.3 % increase over net sales of $ 228,035 for the prior year . the primary reason for the increase is due to the acquisition of certain products and related assets of citron and lucid . sales from the product acquisition of $ 122,118 are included in the year ended june 30 , 2017. this increase was offset by a decline in sales of rising products of $ 30,585 and a decline of $ 4,173 in sales of nutritional products . the decrease in rising sales was primarily driven by increased competition , price erosion on certain products in our generic drugs portfolio and delays in contribution from new product launches . we believe this industry wide pricing pressure on the generic business will continue in the near term . however , we have approximately 15 - 20 fda approved products that we are preparing to launch in the near future , which we believe should mitigate this pricing pressure . the drop in nutraceutical sales primarily occurred abroad , specifically at our german subsidiary .
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this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including , but not limited to , those presented under risks related to our business included in item 1a and elsewhere in this annual report . overview we are a leader in the distribution of avocados , prepared avocado products , and other perishable food products throughout the united states . our history and expertise in handling california grown avocados has allowed us to develop a reputation of delivering quality products , at competitive prices , while providing competitive returns to our growers . this reputation has enabled us to expand our product offerings to include avocados sourced on an international basis , prepared avocado products , and other perishable foods . we report our operations in two different business segments : ( 1 ) fresh products and ( 2 ) calavo foods . see note 11 to our consolidated financial statements for further discussion . our fresh products business grades , sizes , packs , cools , and ripens ( if desired ) avocados for delivery to our customers . we presently operate two packinghouses and three operating and distributing facilities that handle avocados across the united states . these packinghouses handled approximately 28 % of the california avocado crop during the 2011 fiscal year , based on data obtained from the california avocado commission . our operating results and the returns we pay our growers are highly dependent on the volume of avocados delivered to our packinghouses , as a significant portion of our costs is fixed . our strategy calls for continued efforts to retain and recruit growers that meet our business model . additionally , our fresh products business also procures avocados grown in chile , mexico and peru , as well as other various commodities , including tomatoes , papayas , and pineapples . we operate a packinghouse in mexico that , together with certain co-packers that we frequently purchase fruit from , handled approximately 23 % of the mexican avocado crop bound for the united states market and approximately 5 % of the avocados exported from mexico to countries other than the united states during the 2010-2011 mexican season , based on our estimates . additionally , during the 2010-2011 chilean avocado season , we handled approximately 5 % of the chilean avocado crop , based on our estimates . our strategy is to increase our market share of currently sourced avocados to all accepted marketplaces . we believe our diversified avocado sources provides a level of supply stability that may , over time , help solidify the demand for avocados among consumers in the united states and elsewhere in the world . we believe our efforts in distributing our other various commodities , such as those shown above , complement our offerings of avocados . from time to time , we continue to explore distribution of other crops that provide reasonable returns to the business . our calavo foods business procures avocados , processes avocados into a wide variety of guacamole products , and distributes the processed product to our customers . all of our prepared avocado products are now cold pasteurized and include both frozen and fresh guacamole . due to the long shelf-life of our frozen guacamole and the purity of our fresh guacamole , we believe that we are well positioned to address the diverse taste and needs of today 's customers . additionally , we also prepare various fresh salsa products and ready-to-eat produce and deli products . see note 16 and note 17 for additional information related to the acquisitions of csl and rfg . customers include both food service industry and retail businesses . we continue to seek to expand our relationships with major food service companies and develop alliances that will allow our products to reach a larger percentage of the marketplace . net sales of frozen products represented approximately 51 % and 54 % of total processed segment sales for the years ended october 31 , 2011 and 2010. net sales of our ultra high pressure products represented approximately 49 % and 46 % of total processed segment sales for the years ended october 31 , 2011 and 2010. the operating results of all of our businesses have been , and will continue to be , affected by quarterly and annual fluctuations and market downturns due to a number of factors , such as pests and disease , weather patterns , changes in demand by consumers , the timing of the receipt , reduction , or cancellation of significant customer orders , the gain or loss of significant customers , market acceptance of our products , our ability to develop , introduce , and market new products on a timely basis , availability and cost of avocados and supplies from growers and vendors , new product introductions by our competitors , change in the mix of avocados and calavo foods we sell , and general economic conditions . we believe , however , that we are currently positioned to address these risks and deliver favorable operating results for the foreseeable future . 17 recent developments dividend payment on december 12 , 2011 , we paid a $ 0.55 per share dividend in the aggregate amount of $ 8,123,000 to shareholders of record on december 2 , 2011. contingencies hacienda suits we are currently under examination by the mexican tax authorities ( hacienda ) for the tax years ended december 31 , 2004 , and 2005. during the third quarter of fiscal year 2011 , we received an update from our outside legal counsel regarding the examination of the tax year ended december 31 , 2004. the appellate court upheld a lower court 's decision on the two remaining items that we previously received an unfavorable ruling on . story_separator_special_tag this represents the maximum that can be awarded pursuant to the 2 nd earn-out payment . in the event that the maximum ebitda and revenue achievements have not been reached within five years after the closing date , but rfg 's 12-month ebitda during such period equals or exceeds $ 10 million , and rfg has concurrently reached a corresponding revenue achievement , a sliding-scale will be used to calculate payment . the minimum amount to be paid in the sliding-scale related to the 2 nd earn-out payment is approximately $ 27 million , payable in both cash and shares of unregistered calavo common stock . rfg has five years to achieve any consideration pursuant to the 2 nd earn-out payment . the following table summarizes the estimated fair values of the assets acquired , liabilities assumed , and equity issued at the date of acquisition ( in thousands ) . we obtained third-party valuations for the long-term assets acquired and incurred approximately $ 0.3 million in acquisition costs , which have been expensed in selling , general and administrative expenses in the period incurred . for the two months ended july 31 , 2011 , since the acquisition of rfg , total selling , general and administrative expenses for rfg was $ 1.2 million . at june 1 , 2011 replace_table_token_3_th of the $ 8,690,000 of intangible assets , $ 7,400,000 was assigned to customer relationships with a life of 8 years , $ 920,000 to trademarks and trade names with a life of 8 years , $ 200,000 to non-competition agreements with a life of 5 years , and $ 170,000 to trade secrets with a life of 3 years . as discussed above , we will be required to pay a maximum of approximately $ 100 million if rfg achieves specified revenue targets . the fair value of this contingent consideration was determined based on a probability weighted method , which incorporates management 's forecasted revenue , and the likelihood of the revenue targets being achieved . term revolving credit agreements and term loan agreements effective may 31 , 2011 , the company and farm credit west , pca ( fcw ) , entered into a term revolving credit agreement ( revolving agreement ) . under the terms of the revolving agreement , we are advanced funds for working capital purposes , the purchase and installation of capital items , as well as other corporate needs of the company . total credit available under the borrowing agreement is $ 40 million , up from $ 30 million , and expires on february 1 , 2016. this increase was at our request and not due to any immediate cash flows needs . effective september 30 , 2011 , the company and bank of america , n.a . ( boa ) , entered into an agreement , amendment no . 4 to loan agreement ( the agreement ) , which amended our existing credit facility with boa . under the terms of the agreement , we are advanced funds primarily for working capital purposes . total credit available under the borrowing agreement is now $ 25 million , up from $ 15 million and now expires on february 1 , 2016. this increase was at our request and not due to any immediate cash flows needs . in addition , the agreement includes a variable rate term loan in the amount of approximately $ 7.1 million dollars . these proceeds were used to retire approximately 50 % of the outstanding balance ( as of september 30 , 2011 ) of the term loan owed to fcw related to the purchase of rfg ( see discussion below ) . this effectively split the funding of the amounts due at closing for that acquisition between both banks . the credit facility and term loan contain various financial covenants , the most significant relating to tangible net worth ( as defined ) , fixed charge coverage ratio ( as defined ) and current ratio ( as defined ) . 19 effective may 31 , 2011 , the company and fcw entered into a term loan agreement ( term agreement ) . under the terms of the term agreement , we were advanced $ 15 million for the purchase of renaissance food group , llc . under the terms of the term agreement , we are required to make 60 monthly principal and interest payments , in the amount billed , beginning on july 1 , 2011 and pay the account in full as of june 1 , 2016. there is no prepayment penalty associated with this term agreement . approximately 50 % of the outstanding balance was paid off with the proceeds from the term loan from boa ( see discussion above ) . the term agreement contain various financial covenants , the most significant relating to tangible net worth ( as defined ) , fixed charge coverage ratio ( as defined ) and current ratio ( as defined ) . critical accounting estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we re-evaluate all of our estimates , including those related to the areas of customer and grower receivables , inventories , useful lives of property , plant and equipment , promotional allowances , income taxes , retirement benefits , and commitments and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources .
| quarterly results of operations the following table presents our operating results for each of the eight fiscal quarters in the period ended october 31 , 2011. the information for each of these quarters is derived from our unaudited interim financial statements and should be read in conjunction with our audited consolidated financial statements included in this annual report . in our opinion , all necessary adjustments , which consist only of normal and recurring accruals , have been included to fairly present our unaudited quarterly results . historically , we receive and sell a substantially lesser number of california avocados in our first fiscal quarter . replace_table_token_14_th liquidity and capital resources operating activities for fiscal 2011 , 2010 and 2009 provided cash flows of $ 7.9 million , $ 20.0 million , and $ 22.0 million . fiscal year 2011 operating cash flows reflect our net income of $ 11.0 million , net noncash charges ( depreciation and amortization , income from unconsolidated entities , provision for losses on accounts receivable , interest on deferred compensation , deferred income taxes , and stock compensation expense ) of $ 5.6 million and a net decrease from changes in the non-cash components of our working capital accounts of approximately $ 8.7 million . fiscal year 2011 increases in operating cash flows , caused by working capital changes , includes a decrease in payable to growers of $ 4.9 million , a decrease in trade accounts payable and accrued expenses of $ 4.2 million , an increase in advances to suppliers of $ 1.8 million , an increase in inventory of $ 2.1 million , and an increase in income tax receivable of $ 1.9 million , partially offset by a decrease in accounts receivable of $ 4.3 million , and a decrease in prepaid expenses and other current assets of $ 1.9 million .
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cost of service revenue includes salary and related costs for personnel engaged in services , training and customer support , and travel , office expenses and other support costs . income taxes : the company recognizes income taxes under the liability method . it recognizes deferred income story_separator_special_tag you should read the following discussion together with the consolidated financial statements and related notes appearing elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . actual results may differ materially from those included in such forward-looking statements . factors that could cause actual results to differ materially include those set forth under “ risk factors , ” as well as those otherwise discussed in this section and elsewhere in this annual report . see “ forward-looking statements and industry data. ” business overview the following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations . the discussion should be read in conjunction with our consolidated financial statements and notes thereto for the year ended december 31 , 2018 , both appearing elsewhere in this annual report . headquartered in mountain view , california , ceva is the leading licensor of signal processing platforms and a primary player in artificial intelligence ( ai ) processors for a smarter , connected world . we partner with semiconductor companies and oems worldwide to create power-efficient , intelligent and connected devices for a range of end markets , including mobile , consumer , automotive , industrial and internet of things ( iot ) . our ultra-low-power hardware and software ips address many of the most complex technologies for imaging and computer vision , neural networks , sound and long- and short-range wireless . our portfolio includes comprehensive platforms for 5g baseband processing in handsets and base station ran , highly integrated cellular iot solutions , dsp platforms incorporating voice input algorithms and software for voice-enabled devices , dsp platforms for advanced imaging and computer vision in any camera-enabled device , and a family of self-contained ai processors that address a wide range of edge applications . for short-range wireless , we offer the industry 's most widely adopted ips for bluetooth ( low energy and dual mode ) and wi-fi ( 4/5/6 up to 4x4 ) . our technologies are licensed to leading semiconductor and original equipment manufacturer ( oem ) companies throughout the world . these companies incorporate our ip into application-specific integrated circuits ( “ asics ” ) and application-specific standard products ( “ assps ” ) that they manufacture , market and sell to wireless , consumer , automotive and iot companies . we believe that our licensing business is progressing well with strong interest , diverse customer base and a myriad of target markets . our state-of-the-art technology has shipped in more than 10 billion chips to date for a wide range of diverse end markets . every second , thirty devices sold worldwide are powered by ceva . we believe the adoption of our signal processing platforms and ai processors beyond our traditional cellular baseband market continues to progress . as a testament to this trend , during the fourth quarter and full year 2018 , we concluded 13 and 48 licensing deals , respectively , all of which are for non-cellular baseband applications . moreover , based on shipment data or our best estimates of the shipment data for the fourth quarter of 2018 , shipments of ceva-powered non-cellular baseband products reached an all-time quarterly record of 114 million units . this data is indicative of the continued traction our non-baseband customers are gaining with our signal processing ips . we believe the following key elements represent significant growth drivers for the company : ● ceva is firmly established in the largest space in the semiconductor industry – baseband for mobile handsets . in particular , in lte smartphone markets , we continue to maintain a strong presence . during the third and fourth quarters of 2018 , our customers shipped approximately 154 million lte units . the growth over the same period in 2017 and over the first and second quarters of 2018 were primarily driven by the wide adoption of our advanced dsps at the world 's most successful smartphone oem in its new flagship models . ● the royalty we derive from high-end smartphones is higher on average than that of mid- and low-tier smartphones due to more dsp content in high end premier smartphones that bear a higher royalty average selling price ( “ asp ” ) . as a result , in the third and fourth quarters of 2018 , we benefitted from an asp uplift in lte-based modems due to the wide adoption of our technology in a series of high end flagship smartphones that launched . looking ahead , our advanced dsps and 5g platform for mobile broadband put us in a strong position to power 5g modems for handsets , fixed wireless and other ue use cases . incorporating a range of dsps and processors , including an ai processor dedicated to improving 5g processing efficiency , we believe our ceva-pentag is the most advanced cellular baseband ip in the industry today . 29 ● our specialization and competitive edge in signal processing platforms for 5g base stations , handsets and nb-iot put us in a strong position to capitalize on the emergence of 5g to address mass market adoption and benefit from new 5g usage models such as fixed wireless access , remote radio heads , cellular backhaul , small cells , and other machine type communications such as connected cars , smart cities and industrial markets . ● our broad bluetooth and wi-fi ips allow us to expand further into iot applications and substantially increase our overall addressable market . in 2018 , shipments of products incorporating our bluetooth ip grew 50 % year-over-year to reach 303 million devices . our addressable market size for bluetooth and wi-fi is expected to be more than 8.8 story_separator_special_tag the following is a description of principal activities from which we generate revenue . revenues are recognized when control of the promised goods or services are transferred to the customers in an amount that reflects the consideration that we expect to receive in exchange for those goods or services . we determine revenue recognition through the following steps : ● identification of the contract with a customer ; ● identification of the performance obligations in the contract ; ● determination of the transaction price ; ● allocation of the transaction price to the performance obligations in the contract ; and 31 ● recognition of revenue when , or as , we satisfy a performance obligation . we enter into contracts that can include various combinations of products and services , as detailed below , which are generally capable of being distinct and accounted for as separate performance obligations . we generate our revenues from ( 1 ) licensing intellectual property , which in certain circumstances is modified for customer-specific requirements , ( 2 ) royalty revenues and ( 3 ) other revenues , which include revenues from support , training and sale of development systems . we license our ip to semiconductor companies throughout the world . these semiconductor companies then manufacture , market and sell custom-designed chipsets to oems of a variety of consumer electronics products . we also license our technology directly to oems , which are considered end users . we account for our license and related revenue in accordance with asc 606. a license may be perpetual or time limited in its application . in accordance with asc 606 , we recognize revenue from ip licenses at the time of delivery when the customer accepts control of the ip , as the ip is functional without professional services , updates and technical support . we have concluded that our ip license is distinct as a customer can benefit from the software on its own . most of our contracts with customers contain multiple performance obligations . for these contracts , we account for individual performance obligations separately , if they are distinct . the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis . stand-alone selling prices of ip licenses are typically estimated using the residual approach . stand-alone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis . when contracts involve a significant financing component , we adjust the promised amount of consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract ( either explicitly or implicitly ) provide the customer with a significant benefit of financing , unless the financing period is under one year and only after the products or services were provided , which is a practical expediency permitted under asc 606. revenues from contracts that involve significant customization of our ip to customer-specific specifications are performance obligations we generally account for as performance obligations satisfied over time . our performance does not create an asset with alternative use , and we have an enforceable right to payment . we recognize revenue on such contracts using cost based input methods , which recognize revenue and gross profit as work is performed based on a ratio between actual costs incurred compared to the total estimated costs for the contract . provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined , in the amount of the estimated loss on the entire contract . revenues that are derived from the sale of a licensee 's products that incorporate our ip are classified as royalty revenues . royalty revenues are recognized during the quarter in which the sale of the product incorporating our ip occurs . royalties are calculated either as a percentage of the revenues received by our licensees on sales of products incorporating our ip or on a per unit basis , as specified in the agreements with the licensees . we receive the actual sales data from our customers after the quarter ends and accounts for it as unbilled receivables . when we do not receive actual sales data from the customer prior to the finalization of its financial statements , royalty revenues are recognized based on our estimation of the customer 's sales during the quarter . we may engage a third party to perform royalty audits of our licensees , and if these audits indicate any over- or under-reported royalties , we account for the results when the audits are resolved . in addition to license fees , contracts with customers generally contain an agreement to provide for post contract support and training , which consists of telephone or e-mail support , correction of errors ( bug fixing ) and unspecified updates and upgrades . fees for post contract support , which takes place after delivery to the customer , are specified in the contract and are generally mandatory for the first year . after the mandatory period , the customer may extend the support agreement on similar terms on an annual basis . we consider the post contract support performance obligation as a distinct performance obligation that is satisfied over time , and as such , we recognize revenue for post contract support on a straight-line basis over the period for which technical support is contractually agreed to be provided to the licensee , typically 12 months . training services are considered performance obligations satisfied over-time , and as such , revenues from training services are recognized as the training is performed . 32 revenues from the sale of development systems are recognized when control of the promised goods or services are transferred to the customers . we capitalize sales commission as costs of obtaining a contract when they are incremental and , if they are expected to be recovered , amortized consistently with the pattern of transfer of the good or service to which the asset relates .
| results of operations the following table presents line items from our consolidated statements of income as percentages of our total revenues for the periods indicated : replace_table_token_6_th 36 discussion and analysis below we provide information on the significant line items in our consolidated statements of income for each of the past three fiscal years , including the percentage changes year-on-year , as well as an analysis of the principal drivers of change in these line items from year-to-year . revenues total revenues replace_table_token_7_th we derive a significant amount of revenues from a limited number of customers . sales to spreadtrum represented 15 % , 23 % and 27 % of our total revenues for 2018 , 2017 and 2016 , respectively . generally , the identity of our other customers representing 10 % or more of our total revenues varies from period to period , especially with respect to our licensing customers as we generate licensing revenues generally from new customers on a quarterly basis . with respect to our royalty revenues , three royalty paying customers each represented 10 % or more of our total royalty revenues for 2018 , and collectively represented 76 % of our total royalty revenues for 2018. two royalty paying customers each represented 10 % or more of our total royalty revenues for 2017 , and collectively represented 70 % of our total royalty revenues for 2017. two royalty paying customers each represented 10 % or more of our total royalty revenues for 2016 , and collectively represented 80 % of our total royalty revenues for 2016. we expect that a significant portion of our future revenues will continue to be generated by a limited number of customers . the concentration of our customers is explainable in part by consolidation in the semiconductor industry . the loss of any significant customer could adversely affect our near-term future operating results .
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refinanced into a new senior secured term story_separator_special_tag the following discussion should be read together with the consolidated financial statements and the notes to consolidated financial statements , which are included in this annual report on form 10-k in “ item 8—financial statements and supplementary data ” , and the information set forth in “ item 1a—risk factors ” . overview we are an independent oil and natural gas company engaged in the exploration , development and production of properties primarily in ( i ) northwest louisiana and east texas , which includes the haynesville shale trend ( ii ) southwest mississippi and southeast louisiana , which includes the tuscaloosa marine shale trend ( “ tms ” ) , and ( iii ) south texas , which includes the eagle ford shale trend . we seek to increase shareholder value by growing our oil and natural gas reserves , production , revenues and cash flow from operating activities ( “ operating cash flow ” ) . in our opinion , on a long term basis , growth in oil and natural gas reserves , cash flow and production on a cost-effective basis are the most important indicators of performance success for an independent oil and natural gas company . management strives to increase our oil and natural gas reserves , production and cash flow through exploration and development activities . we develop an annual capital expenditure budget , which is reviewed and approved by our board of directors on a quarterly basis and revised throughout the year as circumstances warrant . we take into consideration our projected operating cash flow and externally available sources of financing , such as bank debt , asset divestures , issuance of debt and equity securities and strategic joint-ventures , when establishing our capital expenditure budget . we place primary emphasis on our operating cash flow in managing our business . management considers operating cash flow a more important indicator of our financial success than other traditional performance measures such as net income because operating cash flow considers only the cash expenses incurred during the period and excludes the non-cash impact of unrealized hedging gains ( losses ) , non-cash general and administrative expenses and impairments . our revenues and operating cash flow depend on the successful development of our inventory of capital projects with available capital , the volume and timing of our production , as well as commodity prices for oil and natural gas . such pricing factors are largely beyond our control ; however , we employ commodity hedging techniques in an attempt to minimize the volatility of short term commodity price fluctuations on our earnings and operating cash flow . emergence from bankruptcy on april 15 , 2016 ( the “ petition date ” ) , we and our subsidiary goodrich petroleum company , l.l.c . filed voluntary bankruptcy petitions seeking relief under chapter 11 of title 11 of the united states bankruptcy code in the united states bankruptcy court for the southern district of texas , houston division , to pursue a chapter 11 plan of reorganization . the company 's joint plan of reorganization ( the “ plan of reorganization ” ) was confirmed by the bankruptcy court on september 28 , 2016 and we emerged from bankruptcy on october 12 , 2016 ( the “ effective date ” ) . upon our emergence from bankruptcy , we adopted fresh start accounting in accordance with the requirements of fasb asc 852 , “ reorganizations ” . this resulted in our becoming a new entity for financial reporting purposes . at that time , our assets and liabilities were recorded at their fair values as of the effective date . the effects of the plan of reorganization and our application of fresh start accounting are reflected in our consolidated financial statements as of december 31 , 2016. the related adjustments were recorded in our consolidated statement of operations as reorganization items for the year to date period ending october 12 , 2016. the application of fresh start accounting and the effects of the implementation of our plan of reorganization resulted in our consolidated financial statements on or after the effective date not being comparable with the consolidated financial statements prior to that date . our financial results for future periods following our application of fresh start accounting will be different from historical trends and the differences may be material . 36 all references made to “ successor ” or “ successor company ” relate to the company on and subsequent to the effective date . references to the “ successor 2016 period ” relate to the period from october 13 , 2016 to december 31 , 2016. references to “ predecessor ” or “ predecessor company ” refer to the company prior to the effective date . references to the “ predecessor 2016 period ” relate to the period from january 1 , 2016 to october 12 , 2016. additional information pertaining to our adoption , application , and effects of fresh start accounting is contained in note 2 to these consolidated financial statements . on the effective date , to better reflect the true economics of our exploration and development of oil and gas reserves , we transitioned from the successful efforts method of accounting for oil and gas activities to the full cost method . business strategy our business strategy is to provide long-term growth in reserves and cash flow on a cost-effective basis . we focus on maximizing our return on capital employed and adding reserve value through the timely development of our haynesville shale trend acreage . we regularly evaluate possible acquisitions of prospective acreage and oil and natural gas drilling opportunities . several of the key elements of our business strategy are the following : develop existing property base . we seek to maximize the value of our existing assets by developing and exploiting our properties that we have identified as having the lowest risk and the highest potential rates of return . story_separator_special_tag the louisiana haynesville shale trend wells that we brought on line in 2017 and will bring on line in 2018 will receive the benefit of these tax exemptions . ad valorem tax in 2017 was a credit of $ 0.1 million as compared to a $ 1.6 million charge in 2016 on a pro forma basis . the decrease in ad valorem tax between periods reflects audit refunds of approximately $ 0.9 million recorded in 2017 as well as the reduction in the assessed values of our properties . 40 transportation and processing our natural gas production incurs substantially all of our transportation and processing cost . transportation and processing for the year 2017 includes a $ 0.4 million non-recurring charge for infrastructure cost paid to our transporter to connect our wells for sales . additionally , in 2017 , we incurred higher transportation and processing rates on the natural gas volumes that we took in kind on non-operated haynesville shale trend wells , which represented approximately 57 % of our natural gas production in 2017 , or $ 4.2 million . prior to august 2016 , the transportation and processing cost on these non-operated wells were netted against the company 's realized natural gas price under an agency agreement . transportation and processing average cost per unit should decrease as produced operated gas volumes increase as a result of our drilling program . our operated natural gas volumes are less burdened with transportation cost than our non-operated natural gas volumes . transportation and processing expense for the 2016 successor period reflects the restructuring of the marketing of our outside operated natural gas volumes in an effort to reduce transportation and processing cost . transportation and processing expense for the 2016 predecessor period was generally lower due to lower produced natural gas volumes and the previously mentioned netting of the cost from the sales price . exploration the successor company adopted the full cost method of accounting as of the effective date resulting in exploration costs being capitalized to the full cost pool rather than expensed . the exploration expense in the predecessor 2016 period consisted of $ 0.1 million cost of non-producing lease expirations , $ 0.2 million in delay rental payments and $ 0.3 million in geological and geophysical costs . replace_table_token_13_th depreciation , depletion & amortization ( “ dd & a ” ) dd & a expense in the 2017 successor period was calculated on the full cost method of accounting . we adjust our dd & a rates twice a year in conjunction with issuance of our year-end and mid-year reserve reports . included in dd & a for 2017 is the depletion of our oil and gas properties of $ 11.7 million , accretion of our asset retirement obligation of $ 0.2 million and $ 0.2 million in depreciation of our furniture and fixtures . dd & a expense in the 2016 successor period was calculated on the full cost method of accounting adopted upon our emergence from bankruptcy based upon asset values as of the effective date established by fresh start accounting . dd & a expense in the 2016 predecessor period was calculated on the successful efforts method of accounting and reflects higher rates due to a higher asset base . 41 impairment our full cost ceiling test performed quarterly did not require recording an impairment in 2017. the successor company recorded a $ 2.5 million impairment on oil and gas properties as a result of the full cost ceiling test performed on december 31 , 2016. the predecessor company recorded a $ 1.6 million impairment on the value of materials inventory during the predecessor 2016 period . general and administrative expense ( “ g & a ” ) general and administrative expense for the year ended december 31 , 2017 includes $ 4.5 million in share-based compensation and $ 3.1 million of accrued performance bonus compensation which is expected to be paid in 2018 in a combination of cash and common stock . our 2017 senior credit facility and 13.50 % convertible second lien senior secured notes due 2019 placed limitations on cash general and administrative expenses through 2017 of $ 10.1 million . g & a payable in cash , which excludes share-based compensation , accrued performance bonus to be compensated in stock and accrued rent expense , was $ 9.2 million for the year ended december 31 , 2017. we capitalized $ 2.4 million of g & a directly attributed to our capital development to the full cost pool during 2017. with the exception of share-based compensation and accrued performance bonus increases , our g & a expense decreased in 2017 by approximately $ 3.6 million . it is expected that overall g & a expense will increase slightly due to salary and wage increases in 2018 but will decrease on a per unit of production basis due to production volume increases from our drilling and development program . the successor company recorded $ 2.2 million in g & a expense in 2016 which includes $ 0.2 million of share-based compensation . as a result of adopting the full cost method of accounting , $ 0.5 million of g & a cost directly attributed to our capital development program was capitalized to the full cost pool . the predecessor company recorded $ 14.5 million in g & a expense in 2016 which includes $ 3.3 million in share-based compensation . during the predecessor 2016 period , we reduced our staff headcount by more than 30 % from year-end 2015 levels . the higher rate per mcfe for 2016 reflects our lower oil and natural gas production which increased per unit expenses .
| results of operations in addition to adopting fresh start accounting , the successor also adopted the full cost method of accounting as of the effective date . prior to the effective date , the predecessor used the successful efforts method of accounting . the results of 2017 and 2016 operations of the successor are not generally comparable to the results of 2016 operations of the predecessor . we believe however , that production volumes , oil and natural gas revenues , lease operating expenses and production and other taxes are generally comparable ; consequently , unless otherwise indicated the tables and discussions below include pro forma results of the predecessor and the successor together for the periods in 2016 for these operational items . we believe this pro forma presentation gives the reader a better understanding of our operational results in 2017. the predecessor 2016 period results of operation reflects the period from january 1 , 2016 to october 12 , 2016. the net income of $ 370 million was primarily the result of the $ 399 million gain on the implementation of the plan of reorganization . under the plan of reorganization , we experienced gains from the cancellation of our then outstanding second lien notes and unsecured senior notes with the related accrued interest offset by the expenses incurred in the reorganization and the fair value of the successor company equity received by the senior note holders pursuant to the plan of reorganization . the successor 2016 period results of operations reflects the period from october 13 , 2016 to december 31 , 2016. the net loss of $ 4.3 million is primarily the result of the $ 2.5 million impairment expense recorded on our oil and gas properties . the successor adopted the full cost method of accounting which requires a quarterly full cost ceiling test .
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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 the section of the 10-k entitled risk factors and forward -looking statements. overview we are a medical technology company that develops , manufactures and markets innovative portable oxygen concentrators used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions . traditionally , these patients have relied on stationary oxygen concentrator systems for use in the home and oxygen tanks or cylinders for mobile use . the tanks and cylinders must be delivered regularly and have a finite amount of oxygen , which limits patient mobility and requires patients to plan activities outside of their homes around delivery schedules . additionally , patients must attach long , cumbersome tubing to their stationary concentrators simply to enable mobility within their homes . we refer to this traditional delivery approach as the delivery model . our proprietary inogen one systems are portable devices that concentrate the air around them to offer a single source of supplemental oxygen anytime , anywhere . using our systems , patients can eliminate their dependence on stationary concentrators and tank and cylinder deliveries , thereby improving quality-of-life and fostering mobility . in may 2004 , we received 510 ( k ) clearance from the u.s. food and drug administration , or the fda , for our inogen one g1 . since we launched the inogen one g1 in 2004 , through 2008 , we derived our revenue almost exclusively from sales to healthcare providers and distributors . in december 2008 , we acquired comfort life medical supply , llc in order to secure access to the medicare rental market and began accepting medicare reimbursement for our oxygen solutions in certain states . at the time of the acquisition , comfort life medical supply , llc had an active medicare billing number but few other assets and limited business activities . in january 2009 , following the acquisition of comfort life medical supply , llc , we initiated our direct-to-consumer marketing strategy and began selling inogen one systems directly to patients and building our medicare rental business in the united states . in april 2009 , we became a durable , medical equipment , prosthetics , orthotics , and supplies accredited medicare supplier by the accreditation commission for health care for our goleta , california facility for home/durable medical equipment services for oxygen equipment and supplies . we believe we are the only portable oxygen concentrator manufacturer that employs a direct-to-consumer marketing strategy in the united states , meaning we advertise directly to patients , process their physician paperwork , provide clinical support as needed and bill medicare or insurance on their behalf . we believe our direct-to-consumer strategy has been critical to driving patient adoption of our technology . all other portable oxygen concentrator manufacturers access patients through home medical equipment providers , which we believe are disincentivized to encourage portable oxygen concentrator adoption . in order to facilitate the regular delivery and pickup of oxygen tanks , home medical equipment providers have invested in geographically dispersed distribution infrastructures consisting of delivery vehicles , physical locations , and 54 delivery personnel within each area . because portable oxygen concentrator technology eliminates the need for physical distribution infrastructure but has higher initial equipment costs than oxygen tanks and cylinders , we believe converting to a portable oxygen concentrator model would require both significant restructuring and capital investment for home medical equipment providers . our direct-to-consumer marketing strategy allows us to sidestep the home medical equipment channel , appeal to patients directly , and capture both the manufacturing and provider margin . we believe our ability to capture this top-to-bottom margin , combined with our portable oxygen concentrator technology that eliminates the need for the costs associated with oxygen deliveries , gives us a cost structure advantage over our competitors using the delivery model . we derive a majority of our revenue from the sale and rental of our inogen one systems and related accessories to patients , insurance carriers , home healthcare providers and distributors . we sell multiple configurations of our inogen one systems with various batteries , accessories , warranties , power cords , and language settings . we also rent our products to medicare beneficiaries and patients with other insurance coverage to support their oxygen needs as prescribed by a physician as part of a care plan . our goal is to design , build and market oxygen solutions that redefine how oxygen therapy is delivered . to accomplish this goal and to grow our revenue , we intend to continue to : expand our sales and marketing channels . we will continue to hire additional internal sales representatives to drive our direct-to-consumer marketing efforts . during the year ended december 31 , 2013 , we increased our internal sales force from 93 to 108. additionally , we are building a physician referral channel that currently consists of eleven employees . lastly , we are focused on building our international distribution capabilities . invest in our product offerings to develop innovative products . we expended $ 2.4 million , $ 2.3 million and $ 1.8 million in 2013 , 2012 and 2011 , respectively , in research and development expenses , and we intend to continue to make such investments in the foreseeable future . secure contracts with healthcare payors and insurers . based on our patient population , we estimate that at least 30 % of oxygen therapy patients are covered by non-medicare payors , and that these patients often represent a younger , more active patient segment . by becoming an in-network provider with more insurance companies , we can reduce the co-insurance for patients , which we believe will allow us to attract additional patients to our inogen one solutions . we have been developing and refining the manufacturing of our inogen one systems over the past eight years . story_separator_special_tag we sold approximately 19,200 inogen one systems in 2013 , approximately 11,900 inogen one systems in 2012 and approximately 7,300 in 2011. management focuses on system sales as an indicator of current business success . rental revenue our rental process involves numerous interactions with the individual patient , the physician and the physician 's staff . the process includes an in-depth analysis and review of our product , the patient 's diagnosis and oxygen needs , and their medical history to confirm the appropriateness of our product for the patient 's oxygen therapy and compliance with medicare and private payor billing requirements , which often necessitates additional physician evaluation and or testing as well as a certificate of medical necessity . once the product is 56 deployed , the patient receives direction on product use and receives a clinical titration from our licensed staff to confirm the product meets the patient 's needs prior to billing . as a result , the time from initial contact with a customer to billing can vary significantly and be up to one month or longer . we plan to grow our rental revenue in the coming years through multiple strategies , including expanding our direct-to-consumer marketing efforts through hiring additional sales representatives and investing in patient awareness and physician-based sales , securing additional insurance contracts and continuing to enhance our product offerings through additional product launches . in addition , patients may come off of our services due to death , a change in their condition , a change in location , a change in provider or other factors . in each case , we maintain asset ownership and can redeploy assets as appropriate following such events . given the length and uncertainty of our patient acquisition cycle and potential returns we have in the past experienced , and likely will in the future experience , there may be fluctuations in our net new patient setups on a period-to-period basis . as the rental patient base increases , this rental model generates recurring revenue with minimal additional sales and general and administrative expenses . a portion of rentals include a capped rental period when no additional reimbursement will be allowed unless additional criteria are met . in this scenario , the ratio of billable patients to patients on service is critical to maintaining rental revenue growth as patients on service increases . as the rental base expands , we expect our rental revenue to increase and over time to become an increasingly important contributor to our total revenue . over time , we believe that our rental revenue should be subject to less period-to-period fluctuation than our sales revenue . as of december 31 , 2013 , we had over 21,300 oxygen rental patients , an increase from over 13,500 oxygen rental patients as of december 31 , 2012 and approximately 7,500 in 2011. management focuses on rental revenue as an indicator of current business success and a leading indicator of likely future rental revenue ; however , actual rental revenue recognized is subject to a variety of other factors , including reimbursement levels by patient zip code , the number of capped patients , and adjustments for patients in transition . reimbursement we rely heavily on reimbursement from medicare , and secondarily from private payors and medicaid , for our rental revenue . for the year ended december 31 , 2013 , approximately 58 % of our rental revenue was derived from medicare . the u.s. list price for our stationary oxygen rentals ( e1390 ) is $ 260 per month and for our oxygen generating portable equipment ( ogpe ) rentals ( e1392 ) is $ 70 per month . the current standard medicare allowable effective january 1 , 2014 for stationary oxygen rentals ( e1390 ) is $ 178.24 per month and for ogpe rentals ( e1392 ) is $ 51.63 per month . these are the two primary codes that we bill to medicare and other payors for our product rentals . as of january 1 , 2011 , medicare has phased in a program called competitive bidding . competitive bidding impacts the amount medicare pays suppliers of durable medical equipment , including portable oxygen concentrators . the program is defined geographically , with suppliers submitting bids to provide medical equipment for a specific product category within that geography . once bids have been placed , an individual company 's bids across products within the category are aggregated and weighted by each product 's market share in the category . the weighted average price is then indexed against competitors . medicare determines a clearing price out of these weighted average prices at which sufficient suppliers have indicated they will support patients in the category , and this threshold is typically designed to generate theoretical supply that is twice the expected demand . bids for each modality among the suppliers that made the cut are then arrayed to determine what medicare will reimburse for each product category . the program has strict anti-collusion guidelines to ensure bidding is truly competitive . competitive bidding contracts last three years once implemented , after which they are subject to a new round of bidding . discounts off the standard medicare allowable occur in competitive bidding metropolitan statistical areas where contracts have been awarded as well as in cases where private payors pay less than this allowable . current medicare payment rates in competitive bidding areas are at 48-64 % of the standard medicare allowable for stationary oxygen rentals ( average of $ 93.29 per month ) and ogpe rentals are at 70-92 % of the standard medicare allowable ( average of $ 42.33 per month ) . competitive bidding 57 rates are based on the zip code where the patient resides . rental revenue includes payments for product , disposables , and customer service/support . medicare has not announced specific plans for the plan to implement competitive bidding nationwide , but by 2016 medicare must implement competitive bidding or competitive bidding pricing for included items to non-competitive bidding areas .
| result of operations comparison of years ended december 31 , 2013 and 2012 revenue replace_table_token_10_th 62 the increase in sales revenue in the year ended december 31 , 2013 compared to the year ended december 31 , 2012 was attributable to an increase in the number of systems sold primarily related to the launch of the inogen one g3 , an increase in direct-to-consumer sales in the united states due to increased sales and marketing efforts , and an increase in business-to-business sales worldwide as the adoption of portable oxygen concentrators improved . the increase in rental revenue in the year ended december 31 , 2013 compared to the year ended december 31 , 2012 was attributable to the increase in rental patients from over 13,500 as of december 31 , 2012 to over 21,300 as of december 31 , 2013 due to additional marketing efforts and increased sales personnel . this increase was partially offset by the reduced reimbursement rates resulting from round two competitive bidding that became effective in 91 metropolitan statistical areas on july 1 , 2013. as expected , the growth in sales revenue was not impacted by the reduced reimbursement rates resulting from competitive bidding . sales revenue grew 56.6 % for the year ended december 31 , 2013 compared to previous year-over-year growth of 47.2 % . cost of revenue and gross profit replace_table_token_11_th we manufacture our inogen one product line in our goleta , california and richardson , texas facilities . our manufacturing process includes final assembly , testing , and packaging to customer specifications . the increase in cost of sales revenue was attributable to an increase in the number of systems sold , partially offset by reduced bill of material and labor and overhead costs for our products associated with better sourcing and increased volumes .
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programmable logic products are widely used semiconductor components that can be configured by end customers as specific logic circuits , enabling shorter design cycle times and reduced development costs . our end customers are primarily original equipment manufacturers ( “ oems ” ) in the communications , computing , consumer , industrial , military , automotive , and medical end markets . within the programmable logic market there are two groups of products - programmable logic devices ( “ pld ” ) and field programmable gate arrays ( “ fpga ” ) - each representing a distinct silicon architectural approach . products based on the two alternative programmable logic architectures are generally optimal for different types of logic functions , although many logic functions can be implemented using either architecture . we believe that a substantial portion of programmable logic customers utilize both pld and fpga architectures . critical accounting policies and estimates critical accounting policies are those that are both most important to the portrayal of a company 's financial condition and results 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 . a description of our critical accounting policies follows . use of estimates . the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and classification of assets , such as marketable securities , accounts receivable , inventory , auction rate securities , goodwill ( including the assessment of reporting unit ) , intangible assets , deferred income taxes and liabilities , such as accrued liabilities ( including restructuring charges and bonus arrangements ) , income taxes and deferred income and allowances on sales to sell-through distributors , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal periods presented . actual results could differ from those estimates . revenue recognition and deferred income . revenue from sales to customers is recognized upon shipment , or in the case of sales by our sell-through distributors , at the time of reported resale , provided that persuasive evidence of an arrangement exists , the price is fixed or determinable , title has transferred , collection of resulting receivables is reasonably assured , there are no customer remaining acceptance requirements and no remaining significant obligations . we sell our products directly to end customers or through a network of independent manufacturers ' representatives and indirectly through a network of independent sell-in and sell-through distributors . distributors provide us periodic data regarding the product , price , quantity , and end customer when products are resold as well as the quantities of our products they still have in stock . we must use estimates and apply judgment to reconcile sell-through distributors ' reported inventories to their activities . any error in our judgment could lead to inaccurate reporting of our revenue , cost of products sold , deferred income and allowances on sales to sell-through distributors , and net income ( loss ) . at the time of shipment to a sell-through distributor we invoice at published list price . the final price is set at the time of resale and is determined in accordance with a distributor price agreement . invoices are recorded in accounts receivable , net with a corresponding credit to deferred income and allowances on sales to sell-though distributors and inventory is credited from inventories with a corresponding charge to deferred income and allowances on sales to sell-through distributors . at the time of shipment to a sell-through distributor amounts are invoiced at published list price . the final price is set at the time of resale and is determined in accordance with a distributor price agreement . amounts invoiced are recorded in accounts receivable , net and inventory is transferred from inventories to deferred income and allowances on sales to sell-through distributors . revenue and cost of products sold to sell-through distributors are deferred until either the product is resold by the distributor or , in certain cases , return privileges terminate , at which time revenue and cost of products sold are reflected in net income ( loss ) . the components of deferred income and allowances on sales to sell-through distributors are presented in the following table ( in thousands ) : 28 replace_table_token_7_th during fiscal 2009 , the company embarked on a program to restructure our distribution channels primarily in the asia pacific region , from a sell-in to a sell-through distribution model . as a result , the majority of our revenue in fiscal 2011 and 2010 was from resale of our products by sell-through distributors . resale of product by sell-through distributors as a percentage of our total revenue was 61 % , 56 % and 38 % in fiscal 2011 , 2010 and 2009 , respectively . revenue from software licensing was not material for the periods presented . fair value of financial instruments . we invest in various financial instruments including corporate and government bonds , notes , commercial paper and auction rate securities . we value these instruments at their fair value and monitor our portfolio for impairment on a periodic basis . in the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary , we record an impairment charge and establish a new carrying value . we assess other-than-temporary impairment of marketable securities in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) asc 820 , “ fair value measurements and disclosures '' . the framework under the provisions of asc 820 establishes three levels of inputs that may be used to measure fair value . each level of input has different levels of subjectivity and difficulty involved in determining fair value . story_separator_special_tag to the extent the final tax liabilities are different than the amounts originally accrued , the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations . in assessing the realizability of deferred tax assets , we evaluate both positive and negative evidence that may exist and considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . any adjustment to the net deferred tax asset valuation allowance is recorded in the consolidated statement of operations for the period that the adjustment is determined to be required . stock-based compensation . we use the black-scholes option pricing model to estimate the fair value of substantially all share-based awards consistent with the provisions of asc 718. option pricing models , including the black-scholes model , also require the use of input assumptions , including expected volatility , expected term , expected dividend rate , and expected risk-free rate of return . the assumptions for expected volatility and expected term are the two assumptions that significantly affect the grant date fair value . restricted stock unit grants are part of the company 's equity compensation practices for employees who receive equity grants . the restricted stock units granted to employees generally vest quarterly over a four-year period beginning on the grant date . story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > fpsc , orca 2 , orca 3 , orca 4 , isppac , isplsi 8000v , ispmach 5000b , ispmach 2lv , ispmach 5lv , isplsi 2000v , isplsi 5000v , ispmach 5000vg , all 5-volt cplds , gdx/v , ispmach 4/lv , ice65 , all splds * product categories are modified as appropriate relative to our portfolio of products and the generation within each major product family . new products consist of our latest generation of products , while mainstream and mature are older or based on unique late stage customer-based production needs . generally , product categories are adjusted every two to three years , at which time prior periods are reclassified to conform to the new categorization . in fiscal 2010 we reclassified our new , mainstream and mature product categories to better reflect our current product portfolio . no changes were made in fiscal 2011 . 33 revenue by geography the composition of our revenue by geographical location of our direct and indirect customers was as follows ( dollars in thousands ) : replace_table_token_12_th we assign revenue to geographies based on customer ship-to address at the point where revenue is recognized . in the case of sell-in distributors and oem customers , revenue is typically recognized , and geography is assigned , when products are shipped to our distributor or customer . in the case of sell-through distributors , revenue is recognized when resale occurs and geography is assigned based on the customer location on the resale reports provided by the distributor . revenue from foreign sales as a percentage of total revenue was 86 % for fiscal 2011 , 88 % for fiscal 2010 and 85 % for fiscal 2009 . we believe the foreign market to the asia pacific region will remain the primary source of our revenue due to relatively more favorable business conditions in asia and a continuing trend towards outsourcing of manufacturing by north american and european customers to the asia pacific region . revenue from distributors our largest customers are distributors and have historically made up a significant portion of our total revenue . revenue attributable to resales of products by arrow electronics , inc. , which includes its wholly-owned subsidiary , nu horizons electronics corp. , accounted for approximately 22 % , 18 % and 12 % of revenue in fiscal years 2011 , 2010 and 2009 , respectively . revenue attributable to resales of products by avnet , inc. ( `` avnet '' ) , accounted for approximately 17 % , 17 % and 13 % of revenue in fiscal years 2011 , 2010 and 2009 , respectively . revenue attributable to resales of products by the weikeng group ( weikeng industrial co. ltd. ( taiwan ) and weikeng international co. ltd. ( hong kong ) ) accounted for approximately 14 % , 14 % and 9 % of revenue in fiscal years 2011 , 2010 and 2009 , respectively . sales of products to asti holdings ltd. accounted for approximately 0 % , 0 % and 16 % of revenue in fiscal years 2011 , 2010 and 2009 , respectively . no other individual customer accounted for more than 10 % of total revenue in any of the fiscal years 2011 , 2010 and 2009 . on august 28 , 2011 , our global franchise agreement with avnet terminated , however , we mutually agreed to terms for the transition of inventory through december 31 , 2011. we do not expect a significant disruption in our ability to service customers as a result of this change . we continue to serve our end customers with a network that includes a global distributor , regional distributors , manufacturer 's representatives , and our direct sales team . during fiscal 2009 , we embarked on a program to restructure our distribution channels , primarily in the asia pacific region , from a sell-in to a sell-through distribution model . as a result the majority of our revenue in fiscal 2011 and 2010 was from resale of our products by sell-through distributors . in connection with this program , we terminated our distribution agreement between the company and promaster technology corporation on july 2 , 2009 , between the company and dragon technology distribution and fe global electronics effective for various territories on february 1 and february 6 , 2010 , respectively , and between the company and other distributors effective on various dates .
| results of operations key elements of our consolidated statements of operations were as follows ( dollars in thousands ) : 30 replace_table_token_8_th revenue revenue in fiscal 2011 increased to $ 318.4 million as compared to $ 297.8 million in fiscal 2010 , primarily due to an increase in revenue from new products . revenue in fiscal 2010 increased to $ 297.8 million as compared to $ 194.4 million in fiscal 2009 primarily due to an increase in revenue from new , mainstream and mature products . a significant portion of our revenue is dependent on the health of the communications end market , which accounted for approximately 44 % , 49 % and 56 % of our total revenue in fiscal 2011 , 2010 and 2009 , respectively . forecasting future revenue by end market is particularly challenging as revenue growth is dependent on overall economic conditions for our industry and market acceptance of our new products . on december 16 , 2011 , the company completed the purchase of siliconblue technologies ltd. , ( a cayman islands exempted company ( “ siliconblue ” ) ) a developer of a single chip , ultra-low power field programmable gate array solution for handheld devices . the acquisition of siliconblue is part of the company 's effort to expand its presence in the consumer end market with low-power programmable logic devices for the smartphone market . siliconblue was consolidated into our financial statements beginning on december 16 , 2011. the revenue of siliconblue recorded in our consolidated statement of operations from the acquisition date through december 31 , 2011 was $ 0.7 million , and was included in our pld product line , mature revenue and consumer end market summary tables below .
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the q3 2017 offering also reset the conversion price of 14,052.93 shares of series d convertible preferred stock and 7,000 shares of series e convertible preferred stock that were held by sabby to $ 2.63 per share . the q3 2017 offering resulted in gross proceeds of $ 7.0 million , and after deducting fees and expenses , net proceeds were $ 6.6 million . each share of series f convertible preferred stock has a stated value of $ 1,000 and is convertible , at any time at the option of the holder thereof , into a number of shares of our common stock determined by dividing the stated value by the initial conversion price of $ 2.63 , subject to a 4.99 % beneficial ownership limitation . private offering of convertible preferred stock and warrants ; in the first quarter of 2017 , we completed a private equity offering , or the q1 2017 offering , with sabby , providing for the issuance of ( i ) 7,000 shares of series e convertible preferred stock at a price of $ 1,000 per share , and ( ii ) warrants to purchase up to 1,250,000 shares of common stock , par value $ 0.0001 per share ( the “ common stock ” ) , at an exercise price of $ 5.60 per share . as a part of this offering , the company reset ( i ) the conversion price of 19,458.90 shares of series d convertible preferred stock that were held by sabby to $ 5.60 per share , and ( ii ) the exercise price of warrants to purchase up to 2,934,484 shares of common stock that were held by sabby to $ 5.60 per share . the q1 2017 offering resulted in gross proceeds of $ 7.0 million , and after deducting fees and expenses , net proceeds were $ 6.3 million . each share of series e convertible preferred stock has a stated value of $ 1,000 and is convertible , at any time at the option of the holder thereof , into a number of shares of our common stock determined by dividing the stated value by the adjusted conversion price of $ 2.63 , subject to a 4.99 % beneficial ownership limitation . director independence see item 10 , “ directors , executive officers and corporate governance — board matters and corporate governance ” . 48 item 14. principal accounting fees and services accounting fees aggregate fees for professional services rendered by moody , famiglietti , & andronico , llp for the years ended december 31 , 2018 and 2017 are as follows : audit fees the audit fees for moody , famiglietti , & andronico , llp for professional services rendered for the 2018 audit of our annual financial statements and the review of the financial statements included in our quarterly reports on form 10-q , issuance of consents , and review of documents filed with the sec totaled $ 141,614 , of which $ 47,364 was billed in 2018 and $ 94,250 was billed in 2019. the audit fees for moody , famiglietti , & andronico , llp for professional services rendered for the 2017 audit of our annual financial statements and the review of the financial statements included in our quarterly reports on form 10-q , issuance of consents , and review of documents filed with the sec totaled $ 107,600 , of which $ 54,800 was billed in 2017 and $ 52,800 was billed in 2018. audit-related fees there were no audit-related fees for moody , famiglietti , & andronico , llp in 2018 and 2017. all other fees there were no other fees for moody , famiglietti , & andronico , llp in 2018 and 2017. tax fees there were no tax fees for moody , famiglietti , & andronico , llp in 2018 and 2017. pre-approval policies and procedures the audit committee approved all audit and non-audit services provided to us by moody , famiglietti , & andronico , llp during the 2018 and 2017 fiscal years . 49 part iv item 15. exhibits and financial statement schedule ( a ) 1. financial statements the financial statements are listed in the accompanying index to financial statements on page f-1 . 2. financial statement schedule the financial statement schedule is listed in the accompanying index to financial statements on page f-1 . other financial statement schedules required under this item and item 8 are omitted because they are not applicable or the required information is shown in the financial statements or the footnotes thereto . 3. exhibit index the following is a list of exhibits filed as part of this annual report on form story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with our selected financial data , our financial statements , and the accompanying notes to those financial statements included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . for a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements , please refer to the section titled “ risk factors ” , contained in item 1a of this annual report on form 10-k. overview neurometrix is a commercial stage , innovation driven healthcare company combining neurostimulation and digital medicine to address chronic health conditions including chronic pain , sleep disorders , and diabetes . our core expertise in biomedical engineering has been refined over nearly two decades of designing , building and marketing medical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes . story_separator_special_tag story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > net income per common share applicable to common stockholders was $ 0.003 and $ 0.002 , basic and diluted for 2018 , respectively . net loss per common share applicable to common stockholders was $ ( 11.598 ) , basic and diluted for 2017. weighted average shares outstanding used in computing per share amounts are included in note 2 to the financial statements . in 2017 , per share amounts reflected a deemed dividend attributable to preferred stockholders of $ 6.9 million , or $ ( 4.040 ) per share , related to 2017 equity offerings , plus a net loss of $ 12.9 million , or $ ( 7.558 ) per share . liquidity and capital resources our principal source of liquidity is cash of $ 6.8 million at december 31 , 2018. funding for our operations largely depends on revenues from the sales of our commercial products for chronic pain and neuropathy , and on achievement of milestones under the gsk collaboration . a low level of market interest in quell or dpncheck , a decline in our consumables sales , unanticipated increases in our operating costs , or unanticipated setbacks toward the achievement of the gsk milestones would have an adverse effect on our liquidity and cash . december 31 , 2018 december 31 , 2017 change % change ( in thousands ) cash and cash equivalents $ 6,780.4 $ 4,043.7 $ 2,736.7 67.7 % during 2018 our cash and cash equivalents increased by $ 2.7 million from 2017 reflecting $ 2.9 million cash provided by operating activities , which included the net proceeds of $ 14.2 million provided by our collaboration , and $ 0.1 million used in investing activities . we are party to a loan and security agreement , or the credit facility , with a bank . as of december 31 , 2018 the credit facility permitted us to borrow up to $ 2.5 million on a revolving basis . the credit facility was subsequently amended , most recently on january 14 , 2019 , and extended until april 15 , 2019 . amounts borrowed under the credit facility will bear interest equal to the prime rate plus 0.5 % . any borrowings under the credit facility will be collateralized by our cash , accounts receivable , inventory , and equipment . the credit facility also includes traditional lending and reporting covenants . we were in compliance with these covenants as of december 31 , 2018 . in managing working capital , we focus on two important financial measurements as presented below : replace_table_token_5_th customer payment terms generally vary from payment-on-order for quell e-commerce sales to 120 days from invoice date . our inventory turnover rate declined during 2018 due to increase in purchased components and finished goods inventory related to quell 2.0 . 33 the following sets forth information relating to sources and uses of our cash : replace_table_token_6_th our operating activities provided $ 2.9 million for the year ended december 31 , 2018. in 2018 , net income of $ 0.0 million included non-cash stock-based compensation of $ 0.4 million . in addition , operating activities included an increase of $ 2.0 million in deferred collaboration income and a decrease in accounts receivable of $ 1.3 million partially offset by a decrease in accrued product returns of $ 0.9 million and an increase in inventory of $ 0.7 million . during the year ended december 31 , 2018 , our investing activities reflected $ 0.1 million spent for the acquisition of fixed assets , primarily related to production system upgrades . the company has suffered recurring losses from operations and negative cash flows from operating activities . these factors raise substantial doubt about the company 's ability to continue as a going concern for the one-year period from the date of issuance of these financial statements . the financial statements do not include any adjustments that might result from the outcome of this uncertainty.we held cash and cash equivalents of $ 6.8 million as of december 31 , 2018. we believe that these resources , future gsk collaboration milestone payments , and the cash to be generated from future product sales will be sufficient to meet our projected operating requirements through 2019 . accordingly , we may need to raise additional funds to support our operating and capital needs in 2020 . we continue to face significant challenges and uncertainties and , as a result , our available capital resources may be consumed more rapidly than currently expected due to ( a ) decreases in sales of our products ; ( b ) changes we may make to the business that affect ongoing operating expenses ; ( c ) changes we may make in our business strategy ; ( d ) regulatory developments affecting our existing products ; ( e ) changes we may make in our research and development spending plans ; ( f ) delays in the timing of achieving gsk milestones ; and ( g ) other items affecting our forecasted level of expenditures and use of cash resources . we may attempt to obtain additional funding through public or private financing , collaborative arrangements with strategic partners , or through additional credit lines or other debt financing sources . however , we may not be able to secure such financing in a timely manner or on favorable terms , if at all .
| results of operations comparison of years ended december 31 , 2018 and december 31 , 2017 revenues years ended december 31 , 2018 2017 change % change ( in thousands ) revenues $ 16,090.1 $ 17,092.3 $ ( 1,002.2 ) ( 5.9 ) % revenues include sales from quell , dpncheck and our legacy neurodiagnostic products . during 2018 total revenues decreased by $ 1.0 million , or 5.9 % , from 2017. quell revenues of $ 10.5 million were the largest contributor to total revenue . quell revenues were $ 1.8 million , or 14.9 % , below the comparable 2017 period . a significant factor contributing to the revenue decline was lower advertising spending during the first three quarters of 2018 leading up to the launch of our next generation wearable technology for chronic pain , quell 2.0 , in september 2018. dpncheck revenues of $ 4.2 million increased by $ 1.1 million , or 34.3 % from 2017. our legacy products contributed $ 1.4 million and $ 1.5 million of revenue in 2018 and 2017 , respectively . in 2018 we adopted revenue recognition standard asu 2014-09 and discontinued revenue deferral under the previously mandated sell-through revenue model . generally , the new standard results in earlier recognition of revenues . had we not changed our revenue recognition policy , revenue in 2018 would have been $ 0.6 million higher than reported . cost of revenues and gross profit replace_table_token_2_th our gross profit margin was 45.9 % in 2018 versus 40.1 % in the prior year . the margin improvement of 580 basis points or 14.5 % was due to the increased weight of our high margin dpncheck business within total revenue plus improved quell profitability from shedding high cost distribution channels and from launch of quell 2.0 which carries higher margins .
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this discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this annual report on form 10-k. the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , our operating expenses , and future payments under our collaboration agreements , includes forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . such statements are based upon current expectations that involve risks and uncertainties . you should review the section entitled `` risk factors '' in item 1a of part i above for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . see the section entitled `` special note regarding forward looking statements '' above for more information . management overview innoviva , inc. is focused on bringing compelling new medicines to patients in areas of unmet need by leveraging its significant expertise in the development , commercialization and financial management of bio-pharmaceuticals , to maximize the commercial potential of its respiratory assets partnered with glaxo group limited ( `` gsk '' ) , including relvar ® /breo ® ellipta ® ( fluticasone furoate/ vilanterol , `` ff/vi '' ) and anoro ® ellipta ® ( umeclidinium bromide/ vilanterol , `` umec/vi '' ) . under the long-acting beta 2 agonist ( `` laba '' ) collaboration agreement and the strategic alliance agreement with gsk ( referred to herein collectively as the `` gsk agreements '' ) , we are entitled to receive royalties from gsk on sales of relvar ® /breo ® ellipta ® as follows : 15 % on the first $ 3.0 billion of annual global net sales and 5 % for all annual global net sales above $ 3.0 billion . for other products combined with a laba from the laba collaboration , such as anoro ellipta , royalties are upward tiering and range from 6.5 % to 10 % . innoviva is also entitled to 15 % of any future payments made by gsk under its agreements originally entered into with us , and since assigned to theravance respiratory company , llc ( `` trc '' ) . in june 2014 , we spun-off our research and development activities by distributing the outstanding shares of theravance biopharma , inc. ( `` theravance biopharma '' ) on a pro-rata basis to our stockholders ( the `` spin-off '' ) , which resulted in theravance biopharma becoming an independent , publicly traded company . we have designed our company structure and organization to be tailored to our focused activities of managing our respiratory assets with gsk , the commercial and developmental obligations associated with the gsk agreements , intellectual property , licensing operations , business development activities and providing for certain essential reporting and management functions of a public company . as of december 31 , 2016 , we had 14 employees . our revenues consist of royalties and potential milestone payments , if any , from our respiratory partnership agreements with gsk . 33 financial highlights in the year ended december 31 , 2016 , our net income from operations was $ 59.5 million , an improvement of $ 78.3 million from a net loss from continuing operations of $ 18.8 million in the year ended december 31 , 2015 , primarily due to an increase in net royalty revenue . cash , cash equivalents , and marketable securities , totaled $ 150.4 million on december 31 , 2016 , a decrease of $ 36.9 million from december 31 , 2015. the decrease was due primarily to the repurchases of common stock of $ 78.1 million , repurchases of our 2023 notes of $ 11.6 million , payments on principal of our 2029 notes of $ 6.8 million and net purchases of marketable securities of $ 4.3 million . these outflows were partially offset by cash provided by operating activities of $ 61.0 million . capital return plans in october 2015 , we announced the acceleration of our capital return plan with an up to $ 150 million share repurchase program effective through the end of 2016 , the 2016 share repurchase program . in february 2017 , we announced a new capital return plan , the 2017 capital return plan . the 2017 capital return plan authorizes a combination of repurchases of stock and or repurchases , redemptions or prepayments of debt up to $ 150 million , through tender offers , open market purchases , private transactions , exchange offers or other means through december 31 , 2017. the 2017 capital return plan is expected to be funded using our working capital . we are not obligated to repurchase any specific dollar amount of debt or equity or number of shares of common stock under the 2017 capital return plan . we will determine when , if and how to proceed with any repurchase transactions under the program , as well as the amount of any such repurchase transactions , based upon , among other things , our evaluation of our liquidity and capital needs ( including for strategic and other opportunities ) , our business , results of operations , and financial position and prospects , general financial , economic and market conditions , prevailing market prices for shares of our common stock , corporate , regulatory and legal requirements , and other conditions and factors deemed relevant by our management and board of directors from time to time . our 2017 capital return plan may be suspended or discontinued at any time . there can be no assurance as to the actual volume of any debt or share repurchases in any given period or over the term of the program or as to the manner or terms of any such transactions . story_separator_special_tag collaborative arrangements and multiple element arrangements we generate revenue from collaboration and license agreements for the development and commercialization of product candidates . under the gsk agreements , revenue from non-refundable , upfront fees and development contingent payments were recognized ratably over the expected term of our performance of research and development services under the agreements . these upfront or contingent payments received , pending recognition as revenue , were recorded as deferred revenue and recognized over the estimated performance periods . we recognize royalty revenue on licensee net sales of products with respect to which we 35 have royalty rights in the period in which the royalties are earned and reported to us and collectability is reasonably assured . royalty revenue earned is reduced by amortization expense resulting from the fees paid to gsk , which were recognized as capitalized fees paid to a related party . under the gsk agreements , we recognized net revenue of $ 133.6 million , $ 53.9 million and $ 8.4 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the remaining deferred revenue under the gsk strategic alliance agreement is $ 3.1 million as of december 31 , 2016. any change in the estimated performance period , which is predominantly based on gsk 's development timeline , will not have a significant impact on the results of operations , except for a change in estimated performance period resulting from the termination of the maba program that would result in immediate recognition of the deferred revenue . capitalized fees paid to a related party we capitalize fees paid to licensors related to agreements for approved products or commercialized products ( `` capitalized fees '' ) . our gross capitalized fees of $ 220.0 million as of december 31 , 2016 consist of registrational and launch-related to milestone fees paid to gsk . we capitalized these fees as capitalized fees paid to a related party and amortize these capitalized fees on a straight-line basis over their estimated useful lives upon the commercial launch of the products . the estimated useful lives of these capitalized fees are based on a country-by-country and product-by-product basis , as the later of the expiration or termination of the last patent right covering the compound in such product in such country and 15 years from first commercial sale of such product in such country , unless the agreement is terminated earlier . consistent with our policy for classification of costs under the research and development collaborative arrangements , the amortization of these capitalized fees is recognized as a reduction of royalty revenue . amortization expense for the years ended december 31 , 2016 , 2015 and 2014 were $ 13.8 million , $ 13.8 million and $ 11.1 million , respectively . the remaining estimated amortization expense is $ 13.8 million for each of the years from 2017 to 2021 and $ 111.4 million thereafter . we review our capitalized fees for impairment on a product-by-product basis for each major geographic area when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . the recoverability of capitalized fees is measured by comparing the asset 's carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . the determination of recoverability typically requires various estimates and assumptions , including estimating the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we derive the required cash flow estimates from near-term forecasted product sales and long-term projected sales in the corresponding market . based upon our analyses , no impairment charges have been recorded on the capitalized fees as of december 31 , 2016. fair value of stock-based compensation awards we use the black-scholes-merton option pricing model to estimate the fair value of options as of the date of grant . the black-scholes-merton option valuation model requires the use of assumptions , including the expected term of the award and the expected stock price volatility . we use the `` simplified '' method as described in staff accounting bulletin no . 107 , `` share based payment , '' for the expected option term . we use our historical volatility to estimate expected stock price volatility . the estimated fair value of the option is expensed on a ratable basis over the expected term of the grant . we determine the fair value of rsus and rsas based on the fair market values of the underlying stock on the dates of grant . the fair value of service based rsus and rsas is expensed on a ratable or straight-line basis over the expected term of the vesting . the fair value of performance-contingent rsus and rsas is expensed using an accelerated method over the requisite service period based on management 's best estimate as to whether it is probable that the shares awarded are expected to vest . we assess the probability of the performance indicators being met on a continuous basis . the grant date fair value of the rsus and rsas with a market condition is determined using a monte carlo valuation model and the compensation expense is recognized over the implied service period . stock-based compensation expense was calculated based on awards ultimately expected to vest and was reduced for estimated forfeitures as of the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differed from those estimates . the estimated annual forfeiture rates for stock options , rsus and rsas are based on our historical forfeiture experience .
| results of operations net revenue total net revenue from continuing operations , as compared to the prior years , was as follows : replace_table_token_6_th * not meaningful 37 total net revenue increased for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015. the increases were primarily due to growth in prescriptions and market share for both relvar ® /breo ® ellipta ® and anoro ® ellipta ® . the revenue growth during the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 may not be indicative of our future revenue growth , if any . total net revenue increased for the year ended december 31 , 2015 , compared to the year ended december 31 , 2014. the increases were primarily due to higher sales of relvar ® /breo ® ellipta ® , anoro ® ellipta ® not having been commercially launched until april 2014 and the approval in april 2015 of breo ® ellipta ® ( ff/vi ) as a once-daily inhaled treatment of asthma in patients aged 18 years and older in the u.s. research & development research & development ( `` r & d '' ) expenses from continuing operations , as compared to the prior years , were as follows : replace_table_token_7_th r & d expenses decreased for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to reduced activities related to the late-stage partnered respiratory assets with gsk .
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this discussion and analysis should be read in conjunction with these consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in part i , item 1a . risk factors of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . note on the covid-19 pandemic while the covid-19 pandemic has had an impact on our business , operations , and financial performance , we have taken and plan to continue to take steps to evaluate , monitor , manage , and respond to the challenges that have arisen from the covid-19 pandemic and to new challenges that may arise . we continue to operate under a remote operating model for all employees other than certain members of our laboratory and facilities staff . as part of this remote operating model , our laboratory staff who engage in research and development activities continue to have restricted access to our laboratories . accordingly , our laboratory staff are not yet back to their full daily output as existed prior to the onset of the covid-19 pandemic . we continue to evaluate our remote operating model for our offices based on guidance from federal , state and local government authorities , and we expect that some form of this remote operating model will exist for us through at least the first half of 2021. in addition , although the initiation , enrollment and completion of our ongoing and planned clinical trials are on schedule , we are aware of the impact that covid-19 continues to have on other clinical trials in our industry and there is a risk of material impact on the conduct of our clinical trials as well . we are continuing to work with our clinical trial sites to ensure study continuity , enable medical monitoring , facilitate study procedures and maintain clinical data and records , including the use of local laboratories for testing , home delivery of study drug and remote data and records monitoring . to date , the covid-19 pandemic has not had a material impact on our supply chain , and we currently have a consistent supply of tazemetostat and tazverik that we believe will cover our ongoing clinical development as well as the ongoing commercialization for epithelioid sarcoma , or es , and follicular lymphoma , or fl . as a proactive measure , we have taken certain steps to try to reduce the risk to our supply chain , such as advancing orders for long-lead items in anticipation of potential future delays or shortages . because the ongoing covid-19 pandemic could materially adversely impact our suppliers and result in delays or disruptions in our current or future supply chain , we are continuing to monitor and manage our supply chain accordingly . for our ongoing commercialization activities for tazverik , our commercial and medical affairs field teams are continuing to use virtual formats where possible in order to allow us to serve the needs of healthcare providers , patients and other stakeholders during this critical time . during the third and fourth quarters of 2020 , the covid-19 pandemic continued to negatively impact es and fl patient visits to physicians , new patient starts across all lines of treatment as well as the ability of our field-based teams to fully access es and fl prescribers , and these challenges continued in the first quarter of 2021. notwithstanding these challenges , new prescriptions for tazverik in fl have increased month over month and are being written for both ezh2 mutation and wild-type patients ; in the academic and community settings ; and across multiple treatment lines in relapsed or refractory fl patients . in addition , payor coverage for es and fl continues to be in-line with the tazverik label . we continue to adapt our commercial strategy to the covid-19 pandemic to support increased adoption of tazverik in appropriate patients . we continue to assess the potential duration , scope and severity of the covid-19 pandemic and its impacts on our business , operations and financial performance , and we continue to work closely with our third-party vendors , collaborators and other parties in order to seek to continue to advance our commercialization efforts of tazverik 84 a nd to continue to advance the development of ou r pipeline , as quickly as possible , while making the health and safety of our employees and their families , healthcare providers , patients and communities a top priority . due to the evolving and uncertain global impacts of the covid-19 pandemic , however , we can not precisely determine or quantify the impact that this pandemic has had on our business , operations and financial performance or the impact that this pandemic will have in 2021 and beyond . please refer to our risk factors in part i , item 1a . of this annual report on form 10-k for further discussion of risks related to the covid-19 pandemic . story_separator_special_tag pursuant to the rpi purchase agreement , we sold to rpi 6,666,667 shares of our common stock and a warrant to purchase up to 2,500,000 shares of our common stock at an exercise price of $ 20.00 per share , or the common stock warrant . we also sold our rights to receive royalties from eisai with respect to net sales by eisai of tazemetostat products in japan , or the japan royalty , pursuant to the amended and restated collaboration and license agreement between us and eisai , dated as of march 12 , 2015 , or the eisai license agreement . in consideration for the sale of shares of our common stock , the common stock warrant and the japan royalty , rpi paid us $ 100.0 million upon the closing of the rpi purchase agreement in november 2019. in addition , rpi agreed , in connection with rpi 's acquisition from eisai of the right to receive royalties from us under the eisai license agreement , to reduce our royalty obligation by low single digits upon the achievement of specified annual net sales levels . we also had the option to sell to rpi $ 50.0 million of shares of common stock for an 18-month period beginning november 4 , 2019 , or the put option . on february 11 , 2020 , we sold 2,500,000 shares of common stock to rpi for an aggregate of $ 50.0 million in proceeds at a sale price of $ 20.00 per share of common stock pursuant to the put option . 87 on november 4 , 2019 , we also entered into a loan agreement with biopharma credit plc , or the collateral agent , and the lenders , providing for up to $ 70.0 million in secured term loans to be advanced in up to three tranches , or the loan agreement . we borrow ed $ 70 .0 million in the aggregate under the three tranches pursuant to the loan agreement . on november 3 , 2020 , we , the collateral agent and the lenders amended and restated the loan agreement , or , as amended and restated , the amended and restated loan agreement . the amended and restated loan agreement provides for , among other things , an additional secured term loan facility of $ 150.0 million , or the tranche d loan . on november 18 , 2020 , we borrowed the tranche d loan . under the amended and restated loan agreement , we have the right to request from the lenders , subject to the lenders ' agreement to lend additional amounts to us , up to an additional $ 150.0 million , provided that we have not prepaid any outstanding term loans at the time of our request and such request is made before november 18 , 2021. the obligations under the amended and restated loan agreement remain secured by a first priority security interest that was granted at the time of the loan agreement in and a lien on substantially all of our assets , subject to certain exceptions . the amended and restated loan agreement contains certain customary representations and warranties , affirmative and negative covenants and events of default applicable to us and our subsidiaries . if an event of default occurs and is continuing , the collateral agent under the amended and restated loan agreement may , among other things , accelerate the loans and foreclose on the collateral . see note 13 , long-term debt , of the notes to our consolidated financial statements included in this annual report on form 10-k for a description of the key terms of the amended and restated loan agreement . collaborations refer to item 1 , business -- our collaborations and note 11 , collaborations , of the notes to our consolidated financial statements in item 15 of this annual report on form 10-k for a description of the key terms of our arrangements with glaxo group limited ( an affiliate of glaxosmithkline plc ) , or gsk , eisai co. ltd , or eisai , roche sequencing solutions , inc. , or roche sequencing , and boehringer ingelheim international gmbh , or boehringer ingelheim . on november 3 , 2020 , we received a notice of termination of our collaboration and license agreement with celgene , effective january 2 , 2021. on december 21 , 2020 we received written notice from boehringer ingelheim that they elected to terminate the collaboration effective january 31 , 2021. results of operations for the years ended december 31 , 2020 , 2019 and 2018 revenues the following is a comparison of total revenues for the years ended december 31 , 2020 , 2019 , and 2018 : replace_table_token_1_th replace_table_token_2_th 88 product revenues , net net product revenues represent u.s. sales from our sole commercial product , tazverik , which was first approved by the fda on january 23 , 2020 , less allowances and accruals . during the year ended december 31 , 2020 , net product revenues were $ 11.5 million . sales allowances and accruals consisted of patient financial assistance , distribution fees , discounts , and chargebacks . we did not have product revenues in 2019 or 2018. collaboration revenue our collaboration revenue during the periods included amounts recognized from deferred revenue related to upfront payments for licenses or options to obtain licenses in the future , research and development services revenue earned and milestone payments earned under collaboration and license agreements with our collaboration partners .
| overview we are a commercial-stage biopharmaceutical company that is committed to rewriting treatment for people with cancer and other serious diseases through the discovery , development , and commercialization of novel epigenetic medicines . by focusing on the genetic drivers of disease , our science seeks to match targeted medicines with the patients who need them . in january 2020 , the u.s. food and drug administration , or fda , granted accelerated approval of tazverik ( tazemetostat ) , an oral , first in class , selective small molecule inhibitor of the ezh2 histone methyltransferase , or hmt , for the treatment of adult and pediatric patients aged 16 years and older with metastatic or locally advanced es not eligible for complete resection . this approval was based on overall response rate and duration of response shown in the es cohort of our phase 2 trial in patients with ini1-negative tumors . we continue to make tazverik available to eligible patients and their physicians in the united states . as part of the accelerated approval for es , continued approval for this indication is contingent upon verification and description of clinical benefit in a confirmatory trial . to provide this confirmatory evidence to support a full approval of tazverik for this indication , we are conducting a single , global , randomized , controlled phase 1b/3 confirmatory trial assessing tazverik in combination with doxorubicin compared with doxorubicin plus placebo as a front-line treatment for es . the trial is expected to enroll approximately 152 patients .
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realized gains and realized losses on our cash equivalents and marketable securities are included in other income ( expense ) , net on the consolidated statement of operations and were not material for the years ended january 31 , 2018 , 2017 and 2016. reclassification adjustments out of accumulated other comprehensive loss into net loss were 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 thereto included elsewhere in this annual report on from 10-k. 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 annual report on from 10-k. our fiscal year end is january 31 , and references throughout this annual report to a given fiscal year are to the twelve months ended on that date . overview cloudera empowers organizations to become data‑driven enterprises . we have developed the modern platform for machine learning and analytics , optimized for the cloud . we collaborate extensively with the global open source community , continuously innovate in data management technologies and leverage the latest advances in infrastructure including the public cloud for “ big data ” applications . our pioneering hybrid open source software ( hoss ) model incorporates the best of open source with our robust proprietary software to form an enterprise‑grade platform . this platform delivers an integrated suite of capabilities for data management , machine learning and advanced analytics , affording customers an agile , scalable and cost‑effective solution for transforming their businesses . our platform enables organizations to use vast amounts of data from a variety of sources , including the internet of things ( iot ) , to better serve and market to their customers , design connected products and services and reduce risk through greater insight from data . we generate revenue primarily from sales of our term‑based subscriptions of our platform generally on a per node basis , whether deployed on‑premises or in the cloud . we also offer consumption‑based pricing for cloud‑based deployments . in addition , we generate revenue from professional services and training . we market and sell our platform to a broad range of organizations , although we focus our selling efforts on the largest enterprises globally . we target these organizations because they capture and manage the vast majority of the world 's data and operate highly complex it environments . we market our platform primarily through a direct sales force while benefiting from business driven by our ecosystem of technology partners , resellers , oems , msps , independent software vendors and systems integrators . our total number of global 8000 customers grew to 698 as of january 31 , 2018 from 566 as of january 31 , 2017. we compile our global 8000 list based upon the forbes global 2000 ranking of the top 2000 global enterprises as determined by forbes . the remainder of our global 8000 list is based on entities listed in data.com as having the highest annual revenue , excluding those that are already listed in the forbes global 2000. for purposes of customer count , we define a customer as an entity with a unique forbes global 2000 or data.com identifier and quarterly subscription revenue as of the measurement date . we update our list of global 8000 customers periodically . our customer count is subject to adjustments for acquisitions , spin‑offs and other market activity or other factors and previously disclosed numbers of customers are updated to allow for comparability . while we do not typically count multiple entities within a given global 8000 customer as a new customer , we do make exceptions for holding companies and other organizations for which the forbes global 2000 or data.com identifier in our judgment does not accurately represent the cloudera customer . the forbes global 2000 list is updated annually in the second quarter of the calendar year and we have since updated our previously disclosed numbers of customers to allow for comparability . we have a broad customer base that spans industries and geographies . for the year ended january 31 , 2018 , 2017 and 2016 , no customer accounted for more than 10 % of our total revenue . we have significant revenue in the banking and financial services , technology , business services , telecommunications , public sector , consumer and retail , and healthcare and life sciences verticals , and continue to expand our penetration across many other data‑intensive industries . sales outside of the united states represented approximately 28 % , 25 % and 21 % of our total revenue for the years ended january 31 , 2018 , 2017 and 2016 , respectively . 48 our business model is based on a “ land and expand ” strategy designed to use the initial sale as a foothold to increase revenue per customer by increasing the amount of data and number of use cases each customer runs through our platform . after an initial purchase of our platform , we work with our customers to identify new use cases that can be developed on or moved to our platform , ultimately increasing the amount of data managed on our platform as well as the number and size of our platform deployments . our quarterly net subscription revenue expansion rate equals : the subscription revenue in a given quarter from end user customers that had subscription revenue in the same quarter of the prior year , divided by the subscription revenue attributable to that same group of customers in that prior quarter . our net expansion rate equals the simple arithmetic average of our quarterly net subscription revenue expansion rate for the four quarters ending with the most recently completed fiscal quarter . story_separator_special_tag we also expect allocated shared costs to increase in the periods following the commencement of the lease for our new headquarters in palo alto in july 2017. as discussed in detail below , see “ —significant impacts of stock‑based compensation expense , ” during fiscal 2018 our initial public offering was declared effective and the performance-based condition for the rsus was either achieved or probable of being achieved . as a result , we recognized a cumulative catch‑up of stock‑based compensation expense attributable to service prior to such effective date for rsus . interest income , net interest income primarily relates to amounts earned on our cash and cash equivalents and marketable securities . other income ( expense ) , net other income ( expense ) , net primarily relates to foreign currency transactions , realized gains and losses on our marketable securities , and other non‑operating gains or losses . provision for income taxes provision for income taxes primarily consists of federal , state and foreign income taxes . due to cumulative losses , we maintain a valuation allowance against our deferred tax assets . we consider all available evidence , both positive and negative , in assessing the extent to which a valuation allowance should be applied against our u.s. deferred tax assets . significant impacts of stock‑based compensation expense we have granted rsus to our employees and members of our board of directors under our 2008 equity incentive plan , or the 2008 plan , and our 2017 equity incentive plan , or the 2017 plan . prior to our ipo in may 2017 , the employee rsus vest upon the satisfaction of both a service‑based condition and a liquidity event‑related performance condition . the service‑based vesting condition for these awards is generally satisfied pro‑rata over four 50 years . the liquidity event‑related performance condition was achieved for the majority of our rsus and probable of being achieved for the remaining rsus on april 27 , 2017 , the effective date of our initial public offering . we recognized stock‑based compensation expense using the accelerated attribution method with a cumulative catch‑up of stock‑based compensation expense in the amount of $ 181.5 million during fiscal 2018 , attributable to service prior to such effective date . the total stock‑based compensation expense recorded on the effective date of our initial public offering associated with the achievement of the liquidity event‑related performance condition was as follows ( in thousands ) : cost of revenue – subscription $ 15,292 cost of revenue – services 19,695 research and development 65,250 sales and marketing 58,219 general and administrative 23,080 total stock‑based compensation expense $ 181,536 tender offer in may 2015 , an unrelated third party initiated a cash tender offer which was completed in july 2015 for the purchase of our common stock from specified categories of current and former employees which had a significant impact on our stock‑based compensation expense for the year ended january 31 , 2016. sellers participating in the tender offer sold a total of 4,079,131 shares of common stock to the unrelated third party . the purchase price per share in the tender offer was in excess of the fair value of our outstanding common stock at the time of the transaction and accordingly , upon the completion of the transaction , we recorded $ 16.6 million as stock‑based compensation expense related to the excess of the selling price per share of common stock paid to our employees over the fair value of the tendered shares . additionally , the completion of the tender offer was a qualifying liquidity event , such that the performance‑based vesting requirement was satisfied for those rsus that had met the service‑based condition at this date . upon the completion of the transaction , we recorded $ 19.7 million of stock‑based compensation expense for the rsus for which both the service‑based condition and the qualifying liquidity event had been achieved . the total stock‑based compensation expense related to the tender offer impacted our fiscal 2016 as follows ( in thousands ) : cost of revenue – subscription $ 1,954 cost of revenue – services 2,514 research and development 16,179 sales and marketing 9,481 general and administrative 6,191 total stock‑based compensation expense $ 36,319 51 story_separator_special_tag from the achievement of the liquidity event-related performance condition on the effective date of the ipo , an increase of $ 8.4 million in employee‑related costs including salaries , benefits and travel costs associated with the growth in employee headcount to support our overall expansion , a cash donation of $ 2.4 million , or 1 % of the net proceeds from the ipo , to fund the cloudera foundation and an increase of $ 0.9 million in costs for services from external vendors , offset by a decrease of a $ 21.6 million non‑cash charge related to the donation of 1,175,063 shares of our common stock to the cloudera foundation in fiscal 2017. interest income , net year ended january 31 , change 2018 2017 amount % ( dollars in thousands ) interest income , net $ 5,150 $ 2,756 $ 2,394 87 % 56 interest income , net increased primarily due to an increase in our cash balance obtained from the net proceeds of the ipo during the year ended january 31 , 2018 as compared to the same period a year ago . other income ( expense ) , net year ended january 31 , change 2018 2017 amount % ( dollars in thousands ) other income ( expense ) , net $ 1,429 $ ( 547 ) $ 1,976 not meaningful other income ( expense ) , net increased primarily due to an increase of $ 1.9 million from foreign exchange gains during the year ended january 31 , 2018 as compared to the same period a year ago .
| results of operations the following table sets forth our results of operations for the periods indicated : replace_table_token_8_th ( 1 ) amounts include stock‑based compensation expense as follows : replace_table_token_9_th 52 ( 2 ) amounts include amortization of acquired intangible assets as follows : replace_table_token_10_th ( 3 ) in january 2017 , we donated 1,175,063 shares of common stock to the cloudera foundation . we recorded a non‑cash charge of $ 21.6 million for the fair value of the donated shares , which was recognized in general and administrative expense for the year ended january 31 , 2017 , see note 10 to our consolidated financial statements for further discussion . the following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenue : replace_table_token_11_th ( 1 ) amounts include stock‑based compensation expense as a percentage of total revenue as follows : replace_table_token_12_th 53 ( 2 ) amounts include amortization of acquired intangible assets as a percentage of total revenue as follows : replace_table_token_13_th ( 3 ) as a percentage of revenue , the non‑cash expense recognized for the donation of common stock to the cloudera foundation for the year ended january 31 , 2017 was 8 % . year ended january 31 , 2018 and 2017 revenue replace_table_token_14_th the increase in subscription revenue during the year ended january 31 , 2018 compared to the year ended january 31 , 2017 was primarily attributable to volume driven increases in subscription sales to new and existing customers . our net expansion rate for the period ended january 31 , 2018 was 136 % .
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on impairment valuation method trademarks held for sale $ 2,847 $ 2,847 $ 7,311 income approach fair value as of december 29 , 2013 significant unobservable inputs ( level 3 ) total losses on impairment valuation method trademarks $ - $ - $ 400 income approach losses on these assets are recorded as loss on impairment in the accompanying consolidated statements of income . when the operating results of closed or sold restaurants are reclassified to discontinued operations , the impairment losses related to the assets of those closed or sold restaurants are also reclassified to discontinued operations . see notes 6 and 7 for a description of the valuation techniques used to measure fair value of intangibles and long-lived assets , as well as information used to develop the story_separator_special_tag this discussion and analysis should be read in conjunction with our consolidated financial statements and related notes to financial statements . we report our financial results on a 52/53-week fiscal year , which ends on the last sunday in december . fiscal years 2014 and 2013 each included of 52 weeks of operations . fiscal year 2012 included of 53 weeks of operations . overview ruth 's hospitality group , inc. is a leading restaurant company focused on the upscale dining segment . we operate company-owned restaurants and sell franchise rights to ruth 's chris steak house franchisees giving the franchisees the exclusive right to operate similar restaurants in a particular area designated in the franchise agreement . as of december 28 , 2014 , the company owned the ruth 's chris steak house , mitchell 's fish market , columbus fish market , mitchell 's steakhouse and cameron 's steakhouse concepts . as of december 28 , 2014 , there were 143 ruth 's chris steak house restaurants , including 65 company-owned restaurants , one restaurant operating under a management agreement and 77 franchisee-owned restaurants , including 20 international franchisee-owned restaurants in aruba , canada , china , hong kong , el salvador , japan , mexico , panama , singapore , taiwan and the united arab emirates . as of december 28 , 2014 , the company also operated eighteen mitchell 's fish markets and three mitchell's/cameron 's steakhouse restaurants ( collectively , the mitchell 's restaurants ) , located primarily in the midwest and florida . on january 21 , 2015 , the company sold the mitchell 's restaurants to a third party . for financial reporting purposes , the mitchell 's restaurants are classified as a discontinued operation for all periods presented and , as of december 28 , 2014 , the assets are classified as held for sale . during 2015 , we are celebrating the 50 th anniversary of the founding of ruth 's chris steak house . the ruth 's chris menu features a broad selection of high-quality usda prime- and choice-grade steaks and other premium offerings served in ruth 's chris ' signature fashion— “ sizzling ” and topped with butter—complemented by other traditional menu items inspired by our new orleans heritage . the ruth 's chris restaurants reflect the fifty year commitment to the core values instilled by our founder , ruth fertel , of caring for our guests by delivering the highest quality food , beverages and service in a warm and inviting atmosphere . 22 our ruth 's chris restaurants cater to special occasion diners and frequent customers , in addition to the business clientele traditionally served by upscale steakhouses , by providing a dining experience designed to appeal to a wide range of guests . we believe our focus on creating this broad appeal provides us with opportunities to expand into a wide range of markets , including many markets not traditionally served by upscale steakhouses . we offer usda prime- and choice-grade steaks that are aged and prepared to exact company standards and cooked in 1,800-degree broilers . we also offer veal , lamb , poultry and seafood dishes and a broad selection of appetizers . we complement our distinctive food offerings with an award-winning wine list . during the fiscal year 2014 , the average check was $ 76 per person at company-owned ruth 's chris restaurants . all company-owned ruth 's chris steak house restaurants are located in the united states . the franchisee-owned ruth 's chris steak house restaurants include 20 international franchisee-owned restaurants in aruba , canada , china ( hong kong and shanghai ) , el salvador , japan , mexico , panama , singapore , taiwan and the united arab emirates . we opened three new company-owned ruth 's chris steak house restaurants in 2014 – one in denver , co in january , one in gaithersburg , md in october , and one in marina del rey , ca in november . in february 2014 , we acquired the franchisee-owned restaurant located in austin , tx . in february 2015 , a new ruth 's chris steak house restaurant opened in st. petersburg , fl and a restaurant is expected to open in dallas , tx in 2015. three new franchisee-owned restaurants opened in 2014 – one in boise , id in february , one in panama city , panama in september and one in taipei , taiwan in december . due to an expiring lease term , we closed the ruth 's chris steak house in kansas city , mo in march 2014 after seventeen years of operation . kansas city will remain one of the areas that we will evaluate for opportunities for future ruth 's chris steak house restaurants . due to local market conditions and disappointing financial results , we negotiated an early termination of the facility lease for the providence , ri ruth 's chris steak house restaurant , which closed in september 2014. sale of mitchell 's restaurants the company acquired the mitchell 's restaurants in 2008. mitchell 's fish market is an eighteen-restaurant upscale seafood concept . mitchell's/cameron 's steakhouse is a modern american steakhouse three-restaurant concept . in november 2014 , the company and landry 's , inc. and mitchell 's entertainment , inc. story_separator_special_tag in addition , our more recent franchise agreements require up to a 1.0 % advertising fee to be paid by the franchisee , which is applied to national advertising expenditures . under our prior franchise agreements , the company would pay 1.0 % out of the 5.0 % royalty toward national advertising . we evaluate the performance of our franchisees by measuring franchisee-owned restaurant operating weeks , which is impacted by franchisee-owned restaurant openings and closings , and comparable franchisee-owned restaurant sales growth , which together with operating weeks , drives royalty income . other operating income . other operating income consists primarily of breakage income associated with gift cards , and also includes fees earned from a management agreement , banquet-related guarantee and services revenue and other incidental guest fees . food and beverage costs . food and beverage costs include all restaurant-level food and beverage costs of company-owned restaurants . we measure food and beverage costs by tracking cost of sales as a percentage of restaurant sales and cost per entrée . food and beverage costs are generally influenced by the cost of food and beverage items , distribution costs and menu mix . restaurant operating expenses . we measure restaurant-operating expenses for company-owned restaurants as a percentage of restaurant sales . restaurant operating expenses include the following : labor costs , consisting of restaurant management salaries , hourly staff payroll and other payroll-related items , including taxes and fringe benefits . we measure our labor cost efficiency by tracking hourly and total labor costs as a percentage of restaurant sales ; operating costs , consisting of maintenance , utilities , bank and credit card charges , and any other restaurant-level expenses ; and occupancy costs , consisting of both fixed and variable portions of rent , common area maintenance charges , insurance premiums and real property taxes . marketing and advertising . marketing and advertising includes all media , production and related costs for both local restaurant advertising and national marketing . we measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues . we have historically spent approximately 2.5 % to 4.0 % of total revenues on marketing and advertising and expect to maintain this level in the near term . all franchise agreements executed based on our new form of franchise agreement include up to a 1.0 % advertising fee in addition to the 5.0 % royalty fee . we spend this designated advertising fee on national advertising and record these fees as liabilities against which specified advertising and marketing costs will be charged . 24 general and administrative . general and administrative costs include costs relating to all corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company and franchisee growth . general and administrative costs are comprised of management , supervisory and staff salaries and employee benefits , travel , performance-based compensation , information systems , training , corporate rent , professional and consulting fees , technology and market research . we measure our general and administrative expense efficiency by tracking these costs as a percentage of total revenues . depreciation and amortization . depreciation and amortization includes depreciation of fixed assets and certain definite life intangible assets . we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . pre-opening costs . pre-opening costs consist of costs incurred prior to opening a company-owned restaurant , which are comprised principally of manager salaries and relocation costs , employee payroll and related training costs for new employees , including practice and rehearsal of service activities as well as lease costs incurred prior to opening . 25 story_separator_special_tag serif '' > restaurant operating expenses . restaurant operating expenses increased $ 10.6 million , or 7.3 % , to $ 156.2 million during fiscal year 2014 from fiscal year 2013. restaurant operating expenses as a percentage of restaurant sales for fiscal year 2014 was relatively unchanged from fiscal year 2013. marketing and advertising . marketing and advertising expenses increased $ 735 thousand to $ 10.1 million during fiscal year 2014 from fiscal year 2013. the increase in marketing and advertising expenses during fiscal year 2014 was attributable to planned spending . general and administrative . general and administrative expenses decreased $ 3.5 million to $ 24.3 million during fiscal year 2014 from fiscal year 2013 , primarily due to lower incentive-based compensation . depreciation and amortization expenses . depreciation and amortization expense increased $ 688 thousand to $ 10.9 million during fiscal year 2014 , primarily due to property additions . pre-opening costs . pre-opening costs increased $ 939 thousand to $ 1.6 million during fiscal year 2014 , primarily due to three new restaurant openings in 2014 compared to one in 2013. gain on settlements . during fiscal year 2013 , the company settled two loss claims asserted by us which previously arose and recognized an aggregate gain of $ 1.7 million , net of fees incurred . the majority of the gain pertained to compensation for the company 's lost operating income awarded by the claims administrator pursuant to the settlement agreement reached in litigation related to the 2010 deepwater horizon oil spill in the gulf of mexico . interest expense . interest expense decreased $ 481 thousand to $ 1.2 million during fiscal year 2014 from fiscal year 2013. the decrease in expense was primarily due to a lower average debt balance during fiscal year 2014. income tax expense . during fiscal year 2014 , we recognized income tax expense of $ 11.8 million . during fiscal year 2013 , we recognized income tax expense of $ 10.7 million . the effective tax rate increased to 30.7 % during fiscal year 2014 compared to 30.5 % during fiscal year 2013. the increase in the effective tax rate in fiscal year 2014 was primarily due to a reduction in state employment tax credits . income from continuing operations .
| results of operations the table below sets forth certain operating data expressed as a percentage of restaurant sales and total revenues for the periods indicated . our historical results are not necessarily indicative of the operating results that may be expected in the future . certain prior year amounts have been reclassified to conform to the current year presentation of discontinued operations . replace_table_token_8_th 26 segment profitability segment profitability information for the company 's two operating segments is presented in note 18 of the consolidated financial statements . not all operating expenses are allocated to operating segments . the ruth 's chris steak house company-owned restaurants , which are all located in north america , are managed as an operating segment . the ruth 's chris concept operates within the full-service dining industry , providing similar products to similar customers . the franchise operations are reported as a separate operating segment . no costs are allocated to the franchise operations segment . replace_table_token_9_th fiscal year 2014 segment profits for the company-owned steakhouse restaurant segment increased by $ 741 thousand to $ 68.2 million from fiscal year 2013. the increase was driven by increased revenues . the $ 751 thousand increase in franchise operations segment profitability is attributable to seven new locations which opened in 2014 and 2013 and to an increase in comparable franchisee-owned restaurant sales . fiscal year 2013 segment profits for the company-owned steakhouse restaurant segment increased by $ 6.7 million to $ 67.5 million from fiscal year 2012. the increase was driven by increased revenues . it is noteworthy that fiscal year 2013 included 52 weeks whereas fiscal year 2012 included 53 weeks . the $ 1.2 million increase in franchise operations segment profitability to $ 15.0 million is attributable to eight new locations which opened in 2013 and 2012 and to an increase in comparable franchisee-owned restaurant sales .
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the dividend covenant permits the company to pay regular quarterly dividends in amounts not exceeding $ 0.10 per share and an annual special dividend to shareholders in amounts ranging from $ 1.00 to $ story_separator_special_tag general : park electrochemical corp. ( “ park ” or the “ company ” ) is a global advanced materials company which develops , manufactures , markets and sells high-technology digital and rf/microwave printed circuit materials products principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials , parts and assemblies products for the aerospace markets . park 's core capabilities are in the areas of polymer chemistry formulation and coating technology . the company 's manufacturing facilities are located in singapore , france , kansas , arizona and california . the company also maintains research and development facilities in arizona , kansas and singapore . the company 's fiscal year is the 52 or 53 week period ending the sunday nearest to the last day of february . the 2014 , 2013 and 2012 fiscal years ended on march 2 , 2014 , march 3 , 2013 and february 26 , 2012 , respectively . the 2014 , 2013 and 2012 fiscal years consisted of 52 , 53 and 52 weeks , respectively . unless otherwise indicated in this discussion and analysis , all reference to years in this discussion and analysis are to the company 's fiscal years and all annual information in this discussion and analysis is for such fiscal years . the comparisons of the company 's results of operations for 2014 and 2012 to the company 's results of operations for 2013 are impacted by the facts that the 2014 and 2012 fiscal years consisted of 52 weeks and the 2013 fiscal year consisted of 53 weeks . 2014 financial overview the company 's total net sales worldwide in 2014 were 6 % lower than in 2013 primarily as a result of lower sales of the company 's printed circuit materials products in north america , asia and europe . the company 's sales of aerospace composite materials , parts and assemblies were higher in 2014 than in 2013. the decline in sales of printed circuit materials products resulted in lower gross profit in 2014 compared to 2013. however , the company 's gross profit margin , measured as a percentage of sales , improved to 29.0 % in 2014 from 28.7 % in 2013 due primarily to the benefits from higher percentages of sales of higher margin , high performance printed circuit materials products in 2014 than in 2013 and to the improved operating performance of the company 's park aerospace technologies corp. ( “ patc ” ) business unit in newton , kansas in 2014 following the consolidation of the company 's aerospace activities at such business unit , which resulted in the elimination of the additional , and in some instances duplicative , expenses associated with operating two facilities during the consolidation . 24 the company 's earnings from operations in 2014 were 11 % higher than in 2013 primarily as a result of a reduction in restructuring charges , lower legal fees and expenses and the elimination of the additional , and in some instances duplicative , expenses associated with the aerospace consolidation discussed above . the earnings from operations in 2014 were adversely impacted by a pre-tax charge related to the modification of previously issued employee stock options resulting from the special cash dividend paid by the company in february 2014 and a financial advisory services retention fee . the company 's net earnings in 2014 were lower than in 2013 primarily as a result of a non-cash charge of $ 64.0 million for the accrual of u.s. deferred income taxes on the undistributed earnings of the company 's subsidiary in singapore . the charge included $ 34.4 million related to the u.s. income tax that would be payable if the company were to repatriate funds in an after-tax amount necessary to repay the company 's existing $ 104.0 million principal amount bank loan from pnc bank , further described below , and $ 29.6 million relating to the remainder of the undistributed earnings of the company 's subsidiary in singapore . the charge was partially offset by a tax benefit of $ 2.2 million recorded by the company in the 2014 second quarter in connection with a tax refund related to amended federal income tax returns . the company has no current plan to repatriate the undistributed earnings of its subsidiary in singapore . on february 12 , 2014 , the company entered into a four-year amended and restated revolving credit facility agreement ( the “ amended credit agreement ” ) with pnc bank , national association . the amended credit agreement provides for loans up to $ 104.0 million to the company and letters of credit up to $ 2.0 million for the account of the company . to date , the company has borrowed $ 52.0 million to finance a special dividend paid to shareholders of the company in the fourth quarter of 2014 and an additional $ 52.0 million to continue the loan that was provided under the prior agreement entered into during the fourth quarter of 2013. the global markets for the company 's printed circuit materials products continue to be very difficult to forecast , and it is not clear to the company what the condition of the global markets for the company 's printed circuit materials products will be in 2015 or beyond . further , the company is not able to predict the impact the current global economic and financial conditions will have on the markets for its aerospace composite materials , parts and assemblies in 2015 or beyond . 25 story_separator_special_tag development and design activities at its patc business unit . story_separator_special_tag the net impact of the items described above was to reduce net earnings by $ 62.5 million in 2014 and to reduce net earnings by $ 3.4 million in 2013. basic and diluted earnings per share basic and diluted losses per share for 2014 were $ 2.03 , including the non-cash charge for the accrual of u.s. income tax on undistributed earnings , the tax benefit in connection with the tax refund related to amended federal income tax returns , the additional non-cash charges resulting from the modification of previously issued employee stock options , the pre-tax charges in connection with the closure of the nelco zhuhai facility and the financial advisory services retention fee described above , compared to basic and diluted earnings per share of $ 0.82 and $ 0.81 , respectively for 2013 , including the charges related to the closures of pacm and nelco zhuhai described above . the net impact of the items described above was to reduce basic and diluted earnings per share by $ 3.00 in 2014 and to reduce basic and diluted earnings per share by $ 0.16 and $ 0.17 , respectively , in 2013 . 29 fiscal year 2013 compared with fiscal year 2012 the comparisons of the company 's results of operations for 2013 to the company 's results of operations for 2012 are impacted by the facts that the 2013 fiscal year consisted of 53 weeks and the 2012 fiscal year consisted of 52 weeks . replace_table_token_4_th net sales the company 's total net sales worldwide in 2013 decreased 9 % from 2012 as a result of lower unit volumes of printed circuit materials products shipped to the company 's customers in north america , asia and europe . the lower sales of printed circuit materials products sold by the company in 2013 was accompanied by slightly lower sales of aerospace composite materials , parts and assemblies products by the company 's operations in north america , asia and europe . the company 's total net sales of its printed circuit materials products were $ 150.5 million in 2013 and $ 166.8 million in 2012 and comprised 85 % and 86 % of the company 's total net sales worldwide in 2013 and 2012 , respectively . the company 's total net sales of its aerospace composite materials , parts and assemblies products were $ 25.9 million in 2013 and $ 26.5 million in 2012 and comprised 15 % and 14 % of the company 's total net sales worldwide in 2013 and 2012 , respectively . the company 's foreign sales were $ 95.4 million , or 54 % of the company 's total net sales worldwide , during 2013 compared to $ 107.3 million of sales , or 56 % of total net sales worldwide during 2012. the company 's foreign sales during 2013 declined 11 % from 2012 as a result of lower sales in asia and europe . the company 's sales in north america , asia and europe were 46 % , 45 % and 9 % , respectively , of the company 's total net sales worldwide in 2013 compared to 44 % , 43 % and 13 % , respectively , in 2012. the company 's sales in north america decreased 6 % , its sales in asia decreased 5 % and its sales in europe decreased 32 % in 2013 compared to 2012. during 2013 , 82 % of the company 's total net sales worldwide of printed circuit materials consisted of high performance printed circuit materials , compared to 79 % for 2012 . 30 cost of sales the company 's cost of sales decreased by 9 % in 2013 from 2012 primarily as a result of lower sales and lower production volumes in 2013 than in 2012 , the improved operating performance of the company 's patc business unit , the elimination of the additional , and in some instances duplicative , costs associated with transferring aerospace composite materials manufacturing from the company 's pacm facility to the company 's patc facility in 2013 , the cost reductions resulting from the closures of the company 's pacm facility and nelco zhuhai facility in 2013 , lower depreciation expense in 2013 than in 2012 and lower rental expense at one of the company 's business units in 2013 than in 2012. the company 's cost of sales as a percentage of net sales decreased to 71.3 % in 2013 from 71.7 % in 2012. gross profit the company 's gross profit in 2013 was lower than its gross profit in the prior fiscal year , but the overall gross profit as a percentage of net sales for the company 's worldwide operations increased to 28.7 % in 2013 compared to 28.3 % in 2012 despite significantly lower sales and the partially fixed nature of overhead costs . the gross profit margin in 2013 benefitted from the higher percentage of sales of higher margin , high performance printed circuit materials products in 2013 than in 2012 , cost reductions as a result of the aforementioned facility closures , the improved operating performance of the company 's patc business unit , the lower depreciation expense in 2013 than in 2012 and the lower rental expense in 2013 than in 2012. selling , general and administrative expenses selling , general and administrative expenses decreased by $ 1.7 million , or 6 % , during 2013 compared to 2012. such expenses measured as percentages of sales were 15.1 % during 2013 compared to 14.6 % during 2012. the increase as a percentage of sales was the result of lower revenues combined with the partially fixed nature of such expenses . such expenses in 2013 and 2012 were impacted by additional , and in some instances duplicative , expenses associated with the consolidation of all of the company 's north american aerospace composite materials , parts and assemblies manufacturing , development and design activities at its patc business unit .
| results of operations : fiscal year 2014 compared with fiscal year 2013 replace_table_token_3_th net sales the company 's total net sales worldwide in 2014 decreased 6 % from 2013 as a result of lower unit volumes of printed circuit materials products shipped to the company 's customers in north america , asia and europe . the lower sales of printed circuit materials products sold by the company in 2014 was partially offset by higher sales of aerospace composite materials , parts and assemblies products by the company 's operations in north america , asia and europe . the company 's total net sales of its printed circuit materials products were $ 135.4 million in 2014 and $ 150.6 million in 2013 and comprised 82 % and 85 % of the company 's total net sales worldwide in 2014 and 2013 , respectively . the company 's total net sales of its aerospace composite materials , parts and assemblies products were $ 30.4 million in 2014 and $ 25.9 million in 2013 and comprised 18 % and 15 % of the company 's total net sales worldwide in 2014 and 2013 , respectively . the company 's foreign sales were $ 83.6 million , or 50 % of the company 's total net sales worldwide , during 2014 compared to $ 95.4 million of sales , or 54 % of total net sales worldwide during 2013. the company 's foreign sales during 2014 declined 12 % from 2013 as a result of lower sales in asia and europe .
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we conduct our business as a single operating segment and primarily sell our products through a network of approximately 222,000 active independent associates and member positions held by individuals that had purchased our products and or packs during the last 12 months , who we refer to as current independent associates and members . new pack sales and positions in our network are leading indicators for the long-term success of our business . new associate or member positions are created in our network when our packs and products are purchased for the first time under a new account . we operate as a seller of nutritional supplements , topical and skin care and anti-aging products , and weight-management products through our network marketing distribution channels operating in 25 countries and direct e-commerce retail in china . we review and analyze net sales by geographical location and by packs and products on a consolidated basis . each of our subsidiaries sells similar products and exhibits similar economic characteristics , such as selling prices and gross margins . because we sell our products through network marketing distribution channels , the opportunities and challenges that affect us most are : recruitment of new and retention of current independent associates and members that occupy sales or purchasing positions in our network ; entry into new markets and growth of existing markets ; niche market development ; new product introduction ; and investment in our infrastructure . during the fourth quarter of 2016 , we commenced a non-direct selling business in china . our subsidiary in china , meitai , is operating as a traditional retailer under a cross-border e-commerce model . meitai can not legally conduct a direct selling business in china until it acquires a direct selling license in china . current economic conditions and recent developments overall net sales remained the same at $ 180.3 million for both 2016 and 2015 . our operations outside of north america accounted for approximately 61.1 % and 59.3 % of our consolidated net sales for 2016 and 2015 , respectively . the net sales comparisons were affected by the launch of new products and promotions in all of our operating markets and the loyalty program during 2016 . these items affected net sales comparability as follows : sales from new products and promotions for 2016 were $ 11.1 million as compared to the same period in 2015 . in connection with our loyalty program , we recognize the dollar equivalent in revenue of loyalty points as the points are applied or forfeited . during 2016 we recognized $ 22.4 million in revenue and deferred $ 21.4 million in revenue , resulting in a net recognition of revenue of $ 1.0 million . during 2015 , we recognized $ 23.8 million in revenue and deferred $ 22.2 million in revenue , resulting in a net recognition of revenue of $ 1.6 million . during 2016 , $ 0.6 million less in revenue was recognized in connection with our loyalty program as compared to 2015 . excluding the effects on net sales of the items listed above , net sales for 2016 would have decreased by $ 10.5 million as compared to 2015 . during 2016 , fluctuations in foreign currency exchange rates had an overall $ 1.7 million unfavorable impact on our net sales . 37 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > continued to strengthen compliance initiatives ; concentrated on publishing results of research studies and clinical trials related to our products ; initiated additional incentives ; explored new advertising and educational tools to broaden name recognition ; and implemented changes to our global associate career and compensation plan . other sales other sales consisted of : ( i ) freight revenue charged to our independent associates and members ; ( ii ) sales of promotional materials ; ( iii ) monthly fees collected for the success tracker customized electronic business-building and educational materials , databases and applications ; ( iv ) training and event registration fees ; and ( v ) a reserve for estimated sales refunds and returns . promotional materials , training , database applications and business management tools support our independent associates , which in turn helps stimulate product sales . for the year ended december 31 , 2016 , other sales decreased by $ 0.5 million , or 9.1 % , to $ 5.0 million , as compared to $ 5.5 million for the same period in 2015 . the decrease was primarily due to a decrease in freight revenues partially offset by an increase in event fees . gross profit for the year ended december 31 , 2016 , gross profit decreased by $ 2.4 million , or 1.7 % , to $ 143.7 million , as compared to $ 146.2 million for the same period in 2015 . the decline in gross profit percentage was primarily due to promotional discounting , increases in transportation costs , and negative effects of foreign exchange . gross profit as a percentage of net sales was 79.7 % and 81.1 % for 2016 and 2015 , respectively . commission and incentives commission expenses increased for the year ended december 31 , 2016 , by 0.4 % , or $ 0.3 million to $ 70.5 million , as compared to $ 70.2 million for the same period in 2015. commissions as a percentage of net sales were 39.1 % for the year ending december 31 , 2016 and 39.0 % for the same period in the prior year . incentive costs increased for the year ended december 31 , 2016 by 37 % , or $ 1 million , to $ 3.7 million , as compared to $ 2.7 million for the same period in 2015. story_separator_special_tag 43 as of december 31 , 2016 and 2015 , we maintained or decreased our valuation allowance for deferred tax assets in the following table ( in millions ) , as we believe the “ more likely than not ” criterion for recognition and realization purposes , as defined in topic 740 , can not be met . the u.s. valuation allowance increased due to the carryover of foreign tax credits that we do not anticipate to utilize in future years . replace_table_token_16_th the dollar amount of the provisions for income taxes is directly related to our profitability and changes in the taxable income among countries . for the years ended december 31 , 2016 and 2015 , our effective tax rate was 38.7 % and 28.9 % , respectively . for 2016 , the company had a tax benefit due to loss before income tax . items decreasing the effective income tax rate included the favorable rate difference from foreign jurisdictions , return to provision adjustment , release of value allowances with respect to switzerland and certain tax reserve items were removed due to expiration of applicable statute of limitations . items increasing the effective income tax rate included foreign exchange losses and “ subpart f income ” resulting from controlled foreign corporation operations . for 2015 , the effective tax rate was less than what would have been expected if the federal statutory rate was applied to income before taxes . items decreasing the effective income tax rate included the lower statutory tax rates in foreign jurisdictions compared to the u.s. and the mix of foreign income and u.s. income . in addition , the rate decreased for an overall reduction in the valuation allowances associated with certain deferred tax assets . seasonality we believe the impact of seasonality on our consolidated results of operations is minimal . we have experienced and believe we will continue to experience variations on our quarterly results of operations in response to , among other things : the timing of the introduction of new products and incentives ; our ability to attract and retain associates and members ; the timing of our incentives and contests ; the general overall economic outlook ; government regulations ; the outcome of certain lawsuits ; the perception and acceptance of network marketing ; and the consumer perception of our products and overall operations . as a result of these and other factors , our quarterly results may vary significantly in the future . period-to-period comparisons should not be relied upon as an indication of future performance since we can give no assurances that revenue trends in new markets , as well as in existing markets , will follow our historical patterns . the market price of our common stock may also be adversely affected by the above factors . 44 liquidity and capital resources cash and cash equivalents as of december 31 , 2016 , our cash and cash equivalents decreased by 10.3 % , or $ 3.3 million , to $ 28.7 million from $ 32.0 million as of december 31 , 2015 . the company is required to restrict cash for direct selling insurance premiums and credit card sales in the republic of korea . the current portion of restricted cash remained the same at $ 1.5 million at both december 31 , 2016 and 2015 . fluctuations in currency rates produced an increase of $ 1.5 million in cash and cash equivalents in 2016 as compared to an increase of $ 1.4 million in 2015 . our principal use of cash is to pay for operating expenses , including commissions and incentives , capital assets , inventory purchases , periodic cash dividends and international expansion . we fund our business objectives , operations , and expansion of our operations through net cash flows from operations rather than incurring long-term debt . working capital working capital represents total current assets less total current liabilities . at december 31 , 2016 , our working capital decreased by $ 2.7 million , or 11.5 % , to $ 20.8 million from $ 23.5 million at december 31 , 2015 . the decrease in working capital is primarily due to decreases in cash and deferred tax assets as well as increases in accounts payable , taxes payable , and commissions and incentives payable . this was partially offset by a decrease in accrued expenses and deferred revenue as well as increases in income tax receivable , inventories , and prepaid expenses . deferred revenue decreased during 2016 due to the loyalty program ( see note 1 to our consolidated financial statements , organization and summary of significant accounting policies ) . net cash flows our net consolidated cash flows consisted of the following , for the years ended december 31 ( in millions ) : replace_table_token_17_th operating activities cash provided by operating activities decreased by $ 4.4 million for the year ended december 31 , 2016 compared to the same period in 2015 as a result of increases in operating expenditures such as our new brand introduction , exploring expansion into new markets , support for new market launches , and inventory purchases . investing activities for the year ended december 31 , 2016 , our investing activities used cash of $ 2.3 million compared to cash used of $ 2.0 million for the same period of 2015 . during the year ended december 31 , 2016 , we invested approximately $ 1.6 million in back-office software projects , approximately $ 0.6 million in leasehold improvements in various international offices and training centers , and approximately $ 0.1 in office furniture and equipment .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 the tables below summarize our consolidated operating results in dollars and as a percentage of net sales for the years ended december 31 , 2016 and 2015 ( in thousands , except percentages ) . replace_table_token_9_th non-gaap financial measures to supplement our financial results presented in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) , we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into u.s. dollars , including changes in : net sales , deferred revenue , gross profit , and income from operations . we refer to these adjusted financial measures as constant dollar items , which are non-gaap financial measures . we believe these measures provide investors an additional perspective on trends . to exclude the impact of changes due to the translation of foreign currencies into u.s. dollars , we calculate current year results and prior year results at a constant exchange rate , which is the prior year 's rate . currency impact is determined as the difference between actual growth rates and constant currency growth rates . replace_table_token_10_th 38 net sales in dollars and as a percentage of consolidated net sales consolidated net sales by region for the years ended december 31 , 2016 and 2015 were as follows ( in millions , except percentages ) : replace_table_token_11_th net sales for the year ended december 31 , 2016 , our operations outside of north america accounted for approximately 61.1 % of our consolidated net sales , whereas in the same period in 2015 , our operations outside of north america accounted for approximately 59.3 % of our consolidated net sales . consolidated net sales remained the same at $ 180.3 million for the years ended december 31 , 2016 and december 31 , 2015 . sales for the americas decreased by $ 3.1
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in september 2018 , the fasb issued asu 2018-14 , compensation—retirement benefits—defined story_separator_special_tag financial condition and results of operations the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand the results of operations and financial condition of kodak for the years ended december 31 , 2020 and 2019. all references to notes relate to notes to the financial statements in item 8 . “ financial statements and supplementary data. ” cautionary statement pursuant to safe harbor provisions of the private securities litigation reform act of 1995 this report on form 10-k includes `` forward–looking statements '' as that term is defined under the private securities litigation reform act of 1995. forward–looking statements include statements concerning kodak 's plans , objectives , goals , strategies , future events , future revenue or performance , capital expenditures , liquidity , investments , financing needs and business trends and other information that is not historical information . when used in this document , the words “ estimates , ” “ expects , ” “ anticipates , ” “ projects , ” “ plans , ” “ intends , ” “ believes , ” “ predicts , ” “ forecasts , ” “ strategy , ” “ continues , ” “ goals , ” “ targets ” or future or conditional verbs , such as “ will , ” “ should , ” “ could , ” or “ may , ” and similar expressions , as well as statements that do not relate strictly to historical or current facts , are intended to identify forward–looking statements . all forward–looking statements , including management 's examination of historical operating trends and data , are based upon kodak 's expectations and various assumptions . future events or results may differ from those anticipated or expressed in the forward-looking statements . important factors that could cause actual events or results to differ materially from the forward-looking statements include , among others , the risks and uncertainties described in more detail in this report on form 10–k under the headings “ business , ” “ risk factors , ” “ legal proceedings ” and or “ management 's discussion and analysis of financial condition and results of operations–liquidity and capital resources , ” and in other filings the company makes with the sec from time to time , as well as the following : kodak 's ability to improve and sustain its operating structure , cash flow , profitability and other financial results ; kodak 's ability to achieve cash forecasts , financial projections , and projected growth ; kodak 's ability to achieve the financial and operational results contained in its business plans ; kodak 's ability to comply with the covenants in its various credit facilities ; kodak 's ability to fund continued investments , capital needs and restructuring payments and service its debt and series b preferred stock and series c preferred stock ; the impact of the global economic environment or medical epidemics such as the covid-19 pandemic ; the impact of the investigations , litigations and claims arising out of the circumstances surrounding the dfc announcement ; changes in foreign currency exchange rates , commodity prices , interest rates and tariff rates ; kodak 's ability to effectively anticipate technology trends and develop and market new products , solutions and technologies ; kodak 's ability to effectively compete with large , well-financed industry participants ; continued sufficient availability of borrowings and letters of credit under the abl credit agreement and l/c facility agreement , kodak 's ability to obtain additional financing if and as needed and kodak 's ability to provide or facilitate financing for its customers ; the performance by third parties of their obligations to supply products , components or services to kodak and the ability to address supply chain disruptions and continue to obtain raw materials and components available from single sources of supply ; and kodak 's ability to effect strategic transactions , such as acquisitions , strategic alliances , divestitures and similar transactions , or to achieve the benefits sought to be achieved from such strategic transactions . there may be other factors that may cause kodak 's actual results to differ materially from the forward–looking statements . all forward–looking statements attributable to kodak or persons acting on its behalf apply only as of the date of this report on form 10-k and are expressly qualified in their entirety by the cautionary statements included in this document . kodak undertakes no obligation to update or revise forward–looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events , except as required by law . 27 critical accounting policies and estimates revenue recognition kodak 's revenue transactions include sales of products ( such as components and consumables for use in kodak , and other manufacturers ' equipment , specialty materials and film-based products ) , equipment , software , services , integrated solutions , and intellectual property and brand licensing . complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting , including the allocation of transaction price to the various performance obligations and determination of the stand-alone selling price of each performance obligation . for equipment sales , revenue recognition may depend on completion of installation based on the type of equipment , level of customer specific customization and other contractual terms . in instances in which the agreement with the customer contains a customer acceptance clause , revenue is deferred until customer acceptance is obtained , provided the customer acceptance clause is considered to be substantive . at the time revenue is recognized , kodak also records reductions to revenue for customer incentive programs . such incentive programs include cash and volume discounts and promotional allowances . story_separator_special_tag kodak performed interim tests of impairment for goodwill as of june 30 , 2020 due to the continued uncertainty regarding the negative impact of the covid-19 pandemic on its operations , and as of march 31 , 2020 , due to the decline in market capitalization as of that date since the last goodwill impairment test ( december 31 , 2019 ) and the uncertainty regarding the negative impact of the covid-19 pandemic at that time . kodak utilized the discounted cash flow method to estimate the fair value of all reporting units for both tests . kodak established an estimate of future cash flows for the period ranging from july 1 , 2020 to december 31 , 2024 for the june 30 , 2020 interim test , and april 1 , 2020 to december 31 , 2024 for the march 31 , 2020 interim test . the future cash flows were discounted to present value . the expected cash flows were derived from earnings forecasts and assumptions regarding the timing and impact of the covid-19 pandemic on each reporting unit as of each applicable interim test date . the discount rates are estimated based on an after-tax wacc for each reporting unit reflecting the rate of return that would be expected by a market participant . the wacc also takes into consideration a company specific risk premium for each reporting unit reflecting the risk associated with the overall uncertainty of the financial projections . discount rates of 16 % to 55 % were utilized in the june 30 , 2020 valuation , and 21 % to 55 % for the march 31 , 2020 valuation , both based on kodak 's best estimates of the after-tax wacc of each reporting unit as of the applicable valuation date . a terminal value was included for all reporting units at the end of the cash flow projection period to reflect the remaining value that the reporting unit is expected to generate . the terminal value was calculated using either the cgm based on the cash flows of the final year of the discrete period or the h-model , which assumes the growth during the terminal period starts at a higher rate and declines in a linear manner over a specified transition period toward a stable growth rate . based upon the results of kodak 's june 30 , 2020 and march 31 , 2020 analyses , no impairment of goodwill was indicated . no interim impairment test for goodwill was performed as of september 30 , 2020. the carrying value of the indefinite-lived intangible asset related to the kodak trade name is evaluated for potential impairment annually or whenever events or changes in circumstances indicate that it is more likely than not that the asset is impaired . kodak performed its annual test of impairment for the kodak trade name as of december 31 , 2020. the fair value of the kodak trade name was valued using the income approach , specifically the relief from royalty method based on the following significant assumptions : ( a ) forecasted revenues ranging from january 1 , 2021 to december 31 , 2025 , including a terminal year with growth rates ranging from -4.5 % to 2.5 % ; ( b ) an after-tax royalty rate of 0.4 % of expected net sales determined with regard to comparable market transactions and profitability analysis ; and ( c ) discount rates ranging from 16 % to 30 % , which were based on the after-tax wacc . based on the results of kodak 's december 31 , 2020 assessment , the fair value of the kodak trade name exceeded its carrying value . impairment of the kodak trade name could occur in the future if expected revenues decline or if there are significant changes in the discount rates or royalty rates . a one percent increase in the discount rate and a 10 % miss in expected revenues would impact the fair value of the kodak trade name by $ 3 million . kodak performed an interim impairment test of the kodak trade name as of june 30 , 2020 and march 31 , 2020. the fair value of the kodak trade name was valued using the income approach , specifically the relief from royalty method based on the following significant assumptions : ( a ) forecasted revenues ranging from july 1 , 2020 to december 31 , 2024 for the june 30 , 2020 interim test , and april 1 , 2020 to december 31 , 2024 for the march 31 , 2020 interim test , both valuations included a terminal year with growth rates ranging from -3 % to 2.5 % ( b ) an after-tax royalty rate of 0.4 % of expected net sales , and ( c ) discount rates ranging from 16 % to 25 % for the june 30 , 2020 interim test , and 23 % to 32 % for the march 31 , 2020 interim test . the discount rates are based on the after-tax wacc . based on the results of kodak 's march 31 , 2020 assessment , the carrying value of the kodak trade name exceeded its fair value and kodak recorded a pre-tax imp airment charge of $ 3 million . based on the results of kodak 's june 30 , 2020 assessment , the fair value of the kodak trade name exceeded its ' carrying value . no interim impairment test for the kodak tradename was deemed necessary as of september 30 , 2020 . 29 long-lived assets other than goodwill and indefinite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable . when evaluating long-lived assets for impairment , the carrying value of an asset group is compared to its estimated undiscounted future cash flows . an impairment is indicated if the estimated future cash flows are less than the carrying value of the asset group .
| detailed results of operations net revenues from continuing operations by reportable segment replace_table_token_3_th 35 segment operational ebitda and consolidated loss from continuing operations before income taxes replace_table_token_4_th ( 1 ) consulting and other costs are primarily professional services and internal costs associated with certain corporate strategic initiatives and investigations , including the divestiture of fpd and debt refinancing in 2019 . ( 2 ) consists of third-party costs such as security , maintenance , and utilities required to maintain land and buildings in certain locations not used in any kodak operations and the costs , net of any rental income received , of underutilized portions of certain properties . ( 3 ) $ 6 million of income from the transition services agreement with the purchaser of fpd ( “ purchaser ” ) was recognized in the each of the years ended december 31 , 2020 and 2019. the income was reported in other operating ( income ) expense , net in the consolidated statement of operations . other operating ( income ) expense , net is typically excluded from the segment measure . however , the income from the transition services agreement was included in the segment measure . ( 4 ) as reported in the consolidated statement of operations . kodak increased employee benefit reserves by approximately $ 4 million in 2020 reflecting an increase in workers ' compensation reserves ( $ 7 million ) partially offset by a decrease in postemployment benefit reserves ( $ 3 million ) . in 2019 workers ' compensation reserves increased by approximately $ 3 million . the increase in reserves in 2020 impacted gross profit and sg & a each by approximately $ 2 million . the increase in reserves in 2019 impacted gross profit by approximately $ 2 million and sg & a by approximately $ 1 million .
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in fiscal 2016 , the company changed the names of its “ north american retail ” and “ north american wholesale ” segments to “ americas retail ” and “ americas wholesale ” to better reflect that these segments are inclusive of its operations in north america as well as central and south america . there have been no changes to the underlying reporting in either segment . the company 's operating segments are the same as its reportable segments . management evaluates segment performance based primarily on revenues and earnings ( loss ) from operations before restructuring charges , if any . the company believes this segment reporting reflects how its five business segments are managed and how each segment 's performance is evaluated by the company 's chief operating decision maker to assess performance and make resource allocation decisions . the americas retail segment includes the company 's retail and e-commerce operations in north and central america and its retail operations in south america . the europe segment includes the company 's wholesale , retail and e-commerce operations in europe and the middle east . the asia segment includes the company 's retail , e-commerce and wholesale operations in asia . the americas wholesale segment includes the company 's wholesale operations in the americas . the licensing segment includes the worldwide licensing operations of the company . the business segment operating results exclude corporate overhead costs , which consist of shared costs of the organization , and restructuring charges . these costs are presented separately and generally include , among other things , the following unallocated corporate costs : accounting and finance , executive compensation , facilities , global advertising and marketing , human resources , information technology and legal . information regarding these segments is summarized in note 17 to the consolidated financial statements . products we derive our net revenue from the sale of guess ? , g by guess , guess kids and marciano apparel and our licensees ' products through our worldwide network of retail stores , wholesale customers and distributors , as well as our online sites . we also derive royalty revenue from worldwide licensing activities . foreign currency volatility since the majority of our international operations are conducted in currencies other than the u.s. dollar ( primarily the euro , canadian dollar , korean won and mexican peso ) , currency fluctuations can have a significant impact on the translation of our international revenues and earnings into u.s. dollar amounts . in addition , some of our transactions that occur primarily in europe , canada , south korea and mexico are denominated in u.s. dollars , swiss francs and british pounds , exposing them to exchange rate fluctuations when these transactions ( such as inventory purchases ) are converted to their functional currencies . as a result , fluctuations in exchange rates can impact the operating margins of our foreign operations and reported earnings , largely dependent on the transaction timing and magnitude during the period that the currency fluctuates . when these foreign exchange rates weaken versus the u.s. dollar at the time u.s. dollar denominated inventory is purchased relative to the purchases of the comparable period , our product margins could be unfavorably impacted if the relative sales prices do not change . during fiscal 2016 , the average u.s. dollar rate was stronger against the euro , the canadian dollar , the korean won and the mexican peso compared to the average rate in fiscal 2015 . as a result , our product margins in europe and canada were negatively impacted by exchange rate fluctuations during fiscal 2016 compared to the prior year . there was also an overall negative impact on the translation of our international revenues and earnings from operations during fiscal 2016 compared to the prior year . if the u.s. dollar remains strong relative to the respective fiscal 2016 foreign exchange rates , we expect that foreign exchange will continue to have a significant negative impact on our revenues and operating results as well as our international cash and other balance sheet items during fiscal 2017 , particularly in europe and canada . 30 the company enters into derivative financial instruments to offset some but not all of the exchange risk on foreign currency transactions . for additional discussion regarding our exposure to foreign currency risk , forward contracts designated as hedging instruments and forward contracts not designated as hedging instruments , refer to “ item 7a . quantitative and qualitative disclosures about market risk. ” recent developments on july 7 , 2015 , the company entered into an employment agreement with victor herrero that provided for his transition to become the company 's chief executive officer effective as of august 1 , 2015 ( the “ transition date ” ) . on the transition date , paul marciano , the company 's former chief executive officer and vice chairman of the board of directors , assumed the role of executive chairman of the board and chief creative officer . as part of his assessment of the strategic direction of the company , mr. herrero has identified several initiatives focused on driving shareholder value . such initiatives include : ( i ) elevating the quality of our sales organization and merchandising strategy to match the quality of our product and marketing ; ( ii ) building a major business in asia by unlocking the potential of the guess ? brand in the region ; ( iii ) creating a culture of purpose and accountability throughout the entire company by implementing a more centralized organizational structure that reinforces our focus on sales and profitability ; ( iv ) improving our cost structure ( including supply chain and overhead ) and ( v ) stabilizing and revitalizing our wholesale business . the following provides further details on the planned implementation of these initiatives : sales organization and merchandising strategy . story_separator_special_tag the company includes inbound freight charges , purchasing costs and related overhead , retail store occupancy costs , including rent and depreciation , and a portion of the company 's distribution costs related to its retail business in cost of product sales . the company 's gross margin may not be comparable to that of other entities since some entities include all of the costs related to their distribution in cost of product sales and others , like the company , generally exclude wholesale-related distribution costs from gross margin , including them instead in sg & a expenses . additionally , some entities include retail store occupancy costs in sg & a expenses and others , like the company , include retail store occupancy costs in cost of product sales . sg & a rate . the company 's sg & a rate de creased 50 basis points to 30.2 % for fiscal 2016 , from 30.7 % in fiscal 2015 , due primarily to the favorable impact from lower asset impairment charges , partially offset by charges related to legal matters during fiscal 2016. sg & a expenses . sg & a expenses de creased by $ 75.9 million , or 10.2 % , to $ 666.1 million for fiscal 2016 , from $ 742.0 million in fiscal 2015 . the de crease in sg & a expenses was driven by the favorable impact from currency translation fluctuations of $ 57.9 million and lower asset impairment charges of $ 22.5 million , partially offset by charges related to legal matters of $ 7.0 million during fiscal 2016 . 34 operating margin . operating margin in creased 30 basis points to 5.5 % for fiscal 2016 , compared to 5.2 % in fiscal 2015 . currency exchange rate fluctuations negatively impacted operating margin by approximately 140 basis points . earnings from operations . earnings from operations de creased by $ 4.6 million , or 3.6 % , to $ 121.4 million for fiscal 2016 , from $ 125.9 million in fiscal 2015 . currency translation fluctuations relating to our foreign operations unfavorably impacted earnings from operations by $ 10.3 million . interest expense , net . interest expense , net was $ 0.9 million for both of fiscal 2016 and fiscal 2015 and includes the impact of hedge ineffectiveness of foreign exchange currency contracts designated as cash flow hedges . other income , net . other income , net was $ 6.8 million for fiscal 2016 , compared to $ 18.0 million in fiscal 2015 . other income , net in fiscal 2016 consisted primarily of net realized and unrealized mark-to-market revaluation gains on foreign exchange currency contracts and realized gains on the sale of other assets , partially offset by net unrealized mark-to-market revaluation losses on foreign currency balances . other income , net in fiscal 2015 consisted primarily of net unrealized and realized mark-to-market revaluation gains on foreign exchange currency contracts . income tax expense . income tax expense for fiscal 2016 was $ 42.5 million , or a 33.4 % effective tax rate , compared to income tax expense of $ 45.8 million , or a 32.0 % effective tax rate , in fiscal 2015 . the in crease in effective tax rate was due primarily to more losses incurred in certain foreign jurisdictions which we were not able to recognize a benefit due to a full valuation allowance and higher non-deductible compensation costs during fiscal 2016 compared to the prior year . net earnings attributable to noncontrolling interests . net earnings attributable to noncontrolling interests for fiscal 2016 was $ 3.0 million , net of taxes , compared to $ 2.6 million , net of taxes , in fiscal 2015 . net earnings attributable to guess ? , inc. net earnings attributable to guess ? , inc. de creased by $ 12.7 million , or 13.4 % , to $ 81.9 million for fiscal 2016 , from $ 94.6 million in fiscal 2015 . diluted earnings per share de creased to $ 0.96 per share for fiscal 2016 , from $ 1.11 per share in fiscal 2015 . we estimate that the negative impact from currency fluctuations on diluted earnings per common share for fiscal 2016 was approximately $ 0.43 per share . 35 information by business segment the following table presents our net revenue and earnings ( loss ) from operations by segment for the last two fiscal years ( dollars in thousands ) : replace_table_token_10_th _ ( 1 ) in fiscal 2016 , the company changed the names of its “ north american retail ” and “ north american wholesale ” segments to “ americas retail ” and “ americas wholesale ” to better reflect that these segments are inclusive of its operations in north america as well as central and south america . there have been no changes to the underlying reporting in either segment . americas retail net revenue from our americas retail segment de creased by $ 50.7 million , or 4.9 % , to $ 981.9 million for fiscal 2016 , from $ 1.03 billion in fiscal 2015 . in constant currency , net revenue decrease d by 1.6 % compared to the prior year , driven primarily by the unfavorable impact from net store closures and negative comparable store sales . the store base for the u.s. and canada decreased by an average of 26 net stores in fiscal 2016 compared to the prior year , resulting in a 4.1 % net decrease in average square footage . comparable store sales ( including e-commerce ) in the u.s. and canada decreased 3.6 % in u.s. dollars and 0.6 % in constant currency , which excludes the unfavorable translation impact from currency fluctuations relating to our canadian retail stores and e-commerce sites . e-commerce sales in creased by $ 11.1 million , or 14.2 % , to $ 89.5 million for fiscal 2016 , compared to $ 78.4 million in fiscal 2015 .
| executive summary overview net earnings attributable to guess ? , inc. de creased 13.4 % to $ 81.9 million , or diluted earnings of $ 0.96 per common share , for fiscal 2016 , compared to net earnings attributable to guess ? , inc. of $ 94.6 million , or diluted earnings of $ 1.11 per common share , for fiscal 2015 . highlights of the company 's performance for fiscal 2016 compared to the prior year are presented below , followed by a more comprehensive discussion under “ results of operations ” : operations total net revenue de creased 8.8 % to $ 2.20 billion for fiscal 2016 , from $ 2.42 billion in the prior year . in constant currency , net revenue decrease d by 0.9 % . gross margin ( gross profit as a percentage of total net revenue ) de creased 20 basis points to 35.7 % for fiscal 2016 , from 35.9 % in the prior year . selling , general and administrative ( “ sg & a ” ) expenses as a percentage of total net revenue ( “ sg & a rate ” ) de creased 50 basis points to 30.2 % for fiscal 2016 , from 30.7 % in the prior year . sg & a expenses de creased 10.2 % to $ 666.1 million for fiscal 2016 , from $ 742.0 million in the prior year . operating margin in creased 30 basis points to 5.5 % for fiscal 2016 , compared to 5.2 % in the prior year . earnings from operations de creased 3.6 % to $ 121.4 million for fiscal 2016 , from $ 125.9 million in the prior year . other income , net ( including interest income and expense ) , totaled $ 5.9 million for fiscal 2016 , compared to $ 17.1 million in the prior year . 32 the effective income tax rate in creased 140 basis points to 33.4 % for fiscal 2016 , compared to 32.0 % in the prior year .
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on august 3 , 2015 , we acquired 55 % of the equity interest in rcb . the remaining 45 % of the equity interest in rcb is owned by the executive team and previous owners of rcb . rcb is a leading master servicing platform for nonperforming loans in brazil . our investment for the 55 % ownership of rcb was approximately $ 55.2 million . as part of the investment and call option agreements , we have the right to purchase the remaining 45 % of rcb at certain multiples of earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) beginning august 3 , 2019 and ending august 3 , 2021. frequently used terms we use the following terminology throughout this document : `` amortization rate '' refers to cash collections applied to principal on finance receivables as a percentage of total cash collections . `` buybacks '' refers to purchase price refunded by the seller due to the return of ineligible accounts . `` cash collections '' refers to collections on our owned finance receivables portfolios . `` cash receipts '' refers to collections on our owned finance receivables portfolios plus fee income . `` core '' accounts or portfolios refer to accounts or portfolios that are nonperforming loans and are not in an insolvent status upon purchase . these accounts are aggregated separately from insolvency accounts . `` estimated remaining collections '' or `` erc '' refers to the sum of all future projected cash collections on our owned finance receivables portfolios . `` insolvency '' accounts or portfolios refer to accounts or portfolios of receivables that are in an insolvent status when we purchase them and as such are purchased as a pool of insolvent accounts . these include individual voluntary arrangements ( `` ivas '' ) , trust deeds in the uk , consumer proposals in canada and bankruptcy accounts in the u.s. , canada , germany and the uk . `` principal amortization '' refers to cash collections applied to principal on finance receivables . `` purchase price '' refers to the cash paid to a seller to acquire nonperforming loans , plus certain capitalized costs , less buybacks . `` purchase price multiple '' refers to the total estimated collections ( as defined below ) on owned finance receivables portfolios divided by purchase price . `` total estimated collections '' or `` tec '' refers to actual cash collections , including cash sales , plus estimated remaining collections on our finance receivables portfolios . unless otherwise specified , references to 2017 , 2016 and 2015 are to the years ended december 31 , 2017 , december 31 , 2016 and december 31 , 2015 , respectively . 23 story_separator_special_tag 7.4 million on our americas core portfolios , $ 1.5 million on our americas insolvency portfolios , and $ 3.0 million on our european portfolios . in 2016 we recorded net allowance charges of $ 98.5 million consisting of $ 89.1 million on our americas core portfolios , $ 0.4 million on our americas insolvency portfolios , and $ 9.0 million on our european portfolios . during 2016 , we made downward adjustments to projections of future cash collections and we adjusted amortization periods for many of our americas core portfolios . this was done in response to recent trends of cash collections being lower than expected . we attributed this under-performance to a variety of regulatory and operational factors that we believe adversely impacted our collection efforts and therefore cash collected . in 2015 , we recorded net allowance charges of $ 29.4 million . on our americas core portfolios , we recorded net allowance charges of $ 21.9 million and net allowance reversals of $ 1.5 million on our americas insolvency portfolios . we also recorded a net allowance charge of $ 7.6 million on our europe core portfolios . 25 fee income fee income was $ 24.9 million in 2017 , a decrease of $ 52.5 million or 67.8 % compared to fee income of $ 77.4 million in 2016 . this was primarily due to a decrease in fee income resulting from the sale of our government services businesses in january 2017 and the sale of pls in june 2017. fee income was $ 77.4 million in 2016 , an increase of $ 13.0 million or 20.2 % compared to fee income of $ 64.4 million in 2015. fee income increased primarily due to an increase in revenues generated by pls , pra government services , llc ( `` pgs '' ) , claims compensation bureau , llc ( `` ccb '' ) , recovery management systems corporation ( `` rmsc '' ) and rcb . this was offset by a decrease in fee income from pra europe , due primarily to a decline in the amount of contingent fee services provided by us for external parties . other revenue other revenue was $ 7.9 million in 2017 , $ 8.1 million in 2016 , and $ 12.5 million in 2015. the decrease is primarily due to a decrease in revenue earned on our investments . operating expenses total operating expenses were $ 602.6 million in 2017 , $ 612.4 million in 2016 , and $ 631.7 million in 2015. compensation and employee services compensation and employee service expenses were $ 273.0 million in 2017 , an increase of $ 14.2 million or 5.5 % compared to compensation and employee service expenses of $ 258.8 million in 2016 . story_separator_special_tag communication expenses were $ 33.8 million in 2016 , an increase of $ 0.7 million or 2.1 % compared to communication expenses of $ 33.1 million in 2015. none of the changes were attributable to any significant identifiable items . rent and occupancy rent and occupancy expenses were $ 14.8 million in 2017 , a decrease of $ 0.9 million or 5.7 % compared to rent and occupancy expenses of $ 15.7 million in 2016 . the decrease was primarily due to the impact of the sale of our government services businesses in january 2017 and the sale of pls in june 2017. rent and occupancy expenses were $ 15.7 million in 2016 , an increase of $ 1.0 million or 6.8 % compared to rent and occupancy expenses of $ 14.7 million in 2015. the increase was primarily due to additional rental expenses incurred as a result of our acquisitions of rcb , rmsc and dtp as well as the additional rent expense associated with the expansion of our headquarters in norfolk , virginia . depreciation and amortization depreciation and amortization expense was $ 19.8 million in 2017 , a decrease of $ 4.6 million or 18.9 % compared to depreciation and amortization expenses of $ 24.4 million in 2016 . the decrease was primarily due to the impact of the sale of our government services businesses in january 2017. depreciation and amortization expense was $ 24.4 million in 2016 , an increase of $ 4.5 million or 22.6 % compared to depreciation and amortization expenses of $ 19.9 million in 2015. the increase was primarily due to the amortization expense incurred on intangible assets acquired in connection with the acquisitions of rcb and rmsc . other operating expenses other operating expenses were $ 44.1 million in 2017 , an increase of $ 4.6 million or 11.6 % compared to other operating expenses of $ 39.5 million in 2016 . the increase was primarily due to an increase of $ 2.9 million in taxes , fee and licenses , a $ 1.2 million increase in doubtful account expense , a $ 0.9 million increase in hiring expenses and an $ 0.8 million increase in general office expenses . this was offset by a $ 0.9 million decrease in travel-related expenses and a $ 0.7 million decrease in dues and subscriptions . none of the remaining variance was attributable to any significant identifiable items . other operating expenses were $ 39.5 million in 2016 , a decrease of $ 29.3 million or 42.6 % compared to other operating expenses of $ 68.8 million in 2015. the decrease was primarily due to $ 28.8 million in expenses incurred during 2015 relating to the consent order entered into with the cfpb . 27 interest expense , net interest expense , net was $ 98.0 million in 2017 , an increase of $ 17.1 million or 21.1 % compared to interest expense , net of $ 80.9 million in 2016 . the increase was primarily due to higher levels of average borrowings outstanding , increases in interest rates , and increases in unused line fees and deferred financing costs related to our financing activities in 2017. this was partially offset by changes in interest expense ( income ) incurred on our interest rate swaps and an increase in interest income . interest expense , net was $ 80.9 million in 2016 , an increase of $ 20.6 million or 34.2 % compared to interest expense , net of $ 60.3 million in 2015. the increase was primarily the result of higher average borrowings outstanding during 2016 compared to 2015 , as well as an increase in the interest rates charged on our variable rate borrowings . interest expense , net consisted of the following in 2017 , 2016 and 2015 ( amounts in thousands ) : replace_table_token_9_th net foreign currency transaction gain/ ( loss ) net foreign currency transaction gain/ ( loss ) were $ ( 1.1 ) million , $ 2.6 million , and $ 7.5 million in 2017 , 2016 , and 2015 , respectively . in any given period , we may incur foreign currency transactions gains or losses from transactions in currencies other than the functional currency . other expense other expense was $ 2.8 million in 2017 , compared to $ 5.8 million in 2016 and $ 0 in 2015. during 2017 , one of our investments in private equity funds experienced an other-than-temporary impairment which resulted in an impairment charge of $ 1.7 million . additionally , we incurred a $ 1.0 million expense related to a performance guarantee on a polish investment fund . during 2016 , the net portfolio collections on our investments in a closed-end polish securitization fund significantly underperformed expectations . as a result , in 2016 we recorded an other-than-temporary impairment charge of $ 5.8 million . for more information , refer to note 3 to our consolidated financial statements included in item 8 of this form 10-k ( `` note 3 '' ) . income tax expense/ ( benefit ) on december 22 , 2017 , the tax act was signed into law by president trump . the tax act makes broad and complex changes to the u.s. tax code , including , but not limited to the following provisions which are most relevant to us : ( 1 ) reducing the u.s. federal corporate tax rate from 35 percent to 21 percent ; ( 2 ) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries ; ( 3 ) generally eliminating u.s. federal income taxes on dividends from foreign subsidiaries ; ( 4 ) requiring a current inclusion in u.s. federal taxable income of certain earnings of controlled foreign corporations referred to as global intangible low-taxed income ( “ gilti ” ) ; ( 5 ) creating the base erosion anti-abuse tax , a new minimum tax ; ( 6 ) creating a
| results of operations the results of operations include the financial results of pra group and all of our subsidiaries , which are in the receivables management business . under the guidance of the fasb asc topic 280 `` segment reporting '' ( `` asc 280 '' ) , we have determined that we have several operating segments that meet the aggregation criteria of asc 280 , and therefore , we have one reportable segment , accounts receivables management , based on similarities among the operating units , including economic characteristics , the nature of the products and services , the nature of the production processes , the types or class of customer for their products and services , the methods used to distribute their products and services and the nature of the regulatory environment . the following table sets forth certain operating data as a percentage of total revenues for the years indicated ( dollars in thousands ) : replace_table_token_7_th 24 revenues total revenues were $ 813.6 million in 2017 , $ 830.6 million in 2016 , and $ 942.0 million in 2015. a summary of how our revenues were generated during the years indicated is as follows ( amounts in thousands ) : replace_table_token_8_th income recognized on finance receivables , net income recognized on finance receivables , net , was $ 780.8 million in 2017 , an increase of $ 35.7 million or 4.8 % compared to income recognized on finance receivables , net , of $ 745.1 million in 2016 . the increase was primarily due to a decrease in net allowance charges on our finance receivables to $ 11.9 million in 2017 compared to $ 98.5 million in 2016 , a decrease of $ 86.6 million or 87.9 % . this was partially offset by a decrease in income generated by our americas core portfolios , excluding net allowances , and our americas insolvency portfolios .
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of identifying such statements . forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially . factors that might cause such a difference include , but are not limited to : ( 1 ) deterioration in the credit quality of peoples ' loan portfolio could occur due to a number of factors , such as adverse changes in economic conditions that impair the ability of borrowers to repay their loans , the underlying value of the collateral could prove less valuable than otherwise assumed and assumed cash flows may be worse than expected , which may adversely impact the provision for loan losses ; 25 ( 2 ) competitive pressures among financial institutions or from non-financial institutions may increase significantly , including product and pricing pressures and peoples ' ability to attract , develop and retain qualified professionals ; ( 3 ) changes in the interest rate environment , which may adversely impact interest margins and or values of financial instruments ; ( 4 ) changes in prepayment speeds , loan originations , sale volumes and charge-offs , which may be less favorable than expected and adversely impact the amount of interest income generated ; ( 5 ) economic conditions , either nationally or in areas where peoples and its subsidiaries do business , may be less favorable than expected , which could decrease the demand for loans , deposits and other financial services and increase loan delinquencies and defaults ; ( 6 ) political developments , wars or other hostilities , which may disrupt or increase volatility in securities markets or other economic conditions ; ( 7 ) legislative or regulatory developments affecting the respective businesses of peoples and its subsidiaries , including changes in laws and regulations relating to taxes , accounting , banking , securities and other aspects of the financial services industry , specifically the dodd-frank wall street reform and consumer protection act of 2010 as well as future regulations which will be adopted by the relevant regulatory agencies , which may subject peoples and its subsidiaries to a variety of new and more stringent legal and regulatory requirements ; ( 8 ) the effect of changes in accounting policies and practices , as may be adopted by the financial accounting standards board , the sec , the public company accounting oversight board and other regulatory agencies , and the accuracy of our assumptions and estimates used to prepare peoples ' consolidated financial statements ; ( 9 ) adverse changes in the conditions and trends in the financial markets , which may adversely affect the fair value of securities within peoples ' investment portfolio and interest rate sensitivity of peoples ' consolidated balance sheet ; ( 10 ) peoples ' ability to receive dividends from its subsidiaries ; ( 11 ) peoples ' ability to maintain required capital levels and adequate sources of funding and liquidity ; ( 12 ) the impact of larger or similar financial institutions encountering problems , which may adversely affect the banking industry and or peoples ; ( 13 ) the costs and effects of regulatory and legal developments , including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations ; ( 14 ) the impact of reputational risk created by these developments on such matters as business generation and retention , funding and liquidity ; ( 15 ) peoples ' ability to secure confidential information through the use of computer systems and telecommunications network may prove inadequate , which could adversely affect customer confidence in peoples and or result in peoples incurring a financial loss and ( 16 ) other risk factors relating to the banking industry or peoples as detailed from time to time in peoples ' reports filed with the securities and exchange commission ( “ sec ” ) , including those risk factors included in the disclosure under item 1a – risk factors of this form 10-k. all forward-looking statements speak only as of the execution date of this form 10-k and are expressly qualified in their entirety by the cautionary statements . although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management 's knowledge of peoples ' business and operations , it is possible that actual results may differ materially from these projections . additionally , peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this form 10-k or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements . copies of documents filed with the sec are available free of charge at the sec 's website at www.sec.gov and or from peoples bancorp inc. 's website – www.peoplesbancorp.com under the “ investor relations ” section . 26 the following discussion and analysis of peoples ' consolidated financial statements is presented to provide insight into management 's assessment of the financial results and condition for the periods presented . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto , as well as the ratios and statistics , contained elsewhere in this form 10-k. summary of significant transactions and events the following is a summary of transactions or events that have impacted or are expected by management to impact peoples ' results of operations or financial condition : ◦ as described in note 13 of the notes to the consolidated financial statements , peoples incurred settlement charges of $ 815,000 during 2011 due to lump-sum distributions to participants exceeding the threshold for recognizing such charges during the third quarter . no such charges were recognized in prior years . story_separator_special_tag these actions include changing its target federal funds rate ( the interest rate at which banks lend money to each other ) , discount rate ( the interest rate charged to banks for money borrowed from the federal reserve ) and longer-term market interest rates ( primarily u.s. treasury securities ) . longer-term market interest rates also are affected by the demand for u.s. treasury securities . the resulting changes in the yield curve slope have a direct impact on reinvestment rates for peoples ' earning assets . ◦ since december 2008 , the federal reserve has maintained its target federal funds rate at a historically low level of 0 % to 0.25 % . additionally , between december 2008 and february 2010 , the federal reserve maintained the discount rate at 0.50 % . these actions produced correspondingly low short-term market interest rates . in february 2010 , the federal reserve increased the discount rate by 25 basis points to 0.75 % while leaving its target federal funds rate range unchanged , thereby widening the spread between the discount rate and the high end of the target federal funds rate . both the federal funds rate and discount rate have remained unchanged since february 2010 . ◦ since late 2008 , the federal reserve has taken various actions to lower longer-term market interest rates as a means of stimulating the economy – a policy commonly referred to as “ quantitative easing ” . these actions have included the buying and selling of mortgage-backed and other debt securities through its open market operations . as a result , the slope of the u.s. treasury yield curve has fluctuated significantly . substantial flattening occurred in late 2008 , in mid-2010 and during the third quarter of 2011 , while moderate steepening occurred in the second half of 2009 and late 2010. the impact of these transactions , where material , is discussed in the applicable sections of this management 's discussion and analysis . critical accounting policies the accounting and reporting policies of peoples conform to generally accepted accounting principles in the united states of america ( “ us gaap ” ) and to general practices within the financial services industry . a summary of significant accounting policies is contained in note 1 of the notes to the consolidated financial statements . while all of these policies are important to understanding the consolidated financial statements , certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates and assumptions are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates or assumptions . management has identified the accounting policies described below as those that , due to the judgments , estimates and assumptions inherent in the policies , are critical to an understanding of peoples ' consolidated financial statements and management 's discussion and analysis of financial condition and results of operations . 28 income recognition interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding , including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities . since mortgage-backed securities comprise a sizable portion of peoples ' investment portfolio , a significant increase in principal payments on those securities could impact interest income due to the corresponding acceleration of premium amortization or discount accretion . peoples discontinues the accrual of interest on a loan when conditions cause management to believe collection of all or any portion of the loan 's contractual interest is doubtful . such conditions may include the borrower being 90 days or more past due on any contractual payments or current information regarding the borrower 's financial condition and repayment ability . all unpaid accrued interest deemed uncollectible is reversed , which would reduce peoples ' net interest income . interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured . allowance for loan losses in general , determining the amount of the allowance for loan losses requires significant judgment and the use of estimates by management . peoples maintains an allowance for loan losses based on a quarterly analysis of the loan portfolio and estimation of the losses that are probable of occurrence within the loan portfolio . this formal analysis determines an appropriate level and allocation of the allowance for loan losses among loan types and resulting provision for loan losses by considering factors affecting losses , including specific losses , levels and trends in impaired and nonperforming loans , historical loan loss experience , current national and local economic conditions , volume , growth and composition of the portfolio , regulatory guidance and other relevant factors . management continually monitors the loan portfolio through peoples bank 's loan review department and loan loss committee to evaluate the adequacy of the allowance . the provision could increase or decrease each quarter based upon the results of management 's formal analysis . the amount of the allowance for loan losses for the various loan types represents management 's estimate of probable losses from existing loans . management evaluates lending relationships deemed to be impaired on an individual basis and makes specific allocations of the allowance for loan losses for each relationship based on discounted cash flows using the loan 's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans . for all other loans , management evaluates pools of homogeneous loans ( such as residential mortgage loans and consumer loans ) and makes general allocations for each loan pool based upon historical loss experience . while allocations are made to specific loans and pools of loans , the allowance is available for all loan losses .
| executive summary in 2011 , net income available to common shareholders was $ 11.2 million , versus $ 3.5 million in 2010 and $ 2.3 million in 2009 , representing diluted earnings per common share of $ 1.07 , $ 0.34 and $ 0.22 , respectively . the improvement in earnings was a result of significant reductions in loan-related losses , specifically the provision for loan losses . earnings available to common shareholders were reduced by preferred dividends of $ 1.3 million in 2011 , $ 2.1 million in 2010 and $ 1.9 million in 2009 related to the tarp capital investment . despite these challenges , peoples generated positive results in several key areas , including expansion of retail deposits , expense control and continued diversification of revenues . provision for loan losses totaled $ 8.0 million in 2011 , compared to $ 26.9 million in 2010 and $ 25.7 million in 2009 . the recorded provision reflects the amount needed to maintain the adequacy of the allowance for loan losses based on management 's formal quarterly analysis . in 2011 , net interest income decreased 10 % to $ 54.0 million , as the impact of the sustained low interest rate environment and lower average loan balances caused a decline in interest income that exceeded the reduction in funding costs . net interest margin remained relatively stable throughout 2011. in 2010 , net interest income decreased 3 % compared to 2009 , due primarily to decreased earning assets as a result of commercial loan payoffs and charge-offs , coupled with lower reinvestment rates corresponding with market interest rates . total non-interest income , which excludes the impact of gains and losses , increased 4 % in 2011 over the prior year . this increase was driven by stronger generation in virtually every major revenue category . the largest growth occurred in electronic banking income , which increased 10 % year-over-year .
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all statements other than statements of historical facts contained in this annual report on form 10-k , including statements regarding our future results of operations and financial position , business strategy , prospective products and product candidates , their expected performance and impact on healthcare costs , marketing clearance from the u.s. food and drug administration , or the fda , regulatory clearance , reimbursement for our product candidates , research and development costs , timing of regulatory filings , timing and likelihood of success , plans and objectives of management for future operations and future results of anticipated products , are forward-looking statements . these statements involve known and unknown risks , uncertainties and other important factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by the forward-looking statements . in some cases , you can identify forward-looking statements by terms such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ could , ” “ intend , ” “ target , ” “ project , ” “ contemplate , ” “ believe , ” “ estimate , ” “ predict , ” “ potential ” or “ continue ” or the negative of these terms or other similar expressions . the forward-looking statements in this annual report on form 10-k are only predictions . we have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business , financial condition and results of operations . these forward-looking statements speak only as of the date of this annual report on form 10-k and are subject to a number of risks , uncertainties and assumptions described under the sections in this annual report on form 10-k entitled “ item 1a.—risk factors ” and “ management 's discussion and analysis of financial condition and results of operations ” and elsewhere in this annual report on form 10-k. these forward looking statements are subject to numerous risks , including , without limitation , the following : our status as an early stage company ; our expectation to incur losses in the future ; the market acceptance of our t2mr technology ; our ability to timely and successfully develop and commercialize our existing products and future product candidates ; the length and variability of our anticipated sales cycle ; limited sales history ; our ability to gain the support of leading hospitals and key thought leaders and publish the results of our clinical trials in peer-reviewed journals ; our ability to successfully manage our growth ; our future capital needs and our ability to raise additional funds ; the performance of our diagnostics ; our ability to compete in the highly competitive diagnostics market ; our ability to obtain marketing clearance from the fda or regulatory clearance for new product candidates in the united states or any other jurisdiction ; federal , state , and foreign regulatory requirements , including fda regulation of our product candidates ; our ability to protect and enforce our intellectual property rights , including our trade secret-protected proprietary rights in t2mr ; our ability to recruit , train and retain key personnel ; our dependence on third parties ; our ability to continue as a going concern ; manufacturing and other product risks ; the impact of adoption of new accounting standards ; and the tax cuts and jobs act of 2017 ( tax reform ) . these forward-looking statements represent our estimates and assumptions only as of the date of this annual report on form 10-k. unless required by u.s. federal securities laws , we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made or to conform these statements to actual results . the following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ item 1a . risk factors ” in this annual report on form 10-k , and elsewhere in this annual report on form 10-k. 55 you should read the following discussion and analysis of our consolidated financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and ana lysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of m any factors , including those factors set forth in the “ item 1a.—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 the forward-looking statements contained in the following discussion and analysis . business overview we are an in vitro diagnostics company that has developed an innovative and proprietary technology platform that offers a rapid , sensitive and simple alternative to existing diagnostic methodologies . we are using our t2 magnetic resonance technology ( “ t2mr ” ) to develop a broad set of applications aimed at lowering mortality rates , improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier . t2mr enables rapid detection of pathogens , biomarkers and other abnormalities in a variety of unpurified patient sample types , including whole blood , plasma , serum , saliva , sputum and urine , and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter ( “ cfu/ml ” ) . story_separator_special_tag substantially all of our net losses resulted from costs incurred in connection with our research and development programs and 56 from selling , general and administrative costs associated with our operations . we have incurred significant commercializ ation expenses related to product sales , marketing , manufacturing and distribution of our fda-cleared t2dx and t2candi da . in addition , we will continue to incur significant costs and expenses as we continue to develop other product candidates , improve exis ting products and maintain , expand and protect our intellectual property portfolio . we may seek to fund our operations through public equity or private equity or debt financings , as well as other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business , results of operations and financial conditi on and our ability to develop , commercialize and drive adoption of the t2dx , t2candida , our product candidate , t2bacteria , and future t2mr-based diagnostics . pursuant to the requirements of accounting standards codification ( asc ) 205-40 , disclosure of uncertainties about an entity 's ability to continue as a going concern , management must evaluate whether there are conditions or events , considered in the aggregate , that raise substantial doubt about the company 's ability to continue as a going concern within one year after the date that the financial statements are issued . this evaluation initially does not take into consideration the potential mitigating effect of management 's plans that have not been fully implemented as of the date the financial statements are issued . when substantial doubt exists under this methodology , management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company 's ability to continue as a going concern . the mitigating effect of management 's plans , however , is only considered if both ( 1 ) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued , and ( 2 ) it is probable that the plans , when implemented , will mitigate the relevant conditions or events that raise substantial doubt about the entity 's ability to continue as a going concern within one year after the date that the financial statements are issued . management believes that its existing cash and cash equivalents at december 31 , 2017 , together with the remaining liquidity on the term loan agreement with crg , will be sufficient to allow the company to fund its current operating plan through march 2019. however , because certain elements of the company 's operating plan are outside of the company 's control , including the approval of the company 's t2bacteria panel and receipt of certain development and regulatory milestone payments under the company 's co-development agreements , they can not be considered probable according to accounting standards . under asc 205-40 , the future receipt of potential funding from the company 's co-development partners and other resources can not be considered probable at this time because none of the plans are entirely within the company 's control . in addition , the company is required to maintain a minimum cash balance under its term loan agreement with crg ( note 6 ) . these conditions raise substantial doubt regarding the company 's ability to continue as a going concern for a period of one year after the date that the financial statements are issued . management 's plans to alleviate the conditions , should it be necessary , include raising additional funding , earning milestone payments pursuant the company 's co- development agreements , delaying certain research projects and capital expenditures and eliminating certain future operating expenses in order to fund operations at reduced levels for the company to continue as a going concern for a period of 12 months from the date the financial statements are issued . management has concluded the likelihood that its plan to obtain sufficient funding from one or more of these sources or adequately reduce expenditures will be successful , while reasonably possible , is less than probable . our commercial products and the unmet clinical need our initial fda-cleared products , the t2dx and t2candida , utilize t2mr to detect species-specific candida directly from whole blood in as few as three hours versus the one to six or more days typically required by blood culture-based diagnostics . this allows the patient to potentially receive the correct treatment in four to six hours versus 24 to 144 hours for blood culture . the t2candida runs on the t2dx and provides high sensitivity with a limit of detection as low as 1 cfu/ml , even in the presence of antimicrobial therapy . our t2candida panel our direct2 pivotal clinical trial was designed to evaluate the sensitivity and specificity of t2candida on the t2dx . the direct2 trial consisted of two patient arms : a prospective arm with 1,501 samples from patients with a possible infection and a seeded arm with 300 samples , also obtained from patients with a possible infection . t2candida and the t2dx demonstrated a sensitivity of 91.1 percent and a specificity of 99.4 percent . in addition , the speed to a species-specific positive result with t2candida was 4.4 hours versus 129 hours with blood culture . a negative result from t2candida was obtained in just 4.2 hours versus greater than 120 hours with blood culture . the data and other information from the direct2 pivotal clinical trial was published in january 2015 in clinical infectious diseases . sepsis is one of the leading causes of death in the united states , claiming more lives annually than breast cancer , prostate cancer , and aids combined , and it is the most expensive hospital-treated condition .
| results of operations for t he years ended december 31 , 2017 and 2016 replace_table_token_16_th product revenue during the year ended december 31 , 2017 , product revenue totaled $ 3.4 million , compared to $ 1.7 million for the year ended december 31 , 2016 , an increase of $ 1.7 million . the increase was driven by higher comparable sales of t2candida consumables and instruments of $ 1.0 million and $ 0.7 million , respectively . higher sales were the result of increased usage of diagnostic tests in the installed base and growth in our installed t2dx instrument base , as well as international sales of t2dx instruments . research revenue we recorded research revenue totaling $ 1.2 million for the year ended december 31 , 2017 , compared to $ 2.3 million for the year ended december 31 , 2016 , a decrease of $ 1.1 million . the decrease is due to $ 1.5 million less revenue recognized under our co-development agreement with canon us life sciences and $ 0.5 million less revenue recognized for projects completed in 2016. the decrease in revenue under our agreement with canon us life sciences is related to differences in timing between work performed and achievement of milestones and related payments . decreases in research revenue were partially offset by $ 0.9 million of revenue recognized under our co-development agreement with allergan sales . cost of product revenue during the year ended december 31 , 2017 , cost of product revenue associated with the sale of our t2candida panels and t2dx instruments to customers totaled $ 12.0 million , compared to $ 6.9 million for the year ended december 31 , 2016 , an increase of $ 5.2 million . cost of product revenue includes a $ 2.6 million impairment charge related to t2-owned instruments and components .
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to be considered a business , only inputs and processes are required , which together form an integrated set of activities used to create outputs . since we did not contribute any processes , such as operational processes or an organized workforce with the skills and experience to provide the necessary processes capable of being applied to inputs to create outputs , we determined the stem cell assets only represent inputs and are not considered an integrated set of activities . due to the significant research and development necessary to realize the commercial potential of the stem cell assets , we expensed all research and development costs associated with the stem cell assets as incurred and therefore , there was no recorded amount , or carrying value , for the stem cell assets on our consolidated balance sheets . since the divestiture story_separator_special_tag overview the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in part ii , item 8 of this annual report on form 10-k. we are a clinical stage biopharmaceutical company developing a telomerase inhibitor , imetelstat , in hematologic myeloid malignancies . through a combined strategy of internal efforts and potential future strategic partnerships , we intend to advance the development and commercialization of imetelstat in one or more hematologic myeloid malignancies . the discovery and early development of imetelstat , our sole product candidate , was based on our core expertise in telomerase and telomere biology . telomerase is an enzyme that enables cancer cells , including malignant progenitor cells , to maintain telomere length , which provides them with the capacity for limitless , uncontrolled proliferation . imetelstat is a potent and specific inhibitor of telomerase . using our proprietary nucleic acid chemistry , we designed imetelstat to be an oligonucleotide that targets and binds with high affinity to the active site of telomerase , thereby directly inhibiting telomerase activity and impeding malignant cell proliferation . we developed imetelstat from inception and own exclusive worldwide commercial rights with u.s. patent coverage extending through 2025. based on the data from our phase 2 clinical trial evaluating imetelstat in essential thrombocythemia , or et , which showed durable hematologic and molecular responses in patients , and preliminary data from the first two cohorts of an investigator-sponsored trial at mayo clinic evaluating imetelstat in myelofibrosis , which we refer to as the myelofibrosis ist , we intend , subject to the full clinical hold discussed below , to develop imetelstat to treat one or more hematologic myeloid malignancies such as myelofibrosis , or mf , which includes patients with primary mf , or pmf , post-essential thrombocythemia mf , or post-et mf , or post-polycythemia vera mf , or post-pv mf , all of which are referred to as mf ; myelodysplastic syndromes , or mds ; or acute myelogenous leukemia , or aml . the myelofibrosis ist is also evaluating imetelstat in patients with refractory anemia with ringed sideroblasts , or rars , a subpopulation of mds , and patients with mf that has transformed into aml , known as blast-phase mf . data we receive from these additional patients may inform , in part , our decision to initiate , subject to the full clinical hold discussed below , one or more potential pilot studies of imetelstat in mds or aml . in january 2014 , mayo clinic closed the myelofibrosis ist to new patient enrollment . in mayo clinic 's notification informing us of its decision to cease new patient enrollment , mayo clinic did not indicate that its decision was due to any concerns regarding efficacy or safety . 60 in march 2014 , we received written notice from the u.s. food and drug administration , or the fda , that our investigational new drug application , or ind , for imetelstat has been placed on full clinical hold following their review of data related to hepatotoxicity in our then-ongoing clinical studies . a full clinical hold is an order that the fda issues to a trial sponsor to suspend all ongoing clinical trials and delay all proposed trials . with this clinical hold , any patients in an ongoing geron-sponsored clinical trial can not receive any further treatment with imetelstat . therefore , we have stopped imetelstat treatment in our phase 2 geron-sponsored clinical trials in et and multiple myeloma , or mm . for our phase 2 et trial , eight patients are affected and for our phase 2 mm trial , two patients are affected . in their notice to us , the fda cited the following safety issues as the basis for the clinical hold : lack of evidence of reversibility of hepatotoxicity , risk for chronic liver injury and lack of adequate follow-up in patients who experienced hepatotoxicity . to address the clinical hold , we are required to : provide clinical follow-up information in patients who experienced liver function test , or lft , abnormalities until lft abnormalities have resolved to normal or baseline ; and provide information regarding the reversibility of the liver toxicity after chronic drug administration in animals . accordingly , we intend to compile and submit to the fda preclinical and clinical data and information from our own studies , as well as data and information available to us from other imetelstat studies , such as the myelofibrosis ist , regarding lft abnormalities and the incidence and reversibility of hepatotoxicity . we plan to work diligently with the fda to seek the release of the full clinical hold . until the fda lifts the full clinical hold , we are unable to submit any new clinical trial protocols to the fda under our ind for imetelstat and are unable to initiate any new clinical trials for imetelstat in the united states . therefore , the initiation of our previously-announced planned geron-sponsored phase 2 clinical trial of imetelstat in patients with mf will be delayed indefinitely and may not occur at all . story_separator_special_tag the categories are as follows : level 1inputs are unadjusted , quoted prices in active markets for identical assets or liabilities at the measurement date . an active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis . level 2inputs ( other than quoted market prices included in level 1 ) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument 's anticipated life . level 3inputs reflect management 's best estimate of what market participants would use in pricing the asset or liability at the measurement date . consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . following is a description of the valuation methodologies used for instruments measured at fair value on our consolidated balance sheet , including the category for such instruments . we classify inputs to derive fair values for marketable securities available-for-sale as level 1 and 2. instruments classified as level 1 include money market funds , representing 13 % of our total financial instruments measured at fair value classified as assets as of december 31 , 2013. instruments classified as level 2 include u.s. government-sponsored enterprise securities , commercial paper and corporate notes , representing 87 % of our total financial instruments measured at fair value classified as assets as of december 31 , 2013. the price for each security at the measurement date is derived from various sources . periodically , we assess the reasonableness of these sourced prices by comparing them to the prices provided by our portfolio managers from broker quotes as well as reviewing the pricing methodologies used by our portfolio managers . historically , we have not experienced significant deviation between the sourced prices and our portfolio manager 's prices . warrants to purchase common stock and non-employee options are normally traded less actively , have trade activity that is one way , and or traded in less-developed markets and are therefore valued based upon models with significant unobservable market parameters , resulting in level 3 categorization . instruments classified as level 3 include derivative liabilities from non-employee options , representing all of our financial instruments measured at fair value classified as liabilities as of december 31 , 2013. the fair value for these instruments is calculated using the black scholes option-pricing model . the model 's inputs reflect assumptions that market participants would use in pricing the instrument in a current period transaction . use of this model requires us to make assumptions regarding stock volatility , dividend yields , expected term of the non-employee options and risk-free interest rates . changes to the model 's inputs are not changes to valuation methodologies , but instead reflect direct or indirect impacts from changes in market conditions . accordingly , results from the valuation model in one period may not be indicative of future period measurements . expected volatilities are based on historical volatilities of our stock . the expected term of non-employee options represents the remaining contractual term of the instruments . the risk-free interest rate is based on the u.s. zero coupon treasury strip yields for the remaining term of the instrument . if factors change and we employ different assumptions in future periods , the fair value of these non-employee options reflected as of 63 each balance sheet date and the resulting change in fair value that we record may differ significantly from what we have recorded in previous periods . as of december 31 , 2013 , we have not revised the method in which we derive assumptions in order to estimate fair values of non-employee options classified as liabilities , and we do not expect revisions in the future . for a further discussion regarding fair value measurements , see note 2 on fair value measurements in notes to consolidated financial statements of this annual report on form 10-k. revenue recognition since our inception , substantially all of our revenues have been generated from collaboration agreements and licensing arrangements . revenue under such agreements typically includes upfront signing or license fees , cost reimbursements , milestone payments and royalties on future product sales . we recognize upfront non-refundable signing , license or non-exclusive option fees as revenue when rights to use the intellectual property related to the license have been delivered and over the term of the agreement if we have continuing performance obligations . we recognize cost reimbursement revenue under collaborative agreements as the related research and development costs for services are rendered . we recognize revenue from milestone payments , which are subject to substantive contingencies , upon completion of specified milestones , which represents the culmination of an earnings process , according to contract terms . royalties are generally recognized as revenue upon the receipt of the related royalty payment . deferred revenue represents the portion of research or license payments received which has not been earned . when payments are received in equity securities , we do not recognize any revenue unless such securities are determined to be realizable in cash . we estimate the projected future term of license agreements over which we recognize revenue . our estimates are based on contractual terms , historical experience and general industry practice . revisions in the estimated terms of these license agreements have the effect of increasing or decreasing license fee revenue in the period of revision . as of december 31 , 2013 , no revisions to the estimated future terms of license agreements have been made and we do not expect revisions to currently active agreements in the future .
| results of operations our results of operations have fluctuated from period to period and may continue to fluctuate in the future , based upon the progress of our research and development efforts and variations in the level of expenses related to developmental efforts during any given period . results of operations for any period may be unrelated to results of operations for any other period . in addition , historical results should not be viewed as indicative of future operating results . we are subject to risks common to companies in our industry and at our stage of development , including , but not limited to , risks inherent in our research and development efforts , our dependence on the success of a single product candidate , uncertainty of preclinical and clinical trial results or regulatory approvals or clearances , need for future capital , enforcement of our patent and proprietary rights , reliance upon our collaborators , investigators and other third parties , and potential competition . in order for our sole product candidate , imetelstat , to be commercialized based on our research , we and our collaborators must conduct preclinical tests and clinical trials to demonstrate the safety and efficacy of imetelstat , obtain regulatory approvals or clearances and enter into manufacturing , distribution and marketing arrangements , as well as obtain market acceptance . we do not expect to receive revenues or royalties based on imetelstat for many years , if at all . revenues we recognized revenues from collaborative agreements of $ 300,000 in 2011 which reflects revenue recognized under our collaboration with ge healthcare uk , ltd. , or ge healthcare , which began in july 2009. no comparable amounts were recognized in 2013 and 2012 because the collaboration with ge healthcare concluded in june 2011. we have entered into license and option agreements with companies involved with oncology , diagnostics , research tools , agricultural and biologics production .
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as of december 31 , 2013 , we had 8,563 gaming machines in 19 u.s. states , with 154 gaming facilities under revenue sharing agreements and 30 facilities under fee per day agreements . the majority of our systems are used by native american gaming operators in both class ii and class iii environments , with a recent expansion into the illinois vgt market . our products include electronic gaming machines , server-based systems and back-office systems that are used by casinos and other gaming locations . we currently derive substantially all of our gaming revenues from lease agreements whereby we place gaming machines and systems at a customer 's facility in return for either a share of the revenues that these machines and systems generate or a daily fee , which we collectively refer to as “ participation agreements ” and as our “ participation model. ” business outlook during 2008 and 2009 , and into 2010 , the poor macro-economic environment had a negative impact on consumer discretionary spending . as a result , the u.s. gaming industry experienced its first ever year-over-year declines in gross gaming revenue in 2008 and 2009. while the recessionary pressures were felt in most markets , the core destination markets of the las vegas strip and atlantic city were among the hardest hit due to the negative effects of both the recession and increased regional competition , while other commercial markets and the native american markets were not as adversely impacted . during 2010 , we began to see improvements in regional commercial gaming jurisdictions , which have continued through the fourth quarter of 2013. we believe the current economic environment presents multiple opportunities for our business . we believe the improving economy should lead to increases in consumer discretionary spending , which should in turn drive higher revenues in existing gaming locations . in addition , state budget deficits have ballooned and many states with fiscal difficulties are turning to gaming as a source of revenue enhancement , which we believe presents us with continued long-term growth opportunities . we believe our participation model offers an attractive value proposition to casino and other facility operators ; especially in the current economic environment . by leasing our gaming machines to customers , we enable our customers to introduce new games in their facilities with minimal cost and financial risk . in addition , our selective use of development agreements to secure 27 incremental game placements under long-term contracts provides customers with additional capital to help expand their operations . key drivers of our business our total revenues are impacted by the following key factors : the amount of money spent by consumers on our domestic revenue share installed base ; the amount of the daily fee on our participation gaming machines ; the selling price of our machines ; our revenue share percentage with customers ; the capital budgets of our customers ; the level of replacement of existing electronic gaming machines in existing casinos ; expansion of existing casinos ; development of new casinos ; opening of new gaming jurisdictions both in the united states and internationally ; our ability to obtain and maintain gaming licenses in various jurisdictions ; the relative competitiveness and popularity of our electronic gaming machines compared to competitive products offered in the same facilities ; and general macro-economic factors , including levels of and changes to consumer disposable income and personal consumption spending . our expenses are impacted by the following key factors : fluctuations in the cost of labor relating to productivity ; overtime and training ; fluctuations in the price of components for gaming equipment ; fluctuations in energy prices ; changes in the cost of obtaining and maintaining gaming licenses ; and fluctuations in the level of maintenance expense required on gaming equipment . variations in our selling , general and administrative expenses , or sg & a , are primarily due to changes in employment and salaries and related fringe benefits . basis of presentation references to “ successor ” refer to the company on or after december 21 , 2013. references to “ predecessor ” refer to ags capital , llc on or before december 20 , 2013. the accompanying consolidated statements of operations and comprehensive loss , changes in stockholders ' equity/member 's deficit and cash flows for the year ended december 31 , 2013 are presented for two periods : january 1 , 2013 through december 20 , 2013 ( the “ predecessor period ” ) for the predecessor and december 21 , 2013 through december 31 , 2013 ( the “ successor period ” ) for the company . the predecessor period reflects the historical accounting basis in the predecessor 's assets and liabilities , while the successor period reflects assets and liabilities at fair value by allocating the company 's enterprise value to its assets and liabilities pursuant to accounting guidance related to business combinations . because we conducted no business prior to december 20 , 2013 , we have presented the results of the predecessor for the years ended december 31 , 2012 and 2011 for comparison purposes . we refer to our year ended december 31 , 2013 results as “ 2013 combined , ” derived from the summation of the results of ap gaming for the successor period and ags capital for the predecessor period . the discussion of our results of operations contains a comparison of our results for the 2013 combined period and the results for the predecessor for the year ended december 31 , 2012. the application of accounting guidance related to business combinations did not materially affect the company 's continuing operations ; however the 2013 combined and year ended december 31 , 2012 may yield results that are not fully comparable on a period-by-period basis , particularly with respect to depreciation , amortization , interest income and interest expense . story_separator_special_tag the term facility requires scheduled quarterly payments in amounts equal to 0.25 % of the original aggregate principal amount of the term loans , with the balance due at maturity . borrowings under the senior secured credit facilities are expected to bear interest at a rate equal to , at the borrower 's option , either libor or the base rate , subject to an interest rate floor plus an applicable margin rate . in addition , on a quarterly basis , the borrower is required to pay each lender under the revolving facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50 % per annum . a portion of the proceeds from the term facility was used to repay all amounts outstanding under the term loans as defined below . the senior secured credit facilities are guaranteed by ap gaming holdings , the borrower 's material , wholly owned domestic subsidiaries ( subject to certain exceptions ) and ap gaming nv , llc , and are secured by a pledge by ap gaming holdings of the borrower 's equity interest directly held by ap gaming holdings and a pledge of substantially all of the existing and future property and assets of the borrower and the subsidiary guarantors and ap gaming nv , llc , subject to certain exceptions . the senior secured credit facilities require that the borrower maintain a maximum net first lien leverage 29 ratio set at a maximum of 5.5 to 1 beginning with the first quarter ending june 30 , 2014. the senior secured credit facilities contain limitations on additional indebtedness , guarantees , incurrence of liens , investments and distributions , as defined . the senior secured credit facilities also contain customary events of default included in similar financing transactions , including , among others , failure to make payments when due , default under other material indebtedness , breach of covenants , breach of representations and warranties , involuntary or voluntary bankruptcy , and material judgments . on august 15 , 2012 , ags capital entered into a $ 130 million senior secured credit agreement with ubs securities , llc ( the “ term loans ” ) . under this credit agreement , ags capital borrowed $ 115 million as an initial term loan and utilized the proceeds to repay all amounts outstanding under the may 14 , 2007 credit agreement and fund operations . the agreement also included a $ 15 million delayed draw term loan commitment , of which $ 7.5 million was freely available to us and was drawn on october 25 , 2012 , with the remaining $ 7.5 million draw subject to certain criteria . the term loans accrued interest at libor or base rate , at our election , subject to an interest rate floor plus an applicable margin rate . aggregate principal amounts of the term loans were payable in quarterly installments equal to 1.25 % of the outstanding balance beginning september 30 , 2014 , with the final installment payable at august 15 , 2016. concurrent with the consummation of the acquisition , a portion of the net proceeds from the senior secured credit facilities was used to repay in full the amounts outstanding under the term loans , which totaled approximately $ 137.9 million in repaid principal , accrued and unpaid interest , breakage fees and the applicable prepayment penalty . during the predecessor period the predecessor recognized a $ 14.7 million loss on debt retirement which consists of a $ 6.2 million prepayment penalty , a $ 8.2 million write-off of unamortized debt issuance costs and discounts and a $ 0.3 million payment for breakage fees . in october 2013 , ags capital entered into financing agreements to purchase 450 gaming machines from various third party suppliers for lease to a company that operates and service slot routes in illinois . the agreements require monthly payments of interest and principle and have terms ranging from 24 to 36 months and carry an interest rate from 8.0 % to 8.5 % . the amounts due under these financing agreement were paid in full in connection with the acquisition . in january 2014 , we entered into a financing agreement to purchase certain gaming devises and or systems and related equipment in the amount of $ 2.7 million . the agreement requires monthly payments commencing 90 days from the date of delivery with a term of 36 months at an annual fixed interest rate of 7.5 % . 30 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:12px ; padding-top:12px ; text-indent:32px ; font-size:10pt ; '' > other ( income ) expense , net interest expense . interest expense was $ 17.6 million for the 2013 combined period and $ 10.3 million for the year ended december 31 , 2012 , which represents an increase of $ 7.3 million , or 70.9 % . the increase in interest expense was primarily due to the increased interest rate for the new credit agreement entered into in august 2012. interest income . interest income was $ 1.4 million for the 2013 combined period compared to $ 0.4 million for the year ended december 31 , 2012. the increase in interest income was primarily the result of additional interest recognized on the loans to the gaming operators in the illinois vgt market partially offset by a decrease in the outstanding principal amount of our other development agreement notes receivable generating interest income . loss on debt retirement . loss on debt retirement was $ 14.7 million for the 2013 combined period compared to $ 0 for the year ended december 31 , 2012 , which represents an increase of $ 14.7 million . the expense for the 2013 combined period consisted of a $ 6.5 million early termination penalty , $ 4.2 million in deferred financing costs and $ 4.0 in debt discount related to the new credit facility entered into in 2012 that was paid off as part of the acquisition .
| results of operations the following tables set forth certain selected audited consolidated financial data for the periods indicated : replace_table_token_3_th combined year ended december 31 , 2013 compared to the year ended december 31 , 2012 total revenues total revenues were $ 58.4 million for the 2013 combined period compared to $ 58.6 million for the year ended december 31 , 2012 , which represents a decrease of $ 0.2 million , or 0.8 % . gaming revenues were $ 55.8 million for the 2013 combined period compared to $ 54.0 million for the year ended december 31 , 2012 , which represents an increase of $ 1.7 million , or 3.2 % . the decrease in total revenue was primarily a result of the termination of a software license agreement on march 29 , 2013 ; partially offset by the increase in gaming revenues . the increase in gaming revenue was primarily a result of transitioning from predominantly participation based revenue to more lease based revenue , including the addition of an entirely new lease market when we expanded our operations into illinois . operating expenses gaming operating expenses . total gaming operating expenses were $ 9.4 million for the 2013 combined period compared to $ 11.5 million for the year ended december 31 , 2012 , which represents a decrease of $ 2.2 million , or 18.8 % . the decrease in gaming operating expenses was primarily a result of the consummation of the bluberi transaction in may 2012 , which reduced bluberi commissions by approximately $ 3.0 million in 2013 and $ 0.4 million capitalization of certain production costs during 2013 that did not occur in 2012 ; partially offset by an increase facility specific fees and commission fees . cost of equipment sales .
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under the new guidance , amounts described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of 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 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 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 . 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 . 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 . 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 14 , 2018 : we owned 99 properties totaling 11.5 million square feet of rentable space in 24 states ; our occupancy rate was 97.9 % ; the weighted average remaining term of our mortgage debt was 6.5 years and the weighted average interest rate was 4.6 % ; and the average remaining lease term of the portfolio was 7.5 years ; business environment in the united states , 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 seen at the peak before the most recent recession and rental rates have increased in most primary and secondary markets . this condition has led to a rise in construction activity for both office and industrial properties in many markets . research reports from national 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 toward some increased vacancy . interest rates have been volatile and although interest rates are still relatively low , lenders have varied on their required spreads over the last several quarters and overall financing costs for fixed rate mortgages appear to be on the rise . 2017 year-end statistics from national research firms indicate that total investment sales volume was approximately 8-10 % less than the volume recorded in 2016. these statistics reflect that investment sales volumes have dropped for the past two years compared to the preceding year . 36 from a more macro-economic perspective , the strength of the global economy and u.s. economy in particular continue to be uncertain with increased volatility due to the 2016 vote in the united kingdom to exit the european union , and an apparent continuing global economic slowdown . the impact of the recent passage of tax reform in the united states is unknown at this time , although the lowering of the corporate tax rate should be beneficial . 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 . 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 one fully vacant building , located in tewksbury , massachusetts , as well as two partially vacant buildings . our fully vacant property is under contract to sell , which we expect to be completed during the first quarter of 2018. we have one lease expiring in 2018 , which accounts for 0.1 % of rental revenue recognized during the year ended december 31 , 2017 , six leases expiring in 2019 , which account for 4.0 % of rental revenue recognized during the year ended december 31 , 2017 and twelve leases expiring in 2020 , which account for 12.0 % of rental revenue recognized during the year ended december 31 , 2017 . our available vacant space at december 31 , 2017 represents 2.0 % of our total square footage and the annual carrying costs on the vacant space , including real estate taxes and property operating expenses , are approximately $ 0.6 million . we continue to actively seek new tenants for these properties . our ability to make new investments is highly dependent upon our ability to procure financing . story_separator_special_tag the term loan component of the credit facility was increased from $ 25.0 million to $ 75.0 million , with the revolver commitment remaining at $ 85.0 million . the term loan has a new five-year term , with a maturity date of october 27 , 2022 , and the revolver has a new four-year term , with a maturity date of october 27 , 2021. the interest rate for the credit facility was reduced by 25 basis points at each of the leverage tiers . we entered into interest rate cap agreements on the amended term loan , which cap libor at 2.75 % . we used the net proceeds of the amended credit facility to repay all previously existing borrowings under the revolver . we incurred fees of approximately $ 0.9 million in connection with the credit facility amendment . 2017 equity activities the equity issuances summarized below were issued under our universal shelf registration statement on form s-3 ( file no . 333-208953 ) ( `` universal shelf '' ) that was effective and on file with the sec at the time of each respective issuance . common stock offering on july 25 , 2017 , we completed an overnight offering of 1.2 million shares of our common stock at a public offering price of $ 20.52 per share . net proceeds , after deducting underwriter commissions and discounts , were $ 22.5 million . the proceeds from this offering were used to acquire real estate , repay existing indebtedness and for other general corporate purposes . on july 31 , 2017 , the offering 's underwriters also exercised their overallotment option , purchasing an additional 0.2 million shares of our common stock at the public offering price of $ 20.52 per share . net proceeds from this exercise , after deducting underwriter commissions and discounts , were $ 3.4 million . the proceeds from this overallotment were also used to acquire real estate , repay existing indebtedness , and for other general corporate purposes . common stock atm program in february 2016 , we amended our common stock atm program with cantor fitzgerald ( the “ common stock atm program ” ) . the amendment increased the amount of shares of common stock that we may offer and sell through cantor fitzgerald to $ 160.0 million . all other material terms of the common stock atm program remained unchanged . during the year ended december 31 , 2017 , we sold 2.1 million shares of common stock , raising $ 45.5 million in net proceeds under the program . as of december 31 , 2017 , we had a remaining capacity to sell up to $ 86.3 million of common stock under the program . the proceeds from these issuances were used to acquire real estate , repay outstanding debt and for other general corporate purposes . series a and b preferred stock atm programs in february 2016 , we entered into an open market sales agreement with cantor fitzgerald ( the “ series a and b preferred atm program ” ) , pursuant to which we may , from time to time , offer to sell ( i ) shares of our 7.75 % series a cumulative redeemable preferred stock ( “ series a preferred ” ) , and ( ii ) shares of our 7.50 % series b cumulative redeemable preferred stock ( “ series b preferred ” ) , having an aggregate offering price of up to $ 40.0 million , through cantor fitzgerald , acting as sales agent and or principal . we did not sell any shares of our series a preferred or series b preferred during the year ended december 31 , 2017 . as of december 31 , 2017 , we had a remaining capacity to sell up to $ 37.2 million of preferred stock under the series a and b preferred atm program . 39 mezzanine equity our 7.00 % series d cumulative redeemable preferred stock ( “ series d preferred ” ) , is classified as mezzanine equity in our consolidated balance sheet because it is redeemable at the option of the shareholder upon a change of control of greater than 50 % in accordance with asc 480-10-s99 “ distinguishing liabilities from equity , ” which requires mezzanine equity classification for preferred stock issuances with redemption features which are outside of the control of the issuer . a change in control of our company , outside of our control , is only possible if a tender offer is accepted by over 90 % of our shareholders . all other change in control situations would require input from our board of directors . we will periodically evaluate the likelihood that a change of control of greater than 50 % will take place , and if we deem this probable , we would adjust the series d preferred presented in mezzanine equity to their redemption value , with the offset to gain ( loss ) on extinguishment . we currently believe the likelihood of a change of control of greater than 50 % is remote . in june 2016 , we entered into an open market sales agreement with cantor fitzgerald ( the “ series d preferred atm program ” ) , pursuant to which we may , from time to time , offer to sell shares of our series d preferred , having an aggregate offering price of up to $ 50.0 million . during the year ended december 31 , 2017 , we sold 0.5 million shares of our series d preferred stock for net proceeds of $ 12.7 million . as of december 31 , 2017 , we had a remaining capacity to sell up to $ 20.8 million of series d preferred stock under the series d preferred atm program . 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 8.6 % at december 31 , 2017 and 2016 , respectively , is calculated by taking the annualized straight-line rents , reflected as rental income 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 , 2017 and 2016 is below ( dollars in thousands , except per share amounts ) : replace_table_token_7_th same store analysis for the purposes of the following discussion , same store properties are properties we owned as of january 1 , 2016 , 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 , 2015 . 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 , 2016 . 44 operating revenues replace_table_token_8_th rental revenue from same store properties decreased slightly for the year ended december 31 , 2017 , primarily due to a reduction in rental rates from lease modifications on certain leases , and reduced rental income resulting from certain leases ending and new tenants absorbing vacant space .
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the company is an emerging growth company as defined in the jumpstart our business startups act of 2012 , as amended ( jobs act ) . under the jobs act , emerging growth companies have extended transition periods available for complying with new or revised accounting standards . the company has elected to use this exemption to delay adopting new or revised accounting story_separator_special_tag financial condition and results of operations . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical financial information , this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ special note regarding forward-looking statements ” and “ risk factors ” and elsewhere in this annual report on form 10-k. our fiscal year ends on december 31 each year . overview we are a clinical-stage biopharmaceutical company developing a portfolio of small-molecule single-agent and combination therapy candidates for the treatment of non-alcoholic steatohepatitis , or nash , and other chronic liver diseases . our programs are based on clinically-validated and complementary mechanisms of action to address the multiple hepatic disease processes of nash in order to drive meaningful clinical benefits for patients . the mechanisms of action targeted by our current drug candidates are the same mechanisms of action targeted by other drug candidates that have achieved clinical proof-of-concept in nash clinical trials and have demonstrated significant improvements on histological and non-invasive markers of the disease , though no drug has been approved for the treatment of nash in the united states or europe . our most advanced program is tern-101 , a liver-distributed , non-bile acid farnesoid x receptor , or fxr , agonist that has demonstrated sustained liver fxr activation , as well as a favorable tolerability profile across multiple phase 1 clinical trials . in our phase 1 clinical trials , no pruritus , or itching , or increases in ldl cholesterol levels as compared to the control group were observed—unlike in phase 1 clinical trials of other fxr agonists conducted by third parties . our phase 2a clinical trial of tern-101 in nash patients ( the lift study ) was fully enrolled in january 2021 and we expect top-line data in july 2021. our second clinical stage program , tern-201 , is a highly selective inhibitor of vascular adhesion protein-1 , or vap-1 . we intend to start our phase 1b clinical trial of tern-201 in nash patients in the first half of 2021 and expect top-line data in the first half of 2022. our third clinical stage program is tern-501 , a thyroid hormone receptor beta , or thr-β , agonist with high metabolic stability , enhanced liver distribution and greater selectivity for thr-β compared to other thr-β agonists in development . in january 2021 , the fda cleared our investigational new drug application for tern-501 . in march 2021 , we announced the initiation of our phase 1 first-in-human clinical trial of tern-501 and we expect top-line data in the second half of 2021. we are also pursuing two combination therapy programs to address the multiple disease processes of nash and expect . since the commencement of our operations , we have devoted substantially all of our resources to research and development activities , organizing and staffing our company , business planning , raising capital , establishing and maintaining our intellectual property portfolio , conducting preclinical studies and clinical trials and providing general and administrative support for these operations . we do not have any single-agent or combination therapy candidates approved for commercial sale , and we have not generated any revenue from product sales . our ability to generate product revenue sufficient to achieve profitability , if ever , will depend on the successful development and eventual commercialization of one or more of our single-agent or combination therapy candidates which we expect , if it ever occurs , will take a number of years . we will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our single-agent or combination therapy candidates . if we obtain regulatory approval for any of our single-agent or combination therapy candidates , we expect to incur significant expenses related to developing our internal commercialization capability to support product sales , marketing and distribution . we do not own or operate , and currently have no plans to establish , any manufacturing facilities . we rely , and expect to continue to rely , on third parties for the manufacture of our single-agent and combination therapy candidates for preclinical and clinical testing , as well as for commercial manufacturing if any of our single-agent and combination therapy candidates obtain marketing approval . we believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities , equipment and personnel while also enabling us to focus our expertise and resources on the development of our single-agent and combination therapy candidates . the coronavirus disease 2019 , or covid-19 , pandemic is rapidly evolving . the covid-19 105 pandemic continues to impact countries worldwide , including the united states , or u.s. , and china where we have business operations . story_separator_special_tag we may never succeed in achieving regulatory approval for our single-agent and combination therapy candidates . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our single-agent and combination therapy candidates or any other future single-agent and combination therapy candidates we may develop . the duration , costs and timing of preclinical studies and clinical trials and development of our single-agent and combination therapy candidates will depend on a variety of factors . general and administrative general and administrative expenses consist primarily of personnel-related expenses , including salaries , benefits and stock-based compensation expense , for personnel in executive , finance , accounting , business development , legal , human resource and other administrative functions . general and administrative expenses also include corporate facility costs not otherwise included in research and development expenses , depreciation and other expenses , which include direct or allocated expenses for rent and maintenance of facilities and insurance , not otherwise included in research and development expenses , as well as professional fees for legal , patent , consulting , investor and public relations , accounting and tax services . we expect that our general and administrative expenses will increase substantially in the foreseeable future as we increase our headcount to support the continued research and development of our programs and the growth of our business . we also anticipate incurring additional expenses associated with operating as a public company , including increased expenses related to accounting , legal and regulatory matters , compliance , director and officer insurance , investor and public relations and tax-related services associated with maintaining compliance with the rules and regulations of the sec and standards applicable to companies listed on a national securities exchange , additional insurance expenses , investor relations activities and other administrative and professional services . 107 other income ( expense ) interest income interest income primarily consists of interest income on our marketable securities and short-term investments . change in fair value of loans payable change in fair value of loans payable primarily consists of the difference in fair value for our convertible loans payable between may 2020 and december 2020. as our u.s. convertible promissory notes and chinese convertible bridge loan were converted in december 2020 , remeasurement from the loans payable will no longer be required and we will no longer record such expenses ( or income ) . foreign exchange gain ( loss ) foreign exchange gain ( loss ) primarily consists of foreign exchange gain or loss and government grants received by our majority-owned subsidiary terns china biotechnology co. , ltd. ( organized in shanghai , people 's republic of china , or prc ) , or terns china . our assets and liabilities from our subsidiaries terns biotechnology co. , ltd. suzhou prc , or terns suzhou , and our majority-owned subsidiary terns china are translated from their functional currency of the chinese yuan , or cny , to the u.s. dollar reporting currency at the balance sheet date exchange rates , while income and expense items are translated at the average exchange rates prevailing during the fiscal year . translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as accumulated other comprehensive income ( loss ) on the consolidated balance sheets . income taxes we account for income taxes using an asset and liability approach . deferred income taxes 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 . valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized . in determining whether a valuation allowance for deferred tax assets is necessary , we analyze both positive and negative evidence related to the realization of deferred tax assets and inherent in that , assess the likelihood of sufficient future taxable income . we also consider the expected reversal of deferred tax liabilities and analyze the period in which these would be expected to reverse to determine whether the taxable temporary difference amounts serve as an adequate source of future taxable income to support the realizability of the deferred tax assets . in addition , we consider whether it is more likely than not that the tax position will be sustained upon examination by taxing authorities based on the technical merits of the position . we are subject to income taxes in the u.s. and foreign countries , and we are subject to routine corporate income tax audits in these jurisdictions . we believe that our tax return positions are fully supported , but tax authorities are likely to challenge certain positions , which may not be fully sustained . our income tax expense includes amounts intended to satisfy income tax assessments that result from these challenges in accordance with the accounting for uncertainty in income taxes prescribed by u.s. generally accepted accounting principles , or u.s. gaap . determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgments and estimates . 108 story_separator_special_tag style= '' text-align : justify ; margin-bottom:0pt ; margin-top:12pt ; text-indent:5.24 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > we expect to continue to incur net operating losses for at least the next several years , and we expect our research and development expenses , general and administrative expenses and capital expenditures will continue to increase . we expect our expenses and capital requirements will increase significantly in connection with our ongoing activities . sources of liquidity we have principally funded our operations primarily through proceeds from the sale of shares of our common stock , convertible preferred stock and sale of our convertible promissory notes .
| results of operations the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th revenue to date , we have not generated , and do not expect to generate , any revenue from the sale of products for the foreseeable future . research and development expenses our research and development expenses are related primarily to discovery efforts , preclinical and clinical development of our single-agent and combination therapy candidates . research and development expenses for the twelve months ended december 31 , 2020 were $ 28.0 million , compared to $ 61.5 million for the same period in 2019 . the decrease in expenses of $ 33.5 million was primarily due to a $ 35.0 million one-time upfront payment made in connection with the genfit collaboration agreement that occurred in 2019. excluding such payment , research and development expenses increased by $ 1.5 million primarily due to a $ 0.8 million increase in employee-related expenses as higher headcount increased salaries , benefits , and stock-based compensation-related charges . in addition , there was a $ 0.7 million increase due to higher facility-related and depreciation expenses allocated to research and development expenses . general and administrative expenses general and administrative expenses consist primarily of personnel-related expenses , including salaries , benefits and stock-based compensation expense , for personnel in executive , finance , accounting , business development , legal , human resource and other administrative functions . general and administrative expenses for the twelve months ended december 31 , 2020 were $ 9.0 million , compared to $ 8.7 million for the same period in 2019. the increase of $ 0.3 million was primarily due to a $ 0.9 million increase in employee-related expenses as higher headcount increased salaries , benefits , and stock-based compensation-related charges . in addition , there was a $ 0.1 million increase in it-related and other professional services consulting .
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77 deferred tax assets and liabilities were comprised of the following at december 31 , 2020 and 2019 : replace_table_token_15_th significant components of the income tax provision for the years ended december 31 , 2020 , 2019 and 2018 were as follows : replace_table_token_16_th the difference between income taxes at the u.s. federal statutory income tax rate story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the `` selected financial data '' and our financial statements and the related notes included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under `` risk factors '' and elsewhere in this annual report . background cpsi is a leading provider of healthcare solutions and services for community hospitals and other healthcare systems and post-acute care facilities . founded in 1979 , cpsi offers its products and services through four companies - evident , llc ( `` evident '' ) , american healthtech , inc. ( `` aht '' ) , trubridge , llc ( `` trubridge '' ) and inetxperts , corp. d/b/a get real health ( `` get real health '' ) . these combined companies are focused on improving the health of the communities we serve , connecting communities for a better patient care experience , and improving the financial operations of our clients . the individual contributions of each of these companies towards this combined focus are as follows : evident , which makes up our acute care ehr reporting segment , provides comprehensive acute care electronic health record ( `` ehr '' ) solutions , thrive and centriq , and related services for community hospitals and their physician clinics . aht , which makes up our post-acute care ehr reporting segment , provides a comprehensive post-acute care ehr solution and related services for skilled nursing and assisted living facilities . trubridge , our third reporting segment , focuses on providing business management , consulting , and managed it services along with its complete revenue cycle management ( `` rcm '' ) solution for all care settings , regardless of their primary healthcare information solutions provider . get real health , included within our trubridge segment , delivers technology solutions to improve patient outcomes and engagement strategies with care providers . our clients primarily consist of community hospitals with fewer than 200 acute care beds , with hospitals having fewer than 100 beds comprising approxim ately 98 % of ou r acute care ehr client base . see note 18 to the consolidated financial statements included herein for additional information on our three reportable segments . management overview through much of our history , our strategy has been to achieve meaningful long-term revenue growth through sales of healthcare it systems and related services to existing and new clients within our target market . prospectively , our ability to continue to realize long-term revenue growth is largely dependent on our ability to sell new and additional products and services to our existing customer base , including cross-selling opportunities presented between our operating segments , acute care ehr , post-acute care ehr , and trubridge . chief among these cross-selling opportunities is the ability to continue to sell trubridge services into our acute care ehr customer base . as a result , retention of existing acute care ehr customers is a key component of our long-term growth strategy by protecting this base of potential trubridge customers , while at the same time serving as a leading indicator of our market position and stability of revenues and cash flows . we determine retention rates by reference to the amount of beginning-of-period acute care ehr recurring revenues that have not been lost due to customer attrition from our production environment customer base . production environment customers are those that are using our applications to document live patient encounters , as opposed to legacy environment customers that have view-only access to historical patient records . historically , these retention rates had consistently remained in the mid-to-high 90th percentile ranges . however , fiscal years 2017 through 2019 saw retention rates decrease to the low 90th percentile ranges due to , among other factors , ( i ) post-acquisition customer concerns regarding our long-term commitment to the centriq platform , acquired in january 2016 , ( ii ) an intensified competitive market , primarily due to aggressive pricing and marketing by a highly disruptive new entrant into the acute care ehr marketplace , and ( iii ) the announced sunset of the classic platform , also acquired in january 2016. during 2020 , retention rates have returned to the mid-90th percentile ranges , as ( i ) the lingering effects of the centriq acquisition continue to abate , ( ii ) the competitive environment continues to normalize as the aforementioned disruptive new entrant into this market has since departed the market altogether , and ( iii ) the classic platform 44 was sunset in the fourth quarter of 2019 , with all related customers having either changed ehr vendors or migrated to one of our ehr solutions . as we consider the long-term growth prospects of our business , we are seeking to further stabilize our revenues and cash flows and leverage trubridge services as a growth agent . as a result , we are placing ever-increasing value in further developing our already significant recurring revenue base . as such , maintaining and growing recurring revenues are key components of our long-term growth strategy , aided by the aforementioned focus on customer retention . this includes a renewed focus on driving demand for subscriptions for our existing technology solutions and expanding the footprint for trubridge services beyond our ehr customer base . during 2020 , we took pause and engaged a top-tier international consulting firm to assess our company-wide growth strategy . story_separator_special_tag in 2019 , we experienced a modest reduction in total financing receivables due to the natural exhaustion of the mu3 opportunity and the aforementioned dramatic shift in license preferences towards saas arrangements , the former of which also resulted in a positive impact to operating cash flows . we experienced a more substantial reduction in total financing receivables during 2020 , with a corresponding beneficial impact to operating cash flows , as the trends related to mu3 purchases and saas arrangements continue into 2021. for those perpetual license clients not seeking a financing arrangement , the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing , with the remainder of the contracted fees due at various stages of the installation process ( delivery of hardware , installation of software and commencement of training , and satisfactory completion of a monthly accounting cycle or end-of-month operation by each respective application , as applicable ) . in may 2019 , the company closed its acquisition of get real health . based in rockville , maryland , get real health delivers technology solutions to improve patient outcomes and engagement strategies with care providers . through this acquisition , the company strengthened its position in community healthcare by offering three new comprehensive patient engagement and empowerment solutions that are offered by get real health . on february 1 , 2021 , we committed to a reduction in force that is expected to result in the termination of approximately 1.0 % of our workforce ( 21 employees ) . the reduction in force is a component of a broader strategic review of the company 's operations that is intended to more effectively align resources with business priorities . substantially all of the employees impacted by the reduction in force will exit the company in the first quarter of 2021. the company estimates that it will incur expenses of approximately $ 2.7 million related to the reduction in force , of which approximately $ 2.4 million is expected to be incurred in the first quarter of 2021 , with the remaining expenses to be incurred during the remainder of 2021. these expenses will consist of one-time termination benefits to the affected employees , including but not limited to severance payments , healthcare benefits , and payments for accrued vacation time . the company expects to pay for the expenses from cash flow from operations and does not expect to incur any debt . after the reduction in force is implemented , the company expects to realize approximately $ 3.9 million in annual savings compared to current expense levels . impact of covid-19 pandemic the continuing impacts of covid-19 and related economic conditions on the company 's results are highly uncertain and outside the company 's control . the scope , duration and magnitude of the direct and indirect effects of covid-19 continue to evolve in ways that are difficult or impossible to anticipate . as a result of covid-19 , community hospital patient volume in the united states and other countries around the world rapidly deteriorated in the second quarter of 2020. although patient volumes have since improved significantly , the persistence of the pandemic and the unprecedented nature of the resulting challenges it has imposed on national and global healthcare and economic systems are likely to continue to negatively impact patient volumes and make uncertain the path to recovery for community hospitals . these decreased levels of our hospital clients ' patient volumes have negatively impacted , and will continue to negatively impact , our revenues , gross margins , and income for our trubridge service offerings . additionally , new ehr system installations have been , and will continue to be , negatively impacted by restrictive travel and social distancing protocols . the company began to experience this impact in march 2020 , which increased in significance during the second quarter and showed gradual signs of improvement during the third and fourth quarters of 2020. the company expects these impacts to continue into 2021 , but the degree of impact will depend on the ability of our community hospital clients to return to normal operations and patient volumes . we believe that covid-19 has impacted , and will continue to impact , our business results in the following additional areas : 46 bookings - a decline in new business and add-on bookings as certain client purchasing decisions and projects are delayed to focus on treating patients , procuring necessary medical supplies , implementing covid-19 vaccination protocols , and managing their organization through this crisis . this decline in bookings eventually results in reduced backlog and lower subsequent revenue . trubridge revenues - decreased levels of patient volume within our community hospital client base will negatively impact our revenues for our trubridge service offerings as the overwhelming majority of trubridge revenues are directly or indirectly correlated with client patient volumes . this decline in revenues will have a negative impact on gross margins and income . associate productivity - a decline in associate productivity , primarily for our implementation personnel , as a large amount of work is typically done at client sites , which is being impacted by travel restrictions and our clients ' focus on the pandemic . our clients ' focus on the pandemic has also led to pauses on existing projects and postponed start dates for others , which translates into lower implementation revenues , gross margin and income . we are mitigating this by doing more work remotely than we have in the past , but we can not fully offset the negative impact . travel - associate travel restrictions reduce client-related travel , which reduces reimbursed travel revenues and lowers our cost of sales as a percent of revenues . such restrictions also reduce non-reimbursable travel , which lowers operating expenses . cash collections - a delay in client cash collections due to covid-19 's impact on national reimbursement processes , and client focus on managing their own organizations ' liquidity during this time , could impact our cash collections .
| results of operations the following table sets forth certain items included in our results of operations for each of the three years in the period ended december 31 , 2020 , expressed as a percentage of our total revenues for these periods : replace_table_token_0_th 48 2020 compared to 2019 revenues total revenues for the year ended december 31 , 2020 decreased $ 10.1 million , or 4 % , compared to the year ended december 31 , 2019. system sales and support revenues , consisting of the acute care ehr and post-acute care ehr segments , decreased $ 12.4 million , or 7 % , from the year ended december 31 , 2019. system sales and support revenues were comprised of the following for the year ended december 31 , 2020 and 2019 : replace_table_token_1_th recurring system sales and support revenues decreased $ 4.6 million , or 4 % , during 2020. acute care ehr recurring revenues decreased $ 3.4 million , or 3 % , as attrition from the thrive and centriq customer base outweighed new thrive customer growth and additional support and saas fees . post-acute care ehr recurring revenues decreased $ 1.2 million , or 7 % , due to attrition resulting from an aggressive competitive environment . we continue to make technological improvements to the aht product line to compete in this market . non-recurring system sales and support revenues decreased $ 7.8 million , or 20 % , primarily due to a $ 5.9 million , or 17 % , decrease in acute care ehr non-recurring revenues . the opportunities for mu3-related revenues decreased significantly after the october 1 , 2019 deadline and the onset of the covid-19 pandemic restricted demand for non-strategic information technology purchases by our hospital clients .
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our international operations have provided and will continue to provide a significant portion of our total net sales . as a result , total net sales will continue to be affected by fluctuations in the u.s. dollar against foreign currencies . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , in addition to comparing the percent change in net sales from one period to another in u.s. dollars , we also compare the percent change in net sales from one period to another period using “ net sales in local currency . ” net sales in local currency is not a u.s. gaap financial measure . net sales in local currency removes from net sales in u.s. dollars the impact of changes in exchange rates between the u.s. dollar and the local currencies of our foreign subsidiaries , by translating the current period net sales into u.s. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period . we believe presenting net sales in local currency is useful to investors because it allows a meaningful comparison of net sales of our foreign operations from period to period . however , net sales in local currency measures should not be considered in isolation or as an alternative to net sales in u.s. dollar measures that reflect current period exchange rates , or to other financial measures calculated and presented in accordance with u.s. gaap . additionally , the impact of foreign currency fluctuations in venezuela and the price increases we implement as a result of the highly inflationary economy in that market can each , when considered in isolation , have a disproportionately large impact to our consolidated results despite the offsetting nature of these drivers and that net sales in venezuela , which represent less than 1 % of our consolidated net sales , are not material to our consolidated results . therefore , in certain instances , we believe it is helpful to provide additional information with respect to these factors as reported and excluding the impact of venezuela to illustrate the disproportionate nature of venezuela 's individual pricing and foreign exchange impact to our consolidated results . however , excluding the impact of venezuela from these measures is not in accordance with u.s. gaap and should not be considered in isolation or as an alternative to the presentation and discussion thereof calculated in accordance with u.s. gaap . our “ gross profit ” consists of net sales less “ cost of sales , ” which represents our manufacturing costs , the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs including duties , tariffs , and similar expenses . while certain members may profit from their activities by reselling our products for amounts greater than the prices they pay us , members that develop , retain , and manage other members may earn additional compensation for those activities , which we refer to as “ royalty overrides . ” royalty overrides are our most significant operating expense and consist of : royalty overrides and production bonuses ; the mark hughes bonus payable to some of our most senior members ; and 45 other discretionary incentive cash bonuses to qualifying members . royalty overrides are compensation to members for the development , retention and improved productivity of their sales organizations and are paid to several levels of members on each sale . royalty overrides are compensation for services rendered to us and , as such , are recorded as an operating expense . in china , our independent service providers are compensated for marketing , sales support , and other services instead of the distributor allowances and royalty overrides utilized in our global marketing plan . service fees to china independent service providers are included in selling , general , and administrative expenses . because of local country regulatory constraints , we may be required to modify our member incentive plans as described above . we also pay reduced royalty overrides with respect to certain products worldwide . consequently , the total royalty override percentage may vary over time . our “ contribution margins ” consist of net sales less cost of sales and royalty overrides . “ selling , general , and administrative expenses ” represent our operating expenses , which include labor and benefits , service fees to china service providers , sales events , professional fees , travel and entertainment , member promotions , occupancy costs , communication costs , bank fees , depreciation and amortization , foreign exchange gains and losses and other miscellaneous operating expenses . our “ other operating income ” consists of government grant income related to china and the arbitration award in connection with the re-audit of our 2010 to 2012 financial statements after the resignation of kpmg as our independent registered public accounting firm . our “ other expense ( income ) , net ” consists of non-operating income and expenses such as gains or losses on extinguishment of debt and gains or losses due to subsequent changes in the fair value of the non-transferable contractual contingent value right , or cvr , provided for each share tendered in the october 2017 modified dutch auction tender offer . see note 8 , shareholders ' deficit , to the consolidated financial statements included in part iv , item 15 of this annual report on form 10-k for further information on the cvr . most of our sales to members outside the united states are made in the respective local currencies . in preparing our financial statements , we translate revenues into u.s. dollars using average exchange rates . story_separator_special_tag additionally , the majority of our purchases from our suppliers generally are made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and contribution margins and can generate foreign currency losses on intercompany transactions . foreign currency exchange rates can fluctuate significantly . from time to time , we enter into foreign currency derivatives to partially mitigate our foreign currency exchange risk as discussed in further detail in item 7a , quantitative and qualitative disclosures about market risk . results of operations our results of operations for the periods below are not necessarily indicative of results of operations for future periods , which depend upon numerous factors , including our ability to sponsor members and retain sales leaders , further penetrate existing markets , introduce new products and programs that will help our members increase their retail efforts and develop niche market segments . 46 the following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated : replace_table_token_7_th ( 1 ) service fees to our independent service providers in china are included in selling , general , and administrative expenses while member compensation for all other countries is included in royalty overrides . changes in net sales are directly associated with the retailing of our products , recruitment of new members , and retention of sales leaders . our strategies involve providing quality products , improved dmos , including daily consumption approaches such as nutrition clubs , easier access to product , systemized training and education of members on our products and methods , and continued promotion and branding of herbalife products . management 's role , in-country and at the region and corporate level , is to provide members with a competitive , broad , and innovative product line , offer leading-edge business tools and technology services , and encourage strong teamwork and member leadership to make doing business with herbalife simple . management uses the marketing plan , which reflects the rules for our global network marketing organization that specify the qualification requirements and general compensation structure for members , coupled with educational and motivational tools and promotions to encourage members to increase retailing , retention , and recruiting , which in turn affect net sales . such tools include sales events such as extravaganzas , leadership development weekends and world team schools where large groups of members gather , thus allowing them to network with other members , learn retailing , retention , and recruiting techniques from our leading members and become more familiar with how to market and sell our products and business opportunities . accordingly , management believes that these development and motivation programs increase the productivity of the sales leader network . the expenses for such programs are included in selling , general , and administrative expenses . we also use event and non-event product promotions to motivate members to increase retailing , retention , and recruiting activities . these promotions have prizes ranging from qualifying for events to product prizes and vacations . a program that we have seen success with in many markets is the member activation program , under which new members , who order a modest number of volume points in each of their first three months , earn a prize . our objective is to improve the quality of sales leaders by encouraging new members to begin acquiring retail customers before attempting to qualify for sales leader status . additionally , in certain markets we have begun to utilize the segmentation of our member base into “ preferred members ” and “ distributors ” for more targeted and efficient communication and promotions for these two differently motivated types of members . in certain other markets that have not been segmented , we have begun using member data to similarly categorize members for communication and promotion efforts . dmos are being generated in many of our markets and are globalized where applicable through the combined efforts of members and country , regional and corporate management . while we support a number of different dmos , one of the most popular dmos is the daily consumption dmo . under our traditional dmo , a member typically sells to its customers on a somewhat infrequent basis ( e.g. , monthly ) which provides fewer opportunities for interaction with their customers . under a daily consumption dmo , a member interacts with its customers on a more frequent basis , including such activities as weekly weigh-ins , which enables the member to better educate and advise customers about nutrition and the proper use of the products and helps promote daily usage as well , thereby helping the member grow his or her business . specific examples of dmos include the nutrition club concept in mexico , the healthy breakfast concept in russia , and the internet/sampling and weight loss challenge in the united states . management 's strategy is to review the applicability of expanding successful country initiatives throughout a region , and where appropriate , support the globalization of these initiatives . 47 the factors described above help members increase their business , which in turn helps drive volume point growth in our business , and thus , net sales growth . the discussion below of net sales details some of the specific drivers of changes in our business and causes of sales fluctuations during the year ended december 31 , 201 8 as compared to the same period in 201 7 and during the year ended december 31 , 2017 as com pared to the same period in 2016 , as well as the unique growth or contraction factors specific to certain geographic regions or significant countries within a region during these periods . net sales fluctuations , both company-wide and within a particular geographic region or country , are primarily the result of changes
| reporting segment results we aggregate our operating segments , excluding china , into a reporting segment , or the primary reporting segment . the primary reporting segment includes the north america , mexico , south & central america , emea , and asia pacific regions . china has been identified as a separate reporting segment as it does not meet the criteria for aggregation . see note 10 , segment information , to the consolidated financial statements included in part iv , item 15 of this annual report on form 10-k for further discussion of our reporting segments . see below for discussions of net sales and contribution margin by our reporting segments . net sales by reporting segment the primary reporting segment reported net sales of $ 3,884.2 million for the year ended december 31 , 2018 , representing an increase of $ 342.4 million , or 9.7 % ( $ 338.5 million , or 9.6 % excluding venezuela ) , as compared to the same period in 2017. in local currency , net sales increased 126.4 % ( 11.3 % excluding venezuela ) for the year ended december 31 , 2018 as compared to the same period in 2017. the 9.7 % increase in net sales for the year ended december 31 , 2018 was primarily due to an increase in sales volume , as indicated by a 10.0 % increase in volume points ; and a 118.2 % favorable impact of price increases ( 3.0 % favorable impact excluding venezuela ) ; partially offset by a 116.7 % unfavorable impact of fluctuations in foreign currency rates ( 1.7 % unfavorable impact excluding venezuela ) and a 1.4 % unfavorable impact of country sales mix . for a discussion of china 's net sales for the year ended december 31 , 2018 as compared to the same period in 2017 , see the china section of sales by geographic region below . contribution margin by reporting segment as discussed above under “ presentation , ” contribution margin consists of net sales less cost of sales and royalty overrides .
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our management team will select and hire these contractors and manage and evaluate their work performance . we have no revenues and limited cash on hand . we have sustained losses since inception . we have never declared bankruptcy , been in receivership , or involved in any kind of legal proceeding . we do not have any subsidiaries . 13 recent developments on february 4 , 2021 , kynson closed stock purchase and sale transactions pursuant to which kynson sold an aggregate of 9,985,329 restricted shares of the company 's common stock to eleven purchasers at a purchase price of $ 0.030044 per share , or an aggregate purchase price of $ 299,998.60. upon the closing of the stock purchase and sale transaction , ms. yang resigned from all positions she held with the company and , in connection with her resignation , she relinquished her roles as the company 's “ principal executive officer ” and “ principal financial and accounting officer. ” effective immediately upon ms. yang 's resignation , john d. rollo was appointed as the company 's president , secretary and treasurer , and as the sole member of the company 's board of the directors . in connection with his appointments , mr. rollo was designated as the “ principal executive officer ” and “ principal financial and accounting officer ” of the company for sec reporting purposes . at the effective time of the stock purchase and sale transaction , kynson forgave and discharged the company from any obligations it may have had to kynson to repay $ 122,852 of debt and released the company from any claims kynson may have had against the company with respect to the debt , or otherwise . in connection with and as a condition to , the consummation of this stock purchase and sale transaction , eleven shareholders of the company returned an aggregate of 4,345,000 shares of the company 's common stock to the company for cancellation , in consideration for $ 0.001 per share . as a result of this stock and purchase transaction and simultaneous cancellation of 4,345,000 shares by eleven stockholders , there was a change in control of the company . story_separator_special_tag 2019 cash used in operating activities $ ( 8,842 ) $ ( 12,658 ) cash provided by investing activities $ - $ - cash provided by financing activities $ - $ - net change in cash $ ( 8,842 ) $ ( 12,658 ) 15 operating activities for the year ended december 31 , 2020 , net cash used in operating activities was $ 8,842 , related to our net loss of $ 46,658 , reduced by an increase in expenses paid by related party of $ 10,875 and an increase in accounts payable of $ 26,941. for the year ended december 31 , 2019 , net cash used in operating activities was $ 12,658 , related to our net loss of $ 228,905 , reduced by an increase in expenses paid by related party of $ 207,737 and an increase in accounts payable of $ 8,510. during the years ended december 31 , 2020 and 2019 , the company 's sole director and officer paid $ 10,875 and $ 207,737 , respectively , on behalf of the company for business operation purpose . investing activities the company did not use any funds for investing activities during the years ended december 31 , 2020 and 2019. financing activities the company did not use any funds for financing activities during the years ended december 31 , 2020 and 2019. recent accounting pronouncements for a description of our recent accounting pronouncements , see “ note 2 - summary of significant accounting policies ” of this annual report on form 10-k. critical accounting policies our financial statements and accompanying notes have been prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) applied on a consistent basis . 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 , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we regularly evaluate the accounting policies and estimates that we use to prepare our financial statements . a complete summary of these policies is included in the notes to our financial statements . in general , management 's estimates are based on historical experience , on information from third party professionals , and on various other assumptions that are believed to be reasonable under the facts and circumstances . actual results could differ from those estimates made by management . the financial statements have been prepared in conformity gaap , which contemplates our continuation as a going concern . the company has not as yet generated any revenue and has incurred losses to date of $ 46,658. in addition , the company 's current liabilities exceed its current assets by $ 80,986. to date , the company has primarily funded its operations through advances from former stockholders , the sale of common stock and the loan from hometown . the company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources , including term notes until such time that funds provided by operations are sufficient to fund working capital requirements . these factors raise substantial doubt about the company 's ability to continue operating as a going concern . the company 's ability to continue our operations as a going concern , realize the carrying value of our assets , and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund its commitments and ongoing losses , and ultimately generate profitable operations . 16 recently issued accounting story_separator_special_tag our management team will select and hire these contractors and manage and evaluate their work performance . we have no revenues and limited cash on hand . we have sustained losses since inception . we have never declared bankruptcy , been in receivership , or involved in any kind of legal proceeding . we do not have any subsidiaries . 13 recent developments on february 4 , 2021 , kynson closed stock purchase and sale transactions pursuant to which kynson sold an aggregate of 9,985,329 restricted shares of the company 's common stock to eleven purchasers at a purchase price of $ 0.030044 per share , or an aggregate purchase price of $ 299,998.60. upon the closing of the stock purchase and sale transaction , ms. yang resigned from all positions she held with the company and , in connection with her resignation , she relinquished her roles as the company 's “ principal executive officer ” and “ principal financial and accounting officer. ” effective immediately upon ms. yang 's resignation , john d. rollo was appointed as the company 's president , secretary and treasurer , and as the sole member of the company 's board of the directors . in connection with his appointments , mr. rollo was designated as the “ principal executive officer ” and “ principal financial and accounting officer ” of the company for sec reporting purposes . at the effective time of the stock purchase and sale transaction , kynson forgave and discharged the company from any obligations it may have had to kynson to repay $ 122,852 of debt and released the company from any claims kynson may have had against the company with respect to the debt , or otherwise . in connection with and as a condition to , the consummation of this stock purchase and sale transaction , eleven shareholders of the company returned an aggregate of 4,345,000 shares of the company 's common stock to the company for cancellation , in consideration for $ 0.001 per share . as a result of this stock and purchase transaction and simultaneous cancellation of 4,345,000 shares by eleven stockholders , there was a change in control of the company . story_separator_special_tag 2019 cash used in operating activities $ ( 8,842 ) $ ( 12,658 ) cash provided by investing activities $ - $ - cash provided by financing activities $ - $ - net change in cash $ ( 8,842 ) $ ( 12,658 ) 15 operating activities for the year ended december 31 , 2020 , net cash used in operating activities was $ 8,842 , related to our net loss of $ 46,658 , reduced by an increase in expenses paid by related party of $ 10,875 and an increase in accounts payable of $ 26,941. for the year ended december 31 , 2019 , net cash used in operating activities was $ 12,658 , related to our net loss of $ 228,905 , reduced by an increase in expenses paid by related party of $ 207,737 and an increase in accounts payable of $ 8,510. during the years ended december 31 , 2020 and 2019 , the company 's sole director and officer paid $ 10,875 and $ 207,737 , respectively , on behalf of the company for business operation purpose . investing activities the company did not use any funds for investing activities during the years ended december 31 , 2020 and 2019. financing activities the company did not use any funds for financing activities during the years ended december 31 , 2020 and 2019. recent accounting pronouncements for a description of our recent accounting pronouncements , see “ note 2 - summary of significant accounting policies ” of this annual report on form 10-k. critical accounting policies our financial statements and accompanying notes have been prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) applied on a consistent basis . 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 , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we regularly evaluate the accounting policies and estimates that we use to prepare our financial statements . a complete summary of these policies is included in the notes to our financial statements . in general , management 's estimates are based on historical experience , on information from third party professionals , and on various other assumptions that are believed to be reasonable under the facts and circumstances . actual results could differ from those estimates made by management . the financial statements have been prepared in conformity gaap , which contemplates our continuation as a going concern . the company has not as yet generated any revenue and has incurred losses to date of $ 46,658. in addition , the company 's current liabilities exceed its current assets by $ 80,986. to date , the company has primarily funded its operations through advances from former stockholders , the sale of common stock and the loan from hometown . the company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources , including term notes until such time that funds provided by operations are sufficient to fund working capital requirements . these factors raise substantial doubt about the company 's ability to continue operating as a going concern . the company 's ability to continue our operations as a going concern , realize the carrying value of our assets , and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund its commitments and ongoing losses , and ultimately generate profitable operations . 16 recently issued accounting
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 our results of operations for the years ended december 31 , 2020 and 2019 are summarized below : replace_table_token_1_th revenues and other income during the years ended december 31 , 2020 and 2019 , we did not realize any revenues from operations . operating expenses operating expenses consisted entirely of professional fees of $ 46,658 in the year ended december 31 , 2020 , compared to $ 228,905 in the year ended december 31 , 2019. the decrease is primarily the result of reduced legal and consulting fees of $ 151,534 and other miscellaneous professional fees of $ 30,713 for maintaining reporting status with the securities and exchange commission ( “ sec ” ) . net losses as a result of the foregoing , we incurred a net loss of $ 46,658 , for the year ended december 31 , 2020 , compared to a net loss of $ 228,905 for the corresponding year ended december 31 , 2019. liquidity and capital resources replace_table_token_2_th 14 as of the date of this report , we had yet to generate any revenues from our business operations . as of december 31 , 2020 , we had current assets of $ 0 , we had liabilities of $ 80,986 , and our working capital deficit was $ 80,986. we anticipate that our current liquidity is not sufficient to meet the obligations associated with being a company that is fully reporting with the sec . to date , we have managed to keep our monthly cash flow requirement low for two reasons . first , our sole officer does not draw a salary at this time . second , we have been able to keep our operating expenses to a minimum by operating in space provided at no expense by one of our shareholders .
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the fair value s of the series a and series b warrants at the time of issuance in november 2019 , at dec e mb er 31 , 2019 and at story_separator_special_tag financial condition and results of operations . the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with the historical consolidated financial statements and the notes thereto included in part ii , item 8 “ consolidated financial statements and supplementary data. ” this discussion and other parts of this annual report contain forward-looking statements that reflect our plans , objectives , expectations , intentions and beliefs and involve numerous risks and uncertainties , including but not limited to those described in the “ risk factors ” section of this annual report . actual results may differ materially from those contained in any forward-looking statements . you should carefully read “ special note regarding forward-looking statements ” and part i , item 1a , “ risk factors. ” overview we are a late-stage biopharmaceutical company on a quest to deliver targeted therapies that treat rare forms of cancer . our main focus is the development of momelotinib , an investigational agent for the treatment of myelofibrosis . currently , momelotinib is in a global phase 3 clinical trial for patients with myelofibrosis , called the momentum study , that if successful will be registration enabling . at its completion , approximately 1,000 myelofibrosis patients will have received momelotinib , and several of our clinical trial patients remain on treatment more than 10 years later . in the third quarter of 2018 , we acquired momelotinib from gilead sciences , inc. ( gilead ) , which had completed several late-stage trials of the drug candidate in patients with myelofibrosis . myelofibrosis is characterized by progressive anemia and thrombocytopenia and currently approved jak inhibitor therapies , ruxolitinib and fedratinib , can induce or further exacerbate this myelosuppression , limiting their use in first line treatment and resulting in a population of second line patients who are no longer able to benefit from such therapies . momelotinib is a novel , orally-bioavailable jak1 ( janus kinase 1 ) , jak2 ( janus kinase 2 ) and acvr1 ( activin a receptor type 1 ) inhibitor with a differentiated mechanism of action , enabling it to potentially address all three hallmarks of disease in myelofibrosis : anemia of inflammation , constitutional symptoms and enlarged spleen . in december 2018 , we reported new data for momelotinib collated from the two completed simplify phase 3 clinical trials and a translational biology study in transfusion dependent patients with myelofibrosis . data from the latter study were also concurrently presented in a poster at the 60 th american society of hematology annual meeting & exposition in san diego , california . we reported aggregated transfusion independence responses from more than 150 intermediate and high-risk transfusion dependent myelofibrosis patients demonstrating robust and consistent response rates within and across the clinical studies . more than 44 % of these patients became transfusion free for at least 12 weeks and nearly 50 % were transfusion independent for at least 8 weeks . in the second quarter of 2019 , we announced that we had obtained regulatory clarity with the u.s. food and drug administration ( fda ) concerning the design of a phase 3 clinical trial intended to support potential registration of momelotinib . we also announced that the fda had granted fast track designation to momelotinib for the treatment of patients with intermediate/high-risk myelofibrosis who have previously received a jak inhibitor . following receipt of this clarity , we announced the design of the momentum phase 3 clinical trial in myelofibrosis , which we subsequently launched in the fourth quarter of 2019. momentum is a randomized double-blind trial designed to enroll 180 myelofibrosis patients who are symptomatic and anemic and have been treated previously with a jak inhibitor . the primary endpoint of the trial is the total symptom score ( tss ) response rate of momelotinib compared to danazol at week 24 ( 99 % power ; p-value < 0.05 ) . danazol has been selected as an appropriate treatment comparator given its use to ameliorate anemia in myelofibrosis patients , as recommended by national comprehensive cancer network ( nccn ) and european society for medical oncology ( esmo ) guidelines . patients are being randomized 2:1 to receive either momelotinib or danazol . after 24 weeks of treatment , patients on danazol are being allowed to crossover to receive momelotinib . 85 during the fourth quarter of 2019 , we reported new analyses of red blood cell ( rbc ) transfusion data from simplify-1 , a double-blind phase 3 trial of momelotinib head-to-head versus ruxolitinib in jak inhibitor - naïve patients , which were presented in a poster by dr. ruben mesa , director of the mays cancer center , home to ut health san antonio md anderson cancer center , at the 61 st american society of hematology ( ash ) annual meeting in orlando , florida . these analyses demonstrated that patients who received momelotinib had significantly decreased transfusion requirements compared to those treated with ruxolitinib , including an odds ratio of nearly 10 for receiving no transfusions during the 24-week study period . transfusion dependency and moderate to severe anemia are critical negative prognostic factors for overall survival in myelofibrosis . during the second quarter of 2020 , at the 25 th european hematology association ( eha ) virtual congress , we reported favorable long-term safety and dose intensity data for momelotinib from more than 550 patients across the two previously conducted simplify phase 3 studies and their subsequent ongoing extended treatment periods . more than 90 simplify-1 and simplify-2 patients continued to receive momelotinib for 3.5 years or longer . these data were presented in posters by professor claire harrison , guy 's and st. thomas ' nhs foundation trust , london , united kingdom , and dr. vikas gupta , princess margaret cancer centre , toronto , canada . story_separator_special_tag since inception , we have devoted substantially all of our resources to research and development activities , including the clinical development of momelotinib and sra737 as well as sra141 and pnt2258 , our former product candidates , and to provide general and administrative support for our operations . we have never generated product revenue and have incurred significant net losses since inception . our net losses were $ 80.9 million , $ 88.3 million and $ 53.3 million for the year ended december 31 , 2020 , 2019 and 2018 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 846.6 million , of which approximately $ 428.0 million pertained to the revaluation and conversion of redeemable convertible preferred stock upon our initial public offering in july 2015 , $ 37.2 million related to changes in fair value of our series a and series b warrant liabilities until their reclassification to equity in the first quarter of 2020 , and $ 12.0 million pertained to a securities issuance obligation settled during the first quarter of 2020. the extent of the impact of covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , impact on our clinical studies , employee or industry events , and effect on our suppliers and manufacturers , all of which are uncertain and can not be predicted . the covid-19 pandemic and its adverse effects have become more prevalent in the locations where we , our cros , suppliers or third-party business partners conduct business and as a result , we have begun to experience more pronounced disruptions in our operations . we may experience constrained supply of momelotinib or comparator drug required for our ongoing phase 3 trial , or , with respect to our clinical trials , delays in enrollment , site initiation , participant dosing , distribution of clinical trial materials , study monitoring and data analysis that could materially adversely impact our business , results of operations and overall financial performance in future periods . specifically , we may experience impact from changes in how we and companies worldwide conduct business due to the covid-19 pandemic , including but not limited to restrictions on travel and in-person meetings , prioritization of hospital resources toward pandemic effort , delays in review by the fda and comparable foreign regulatory agencies , and disruptions in our supply chain for momelotinib . any such delays to our planned momentum timeline could also 87 impact the use and sufficiency of our existing cash reserves , and we may be required to raise additional capital earlier than we had previously planned . we may be unable to raise additional capital if and when needed , which may result in further delays or suspension of our development plans . as of the filing date of this annual report on form 10- k , the extent to which covid-19 may impact our financial condition , results of operations or guidance is uncertain . the effect of the covid-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods . see the section entitled “ risk factors ” included elsewhere in this report for further discussion of the possible impact of the covid-19 pandemic on our business . we have funded our operations to date primarily from the issuance and sale of our common stock and convertible voting preferred stock and accompanying warrants through public offerings ( including at-the-market ( atm ) equity offerings ) , and our convertible and redeemable convertible preferred stock in private financings and , to a lesser extent , through exercises of our preferred stock warrants in private financings . as of december 31 , 2020 , we had cash and cash equivalents of $ 104.1 million . components of statements of operations collaboration revenue collaboration revenue consists of upfront license fees recognized under a collaboration agreement with carna biosciences , inc. operating expenses research and development research and development expenses consist primarily of the following : fees , milestone payments or other expenses incurred in connection with license and asset purchase agreements and their related amendments ; personnel-related costs , which include salaries , benefits , stock-based compensation , recruitment fees and travel costs ; costs associated with research and preclinical studies , clinical trials , regulatory activities and manufacturing activities to support clinical activities ; fees paid to external service providers that conduct certain research and development , clinical and manufacturing activities on our behalf ; and facility-related costs , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expenses and other supplies . the largest recurring component of our total operating expenses has historically been our investment in research and development activities , including the development of momelotinib . we expect our research and development expenses will increase over the next few years as we advance momelotinib , potentially including combination studies as the field of myelofibrosis evolves , achieve regulatory milestones that trigger payments due under our asset purchase agreement with gilead , pursue regulatory approval of momelotinib in the united states and other jurisdictions , expand our portfolio of product candidates and prepare for potential commercialization , which will require a significant investment in areas related to contract manufacturing and inventory buildup . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving marketing approval for our lead product candidate , momelotinib . the probability of success of our product candidates may be affected by numerous factors , including clinical data , regulatory developments , competition , manufacturing capability and commercial viability . as a result , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization of momelotinib .
| results of operations a discussion regarding our financial condition and results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 is included in part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” included in our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on march 3 , 2020 . 89 year ended december 31 , 2020 compared to year ended december 31 , 2019 replace_table_token_4_th collaboration revenue collaboration revenue of $ 0.3 million was recognized during the year ended december 31 , 2020 pursuant to the upfront fee received from a collaboration agreement ( see note 8 in the notes to consolidated financial statements ) . research and development research and development expenses decreased $ 8.1 million , from $ 53.2 million in 2019 to $ 45.1 million in 2020. the decrease was primarily due to a non-cash charge of $ 10.5 million that was recognized during the year ended december 31 , 2019 , pertaining to an obligation to issue common stock and a warrant to gilead in consideration for meaningfully reduced royalty rates and elimination of a milestone payment , partially offset by a $ 1.5 million non-cash charge during the year ended december 31 , 2020 to recognize the change in fair value of the securities until their issuance in january 2020. also contributing to the decrease was a reduction of $ 7.6 million in clinical trial , third-party manufacturing , and research and preclinical costs for sra737 and a $ 0.9 million decrease in personnel-related and allocated overhead costs for the year ended december 31 , 2020. these decreased costs were offset by a $ 9.4 million increase in clinical trial and development costs related to momelotinib for the year ended december 31 , 2020. general and administrative
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thereafter , oreo is recorded at the lower of cost or story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations together with the consolidated financial statements and accompanying notes included in item 8 of this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under item 1a “ risk factors ” and “ forward looking statements ” immediately preceding part i of this annual report . critical accounting policies the company follows accounting and reporting policies and procedures that conform , in all material respects , to gaap and to practices generally applicable to the financial services industry , the most significant of which are described in note 1 to the consolidated financial statements included in item 8 of this annual report . the preparation of consolidated financial statements in conformity with gaap requires management to make judgments and accounting estimates that affect the amounts reported for assets , liabilities , revenues and expenses on the consolidated financial statements and accompanying notes , and amounts disclosed as contingent assets and liabilities . while the company bases estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . accounting estimates are necessary in the application of certain accounting policies and procedures that are particularly susceptible to significant change . critical accounting policies are defined as those that require the most complex or subjective judgment and are reflective of significant uncertainties , and could potentially result in materially different results under different assumptions and conditions the following is a summary of the more subjective and complex accounting estimates and principles affecting the financial condition and results reported in financial statements . in each area , the company has identified the variables that management believes to be the most important in the estimation process . the company uses the best information available to make the estimations necessary to value the related assets and liabilities in each of these areas . investment securities investment securities are classified as held-to-maturity or available-for-sale . management determines the appropriate classification at the time of purchase . the classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities . securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the company has the ability to hold the securities to maturity . securities not classified as held-to-maturity are classified as available-for-sale and are carried at fair value , with the unrealized gains and losses , net of tax , reported in accumulated other comprehensive income ( loss ) and do not affect earnings until realized unless a decline in fair value below amortized cost is considered to be otti . the fair values of the company 's securities are generally determined by reference to quoted prices from reliable independent third party sources and pricing services utilizing observable inputs . the company evaluates all securities on a quarterly basis , and more frequently when economic conditions warrant additional evaluations , for determining if otti exists . in evaluating the possible impairment of securities , consideration is given to the length of time and the extent to which the fair value has been less than cost , the financial conditions and near-term prospects of the issuer , and the ability and intent of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value . in analyzing an issuer 's financial condition , the company may consider whether the securities are issued by the federal government or its agencies or government sponsored agencies , whether downgrades by bond rating agencies have occurred , and the results of reviews of the issuer 's financial condition . if management determines that an investment experienced an otti , management must then determine the amount of the otti to be recognized in earnings . if management does not intend to sell the security and it is more likely than not that the company will not be required to sell the security before recovery of its amortized cost basis less any current period loss , the otti will be separated into the amount representing the credit loss and the amount related to all other factors . the amount of otti related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings . the amount of the otti related to other factors will be recognized in accumulated other comprehensive income ( loss ) , net of tax . the previous amortized cost basis less the otti recognized in earnings will become the new amortized cost basis of the investment . if management intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss , the otti will be recognized in earnings equal to the entire difference between the security 's amortized cost basis and its fair value at the balance sheet date . any recoveries related to the value of these securities are recorded as an unrealized gain ( as accumulated other comprehensive income ( loss ) in shareholders ' equity ) and not recognized in income until the security is ultimately sold . 49 allowance for loan losses allowance for loan losses is a valuation allowance for probable incurred credit losses . loan losses are charged against the allowance for loan losses when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance for loan losses . story_separator_special_tag during the third quarter of 2018 , the company successfully completed its ipo for net proceeds of $ 45.0 million and its common stock began trading on the nasdaq global select market under the symbol “ pcb. ” financial highlights net income totaled $ 24.3 million or $ 1.65 per diluted common share for the year ended december 31 , 2018 ; total assets were $ 1.70 billion at december 31 , 2018 , an increase of $ 255.0 million , or 17.7 % , from $ 1.44 billion at december 31 , 2017 ; loans held-for-investment , net of deferred costs ( fees ) , were $ 1.34 billion at december 31 , 2018 , an increase of $ 148.7 million , or 12.5 % , from $ 1.19 billion at december 31 , 2017 ; and total deposits were $ 1.44 billion at december 31 , 2018 , an increase of $ 192.5 million , or 15.4 % , from $ 1.25 billion at december 31 , 2017 . diluted earnings per common share was $ 1.65 , $ 1.21 and $ 1.11 , respectively , for the years ended december 31 , 2018 , 2017 and 2016 . net interest margin was 4.23 % , 4.22 % and 4.18 % , respectively , for the years ended december 31 , 2018 , 2017 and 2016 . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , or 77.9 % , from $ 9.7 million for the year ended december 31 , 2017 . the increase was primarily due to a 21.3 % increase in average balance and a 53 basis point increase in average cost . the increase in average balance was primarily due to an increase in time deposits , partially offset by a decrease in mmda and super now accounts . the increase in average cost was primarily due to the impact of higher market rates on deposits and competition in the company 's deposit target markets . for the years ended december 31 , 2018 and 2017 , average cost on interest-bearing deposits was 1.65 % and 1.12 % , respectively . interest expense on other borrowings was $ 611 thousand for the year ended december 31 , 2018 , an increase of $ 263 thousand , or 75.6 % , from $ 348 thousand for the year ended december 31 , 2017 . the bank has utilized fhlb advances since june 2017 for liquidity management . during the year ended december 31 , 2018 , the bank did not renew the maturing borrowings of $ 10.0 million as the bank maintained a sufficient level of on-balance sheet liquidity . year ended december 31 , 2017 compared to year ended december 31 , 2016 net interest income was $ 55.2 million for the year ended december 31 , 2017 , an increase of $ 9.6 million , or 21.0 % , from $ 45.6 million for the year ended december 31 , 2016 . the increase was primarily due to a 19.8 % increase in average balance of interest-earning assets and a 17 basis point increase in average yield on interest-earning assets , partially offset by a 21.7 % increase in average balance of interest-bearing liabilities and an 18 basis point increase in average cost on interest-bearing liabilities . the increase in average balance was primarily due to growth in the loan and investment security portfolios , as well as other interest-earning assets , supported by deposit growth . the increases in average yield on interest-earning assets and average cost of interest-bearing liabilities were primarily due to the rising interest rate environment . interest income . total interest income was $ 65.3 million for the year ended december 31 , 2017 , an increase of $ 12.7 million , or 24.1 % , from $ 52.6 million for the year ended december 31 , 2016 . interest and fees on loans was $ 61.5 million for the year ended december 31 , 2017 , an increase of $ 11.5 million , or 22.9 % , from $ 50.1 million for the year ended december 31 , 2016 . the increase was primarily due to a 15.6 % increase in average balance and a 33 basis point increase in average yield . the increase in average balance was primarily due to organic loan growth across the entire loan portfolio . the increase in average yield was primarily due to the increase in market rates , which in turn was driven largely by increases in the federal funds rate . interest on investment securities was $ 2.6 million for the year ended december 31 , 2017 , an increase of $ 873 thousand , or 50.1 % , from $ 1.7 million for the year ended december 31 , 2016 . the increase was primarily due to a 33.0 % increase in average balance and a 23 basis point increase in average yield . the company purchased $ 6.1 million of securities held-to-maturity and $ 66.9 million of securities available-for-sale during the year ended december 31 , 2017 . these purchases increased the average yield as these securities were purchased in a higher market rate environment . for the years ended december 31 , 2017 and 2016 , yield on total securities was 2.06 % and 1.83 % , respectively . interest income on other interest-earning assets was $ 1.1 million for the year ended december 31 , 2017 , an increase of $ 341 thousand , or 42.8 % , from $ 796 thousand for the year ended december 31 , 2016 . the increase was primarily due to a 102.7 % increase in average balance , partially offset by a 69 basis point decrease in average yield . the increase in average balance was primarily due to increases in deposits and borrowings . the decrease in average yield was primarily due to a decrease in dividend income on fhlb and other bank stock , partially offset by an increase in federal funds rate .
| result of operations net interest income a principal component of the company 's earnings is net interest income , which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits and borrowed funds . net interest income expressed as a percentage of average interest earning assets is referred to as the net interest margin . the net interest spread is the yield on average interest earning assets less the cost of average interest bearing liabilities . net interest income is affected by changes in the balances of interest earning assets and interest bearing liabilities and changes in the yields earned on interest earning assets and the rates paid on interest bearing liabilities . 51 the following table presents interest income , average interest-earning assets , interest expense , average interest-bearing liabilities , and their correspondent yields and costs expressed both in dollars and rates for the periods indicated : replace_table_token_5_th ( 1 ) average balance includes both loans held-for-sale and loans held-for-investment , as well as nonaccrual loans . net amortization of deferred loan fees ( cost ) of $ 515 thousand , $ 559 thousand and $ 639 thousand are included in the interest income for the years ended december 31 , 2018 , 2017 and 2016 , respectively . ( 2 ) the yield on municipal bonds has not been computed on a tax-equivalent basis . ( 3 ) net interest spread is calculated by subtracting average rate on interest-bearing liabilities from average yield on interest-earning assets . ( 4 ) net interest margin is calculated by dividing net interest income by average interest-earning assets . ( 5 ) cost of funds is calculated by dividing interest expense on deposits by the sum of interest-bearing and noninterest-bearing demand deposits . 52 the following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities .
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the loan bears interest at one month libor plus a margin of 1.50 % , and allows for prepayment without penalty . the loan includes covenants and events of default substantially consistent with the new credit agreement discussed above . the loan also requires prior approval of the story_separator_special_tag the information contained in this section should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this form 10-k under the captions “ risk factors , ” “ selected financial data , ” and “ business. ” overview we are a leading developer , marketer and distributor of branded performance apparel , footwear and accessories . the brand 's moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products . our products are sold worldwide and worn by athletes at all levels , from youth to professional , on playing fields around the globe , as well as by consumers with active lifestyles . our net revenues grew to $ 3,084.4 million in 2014 from $ 1,063.9 million in 2010 . we believe that our growth in net revenues has been driven by a growing interest in performance products and the strength of the under armour brand in the marketplace . we plan to continue to increase our net revenues over the long term by increased sales of our apparel , footwear and accessories , expansion of our wholesale distribution sales channel , growth in our direct to consumer sales channel and expansion in international markets . our direct to consumer sales channel includes our brand and factory house stores and websites . new offerings for 2014 include magzip tm , armourvent ® apparel , the ua speedform tm apollo running shoe , and ua clutchfit tm drive basketball shoe . a large majority of our products are sold in north america ; however , we believe our products appeal to athletes and consumers with active lifestyles around the globe . internationally , our net revenues are generated from a mix of wholesale sales to retailers , sales to distributors and sales through our direct to consumer sales channels in europe , latin america , and asia-pacific . in addition , a third party licensee sells our products in japan and korea . our operating segments include north america ; latin america ; europe , the middle east and africa ( “ emea ” ) ; asia-pacific ; and mapmyfitness . due to the insignificance of the emea , latin america , asia and mapmyfitness operating segments , they have been combined into other foreign countries and businesses for disclosure purposes . we believe there is an increasing recognition of the health benefits of an active lifestyle . we believe this trend provides us with an expanding consumer base for our products . we also believe there is a continuing shift in consumer demand from traditional non-performance products to performance products , which are intended to provide better performance by wicking perspiration away from the skin , helping to regulate body temperature and enhancing comfort . we believe that these shifts in consumer preferences and lifestyles are not unique to the united states , but are occurring in a number of markets globally , thereby increasing our opportunities to introduce our performance products to new consumers . we plan to continue to grow our business over the long term through increased sales of our apparel , footwear and accessories , expansion of our wholesale distribution , growth in our direct to consumer sales channel and expansion in international markets . although we believe these trends will facilitate our growth , we also face potential challenges that could limit our ability to take advantage of these opportunities , including , among others , the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers . in addition , we may not be able to effectively manage our growth and a more complex global business . we may not consistently be able to anticipate consumer preferences and develop new and innovative products that meet changing preferences in a timely manner . furthermore , our industry is very competitive , and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability . we also rely on third-party suppliers and manufacturers outside the u.s. to provide fabrics and to produce our products , and disruptions to our supply chain could harm our business . for a more complete discussion of the risks facing our business , refer to the “ risk factors ” section included in item 1a . general net revenues comprise both net sales and license and other revenues . net sales comprise sales from our primary product categories , which are apparel , footwear and accessories . our license and other revenues primarily consist of fees paid to us by our licensees in exchange for the use of our trademarks on core products of socks , team uniforms , baby and kids ' apparel , eyewear , inflatable footballs and basketballs , the distribution of our products in japan , and revenues associated with our mapmyfitness business . cost of goods sold consists primarily of product costs , inbound freight and duty costs , outbound freight costs , handling costs to make products floor-ready to customer specifications , royalty payments to endorsers based on a predetermined 25 percentage of sales of selected products and write downs for inventory obsolescence . the fabrics in many of our products are made primarily of petroleum-based synthetic materials . therefore our product costs , as well as our inbound and outbound freight costs , could be affected by long term pricing trends of oil . in general , as a percentage of net revenues , we expect cost of goods sold associated with our apparel and accessories to be lower than that of our footwear . story_separator_special_tag as a percentage of net revenues , marketing costs increased to 10.8 % in 2014 from 10.5 % in 2013 primarily due to the items noted above . selling costs increased $ 81.0 million to $ 320.9 million in 2014 from $ 239.9 million in 2013 . this increase was primarily due to higher personnel and other costs incurred for the continued expansion of our direct to consumer distribution channel , including increased investment in our factory house and brand house store strategies . as a percentage of net revenues , selling costs increased to 10.4 % in 2014 from 10.3 % in 2013 . product innovation and supply chain costs increased $ 82.4 million to $ 291.6 million in 2014 from $ 209.2 million in 2013 primarily due to higher personnel costs to support our growth in net revenues , along with increased investment in our mapmyfitness business . as a percentage of net revenues , product innovation and supply chain costs increased to 9.4 % in 2014 from 9.0 % in 2013 primarily due to the items noted above . corporate services costs increased $ 36.8 million to $ 212.8 million in 2014 from $ 176.0 million in 2013 primarily due to higher personnel and other administrative costs necessary to support our growth . as a percentage of net revenues , corporate services costs decreased to 6.9 % in 2014 from 7.5 % in 2013 primarily due to higher incentive compensation in the prior year . income from operations increase d $ 88.9 million , or 33.5 % , to $ 354.0 million in 2014 from $ 265.1 million in 2013 . income from operations as a percentage of net revenues increased to 11.5 % in 2014 from 11.4 % in 2013 . interest expense , net increased $ 2.4 million to $ 5.3 million in 2014 from $ 2.9 million in 2013 . this increase was primarily due to the $ 150.0 million and $ 100.0 million term loans we entered into during 2014. other expense , net increased $ 5.2 million to $ 6.4 million in 2014 from $ 1.2 million in 2013 . this increase was due to higher net losses in 2014 on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our foreign currency derivative financial instruments as compared to 2013 . provision for income taxes increase d $ 35.5 million to $ 134.2 million in 2014 from $ 98.7 million in 2013 . our effective tax rate was 39.2 % in 2014 compared to 37.8 % in 2013 . our effective tax rate for 2014 was higher than the effective tax rate for 2013 primarily due to increased foreign investments driving a lower proportion of foreign taxable income in 2014 and state tax credits received in 2013. year ended december 31 , 2013 compared to year ended december 31 , 2012 net revenues increased $ 497.2 million , or 27.1 % , to $ 2,332.1 million in 2013 from $ 1,834.9 million in 2012. net revenues by product category are summarized below : replace_table_token_8_th net sales increased $ 487.0 million , or 27.2 % , to $ 2,277.1 million in 2013 from $ 1,790.1 million in 2012 as noted in the table above . the increase in net sales primarily reflects : $ 176.8 million , or 33.2 % , increase in direct to consumer sales , which includes 18 additional retail stores , or a 16.5 % growth , since december 31 , 2012 , and continued growth in our e-commerce business ; unit growth driven by increased distribution and new offerings in multiple product categories , most significantly in our training and hunting apparel product categories , including our new ua heatgear® sonic and ua coldgear® infrared product lines along with continued growth in our ua storm and charged cotton® platforms , and running apparel and footwear , including ua spine ; and 28 increased average selling prices driven primarily from our higher priced apparel products , including our mountain category and women 's ua studio line . license and other revenues increased $ 10.2 million , or 22.8 % , to $ 55.0 million in 2013 from $ 44.8 million in 2012. this increase in license and other revenues was primarily a result of increased distribution and continued unit volume growth by our licensees . gross profit increased $ 257.4 million to $ 1,136.7 million in 2013 from $ 879.3 million in 2012. gross profit as a percentage of net revenues , or gross margin , increased 80 basis points to 48.7 % in 2013 compared to 47.9 % in 2012. the increase in gross margin percentage was primarily driven by the following : approximate 60 basis point increase driven by sales mix . the sales mix impact was primarily driven by decreased sales mix of excess inventory through our factory house outlet stores at lower prices , along with a lower proportion of north american wholesale footwear sales . approximate 50 basis point increase driven by lower north american apparel and accessories product input costs . the above increases were partially offset by the below decrease : approximate 20 basis point decrease as a result of higher duty costs on certain products previously imported , which were identified and reserved for during the third quarter of 2013. selling , general and administrative expenses increased $ 201.0 million to $ 871.6 million in 2013 from $ 670.6 million in 2012. as a percentage of net revenues , selling , general and administrative expenses increased to 37.3 % in 2013 from 36.5 % in 2012. these changes were primarily attributable to the following : marketing costs increased $ 41.1 million to $ 246.5 million in 2013 from $ 205.4 million in 2012 primarily due to increased sponsorship of collegiate and professional teams and athletes and marketing to support our international expansion .
| segment results of operations the net revenues and operating income ( loss ) associated with our segments are summarized in the following tables . the majority of corporate expenses within north america have not been allocated to other foreign countries and businesses . year ended december 31 , 2014 compared to year ended december 31 , 2013 net revenues by segment are summarized below : replace_table_token_9_th net revenues in our north american operating segment increase d $ 602.7 million to $ 2,796.4 million in 2014 from $ 2,193.7 million in 2013 primarily due to the items discussed above in the consolidated results of operations . net revenues in other foreign countries and businesses increase d by $ 149.7 million to $ 288.0 million in 2014 from $ 138.3 million in 2013 primarily due to continued international expansion and increased unit sales growth in our emea and latin america operating segments , along with an increase of $ 18.1 million in revenues from our mapmyfitness operating segment . operating income ( loss ) by segment is summarized below : replace_table_token_10_th operating income in our north american operating segment increased $ 101.0 million to $ 372.3 million in 2014 from $ 271.3 million in 2013 primarily due to the items discussed above in the consolidated results of operations . operating loss in other foreign countries and businesses increased by $ 12.2 million to $ 18.4 million in 2014 from $ 6.2 million in 2013 . this increase is primarily due to an operating loss in our mapmyfitness operating segment of $ 13.1 million .
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many of our customers ' products require complex configuration management and direct order fulfillment to their customers across the globe . in such cases we provide global logistics management and after-market service and repair . our customers ' products may have stringent requirements for quality , reliability and regulatory compliance . we offer our customers the ability to outsource all phases of product realization , including product specifications ; development , design and design verification ; regulatory compliance support ; prototyping and new product introduction ; manufacturing test equipment development ; materials sourcing , procurement and supply-chain management ; product assembly/manufacturing , configuration and test ; order fulfillment , logistics and service/repair . we provide most of our contract manufacturing services on a turnkey basis , which means that we procure some or all of the materials required for product assembly . we provide some services on a consignment basis , which means that the customer supplies the necessary materials , and we provide the labor and other services required for product assembly . turnkey services require material procurement and warehousing , in addition to manufacturing , and involve greater resource investments than consignment services . other than certain test equipment and software used for internal operations , we do not design or manufacture our own proprietary products . in response to the evolving markets and to better reflect our customers ' end markets , we have decided to combine our wireline/networking and wireless infrastructure market sectors and rename them as our networking/communications market sector , beginning with our fiscal 2012 reporting . the following information should be read in conjunction with our consolidated financial statements included herein and risk factors included in part i , item 1a herein . story_separator_special_tag management decisions as well as management 's performance under the tests which it sets for itself . for a reconciliation of roic to our financial statements that were prepared using gaap , see exhibit 99.1 to this annual report on form 10-k , which exhibit is incorporated herein by reference . results of operations net sales . net sales for the indicated periods were as follows ( dollars in millions ) : replace_table_token_7_th net sales for fiscal 2011 increased $ 217.8 million , or 10.8 percent , as compared to fiscal 2010. the net sales increase resulted from higher net sales in all of our market sectors , except for a decrease in the wireless infrastructure sector . the net sales increase primarily related to the ramp of production for a newer industrial commercial sector customer . net sales to juniper increased as a result of improved end-market demand for the mix of juniper products we produce as well as new product launches . overall , we had net sales increases spread across new and existing customers in both the industrial commercial and medical sectors during fiscal 2011 , which were partially offset by the two previously announced disengagements as a result of acquisitions ( with one each in the wireline/networking and the wireless infrastructure market sectors ) , as well as decreased sales from one additional wireless infrastructure customer as a result of a drop in end-market demand for the mix of its products that we produce . net sales for fiscal 2010 increased $ 396.8 million , or 24.5 percent , as compared to fiscal 2009. the net sales increase resulted from higher net sales in all of our market sectors , except for the defense/security/aerospace sector . the overall higher net sales were driven primarily by strong end-market conditions , as well as the addition of new customers in the wireless infrastructure , wireline/networking , industrial/commercial and medical sectors . these net sales increases were offset in part by decreased net sales to two defense/security/aerospace customers , as well as lower net sales to juniper as a result of a decline in end-market demand for the mix of juniper products produced by us . our net sales percentages by market sector for the indicated periods were as follows : replace_table_token_8_th 25 the percentages of net sales to customers representing 10 percent or more of net sales and net sales to our ten largest customers for the indicated periods were as follows : replace_table_token_9_th net sales to our largest customers may vary from time to time depending on the size and timing of customer program commencements , terminations , delays , modifications and transitions . we remain dependent on continued net sales to our significant customers , and our customer concentration with our top 10 customers remained at or above 53 percent during the year . we generally do not obtain firm , long-term purchase commitments from our customers . customers ' forecasts can and do change as a result of changes in their end-market demand and other factors , including global economic conditions . any material change in forecasts or orders from these major accounts , or other customers , could materially affect our results of operations . in addition , as our percentage of net sales to customers in a specific sector becomes larger relative to other sectors , we will become increasingly dependent upon the economic and business conditions affecting that sector . in the current economic environment , we are seeing increased merger and acquisition activity that has impacted our customers . specifically , we previously announced that two of our customers were acquired in the first quarter of fiscal 2010. the customer in the wireline/networking sector began to reduce orders to us at the end of fiscal 2010 and substantially disengaged in fiscal 2011. the customer in the wireless infrastructure sector began disengagement in fiscal 2011 and also substantially disengaged in fiscal 2011. gross profit . story_separator_special_tag as of the end of fiscal 2010 there was a valuation allowance of $ 1.0 million for federal and state taxes against the amount of net operating loss and credit carryforwards related to tax deductions in excess of compensation expense for stock options . during fiscal 2011 the company recorded an additional valuation allowance $ 1.3 million . as a result , we had a remaining valuation allowance of approximately $ 2.3 million related to tax deductions associated with stock-based compensation as of october 1 , 2011. during the preparation of the company 's fiscal 2011 consolidated financial statements , the company performed an analysis of all available evidence , both positive and negative , regarding the need for a valuation allowance against our deferred tax assets , consistent with the provisions of asc topic 740 , income taxes. the company 's u.s. operations generated losses during the fiscal 2009 , 2010 and 2011 years . while we believe these losses could be a significant factor in establishing such an allowance , we believe that based on the weight of all the evidence , both positive and negative , it is more likely than not that the company will be able to utilize its u.s. net deferred tax assets of approximately $ 21.7 million . see note 6 income taxes for further details . 28 in addition , there was a remaining valuation allowance of $ 1.6 million as of october 2 , 2010 , related to various state deferred income tax assets for which utilization was uncertain due to a lack of sustained profitability and limited carryforward periods in those states . there was no change in the valuation allowance during fiscal 2011. if the u.s. operations continue to generate losses , there may be a need to provide a valuation allowance on our net u.s. deferred tax assets , which totaled $ 21.7 million as of october 1 , 2011. during fiscal 2011 the company added a valuation allowance of $ 0.3 million and $ 0.9 million in the united kingdom and romania , respectively , to offset the increase in net deferred tax assets in those jurisdictions which more likely than not will not be realized . we currently expect the annual effective tax rate for fiscal 2012 to be approximately 8 to 10 percent . the rate increase is due mainly to the increase in projected income in the united states and lower projected income in low tax malaysia and china jurisdictions . the company has been granted tax holidays for its malaysian and xiamen , china subsidiaries . these tax holidays expire in 2024 and 2013 , respectively , and are subject to certain conditions with which the company expects to comply . in fiscal 2011 , 2010 and 2009 , these subsidiaries generated income , which resulted in tax reductions of approximately $ 21.7 million ( $ 0.57 per basic share ) , $ 23.0 million ( $ 0.58 per basic share ) and $ 15.2 million ( $ 0.38 per basic share ) , respectively . net income . as a result of the above factors , our net income decreased by $ 0.3 million , or ( 0.3 ) percent , in fiscal 2011 as compared to fiscal 2010. diluted earnings per share increased by 5.0 percent due to the effects of our fiscal 2011 stock repurchases . net income increased by $ 43.2 million , or 93.3 percent , in fiscal 2010 compared to fiscal 2009 ; diluted earnings per share increased 87.2 percent . reportable segments in the first quarter of fiscal 2011 , we completed our migration to a regional reporting structure , and as a result , modified our reportable segments . see note 1 description of business and significant accounting policies for further information . a further discussion of our fiscal 2011 and 2010 financial performance by reportable segment is presented below ( dollars in millions ) : replace_table_token_15_th americas ( amer ) : net sales for fiscal 2011 increased $ 60.2 million , or 4.8 percent , from fiscal 2010 , which reflected the ramp of production for our newer industrial commercial sector customer . net sales to juniper also increased as a result 29 of improved end-market demand for the mix of juniper products we produce in the region as well as new product launches . these increases were offset by reduced net sales to two significant wireless infrastructure customers , one as a result of a previously announced disengagement and the other as a result of a drop in end-market demand for the mix of products we produce for that customer . operating income for fiscal 2011 decreased $ 5.7 million from fiscal 2010 due to the prior year period benefitting from a $ 3.2 million litigation settlement , as well as changes in customer mix in the current year . net sales for fiscal 2010 increased $ 160.4 million , or 14.8 percent , from fiscal 2009. this increase reflected higher end-market demand from numerous existing customers in each of our market sectors and the ramp of production for new customers in the wireline/networking , wireless infrastructure , industrial/commercial and medical sectors . these increases were partially offset by reduced net sales to our largest customer , juniper , due to the transfer of manufacturing of some products to our apac reportable segment , as well as decreased end-market demand for the mix of juniper products produced by us . operating income for fiscal 2010 increased $ 13.2 million from fiscal 2009 primarily as a result of higher revenues from the customers noted above , improved operating efficiencies resulting from higher production levels and proceeds received from a litigation settlement . asia-pacific ( apac ) : net sales for fiscal 2011 increased $ 137.7 million , or 14.9 percent , over fiscal 2010. this growth reflected higher net sales to multiple customers across our market sectors as well as increased demand from a new customer in the industrial/commercial sector .
| executive summary fiscal 2011. net sales for fiscal 2011 increased by $ 217.8 million , or 10.8 percent , from fiscal year 2010 to $ 2,231.2 million . net sales increased in all of our market sectors during fiscal 2011 , except for a decrease in the wireless infrastructure sector . the overall higher net sales were from both new and existing customers , such as the ramp of production for our newer industrial commercial sector customer , as well as an increase in net sales to juniper networks , inc. ( juniper ) , our largest customer , as a result of improved end-market demand for the mix of juniper products we produce as well as new product launches . we also experienced strong demand from a medical customer and a defense/security/aerospace customer during the year as a result of increased end market demand for the products they produce . these increases were partially offset by decreased net sales to two significant customers , one in the wireline/networking sector and one in the wireless infrastructure sector , related to previously announced disengagements as a result of acquisitions , and decreased sales from one additional wireless infrastructure customer as a result of a drop in end-market demand for the mix of its products that we produce . gross margin was 9.6 percent for fiscal 2011 , which compared unfavorably to 10.3 percent for fiscal 2010. gross margins in fiscal 2011 were lower as a result changes in our customer mix , higher fixed expenses related to higher headcount to support the revenue growth and increased depreciation expense . the prior year also included proceeds from a litigation settlement ( see note 12 ) .
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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 for costs we incur in fulfilling our performance obligations , including travel and other out-of-pocket expenses , fees for 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 outside consultants 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 employee consultants were available to work during that period . utilization was 76 % , 74 % , and 74 % for fiscal 2018 , fiscal 2017 , and fiscal 2016 , 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 21 % , 20 % , and 22 % of our total revenues in fiscal 2018 , fiscal 2017 , and fiscal 2016 , respectively . revenue by country is detailed in note 11 to our notes to consolidated financial statements . noncontrolling interest please refer to the section captioned `` principles of consolidation '' and `` gnu interest '' in note 1 of our notes to consolidated financial statements contained in this form 10-k. 28 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 , variable consideration to be included in the transaction price of revenue contracts depreciation of property and equipment , share-based compensation , valuation of the contingent consideration liability , valuation of acquired intangible assets , impairment of long-lived assets and goodwill , accrued and deferred income taxes , valuation allowances on deferred tax assets , accrued compensation , accrued exit costs , and certain 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 . story_separator_special_tag the required service period typically ranges from three to six years starting at the beginning of the awards measurement period . a recipient of such an award is expected to be affiliated with cra for the entire measurement period . if a recipient terminates affiliation with cra during the measurement 30 period , the amount paid will be determined in accordance with the recipient 's specific contract provisions . valuation of the contingent consideration liability . we account for our contingent consideration liability using the fair value method , estimated based on a monte carlo simulation . the fair value measurement of these liabilities is based on significant inputs not observed in the market . the significant unobservable inputs used in the fair value measurements of these contingent consideration liabilities are our measures of the estimated payouts based on internally generated financial projections and discount rates . we reassess the fair value of these contingent consideration liabilities on a quarterly basis using additional information as it becomes available . any change in the fair value estimates are recorded in the earnings of that period . valuation of goodwill and other intangible assets . 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 evaluated 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 2018 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 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 . 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 , an impairment charge would be recorded in our consolidated statement of operations . we had no impairment losses related to goodwill during fiscal 2018 , fiscal 2017 or fiscal 2016 as there were no events or circumstances that we determined would more likely than not reduce our fair value below our carrying amount , and our estimated fair value on october 15 in each such fiscal year was greater than our carrying value on october 15 th of such year . we assess the impairment of amortizable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important that could trigger an impairment review include the following : a significant underperformance relative to expected historical or projected future operating results ; a significant change in the manner of our use of the acquired asset or the strategy for our overall business ; and a significant negative industry or economic trend . if we were to determine that an impairment evaluation is required , we would review the expected future undiscounted cash flows to be generated by the assets . if we determine that the carrying value of intangible assets may not be recoverable , we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model . accounting for income taxes . we record income taxes using the asset and liability method . deferred tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases , and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable 31 income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . our financial statements contain certain deferred tax assets and liabilities that result from temporary differences between book and tax accounting , as well as net operating loss carryforwards . asc topic 740 , `` income taxes `` ( `` asc topic 740 '' ) , requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities , and any valuation allowance recorded against our net deferred tax assets . we evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized . the decision to record a valuation allowance requires varying degrees of judgment based upon the nature of the item giving rise to the deferred tax asset . our effective tax rate may vary from period to period based on changes in estimated taxable income or loss , changes to the valuation allowance , changes to federal , state , or foreign tax laws , future expansion into areas with varying country , state , and local income tax rates , deductibility of certain costs , uncertain tax positions , and expenses by jurisdiction , and as a result of acquisitions or dispositions .
| results of operations the following table provides operating information as a percentage of revenues for the periods indicated : replace_table_token_5_th fiscal 2018 compared to fiscal 2017 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 2018 and fiscal 2017 were both 52-week years . revenues . revenues increased by $ 47.5 million , or 12.8 % , to $ 417.6 million for fiscal 2018 from $ 370.1 million for fiscal 2017. the increase in net revenue was a result of an increase in gross revenues of $ 46.7 million as compared to fiscal 2017 , coupled with a decrease in write-offs and reserves of $ 0.8 million as compared to fiscal 2017. included in revenues are the effect of changes in currency exchange rates resulting in an increase to revenue of $ 2.6 million for fiscal 2018 and a decrease of $ 2.5 million for fiscal 2017. utilization increased to 76 % for fiscal 2018 from 74 % for fiscal 2017 , while consultant headcount increased by 56 consultants during fiscal 2018. billable hours increased by 9.1 % for fiscal 2018 when compared to fiscal 2017. overall , revenues outside of the u.s. represented approximately 21 % and 20 % of total revenues for fiscal 2018 and fiscal 2017 , respectively . revenues derived from fixed-price engagements decreased to 23 % of total revenues for fiscal 2018 as compared with 25 % for fiscal 2017. 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 ( exclusive of depreciation and amortization ) .
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in our 2012 impairment analysis , approximately 69 % and 31 % of codexis ' revenues story_separator_special_tag financial condition and results of operations the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k. this annual report on form 10-k contains “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , as amended , or the exchange act . these statements are often identified by the use of words such as “ may , ” “ will , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ could , ” “ should , ” “ estimate , ” or “ continue , ” and similar expressions or variations . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section titled “ risk factors , ” set forth in part i , item 1a of this annual report on form 10-k and elsewhere in this report . the forward-looking statements in this annual report on form 10-k represent our views as of the date of this annual report on form 10-k. we anticipate that subsequent events and developments will cause our views to change . however , while we may elect to update these forward-looking statements at some point in the future , we have no current intention of doing so except to the extent required by applicable law . you should , therefore , not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this annual report on form 10-k. business overview we develop biocatalysts for the pharmaceutical and fine chemicals markets . our proven technologies enable scale-up and implementation of biocatalytic solutions to meet customer needs for rapid , cost-effective and sustainable process development , from research to manufacturing . biocatalysts are enzymes or microbes that initiate and or accelerate chemical reactions . manufacturers have historically used naturally occurring biocatalysts to produce many goods used in everyday life . however , inherent limitations in naturally occurring biocatalysts have restricted their commercial use . our proprietary codeevolver ® protein engineering technology platform , which introduces genetic mutations into microorganisms in order to give rise to changes in enzymes that they produce , is able to overcome many of these limitations , allowing us to evolve and optimize biocatalysts to perform specific and desired chemical reactions at commercial scale . once potentially beneficial mutations are identified through this proprietary process , combinations of these mutations can then be tested until variant enzymes have been created that exhibit marketable performance characteristics superior to competitive products . this process allows for continuous , efficient improvements to the performance of enzymes . in the past , we implemented our codeevolver ® protein engineering technology platform through paid collaborations with our customers . in july 2014 , we entered into our first license agreement pursuant to which we granted a license to a global pharmaceutical company to use our codeevolver ® protein engineering technology platform for their internal development purposes , and we are pursuing additional license opportunities with other customers . we have commercialized our technology and products in the pharmaceuticals market , which is our primary business focus . our pharmaceutical customers , which include several of the largest global pharmaceutical companies , use our technology , products and services in their manufacturing processes and process development , including in the production of some of the world 's best-selling and fastest growing drugs . we also use our technology to develop biocatalysts for use in the fine chemicals market . the fine chemicals market is similar to our pharmaceutical business and consists of several large market verticals , including : food , animal feed , flavors , fragrances , and agricultural chemicals . we have also used our technology to develop an early stage , novel enzyme therapeutic product candidate for the potential treatment of phenylketonuria ( `` pku '' ) in humans . pku is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient . story_separator_special_tag not anticipate significant arch revenue in future periods . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements . the consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the united states and include our accounts and the accounts of our wholly-owned subsidiaries . the preparation of our consolidated financial statements requires our management to make estimates , assumptions , and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the applicable periods . management bases its estimates , assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements , which , in turn , could change the results from those reported . our management evaluates its estimates , assumptions and judgments on an ongoing basis . the critical accounting policies requiring estimates , assumptions , and judgments that we believe have the most significant impact on our consolidated financial statements are described below . revenue recognition 37 we recognize revenue from the sale of our biocatalyst products , biocatalyst research and development agreements and revenue sharing arrangements . story_separator_special_tag for the majority of our royalty revenue , estimates are made using notification of the sale of licensed products from the licensees . revenue sharing arrangement we recognize revenue from a revenue sharing arrangement based upon sales of licensed products by our revenue share partner exela ( see note 16 , `` related party transactions '' ) . we recognize revenue net of product and selling costs upon notification from our revenue share partner of our portion of net profit based on the contractual percentage from the sale of licensed product . allowances allowances against receivable balances primarily relate to product returns and prompt pay sales discounts , and are recorded in the same period that the related revenue is recognized , resulting in a reduction in biocatalyst product sales revenue and the reporting of accounts receivable net of allowances . we estimate an allowance for doubtful accounts through specific identification of potentially uncollectible accounts receivable based on an analysis of our accounts receivable aging . uncollectible accounts receivable are written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted . recoveries are recognized when they are received . actual collection losses may differ from our estimates and could be material to our consolidated financial position , results of operations , and cash flows . stock-based compensation we use the black-scholes-merton option pricing model to estimate the fair value of options granted under codexis ' equity incentive plans . the black-scholes-merton option valuation model requires the use of assumptions , including the expected term of the award and the expected stock price volatility . we used the `` simplified '' method as described in staff accounting bulletin no . 107 , `` share-based payment , '' for the expected option term because codexis ' historical option exercise data is limited due to its initial public offering in 2010. we used codexis ' historical volatility to estimate expected stock price volatility . the risk-free rate assumption was based on united states treasury instruments whose terms were consistent with the expected term of the stock option . the expected dividend assumption was based on codexis ' history and expectation of dividend payouts . restricted stock units ( `` rsus '' ) , restricted stock awards ( `` rsas '' ) and performance-contingent restricted stock units ( `` psus '' ) were measured based on the fair market values of the underlying stock on the dates of grant . psus awarded may be conditional upon the attainment of one or more performance objectives over a specified period . at the end of the performance period , if the goals are attained , the awards are granted . stock-based compensation expense was calculated based on awards ultimately expected to vest and was reduced for estimated forfeitures at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differed from those estimates . the estimated annual forfeiture rates for stock options , rsus , psus , and rsas are based on codexis ' historical forfeiture experience . the estimated fair value of stock options , rsus and rsas is expensed on a straight-line basis over the vesting term of the grant and the estimated fair value of psus is expensed using an accelerated method over the term of the award once management has determined that it is probable that performance objective will be achieved . compensation expense is recorded over the requisite service period based on management 's best estimate as to whether it is probable that the shares awarded are expected to vest . management assesses the probability of the performance milestones being met on a continuous basis . we account for stock awards issued to non-employees based on their estimated fair value determined using the black-scholes-merton option-pricing model . compensation expense for the stock awards granted to non-employees is recognized based on the fair value of awards as they vest , during the period the related services are rendered . 39 we have not recognized , and do not expect to recognize in the near future , any income tax benefit related to employee stock-based compensation expense as a result of the full valuation allowance on our deferred tax assets including deferred tax assets related to codexis ' net operating loss carryforwards . assets held for sale we reclassify long-lived assets to assets held for sale when all required criteria are met . the assets are recorded at the lower of the carrying value or fair value less costs to sell . assets held for sale must meet the following conditions : 1 ) management , having authority to approve the action , commits to a plan to sell the asset , 2 ) the asset is available for immediate sale in its present condition , 3 ) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated , 4 ) the sale of the asset is probable , and transfer of the asset is expected to qualify for recognition as a completed sale , within one year , 5 ) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value , and 6 ) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn . in determining the fair value of the assets less cost to sell , we consider factors including current sales prices for comparable assets , recent market analysis studies , appraisals and any recent legitimate offers . if the estimated fair value , less the cost to sell an asset , is less than its current carrying value , the asset is written down to its estimated fair value less cost to sell . due to uncertainties in the estimation process , it is reasonably possible that actual results could differ from the estimates used in our historical analyses .
| results of operations overview revenues were $ 35.3 million in 2014 , an 11 % increase from $ 31.9 million in 2013 . biocatalyst product sales revenues , which consist primarily of sales of biocatalyst intermediates , apis and codex® biocatalyst panels and kits , were $ 13.1 million in 2014 , a decrease of 36 % compared with $ 20.4 million in 2013 . the decrease was primarily due to the expected loss of biocatalyst and intermediates sales of $ 6.2 million to our customers who sold hepatitis c products , which were replaced in our customers ' marketplace by an alternative product , and to a decrease in sales of statin family products of $ 1.4 million resulting from increased competition from generic pharmaceuticals . 35 biocatalyst research and development revenues , which include license , technology access and exclusivity fees , research services , contingent payments , royalties , and optimization and screening fees , totaled $ 14.9 million in 2014 , an increase of 118 % , compared with $ 6.9 million in 2013 . the increase was primarily due to a milestone payment of $ 5.0 from gsk and an increase in services provided to pharmaceutical customers . revenue sharing arrangement sales were $ 7.3 million in 2014 , an increase of 58 % , compared with $ 4.6 million in 2013 , which relates to the license agreement with exela pharmsci , inc. ( `` exela '' ) for their sale of the anticoagulant drug argatroban . research and development expenses were $ 22.8 million in 2014 , a decrease of 28 % from $ 31.6 million in 2013 .
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the company determined that the phase iii clinical trial results constituted a triggering event that required the company to evaluate its production line and equipment net from the liability described in note 6e ( 2 ) , together “ ap-cd/ld assets , net ” for impairment test . for the year ended december 31 , 2019 , the company recorded an impairment charge of approximately $ 13.7 million of its ap-cd/ld assets , net which represents excess carrying value compared to the fair value of the ap-cd/ld assets , net . f- 19 intec pharma ltd. notes to the consolidated financial statements ( continued ) note 6 - commitments and contingent liabilities ( continued ) : the following table illustrates the effect of the impairment assessment on the ap-cd/ld assets , net , as of december 31 , 2019 : replace_table_token_12_th no impairment of long-lived assets was recorded for the year ended december 31 , 2018. the fair value was determined using the discounted cash flow method ( level 3 ) which utilized significant estimates and assumptions surrounding the amount and timing of the projected net cash flows , which includes the probability of out-licensing the ap-cd/ld program to a third-party , the probability of obtaining fda approval , the expected impact of competition , the discount rate , which seeks to reflect the various risks inherent in the projected cash flows , and the tax rate . while management believes the assumptions used in their impairment assessment are story_separator_special_tag you should read the following discussion along with our consolidated financial statements and the related notes included in this annual report . the following discussion contains forward-looking statements that are subject to risks , uncertainties and assumptions , including those discussed under “ risk factors. ” our actual results , performance and achievements may differ materially from those expressed in , or implied by , these forward-looking statements . see “ cautionary note regarding forward-looking statements. ” we have prepared our consolidated financial statements in accordance with u.s. gaap . 68 overview we are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary accordion pill platform technology , which we refer to as the accordion pill . our accordion pill is an oral drug delivery system that is designed to improve the efficacy and safety of existing drugs and drugs in development by utilizing an efficient gr and specific release mechanism . our product pipeline currently includes several product candidates in various stages . our leading product candidate , ap-cd/ld , is being developed for the indication of treatment of parkinson 's disease symptoms in advanced parkinson 's disease patients . in july 2019 , we announced top-line results from our pivotal phase iii clinical for ap-cd/ld for the treatment of advanced parkinson 's disease known as the accordance study in which the accordance study did not meet its target endpoints . while ap-cd/ld provided treatment for parkinson 's disease symptoms , it did not demonstrate statistically superiority over immediate release cd/ld on the primary endpoint of off time reduction under the conditions established in the protocol . treatment-emergent adverse effects observed with ap-cd/ld were generally consistent with the known safety profile of cd/ld formulations and no new safety issues were observed throughout the double-blinded study , during the gastroscopy safety sub-study or the 12-month open-label extension study . from our review of the data , we have observed a meaningful reduction in off time in certain subsets of patients . we have completed the analysis of the full data set and we are currently seeking to partner ap-cd/ld as the basis for the strategy for ap-cd/ld moving forward . previously , we successfully completed a phase ii clinical trial for ap-cd/ld for the treatment of parkinson 's disease symptoms in advanced parkinson 's disease patients and in february 2019 , we announced that ap-cd/ld met the primary endpoint in a pharmacokinetic , or pk , study comparing the ap-cd/ld 50/500mg dosed three times daily , the most common dose used in our accordance study , to 1.5 tablets of cd/ld immediate release ( sinemet ) 25/100 dosed five times per day in parkinson 's disease patients . we have invested in the commercial scale manufacture of ap-cd/ld , for which we are in partnership with lts lohmann therapie-systeme ag , or lts . in december 2018 the production line was delivered to lts in andernach , germany and recently we completed the qualification studies for the commercial scale manufacture of the accordion pill and we have initiated the validation and stability studies which are expected to serve as the clinical material for the next phase 3 clinical trial plan . in addition , we have initiated a clinical development program for our accordion pill platform with the two primary cannabinoids contained in cannabis sativa , which we refer to as ap-cannabinoids . we are formulating and testing cbd and thc for the treatment of various pain indications . ap-cannabinoids are designed to extend the absorption phase of cbd and thc , with the goal of more consistent levels for an improved therapeutic effect , which may address several major drawbacks of current methods of treatment , such as short duration of effect , delayed onset , variability of exposure , variability of the administered dose and adverse events that correlate with peak levels . in march 2017 , we initiated a phase i single-center , single-dose , randomized , three-way crossover clinical trial in israel to compare the safety , tolerability and pk of ap-thc/cbd with sativex® , an oral buccal spray containing cbd and thc that is commercially available outside of the united states . initial results demonstrated that the accordion pill platform is well suited to safely deliver cbd and thc with significant improvements in exposure compared with sativex® . in december 2018 , we initiated a pk study of ap-thc and the results of the study demonstrate that the custom designed ap delivery system in the ap-thc pk study did not meet our expectations . story_separator_special_tag see “ item 7. management 's discussion and analysis of financial condition and results of operations — liquidity and capital resources — aspire capital financing arrangement ” . 70 operating expenses our current operating expenses consist of two components , research and development expenses and general and administrative expenses . research and development expenses our research and development expenses during the years ended december 31 , 2018 and 2019 relate primarily to the development of ap–cd/ld . we record expenses for each product candidate on a direct cost basis only , rather than on a project basis . direct costs , which include contract research organization expenses , clinical trials and pre-clinical trials , expenses related to the establishment of the commercial scale production capabilities for ap-cd/ld , consulting expenses , apis , and other similar expenses are recorded to the product candidate for which such expenses are incurred . however , salaries and related personnel expenses , indirect materials and costs for facilities and equipment are considered overhead , are shared among all of our product candidates , and are not recorded on a product-by-product basis . our direct costs related to product candidates other than ap–cd/ld for 2018 and 2019 were insignificant . although we reduced the size of our headcount by approximately 50 % , we expect our research and development expense to remain our primary expense in the near future as we continue to develop our products . however , the reduction in headcount may yield unintended consequences , such as attrition beyond our intended reduction in headcount and reduced employee morale . in addition , this may result in employees who were not affected by the reduction in headcount seeking alternate employment , which would result in us seeking contract support at unplanned additional expense . increases or decreases in research and development expenditures are primarily attributable to the number and or duration of the clinical studies that we will conduct . we expect that a large percentage of our research and development expense in the future will be incurred in support of our current and future clinical development projects . due to the inherently unpredictable nature of clinical development processes , we are unable to estimate with any certainty the costs we will incur in the continued development of our product candidates in our pipeline for potential commercialization . clinical development timelines , the probability of success and development costs can differ materially from expectations . we expect to continue to conduct additional clinical trials for our product candidates . while we are currently focused on advancing our product development , our future research and development expenses will depend on the clinical success of our product candidates , as well as ongoing assessments of the candidates ' commercial potential . as we obtain results from clinical studies , we may elect to discontinue or delay clinical studies for one or more of our product candidates in certain indications in order to focus our resources on more promising product candidates . completion of clinical studies may take several years or more , but the length of time generally varies according to the type , complexity , novelty and intended use of a product candidate . we expect to invest additional significant research and development expenses in the future , as we continue the advancement of our clinical products development . the lengthy process of completing clinical studies and seeking regulatory approval for our product candidates requires the expenditure of substantial resources . any failure or delay in completing clinical studies , or in obtaining regulatory approvals , could cause a delay in generating product revenue and cause our research and development expenses to increase and , in turn , have a material adverse effect on our operations . because of the factors set forth above , we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects . under applicable accounting rules , we deduct from research and development expenses grants and other participation in research and development expenses as incurred . general and administrative expenses our general and administrative expenses consist primarily of salaries and expenses related to employee benefits , including share-based compensation , for our general and administrative employees , which includes employees in executive and operational roles , including finance and human resources , as well as consulting , legal and professional services related to our general and administrative operations . financial expense and income financial expense and income consist of interest earned on our cash , cash equivalents and short-term bank deposits ; bank fees and other transactional costs ; gains/losses from changes in fair value of marketable securities and expenses or income resulting from fluctuations of the nis and other currencies , in which a portion of our assets and liabilities are denominated , against the u.s. dollar ( our functional currency ) . income tax during 2019 , the standard corporate tax rate in israel was 23 % , and during 2017 it was 24 % . during 2018 and 2019 , the u.s. statutory tax rate was 21 % . we have not yet generated taxable income in israel . we have historically incurred operating losses resulting in carry forward tax losses totaling approximately $ 158.5 million as of december 31 , 2019. we anticipate that we will continue to generate tax losses for the foreseeable future and that we will be able to carry forward these tax losses indefinitely to future taxable years . accordingly , we do not expect to pay taxes in israel until we have taxable income after the full utilization of our carry forward tax losses . we have provided a full valuation allowance with respect to the deferred tax assets related to these carry forward losses . during 2019 and 2018 , we incurred tax expenses of approximately $ 638,000 and approximately $ 103,000 , respectively , in our u.s. subsidiary .
| results of operations the table below provides our results of operations for the periods indicated . replace_table_token_2_th year ended december 31 , 2019 compared to year ended december 31 , 2018 research and development expenses , net our research and development expenses , net , for the year ended december 31 , 2019 amounted to approximately $ 26.7 million , a decrease of $ 8.7 million , or approximately 24.6 % , compared to approximately $ 35.4 million for the year ended december 31 , 2018. the decrease was primarily due to a decrease in expenses related to our accordance study and ole study , both of which were completed during 2019. general and administrative expenses our general and administrative expenses for the year ended december 31 , 2019 amounted to approximately $ 8.3 million , an increase of $ 400,000 , or approximately 5.1 % , compared to approximately $ 7.9 million for the year ended december 31 , 2018. the increase was primarily related to the increase in insurance expenses . this increase was offset by a decrease in professional services . impairment of long-lived assets for the year ended december 31 , 2019 , we recorded an impairment charge of approximately $ 13.7 million of our production line and equipment , net , from the liability described in note 6e ( 2 ) to the consolidated financial statements for the year ended december 31 , 2019 , together “ ap-cd/ld assets , net ” , which represents the excess carrying value compared to the fair value of the ap-cd/ld assets , net . in the third quarter ended september 30 , 2019 we recorded for the first time an impairment charge of approximately $ 9.8 million which was updated in the fourth quarter by approximately $ 3.9 million following a new impairment assessment performed at december 31 , 2019 following changes in management assumptions .
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accordingly , the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of january 1 , 2009 ( dollars in thousands , except per share ) : year ended december 31 , 2009 2010 revenue $ 802,770 $ 1,228,935 net income 58,158 141,909 material non-recurring pro forma adjustments directly attributable to the acquisitions include : reversal of lifo impact , $ 1.9 million expense in 2009 and $ 21.0 million benefit in 2010 ; reversal of equity in ( income ) losses of non-consolidated affiliate , $ 55.5 million expense in 2009 and $ 14.5 million income in 2010 ; and $ 25.9 million of transaction expenses story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations ( md & a ) is designed to provide information that is supplemental to , and should be read together with , our consolidated financial statements and the accompanying notes . information in this item is intended to assist the reader in obtaining an understanding of our consolidated financial statements , the changes in certain key items in those financial statements from year-to-year , the primary factors that accounted for those changes , any known trends or uncertainties that we are aware of that may have a material effect on our future performance , as well as how certain accounting principles affect our consolidated financial statements . in addition , this item provides information about our business segments and how the results of those segments impact our financial condition and results of operation as a whole . story_separator_special_tag size= '' 2 '' style= '' font-family : arial '' > under the revolving facility we now have additional flexibility for investments , capital expenditures , acquisitions and restricted payments . we are permitted to pay dividends and repurchase our common stock in an aggregate amount ( cumulative from october 2011 ) up to $ 75 million ( or $ 500 million , if certain leverage ratio requirements are satisfied ) , plus , each year , an aggregate amount equal to 50 % of the consolidated net income in the prior year and issue letters of credit under the revolving facility in an amount not to exceed $ 50 million . at december 31 , 2011 , we had outstanding borrowings of $ 232.0 million and outstanding letters of credit of $ 8.4 million under this revolving facility . on november 30 , 2010 , in connection with the acquisitions of seadrift and c/g , we issued senior subordinated notes for an aggregate total face amount of $ 200 million . these senior subordinated notes are non-interest bearing and mature in 2015 , see note 2 acquisitions . because the promissory notes are non-interest bearing , we were required to record them at their present value ( determined using an interest rate of 7 % ) . the difference between the face amount of the promissory notes and their present value is recorded as debt discount . the debt discount will be amortized to income using the interest method , over the life of the promissory notes . the loan balance , net of unamortized discount , was $ 153.4 million at december 31 , 2011. during 2008 , we entered into a supply chain financing arrangement , as discussed in more detail under liquidity and capital resources , below . our purchases of inventory under this arrangement were $ 186.7 million in 2010 and $ 169.1 million in 2011. on occasion we sell accounts receivable without recourse to a third party . we did not sell any receivables during 2010 or 2011. see liquidity and capital resources below for further discussion . proceedings against us we are involved in various investigations , lawsuits , claims , demands , environmental compliance programs , labor disputes and other legal proceedings arising out of or incidental to the conduct of our business . while it is not possible to determine the ultimate disposition of each of these matters and proceedings , we do not believe that their ultimate disposition will have a material adverse effect on our financial position , results of operations or cash flows . there is litigation pending in brazil involving disputes arising out of the interpretation of certain collectively bargained wage increase provisions applicable in 1989 and 1990 to employers ( including our subsidiary in brazil ) in the bahia region of brazil . we are not currently party to any of the litigation involving the interpretation of the wage increase provisions at issue ; however , litigation is pending against other employers in the region and we have learned that several companies in brazil have recently settled claims arising out of these provisions . while the most recent ruling on the subject by the supreme court of brazil has held that such provisions are not enforceable , and thus employers are not liable for the wage increases claimed on behalf of employees , further proceedings are pending seeking to reverse that ruling and there have been changes in the composition of the supreme court in the interim . while we can not predict the outcome of the pending proceedings , if the supreme court reverses its prior decision and declares the wage increase provisions enforceable , claims could be filed against our brazilian subsidiary which could become substantial . realizability of net deferred tax assets and valuation allowances at december 31 , 2011 we had $ 132.9 million of gross deferred income tax assets , of which $ 25.5 million required a valuation allowance . in addition , we had $ 123.2 million of gross deferred income tax liabilities . our valuation allowance means that we do not believe that these assets are more likely than not to be realized . story_separator_special_tag financial information is presented for the years ended december 31 , 2009 , 2010 , and 2011. throughout our md & a , percentage changes that are less than 5 % or less than $ 1.0 million , are deemed to be not meaningful and are designated as nm . results of operations for 2011 as compared to 2010 ( in thousands , except per share data and % change ) replace_table_token_7_th net sales . net sales by operating segment for the years ended december 31 , 2010 and 2011 were : ( in thousands , except per share data and % change ) replace_table_token_8_th 43 we experienced higher sales for both of our operating segments in 2011. our industrial materials operating segment had increased sales primarily due to the inclusion of seadrift and c/g for the full year in 2011 , which contributed approximately $ 198.0 million of sales in 2011. our engineered solutions segment had sales increases , primarily due to increased volumes of electro thermal management ( etm ) products . our analysis of the percentage change in net sales from 2010 to 2011 for industrial materials and engineered solutions is set forth in the following table : replace_table_token_9_th net sales . sales for the industrial materials segment increased significantly in 2011 when compared to 2010 due to higher graphite electrode sales volume , as well as the inclusion of needle coke products for all of 2011 , compared to only one month in 2010. partially offsetting this increased demand , the weighted average selling price of our melter and non-melter graphite electrodes decrease by approximately 2 % , exclusive of currency impacts , in 2011 when compared to 2010. our engineered solutions segment also saw an increase in volumes , in 2011 , coupled with a favorable product mix due to increased etm sales . due to rising costs , we announced price increases to customers for normal premium grade needle coke and graphite electrodes during 2011. these price increases did not have a material impact to 2011 results as the majority of our 2011 business was booked prior to the announced price increases . however , these increases should better position us to manage margins and rising costs in 2012. cost of sales . the primary drivers of the increase in cost of sales were increases in shipments of our products of $ 187.7 million and in production costs of $ 51.1 million and an unfavorable foreign currency impact of $ 18.9 million , across both of our segments during 2011 when compared to 2010. the year-over-year difference in the mtm adjustment had an unfavorable impact of $ 6.1 million ( $ 11.0 million expense in 2011 ; $ 4.9 million expense in 2010 ) . the 2011 cost of sales also included amortization expense related to the technology intangible assets of $ 6.5 million , compared to $ 0.5 million in 2010. this increase was a result of a full year of amortization in 2011 compared to only one month in 2010. we are parties to contracts with conocophillips through december 2013 for the supply of petroleum needle coke , our primary raw material used in the manufacture of graphite electrodes . the agreements provide for quantities of needle coke which we believe , together with needle coke that we source from seadrift and other sources , are sufficient for our requirements as currently forecast . these supply agreements also contain customary terms and conditions including annual price negotiations , dispute resolution and termination provisions . in july 2011 , conocophillips announced that its board approved separating its refining and marketing and exploration and production businesses by spinning off the refining and marketing segment to shareholders . we do not believe that such separation will have an adverse impact on these needle coke supply agreements . research and development . research and development expense year-over-year increased $ 1.8 million , driven by the difference in the mtm adjustment impact ( $ 2.1 million expense in 2011 ; $ 0.3 million in 2010 ) . selling and administrative expenses . selling and administrative expenses increased as a result of a higher mtm adjustment in 2011 compared to 2010. the 2011 mtm charge was $ 7.0 million more than the 2010 amount ( $ 9.2 million in 2011 ; $ 2.2 million in 2010 ) . the amortization of intangibles increased selling and administrative expense by $ 15.3 million year-over-year , due to a full year of amortization in 2011 compared to only one month in 2010. we also experienced higher overhead expense due to increases in sales and marketing coverage to support internal growth initiatives during 2011 when compared to 2010. these increases in selling and administrative costs were offset by a decline in 44 acquisition costs ( i.e. , advisory , legal , valuation , other professional fees , etc. ) . these acquisition costs represented $ 0.7 million of expense in 2011 , compared to $ 15.2 million in 2010. equity in losses ( earnings ) of , write-down of investment in and gain recorded on acquisition of non-consolidated affiliate . we acquired an 18.9 % interest in seadrift on june 30 , 2008 , and subsequently acquired the remaining 81.1 % of the equity interests in seadrift on november 30 , 2010. as a result of the acquisition of the remaining 81.1 % of the equity interests in seadrift , accounting guidance requires us to re-measure the book value of our previously held 18.9 % equity interest at the acquisition date to fair value and recognize the resulting gain in our 2010 earnings . we recorded a $ 9.6 million non-cash gain in our 2010 earnings . our equity in seadrift earnings for 2010 was $ 4.9 million . other ( income ) expense .
| executive summary on november 30 , 2010 , we acquired seadrift and c/g . as a result of these acquisitions , our results of operations and md & a analysis for 2010 include one month of activity of seadrift and c/g , compared to a full year of operations for 2011. in february 2011 and october 2011 we acquired micron research corporation and fiber materials , inc. , respectively . they are included in our results of operations and md & a analysis for 2011 from their respective acquisition dates . we have five major product categories : graphite electrodes , refractory products , needle coke products , advanced graphite materials , and natural graphite products . reportable segments . our businesses are reported in the following categories : industrial materials , which consists of graphite electrodes , refractory products and needle coke products . engineered solutions , which includes advanced graphite materials and natural graphite products . reference is made to the information under part i for background information on our businesses , industry and related matters . global economic conditions and outlook we are impacted in varying degrees , both positively and negatively , as global , regional or country conditions fluctuate . our discussions about market data and global economic conditions below are based on or derived from published industry accounts and statistics . 2012 outlook . global economic forecasts for 2012 were recently downgraded for the second consecutive time since june 2011 due to the slowdown in global output which began to emerge in the third quarter of 2011. the slower pace was largely attributed to the ongoing eurozone debt crisis and its impact on other advanced and emerging countries . also , slower growth in several emerging countries ( especially china ) occurred in reaction to domestic policy tightening .
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to appropriate adjustment in the event of any stock dividend , stock split , combination or other similar recapitalization with respect to the series b preferred stock . voting rights holders of the series a and series b preferred stock are entitled to vote as a single class with the holders of common stock and shall have one vote for each equivalent common share into which the preferred stock is convertible . the holders of series b preferred stock are entitled to elect one story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this annual report on form 10‑k . this discussion and other parts of this annual report on form 10‑k contain forward-looking statements that involve risks and uncertainties , such as our plans , objectives , expectations , intentions and beliefs . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in the section entitled “ risk factors ” included elsewhere in this annual report on form 10‑k . overview we are a clinical‑stage biopharmaceutical company focused on the discovery , development , and commercialization of novel , proprietary , synthetic small molecules for the treatment of brain and nervous system disorders . we focus our efforts on targeting and modulating n‑methyl‑d‑aspartate receptors , or nmdars , which are vital to normal and effective function of the brain and nervous system . we believe leveraging the therapeutic advantages of the differentiated modulatory mechanism of our compounds will drive a paradigm shift in the treatment of disorders of the brain and nervous system . we are advancing a pipeline of distinct product candidates derived from our nmdar modulator discovery platform , or the discovery platform . the following table summarizes the current status of our development programs as of the date of this annual report . nyx-2925 is being developed for the treatment of chronic pain . we recently reported top-line data from a phase 2 study in painful diabetic peripheral neuropathy , or painful dpn . nyx-2925 demonstrated a favorable safety profile with no serious adverse events reported . nyx-2925 did not show statistically significant separation from placebo on the primary endpoint , change from baseline on average pain intensity ( assessed using the numeric rating scale or nrs ) . however , data from the study answer several crucial questions and inform the next steps in the development of nyx-2925 for chronic pain . in the study , a sub-population of patients with advanced dpn , those who have had dpn for four years or longer , showed a clinically meaningful and statistically significant separation from placebo on the primary endpoint . in addition to average daily pain , those with advanced dpn showed significant treatment benefits across numerous endpoints measured in the study including worst pain , pain on walking , daily sleep interference , and others . additionally , when evaluating patients from this sub-population that were not taking a concomitant analgesic medication , these effects were even greater . the analysis of the full dataset from the study inform the next steps for development of nyx-2925 in chronic pain and we expect to initiate another phase 2 study in painful dpn in the second half of 2019. we plan to present incremental detail from this study at the american pain society scientific meeting in april 2019. additionally , we are evaluating nyx-2925 in an exploratory phase 2 study in patients with fibromyalgia . we recently reported positive results of an interim analysis of this exploratory study in which administration of nyx-2925 showed significant effects on the primary endpoint of changes in known pain processing markers as evaluated 86 through functional magnetic resonance imaging , or fmri . nyx-2925 also showed favorable corresponding trends of improvement on the secondary measures including pain , fibromyalgia impact , and cognition . we expect to complete this exploratory study and report data in the first half of 2019. based on the results from the interim analysis we expect to initiate a larger phase 2 study in patients with fibromyalgia in the second half of 2019. nyx-783 is in development for the treatment of post-traumatic stress disorder , or ptsd . nyx-783 has been evaluated in phase 1 clinical development and has been shown to be well tolerated , with no drug related serious adverse events , and to have a dose dependent , predictable , and linear pharmacokinetic profile . we recently initiated a phase 2 clinical study of nyx-783 in patients with ptsd . this first-in-patient study is a randomized , double-blind , placebo-controlled study evaluating the safety and efficacy of nyx-783 in approximately 144 patients with ptsd . we expect to report data from this study in the first half of 2020. we are currently evaluating the safety , tolerability , and pharmacokinetics of nyx-458 in a phase 1 study in healthy volunteers , which we expect to complete in the first half of 2019. we intend to develop nyx-458 for the treatment of cognitive impairment associated with parkinson 's disease . we believe that our available funds will be sufficient to fund our operations for at least the next twelve months . we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we do not expect to generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate , which we expect will take a number of years and the outcome of which is uncertain , or enter into collaborative agreements with third parties , the timing of which is largely beyond our control and may never occur . story_separator_special_tag story_separator_special_tag · develop and expand our sales , marketing , and distribution capabilities for our product candidates for which we obtain marketing approval ; · scale up our manufacturing processes and capabilities to support our ongoing preclinical activities and clinical studies of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval ; · maintain , expand , and protect our intellectual property portfolio ; · expand our operational , financial , and management systems and increase personnel to support our clinical development , manufacturing , and commercialization efforts ; and · increase our product liability and clinical trial insurance coverage as we initiate our clinical studies and commercialization efforts . 91 outlook as of december 31 , 2018 , we had cash and cash equivalents of $ 150.6 million . we believe that our available funds will be sufficient to fund our operations for at least the next twelve months . we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we do not expect to generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate , which we expect will take a number of years and the outcome of which is uncertain , or enter into collaborative agreements with third parties , the timing of which is largely beyond our control and may never occur . we will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future , which we may obtain through one or more equity offerings , debt financings , or other third‑party funding , including potential strategic alliances and licensing or collaboration arrangements . we may , however , be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates , or any additional product candidates , if developed . the amount and timing of our future funding requirements will depend on many factors , including the pace and results of our preclinical and clinical development efforts and the prioritization of our research and development pipeline . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . cash flows the following table summarizes our sources and uses of cash for each of the periods presented ( in thousands ) : replace_table_token_3_th net cash used in operating activities during the year ended december 31 , 2018 , our cash used in operating activities was primarily due to our net loss of $ 53.3 million as we incurred increased external research and development costs associated with our clinical studies during the year ended december 31 , 2018 and increased general and administrative costs , partially offset by non‑cash charges of $ 3.8 million , consisting primarily of $ 3.3 million in stock‑based compensation and $ 0.5 million in depreciation and amortization . net cash provided by changes in our operating assets and liabilities consisted of a $ 2.3 million change in accrued expenses and other liabilities , accounts payable and accounts receivable offset by a $ 0.3 million use of cash driven by a change in prepaid expenses and other assets . during the year ended december 31 , 2017 , our cash used in operating activities was primarily due to our net loss of $ 32.1 million , partially offset by non‑cash charges of $ 1.3 million , consisting primarily of $ 0.9 million in stock‑based compensation and $ 0.4 million in depreciation and amortization . net cash used in changes in our operating assets and liabilities consisted of a $ 1.9 million use of cash driven by changes in prepaid expenses and other assets , accounts receivable , accounts payable and accrued expenses and other liabilities . 92 net cash used in investing activities net cash used in investing activities was $ 0.4 million during the year ended december 31 , 2018 compared to $ 1.6 million during the year ended december 31 , 2017. the decrease in 2018 from 2017 related to the investments made in building out our leased corporate office in 2017 , as well as the timing of procurement of specific laboratory equipment used in our research and development activities . net cash provided by financing activities net cash provided by financing activities was $ 106.4 million during the year ended december 31 , 2018 , consisting primarily of $ 109.5 million of ipo proceeds , net of underwriting discounts and commissions offset by $ 3.0 million of offering costs related to our ipo , and additional financing costs of $ 0.2 million related to our series b convertible preferred stock financing that closed in december 2017. net cash provided by financing activities was $ 110.0 million during the year ended december 31 , 2017 , consisting of proceeds of $ 40.0 million received from the issuance of our series a‑2 convertible preferred stock and proceeds of $ 70.0 million received from the issuance of our series b convertible preferred stock . contractual obligations and other commitments we enter into contracts in the normal course of business with contract research organizations for clinical studies , preclinical research studies and testing , manufacturing , and other services and products for operating purposes . these contracts generally are cancelable at any time by us , generally upon 30 days prior written notice , and therefore these payments are not included in our table of contractual obligations .
| results of operations comparison of years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_1_th collaboration and grant revenue revenue was $ 6.6 million for the year ended december 31 , 2018 , compared to $ 5.0 million for the year ended december 31 , 2017. the net increase of $ 1.6 million was primarily the result of the following changes : · approximately $ 0.6 million increase reflecting incremental work performed under our research and development grants from the u.s. government associated with preclinical studies towards nyx‑458 . we do not expect to generate grant revenues in the future ; and · $ 1.0 million increase due to allergan 's exercise of its option in may 2018 to acquire exclusive rights to develop and commercialize agn‑241751 under the research collaboration agreement with allergan . 89 research and development expenses the following table summarizes our research and development expenses incurred during the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_2_th research and development expenses were $ 48.8 million for the year ended december 31 , 2018 , compared to $ 31.6 million for the year ended december 31 , 2017. the increase of $ 17.2 million was primarily due to the following : · approximately $ 11.0 million increase for clinical , regulatory , and drug product costs related to the development of nyx‑2925 , including enrollment efforts in our phase 2 clinical study in patients with painful dpn , ongoing enrollment in an exploratory clinical study in patients with fibromyalgia , and two phase 1 exploratory pharmacodynamic clinical studies that we commenced and completed in 2018 ; · approximately $ 1.4 million increase for clinical , regulatory , and drug‑product costs for work initiated in the fourth quarter of 2017 related to the ongoing development of nyx‑783 for the treatment
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words such as “ may , ” “ will , ” “ should , ” “ could , ” “ would , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ project , ” “ potential , ” “ seek , ” “ target , ” “ goal , ” “ intend , ” variations of such words , and similar expressions are intended to identify forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed under the caption “ special note regarding forward looking statements ” and in “ risk factors ” and elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this annual report . overview cymabay therapeutics , inc. is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need . our lead product candidate , seladelpar , is a potent and selective agonist of peroxisome proliferator activated receptor delta ( pparδ ) , a nuclear receptor that regulates genes directly or indirectly involved in the synthesis of bile acids/sterols , metabolism of lipids and glucose , inflammation and fibrosis . we are currently developing seladelpar for the treatment of primary biliary cholangitis ( pbc ) , an autoimmune disease that causes progressive destruction of the bile ducts in the liver resulting in impaired bile flow ( cholestasis ) and inflammation . we are also developing seladelpar for the treatment of nonalcoholic steatohepatitis ( nash ) , a prevalent and serious chronic liver disease caused by excessive fat accumulation in the liver that results in inflammation and cellular injury that can progress to fibrosis and cirrhosis , and potentially liver failure and death . seladelpar primary biliary cholangitis ( pbc ) in october 2018 , we commenced enrollment of a global , phase 3 registration study to evaluate seladelpar in patients with pbc . data from two phase 2 studies of seladelpar in pbc established seladelpar 's anti-cholestatic and anti-inflammatory effects and identified doses we believe have the potential to offer patients improved efficacy and better tolerability over the only approved second-line treatment available today . in addition to reductions in markers of cholestasis including alkaline phosphatase ( ap ) , seladelpar also improved inflammatory and metabolic markers with patients experiencing decreases in levels of transaminases , high sensitivity c-reactive protein , and low-density lipoprotein cholesterol . many pbc patients suffer from pruritus , or itching , which can significantly impact their quality of life . based on data from our phase 2 studies , and unlike the only approved second-line treatment currently available , seladelpar has not been associated with drug-induced pruritus . data from our completed phase 2 high dose and our ongoing phase 2 low dose studies of seladelpar in patients with pbc have established seladelpar 's anti-cholestatic and anti-inflammatory effects . in november 2018 , we released updated data from the phase 2 low dose study that continued to show sustained anti-cholestatic and anti-inflammatory effects with no worsening of pruritus through 52 weeks . specifically , efficacy data was released on the first set of patients treated for 52 weeks and safety data on patients that received at least one dose of seladelpar in the study . eligible pbc patients with either an inadequate response or intolerance to ursodeoxycholic acid ( udca ) were randomized to daily seladelpar at 5 or 10 mg. after 12 weeks , patients on 5 mg could escalate to 10 mg if their ap treatment goal was not met ( 5/10 mg group ) . the primary efficacy outcome was the ap % change from baseline . at 52 weeks , the mean decreases in ap were -47 % and -46 % in the 5/10 and 10 mg groups , respectively . a key secondary outcome was the composite response measured at week 52 where a responder was defined as a patient with ap < 1.67 x uln , ≥15 % decrease in ap , and total bilirubin ≤uln . at 52 weeks , 59 % and 71 % of patients met the composite endpoint in the 5/10 and 10 mg groups , respectively . the anti-cholestatic effect of seladelpar was further substantiated with normalization of ap levels at 52 weeks in 24 % and 29 % of patients in the 5/10 and 10 mg groups , respectively . treatment with seladelpar also demonstrated a robust anti-inflammatory activity with median transaminase decreases of -31 % and -33 % in the 5/10 and 10 mg groups , respectively . a 26-week analysis from the study was also shared on the effect of seladelpar on pruritus , or itching , which is a common clinical symptom of pbc that adversely effects a patient 's quality of life . after 26 weeks , the median changes in the pruritus visual 48 analog scale ( vas ) was -50 % and -55 % in the 5 /10 and 10 mg groups , respectively . these data suggest that seladelpar is not associated with drug-induced pruritus a nd support further evaluation of seladelpar 's potential benefit on pruritus . in february 2019 , the fda granted seladelpar breakthrough therapy designation for the treatment of early stage pbc , and in october 2016 , seladelpar received ema priority medicines ( prime ) designation for the treatment of pbc . in november 2016 , the fda granted orphan drug designation to seladelpar for the treatment of pbc , and in september 2017 , the ema 's committee for orphan medicinal products ( comp ) granted orphan drug designation to seladelpar for the treatment of pbc . nonalcoholic steatohepatitis ( nash ) we believe that seladelpar could also have utility in the treatment of nash . story_separator_special_tag as part of the accounting for contracts with customers , we must develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract . we then allocate the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation . we recognize the amount of the transaction price as revenue that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied . generally , our performance obligations are transferred to customers at a point in time , typically upon delivery . upfront license fees : if a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenues from nonrefundable , upfront license fees based on the relative value prescribed to the license compared to the total value of the arrangement . the revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license . for licenses that are not distinct from other obligations identified in the arrangement , we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time . if the combined performance obligation is satisfied over time , we apply an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable , upfront license fees . we evaluate the measure of progress each reporting period and , if necessary , adjust the measure of performance and related revenue recognition . development and regulatory milestone payments : depending on facts and circumstances , we may conclude that it is appropriate to include a milestone payment in the estimated transaction price using the most likely amount method or that it is appropriate to fully constrain the milestone . a milestone payment is included in the transaction price in the reporting period that we conclude that it is probable that recording revenue in the period will not result in a significant reversal in amounts recognized in future periods . we may record revenues from certain milestones in a reporting period before the milestone is achieved if we conclude that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods . we record a corresponding contract asset when this conclusion is reached . milestone payments that have not been included in the transaction price to date are fully constrained . these milestones remain fully constrained until we conclude that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods . we re-evaluate the probability of achievement of such development milestones and any related constraint each reporting period . we adjust our estimate of the overall transaction price , including the amount of collaborative revenue that was recorded , if necessary . sales-based milestone and royalty payments : our collaborators may be required to pay us sales-based milestone payments or royalties on future sales of commercial products . we recognize revenues related to sales-based milestone and royalty payments upon the later to occur of ( i ) achievement of the collaborator 's underlying sales or ( ii ) satisfaction of any performance obligation ( s ) related to these sales , in each case assuming the license our intellectual property is deemed to be the predominant item to which the sales-based milestones and or royalties relate . we receive payments from our customers based on billing schedules established in each contract . up-front payments and fees are recorded as deferred revenue upon receipt or when due until we perform our obligations under these arrangements . amounts are recorded as accounts receivable when our right to consideration is unconditional . we do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less . 50 as of th e adoption date of asc 606 , we had only one contract with a customer , kowa pharm aceuticals america , inc. ( kowa ) , that had not been completed . based on our review , we concluded there was no significant change in applying asc 606 to the contract with kowa and no amounts have been recognized within “ a ccumulated deficit ” in the consolidated balance sheet related to the adoption of the new standard . on october 24 , 2018 , we received a notice from kowa terminating the collaboration agreement for the development of arhalofenate . the termination will be effective as of january 22 , 2019. see note 5 in the notes to the consolidated financial statements for further discussion . research and development expenses and related prepayments and accruals research and development expenses consist of costs incurred in identifying , developing , and testing product candidates . these expenses consist primarily of costs for research and development personnel , including related stock-based compensation ; contract research organizations ( cro ) and other third parties that assist in managing , monitoring , and analyzing clinical trials ; investigator and site fees ; laboratory services ; consultants ; contract manufacturing services ; non-clinical studies , including materials ; and allocated expenses , such as depreciation of assets , and facilities and information technology that support research and development activities . research and development costs are expensed as incurred unless there is an alternative future use in other research and development projects . as part of the process of preparing our consolidated financial statements , we are required to estimate certain research and development expenses .
| results of operations general to date , we have not generated any income from operations . as of december 31 , 2018 , we have an accumulated deficit of $ 523.1 million , primarily as a result of expenditures for research and development and general and administrative expenses from inception to that date . while we have generated revenue from our license arrangement with kowa and may in the future generate revenue from a variety of other sources , including license fees and milestone payments in connection with any future strategic partnerships , seladelpar is at a mid-level stage of development and our other product candidates are at an early stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate sufficient revenue to achieve and sustain profitability . our results of operations for the years ended december 31 , 2018 , 2017 and 2016 are presented below ( in thousands ) : replace_table_token_2_th 52 collaboration revenue to date , our revenues have been recognized through collaborative licensing agreements as presented in the table below ( in thousands ) : replace_table_token_3_th comparison of years ended december 31 , 2018 and 2017 there was no collaboration revenue for the year ended december 31 , 2018 , compared to revenue of $ 10.0 million in the prior year . collaboration revenue was recognized in 2017 upon the fulfillment of certain obligations and deliverables under our collaboration agreement with kowa . comparison of years ended december 31 , 2017 and 2016 collaboration revenue for the year ended december 31 , 2017 and 2016 was $ 10.0 million and none , respectively . collaboration revenue was recognized in 2017 upon the fulfillment of certain obligations and deliverables under our collaboration agreement with kowa .
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the company is also entitled to sublicense or otherwise transfer the rights granted in connection with the lilly license agreement . under the lilly license agreement , the story_separator_special_tag financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with the “ selected financial data ” section of this annual report on form 10-k and our consolidated financial statements and the related notes included at the end of this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties , such as statements of our plans , objectives , expectations and intentions . 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 the forward-looking statements contained in the following discussion and analysis . overview we are an innovative clinical-stage biopharmaceutical company committed to developing novel therapies with the potential to transform the lives of people with disabling and potentially fatal neuropsychiatric disorders and pain . our pipeline is built on the broad therapeutic potential of our lead product candidate , karxt , an oral modulator of muscarinic receptors that are located both in the central nervous system , or cns , and various peripheral tissues . karxt is our proprietary product candidate that combines xanomeline , a novel muscarinic agonist , with trospium , an approved muscarinic antagonist , to preferentially stimulate muscarinic receptors in the cns . we recently announced topline results from our phase 2 clinical trial of karxt for the treatment of acute psychosis in patients with schizophrenia , in which karxt met the trial 's primary endpoint and was observed to be well tolerated . we are also developing karxt as a potential treatment for dementia-related psychosis , or drp , and pain . in the fourth quarter of 2019 , we initiated two phase 1b clinical trials of karxt . one trial is evaluating the safety and tolerability of karxt in healthy elderly volunteers as a precursor to karxt 's development in a drp patient population . the second trial is evaluating the effect of karxt on experimentally induced pain in healthy volunteers . we have assembled a team whose members have extensive expertise in the research , development and commercialization of numerous cns agents , as well as deep familiarity with the biology of neuropsychiatric disorders , such as schizophrenia and drp , including the role of muscarinic receptors in potential treatment of these diseases . we plan to leverage this expertise to develop a pipeline of product candidates targeting a broad range of psychiatric and neurological conditions . since our inception in 2009 , we have focused substantially all of our efforts and financial resources on organizing and staffing our company , acquiring and developing our technology , raising capital , building our intellectual property portfolio , undertaking preclinical studies and clinical trials and providing general and administrative support for these activities . on june 27 , 2019 , our registration statement on form s-1 relating to our initial public offering , or ipo , of our common stock was declared effective by the securities and exchange commission , or sec . in the ipo , which closed on july 2 , 2019 , we issued and sold 6,414,842 shares of our common stock , including full exercise of the underwriters ' over-allotment option to purchase an additional 836,718 shares , at a public offering price of $ 16.00 per share . the aggregate net proceeds to us from the ipo , inclusive of proceeds from the over-allotment exercise , were approximately $ 93.0 million after deducting underwriting discounts and commissions of $ 7.2 million and offering expenses of approximately $ 2.4 million . on november 20 , 2019 , our registration statement on form s-1 relating to our follow-on public offering of our common stock was declared effective by the sec . in this offering , which closed on november 25 , 2019 , we issued and sold 2,600,000 shares of our common stock at a public offering price of $ 96.00 per share . the aggregate net proceeds to us from the follow-on offering were approximately $ 234.2 million after deducting underwriting discounts and commissions of $ 15.0 million and offering expenses of approximately $ 0.4 million . prior to the initial and follow-on public offerings , we have funded our operations primarily with proceeds from the sales of redeemable convertible preferred stock and the issuance of convertible notes . 97 we have never generated revenue and have incurred significant net losses since inception . our net losses were $ 44.0 million and $ 17.5 million for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 75.5 million . our net losses may fluctuate significantly from quarter to quarter and year to year . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we anticipate that our operating expenses and capital expenditures will increase substantially , particularly as we : invest significantly to further develop karxt for our current and future indications ; advance additional product candidates into preclinical and clinical development ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; require the manufacture of larger quantities of our product candidates for clinical development and potential commercialization ; hire additional clinical , scientific , management and administrative personnel ; maintain , expand and protect our intellectual property portfolio ; acquire or in-license other assets and technologies ; and add additional operational , financial and management information systems and processes to support our ongoing development efforts , any future manufacturing or commercialization efforts and our transition to operating as a public company . story_separator_special_tag the duration , costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors , if and as we : continue to develop and conduct clinical trials for karxt for our current and future indications ; initiate and continue research , preclinical and clinical development efforts for future product candidates ; seek to identify additional product candidates ; seek regulatory approvals for karxt for our current and future indications as well as any other product candidates that successfully complete clinical development ; add operational , financial and management information systems and personnel , including personnel to support our product development and help us comply with our obligations as a public company ; hire and retain additional personnel , such as clinical , quality control , scientific , commercial and administrative personnel ; maintain , expand and protect our intellectual property portfolio ; establish sales , marketing , distribution , manufacturing , supply chain and other commercial infrastructure in the future to commercialize various products for which we may obtain regulatory approval , if any ; add equipment and physical infrastructure to support our research and development ; and acquire or in-license other product candidates and technologies . 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 . we may never succeed in obtaining regulatory approval for any of our product candidates . we do not believe that it is possible at this time to accurately project total indication-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . general and administrative expenses general and administrative expenses consist primarily of employee-related costs for personnel in executive , finance and administrative functions , costs related to maintenance and filing of intellectual property , facility-related costs , insurance costs , and other expenses for outside professional services , including legal , human resources , data management , audit and accounting services . personnel costs consist of salaries , benefits , travel expense and stock-based compensation expense . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will incur increased accounting , audit , legal , regulatory , compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company . 100 other income ( expense ) interest income ( expense ) . interest income ( expense ) consists of interest accrued , net of any interest forgiven , on the principal balance of convertible notes that were issued and outstanding during 2019 and 2018. in august 2018 , march 2019 , and april 2019 all outstanding convertible notes were converted into redeemable convertible preferred stock . a portion of the accrued interest was forgiven with respect to certain convertible notes upon their conversion into redeemable convertible preferred stock , and the forgiven interest was recorded as a reduction to interest expense in the years ended december 31 , 2019 and 2018. interest income . interest income consists of interest income from our cash equivalents and short-term investments . accretion of debt discount . upon issuance of our convertible notes , each note was recorded at cost , net of the derivative liability ( see “ —critical accounting polices and estimates ” ) . this discount on each outstanding note , if any , was amortized as interest expense to the date such note was expected to convert using the effective interest rate method and is reflected in the statements of operations as accretion of debt discount . change in fair value of derivatives . our convertible notes contained conversion options at a significant premium that were deemed to be embedded derivatives that are required to be bifurcated and accounted for separately from the convertible note . we remeasured the derivative liability to fair value at each reporting date , and we recognized changes in the fair value of the derivative liabilities in our statements of operations . as part of the conversion of outstanding convertible notes into redeemable convertible preferred stock , all derivatives were settled in 2019. story_separator_special_tag closing of our series a financing in august 2018. following the financing , we no longer met the requirements to be included in the controlled group filing , as puretech health no longer held 80 % of our outstanding voting securities , thereby requiring us to file a separate u.s. federal income tax return for the period beginning on that date going forward . on july 2 , 2019 , puretech no longer held 50 % of the outstanding shares of the company and therefore , beginning on this date , we will file separate state income tax returns . 103 liquidity and capital resources since our inception , we have incurred significant operating losses . we have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years , if at all . to date , we have funded our operations primarily with proceeds from the sale of redeemable convertible preferred stock , issuance of convertible notes , and sales of our common stock .
| results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_5_th 101 research and development expenses replace_table_token_6_th expenses related to our schizophrenia clinical trials increased by $ 5.3 million due to the progress of our phase 2 clinical trial , for which topline data was announced in november 2019. the $ 0.6 million and $ 0.4 million in expenses related to pain and dementia-related psychosis clinical trials , respectively , consist of study preparation and startup costs for phase 1b clinical trials incurred in the year ended december 31 , 2019. formulation and cmc expenses increased by $ 0.7 million due to an increase in formulation development activities . preclinical expenses increased by $ 1.4 million due to the initiation and execution of toxicology studies . the increase of $ 2.5 million in personnel-related costs was primarily a result of an increase in headcount . the increase of $ 2.0 million in consultant fees and other expenses was due to a combination of an increase in consulting activities as well as costs associated with our discovery programs . general and administrative expenses replace_table_token_7_th the increase of $ 14.2 million in personnel-related costs was primarily due to an increase in stock-based compensation of $ 11.2 million , which was primarily attributable to certain grants near or at the time of our ipo that fully vested in 2019 on an accelerated schedule . the increase of $ 1.1 million in professional and consultant fees was primarily due to an increase in audit fees , legal costs , public relations consulting fees , and recruiting costs related to our preparations to be , and our ongoing business activities as , a public company . the increase of $ 2.6 million in other costs was primarily due to insurance costs and our facility lease in boston , massachusetts .
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in the case of retirement at 59 ½ years or older , all unvested restricted stock unit awards will continue to vest provided the holder of each award does all consulting work through the company and does not become an employee for a story_separator_special_tag overview exponent is an engineering and scientific consulting firm providing solutions to complex problems . exponent 's interdisciplinary organization of scientists , physicians , engineers , and business consultants draws from more than 90 technical disciplines to solve the most pressing and complicated challenges facing stakeholders today . the firm leverages over 50 years of experience in analyzing accidents and failures to advise clients as they innovate their technologically complex products and processes , ensure the safety and health of their users , and address the challenges of sustainability . critical accounting estimates in preparing our consolidated financial statements , we make assumptions , judgments and estimates that can have a significant impact on our revenue , operating income and net income , as well as on the value of certain assets and liabilities on our consolidated balance sheet . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . on a regular basis we evaluate our assumptions , judgments and estimates and make changes accordingly . we believe that the assumptions , judgments and estimates involved in accounting for revenue recognition and estimating the allowance for contract losses and doubtful accounts have a potential impact on our consolidated financial statements , so we consider these to be our critical accounting policies . we discuss below the assumptions , judgments and estimates associated with these policies . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . for further information on our critical accounting policies , see “ note 1 : summary of significant accounting policies ” of our notes to consolidated financial statements . 20 revenue recognition . we derive our revenues primarily from professional fees earned on consulting engagements , fees earned for the use of our equipment and facilities , as well as reimbursements for outside direct expenses associated with the services that are billed to our clients . substantially all of our engagements are service contracts performed under time and material or fixed-price billing arrangements . for time and material and fixed-price service projects , revenue is generally recognized as the services are performed . for substantially all of our fixed-price service engagements , we recognize revenue based on the relationship of incurred labor hours at standard rates to our estimate of the total labor hours at standard rates we expect to incur over the term of the contract . our estimate of total labor hours we expect to incur over the term of the contract is based on the nature of the project and our past experience on similar projects . we believe this methodology achieves a reliable measure of the revenue from the consulting services we provide to our customers under fixed-price contracts . management judgments and estimates must be made and used in connection with the revenues recognized in any accounting period . these judgments and estimates include an assessment of the estimate as to the total effort required to complete fixed-price projects . estimating the allowance for contract losses and doubtful accounts . we make estimates of our ability to collect accounts receivable and our unbilled but recognized work-in-process . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations to us or for disputes with customers that affect our ability to fully collect our accounts receivable and unbilled work-in-process , we record a specific allowance to reduce the net recognized receivable to the amount we reasonably believe will be collected . for all other customers we recognize allowances for contract losses and doubtful accounts taking into consideration factors such as historical write-offs , customer concentration , customer credit-worthiness , current economic conditions , and aging of amounts due . 21 the following table sets forth , for the periods indicated , the percentage of revenues of certain items in our consolidated statements of income and the percentage increase ( decrease ) in the dollar amount of such items year to year : replace_table_token_3_th story_separator_special_tag third quarter of 2018. technical full-time equivalents increased 3.1 % to 199 during 2018 as compared to 193 for 2017 due to our recruiting and retention efforts . 23 revenues are primarily derived from services provided in response to client requests or events that occur without notice and engagements are generally terminable or subject to postponement or delay at any time by our clients . as a result , backlog at any particular time is small in relation to our quarterly or annual revenues and is not a reliable indicator of revenues for any future periods . compensation and related expenses ( in thousands except fiscal years percent percentages ) 2018 2017 change compensation and related expenses $ 215,052 $ 210,289 2.3 % percentage of total revenues 56.7 % 60.5 % the increase in compensation and related expenses during 2018 was due to an increase in payroll expense , an increase in fringe benefits , an increase in bonus expense , and an increase in stock-based compensation expense partially offset by a change in the value of assets associated with our deferred compensation plan . during 2018 , payroll and fringe benefits increased $ 7,188,000 and $ 2,043,000 , respectively , due to the increase in technical full-time equivalent employees and our annual salary increase . during 2018 , bonus expense increased by $ 5,107,000 due to a corresponding increase in income before income taxes , before bonus expense , and before stock-based compensation . stock-based compensation increased $ 788,000 due primarily to an increase in the amortization of restricted stock unit grants . story_separator_special_tag utilization increased to 77 % for 2017 as compared to 73 % for 2016. technical full-time equivalents increased 4.8 % to 591 for 2017 from 564 for 2016 due to our recruiting and retention efforts . 25 the increase in revenues from our environmental and health segment was due to an increase in billable hours . during 2017 , billable hours for this segment increased by 5.7 % to 277,000 as compared to 262,000 during 2016. utilization increased to 69 % for 2017 as compared to 63 % for 2016. during the year , the chemical regulation and food safety practice grew its proactive services to meet demand , as society remains concerned about chemicals affecting the global ecosystem and human health . our environmental health scientists provided reactive services performing human health and environmental assessments . this segment 's contribution to the large ongoing human factors assessment also contributed to the increase in billable hours and utilization . technical full-time equivalents decreased 3.5 % to 193 during 2017 as compared to 200 for 2016 due to our efforts to align resources with anticipated demand . compensation and related expenses ( in thousands except fiscal years percent percentages ) 2017 2016 change compensation and related expenses $ 210,289 $ 193,397 8.7 % percentage of total revenues 60.5 % 61.4 % the increase in compensation and related expenses during 2017 was due to an increase in bonus expense , an increase in payroll expense , an increase in fringe benefits , and a change in the value of assets associated with our deferred compensation plan . during 2017 , bonus expense increased by $ 7,718,000 due to a corresponding increase in income before income taxes , before bonus expense , and before stock-based compensation . during 2017 , payroll and fringe benefits increased $ 4,769,000 and $ 991,000 , respectively , due to the increase in technical full-time equivalent employees and our annual salary increase . during 2017 , deferred compensation expense increased $ 2,686,000 with a corresponding increase to other income as compared with the prior year due to the change in value of assets associated with our deferred compensation plan . this increase consisted of an increase in the value of the plan assets of $ 6,547,000 during 2017 as compared to an increase in the value of the plan assets of $ 3,861,000 during 2016. other operating expenses ( in thousands except fiscal years percent percentages ) 2017 2016 change other operating expenses $ 29,544 $ 28,397 4.0 % percentage of total revenues 8.5 % 9.0 % other operating expenses include facilities-related costs , technical materials , computer-related expenses and depreciation and amortization of property , equipment and leasehold improvements . the increase in other operating expenses was primarily due to an increase in occupancy expense of $ 416,000 , an increase in computer expense of $ 270,000 , an increase in technical materials of $ 183,000 , and several individually insignificant increases , which were associated with the increase in technical full-time equivalent employees and investments in our corporate infrastructure . reimbursable expenses ( in thousands except fiscal years percent percentages ) 2017 2016 change reimbursable expenses $ 18,135 $ 15,879 14.2 % percentage of total revenues 5.2 % 5.0 % the increase in reimbursable expenses was primarily due to an increase in travel related costs associated with our large human factors assessment project . the amount of reimbursable expenses will vary from year to year depending on the nature of our projects . general and administrative expenses ( in thousands except fiscal years percent percentages ) 2017 2016 change general and administrative expenses $ 17,780 $ 15,492 14.8 % percentage of total revenues 5.1 % 4.9 % the increase in general and administrative expenses during 2017 was primarily due to an increase in travel and meals of $ 1,173,000 , an increase in contributions of $ 250,000 , an increase in marketing and promotion of $ 200,000 and an increase in legal expense of $ 194,000. the increase in travel and meals was due to a firm-wide managers ' meeting which occurs every other year . the increase in marketing and promotion was due to several initiatives associated with the firm 's 50 th anniversary . 26 other income ( in thousands except fiscal years percent percentages ) 2017 2016 change other income $ 10,458 $ 7,211 45.0 % percentage of total revenues 3.0 % 2.3 % other income consists primarily of interest income earned on available cash , cash equivalents and short-term investments , changes in the value of assets associated with our deferred compensation plan and rental income from leasing excess space in our silicon valley facility . the increase in other income was primarily due to the change in value of assets associated with our deferred compensation plan . during 2017 , other income increased $ 2,686,000 with a corresponding increase to deferred compensation expense as compared to 2016. this change consisted of an increase in the value of the plan assets of $ 6,547,000 during 2017 as compared to an increase in the value of the plan assets of $ 3,861,000 during 2016. the increase in other income during 2017 was also due to an increase in interest income of $ 611,000 due to higher interest rates for our cash equivalents and short-term investments . income taxes replace_table_token_7_th the increase in income tax expense was due to an increase in pre-tax income and the impact of the tax legislation signed into law during the fourth quarter of 2017 , partially offset by an increase in the excess tax benefit associated with share-based payment awards . during 2017 , we recorded a tax expense of $ 16,507,000 related to the tax legislation . we have significant domestic deferred tax assets primarily associated with our deferred compensation plan and stock-based compensation program , which were previously valued at the federal corporate income tax rate of 35 % .
| executive summary revenues for 2018 increased 9 % and revenues before reimbursements increased 8 % as compared to the prior year . the increase in revenues before reimbursements was due to an increase in billable hours and an increase in billing rates . we experienced strong demand for our consulting services from a diverse set of clients for both proactive and reactive projects across several industries and geographies . we continue to see demand for our proactive services in the areas of design and regulatory consulting , specifically related to consumer electronics as that industry continues to innovate and face manufacturability challenges . we also continue to see demand for our reactive services from clients in the energy , mining and infrastructure industries with technical and construction management issues on large capital projects . clients in these industries continue to engage our inter-disciplinary teams to evaluate these claims . we also continue to see demand for our scientists to assess increasing concerns regarding the impact of chemicals on human health and the environment . during 2018 , we had strong growth in our human factors , materials & corrosion engineering , thermal sciences , polymer science & materials chemistry , mechanical engineering , and chemical regulation & food safety practices . we were engaged by clients throughout the year to determine what happened when a disaster occurs . these events range from structural failures on major infrastructure to nanoscale components . during 2018 , we completed work on a large human factors assessment for a client in the consumer products industry .
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all assets , liabilities , income , expenses and cash flows presented for all periods represent those of verso 's indirect , wholly-owned subsidiary , verso holdings , in all material respects , except for verso 's common stock transactions , verso finance 's debt obligation and related financing costs and interest expense , verso holdings ' loan to verso finance , and the debt obligation of verso holdings ' consolidated variable interest entity to verso finance . overview we are a leading north american supplier of coated papers to catalog and magazine publishers . coated paper is used primarily in media and marketing applications , including catalogs , magazines , and commercial printing applications , such as high-end advertising brochures , annual reports , and direct mail advertising . we are one of north america 's largest producers of coated groundwood paper , which is used primarily for catalogs and magazines . we are also a low cost producer of coated freesheet paper , which is used primarily for annual reports , brochures , and magazine covers . we also produce and sell market kraft pulp , which is used to manufacture printing and writing paper grades and tissue products . background we began operations on august 1 , 2006 , when we acquired the assets and certain liabilities of the business of international paper . we were formed by affiliates of apollo for the purpose of consummating the acquisition from international paper . verso went public on may 14 , 2008 , with an ipo of 14 million shares of common stock . on january 3 , 2014 , verso , verso merger sub inc. , a delaware corporation and an indirect , wholly owned subsidiary of verso , or “ merger sub , ” and newpage holdings inc. , a delaware corporation , or “ newpage , ” entered into an agreement and plan of merger , or the “ merger agreement , ” pursuant to which the parties agreed to merge merger sub with and into newpage on the terms and subject to the conditions set forth in the merger agreement , with newpage surviving the merger as an indirect , wholly owned subsidiary of verso . on january 7 , 2015 , verso consummated the previously announced acquisition of newpage through the merger of merger sub , with and into newpage , or the “ newpage acquisition , ” pursuant to the merger agreement . as a result of the merger of merger sub with and into newpage , merger sub 's separate corporate existence ceased and newpage continued as the surviving corporation and an indirect , wholly owned subsidiary of verso ( see note 24 ) . as the newpage acquisition was consummated subsequent to our year-end , part ii , item 7 of this annual report excludes the impact of newpage 's operations on our business . selected factors affecting operating results net sales our sales , which we report net of rebates , allowances , and discounts , are a function of the number of tons of paper that we sell and the price at which we sell our paper . the coated paper industry is cyclical , which results in changes in both volume and price . paper prices historically have been a function of macro-economic factors which influence supply and demand . price has historically been substantially more variable than volume and can change significantly over relatively short time periods . in 2014 , while our coated paper prices declined , prices for our pulp increased slightly . prices are expected to recover in 2015 , but we do not expect prices in 2015 to return to the levels they were at in 2008 before they declined . we are primarily focused on serving two end-user segments : catalogs and magazines . in 2014 , we believe we were a leading north american supplier of coated papers to catalog and magazine publishers . coated paper demand is primarily driven by advertising and print media usage . advertising spending and magazine and catalog circulation tend to correlate with changes in the gdp of the united states – they rise with a strong economy and contract with a weak economy . many of our customers provide us with forecasts of their paper needs , which allows us to plan our production runs in advance , optimizing production over our integrated mill system and thereby reducing costs and increasing overall efficiency . generally , 27 our sales agreements do not extend beyond the calendar year . typically , our sales agreements provide for semiannual price adjustments based on market price movements . we reach our end-users through several channels , including printers , brokers , paper merchants , and direct sales to end-users . we sell and market our products to approximately 130 customers which comprise approximately 650 end-user accounts . in 2014 , quad/graphics , inc. and central national-gottesman , inc. accounted for approximately 14 % and 10 % of our net sales , respectively . our historical results include specialty papers that we manufacture for expera specialty solutions , llc or “ expera , ” on paper machine no . 5 at the androscoggin mill . under a long-term supply agreement entered into in 2005 in connection with international paper 's sale of its industrial papers business to expera , these products are sold to expera at a variable charge for the paper purchased and a fixed charge for the availability of the machine . the amounts included in our net sales for the specialty papers sold to expera totaled $ 42.2 million , $ 43.0 million , and $ 42.0 million , in 2014 , 2013 , and 2012 , respectively . cost of products sold the principal components of our cost of sales are chemicals , wood , energy , labor , and maintenance . costs for commodities , including chemicals , wood , and energy , are the most variable component of our cost of sales because their prices can fluctuate substantially , sometimes within a relatively short period of time . story_separator_special_tag in 2012 , based on a comprehensive assessment of the damage resulting from the fire and explosion at our paper mill in sartell , minnesota , we decided to permanently close the mill and recorded a fixed asset impairment charge of $ 66.5 million , which was included in restructuring charges on our accompanying consolidated statements of operations . the impairment charge was calculated based on the excess of carrying value over the estimated fair value of the site , which was estimated based on preliminary negotiations with potential buyers received subsequent to our decision to shut down the mill . intangible assets are accounted for in accordance with asc topic 350. intangible assets primarily consist of trademarks , customer-related intangible assets and patents obtained through business acquisitions . we have identified the following trademarks as intangible assets with an indefinite life : influence ® , liberty ® , and advocate ® . we assess indefinite-lived intangible assets at least annually for impairment or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount . trademarks are evaluated by comparing their fair value to their carrying values . in the third quarter of 2014 , we determined that sufficient indicators of a potential impairment of our trademarks existed and we performed an interim analysis of our trademarks for impairment . as a result of our analysis , we determined that the carrying value of our trademarks exceeded their fair value , which was determined using a level 3 fair value measurement . this fair value determination was made using the income approach , which required us to estimate unobservable factors such as a royalty rate and discount rate and identify relevant projected revenue . we recognized an impairment charge of $ 6.3 million based on a projected reduction of revenues driven primarily by a decline in u.s. demand . the trademark impairment charge is included in cost of products sold in our consolidated statement of operations . during 2013 , as a result of our annual impairment testing , we recognized an impairment charge of $ 1.6 million , which was included in cost of goods sold on our accompanying consolidated statements of operations . during 2012 , as a result of a reduction in production capacity from the closure of the former sartell mill , we recognized a 29 trademarks impairment charge of $ 3.7 million , which was included in restructuring charges on our accompanying consolidated statements of operations . management believes that the accounting estimates associated with determining fair value as part of an impairment analysis are critical accounting estimates because estimates and assumptions are made about our future performance and cash flows . the estimated fair value is generally determined on the basis of discounted future cash flows . we also consider a market-based approach and a combination of both . while management uses the best information available to estimate future performance and cash flows , future adjustments to management 's projections may be necessary if economic conditions differ substantially from the assumptions used in making the estimates . pension benefit obligations . we offer various pension plans to employees . the calculation of the obligations and related expenses under these plans requires the use of actuarial valuation methods and assumptions , including the expected long-term rate of return on plan assets , discount rates , and mortality rates . as of december 31 , 2014 , we updated the mortality table used in the determination of our pension benefit obligation to the rp-2014 mortality table published by the society of actuaries to reflect longer life expectancies than under the previous table . actuarial valuations and assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used . contingent liabilities . a liability is contingent if the outcome or amount is not presently known , but may become known in the future as a result of the occurrence of some uncertain future event . we estimate our contingent liabilities based on management 's estimates about the probability of outcomes and their ability to estimate the range of exposure . accounting standards require that a liability be recorded if management determines that it is probable that a loss has occurred and the loss can be reasonably estimated . in addition , it must be probable that the loss will be confirmed by some future event . as part of the estimation process , management is required to make assumptions about matters that are by their nature highly uncertain . the assessment of contingent liabilities , including legal contingencies , asset retirement obligations and environmental costs and obligations , involves the use of critical estimates , assumptions , and judgments . management 's estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures . however , there can be no assurance that future events will not differ from management 's assessments . recent accounting developments asc topic 405 , obligations from joint and several liability arrangements . in february 2013 , the fasb issued accounting standards update , or “ asu , ” 2013-04 , liabilities ( topic 405 ) , obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date . this asu defines how entities measure obligations from joint and several liability arrangements which are fixed at the reporting date and for which no u.s. gaap guidance exists . the guidance also requires entities to disclose the nature , amount and other information about those obligations . the asu is effective for periods beginning after december 15 , 2013. retrospective presentation for all comparative periods presented is required . the adoption of this amendment in the first quarter of 2014 , did not have a material impact on the presentation of our consolidated financial statements .
| results of operations the following table sets forth certain consolidated financial information for the years ended december 31 , 2014 , 2013 , and 2012 . cost of sales in the following table and discussion includes the cost of products sold and depreciation , amortization , and depletion . the following table and discussion should be read in conjunction with the information contained in our consolidated financial statements and the related notes thereto included elsewhere in this annual report . replace_table_token_8_th 2014 compared to 2013 net sales . net sales for 2014 decreased 6.6 % to $ 1,296.6 million from $ 1,388.9 million in 2013 , due to a 3.9 % decline in total sales volume , and a 2.9 % decrease in the average sales price for all of our products in 2014 compared to 2013 . net sales for our coated papers segment decreased 11.6 % to $ 939.1 million in 2014 from $ 1,062.6 million in 2013 , due to a 7.7 % decrease in paper sales volume and a 4.3 % decline in average sales price per ton of coated paper compared to last year . the decline in sales volume and price were driven by declining demand for coated papers . net sales for our market pulp segment increased 2.9 % in 2014 to $ 160.7 million from $ 156.1 million in 2013 . the average sales price per ton increased 2.5 % while the sales volume remained flat compared to 2013 . net sales for our other segment increased 15.6 % to $ 196.8 million in 2014 from $ 170.2 million in 2013 . this increase was driven by a 16.8 % increase in sales volume offset by a 1.0 % decrease in sales price . cost of sales . cost of sales , including depreciation , amortization , and depletion , was $ 1,266.9 million in 2014 compared to $ 1,283.8 million in 2013 .
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the information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document . the discussion below contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements involve risks and uncertainties including , but not limited to : demand and acceptance of services offered by us , our ability to achieve and maintain acceptable cost levels , rate levels and actions by competitors , regulatory matters , general economic conditions , and changing business strategies . forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations , including , but not limited to our performance in future periods , our ability to generate working capital from operations , the adequacy of our insurance coverage , and the results of litigation or investigation . our forward-looking statements can be identified by the use of terminology such as “ anticipates , ” “ expects , ” “ intends , ” “ believes , ” “ will ” or the negative thereof or variations thereon or comparable terminology . except as required by law , we undertake no obligation to publicly update or revise any forward-looking statement , whether as a result of new information , future events or otherwise . overview ebix , inc. is a leading international supplier of on-demand software and e-commerce solutions to the insurance industry . ebix provides various application software products for the insurance industry ranging from carrier systems , agency systems and exchanges to custom software development for all entities involved in the insurance and financial industries . approximately 80 % of the company 's revenues are of a recurring nature . rather than license our products in perpetuity , we typically either license them for a few years with ongoing support revenues , or license them on a limited term basis using a subscription hosting or asp model . our goal is to be the leading powerhouse of backend insurance transactions in the world . the company 's technology vision is to focus on convergence of all insurance channels , processes and entities in a manner such that data can seamlessly flow once a data entry has been made . our customers include many of the top insurance and financial sector companies in the world . the insurance industry has undergone significant consolidation over the past several years driven by the need for , and benefits from , economies of scale and scope in providing insurance in a competitive environment . the insurance markets have continuously increased their demands for cutting edge solutions to reduce paper based processes and improve efficiency both at the back-end side and at the consumer end side of their insurance transaction processing . such consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed . management believes the world-wide insurance industry will continue to experience significant change and the need for increased efficiencies through online exchanges and streamlined processes . the changes in the insurance industry are likely to create new opportunities for the company . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of revenue growth , operating income , operating margin , income from continuing operations , diluted earnings per share , and cash provided by operating activities . we monitor these indicators , in conjunction with our corporate governance practices , to ensure that our business is efficiently managed and that effective controls are maintained . the key performance indicators for the twelve months ended december 31 , 2011 , 2010 , and 2009 were as follows : replace_table_token_5_th * adjusted to reflect the effect of the 3-for-1 stock split dated january 4 , 2010 23 story_separator_special_tag style= '' line-height:120 % ; padding-top:13px ; text-align : justify ; font-size:10pt ; '' > interest expense interest expense decreased $ 143 thousand or 16 % from $ 902 thousand in 2010 to $ 759 thousand in 2011 . this decrease is primarily due to the conversion of the company remaining $ 5.0 million of convertible debt that occurred in april 2011 thereby ceasing further recognition of the imputed interest expense associated with this debt instrument , and also due a lower rate of interest incurred with our revolving line of credit . other non-operating income other non-operating income of $ 647 thousand for the year ending december 31 , 2011 consists of a $ 537 thousand gain recognized in regards to the net decrease in the fair value of the put option that was issued to the two former stockholders of e-z data whom received shares of ebix common stock as part of the acquisition consideration paid by the company ; this put option expired on october 31 , 2011. also in addition to this gain on the put option was a $ 108 thousand gain that was recognized upon the settlement of a $ 5.0 million convertible note that was fully converted and settled in april 2011. foreign exchange gain net foreign exchange gains of $ 4.3 million for the year ended december 31 , 2011 consisted of $ 6.9 million of gains recognized upon the re-measuring of certain intercompany debt obligations partially offset by $ 2.6 million of losses recorded in connection with the changes in the fair value of related derivative instruments the company holds to hedge the impact of fluctuations in the exchange rates in the foreign jurisdictions in which we certain international operations . story_separator_special_tag partially offsetting these increases in general and administrative expenses was a $ 1.5 million benefit associated with the reversal of a previously recorded contingent liability earnout obligation associated with our october 2009 acquisition of peak , because during the subsequent 2010 earnout period the defined revenue targets was not achieved by the peak operations . amortization and depreciation expenses amortization and depreciation expenses increased $ 2.1 million , or 54 % , from $ 3.9 million in 2009 to $ 6.0 million in 2010. this increase was due to $ 1.3 million of additional amortization expense incurred in connection with the customer relationship , developed technology , and non-compete intangible assets that were recognized in connection with our 2010 business acquisitions of mcn , trades monitor , and usix , and our 2009 business acquisitions of e-z data , facts , and peak . we also incurred increased depreciation expense amounting to $ 795 thousand related to additional capital equipment expenditures in support of our growing businesses . interest income interest income increased $ 320 thousand or 161 % from $ 199 thousand in 2009 to $ 519 thousand in 2010 primarily due to earnings realized on funds invested in foreign banks . interest expense interest expense decreased $ 168 thousand or 16 % from $ 1.1 million in 2009 to $ 902 thousand in 2010. this decrease was primarily due to the full conversion of $ 20.0 million of convertible debt during the third and fourth quarters thereby ceasing further recognition of the imputed interest expense associated with these debt instruments . other non-operating income other non-operating income of $ 6.3 million for the year ending december 31 , 2010 consisted of a $ 6.0 million gain recognized for the decrease in the fair value of the put option that was issued to the two former stockholders of e-z data whom received shares of ebix common stock as part of the acquisition consideration paid by the company , and a $ 262 thousand gain realized upon the sale of a building . foreign exchange gain net foreign exchange gains decreased $ 147 thousand or 11 % from $ 1.4 million in 2009 to $ 1.2 million in 2010. this net decrease is due to the $ 949 thousand impact of re-measuring certain intercompany debt obligations largely offset by $ 802 thousand of gains recorded in connection with the changes in the fair value of the related derivative instruments the company holds to hedge the impact of fluctuations in the exchange rates in the foreign jurisdictions in which we conduct our international operations . income taxes the company 's income tax provision , exclusive of discrete items , for the year ended december 31 , 2010 , was an expense of $ 2.9 million which was reflective of an 4.8 % effective tax rate . included in the discrete items recognized during the 2010 were was the benefit recognized from the $ 2.3 million release of the remaining valuation allowance that had been held against certain cumulative net operating loss ( “ nol ” ) carryforwards in the united states . this valuation allowance was released at that time as management believed that the uncertainties that had existed regarding the performance of our health benefits exchange operating segment in connection with the potential adverse impacts associated with the than pending health care legislation were no longer relevant . net of discrete items income tax expense was $ 635 thousand for the year 2010 , which was $ 375 thousand , or 37 % , lower than the $ 1.0 million income tax expense recognized in 2009 , and during which year the company had a 2.5 % effective 28 tax rate . also facilitating the relatively low consolidated world-wide effective tax rate are the advantages the company realizes from conducting activities in certain foreign low tax jurisdictions . liquidity and capital resources our ability to generate significant cash flows from operating activities is one the company 's fundamental financial strengths . our principal sources of liquidity are the cash flows provided by our operating activities , our revolving credit facility , and cash and cash equivalents on hand . we intend to utilize cash flows generated by our ongoing operating activities , in combination with possibly expanding our commercial lending facility , and the possible issuance of additional equity or debt securities to fund capital expenditures and organic growth initiatives , to make strategic business acquisitions , to retire outstanding indebtedness , and to possibly repurchase shares of our common stock as market and operating conditions warrant . in the 4th quarter of 2011 the company paid its first quarterly dividend in the amount of $ 0.04 per common share , paying $ 1.5 million in the aggregate in regards to this dividend issuance . this same quarterly dividend per share was paid in february 2012. the company intends to use a portion of its operating cash flows to continue issuing dividends to its shareholders in the foreseeable future , while remaining dedicated to using most of its cash to generate improvement in future earnings by funding organic growth initiatives and accretive business acquisitions . we believe that anticipated cash flows provided by our operating activities , together with current cash balances and access to our credit facilities and the capital markets , if required , will be sufficient to meet our projected cash requirements for the next twelve months , and the foreseeable future thereafter , although any projections of future cash needs , cash flows , and the general market condition for credit and equity securities may be subject to substantial uncertainty . in the event additional liquidity needs arise , we may raise funds from a combination of sources , including the potential issuance of debt or equity securities . however , there are no assurances that such financing facilities will be available in amounts or on terms acceptable to us , if at all .
| results of operations replace_table_token_6_th twelve months ended december 31 , 2011 and 2010 operating revenue the company derives its revenues primarily from professional and support services , which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our asp platforms , revenue generated from software development projects and associated fees for consulting , implementation , training , and project management provided to customers using our systems , and business process outsourcing revenue . ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2011 and 2010 . replace_table_token_7_th during the twelve months ended december 31 , 2011 our total revenue increased $ 36.8 million or 28 % , to $ 169.0 million compared to $ 132.2 million in 2010 . the increase in revenues is primarily the result of revenue from the acquisition of adam since february 2011 , revenue from business acquisitions made during 2010 , and continued growth achieved in our exchange channel . the company continues to immediately and efficiently leverage product cross-selling opportunities across all channels , as facilitated by our operating philosophy and business acquisition strategy . also partially effecting reported revenues was the impact from fluctuations in the exchange rates of the foreign currencies in the countries in which we conduct operations . during each of the years 2011 , 2010 , and 2009 the change in foreign currency exchange rates increased/ ( decreased ) reported consolidated operating revenues by $ 4.2 million , $ 4.6 million , and $ ( 1.9 ) million , respectfully . the specific components of our revenue and the changes experienced during the past year are discussed further below .
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this increase in cost of rentals and fees was primarily attributable to growth in rentals and fees revenue in the acceptance now segment in 2015 as compared to 2014 , partially offset by decreases in rentals and fees revenue in the core u.s. and mexico segments . the gross margin percent of rentals and fees decreased to 73.8 % for the year ended december 31 , 2015 , as compared to 74.3 % in 2014 , driven by increased revenue in the acceptance now segment , which has higher costs of rental merchandise . cost of merchandise sold . cost of merchandise sold represents the net book value of rental merchandise at time of sale . cost of merchandise sold increased by $ 125.2 million , or 54.1 % , to $ 356.7 million for the year ended december 31 , 2015 , from $ 231.5 million in 2014 . the gross margin percent of merchandise sales decreased to 5.4 % for the year ended december 31 , 2015 , from 20.2 % in 2014 , driven by a lower gross profit margin on merchandise sales and a higher mix of merchandise sales , primarily due to increased usage of the 90 day cash option in the acceptance now segment and sales of smartphones in the core u.s. segment . other charges and ( credits ) . during 2015 , we recognized a $ 34.7 million charge for the write-down of smartphones as discussed above , compared to a $ 6.8 million credit recognized in 2014 as a result of a class-action settlement with the manufacturers of lcd screen displays , which is discussed further in note k to the consolidated financial statements . gross profit . gross profit decreased by $ 66.3 million , or 3.0 % , to $ 2,118.1 million for the year ended december 31 , 2015 , from $ 2,184.4 million in 2014 , driven by decreases of $ 108.4 million and $ 8.7 million in the core u.s. and mexico segments , partially offset by a $ 49.0 million increase in the acceptance now segment , as discussed further in the segment performance section below . gross profit as a percentage of total revenue decreased to 64.6 % in 2015 compared to 69.2 % in 2014 . without the $ 34.7 million smartphone write-down and the $ 6.8 million vendor settlement credit discussed above , gross margin as a percentage of total revenue would have been 65.7 % for the year ended december 31 , 2015 , a decrease of 3.3 % from the prior year , primarily due to the lower margins in the acceptance now segment as discussed above . store labor . store labor includes all salaries and wages paid to store-level employees and district managers ' salaries , together with payroll taxes and benefits . store labor decreased by $ 34.3 million , or 3.9 % , to $ 854.6 million for the year ended december 31 , 2015 , as compared to $ 888.9 million in 2014 . store labor in the core u.s. and mexico segments decreased $ 46.7 million and $ 5.5 million , respectively , partially offset by an increase of $ 17.9 million in the acceptance now segment . store labor expressed as a percentage of total store revenue decreased to 26.3 % for the year ended december 31 , 2015 , from 28.4 % in 2014 , as discussed further in the segment performance section below . other store expenses . other store expenses include occupancy , charge-offs due to customer stolen merchandise , delivery , advertising , selling , insurance , travel and other store-level operating expenses . other store expenses decreased by $ 8.3 million , or 1.0 % , to $ 833.9 million for the year ended december 31 , 2015 , as compared to $ 842.3 million in 2014 . other store expenses expressed as a percentage of total store revenue decreased to 25.6 % for the year ended december 31 , 2015 , from 26.9 % in 2014 , as discussed further in the segment performance section below . general and administrative expenses . general and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries , payroll taxes and benefits , stock-based compensation , occupancy , administrative and other operating expenses , as well as salaries and labor costs for our regional directors , divisional vice presidents and executive vice presidents . general and administrative expenses increased by $ 3.8 million , or 2.3 % , to $ 166.1 million for the year ended december 31 , 2015 , as compared to $ 162.3 million in 2014 . general and administrative expenses expressed as a percentage of total revenue were 5.1 % for each of the years ended december 31 , 2015 and 2014 . goodwill impairment charge . during 2015 , we recognized a $ 1,170.0 goodwill impairment charge due to an impairment in the goodwill in the core u.s. segment . goodwill impairment charge is discussed further in note e to the notes to the consolidated financial statements . other charges . other charges relating to store sales and consolidations , startup costs related to our new sourcing and distribution network and corporate restructuring increased by $ 6.4 million , or 45.1 % , to $ 20.7 million in 2015 , as compared to $ 14.2 million in 2014. see note l to the notes to the consolidated financial statements for additional detail regarding these other charges . operating profit ( loss ) . operating loss was $ 1,007.9 million for the year ended december 31 , 2015 , as compared to an operating profit of $ 193.5 million in 2014 , a decrease of $ 1,201.4 million . operating loss as a percentage of total revenue was 30.7 % for the year ended december 31 , 2015 , as compared to an operating profit of 6.1 % for 2014 , primarily due to the goodwill 23 impairment charge and other charges and credits discussed above . story_separator_special_tag other store expenses increased by $ 53.0 million , 24 or 6.7 % , to $ 842.3 million for the year ended december 31 , 2014 , as compared to $ 789.2 million in 2013. this was primarily attributable to increased expenses associated with the growth of our acceptance now segment , an increase in charge-offs due to customer stolen merchandise , and increased professional fees due to the investments we are making under our multi-year transformation program . other store expenses expressed as a percentage of total store revenue increased to 26.8 % for the year ended december 31 , 2014 , from 25.8 % in 2013. general and administrative expenses . general and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries , payroll taxes and benefits , stock-based compensation , occupancy , administrative and other operating expenses , as well as salaries and labor costs for our regional directors , divisional vice presidents and executive vice presidents . general and administrative expenses increased by $ 14.7 million , or 10.0 % , to $ 162.3 million for the year ended december 31 , 2014 , as compared to $ 147.6 million in 2013. general and administrative expenses expressed as a percentage of total revenue increased to 5.1 % for the year ended december 31 , 2014 , from 4.8 % in 2013. other charges . as discussed in note l to the consolidated financial statements , we closed 150 stores in the core u.s. segment , which resulted in a restructuring charge of $ 5.1 million during the year ended december 31 , 2014. this charge included approximately $ 3.4 million of accelerated depreciation expense for fixed assets , leasehold improvements and write-off of merchandise inventory , $ 1.3 million in early lease termination costs and $ 0.4 million of other operating costs to decommission the stores . in addition , we eliminated certain departments and functions in our field support center during the year ended december 31 , 2014 , as a part of our multi-year transformation program . the changes resulted in restructuring charges of approximately $ 2.8 million for severance and other payroll-related costs . during 2014 , we incurred losses of $ 1.8 million on the sale of core u.s. stores . during the third quarter of 2014 , we recorded a $ 4.6 million impairment charge related to internally-developed computer software that was placed into service in the fourth quarter of 2014. we determined that certain components developed for our new store management information system would not be utilized . operating profit . operating profit decreased by $ 53.5 million , or 21.7 % , to $ 193.5 million for the year ended december 31 , 2014 , as compared to $ 247.0 million in 2013. operating profit as a percentage of total revenue decreased to 6.1 % for the year ended december 31 , 2014 , from 8.0 % for 2013 , primarily due to the decrease in revenue and resulting decrease in gross profit in the core u.s. segment , increased expenses associated with the growth of our acceptance now segment , an increase in charge-offs due to customer stolen merchandise and increased professional fees due to the investments we are making under our multi-year transformation program . finance charges from refinancing . as discussed in note i , we refinanced our senior credit facility during march 2014 , and recognized a $ 4.2 million charge to write off approximately $ 2.3 million of new origination fees and $ 1.9 million of unamortized financing costs from our previous credit agreement . net interest . net interest expense increased $ 8.1 million , or 20.8 % , to $ 46.9 million for the year ended december 31 , 2014 as compared to $ 38.8 million in 2013 due to increased interest on our senior credit facility due to the refinance discussed in note i , and the full-year impact in 2014 of the issuance of $ 250 million of senior notes in may of 2013. income tax expense . our effective income tax rate was 32.3 % and 38.2 % for 2014 and 2013 , respectively . the 2014 rate for income taxes is lower than 2013 due primarily to a greater amount of wage credits recognized in 2014 than in 2013 , as well as adjustments to deferred tax balances . net earnings and earnings per share . net earnings decreased by $ 32.3 million , or 25.1 % , to $ 96.4 million for the year ended december 31 , 2014 as compared to $ 128.8 million in 2013. this decrease was primarily attributable to a decline in operating profit in the core u.s. segment and an increase in refinancing costs and interest expense , partially offset by increased operating profit in the acceptance now segment and a decrease in the effective income tax rate in 2014 as compared to 2013. diluted earnings per share in 2014 were $ 1.81 compared to $ 2.33 in 2013 , due to the decrease in net earnings discussed above . 25 segment performance core u.s. segment . replace_table_token_7_th revenues . revenue decreased in 2015 compared to 2014 , primarily driven by a $ 57.6 million decrease in rentals and fees revenue , partially offset by a $ 15.5 million increase in merchandise sales . the impact of the continued rationalization of our core u.s. store base where we closed , sold or converted stores in the year-to-date period was partially offset by the increase in same store revenue . same store revenue generally represents revenue earned in stores that were operated by us for 13 months or more . gross profit . gross profit decreased in 2015 from 2014 , primarily due to a $ 34.7 million write-down of smartphones in 2015 , a decrease in store revenue as discussed above and decreased margins on merchandise sales , while 2014 included a vendor settlement credit of $ 6.8 million .
| results of operations the following discussion focuses on our results of operations and issues related to our liquidity and capital resources . you should read this discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. overview we continue to grow our acceptance now segment with consistent year-over-year growth in both revenue and same store sales , driven by introduction of the 90 day option pricing , the increased number of staffed locations and the launch of our virtual solution in 532 locations . our online approval engine has increased the speed at which we process new rental applications while improving our ability to manage the risk associated with new customers . acceptance now contributed approximately 25.0 % of our consolidated revenues in 2015. during 2015 , we have continued efforts under our multi-year transformation program , with a phased implementation of our flexible labor model in most of our core u.s. stores , which has had a meaningful impact on our store labor expense . the introduction of part-time coworkers who are focused on merchandise delivery and pick-up allows other coworkers to maintain focus on sales and collections . our sourcing and distribution model was also implemented in 2015 with five distribution centers operated by a third-party logistics provider , which has driven a decrease in our cost of rental merchandise . upon completing step one of our annual goodwill impairment test as of october 1 , 2015 , we determined the fair value of our core u.s. segment was below its carrying value . we then performed step two of the impairment test for the core u.s. segment and determined the carrying value of goodwill exceeded its implied fair value . accordingly , in the fourth quarter of 2015 , we recognized an impairment charge of $ 1,170.0 million .
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it contains forward-looking statements including , without limitation , statements relating to the company 's plans , strategies , objectives , expectations and intentions that are made pursuant to the “ safe harbor ” provisions of the private securities litigation reform act of 1995. the words “ anticipate , ” “ estimate , ” “ believe , ” “ budget , ” “ continue , ” “ could , ” “ intend , ” “ may , ” “ plan , ” “ potential , ” “ predict , ” “ seek , ” “ should , ” “ will , ” “ would , ” “ expect , ” “ objective , ” “ projection , ” “ forecast , ” “ goal , ” “ guidance , ” “ outlook , ” “ effort , ” “ target ” and similar expressions identify forward-looking statements . the company does not undertake to update , revise or correct any of the forward-looking information unless required to do so under the federal securities laws . readers are cautioned that such forward-looking statements should be read in conjunction with the company 's disclosures under the heading : “ cautionary statement for the purposes of the ‘ safe harbor ' provisions of the private securities litigation reform act of 1995. ” the terms “ earnings ” and “ loss ” as used in management 's discussion and analysis refer to net income ( loss ) attributable to phillips 66. business environment and executive overview phillips 66 is an energy manufacturing and logistics company with midstream , chemicals , refining , and marketing and specialties businesses . at december 31 , 2016 , we had total assets of $ 51.7 billion . executive overview we reported earnings of $ 1.6 billion in 2016 and generated $ 3.0 billion in cash from operating activities . phillips 66 partners lp issued debt and common units to the public for net proceeds totaling $ 2.1 billion . we used this available cash primarily to fund capital expenditures and investments of $ 2.8 billion , pay dividends of $ 1.3 billion and repurchase $ 1.0 billion of our common stock . we ended 2016 with $ 2.7 billion of cash and cash equivalents and approximately $ 5.5 billion of total capacity under both our and phillips 66 partners ' available liquidity facilities . our financial performance in 2016 demonstrated the benefit of a diversified portfolio of businesses in a low commodity price environment . we continue to focus on the following strategic priorities : operating excellence . our commitment to operating excellence guides everything we do . we are committed to protecting the health and safety of everyone who has a role in our operations and the communities in which we operate . continuous improvement in safety , environmental stewardship , reliability and cost efficiency is a fundamental requirement for our company and employees . we employ rigorous training and audit programs to drive ongoing improvement in both personal and process safety as we strive for zero incidents . 2016 was our safest year since the company 's inception . since we can not control commodity prices , controlling operating expenses and overhead costs , within the context of our commitment to safety and environmental stewardship , is a high priority . we actively monitor and report these costs to senior management . our operating and selling , general and administrative expenses were $ 5.9 billion in 2016 , $ 6.0 billion in 2015 and $ 6.1 billion in 2014. we are committed to protecting the environment and strive to reduce our environmental footprint throughout our operations . optimizing utilization rates at our refineries through reliable and safe operations enables us to capture the value available in the market in terms of prices and margins . during 2016 , our worldwide refining crude oil capacity utilization rate was 96 percent , 5 percent higher than during 2015. growth . we have budgeted $ 2.7 billion in capital expenditures and investments in 2017 , including $ 0.4 billion for phillips 66 partners . including our share of expected capital spending by joint ventures dcp midstream , llc ( dcp midstream ) , chevron phillips chemical company llc ( cpchem ) and wrb refining lp ( wrb ) , our total 2017 capital program is expected to be $ 3.8 billion . after completing our u.s. gulf coast ngl market hub in 2016 , we will focus midstream development in 2017 around our existing infrastructure 's footprint . in chemicals , cpchem progressed towards completion of its u.s. gulf coast ethane cracker and polyethylene facilities project during 2016. the polyethylene units are expected to be complete by mid-2017 and the ethane 30 index to financial statements cracker is expected to be complete in the fourth quarter of 2017. growth capital in refining will be directed toward small , high-return , quick-payout projects , while marketing and specialties will continue to expand and enhance its fuels marketing business . returns . we plan to improve refining returns by increasing throughput of advantaged feedstocks , disciplined capital allocation and portfolio optimization . a disciplined capital allocation process ensures that we focus investments in projects that generate competitive returns throughout the business cycle . during 2016 , we sold the whitegate refinery in ireland as part of our ongoing portfolio optimization process . we improved clean product yield in 2016 , and continued efforts to enhance the value of our marketing brands . distributions . we believe shareholder value is enhanced through , among other things , consistent growth of regular dividends , supplemented by share repurchases . we increased our quarterly dividend rate by 13 percent during 2016 , and have increased it 215 percent since our separation from conocophillips in 2012 ( the separation ) . regular dividends demonstrate the confidence our board of directors and management have in our capital structure and operations ' capability to generate free cash flow throughout the business cycle . in 2016 , we repurchased $ 1.0 billion , or approximately 12.9 million shares , of our common stock . story_separator_special_tag transportation earnings increased $ 55 million in 2015 , compared with 2014. this increase reflects the startup of our bayway and ferndale crude oil rail unloading facilities in the second half of 2014 , as well as a full year of operations from the beaumont terminal acquired in 2014. increased railcar fleet activities , higher terminal revenues , and improved earnings from equity affiliates also benefited earnings in 2015. these benefits were partially offset by higher earnings attributable to noncontrolling interests . earnings associated with our investment in dcp midstream decreased $ 459 million in 2015 , compared with 2014. the decrease in 2015 mainly resulted from lower ngl , crude oil , and natural gas prices , partially offset by increased volumes due to asset growth and lower operating costs as a result of cost saving initiatives . in addition , goodwill and other asset impairments recorded by dcp midstream in 2015 contributed to the loss recognized from our investment in dcp midstream . dcp midstream performed a goodwill impairment assessment and other asset impairment assessments based on internal discounted cash flow models taking into account various observable and non-observable factors , such as prices , volumes , expenses and discount rates . the impairment tests resulted in dcp midstream 's recognition of a $ 460 million goodwill impairment and $ 342 million in other asset impairments , net of tax impacts . together , these impairments reduced our equity earnings from dcp midstream by $ 232 million after-tax . dcp partners periodically issues limited partner units to the public . these issuances benefited our equity in earnings from dcp midstream , on an after-tax basis , by approximately $ 1 million in 2015 , compared with approximately $ 45 million in 2014. the earnings from our ngl business decreased $ 90 million in 2015 , compared with 2014. the decrease was primarily driven by lower realized margins and higher earnings attributable to noncontrolling interests . we also incurred higher tax expense in 2015 , driven by a lower manufacturing deduction resulting from bonus depreciation associated with the start-up of the sweeny fractionator . these decreases were partially offset by higher earnings from equity affiliates . 36 index to financial statements chemicals year ended december 31 2016 2015 2014 millions of dollars net income attributable to phillips 66 $ 583 962 1,137 millions of pounds cpchem externally marketed sales volumes * olefins and polyolefins 16,011 16,916 16,815 specialties , aromatics and styrenics 4,911 5,301 6,294 20,922 22,217 23,109 * represents 100 percent of cpchem 's outside sales of produced petrochemical products , as well as commission sales from equity affiliates . olefins and polyolefins capacity utilization ( percent ) * 91 % 92 88 * revised to exclude polyethylene pipe operations . prior periods recast for comparability . the chemicals segment consists of our 50 percent interest in cpchem , which we account for under the equity method . cpchem uses ngl and other feedstocks to produce petrochemicals . these products are then marketed and sold or used as feedstocks to produce plastics and other chemicals . we structure our reporting of cpchem 's operations around two primary business segments : olefins and polyolefins ( o & p ) and specialties , aromatics and styrenics ( sa & s ) . the o & p business segment produces and markets ethylene and other olefin products ; ethylene produced is primarily consumed within cpchem for the production of polyethylene , normal alpha olefins and polyethylene pipe . the sa & s business segment manufactures and markets aromatics and styrenics products , such as benzene , styrene , paraxylene and cyclohexane , as well as polystyrene and styrene-butadiene copolymers . sa & s also manufactures and or markets a variety of specialty chemical products . unless otherwise noted , amounts referenced below reflect our net 50 percent interest in cpchem . 2016 vs. 2015 earnings from the chemicals segment decreased $ 379 million , or 39 percent , in 2016 , compared with 2015 . the decrease in earnings was primarily due to lower realized margins from the o & p business , driven by a decline in sales prices for polyethylene and normal alpha olefins ( nao ) and higher feedstock costs , as well as impacts from increased turnaround activity . lower equity earnings from cpchem 's equity affiliates and lower sa & s volumes further reduced earnings in 2016. in addition , cpchem recognized a $ 177 million impairment in 2016 due to lower demand and margin factors affecting an equity affiliate , which resulted in an $ 89 million after-tax reduction in our equity earnings from cpchem . our equity earnings from cpchem were reduced by $ 24 million in 2015 as a result of an impairment cpchem recognized on an equity affiliate . these items were partially offset by higher nao and polyethylene sales volumes and improved sa & s margins . see the “ business environment and executive overview ” section for information on market factors impacting cpchem 's results . 37 index to financial statements 2015 vs. 2014 earnings from the chemicals segment decreased $ 175 million , or 15 percent , in 2015 , compared with 2014. the decrease in earnings was primarily due to lower margins resulting from lower sales prices , lower earnings from cpchem 's o & p equity affiliates , and higher turnaround and maintenance activities . these decreases were partially offset by higher ethylene and polyethylene sales volumes , as well as lower repair costs due to the impact on 2014 costs of a fire at cpchem 's port arthur , texas facility . lower feedstock costs , lower utility costs due to falling natural gas prices , and lower impairment charges also benefited the 2015 operating results . in july 2014 , a localized fire occurred in the olefins unit at cpchem 's port arthur , texas facility , shutting down ethylene production . the port arthur ethylene unit restarted in november 2014. cpchem incurred , on a 100 percent basis , $ 85 million of associated repair and rebuild costs .
| consolidated results a summary of net income ( loss ) attributable to phillips 66 by business segment follows : replace_table_token_9_th 2016 vs. 2015 our earnings from continuing operations decreased $ 2,672 million , or 63 percent , in 2016 , mainly reflecting : lower realized refining margins . lower olefins and polyolefins margins . recognition in 2015 of $ 242 million of the deferred gain related to the sale in 2013 of the immingham combined heat and power plant ( ichp ) . these decreases were partially offset by : lower equity losses from dcp midstream , primarily as a result of goodwill and other asset impairments recorded in 2015 . 2015 vs. 2014 our earnings from continuing operations increased $ 171 million , or 4 percent , in 2015 , primarily resulting from : improved realized refining margins . recognition of $ 242 million in 2015 , compared with $ 126 million in 2014 , of the deferred gain related to the sale in 2013 of ichp . these increases were partially offset by : goodwill and other asset impairments recorded by dcp midstream in 2015. lower ethylene margins . discontinued operations in 2014 included the recognition of a noncash $ 696 million gain related to the phillips specialty products inc. ( pspi ) disposition through a share exchange . see the “ segment results ” section for additional information on our segment results . 33 index to financial statements income statement analysis 2016 vs. 2015 sales and other operating revenues and purchased crude oil and products both decreased 15 percent in 2016 . the decreases were primarily due to lower average prices for petroleum products and crude oil , while average ngl prices were slightly improved during 2016. equity in earnings of affiliates decreased 10 percent in 2016 , primarily resulting from decreased earnings from cpchem and wrb , partially offset by improved results from dcp midstream .
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you should review the risk factors section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company passionately committed to applying our scientific leadership in the field of cellular metabolism to transform the lives of patients with cancer and inborn errors of metabolism , or iems , which are a subset of orphan genetic metabolic diseases . metabolism is a complex biological process involving the uptake and assimilation of nutrients in cells to produce energy and facilitate many of the processes required for cellular division and growth . we believe that dysregulation of normal cellular metabolism plays a crucial role in many diseases , including certain cancers and iems . we singularly focus our efforts on using cellular metabolism , an unexploited area of biological research with disruptive potential , as a platform for developing potentially transformative small molecule medicines for cancer and iems . the lead product candidates in our most advanced programs are aimed at druggable targets which have undergone rigorous validation processes . our most advanced cancer product candidates , ag-221 and ag-120 , which target mutant idh2 and idh1 , respectively , have demonstrated strong proof of concept in preclinical models . in september 2013 , we initiated a phase 1 study for ag-221 in patients with advanced hematologic malignancies with an idh2 mutation and expect to report initial clinical data at the 2014 american association for cancer research annual meeting in april . in march 2014 , we initiated a phase 1 study for ag-120 in patients with advanced hematologic malignancies with an idh1 mutation . we expect to initiate a second phase 1 clinical trial for ag-120 in early 2014. the lead candidate in our iem program , ag-348 , targets pyruvate kinase for the treatment of pyruvate kinase deficiency . we have completed ind-enabling studies and expect to initiate phase 1 clinical trials for ag-348 in mid-2014 . our initial therapeutic area of focus is cancer . we are leveraging our expertise in metabolic pathways to discover , validate , develop and commercialize a pipeline of novel drug candidates . in april 2010 , we entered into a collaboration agreement with celgene corporation , or celgene , focused on cancer metabolism . under the collaboration , we are leading discovery , preclinical and early clinical development for all cancer metabolism programs . the discovery phase of the collaboration expires in april 2014 , subject to celgene 's option to extend the discovery phase for up to two additional years . during 2013 , celgene elected to extend the discovery phase of the strategic collaboration by one year through april 2015 , extending the initial period of exclusivity from four years to five years . celgene has the option to obtain exclusive rights for the further development and commercialization of certain of these programs , and we will retain rights to the others . for the programs that celgene chooses to license , we may elect to participate in a portion of sales activities for the medicines from such programs in the united states . for certain of these programs , we may elect to retain full rights to develop and commercialize medicines from these programs in the united states . through december 31 , 2013 , we have received approximately $ 141.2 million in payments and $ 50.3 million in equity investments from celgene and are entitled to a $ 20.0 million payment in 2014 as a result of the discovery term extension exercised in december 2013. we are also eligible to receive an additional extension payments , payments upon the successful achievement of specified milestones , reimbursements for certain development expenses and royalties on any product sales . since inception , our operations have 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 a clinical trial . to date , we have financed our operations primarily through funding received from our collaboration agreement with celgene , private placements of our preferred stock , and the initial public offering , or ipo , of our common stock and concurrent private placement of common 68 stock to an affiliate of celgene , completed on july 29 , 2013. substantially all of our revenue to date has been collaboration revenue . in connection with the ipo , our board of directors and stockholders approved a 1-for-2.75 reverse stock split of our common stock . the reverse stock split became effective on july 11 , 2013. all share and per share amounts in the consolidated financial statements have been retroactively adjusted for all periods presented to give effect to this reverse stock split , including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital . since inception , we have incurred significant operating losses . our net losses were $ 39.4 million , $ 20.1 million and $ 23.7 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . as of december 31 , 2013 , we had an accumulated deficit of $ 113.4 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 and expand the planned ind-enabling and clinical development activities for our lead programs ag-221 , ag-120 , and ag-348 ; continue to discover , validate and drug product candidates ; expand and protect our intellectual property portfolio ; and hire additional development and scientific personnel . story_separator_special_tag ag-348 is an orally available , potent small molecule activator of the pkr enzyme , an isoform of pk that when mutated leads to pk deficiency , making ag-348 a highly targeted therapeutic candidate for the treatment of patients with pk deficiency . in may 2013 , ag-348 successfully completed our internal development candidate requirements , which include two species of exploratory safety studies . we have completed ind-enabling studies and expect to initiate phase 1 clinical trials for ag-348 in mid-2014 . we have worldwide development and commercial rights to ag-348 and expect to fund the future development and commercialization costs related to this program . other research and platform programs other research and platform programs include activities related to exploratory efforts , target validation , lead optimization for our earlier validated programs and our proprietary metabolomics platform . we began tracking our internal and external research and development costs on a program-by-program basis in 2011. as such , we do not have historical research and development expenditures by program prior to january 1 , 2011. we use our employee and infrastructure resources across multiple research and development programs , 70 and we allocate internal employee-related and infrastructure costs , as well as certain third party costs , to each of these programs based on the personnel resources allocated to such program . our research and development expenses , by major program , are outlined in the table below : replace_table_token_5_th 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 of these product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from ag-221 , ag-120 , or ag-348 . this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainty of : establishing an appropriate safety profile with ind-enabling toxicology studies ; successful enrollment in , and completion of clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing 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 a continued 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 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 , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . 71 we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . these increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses . additionally , we anticipate increased costs associated with being a public company including expenses related to services associated with maintaining compliance with exchange listing and sec requirements , insurance , and investor relations costs . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . 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 we have prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described in greater detail below . 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 .
| general and administrative expense . general and administrative expense decreased by $ 0.1 million to $ 7.1 million in 2012 from $ 7.2 million in 2011 , a decrease of 2 % . the decrease in general and administrative expense was primarily attributable to individually insignificant reductions in certain operating and professional services costs . interest income . interest income decreased by $ 63,000 to $ 69,000 in 2012 from $ 132,000 in 2011 , a decrease of 48 % , due to a decrease in the average investment balance and a decrease in interest rates earned on investments . 80 provision ( benefit ) for income taxes . during 2011 , a significant portion of the upfront payment received under the collaboration agreement with celgene was recognized as revenue for tax purposes , resulting in taxable income for 2011. accordingly we recorded a provision for income taxes of $ 7.2 million for the year ended december 31 , 2011. during 2012 , we elected to carry back certain deferred tax assets , including our net operating losses , generated in the year ended december 31 , 2012 , resulting in a reduction of our u.s. federal 2011 tax liability and a benefit for income taxes of $ 2.8 million for the year ended december 31 , 2012. liquidity and capital resources sources of liquidity since our inception , and through december 31 , 2013 , we have raised an aggregate of approximately $ 384.9 million to fund our operations , of which approximately $ 141.2 million was through upfront and extension payments related to our collaboration agreement with celgene , approximately $ 120.0 million was from the issuance of preferred stock , $ 111.0 million was received from the ipo , after deducting underwriting discounts , commissions , and expenses and approximately $ 12.8 million was received from the concurrent private placement of common stock to an affiliate of celgene .
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( 2 ) of the $ 120,000 salary , $ -0- was paid in cash , therefore , the entire amount accrued . ( 3 ) during fiscal year ended december 31 , 2015 , we issued 1,000,000 shares of series a preferred stock valued at $ 75,000 , all of which was for payment of unpaid salary accrued for periods prior to 2015. mr. than also receives reimbursement of motor fuel expense . payroll is accrued payable to mr. than at the rate of $ 10,000 per month . therefore his annual rate of pay is $ 120,000 . employment contracts and termination of employment and change-in-control arrangements gunther than - executive employment agreement mr. than is our only executive officer and he has a written employment agreement . on january 1 , 2014 , our board of directors authorized the execution of that certain executive employment agreement ( the `` executive agreement `` ) with our president/chief executive officer , secretary , treasurer/chief financial officer , gunther than ( the `` executive `` ) . in accordance with the terms and provisions of the executive agreement : ( i ) the executive shall provide services and perform all duties typical of the offices held by the executive ; ( ii ) we shall pay to the executive a base salary of $ 10,000 per month , payable in form of cash or shares of our common stock as agreed upon , ( ii ) we shall pay to the executive an incentive bonus to be determined by the board of directors based upon our performance and the results achieved by the executive in his job performance ; ( iii ) we shall issue stock options to the executive to purchase shares of our common stock , such stock options to accrue and vest in accordance with a set schedule to be decided by the board of directors ; ( iv ) we shall pay to the executive a per annum payment of at least 1,600,000 shares of common stock and additionally whatever the board of directors may give as a bonus at their discretion in exchange for the non-compete provisions contained therein ; and ( v ) in the event of a change in control of the board of directors or a buyout or a takeover or substantial change of management , we shall pay to the executive a minimum of three years salary plus 4,800,000 shares of s-8 common stock or the equivalent in cash at the executive 's discretion . in further accordance with the terms and provisions of the executive agreement , in consideration of the payment specified above in subparagraph ( iv ) , and for so long as the executive is employed by us , and for one calendar year following termination of this executive agreement , the executive shall not directly or indirectly own an interest in , manage , operate , join , control , lend money or render financial or other assistance to or participate in or be connected with as an officer , employee , partner , stockholder , consultant or otherwise , any individual , partnership , firm , corporation or other business entity that materially competes with us . the term of the executive agreement shall commence january 1 , 2014 and continue in effect unless terminated by either party upon ninety days written notice . however , in the event the executive 's employment is terminated by us at our discretion and is without cause , for a period of three years following such termination , the executive shall be paid his base salary and a bonus for each of the three years equivalent in value to the bonus received in the year prior to his termination . in the event the executive terminates his employment , we shall pay the executive the compensation the executive has earned to the termination date . lastly , in the event we are acquired or the non-surviving party in a merger or sell all or substantially all of our assets , this executive agreement shall not be deemed terminated as a result thereof . 46 issuance of preferred stock during fiscal year ended december 31 , 2015 , we issued 1,000,000 shares of series a preferred stock valued at $ 75,000 , all of which was for payment of unpaid salary accrued for periods prior to 2015. directors compensation no director received compensation for services rendered in any capacity to us during the fiscal years ended december 31 , 2014 and december 31 , 2013. indemnification of directors and officers our articles of incorporation , as amended and restated , and our bylaws provide for mandatory indemnification of our officers and directors , except where such person has been adjudicated liable by reason of his negligence or willful misconduct toward the company or such other corporation in the performance of his duties as such officer story_separator_special_tag the following analysis of our consolidated financial condition and results of operations for the years ended december 31 , 2016 and 2015 should be read in conjunction with the consolidated financial statements and other information presented elsewhere in this annual report . story_separator_special_tag receivable ( net of allowance for doubtful accounts of $ -0- ) ; and ( iii ) inventory of $ 1,088. as of december 31 , 2016 , current liabilities were comprised of : ( i ) $ 432,841 in accounts payable and accrued expenses ; ( ii ) $ 149,170 in deferred compensation ; ( iii ) $ 187,030 in accrued and withheld payroll taxes payable ; ( iv ) $ 125,625 in accrued interest payable ; ( v ) $ 225,000 in accrued royalties payable ; ( vi ) $ 591,208 in loans from stockholders ; ( vii) $ 50,000 in notes payable ; and ( viii ) deferred revenue of $ 66,148 . story_separator_special_tag 23 as of december 31 , 2016 , our total assets were $ 8,833 comprised of : ( i ) $ 5,041 in current assets ; ( ii ) property and equipment ( net ) of $ 2,197 ; and ( iii ) $ 1,595 in deposits . the decrease in total assets during fiscal year ended december 31 , 2016 from fiscal year ended december 31 , 2015 was primarily due to the substantial decrease in cash and receivables . as of december 31 , 2016 , our total liabilities were $ 1,827,022 comprised of current liabilities . the increase in liabilities during fiscal year ended december 31 , 2015 from fiscal year ended december 31 , 2014 was primarily due to the increase in accounts payable and accrued expenses and loans from stockholders . stockholders ' deficit decreased from ( $ 1,644,370 ) for fiscal year ended december 31 , 2015 to ( $ 1,818,189 ) for fiscal year ended december 31 , 2016. cash flows from operating activities we have not generated positive cash flows from operating activities . for fiscal year ended december 31 , 2016 , net cash flows used in operating activities was $ 17,933 compared to $ 121,375 for fiscal year ended december 31 , 2015. cash flows from investing activities for fiscal year ended december 31 , 2016 , net cash flows used in investing activities was $ -0- compared to $ -0- for fiscal year ended december 31 , 2015 , which related to additions to fixed assets . cash flows from financing activities we have financed our operations primarily from debt or the issuance of equity instruments . for the fiscal year ended december 31 , 2016 , net cash flows provided from financing activities was $ 15,410 compared to $ 110,915 for fiscal year ended december 31 , 2015. cash flows from financing activities for the fiscal year ended december 31 , 2016 consisted of $ -0- in proceeds from sales of common stock and $ 15,410 in proceeds/payments from stockholders loans , with zero payments on notes payable .. plan of operation and funding we have incurred losses for the past two fiscal years and had a net loss of $ 190,619 at fiscal year ended december 31 , 2016. our revenues from several product sales have been decreasing and are not sufficient to cover all of our operating expenses . our auditors have expressed substantial doubt that we can continue as a going concern . we are continuing to push sales and control costs . management intends to finance our 2017 operations primarily with the revenue from service revenue and any cash short falls will be addressed through equity or debt financing , if available . management expects revenues will continue to decrease in the short term . we will need to continue to raise additional capital , both internally and externally , to cover cash shortfalls and to compete in our markets . at our current revenue levels management believes we will require an additional $ 350,000 in equity financing during the next 12 months to satisfy our cash requirements of approximately $ 25,000 per month for operations and to facilitate our new business plans . these operating costs include cost of sales , general and administrative expenses , salaries and benefits and professional fees related to contracting engineers . we have insufficient financing commitments in place to meet our expected cash requirements for 2017 and we can not assure the company we will be able to obtain financing on favorable terms . if we can not obtain financing to fund our operations in 2017 , then we will be required to reduce our expenses and scale back our operations . 24 going concern the market price of our common stock has fallen below the fixed price of our registered stock offering , as in prior years we may again have insufficient financing commitments in place to meet our expected cash requirements for 2016. we can not assure you that we will be able to obtain financing on favorable terms . if we can not obtain financing to fund our operations in 2016 , then we may be required to further reduce our expenses and scale back our operations . these factors raise substantial doubt of our ability to continue as a going concern . footnote 2 to our financial statements provides additional explanation of management 's views on our status as a going concern . the audited financial statements contained in this annual report do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts of liabilities that may result should we be unable to continue as a going concern . our independent registered accounting firm included an explanatory paragraph in their reports on the accompanying financial statements for december 31 , 2016 regarding concerns about our ability to continue as a going concern . our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors . commitments and contingent liabilities we lease 1,480 sq . ft. of office space at 6 park center court , suite 201 , owings mills , maryland with a one year lease ending on august 30 , 2017. our total current liabilities increased to $ 1,827,022 at fiscal year ended december 31 , 2016 compared to $ 1,1,659,742 at fiscal year ended december 31 , 2015. as of december 31 , 2016 , our short and long term notes payable consist of the following : stockholder demand loan payable with interest at 5 % per month dated september 18 , 2009. the loan is secured by the company 's accounts receivable . the note was payable in full on december 17 , 2009 and is currently in default 50,000 50,000 off balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or
| overview we have decided to include in our sales efforts other products aside the concealed weapons detection system . currently , customers can purchase extended warranties , which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty . warranties can be purchased for various periods but generally they are for a one year period that begins after any other warranties expire . we have studied a variety of medical services and products and have decided to open medical clinics , which offer specialty products and services as an adjunct to our current activities . in the short term , management plans to self fund through personal investment of time and money . then the next phase of our business plan will be to raise additional funds through common stock offerings to provide working capital to finance several acquisitions . in the past , when possible we have conserved our cash by paying employees , consultants , and independent contractors with our common stock . on june 1 , 2010 , by majority shareholder consent , we adopted our 2010 service provider stock compensation plan . reserved for equity issuances under the service provider stock compensation plan are 50,000,000 shares of our common stock . on july 21 , 2010 , we registered the common stock issuable under the 2010 equity incentive plan and the 2010 service provider stock compensation plan . a total of 100,000,000 shares are reserved for issuances under the two plans . merger or acquisitions in 2016 we entered into an agreement to acquire a company called ym advantage that proposed to acquire and operate clinics in the erectile dysfunction ( ed ) medical market . our board of directors has two doctors that investigated the acquisition and decided that the acquisition was not in the best interest of the company .
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this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth under part i , item 1a , “ risk factors ” and elsewhere in this report . as used throughout this report , the terms “ the company , ” “ we , ” “ us , ” and “ our ” refer to the business of curis , inc. and its wholly owned subsidiaries , except where the context otherwise requires , and the term “ curis ” refers to curis , inc. unless otherwise indicated , all information in this form 10-k gives effect to a 1-for-5 reverse stock split of curis ' common stock , that became effective on may 29 , 2018. all common shares and per share amounts have been adjusted to reflect such reverse stock split . story_separator_special_tag in the field of oncology . we are also party to a collaboration with genentech inc. , or genentech , a member of the roche group , under which genentech and f. hoffmann-la roche ltd , or roche , are commercializing erivedge ® ( vismodegib ) , a first-in-class orally-administered small molecule signaling pathway inhibitor . erivedge is approved for the treatment of advanced basal cell carcinoma , or bcc . based on our clinical development plans for our pipeline , we intend to predominantly focus our available resources on the continued development of ca-4948 , in collaboration with aurigene , and ci-8993 , in collaboration with immunext , in the near term . as of december 31 , 2019 , we believe our $ 20.5 million of existing cash , cash equivalents and investments should enable us to maintain our planned operations into the second half of 2020. we have based this assessment on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . based on our available cash resources , recurring losses and cash outflows from operations since inception , an expectation of continuing operating losses and cash outflows from operations for the foreseeable future and the need to raise additional capital to finance our future operations , we concluded we do not have sufficient cash on hand to support current operations within the next 12 months from the date of filing this annual report on form 10-k. these factors raise substantial doubt regarding our ability to continue as a going concern . we expect to finance our operations through our common stock purchase agreement with aspire capital fund llc , or aspire capital , and our at-the-market sales agreement with jonestrading institutional services llc , or jonestrading or other potential equity financings , debt financings or other capital sources . however , we may not be successful in securing additional financing on acceptable terms , or at all . if sufficient funds are not available , we may have to delay , reduce the scope of , or eliminate some of our research and development programs , including related clinical trials and operating expenses , potentially delaying the time to market for or preventing the marketing of any of our product candidates , which could adversely affect our business prospects and our ability to continue our operations , and would have a negative impact on our financial condition and ability to pursue our business strategies . our collaborations and license agreements our current collaborations and license agreements are summarized as follows : aurigene in january 2015 , we entered into an exclusive collaboration agreement with aurigene for the discovery , development and commercialization of small molecule compounds in the areas of immuno-oncology and selected precision oncology targets . under the collaboration agreement , aurigene granted us an option to obtain exclusive , royalty-bearing licenses to relevant aurigene technology to develop , manufacture and commercialize products containing certain of such compounds anywhere in the world , except for india and russia , which are territories retained by aurigene . in connection with the collaboration agreement , we issued to aurigene 3,424,026 shares of our common stock , valued at $ 24.3 million at the time of issuance , in partial consideration for the rights granted to us under the collaboration agreement , which we recognized as expense during the year ended december 31 , 2015. the shares were issued pursuant to a stock purchase agreement with aurigene dated january 18 , 2015 . in september 2016 , we and aurigene entered into an amendment to the collaboration agreement . under the terms of the amendment , in exchange for the issuance by us to aurigene of 2,041,666 shares of our common stock , aurigene waived payment of up to a total of $ 24.5 million in potential milestones and other payments associated with the first four programs in the collaboration that may have become due from us under the collaboration agreement . to the extent any of these waived milestones or other payments are not payable by us , for example in the event one or more of the milestone events do not occur , 78 we will have the right to deduct the unused waived amount from any one or more of the milestone payment obligations tied to achievement of commercial milestone events . the amendment also provides that , in the event supplemental program activities are performed by aurigene , we will provide up to $ 2.0 million of additional funding for each of the third and fourth licensed program . the shares were issued pursuant to a stock purchase agreement with aurigene dated september 7 , 2016 . in february 2020 , we and aurigene further amended our collaboration agreement . story_separator_special_tag under the terms of the immunext agreement , we agreed to engage in a collaborative effort with immunext , and to conduct a phase 1a/1b clinical trial of an immunext compound that antagonizes vista . we plan to conduct this phase 1a/1b clinical trial with respect to ci-8993 . in exchange , immunext granted us an exclusive option , exercisable until the earlier of ( a ) four years after january 6 , 2020 and ( b ) 90 days after database lock for the first phase 1a/1b trial in which the endpoints are satisfied , or the option period , to obtain an exclusive , worldwide license to develop and commercialize certain vista antagonizing compounds and products containing these compounds in the field of oncology . a joint steering committee composed of representatives from each of the parties will manage the non-clinical and clinical development of the vista compounds and products during the option period , including , but not limited to , the approval of the plan for the phase 1a/1b trial . during the option period , we will conduct the phase 1a/1b trial and immunext will conduct certain agreed upon non-clinical research activities to support the phase 1a/1b trial . during the option period , we will assign to immunext all right , title and interest in and to , inventions made by us alone or jointly with immunext in conducting clinical and non-clinical activities under the immunext agreement during the option period and any patent rights covering those inventions . effective as of the option exercise date ( if any ) , immunext will assign to us ( i ) all such inventions that were made solely by us and any patent rights covering those inventions that were assigned by us to immunext during the option period and ( ii ) a joint ownership interest in all such inventions that were made jointly by us and immunext and patent rights covering those inventions that we assigned to immunext during the option period , except for any of those inventions that relates to compounds as to which immunext has retained exclusive rights . in january 2020 , we paid $ 1.3 million as an upfront fee to immunext . in addition , if we exercise the option , we will pay immunext an option exercise fee of $ 20.0 million . immunext will be eligible to receive up to $ 4.6 million in potential development milestones , up to $ 84.3 million in potential regulatory approval milestones , and up to $ 125.0 million in potential sales milestone payments from us . immunext is also eligible to receive tiered royalties on annual net sales on a product-by-product and country-by-country basis , at percentage rates ranging from high single digits to low double digits , subject to specified adjustments . our royalty payment obligations under the agreement with respect to a product in a country will expire on the later of ( i ) expiration of the last-to-expire valid claim of the immunext patents or jointly owned patents covering the manufacture , use or sale of such product in such country , ( ii ) the expiration of all regulatory exclusivity for such product in such country , and ( iii ) 10 years from the first commercial sale of such product in such country . in partial consideration for drug substance , technical advice , and maintenance of immunext 's existing ind and access to immunext 's technology during the option period , we will make semi-annual maintenance fee payments of $ 0.4 million to immunext . in addition , we will reimburse immunext for certain documented external costs and expenses incurred by immunext in carrying out non-clinical research activities approved by the joint steering committee , up to $ 0.3 million per calendar year , unless otherwise agreed to by both parties in writing . we have agreed to pay immunext a low double-digit percentage of sublicense revenue received by us or our affiliates . the term of the agreement began on january 6 , 2020 , and , unless earlier terminated , will expire upon either : ( a ) expiration of the option period if we have not exercised the option ; or ( b ) expiration of all royalty payment obligations for any 80 and all products . upon expiration ( but not on earlier termination ) of the immunext agreement after exercise of the option , the license granted by immunext to us shall automatically become fully paid-up , royalty-free , irrevocable and perpetual . the immunext agreement may be terminated by either us or immunext for an uncured material breach by the other party or if the other party files for bankruptcy or insolvency . immunext may terminate the immunext agreement if we or any of our affiliates or sublicensees challenges any immunext patents licensed to us or if we cease all research , development , manufacturing and commercialization activities for the products for a specified continuous period of time . we may terminate the immunext agreement for convenience , in its entirety or on a product-by-product basis . in the event we terminate the immunext agreement for convenience or immunext terminates the immunext agreement for uncured material breach , patent challenge , cessation of product-related activities or filing of bankruptcy or insolvency by us , then all rights and licenses granted to us will terminate , and , subject to specified royalty payment obligations of immunext , we will grant immunext ( i ) an exclusive , perpetual , nontransferable , worldwide license under patents controlled by us and ( ii ) a non-exclusive license under any know-how controlled by us , in each case , that are necessary or reasonably useful for the exploitation of the immunext compounds antagonizing vista or products we were developing or commercializing under the immunext agreement , and solely to exploit such compounds and products .
| overview we are a biotechnology company focused on the development of first-in-class and innovative therapeutics for the treatment of cancer . we conduct our research and development programs both internally and through strategic collaborations . our clinical stage drug candidates are ca-4948 , ci-8993 , and fimepinostat : ca-4948 , which is being tested in a dose escalating clinical trial in patients with non-hodgkin lymphomas , including those with myeloid differentiation primary response protein 88 , or myd88 alterations . we reported preliminary clinical data from the study in december 2019. we are currently planning to initiate a separate phase 1 trial for acute myeloid leukemia and myelodysplastic syndromes patients in the first half of 2020. ci-8993 , a monoclonal antibody designed to antagonize the v-domain ig suppressor of t cell activation , or vista signaling pathway , which we plan to begin clinical testing in a phase 1a/1b trial in 2020. fimepinostat , which is currently being explored in clinical studies in patients with myc-altered diffuse large b-cell lymphoma , or dlbcl and solid tumors and has been granted orphan drug designation and fast track designation for the treatment of dlbcl by the u.s. food and drug administration , or fda in april 2015 and may 2018 , respectively . we began enrollment in a phase 1 combination study with venetoclax in dlbcl patients , including patients with translocations in both myc and the bcl2 gene , also referred to as double-hit lymphoma , or high-grade b-cell lymphoma , or hgbl . we reported preliminary clinical data from this combination study in december 2019. in march 2020 , we announced that although we observed no significant drug-drug interaction in our phase 1 study of fimepinostat in combination with venetoclax , we did not see an efficacy signal that would warrant continuation of the study . accordingly , no further patients will be enrolled in this study . we are currently evaluating future studies for fimepinostat .
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expected amortization of net par outstanding as of december 31 , 2015 replace_table_token_73_th components of big portfolio components of big net par outstanding ( insurance and credit derivative form ) as of december 31 , 2015 replace_table_token_74_th 152 components of big net par outstanding ( insurance and credit derivative form ) as of december 31 , 2014 replace_table_token_75_th big net par outstanding and number of risks as of december 31 , 2015 replace_table_token_76_th 153 big net par outstanding and number of risks as of december story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements and accompanying notes which appear elsewhere in this form 10-k. it contains forward looking statements that involve risks and uncertainties . please see “ forward looking statements ” for more information . 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 , the company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation . 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. , and 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 the overall u.s. economic environment continued improving during 2015 by a number of measures . the u.s. department of commerce bureau of economic analysis reported that gross domestic product increased 2.4 % during 2015. according to the u.s. bureau of labor statistics ( `` bls '' ) , the estimated unemployment rate fell to 5.0 % in each of the last three months of 2015 , down six-tenths of a percentage point since december 2014 and the lowest monthly level since april 2008. the bls also reported that the u.s. economy added more than 2.6 million jobs during 2015 , with the greatest quarterly growth occurring in the fourth quarter . u.s. home prices , as measured by the case-shiller index , rose in the first several months of the year , subsequently stabilized , and then resumed growth , continuing the generally positive trend that emerged at the beginning of 2012. the federal open market committee ( `` fomc '' ) maintained the target range for the federal funds rate near zero for most of the year , as inflation remained below the committee 's 2 % target , but raised the target range by one-quarter point in december 2015. also during 2015 , the benchmark interest rates reflected by the mmd index fluctuated in a narrow range bordering historic lows . overall , the company believes that the mmd index will gradually rise further as the economy continues to improve , but the prospects for such additional economic recovery and higher interest rates are clouded by weak global economic performance and geopolitical risk , accompanied by strengthening of the dollar , deflationary pressure arising from a drop in global oil prices , and volatility in the u.s. and international stock markets . therefore , the company believes that the fomc is likely to exercise caution in 2016 , and that the pace of further rate increases is uncertain . the city fiscal condition survey of city finance officers conducted in the fall of 2015 and published by the national league of cities showed continued improvement in cities ' fiscal health . the same survey concluded that , at the state level , revenues continued to grow in 2015. in general , however , the company believes that states and cities face long-term spending pressures in areas such as health care , education , infrastructure , and pensions . outside the u.s. , the number of new infrastructure financings coming to market , including those appropriate for financial guarantees , remained limited . in an effort to stimulate growth as well as inflation , the european central bank continued its program of quantitative easing and held its interest rates for bank deposits below zero . the united kingdom 's office for national statistics reports that , in the united kingdom , the pace of economic growth was slightly slower in 2015 than in 2014 , and while the employment rate reached a record high , inflation was generally flat . 74 financial performance of assured guaranty financial results replace_table_token_6_th replace_table_token_7_th ( 1 ) please refer to “ —non-gaap financial measures ” for a definition of the financial measures that were not determined in accordance with gaap and a reconciliation of the non-gaap financial measure to the most directly comparable gaap measure , if available . ( 2 ) please refer to `` key business strategies – capital management '' below for information on common share repurchases . story_separator_special_tag capital management in recent years , the company has developed strategies to manage capital within the assured guaranty group more efficiently . in 2013 , agl became tax resident in the united kingdom , while remaining a bermuda-based company and continuing to carry on its administrative and head office functions in bermuda . as a u.k. tax resident company , agl is subject to the tax rules applicable to companies resident in the u.k. more information about agl becoming a u.k. tax resident is set out in the `` tax matters '' section of `` item 1 . business . '' in 2014 , agus issued 5.0 % senior notes for net proceeds of $ 495 million . the net proceeds from the sale of the notes were used for general corporate purposes , including the purchase of common shares of agl . 77 in 2015 , the company repurchased a total of 21 million common shares for approximately $ 555 million at an average price of $ 26.43 per share . year to date through february 9 , 2016 , the company repurchased a total of 2.3 million common shares for $ 55 million at an average price of $ 24.37 per share . with the purchase of common shares in 2016 , the company exhausted the share repurchase authorization that its board of directors approved in may 2015. on february 24 , 2016 , the board of directors approved a $ 250 million share repurchase authorization . the company expects the repurchases to be made from time to time in the open market or in privately negotiated transactions . the timing , form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors , including free funds available at the parent company , market conditions , the company 's capital position , legal requirements and other factors . the repurchase program may be modified , extended or terminated by the board of directors at any time . it does not have an expiration date . see note 18 , shareholders ' equity , of the financial statements and supplementary data , for additional information about the company 's repurchases of its common shares . summary of share repurchases replace_table_token_11_th accretive effect of cumulative repurchases ( 1 ) replace_table_token_12_th _ ( 1 ) cumulative repurchases since the beginning of 2013. in order to reduce leverage , and possibly rating agency capital charges , the company has mutually agreed with beneficiaries to terminate selected financial guaranty insurance and credit derivative contracts . in particular , the company has targeted investment grade securities for which claims are not expected but which carry a disproportionately large rating agency capital charge . the company terminated investment grade securities of $ 2.8 billion in 2015 , $ 3.1 billion in 2014 and $ 6.3 billion in 2013 of financial guaranty and cds contracts . alternative strategies the company considers alternative strategies in order to create long-term shareholder value . for example , the company considers opportunities to acquire financial guaranty portfolios , whether by acquiring financial guarantors who are no longer actively writing new business or their insured portfolios , or by commuting business that it had previously ceded . these transactions enable the company to improve its future earnings and deploy some of its excess capital . on april 1 , 2015 ( the `` acquisition date '' ) , agc completed the acquisition of radian asset acquisition and merged radian asset with and into agc , with agc as the surviving company of the merger . the cash purchase price of $ 804.5 million 78 paid by agc to radian guaranty inc. reflected certain adjustments , for corporate overhead and interest payment expenses , to the $ 810 million purchase price previously announced . agc paid the purchase price out of available funds and from the proceeds of a $ 200 million note from its parent agus . on april 14 , 2015 , agc repaid in full the $ 200 million note . in connection with the acquisition , agc acquired radian asset 's entire insured portfolio , which resulted in an increase in net par outstanding as of the acquisition date of approximately $ 13.6 billion , consisting of $ 9.4 billion public finance net par outstanding and $ 4.2 billion structured finance net par outstanding . in 2015 , the acquisition contributed net income of approximately $ 2.46 per share and operating income of approximately $ 2.13 per share , including the bargain purchase gain , settlement of pre-existing relationships and activity since the acquisition date . shareholders ' equity benefited by $ 1.04 per share , operating shareholders ' equity benefited by $ 1.26 per share and adjusted book value benefited by $ 3.73 per share as of the acquisition date . the company entered into various commutation agreements to reassume previously ceded business in 2015 and 2014 that resulted in gains of $ 28 million in 2015 and $ 23 million in 2014 and additional net unearned premium reserve of $ 23 million in 2015 and $ 20 million in 2014. the commutation gains were recorded in other income . loss mitigation in an effort to avoid or reduce potential losses in its insurance portfolios , the company employs a number of strategies . in the public finance area , the company believes that its experience and the resources it is prepared to deploy , as well as its ability to provide bond insurance or other contributions as part of a solution , has resulted in more favorable outcomes in distressed public finance situations than would have been the case without its participation , as illustrated , for example , by the company 's role in the detroit , michigan ; stockton , california ; and jefferson county , alabama financial crises . currently , the company is an active participant in discussions with the commonwealth of puerto rico and its advisors with respect to a number of puerto rico credits .
| consolidated cash flow summary replace_table_token_50_th ( 1 ) 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 net cash flows from purchases and sales of the trading portfolio and the effect of consolidating fg vies , cash inflows from operating activities decreased in 2015 compared with 2014 due primarily to lower r & w cash recoveries in 2015 than the comparable prior year period . excluding net cash flows from purchases and sales of the trading portfolio and the effect of consolidating fg vies , cash inflows from operating activities increased in 2014 compared with 2013 due primarily to lower claims paid on losses ( net of r & w recoveries ) and cash received on commutation agreements , offset in part by ( 1 ) lower premiums and realized gains ( losses ) and other settlements on credit derivatives , net of commissions , ( 2 ) higher taxes and ( 3 ) interest payments . investing activities were primarily net sales ( purchases ) of fixed-maturity and short-term investment securities . investing cash flows in 2015 , 2014 and 2013 include inflows of $ 400 million , $ 408 million and $ 663 million for fg vies , respectively . in the first quarter of 2015 , the company sold securities to fund the acquisition of radian asset by agc . in the second quarter of 2015 the company paid $ 800 million , net of cash acquired , to acquire radian asset . the 2013 amounts included proceeds from sales of third party surplus notes and other invested assets . financing activities consisted primarily of paydowns of fg vie liabilities and share repurchases . financing cash flows in 2015 , 2014 and 2013 include outflows of $ 214 million , $ 396 million and $ 511 million for fg vies , respectively .
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estimated fair values are calculated based on the following hierarchy of information , depending upon availability : ( level 1 ) recently quoted market prices ; ( level 2 ) market prices for comparable properties ; or ( level 3 ) the present value of future cash flows , including estimated residual value . certain of our assets may be carried at an amount that exceeds that which could be realized in a current disposition transaction . we have determined that the carrying values of our real estate assets and related intangible assets are recoverable as of december 31 , 2020. projections of expected future operating cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements , property operating expenses , the number of months it takes to re-lease the property , and the number of years the property is held for investment , among other factors . due to the inherent subjectivity of the assumptions used to project future cash flows , estimated fair values may differ from the values that would be realized in market transactions . in the fourth quarter of 2019 , we recorded an impairment loss of $ 20.6 million on pasadena corporate park . upon deciding to exit the los angeles market , we began to market for sale our only asset therein , pasadena corporate park , in the fourth quarter of 2019. in january 2020 , we entered into a contract to sell pasadena corporate park , and closed on the sale on march 31 , 2020. as a result , as of december 31 , 2019 , we reduced the carrying value of pasadena corporate park to reflect its estimated fair value of $ 74.5 million , determined based on estimated net sale proceeds ( level 1 ) , by recording an impairment loss of $ 20.6 million . in the third quarter of 2019 , we recognized an impairment loss of $ 23.4 million as a result of changing the holding period expectations for lindbergh center in atlanta , georgia . we entered a contract to sell lindbergh center in the third quarter of 2019 , and closed the sale on september 26 , 2019. as a result , we reduced the carrying value of lindbergh center to reflect its estimated fair value , based on the estimated net sale proceeds of $ 181.0 million ( level 1 ) , by recording an impairment loss of $ 23.4 million in the third quarter of 2019. allocation of purchase price of acquired assets upon the acquisition of real properties , we allocate the purchase price of properties to tangible assets , consisting of land and building , site improvements , and identified intangible assets and liabilities , including the value of in-place leases , based in each case on our estimate of their fair values . the fair values of the tangible assets of an acquired property ( which includes land and building ) are determined by valuing the property as if it were vacant , and the `` as-if-vacant '' value is then allocated to land and building based on 48 index to financial statements our determination of the relative fair value of these assets . we determine the as-if-vacant fair value of a property using methods similar to those used by independent appraisers . factors we consider in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases , including leasing commissions and other related costs . in estimating carrying costs , we include real estate taxes , insurance , and other operating expenses during the expected lease-up periods , based on current market demand . intangible assets and liabilities arising from in-place leases where we are the lessor as further described below , in-place leases where we are the lessor may have values related to direct costs associated with obtaining a new tenant that are avoided for in-place leases , opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease , tenant relationships , and effective contractual rental rates that are above or below market : direct costs associated with obtaining a new tenant that are avoided for in-place leases , including commissions , tenant improvement allowances , and other direct costs , are estimated based on management 's consideration of current market costs to execute a similar lease . such direct costs are included in intangible lease origination costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases . the value of opportunity costs associated with lost rentals avoided by acquiring an in-place lease is calculated based on the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease . such opportunity costs are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases . the value of effective rental rates of in-place leases that are above or below the market rates of comparable leases is calculated based on the present value ( using a discount rate that reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be received pursuant to the in-place leases and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases . this calculation includes significantly below-market renewal options for which exercise of the renewal option appears to be reasonably assured . these intangible assets or liabilities are measured over the actual or assumed ( in the case of renewal options ) remaining lease terms . story_separator_special_tag the capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental income over the remaining terms of the respective leases . evaluating the recoverability of intangible assets and liabilities the values of intangible lease assets and liabilities are determined based on assumptions made at the time of acquisition and have defined useful lives that correspond with the lease terms . there may be instances in which intangible lease assets and liabilities become impaired , and we are required to write off the remaining asset or liability immediately or over a shorter period of time . lease restructurings , including lease terminations and lease extensions , may impact the value and useful life of in-place leases . in-place leases that are terminated , partially terminated , or modified will be evaluated for impairment if the original in-place lease terms have been modified . in the event that the discounted cash flows of the original in-place lease stream do not exceed the discounted modified in-place lease stream , we adjust the carrying value of the intangible lease assets to the discounted cash flows and recognize an impairment loss . for in-place lease extensions that are executed more than one year prior to the original in-place lease expiration date , the useful life of the in-place lease will be extended over the new lease term with the exception of those in-place lease components , such as lease commissions and tenant allowances , that have been renegotiated for the extended term . renegotiated in-place lease components , such as lease commissions and tenant allowances , will be amortized over the shorter of the useful life of the asset or the new lease term . intangible assets and liabilities arising from in-place leases where we are the lessee in-place ground leases where we are the lessee may have positive or negative value associated with effective contractual rental rates that are above or below market at the time of acquisition or assumption . such values are calculated based on the present value ( using a discount rate that reflects the risks associated with the leases 49 index to financial statements acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to the in-place lease and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place lease at the time of execution or assumption . this calculation includes significantly below market renewal options for which exercise of the renewal option appears to be reasonably assured . these intangible assets and liabilities are measured over the actual or assumed ( in the case of renewal options ) remaining lease terms . the capitalized above-market and below-market in-place lease values are recorded as intangible lease liabilities and assets , respectively , and are amortized as an adjustment to property operating costs over the remaining term of the respective ground leases . goodwill goodwill represents purchase price not specifically assigned to assets acquired and liabilities assumed in a business combination . we assess the recoverability of goodwill on an annual basis , and on an interim basis if an event occurs or circumstances change that would indicate that the carrying value of goodwill may be impaired . when indicators of potential impairment exist , we evaluate whether the carrying value of the reporting unit to which the goodwill relates exceeds the reporting unit 's estimated fair value . if the reporting unit 's carrying value , including the goodwill , exceeds its estimated fair value , then goodwill would be reduced , and an impairment loss would be recognized , for the amount of this excess ( not to exceed total goodwill ) . our reporting units are determined based on the key geographic markets in which our properties are located . on january 24 , 2020 , we recorded goodwill of $ 63.8 million in connection with the acquisition of normandy , a new york-based , fully integrated real estate operator and fund management platform ( see note 3 , transactions , for additional details ) . while our market capitalization has been negatively affected by market disruptions and the deterioration in macroeconomic conditions caused by the covid-19 pandemic throughout the year , our cash flows have remained strong throughout 2020 , and we have maintained high rates of occupancy and collections since the onset of the pandemic . therefore , at the end of the first , second , and third quarters of 2020 , we concluded that goodwill was not impaired . throughout 2020 , we worked to integrate and align normandy 's operations with our own . in the fourth quarter of 2020 , the integration was substantially completed in conjunction with establishing our business plan and budget for the upcoming year . our 2021 business plan and budget take into account the near-term effects the covid-19 pandemic may have on demand for office space and on our tenants ' businesses . we performed our annual assessment of the recoverability of goodwill in the fourth quarter of 2020 , and concluded that the carrying value of our new york reporting unit , including the goodwill related to the normandy acquisition , exceeded the corresponding estimated fair value . accordingly , in the fourth quarter goodwill was written off by recording an impairment loss of $ 63.8 million . revenue recognition the majority of our revenues are derived from leases and are reflected as lease revenues on the accompanying consolidated statements of operations . lease revenues includes base rental income , tenant reimbursements , and lease termination fees . all of the leases on our assets are considered operating leases . therefore , base rental income is generally recognized on a straight-line basis over the lease term , and tenant reimbursements are generally recognized in the period in which reimbursements for operating costs are billable to the tenant . rents and tenant reimbursements collected in
| same store net operating income we also evaluate the performance of our properties , on a `` same store '' basis , using a metric referred to as same store noi . we view same store noi as a useful supplemental performance measure because it improves comparability between periods by eliminating the effects of changes in the composition of our portfolio . on an individual property basis , same store noi is computed in a consistent manner as noi ( as described in the previous section ) . for the periods presented , we have defined our same store portfolio as those properties that have been continuously owned and operating since january 1 , 2019. noi and same store noi are calculated as follows for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_15_th ( 1 ) reflects noi from properties that were wholly owned for the entirety of the periods presented . ( 2 ) reflects noi earned from properties owned through unconsolidated joint ventures based on our ownership interest as of december 31 , 2020 , for the entirety of the periods presented . the noi for properties held through unconsolidated joint ventures is included in income ( loss ) from unconsolidated joint ventures in our accompanying consolidated statements of operations . see note 4 , unconsolidated joint ventures , of the accompanying consolidated financial statements , for more information . ( 3 ) reflects activity for the following property acquired since january 1 , 2019 , for all periods presented : 201 california street acquired on december 9 , 2019 . ( 4 ) reflects activity for the following development projects ( for projects owned through joint ventures , noi is included based on our ownership interest , as indicated ) : 149 madison avenue , 49.7 % of 799 broadway joint venture acquired on october 3 , 2018 , 92.5 % of 101 franklin street acquired on december 2 , 2019 , and 8.65 % of terminal warehouse acquired march 13 , 2020 .
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these models are primarily financial industry-standard models that consider various assumptions , including the time value of money , yield curves , volatility factors , as well as other relevant economic measures . level 3 : these use unobservable inputs that are not corroborated by market data . these values are generally estimated based upon methodologies utilizing significant inputs that are generally less observable from objective sources . revenue recognition the company applies the accounting guidance for revenue recognition in the evaluation of its contracts to determine when to properly recognize revenue . the following outlines the various types of revenue and the determination of the recognition of income for each category : product revenue product revenue is recognized when there is persuasive evidence of an arrangement , the collection of a fixed fee is probable or determinable , and delivery of the product to the customer or distributor has occurred , at which time title generally is passed to the customer or distributor . all of these generally occur upon shipment of the product . if the product requires installation to be performed by the company , all revenue related to the product is deferred and recognized upon the completion of the installation . if the product requires specific customer acceptance , revenue is deferred until customer acceptance occurs or the acceptance provisions lapse , unless the company can objectively and reliably demonstrate that the criteria specified in the acceptance provisions is satisfied . mti instruments currently has distributor agreements in place for the international sale of general instrument and semiconductor products in certain global regions . such agreements grant a distributor the right of first refusal to act as distributor for such products in the distributor 's territory . in return , the distributor agrees to not market other products which are considered by mti instruments to be in direct competition with mti instruments ' products . the distributor is allowed to purchase mti instruments ' equipment at a price which is discounted off the published domestic/international list prices . such list prices can be adjusted by mti instruments during the term of the distributor agreement , but mti instruments must provide advance notice at least 90 days before the price adjustment goes into effect . generally , payment terms with the distributor are standard net 30 days ; however , on occasion , extended payment terms have been granted . title and risk of loss of the product passes to the distributor upon delivery to the independent carrier ( standard free-on-board factory ) , and the distributor is responsible for any required training and or service with the end-user . the sale ( and subsequent payment ) between mti instruments and the distributor is not contingent upon the successful resale of the product by the distributor . distributor sales are covered by mti instruments ' standard one-year warranty and there are no special return policies for distributors . some of mti instruments ' direct sales , particularly sales of semi-automatic semiconductor metrology equipment , or rack-mounted vibration systems , involve on-site customer acceptance and or installation . in those instances , revenue recognition does not take place at time of shipment . instead , mti instruments recognizes the sale after the unit is installed and or an on-site acceptance is given by the customer . agreed-upon acceptance terms and conditions , if any , are negotiated at the time of purchase . cost of product revenue cost of product revenue includes material , labor , overhead and shipping and handling costs . deferred revenue deferred revenue consists of billings to and or payments received from customers in advance of services performed , completed installation or customer acceptance . as of december 31 , 2013 , the company had no deferred 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 related notes included elsewhere in this annual report . this discussion contains forward-looking statements , which involve risk and uncertainties . our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors , including those discussed in item 1a : risk factors and elsewhere in this annual report . 13 overview mti 's core business is conducted through mti instruments , inc. , a wholly-owned subsidiary and the sole component of the company 's test and measurement instrumentation segment . the company also operated in a new energy segment with business conducted through mti microfuel cells , inc. until december 31 , 2013 ( date of mti micro deconsolidation ) . test and measurement instrumentation segment mti instruments is a supplier of precision linear displacement solutions , vibration measurement and system balancing solutions , precision tensile measurement systems and wafer inspection tools , serving markets that require 1 ) the precise measurements and control of products and processes in automated manufacturing , assembly , and consistent operation of complex machinery , 2 ) metrology tools for semiconductor and solar wafer characterization , tensile stage systems for materials testing and precision linear displacement gauges all for use in academic and industrial research and development settings , and 3 ) engine balancing and vibration analysis systems for both military and commercial aircraft . we are continuously working on ways to increase our sales reach , including expanded worldwide sales coverage and enhanced internet marketing . new energy segment mti micro had been developing an off-the-grid power solution for various portable electronic devices . its patented proprietary direct methanol fuel cell technology platform converts methanol fuel to usable electricity capable of providing continuous power , as long as necessary fuel flows are maintained . recent developments the company appointed kevin g. lynch as the chief executive officer of the company , effective may 1 , 2013. story_separator_special_tag as of december 31 , 2013 , we had no debt , no outstanding commitments for capital expenditures and approximately $ 1.2 million of cash available to fund our operations . if production levels rise at mti instruments , additional capital equipment may be required in the foreseeable future . we expect to spend approximately $ 250 thousand on capital equipment and $ 1.5 million in research and development on mti instruments ' products during 2014. we expect to finance any future expenditures and continue funding our operations from our current cash position and our projected 2014 cash flow pursuant to management 's current plan . we may also seek to supplement our resources through sales of stock or assets . besides the line of credit at mti instruments , the company has no other commitments for funding future needs of the organization at this time and such additional financing during 2014 , if required , may not be available to us on acceptable terms or at all . while it can not be assured , management believes that , due in part to our current working capital level , the aforementioned cost reductions implemented in the second half of 2012 , recent replacements in sales staff and projected inventory reductions , the company should continue the positive cash flows it experienced during 2013 to fund the company 's active operations for the foreseeable future . however , if near-term revenue estimates are delayed or missed , the company may need to implement additional steps to ensure liquidity including , but not limited to , the deferral of planned capital spending , postponing anticipated new hires and or delaying existing or pending product development initiatives . such steps , if required , could potentially have a material and adverse effect on our business , results of operations and financial condition . line of credit on september 20 , 2011 , mti instruments entered into a working capital line of credit with first niagara bank , n.a . mti instruments may borrow from time to time up to $ 400 thousand to support its working capital needs . the note is payable upon demand , and the interest rate on the note is equal to the prime rate with a floor of 4.0 % per annum . the note is secured by a lien on all of the assets of mti instruments and is guaranteed by the company . the line of credit was renewed on september 23 , 2013. the line of credit is subject to a review date of june 30 , 2014. under the line of credit , mti instruments is required to maintain a line balance of $ 0 for thirty consecutive days during each calendar year . as of december 31 , 2013 and december 31 , 2012 there were no amounts outstanding under the line of credit . backlog , inventory and accounts receivable at december 31 , 2013 , the company 's order backlog was $ 198 thousand , compared to $ 1.6 million at december 31 , 2012. the decrease in backlog was due to lower bookings under existing us air force contracts , higher shipping levels during 2013 and $ 591 thousand of deferred revenue , which was in the backlog at december 31 , 2012 . 17 our inventory turnover ratios and average accounts receivable days outstanding for the years ended december 31 , 2013 and 2012 and their changes are as follows : replace_table_token_4_th the increase in inventory turns is due to a 29 % decrease in average inventory balances on a 41.6 % rise in sales during the comparable periods . the average accounts receivable days ' outstanding increased one day in 2013 compared with 2012 due to an increase in direct sales to asia , rather than through distributors . off-balance sheet arrangements we have no off balance sheet arrangements . critical accounting policies and significant judgments and estimates the prior 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 accounting principles generally accepted in the united states of america . note 2 of the consolidated financial statements included in this annual report on form 10-k includes a summary of our most significant accounting policies . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , inventories , income taxes , share-based compensation and derivatives . 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 values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . periodically , our management reviews our critical accounting estimates with the audit committee of our board of directors . the significant accounting policies that we believe are most critical to aid in fully understanding and evaluating our consolidated financial statements include the following : revenue recognition . we recognize product revenue when there is persuasive evidence of an arrangement , delivery of the product to the customer or distributor has occurred , at which time title generally is passed to the customer or distributor , and we have determined that collection of a fixed fee is probable , all of which occur upon shipment of the product .
| results of operations results of operations for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. test and measurement instrumentation segment product revenue : product revenue relates to revenue recognized from the test and measurement instrumentation product lines . product revenue in our test and measurement instrumentation segment for the year ended december 31 , 2013 increased by $ 2.5 million , or 41.6 % , to $ 8.4 million in 2013 from $ 5.9 million in 2012. this increase in product revenue was attributable to a 57.2 % increase in shipments of military and commercial aviation balancing systems and accessory kits most notably under existing air force contracts . also contributing to the overall increase was a 37.3 % rise in general instrumentation revenue , which was driven by higher capacitance product , tensile stage and laser system sales . for the year ended december 31 , 2013 , the largest commercial customer for the segment was an asian customer , which accounted for 6.8 % of annual product revenue . in 2012 , the largest commercial customer for the segment was an asian distributor , which accounted for 6.9 % of annual product revenue . the u.s. air force was the largest government customer for the year ended december 31 , 2013 and accounted for 27.2 % of annual product revenue . the u.s. air force was also the largest government customer for the year ended december 31 , 2012 and accounted for 22.3 % of annual product revenue . 14 information regarding government contracts included in product revenue is as follows : replace_table_token_2_th ( 1 ) contract values represent maximum potential values at time of contract placement and may not be representative of actual results . ( 2 ) date represents expiration of contract , which includes the exercise of all four option extensions . ( 3 ) date represents expiration of contract , which includes the exercise of two option extensions .
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if a hedging relationship is terminated due story_separator_special_tag the purpose of this analysis is to provide the reader with information relevant to understanding and assessing valley 's results of operations for each of the past three years and financial condition for each of the past two years . in order to fully appreciate this analysis the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under item 8 of this report , and statistical data presented in this document . cautionary statement concerning forward-looking statements this annual report on form 10-k , both in the md & a and elsewhere , contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. such statements are not historical facts and include expressions about management 's confidence and strategies and management 's expectations about new and existing programs and products , acquisitions , relationships , opportunities , taxation , technology , market conditions and economic expectations . these statements may be identified by such forward-looking terminology as “ should , ” “ expect , ” “ believe , ” “ view , ” “ opportunity , ” “ allow , ” “ continues , ” “ reflects , ” “ typically , ” “ usually , ” “ anticipate , ” or similar statements or variations of such terms . such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements in addition to those risk factors listed under the “ risk factors ” section of this annual report on form 10-k include , but are not limited to : weakness or a decline in the u.s. economy , in particular in new jersey , new york metropolitan area ( including long island ) and florida ; unexpected changes in market interest rates for interest earning assets and or interest bearing liabilities ; less than expected cost savings from the maturity , modification or prepayment of long-term borrowings that mature through 2022 ; further prepayment penalties related to the early extinguishment of high cost borrowings ; less than expected cost savings in 2016 and 2017 from valley 's branch efficiency and cost reduction plans ; claims and litigation pertaining to fiduciary responsibility , contractual issues , environmental laws and other matters ; cyber attacks , computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information , destroy data , disable or degrade service , or sabotage our systems ; results of examinations by the occ , the frb , the cfpb and other regulatory authorities , including the possibility that any such regulatory authority may , among other things , require us to increase our allowance for credit losses , write-down assets , require us to reimburse customers , change the way we do business , or limit or eliminate certain other banking activities ; government intervention in the u.s. financial system and the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve ; our inability to pay dividends at current levels , or at all , because of inadequate future earnings , regulatory restrictions or limitations , and changes in the composition of qualifying regulatory capital and minimum capital requirements ( including those resulting from the u.s. implementation of basel iii requirements ) ; higher than expected loan losses within one or more segments of our loan portfolio ; declines in value in our investment portfolio , including additional other-than-temporary impairment charges on our investment securities ; unexpected significant declines in the loan portfolio due to the lack of economic expansion , increased competition , large prepayments or other factors ; unanticipated credit deterioration in our loan portfolio ; lower than expected cash flows from purchased credit-impaired loans ; unanticipated loan delinquencies , loss of collateral , decreased service revenues , and other potential negative effects on our business caused by severe weather or other external events ; higher than expected income tax expense or tax rates , including increases resulting from changes in tax laws , regulations and case law ; an unexpected decline in real estate values within our market areas ; replace_table_token_38_th higher than expected fdic insurance assessments ; the failure of other financial institutions with whom we have trading , clearing , counterparty and other financial relationships ; lack of liquidity to fund our various cash obligations ; unanticipated reduction in our deposit base ; potential acquisitions that may disrupt our business ; future goodwill impairment due to changes in our business , changes in market conditions , or other factors ; legislative and regulatory actions ( including the impact of the dodd-frank wall street reform and consumer protection act and related regulations ) subject us to additional regulatory oversight which may result in higher compliance costs and or require us to change our business model ; changes in accounting policies or accounting standards , including the potential issuance of new authoritative accounting guidance which may increase the required level of our allowance for credit losses ; our inability to promptly adapt to technological changes ; our internal controls and procedures may not be adequate to prevent losses ; the inability to realize expected revenue synergies from the cnl merger in the amounts or in the timeframe anticipated ; costs or difficulties relating to cnl integration matters might be greater than expected ; inability to retain customers and employees , including those of cnl ; and other unexpected material adverse changes in our operations or earnings . critical accounting policies and estimates our accounting and reporting policies conform , in all material respects , to u.s. gaap . story_separator_special_tag any portion of the additional estimated losses related to covered pci loans that is reimbursable from the fdic under the loss-sharing agreements is recorded in non-interest income and increases the fdic loss-share receivable asset included in other assets in our consolidated financial statements . valley had no allowance reserves related to pci loans at december 31 , 2015 as compared to $ 200 thousand ( all related to covered pci loans ) at december 31 , 2014. 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 md & a . changes in our allowance for loan losses valley considers it difficult to quantify the impact of changes in forecast on its allowance for loan losses . however , management believes the following discussion may enable investors to better understand the variables that drive the allowance for loan losses , which amounted to $ 106.2 million at december 31 , 2015 . for impaired credits , if the present value of expected cash flows were 10 percent higher or lower , the allowance would have decreased $ 4.4 million or increased $ 5.5 million , respectively , at december 31 , 2015 . if the fair value of the collateral ( for collateral dependent loans ) was 10 percent higher or lower , the allowance would have decreased $ 125 thousand or increased $ 1.4 million , respectively , at december 31 , 2015 . if classified loan balances were 10 percent higher or lower , the allowance would have increased or decreased by approximately $ 644 thousand at december 31 , 2015 . the credit rating assigned to each non-classified credit is an important variable in determining the allowance . if each non-classified credit were rated one grade worse , the allowance would have increased by approximately $ 4.8 million , while if each non-classified credit were rated one grade better there would be no change in the level of the allowance as of december 31 , 2015 . additionally , if the historical loss factors used to calculate the allowance for non-classified loans were 10 percent higher or lower , the allowance would have increased or decreased by approximately $ 9.0 million , respectively , at december 31 , 2015 . moreover , if the expected loss rate applied to classified loans were to increase or decrease by 10 percent , the allowance would have been $ 644 thousand higher or lower , respectively , at december 31 , 2015 . replace_table_token_40_th security valuations and impairments . management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices on similar assets ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of quoted prices and liquid markets , valuation techniques would be used to determine fair value of any investments that require inputs that are both significant to the fair value measurement and unobservable ( level 3 ) . valuation techniques are based on various assumptions , including , but not limited to , cash flows , discount rates , rate of return , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on our consolidated financial condition or results of operations . see note 3 to the consolidated financial statements for more details on our security valuation techniques . management must periodically evaluate if unrealized losses ( as determined based on the securities valuation methodologies discussed above ) on individual securities classified as held to maturity or available for sale in the investment portfolio are considered to be other-than-temporary . the analysis of other-than-temporary impairment requires the use of various assumptions , including , but not limited to , the length of time an investment 's book value is greater than fair value , the severity of the investment 's decline , any credit deterioration of the investment , whether management intends to sell the security , and whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be other-than-temporarily impaired are written down by the impairment related to the estimated credit loss and the non-credit related impairment is recognized in other comprehensive income or loss . other-than-temporarily impaired equity securities are written down to fair value and a non-cash impairment charge is recognized in the period of such evaluation . see the “ investment securities ” section of this md & a and note 4 to the consolidated financial statements for additional analysis and discussion of our other-than-temporary impairment charges . goodwill and other intangible assets . we record all assets , liabilities , and non-controlling interests in the acquiree in purchase acquisitions , including goodwill and other intangible assets , at fair value as of the acquisition date , and expense all acquisition related costs as incurred as required by asc topic 805 , “ business combinations. ” goodwill totaling $ 686.3 million at december 31 , 2015 is not amortized but is subject to annual tests for impairment or more often , if events or circumstances indicate it may be impaired . other intangible assets totaling $ 48.9 million at december 31 , 2015 are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount . such evaluation of other intangible assets is based on undiscounted cash flow projections . the initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities .
| executive summary company overview . at december 31 , 2015 , valley had consolidated total assets of $ 21.6 billion , total net loans of $ 15.9 billion , total deposits of $ 16.3 billion and total shareholders ' equity of $ 2.2 billion . our commercial bank operations include branch office locations in northern and central new jersey , the new york city boroughs of manhattan , brooklyn and queens and long island and florida . of our current 227 —branch network , 66 percent , 18 percent and 16 percent of the branches are located in new jersey , new york and florida , respectively . we have grown both in asset size and locations significantly over the past several years primarily through bank acquisitions . valley 's most recent acquisition was completed on december 1 , 2015 when valley acquired cnlbancshares , inc. ( cnl ) and its wholly-owned subsidiary , cnlbank , a commercial bank with approximately $ 1.6 billion in assets , $ 825 million in loans , and $ 1.2 billion in deposits , after purchase accounting adjustments , and a branch network of 16 offices on the date of its acquisition by valley . the cnl acquisition increased valley 's florida branch network to a total of 36 branches covering most major markets in central and southern florida . the common shareholders of cnl received 0.705 of a share of valley common stock for each cnl share they owned prior to the merger . the total consideration for the acquisition was approximately $ 230 million , consisting of 20.6 million shares of valley common stock . the transaction generated approximately $ 110 million in goodwill and $ 19 million in core deposit intangible assets subject to amortization .
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as of december 31 , 2017 , we owned , operated or had an interest in a portfolio of 350 developed properties located in 29 states and ontario , canada ( collectively the “ properties ” ) , including 230 mh communities , 89 rv communities , and 31 communities containing both mh and rv sites . as of december 31 , 2017 , the properties contained an aggregate of 121,892 developed sites comprised of 83,294 developed mh sites , 22,742 annual rv sites , and 15,856 transient rv sites . there are approximately 9,600 additional mh and rv sites suitable for development . principles of consolidation the accompanying consolidated financial statements include our accounts and all majority-owned and controlled subsidiaries , including entities in which we have a controlling interest or have been determined to be the primary beneficiary of a variable interest entity ( “ vie ” ) . all inter-company transactions have been eliminated in consolidation . any subsidiaries in which we have an ownership percentage equal to or greater than 50 % , but less than 100 % , or considered a vie , represent subsidiaries with a noncontrolling interest . the noncontrolling interests in our subsidiaries are allocated their proportionate share of the subsidiaries ' financial results . this allocation is recorded as the noncontrolling interest in our consolidated financial statements . use of estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( “ gaap ” ) requires management to make estimates and assumptions related to the reported amounts included in our consolidated financial statements and accompanying footnotes thereto . actual results could differ from those estimates . investment property investment property is recorded at cost , less accumulated depreciation . we review the carrying value of long-lived assets to be held story_separator_special_tag the following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying footnotes thereto included in this annual report on form 10-k. in addition to the results presented in accordance with gaap below , we have provided net operating income ( “ noi ” ) and funds from operations ( “ ffo ” ) as supplemental performance measures . refer to non-gaap financial measures in this item for additional information . overview we are a fully integrated , self-administered and self-managed reit . as of december 31 , 2017 , we owned and operated , or had an interest in , a portfolio of 350 properties located throughout the united states and ontario , canada , including 230 mh communities , 89 rv communities , and 31 properties containing both mh and rv sites . we have been in the business of acquiring , operating , developing , and expanding mh and rv communities since 1975. we lease individual sites with utility access for placement of manufactured homes and rvs to our customers . we are also engaged through shs in the marketing , selling , and leasing of new and pre-owned homes to current and future residents in our communities . the operations of shs support and enhance our occupancy levels , property performance , and cash flows . story_separator_special_tag activities ( determined in accordance with gaap ) as a measure of the company 's liquidity ; nor is it indicative of funds available for the company 's cash needs , including its ability to make cash distributions . the company believes that net income ( loss ) is the most directly comparable gaap measurement to noi . because of the inclusion of items such as interest , depreciation , and amortization , the use of net income ( loss ) as a performance measure is limited as these items may not accurately reflect the actual change in market value of a property , in the case of depreciation and in the case of interest , may not necessarily be linked to the operating performance of a real estate asset , as it is often incurred at a parent company level and not at a property level . the company believes that noi is helpful to investors as a measure of operating performance because it is an indicator of the return on property investment , and provides a method of comparing property performance over time . the company uses noi as a key management tool when evaluating performance and growth of particular properties and or groups of properties . the principal limitation of noi is that it excludes depreciation , amortization interest expense and non-property specific expenses such as general and administrative expenses , all of which are significant costs . therefore , noi is a measure of the operating performance of the properties of the company rather than of the company overall . ffo is defined by the national association of real estate investment trusts ( “ nareit ” ) as net income ( loss ) computed in accordance with gaap , excluding gains or losses from sales of depreciable operating property , plus real estate-related depreciation and amortization , and after adjustments for unconsolidated partnerships and joint ventures . the company considers ffo to be a useful measure for reviewing comparative operating and financial performance because , by excluding gains and losses related to sales of previously depreciated operating real estate assets , impairment and excluding real estate asset depreciation and amortization ( which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates ) . ffo provides a performance measure that , when compared period over period , reflects the impact to operations from trends in occupancy rates , rental rates , and operating costs , providing perspective not readily apparent from net income ( loss ) . management believes that the use of ffo has been beneficial in improving the understanding of operating results of reits among the investing public and making comparisons of reit operating results more meaningful . story_separator_special_tag ( 3 ) the same community occupancy percentage for 2016 has been adjusted to reflect incremental growth period-over-period from filled expansion sites and the conversion of transient rv sites to annual rv sites . ( 4 ) monthly base rent pertains to annual rv sites and excludes transient rv sites . ( 5 ) calculated using actual results without rounding . the 6.9 percent growth in noi is primarily due to a 6.0 percent increase in income from real property . the 6.0 percent increase in income from real property is primarily due to a 1.9 percent increase in mh & rv blended occupancy , a 3.6 percent increase in total monthly base rent per site and a 0.5 percent increase in transient and other revenue . the increase in income from real property was partially offset by a 3.8 percent increase in property operating expenses compared to 2016 , which was primarily due to higher payroll and benefits , real estate taxes and utilities in 2017 . 44 sun communities , inc. rentals and home sales the following table reflects certain financial and other information for our rental program as of and for the years ended december 31 , 2017 and 2016 ( in thousands , except for statistical information ) : replace_table_token_26_th ( 1 ) the renter 's monthly payment includes the site rent and an amount attributable to the leasing of the home . the site rent is reflected in the real property operations segment . for purposes of management analysis , the site rent is included in the rental program revenue to evaluate the incremental revenue gains associated with implementation of the rental program , and assess the overall growth and performance of rental program and financial impact to our operations . rental program noi increased by 8.6 percent compared to 2016. the increase is due to a 4.6 percent increase in rental program revenue attributable to a 4.0 percent increase in weighted average monthly rental rates and a 3.2 percent increase in the number of occupied rentals , combined with an overall decrease in rental program operating and maintenance expenses . the 9.4 percent decrease in rental program operating and maintenance expenses is primarily due to lower repairs and refurbishment expenses in 2017 as compared to 2016. the reduction in repairs and refurbishment expenses is primarily due to our continuing investment in occupied rentals and replacement of older homes in the rental program with newer ones that do not require the same level of repairs and refurbishments . 45 sun communities , inc. we purchase new homes and acquire pre-owned and repossessed manufactured homes , generally located within our communities , from lenders , dealers , and former residents to lease or sell to current and prospective residents . the following table reflects certain financial and statistical information for our home sales program for the years ended december 31 , 2017 and 2016 ( in thousands , except for average selling prices and statistical information ) : replace_table_token_27_th gross profit for new and pre-owned home sales increased $ 1.2 million and $ 1.0 million , respectively , in 2017 as compared to 2016. the increases for both new and pre-owned home sales are primarily the result of higher home sales volumes combined with higher average selling prices in 2017 as compared to 2016 . 46 sun communities , inc. other income statement items the following table summarizes other income and expenses for the years ended december 31 , 2017 and 2016 ( amounts in thousands ) : replace_table_token_28_th interest income - increased primarily due to an increase in our installment notes receivable , partially offset by a decrease in our collateralized receivables , as compared to december 31 , 2016. brokerage commissions and other revenues , net - increased due to the sale of 2,006 brokered homes in 2017 as compared to 1,655 in 2016 , a 21.2 percent increase . home selling expenses - increased primarily due to higher volumes and higher weighted average selling prices for both new and used homes in 2017 , which resulted in higher commissions . general and administrative expenses - increased primarily due to additional employee related costs as headcount increased in connection with our growth through acquisitions . transaction costs - relate to diligence and other expenses incurred in connection with our acquisitions . these costs were significantly lower in 2017 as compared to 2016 , due to the acquisition of carefree in 2016. refer to note 2 , “ real estate acquisitions and dispositions , ” in our accompanying consolidated financial statements for additional information . catastrophic weather related charges , net - in september 2017 , hurricane irma impacted 121 of our communities in florida and three in georgia . we recognized charges totaling $ 31.7 million comprised of $ 21.3 million for debris and tree removal , common area repairs and minor flooding damage , as well as $ 10.4 million for impaired assets at the three florida keys communities . these charges were partially offset by estimated insurance recoveries of $ 23.7 million . in 2016 , catastrophic weather related charges , net were primarily attributable to debris and tree removal , common area repairs and minor flooding damage from hurricanes hermine and matthew . depreciation and amortization - increased as a result of our acquisition of carefree in 2016 , as well as other properties in the second half of 2016 and during 2017. refer to note 2 , “ real estate acquisitions and dispositions , ” of our accompanying consolidated financial statements for additional information . loss on extinguishment of debt - in 2017 of $ 6.0 million was recognized in connection with defeasement or repayment of collateralized term loans totaling $ 61.4 million . in 2016 , the loss on extinguishment of debt of $ 1.1 million was in connection with repayment of a total of $ 79.1 million of collateralized term loans . refer to note 8 , “ debt and lines of credit , ” in our accompanying consolidated financial statements for additional information .
| executive summary 2017 accomplishments : total revenues for 2017 increased 17.9 percent to $ 982.6 million . core ffo for 2017 was $ 4.17 per diluted share and op unit , an increase of 10.0 percent over 2016. achieved same community noi growth of 6.9 percent . gained 2,406 revenue producing sites . reached same community occupancy of 97.3 percent , excluding approximately 1,800 recently completed but vacant expansion sites . sold 3,282 homes , an increase of 3.5 percent over 2016. brokered homes sales increased by 21.2 percent to 2,006 in 2017 as compared to 1,655 in 2016. reduced net debt leverage ratio to 6.3 at december 31 , 2017 compared to 7.5 at december 31 , 2016. achieved 1-year , 3-year and 5-year total shareholder return of 24.9 percent , 70.4 percent and 187.0 percent , respectively . delivered over 2,100 expansion sites in 26 communities . closed an underwritten registered public offering for net proceeds over $ 400.0 million . acquired nine communities for total consideration of approximately $ 145.0 million . property operations : occupancy in our properties as well as our ability to increase rental rates directly affects revenues . our revenue streams are predominantly derived from customers renting our sites on a long-term basis . our same community properties continue to achieve revenue and occupancy increases which drive continued noi growth . we continue to sell homes at a high level in our communities and expect this trend to continue . replace_table_token_17_th ( 1 ) occupancy percent includes annual rv sites , and excludes transient rv sites . ( 2 ) occupancy percent excludes recently completed but vacant expansion sites . 38 sun communities , inc. acquisition activity : during the past three years , we have completed acquisitions of over 150 properties with over 46,000 sites located in high growth areas and retirement and vacation destinations such as california , florida , and eastern coastal areas such as the jersey shore and cape cod , massachusetts .
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total net periodic pension benefit cost is expected to be approximately $ 0.6 million in fiscal 2015 . the net periodic pension benefit cost for fiscal 2015 has been estimated assuming a discount rate of 4.00 percent . contributions pension contributions to the plans for fiscal 2014 and 2013 totaled $ 0.8 million and $ 0.9 million , respectively . because the serp is unfunded , contributions to that plan represent benefit payments made . the pension contributions in story_separator_special_tag forward-looking statements this discussion contains “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. these statements reflect our current views with respect to future events and financial performance . the words “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ estimate , ” “ forecast , ” “ project , ” “ should ” and similar expressions are intended to identify “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. all forecasts and projections in this document are “ forward-looking statements , ” and are based on management 's current expectations or beliefs of the company 's near-term results , based on current information available pertaining to the company , including the risk factors noted under item 1a in this form 10-k. from time to time , we also may provide oral and written forward-looking statements in other materials we 17 release to the public such as press releases , presentations to securities analysts or investors , or other communications by the company . any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results . accordingly , we wish to caution investors that any forward-looking statements made by or on behalf of the company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements . these uncertainties and other risk factors include , but are not limited to , the risks and uncertainties set forth under item 1a in this form 10-k. we wish to caution investors that other factors might in the future prove to be important in affecting the company 's results of operations . new factors emerge from time to time ; it is not possible for management to predict all such factors , nor can it assess the impact of each such factor on the business or the extent to which any factor , or a combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . we undertake no obligation to update publicly or revise any forward-looking statements , whether as a result of new information , future events or otherwise . overview we are a leader in certain technologies and distinctive solutions for enclosing commercial buildings and framing art . the company 's four reportable segments are : architectural glass , architectural services , architectural framing systems and large-scale optical ( lso ) . our architectural glass segment consists of viracon , a fabricator of coated , high-performance architectural glass for global markets . the architectural services segment consists of harmon , one of the largest u.s. full-service building glass installation and renovation companies , which designs , engineers , fabricates and installs the walls of glass , windows and other curtainwall products making up the outside skin of commercial and institutional buildings . the architectural framing systems segment companies design , engineer , fabricate and finish the aluminum frames used in customized aluminum and glass window , curtainwall , storefront and entrance systems comprising the outside skin and entrances of commercial and institutional buildings . we have aggregated four operating segments into the architectural framing systems reporting segment based upon their similar products , customers , distribution methods , production processes and economic characteristics : wausau window and wall systems , a manufacturer of standard and custom aluminum window systems and curtainwall for the north american commercial construction and historical renovation markets ; tubelite , a fabricator of aluminum storefront , entrance and curtainwall products for the u.s. commercial construction industry ; alumicor , a fabricator of aluminum storefront , entrance , curtainwall and window products for the canadian commercial construction industry ; and linetec , a paint and anodize finisher of architectural aluminum and pvc shutters for u.s. markets . our lso segment consists of tru vue , a manufacturer of value-added glass and acrylic for the custom picture framing and fine art markets . the following highlights the results for fiscal 2014 : consolidated revenues increased 10 percent over fiscal 2013 , or 8 percent excluding the impact of alumicor , and operating income was up 47 percent over last year . all four segments grew at the top and bottom lines . architectural glass segment revenues improved by 10 percentage points over fiscal 2013 and operating results improved $ 8.3 million . the architectural services segment revenues increased 9 percent over fiscal 2013 and operating income improved by $ 5.5 million . the architectural framing systems segment saw a 13 percent improvement in net sales compared to fiscal 2013 , or 5 percent organic growth when adjusting out the impact of alumicor , and operating results were up 2 percent . the lso segment saw revenues and operating income grow slightly over fiscal 2013 levels . consolidated backlog was $ 329.6 million at march 1 , 2014 , up 11 percent over fiscal 2013 levels . we acquired alumicor limited ( alumicor ) for $ 52.9 million on november 5 , 2013. alumicor 's results of operations have been included in the consolidated financial statements and within the architectural framing systems segment since the date of acquisition . alumicor contributed $ 15.9 million of sales to our architectural framing systems segment for the period subsequent to acquisition . strategy architectural glass , architectural services and architectural framing systems segments all of these segments serve the commercial construction market , which is highly cyclical . story_separator_special_tag 19 additionally , we have continued to execute our strategy of expanding into custom picture framing markets outside the u.s. over the past three years , we have focused on the european markets . in fiscal 2012 , we opened up a warehouse in the netherlands and began selling our custom picture framing glass and acrylic in europe where , historically , we have had very little presence . we developed new products and marketing materials for this market and have distributors in over10 countries . we believe our products and distribution will enable us to grow at a faster pace internationally than in the united states . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > fiscal 2013 compared to fiscal 2012. fiscal 2013 net sales decreased $ 11.6 million or 4.2 percent from fiscal 2012. revenues were down 13 percentage points attributable to volume decreases , partially offset by a 9 percentage point increase in net sales from improved pricing . the volume declines were largely due to a planned decline in export sales as we focused on more profitable domestic projects , as well as the impact of exchange rates on our brazilian business . for fiscal 2013 , the segment incurred an operating loss of $ 4.4 million , with an operating margin of negative 1.6 percent , compared to an operating loss of $ 19.6 million and a negative operating margin of 7.0 percent in fiscal 2012. the fiscal 2013 improvement was primarily due to improved pricing , a better mix of business , and improved operating performance and management of fixed costs . architectural services replace_table_token_9_th fiscal 2014 compared to fiscal 2013. fiscal 2014 net sales increased $ 16.8 million over fiscal 2013 , a 9.0 percent increase . volume growth in existing and expanded geographies was the driver of this growth . fiscal 2014 operating income increased $ 5.5 million to $ 4.5 million compared to a loss of $ 1.0 million in fiscal 2013. operating margin of 2.2 percent in fiscal 2014 was an improvement of 2.7 percentage points over fiscal 2013. the improved operating results were a result of better project margins , as we have worked through lower margin projects that were bid in the bottom of the market cycle , as well as strong execution on projects flowing through revenue . 21 fiscal 2013 compared to fiscal 2012. fiscal 2013 net sales increased $ 36.8 million , or 24.6 percent , over fiscal 2012. revenue growth due to expansion of our domestic footprint accounted for the majority of the increase , or approximately 15 percentage points . the remaining 9 percentage points of the increase were due to increased volume serviced from our remaining domestic regions . for fiscal 2013 , the segment incurred an operating loss of $ 1.0 million , with an operating margin of negative 0.5 percent , compared to an operating loss of $ 2.9 million and a negative operating margin of 1.9 percent in fiscal 2012. the fiscal 2013 improvement was primarily due to the leverage on the net sales growth discussed above and positive project execution . these items were partially offset by costs incurred in fiscal 2013 to start domestic geographic expansion . in fiscal 2013 , the segment was still working off projects that were bid at lower margins , but began to see higher-margin projects positively impact its results . architectural framing systems replace_table_token_10_th fiscal 2014 compared to fiscal 2013. fiscal 2014 net sales increased $ 24.9 million , or 13.0 percent , over fiscal 2013.the addition of alumicor accounted for approximately 8 percentage points of the increase for the year . the remainder of the increase was due to improved volumes in the u.s. storefront and finishing businesses , partially offset by volume declines caused by an anticipated gap in the schedule for the window business . fiscal 2014 operating income of $ 14.9 million was up slightly over the $ 14.6 million reported in fiscal 2013 , while operating margins decreased to 6.9 percent in fiscal 2014 from 7.6 percent in fiscal 2013. the favorable impact of increased volumes in the u.s. storefront and finishing businesses was partially offset by lower sales in the window business related to the anticipated gap in the schedule for more complex projects , resulting in lower capacity utilization . additionally , the canadian storefront business that was acquired late in the year delivered an operating loss due to acquisition costs . fiscal 2013 compared to fiscal 2012. fiscal 2013 net sales increased $ 16.2 million , or 9.3 percent , over fiscal 2012. volume growth was driven by the storefront and window businesses , including share gains in target markets and domestic geographic expansion . fiscal 2013 operating income was $ 14.6 million , with an operating margin of 7.6 percent , compared to $ 10.4 million and an operating margin of 5.9 percent in fiscal 2012. the fiscal 2013 improvement was primarily due to leverage on net sales growth in the segment , as well as better operating performance throughout the segment . large-scale optical technologies ( lso ) replace_table_token_11_th fiscal 2014 compared to fiscal 2013. lso revenues in fiscal 2014 increased slightly over fiscal 2013 to $ 81.1 million from $ 79.9 million . the improvement compared to fiscal 2013 was due to a positive mix of higher value-added products . operating income of $ 21.3 million was relatively flat to fiscal 2013 levels and operating margins were consistent . the impact of the strong mix of higher value-added products was largely offset by increased promotional activities and investments for growth in new geographies and markets . fiscal 2013 compared to fiscal 2012. lso revenues were relatively flat to fiscal 2012 , increasing 1.8 percent in fiscal 2013. operating income as a percent of sales increased to 26.3 percent in fiscal 2013 from 25.0 percent in fiscal 2012 , with an increase of $ 1.4 million in operating income .
| results of operations net sales replace_table_token_6_th fiscal 2014 compared to fiscal 2013 sales grew 10.2 percent in fiscal 2014 to $ 771.4 million compared to $ 700.2 million in fiscal 2013. the inclusion of alumicor sales since the date of acquisition accounted for 2 percentage points of this increase . improved product mix and pricing in the architectural glass segment drove approximately 4 percentage points of the increase . volume growth in the architectural services segment favorably impacted the year by about 2 percentage points and the remainder of the increase resulted from improved volume in our architectural framing segment 's u.s. storefront and finishing businesses . fiscal 2013 compared to fiscal 2012 sales increased 5.7 percent during fiscal 2013 largely due to share gains through domestic geographic expansion and increased penetration in target markets in the architectural services and architectural framing systems segments , representing approximately 4 percentage points of the increase . improved pricing in the architectural glass segment also had a favorable impact on fiscal 2013 revenues , representing another approximately 4 percentage points of the increase over fiscal 2012. fiscal 2013 included 52 weeks compared to 53-weeks in fiscal 2012 , which had a negative impact of approximately 2 percentage points on fiscal 2013 sales . performance the relationship between various components of operations , as a percentage of net sales , is illustrated below for the past three fiscal years . replace_table_token_7_th fiscal 2014 compared to fiscal 2013 gross profit improved as a percent of sales to 21.4 percent in fiscal 2014 from 20.8 percent in fiscal 2013. the improvement in gross margins was due to the margin impact of improved mix and pricing in the architectural glass segment , improved project margins in the architectural services segment and overall productivity improvements .
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a discussion of changes in our results of operations and cash flows for the years ended december 31 , 2018 and 2017 can be found in `` item 7. management 's discussion and analysis of financial condition and results of operations '' within the annual report on form 10-k for the year ended december 31 , 2018 filed on february 19 , 2019. verisk is a leading data analytics provider serving customers in insurance , energy and specialized markets , and financial services . using advanced technologies to collect and analyze billions of records , we draw on unique data assets and deep domain expertise to provide innovations that may be integrated into customer workflows . we offer predictive analytics and decision support solutions to customers in rating , underwriting , claims , catastrophe and weather risk , natural resources intelligence , economic forecasting , commercial banking and finance , and many other fields . in the united states , or u.s. , and around the world , we help customers protect people , property , and financial assets . refer to item 1. business for further discussion . our customers use our solutions to make better decisions about risk and opportunities with greater efficiency and discipline . we refer to these products and services as “ solutions ” due to the integration among our products and the flexibility that enables our customers to purchase components or the comprehensive package of products . these solutions take various forms , including data , statistical models or tailored analytics , all designed to allow our customers to make more logical decisions . we believe our solutions for analyzing risk positively impact our customers ' revenues and help them better manage their costs . we previously reported results based on two operating segments , decision analytics and risk assessment . during the first quarter of 2018 , the chief operating decision maker , or codm , changed how he makes operating decisions , assesses the performance of the business , and allocates resources in a manner that caused the company 's operating segments to change . consequently , effective as of the first quarter of 2018 , our operating segments are based on three vertical markets we serve : insurance , energy and specialized markets , and financial services . these three operating segments are also our reportable segments , which have been retroactively recast to reflect the new segments in all periods presented . our insurance segment provides underwriting and ratings , and claims insurance data for the u.s. p & c insurance industry . this segment 's revenues represented approximately 71 % of our revenues for the years ended december 31 , 2019 and 2018 . our energy and specialized markets segment provides research and consulting data analytics for the global energy , 30 chemicals , and metals and mining industries . our energy and specialized markets segment 's revenues represented approximately 22 % of our revenues for the years ended december 31 , 2019 and 2018 . our financial services segment provides competitive benchmarking , decisioning algorithms , business intelligence , and customized analytic services to financial institutions , payment networks and processors , alternative lenders , regulators and merchants . our financial services segment 's revenues represented approximately 7 % of our revenues for the years ended december 31 , 2019 and 2018 . executive summary key performance metrics we believe our business 's ability to grow recurring revenue and generate positive cash flow is the key indicator of the successful execution of our business strategy . we use year-over-year revenue and ebitda growth as metrics to measure our performance . ebitda and ebitda margin are non-gaap financial measures ( see note 2 within item 6. selected financial data section of management 's discussion and analysis of financial condition and results of operations ) . the respective gaap financial measures are net income and net income margin . revenue growth . we use year-over-year revenue growth as a key performance metric . we assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers , sales to new customers , sales of new or expanded solutions to existing and new customers , and strategic acquisitions of new businesses . ebitda growth . we use ebitda growth as a measure of our ability to balance the size of revenue growth with cost management and investing for future growth . ebitda growth allows for greater transparency regarding our operating performance and facilitate period-to-period comparison . ebitda margin . we use ebitda margin as a metric to assess segment performance and scalability of our business . we assess ebitda margin based on our ability to increase revenues while controlling expense growth . revenues we earn revenues through agreements for hosted subscriptions , advisory/consulting services , and for transactional solutions , recurring and non-recurring . subscriptions for our solutions are generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period , which is usually for one year and automatically renewed each year . as a result , the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments . examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language , our claims fraud database or our actuarial services throughout the subscription period . in general , we experience minimal revenue seasonality within the business . approximately 82 % of the revenues in our insurance segment for the years ended december 31 , 2019 and 2018 were derived from hosted subscriptions through agreements ( generally one to five years ) for our solutions . our customers in this segment include most of the p & c insurance providers in the u.s. approximately 78 % of the revenues in our energy and specialized markets segment for the years ended december 31 , 2019 and 2018 were derived from hosted subscriptions with long-term agreements for our solutions . story_separator_special_tag likewise , any structural changes in the reinsurance and related brokerage industry from the recent influx of alternative capital or newer technologies could affect demand for our products . we also have a portion of our revenue related to the number of claims processed due to losses , which can be impacted by seasonal storm activity . the need by our customers to fight insurance fraud - both in claims and at policy inception - could lead to increased demand for our underwriting and claims solutions . trends in the energy , chemicals , metals and mining sectors , and activity in financial markets can influence our revenues . these include geopolitical risks such as the u.s.-china trade dispute and heightened tension in the middle east , among others , which influenced commodity flows and prices in 2019. commodity markets in energy were also oversupplied challenging the revenues for some of our major energy customers . brent oil averaged $ 64 dollar per barrel in 2019 , down from 32 $ 71 dollar per barrel in 2018 ; u.s. and globally traded gas prices are also in a downcycle . investment in the natural resources sector fell sharply mid-decade but has stabilised at a lower level in recent years . many companies in the natural resources sector continue to demonstrate tight capital discipline which may affect our business . the energy transition presents both a threat and an opportunity for the sector and our revenues . increasing global economic growth will lead to higher energy demand and , in turn , potentially our services . fossil fuels will meet much of global demand for some decades , but zero carbon energy ( renewables and emerging technologies such as electric vehicles and energy storage ) will grow in importance . the infrastructure needed for the electrification of economies will drive demand for base metals , some bulk commodities and battery raw materials . climate change and decarbonisation are rising up the agenda , and policy on environmental and social governance is intensifying . attracting the capital needed to meet future energy demand is one of the industry 's challenges and data , analysis and insight will help our customers achieve this . trends in the banking and retail sectors can influence revenues in our financial services segment in many ways . fraud and similar financial crimes in particular impact our customers in ways ranging from regulatory risk and credit loss for financial institutions , to counterfeit loss and inventory shrinkage for merchants . this can strengthen demand for our credit risk and fraud solutions ranging from enhanced brand protection solutions for retailers , through to enhanced artificial-intelligence led models to identify cross bank and cross-border fraudulent transactions . following regulatory intervention , some markets are seeing increased standardization of offered products across issuers which could stifle competition and innovation for consumers . additionally , traditional retail banks and consumer lenders face increasing competition from financial technology companies and on-line lending new entrants , and finally the market is reacting to increased data privacy laws such as general data protection regulation , or gdpr , by demanding broader use of tokenization-based solutions and managing data use rights more closely . our data model has relied on tokenization , and we address these emerging issues by leveraging our extensive wallet-based market and product data and expertise , and also support an active and ongoing dialogue with regulators worldwide to fully understand the impact and adverse consequences of any intended legislation . description of acquisitions we acquired twenty-three businesses since january 1 , 2017. these acquisitions affect the comparability of our consolidated results of operations between periods . see a description of our 2019 acquisitions below and note 10. to our consolidated financial statements included in this annual report on form 10-k for further discussions . 2019 acquisitions on december 23 , 2019 , we acquired 100 percent of the stock of flexible architecture and simplified technology , llc. , or fast , a software company for the life insurance and annuity industry . fast offers a flexible policy administration system that helps insurers accelerate underwriting and claims to enhance the customer experience and support profitable growth . fast has become part of the claims category within our insurance segment , and expanded and enhanced the suite of solutions we are developing across the enterprise for life insurers looking to transform the customer experience throughout the life of the policy , from quote to claims . on december 19 , 2019 , we acquired selected assets of commerce signals , inc. , or commerce signals , a software company that offers a data sharing platform for retail , restaurant and entertainment marketers . commerce signals has become part of our financial services segment , and enhanced the existing solutions we currently offer . on november 5 , 2019 , we acquired 100 percent of the stock of genscape , inc. , or genscape , a global provider of real-time data and intelligence for commodity and energy markets . genscape has become part of the energy and specialized markets segment , and enhanced our business ' existing sector intelligence in energy data and analytics . on october 10 , 2019 , we acquired 100 percent of the stock of buildfax , inc. , or buildfax . buildfax uses building permit , contractor , and inspection data to provide information about the condition of properties to insurance and financial institutions . the data from buildfax enhances property analytics under the underwriting & rating category within our insurance segment while helping underwriters gain insight into changes in the property insured . on august 28 , 2019 , we acquired substantially all of the assets of property pres wizard , llc , or ppw . ppw is a web and mobile application that manages work order details and property status in the field services industry throughout the supply chain . ppw has become part of the claims category within our insurance segment and added a service order and project management application to our proptech suite of solutions .
| quarterly results of operations the following table sets forth our quarterly unaudited consolidated statement of operations data for each of the eight quarters in the period ended december 31 , 2019 . in management 's opinion , the quarterly data has been prepared on the same basis as the audited consolidated financial statements included in this annual report on form 10-k , and reflects all necessary adjustments for a fair presentation of this data . the results of historical periods are not necessarily indicative of the results of operations for a full year or any future period . replace_table_token_8_th _ ( 1 ) included a loss of $ 6.2 million from the sale of our retail analytics solution business to conform with the presentation of our consolidated financial statements in this form 10-k for the year ended december 31 , 2019 . liquidity and capital resources as of december 31 , 2019 and 2018 , we had cash and cash equivalents and available-for-sale securities of $ 188.2 million and $ 142.8 million , respectively . subscriptions for our solutions are billed and generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period , which is usually for one year . subscriptions are automatically renewed at the beginning of each calendar year . we have historically generated significant cash flows from operations . as a result of this factor , as well as the availability of funds under our syndicated revolving credit facility , we believe we will have sufficient cash to meet our working capital and capital expenditure needs , and to fuel our future growth plans . we have historically managed the business with a working capital deficit due to the fact that , as described above , we offer our solutions and services primarily through annual subscriptions or long-term contracts , which are generally prepaid quarterly or annually in advance of the services being rendered .
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refer to management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k filed with the sec on march 2 , 2020 for a discussion and analysis of the factors that affected periods prior to 2019. company overview first commonwealth provides a diversified array of consumer and commercial banking services through our bank subsidiary , fcb . we also provide trust and wealth management services through fcb and insurance products through fcia . at december 31 , 2020 , fcb operated 120 community banking offices throughout western and central pennsylvania and northeastern , central and southwestern ohio , as well as loan production offices in pittsburgh , pennsylvania , and cleveland , columbus , canton , lewis center , hudson and westlake , ohio . our consumer services include internet , mobile and telephone banking , an automated teller machine network , personal checking accounts , interest-earning checking accounts , savings accounts , health savings accounts , insured money market accounts , debit cards , investment certificates , fixed and variable rate certificates of deposit , mortgage loans , secured and unsecured installment loans , construction and real estate loans , safe deposit facilities , credit cards , credit lines with overdraft checking protection and ira accounts . commercial banking services include commercial lending , small and high-volume business checking accounts , on-line account management services , ach origination , payroll direct deposit , commercial cash management services and repurchase agreements . we also provide a variety of trust and asset management services and a full complement of auto , home and business insurance as well as term life insurance . we offer annuities , mutual funds and stock and bond brokerage services through an arrangement with a broker-dealer and insurance brokers . most of our commercial customers are small and mid-sized businesses in pennsylvania and ohio . as a financial institution with a focus on traditional banking activities , we earn the majority of our revenue through net interest income , which is the difference between interest earned on loans and investments and interest paid on deposits and borrowings . growth in net interest income is dependent upon balance sheet growth and maintaining or increasing our net interest margin , which is net interest income ( on a fully taxable-equivalent basis ) as a percentage of our average interest-earning assets . we also generate revenue through fees earned on various services and products that we offer to our customers and , less frequently , through sales of assets , such as loans , investments or properties . these revenue sources are offset by provisions for credit losses on loans , operating expenses , income taxes and , less frequently , loss on sale or other-than-temporary impairments on investment securities . general economic conditions also affect our business by impacting our customers ' need for financing , thus affecting loan growth , as well as impacting the credit strength of existing and potential borrowers . critical accounting policies and significant accounting estimates first commonwealth 's accounting and reporting policies conform to accounting principles generally accepted in the united states of america ( “ gaap ” ) and predominant practice in the banking industry . the preparation of financial statements in accordance with gaap requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes . over time , these estimates , assumptions and judgments may prove to be inaccurate or vary from actual results and may significantly affect our reported results and financial position for the period presented or in future periods . we currently view the determination of the allowance for credit losses to be critical because it is highly dependent on subjective or complex judgments , assumptions and estimates made by management . allowance for credit losses we account for the credit risk associated with our lending activities through the allowance and provision for credit losses . the allowance represents management 's best estimate of expected losses in our existing loan portfolio as of the balance sheet date . the provision is a periodic charge to earnings in an amount necessary to maintain the allowance at a level that is appropriate 28 based on management 's assessment of expected losses . management determines and reviews with the board of directors the appropriateness of the allowance on a quarterly basis in accordance with the methodology described below . loans are segmented into groups with similar characteristics and risks and an allowance for credit losses is calculated for each segment based on the estimate of credit losses . the allowance for credit losses is calculated by pooling loans of similar credit risk characteristics and applying a discounted cash flow methodology after incorporating probability of default and loss given default estimates . probability of default represents an estimate of the likelihood of default and loss given default measures the expected loss upon default . inputs impacting the expected losses includes a forecast of macroeconomic factors , using a weighted forecast from a nationally recognized firm . loans that do not have the same risks and characteristics of the loan pools are individually reviewed . these are generally large balance commercial loans and commercial mortgages that are rated less than “ satisfactory ” based on our internal credit-rating process . we assess whether the loans identified for review are “ nonperforming , ” . this means it is expected that all amounts will not be collected according to the contractual terms of the loan agreement , which generally represents loans that management has placed on nonaccrual status and accruing troubled debt restructurings . for individually analyzed loans we calculate the estimated fair value of the loans that are selected for review based on observable market prices , discounted cash flows or the value of the underlying collateral and record an allowance if needed . we then review the results to determine the appropriate balance of the allowance for credit losses . story_separator_special_tag the provision for credit losses for loans for the year 2020 totaled $ 53.5 million , an increase of $ 38.9 million , or 267.9 % , compared to the year 2019. the level of provision expense for the year-ended december 31 , 2020 is primarily a result of $ 17.2 million in net charge-offs and an increase in the allowance for credit losses resulting from the implementation of cecl . the expected loss methodology under cecl uses an economic forecast which incorporates the impact of the covid-19 pandemic . provision expense for the commercial , financial , agricultural and other category was impacted by net charge-offs of $ 6.0 million , offset by a decrease in outstanding balances , excluding ppp loans . because ppp loans are fully guaranteed by the small business administration ( `` sba '' ) , there is no allowance for credit losses recognized for these loans . provision expense for the commercial real estate category is a result of $ 4.6 million in net charge-offs and a $ 21.1 million increase in qualitative reserves due to additional risks related to loans that may be impacted by covid-19 , such as hospitality and retail real estate loans . net charge-offs related to loans to individuals were $ 6.0 million for the year ended december 31 , 2020 , including $ 3.2 million for indirect auto loans and $ 1.3 million related to personal lines of credit . the provision expense for loans to individuals was also impacted by growth in the portfolio of $ 116.4 million as well as increased qualitative reserves due to additional risks related to covid-19 . 33 the table below provides a breakout of the provision for credit losses by loan category for the years ended december 31 : replace_table_token_8_th prior to our january 1 , 2020 adoption of cecl , the allowance for credit loss calculation , and resulting provision expense , was based on an incurred loss model . the level of provision expense for the year-ended december 31 , 2019 is primarily a result of $ 10.7 million in net charge-offs , growth in the loan portfolio and an increase in the qualitative reserves as a result of increasing economic risks not captured in the quantitative model . provision expense for the commercial , financial , agricultural , and other category was impacted by net charge-offs of $ 3.1 million and $ 103.4 million growth in the portfolio . the provision expense for the commercial real estate category is primarily due to $ 1.8 million in net charge-offs and a $ 0.8 million increase in qualitative reserves . net charge-offs related to loans to individuals were $ 5.2 million for the year ended december 31 , 2019 , including $ 2.6 million related to indirect auto loans and $ 1.9 million related to personal lines of credit . the provision expense for loans to individuals was also impacted by growth in the portfolio of $ 108.6 million . the allowance for credit losses was $ 101.3 million , or 1.50 % , of total loans outstanding at december 31 , 2020 , compared to $ 51.6 million , or 0.83 % , at december 31 , 2019. nonperforming loans as a percentage of total loans increased to 0.80 % at december 31 , 2020 from 0.52 % at december 31 , 2019. the allowance to nonperforming loan ratio was 187.4 % as of december 31 , 2020 and 160.3 % at december 31 , 2019. net charge-offs were $ 17.2 million for the year-ended december 31 , 2020 compared to $ 10.7 million for the same period in 2019. the 2020 provision is a result of management 's estimate of credit losses over the contractual life of the loan portfolio . the change in the allowance for credit is impacted by estimated expected losses in the portfolio determined by a discounted cash flow analysis considering inputs such as contractual payment schedules , prepayment estimates , historical loss experience , calculated probability of default and loss given default estimates and forecasts for certain macroeconomic variables , such as unemployment , gross domestic product , the housing price index as well as other macroeconomic variables . upon adoption of cecl at january 1 , 2020 , the provision for credit losses on off-balance sheet credit exposures are recorded as part of the provision for credit losses instead of a component of non-interest expense as it previously was recorded . the provision for credit losses recorded for off-balance sheet credit exposures totaled $ 3.2 million for 2020. management believes that the allowance for credit losses is at a level deemed appropriate to absorb expected losses inherent in the loan portfolio at december 31 , 2020 . 34 a detailed analysis of our credit loss experience for the previous five years is shown below : replace_table_token_9_th 35 noninterest income the components of noninterest income for each year in the three-year period ended december 31 are as follows : replace_table_token_10_th noninterest income , excluding net securities gains , gain on sale of loans and other assets and the derivatives mark to market , remained relatively flat , increasing $ 0.2 million in 2020. card-related interchange income increased $ 2.3 million , due to growth in customer accounts and transactions , including $ 1.4 million attributable to the santander acquisition in september 2019. trust income increased $ 0.8 million , primarily due to customer growth . service charges on deposit accounts decreased $ 2.5 million , despite a $ 0.7 million increase attributable to the santander acquisition in 2019. the lower level of service charges on deposit accounts is a result of customers maintaining higher deposit balances due to cares act stimulus and lower consumer spending during 2020. swap fee income decreased $ 1.8 million due to declines in interest rate swaps entered into for our commercial customers .
| net income net income for 2020 was $ 73.4 million , or $ 0.75 per diluted share , as compared to net income of $ 105.3 million , or $ 1.07 per diluted share in 2019. the decline in net income was the result of $ 42.2 million in provision for credit losses recognized in order to provide for estimated losses related to the covid-19 pandemic and expenses of $ 3.4 million and $ 2.7 million related to the voluntary early retirement program and branch consolidation initiatives , respectively . partially offsetting the higher level of expenses was an increase in noninterest income of $ 9.0 million , due to gains on sale of mortgage loans of $ 18.8 million in 2020 compared to $ 7.8 million in 2019. our return on average equity was 6.8 % and our return on average assets was 0.82 % for 2020 , compared to 10.3 % and 1.31 % , respectively , for 2019. average diluted shares for the year 2020 were 1 % less than the comparable period in 2019 primarily due to $ 20.9 million of common stock buybacks completed during 2020. net interest income net interest income , which is our primary source of revenue , is the difference between interest income from earning assets ( loans and securities ) and interest expense paid on liabilities ( deposits , short-term borrowings and long-term debt ) . the amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities . the net interest margin is expressed as the percentage of net interest income , on a fully taxable equivalent basis , to average interest-earning assets . to compare the tax exempt asset yields to taxable yields , amounts are adjusted to the pretax equivalent amounts based on the marginal corporate federal income tax rate of 21 % .
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water and electric gross margins are computed by taking total revenues , less total supply costs . registrant uses these gross margins and related percentages as an important measure in evaluating its operating results . registrant believes this measure is a useful internal benchmark in evaluating the performance of gswc . the discussions and tables included in the following analysis also present registrant 's operations in terms of earnings per share by business segment . registrant believes that the disclosure of earnings per share by business segment provides investors with clarity surrounding the performance of our differing services . registrant reviews these measurements regularly and compares them to historical periods and to our operating budget . however , these measures , which are not presented in accordance with generally accepted accounting principles ( “ gaap ” ) , may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to operating income or earnings per share , which are determined in accordance with gaap . a reconciliation of water and electric gross margins to the most directly comparable gaap measures are included in the table under the section titled “ operating expenses : supply costs ” . reconciliations to awr 's diluted earnings per share are included in the discussions under the sections titled “ summary results by segment . ” overview gswc 's revenues , operating income and cash flows are earned primarily through delivering potable water to homes and businesses in california and the delivery of electricity in the big bear area of san bernardino county , california . rates charged to gswc customers are determined by the cpuc . these rates are intended to allow recovery of operating costs and a reasonable rate of return on capital . factors affecting the financial performance of gswc are described under forward-looking information and include : the process and timing of setting rates charged to customers ; the ability to recover , and the process for recovering in rates , the costs of distributing water and electricity and overhead costs ; pressures on water supply caused by the drought in california , changing weather patterns in the west , population growth , more stringent water quality standards and deterioration in water quality and water supply from a variety of causes ; fines , penalties and disallowances by the cpuc arising from failures to comply with regulatory requirements ; the impact of increased water quality standards and environmental regulations on the cost of operations and capital expenditures ; changes in long-term customer demand due to changes in usage patterns as a result of conservation efforts , mandatory regulatory changes impacting the use of water , such as new landscaping or irrigation requirements , recycling of water by the customer and purchases of recycled water by customers from other third parties ; capital expenditures needed to upgrade water systems and increased costs and risks associated with litigation relating to water quality and water supply , including suits initiated by gswc to protect its water supply . gswc plans to continue to seek additional rate increases in future years from the cpuc to recover operating and supply costs and receive reasonable returns on invested capital . capital expenditures in future years at gswc are expected to remain at much higher levels than depreciation expense . when necessary , gswc obtains funds from external sources in the capital markets and through bank borrowings . asus 's revenues , operating income and cash flows are earned by providing water and or wastewater services , including the operation , maintenance , renewal and replacement of the water and or wastewater systems , at various military installations pursuant to 50-year firm , fixed-price contracts . the contract price for each of these contracts is subject to prospective price redeterminations . additional revenues generated by contract operations are primarily dependent on new construction activities under contract modifications with the u.s , government or agreements with other third party prime contractors . as a result , asus is subject to risks that are different than those of gswc . factors affecting the financial performance of our military utility privatization subsidiaries are described under forward-looking information and under risk factors and include delays in receiving payments from and the redetermination and equitable adjustment of prices under the contracts with the u.s. government ; fines , penalties or disallowance of costs by the u.s. government ; and termination of contracts and suspension or debarment for a period of time from contracting with the government due to violations of federal law and regulations in connection with military utility privatization activities . our financial performance is also dependent upon our ability to accurately estimate our costs in bidding on firm fixed-price construction contracts and the costs of seeking new contracts for the operation and maintenance and renewal and replacement of water and or wastewater services at military bases and for additional construction work at existing bases . asus is actively pursuing utility privatization contracts of other military bases to expand the contracted services segment . 24 on november 19 , 2013 , the cpuc issued a proposed decision ( “ pd ” ) on gswc 's certificate of public convenience and necessity application to provide retail water service in a portion of sutter county , california within the natomas central mutual water company service area . a final decision on the pd is expected later in 2014. in june 2013 , gswc entered into an agreement to purchase all of the operating assets of rural water company ( “ rural ” ) . the transaction is subject to cpuc approval . rural serves approximately 900 customers in the county of san luis obispo , california , which is near gswc 's santa maria customer service area . on may 9 , 2013 , the cpuc issued a final decision on gswc 's water general rate case approving new rates for 2013 through 2015 at gswc 's three water regions which include recovery of costs incurred at the general office . story_separator_special_tag billed electric usage for the year ended december 31 , 2013 increased 2.6 % as compared to 2012 . due to the cpuc approved base revenue requirement adjustment mechanism , which adjusts certain revenues to adopted levels authorized by the cpuc , this change in usage did not have a significant impact on revenues . contracted services revenues from contracted services consist primarily of construction revenues ( including renewals and replacements ) and management fees for operating and maintaining the water and or wastewater systems at military bases . for the year ended december 31 , 2013 , revenues from contracted services decreased to $ 113.5 million as compared to $ 124.0 million for 2012 . the decrease was mainly due to lower construction activity at various military bases , particularly at fort bliss in texas and fort bragg in north carolina . this decrease in construction activities was due , in part , to construction delays caused by unfavorable weather conditions and permitting delays outside the company 's control , which have now been resolved . as a result , these delayed construction projects expected to be completed in 2013 are now expected to progress and be completed in 2014. this was partially offset by an increase in construction revenues at the military bases in virginia as compared to 2012. the contracted services business continues to receive contract modifications from the u.s. government and agreements with third-party prime contractors for new construction projects related to the water and wastewater systems operated by at the military utility privatization subsidiaries . earnings and cash flows from modifications to the original 50-year contracts with the u.s. government and or agreements with third-party prime contractors may or may not continue in future periods . 28 operating expenses : supply costs supply costs for the water segment consist of purchased water , power purchased for pumping , groundwater production assessments and water supply cost balancing accounts . supply costs for the electric segment consist of power purchased for resale , the cost of natural gas used by bves ' generating unit , renewable energy credits and the electric supply cost balancing account . water and electric gross margins are computed by taking total revenues , less total supply costs . registrant uses these gross margins and related percentages as important measures in evaluating its operating results . registrant believes these measures are useful internal benchmarks in evaluating the utility business performance within its water and electric segments . registrant reviews these measurements regularly and compares them to historical periods and to its operating budget . however , these measures , which are not presented in accordance with generally accepted accounting principles ( “ gaap ” ) , may not be comparable to similarly titled measures used by other entities and should not be considered as alternatives to operating income , which is determined in accordance with gaap . total supply costs comprise the largest segment of total operating expenses . supply costs accounted for 27.6 % and 28.4 % of total operating expenses for the years ended december 31 , 2013 and 2012 , respectively . the table below provides the amount of increases ( decreases ) , percent changes in supply costs , and gross margins during the years ended december 31 , 2013 and 2012 ( dollar amounts in thousands ) : replace_table_token_11_th ( 1 ) as reported on awr 's consolidated statements of income , except for supply cost balancing accounts . the sum of water and electric supply cost balancing accounts in the table above is shown on awr 's consolidated statements of income and totaled $ 214,000 and $ 11,709,000 for the years ended december 31 , 2013 and 2012 , respectively . revenues include surcharges , which increase both revenues and operating expenses by corresponding amounts , thus having no net earnings impact . ( 2 ) water and electric gross margins do not include any depreciation and amortization , maintenance , administrative and general , property or other tax , or other operation expenses . two of the principal factors affecting water supply costs are the amount of water produced and the source of the water . generally , the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers . under the modified cost balancing account ( “ mcba ” ) , gswc tracks adopted and actual expense levels for purchased water , 29 purchased power and pump taxes , as established by the cpuc . gswc records the variances ( which include the effects of changes in both rate and volume ) between adopted and actual water purchased , power purchased , and pump tax expenses as regulatory assets or liabilities . gswc recovers from or refunds to customers the amount of such variances . gswc tracks these variances individually for each water ratemaking area . the overall actual percentages for purchased water for the years ended december 31 , 2013 and 2012 were approximately 35.2 % and 35.3 % , respectively , as compared to the adopted percentages of 35.3 % and 41.6 % , respectively . the overall water gross margin percent was 74.4 % for the year ended december 31 , 2013 as compared to 72.0 % in the same period of 2012 . purchased water costs for the year ended december 31 , 2013 increased by 9.1 % to $ 58.9 million as compared to $ 54.0 million in 2012 . this increase was primarily due to higher wholesale water costs as compared to 2012 as well as an increase in customer water usage . the increase in costs resulted in an under-collection in the mcba account . for the year ended december 31 , 2013 , power purchased for pumping increased to $ 9.5 million , compared to $ 8.4 million for 2012 . this was primarily due to an increase in average electric rates and an increase in customer usage . for the year ended december 31 , 2013 , groundwater production assessments were $ 15.5 million as compared to $ 14.7
| summary results by segment the table below sets forth diluted earnings per share by business segment for awr 's operations : replace_table_token_9_th for the year ended december 31 , 2013 , fully diluted earnings per share contributed by the water segment increased by $ 0.29 per share to $ 1.19 per share , as compared to $ 0.90 per share for 2012 . items impacting the comparability of the two periods were : an increase in the water gross margin of approximately $ 13.4 million , or $ 0.20 per share , due primarily to rate increases and a higher adopted water gross margin effective january 1 , 2013 approved by the cpuc on may 9 , 2013 in connection with the water general rate case . in addition , there was an increase of $ 4.6 million in revenues with a corresponding increase in operating expenses , representing new surcharges billed to customers during 2013 to recover previously incurred costs . these surcharges had no impact to net earnings . the cpuc 's approval for recovery of previously incurred operating expenses in connection with the water general rate case final decision issued in may 2013. as a result of the approval , gswc recorded a $ 2.7 million , or $ 0.04 per share , decrease in operating expenses . among other things , the final decision approved the one-time recovery of various memorandum accounts , which tracked certain costs that were previously expensed as incurred .
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under applicable rules of the nasdaq global market , the company could not issue or sell more than 19.99 % of the shares of its common stock outstanding immediately prior to the execution of the 2018 purchase agreement ( approximately 26,200 shares ) to lincoln park under the 2018 purchase agreement without stockholder approval , unless the average price of all applicable sales of its common stock to lincoln park under the 2018 purchase agreement equals or exceeds a threshold amount . as the company has issued approximately 26,200 shares to lincoln park , by june 30 , 2019 , under the 2018 purchase agreement at less story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations includes a number of forward-looking statements that reflect management 's current views with respect to future events and financial performance . you can identify these statements by forward-looking words such as “ may ” “ will , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate ” and “ continue , ” or similar words . those statements include statements regarding the intent , belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based and should be read together with the “ risk factors ” section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report and in other reports we file with the securities and exchange commission , particularly those under “ risk factors. ” . business overview we are a clinical-stage biopharmaceutical company focused on discovering , licensing , acquiring and developing drugs and biologics to treat and prevent human disease and alleviate suffering . our current portfolio includes biologics to prevent infectious diseases and small molecules and biologics to treat pain , psychiatric and addiction conditions . in 2020 , we announced a program to develop a potential vaccine to protect against the novel coronavirus disease emerging in 2019 , or covid-19 . our most advanced drug development programs are focused on delivering safe and effective long-term treatments for fibromyalgia , or fm , and posttraumatic stress disorder , or ptsd . fm is a pain disorder characterized by chronic widespread pain , non-restorative sleep , fatigue and impaired cognition . ptsd is a psychiatric condition characterized by the re-experiencing of trauma through intrusive and vivid recollections , nightmares and flashbacks . both fm and ptsd are associated with chronic disability , inadequate treatment options , high utilization of healthcare services , and significant economic burden . in addition , our product pipeline includes other clinical stage and pre-clinical stage programs . current operating trends our current research and development efforts are focused on developing tnx-1800 as a potential covid-19 , tnx-801 as a potential smallpox vaccine , tnx-102 sl for the treatment of fm , ptsd , aad and aud , but we also expend effort on our other pipeline programs , primarily related to tnx-1300 , tnx-601 , tnx-701 , tnx-801 , tnx-1500 , tnx-1600 and tnx-1700 . our research and development expenses consist of manufacturing work and the cost of drug ingredients used in such work , fees paid to consultants for work related to clinical trial design and regulatory activities , fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies , and for other medical research addressing the potential efficacy and safety of our study drugs . we believe that significant investment in product development is a competitive necessity , and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies . we expect that all of our research and development expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development . these expenditures are subject to numerous uncertainties relating to timing and cost to completion . we test compounds in numerous preclinical studies for safety , toxicology and efficacy . at the appropriate time , subject to the approval of regulatory authorities , we expect to conduct early-stage clinical trials for each drug candidate . we anticipate funding these trials ourselves , and possibly with the assistance of federal grants , contracts or other agreements . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products . completion of clinical trials may take several years , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . the commencement and completion of clinical trials for our products may be delayed by many factors , including lack of efficacy during clinical trials , unforeseen safety issues , slower than expected participant recruitment , lack of funding or government delays . in addition , we may encounter regulatory delays or rejections as a result of many factors , including results that do not support the intended safety or efficacy of our product candidates , perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development . as a result of these risks and uncertainties , we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows , if any , from our product candidates . story_separator_special_tag tonix is obligated to substantially manufacture wsu products in the united states if wsu products will be sold in the united states . 88 pursuant to the wsu license agreement , we have agreed to pay $ 75,000 to wsu as reimbursement of certain patent expenses , and , upon the achievement of specified development , regulatory and sales milestones , we also agreed to pay wsu , milestone payments totaling approximately $ 3.4 million . we have also agreed to pay wsu single-digit royalties on net sales of wsu products sold by us or a sublicensee on a tiered basis based on net sales , and additional sublicense fees on certain consideration received from sublicensees . royalties on each particular wsu product are payable on a country-by-country and product-by-product basis until the date of expiration of the last valid claim in the last to expire of the issued patents covered by the wsu license agreement . royalties payable on net sales of wsu products may be reduced by 50 % of the royalties payable by us to any third party for intellectual property rights which are necessary for the practice of the rights licensed to us under the wsu license agreement , provided that the royalty payable on a wsu product may not be reduced by more than 50 % . each party also has the right to terminate the agreement for customary reasons such as material breach and bankruptcy . the wsu license agreement contains provisions relating to termination , indemnification , confidentiality and other customary matters for an agreement of this kind . as of december 31 , 2019 , no milestone payments have been accrued or paid in relation to this agreement . liquidity and capital resources as of december 31 , 2019 , we had working capital of $ 8.8 million , comprised primarily of cash and cash equivalents of $ 11.2 million and prepaid expenses and other of $ 2.7 million , offset by $ 3.1 million of accounts payable and $ 1.7 million of accrued expenses . a significant portion of the accounts payable and accrued expenses are due to work performed in relation to our phase 3 clinical trial in fm and ptsd . for the years ended december 31 , 2019 and 2018 , we used approximately $ 26.7 million and $ 24.0 million of cash in operating activities , respectively , which represents cash outlays for research and development and general and administrative expenses in such periods . the increase in cash outlays principally resulted from an increase in general and administrative activities . for the year ended december 31 , 2019 and 2018 , net proceeds from financing activities were $ 12.9 million and $ 23.5 million , respectively , predominately from the sale of our common stock and warrants . cash used by investing activities for the years ended december 31 , 2019 and 2018 was approximately $ 17,000 and $ 6,000 , respectively , related to the purchase of furniture and fixtures . we believe that our cash resources will be sufficient to meet our projected operating requirements through the end of 2020 , but we do not have enough resources to meet our operating requirements for the one-year period from the date of filing of this form 10-k. we continue to face significant challenges and uncertainties and , as a result , our available capital resources may be consumed more rapidly than currently expected due to changes we may make in our research and development spending plans . these factors raise substantial doubt about our ability to continue as a going concern for the one year period from the date of filing of this form 10-k. we have the ability to obtain additional funding through public or private financing or collaborative arrangements with strategic partners to increase the funds available to fund operations . without additional funds , we may be forced to delay , scale back or eliminate some of our research and development activities , or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations . if any of these events occurs , our ability to achieve our development and commercialization goals would be adversely affected . future liquidity requirements we expect to incur losses from operations for the near future . we expect to incur increasing research and development expenses , including expenses related to additional clinical trials . we will not have enough resources to meet our operating requirements for the one-year period from filing date of this report . 89 our future capital requirements will depend on a number of factors , including the progress of our research and development of product candidates , the timing and outcome of regulatory approvals , the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims and other intellectual property rights , the status of competitive products , the availability of financing and our success in developing markets for our product candidates . we will need to obtain additional capital in order to fund future research and development activities . future financing may include the issuance of equity or debt securities , obtaining credit facilities , or other financing mechanisms . even if we are able to raise the funds required , it is possible that we could incur unexpected costs and expenses , fail to collect significant amounts owed to us , or experience unexpected cash requirements that would force us to seek alternative financing . furthermore , if we issue additional equity or debt securities , shareholders may experience additional dilution or the new equity securities may have rights , preferences or privileges senior to those of existing holders of our common stock .
| results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , such as the progress of our research and development efforts and the timing and outcome of regulatory submissions . due to these uncertainties , accurate predictions of future operations are difficult or impossible to make . fiscal year ended december 31 , 2019 compared to fiscal year ended december 31 , 2018 research and development expenses . research and development expenses for the fiscal year ended december 31 , 2019 were $ 18.2 million , an increase of $ 0.6 million , or 3 % , from $ 17.6 million for the fiscal year ended december 31 , 2018. this increase is predominately due a ramp up of work related to tnx-601 and the development of our pipeline . general and administrative expenses . general and administrative expenses for the fiscal year ended december 31 , 2019 were $ 10.6 million , an increase of $ 1.8 million , or 20 % , from $ 8.8 million incurred in the fiscal year ended december 31 , 2018. the increase is primarily due to an increase professional fees of $ 0.7 million , mostly attributable to an increase in legal fees of $ 0.5 million , due to increased patent prosecution costs , and an increase in investor and public relations expenses of $ 0.2 million , due to increased investor meetings , and an increase in insurance expenses of $ 0.7 million due to higher premiums in 2019. net loss .
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the following is management 's discussion and analysis of certain significant factors that have affected the consolidated financial condition and results of operations of midamerican funding and its subsidiaries and midamerican energy as presented in this joint filing . information in management 's discussion and analysis related to midamerican energy , whether or not segregated , also relates to midamerican funding . information related to other subsidiaries of midamerican funding pertains only to the discussion of the financial condition and results of operations of midamerican funding . where necessary , discussions have been segregated under the heading `` midamerican funding '' to allow the reader to identify information applicable only to midamerican funding . explanations include management 's best estimate of the impact of weather , customer growth and other factors . this discussion should be read in conjunction with the historical consolidated financial statements and notes to consolidated financial statements in item 8 of this form 10-k. midamerican energy 's and midamerican funding 's actual results in the future could differ significantly from the historical results . story_separator_special_tag a decrease of $ 8 million from the impact of temperatures ; ( 2 ) higher mvp transmission revenue of $ 25 million , which is expected to increase as projects are constructed ; partially offset by ( 3 ) lower wholesale gross margin of $ 15 million due to decreases of - $ 9 million from lower sales volumes ; and $ 6 million from lower average prices . 231 regulated gas gross margin a comparison of key results related to regulated gas gross margin is as follows for the years ended december 31 : replace_table_token_157_th regulated gas revenue includes pgas through which midamerican energy is allowed to recover the cost of gas sold from its retail gas utility customers . consequently , fluctuations in the cost of gas sold do not directly affect gross margin or net income because regulated gas revenue reflects comparable fluctuations through the pgas . for 2016 , midamerican energy 's combined retail and wholesale average per-unit cost of gas sold decreased 10 % , resulting in a decrease of $ 42 million in gas revenue and cost of gas sold compared to 2015. for 2015 , midamerican energy 's combined retail and wholesale average per-unit cost of gas sold decreased 42 % , resulting in a decrease of $ 290 million in gas revenue and cost of gas sold compared to 2014. additionally , fluctuations in gas wholesale sales impact gas revenue and cost of gas sold but do not affect regulated gas gross margin . for 2016 compared to 2015 , regulated gas gross margin increased $ 6 million due to higher dsm recoveries . lower retail sales volumes due to warmer winter temperatures in 2016 reduced gas gross margin by $ 3 million but was substantially offset by higher sales volumes from non-weather-related usage factors and higher transportation revenue . for 2015 compared to 2014 , regulated gas gross margin decreased $ 12 million primarily due to $ 20 million from lower retail sales volumes reflecting warmer winter temperatures in 2015 ; partially offset by $ 7 million from an increase due to non-weather-related usage factors . 232 regulated operating costs and expenses operations and maintenance decreased $ 12 million for 2016 compared to 2015 due to $ 24 million of lower fossil-fueled generation maintenance from the timing of planned outages , $ 7 million of lower generation operations , $ 7 million of lower health care , information technology and other administrative costs and $ 6 million of lower electric and gas distribution costs , partially offset by $ 11 million of higher dsm program costs and $ 9 million of higher transmission operations costs from miso , both of which are recoverable in bill riders and matched by increases in revenue , and $ 13 million of higher wind-powered generation maintenance due to the addition of wind turbines . operations and maintenance decreased $ 12 million for 2015 compared to 2014 substantially due to $ 10 million of lower fossil-fueled generation maintenance costs from planned outages in 2014 , $ 9 million of lower electric distribution costs due to less inclement weather and emergency storm restoration , $ 8 million for lower expense resulting from a one-time refund in june 2014 to midamerican energy 's customers for insurance recoveries related to environmental matters , $ 4 million of lower pension and postretirement costs and $ 3 million of lower healthcare benefit costs , partially offset by $ 10 million of higher wind-powered generation costs due to the addition of facilities and increases in transmission operations costs from miso and dsm program costs of $ 7 million and $ 5 million , respectively , both of which are recoverable in bill riders and matched by increases in revenue . depreciation and amortization increased $ 72 million for 2016 compared to 2015 primarily due to additional wind-powered generating facilities placed in service in the second half of 2015 and the fourth quarter of 2016 and $ 34 million for accruals for regulatory arrangements in iowa that reduce electric utility net plant . depreciation and amortization increased $ 56 million for 2015 compared to 2014 primarily due to additional wind-powered generating facilities placed in service in the second half of 2014 and the second half of 2015. other income and ( expense ) midamerican energy - interest expense increased $ 13 million for 2016 compared to 2015 primarily due to higher interest expense from the issuance of $ 650 million of first mortgage bonds in october 2015 , partially offset by the payment of a $ 426 million turbine purchase obligation in december 2015. refer to note 9 of notes to financial statements in item 8 of this form 10-k for further discussion of first mortgage bonds . story_separator_special_tag income tax cash flows for 2015 reflect the receipt of $ 255 million of income tax benefits generated in 2014. the timing of midamerican energy 's income tax cash flows from period to period can be significantly affected by the estimated federal income tax payment methods and assumptions for each payment date . additionally , cash flows from operations for 2015 improved due to higher gross margins for midamerican energy 's regulated electric business and lower derivative collateral requirements , partially offset by an increase in coal inventories and lower gross margins for the regulated gas business . midamerican energy 's income tax cash flows benefited in 2015 and 2016 from bonus depreciation on qualifying assets placed in service and from production tax credits earned on qualifying projects as a result of the tax increase prevention act of 2014 ( the `` act '' ) , which was signed into law in december 2014. the act extended to 2015 the 50 % bonus depreciation for qualifying property purchased and placed in service before january 1 , 2015 and before january 1 , 2016 for certain longer-lived assets . production tax credits were extended for wind power and other forms of non-solar renewable energy projects that began construction before the end of 2014 . 234 in december 2015 , the protecting americans from tax hikes act of 2015 ( `` path '' ) was signed into law , extending bonus depreciation for qualifying property acquired and placed in service before january 1 , 2020 ( bonus depreciation rates will be 50 % for 2015-2017 , 40 % in 2018 , and 30 % in 2019 ) , with an additional year for certain longer lived assets . production tax credits were extended and phased out for wind power and other forms of non-solar renewable energy projects that begin construction before the end of 2019. production tax credits are maintained at the following levels for projects for which construction begins before the end of the respective year as follows : at full value for 2016 , at 80 % of present value for 2017 , at 60 % of present value for 2018 , and 40 % of present value for 2019. as a result of path , midamerican energy 's cash flows from operations are expected to benefit due to bonus depreciation on qualifying assets placed in service through 2019 and production tax credits earned on qualifying wind projects through 2029. cash flows from investing activities midamerican energy 's net cash flows from investing activities were $ ( 1.62 ) billion , $ ( 1.45 ) billion and $ ( 1.52 ) billion for 2016 , 2015 and 2014 , respectively . midamerican funding 's net cash flows from investing activities were $ ( 1.61 ) billion , $ ( 1.44 ) billion and $ ( 1.52 ) billion for 2016 , 2015 and 2014 , respectively . net cash flows from investing activities consist almost entirely of utility construction expenditures , which increased for 2016 compared to 2015 due to higher expenditures for wind-powered generation construction , including a project for the repowering of certain wind-powered generating facilities , partially offset by lower expenditures for midamerican energy 's transmission multi-value projects ( `` mvp '' ) investments . utility construction expenditures decreased for 2015 compared to 2014 due to lower expenditures for environmental and other generation , partially offset by higher expenditures for wind-powered generation construction and midamerican energy 's transmission mvp investments . midamerican energy placed in service 600 mw , 608 mw and 511 mw of wind-powered generating facilities during 2016 , 2015 and 2014 , respectively . purchases and proceeds related to available-for-sale securities consist of activity within the quad cities generating station nuclear decommissioning trust and , in 2016 , proceeds from the redemption of midamerican energy 's investments in auction rate securities . midamerican funding received $ 13 million in 2015 related to the sale of an investment in a generating facility lease . cash flows from financing activities midamerican energy 's net cash flows from financing activities were $ 123 million , $ 173 million and $ 533 million for 2016 , 2015 and 2014 , respectively . midamerican funding 's net cash flows from financing activities were $ 133 million , $ 176 million and $ 535 million for 2016 , 2015 and 2014 , respectively . in december 2016 , the iowa finance authority issued $ 30 million of its variable-rate , tax-exempt solid waste facilities revenue bonds due december 2046 , the proceeds of which were loaned to midamerican energy for the purpose of constructing solid waste facilities . in september 2016 , the iowa finance authority issued $ 33 million of variable-rate , tax-exempt pollution control facilities refunding revenue bonds due september 2036 , the proceeds of which were loaned to midamerican energy to refinance , in september 2016 , variable-rate tax-exempt pollution control refunding revenue bonds totaling $ 29 million due september 2016 and $ 4 million due march 2017 , which were optionally redeemed in full . in october 2015 , midamerican energy issued $ 200 million of 3.50 % first mortgage bonds due october 2024 and $ 450 million of 4.25 % first mortgage bonds due may 2046. the net proceeds were used for the payment of a $ 426 million turbine purchase obligation due december 2015 and for general corporate purposes . in april 2014 , midamerican energy issued $ 150 million of 2.40 % first mortgage bonds due march 2019 , $ 300 million of 3.50 % first mortgage bonds due october 2024 and $ 400 million of 4.40 % first mortgage bonds due october 2044. the net proceeds were used for the optional redemption in may 2014 of $ 350 million of midamerican energy 's 4.65 % senior notes due october 2014 and for general corporate purposes .
| results of operations overview midamerican energy - midamerican energy 's income from continuing operations for 2016 was $ 542 million , an increase of $ 96 million , or 22 % , compared to 2015 due to higher electric margins of $ 172 million , higher production tax credits of $ 39 million and lower fossil-fueled generation operations and maintenance of $ 35 million , partially offset by higher depreciation and amortization of $ 72 million from wind-powered generation and other plant placed in service and an accrual related to an iowa revenue sharing arrangement , higher operations costs recovered through bill riders of $ 20 million , higher interest expense of $ 13 million primarily due to the issuance of first mortgage bonds in october 2015 and a lower income tax benefit due to higher pre-tax income and the effects of ratemaking . electric margins reflect higher retail rates in iowa , higher retail sales volumes , lower energy costs , higher wholesale revenue and higher transmission revenue . midamerican energy 's income from continuing operations for 2015 was $ 446 million , an increase of $ 45 million , or 11 % , compared to 2014 due to higher regulated electric margins of $ 119 million , higher production tax credits of $ 27 million and lower fossil-fueled generation maintenance of $ 10 million , partially offset by higher depreciation and amortization of $ 56 million due to wind-powered generation and other plant placed in-service , lower afudc of $ 27 million , lower regulated natural gas margins of $ 12 million due to warmer temperatures in 2015 and higher interest expense of $ 9 million due to the issuance of first mortgage bonds in april 2014 and october 2015 , net of the effect of a related redemption of senior notes in may 2014. regulated electric margins increased primarily due to higher retail rates in iowa and changes in rate structure related to
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” due to the change in expected cash flows from the amounts estimated as part of fresh start accounting , kodak concluded the carrying value of the in-process research and story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand the results of operations and financial condition of kodak for the year ended december 31 , 2014 , four months ended december 31 , 2013 , eight months ended august 31 , 2013 and for the year ended december 31 , 2012. all references to notes relate to notes to the financial statements in item 8 . “ financial statements and supplementary data. ” overview revenue declined $ 247 million ( 10.5 % ) compared to last year . the year over year revenue declines were primarily due to entertainment imaging and commercial films , as a result of lower demand due to digital substitution , and consumer inkjet systems , as the size of the installed base of kodak consumer inkjet printers continues to decline . revenue for these businesses was 16 % of the total company 's revenues in 2014 versus 21 % in 2013 and 26 % in 2012. kodak continues to invest in the growth of the commercial inkjet , packaging , and software and solutions businesses , the commercialization of products in the micro 3d printing business and differentiating technologies within the price-competitive graphics business . the graphics business continues to represent roughly half of the company 's total revenue . a continued focus on cost reduction across the company augments investment in these growth areas to maintain improvements in sustainable profitability . the january 1 , 2015 reorganization into smaller market-focused business divisions is intended to make the company faster-moving , more competitive and more entrepreneurial . critical accounting policies and estimates the accompanying consolidated financial statements and notes to consolidated financial statements contain information that is pertinent to management 's discussion and analysis of the financial condition and results of operations . 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 , liabilities , revenue and expenses , and the related disclosure of contingent assets and liabilities . kodak believes that the critical accounting policies and estimates discussed below involve the most complex management judgments due to the sensitivity of the methods and assumptions necessary in determining the related asset , liability , revenue and expense amounts . specific risks associated with these critical accounting policies are discussed throughout this md & a , where such policies affect kodak 's reported and expected financial results . for a detailed discussion of the application of these and other accounting policies , refer to the notes to financial statements in item 8. revenue recognition kodak 's revenue transactions include sales of products ( such as components and consumables for use in kodak and other manufacturers ' equipment , and film based products ) , equipment , software , services , integrated solutions , and intellectual property and brand licensing . the timing and the amount of revenue recognized depend upon a variety of factors , including the specific terms of each agreement and the nature of the deliverables and obligations . for equipment sales , revenue recognition may depend on completion of installation based on the type of equipment , level of customer specific customization and other contractual terms . in instances in which the agreement with the customer contains a customer acceptance clause , revenue is deferred until customer acceptance is obtained , provided the customer acceptance clause is considered to be substantive . kodak evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting . a deliverable constitutes a separate unit of accounting when it has stand-alone value to the customer , and if the arrangement includes a general right of return relative to the delivered item ( s ) , delivery or performance of the undelivered item ( s ) is considered probable and substantially in kodak 's control . if these criteria are not met , the arrangement is accounted for as one unit of accounting and the recognition of revenue occurs upon delivery/completion or ratably as a single unit of accounting over the contractual service period . for multiple-element arrangements , kodak allocates to , and recognizes revenue from , the various elements based on their relative selling price , using vendor-specific objective evidence , third-party evidence , and best estimated selling price ( “ besp ” ) in accordance with the selling price hierarchy . besp is established by considering internal factors such as margin objectives , pricing practices and controls , customer segment pricing strategies and the product life cycle . consideration is also given to geographies , market conditions such as competitor pricing strategies and industry technology life cycles . revenue allocated to an individual element is recognized when all revenue recognition criteria are met for that element . kodak limits the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services , future performance obligations or subject to customer-specified return or refund privileges . at the time revenue is recognized , kodak also records reductions to revenue for customer incentive programs . such incentive programs include cash and volume discounts and promotional allowances . for those incentives that require the estimation of sales volumes or redemption rates , such as for volume rebates , kodak uses historical experience and both internal and customer data to estimate the sales incentive at the time revenue is recognized . in the event that the actual results of these items differ from the estimates , adjustments to the sales incentive accruals would be recorded . story_separator_special_tag the discount rates are estimated based on an after-tax weighted average cost of capital ( “ wacc ” ) for each reporting unit reflecting the rate of return that would be expected by a market participant . the wacc also takes into consideration a company specific risk premium for each reporting unit reflecting the risk associated with the overall uncertainty of the financial projections . discount rates of 20 % to 32 % were utilized in the valuation based on kodak 's best estimates of the after-tax weighted-average cost of capital of each reporting unit . 27 a terminal value was included for all reporting units , except for the consumer inkjet systems reporting unit , at the end of the cash flow projection period to reflect the remaining value that the reporting unit is expected to generate . the terminal value is calculated using the constant growth method ( “ cgm ” ) based on the cash flows of the final year of the discrete period . based upon the results of kodak 's october 1 , 2014 analysis , no impairment of goodwill was indicated . impairment of goodwill could occur in the future if a reporting unit 's fair value changes significantly , if market or interest rate environments deteriorate , if a reporting unit 's carrying value changes materially compared with changes in its fair values , or as a result of changes in operating segments or reporting units . kodak recorded indefinite-lived intangible assets related to the kodak trade name and in-process research and development in conjunction with fresh start accounting . the carrying values of the indefinite-lived intangible assets are evaluated for potential impairment annually on october 1 or whenever events or changes in circumstances indicate that it is more likely than not that the asset is impaired . the fair value of the kodak trade name , which has carrying value of $ 46 million , was valued using the income approach , specifically the relief from royalty method based on the following significant assumptions : ( a ) forecasted revenues ranging from october 1 2014 to december 31 , 2023 , including a terminal year with growth rates ranging from -1 % to 3 % ; ( b ) royalty rates ranging from .5 % to 1 % of expected net sales determined with regard to comparable market transactions and profitability analysis ; and ( c ) discount rates ranging from 23 % to 41 % , which were based on the after-tax weighted-average cost of capital . based on the results of kodak 's october 1 , 2014 assessment , no impairment of the kodak trade name was indicated . impairment of the kodak trade name could occur in the future if expected revenues decline or if there are significant changes in the discount or royalty rates . the fair value of the in-process research and development intangible asset , with a carrying value of $ 9 million , was valued using the income approach , specifically the multi-period excess earnings approach based on the following significant assumptions : ( a ) forecasted cash flows attributable to the respective research and development project for the period october 1 , 2014 to december 31 , 2024 ; and ( b ) discount rate of 50 % based on the after-tax weighted average cost of capital adjusted for perceived risks inherent in the overall uncertainty of the financial projections . based on the results of kodak 's october 1 , 2014 assessment and due to the change in expected cash flows from the amounts estimated as part of fresh start accounting , kodak concluded that the carrying value exceeded its fair value . in the fourth quarter of 2014 , kodak recorded a pre-tax impairment charge of $ 9 million that is included in other operating expense ( income ) , net in the consolidated statement of operations . kodak 's long-lived assets other than goodwill and indefinite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable . when evaluating long-lived assets for impairment , kodak compares the carrying value of an asset group to its estimated undiscounted future cash flows . an impairment is indicated if the estimated future cash flows are less than the carrying value of the asset group . the impairment is the excess of the carrying value over the fair value of the long-lived asset group . kodak depreciates the value of property , plant , and equipment over its expected useful life in such a way as to allocate it as equitably as possible to the periods during which services are obtained from their use , which aims to distribute the value over the remaining estimated useful life of the unit in a systematic and rational manner . an estimate of useful life not only considers the economic life of the asset , but also the remaining life of the asset to the entity . impairment of long-lived assets other than goodwill and indefinite lived intangible assets could occur in the future if expected future cash flows decline or if there are significant changes in the estimated useful life of the assets . taxes kodak recognizes deferred tax liabilities and assets for the expected future tax consequences of operating losses , credit carry-forwards and temporary differences between the carrying amounts and tax basis of kodak 's assets and liabilities . kodak records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized . kodak has considered forecasted earnings , future taxable income , the geographical mix of earnings in the jurisdictions in which kodak operates and prudent and feasible tax planning strategies in determining the need for these valuation allowances .
| results of operations consolidated replace_table_token_10_th 33 replace_table_token_11_th 34 revenues current year for the year ended december 31 , 2014 , revenues decreased approximately 11 % compared with the same period in 2013 , primarily due to volume declines in entertainment imaging and commercial films ( -4 % ) , consumer inkjet systems ( -3 % ) and digital printing ( -2 % ) . also contributing to the decline was unfavorable foreign exchange ( -1 % ) and unfavorable price/mix ( -1 % ) within graphics . partially offsetting these declines was favorable price/mix within intellectual property and brand licensing ( +1 % ) . see segment discussions below for additional information . included in revenues were non-recurring intellectual property licensing agreements . such agreements contributed approximately $ 70 million to revenues in 2014 and $ 40 million in 2013. prior year for the year ended december 31 , 2013 , net sales decreased approximately 14 % compared with the same period in 2012 primarily due to volume declines in each segment , partially offset by favorable price/mix within intellectual property and brand licensing ( +3 % ) and entertainment imaging and commercial films ( +2 % ) . the impact of the application of fresh start accounting was not material . see segment discussions below for additional information . included in revenues were non-recurring intellectual property licensing agreements . such agreements contributed approximately $ 40 million to revenues in 2013. there were no significant non-recurring intellectual property licensing agreements in 2012. however , there was a $ 61 million license revenue reduction reflecting sharing , with licensees , of the withholding tax refund received in 2012 ( refer to note 14 , “ income taxes ” for additional information ) . gross profit current year the increase in gross profit percent from 2013 to 2014 was driven by favorable manufacturing and other costs due to the revaluation of inventory from the application of fresh start accounting impacting the prior year .
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valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs . for cash , restricted cash and short-term investments , the carrying amount approximates fair value due to the short-term nature of these financial instruments . the story_separator_special_tag overview economic conditions remained challenging in 2011 , although we saw some indications of a slight improvement toward the end of the year . we generated $ 40.3 million of earnings from continuing operations during 2011 , comparable to 2010. in our resource segment , we experienced varying conditions between regions . in our northern region , timber demand remained strong throughout the year , keeping timber prices and harvest volumes at favorable levels . in our southern region , fiber availability kept prices depressed for most of the year . accordingly , we shifted a portion of our harvest from our southern region to our northern region in order to capture better pricing opportunities . our total harvest volume was 4.1 million tons in 2011 compared to 4.2 million tons in 2010. operating income for our resource segment was $ 59.8 million in 2011 compared to $ 62.1 million in 2010. our real estate segment closed three large sales of rural/non-strategic properties and another large non-strategic sale during the year , contributing to $ 50.0 million of total revenues for the segment in 2011. operating income for our real estate segment totaled $ 31.4 million in 2011 compared to $ 30.4 million in 2010. although fewer acres were sold in 2011 , the increased operating income was primarily due to the sale of lower basis non-strategic timberlands in 2011 compared to 2010. our wood products segment had operating income of $ 7.3 million in 2011 compared to $ 7.1 million in 2010 as lumber shipment volumes and average prices were basically comparable between years . we ended the year with $ 70.8 million of cash and short-term investments . although there was a slight increase in housing starts late in 2011 , we expect only a modest improvement in housing starts in 2012 , with no significant improvement in housing starts until late 2013 or 2014. while there has been a small near-term improvement in some markets , we believe lumber prices in 2012 will be very similar to 2011. with the continued weak housing outlook and the impact of a customer 's mill closure in arkansas , we plan to reduce our harvest to approximately 3.5 million tons for 2012. we anticipate increasing our harvests to approximately 4.6 million tons annually in the next several years , as market conditions improve along with increased housing starts . although we do not anticipate any large non-strategic timberland sales in 2012 , we expect continued smaller sales of non-strategic properties . in addition , we expect a consistent level of rural real estate and hbu sales to continue , at comparable or slightly higher prices . factors influencing our results of operations and cash flows the operating results of our resource , real estate and wood products business segments have been and will continue to be influenced by a variety of factors , including the cyclical nature of the forest products industry , changes in timber prices and in harvest levels from our timberlands , competition , timberland valuations , demand for our non-strategic timberland for higher and better use purposes , the efficiency and level of capacity utilization of our wood products manufacturing operations , changes in our principal expenses such as log costs , asset dispositions or acquisitions , and other factors . cyclical forest products markets . the operating results of our timber , real estate and wood products manufacturing operations are cyclical . historical prices for our wood products have been volatile , and we , like other manufacturers in the forest products industry , have limited direct influence over the timing and extent of price changes for our products . wood products pricing and demand affects timber pricing and demand . the demand for our wood products is affected by the level of new residential construction activity , commercial and industrial demand , and , to a lesser extent , home repair and remodeling activity , which are subject to fluctuations due to changes in economic conditions , interest rates , population growth , weather conditions and other factors . the profitability of our wood products segment depends largely on our ability to operate our facilities efficiently and at or near full capacity . our operating results can be adversely affected if market demand does not justify operating at these levels or if our operations are inefficient or suffer significant interruption for any reason . one of the most significant expenses of our wood products segment is the cost of sawlogs to supply our manufacturing facilities . the cost of logs that supply our lumber mills has at times fluctuated greatly as a result of the factors discussed above affecting the price of our timber . selling prices of our wood products have not always increased in response to log price increases , nor have log prices always decreased in conjunction with declining wood products prices . on occasion , the results of operations of our wood products business have been , and may in the future be , adversely affected if we are unable to pass cost increases through to our customers . the forest products industry in general and the wood products business in particular has been adversely affected since 2008 by the national decline in home building and the resulting weak demand and lower prices for wood form 10-k / 27 products . story_separator_special_tag the markets for our timber and wood products are highly competitive , and companies that have substantially greater financial resources than we do compete with us in each of our lines of businesses . logs and form 10-k / 28 other fiber from our timberlands , as well as our wood products , are subject to competition primarily from timberland owners and wood products manufacturers in north america . demand for real estate . a number of factors , including availability of credit , rising interest rates , a slowing of real estate development , changes in population growth patterns and changes in demographics could reduce the demand for our timberland as a real estate asset . in addition , changes in the interpretation or enforcement of current laws , or the enactment of new laws , regarding the use and development of real estate or changes in the political composition of governmental bodies could lead to new or greater costs , delays and liabilities that could materially adversely affect our real estate business . the timing of real estate sales is a function of many factors , including the general state of the economy , demand in local real estate markets , the number of properties listed for sale , the seasonal nature of sales , the plans of adjacent landowners and our expectations of future price appreciation . delays in the completion of transactions or the termination of potential transactions may be beyond our control . these events could adversely affect our operating results . interest in our timberlands for rural real estate remained high in 2011. the number of rural real estate acres sold and the price per acre sold increased in 2011 over 2010. the market for our real estate properties does not seem to have been impacted by the economic downturn . the demand for hbu properties weakened slightly in 2011 compared to 2010 , but sales were at slightly higher prices per acre . we expect continued interest in our properties for sale and strength in pricing as the economy improves . acquisitions and dispositions . in addition to sales of timberlands as rural real estate or for hbu purposes , our business strategy also includes the disposition of non-strategic timberlands or timber deed sales when we desire to create financial flexibility and when we believe pricing to be particularly attractive . changes in investor interest in purchasing timberlands could reduce our ability to execute sales of non-strategic timberlands and could negatively affect our results of operations . strong interest in our timberlands from timber investment management organizations and industry partners continued in 2011 as we completed one large sale of rural real estate/non-strategic timberlands in idaho in three phases , and another large non-strategic timberland sale in idaho . we do not expect any large sales of non-strategic timberland in 2012 , however , we expect continued smaller sales of our non-strategic properties . as a result of our reit conversion , we are better able to compete for acquisitions of timberlands against other entities that use tax-efficient structures . it is uncertain whether any timberland acquisitions we make will perform in accordance with our expectations . we anticipate financing acquisitions through cash from operations , borrowings under our credit facility or proceeds from equity or debt offerings . our inability to finance future acquisitions on favorable terms or the failure of any acquisition to perform as we expect could harm our results of operations . we continually assess possible acquisition opportunities as they arise in the marketplace . critical accounting policies and estimates our accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states , which require management to make estimates that affect the amounts of revenues , expenses , assets and liabilities reported . the following are critical accounting matters which are both very important to the portrayal of our financial condition and results of operations and which require some of management 's most difficult , subjective and complex judgments . the accounting for these matters involves forming estimates based on current facts , circumstances and assumptions which , in management 's judgment , could change in a manner that would materially affect management 's future estimates with respect to such matters and , accordingly , could cause our future reported financial condition and results of operations to differ materially from financial results reported based on management 's current estimates . changes in these estimates are recorded periodically based on updated information . our critical accounting policies are discussed below . timber and timberlands . timber and timberlands are recorded at cost , net of depletion . expenditures for reforestation , including all costs related to stand establishment , such as site preparation , costs of seeds or seedlings and tree planting , are capitalized . expenditures for forest management , consisting of regularly recurring items necessary to the ownership and administration of our timber and timberlands , are accounted for as current operating expense . our depletion is determined based on costs capitalized and the related current estimated recoverable timber volume . recoverable volume does not include anticipated future growth , nor are anticipated future costs considered . there are currently no authoritative accounting rules relating to costs to be capitalized in the timber and timberlands category . we have used relevant portions of current accounting rules , industry practices and our judgment in determining costs to be capitalized or expensed . alternate interpretations and judgments could significantly affect the amounts capitalized . additionally , models and observations used to estimate the current recoverable timber volume on our lands are subject to judgments that could significantly affect volume estimates .
| cash flows summary the following table presents information regarding our cash flows for the years ended december 31 , 2011 , 2010 and 2009 . replace_table_token_13_th net cash provided by operating activities from continuing operations in 2011 totaled $ 77.1 million , compared to $ 126.1 million in 2010 and $ 119.9 million in 2009. the variance between 2011 and 2010 was primarily related to the reduced proceeds from real estate sold in 2011 and the $ 9.4 million contribution to our qualified pension plans . in 2010 , lower net earnings from continuing operations as compared to 2009 were affected by the increased revenues from real estate sold in 2010 and the change in deferred taxes compared to the change in 2009. net cash provided by investing activities from continuing operations was $ 4.5 million in 2011. net cash used for investing activities from continuing operations was $ 45.5 million in 2010 and $ 46.7 million in 2009. in 2011 , the decrease in short-term investments of $ 22.3 million was partially offset by $ 16.9 million used for capital form 10-k / 37 expenditures . in 2010 , we increased short-term investments by $ 31.7 million and used $ 15.0 million for capital expenditures . in 2009 , we increased short-term investments by $ 31.8 million and used $ 15.7 million for capital expenditures . at december 31 , 2011 , our authorized capital spending budget totaled $ 20.3 million . our capital spending is primarily related to reforestation expenditures , logging road construction , smaller high-return discretionary projects and routine general replacement projects for our wood products manufacturing facilities .
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receivables enrolled in these short-term payment deferrals continue to accrue interest and their delinquency status will not change story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein , where certain terms have been defined . this management 's discussion and analysis of financial condition and results of operations includes forward-looking statements . we base these forward-looking statements on our current plans , expectations and beliefs about future events . there are risks , including the factors discussed in “ risk factors ” in item 1a and elsewhere in this report , that our actual experience will differ materially from these expectations . for more information , see “ cautionary notice regarding forward-looking statements ” at the beginning of this report . in this report , except as the context suggests otherwise , the words “ company , ” “ atlanticus holdings corporation , ” “ atlanticus , ” “ we , ” “ our , ” “ ours , ” and “ us ” refer to atlanticus holdings corporation and its subsidiaries and predecessors . overview we utilize proprietary analytics and a flexible technology platform to enable financial institutions to provide various credit and related financial services and products to everyday americans . according to data published by experian , 41 % of americans had fico® scores of less than 700 as of the second quarter of 2019. a recent survey conducted by highland solutions found that 63 % of americans lived “ paycheck to paycheck ” and 82 % of people do not have access to an emergency fund . we believe this equates to a population of over 100 million everyday americans in need of additional access to credit . these consumers often have financial needs that are not effectively met by larger financial institutions . by facilitating fairly priced consumer credit and financial service alternatives with value added features and benefits specifically curated for the unique needs of these consumers , we endeavor to empower everyday americans on a path to improved financial well-being . currently , within our credit and other investments segment , we are applying the experiences gained and infrastructure built from servicing over $ 26 billion in consumer loans over our 24-year operating history to support lenders who originate a range of consumer loan products . these products include private label and general purpose credit cards originated by lenders through multiple channels , including retail and healthcare point-of-sale ( collectively `` point-of-sale '' ) , direct mail solicitation , online and partnerships with third parties . in the point-of-sale channel , we partner with retailers and service providers in various industries across the u.s. to allow them to provide credit to their customers for the purchase of a variety of goods and services including consumer electronics , furniture , elective medical procedures , healthcare , educational services and home-improvements . the services of our bank partners are often extended to consumers who may not have access to financing options with larger financial institutions . we specialize in supporting this “ second-look ” credit service . our flexible technology platform allows our bank partners to integrate our paperless process and instant decisioning platform with the technology infrastructure of participating retailers and service providers . our technology platform and proprietary analytics enable lenders to make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by many providers of financing who focus exclusively on consumers with higher fico scores . by supporting a range of products through a multitude of channels , we enable lenders to provide the right type of credit , whenever and wherever the consumer has a need . we are principally engaged in providing products and services to lenders in the u.s. and , in most cases , we invest in the receivables originated by such lenders who utilize our technology platform and other related services . from time to time , we also purchase receivables portfolios from third parties . in this report , “ receivables ” or “ loans ” typically refer to receivables we have purchased from our bank partners or from third parties . using our infrastructure and technology platform , we also provide loan servicing , including risk management and customer service outsourcing , for third parties . also through our credit and other investments segment , we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure . additionally , we report within our credit and other investments segment : ( 1 ) the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer ; and ( 2 ) gains or losses associated with investments previously made in consumer finance technology platforms . these include investments in companies engaged in mobile technologies , marketplace lending and other financial technologies . these investments are carried at the lower of cost or market valuation . none of these companies are publicly-traded and there are no material pending liquidity events . during the year ended december 31 , 2020 , one of the companies we invested in underwent a recapitalization which resulted in our receipt of $ 2.0 million in distributions . we retained our minority ownership stake in this company and will continue to carry the investment on our books at cost minus impairment , if any , plus or minus changes resulting from observable price changes . the recurring cash flows we receive within our credit and other investments segment principally include those associated with ( 1 ) point-of-sale and direct-to-consumer receivables , ( 2 ) servicing compensation and ( 3 ) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility ( such as those associated with our legacy credit card operations ) . story_separator_special_tag for more information , refer to part i , item 1a “ risk factors ” and , in particular , “ – the global outbreak of covid-19 has caused severe disruptions in the u.s. economy , and may have an adverse impact on our performance , results of operations and access to capital . ” story_separator_special_tag government stimulus programs , which have served to increase payments on outstanding receivables . this reduction in provision has been offset somewhat due to additional reserves associated with accounts that have been impacted due to covid-19 . see note 2 , “ significant accounting policies and consolidated financial statement components , ” to our consolidated financial statements and the discussions of our credit and other investments and auto finance segments for further credit quality statistics and analysis . given our adoption of fair value accounting for certain receivables acquired on or after january 1 , 2020 , and absent the unknown impacts covid-19 and related government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on our customers ' ability to make payments on outstanding loans and fees receivable , we expect that our provision for losses on loans will continue to diminish as the underlying receivables that continue to be recorded at net realizable value liquidate . changes in fair value of loans , interest and fees receivable and notes payable associated with structured financings recorded at fair value . for credit card receivables for which we use fair value accounting ( including those that we elected the fair value option for on january 1 , 2020 ) , we expect our change in fair value of credit card receivables recorded at fair value to increase throughout 2021 commensurate with growth in these receivables . inversely ( and to a lesser degree ) , we expect our change in fair value of notes payable associated with structured financings for our legacy credit card receivables recorded at fair value amounts to gradually diminish ( absent significant changes in the assumptions used to determine these fair values ) in the future . these amounts , however , are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors ( e.g. , interest rates and spreads ) in the future . 21 total operating expense . total operating expense variances for the year ended december 31 , 2019 , relative to the year ended december 31 , 2020 , reflect the following : increases in salaries reflecting marginal growth in both the number of employees and increases in related benefit costs . we expect some marginal increase in this cost for 2021 when compared to 2020 as we expect our receivables to continue to grow and as a result we expect to modestly increase our number of employees ; increases in card and loan servicing expenses in the year ended december 31 , 2020 when compared to the year ended december 31 , 2019 due to growth in receivables associated with our investments in point-of-sale and direct-to-consumer receivables , which grew from $ 908.4 million outstanding to $ 1,085.9 million outstanding at december 31 , 2019 and december 31 , 2020 , respectively , offset by the continued net liquidations in our legacy credit card portfolios , the receivables of which declined from $ 6.4 million outstanding to $ 4.4 million outstanding at december 31 , 2019 and december 31 , 2020 , respectively . as many of the expenses associated with our card and loan servicing efforts are now variable based on the amount of underlying receivables , we would expect this number to continue to grow throughout 2021. as our receivables have grown , we have significantly reduced our servicing costs per account , realizing greater economies of scale . slight decreases in marketing and solicitation costs for the year ended december 31 , 2020 primarily due to decreases in the pace of receivables growth associated with our direct-to-consumer and retail point-of-sale portfolios . despite this decrease , we expect that increased origination and brand marketing support will result in overall increases in year-over-year costs during 2021 although the frequency and timing of marketing efforts could result in reductions in quarter-over-quarter marketing costs ; and increases in other expenses primarily related to realized translation gains recognized during the prior period . expenses in this category primarily relate to fixed costs associated with occupancy or other third party expenses that are largely fixed in nature . while we expect some increase in these costs as we continue to grow our receivable portfolios , we do not anticipate the increases to be meaningful . certain operating costs are variable based on the levels of accounts and receivables we service ( both for our own account and for others ) and the pace and breadth of our growth in receivables . however , a number of our operating costs are fixed and until recently have comprised a larger percentage of our total costs . this trend is reversing as we continue to grow our earning assets ( including loans , interest and fees receivable ) based principally on growth of point-of-sale and direct-to-consumer receivables and to a lesser extent , growth within our car operations . this is evidenced by the growth we experienced in our managed receivables levels over the past two years with minimal growth in the fixed portion of our card and loan servicing expenses as well as our salaries and benefits costs as we were able to better utilize our fixed costs to grow our asset base . 22 notwithstanding our cost-management efforts , we expect increased levels of expenditures associated with anticipated growth in point-of-sale and direct-to-consumer credit card-related operations . these expenses will primarily relate to the variable costs of marketing efforts and card and loan servicing expenses associated with new receivable acquisitions .
| consolidated results of operations replace_table_token_2_th 20 year ended december 31 , 2020 compared to year ended december 31 , 2019 total operating revenue . total operating revenue consists of : 1 ) interest income , finance charges and late fees on consumer loans , 2 ) other fees on credit products including annual and merchant fees and 3 ) ancillary , interchange and servicing income on loan portfolios . period-over-period results primarily relate to growth in point-of-sale finance and direct-to-consumer products , the receivables of which increased from $ 908.4 million as of december 31 , 2019 to $ 1,085.9 million as of december 31 , 2020 . we are currently experiencing continued period-over-period growth in point-of-sale and direct-to-consumer receivables and to a lesser extent in our car receivables—growth which we expect to result in net period-over-period growth in our total interest income and related fees for these operations throughout 2021. future periods ' growth is also dependent on the addition of new retail partners to expand the reach of point-of-sale operations as well as growth within existing partnerships and continued growth and marketing within the direct-to-consumer receivables . as discussed elsewhere in this report , we have elected the fair value option to account for certain loan receivables associated with our point-of-sale and direct-to-consumer platform that are originated on or after january 1 , 2020. as a result , annual fees and merchant fees that are charged upon the acquisition of the receivable will no longer be deferred and will be recognized in the loan acquisition period . this difference in recognition also served to increase our other fees on credit products ( included as a component of `` fees and related income on earning assets '' on our consolidated statements of operations ) . other revenue on our consolidated statements of operations consists of ancillary , interchange and servicing income . ancillary and interchange revenues are largely impacted by growth in our receivables as discussed above .
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organization main street capital corporation ( `` mscc '' ) was formed on march 9 , 2007 for the purpose of ( i ) acquiring 100 % of the equity interests of main street mezzanine fund , lp ( `` msmf '' ) and its general partner , main street mezzanine management , llc ( `` msmf gp '' ) , ( ii ) acquiring 100 % of the equity interests of main street capital partners , llc ( the `` investment manager '' ) , ( iii ) raising capital in an initial public offering , which was completed in october 2007 ( the `` ipo '' ) , and ( iv ) thereafter operating as an internally managed business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . msmf is licensed as a small business investment company ( `` sbic '' ) by the united states small business administration ( `` sba '' ) and the investment manager acts as msmf 's manager and investment adviser . because the investment manager , which employs all of the executive officers and other employees of mscc , is wholly owned by us , we do not pay any external investment advisory fees , but instead we incur the operating costs associated with employing investment and portfolio management professionals through the investment manager . the ipo and related transactions discussed above were consummated in october 2007 and are collectively termed the `` formation transactions . '' on january 7 , 2010 , mscc consummated transactions ( the `` exchange offer '' ) to exchange 1,239,695 shares of its common stock for approximately 88 % of the total dollar value of the limited partner interests in main street capital ii , lp ( `` msc ii '' and , together with msmf , the `` funds '' ) . pursuant to the terms of the exchange offer , 100 % of the membership interests in the general partner of msc ii , main street capital ii gp , llc ( `` msc ii gp '' ) , were also transferred to mscc for no consideration . msc ii commenced operations in january 2006 , is an investment fund that operates as an sbic , and is also managed by the investment manager . the exchange offer and related transactions , including the transfer of the msc ii gp interests , are collectively termed the `` exchange offer transactions '' ( see note j to the consolidated financial statements ) . as of december 31 , 2011 , an approximately 12 % minority ownership in the total dollar value of the msc ii limited partnership interests remained outstanding , including approximately 5 % owned by affiliates of mscc . on february 14 , 2012 , mscc obtained exemptive relief from the sec to permit it to acquire the approximately 5 % ownership in the total dollar value of the msc ii limited partnership interests held by affiliates of mscc using the same valuation formula utilized in the exchange offer . on february 17 , 2012 , mscc acquired a total of approximately 8.5 % ownership in the total dollar value of the msc ii limited partnership interests not owned by mscc , including the approximately 5 % held by affiliates of mscc , in exchange for 170,203 shares of its common stock . after the acquisition of these additional msc ii limited partnership interests on february 17 , 2012 , an approximately 3.0 % minority ownership in the total dollar value of the msc ii limited partnership interests remained outstanding . mscc has elected to be treated for federal income tax purposes as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended ( the `` code '' ) . as a result , mscc generally will not pay corporate-level federal income taxes on any net ordinary income or capital gains that it distributes to its stockholders as dividends . mscc has direct or indirect subsidiaries that have elected to be taxable entities ( the `` taxable subsidiaries '' ) . the primary purpose of these entities is to hold certain investments that generate `` pass 45 through '' income for tax purposes . the taxable subsidiaries are each taxed at their normal corporate tax rates based on their taxable income . unless otherwise noted or the context otherwise indicates , the terms `` we , '' `` us , '' `` our '' and `` main street '' refer to mscc and its subsidiaries , including the funds and the taxable subsidiaries . overview we are a principal investment firm primarily focused on providing customized debt and equity financing to lower middle market ( `` lmm '' ) companies , which we generally define as companies with annual revenues between $ 10 million and $ 100 million that operate in diverse industries . we invest primarily in secured debt instruments , equity investments , warrants and other securities of lmm companies based in the united states . our principal investment objective is to maximize our portfolio 's total return by generating current income from our debt investments and capital appreciation from our equity and equity related investments , including warrants , convertible securities and other rights to acquire equity securities in a portfolio company . our lmm portfolio investments generally range in size from $ 5 million to $ 25 million . we seek to fill the current financing gap for lmm businesses , which , historically , have had more limited access to financing from commercial banks and other traditional sources . the underserved nature of the lower middle market creates the opportunity for us to meet the financing needs of lmm companies while also negotiating favorable transaction terms and equity participations . story_separator_special_tag we generated undistributed taxable income ( or `` spillover income '' ) of approximately $ 7.9 million , or $ 0.30 per share , during 2011 that will be carried forward toward distributions paid in 2012. in december 2011 , we declared monthly dividends for the first quarter of 2012 totaling $ 0.405 per share , representing an 8 % increase compared to the monthly dividends for the first quarter of 2011. in march 2012 , we declared monthly dividends for the second quarter of 2012 totaling $ 0.42 per share , representing a 7.7 % increase compared to the monthly dividends for the second quarter of 2011. during 2010 , we paid monthly dividends of $ 0.125 per share , or $ 1.50 per share for the entire year . including the dividends declared for the first and second quarters of 2012 , we will have paid approximately $ 7.14 per share in cumulative dividends since our october 2007 initial public offering . at december 31 , 2011 , we had $ 42.7 million in cash and cash equivalents and $ 120.5 million in marketable securities and idle funds investments . in the fourth quarter of 2011 , we expanded our credit facility ( the `` credit facility '' ) , from $ 155 million to $ 235 million to provide additional liquidity in support of future investment and operational activities . the $ 80 million increase in total commitments included commitment increases by lenders currently participating in the credit facility , as well as the addition of two new lender relationships which further diversified our lending group to a total of eight participants . in october 2011 , we completed a follow-on public stock offering in which we sold 3,450,000 shares of common stock , including the underwriters ' full exercise of the over-allotment option , at a price to the public of $ 17.50 per share ( or approximately 123 % of the then latest reported net asset value per share ) , resulting in total net proceeds of approximately $ 57.5 million , after deducting underwriters ' commissions and offering costs . in march 2011 , we completed a follow-on public stock offering in which we sold 4,025,000 shares of common stock , including the underwriters ' full exercise of the over-allotment option , at a price to the public of $ 18.35 per share ( or approximately 141 % of the then latest reported net asset value per share ) , resulting 47 in total net proceeds of approximately $ 70.3 million , after deducting underwriters ' commissions and offering costs . a proposed bill in the u.s. house of representatives , the small business investment company modernization act of 2011 , or house bill 3219 , would increase the total sbic leverage capacity for affiliated sbic funds from $ 225 million to $ 350 million . another bill in the u.s. senate , senate bill 2136 , to increase the total sbic leverage capacity for affiliated sbic funds to $ 350 million was recently introduced in the u.s. senate and referred to the committee on small business and entrepreneurship . if either of these bills is enacted , main street 's sbic leverage capacity through the funds would increase by an additional $ 125 million . while main street is positioned to benefit from the full passage of either bill , the ultimate form and likely outcome of such legislation or any similar legislation can not be predicted . critical accounting policies basis of presentation our financial statements are prepared in accordance with u.s. generally accepted accounting principles ( `` u.s. gaap '' ) . for the years ended december 31 , 2011 and 2010 , our consolidated financial statements include the accounts of mscc and its consolidated subsidiaries , including the funds . portfolio investments , as used herein , refers to all of our portfolio investments in lmm companies , private placement portfolio investments , and our investment in the investment manager but excludes all of our `` marketable securities and idle funds investments . '' `` marketable securities and idle funds investments '' are classified as financial instruments and are reported separately on our consolidated balance sheets and consolidated schedule of investments due to the nature of such investments . our results of operations and cash flows for the years ended december 31 , 2011 , 2010 , and 2009 , and financial position as of december 31 , 2011 and 2010 , are presented on a consolidated basis . the effects of all intercompany transactions between main street and its consolidated subsidiaries have been eliminated in consolidation . certain reclassifications have been made to prior period balances to conform with the current financial statement presentation . under the investment company rules and regulations pursuant to article 6 of regulation s-x and the audit and accounting guide for investment companies issued by the american institute of certified public accountants ( the `` aicpa guide '' ) , we are precluded from consolidating portfolio company investments , including those in which we have a controlling interest , unless the portfolio company is another investment company . an exception to this general principle in the aicpa guide occurs if we own a controlled operating company that provides all or substantially all of its services directly to us , or to an investment company of ours . none of the investments made by us qualify for this exception . therefore , our portfolio investments are carried on the balance sheet at fair value , as discussed further in note b to our consolidated financial statements , with any adjustments to fair value recognized as `` net change in unrealized appreciation ( depreciation ) '' on our statement of operations until the investment is exited , resulting in any gain or loss on exit being recognized as a `` net realized gain ( loss ) from investments . ''
| discussion and analysis of results of operations comparison of years ended december 31 , 2011 and december 31 , 2010 replace_table_token_15_th replace_table_token_16_th ( a ) distributable net investment income and distributable net realized income are net investment income and net realized income , respectively , as determined in accordance with u.s. generally accepted accounting principles , or gaap , excluding the impact of share-based compensation expense which is non-cash in nature . main street believes presenting distributable net investment income and distributable net realized income , and related per share amounts , is useful and appropriate supplemental disclosure of information for analyzing its financial performance since share-based compensation does not require settlement in cash . however , distributable net investment income and distributable net realized income are non-gaap measures and should not be considered as a replacement to net investment income , net realized income , and other earnings measures presented in accordance with gaap . instead , distributable net investment income and distributable net realized income should be reviewed only in connection with such gaap measures in analyzing main street 's financial performance . a reconciliation of net investment income and net realized income in accordance with gaap to distributable net investment income and distributable net realized income is presented in the table above . 56 investment income for the year ended december 31 , 2011 , total investment income was $ 66.2 million , a $ 29.7 million , or 81 % , increase over the $ 36.5 million of total investment income for the corresponding period of 2010. this comparable period increase was principally attributable to ( i ) a $ 23.8 million increase in interest income from higher average levels of both portfolio debt investments and interest-bearing marketable securities investments , ( ii ) a $ 4.3 million increase in dividend income from portfolio equity investments , and ( iii ) a $ 1.6 million increase in fee income due to higher levels of transaction activity .
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25 arrow financial corporation reconciliation of non-gaap financial information ( dollars in thousands , except per share amounts ) footnotes : 1. share and per share data have been restated for the september 25 , 2020 , 3 % stock dividend . 2. non-gaap financial measure reconciliation : tangible book value , tangible equity , and return on tangible equity exclude goodwill and other intangible assets , net from total equity . these are non-gaap financial measures which arrow believes provides investors with information that is useful in understanding its financial performance . 12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 total stockholders ' equity ( gaap ) $ 334,392 $ 325,660 $ 317,687 $ 309,398 $ 301,728 less : goodwill and other intangible assets , net 23,823 23,662 23,535 23,513 23,534 tangible equity ( non-gaap ) $ 310,569 $ 301,998 $ 294,152 $ 285,885 $ 278,194 period end shares outstanding 15,516 15,489 15,461 15,432 15,448 tangible book value per share ( non-gaap ) $ 20.02 $ 19.50 $ 19.03 $ 18.53 $ 18.01 net income 12,495 11,046 9,159 8,127 9,740 return on tangible equity ( net income/tangible equity - annualized ) 16.13 % 14.61 % 12.58 % 11.55 % 14.18 % 3. non-gaap financial measure reconciliation : net interest margin is the ratio of annualized tax-equivalent net interest income to average earning assets . this is also a non-gaap financial measure which arrow believes provides investors with information that is useful in understanding its financial performance . 12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 interest income ( gaap ) $ 28,372 $ 27,296 $ 28,002 $ 28,226 $ 28,367 add : tax equivalent adjustment ( non-gaap ) 251 284 281 288 321 interest income - tax equivalent ( non-gaap ) $ 28,623 $ 27,580 $ 28,283 $ 28,514 $ 28,688 net interest income ( gaap ) $ 26,454 $ 24,900 $ 24,842 $ 23,006 $ 22,918 add : tax-equivalent adjustment ( non-gaap ) 251 284 281 288 321 net interest income - tax equivalent ( non-gaap ) $ 26,705 $ 25,184 $ 25,123 $ 23,294 $ 23,239 average earning assets $ 3,550,415 $ 3,417,638 $ 3,281,223 $ 3,030,881 $ 2,969,972 net interest margin ( non-gaap ) 2.99 % 2.93 % 3.08 % 3.09 % 3.10 % 4. non-gaap financial measure reconciliation : financial institutions often use the `` efficiency ratio '' , a non-gaap ratio , as a measure of expense control . arrow believes the efficiency ratio provides investors with information that is useful in understanding its financial performance . arrow defines efficiency ratio as the ratio of noninterest expense to net gross income ( which equals tax-equivalent net interest income plus noninterest income , as adjusted ) . 5. for the current quarter , all of the regulatory capital ratios in the table above , as well as the total risk-weighted assets and common equity tier 1 capital amounts listed in the table below , are estimates based on , and calculated in accordance with bank regulatory capital rules . all prior quarters reflect actual results . the december 31 , 2020 cet1 ratio listed in the tables ( i.e. , 13.39 % ) exceeds the sum of the required minimum cet1 ratio plus the fully phased-in capital conservation buffer ( i.e. , 7.00 % ) . 12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 total risk weighted assets $ 2,357,094 $ 2,321,637 $ 2,283,430 $ 2,275,902 $ 2,237,127 common equity tier 1 capital 315,696 306,356 298,362 292,165 289,409 common equity tier 1 ratio 13.39 % 13.20 % 13.07 % 12.84 % 12.94 % 26 critical accounting estimates the significant accounting policies , as described in note 2 - summary of significant accounting policies to the notes to the consolidated financial statements are essential in understanding the management discussion and analysis . many of the significant accounting policies require complex judgments to estimate the values of assets and liabilities . arrow has procedures and processes in place to facilitate making these judgments . the more judgmental estimates are summarized in the following discussion . in many cases , there are numerous alternative judgments that could be used in the process of determining the inputs to the models . where alternatives exist , arrow has used the factors that are believed to represent the most reasonable value in developing the inputs . actual performance that differs from estimates of the key variables could impact the results of operations . allowance for loan losses : the allowance for loan losses represents management 's estimate of probable losses inherent in arrow 's loan portfolio . the process for determining the allowance for loan losses is discussed in note 2 , summary of significant accounting policies and note 5 , loans , to the notes to the consolidated financial statements . arrow evaluates the allowance at the portfolio segment level and the portfolio segments are commercial , commercial real estate , consumer loans and residential real estate . due to the variability in the drivers of the assumptions used in this process , estimates of the portfolio 's inherent risks and overall collectability change with changes in the economy , individual industries , and borrowers ' ability and willingness to repay their obligations . the degree to which any particular assumption affects the allowance for loan losses depends on the severity of the change and its relationship to the other assumptions . key judgments used in determining the allowance for loan losses for individual commercial loans include credit quality indicators , collateral values and estimated cash flows for impaired loans . for pools of loans , arrow considers the historical net loss experience , and as necessary , adjustments to address current events and conditions , considerations regarding economic uncertainty , and overall credit conditions . the historical net loss factors incorporate a rolling average annual twelve quarter look-back period of the respective segment that have occurred within each pool of loans over the loss emergence period ( lep ) , adjusted as necessary based upon consideration of qualitative considerations impacting the inherent risk of loss in the respective loan portfolios . story_separator_special_tag the final rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than one percentage point below the applicable cblr requirement . the cblr final rule became effective as of january 1 , 2020 , and arrow and both subsidiary banks have opted out of utilizing the cblr framework . therefore , the capital rules promulgated under dodd-frank will remain applicable to arrow . total stockholders ' equity was $ 334.4 million at december 31 , 2020 , an increase of $ 32.7 million , or 10.8 % , from the year earlier level . the components of the change in stockholders ' equity since year-end 2018 are presented in the consolidated statement of changes in stockholders ' equity on page 62. total book value per share increased by 10.3 % over the prior year level . at december 31 , 2020 , tangible book value per share , a non-gaap financial measure calculated based on tangible book value ( total stockholders ' equity minus intangible assets including goodwill ) was $ 20.02 , an increase of $ 2.01 , or 11.2 % , over the december 31 , 2019 amount . the increase in total stockholders ' equity during 2020 principally reflected the following factors : $ 40.83 million of net income for the year , plus $ 1.81 million of equity related to various stock-based compensation plans , plus $ 1.81 million of equity resulting from the dividend reinvestment plan , plus other comprehensive income of $ 5.54 million reduced by cash dividends of $ 15.74 million and the repurchases of common stock of $ 1.58 million . as of december 31 , 2020 , arrow 's closing stock price was $ 29.91 , resulting in a trading multiple of 1.49 to arrow 's tangible book value . the board of directors declared and the company paid a cash dividend of $ 0.252 per share for the first three quarters of 2020 , as adjusted for a 3 % stock dividend distributed september 25 , 2020 , a cash dividend of $ 0.26 per share for the fourth quarter of 2020 , and has declared a $ 0.26 per share cash dividend for the first quarter of 2021 . 29 loan quality : nonperforming loans were $ 6.4 million at december 31 , 2020 , an increase of $ 2.0 million , or 45.6 % , from year-end 2019. the ratio of nonperforming loans to period-end loans at december 31 , 2020 was 0.25 % , an increase from 0.18 % at december 31 , 2019 and less than the company 's peer group ratio of 0.64 % at september 30 , 2020. loans charged-off ( net of recoveries ) against the allowance for loan losses was $ 1.3 million for 2020 , an increase of $ 186 thousand from 2019. the ratio of net charge-offs to average loans was 0.05 % for 2020 and 2019 , compared to the peer group ratio of 0.10 % for the period ended september 30 , 2020 . at december 31 , 2020 , the allowance for loan losses was $ 29.2 million , representing 1.13 % of total loans , an increase of 24 basis points from the december 31 , 2019 ratio . although credit quality remains strong , the increase in loan loss provision expense reflects the uncertainty resulting from the covid-19 pandemic . arrow adopted the current expected credit losses ( `` cecl '' ) accounting standard as of january 1 , 2021. loan segments : as of december 31 , 2020 , total loans grew $ 208.9 million , or 8.8 % , as compared to the balance at december 31 , 2019. the largest increase was in commercial and commercial real estate loans , which increased by $ 151.1 million or 22.9 % , from december 31 , 2019. the majority of the increase in commercial loans resulted from the origination of ppp loans , of which $ 114.6 million remained outstanding at december 31 , 2020. the residential real estate loan portfolio increased $ 9.2 million , or 1.0 % . the increase in the real estate loan portfolio is net of approximately $ 83.9 million of loans sold in 2020. in addition , consumer loans expanded $ 48.6 million , or 6.0 % . the economic factors resulting from the covid-19 pandemic , including but not limited to restrictions on non-essential businesses , will most likely adversely impact loan growth for all or a portion of 2021 . ◦ commercial and commercial real estate loans : combined , these loans comprise 31.3 % of the total loan portfolio at period-end . commercial property values in the company 's region have largely remained stable in 2020 , however , there remains uncertainty surrounding market conditions due to the pandemic . appraisals on nonperforming and watched cre loan properties are updated as deemed necessary , usually when the loan is downgraded or when there has been significant market deterioration since the last appraisal . the temporary closure of nonessential business in new york impacted , and may continue to impact , arrow 's customer base . government intervention , with programs such as the ppp , may mitigate the economic risk to both arrow and its customers , however the full impact can not be determined at this time . ◦ consumer loans : these loans ( primarily automobile loans ) comprised approximately 33.1 % of the total loan portfolio at period-end . consumer automobile loans at december 31 , 2020 , were $ 854.7 million , or 99.4 % of this portfolio segment . in 2020 , arrow did not experience any significant increase in the delinquency rate or in the percentage of nonperforming loans in this segment . the vast majority of automobile loans are initiated through the purchase of vehicles by consumers with automobile dealers .
| summary of 2020 financial results : for the year ended december 31 , 2020 , net income was a record $ 40.8 million , up 8.9 % over net income of $ 37.5 million for 2019. diluted eps was $ 2.64 for 2020 , up 8.5 % from $ 2.43 in 2019. arrow 's profitability ratios remained solid in 2020 , as return on average equity and return on average assets were 12.77 % and 1.17 % , respectively , for the year , as compared to 13.17 % and 1.24 % , respectively , for 2019. at december 31 , 2020 , total loan balances reached $ 2.6 billion , up $ 209 million , or 8.8 % , from the prior-year level . the consumer loan portfolio grew by $ 48.6 million , or 6.0 % , over the balance at december 31 , 2019 , primarily as a result of continued strength in the indirect automobile lending program . the residential real estate loan portfolio increased $ 9.2 million , or 1.0 % . the increase in the real estate loan portfolio is net of approximately $ 83.9 million of loans sold in 2020. commercial loans , including commercial real estate , increased $ 151.1 million , or 22.9 % , over the balances at december 31 , 2019. the increase in commercial loans includes $ 110.4 million in remaining ppp loans . at december 31 , 2020 , total deposit balances reached $ 3.2 billion , up by $ 618.7 million , or 23.6 % , from the prior-year level . noninterest-bearing deposits grew by $ 216.4 million , or 44.6 % , during 2020 , and represented 21.7 % of total deposits at year-end as compared to the prior-year level of 18.5 % . at december 31 , 2020 , total time deposits decreased $ 117.7 million from the prior-year level , including a reduction of $ 80.6 million in brokered time deposits .
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notes to consolidated financial statements - ( continued ) ( dollar amounts in thousands , except where otherwise indicated ) the following table provides a summary of restricted stock activity for the period ended december 31 , 2013 : replace_table_token_40_th restricted stock units are rights to receive shares of common stock , subject to forfeiture and other restrictions , which vest over a two or three year period . restricted shares are considered to be non-vested shares under the accounting guidance for share-based payment and are not reflected as issued and outstanding shares until the restrictions lapse . at that time , the shares are released to the grantee and the company records the issuance of the shares . restricted stock awards are valued based on the market price of the underlying shares on the grant date . compensation expense is recognized on a straight-line basis over the requisite service period . at december 31 , 2013 , restricted stock awards had vesting periods up through march 2016 . 8. contingencies the company is a defendant in various lawsuits and a party to various other legal proceedings , in the ordinary course of business , some of which are covered in whole or in part by insurance . new idria mercury mine effective october 2011 , the u.s. environmental protection agency ( “ epa ” ) added the new idria mercury mine site located near hollister , california to the superfund national priorities list because of alleged contaminants discharged to california waterways . the new idria quicksilver mining company , founded in 1936 , and later renamed the new idria mining & chemical company ( `` nimcc `` ) owned and or operated the new idria mine through 1976. in 1981 nimcc was merged into buckhorn metal products inc. and subsequently acquired by myers industries in 1987. the epa contends that past mining operations have resulted in mercury contamination and acid mine drainage at the mine site , in the san carlos creek , silver creek and a portion of panoche creek and that other downstream locations may also be impacted . since buckhorn inc. may be a potentially responsible party ( “ prp ” ) of the new idria mercury mine , the company recognized an expense of $ 1.9 million , on an undiscounted basis , in 2011 related to performing a remedial investigation and feasibility study to determine the extent of remediation story_separator_special_tag executive overview the company conducts its business activities in four distinct business segments , including three in manufacturing and one in distribution . the manufacturing segments consist of : material handling , lawn and garden , and engineered products . in our manufacturing segments , the company designs , manufactures , and markets a variety of plastic and rubber products . these products range from plastic reusable material handling containers and small parts storage bins to plastic horticultural pots and hanging baskets , decorative resin planters , plastic and rubber oem parts , tire repair materials , and custom plastic and rubber products . our distribution segment is engaged in the distribution of tools , equipment and supplies used for tire , wheel and undervehicle service on passenger , heavy truck and off-road vehicles . story_separator_special_tag garden segment that offset a portion of the margin lost due to lower sales and in our other segments , primarily the material handling segment . 25 selling , general and administrative expenses : replace_table_token_15_th sg & a expenses increased $ 4.8 million or 3 % compared with 2011. excluding the $ 4.8 million increase in sg & a expenses from the two acquisitions in 2012 as of the dates acquired , sg & a was flat year-over-year . sg & a expenses in 2012 included increased employee related costs , primarily medical of $ 2.2 million and $ 2.4 million of higher distribution and selling costs . these increases were offset by a reduction of approximately $ 3.0 million in bad debt expense , primarily due to the recovery in 2012 of a bad debt recorded in 2011. sg & a expense in 2012 also included restructuring and other related charges of $ 3.4 million for severance , consulting and lease obligation costs . sg & a expense in 2011 included restructuring charges of $ 2.7 million and charges of $ 1.9 million related to an environmental investigation and feasibility study at new idria . in 2012 and 2011 , gains of $ 1.1 million and $ 0.7 million , respectively , were realized from the sale of facilities and other assets . shipping and handling costs , including freight , are primarily classified as sg & a expenses . impairment charges : in 2011 , there were impairment charges of $ 1.2 million related to two closed manufacturing facilities and fixed asset impairment charges . there were no impairment charges in 2012. interest expense : replace_table_token_16_th net interest expense in 2012 was $ 4.5 million , a decrease of 4 % compared to the prior year . outstanding borrowings were $ 18.8 million higher in 2012 versus 2011 , although the lower average borrowing rate from the mix of the debt outstanding resulted in a reduction of interest expense . the increase in outstanding debt from 2011 to 2012 was primarily to fund our acquisitions in the current year . income taxes : replace_table_token_17_th the effective tax rate was 36.7 % in 2012 compared to 27.3 % in 2011. the 2012 effective tax rate of 36.7 % reflects an increase in net state tax expense of $ 2.7 million . the 2011 effective tax rate reflects the company 's reversal of approximately $ 4.9 million of previously unrecognized tax benefits , primarily related to the incurred loss on the sale of its european material handling business in 2007 and other tax adjustments , including provision to return adjustments resulting from changes in estimates . story_separator_special_tag acquisitions in october 2012 , the company acquired 100 % of the stock of jamco , an illinois corporation for $ 15.2 million . the purchase price included a cash payment of $ 15.1 million , net of $ 0.1 million in cash acquired . jamco is a leading designer and manufacturer of heavy-duty industrial steel carts and safety cabinets . the company has made preliminary estimates of the valuation of assets and intangible assets of purchase price allocation . the business is included in the material handling segment . 26 in july 2012 , the company acquired 100 % of the stock of novel , a brazil-based designer and manufacturer of reusable plastic crates and containers used for closed-loop shipping and storage . novel also produces a diverse range of plastic industrial safety products . the total purchase price was approximately $ 30.9 million , which includes a cash payment of $ 3.4 million , net of $ 0.6 million of cash acquired , assumed debt of approximately $ 26.0 million and contingent consideration of $ 0.9 million based on an earnout . the contingent consideration , which is recorded in other liabilities in the consolidated statements of financial position is dependent upon the results of novel exceeding predefined earnings before interest , taxes , depreciation and amortization over the next four years . the business is included in the material handling segment . financial condition & liquidity and capital resources cash provided by operating activities was $ 96.1 million for the year ended december 31 , 2013 compared to $ 60.8 million in 2012. the increase of $ 35.3 million was primarily attributable to cash flows from improved working capital and higher non-cash charges in comparison with the prior year . net income was $ 26.0 million in 2013 compared to $ 30.0 million in 2012. non-cash charges including depreciation and amortization were $ 38.6 million in 2013 compared to non-cash charges of $ 39.5 million in 2012. cash provided by working capital was $ 33.1 million in 2013 compared to cash used of $ 8.4 million in 2012. in 2013 , cash used for inventories was approximately $ 1.6 million compared to $ 2.8 million in 2012. in 2013 , the use of funds for accounts receivable decreased to $ 0.7 million compared to the use of $ 2.0 million in 2012. in addition , as a result of timing of payments and vendor terms management , there was an increase of $ 36.3 million in cash provided by accounts payable and accrued expenses in 2013 compared to 2012. capital expenditures were approximately $ 30.0 million in 2013 compared to $ 27.0 million in 2012. capital spending in 2013 was higher than the preceding year as investments were made for new manufacturing focused on growth and productivity improvements . in 2013 , the company purchased an equity interest in a non-consolidated subsidiary , included in the distribution segment , for approximately $ 0.6 million . in 2012 , the company paid a combined total of $ 18.5 million in connection with the acquisitions of novel and jamco . in 2013 and 2012 , the company received approximately $ 0.9 million and $ 3.1 million , respectively , in cash proceeds from the sale of certain property , plant & equipment . during 2013 , the company used cash of $ 8.1 million to purchase 531 thousand shares of its own stock under a share repurchase plan compared to $ 4.2 million to purchase 282 thousand shares of it own stock in 2012. in addition , the company used cash to pay dividends of $ 9.1 million and $ 13.0 million for the years 2013 and 2012 , respectively . higher dividend payments in 2012 resulted from the accelerated fourth quarter dividend payment made in december 2012 to reduce the tax impact for our shareholders for 2013. on december 13 , 2013 , the company entered into a fourth amended and restated loan agreement ( the “ loan agreement ” ) . the agreement provided for a $ 200 million senior revolving credit facility expiring on december 13 , 2018 , which replaced the existing $ 180 million facility . amounts borrowed under the loan agreement were used to replace the amounts outstanding under the existing $ 180 million loan agreement , working capital and general corporate purposes , and the repayment of our $ 35 million of 6.81 % senior unsecured notes . amounts borrowed under the agreement are secured by pledges of stock of certain of our foreign and domestic subsidiaries . borrowings under the loan agreement bear interest at the libor rate , prime rate , federal funds effective rate , the canadian deposit offered rate , or the eurocurrency reference rate depending on the type of loan requested by the company , in each case plus the applicable margin as set forth in the loan agreement . on october 22 , 2013 , the company entered into a note purchase agreement for the private placement of senior unsecured notes totaling $ 100 million with a group of investors . the four series of notes range in face value from $ 11 million to $ 40 million , with interest rates ranging from 4.67 % to 5.45 % , payable semiannually , and expiring between 2021 and 2026 . at december 31 , 2013 , the company had $ 11 million of its 5.25 % senior unsecured notes due january 15 , 2024 outstanding under the note purchase agreement . remaining proceeds of $ 89 million under the note purchase agreement were subsequently received in january 2014. total debt outstanding at december 31 , 2013 was $ 44.3 million , net of deferred financing costs , compared with $ 92.8 million at december 31 , 2012 . the decrease in debt outstanding year-over-year is primarily due to the repayment of the $ 35 million senior unsecured notes and net repayment on the credit facility during
| results of operations : 2013 versus 2012 net sales : replace_table_token_8_th net sales for 2013 were $ 825.2 million , an increase of $ 34.0 million or 4 % compared to the prior year . net sales increased $ 33.1 million due to the acquisition sales of plasticos novel do nordeste s. a . ( `` novel '' ) and jamco products inc. ( `` jamco '' ) which were acquired in 2012 , along with $ 12.6 million of improved pricing . the increase in net sales was partially offset by lower sales volumes of $ 4.7 million and unfavorable foreign currency translation of $ 7.0 million . net sales in the material handling segment increased $ 36.9 million or 13 % in 2013 compared to 2012 . the net increase in sales was mainly attributable to the inclusion of $ 33.1 million of net sales from the acquisition of novel and jamco which were completed in the second half of 2012. also contributing to the increase in net sales was improved pricing of $ 4.0 million and higher volume of $ 3.3 million , driven by sales in the agricultural and distribution markets . the increase in net sales noted above was partially offset by unfavorable currency translation of $ 3.5 million . net sales in the lawn and garden segment in 2013 decreased $ 0.9 million compared to 2012 . the decrease in net sales was attributable to a reduction in sales volume of $ 5.5 million due primarily to timing of customer orders for the coming season and production and distribution start-up issues in the fourth quarter from our rationalization plan and $ 3.2 million from the effect of unfavorable currency translation . the decrease in net sales was offset by improved pricing of $ 7.8 million to mitigate higher raw material costs . net sales in the distribution segment increased $ 0.8 million in 2013 compared to 2012 .
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pension benefits we do not maintain any pension benefit plans . nonqualified deferred compensation we do not maintain any nonqualified deferred compensation plans . employment offer letters , severance and change in control arrangements we have entered into employment offer letters with each of our named executive officers . the offer letters provide for “ at will ” employment and set forth the terms and conditions of employment , including the initial annual base salary , target bonus opportunity , equity compensation , severance benefits and eligibility to participate in our employee benefit plans and programs . there are no ongoing guarantees of increases to future compensation such as base salary increases . our named executive officers were each required to execute our standard proprietary information and inventions agreement . the 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 related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this form 10-k contain forward-looking statements that involve risks and uncertainties , such as statements of our plans , objectives , expectations and intentions . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section of this form 10-k entitled “ risk factors. ” overview we are a clinical-stage oncology company developing transformative treatments designed to halt the progression of life-threatening diseases . our lead product candidate , avb-500 , is an ultrahigh-affinity , decoy protein that targets the gas6-axl signaling pathway . by capturing serum gas6 , avb-500 starves the axl pathway of its signal , potentially halting the biological programming that promotes disease progression . axl receptor signaling plays an important role in multiple types of malignancies by promoting metastasis , cancer cell survival , resistance to treatments , and immune suppression . our current development program benefits from the availability of a proprietary serum-based biomarker that has accelerated avb-500 drug development by allowing us to select a pharmacologically active dose and may potentially identify the cancer patients that have the best chance of responding to avb-500 . in our completed phase 1 clinical trial in healthy volunteers with our clinical lead product candidate , avb-500 , we have demonstrated proof of mechanism for avb-500 in neutralizing gas6 . importantly , avb-500 had a favorable safety profile preclinically and in the first in human trial and phase 1b clinical trial in cancer patients . in december 2018 , we initiated our phase 1b clinical trial of avb-500 combined with standard of care therapies in patients with platinum-resistant ovarian cancer or proc , for which we reported results in july 2020. in august 2018 , the u.s. food and drug administration or fda designated as a fast track development program the investigation of our lead development candidate , avb-500 , for platinum-resistant recurrent ovarian cancer . we initiated a pivotal phase 3 trial of avb-500 in proc during the first quarter 2021. in january 2020 , we announced that the fda has cleared our investigational new drug or ind application for investigation of avb-500 , in the treatment of our second oncology indication , clear cell renal cell carcinoma or ccrcc . during the fourth quarter of 2020 , we initiated our phase 1b/2 trial of avb-500 in ccrcc and we dosed our first patient in the trial during the first quarter of 2021. in april 2020 , we entered into a license and collaboration agreement with wuxi biologics ( hong kong ) limited , the objective of which is to identify and develop novel high-affinity bispecific antibodies against ccn2 , also known as connective tissue growth factor ( ctgf ) , implicated in cancer and fibrosis and identified from a similar target discovery screen that identified the significance of the axl/gas6 pathway in cancer . the goal is to generate a best-in-class therapeutic targeting desmoplasia and tumor growth in the clinic in 2023. on november 6 , 2020 , we entered into a collaboration and license agreement with 3d medicines inc. or 3d medicines , whereby we granted 3d medicines an exclusive license to develop and commercialize products that contain avb-500 as the sole drug substance , for the diagnosis , treatment or prevention of human oncological diseases , in mainland china , taiwan , hong kong and macau . with the global spread of the ongoing novel coronavirus or covid-19 pandemic , we have implemented business continuity plans designed to address and mitigate the impact of the covid-19 pandemic on our employees and our business . while we are experiencing limited financial impacts at this time , given the global economic slowdown , the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic , our business , financial condition , results of operations and growth prospects could be materially adversely affected . as we advance our clinical programs , we are in close contact with our clinical research organizations and clinical sites and are assessing the impact of covid-19 on our planned studies and current timelines and costs . while we currently do not anticipate any interruptions in our operations due to covid-19 if the covid-19 pandemic continues and persists for an extended period of time , we could experience significant disruptions to our clinical development timeline , which would adversely affect our business , financial condition , results of operations and growth prospects . 59 important note this management 's discussion and analysis of financial condition and results of operations includes a discussion of our operations for the years ended december 31 , 2020 and december 31 , 2019. references in this report to “ we , ” “ us , ” “ our ” and similar first-person expressions refer to aravive , inc. ( formerly known as versartis , inc. ) and its subsidiaries , including private aravive . story_separator_special_tag 62 cash flows the following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below : replace_table_token_3_th cash used in operating activities net cash used in operating activities was $ 12.2 million and $ 17.1 million during the years ended december 31 , 2020 and 2019 , respectively , which was primarily due to the use of funds in our operations related to the development of avb-500 , our product candidate . cash used in operating activities in 2020 decreased compared to the year ended december 31 , 2019 due to primarily the receipt of $ 12 million from 3d medicines in november 2020. cash used in operating activities during the year ended december 31 , 2019 was mostly related to operational expenses slightly offset by receipt of $ 1.6 million from the cprit grant . cash provided by investing activities net cash from investing activities during the years ended december 31 , 2020 and 2019 was zero . cash provided by financing activities net cash provided by financing activities was $ 7.6 million and $ 25.3 million during the years ended december 31 , 2020 and 2019 , respectively . financing activities related to the year ended december 31 , 2020 includes a private placement offering with proceeds of $ 5.0 million in april 2020 along with at the market offering proceeds of $ 2.3 million . financing activities during the year ended december 31 , 2019 related to proceeds received from issuance of our common stock in a public offering which was completed in december of 2019. off-balance sheet arrangements since our inception , we have not engaged in any off-balance sheet arrangements , as defined in the rules and regulations of the sec . jobs act accounting election the jumpstart our business startups act of 2012 , or the jobs act , permits an “ emerging growth company ” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies . for the year ended december 31 , 2019 , we chose to “ opt out ” of this provision and , as a result , we complied with new or revised accounting standards as required when they were adopted . as of december 31 , 2019 , we are no longer an emerging growth company . critical accounting policies , significant judgments and use of estimates the management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , ( “ u.s . gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , and expenses . on an ongoing basis , we evaluate our critical accounting policies and estimates . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . 63 grant revenue revenues from the cprit grant are recognized when qualifying costs are incurred and there is reasonable assurance that the conditions of the award have been met for collection . proceeds received prior to the costs being incurred or the conditions of the award being met are recognized as deferred revenue until the services are performed and the conditions of the award are met . as of december 31 , 2019 , we had an unbilled receivable from cprit of $ 1.6 million , which is reflected in prepaid expenses and other current assets on the accompanying consolidated balance sheet . this receivable was collected in march 2020. collaboration revenue collaboration revenue for 2020 has been generated through our collaboration and license agreement which is within the scope of asc 606. under asc 606 , we recognize revenue when our customer obtains control of promised goods or services , in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that we determine are within the scope of asc 606 , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . we only apply the five-step model to contracts when it is probable that the entity will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determine those that are performance obligations , and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . our collaboration and license agreement contain multiple elements including ( i ) intellectual property licenses and ( ii ) research and development services .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our net loss during the periods indicated ( in thousands , except percentages ) : replace_table_token_2_th ( 1 ) not meaningful . grant revenue aravive biologics had a grant with cprit . grant revenue was $ 4.8 million in 2019 and was derived solely from the cprit grant for the research and development of avb-500 . recognition of grant revenue was completed as of the end of the second quarter of 2019 as we have recognized the full amount related to the contract . in november 2020 , we entered into a collaboration and license agreement with 3d medicines . collaboration revenue was $ 5.7 million in 2020 and $ 6.3 million of deferred revenue as of december 31 , 2020 , to be recognized in a future period . research and development expense research and development expense increased by $ 4.8 million , or 37 % , to $ 17.6 million in 2020 from $ 12.8 million for the same period in 2019. the increase was primarily due to the timing of our clinical trial expenses and an increase in our compensation expense as we further built out research and development team for our upcoming clinical trials . the initiation of our phase 3 trial of avb-500 in proc is a significant driver to the increase in expense in 2020 when compared to the same period in 2019. there were also increased manufacturing activities during 2020 due to the initiation of the phase 3 proc trial . general and administrative expense general and administrative expense decreased by $ 0.6 million , or 5 % , to $ 13.1 million in 2020 from $ 13.7 million for the same period in 2019. the decrease was primarily driven by a lower stock-based compensation expense along with reduced accounting and consulting fees .
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the company conducts community banking activities by accepting deposits and making loans secured by properties located primarily in our market area . our lending products consist of residential mortgage loans , including loans for sale in the secondary market , along with commercial real estate , multi-family residential and construction loans . the company also originates commercial business and consumer loans in an effort to maintain strong customer relationships . despite the challenging current market and economic conditions , the company continues to maintain capital substantially in excess of regulatory requirements . this management 's discussion and analysis section is intended to assist in understanding the financial condition and results of operations of prudential bancorp . the results of operations of prudential bancorp are primarily dependent on the results of the bank . the information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements contained in item 8 of this annual report on form 10-k. critical accounting policies in reviewing and understanding financial information for prudential bancorp , you are encouraged to read and understand the significant accounting policies used in preparing our financial statements . these policies are described in note 2 of the notes to our consolidated financial statements included in item 8 hereof . the accounting and financial reporting policies of prudential bancorp conform to accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely . subsequent recoveries are added to the allowance . the allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate . loan impairment is evaluated based on the fair value of collateral or estimated net realizable value . it is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans . 60 management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate . the quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends . in this context , a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio . included in these qualitative factors are : · levels of past due , classified , criticized and non-accrual loans , troubled debt restructurings and loan modifications ; · nature and volume of loans ; · changes in lending policies and procedures , underwriting standards , collections , charge-offs and recoveries and for commercial loans , the level of loans being approved with exceptions to lending policy ; · experience , ability and depth of management and staff ; · national and local economic and business conditions , including various market segments ; · quality of the company 's loan review system and degree of board oversight ; · concentrations of credit and changes in levels of such concentrations ; and · effect of external factors on the level of estimated credit losses in the current portfolio . in determining the allowance for loan losses , management has established both specific and general pooled allowances . values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans ( general pooled allowance ) and for criticized and classified loans . the amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans . loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above . in determining the appropriate level of the general pooled allowance , management makes estimates based on internal risk ratings , which take into account such factors as debt service coverage , loan-to-value ratios and external factors . estimates are periodically measured against actual loss experience . this evaluation is inherently subjective as it requires material estimates including , among others , exposure at default , the amount and timing of expected future cash flows on impaired loans , value of collateral , estimated losses on our commercial , construction and residential loan portfolios and historical loss experience . all of these estimates may be susceptible to significant change . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . story_separator_special_tag to remain competitive in our local lending area and to support the company 's asset/liability positioning , on occasion the bank enters into interest rate swap contracts to control its funding costs . in addition , these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition . commitments to extend credit generally have fixed expiration dates and may require additional collateral from the borrower if deemed necessary . commitments to extend credit are not recorded as an asset or liability by us until the instrument is exercised . commitments the following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit , lines of credit and undisbursed construction loans at september 30 , 2018. replace_table_token_27_th 63 contractual cash obligations the following table summarizes our contractual cash obligations at september 30 , 2018. replace_table_token_28_th 64 average balances , net interest income , and yields earned and rates paid . the following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates , and the net interest margin . all average balances are based on monthly balances . management does not believe that the monthly averages differ significantly from what the daily averages would be . replace_table_token_29_th _ ( 1 ) tax exempt yields have been adjusted to a tax-equivalent basis . ( 2 ) includes nonaccrual loans during the respective periods . calculated net of deferred fees and discounts , loans in process and allowance for loan losses . ( 3 ) equals net interest income divided by average interest-earning assets . 65 rate/volume analysis . the following table shows the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( 1 ) changes in rate , which is the change in rate multiplied by prior year volume , and ( 2 ) changes in volume , which is the change in volume multiplied by prior year rate . the combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume . replace_table_token_30_th comparison of financial condition at september 30 , 2017 and september 30 , 2016 at september 30 , 2018 , the company had total assets of $ 1.1 billion , as compared to $ 899.5 million at september 30 , 2017 , an increase of $ 181.6 million or 20.2 % . at september 30 , 2018 , the investment securities portfolio increased by $ 126.4 million to $ 367.6 million as compared to september 30 , 2017 primarily as a result of the purchase of investment grade corporate bonds and u.s. government agency mortgage-backed securities . net loans receivable increased $ 31.6 million to $ 602.9 million at september 30 , 2018 from $ 571.3 million at september 30 , 2017. the increase was primarily due to increases in commercial real estate and construction loans , reflecting our continued emphasis of increasing our investment in such loans . cash and cash equivalents increased $ 20.3 million to $ 48.2 million . total liabilities increased by $ 189.4 million to $ 952.8 million at september 30 , 2018 from $ 763.4 million at september 30 , 2017. total deposits increased $ 148.3 million , consisting primarily of certificates of deposit , which were used to fund asset growth as well as meet short-term liquidity needs . at september 30 , 2018 , the company had fhlb advances outstanding of $ 154.7 million , as compared to $ 114.3 million at september 30 , 2017. the increase in the level of borrowings was primarily due to match funding of loan originations as well as to funding purchases of investment securities in order to lock in the yield with minimal interest rate risk as part of the company 's asset/liability management strategy . all of the borrowings had maturities of less than six years . 66 total stockholders ' equity decreased by $ 7.8 million to $ 128.4 million at september 30 , 2018 from $ 136.2 million at september 30 , 2017. the decrease was primarily due to a reduction in the fair market value of available for sale securities as of september 30 , 2018 due to rising market rates which resulted in a substantial increase in the company 's accumulated other comprehensive loss . also contributing to the decrease were dividend payments totaling $ 6.3 million consisting of both regular quarterly dividends totaling $ 0.20 per share for fiscal 2018 as well as special dividends of $ 0.15 and $ 0.35 per share declared in the first and fourth quarters , respectively , of fiscal 2018. results of operations for the years ended september 30 , 2018 , 2017 and 2016 story_separator_special_tag style= '' margin : 0pt '' > non-interest income . 2018 vs. 2017. with respect to the year ended september 30 , 2018 , non-interest income amounted to $ 2.5 million compared with $ 2.2 million for fiscal 2017. the increase experienced in fiscal 2108 was primarily attributable to the recognition of $ 808,000 in gains during the third quarter of fiscal 2018 associated with the unwinding of two cash flow hedges . the hedges were unwound to lock in the embedded gains of the hedge instruments . these gains were partially offset by losses incurred on the sale of securities yielding below current market yields in order to better position the securities portfolio in a rising rate environment . the proceeds from the sales were used to invest in higher yielding loan and investment products .
| general . 2018 vs. 2017. for the fiscal year ended september 30 , 2018 , the company recognized net income of $ 7.1 million , or $ 0.78 per diluted share , as compared to net income of $ 2.8 million , or $ 0.32 per diluted share for the fiscal year ended september 30 , 2017. both fiscal year periods included significant one-time charges . fiscal year 2017 results included a one-time $ 2.5 million pre-tax expense related to the acquisition of polonia bancorp which was completed as of january 1 , 2017 as well as a $ 1.9 million non-cash pre-tax charge-off associated with a large lending relationship . fiscal year 2018 results reflected the effect of a $ 1.8 million non-cash charge in the first quarter of the fiscal year related to the revaluation of the company 's deferred tax assets due to the enactment of the tax cuts and jobs act in december 2017 which significantly reduced the corporate income tax rate applicable to the company . 2017 vs. 2016. for the fiscal year ended september 30 , 2017 , the company recognized net income of $ 2.8 million , or $ 0.32 per diluted share , as compared to net income of $ 2.5 million , or $ 0.36 per diluted share for the fiscal year ended september 30 , 2016. the fiscal year 2017 results included a one-time $ 2.7 million pre-tax expense related to the polonia bancorp acquisition as well as a $ 1.9 million non-cash pre-tax charge-off associated with a large lending relationship . increased profitability for the year ended september 30 , 2017 was primarily attributable to an increase in net interest income . net interest income .
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additionally , estimated fair values are based , in part , upon outside appraisals for certain assets , including specifically-identified intangible assets . 57 fmc corporation notes to consolidated financial statements — ( continued ) the purchase price allocation was finalized as of story_separator_special_tag overview we are a diversified chemical company serving agricultural , consumer and industrial markets globally with innovative solutions , applications and market-leading products . we operate in three distinct business segments : fmc agricultural solutions , fmc health and nutrition and fmc lithium . our fmc agricultural solutions segment develops , markets and sells all three major classes of crop protection chemicals : insecticides , herbicides and fungicides . these products are used in agriculture to enhance crop yield and quality by controlling a broad spectrum of insects , weeds and disease , as well as in non-agricultural markets for pest control . the fmc health and nutrition segment focuses on nutritional ingredients , health excipients , and functional health ingredients . nutritional ingredients are used to enhance texture , color , structure and physical stability . health excipients are used for binding , encapsulation and disintegrant applications . functional health ingredients are used as active ingredients in nutraceutical and pharmaceutical markets . our fmc lithium segment manufactures lithium for use in a wide range of lithium products , which are used primarily in energy storage , specialty polymers and chemical synthesis application . 2016 highlights the following are the more significant developments in our businesses during the year ended december 31 , 2016 : revenue of $ 3,282.4 million in 2016 increased $ 5.9 million or approximately one percent versus last year . a more detailed review of revenues by segment is included under the section entitled “ results of operations ” . on a regional basis , sales in latin america decreas ed by 18 percent , sales in north america decreased two percent , sales in asia increased five percent and sales in europe , middle east and africa ( emea ) increased by 26 percent . our gross margin , excluding acquisition-related charges , of $ 1,199.8 million increased approximately $ 66.6 million or approximately six percent versus last year . gross margin as a percent of revenue is approximately 37 percent versus 35 percent in 2015 . the increase in gross margin was driven by improved pricing and mix in both brazil and north america in our fmc agricultural solutions business . selling , general and administrative expenses decreased 28 percent from $ 737.9 million to $ 529.5 million . in 2015 , we incurred significant acquisition related charges that occurred to a much lesser extent in 2016 accounting for the majority of the decrease . selling , general and administrative expenses , excluding non-operating pension and postretirement charges and acquisition-related charges , of $ 481.0 million increased $ 10.9 million or approximately two percent . non-operating pension and postretirement charges and acquisition-related charges are presented in our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . research and development expenses of $ 141.5 million decreased $ 2.2 million or two percent . the decrease was due to registration and regulatory timing within fmc agricultural solutions . net income attributable to fmc stockholders of $ 209.1 million decreased approximately $ 279.9 million from $ 489.0 million in the prior year period . adjusted after-tax earnings from continuing operations attributable to fmc stockholders of $ 379.8 million increased approximately $ 47.2 million or 14 percent due to higher results in fmc agricultural solutions and fmc lithium . see the disclosure of our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . other 2016 highlights in our fmc agricultural solutions business , we continue to see the benefits of the cheminova acquisition , which brought greater scale and regional balance to our business , improved our market access and expanded our product portfolio and technology pipeline . challenging market conditions specifically in the global crop protection market persisted throughout the year . during the quarter , as discussed above , our fmc agricultural solutions business had significantly improved operating results primarily due to improved performance in brazil which last year was significantly impacted by unfavorable foreign currency . in fmc health and nutrition , global demand for our naturally-derived ingredient product lines continues to be strong and we remain focused on protecting the business 's high margins through the implementation of manufacturing excellence programs , process technology improvements and product differentiation . however , the omega-3 business is having challenges due to the overcapacity in the industry . in the fourth quarter of 2016 , we commissioned our new mcc production facility in rayong , thailand , which will facilitate our ability to serve a growing nutrition market in asia . 21 in fmc lithium , we are seeing the benefits of our strategy to grow our business in the technology-driven specialty end markets , where demand continues to accelerate and pricing trends across our portfolio remain favorable . in may , we announced plans to triple our production capacity of lithium hydroxide to 30,000 metric tons by 2019 in order to meet growing demand from our key customers . in late october , we announced a supply agreement that will source 8,000 metric tons per year of lithium carbonate , beginning in mid-2018 . this agreement will help to support our hydroxide expansion . 2017 outlook despite continued challenging agricultural market conditions , we believe that our 2017 plan is very achievable . it relies on things we control rather than on expectations of positive external events . we expect to deliver segment earnings growth in each business and a reduction in income tax expense in 2017 as a result of the integration of cheminova . the strategy of each business is aligned with its respective market conditions . story_separator_special_tag management believes excluding these discrete tax items assists investors and securities analysts in understanding the tax provision and the effective tax rate related to ongoing operations thereby providing investors with useful supplemental information about fmc 's operational performance . in the discussion below , please refer to our chart titled `` segment results reconciliation '' within the results of operations section . all comparisons are between the periods unless otherwise noted . segment results for management purposes , segment operating profit is defined as segment revenue less segment operating expenses ( segment operating expenses consist of costs of sales and services , selling , general and administrative expenses ( `` sg & a '' ) and research and development expenses ( `` r & d '' ) . we have excluded the following items from segment operating profit : corporate staff expense , interest income and expense associated with corporate debt facilities and investments , income taxes , gains ( or losses ) on divestitures of businesses , restructuring and other charges ( income ) , non-operating pension and postretirement charges , investment gains and losses , loss on extinguishment of debt , asset impairments , last-in , first-out ( “ lifo ” ) inventory adjustments , acquisition/divestiture related charges , business separation costs and other income and expense items . information about how each of these items relates to our businesses at the segment level and results by segment are discussed below and in note 19 to our consolidated financial statements included in this form 10-k. fmc agricultural solutions replace_table_token_10_th 2016 vs. 2015 revenue of $ 2,274.8 million increased approximately one percent versus the prior year period . operating profit of $ 399.9 million increased approximately 10 percent compared to the year-ago period . refer to the fmc agricultural solutions pro forma financial results with cheminova section below for further discussion . for 2017 , full-year segment revenue is expected to be approximately $ 2.2 billion to $ 2.4 billion and full-year segment earnings are expected to be in the range of $ 410 million to $ 450 million . in europe , we expect our key markets to have increased demand compared to last year which could be somewhat unfavorably impacted by foreign currency . in north america , we expect challenging market conditions will continue in 2017 given elevated channel inventory levels , lower commodity prices , and cautious purchasing decisions by the growers . as a result , we expect the market in north america to be down in 2017. across asia , we expect market demand to increase slightly in 2017 assuming more normal weather conditions . in latin america , market conditions across the region are expected to be favorable , resulting in somewhat higher demand than 2016. however , foreign exchange headwinds could impact the region negatively . 2015 vs. 2014 revenue of $ 2,252.9 million increased approximately four percent versus the prior year period due to revenue from the cheminova acquisition on april 20 , 2015. operating profit of $ 363.9 million decreased approximately 27 percent compared to the year-ago period . this decline was primarily driven by market conditions and currency movements in brazil . fmc agricultural solutions pro forma financial results with cheminova in the second quarter of 2015 , we began to present pro forma combined results for the fmc agricultural solutions segment . we believe that reviewing our operating results by combining actual and pro forma results for the fmc 25 agricultural solutions segment for 2015 is more useful in identifying trends in , or reaching conclusions regarding , the overall operating performance of this segment . our pro forma segment information includes adjustments as if the cheminova transaction had occurred on january 1 , 2014. our pro forma data have also been adjusted for the effects of acquisition accounting but do not include adjustments for costs related to integration activities , cost savings or synergies that might have been achieved by the combined businesses . pro forma amounts presented are not necessarily indicative of what our results would have been had we operated cheminova since january 1 , 2014 , nor our future results . we believe that reviewing our operating results by combining actual and pro forma results for the fmc agricultural solutions segment for the periods set forth below is more useful in identifying trends in , or reaching conclusions regarding , the overall operating performance of the segment . replace_table_token_11_th _ ( 1 ) as reported amounts are the results of operations of fmc agricultural solutions , including the results of the cheminova acquisition from april 21 , 2015 onward . ( 2 ) cheminova pro forma amounts include the historical results of cheminova , prior to april 21 , 2015. these amounts also include adjustments as if the cheminova transaction had occurred on january 1 , 2014 , including the effects of acquisition accounting . the pro forma amounts do not include adjustments for expenses related to integration activities , cost savings or synergies that may have been or may be achieved by the combined segment . ( 3 ) the pro forma combined amounts are not necessarily indicative of what the results would have been had we acquired cheminova on january 1 , 2014 or indicative of future results . for the twelve months ended december 31 , 2016 , pro forma results and actual results are the same . replace_table_token_12_th 26 _ ( 1 ) the pro forma combined revenue by region amounts are not necessarily indicative of what the results would have been had we acquired cheminova on january 1 , 2014 or indicative of future results . for the twelve months ended december 31 , 2016 , pro forma revenues and actual revenues are the same . ( 2 ) decrease in the twelve months ended december 31 , 2016 was driven by unfavorable weather in both central and western europe .
| results of operations `` section of the management 's discussion and analysis . provision for income taxes a significant amount of our earnings is generated by our foreign subsidiaries ( e.g . denmark , ireland and hong kong ) , which tax earnings at lower rates than the united states federal statutory rate . our future effective tax rates may be materially impacted by numerous items including : a future change in the composition of earnings from foreign and domestic tax jurisdictions , as earnings in foreign jurisdictions are typically taxed at more favorable rates than the united states federal statutory rate ; accounting for uncertain tax positions ; business combinations ; expiration of statute of limitations or settlement of tax audits ; changes in valuation allowance ; changes in tax law ; and the potential decision to repatriate certain future foreign earnings on which united states taxes have not been previously accrued . replace_table_token_16_th _ ( 1 ) tax adjustments in 2016 were primarily associated with valuation allowance adjustments to u.s. state deferred tax balances . tax adjustments in 2015 were primarily associated with valuation allowance adjustments taken in our brazil subsidiaries . tax adjustments in 2014 were primarily associated with revisions to our tax liabilities associated with prior year tax matters . the primary drivers for the fluctuations in the effective tax rate from 2016 to 2015 and 2015 to 2014 are provided in the table above . excluding the items in the table above , the changes in the effective tax rate were primarily due to shifts in earnings mix as it relates to domestic versus foreign income . foreign profits are generally taxed at lower rates compared to domestic income . see note 11 to the consolidated financial statements for additional details related to the provisions for income taxes on continuing operations , as well as items that significantly impact our effective tax rate .
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story_separator_special_tag overview this management 's discussion and analysis of financial condition and results of operations is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes to the consolidated financial statements presented in `` financial statements and supplementary data , '' as well as the information contained in `` risk factors . '' 14 unless otherwise stated , the terms `` we , '' `` us , '' `` our '' and the `` company '' refer to campbell soup company and its consolidated subsidiaries . executive summary we are a manufacturer and marketer of high-quality , branded food and beverage products . we operate in a highly competitive industry and experience competition in all of our categories . we manage our businesses in three divisions focused mainly on product categories . the divisions , which represent our operating and reportable segments , are : americas simple meals and beverages ; global biscuits and snacks ; and campbell fresh . see `` business - reportable segments '' for a description of the products included in each segment . our goal is to be the leading health and well-being food company . guided by our purpose - real food that matters for life 's moments , we are pursuing this goal through a dual strategy of strengthening our core businesses while expanding into faster-growing spaces . we believe that this commitment to health and well-being will build shareholder value by driving sustainable , profitable net sales growth . industry trends our businesses are being influenced by a variety of trends that we anticipate will continue in the future , including : shifting demographics ; changing consumer preferences for food ; technological and digital advancements that are reshaping the retailer landscape and the consumer shopping experience ; and socioeconomic shifts . we believe millennials and generation z are replacing baby boomers as the key influencers of societal and cultural norms in the u.s. and are increasingly focused on health and well-being . we expect consumers to continue to seek products that they associate with health and well-being , including fresh , naturally functional and organic foods . while demanding products with these qualities , consumers also continue to gravitate toward store brands and value offerings . consumers are also changing their eating habits by increasing the type and frequency of snacks consumed . digital media and technology are changing the way consumers purchase food . although e-commerce represents only a small percent of total food sales , we anticipate it will accelerate rapidly through the growth of pure-play e-tailers , increased focus of brick and mortar retailers on e-commerce and the continued growth of meal delivery services . consumers are also increasingly using technology to customize their diets for their individual lifestyle , physiology and health goals . retailers continue to use their buying power and negotiating strength to seek increased promotional programs funded by their suppliers and more favorable terms . we expect consolidations among retailers will continue to create large and sophisticated customers that may further this trend . in addition , new and existing retailers continue to grow and promote store brands that compete with branded products . strategic imperatives we are responding to the above-described industry trends by continuing to focus on four strategic imperatives : building greater trust with consumers through real food , transparency and sustainability ; accelerating digital marketing and e-commerce efforts ; continuing to diversify our portfolio in fresh foods and health and well-being ; and increasing our presence in the faster-growing snacking category . building greater trust with consumers through real food , transparency and sustainability our goal is to strengthen the trust of our consumers and customers through real food . for example , we are in the process of removing artificial flavors and colors from certain of our products , increasing the use of vegetables and whole grains and transitioning to chicken with no antibiotics . we have also removed bisphenol a ( bpa ) from the lining of our u.s. and canadian soup cans . in addition , we recently entered into an agreement with the sage project to partner on customizable and digital labels for our products that include nutrition facts and product attributes . we also support and remain committed to mandatory national genetically modified organism labeling and implementation of the food and drug administration 's nutrition facts panel . our www.whatsinmyfood.com website promotes transparency by providing consumers with a wide range of details about how certain of our foods and beverages are made and the choices behind the ingredients we use in those products . accelerating digital marketing and e-commerce efforts we are responding to the growing consumer shift to digital and mobile technologies by investing in digital and e-commerce across our company with a goal of building industry-leading capabilities . we are working to increase the scale of our digital marketing capabilities using content , marketing technology and data analytics . we are building an experienced business team in north america to pursue these initiatives . we are also pursuing digital and e-commerce innovation with new business models and development of cross-portfolio e-commerce solutions . to support these efforts , we are developing a more flexible and cost effective 15 distribution system that we believe will position us well to grow with the expanding e-commerce market . we also plan to continue partnering with leading e-commerce companies , such as our recently announced partnership with a meal-delivery service . continuing to diversify our portfolio in fresh foods and health and well-being capitalizing on recent consumer and retailer trends , we are continuing to increase our portfolio 's commitment to fresh food and health and well-being through internal innovation , changes to recipes and our recent acquisitions . we expect to continue expanding our product offerings in key growth areas , such as in the packaged fresh category and with organic and clean label products . we are focusing on naturally functional foods by leveraging our vegetable and whole grain capabilities . story_separator_special_tag in 2017 , global biscuits and snacks sales increased 1 % reflecting a 1 % favorable impact from currency translation . excluding the favorable impact of currency translation , segment sales were comparable to the prior year as gains in pepperidge farm were offset by declines in kelsen , mostly in the u.s. , and in arnott 's in indonesia . pepperidge farm sales increased due to gains in goldfish crackers and in cookies , benefiting from new items , partly offset by declines in fresh bakery and frozen products . in 2016 , global biscuits and snacks sales decreased 3 % reflecting a 4 % negative impact from currency translation . excluding the negative impact of currency translation , segment sales increased primarily due to gains in goldfish crackers and arnott 's biscuits in australia , partially offset by declines in kelsen . in 2017 , campbell fresh sales decreased 5 % primarily due to lower sales of refrigerated beverages and carrots , partly offset by gains in refrigerated soup . the decrease in refrigerated beverages reflects the adverse impact of supply constraints related to enhanced quality processes following the voluntary recall of bolthouse farms protein plus drinks in june 2016. the carrot sales performance reflects the market share impact of quality and execution issues experienced in 2016 , as well as the adverse impact of weather conditions in the second quarter of 2017 . 19 in 2016 , campbell fresh sales increased 5 % primarily due to the acquisition of garden fresh gourmet , which was acquired on june 29 , 2015. excluding the acquisition , sales declined reflecting lower sales in carrots and carrot ingredients , partially offset by gains in refrigerated beverages and salad dressings . in 2016 , carrot sales performance primarily reflected the adverse impact of weather conditions on crop yields , and execution issues in response to those conditions , which led to customer dissatisfaction and a loss of business in the second half of the year . the increase in refrigerated beverages was primarily due to new product launches , partially offset by the impact of the voluntary recall of bolthouse farms protein plus drinks in june 2016. in 2016 , promotional spending was increased to remain competitive and to support new product launches . gross profit gross profit , defined as net sales less cost of products sold , increased by $ 279 million in 2017 from 2016 and decreased by $ 2 million in 2016 from 2015 . as a percent of sales , gross profit was 38.8 % in 2017 , 34.9 % in 2016 and 34.4 % in 2015 . the 3.9 percentage-point increase in gross profit percentage in 2017 and 0.5 percentage-point increase in gross profit percentage in 2016 were due to the following factors : replace_table_token_9_th ( 1 ) pension and postretirement benefit mark-to-market gains were $ 85 in 2017 and losses were $ 176 million in 2016 . ( 2 ) 2017 includes a positive margin impact of 1 point from cost savings initiatives . 2016 includes a positive margin impact of 0.6 points from cost savings initiatives . marketing and selling expenses marketing and selling expenses as a percent of sales were 10.4 % in 2017 , 11.2 % in 2016 and 10.9 % in 2015 . marketing and selling expenses decreased 9 % in 2017 from 2016 . the decrease was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year ( approximately 8 percentage points ) ; increased benefits from cost savings initiatives ( approximately 2 percentage points ) ; and lower incentive compensation costs ( approximately 1 percentage point ) , partially offset by higher selling expenses ( approximately 1 percentage point ) and inflation ( approximately 1 percentage point ) . marketing and selling expenses increased 1 % in 2016 from 2015 . the increase was due to increased losses on pension and postretirement benefit mark-to-market adjustments ( approximately 3 percentage points ) ; higher advertising and consumer promotion expenses ( approximately 2 percentage points ) ; lower marketing overhead expenses and lower selling expenses ( approximately 1 percentage point ) ; and inflation ( approximately 1 percentage point ) , partially offset by benefits from cost savings initiatives ( approximately 4 percentage points ) and the impact of currency translation ( approximately 2 percentage points ) . the increase in advertising and consumer promotion expenses in 2016 was primarily in global biscuits and snacks . administrative expenses administrative expenses as a percent of sales were 6.2 % in 2017 , 8.1 % in 2016 and 7.4 % in 2015 . administrative expenses decreased 24 % in 2017 from 2016 . the decrease was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year ( approximately 19 percentage points ) ; increased benefits from cost savings initiatives ( approximately 3 percentage points ) ; lower incentive compensation costs ( approximately 3 percentage points ) ; and lower costs related to the implementation of the new organizational structure and cost savings initiatives ( approximately 2 percentage points ) , partially offset by inflation ( approximately 2 percentage points ) and investments in long-term innovation ( approximately 1 percentage point ) . administrative expenses increased 7 % in 2016 from 2015 . the increase was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments ( approximately 7 percentage points ) ; higher costs related to the implementation of the new organizational structure and cost savings initiatives ( approximately 4 percentage points ) ; inflation ( approximately 2 percentage points ) ; and higher incentive compensation costs ( approximately 1 percentage point ) , partially offset by benefits from 20 cost savings initiatives ( approximately 6 percentage points ) and the impact of currency translation ( approximately 1 percentage point ) . research and development expenses research and development expenses decreased $ 26 million , or 21 % , in 2017 from 2016 .
| summary of results this summary of results provides significant highlights from the discussion and analysis that follows . net sales decreased 1 % in 2017 to $ 7.890 billion , primarily due to lower volume and increased promotional spending . gross profit , as a percent of sales , increased to 38.8 % from 34.9 % a year ago . the increase was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year , productivity improvements and increased benefits from cost savings initiatives , partially offset by higher supply chain costs and cost inflation , and higher promotional spending . administrative expenses decreased 24 % to $ 488 million from $ 641 million a year ago . the decrease was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year , increased benefits from cost savings initiatives , lower incentive compensation costs and lower costs related to the implementation of the new organizational structure and cost savings initiatives , partially offset by inflation and investments in long-term innovation . other expenses increased to $ 238 million in 2017 from $ 131 million in 2016 , primarily due to non-cash impairment charges of $ 212 million on the intangible assets of the bolthouse farms carrot and carrot ingredients reporting unit and the garden fresh gourmet reporting unit in 2017. in 2016 , we recorded a $ 141 million non-cash impairment charge on the intangible assets of the bolthouse farms carrot and carrot ingredients reporting unit , partially offset by a gain from the settlement of a claim related to the kelsen acquisition . the effective tax rate was 31.4 % in 2017 , compared to 33.7 % in 2016 .
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as of december 31 , 2014 there story_separator_special_tag the following information should be read in conjunction with the financial statements , including the notes thereto , included elsewhere in this form 10-k. this discussion contains certain forward-looking statements that involve risks and uncertainties . our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors , including , but not limited to , those set forth herein and elsewhere in this form 10-k. 48 overview we are focused on becoming the world leader in novel antibiotics against infectious disease . we also develop , market and sell proprietary oral cavity probiotics specifically designed to enhance oral health for humans and pets , under the brand names evora and probiora . our antibiotics members of our scientific team discovered that a certain bacterial strain produces mu1140 , a molecule belonging to the novel class of antibiotics known as lantibiotics . lantibiotics , such as mu1140 , are highly modified peptide antibiotics made by a small group of gram positive bacterial species . approximately 60 lantibiotics have been discovered since 1927 when the first lantibiotic , nisin , was discovered . we believe lantibiotics are generally recognized by the scientific community to be potent antibiotic agents . we have performed nonclinical testing on mu1140 , which has demonstrated the molecule 's novel mechanism of action . mu1140 has shown activity against all gram positive bacteria against which it has been tested , including those responsible for a number of healthcare associated infections , or hais . the most common hais are caused by drug-resistant bacteria , including methicillin-resistant staphylococcus aureus , or mrsa , vancomycin-resistant enterococcus faecalis , or vre ; and clostridium difficile , or c. diff . we believe the need for novel antibiotics is increasing as a result of the growing resistance of target pathogens to existing fda approved antibiotics on the market . the challenge presented by lantibiotics is that they have been difficult to investigate for their clinical usefulness as a therapeutic agent in the treatment of infectious diseases due to a general inability to produce or synthesize sufficient quantities of pure amounts of these molecules . standard fermentation methods are used to make a variety of currently marketed antibiotics . when traditional fermentation methods are used to make lantibiotics the result has historically been the production of only minute amounts of the lantibiotic . in order to meet the challenge associated with producing sufficient quantities of mu1140 for our clinical trials and ultimately our commercialization efforts , in june 2012 , we entered into an exclusive channel collaboration agreement ( the lantibiotic ecc ) with intrexon corporation ( intrexon ) for the development and commercialization of the native strain of mu1140 and related homologs using intrexon 's advanced transgene and cell engineering platforms . we continue to pursue our research and development and collaboration efforts with intrexon in accordance with the terms of the lantibiotic ecc toward the development of the mu1140 molecule and potential derivatives of the molecule . we commenced limited nonclinical activities on mu1140 developed under the lantibiotic ecc with intrexon in the second half of 2013. through our work with intrexon , we have been able to produce an exponential increase in the fermentation titer of the target compound mu1140 and the discovery of a new purification process for mu1140 . since then , our exclusive collaboration generated a substantial number of homologs of mu1140 , and we screened these homologs and found several candidates with either enhanced therapeutic profiles or different specificities against resistant bacteria from that of the parent compound , mu1140 . the decision to examine these new homologs of mu1140 meant we had to reproduce the fermentation and purification steps on at least 10-15 homologs . each homolog requires different optimizations for both the fermentation and purification steps and in many cases required a new approach . as such , our work on the development of new lantibiotic homologs using genetically modified bacteria continues . we are working with third party manufacturers to produce additional quantities of designated homologs , based upon the developments achieved from our work with intrexon and outside contractors . the production of additional quantities of designated homologs that are needed for the consummation and pursuit of our nonclinical testing activities supporting the pre-ind meeting is currently underway . we currently expect to have a pre investigational new drug ( ind ) meeting with the fda in the second half of 2015 and thereafter be in a position to file the ind for a first-in-human clinical study in 2016. we continue to work aggressively in the course of our research and development to meet these events . 49 our probiotic products we are marketing a variety of probiotic products that we developed . our probiotic products contain the active ingredient probiora3 , a patented blend of oral care probiotics that promote fresher breath , whiter teeth and support overall oral health . we have conducted scientific studies on probiora3 in order to market our products under self-affirmed generally recognized as safe status ( gras ) . we have historically sold our probiora3 products through multiple distribution channels . we continue to seek improvement in the performance of our oral care probiotics products , to better serve our customers , and we continue to evaluate new delivery systems , which we believe will enable us to deliver probiora3 to new markets and end-users . since initial commercialization of our probiora3 products we have attempted to improve market awareness and sales of our oral probiotic product line with limited success to date and we have reduced our marketing expenditures accordingly to focus more on lantibiotics . the allocation of limited financial resources between research and development of lantibiotics for our other product candidates and sale and marketing efforts for our probiora3 products , among other factors , resulted in our december 2014 announcement that we would seek to explore strategic alternatives for the probiotic business . story_separator_special_tag sales of our probiora3 products were $ 939,926 and $ 949,593 for the years ended december 31 , 2014 and 2013 , respectively . future increases in net revenue for our probiora3 products will depend on a number of factors , including our ability to successfully engage in marketing efforts related to our probiora3 products , which we have substantially scaled back . our marketing efforts for our probiora3 products have had limited success to date as revenues have not significantly increased from period to period . we continue to consider options for marketing our probiora3 products that can be cost-effective as we seek to manage the use of our cash resources relative to the research and development we are conducting for our other product candidates . we expect that our future revenues will fluctuate from quarter to quarter as a result of the volume of sales of our products and the amount of license fees , research and development reimbursements , milestone and other payments from any license or strategic partnerships we may enter into in the future . cost of goods sold our cost of goods sold includes the production and manufacture of our probiora3 products , as well as shipping and processing expenses and scrap expense . scrap expense represents product rework charges , inventory adjustments , inventory replacement reserves , and damaged inventory . because our probiora3 products contain live organisms they have a limited shelf life . as such , we attempt to manage the amount of production we request of our manufacturers and the amount of inventory we maintain . we expect our costs of goods sold to increase as we are able to expand our distribution and sales efforts for our probiora3 products . research and development expenses research and development consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of employee-related expenses , which include salaries and benefits and attending science conferences ; expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and a substantial portion of our nonclinical studies ; the cost of acquiring and manufacturing clinical trial materials ; facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance 51 of facilities and equipment , and depreciation of fixed assets ; license fees , for and milestone payments related to , in-licensed products and technology ; stock-based compensation expense ; and costs associated with nonclinical activities and regulatory approvals . we expense research and development costs as incurred . our research and development expenses can be divided into ( i ) clinical research , and ( ii ) nonclinical research and development activities . clinical research costs consist of clinical trials , manufacturing services , regulatory activities and related personnel costs , and other costs such as rent , utilities , depreciation and stock-based compensation . nonclinical research and development costs consist of our research activities , nonclinical studies , related personnel costs and laboratory supplies , and other costs such as rent , utilities , depreciation and stock-based compensation and research expenses we incur associated with our ecc agreements with intrexon . while we are currently focused on advancing our product development programs , our future research and development expenses will depend on the clinical success of our product candidates , as well as ongoing assessments of each product candidate 's commercial potential . in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans , research expenses and capital requirements . our research and development expenses were $ 3,065,053 and $ 9,358,957 for the years ended december 31 , 2014 and 2013 , respectively . included in research and development expense for 2013 is the non-cash expense of $ 6,000,000 associated with an up-front payment of a technology access fee , consisting of the issuance of 1,348,000 shares of our common stock to intrexon and the issuance of a convertible note to intrexon for $ 1,956,000 in connection with the establishment of the lbps ecc with intrexon . our current strategy is to increase our research and development expenses in the future as we continue the advancement of our clinical trials and nonclinical product development programs for our mu1140 product candidate and with respect to our lbps projects . the lengthy process of completing clinical trials ; seeking regulatory approval for our product candidates ; and expanding the claims we are able to make , requires expenditure of substantial resources . any failure or delay in completing clinical trials , or in obtaining regulatory approvals , could cause a delay in generating product revenues and cause our research and development expenses to increase and , in turn , have a material adverse effect on our operations . certain of our current product development candidates are not expected to be commercially available until we are able to obtain regulatory approval from the fda , which is not expected before 2017. our plan is to budget and manage expenditures in research and development such that they are undertaken in a cost-effective manner yet still advance the research and development efforts . while we have some control under our lantibiotic ecc and lbps ecc as to the planning and timing of the research and development and therefore the timing of when expenditures may be incurred for various phases of agreed upon projects , actual expenditures can vary from period to period . subject to available capital , we expect overall research and development expenses to fluctuate as our financial resources permit . our research and development projects are currently expected to be taken to the point where they can be licensed or partnered with larger pharmaceutical companies .
| results of operations : replace_table_token_4_th for the three months ended december 31 , 2014 and 2013 net revenues . we generated net revenues of $ 220,504 for the three months ended december 31 , 2014 compared to $ 434,784 in the same period in 2013 ; a decrease of $ 214,280. this decrease was attributable to a decrease in grant revenues of $ 59,463 reflecting the completion of the work related to the grant and a net decrease in probiora3 revenues of $ 154,818 relating primarily to the reversal in 2013 of accruals for estimated sales returns and allowances . there was no such accrual reversal in 2014. cost of sales . cost of sales were $ 90,521 for the three months ended december 31 , 2014 compared to $ 79,364 in the same period in 2013 ; an increase of $ 11,157. the increase was primarily attributable to a net increase in scrap expense . gross margin for the three months ended december 31 , 2014 was 68.1 % versus 69.0 % for the same period in 2013. research and development . research and development expenses were $ 548,227 for the three months ended december 31 , 2014 compared to $ 1,069,343 in the same period in 2013 ; a decrease of $ 521,116 , or 48.7 % . this decrease was primarily attributed to a net decrease in stock based compensation costs of $ 239,880 which was primarily related to awards under the 2012 equity incentive plan allocated to research and development , and a net decrease in costs associated with our lantibiotic development of $ 328,310 . 56 selling , general and administrative . selling , general and administrative expenses were $ 811,928 for the three months ended december 31 , 2014 compared to $ 2,359,450 in the same period in 2013 ; a decrease of $ 1,547,522 , or 65.6 % .
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the company 's operating expenses primarily consist of employee compensation and benefits , premises and occupancy expenses , and other general expenses . the company 's results of operations are also affected by prevailing economic conditions , competition , government policies and other actions of regulatory agencies . critical accounting policies and estimates we have established various accounting policies that govern the application of accounting principles generally accepted in the united states of america in the preparation of the company 's financial statements in item 8 hereof . the company 's significant accounting policies are described in the note 1 to the consolidated financial statements . certain accounting policies require management to make estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities ; management considers these to be critical accounting policies . the estimates and assumptions management uses are based on historical experience and other factors , which management believes to be reasonable under the circumstances . actual results could differ significantly from these estimates and assumptions , which could have a material impact on the carrying value of assets and liabilities at balance sheet dates and the company 's results of operations for future reporting periods . we consider the allowance for loan losses and the determination of the other-than-temporary impairment ( “ otti ” ) of investment securities to be a critical accounting policy that requires judicious estimates and assumptions in the preparation of the company 's financial statements that is particularly susceptible to significant change . for further information on the allowance for loan losses , see “ business—allowances for loan losses ” and note 1 to the consolidated financial statements in item 8 hereof . for further information on otti of investment securities , see “ business—investment activities ” and note 1 to the consolidated financial statements in item 8 hereof . allowance for loan losses the company maintains an allowance for loan losses at a level deemed appropriate by management to provide for known or inherent risks in the portfolio at the balance sheet date . the company has implemented and adheres to an internal asset review system and loss allowance methodology designed to provide for the detection of problem assets and an adequate allowance to cover loan losses . management 's determination of the adequacy of the loan loss allowance is based on an evaluation of the composition of the portfolio , actual loss experience , industry charge-off experience on income property loans , current economic conditions , and other relevant factors in the area in which the company 's lending and real estate activities are based . these factors may affect the borrowers ' ability to pay and the value of the underlying collateral . the allowance is calculated by applying loss factors to loans held for investment according to loan program type and loan classification . the loss factors are established based primarily upon the bank 's historical loss experience and the industry charge-off experience and are evaluated on a quarterly basis . various regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses . such agencies may require the bank to recognize additions to the allowance based on judgments different from those of management . in the opinion of management , and in accordance with the credit loss allowance methodology , the present allowance is considered adequate to absorb estimable and probable credit losses . additions and reductions to the allowance are reflected in current operations . charge-offs to the allowance are made when specific assets are considered uncollectible or are transferred to oreo and the fair value of the property is less than the loan 's recorded investment . recoveries are credited to the allowance . although management uses the best information available to make these estimates , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions that may be beyond the company 's control . other-than-temporary impairment of investment securities the company has investment securities classified available for sale . under the available for sale classification , securities can be sold in response to certain conditions , such as changes in interest rates , fluctuations in deposit levels or loan demand or need to restructure the portfolio to better match the maturity of interest rate characteristics of liabilities with assets . securities classified as available for sale are accounted for at their current fair value . unrealized holding gains and losses , net of tax , are excluded from earnings and reported as a separate component of stockholders ' equity as accumulated other comprehensive income . at each reporting date , investment securities available for sale are assessed to determine whether there is otti . if it is probable that the company will be unable to collect all amounts due from the contractual terms of a debt security , otti is charged to operations with a corresponding write down to the fair value of the security . these related write downs are included in operations as realized losses in the category of otti loss on investment securities , net . in estimating otti losses , management considers : ( i ) the length of time and the extent to which the market value has been less than cost ; ( ii ) the financial condition and near-term prospects of the issuer ; ( iii ) the intent and ability of the company to retain its investment in a security for a period of time sufficient to allow for any anticipated recovery in market value ; and ( iv ) general market conditions which reflect prospects for the economy as a whole , including interest rates and sector credit spreads . story_separator_special_tag the prolonged sluggish economic conditions in the markets in which we lend continue to adversely affect our borrowers and their businesses and , consequently , the collateral securing our loans and played a significant part in determining the amount to provision for an adequate level of allowance for loan losses at december 31 , 2011. during 2010 , the provision for loan losses totaled $ 2.1 million , down from $ 7.7 million in 2009. net loan charge-offs amounted to $ 2.1 million in 2010 , down from $ 4.7 million in 2009. our charge-off history and strong credit quality metrics within our loan portfolio were significant factors in estimating the adequacy of our allowance for loan losses during 2010 and our ultimate determination to record a lower provision in 2010 versus 2009. the loan charge offs we experienced in 2010 were in response to uncertain and weak economic conditions . noninterest income ( loss ) . for 2011 , our noninterest income totaled $ 6.5 million , compared with a loss of $ 1.1 million in 2010. the favorable change of $ 7.6 million reflected a bargain purchase gain of $ 4.2 million on the canyon national acquisition and increases in deposit fee income of $ 1.4 million , loan servicing fee income of $ 660,000 , other income of $ 596,000 , gain on the sale of investment securities available for sale of $ 569,000 and an improvement in other-than-temporary impairment loss on investment securities of $ 470,000 , partially offset by an increase in loss on the sale of loans of $ 273,000. increases in deposit fee , servicing fee and other income categories were primarily related to the canyon national acquisition . for 2010 , our noninterest loss totaled $ 1.1 million , compared with noninterest income of $ 697,000 in 2009. the unfavorable change was primarily related to higher losses on the sales of loans of $ 3.0 million , partially offset by an improvement in otti charges of $ 943,000 and higher gains on sales of investment securities available for sale of $ 333,000 in 2010. the losses on sales of loans in 2010 were essentially all from the sale of $ 14.6 million of sub-performing and nonperforming loans included in loan sales . the otti charges in 2010 of $ 1.1 million and 2009 of $ 2.0 million were all on private label securities received by the company when it redeemed its shares in two mutual funds in 2008. noninterest expense . for 2011 , noninterest expense totaled $ 26.9 million , up $ 8.0 million or 42.0 % from 2010. with the exception of our fdic insurance premiums , all expense categories increased in 2011 as compared to 2010 and included increases in compensation and benefits costs of $ 4.7 million , primarily from an increase in employee count and termination costs ; other expenses of $ 941,000 ; premises and occupancy expense of $ 878,000 ; data processing and communications expense of $ 613,000 ; and marketing expense of $ 501,000. these expense increases almost entirely related to the canyon national acquisition and were partially offset by lower fdic insurance premiums of $ 449,000 , primarily due to the improvement in our assessment rate during the third quarter of 2011. for 2010 , noninterest expense totaled $ 18.9 million , up $ 2.3 million or 13.5 % from 2009. the increase was due primarily to an increase in oreo operations costs of $ 998,000 from higher losses on sales of $ 489,000 and writedowns of $ 380,000 ; an increase in compensation and benefits costs of $ 436,000 , primarily from annual incentive costs and an increase in employee count ; an increase in legal and audit fees of $ 337,000 , primarily from loan workouts ; an increase in office and postage expenses of $ 235,000 ; and an increase in data processing and communication costs of $ 173,000. income taxes . the company recorded income taxes of $ 6.4 million in 2011 , compared with $ 2.1 million in 2010 and a tax benefit for income taxes of $ 87,000 in 2009. our effective tax rate was 37.7 % for 2011 , 33.0 % for 2010 and tax benefit rate of 15.9 % for 2009. the effective tax rate in each year is affected by various items , including enterprise zone net interest deductions , interest expense related to payments of prior year taxes , and adjustments to income tax reserves related to management 's favorable assessment of our income tax exposure . the net impact of these items was an expense reduction of $ 577,000 in 2011 , $ 401,000 in 2010 and $ 40,000 in 2009. see note 11 to the consolidated financial statements included in item 8 hereof for further discussion of income taxes and an explanation of the factors which impact our effective tax rate . financial condition as a result of the canyon national acquisition , the bank acquired and received certain assets with a fair value of approximately $ 208.9 million , including $ 149.7 million of loans , $ 16.1 million of a fdic receivable , $ 13.2 million of cash and cash equivalents , $ 12.8 million of investment securities , $ 12.0 million of oreo , $ 2.3 million of a core deposit intangibles , $ 1.5 million of other assets and $ 1.3 million of fhlb and federal reserve bank stock . liabilities with a fair value of approximately $ 206.6 million were also assumed , including $ 204.7 million of deposits , $ 1.9 million in deferred tax liability and $ 39,000 of other liabilities .
| operating results overview . the company reported net income for 2011 of $ 10.6 million or $ 0.99 per share on a diluted basis , compared with a net income of $ 4.2 million or $ 0.38 per share on a diluted basis for 2010 and net loss of $ 460,000 or $ 0.08 per share on a diluted basis for 2009. the company 's pre-tax income totaled $ 17.0 million in 2011 , compared with a pre-tax income of $ 6.3 million in 2010. the $ 10.7 million increase in the company 's pre-tax income for 2011 , compared to 2010 was primarily related to the canyon national acquisition from the fdic , as receiver , and included : a $ 12.2 million increase in net interest income due to a higher net interest margin and a higher level of interest earning assets ; and a $ 7.6 million favorable change in noninterest income ( loss ) , primarily due to a $ 4.2 million gain on acquisition and a $ 1.4 million increase in deposit fee income . partially offsetting the above favorable items were the following : a $ 8.0 million increase in noninterest expense , primarily associated with higher costs related to compensation of $ 4.7 million , other expense of $ 941,000 and premises and occupancy of $ 878,000 ; and a $ 1.2 million increase in provision for loan losses . the company 's pre-tax income totaled $ 6.3 million in 2010 , compared with a pre-tax loss of $ 547,000 in 2009. the $ 6.8 million increase in the company 's pre-tax income for 2010 compared to 2009 was primarily due to a $ 5.6 million decrease in provision for loan losses due to improved loan credit quality and a $ 5.3 million increase in net interest income due to a higher net interest margin and a higher level of interest earning assets .
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no dividends to series c preferred stockholders were issued or unpaid through december 31 , 2016. on december 4 , 2008 , the company entered into and closed an agreement ( the “ bristol agreement ” ) with bristol investment fund , ltd. pursuant to which bristol agreed to cancel the debt payable by the company to bristol in the amount of approximately $ 20,000 in consideration of the company issuing bristol 25,000 shares of series g convertible preferred stock , which such shares carry a stated value equal to $ 1.00 per share ( the “ series g stock ” ) . the series g stock is convertible , at any time at the option of the holder , into common shares of the company based on a conversion price equal to the lesser of $ 2.50 or 60 % of the average of the three lowest trading prices occurring at any time during the 20 trading days preceding the conversion . the series g stock , as amended , shall have voting rights on an as converted basis multiplied by 100. in the event of any liquidation or winding up of the company , the holders of series g stock will be entitled to receive , in preference to holders of common stock , an amount equal to the stated value plus interest of 15 % per year . the series g stock restricts the ability of the holder to convert the series g stock and receive shares of the company 's common stock such that the number of shares of the company common stock held by bristol and its affiliates after such conversion does not exceed 4.9 % of the company 's then issued and outstanding shares of common stock . on october 13 , 2009 the company was informed by theorem group , llc that it had purchased all of the outstanding series g preferred stock and theorem gave notice to the company that it intended to exercise its ability to vote on all shareholder matters utilizing the super voting privileges provided by the series g stock . effective february 10 , 2010 , the company issued 25,000 shares of its new series h convertible preferred stock ( the “ series h preferred ” ) to theorem group , llc , a california limited liability company ( the “ stockholder ” ) , in exchange for the 25,000 shares of series g stock then owned by the stockholder . the foregoing exchange was effected pursuant to that certain exchange agreement , dated february 10 , 2010 , between the company and the stockholder ( the “ exchange agreement ” ) . the certificate of designation of the series h preferred is based on , and substantially similar to the form and substance of the certificate of designation of the series g preferred . some of the corrections , changes and differences between the certificate of designation of the series g preferred and the certificate of designation of the series h preferred include the following : ● as previously disclosed , the holder of the series h preferred is entitled to vote with the common stock , and is entitled to a number of votes equal to ( i ) the number of shares of common stock it can convert into ( without any restrictions or limitations on such conversion ) , ( ii ) multiplied by 100 . ● the holder of the series h preferred can not convert such preferred stock into shares of common stock if the holder and its affiliates after such conversion would own more than 9.9 % of the company 's then issued and outstanding shares of story_separator_special_tag overview until the end of 2008 , we were engaged in the business of developing and selling clinical and research assay products and out-licensing certain therapeutic compounds addressing conditions and diseases associated with oxidative stress . during 2008 , we lost our majority-owned subsidiary , biocheck , inc. , which was engaged in the production of enzyme immunoassay diagnostic kits for clinical laboratories , and in december 2008 we sold substantially all of the assets of our research assay product line to percipio biosciences , inc. commencing in 2009 , our focus shifted from the clinical and research assay business to developing and marketing nutraceutical products in the field of oxidative stress reduction , with a focus on products that include egt as a component . we conducted limited operations , and had limited revenues from these products in 2013 and in 2014. in july 2014 , we began pursuing the acquisition of novel therapeutics from various educational and research institutions . as shown in the accompanying consolidated financial statements , the company has incurred an accumulated deficit of $ 124,649,000 through december 31 , 2016 . on a consolidated basis , the company had cash and cash equivalents of $ 19,000 at december 31 , 2016 . because our lack of funds , we will have to raise additional capital in order to fund our selling , general and administrative , and research and development expenses . there are no assurances that we will be able to raise the funds necessary to maintain our operations or to implement our business plan . the consolidated financial statements included in this annual report do not include any adjustments relating to the recoverability and classification of recorded assets , or the amounts and classification of liabilities that might be necessary in the event we can not continue our operations . recent developments license agreements pursuant to a patent license agreement with the id4 , dated december 31 , 2014 , we received a non-exclusive , worldwide license to certain intellectual property , including intellectual property related to treating a p62-mediated disease ( e.g. , multiple myeloma ) . story_separator_special_tag on march 10 , 2015 , oxis licensed exclusive rights to three antibody-drug conjugates ( adcs ) that mcit will prepare for further evaluation by oxis as prospective therapeutics for the treatment of triple-negative breast cancer , and multiple myeloma and associated osteolytic bone disease . under the terms of the agreement , mcit will develop three adc product candidates which contain oxis ' lead drug candidates oxs-2175 and oxs-4235 . oxis executed an exclusive worldwide license agreement with daniel a. vallera , ph.d. and his associate ( jointly `` dr. vallera '' ) , to further develop and commercialize dt2219arl ( oxs-1550 ) , a novel therapy for the treatment of various human cancers . under the terms of the agreement , oxis receives exclusive rights to conduct research and to develop , make , use , sell , and import dt2219arl worldwide for the treatment of any disease , state or condition in humans . oxis shall own all permits , licenses , authorizations , registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as dt2219arl , including without limitation the food and drug administration in the united states and the european agency for the evaluation of medicinal products in the european union . under the agreement , dr. vallera will receive an upfront license fee , royalty fees , and certain milestone payments . 12 in july 2016 , oxis executed an exclusive worldwide license agreement with the regents of the university of minnesota , to further develop and commercialize cancer therapies using trispecific killer engager ( trike ) technology developed by researchers at the university to target nk cells to cancer . under the terms of the agreement , oxis receives exclusive rights to conduct research and to develop , make , use , sell , and import trike technology worldwide for the treatment of any disease , state or condition in humans . oxis shall own all permits , licenses , authorizations , registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as the trike technology , including without limitation the food and drug administration in the united states and the european agency for the evaluation of medicinal products in the european union . under the agreement , the university of minnesota will receive an upfront license fee , royalty fees , and certain milestone payments . financing in january 2016 , the company entered into a securities purchase agreement with one accredited investor to sell 10 % convertible debentures , with and an exercise price of $ 1.25 , with an initial principal balance of $ 150,000 and warrants to acquire up to 80,000 shares of the company 's common stock at an exercise price of $ 1.25 per share . in may 2016 , the company entered into a securities purchase agreement with twenty accredited investors to sell 10 % convertible debentures , with and an exercise price of $ 0.40 , with an initial principal balance of $ 1,390,044 and warrants to acquire up to 3,475,111 shares of the company 's common stock at an exercise price of $ 0.45 per share . in july 2016 , the company entered into a securities purchase agreement with one accredited investor to sell 10 % convertible debentures , with and an exercise price of $ 0.40 , with an initial principal balance of $ 112,135 and warrants to acquire up to 280,338 shares of the company 's common stock at an exercise price of $ 0.45 per share . in august 2016 , the company entered into a securities purchase agreement with one accredited investor to sell 10 % convertible debentures up $ 1,000,000 , with and an exercise price of $ 0.40 , with an initial principal balance of $ 250,000 and warrants to acquire up to 2,500,000 shares of the company 's common stock at an exercise price of $ 0.45 per share . in january 2017 , the company entered into a securities purchase agreement with eight accredited investors to sell 10 % convertible debentures with and an exercise price of the lesser of ( i ) $ 0.05 or ( ii ) the average of the three ( 3 ) lowest intra-day trading prices of the common stock during the 20 trading days immediately prior to the date on which the notice of conversion is delivered to the company , with an initial principal balance of $ 633,593 and warrants to acquire up to 12,671,860 shares of the company 's common stock at an exercise price of $ 0.05 per share . in march 2017 , the company entered into a securities purchase agreement with two accredited investors to sell 10 % convertible debentures with and an exercise price of the lesser of ( i ) $ 0.05 or ( ii ) the average of the three ( 3 ) lowest intra-day trading prices of the common stock during the 20 trading days immediately prior to the date on which the notice of conversion is delivered to the company , with an initial principal balance of $ 232,313 and warrants to acquire up to 4,646,260 shares of the company 's common stock at an exercise price of $ 0.05 per share . story_separator_special_tag margin-right : 0px ; text-indent : 0px '' > long-lived assets our long-lived assets include property , plant and equipment , capitalized costs of filing patent applications and goodwill and other assets . we evaluate our long-lived assets for impairment in accordance with sfas no . 144 , “ accounting for the impairment or disposal of long-lived assets ” whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . estimates of future cash flows and timing of events for evaluating long-lived assets for impairment are based upon management
| results of operations research and development expenses during the year ended december 31 , 2016 and 2015 , we incurred $ 975,000 and $ 1,000,000 of research and development expenses . selling , general and administrative expenses during the year ended december 31 , 2016 and 2015 , we incurred $ 8,399,000 and $ 7,954,000 of selling , general and administrative expenses . the increase in selling , general and administrative expenses is primarily attributable to an increase in professional fees , license fees and stock compensation . 13 change in value of warrant and derivative liabilities during the year ended december 31 , 2016 , we recorded a gain as a result of a decrease in the fair market value of outstanding warrants and beneficial conversion features of $ 36,962,000 , compared to a loss of $ 6,760,000 during the year ended december 31 , 2015. this increase is a result of a decrease in the fair market value of outstanding debt and equity securities accounted for as derivative liabilities and the conversion of warrants to common stock . interest expense interest expense was $ 6,555,000 and $ 17,039,000 for the year ended december 31 , 2016 and 2015 respectively .
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for the majority of our arrangements , a customer source inspection of the system is performed in our facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery . historically , such source inspection or test data replicates the field acceptance provisions that will be performed at the customer 's site prior to final acceptance of the system . as such , we story_separator_special_tag story_separator_special_tag ze:10.0pt ; '' > our book-to-bill ratio for 2013 , which is calculated by dividing orders recorded in a given time period by revenue recognized in the same time period , was 1 to 1 compared to 0.76 to 1 in 2012. our backlog as of december 31 , 2013 was $ 143.3 million , compared to $ 150.2 million as of december 31 , 2012. during the year ended december 31 , 2013 , we recorded backlog adjustments of approximately $ 6.8 million , consisting of a $ 5.6 million adjustment related to orders that no longer met our bookings criteria as well as an adjustment related to foreign currency translation of $ 1.2 million . for certain sales arrangements we require a deposit for a portion of the sales price before shipment . as of december 31 , 2013 and 2012 , we had customer deposits of $ 27.5 million and $ 32.7 million , respectively . 30 gross profit replace_table_token_8_th led & solar gross margins decreased primarily due to lower average selling prices , reduced volume and fewer final acceptances partially offset by cost reductions associated with reduced volumes and reduced expenses in 2013 for slow moving inventory items . data storage gross margins decreased primarily due to a significant reduction in volume . operating expenses replace_table_token_9_th selling , general and administrative expenses increased primarily from professional fees associated with our review of our revenue accounting that began in 2012 and completed in october 2013 , partially offset by a reduction in bonus and profit sharing expense and increased cost control measures put into place in response to weak market conditions , which resulted in lower personnel-related costs and discretionary expenses . the addition of our ald business in the fourth quarter of 2013 has also contributed to an increase in our selling , general and administrative expenses . replace_table_token_10_th research and development expense decreased as we sharpened our focus on product development in areas of anticipated high-growth . we selectively funded certain product development activities which resulted in reduced spending for project materials and professional consultants as well as lower personnel and personnel-related costs . replace_table_token_11_th amortization expense increased primarily due to additional amortization associated with intangible assets acquired as part of our acquisition of synos during the fourth quarter of 2013 , partially offset by certain intangible assets becoming fully amortized . 31 replace_table_token_12_th during 2013 , we recorded $ 1.5 million in personnel severance and related costs principally resulting from the transition from a direct sales presence to a distributor in one of our international sales offices and the consolidation of certain sales , business and administrative functions . during 2012 , we took measures to improve profitability , including a reduction in discretionary expenses , realignment of our senior management team and consolidation of certain sales , business and administrative functions . as a result of these actions , we recorded a restructuring charge in 2012 consisting of $ 3.0 million in personnel severance and related costs , $ 0.4 million in equity compensation and related costs and $ 0.4 million in other severance costs resulting from a headcount reduction of 52 employees . replace_table_token_13_th during 2013 , we recorded asset impairment charges in led & solar of $ 0.9 million related to certain lab tools carried in property , plant and equipment which we are holding for sale and $ 0.3 million related to another asset carried in other assets . during 2012 , we recorded an asset impairment charge related to a license agreement in our data storage segment . income taxes replace_table_token_14_th * not meaningful the 2013 net benefit for income taxes included a $ 3.5 million provision relating to our foreign operations and $ 32.4 million benefit relating to our domestic operations . the 2012 provision for income taxes included $ 8.3 million relating to our foreign operations and $ 3.4 million relating to our domestic operations . our 2013 effective tax rate is higher than the statutory rate as a result of the jurisdictional mix of earnings in our foreign locations , an income tax benefit related to the generation of current year research and development tax credits and legislation enacted in the first quarter of 2013 which extended the federal research and development credit for both the 2012 and 2013 tax years . during the fourth quarter of 2012 , we determined that we may not meet the criteria required to receive a certain incentive tax rate pursuant to a negotiated tax holiday in one foreign jurisdiction . although we are continuing to negotiate the criteria for the incentive , for financial reporting purposes we have recorded additional tax provisions of $ 0.9 million and $ 4.0 million in 2013 and 2012 , respectively , totaling $ 4.9 million , which represents the cumulative effect of calculating the tax provision using the incentive tax rate as compared to the foreign country 's statutory rate . if we successfully renegotiate the incentive criteria , this additional tax provision could be reversed as a future benefit in the period in which the negotiations are finalized . during 2012 , we recorded an income tax expense of $ 1.9 million related to discontinued operations , with no comparable amount in 2013. in addition , we recorded a current tax benefit of $ 2.1 million related to equity-based compensation in 2012 for which no current tax benefit was recorded in 2013 . story_separator_special_tag these reductions in workforce included executives , management , administration , sales and service personnel and manufacturing employees companywide . replace_table_token_23_th during 2012 , we recorded an asset impairment charge related to a license agreement in our data storage segment . during 2011 , we recorded an asset impairment charge for property , plant and equipment related to the discontinuance of a certain product line in our led & solar segment . interest income ( expense ) , net replace_table_token_24_th * not meaningful interest income , net for 2012 was comprised of $ 2.5 million in cash interest income , partially offset by $ 0.2 million in cash interest expense and $ 1.3 million in non-cash interest expense relating to net amortization of our short-term investments . interest expense , net for 2011 was comprised of $ 1.4 million in cash interest expense , $ 1.9 million in non-cash interest expense relating to net amortization of our short-term investments and $ 1.3 million in non-cash interest expense relating to our convertible debt , which was retired during the first half of 2011 creating a loss on extinguishment of approximately $ 3.3 million . interest expense in 2011 was partially offset by $ 3.8 million in interest income earned on our cash and short-term investment balances . the non-cash interest expense is related to accounting rules that requires a portion of convertible debt to be allocated to equity in 2011 and accretion of debt discounts and amortization of debt premiums related to our short-term investments in 2012 and 2011 . 37 income taxes replace_table_token_25_th the 2012 provision for income taxes included $ 8.3 million relating to our foreign operations and $ 3.4 million relating to our domestic operations . the 2011 provision for income taxes included $ 9.6 million relating to our foreign operations and $ 72.0 million relating to our domestic operations . our 2012 effective tax rate is lower than the statutory rate as a result of the jurisdictional mix of earnings in our foreign locations and other favorable tax benefits including the domestic production activities deduction and an adjustment for the research and development credit related to the filing of our 2011 federal income tax return . during the fourth quarter of 2012 , we determined that we may not meet the criteria required to receive a certain incentive tax rate pursuant to a negotiated tax holiday in one foreign jurisdiction . although we are continuing to negotiate the criteria for the incentive , for financial reporting purposes we have recorded an additional tax provision of $ 4.0 million which represents the cumulative effect of calculating the tax provision using the incentive tax rate as compared to the foreign country 's statutory rate . as such amount is not expected to be paid within twelve months , we have recorded the $ 4.0 million as a long term taxes payable . if we successfully renegotiate the incentive criteria , this additional tax provision could be reversed as a future benefit in the period in which the successful negotiations are finalized . during 2012 , we recorded an income tax expense of $ 1.9 million related to discontinued operations compared to the $ 29.4 million income tax benefit from discontinued operations in the prior year which was reported in accordance with the intraperiod tax allocation provisions . in addition , we recorded a current tax benefit of $ 2.1 million related to equity-based compensation which was a credit to additional paid in capital compared to $ 10.4 million tax benefit recorded in the prior year . discontinued operations replace_table_token_26_th * not meaningful discontinued operations represent the results of the operations of our disposed metrology segment , which was sold to bruker on october 7 , 2010 , and our cigs solar systems business , which was discontinued on september 27 , 2011 , reported as discontinued operations . the 2012 results included a $ 1.4 million gain ( $ 1.1 million net of taxes ) on the sale of the assets of discontinued segment held for sale and a $ 5.4 million gain ( $ 4.1 million net of taxes ) associated with the closing of the china assets with bruker . the 2011 results reflect an operational loss before taxes of $ 1.6 million related to the metrology segment and an operational loss before taxes of $ 90.3 million related to the cigs solar systems business . liquidity and capital resources as of december 31 , 2013 and 2012 , we had cash and cash equivalents of $ 210.8 million and $ 384.6 million , respectively , of which $ 150.6 million and $ 128.0 million , respectively , were held outside the united states . liquidity is affected by many factors , some of which are based on normal ongoing operations of our business and some of which arise from fluctuations related to global economics and markets . cash balances are generated and held in many locations throughout the world . it is our current intent to permanently reinvest our funds from singapore , china , taiwan , south korea , and malaysia outside of the united states and our current plans do not demonstrate a need to repatriate them to fund our united states operations . as of december 31 , 2013 , we had $ 115.0 million in cash held offshore on which we would have to pay significant united states income taxes to repatriate in the event that we need the funds for our operations in the united 38 states . additionally , local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances . we currently do not expect such regulations and restrictions to impact our ability to make acquisitions , pay vendors , or conduct operations throughout the global organization .
| executive summary veeco instruments inc. ( together with its consolidated subsidiaries , veeco , the company , we , us , and our , unless the context indicates otherwise ) creates process equipment that enables technologies for a cleaner and more productive world . we design , manufacture and market equipment primarily sold to make leds and hard-disk drives , as well as for concentrator photovoltaics , power semiconductors , wireless components , and micro-electro-mechanical systems ( mems ) . veeco develops highly differentiated , best-in-class process equipment for critical performance steps . our products feature leading technology , low cost-of-ownership and high throughput . core competencies in advanced thin film technologies , over 300 patents , and decades of specialized process know-how helps us to stay at the forefront of these demanding industries . veeco 's led & solar segment designs and manufactures metal organic chemical vapor deposition ( mocvd ) and molecular beam epitaxy ( mbe ) systems and components sold to manufacturers of leds , wireless components , power semiconductors , and concentrator photovoltaics , as well as for r & d applications . our ald technology is used by the manufacturers of oled displays and has further applications in the semiconductor and solar markets . veeco 's data storage segment designs and manufactures systems used to create thin film magnetic heads ( tfmhs ) that read and write data on hard disk drives . these include ion beam etch , ion beam deposition , diamond-like carbon , physical vapor deposition , chemical vapor deposition , and slicing , dicing and lapping systems . while our systems are primarily sold to hard drive customers , they also have applications in optical coatings , mems and magnetic sensors , and extreme ultraviolet ( euv ) lithography . as of december 31 , 2013 , veeco had approximately 800 employees to support our customers through product and process development , training , manufacturing , and sales and service sites in the u.s. , south korea , taiwan , china , singapore , japan , europe and other locations .
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services commenced on the date the securities were first listed on nasdaq and will terminate upon the earlier of the consummation by the company of a business combination or the liquidation of the company . for the period commencing august 3 , 2020 through december 31 , 2020 the company has paid the affiliate $ 96,774 . 5. deferred underwriting compensation the company is committed to pay a deferred underwriting discount totaling $ 18,375,000 or 3.50 % of the gross offering proceeds of the public offering , to the underwriter upon the company 's consummation of a business combination . the underwriter is not entitled to any interest accrued on the deferred discount , and no deferred discount is payable to the underwriter if there is no business combination . 6. income taxes effective tax rate reconciliation a reconciliation of the statutory federal income tax expense to the income tax expense from continuing operations provided at december 31 , 2020 as follows : from june 25 , 2020 ( inception ) to december 31 , 2020 income tax expense at the federal statutory rate $ ( 172,983 ) state income taxes - net of federal income tax benefits ( 30,882 ) change in valuation allowance 30,882 total income tax expense/ ( benefit ) $ ( 172,983 ) current/deferred taxes from june 25 , 2020 ( inception ) to december 31 , 2020 current income tax expense federal $ - state - total current income tax expense $ - deferred income tax expense federal $ ( 172,983 ) state — total deferred income tax expense $ ( 172,983 ) provision for income taxes $ ( 172,983 ) the provision for income taxes consisted of the following for the period ended december 31 , 2020 : deferred tax assets and liabilities significant components of the company 's deferred tax assets and liabilities as of december 31 , 2020 : 74 replace_table_token_4_th 7. investments and cash held in trust as of december 31 , 2020 , investment securities in the company 's trust account consist of $ 525,020,571 in money market funds . 8. fair value measurement the company complies with fasb asc 820 , fair value measurements , for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period , and non-financial assets and liabilities that are re-measured and reported at fair value at least annually . asc 820 determines fair value to be the price that would be received to sell an asset or would be paid to transfer a liability ( i.e . , the exit price ) in an orderly transaction between market participants at the measurement date . the following table presents information about the company 's assets that are measured at fair value on a recurring basis as of december 31 , 2020 and indicates the fair value hierarchy of the valuation techniques the company utilized to determine such fair value . in general , fair values determined by level 1 inputs utilize quoted prices ( unadjusted ) in active markets for identical assets or liabilities . fair values determined by level 2 inputs utilize data points that are observable such as quoted prices , interest rates and yield curves . fair values determined by level 3 inputs are unobservable data points for the asset or liability , and includes situations where there is little , if any , market activity for the asset or liability : replace_table_token_5_th 9. stockholders ' equity common stock the company is authorized to issue 440,000,000 shares of common stock , consisting of 400,000,000 shares of class a common stock , par value $ 0.0001 per share and 40,000,000 shares of class f common stock , par value $ 0.0001 per share . holders of the company 's common stock are entitled to one vote for each share of common stock and vote together as a single class . at december 31 , 2020 , there were 52,500,000 shares of class a common stock ( inclusive of the 50,231,059 shares subject to redemption ) and 13,125,000 shares of class f common stock issued and outstanding , respectively . 75 preferred stock the company is authorized to issue 1,000,000 shares of preferred stock , par value $ 0.0001 per share , with such designations , voting and other rights and preferences as may be determined from time to time by the board of directors . at december 31 , 2020 , there were no shares of preferred stock issued and outstanding . 10. risk and contingencies management is currently evaluating the impact of the covid-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the company 's financial position , results of its story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k. overview we are a blank check company incorporated on june 25 , 2020 as a delaware corporation and formed for the purpose of effecting a business combination with one or more target businesses . we completed our public offering on august 10 , 2020. as of december 31 , 2020 , we had not identified any business combination target . we presently have no revenue , have had losses since inception from incurring formation costs and have had no operations other than the active solicitation of a target business with which to complete a business combination . story_separator_special_tag registration statement shall have been initiated by the sec and not withdrawn ; and ( f ) the ampsa shares shall have been approved for listing on nyse , subject to official notice of issuance . private placement subscription agreements in connection with the execution of the business combination agreement , on february 22 , 2021 , ampsa and the company entered into subscription agreements ( each , a “ subscription agreement ” and collectively , the “ subscription agreements ” ) with certain investors and gores sponsor v llc ( the “ sponsor ” ) , pursuant to which the investors and the sponsor agreed to purchase , and ampsa agreed to sell to the investors and the sponsor the pipe shares for an aggregate cash amount of $ 600,000,000. the issuance of the pipe shares pursuant to the subscription agreements is contingent upon , among other customary closing conditions , the substantially concurrent consummation of the proposed business combination . pursuant to the subscription agreements , ampsa agreed that , within 30 calendar days after the date of closing , it will file with the sec ( at ampsa 's sole cost and expense ) a registration statement registering the resale of the pipe shares , and ampsa will use its commercially reasonable efforts to have the registration statement declared effective as soon as practicable after the filing thereof . story_separator_special_tag create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we had not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or entered into any non-financial agreements involving assets . contractual obligations as of december 31 , 2020 , we did not have any long-term debt obligations , capital lease obligations , operating lease obligations , purchase obligations or long-term liabilities . in connection with the public offering , we entered into an administrative services agreement to pay monthly recurring expenses of $ 20,000 to the gores group for office space , utilities and secretarial support . the administrative services agreement terminates upon the earlier of the completion of a business combination or the liquidation of the company . the underwriter is entitled to underwriting discounts and commissions of 5.5 % ( $ 28,875,000 ) , of which 2.0 % ( $ 10,500,000 ) was paid at the closing of the public offering , and 3.5 % ( $ 18,375,000 ) was deferred . the deferred discount will become payable to the underwriter from the amounts held in the trust account solely in the event that the company completes a business combination , subject to the terms of the underwriting agreement . the underwriter is not entitled to any interest accrued on the deferred discount . 57 significant accounting policies basis of presentation the accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and pursuant to the accounting and disclosure rules and regulations of the securities and exchange commission ( “ sec ” ) , and reflect all adjustments , consisting only of normal recurring adjustments , which are , in the opinion of management , necessary for a fair presentation of the financial position as of december 31 , 2020 and the results of operations and cash flows for the periods presented . operating results for the period ended december 31 , 2020 are not necessarily indicative of results that may be expected for the full year or any other period . while the company was formed on june 25 , 2020 , there were no transactions or operations between inception and july 14 , 2020. therefore , these financials statements do not include comparative statements to prior 2020 periods . offering costs the company complies with the requirements of the accounting standards codification ( the “ asc ” ) 340-10-s99-1 and sec staff accounting bulletin topic 5a — “ expenses of offering. ” offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to our public offering and were charged to stockholders ' equity upon the completion of our public offering . accordingly , offering costs totaling $ 29,563,655 ( including $ 28,875,000 in underwriter 's fees ) , and were charged to stockholders ' equity . net loss per common share the company has two classes of shares , which are referred to as class a common stock ( the “ common stock ” ) and class f common stock ( the “ founders shares ” ) . net income/ ( loss ) per common share is computed utilizing the two-class method . the two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on an allocation of undistributed earnings per the rights of each class . at december 31 , 2020 , the company did not have any dilutive securities or other contracts that could , potentially , be exercised or converted into common stock and then share in the earnings of the company under the treasury stock method . as a result , diluted net income/ ( loss ) per common share is the same as basic net income/ ( loss ) per common share for the period . income taxes the company follows the asset and liability method of accounting for income taxes under asc 740 , “ income taxes . ” deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
| results of operations for the period from june 25 , 2020 to december 31 , 2020 , we had a net loss of ( $ 650,745 ) . our busines activities during the year mainly consisted of identifying and evaluating prospective acquisition candidates for a business combination . we believe that we have sufficient funds available to complete our efforts to effect a business combination with an operating business by august 10 , 2022. however , if our estimates of the costs of identifying a target business , undertaking in-depth due diligence and negotiating a business combination are less than the actual amount necessary to do so , we may have insufficient funds available to operate our business prior to our business combination . 55 as indicated in the accompanying unaudited financial statements , at december 31 , 2020 , we had $ 705,817 in cash and deferred offering costs of $ 18,375,000 . further , we expect to continue to incur significant costs in the pursuit of our acquisition plans . we can not assure you that our plans to complete our business combination will be successful . liquidity and capital resources on july 14 , 2020 , the sponsor purchased 11,500,000 founder shares for an aggregate purchase price of $ 25,000 , or approximately $ 0.002 per share . on august 3 , 2020 , the sponsor transferred 25,000 founder shares to each of the company 's three independent directors at their original purchase price . on august 5 , 2020 , the company effected a stock dividend with respect to the company 's founder shares of 2,156,250 shares thereof , resulting in the company 's initial stockholders holding an aggregate of 13,656,250 shares of class f common stock .
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to the extent that any award under the 2013 plan payable in shares of common stock is forfeited , cancelled , returned to the company for failure to satisfy vesting requirements or upon the occurrence of other forfeiture events , or otherwise terminates without payment being made thereunder , the shares of common stock covered thereby will be available for future grants under the 2013 plan . shares of common stock that otherwise would have been issued upon the exercise of a stock option or in payment with respect to any other form of award , that are surrendered in payment or partial payment of taxes required to be withheld with respect to the exercise of such stock option or the making of such payment , will also be available for future grants under the 2013 plan . terms and conditions of options . options granted under the 2013 plan may be either “ incentive stock options ” that are intended to meet the requirements story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and financing needs , includes forward-looking statements that involve risks and uncertainties and should be read together with the “ risk factors ” section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report and in other reports we file with the securities and exchange commission , particularly those under “ risk factors. ” dollars in tabular format are presented in thousands , except per share data , or otherwise indicated . overview we are a clinical-stage biopharmaceutical company focused on developing innovative anti-infectives for orphan indications . our product and development candidates are derived using our unique and proprietary lipid-crystal nano-particle , or cochleate , formulation platform delivery technology . our proprietary cochleate delivery technology platform , licensed from rutgers university on an exclusive worldwide basis , nano-encapsulates drugs and is designed to make these drugs orally bioavailable , well tolerated and safer and less toxic while providing targeted and safe delivery of pharmaceuticals directly to the site of infection or inflammation . we believe our cochleate technology provides us with an efficient and broadly applicable drug delivery platform , with particular utility in diseases and conditions in which the immune system plays a significant modulation role and where the immune system facilitates the active transport of our lipid crystal nano-particles throughout the body . currently , we are focused on the anti-infective market and on drug candidates which we believe demonstrate the value and innovation associated with our unique cochleate delivery platform technology while potentially providing significant health economic benefit to the health care system . we believe initially focusing on the anti-infective market has distinct advantages for the development of products which meet significant unmet medical need , including : · a current regulatory environment which provides small development and clinical stage companies incentives such as significant periods of regulatory marketing exclusivity and opportunities to reduce development cost and timeline to market for anti-infective drug candidates ; - 59 - · traditional high correlation between efficacy and safety data in preclinical animal models and the outcome of human clinical trials with anti-infective product candidates ; · attractive commercial opportunities for anti-infective product differentiated in safety profile , mode of action and oral bioavailability positioned against current therapies with significant side effects , or drug to drug interactions , limited efficacy and intravenous delivery resulting in lack of convenience , compliance and at a significant burden to the cost of healthcare ; and · an ability to commercialize anti-infective products with a focused and cost-efficient sales and marketing organization . mat2203 and mat2501 we leveraged our platform cochleate delivery technology to develop two clinical-stage products that we believe have the potential to become best-in-class drugs . our lead product candidate mat2203 is an orally-administered cochleate formulation of a broad spectrum anti-fungal drug called amphotericin b. we are initially developing mat2203 for the treatment of serious fungal infections as well as the prevention of invasive fungal infections ( ifis ) due to immunosuppressive therapy . we are currently conducting two phase 2 clinical trials involving mat2203 and expect to report interim results from our open label nih run phase 2a clinical trial and topline results from our ongoing phase 2 study of mat2203 in vulvovaginal candidiasis in the first half of 2017. our second clinical stage product candidate is mat2501 , an orally administered , encochleated formulation of the broad spectrum aminoglycoside antibiotic amikacin which may be used to treat different types of multidrug-resistant bacteria , including non-tuberculous mycobacterium infections ( ntm ) , as well as various multidrug-resistant gram negative and intracellular bacterial infections . we recently completed and announced topline results from a phase 1 single escalating dose clinical trial of mat2501 in healthy volunteers in which no serious adverse events were reported and where oral administration of mat2501 at all tested doses yielded blood levels that were well below the safety levels recommended for injected amikacin , supporting further development of mat2501 for the treatment of ntm infections . we are a development stage company and have generated $ 0.2 million in contract research revenues during 2015. these contract research revenues ended during 2015 and we did not generate revenues during 2016. we have incurred losses for each period from inception . story_separator_special_tag accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses , particularly for product development costs . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments as necessary . examples of estimated accrued research and development expenses include : · fees paid to contractors in connection with the development of manufacturing processes for products in development ; · fees paid to cros in connection with preclinical and clinical development activities ; · fees paid to contractors in connection with preparation of regulatory submissions ; and · fees paid to vendors related to product manufacturing , development and distribution of clinical study supplies . we base our expenses related to pre-clinical and human studies on our estimates of the services received and efforts expended pursuant to contracts with multiple development contractors that conduct and manage development work and studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense . payments under some of these contracts may depend on factors such as the successful enrollment of subjects and the completion of specific study milestones . in accruing service fees , we will estimate the time period over which services will be performed , the completion of certain tasks , enrollment of subjects , study center activation and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we will adjust the accrual or prepayment accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period . based on limited historical experience , actual results have not been materially different from our estimates . - 63 - identifiable intangible assets identifiable intangible assets are measured at their respective fair values and are not amortized until commercialization . once commercialization occurs , these intangible assets will be amortized over their estimated useful lives . the fair values assigned to our intangible assets are based upon reasonable estimates and assumptions given available facts and circumstances . unanticipated events or circumstances may occur that may require us to review the assets for impairment . events or circumstances that may require an impairment assessment include negative clinical trial results , material delays in our development program or sustained decline in market capitalization . indefinite-lived intangible assets are not subject to periodic amortization . rather , indefinite-lived intangibles are reviewed for impairment by applying a fair value based test on an annual basis or more frequently if events or circumstances indicate impairment may have occurred . events or circumstances that may require an interim impairment assessment are consistent with those described below . we perform our annual impairment test in december of each year . research and development expenses research and development expenses are charged to operations as they are incurred . stock-based compensation option grants we account for all share-based compensation payments issued to employees , directors , and non-employees using an option pricing model for estimating fair value . accordingly , share-based compensation expense is measured based on the estimated fair value of the awards on the date of grant , net of forfeitures . we recognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line single option method . in accordance with authoritative guidance , we re-measure the fair value of non-employee share-based awards as the awards vest , and recognize the resulting value , if any , as expense during the period the related services are rendered . significant factors , assumptions and methodologies used in determining fair value we apply the fair value recognition provisions of asc topic 718 , compensation-stock compensation , which we refer to as asc 718. we recognize share-based compensation expense ratably over the requisite service period , which in most cases is the vesting period of the award . calculating the fair value of share-based awards requires that we make highly subjective assumptions . we use the black-scholes option pricing model to value our stock option awards . use of this valuation methodology requires that we make assumptions as to the volatility of our common stock , the expected term of our stock options , the risk free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield . as a publicly-held company with a limited operating history , we utilized data from a representative group of companies to estimate expected stock price volatility . we selected companies from the biopharmaceutical industry with similar characteristics to us , including those in the early stage of product development and with a therapeutic focus .
| results of operations comparison of years ended december 31 , 2016 and 2015 replace_table_token_4_th research and development expenses . research and development ( r & d ) expense for the year ended december 31 , 2016 was $ 3.9 million , compared to $ 5.3 million for the year ended december 31 , 2015 , a decrease of $ 1.4 million . r & d expenses decreased mainly due to the completion of a clinical human study in 2015 for mat9001 . in 2016 , significant resources have been targeted to mat2301 and mat2501 , limiting resources spent on mat9001 . we expect r & d expenses to increase during 2017 as we move our development programs forward , increase our headcount and finance our new laboratory and manufacturing facility . general and administrative expenses . general and administrative expense for the year ended december 31 , 2016 was $ 4.3 million compared to $ 4.8 million for the year ended december 31 , 2015 , a decrease of $ 0.5 million . the decrease in general and administrative expense was primarily due to decreases in employee compensation , legal and accounting fees . we forecast increases in these areas in 2017 mainly related to expenses associated with being a public company on a national stock exchange . sources of liquidity we have funded our operations since inception through private placements of our preferred stock and our common stock and common stock warrants . as of december 31 , 2016 , we have raised a total of $ 27.9 million in net proceeds from sales of our equity securities . as of december 31 , 2016 , we had cash totaling $ 4.1 million . as detailed in our subsequent event note , in january 2017 we completed a warrant tender offer , which raised approximately $ 12.7 million in net proceeds .
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75 keurig dr pepper inc. notes to consolidated financial statements ( continued ) voluntary prepayment of term loans the company has the ability to voluntarily prepay the senior unsecured term loan facility ( `` kdp term loan `` ) in whole or in part with prior notice to jp morgan chase bank , n/a ( `` jp morgan `` ) . the prepayment of the kdp term loan does not result in any additional fees or penalties , just the payment of daily story_separator_special_tag the following discussion should be read in conjunction with our audited consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that are based on management 's 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 various factors , including the factors described under `` risk factors '' within item 1a and elsewhere in this annual report on form 10-k , including documents incorporated by reference . references in the following discussion to `` we '' , `` our '' , `` kdp '' or `` the company '' refer to keurig dr pepper inc. and all entities included in our audited consolidated financial statements . this annual report on form 10-k contains the names of some of our owned or licensed trademarks , trade names and service marks , which we refer to as our brands . all of the product names included in this annual report on form 10-k are either our registered trademarks or those of our licensors . dr pepper snapple group , inc. merger on january 29 , 2018 , dps entered into a merger agreement by and among dps , maple and merger sub , whereby merger sub would be merged with and into maple , with maple surviving the dps merger as a wholly-owned subsidiary of dps . the dps merger was consummated on july 9 , 2018 , at which time dps changed its name to `` keurig dr pepper inc. '' . maple owns keurig , a leader in specialty coffee and innovative single-serve brewing systems . the combined businesses created kdp , a new beverage company of scale with a portfolio of iconic consumer brands and expanded distribution capability to reach virtually every point-of-sale in north america . see note 1 and note 3 of the notes to our audited consolidated financial statements for further information related to the dps merger . overview kdp is a leading beverage company in north america , with a diverse portfolio of flavored ( non-cola ) csds , ncbs , including ready-to-drink teas and coffee , juices , juice drinks , water and mixers , and specialty coffee , and is a leading producer of innovative single-serve brewing systems . with a wide range of hot and cold beverages that meet virtually any consumer need , kdp key brands include keurig , dr pepper , canada dry , snapple , bai , mott 's , core , green mountain and the original donut shop . kdp has some of the most recognized beverage brands in north america , with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers . kdp offers more than 125 owned , licensed and partner brands , including the top ten best-selling coffee brands and dr pepper as a leading flavored csd in the u.s. according to iri , available nearly everywhere people shop and consume beverages . kdp operates as an integrated brand owner , manufacturer and distributor . we believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our dsd system and our wd delivery system . kdp markets and sells its products to retailers , including supermarkets , mass merchandisers , club stores , pure-play e-commerce retailers , and office superstores ; to restaurants , hotel chains , office product and coffee distributors , and partner brand owners ; and directly to consumers through its websites . our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage . 25 uncertainties and trends affecting our business we believe the north american beverage market is influenced by certain key trends and uncertainties . some of these items , such as increased health consciousness and changes in consumer preferences and economic factors , have previously created category headwinds for a number of our products . refer to item 1a , `` risk factors '' , of this annual report on form 10-k for information about risks and uncertainties facing us . we expect adjusted diluted eps growth for the year ending december 31 , 2019 in the range of 15 % to 17 % , or $ 1.20 to $ 1.22 , in line with our long-term merger target . supporting this guidance are the following expectations : net sales growth of approximately 2 % , consistent with our long-term merger target of 2-3 % , despite the impact of the changes in partner brands in the packaged beverage segment . merger synergies of $ 200 million for the year ending december 31 , 2019 , consistent with our long-term merger target for $ 200 million per year over the 2019-2021 period . other ( income ) expense , net is expected to be approximately $ 30 million of expense for the year ending december 31 , 2019 and assumes no gains related to changes in our packaged beverages partner brands , such as the impacts during the year ended december 31 , 2018 from bodyarmor and core nutrition , llc ( `` core '' ) , which recorded gains of $ 24 million and $ 12 million , respectively . story_separator_special_tag on december 3 , 2018 , we announced that our board of directors declared a quarterly dividend of $ 0.15 per share , which was paid on january 18 , 2019 , to shareholders of record on january 4 , 2019. on february 14 , 2019 , we announced that our board of directors declared a quarterly dividend of $ 0.15 per share , which will be paid on april 19 , 2019 to shareholders of record on april 5 , 2019. results of operations as our financial information prior to the keurig acquisition is not comparable to the financial information subsequent to the keurig acquisition , predecessor and successor periods are presented to indicate the application of the different bases of accounting between the periods presented . as a result and when combined with the change in year-end for maple as of december 31 , 2017 , we have provided our results of operations for individual periods that are also not comparable . see note 1 of the notes to our audited consolidated financial statements for additional information . our results of operations include the following periods , which reflect the results of operations of maple : year ended december 31 , 2018 ( `` 2018 '' ) , which also includes 176 days of the results of operations of dps subsequent to the dps merger , which was completed on july 9 , 2018 , three months ended december 31 , 2017 ( `` transition 2017 '' ) , fiscal year ended september 30 , 2017 ( `` fiscal 2017 '' ) , and the period of december 4 , 2015 through september 24 , 2016 ( `` successor 2016 '' ) . additionally , the predecessor period of september 27 , 2015 through march 2 , 2016 ( `` predecessor 2016 '' ) is included and only reflects keurig activity within the period . predecessor 2016 , combined with 2018 , transition 2017 , fiscal 2017 and successor 2016 , collectively , are defined herein as the `` periods '' . we eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees . references in the financial tables to percentage changes that are not meaningful are denoted by `` nm . '' 28 2018 consolidated operations the following table sets forth our consolidated results of operations for 2018 and the calendar year ended december 31 , 2017 : replace_table_token_5_th ( 1 ) the calendar year ended december 31 , 2017 was prepared in order to populate the unaudited pro forma combined financial information for calendar year ended december 31 , 2017 which will then provide a comparable period to 2018. see reconciliation of calendar year statement of income for the year ended december 31 , 2017 for the full reconciliation of the calendar year ended december 31 , 2017. net sales . net sales for 2018 were $ 7,442 million . the primary change in our net sales during 2018 as compared to the calendar year ended december 31 , 2017 of $ 3,328 million was the result of the dps merger . gross profit . gross profit for 2018 was $ 3,882 million , or 52.2 % of net sales as compared to $ 2,025 million , or 47.9 % of net sales for the calendar year ended december 31 , 2017. this increase in gross profit is driven primarily by the higher margins associated with net sales as a result of the dps merger . selling , general and administrative expenses . sg & a expenses for 2018 were $ 2,635 million , or 35.4 % of net sales as compared to $ 1,163 million , or 27.5 % of net sales for the calendar year ended december 31 , 2017. the increase in sg & a expenses was driven by the dps merger and reflects the incremental expenses associated with the dps operations as well as the transaction costs and restructuring and integration charges associated with the dps merger . income from operations . total operating costs during 2018 were $ 6,205 million , resulting in an operating income of $ 1,237 million , or 16.6 % of net sales . interest expense . interest expense during 2018 was $ 401 million , or 5.4 % of net sales , due primarily to the increased borrowings and assumption of the existing senior unsecured notes as a result of the dps merger , partially offset by the realized gains associated with the termination of receive-variable , pay-fixed interest rate swaps during the fourth quarter of 2018. interest expense - related party . interest expense - related party during 2018 was $ 51 million , or 0.7 % of net sales . these related party loans were capitalized into additional paid in capital at the time of the dps merger and no longer incur any future interest expense . 29 loss on early extinguishment of debt . we recognized a $ 13 million loss on early extinguishment of debt during 2018 as we voluntarily paid off the term loan a upon the consummation of the dps merger , compared to a $ 59 million loss on extinguishment of debt generated from voluntary prepayments of long term debt during calendar year ended december 31 , 2017. other ( income ) expense , net . other ( income ) expense , net in 2018 was a benefit of $ 19 million , primarily due to the distribution from bodyarmor , which resulted in a gain of approximately $ 24 million , compared to expense of $ 95 million during the calendar year ended december 31 , 2017 , primarily due to the termination of our cross currency swap on euro denominated debt during the period . effective tax rate . the effective tax rate for 2018 and the calendar year ended december 31 , 2017 was 25.5 % and ( 64.2 ) % , respectively .
| adjusted pro forma results of operations consolidated operations the following table details certain consolidated adjusted pro forma results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_20_th adjusted pro forma net sales . adjusted pro forma net sales increased 2.3 % to $ 11,024 million for the year ended december 31 , 2018 , driven by higher underlying pro forma sales volume/mix of 3.7 % , with strong performances registered across most categories , partially offset by the net unfavorable impact of 0.5 % related to changes in the our allied brands portfolio during the year . also partially offsetting the growth was unfavorable net price realization of 0.8 % , driven by continued moderation in strategic pod pricing investments in the coffee systems segment which more than offset higher net pricing in the balance of the portfolio . unfavorable foreign currency translation also impacted the year by 0.1 % . retail market performance , as measured by iri , remained strong for the year . our csd and enhanced flavored and premium water portfolios registered market share growth in both units and dollars , driven by strong performance of dr pepper , canada dry , core and bai . likewise , the coffee portfolio also performed well for the year , driven by single-serve k-cup pod category unit growth , combined with an increase in market share of k-cup pods we manufactured . adjusted pro forma income from operations . adjusted pro forma income from operations increased $ 164 million or 6.7 % to $ 2,620 million , compared to $ 2,456 million in the prior year . this performance primarily reflected the benefit of the net sales growth and strong productivity , despite inflation in input costs and logistics that were not fully offset by third quarter of 2018 pricing actions in the packaged beverages segment .
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incorporated by reference to exhibit 10.112 to amendment no . 1 to registration statement on form s-1 ( file no . 333-183682 ) filed with the sec on september 11 , 2012 . 10.113 form of convertible promissory note issued to jmj financial on august 27 , 2012. incorporated by reference to exhibit 10.113 to registration statement on form s-1 ( file no . 333-183682 ) filed with the sec on august 31 , 2012 . 10.114 form of note purchase agreement by and between advaxis , inc. and dr. james patton . incorporated by reference to exhibit 10.114 to amendment no . 1 to registration statement on form s-1 ( file no . 333-183682 ) filed with the sec on september 11 , 2012 . 10.115 common stock purchase agreement , dated as of october 26 , 2012 , by and between advaxis , inc. and hanover holdings i , llc . incorporated by reference to exhibit 10.1 to current report on form 8-k filed with the sec on october 31 , 2012 . 10.116 registration rights agreement , dated as of october 26 , 2012 , by and between advaxis , inc. and hanover holdings i , llc . incorporated by reference to exhibit 10.2 to current report on form 8-k filed with the sec on october 31 , 2012 . 10.117 order for approval of stipulation for settlement of claims entered by the superior court of the state of california for the county of los angeles – central district , dated december 20 , 2012. incorporated by reference to exhibit 10.1 to current report on form 8-k filed with the sec on december 28 , 2012 . 10.118 stipulation for settlement of claims between ironridge global iv , ltd. and advaxis , inc. , dated december 19 , 2012. incorporated by reference to exhibit 10.2 to current report on form 8-k filed with the sec on december 28 , 2012 . 14.1 code of business conduct and ethics dated november 12 , 2004. incorporated by reference to exhibit 14.1 to current report on form 8-k filed with the sec on november 18 , 2004 . 23.1 * consent of marcum llp 23.2 * consent of mcgladrey llp 24.1 power of attorney ( included in the signature page of this annual report ) . 45 replace_table_token_2_th * filed herewith . * * to be filed by amendment . 46 signature pursuant to the requirements of the securities exchange act of 1934 , the registrant has duly caused this annual report to be signed on its behalf by the undersigned , thereunto duly authorized , in princeton , mercer county , state of new jersey , on this 13th day of february 2013. advaxis , inc. by : thomas moore thomas moore , chief executive officer and chairman of the board know all persons by these presents , that each person whose signature appears below constitutes and appoints thomas moore and mark j. rosenblum ( with full power to act alone ) , as his true and lawful attorneys-in-fact and agents , with full powers of substitution and resubstitution , for him and in his name , place and stead , in any and all capacities , to sign any and all amendments to this annual report on form 10-k and to file the same , with all exhibits thereto , and other documents in connection therewith , with the securities and exchange commission , granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises , as fully to all intents and purposes as he might or could do in person , hereby ratifying and confirming all that said attorneys-in-fact and agents , or their substitute or substitutes , lawfully do or cause to be done by virtue hereof . pursuant to the requirements of story_separator_special_tag this management 's discussion and analysis of financial conditions and results of operations and other portions of this report contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by the forward-looking information . factors that may cause such differences include , but are not limited to , availability and cost of financial resources , product demand , market acceptance and other factors discussed in this report under the heading “ risk factors ” . this management 's discussion and analysis of financial conditions and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this report . overview we are a clinical development stage biotechnology company with the intent to develop safe and effective immunotherapies for cancer and infectious diseases . these immunotherapies are based on a platform technology under exclusive license from penn that utilizes live attenuated lm bioengineered to secrete antigen/adjuvant fusion proteins . these lm strains use a fragment of the protein listeriolysin ( llo ) , fused to a tumor associated antigen ( taa ) or other antigen of interest which we refer to these as lm -llo immunotherapies . we believe these lm -llo agents redirect the potent immune response to lm which is inherent in humans , to the taa or antigen of interest . lm -llo based immunotherapies stimulate the immune system to induce antigen-specific anti-tumor immune responses involving both innate and adaptive arms of the immune system . in addition , this technology facilitates the immune response by altering the microenvironment of tumors to make them more susceptible to immune attack . story_separator_special_tag we may attempt to accelerate the timing of the required financing and , conversely , if the trial or trials are not successful we may slow our spending and defer the timing of additional financing . while we will attempt to attract a corporate partnership and grants , we have not assumed the receipt of any additional financial resources in our cash planning . we anticipate that our research and development expenses will increase significantly as a result of our expanded development and commercialization efforts related to clinical trials , drug development , and development of strategic and other relationships required ultimately for the licensing , manufacture and distribution of our immunotherapies . 28 story_separator_special_tag margin : 0pt 0 ; text-indent : 0.5in '' > in the fiscal year ended october 31 , 2012 , we recorded an income tax benefit of approximately $ 347,000 in income , due to the receipt of a net operating loss ( `` nol '' ) tax credit from the state of new jersey tax program compared to approximately $ 379,000 in nol tax credits received from the state of new jersey tax program in the year ended october 31 , 2011. in december 2012 , the company received notification that it will receive a net cash amount of approximately $ 725,000 from the sale of our state net operating losses ( “ nol ” ) and r & d tax credits for the years ended october 31 , 2010 and 2011. the company received this amount in january 2013. liquidity and capital resources since our inception through october 31 , 2012 , we have reported accumulated net losses of approximately $ 47.6 million and recurring negative cash flows from operations . we anticipate that we will continue to generate significant losses from operations for the foreseeable future . cash used in operating activities for the year ended october 31 , 2012 was approximately $ 4.6 million , resulting from r & d spending of approximately $ 3.2. million . general and administrative spending on day-to-day operations was approximately $ 1.4 million . cash used in investing activities for the year ended october 31 , 2012 was approximately $ 397,000 resulting from legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . cash provided by financing activities for the year ended october 31 , 2012 was approximately $ 3.9 million , primarily consisting of net proceeds received from the sale of convertible promissory notes ( $ 3.5 million ) and the exercise of warrants ( $ 0.4 million ) . for the year ending october 31 , 2012 , we issued to certain accredited investors convertible promissory notes in the aggregate principal amount of approximately $ 3,670,000 for an aggregate net purchase price of approximately $ 3.1 million . these convertible promissory notes were issued with either original issue discounts ranging from 15 % to 25 % or are interest-bearing and are convertible into shares of our common stock . some of these convertible promissory notes were issued along with warrants . these convertible promissory notes mature between january and june of 2013. for the year ending october 31 , 2012 , we received proceeds of approximately $ 412,000 resulting from the exercise of approximately 2,745,000 warrants at an exercise price of $ 0.15. for the year ending october 31 , 2012 , we repaid a total of approximately $ 88,000 in principal value of convertible promissory notes . on october 26 , 2012 , we entered into a common stock purchase agreement with hanover holdings that is sometimes referred to as a committed equity line financing facility which requires hanover to purchase up to $ 10.0 million of shares of our common stock over the 24-month term following the date of effectiveness of the resale registration statement which was december 12 , 2012. on december 31 , 2012 , we issued 6,990,514 shares of our common stock to hanover in connection with the settlement of a draw down pursuant to the purchase agreement , at a price of approximately $ 0.0266 per share . the per share price for such shares was established under the terms of the purchase agreement . we received total net proceeds of $ 185,975.64 in connection with this draw down . on january 17 , 2013 , we issued 4,400,000 shares of our common stock to hanover in connection with the settlement of a draw down pursuant to the purchase agreement , at a price of approximately $ 0.0374 per share . the per share price for such shares was established under the terms of the purchase agreement . we received total net proceeds of $ 164,656.80 in connection with this draw down . on february 12 , 2013 , we issued 8,000,000 shares of our common stock to hanover in connection with the settlement of a draw down pursuant to the purchase agreement , at a price of approximately $ 0.0644 per share . the per share price for such shares was established under the terms of the purchase agreement . we receive total net proceeds of $ 515,520 in connection with this draw down . our limited capital resources and operations to date have been funded primarily with the proceeds from public , private equity and debt financings , nol tax sales and income earned on investments and grants . we have sustained losses from operations in each fiscal year since our inception , and we expect losses to continue for the indefinite future , due to the substantial investment in research and development . as of october 31 , 2012 and october 31 , 2011 we had an accumulated deficit of $ 47,601,427 and $ 35,531,740 , respectively and shareholders ' deficiency of $ 5,962,724 and $ 12,565,013 , respectively .
| results of operations fiscal year 2012 compared to fiscal year 2011 revenue we recorded no revenue for the years ended october 31 , 2012 and october 31 , 2011. research and development expenses research and development expenses decreased by approximately $ 1,433,000 to approximately $ 6,646,000 for the fiscal year ended october 31 , 2012 as compared with approximately $ 8,079,000 for the same period a year ago . this is primarily attributable to clinical trial expenses , which decreased in the current year resulting from lower manufacturing costs due to the near completion of dosing patients in our india trial and less clinical trial activity . these decreases were slightly offset by an increase in expenses related to the initiation of preclinical trial studies in other cancer indications . we anticipate a significant increase in research and development expenses as a result of expanded development and commercialization efforts primarily related to clinical trials and product development . in addition , expenses will be incurred in the development of strategic and other relationships required to license manufacture and distribute our product candidates . general and administrative expenses general and administrative expenses increased by approximately 749,000 or 15 % , to approximately 5,689,000 for the fiscal year ended october 31 , 2012 as compared with approximately $ 4,940,000 for the same period a year ago . this was primarily the result of noncash expenses related to the issuance of shares of our common stock under various agreements entered into in the current period as well as an increase in stock-based compensation related to the issuance of additional options to employees , consultants and directors . in addition , we incurred penalties and fees resulting from the late filing of certain registration statements related to our various capital raises .
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as discussed in previous filings , the company did not become the holding company of the bank until the completion of the share exchange , whereby all of the bank 's shareholders received shares of the company 's common stock in exchange for the bank 's common stock , in november 2013. accordingly , references below to financial condition or results of operations or to events or circumstances relating to dates or time periods prior to this share exchange ( even if “ we , ” “ our , ” or “ us ” is used ) relate to the bank alone , while references below to financial condition or results of operations or to events or circumstances relating to dates or time periods after the share exchange pertain to the company and the bank on a consolidated basis , unless the context explicitly dictates otherwise . special note regarding forward-looking statements this annual report on form 10-k , both in management 's discussion and analysis of financial condition and results of operations , and elsewhere , contains forward-looking statements within the meaning of section 27a of the securities act and section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . these forward-looking statements include statements relating to our projected growth , anticipated future financial performance , financial condition , credit quality and performance goals , as well as statements relating to the anticipated effects on our business , financial condition and results of operations from expected developments , our growth and potential acquisitions . these statements can typically be identified through the use of words or phrases such as “ may , ” “ should , ” “ could , ” “ predict , ” “ potential , ” “ believe , ” “ think , ” “ will likely result , ” “ expect , ” “ continue , ” “ will , ” “ anticipate , ” “ seek , ” “ estimate , ” “ intend , ” “ plan , ” “ projection , ” “ would ” and “ outlook , ” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature . our forward-looking statements contained herein are based on assumptions and estimates that management believes to be reasonable in light of the information available at this time . however , many of these statements are inherently uncertain and beyond our control and could be affected by many factors . factors that could have a material effect on our business , financial condition , results of operations , cash flows and future growth prospects can be found in item 1a , risk factors . these factors include , but are not limited to , the following , any one or more of which could materially affect the outcome of future events : · business and economic conditions generally and in the financial services industry in particular , whether nationally , regionally or in the markets in which we operate ; · our ability to achieve organic loan and deposit growth , and the composition of that growth ; · changes ( or the lack of changes ) in interest rates , yield curves and interest rate spread relationships that affect our loan and deposit pricing ; · the extent of continuing client demand for the high level of personalized service that is a key element of our banking approach as well as our ability to execute our strategy generally ; · our dependence on our management team , and our ability to attract and retain qualified personnel ; · changes in the quality or composition of our loan or investment portfolios , including adverse developments in borrower industries or in the repayment ability of individual borrowers ; · inaccuracy of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates ; · the concentration of our business within our geographic areas of operation in louisiana ; · concentration of credit exposure ; · deteriorating asset quality and higher loan charge-offs , and the time and effort necessary to resolve problem assets ; · a lack of liquidity , including as a result of a reduction in the amount of deposits we hold or other sources of liquidity ; · our potential growth , including our entrance or expansion into new markets , and the need for sufficient capital to support that growth ; · difficulties in identifying attractive acquisition opportunities and strategic partners that will complement our private banking approach ; · our ability to efficiently integrate acquisitions into our operations , retain the customers of acquired businesses and grow the acquired operations ; 34 · the impact of litigation and other legal proceedings to which we become subject ; · data processing system failures and errors ; · the expenses we will incur to operate as a public company ; · competitive pressures in the consumer finance , commercial finance , retail banking , mortgage lending and auto lending industries , as well as the financial resources of , and products offered by , competitors ; · the impact of changes in laws and regulations applicable to us , including banking , securities and tax laws and regulations and accounting standards , as well as changes in the interpretation of such laws and regulations by our regulators ; · changes in the scope and costs of fdic insurance and other coverages ; · governmental monetary and fiscal policies ; · hurricanes , other natural disasters and adverse weather ; oil spills and other man-made disasters ; acts of terrorism , an outbreak of hostilities or other international or domestic calamities , acts of god and other matters beyond our control ; and · other circumstances , many of which are beyond our control . the foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included herein . story_separator_special_tag for more detailed information about our accounting policies , please refer to note 1 , summary of significant accounting policies , in the notes to consolidated financial statements contained in item 8 , financial statements and supplementary data . the following discussion presents an overview of some of our accounting policies and estimates that require us to make difficult , subjective or complex judgments about inherently uncertain matters when preparing our financial statements . we believe that the judgments , estimates and assumptions that we use in the preparation of our consolidated financial statements are appropriate . 36 allowance for loan losses . one of the accounting policies most important to the presentation of our financial statements relates to the allowance for loan losses and the related provision for loan losses . the allowance for loan losses is established as losses are estimated through a provision for loan losses charged to earnings . the allowance for loan losses is based on the amount that management believes will be adequate to absorb probable losses inherent in the loan portfolio based on , among other things , evaluations of the collectability of loans and prior loan loss experience . the evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans and current economic conditions that may affect borrowers ' ability to pay . another component of the allowance is losses on loans assessed as impaired under financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 310 , receivables ( “ asc 310 ” ) . the balance of the loans determined to be impaired under asc 310 and the related allowance is included in management 's estimation and analysis of the allowance for loan losses . allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows . the determination of the appropriate level of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . we have an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in our portfolio and portfolio segments . we have an internally developed model that requires significant judgment to determine the estimation method that fits the credit risk characteristics of the loans in our portfolio and portfolio segments . qualitative and environmental factors that may not be directly reflected in quantitative estimates include : asset quality trends , changes in loan concentrations , new products and process changes , changes and pressures from competition , changes in lending policies and underwriting practices , trends in the nature and volume of the loan portfolio , and national and regional economic trends . changes in these factors are considered in determining changes in the allowance for loan losses . the impact of these factors on our qualitative assessment of the allowance for loan losses can change from period to period based on management 's assessment of the extent to which these factors are already reflected in historic loss rates . the uncertainty inherent in the estimation process is also considered in evaluating the allowance for loan losses . acquisition accounting . we account for our acquisitions under asc topic 805 , business combinations ( “ asc 805 ” ) , which requires the use of the purchase method of accounting . all identifiable assets acquired , including loans , are recorded at fair value ( which is discussed below ) . if the consideration given exceeds the fair value of the net assets received , goodwill is recognized . if the fair value of the net assets received exceeds the consideration given , a bargain purchase gain is recognized . in accordance with asc 805 , estimated fair values are subject to adjustment up to one year after the acquisition date to the extent that additional information relative to closing date fair values becomes available . material adjustments to acquisition date estimated fair values are recorded in the period in which the acquisition occurred , and as a result , previously reported results are subject to change . because the fair value measurements incorporate assumptions regarding credit risk , no allowance for loan losses related to the acquired loans is recorded on the acquisition date . the fair value measurements of acquired loans are based on estimates related to expected prepayments and the amount and timing of undiscounted expected principal , interest and other cash flows . the fair value adjustment is amortized over the life of the loan using the effective interest method . the company accounts for acquired impaired loans under asc topic 310-30 , loans and debt securities acquired with deteriorated credit quality ( “ asc 310-30 ” ) . an acquired loan is considered impaired when there is evidence of credit deterioration since origination and it is probable at the date of acquisition that we will be unable to collect all contractually required payments . asc 310-30 prohibits the carryover of an allowance for loan losses for acquired impaired loans . over the life of the acquired loans , we continually estimate the cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics . as of the end of each fiscal quarter , we evaluate the present value of the acquired loans using the effective interest rates . for any increases in cash flows expected to be collected , we adjust the amount of accretable yield recognized on a prospective basis over the loan 's or pool 's remaining life , while we recognize a provision for loan loss in the consolidated statement of operations if the cash flows expected to be collected have decreased . fair value measurement .
| performance summary 2014 vs. 2013. for the year ended december 31 , 2014 , net income was $ 5.4 million , or $ 0.98 per basic share and $ 0.93 per diluted share , compared to net income of $ 3.2 million , or $ 0.86 per basic share and $ 0.81 per diluted share , for the year ended december 31 , 2013. the increase in our net income was primarily driven by higher levels of net interest income resulting from strong organic loan growth as well as the increase in loans as a result of the fcb acquisition , offset , in part , by a slight decrease in yields on interest-earning assets . return on average assets increased to 0.73 % for the year ended december 31 , 2014 from 0.64 % for the year ended december 31 , 2013 primarily on account of increases in interest income and noninterest income . return on average equity was 6.8 % for the year ended december 31 , 2014 as compared to 6.1 % for the year ended december 31 , 2013 . 2013 vs. 2012 . net income was $ 3.2 million , or $ 0.86 per basic share and $ 0.81 per diluted share , for the year ended december 31 , 2013 compared to net income of $ 2.4 million , or $ 0.79 per basic share and $ 0.71 per diluted share , for the same period in 2012. the increase in our net income was primarily driven by the bargain purchase gain and higher levels of net interest income resulting from our strong organic loan growth as well as the increase in loans as a result of the fcb acquisition , offset , in part , by declining yields on interest-earning assets .
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we believe that this approach is appropriate because it provides a fair value estimate based upon the reporting units ' expected long-term operating cash performance . this approach also mitigates the impact of the cyclical trends occurring in the industry . fair value is estimated using internally-developed forecasts and assumptions . the discount rate used is the average estimated value of a market participant 's cost of capital and debt , derived using customary market metrics . other significant assumptions include terminal value margin rates , future capital expenditures , and changes in future working capital requirements . we also compare and reconcile our overall fair value to our market capitalization . although there are inherent uncertainties related to the assumptions used and to our application story_separator_special_tag the following discussion provides our highlights and commentary related to factors impacting our financial conditions and further describes the results of operations . the most significant risks and uncertainties are discussed in `` item 1a . risk factors . '' this discussion should be read in conjunction with the accompanying consolidated financial statements and notes to the consolidated financial statements included in this form 10-k. executive overview our mission is to be the world leader at informing and entertaining audiences through dynamic audio-visual communication systems . we measure our success through estimated market share based on estimated market demand for digital displays and generating profits over the long-term . our success is contingent on the depth and quality of our products , including related control systems , the depth of our service offerings and our technology serving these market demands . these qualities are important for our long-term success because our products have finite lifetimes and we strive to win replacement business from existing customers . increases in user adoption ; the acceptance of a variety of digital solutions ; and the decline of digital solution pricing over the years has increased the size of the global market . with this positive demand , strong competition exists across all of our business units , which causes margin constraints . projects with multi-million revenue potential also attract competition , which generally reduces profitability . we organize around customer segments and geographic regions as further described in `` note 2. segment reporting `` of the notes to our consolidated financial statements included in this form 10-k. each business segment also has unique key growth drivers and challenges . 15 commercial business unit : over the long-term , we believe growth in the commercial business unit will result from a number of factors , including : standard display product market growth due to market adoption and lower product costs , which drive marketplace expansion . standard display products are used to attract or communicate with customers and potential customers of retail , commercial , and other establishments . pricing and economic conditions impact our success in this business unit . we utilize a reseller network to distribute our standard products . national accounts standard display market opportunities due to their desire to communicate their message , advertising and content consistently across the country . increased demand is possible from retailers , quick serve restaurants , petroleum businesses , and other nationwide organizations . increasing interest in spectaculars , which include very large and sometimes highly customized displays as part of entertainment venues such as casinos , amusement parks and times square type locations . dynamic messaging systems demand growth due to market adoption and marketplace expansion . the introduction of architectural lighting products for commercial buildings , which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building . the continued deployment of digital billboards as ooh companies continue developing new sites and start to replace digital billboards which are reaching end of life . this is dependent on there being no adverse changes in the digital billboard regulatory environment , which could restrict future deployments of billboards , as well as maintaining our current market share of the business concentrated in a few large ooh companies . replacement cycles within each of these areas . live events business unit : over the long-term , we believe growth in the live events business unit will result from a number of factors , including : facilities spending more on larger display systems to enhance the game-day and event experience for attendees . lower product costs , driving an expansion of the marketplace . our product and service offerings , which remain the most integrated and comprehensive offerings in the industry . the competitive nature of sports teams , which strive to out-perform their competitors with display systems . the desire for high-definition video displays , which typically drives larger displays or higher resolution displays , both of which increase the average transaction size . replacement cycles within each of these areas . high school park and recreation business unit : over the long-term , we believe growth in the high school park and recreation business unit will result from a number of factors , including : increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays versus traditional scoreboards . increased demand for different types of displays , such as message centers at schools to communicate to students , parents and the broader community . the use of more sophisticated displays in athletic facilities , such as aquatic venues in schools . transportation business unit : over the long-term , we believe growth in the transportation business unit will result from increasing applications and acceptance of electronic displays to manage transportation systems , including roadway , airport , parking , transit and other applications . effective use of the united states transportation infrastructure requires intelligent transportation systems . this growth is highly dependent on government spending , primarily by the federal government , along with the continuing acceptance of private/public partnerships as an alternative funding source . story_separator_special_tag due to the difficulty in estimating probable costs related to certain warranty obligations , there is a reasonable likelihood that the ultimate remaining costs to remediate the warranty claims could differ materially from the recorded accrued liabilities . see `` note 17. commitments and contingencies `` of the notes to our consolidated financial statements included in the form 10-k for further information on warranties . extended warranty and product maintenance . we recognize deferred revenue related to separately priced extended warranty and product maintenance agreements . the deferred revenue is recognized ratably over the contractual term . if we would become aware of an increase in our estimated costs under these agreements in excess of our deferred revenue , additional charges may be necessary , resulting in an increase in costs of goods sold . in determining if additional charges are necessary , we examine cost trends on the contracts and other information and compare them to the deferred revenue . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine estimated costs under these agreements . as of april 30 , 2016 and may 2 , 2015 , we had $ 15.1 million and $ 13.1 million of deferred revenue related to separately priced extended warranty and product maintenance agreements , respectively . inventory . inventories are stated at the lower of cost or market . market refers to the current replacement cost , except market may not exceed the net realizable value ( that is , the estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal ) , and market is not less than the net realizable value reduced by an allowance for normal profit margins . in 18 valuing inventory , we estimate market value where it is believed to be the lower of cost or market , and any necessary changes are charged to costs of goods sold in the period in which they occur . in determining market value , we review various factors such as current inventory levels , forecasted demand and technological obsolescence . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate the estimated market value of inventory . however , if market conditions change , including changes in technology , product components used in our products or expected sales , we may be exposed to unforeseen losses which could be material . income taxes . we operate in multiple income tax jurisdictions both within the united states and internationally . our annual tax rate is determined based on our income , statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes in each tax jurisdiction . tax laws require that certain items be included in the tax returns at different times than the items are reflected in the financial statements . some of these differences are permanent , such as expenses that are not deductible in our tax return , and some differences are temporary and reverse over time , such as depreciation expense . these temporary differences create deferred tax assets and liabilities and reflect the enacted income tax rates in effect for the years in which the differences are expected to reverse . we consider a valuation allowance for deferred tax assets if it is `` more likely than not '' that some or all of the benefits will not be realized . because we operate in multiple income tax jurisdictions both within the united states and internationally , management must determine the appropriate allocation of income and expenses to each of these jurisdictions based on current interpretations of complex income tax regulations . income tax authorities in all jurisdictions regularly perform audits of our income tax filings . income tax audits associated with the allocation of income , expenses and other complex issues , including transfer pricing methodologies , may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates . we have no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested . if circumstances change and it becomes apparent that some or all of the undistributed untaxed earnings of a subsidiary will be remitted to the united states , we will accrue a tax expense at that time . we have approximately $ 9.1 million of untaxed earnings which have been indefinitely reinvested . asset impairment . carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with asc 350 , intangibles - goodwill and other . our impairment review involves estimating the fair value of goodwill and indefinite-lived intangible assets using a combination of a market approach and an income ( discounted cash flow ) approach at the reporting unit level , requiring significant management judgment with respect to revenue and expense growth rates , changes in working capital , and the selection and use of an appropriate discount rate . the estimates of fair value of reporting units are based on the best information available as of the date of the assessment . the use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease any impairment charge . we use our judgment in assessing whether assets may have become impaired between annual impairment tests . indicators such as adverse business conditions , economic factors and technological change or competitive activities may signal an asset has become impaired . carrying values for long-lived tangible assets and definite-lived intangible assets , excluding goodwill and indefinite-lived intangible assets , are reviewed for possible impairment as circumstances warrant in connection with asc 360-10-05-4 , impairment or disposal of long-lived assets .
| fourth quarter summary during the fourth quarter of fiscal 2016 , net sales decrease d approximately 12.4 percent to $ 138.5 million as compared to $ 158.1 million in the fourth quarter of fiscal 2015 . net sales decreased in the international , commercial billboard and spectacular niches , and live events business units . net sales increased in the high school park and recreation business unit . transportation business unit net sales remained relatively flat . commercial business unit net sales decreased due to decreased customer demand in billboard and spectacular niches due to lower demand in the billboard segment from our national billboard customers and due to the volatility of order timing of large projects cause by various macroeconomic and customer decision delays . live events business unit net sales decreased due to the timing of customer deliveries extending beyond the fiscal year . high school park and recreation business unit net sales increased due to an increase in sales and service orders for increased project sizes . international business unit net sales decreased due to lower orders during the last half of the year . gross margin percentage decrease d to approximately 20.2 percent in the fourth quarter of fiscal 2016 from approximately 22.3 percent in the fourth quarter of fiscal 2015 . the decrease in gross profit percentage was the net result of the additional warranty charge in fiscal 2016 and the product mix of sales . selling expenses increase d to $ 15.9 million in the fourth quarter of fiscal 2016 compared to $ 14.6 million in the fourth quarter of fiscal 2015 . the increase was primarily due to increased personnel expenses , including taxes and benefits , third party commissions , and bad debt expense , which were partially offset by decreases in travel and entertainment expenses and other expenses .
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