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cost of goods sold as a percentage of net sales was 80.8 % and 80.7 % in 2018 and 2017 , respectively . operating income was $ 352.4 million for 2018 , compared to $ 319.0 million for 2017 . operating income increased primarily due to higher sales volume and operating leverage . net income attributable to wesco international of $ 227.3 million increased by 39.1 % compared to 2017 net income of $ 163.5 million , which included $ 26.4 million of discrete income tax expense resulting from the application of the tcja . earnings per diluted share attributable to wesco international was $ 4.82 in 2018 , based on 47.2 million diluted shares , compared with earnings per diluted share of $ 3.38 in 2017 , based on 48.4 million diluted shares . excluding the impact of the tcja of $ 0.55 , adjusted earnings per diluted share for 2017 was $ 3.93 . we provide a full-line of electrical , industrial and communications mro and oem products , construction materials , and advanced supply chain management and logistics services to customers globally . approximately 75 % of our sales in 2018 were from customers in the united states and 25 % were from international customers , primarily in canada . our end markets consist of industrial firms , electrical and data communications contractors , utilities , and commercial organizations , institutions and government entities . our transaction types to these markets can be categorized as stock , direct ship and special order . stock orders are filled directly from existing inventory and represent approximately 52 % of total sales . approximately 38 % of our total sales are direct ship sales . direct ship sales are typically custom-built products , large orders or products that are too bulky to easily handle and , as a result , are shipped directly to the customer from the supplier . special orders are for products that are not ordinarily stocked in inventory and are ordered based on a customer 's specific request . special orders represent the remaining 10 % of total sales . we have historically financed our working capital requirements , capital expenditures , acquisitions , share repurchases and new branch openings through internally-generated cash flow , debt issuances , borrowings under our revolving credit facility and funding through our receivables facility . cash flow we generated $ 296.7 million in operating cash flow during 2018 . cash provided by operating activities included net income of $ 225.4 million , adjustments to net income totaling $ 84.9 million , which were offset by changes in assets and liabilities of $ 13.6 million . investing activities primarily included capital expenditures of $ 36.2 million . financing activities consisted of borrowings and repayments of $ 473.1 million and $ 433.5 million , respectively , related to our revolving credit facility , borrowings and repayments of $ 720.0 million and $ 825.0 million , respectively , related to our receivables facility , repayments of $ 60.0 million applied to our term loan facility as well as borrowings and repayments on our various international lines of credit of $ 142.3 million and $ 143.7 million , respectively . financing activities also included the repurchase of $ 127.2 million of the company 's common stock , of which $ 125.0 million was pursuant to the share repurchase plan announced on december 13 , 2017 and amended on october 31 , 2018. free cash flow for the years ended december 31 , 2018 and 2017 was $ 260.5 million and $ 127.6 million , respectively . 16 the following table sets forth the components of free cash flow : replace_table_token_5_th note : the table above reconciles cash flow provided by operations to free cash flow . free cash flow is a non-gaap financial measure of liquidity . capital expenditures are deducted from operating cash flow to determine free cash flow . free cash flow is available to fund investing and financing activities . financing availability as of december 31 , 2018 , we had $ 515.9 million in total available borrowing capacity under our revolving credit facility , which was comprised of $ 398.1 million of availability under the u.s. sub-facility and $ 117.8 million of availability under the canadian sub-facility . available borrowing capacity under our receivables facility was $ 275.0 million . the receivables facility and revolving credit facility both mature in september 2020. critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to supplier programs , bad debts , inventories , insurance costs , goodwill , income taxes , contingencies and litigation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . if actual market conditions are less favorable than those projected by management , additional adjustments to reserve items may be required . we believe the following critical accounting policies affect our judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition our revenue arrangements generally consist of single performance obligations to transfer a promised good or service , or a combination of goods and services . revenue is recognized when control has transferred to the customer , which is generally when the product has shipped from one of our facilities or directly from a supplier . story_separator_special_tag due to the subjectivity inherent in the evaluation of uncertain tax positions , the tax benefit ultimately recognized may materially differ from the estimate . we recognize interest and penalties related to uncertain tax benefits as part of interest expense and income tax expense , respectively . the tcja imposed a one-time tax on the deemed repatriation of undistributed foreign earnings ( the `` transition tax '' ) . except for a portion of the previously taxed foreign earnings that have been repatriated , we continue to assert that the remaining undistributed earnings of our foreign subsidiaries , the majority of which were subject to the transition tax , are indefinitely reinvested . we believe we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriating cash held by these foreign subsidiaries . upon any future repatriation , additional income taxes may be incurred ; however , it is not practicable to determine the amount at this time . the provisions of the tcja also introduced u.s. taxation on certain global intangible low-taxed income ( `` gilti '' ) . we have elected to account for gilti tax as a component of income tax expense . 18 future adjustments ( if any ) resulting from additional regulatory guidance regarding the accounting for the income tax effects of tcja will be recognized as discrete income tax expense or benefit in the period in which guidance is issued . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2017 . the lower effective tax rate for 2018 was primarily due to the permanent reduction of the u.s. federal statutory income tax rate from 35 % to 21 % , effective january 1 , 2018 , as well as the completion of the accounting for the income tax effects of the tcja . in 2017 , the effective tax rate was negatively impacted by the discrete income tax expense of $ 26.4 million related to the application of the tcja . net income . net income increased by $ 62.2 million , or 38.1 % , to $ 225.4 million in 2018 , compared to $ 163.1 million in 2017 . the increase in net income was primarily due higher sales volume and lower income taxes . net loss attributable to noncontrolling interests . net loss attributable to noncontrolling interests in 2018 and 2017 was $ 2.0 million and $ 0.3 million , respectively . the change in net loss attributable to noncontrolling interests was primarily due to the effect of foreign currency . net income attributable to wesco international . net income and earnings per diluted share attributable to wesco international were $ 227.3 million and $ 4.82 per share , respectively , in 2018 , compared with $ 163.5 million and $ 3.38 per share , respectively , in 2017 . 2017 compared to 2016 net sales . net sales in 2017 increased 4.7 % to $ 7.7 billion , compared with $ 7.3 billion in 2016. foreign exchange rates and acquisitions positively impacted net sales by 0.4 % and 0.2 % , respectively , and were partially offset by a 0.4 % impact from the number of workdays , resulting in organic sales growth of 4.5 % . the following table sets forth organic sales growth : twelve months ended december 31 , organic sales growth : 2017 change in net sales 4.7 % less : impact from acquisitions 0.2 % less : impact from foreign exchange rates 0.4 % less : impact from number of workdays ( 0.4 ) % organic sales growth 4.5 % note : organic sales growth is a non-gaap financial measure of sales performance . organic sales growth is calculated by deducting the percentage impact from acquisitions in the first year of ownership , foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales . 20 cost of goods sold . cost of goods sold increased 5.2 % in 2017 to $ 6.2 billion , compared with $ 5.9 billion in 2016. cost of goods sold as a percentage of net sales was 80.7 % and 80.3 % in 2017 and 2016 , respectively . the increase in cost of goods sold as a percentage of net sales was primarily due to geographic mix and competition . sg & a expenses . sg & a expenses include costs associated with personnel , shipping and handling , travel , advertising , facilities , utilities and bad debts . sg & a expenses increased by $ 50.8 million , or 4.8 % , to $ 1.1 billion in 2017. as a percentage of net sales , sg & a expenses were consistent at 14.3 % in 2017 and 2016. sg & a expenses increased primarily as a result of higher variable compensation expense . sg & a payroll expenses for 2017 of $ 776.3 million increased by $ 40.0 million compared to 2016. the increase in sg & a payroll expenses was primarily due to an increase in commissions , incentive compensation , healthcare benefits , and temporary labor costs . the remaining sg & a expenses for 2017 of $ 325.3 million increased by $ 10.8 million compared to 2016. the increase in the remaining sg & a expenses was primarily due to an increase in operating costs required to support higher sales volumes . depreciation and amortization . depreciation and amortization decreased $ 2.8 million to $ 64.0 million in 2017 , compared with $ 66.9 million in 2016. income from operations . income from operations decreased by $ 11.5 million to $ 319.0 million in 2017 , compared to $ 330.6 million in 2016. income from operations as a percentage of net sales was 4.2 % and 4.5 % in 2017 and 2016 , respectively . income from operations as a percentage of net sales decreased primarily as a result of lower gross margin . net interest and other .
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results of operations the following table sets forth the percentage relationship to net sales of certain items in our consolidated statements of income and comprehensive income for the periods presented : replace_table_token_6_th 2018 compared to 2017 net sales . net sales in 2018 in creased 6.5 % to $ 8.2 billion , compared with $ 7.7 billion in 2017 . foreign exchange rates positively impacted net sales by 0.3 % , resulting in organic sales growth of 6.2 % . the following table sets forth organic sales growth : twelve months ended december 31 , organic sales growth : 2018 change in net sales 6.5 % less : impact from acquisitions — % less : impact from foreign exchange rates 0.3 % less : impact from number of workdays — % organic sales growth 6.2 % note : organic sales growth is a non-gaap financial measure of sales performance . organic sales growth is calculated by deducting the percentage impact from acquisitions in the first year of ownership , foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales . cost of goods sold . cost of goods sold in creased 6.7 % in 2018 to $ 6.6 billion , compared with $ 6.2 billion in 2017 . cost of goods sold as a percentage of net sales was 80.8 % and 80.7 % in 2018 and 2017 , respectively . cost of goods sold as a percentage of net sales was positively impacted by our ability to effectively pass through supplier price increases to customers and margin improvement initiatives . these benefits were offset by a reclassification of certain labor costs from selling , general and administrative expenses to cost of goods sold . selling , general and administrative ( `` sg & a '' ) expenses . sg & a expenses include costs associated with personnel , shipping and handling , travel , advertising , facilities , utilities and bad debts .
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also on february 6 , 2018 , the company and velosbio entered into : ( i ) an asset purchase agreement whereby velosbio purchased the company 's right , title and interest in the company 's nominal assets related to the two preclinical product candidates and assumed the company 's $ 0.2 million convertible note payable and related $ 16,000 of accrued interest which has been recorded as other income , and ( ii ) a transition services agreement whereby the company agreed to provide velosbio with certain transition services , as follows : ( a ) access to certain common laboratory equipment at the company 's lab facility , ( b ) certain named employees were 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 our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and future financial performance , includes forward-looking statements that are based upon current beliefs , plans and expectations and involve risks , uncertainties and assumptions . you should review the “ risk factors ” section of this annual report for a discussion of important factors that could cause our actual results and the timing of selected events to differ materially from those described in or implied by the forward-looking statements contained in the following discussion and analysis . please also see the section within part i of this annual report entitled “ forward-looking statements. ” unless otherwise indicated or as the context otherwise requires , the historical financial information included in this management 's discussion and analysis of financial condition and results of operations is that of private oncternal prior to the merger because private oncternal was deemed to be the accounting acquirer in the merger for financial reporting purposes . overview we are a clinical-stage biopharmaceutical company focused on the development of novel oncology therapies for cancers with critical unmet medical need . our development efforts are focused on promising , yet untapped , biological pathways implicated in cancer generation or progression . our pipeline includes cirmtuzumab , an investigational monoclonal antibody that is designed to inhibit ror1 , a growth factor receptor that is widely expressed on many tumors and that activates pathways leading to increased tumor proliferation , invasiveness and drug resistance . cirmtuzumab is being evaluated in a phase 1/2 clinical trial in combination with ibrutinib ( imbruvica ® ) for the treatment of patients with b-cell lymphoid malignancies , including mcl and cll and in an investigator-sponsored , phase 1 clinical trial in combination with paclitaxel for the treatment of women with her2-negative metastatic or locally advanced , unresectable breast cancer . we are also developing tk216 , an investigational small molecule that is designed to inhibit the ets , or e26 transformation specific , family of oncoproteins , which have been shown in preclinical studies to alter gene transcription and rna processing and lead to increased cell proliferation and invasion . tk216 is being evaluated in a phase 1 clinical trial as a single agent and in combination with vincristine in patients with relapsed or refractory ewing sarcoma , a rare pediatric cancer . in addition , we are developing a chimeric antigen receptor t cell , or car-t , therapy candidate that targets ror1 , which is currently in preclinical development as a potential treatment for hematologic cancers and solid tumors . since private oncternal 's inception in 2013 , we have devoted most of our resources to organizing and staffing , business planning , raising capital , acquiring product candidates and securing related intellectual property rights and advancing our cirmtuzumab and tk216 clinical development programs . under research subaward agreements between us and the university of california san diego ( “ uc san diego ” ) , we are eligible to receive approximately $ 14.0 million in development milestones throughout the award project period , estimated to be from october 1 , 2017 to march 31 , 2022. through december 31 , 2019 , we have funded our operations primarily through : ( i ) gross proceeds of $ 49.0 million from the issuance of convertible preferred stock , ( ii ) receipt of $ 10.3 million in subaward grant payments received from uc san diego , and ( iii ) cash proceeds of $ 18.3 million received in connection with the closing of the merger described below . as of december 31 , 2019 , we had cash and cash equivalents of $ 20.1 million . 103 we have incurred net losses in each year since inception . o ur ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates . our net losses were $ 34 . 2 million ( including $ 18.1 million related to nonrecurring m erger costs ) and $ 6 . 6 million for the years ended december 31 , 201 9 and 201 8 , respectively . as of december 31 , 201 9 , we had an accumulated deficit of $ 65 . 6 million . substantially all of our net losses have resulted from costs incurred in connection with : ( i ) advancing our research and development programs , ( ii ) general and administrative costs associated with our operations , including the costs associated with operating as a public company , and ( iii ) in-process research and development costs associated with the merger . we expect to continue to incur significant and increasing operating losses for at least the next several years . story_separator_special_tag immediately prior to the closing of the merger , all shares of private oncternal preferred stock then outstanding were exchanged into shares of common stock of private oncternal . in addition , all outstanding options exercisable for common stock of private oncternal and warrants exercisable for convertible preferred stock of private oncternal became options and warrants exercisable for the same number of shares of common stock of the company multiplied by the exchange ratio . immediately following the merger , stockholders of private oncternal owned approximately 77.5 % of the outstanding common stock of the combined company . the par value and the authorized shares of our common stock were not adjusted as a result of the reverse stock split . the transaction was accounted for as a reverse asset acquisition in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . under this method of accounting , private oncternal was deemed to be the accounting acquirer for financial reporting purposes . this determination was primarily based on the facts that , immediately following the merger : ( i ) private oncternal 's stockholders owned a substantial majority of the voting rights in the combined company , ( ii ) private oncternal designated a majority of the members of the initial board of directors of the combined company , and ( iii ) private oncternal 's senior management holds all key positions in the senior management of the combined company . as a result , as of the closing date of the merger , ( i ) the merger is being treated as the equivalent of private oncternal issuing stock to acquire the net assets of gtx , ( ii ) the net assets of gtx are recorded based upon the fair values in the financial statements at the time of closing and ( iii ) the reported historical operating results of the combined company prior to the merger will be those of private oncternal . 105 prior to the merger , we had been evaluating enobosarm , a selective androgen receptor modulator ( “ sarm ” ) , for the treatment of post-menopausal women with stress urinary incontinence ( “ sui ” ) . however , based on the results of the astrid trial in 2018 , we determined that there was not a sufficient path forward to warrant additional clinical development of enobosarm to treat sui , and discontinued further development of enobosarm to treat sui , as well as our sarm technology generally . on december 31 , 2019 , we provided notice of terminat ion of the amended and restated license agreement ( the “ sarm license agreement ” ) , dated july 24 , 2007 , by and between us and the university of tennessee research foundation related to the development of the sarm technology , which termination will be effective three months following such notice . we have the right to terminate the sarm license agreement at any time , effective upon three months ' notice . following termination , we will no longer have the obligation to make further payments under the sarm license agreement , including payments for patent prosecution and maintenance , and we will no longer have any rights to develop or sublicense the sarm technology . we will not incur any early termination penalties due to the termination of the sarm license agreement . components of results of operations grant revenue we have not and do not expect to generate any product sales revenue in the foreseeable future . if our development efforts for our product candidates are successful and result in regulatory approval , we may generate product sales revenue in the future . we can not predict if , when , or to what extent we will generate revenue from the commercialization and sale of our product candidates . we may never succeed in obtaining regulatory approval for any of our product candidates . our total revenue to date has been derived from a california institute for regenerative medicine ( “ cirm ” ) grant subaward with uc san diego . in august 2017 , cirm awarded an $ 18.3 million grant to researchers at uc san diego to advance our phase 1/2 clinical trial evaluating cirmtuzumab in combination with ibrutinib for the treatment of patients with b-cell lymphoid malignancies , including mcl and cll . oncternal is conducting this study in collaboration with uc san diego and estimates it will receive approximately $ 14.0 million in development milestones under research subaward agreements throughout the award project period , estimated to be from october 1 , 2017 to march 31 , 2022. in addition , we are committed to certain co-funding requirements and are required to provide uc san diego progress and financial update reports throughout the award project period . we received subaward payments of $ 6.2 million and $ 0.5 million in the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we believe we have met our obligations under the cirm award and uc san diego subawards . operating expenses research and development research and development expenses consist primarily of costs incurred for the preclinical and clinical development of our product candidates , cirmtuzumab , tk216 and our ror1-targeting car-t therapy candidate , which include : expenses under agreements with third-party contract organizations , investigative clinical trial sites that conduct research and development activities on our behalf , and consultants ; costs related to develop and manufacture preclinical study and clinical trial material ; salaries and employee-related costs , including stock-based compensation ; costs incurred under our collaboration and third-party licensing agreements ; and laboratory and vendor expenses related to the execution of preclinical and clinical trials . we accrue all research and development costs in the period they are incurred . costs for certain development activities are recognized based on an evaluation of the progress towards completion of specific tasks using information and data provided to us by our vendors , collaborators and third-party service providers .
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results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 ( in thousands ) : replace_table_token_2_th grant revenue grant revenue for the year ended december 31 , 2019 was $ 2.4 million , consistent with the $ 2.5 million for the year ended december 31 , 2018. research and development expenses the following table summarizes our research and development expenses for the periods indicated ( in thousands ) : replace_table_token_3_th research and development expenses for the years ended december 31 , 2019 and 2018 were $ 10.2 million and $ 8.3 million , respectively , an increase of $ 1.9 million . the increase was primarily due to : ( i ) a $ 0.7 million net increase in direct product candidate costs , and ( ii ) a $ 1.2 million increase in unallocated research and development expenses . 108 direct expenses for cirmtuzumab increased $ 0.6 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , primarily due to the following partially offsetting factors : ( i ) a $ 1 . 9 million increase in clinical trial activities related to our ongoing phase 1/2 clinical trial of cirmtuzumab in combination with ibrutinib for the treatment of patients with b-cell lymphoid malignancies , including mcl and cll , that commenced in the latter part of 2017 , ( ii ) a $ 0.3 million increase in regulatory and quality activities , and ( iii ) a $ 1.6 million decrease in manufacturing clinical trial material costs . direct expenses for tk216 decreased $ 0.4 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , primarily due to a corresponding decrease in clinical trial activities related to our continuing phase 1 clinical trial of tk216 in refractory ewing sarcoma .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . risk factors and under forward-looking statements in this annual report on form 10-k. overview we are a clinical-stage biopharmaceutical company committed to developing and commercializing novel medicines to treat life-threatening , rare central nervous system , or cns , disorders , where there are inadequate or no approved existing therapies . we are targeting cns indications where patient populations are easily identified , acute treatment is typically initiated in the hospital setting , clinical endpoints are well-defined and development pathways are feasible . this focus allows us to make highly informed decisions when advancing our product candidates through the development process . our initial product candidates , which are summarized in the following table , are aimed at treating different stages of status epilepticus , or se , a life-threatening condition in which the brain is in a state of persistent seizure , as well as other seizure and non-seizure disorders . the lead product candidate in our se program , sage-547 , is an intravenous , or iv , agent in phase 1/2 clinical development as an adjunctive therapy , a therapy combined with current therapeutic approaches , for the treatment of super-refractory se , or srse . the current standard of care for srse is empiric , and there are no therapies at present that have been specifically approved for this indication . we thus believe there is a significant medical need for sage-547 . in addition , we continue to use sage-547 to establish proof of principle in clinical trials for essential tremor , a debilitating neurological disorder that causes involuntary , rhythmic shaking with no known cause , and severe postpartum depression , a distinct and readily identified form of major depressive disorder estimated to affect 15 % to 20 % of women following childbirth . we plan to use the data from these exploratory studies to help guide the design of a second-generation molecule for the chronic treatment of these diseases . 76 sage-689 and sage-217 are two additional product candidates in our pipeline , which are currently in ind-enabling toxicology and safety pharmacology testing . sage-689 is being developed as an adjunctive second-line therapy for the treatment of se . we are currently conducting ind-enabling studies of sage-689 , with a plan to file an ind in late 2015 and to begin a phase 1 clinical trial thereafter . sage-217 is being developed as an oral monotherapy for orphan epilepsies , such as dravet and rett syndromes . we are currently conducting ind-enabling studies of sage-217 with a plan to file an ind by late 2015 and to begin a phase 1 clinical trial thereafter . since our inception in april 2010 , we have devoted substantially all of our resources to organizing and staffing our company , business planning , raising capital , identifying and developing our product candidates , preparing to conduct and conducting non-clinical and clinical trials of our product candidates , providing general and administrative support for these operations and protecting our intellectual property . we have funded our operations to date through sales of common stock , redeemable convertible preferred stock and , to a lesser extent , the issuance of convertible notes , and proceeds from our initial public offering , or ipo . we have not generated any revenue to date . we have incurred net losses in each year since our inception , and we have an accumulated deficit of $ 66.9 million as of december 31 , 2014. our net losses were $ 36.1 million , $ 18.3 million , and $ 9.6 million for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . these losses have resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with our operations . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we expect that our expenses will increase substantially in connection with our ongoing activities , as we : advance clinical development of sage-547 , our lead product candidate in our se program , including completing our planned phase 3 clinical trial for sage-547 in srse , late stage non-clinical studies of sage-547 , initial preparations for commercial launch , and clinical trials to establish proof of principle in additional indications including severe ppd and essential tremor ; advance development of sage-689 as an adjunctive second-line therapy for the treatment of se , including completing the ind-enabling toxicology and safety pharmacology testing currently underway , filing an investigational new drug application , or ind , in late 2015 and conducting a phase 1 clinical trial thereafter ; advance development of sage-217 as an oral monotherapy for orphan epilepsies such as dravet and rett syndromes , including completing the ind-enabling toxicology and safety pharmacology testing currently underway and filing an ind in late 2015 ; continue our research and development efforts for other drug candidates in the treatment of cns disorders including on our early-stage novel allosteric modulators for nmda ; seek regulatory approvals for our product candidates ; add personnel , including personnel to support our product development and future commercialization ; add operational , financial and management information systems ; maintain , leverage and expand our intellectual property portfolio ; and operate as a public company . as a result , we will need additional financing to support our continuing operations . until such time that we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . arrangements with collaborators or others may require us to relinquish rights to certain of our technologies or product candidates . story_separator_special_tag we also anticipate increased expenses associated with being a public company , including costs related to audit , legal , regulatory and tax-related services associated with 79 maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums , and investor relations costs . additionally , if and when we believe that a regulatory approval of the first product candidate appears likely , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidates . other income ( expense ) interest income ( expense ) , net . interest income ( expense ) , net consists of interest earned on our cash and cash equivalents and interest expense on prior debt . our interest income has not been significant due to low interest earned on invested balances . we anticipate that our interest income will increase in the future due to increased balances from the net proceeds of $ 146.8 million we received from our series b and series c preferred stock financings in the first quarter of 2014 and our ipo on july 23 , 2014. other income ( expense ) , net . other income ( expense ) , net consists of the realized and unrealized net gains and losses from foreign currency-denominated vendor payables . critical accounting policies and significant judgments and estimates our financial statements are prepared in accordance with generally accepted accounting principles in the united states . the preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets , liabilities , revenue , costs and expenses , and related disclosures . we believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our financial statements and , therefore , consider these to be our critical accounting policies . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses . 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 costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advanced payments . 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 . examples of estimated accrued research and development expenses include fees paid to : cros in connection with performing research and development services on our behalf ; investigative sites or other providers in connection with clinical trials ; vendors in connection with non-clinical development activities ; and vendors related to product manufacturing , development and distribution of clinical supplies . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple cros that conduct and manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven 80 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 depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed , enrollment of patients , number of sites activated and 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 adjust the accrual or prepaid 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 expenses that are too high or too low in any particular period . to date , we have not made any material adjustments to our prior estimates of accrued research and development expenses . stock-based compensation we measure stock-based awards granted to our employees and nonemployee directors at fair value on the date of grant and recognize the corresponding compensation expense of those awards , net of estimated forfeitures , over the requisite service period , which is generally the vesting period of the respective award . generally , we issue stock options and restricted stock with only service-based vesting conditions and record the expense for these awards using the straight-line method . we have historically granted stock options with exercise prices equivalent to the fair value of our common stock as of the date of grant . we measure stock-based awards granted to nonemployee consultants at the fair value of the award on the date at which the related service is complete . compensation expense is recognized over the period during which services are rendered by such nonemployee consultants until completed .
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results of operations comparison of the years ended december 31 , 2014 and 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 : replace_table_token_6_th research and development expenses replace_table_token_7_th research and development expenses for the fiscal year ended december 31 , 2014 were $ 24.1 million , compared to $ 14.4 million for the year ended december 31 , 2013. the increase of $ 9.7 million period over period was primarily due to the following : an increase of $ 5.2 million in expenses of our sage-547 program . we initiated the phase 1/2 clinical trial of sage-547 in srse in early 2014 ; an increase of $ 0.3 million in expenses of our sage-689 program with advancement of the lead optimization program into ind-enabling non-clinical development ( e.g . toxicology studies , process development , and drug substance manufacturing ) ; an increase of $ 1.6 million in expenses of our sage-217 program with advancement of the lead optimization program into ind-enabling non-clinical development ( e.g . toxicology studies , process development , and drug substance manufacturing ) ; a net decrease of $ 0.3 million in expenses of our other research and development programs reflecting a focus on advancing sage-689 and sage-217 into ind-enabling non-clinical development , portfolio priorities , and timing of investment in certain research programs ; and an increase of $ 2.9 million in employee related spending to support the growth in our research and development activities , reflecting the effects of hiring additional , full-time employees during 2014 .
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asu 2016-02 is effective for reporting periods beginning after december 15 , 2018. modified retrospective application is required , with optional practical expedients available . the company is currently evaluating the impact of the new guidance . debt issuance costs - in april 2015 , the fasb issued asu 2015-03 , “ simplifying the presentation of debt issuance costs ” . the new standard will more closely align the presentation of debt issuance costs under u.s. generally accepted accounting principles with the presentation under comparable ifrs standards . debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability , similar to the presentation of debt discounts . the cost of issuing debt will no longer be recorded as a separate asset , except when incurred before receipt of the funding from the associated debt liability . under current u.s. generally accepted accounting principles , debt issuance costs are reported on the balance sheet as assets and amortized as interest expense . the costs will continue to be amortized to interest expense using the effective interest method . subsequent to the issuance of asu 2015-03 the securities and exchange commission staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements , which was codified by the fasb in asu 2015-15. this guidance , which clarifies the exclusion of line-of-credit arrangements from the scope of asu 2015-03 , is effective upon adoption of asu 2015-03. asu 2015-03 is effective for public business entities for fiscal years beginning after december 15 , 2015 , and interim periods within those fiscal years . the implementation of this standard did not have a material impact on the company 's accompanying financial statements . f- 9 stock compensation - in march 2016 , the fasb issued asu 2016-09 , “ compensation – stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ” , which will simplify the income tax consequences , accounting for forfeitures and classification on the statement of cash flows ( i ) excess tax benefits be classified as cash inflows provided by operating activities , and ( ii ) cash paid to taxing authorities arising from the withholding of shares from employees be classified as cash outflows used in financing activities . this standard is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2016 , with early adoption permitted . this new pronouncement has been adopted on july 1 , 2016 and did not have a material effect on the company 's financial position , results of operations , but had an effect of the classification of cash paid to taxing authorities arising from the withholding of shares from employees ( treasury stock ) , classified as cash outflows used in financing activities . statement of cash flows — in august 2016 , the fasb issued asu no . 2016-15 , “ statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments ( a consensus of the emerging issues task force ) ” ( “ asu no . 2016-15 ” ) . asu no . 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows . asu no . 2016-15 is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2017. the company will adopt asu no . 2016-15 commencing in the first quarter of fiscal 2019. the company does not believe this standard will have a material impact on its financial statements or the related footnote disclosures . 4. notes payable – stockholders the company had two convertible notes payable ( the “ convertible notes ” ) to stockholders in aggregate principal amount of $ 0 and $ 100,000 at december 31 , 2017 and december 31 , 2016 , respectively . the convertible notes , which matured on august 25 , 2017 , bore interest at 12 % per annum . the holders of the convertible notes exercised their option to convert the notes to common shares of the company at maturity , at $ 0.50 per common share during the year ended december 31 , 2017. the company granted 200,000 common shares to the holders of the convertible notes . based on the terms of the conversion feature , the company had determined that the convertible notes did not contain a beneficial conversion feature . as such , the entire proceeds of the convertible notes were recorded as a liability . the interest expenses incurred and paid on the convertible notes was $ 7,000 and $ 3,000 , for the year ended december 31 , 2017 and for the period from february 10 , 2016 ( inception ) to december 31 , 2016 , respectively . 5. notes payable the company borrowed $ 112,000 from a shareholder on november 2 , 2017. the note bears interest at 12 % and is payable monthly interest-only through april 30 , 2018 , at which time the entire amount of principal and any accrued interest is due and payable . the note is collateralized by all equipment owned by the company and is guaranteed by the company 's president . 6. advances from related party the company has received non-interest bearing advances without a specified maturity date from a stockholder of the company . the company owed approximately $ 32,000 and $ 21,000 , respectively , at december 31 , 2017 and 2016 to the stockholder . story_separator_special_tag inventories are carried at the lower of cost ( on a first-in , first-out ( “ fifo ” ) ) basis , or net realizable value . use of accounting estimates the preparation of the financial statements in conformity with gaap requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . the most significant estimates and assumptions made by management related to determining the value of stock-based expenses . income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities for a change in tax rate is recognized in income in the period that includes the enactment date . valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized . 19 we account for uncertain tax positions in accordance with financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) 740-10 , “ income taxes. ” asc 740-10 provides several clarifications related to uncertain tax positions . most notably , a “ more likely-than-not ” standard for initial recognition of tax positions , a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization . asc 740-10 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements . first , we must determine whether any amount of the tax benefit may be recognized . second , we determine how much of the tax benefit should be recognized ( this would only apply to tax positions that qualify for recognition ) . no additional liabilities have been recognized as a result of the implementation . accordingly , we have not recognized any penalty , interest or tax impact related to uncertain tax positions . stock-based expenses we account for stock-based expenses under the provisions of asc 718 , “ compensation—stock compensation ” , which requires the measurement and recognition of expense for stock-based awards made to employees and directors based on estimated fair values on the grant date . the value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the period over which services are to be received or the vesting period . we account for stock-based expenses awards to non-employees in accordance with asc 505-50 , “ equity-based payments to non-employees . ” in accordance with asc 505-50 , we determine the fair value of stock-based expenses awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued , whichever is more reliably measurable . we estimated the fair value of stock-based awards issued to employees , directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock during the applicable period . research and development costs we expense research and development costs as incurred in accordance with asc 730 , “ research and development. ” our research and development activities related to activities undertaken to adapt the water purification technology contributed by david king for commercial-scale manufacturing and the development of additional products . earnings ( loss ) per share basic earnings ( loss ) per share are computed by dividing the net income ( loss ) by the weighted-average number of shares of common stock and common stock equivalents such as outstanding stock options and warrants . common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants , using the treasury stock method . the calculation of fully diluted earnings ( loss ) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance , whichever is later . 20 recently adopted accounting pronouncements going concern — in august 2014 , the fasb issued accounting standards update ( “ asu ” ) 2014-15 – “ presentation of financial statements – going concern – disclosure of uncertainties about an entity 's ability to continue as a going concern ” , which requires management to perform interim and annual assessments of an entity 's ability to continue as a going concern within one year of the date the financial statements are issued . an entity must provide certain disclosures if conditions or events raise substantial doubt about the entity 's ability to continue as a going concern . the updated accounting guidance was effective for the company on december 31 , 2016. we have implemented this new accounting standard and we will update our liquidity disclosures as necessary . revenue — in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers , which outlines a single , comprehensive model for entities to use in accounting for revenue arising from contracts with customers . asu 2014-09 is effective for reporting periods beginning after december 15 , 2017. the company is currently evaluating the impact of the new guidance . leases — in february 2016 , the fasb issued asu 2016-02 “ leases ” .
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results of operations year ended december 31 , 2017 , compared to the period from february 10 , 2016 ( inception ) through december 31 , 2016 revenue we generated revenues of approximately $ 36,000 and $ 0 and incurred operating expenses of approximately $ 1,736,000 and $ 1,880,000 for the fiscal year ended december 31 , 2017 and for the period from february 10 , 2016 ( inception ) through december 31 , 2016 , respectively . 22 research and development expenses below is a summary of our research and development expenses for the fiscal year ended december 31 , 2017 and for the period from february 10 , 2016 ( inception ) through december 31 , 2016 , respectively : replace_table_token_0_th payroll expenses related to our r & d function increased during the year ended december 31 , 2017 primarily related to increases in the salaries , payroll taxes and benefits for our employees engaged in research and development . stock-based compensation expenses decreased during the year ended december 31 , 2017 due to granting fewer stock awards to our employees and advisors during 2017. general and administrative expenses the following is a summary of our general and administrative expenses for the year ended december 31 , 2017 and for the period from february 10 , 2016 ( inception ) through december 31 , 2016 , respectively : replace_table_token_1_th payroll expenses increased during the fiscal year ended december 31 , 2017 primarily related to increases in salaries , payroll taxes and benefits for our employees needed for the increased levels of operations . stock-based compensation expense decreased during the fiscal year 2017 as a limited number of issuances were made under new or existing arrangements . other general and administrative expenses increased during the fiscal year ended december 31 , 2017 primarily related to increases in insurance , rental expenses , travel expenses , and professional fees due to the increase in operations .
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part i of the budget control act of 2011 ( budget control act ) provided for a reduction in defense budgets by at least $ 487 billion over a ten year period . part ii provided the potential for substantial additional reductions , through a process known as “ sequestration. ” the president 's proposed fiscal year ( fy ) 2013 budget represented a slight decline for defense from fy 2012. while congress has not passed a fy 2013 budget , it did pass a six-month continuing resolution that funds the u.s. government through march 27 , 2013. this continuing resolution restricts new starts and provides for discretionary spending levels that represent a slight increase over the fy 2012 budget . it is unclear whether annual appropriations bills will be passed during fy 2013. the u.s. government may operate under a continuing resolution for all of fy 2013 , restricting new contract or program starts for that year . the american taxpayer relief act of 2012 was enacted in january 2013. it addressed a number of tax code provisions and certain spending issues but left in place the sequester ( although delaying its implementation to march 1 , 2013 ) and did not address other fiscal matters such as the debt ceiling . the nation 's debt ceiling is currently expected to be reached during the first half of 2013. congress and the administration continue to debate these issues and the terms of a possible national fiscal approach . the outcome of that debate could have a significant impact on future defense spending plans . while the president 's proposed fy 2014 budget is scheduled for release in february 2013 , its delivery may be delayed given these unresolved broad fiscal matters . the congressional budget process to finalize fy 2013 defense spending also has been marked by continued uncertainty and significant debate , increasing the possibility of sequestration occurring . as noted above , the budget control act calls for additional substantial defense spending reductions through sequestration , if congress is unable to agree on a budget that conforms with the budget control act requirements . should sequestration , as currently mandated , be implemented in march 2013 , absent any other changes , we expect it would have serious negative consequences for the security of our country , the defense industrial base , including northrop grumman , and the customers , employees , suppliers , investors , and communities that rely on the companies in the defense industrial base . there continues to be much uncertainty also regarding how sequestration would be implemented , if it were to go into effect . there are many variables in how the law could be applied that make it difficult to determine the specific impacts . however , we expect that sequestration , as currently provided for under the budget control act , would result in lower revenues , profits and cash flows for our company . members of congress are discussing various options to address sequestration 's automatic spending cuts . while we can not predict the outcome of these efforts , it is likely that budget decisions made in this environment will have long-term consequences for our company and the entire defense industry . in addition to fiscal and budgetary constraints , we expect defense spending to be affected by the drawdown of u.s. force levels tied to current major overseas deployments and other shifts in defense missions and priorities . as overall defense spending declines , the department of defense ( dod ) is continuing to re-evaluate the role and structure of the u.s. military . in 2012 , the dod announced a new defense strategy intended to guide its priorities and budgeting decisions . the guidance calls for the u.s. military to project power globally and operate effectively in all domains , including cybersecurity , and it places particular emphasis on asia pacific as an area of strategic focus . we believe that spending on recapitalization , modernization and maintenance of defense , intelligence , and homeland security assets will continue to be a national priority . future defense spending is expected to include the development and procurement of new manned and unmanned military platforms and systems along with advanced electronics and software to enhance the capabilities of existing individual systems and provide real-time integration of individual surveillance , information management , strike , and battle management platforms . we expect significant new competitive opportunities to include long range strike , missile defense , command and control , network communications , enhanced situational awareness , satellite systems , restricted programs , cybersecurity , technical services and information technology contracts , as well as numerous international and homeland security programs . see risk factors located in part i , item 1a for a more complete description of risks we face . 24 northrop grumman corporation operating performance assessment and reporting we manage and assess the performance of our business based on our performance on contracts and programs ( two or more closely-related contracts ) , with consideration given to the critical accounting policies , estimates and judgments described later in this section . revenue on our portfolio of long-term contracts is generally recognized using the percentage of completion method , primarily the cost-to-cost method , but in some cases the units-of-delivery method of percentage of completion accounting . as a result , sales tend to fluctuate in concert with costs across our large portfolio of contracts . due to federal acquisition regulations ( far ) rules that govern our business , most types of costs are allowable , and we do not focus on individual cost groupings ( such as manufacturing , engineering , and design labor costs , subcontractor costs , material costs , overhead costs , and general and administrative costs ) , as much as we do on total contract costs , which is the key driver of both sales and operating income . story_separator_special_tag percent in 2012 , from 8.9 percent in 2011 ; the increase includes the impact of lower sales , higher indirect costs related to compensation accruals and cost classification changes to standardize cost accounting practices at one of our segments , as well as higher bid and proposal expenses . 2011 – product and service costs for 2011 decreased $ 2.1 billion , or 9 percent , as compared to 2010. the primary driver of the reduction in product and service costs is reduced volume at all four of our segments , with aerospace systems , information systems and technical services driving the majority of the decrease . general and administrative expenses as a percentage of total sales was comparable at 8.9 percent . for the product and service costs detail , see the product and service analysis section that follows . operating income we define operating income as sales less operating costs and expenses , which includes general and administrative expenses . changes in estimated sales , operating costs and expenses , and the resulting operating income related to our contracts accounted for using the percentage-of-completion method are recorded using the cumulative catch-up method of accounting . the aggregate effects of these favorable and unfavorable changes in our estimated costs at completion , across our portfolio of contracts , can have a significant effect upon our reported sales and operating income in each of our reporting periods . cumulative catch-up operating income adjustments are presented in the table below : replace_table_token_13_th cost reduction initiatives to increase our competitiveness contributed to the net favorable operating income adjustments . our cost management activities have led to overall improved contract performance , reflected in both increased favorable adjustments and lower unfavorable adjustments . segment operating income segment operating income is defined as operating income less certain corporate-level expenses that are not considered allowable or allocable under applicable cas and far and the net fas/cas pension difference . 27 northrop grumman corporation the table below shows the variances in segment operating income from the respective prior years : replace_table_token_14_th 2012 - segment operating income in 2012 increased $ 121 million , or 4 percent , as compared to 2011 , driven by a number of factors including improved performance , particularly at electronic systems . improved performance reflects mitigation of contract risks and cost reduction initiatives , as well as portfolio shaping efforts . the increase in segment operating margin rate reflects this improved segment performance on lower revenue . 2011 - segment operating income in 2011 increased $ 45 million , or 1 percent , as compared to 2010 , driven by improved program performance , which more than offset the impact of lower sales . net pension adjustment the net fas/cas pension adjustment in 2012 decreased $ 268 million , as compared to 2011 , primarily due to increased gaap pension expense resulting from amortization of prior year actuarial losses and decreased cas pension expense allocated to the operating segments due to the design change in the company 's defined benefit pension plans adopted in december 2011. the net fas/cas pension adjustment in 2011 increased $ 390 million , as compared to 2010 , primarily due to decreased gaap pension expense , primarily resulting from higher than estimated returns on a larger amount of pension plan assets as of the beginning of the year . unallocated corporate expenses unallocated corporate expenses for 2012 were comparable with the prior year . unallocated corporate expenses for 2011 decreased $ 16 million , or 9 percent , as compared with 2010 , primarily due to a decrease in stock-based compensation . interest expense interest expense declined in both 2012 and 2011 by $ 9 million and $ 48 million , respectively , as compared to the respective prior years . the decrease from 2010 to 2011 is primarily due to a lower weighted average interest rate resulting from our debt refinancing in november 2010. federal and foreign income taxes 2012 – our effective tax rate on earnings from continuing operations for 2012 was 33.3 percent , as compared with 32.3 percent in 2011. the higher effective tax rate reflects the change in net tax benefits related to the absence of research tax credits , which expired at the end of 2011. although the american taxpayer relief act of 2012 extended the research tax credit through 2013 , it was not enacted until january 2013. therefore , the 2012 research credit will be recorded in the first quarter of 2013 . 2011 – our effective tax rate on earnings from continuing operations for 2011 was 32.3 percent , as compared with 19.5 percent in 2010. in 2010 , we recognized net tax benefits of $ 298 million to reflect the final approval from the irs and the u.s. congressional joint committee on taxation of the irs ' examination of our tax returns for the years 2004 through 2006. diluted earnings per share 2012 – our diluted earnings per share increased by $ 0.29 , or 4 percent . the higher diluted earnings per share reflects the full impact of 2011 share repurchases , which were largely purchased in the second half of 2011 , the effect of our 2012 share repurchases and the higher segment operating income , partially offset by lower earnings reflecting the lower net fas/cas pension adjustment . 2011 – our diluted earnings per share increased by $ 0.70 , or 10 percent . the higher diluted earnings per share reflects higher earnings and the effects of our share repurchases . cash provided by continuing operations 2012 – cash provided by continuing operations for 2012 was $ 2.6 billion , as compared with $ 2.3 billion in 2011. cash provided by continuing operations reflects lower pension contributions , partially offset by higher income taxes 28 northrop grumman corporation paid .
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segment operating results basis of presentation we are aligned in four reportable segments : aerospace systems , electronic systems , information systems and technical services . this section discusses sales , segment operating income and operating margin rates by segment . the reconciliation of segment sales to total sales is provided in note 4 to the consolidated financial statements in part ii , item 8 , with the difference being intersegment sales eliminations . the reconciliation of segment operating income to total operating income , as well as a discussion of the reconciling items , is included in the consolidated operating results section above . for purposes of the discussion in this segment operating results section , references to operating income and operating income margin rate reflect segment operating income and segment operating margin rate . on january 1 , 2012 , we transferred our missile business ( primarily the intercontinental ballistic missile ( icbm ) program ) from the aerospace systems segment to our technical services segment . the segment sales and segment operating income for the years ended december 31 , 2011 and 2010 , have been recast to reflect the missile business transfer . sales of $ 494 million and $ 474 million , and segment operating income of $ 44 million and $ 43 million , were transferred from aerospace systems to technical services for the years ended december 31 , 2011 and 2010 , respectively . for a more complete description of each segment 's products and services , see the business descriptions in part i , item 1. aerospace systems replace_table_token_15_th 2012 - aerospace systems sales for 2012 were comparable to the prior year . sales of unmanned systems increased approximately $ 280 million , primarily related to ramping up on the nato alliance ground surveillance ( ags ) and fire scout programs .
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the net effect of these adjustments increased farming revenue by $ 3,531,000 in 2015 , $ 4,132,000 in 2014 , and $ 3,328,000 in 2013. the adjustment for 2015 includes $ 1,260,000 for almonds and $ 2,271,000 for pistachios . the adjustment for 2014 includes $ 1,458,000 for almonds and $ 2,674,000 for pistachios . the adjustment for 2013 includes $ 1,326,000 for almonds and $ 2,002,000 for pistachios . the almond board of california has the authority to require producers of almonds to withhold a portion of their annual production from the marketplace through a marketing order approved by the secretary of agriculture . at december 31 , 2015 , 2014 , story_separator_special_tag see part i , `` forward-looking statements '' for our cautionary statement regarding forward-looking information . overview we are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing , employment , and lifestyle needs of californians and to create value for our shareholders . in support of these objectives , we have been investing in land planning and entitlement activities for new industrial and residential land developments and in infrastructure improvements within our active industrial development . our prime asset is approximately 270,000 acres of contiguous , largely undeveloped land that , at its most southerly border , is 60 miles north of los angeles and , at its most northerly border , is 15 miles east of bakersfield . our business model is designed to create value through the entitlement and development of land for commercial/industrial and resort/residential uses while at the same time protecting significant portions of our land for conservation purposes . we operate our business near one of the country 's largest population centers , which is expected to continue to grow well into the future . we currently operate in five business segments : commercial/industrial real estate development ; resort/residential real estate development ; mineral resources ; farming ; and ranch operations . our commercial/industrial real estate development segment generates revenues from building , land lease activities , and land and building sales . the primary commercial/industrial development is trcc . the resort/residential real estate development segment is actively involved in the land entitlement and development process internally and through joint venture entities . within our resort/residential segment , the three active developments are mv , centennial , and grapevine . during the first quarter of 2013 we began land planning activities and the first steps of gathering information to prepare an environmental impact report to entitle grapevine , which is an approximately 15,315-acre potential development area located on the san joaquin valley floor area of our lands , adjacent to trcc . we are currently focusing on approximately 8,000 acres within grapevine for a mixed use development to include housing , retail , and commercial components . our mineral resources segment generates revenues from oil and gas royalty leases , rock and aggregate mining leases , a lease with national cement and sales of water . the farming segment produces revenues from the sale of wine grapes , almonds , and pistachios . lastly , the ranch operation segment consists of game management revenues and ancillary land uses such as grazing leases and filming . during 2014 , we continued to expand our water operations to not only manage water infrastructure and water assets but to also sell water on an annual basis to third parties , as we did during the first quarter of 2014. we determined during the third quarter of 2014 that water assets and water management fit most appropriately within our mineral resources segment . as a result of this , the company in 2014 reclassified prior year amortization associated with the purchase of water contracts from corporate expenses into mineral resources expenses on the consolidated statements of operations to conform to the current year presentation . the amortization reclassification was $ 815,000 for 2013 . during the fourth quarter of 2015 , the company reclassified revenues and expenses previously classified as commercial/industrial into a new segment called ranch operations . ranch operations is comprised of grazing leases , game management , and other ancillary services supporting the ranch . for 2015 , net income attributable to common stockholders was $ 2,950,000 compared to $ 5,655,000 in 2014 . the change is driven by a decline in mineral resource revenues of $ 1,139,000 resulting from deteriorating oil prices in 2015 , a $ 2,162,000 increase in corporate expenses of which a majority relates to pension and staffing costs , and a decline in pistachio revenues of $ 1,160,000 resulting from the poor yields caused by the mild winter of 2015. income from our joint ventures increased by $ 1,030,000 , partially offsetting the declines in net income noted above . our joint venture with ta/petro largely contributed to this increase which is further discussed in the results of operations . for 2014 , we had net income attributable to common stockholders of $ 5,655,000 compared to net income attributable to common stockholders of $ 4,165,000 for 2013. this improvement is driven by an increase in revenue , primarily from mineral resources revenue , as a result of 2014 water sales and improved equity in earnings of unconsolidated joint ventures of $ 1,288,000. these increases in revenue were partially offset by an increase in operating expenses of $ 4,964,000 largely driven by $ 4,523,000 in water cost of sales . during 2014 , farming revenue declined due to lower quantities of orchard crops being sold . revenues improved slightly in the commercial/industrial segment due primarily to the sale of a convenience store/gas station site and higher development fees . equity in earnings of unconsolidated joint ventures improved primarily due to the earnings growth within the ta/petro and rockefeller joint ventures . for the year ended december 31 , 2015 we had no material lease renewals . story_separator_special_tag 27 at the time farm crops are harvested , contracted , and delivered to buyers and revenues can be estimated , revenues are recognized and any related inventoried costs are expensed , which traditionally occurs during the third and fourth quarters of each year . it is not unusual for portions of our almond or pistachio crop to be sold in the year following the harvest . orchard ( almond and pistachio ) revenues are based upon the contract settlement price or estimated selling price , whereas vineyard revenues are typically recognized at the contracted selling price . estimated prices for orchard crops are based upon the quoted estimate of what the final market price will be by marketers and handlers of the orchard crops . these market price estimates are updated through the crop payment cycle as new information is received as to the final settlement price for the crop sold . these estimates are adjusted to actual upon receipt of final payment for the crop . this method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community . actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within the orchard crop markets . adjustments for differences between original estimates and actual revenues received are recorded during the period in which such amounts become known . capitalization of costs - the company capitalizes direct construction and development costs , including predevelopment costs , interest , property taxes , insurance , and indirect project costs that are clearly associated with the acquisition , development , or construction of a project . costs currently capitalized that in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any future benefits . should development activity decrease , a portion of interest , property taxes , and insurance costs would no longer be eligible for capitalization , and would be expensed as incurred . allocation of costs related to land sales and leases – when we sell or lease land within one of our real estate developments , currently trcc , and we have not completed all infrastructure development related to the total project , we follow asc 976 to determine the appropriate costs of sales for the sold land and the timing of recognition of the sale . this treatment currently applies to sales and leases of land within trcc . in the calculation of cost of sales or allocations to leased land , we use estimates and forecasts to determine total costs at completion of the development project . these estimates of final development costs can change as conditions in the market and costs of construction change . in preparing these estimates , we use internal budgets , forecasts , and engineering reports to help us estimate future costs related to infrastructure that has not been completed . these estimates become more accurate as the development proceeds forward , due to historical cost numbers and to the continued refinement of the development plan . these estimates are updated periodically throughout the year so that , at the ultimate completion of development , all costs have been allocated . any increases to our estimates in future years will negatively impact net profits and liquidity due to an increased need for funds to complete development . if , however , this estimate decreases , net profits as well as liquidity will improve . we believe that the estimates used related to cost of sales and allocations to leased land are critical accounting estimates and will become even more significant as we continue to move forward as a real estate development company . the estimates used are very susceptible to change from period to period , due to the fact that they require management to make assumptions about costs of construction , absorption of product , and timing of project completion , and changes to these estimates could have a material impact on the recognition of profits from the sale of land within our developments . impairment of long-lived assets – we evaluate our property and equipment and development projects for impairment when events or changes in circumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable . the impairment calculation compares the carrying value of the asset to the asset 's estimated future cash flows ( undiscounted ) . if the estimated future cash flows are less than the carrying value of the asset , we calculate an impairment loss . the impairment loss calculation compares the carrying value of the asset to the asset 's estimated fair value , which may be based on estimated future cash flows ( discounted ) . we recognize an impairment loss equal to the amount by which the asset 's carrying value exceeds the asset 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset will be its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated ( amortized ) over the remaining useful life of that asset . restoration of a previously recognized impairment loss is prohibited . we currently operate in five segments , commercial/industrial real estate development , resort/residential real estate development , mineral resources , farming , and ranch operations . at this time , there are no assets within any of our segments that we believe are in danger of being impaired due to market conditions . we believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period to period ; it requires management to make assumptions about future prices , production , and costs , and the potential impact of a loss from impairment could be material to our earnings .
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resulting from borrowing $ 17,540,000 on our line of credit offset by payments of $ 24,390,000 on our line of credit and long-term borrowings . during 2014 , financing activities provided $ 75,981,000 in cash . this growth in financing activities is largely tied to the increase in long-term debt of $ 70,000,000 , a ten-year term loan , which is funding the purchase of dmb tmv llc 's membership interest in mv . we also saw a net increase in the use of our line-of-credit to fund infrastructure development as we were waiting on the timing of reimbursement from the east cfd . during january 2015 , we received a reimbursement for public infrastructure from the east cfd of $ 4,971,000. it is difficult to accurately predict cash flows due to the nature of our businesses and fluctuating economic conditions . our earnings and cash flows will be affected from period to period by the commodity nature of our farming and mineral operations , the timing of sales and leases of property within our development projects , and the beginning of development within our residential projects . the timing of sales and leases within our development projects is difficult to predict due to the time necessary to complete the development process and negotiate sales or lease contracts . often , the timing aspect of land development can lead to particular years or periods having more or less earnings than comparable periods . based on our experience , we believe we will have adequate cash flows , cash balances , and availability on our line of credit over the next twelve months to fund internal operations . 38 capital structure and financial condition .
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such dividends will not be paid in cash except in connection with any liquidation , dissolution or winding story_separator_special_tag the following discussion and analysis should be read in conjunction with our financial statements and notes thereto included in this report on form 10-k. operating results are not necessarily indicative of results that may occur in future periods . this report includes various forward-looking statements that are subject to risks and uncertainties , many of which are beyond our control . our actual results could differ materially from those anticipated in these forward looking statements as a result of various factors , including those set forth in item 1a . “ risk factors. ” forward-looking statements discuss matters that are not historical facts . forward-looking statements include , but are not limited to , discussions regarding our operating strategy , sales and marketing strategy , regulatory strategy , industry , economic conditions , financial condition , liquidity and capital resources and results of operations . such statements include , but are not limited to , statements preceded by , followed by or that otherwise include the words “ believes , ” “ expects , ” “ anticipates , ” “ intends , ” “ estimates , ” “ projects , ” “ can , ” “ could , ” “ may , ” “ will , ” “ would , ” or similar expressions . for those statements , we claim the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act of 1995. you should not unduly rely on these forward-looking statements , which speak only as of the date on which they were made . they give our expectations regarding the future but are not guarantees . we undertake no obligation to update publicly or revise any forward-looking statements , whether as a result of new information , future events or otherwise , unless required by law . overview stereotaxis designs , manufactures and markets robotic magnetic navigation systems for use in a hospital 's interventional surgical suite to enhance the treatment of arrhythmias and coronary artery disease . our primary products include the genesis rmn system , the niobe system , the odyssey solution , and related devices . we also offer our customers the stereotaxis imaging model s x-ray system . we believe that robotic magnetic navigation systems represent a revolutionary technology in the interventional surgical suite , or “ interventional lab , ” and have the potential to become the standard of care for a broad range of complex cardiology procedures . we also believe that our technology represents an important advance in the ongoing trend toward digital instrumentation in the interventional lab and provides substantial , clinically important improvements , and cost efficiencies over manual interventional methods , which require years of physician training and often result in long and unpredictable procedure times and sub-optimal therapeutic outcomes . the genesis rmn system is the latest generation of the robotic magnetic navigation system . this system is designed to enable physicians to complete more complex interventional procedures by providing image-guided delivery of catheters and guidewires through the blood vessels and chambers of the heart to treatment sites . this is achieved using externally applied magnetic fields that govern the motion of the working tip of the catheter or guidewire , resulting in improved navigation , efficient procedures and reduced x-ray exposure . we have received regulatory clearance , licensing and ce mark approvals necessary for us to market the genesis rmn system in the u.s. and europe . the core components of the previous generation robotic magnetic navigation system , the niobe system , have received regulatory clearance in the u.s. , canada , europe , china , japan , and various other countries . as of december 31 , 2019 , the company had an installed base of 123 niobe es systems . 27 stereotaxis also has developed the odyssey solution which consolidates lab information enabling physicians to focus on the patient for optimal procedure efficiency . the system also features a remote viewing and recording capability called odyssey cinema , which is an innovative solution delivering synchronized content for optimized workflow , advanced care , and improved productivity . this tool includes an archiving capability that allows clinicians to store and replay entire procedures or segments of procedures . this information can be accessed from locations throughout the hospital local area network and over the global odyssey network providing physicians with a tool for clinical collaboration , remote consultation , and training . the odyssey solution may be acquired in conjunction with a robotic magnetic navigation system or on a stand-alone basis for installation in interventional labs and other locations where clinicians often desire the benefits of the odyssey solution that we believe can improve clinical workflows and related efficiencies . we have strategic relationships with technology leaders and innovators in the global interventional market . through these strategic relationships we provide compatibility between our robotic magnetic navigation system and digital imaging and 3d catheter location sensing technology , as well as disposable interventional devices . the maintenance of these strategic relationships , or the establishment of equivalent alternatives , is critical to our commercialization efforts . there are no guarantees that any existing strategic relationships will continue and efforts are ongoing to ensure the availability of integrated next generation systems and or equivalent alternatives . we can not provide assurance as to the timeline of the ongoing availability of such compatible systems or our ability to obtain equivalent alternatives on competitive terms or at all . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosures . we review our estimates and judgments on an ongoing basis . story_separator_special_tag see note 2 to the financial statements included elsewhere in this document for additional detail on deferred revenue . the company did not have any impairment losses on its contract assets for the periods presented . assets recognized from the costs to obtain a contract with a customer the company has determined that sales incentive programs for the company 's sales team meet the requirements to be capitalized as the company expects to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction . the costs capitalized as contract acquisition costs included in prepaid expenses and other assets in the company 's balance sheets were $ 0.3 million as of december 31 , 2019 and december 31 , 2018. the company did not incur any impairment losses during any of the periods presented . leases on january 1 , 2019 , the company adopted asu no . 2016-02 “ leases ” ( topic 842 ) and all subsequent asus that modified topic 842. a lease is defined as a contract , or part of a contract , that conveys the right to control the use of identified property , plant or equipment for a period of time in exchange for consideration . the company determines if a contract contains a lease at inception . for contracts where the company is the lessee , operating leases are included in operating lease right-of-use ( “ rou ” ) assets and operating lease liability on the company 's balance sheet . the company currently does not have any finance leases . operating lease rou assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date . rou assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date , less lease incentives received . the company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the company 's leases generally do not provide an implicit rate . lease terms may include options to extend or terminate when the company is reasonably certain that the option will be exercised . lease expense is recognized on a straight-line basis over the lease term . the company also has lease arrangements with lease and non-lease components . the company elected the practical expedient not to separate non-lease components from lease components for the company 's operating leases . additionally , the company applies the short-term lease measurement and recognition exemption in which right of use assets and lease liabilities are not recognized for leases less than twelve months . cost of contracts costs of systems revenue include direct product costs , installation labor and other costs , estimated warranty costs , and initial training and product maintenance costs . these costs are recorded at the time of sale . costs of disposable revenue include direct product costs and estimated warranty costs and are recorded at the time of sale . cost of revenue from services and license fees are recorded when incurred . cost of sublease revenue is recorded on a straight-line basis . 29 stock-based compensation stock compensation expense , which is a non-cash charge , results from stock option and stock appreciation rights grants made to employees , and directors at the fair value of the option granted , and from grants of restricted shares and units to employees , directors , and third-party consultants . the fair value of options and stock appreciation rights granted was determined using the black-scholes valuation method which gives consideration to the estimated value of the underlying stock at the date of grant , the exercise price of the option , the expected dividend yield and volatility of the underlying stock , the expected life of the option and the corresponding risk-free interest rate . the fair value of the grants of restricted shares and units was determined based on the closing price of our stock on the date of grant . stock compensation expense for options , stock appreciation rights and for time-based restricted share grants and units is amortized on a straight-line basis over the vesting period of the underlying issue , generally over four years except for grants to directors which are generally earned in periods ranging from six months to two years . stock compensation expense for performance-based restricted shares , if any , is amortized on a straight-line basis over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives . compensation expenses related to grants to non-employees are re-measured quarterly through the vesting date . compensation expense is recognized only for those options expected to vest , net of actual forfeitures . estimates of the expected life of options have been based on the average of the vesting and expiration periods , which is the simplified method under general accounting principles for share-based payments . estimates of volatility utilized in calculating stock-based compensation have been prepared based on historical data . actual experience to date has been consistent with these estimates . the amount of compensation expense to be recorded in future periods may increase if we make additional grants of options , stock appreciation rights or restricted shares . the amount of expense to be recorded in future periods may decrease if the requisite service periods are not completed . valuation of inventory we value our inventory at the lower of the actual cost of our inventory , as determined using the first-in , first-out ( fifo ) method , or its current estimated market value . we periodically review our physical inventory for excess , obsolete , and potentially impaired items and reserve accordingly . our reserve estimate for excess and obsolete is based on expected future use . our reserve estimates have historically been consistent with our actual experience as evidenced by actual sale or disposal of the goods .
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results of operations comparison of the years ended december 31 , 2019 and 2018 revenue . revenue decreased to $ 28.9 million for the year ended december 31 , 2019 , from $ 29.3 million for the year ended december 31 , 2018 , a decrease of approximately 2 % . revenue from sales of systems increased to $ 2.1 million for the year ended december 31 , 2019 , from $ 1.6 million for the year ended december 31 , 2018 , an increase of approximately 31 % . system revenue for the current year included revenue on one niobe es system and a total of $ 1.0 million for odyssey systems . system revenue for the prior year included a total of $ 1.6 million for odyssey and odyssey cinema systems . revenue from sales of disposable interventional devices , service and accessories decreased to $ 25.9 million for the year ended december 31 , 2019 , from $ 27.8 million for the year ended december 31 , 2018 , a decrease of approximately 7 % . the decrease was primarily attributable to service revenue . the adoption of new lease accounting guidance as of january 1 , 2019 required the company to record $ 1.0 million of sublease income as revenue for the year ended december 31 , 2019. cost of revenue . cost of revenue increased to $ 6.1 million for the year ended december 31 , 2019 , from $ 5.7 million for the year ended december 31 , 2018 , an increase of approximately 7 % . as a percentage of our total revenue , overall gross margin decreased from 81 % for the year ended december 31 , 2018 , to 79 % for the year ended december 31 , 2019 , primarily due to changes in product mix .
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the methodology for measuring the fair value of such investments is consistent with the methodology applied to private equity , real estate , credit-focused and funds of hedge funds investments . changes in the fair value of such instruments are recognized in investment income ( loss ) in the consolidated statements of operations . interest income on interest bearing loans and receivables and debt securities on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums . this interest income is recorded within interest and dividend revenue . in addition , the partnership has elected the fair value story_separator_special_tag the following discussion and analysis should be read in conjunction with the blackstone group l.p. 's consolidated financial statements and the related notes included within this annual report on form 10-k. our business blackstone is one of the largest independent managers of private capital in the world . we also provide a wide range of financial advisory services , including financial advisory , restructuring and reorganization advisory and fund placement services . our business is organized into five business segments : private equity . we are a world leader in private equity investing , having managed six general private equity funds , as well as two sector focused funds and a regionally focused fund , since we established this business in 1987. we refer to these funds collectively as our blackstone capital partners ( bcp ) funds . we also manage certain multi-asset class investment funds which we collectively refer to as our blackstone tactical opportunities accounts ( tactical opportunities ) . through our private equity funds we pursue transactions throughout the world , including leveraged buyout acquisitions of seasoned companies , transactions involving growth equity or start-up businesses in established industries , minority investments , corporate partnerships , distressed debt , structured securities and industry consolidations , in all cases in strictly friendly transactions . real estate . we have become a world leader in real estate investing since launching our first real estate fund in 1994. we have managed or continue to manage seven global opportunistic real estate funds , three european focused opportunistic real estate funds , a number of real estate debt investment funds , cdos , reits and an acquired asian real estate platform . our real estate opportunity funds are diversified geographically and have made significant investments in lodging , major urban office buildings , shopping centers , residential and a variety of real estate operating companies . our debt investment funds target high yield real estate debt related investment opportunities in the public and private markets , primarily in the united states and europe . we refer to our real estate opportunistic funds as our blackstone real estate partners ( brep ) funds and our real estate debt investment funds as our blackstone real estate debt strategies ( breds ) funds . in december 2012 , we completed the acquisition of capital trust 's investment management business with an expertise in debt origination and special servicing . hedge fund solutions . blackstone 's hedge fund solutions segment is comprised principally of blackstone alternative asset management ( baam ) . baam was organized in 1990 and has developed into a leading institutional solutions provider utilizing hedge funds across a wide variety of strategies . baam is the world 's largest discretionary allocator to hedge funds . credit . our credit segment is comprised principally of gso capital partners lp ( gso ) . gso is a world leader in credit-focused products and manages a variety of credit-focused products including senior credit-focused funds , distressed debt funds , mezzanine funds , general credit-focused funds and collateralized loan obligation ( clo ) vehicles . prior to september 30 , 2012 , this segment had been called credit businesses . financial advisory . our financial advisory segment serves a diverse and global group of clients with financial and strategic advisory services , restructuring and reorganization advisory services and fund placement services for alternative investment funds . we generate revenue from fees earned pursuant to contractual arrangements with funds , fund investors and fund portfolio companies ( including management , transaction and monitoring fees ) , and from financial and strategic advisory services , restructuring and reorganization advisory services and fund placement services for 68 alternative investment funds . we invest in the funds we manage and , in most cases , receive a preferred allocation of income ( i.e. , a carried interest ) or an incentive fee from an investment fund in the event that specified cumulative investment returns are achieved . the composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate . net investment gains and investment income generated by the blackstone funds , principally private equity and real estate funds , are driven by value created by our operating and strategic initiatives as well as overall market conditions . our funds initially record fund investments at cost and then such investments are subsequently recorded at fair value . fair values are affected by changes in the fundamentals of the portfolio company , the portfolio company 's industry , the overall economy and other market conditions . business environment world equity and debt markets rose in 2012 , although volatility remained elevated . investor risk tolerance continued to shift up and down throughout the year , dominated in the first half by concerns regarding the stability of the european monetary union , and in the second half by the u.s. presidential elections and the contentious fiscal cliff negotiations . the global msci index rose 13 % in 2012 , with relatively consistent gains across regions . in the u.s. , the s & p 500 index rose 13 % as well . story_separator_special_tag as the fair value of underlying investments varies between reporting periods , it is necessary to make adjustments to amounts recorded as carried interest to reflect either ( a ) positive performance 70 resulting in an increase in the carried interest allocated to the general partner or ( b ) negative performance that would cause the amount due to the partnership to be less than the amount previously recognized as revenue , resulting in a negative adjustment to carried interest allocated to the general partner . in each scenario , it is necessary to calculate the carried interest on cumulative results compared to the carried interest recorded to date and make the required positive or negative adjustments . the partnership ceases to record negative carried interest allocations once previously recognized carried interest allocations for such fund have been fully reversed . the partnership is not obligated to pay guaranteed returns or hurdles , and therefore , can not have negative carried interest over the life of a fund . accrued but unpaid carried interest as of the reporting date is reflected in investments in the consolidated statements of financial condition . carried interest is realized when an underlying investment is profitably disposed of and the fund 's cumulative returns are in excess of the preferred return . carried interest is subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to blackstone based on cumulative results . as such , the accrual for potential repayment of previously received performance fees , which is a component of due to affiliates , represents all amounts previously distributed to blackstone holdings and non-controlling interest holders that would need to be repaid to the blackstone funds if the blackstone carry funds were to be liquidated based on the current fair value of the underlying funds ' investments as of the reporting date . generally , the actual clawback liability does not become realized until the end of a fund 's life or one year after a realized loss is incurred , depending on the terms of the fund . investment income ( loss ) investment income ( loss ) represents the unrealized and realized gains and losses on the partnership 's principal investments , including its investments in blackstone funds that are not consolidated , its equity method investments , and other principal investments . investment income ( loss ) is realized when the partnership redeems all or a portion of its investment or when the partnership receives cash income , such as dividends or distributions , from its non-consolidated funds . unrealized investment income ( loss ) results from changes in the fair value of the underlying investment as well as the reversal of unrealized gain ( loss ) at the time an investment is realized . interest and dividend revenue interest and dividend revenue comprises primarily interest and dividend income earned on principal investments held by blackstone . other revenue other revenue consists of miscellaneous income and foreign exchange gains and losses arising on transactions denominated in currencies other than u.s. dollars . expenses compensation and benefitscompensation compensation and benefits consists of ( a ) employee compensation , comprising salary and bonus , and benefits paid and payable to employees and senior managing directors and ( b ) equity-based compensation associated with the grants of equity-based awards to employees and senior managing directors . compensation cost relating to the issuance of equity-based awards to senior managing directors and employees is measured at fair value at the grant date , taking into consideration expected forfeitures , and expensed over the vesting period on a straight line basis . equity-based awards that do not require future service are expensed immediately . cash settled equity-based awards are classified as liabilities and are re-measured at the end of each reporting period . compensation and benefitsperformance fee performance fee compensation consists of carried interest and incentive fee allocations , and may in future periods also include allocations of investment income from blackstone 's firm investments , to employees and senior managing directors participating in certain profit sharing initiatives . such compensation expense is subject to both positive and negative adjustments . unlike carried interest and incentive fees , compensation expense is based on the performance of individual investments held by a fund rather than on a fund by fund basis . 71 other operating expenses other operating expenses represent general and administrative expenses including interest expense , occupancy and equipment expenses and other expenses , which consist principally of professional fees , public company costs , travel and related expenses , communications and information services and depreciation and amortization . fund expenses the expenses of our consolidated blackstone funds consist primarily of interest expense , professional fees and other third-party expenses . non-controlling interests in consolidated entities non-controlling interests in consolidated entities represent the component of partners ' capital in consolidated blackstone funds and side-by-side entities held by third party investors and employees . the percentage interests held by third parties and employees is adjusted for general partner allocations and by subscriptions and redemptions in funds of hedge funds and certain credit-focused funds which occur during the reporting period . in addition , all non-controlling interests in consolidated blackstone funds are attributed a share of income ( loss ) arising from the respective funds and a share of other comprehensive income , if applicable .
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consolidated results of operations following is a discussion of our consolidated results of operations for each of the years in the three year period ended december 31 , 2012. for a more detailed discussion of the factors that affected the results of our five business segments ( which are presented on a basis that deconsolidates the investment funds we manage ) in these periods , see segment analysis below . the following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years ended december 31 , 2012 , 2011 , and 2010 : replace_table_token_5_th n/m not meaningful . 78 revenues total revenues were $ 4.0 billion for the year ended december 31 , 2012 , an increase of $ 766.9 million compared to $ 3.3 billion for the year ended december 31 , 2011. the increase in revenues was primarily driven by increases of $ 410.4 million in performance fees , $ 218.9 million in management and advisory fees and $ 136.9 million in investment income . the increase in performance fees was due ( a ) to increases in the net returns of the performance fee generating funds in the private equity segment that were greater than the prior year , ( b ) a 14.4 % increase in the carrying value of assets for blackstone 's contributed real estate funds primarily due to the continued improvement of operating fundamentals , particularly in our hospitality , office and retail holdings , ( c ) an increase in fee-earning assets under management in the hedge funds solutions segment related to funds of funds above their respective high-water marks and or hurdle during the year ended december 31 , 2012 , and ( d ) a higher rate of appreciation in our credit segment in the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , with net returns of 13.4 % for the hedge funds , 26.2 %
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2015-14 , “ deferral of the effective date ” ( “ asu 2015-14 ” 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. ” 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 other-than-temporary 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 . impaired loans are loans for which it is probable that the bank will not be able to collect all amounts due according to the contractual terms of the loan agreements and all loans restructured in a troubled debt restructuring . loss allocations for loans deemed to be impaired are measured on 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 , 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 . - 32 - such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination . as of december 31 , 2016 , management believes that the allowance is adequate and consistent with asset quality and delinquency indicators . valuation of goodwill and identifiable intangible assets the corporation allocated the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . other intangible assets identified in acquisitions primarily consist of wealth management advisory contracts . story_separator_special_tag assessment of investment securities for impairment securities that the corporation has the ability and intent to hold until maturity are classified as held to maturity and are accounted for using historical cost , adjusted for amortization of premiums and accretion of discounts . securities available for sale are carried at fair value , with any unrealized gains and losses , net of taxes , reported as accumulated other comprehensive income or loss in shareholders ' equity . the fair values of securities may be based on either quoted market prices or third party pricing services . 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 . 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 . washington trust evaluates the assumptions annually and uses an actuarial firm to assist in making these - 34 - 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 17 to the consolidated financial statements for additional information . overview washington trust 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 automated teller machines ( “ atms ” ) ; telephone banking ; mobile banking and its internet website ( www.washtrust.com ) . our largest source of operating income is net interest income , the difference between interest earned on loans and securities and interest paid on deposits and other 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 benefits , occupancy and facility-related costs , technology and other administrative expenses . our financial results are affected by interest rate fluctuations , changes in economic and market conditions , competitive conditions within our market area and changes in legislation , regulation and or accounting principles . adverse changes in economic growth , consumer confidence , credit availability and corporate earnings could negatively impact our financial results . we continued to leverage our strong , statewide brand to build market share in rhode island and bring select business lines to new markets with high-growth potential while remaining steadfast in our commitment to provide superior service . in 2016 , we opened a full-service branch in providence , rhode island , and a residential mortgage lending office in wellesley , massachusetts . in 2017 , we expect to open another full-service branch in coventry , rhode island . on august 1 , 2015 , washington trust completed the acquisition of halsey , a registered investment adviser firm located in new haven , connecticut . halsey specializes in providing investment counseling services to high-net-worth families , corporations , foundations and endowment clients . as of the acquisition date , halsey had approximately $ 840 million of assets under administration . see note 3 to the consolidated financial statements for additional disclosure related to the halsey acquisition .
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results of operations segment reporting washington trust manages its operations through two business segments , commercial banking and wealth management services . activity not related to the segments , including activity related to the investment securities portfolio , wholesale funding matters and administrative units are considered corporate . the corporate unit also includes the net gain on sale of business line , income from boli and the residual impact of methodology allocations such as funds transfer pricing offsets . methodologies used to allocate income and expenses to business lines are periodically reviewed and revised . see note 19 to the consolidated financial statements for additional disclosure related to business segments . the following table presents a summarized statement of operations for the commercial banking business segment : replace_table_token_6_th comparison of 2016 with 2015 the commercial banking segment reported net income of $ 32.3 million in 2016 , an increase of $ 1.1 million , or 4 % , from 2015 . net interest income for this operating segment increased by $ 6.5 million , or 8 % , from 2015 , reflecting growth in loans , a higher level of commercial loan prepayment fee income and a favorable shift in the mix of deposits to lower cost categories . the loan loss provision charged to earnings amounted to $ 5.7 million in 2016 , compared to $ 1.1 million for 2015 . the increase in the loan loss provision largely reflected additional loss exposure allocated to one nonaccrual commercial mortgage relationship . noninterest income derived from the commercial banking segment totaled $ 24.8 million for 2016 , up by $ 4.2 million , or 20 % , from 2015 , reflecting increased mortgage banking revenues and loan related derivative income .
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such statements , which include statements concerning future revenue sources and concentration , gross profit margins , selling and marketing expenses , research and development expenses , general and administrative expenses , capital resources , additional financings or borrowings and additional losses , are subject to risks and uncertainties , including , but not limited to , those discussed below and elsewhere in this form 10-k , particularly in item 1a . `` risk factors , '' that could cause actual results to differ materially from those projected . the forward-looking statements set forth in this form 10-k are as of the close of business on february 27 , 2020 , and we undertake no duty and do not intend to update this information , except as required by applicable securities laws . overview we sell advanced veterinary diagnostic and specialty products . our offerings include point of care laboratory instruments and consumables ; point of care digital imaging diagnostic instruments ; vaccines ; local and cloud-based data services ; allergy testing and immunotherapy ; and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products . our core focus is on supporting veterinarians in the canine and feline healthcare space . our business is composed of two reportable segments , cca and ovp . the cca segment includes , primarily for canine and feline use , point of care laboratory instruments and consumables ; digital imaging diagnostic instruments , software and services ; local and cloud-based data services ; allergy testing and immunotherapy ; and single use offerings such as in-clinic diagnostic tests and heartworm preventive products . the ovp segment includes private label vaccine and pharmaceutical production , primarily for cattle but also for other species including equine , porcine , avian , feline and canine . ovp products are sold by third parties under third party labels . cca represented approximately 87 % of our 2019 revenue . ovp represented approximately 13 % of our 2019 revenue . cca segment revenue from point of care laboratory including instruments , consumables and other revenue such as service represented $ 67.1 million , $ 57.4 million and $ 54.9 million of our 2019 , 2018 and 2017 revenue , respectively . revenue in this area primarily involves placing an instrument under contract in the field and generating future revenue from testing consumables , such as cartridges and reagents , as that instrument is used . approximately $ 53.6 million , $ 44.8 million and $ 39.2 million of our 2019 , 2018 and 2017 revenue , respectively , resulted from the sale of such testing consumables to an installed base of instruments . approximately $ 12.1 million , $ 10.8 million and $ 13.8 million of our 2019 , 2018 and 2017 revenue , respectively , was from instrument sales , including revenue recognized from sales-type lease treatment . included in instrument sales are sales of infusion pumps , which are sold outright through distribution . sales of infusion pumps were $ 3.0 million , $ 2.7 million , and $ 4.0 million for 2019 , 2018 and 2017 , respectively . approximately $ 1.4 million , $ 1.8 million and $ 1.9 million of our 2019 , 2018 and 2017 revenue , respectively , was from other revenue sources , such as charges for repairs . instruments placed under subscription agreements are considered operating or sales-type leases , depending on the duration and other factors of the underlying agreement . a loss of , or disruption in , the supply of consumables we are selling to an installed base of instruments could substantially harm our business . all of our point of care laboratory and other non-imaging instruments and consumables are supplied by third parties , who typically own the product rights and - 34 - supply the product to us under marketing and or distribution agreements . in many cases , we have collaborated with a third party to adapt a human instrument for veterinary use . major products in this area include our instruments for chemistry , hematology , blood gas and immunodiagnostic testing and their affiliated operating consumables . point of care digital imaging hardware , software and services represented approximately $ 25.7 million , $ 22.8 million and $ 21.9 million of 2019 , 2018 and 2017 revenue , respectively . digital radiography is the largest product offering in this area , which also includes ultrasound instruments . digital radiography solutions typically consist of a combination of hardware and software placed with a customer , often combined with an ongoing service and support contract . we sell our imaging solutions both in the u.s. and internationally . our experience has been that most of the revenue is generated at the time of sale in this area , in contrast to the point of care diagnostics laboratory placements discussed above where ongoing consumable revenue is often a larger component of economic value as a given instrument is used . other cca revenue , including single use diagnostic and other tests , pharmaceuticals and biologicals , as well as research and development , licensing and royalty revenue , represented $ 13.8 million , $ 28.7 million and $ 28.4 million of our 2019 , 2018 and 2017 revenue , respectively . since items in this area are often single use by their nature , our typical aim is to build customer satisfaction and loyalty for each product , generate repeat annual sales from existing customers and expand our customer base in the future . products in this area are both supplied by third parties and provided by us . major products and services in this area include heartworm diagnostic tests and preventives , and allergy test kits , allergy immunotherapy and testing . of our annual revenue , heartworm produced primarily for private-label accounted for approximately $ 1.7 million in 2019 and $ 16.8 million in both 2018 and 2017 , respectively . story_separator_special_tag these types of agreements include an embedded lease , designated as either an operating-type lease ( `` otl '' ) or a sales-type lease ( `` stl '' ) , dependent upon individual contract terms , most often relating to the term of the contract relative to the life of the underlying instruments being placed under that contract . the determination of the amounts - 36 - allocated to each component of the contract are based upon fair value . changes in fair value in any period of the underlying components will impact that amount of revenue recognized . allowance for doubtful accounts we maintain an allowance for doubtful accounts receivable based on client-specific allowances , as well as a general allowance . specific allowances are maintained for clients which are determined to have a high degree of collectability risk based on such factors , among others , as : ( i ) the aging of the accounts receivable balance ; ( ii ) the client 's past payment history ; and ( iii ) a deterioration in the client 's financial condition , evidenced by weak financial condition and or continued poor operating results , reduced credit ratings and or a bankruptcy filing . in addition to the specific allowance , the company maintains a general allowance for credit risk in its accounts receivable which is not covered by a specific allowance . the general allowance is established based on such factors , among others , as : ( i ) the total balance of the outstanding accounts receivable , including considerations of the aging categories of those accounts receivable ; ( ii ) past history of uncollectable accounts receivable write-offs ; and ( iii ) the overall creditworthiness of the client base . a considerable amount of judgment is required in assessing the realizability of accounts receivable . should any of the factors considered in determining the adequacy of the overall allowance change , an adjustment to the provision for doubtful accounts receivable may be necessary . inventory valuation we write down the carrying value of inventory for estimated obsolescence by an amount equal to the difference between the cost of inventory and the estimated market value when warranted based on assumptions of future demand , market conditions , remaining shelf life or product functionality . if actual market conditions or results of estimated functionality are less favorable than those we estimated , additional inventory write-downs may be required , which would have a negative effect on results of operations . the inventory allowance was $ 1.3 million and $ 1.6 million as of december 31 , 2019 and 2018 , respectively . deferred tax assets – valuation allowance we evaluate our ability to realize the tax benefits associated with a deferred tax asset ( “ dta ” ) by analyzing our forecasted taxable income using both historical and projected future operating results , the reversal of existing temporary differences , taxable income in prior carry back years ( if permitted ) and the availability of tax planning strategies . a valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset . as of december 31 , 2019 and 2018 , we had valuation allowances of approximately $ 5.7 million and $ 10.2 million , respectively . the change in the valuation allowance resulted from the expiration of deferred tax assets which were offset with a valuation allowance at december 31 , 2018. see `` part ii . item 8. financial statements and supplementary data , note 5. income taxes '' to the consolidated financial statements for additional information regarding our income taxes . business combinations we account for transactions that represent business combinations under the acquisition method of accounting , which requires us to allocate the total consideration paid for each acquisition to the assets we acquire and liabilities we assume based on their fair values as of the date of acquisition , including identifiable intangible assets . the allocation of the purchase price utilizes significant estimates in determining the fair values of identifiable assets acquired and liabilities assumed , especially with respect to intangible assets . we may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period , not to exceed one year . - 37 - valuation of goodwill and intangibles we assess goodwill for impairment annually , at the reporting unit level , in the fourth quarter and whenever events or circumstances indicate impairment may exist . in evaluating goodwill for impairment , we have the option to first assess the qualitative factors to determine whether it is more-likely-than-not that the estimated fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the comparison of the estimated fair value of the reporting unit to the carrying value . the more-likely-than-not threshold is defined as having a likelihood of more than 50 percent . if , after assessing the totality of events or circumstances , we determine that is it more-likely-than-not that the estimated fair value of a reporting is less than its carrying amount , we would then estimate the fair value of the reporting unit and compare it to the carrying value . if the carrying value exceeds the estimated fair value we would recognize an impairment for the difference ; otherwise , no further impairment test would be required . in contrast , we can opt to bypass the qualitative assessment for any reporting unit in any period and proceed directly to quantitative analysis . doing so does not preclude us from performing the qualitative assessment in any subsequent period . we performed qualitative assessments in the fourth quarters of 2019 , 2018 and 2017 and determined that no indications of impairment existed . we assess the realizability of intangible assets other than goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable .
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results of operations our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward . this discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , in item 8 of this annual report on form 10-k. the following table sets forth , for the periods indicated , certain data derived from our consolidated statements of income ( in thousands ) : replace_table_token_3_th the following tables set forth , for the periods indicated , segment data derived from our consolidated statements of income ( in thousands ) : cca segment replace_table_token_4_th - 40 - ovp segment replace_table_token_5_th revenue total revenue decreased 4 % to $ 122.7 million in 2019 compared to $ 127.4 million in 2018 . total revenue decreased 1 % to $ 127.4 million in 2018 compared to $ 129.3 million in 2017 . cca segment revenue decreased 2 % to $ 106.6 million in 2019 compared to $ 108.9 million in 2018 . the decrease was driven by an anticipated reduction in sales to merck for a heartworm preventive as previously disclosed on our 2018 fourth quarter earnings release . the decline was offset by a 20 % increase in point of care laboratory consumables , as well as a 12 % increase from point of care imaging revenue primarily due to the optomed acquisition . cca segment revenue increased 4 % to $ 108.9 million in 2018 compared to $ 105.2 million in 2017 . the increase was driven primarily by a 14 % increase in revenue from point of care laboratory consumables , as well as a 4 % increase in revenue from point of care imaging products due to increased sales of digital radiography systems .
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in conjunction with the spitfire acquisition , two of the financial covenants required by terms of the f-23 sigmatron international , inc. and subsidiaries notes to consolidated financial statements - continued april 30 , 2013 and 2012 note h - long-term debt - continued note payable - bank - continued company 's senior secured credit facility was amended as of may 31 , 2012. the company was in violation of certain of its financial covenants at july 31 , 2012 and received a waiver for the financial covenant violations . the company renegotiated its financial covenants during the quarter ended october 31 , 2012 with wells fargo and extended the credit facility through september 30 , 2014. as of april 30 , 2013 , the company again amended its credit agreement and renegotiated two of the financial covenants required by the terms of the company 's senior secured credit facility . at april 30 , story_separator_special_tag in addition to historical financial information , this discussion of the business of sigmatron international , inc. ( sigmatron ) , its wholly-owned subsidiaries standard components de mexico s.a. , ablemex , s.a. de c.v. , digital appliance controls de mexico , s.a. de c.v. , spitfire controls ( vietnam ) co. ltd. , spitfire controls ( cayman ) co. ltd. and sigmatron international trading co. , wholly-owned foreign enterprises wujiang sigmatron electronics co. , ltd. and sigmatron electronic technology co. , ltd. ( collectively , sigmatron china ) and international procurement office sigmatron taiwan branch ( collectively , the company ) and other items in this annual report on form 10-k contain forward-looking statements concerning the company 's business or results of operations . words such as continue , anticipate , will , expect , believe , plan , and similar expressions identify forward-looking statements . these forward-looking statements are based on the current expectations of the company . because these forward-looking statements involve risks and uncertainties , the company 's plans , actions and actual results could differ materially . such statements should be evaluated in the context of the risks and uncertainties inherent in the company 's business including , but not necessarily limited to , the company 's continued dependence on certain significant customers ; the continued market acceptance of products and services offered by the company and its customers ; pricing pressures from our customers , suppliers and the market ; the activities of competitors , some of which may have greater financial or other resources than the company ; the variability of our operating results ; the results of long-lived assets and goodwill impairment testing ; the variability of our customers ' requirements ; the availability and cost of necessary components and materials ; the ability of the company and our customers to keep current with technological changes within our industries ; regulatory compliance , including conflict minerals ; the continued availability and sufficiency of our credit arrangements ; changes in u.s. , mexican , chinese , vietnamese or taiwanese regulations affecting the company 's business ; the turmoil in the global economy and financial markets ; the stability of the u.s. , mexican , chinese , vietnamese and taiwanese economic , labor and political systems and conditions ; currency exchange fluctuations ; and the ability of the company to manage its growth , including its integration of the spitfire operation acquired in may 2012. these and other factors which may affect the company 's future business and results of operations are identified throughout this annual report and as risk factors , and may be detailed from time to time in the company 's filings with the securities and exchange commission . these statements speak as of the date of such filings , and the company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law . 18 overview the company operates in one business segment as an independent provider of ems , which includes printed circuit board assemblies and completely assembled ( box-build ) electronic products . in connection with the production of assembled products , the company also provides services to its customers , including ( 1 ) automatic and manual assembly and testing of products ; ( 2 ) material sourcing and procurement ; ( 3 ) manufacturing and test engineering support ; ( 4 ) design services ; ( 5 ) warehousing and distribution services ; and ( 6 ) assistance in obtaining product approval from governmental and other regulatory bodies . the company provides these manufacturing services through an international network of facilities located in the united states , mexico , china , vietnam and taiwan . on may 31 , 2012 , sigmatron acquired certain assets and assumed certain liabilities of spitfire . spitfire was a privately held illinois corporation with captive manufacturing sites in chihuahua , mexico and suburban ho chi minh city , vietnam . both manufacturing sites were among the assets acquired by the company . spitfire was an original equipment manufacturer of electronic controls , with a focus on the major appliance ( white goods ) industry . although north america is currently its primary market , spitfire has applications that can be used worldwide . the company provided manufacturing solutions for spitfire since 1994 , and was a strategic partner to spitfire as it developed its oem electronic controls business . the company 's spitfire division provides cost effective designs as control solutions for its customers , primarily in high volume applications of domestic cooking ranges , dishwashers , refrigerators , and portable appliances . it is a member of the association of home appliance manufacturers ( aham ) , as well as other industry related trade associations and is iso 9001:2008 certified . the acquisition has enabled the company to offer design services for the first time in specific markets . the company relies on numerous third-party suppliers for components used in the company 's production process . story_separator_special_tag the company does not earn a fee for such arrangements . the company from time to time may ship finished goods from its facilities , which is also the same point that title passes under the terms of the purchase order , and invoice the customer at the end of the calendar month . this is done only in special circumstances to accommodate a specific customer . further , from time to time customers request the company hold finished goods after they have been invoiced to consolidate finished goods for shipping purposes . the company generally provides a 90 day warranty for workmanship only and does not have any installation , acceptance or sales incentives ( although the company has negotiated longer warranty terms in certain instances ) . the company assembles and tests assemblies based on customers ' specifications . historically , the amount of returns for workmanship issues has been de minimis under the company 's standard or extended warranties . inventories - inventories are valued at the lower of cost or market . cost is determined by the first-in , first-out method . in the event of an inventory write-down , the company records expense to state the inventory at lower of cost or market . the company establishes inventory reserves for valuation , shrinkage , and excess and obsolete inventory . the company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss . actual results differing from these estimates could significantly affect the company 's inventories and cost of products sold . the company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions . actual product demand or market conditions could be different than that projected by management . 20 goodwill - goodwill represents the purchase price in excess of the fair value of assets acquired in business combinations . financial accounting standards board ( fasb ) accounting standards codification ( asc ) 350 , goodwill and other intangible assets , requires the company to assess goodwill and other indefinite-lived intangible assets for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment . the company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of any reporting unit is less than its corresponding carrying value . if , after assessing the totality of events and circumstances , the company concludes that it is not more likely than not that the fair value of any reporting unit is less than its corresponding carrying value then the company is not required to take further action . however , if the company concludes otherwise , then it is required to perform a quantitative impairment test , including computing the fair value of the reporting unit and comparing that value to its carrying value . if the fair value is less than its carrying value , a second step of the test is required to determine if recorded goodwill is impaired . the company also has the option to bypass the qualitative assessment for goodwill in any period and proceed directly to performing the quantitative impairment test . the company will be able to resume performing the qualitative assessment in any subsequent period . the company performed its annual goodwill impairment test as of february 1 , 2013 and determined no impairment existed as of the date of the impairment test . impairment of long-lived assets - the company reviews long-lived assets , including amortizable intangible assets for impairment . property , machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment . if events or changes in circumstances occur that indicate possible impairment , the company 's impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities . this analysis requires management judgment with respect to changes in technology , the continued success of product lines , and future volume , revenue and expense growth rates . the company conducts annual reviews for idle and underutilized equipment , and review business plans for possible impairment . impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset group . when impairment is indicated , the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value . income tax - the company 's income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . the company is subject to income taxes in both the u.s. and several foreign jurisdictions . significant judgments and estimates by management are required in determining the consolidated income tax expense assessment . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense and tax credit carryforwards . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise , the company considers all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , the company begins with historical results adjusted for the results of discontinued operations and changes in accounting policies , and incorporates assumptions including the amount of future state , federal and foreign pretax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies .
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financing summary . the company has a senior secured credit facility with wells fargo with a credit limit up to $ 30 million and an initial term through september 30 , 2013. the facility allows the company to choose among interest rates at which it may borrow funds . the interest rate is the prime rate plus one half percent ( effectively , 3.75 % at april 30 , 2013 ) or libor plus two and three quarter percent ( effectively , 3.0 % at april 30 , 2013 ) , which is paid monthly . the credit facility is collateralized by substantially all of the domestically located assets of the company and requires the company to be in compliance with several financial covenants . in conjunction with the spitfire acquisition , two of the financial covenants required by terms of the company 's senior secured credit facility were amended as of may 31 , 2012. the company was in violation of certain of its financial covenants at july 31 , 2012 and received a waiver for the financial covenant violations . the company renegotiated its financial covenants during the quarter ended october 31 , 2012 with wells fargo and extended the credit facility through september 30 , 2014. as of april 30 , 2013 , the company again amended its credit agreement and renegotiated two of the financial covenants required by the terms of the company 's senior secured credit facility . at april 30 , 2013 , the company was in compliance with its amended financial covenants . as of april 30 , 2013 , there was an $ 18,500,000 outstanding balance and $ 11,500,000 of unused availability under the credit facility . the company entered into a mortgage agreement on january 8 , 2010 , in the amount of $ 2,500,000 , with wells fargo to refinance the property that serves as the company 's corporate headquarters and its illinois manufacturing facility .
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material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses , assumptions used in the defined benefit plan and the fair values of financial instruments . the status of contingencies are particularly subject to change and significant assumptions used in periodic evaluation of securities for other-than-temporary impairment . fhlb advance option fees . option fees paid to the fhlb giving us the option to enter into long-term advance commitments at specified interest rates in the future are capitalized and reviewed for impairment . once the option is exercised , the fhlb advance option fee is amortized over the term of the advance as interest expense . fair value of financial instruments . fair values of financial instruments are estimated story_separator_special_tag operations the following discussion and analysis provides a comparison of our results of operations for the years ended december 31 , 2011 , 2010 , and 2009 and financial condition as of december 31 , 2011 and 2010. this discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report . all share data has been adjusted to give retroactive recognition to stock splits and stock dividends . cautionary notice regarding forward-looking statements certain statements of other than historical fact that are contained in this document and in written material , press releases and oral statements issued by or on behalf of southside bancshares , inc. , a bank holding company , may be considered to be “ forward-looking statements ” within the meaning of and subject to the protections of the private securities litigation reform act of 1995. these forward-looking statements are not guarantees of future performance , nor should they be relied upon as representing management 's views as of any subsequent date . these statements may include words such as `` expect , '' `` estimate , '' `` project , '' `` anticipate , '' `` appear , '' `` believe , '' `` could , '' `` should , '' `` may , '' `` intend , '' `` probability , '' `` risk , '' `` target , '' `` objective , '' `` plans , '' `` potential , '' and similar expressions . forward-looking statements are statements with respect to our beliefs , plans , expectations , objectives , goals , anticipations , assumptions , estimates , intentions and future performance , and are subject to significant known and unknown risks and uncertainties , which could cause our actual results to differ materially from the results discussed in the forward-looking statements . for example , discussions of the effect of our expansion , trends in asset quality and earnings from growth , and certain market risk disclosures are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations . see “ item 1. business ” and this “ item 7. management 's discussion and analysis of financial condition and results of operations. ” by their nature , certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future . as a result , actual income gains and losses could materially differ from those that have been estimated . other factors that could cause actual results to differ materially from forward-looking statements include , but are not limited to , the following : · general economic conditions , either globally , nationally , in the state of texas , or in the specific markets in which we operate , including , without limitation , the deterioration of the commercial real estate , residential real estate , construction and development , credit and liquidity markets , which could cause an adverse change in our net interest margin , or a decline in the value of our assets , which could result in realized losses ; · legislation , regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we are engaged , including the impact of the dodd-frank act , the federal reserve 's actions with respect to interest rates and other regulatory responses to current economic conditions ; · adverse changes in the status or financial condition of the government-sponsored enterprises ( the “ gses ” ) impacting the gses ' guarantees or ability to pay or issue debt ; · adverse changes in the credit portfolio of other u.s. financial institutions relative to the performance of certain of our investment securities ; · economic or other disruptions caused by acts of terrorism in the united states , europe or other areas ; · changes in the interest rate yield curve such as flat , inverted or steep yield curves , or changes in the interest rate environment that impact interest margins and may impact prepayments on the mortgage-backed securities portfolio ; · increases in our nonperforming assets ; · our ability to maintain adequate liquidity to fund operations and growth ; · the failure of our assumptions underlying allowance for loan losses and other estimates ; 35 · unexpected outcomes of , and the costs associated with , existing or new litigation involving us ; · changes impacting our balance sheet and leverage strategy ; · risks related to actual u.s. agency mortgage-backed securities prepayments exceeding projected prepayment levels ; · risks related to u.s. agency mortgage-backed securities prepayments increasing due to u.s. government programs designed to assist homeowners to refinance their mortgage that might not otherwise have qualified ; · our ability to monitor interest rate risk ; · significant increases in competition in the banking and financial services industry ; · changes in consumer spending , borrowing and saving habits ; · technological changes ; · our ability to increase market share and control expenses ; · the effect of changes in federal or state tax laws ; · the effect of compliance with legislation or regulatory changes ; · the effect of changes in accounting policies and practices ; · risks of story_separator_special_tag if full collection of the loan balance appears unlikely at the time of review , estimates of future expected cash flows or appraisals of the collateral securing the debt are used to allocate the necessary allowances . the internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk associated with them . in addition , a list of specifically reserved loans or loan relationships of $ 50,000 or more is updated on a quarterly basis in order to properly allocate necessary allowance and keep management informed on the status of attempts to correct the deficiencies noted with respect to the loan . loans are considered impaired if , based on current information and events , it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . the measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement , except that all collateral-dependent loans are measured for impairment based on fair value of the collateral . in measuring the fair value of the collateral , in addition to relying on third party appraisals , we use assumptions such as discount rates , and methodologies , such as comparison to the recent selling price of similar assets , consistent with those that would be utilized by unrelated third parties performing a valuation . changes in the financial condition of individual borrowers , economic conditions , historical loss experience and the conditions of the various markets in which collateral may be sold all may affect the required level of the allowance for losses on loans and the associated provision for loan losses . as of december 31 , 2011 , our review of the loan portfolio indicated that a loan loss allowance of $ 18.5 million was adequate to cover probable losses in the portfolio . refer to “ loan loss experience and allowance for loan losses ” and “ note 7 – loans and allowance for probable loan losses ” to our consolidated financial statements included in this report for a detailed description of our estimation process and methodology related to the allowance for loan losses . 38 estimation of fair value . the estimation of fair value is significant to a number of our assets and liabilities . in addition , gaap requires disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements . fair values for securities are volatile and may be influenced by a number of factors , including market interest rates , prepayment speeds , discount rates and the shape of yield curves . fair values for most investment and mortgage-backed securities are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or estimates from independent pricing services . where there are price variances outside certain ranges from different pricing services for specific securities , those pricing variances are reviewed with other market data to determine which of the price estimates is appropriate for that period . for securities carried at fair value through income , the change in fair value from the prior period is recorded on our income statement as fair value gain ( loss ) – securities . at september 30 , 2008 and continuing at december 31 , 2011 , the valuation inputs for our available for sale ( “ afs ” ) trust preferred securities ( “ trups ” ) became unobservable as a result of the significant market dislocation and illiquidity in the marketplace . although we continue to rely on nonbinding prices compiled by third party vendors , the visibility of the observable market data ( level 2 ) to determine the values of these securities has become less clear . fair values of financial assets are determined in an orderly transaction and not a forced liquidation or distressed sale at the measurement date . while we feel the financial market conditions at december 31 , 2011 reflect the market illiquidity from forced liquidation or distressed sales for these trups , we determined that the fair value provided by our pricing service continues to be an appropriate fair value for financial statement measurement and therefore , as we verified the reasonableness of that fair value , we have not otherwise adjusted the fair value provided by our vendor . however , the severe decline in estimated fair value is caused by the significant illiquidity in this market which contrasts sharply with our assessment of the fundamental performance of these securities . therefore , we believe the estimate of fair value is still not clearly based on observable market data and will be based on a range of fair value data points from the market place as a result of the illiquid market specific to this type of security . accordingly , we determined that the trups security valuation is based on level 3 inputs . impairment of investment securities and mortgage-backed securities . investment and mortgage-backed securities classified as afs are carried at fair value and the impact of changes in fair value are recorded on our consolidated balance sheet as an unrealized gain or loss in “ accumulated other comprehensive income ( loss ) , ” a separate component of shareholders ' equity . securities classified as afs or held to maturity ( “ htm ” ) are subject to our review to identify when a decline in value is other-than-temporary .
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operating results during the year ended december 31 , 2011 , our net income increased $ 30,000 , or 0.1 % , to $ 39.1 million , from $ 39.1 million for the same period in 2010. the increase in net income was primarily attributable to the increase in net interest income and a decrease in the provision for loan losses . these items were partially offset by a decrease in the gain on sale of securities available for sale and an impairment charge of $ 8.9 million to our fhlb advance option fee which has been written down to $ 2.0 million at december 31 , 2011. noninterest expense increased slightly primarily due to an increase in salaries and employee benefits due to our overall growth and expansion while offset by a decrease in fdic insurance . earnings per diluted share increased $ 0.01 , or 0.4 % , to $ 2.38 for the year ended december 31 , 2011 , from $ 2.37 for the same period in 2010. during the year ended december 31 , 2010 , our net income decreased $ 5.3 million , or 11.9 % , to $ 39.1 million , from $ 44.4 million for the same period in 2009. the decrease in net income was primarily attributable to the decrease in net interest income and noninterest income and was partially offset by a decrease in the provision for losses , income tax expense and noninterest expense . the decrease in noninterest income was driven primarily by a decrease in gain on sale of afs securities . noninterest expense decreased slightly primarily due to a decrease in fdic insurance and other expense which was offset by an increase in salaries and employee benefits due to our overall growth and expansion .
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based on that evaluation , our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the securities exchange act of 1934 is recorded , processed , summarized and reported within the time periods specified in the securities and exchange commission 's rules and forms . report on internal control over financial reporting our chief executive officer and our chief financial officer are responsible for establishing and maintaining internal control over financial reporting . internal control over financial reporting is defined in rule 13a-15 ( f ) and 15d-15 ( f ) promulgated under the securities exchange act of 1934 as a process designed by , or under the supervision of , our principal executive and principal financial officers and effected by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that : · pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets ; · provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors ; and · provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of our assets that could have a material effect on the financial statements . because of its inherent limitations , our internal control over financial reporting may not prevent or detect misstatements . therefore , even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation . projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . our chief executive officer and our chief financial officer assessed the effectiveness of our internal control over financial reporting as of december 31 2013. in making this assessment , management used the criteria set forth by the committee of sponsoring organizations of the treadway commission ( coso ) in internal controlintegrated framework . based on our assessment , our chief executive officer and our chief financial officer determined that , as of december 31 , 2013 , our internal control over financial reporting is effective . 24 changes in internal control over financial reporting there have been no changes in our internal control over financial reporting ( as such term is defined in rules 13a-15 ( f ) and 15d-15 ( f ) under the exchange act ) during the fourth quarter of the last fiscal year that have materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . item 9b : other information the employment agreement with our chief executive officer , richard f. rutkowski , was amended on march 10 , 2014 to extend the term of the agreement from january 1 , 2015 to january 1 , 2017 , unless earlier terminated in accordance with the agreement . part iii item 10 : directors , executive officers and corporate governance the information concerning the company 's code of business conduct and ethics is set forth below in this item 10. all other information required by this item is incorporated by reference to the company 's proxy statement for the 2014 annual meeting of shareholders . code of business conduct and ethics the board of directors has adopted a code of business conduct and ethics ( the code ) designed , in part , to deter wrongdoing and to promote honest and ethical conduct , including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships , full , fair , accurate , timely and understandable disclosure in reports and documents that the company files with or submits to the securities and exchange commission and in the company 's other public communications , compliance with applicable governmental laws , rules and regulations , the prompt internal reporting of code violations to an appropriate person or persons , as identified in the code and accountability for adherence to the code . the code applies to all directors , executive officers and employees of the company . the code may be found on the company 's website at www.clearsign.com . the company intends to disclose any amendments to or waivers of its code of ethics as it applies to directors or executive officers by filing them on form 8-k. item 11 : executive compensation the information required by this item is incorporated by reference to the company 's proxy statement for the 2014 story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis here and throughout this form 10-k contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a development stage company located in seattle , washington that designs and develops technologies that aim to improve both the energy efficiency and emission control characteristics of combustion systems . story_separator_special_tag if the net proceeds from these offerings are insufficient for this purpose , we will consider other options to continue our path to commercialization , including , but not limited to : additional financing through follow-on equity offerings , debt financing , co-development agreements , sale or licensing of developed intellectual or other property , or other alternatives . if management is unable to implement its proposed business plan or employ alternative financing strategies , it does not presently have any alternative proposals . in that case , we may be required to scale back our development plans by reducing expenditures for employees , consultants , business development and marketing efforts , and other envisioned expenditures or curtail or even suspend our operations . we can not assure that our technology will be accepted , that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . furthermore , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to severely curtail , or even to cease , our operations . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , the terms of existing contracts , our observance of trends in the industry , information provided by our customers and information available from other outside sources , as appropriate . see note 2 to our unaudited condensed financial statements for a more complete description of our significant accounting policies . development stage enterprise . the company is a development stage company as defined in financial accounting standards board ( fasb ) accounting standards codification ( asc ) 915 , development stage entities . the company is devoting substantially all of its present efforts to design and develop new technologies in combustion systems and its planned principal operations have not yet commenced . the company has not generated any significant revenues from operations and has no assurance of any future revenues . all losses accumulated since january 23 , 2008 have been considered as part of the company 's development stage activities . 20 revenue recognition . the company recognizes revenue on co-development agreements using the percentage of completion method . under this method , the completion percentage is determined by dividing costs incurred to date by total estimated project costs . since our projects will require technological development to complete , which by its nature is difficult to predict , the actual cost required to complete contracted work may vary from estimates . estimated project costs are revised regularly which can alter the reported level of project profitability . any estimated project losses are recognized in the current reporting period . customer billings are recorded when cash receipts are probable and in accordance with the underlying co-development contract . if billings exceed recognized revenue , the difference is recorded as a current liability , while any recognized revenues exceeding billings are recorded as a current asset . recognized revenues are subject to revisions as the contract progresses to completion and actual revenue and cost become certain . revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known . cost of revenue . cost of co-development revenue includes both direct and allocated indirect costs of completing the scope of work of co-development agreements . direct costs include labor , materials and other costs incurred directly in fulfilling co-development agreements . indirect costs include labor , rent , depreciation and other costs associated with operating the company . due to the nature of the work involved , the cost of co-development projects may fluctuate substantially from period to period . research and development . the cost of research and development is expensed as incurred . research and development costs consist of salaries , benefits , share based compensation , consulting fees , rent , utilities , depreciation , and consumables . stock-based compensation . the costs of all employee stock options , as well as other equity-based compensation arrangements , are reflected in the financial statements based on the estimated fair value of the awards on the grant date . that cost is recognized over the period during which an employee is required to provide service in exchange for the award . stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued , whichever is more reliably measured . fair value of financial instruments . fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable . the categorization of financial assets and liabilities within the valuation hierarchy is based upon
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results of operations comparison of the years ending december 31 , 2013 and 2012 revenue , cost of revenue , and gross profit . the company reported $ 93,000 of revenue resulted from a solid fuel burner co-development project with covanta energy corporation , a waste-to-energy service company and subsidiary of covanta holding corporation . the gross profit of the project was immaterial . the company had no revenues during the year ended december 31 , 2012. operating expenses . operating expenses increased by $ 1,091,000 to $ 5,301,000 in 2013 compared to 2012. the company increased its research and development expenses by $ 667,000 to $ 1,851,000 for 2013. r & d expenses rose due primarily to the addition of personnel hired as a result of increased research activities . in addition to the $ 334,000 increase in compensation expense to $ 1,000,000 , the increase to r & d expenses included a $ 271,000 increase , to $ 300,000 , to laboratory expenses for build-to-suit equipment and expendables . g & a expenses increased by $ 424,000 to $ 3,450,000 for 2013. this increase resulted primarily from an increase in business development and marketing consulting costs of $ 247,000 , to $ 386,000 , and an increase in the expense of operating as a public company for an entire year , which increased by $ 247,000 to $ 1,054,000. loss from operations . due to the increase in operating expenses , our loss from operations increased during 2013 by $ 1,086,000 , to $ 5,296,000. net loss . primarily as a result of the increase in operating expenses , our net loss for 2013 was $ 5,285,000 as compared to a net loss of $ 4,189,000 for 2012 , resulting in a $ 1,096,000 increase in the net loss .
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· total revenues totaled $ 249.9 million in 2015 , compared with $ 200.7 million in 2014 and $ 121.7 million in 2013 . · gross premiums written totaled $ 493.8 million in 2015 , compared with $ 377.2 million in 2014 and $ 243.4 in 2013 . · total investments increased $ 53.5 million , to $ 384.3 million as of december 31 , 2015 , compared with $ 330.8 million as of december 31 , 2014 . · cash and cash equivalents increased $ 12.8 million , to $ 53.0 million as of december 31 , 2015 , compared with $ 40.2 million as of december 31 , 2014 . · combined ratio was 87.9 % in 2015 , compared with 83.9 % in 2014 and 98.2 % in 2013. the combined ratio is calculated by dividing net premiums earned by losses and lae plus all other costs and expenses . results of operations year ended december 31 , 2015 compared with year ended december 31 , 2014 net premiums earned net premiums earned increased $ 39.1 million , or 22.9 % , to $ 210.0 million during the year ended december 31 , 2015 , compared with $ 170.9 million during the year ended december 31 , 2014. this increase was primarily due to an increase in our homeowners ' in-force policy count to 242,702 as of december 31 , 2015 , compared with 182,557 as of december 31 , 2014. additionally , the growth in the policy count is driven by management 's strategy to grow market share by providing exceptional service to our customers and partner agents . net investment income net investment income increased $ 1.8 million , or 34.2 % , to $ 7.2 million during the year ended december 31 , 2015 , compared with $ 5.4 million during the year ended december 31 , 2014. this increase is mainly due to a year-over-year overall growth of our investment portfolio , specifically growth in the debt securities investment offset by a decrease in our debt securities investment yields , net , which were 2.3 % and 2.7 % for the years ended december 31 , 2015 and 2014 , respectively . net realized investment gains net realized investment gains totaled $ 3.6 million for the year ended december 31 , 2015 , compared with $ 4.4 million for the year ended december 31 , 2014. the slight decrease is due to less favorable market conditions for the year ended december 2015 , as compared to the year ended december 31 , 2014 . 24 other income other income increased $ 9.0 million , or 45.0 % , to $ 29.0 million for the year ended december 31 , 2015 , compared with $ 20.0 million for the year ended december 31 , 2014. the following table represents the other income detail as follows : replace_table_token_5_th the increase in policy fees and brokerage revenue is directly related to the increase in gross written premiums and ceded premiums over the prior year . additionally , the change in commission income is related to continued growth in our book of business . losses and lae losses and lae increased $ 23.3 million , or 28.8 % , to $ 104.3 million during the year ended december 31 , 2015 , compared with $ 81.0 million during the year ended december 31 , 2014. the increase to losses and lae 's is directly related to an increase in net premiums earned and an increase in our loss ratio year over year . our loss ratio for 2015 was 49.7 % compared with 47.4 % for the same period in 2014. the increase in the ratio is the result of an unfavorable development from assignment of benefits and the temporary discontinuation of the underwriting analytics . the underwriting analytics were not used for several months in the second and third quarter of 2015 , due to our compliance with a cease and desist order from the florida oir requiring us to obtain approval of these analytics without prior approval from them . the temporary discontinuation of the underwriting analytics caused us to underwrite polices outside of our standard process . commissions and other underwriting expenses commissions and other underwriting expenses increased $ 13.2 million , or 25.4 % , to $ 65.3 million for the year ended december 31 , 2015 , compared with $ 52.1 million for the year ended december 31 , 2014. the increase is directly related to the significant increase in net premiums written and earned during the same period . general and administrative expenses general and administrative expenses increased $ 4.7 million , or 46.3 % , to $ 15.0 million for the year ended december 31 , 2015 , compared with $ 10.3 million for the year ended december 31 , 2014. the change is due to an increase in salaries and benefits , including share-based compensation , legal and professional fees , including $ 0.9 million of start-up costs related to the organization of monarch . professional fees include audit , tax and actuarial fees . the increased costs are in support of the significant growth in our gross and net premiums written in 2015 as compared to 2014. income taxes income taxes increased $ 4.7 million , or 23.1 % , to $ 24.8 million for the year ended december 31 , 2015 , compared with $ 20.1 million for the year ended december 31 , 2014. the change was due to an increase in taxable income and an increase in our effective tax rate . our effective tax rate was 38.0 % for the year ended december 31 , 2015 , compared with 35.1 % for the year ended december 31 , 2014. the increase in the effective tax rate is the result of having less permanent items and true up adjustments in 2015 as compared to 2014 . story_separator_special_tag if a decline in fair value is deemed to be other-than-temporary , the investment is written down to its fair value and the amount of the write-down is recorded as an other-than-temporary impairment ( “ otti ” ) loss on the statement of income . in addition , any portion of such decline related to debt securities that is believed to arise from factors other than credit is recorded as a component of other comprehensive income rather than against income . 28 net realized gains and losses on investments are determined in accordance with the specific identification method . net investment income consists primarily of interest income from debt securities , cash and cash equivalents , including any premium amortization or discount accretion and dividend income from equity securities ; less expenses related to investments . premiums and unearned premiums premiums are recognized as revenue on a pro-rata basis over the term of an insurance policy . assumed reinsurance premiums written and earned are based on reports received from ceding companies for pro-rata treaty contracts and are generally recorded as written based on contract terms for excess-of-loss and quota share contracts . premiums are earned ratably over the terms of the related coverage . unearned premiums and ceded unearned premiums represent the portion of gross premiums written and ceded premiums written , respectively , relating to the unexpired terms of such coverage . premium receivable balances are reported net of an allowance for estimated uncollectible premium amounts . such allowance is based upon an ongoing review of amounts outstanding , length of collection periods , the creditworthiness of the insured and other relevant factors . amounts deemed to be uncollectible are written off against the allowance . reinsurance reinsurance is used to mitigate the exposure to losses , manage capacity and protect capital resources . reinsuring loss exposures does not relieve a ceding entity from its obligations to policyholders and cedants . reinsurance recoverables ( including amounts related to claims incurred but not reported ) and ceded unearned premiums are reported as assets . to minimize exposure to losses from a reinsurer 's inability to pay , the financial condition of such reinsurer is evaluated initially upon placement of the reinsurance and periodically thereafter . in addition to considering the financial condition of the reinsurer , the collectability of the reinsurance recoverables is evaluated ( and where appropriate , whether an allowance for estimated uncollectible reinsurance recoverables is to be established ) based upon a number of other factors . such factors include the amounts outstanding , length of collection periods , disputes , any collateral or letters of credit held and other relevant factors . to the extent that an allowance for uncollectible reinsurance recoverable is established , amounts deemed to be uncollectible are written off against the allowance for estimated uncollectible reinsurance recoverables . the company currently has no allowances for uncollectible reinsurance recoverables . ceded premiums written are recorded in accordance with applicable terms of the various reinsurance contracts and ceded premiums earned are charged against revenue over the period of the various reinsurance contracts . this also generally applies to reinstatement premiums paid to a reinsurer , which arise when contractually-specified ceded loss triggers have been breached . ceded commissions reduce commissions , brokerage and other underwriting expenses and ceded losses incurred reduce net loss and loss adjustment expense incurred over the applicable periods of the various reinsurance contracts with third party reinsurers . if premiums or commissions are subject to adjustment ( for example , retrospectively-rated or experience-rated ) , the estimated ultimate premium or commission is recognized over the period of the contract . amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business and consistent with the terms of the underlying reinsurance contract . dac dac represent those costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts . the company defers incremental costs that result directly from , and are essential to , the acquisition or renewal of an insurance contract . such dac generally include agent or broker commissions , premium taxes , medical and inspection fees that would not have been incurred if the insurance contract had not been acquired or renewed . each cost is analyzed to assess whether it is fully deferrable . the company also defers a portion of the employee total compensation and payroll-related fringe benefits directly related to time spent performing specific acquisition or renewal activities , including costs associated with the time spent on underwriting , policy issuance and processing , and sales force contract selling . 29 the acquisition costs are deferred and amortized over the period in which the related premiums written are earned , generally 12 months . it is grouped consistent with the manner in which the insurance contracts are acquired , serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts . investment income is anticipated in assessing the recoverability of dac . the company assesses the recoverability of dac on an annual basis or more frequently if circumstances indicate impairment may have occurred . losses and loss adjustment expenses overview the estimation of the liability for unpaid loss and lae is inherently difficult and subjective , especially in view of changing legal and economic environments that impact the development of loss reserves , and therefore , quantitative techniques frequently have to be supplemented by subjective considerations and managerial judgment . in addition , trends that have affected development of liabilities in the past may not necessarily occur or affect liability development to the same degree in the future . each of our insurance companies establishes reserves on its balance sheet for unpaid loss and lae related to its property and casualty insurance and related reinsurance contracts . as of any balance sheet date , there are claims that have not yet been reported , and some claims may not be reported for many years after the date a loss occurs .
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results of operations year ended december 31 , 2014 compared with year ended december 31 , 2013 net premiums earned net premiums earned increased $ 66.5 million , or 63.7 % , to $ 170.9 million during the year ended december 31 , 2014 , compared with $ 104.4 million during the year ended december 31 , 2013. this increase was primarily due to an increase in our homeowners ' in-force policy count to 182,557 as of december 31 , 2014 , compared with 116,401 as of december 31 , 2013. additionally , the growth in the policy count is driven by management 's strategy to grow market share by providing exceptional service to our customers , partner agents and obtaining the allstate relationship during 2013. net investment income net investment income increased $ 2.1 million , or 61.6 % , to $ 5.4 million during the year ended december 31 , 2014 , compared with $ 3.3 million during the year ended december 31 , 2013. this increase is mainly due to a year-over-year overall growth of our investment portfolio and an increase in our debt securities investment yields . our investment yield , net was 2.7 % and 2.1 % , for the years ended december 31 , 2014 and 2013 , respectively .
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in april 2015 story_separator_special_tag of operations overview m/i homes , inc. ( the “ company ” or “ we ” ) is one of the nation 's leading builders of single-family homes , having delivered over 94,000 homes since we commenced homebuilding activities in 1976. the company 's homes are marketed and sold primarily under the m/i homes brand ( m/i homes and showcase collection ( exclusively by m/i ) ) and , following our acquisition of a privately-held homebuilder in the minneapolis/st . paul market in december 2015 , we also currently operate under the name hans hagen homes in that market . the company has homebuilding operations in columbus and cincinnati , ohio ; indianapolis , indiana ; chicago , illinois ; minneapolis/st . paul , minnesota ; tampa and orlando , florida ; austin , dallas/fort worth , houston and san antonio , texas ; charlotte and raleigh , north carolina ; and the virginia and maryland suburbs of washington , d.c. included in this management 's discussion and analysis of financial condition and results of operations are the following topics relevant to the company 's performance and financial condition : application of critical accounting estimates and policies ; results of operations ; discussion of our liquidity and capital resources ; summary of our contractual obligations ; discussion of our utilization of off-balance sheet arrangements ; and impact of interest rates and inflation . application of critical accounting estimates and policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . management bases its estimates and assumptions on historical experience and on various other factors that it believes 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 . on an ongoing basis , management evaluates such estimates and assumptions and makes adjustments as deemed necessary . actual results could differ from these estimates using different estimates and assumptions , or if conditions are significantly different in the future . see “ forward - looking statements ” above in part i. listed below are those estimates and policies that we believe are critical and require the use of complex judgment in their application . our critical accounting estimates should be read in conjunction with the notes to our consolidated financial statements . revenue recognition . revenue from the sale of a home is recognized when the delivery has occurred , title has passed , the risks and rewards of ownership are transferred to the buyer , and an adequate initial and continuing investment by the homebuyer is received , or when the loan has been sold to a third-party investor . revenue for homes that close to the buyer having a down payment of 5 % or greater , home deliveries financed by third parties , and all home deliveries insured under federal housing administration ( “ fha ” ) , u.s. veterans administration ( “ va ” ) and other government-insured programs are recorded in the financial statements on the date of closing . revenue related to all other home deliveries initially funded by our 100 % -owned subsidiary , m/i financial , llc ( “ m/i financial ” ) , is recorded on the date that m/i financial sells the loan to a third-party investor , because the receivable from the third-party investor is not subject to future subordination , and the company has transferred to this investor the usual risks and rewards of ownership that is in substance a sale and does not have a substantial continuing involvement with the home . we recognize the majority of the revenue associated with our mortgage loan operations when the mortgage loans are sold and or related servicing rights are sold to third party investors or retained and managed under a third party subservice arrangement . the revenue recognized is reduced by the fair value of the related guarantee provided to the investor . the fair value of the guarantee is recognized in revenue when the company is released from its obligation under the guarantee . we recognize financial services revenue associated with our title operations as homes are delivered , closing services are rendered , and title policies are issued , all of which generally occur simultaneously as each home is delivered . all of the underwriting risk associated with title insurance policies is transferred to third-party insurers . home cost of sales . all associated homebuilding costs are charged to cost of sales in the period when the revenues from home deliveries are recognized . homebuilding costs include : land and land development costs ; home construction costs ( including an 24 estimate of the costs to complete construction ) ; previously capitalized interest ; real estate taxes ; indirect costs ; and estimated warranty costs . all other costs are expensed as incurred . sales incentives , including pricing discounts and financing costs paid by the company , are recorded as a reduction of revenue in the company 's consolidated statements of income . sales incentives in the form of options or upgrades are recorded in homebuilding costs . inventory . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction , and common costs that benefit the entire community , less impairments , if any . story_separator_special_tag although we do not have legal title to the optioned land , 25 asc 810 requires a company to consolidate a vie if the company is determined to be the primary beneficiary . in cases where we are the primary beneficiary , even though we do not have title to such land , we are required to consolidate these purchase/option agreements and reflect such assets and liabilities as consolidated inventory not owned on our consolidated balance sheets . at both december 31 , 2015 and 2014 , we have concluded that we were not the primary beneficiary of any vies from which we are purchasing under land option or purchase agreements . please refer to note 1 of our consolidated financial statements and the “ off-balance sheet arrangements ” section below for additional information related to our off-balance-sheet arrangements . warranty reserves . we record warranty reserves to cover our exposure to the costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims . warranty reserves are established by charging cost of sales and crediting a warranty reserve for each home closed . the warranty reserves for the company 's home builder 's limited warranty ( “ hblw ” ) are established as a percentage of average sales price and adjusted based on historical payment patterns determined , generally , by geographic area and recent trends . factors that are given consideration in determining the hblw reserves include : ( 1 ) the historical range of amounts paid per average sales price on a home ; ( 2 ) type and mix of amenity packages added to the home ; ( 3 ) any warranty expenditures not considered to be normal and recurring ; ( 4 ) timing of payments ; ( 5 ) improvements in quality of construction expected to impact future warranty expenditures ; and ( 6 ) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects . changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter . actual future warranty costs could differ from our current estimated amount . our warranty reserves for our 30-year ( offered on all homes sold after april 25 , 1998 and on or before december 1 , 2015 in all of our markets except our texas markets ) , 15-year ( offered on all homes sold after december 1 , 2015 in all of our markets except our texas markets ) or 10-year ( offered on all homes sold in our texas markets ) transferable structural warranty programs are established on a per-unit basis . while the structural warranty reserve is recorded as each house closes , the sufficiency of the structural warranty per unit charge and total reserve is re-evaluated on an annual basis , with the assistance of an actuary , using our own historical data and trends , as well as industry-wide historical data and trends , and other project specific factors . the reserves are also evaluated quarterly and adjusted if we encounter activity that is not consistent with the historical experience used in the annual analysis . these reserves are subject to variability due to uncertainties regarding structural defect claims for products we build , the markets in which we build , claim settlement history , insurance and legal interpretations , among other factors . while we believe that our warranty reserves are sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . please refer to note 1 of our consolidated financial statements for additional information related to our warranty reserves . self-insurance reserves . self-insurance reserves are made for estimated liabilities associated with employee health care , workers ' compensation , and general liability insurance . the reserves related to employee health care and workers ' compensation are based on historical experience and open case reserves . our workers ' compensation claims and our general liability claims are insured by a third party , except for workers compensation claims made in the state of ohio where the company is self-insured . the company records a reserve for general liability claims falling below the company 's deductible . the reserve estimate is based on an actuarial evaluation of our past history of general liability claims , other industry specific factors and specific event analysis . because of the high degree of judgment required in determining these estimated accrual amounts , actual future costs could differ from our current estimated amounts . please refer to note 1 of our consolidated financial statements for additional information related to our self-insurance reserves . stock-based compensation . we measure and recognize compensation expense associated with our grant of equity-based awards in accordance with asc 718 , compensation-stock compensation ( “ asc 718 ” ) , which generally requires that companies measure and recognize stock-based compensation expense in an amount equal to the fair value of share-based awards granted under compensation arrangements over the related vesting period . as discussed further in notes 1 and 2 of our consolidated financial statements , we have granted share-based awards to certain of our employees and directors in the form of stock options , director stock units and performance share units ( “ psu 's ” ) . determining the fair value of share-based awards requires judgment to identify the appropriate valuation model and develop the assumptions . the grant date fair value for stock option awards and psu 's with a market condition ( as defined in asc 718 ) is estimated using the black-scholes option pricing model and the monte carlo simulation methodology , respectively .
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results of operations overview for the year ended december 31 , 2015 , we experienced generally favorable market conditions in most of our markets as a result of increases in employment , low interest rates , improved consumer confidence and improved mortgage availability . these favorable conditions and the continued execution of our strategic business initiatives enabled us to achieve the following : new contracts increased 12 % homes delivered increased 4 % , reaching its highest unit levels in nine years average price of homes delivered increased 10 % to $ 346,000 - a record high for our company number of homes in backlog increased 25 % , and our total sales value in backlog increased 34 % to $ 569 million revenue increased 17 % gross margin increased 40 basis points to 21.2 % pre-tax income increased 25 % to $ 86.9 million , inclusive of a $ 7.8 million loss related to early extinguishment of debt selling , general and administrative expense as a percentage of revenue decreased 70 basis points to 13.3 % number of active communities increased 17 % we accomplished these results despite various industry headwinds we faced during the year , including inclement weather , labor and trade shortages in certain of our markets , the federal reserve 's first interest rate increase in nine years , and the implementation of the tila-respa integrated disclosure regulations in the second half of the year . we believe that our results were positively impacted by favorable conditions for housing demand , our strategic growth and investment in new communities ; continued improvement in our mix of communities and better locations within each of our markets ; our continued focus on controlling overall costs ; and the strong performance of our financial services operations . summary of company financial results in 2015 in 2015 , we achieved net income to common shareholders of $ 46.9 million , or $ 1.68
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this geographic diversity and balance help to reduce the company 's exposure to business and other risks in any one country or part of the world . the oral , personal and home care product segment is managed geographically in five reportable operating segments : north america , latin america , europe , asia pacific and africa/eurasia , all of which sell to a variety of traditional and e-commerce retailers , wholesalers and distributors . the company , through hill 's pet nutrition , also competes on a worldwide basis in the pet nutrition market , selling its products principally through authorized pet supply retailers , veterinarians and e-commerce retailers . on an ongoing basis , management focuses on a variety of key indicators to monitor business health and performance . these indicators include market share , net sales ( including volume , pricing and foreign exchange components ) , organic sales growth ( net sales growth excluding , as applicable , the impact of foreign exchange , acquisitions , and divestments ) , a non-gaap financial measure , and gross profit margin , operating profit , net income and earnings per share , in each case , on a gaap and non-gaap basis , as well as measures used to optimize the management of working capital , capital expenditures , cash flow and return on capital . the monitoring of these indicators and the company 's code of conduct and corporate governance practices help to maintain business health and strong internal controls . for additional information regarding non-gaap financial measures , see “ non-gaap financial measures ” below . to achieve its business and financial objectives , the company focuses the organization on initiatives to drive and fund growth . the company seeks to capture significant opportunities for growth by identifying and meeting consumer needs within its core categories , through its focus on innovation and the deployment of valuable consumer and shopper insights in the development of successful new products regionally , which can then be rolled out on a global basis . to enhance these efforts , the company has developed key initiatives to build strong relationships with consumers , dental , veterinary and skin care professionals and traditional and e-commerce retailers . in addition , the company has enhanced its digital marketing capabilities and intends to broaden its e-commerce offerings , including direct-to-consumer and subscription services . growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the company 's products . the investments needed to support growth are developed through continuous , company-wide initiatives to lower costs and increase effective asset utilization . through these initiatives , which are referred to as the company 's funding-the-growth initiatives , the company seeks to become even more effective and efficient throughout its businesses . these initiatives are designed to reduce costs associated with direct materials , indirect expenses , distribution and logistics , and advertising and promotional materials , among other things , and encompass a wide range of projects , examples of which include raw material substitution , reduction of packaging materials , consolidating suppliers to leverage volumes and increasing manufacturing efficiency through sku reductions and formulation simplification . the company also continues to prioritize its investments toward its higher margin businesses , specifically oral care , personal care and pet nutrition . 20 ( dollars in millions except per share amounts ) significant items impacting comparability in january 2018 , the company acquired all of the outstanding equity interests of physicians care alliance , llc ( “ pca skin ” ) and elta md holdings , inc. ( “ elta md ” ) , professional skin care businesses , for aggregate cash consideration of approximately $ 730 . with these acquisitions , the company entered the professional skin care category , which complements its existing global personal care businesses . see note 3 , acquisitions and divestitures to the consolidated financial statements for additional information . on december 22 , 2017 , the tax cuts and jobs act ( the “ tcja ” or “ u.s . tax reform ” ) was enacted , which , among other things , lowered the u.s. corporate income tax rate to 21 % from 35 % and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries . beginning in 2018 , the tcja also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100 % dividends-received deduction . as a result of the enactment of the tcja , in the fourth quarter of 2017 , the company recorded a provisional charge of $ 275 based on its initial analysis of the tcja using information and estimates available as of february 15 , 2018 , the date on which the company filed its annual report on form 10-k for the year ended december 31 , 2017. during 2018 , the company finalized its assessment of the impact of the tcja and recognized an additional tax expense of $ 80 reflecting the impact of transition tax guidance issued by the u.s. treasury and the update of certain estimates and calculations based on information available through the end of 2018. any further guidance issued after december 31 , 2018 may have an impact to the company 's provision for income tax in the period such guidance is effective . refer to “ results of operations–income taxes ” below for additional details . in september 2016 , the company 's mexican subsidiary completed the sale to the united states of america of the mexico city site on which its commercial operations , technology center and soap production facility were previously located and received $ 60 as the third and final installment of the sale price . the total sale price ( including the third installment and the previously received first and second installments ) was $ 120 . story_separator_special_tag in addition , given that approximately 70 % of the company 's net sales originate in markets outside the u.s. , the company has experienced and may continue to experience volatile foreign currency fluctuations and high raw and packaging material costs . while the company has taken , and will continue to take , measures to mitigate the effect of these conditions , should they persist , they could adversely affect the company 's future results . in summary , the company believes it is well prepared to meet the challenges ahead due to its strong financial condition , experience operating in challenging environments and continued focus on the company 's key priorities : growing sales through engaging with consumers , developing world-class innovation and working with retail partners ; driving efficiency on every line of the income statement to increase margins ; generating strong cash flow performance and utilizing that cash effectively to enhance total shareholder return ; and leading to win by staying true to the company 's culture and focusing on its stakeholders . the company 's commitment to these priorities , together with the strength of the company 's global brands , its broad international presence in both developed and emerging markets and cost-saving initiatives , such as the company 's funding-the-growth initiatives and the global growth and efficiency program , should position the company well to increase shareholder value over the long term . 22 ( dollars in millions except per share amounts ) story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:10pt ; '' > 24 ( dollars in millions except per share amounts ) selling , general and administrative expenses selling , general and administrative expenses decreased to $ 5,389 in 2018 from $ 5,400 in 2017 . selling , general and administrative expenses in both periods included charges related to the global growth and efficiency program . excluding these charges in both periods , selling , general and administrative expenses increased to $ 5,356 in 2018 from $ 5,314 in 2017 , reflecting higher overhead expenses of $ 25 and increased advertising investment of $ 17 . selling , general and administrative expenses as a percentage of net sales decreased to 34.7 % in 2018 from 34.9 % in 2017 . excluding charges related to the global growth and efficiency program in both periods , selling , general and administrative expenses as a percentage of net sales were 34.5 % in 2018 , an increase of 10 bps as compared to 2017 . this increase as a percentage of net sales in 2018 was due to higher overhead expenses ( 10 bps ) , primarily driven by increased logistics costs . in 2018 , advertising investment increased 1 % to $ 1,590 as compared with $ 1,573 in 2017 , while as a percentage of net sales it was 10.2 % , even with 2017 . selling , general and administrative expenses increased 5 % to $ 5,400 in 2017 from $ 5,143 in 2016 . selling , general and administrative expenses in both periods included charges related to the global growth and efficiency program . excluding these charges in both periods , selling , general and administrative expenses increased to $ 5,314 in 2017 from $ 5,066 in 2016 , reflecting increased advertising investment of $ 145 and higher overhead expenses of $ 103 . selling , general and administrative expenses as a percentage of net sales increased to 34.9 % in 2017 from 33.8 % in 2016 . excluding charges related to the global growth and efficiency program in both periods , selling , general and administrative expenses as a percentage of net sales were 34.4 % , an increase of 110 bps as compared to 2016 . this increase in 2017 was driven by increased advertising investment ( 80 bps ) and higher overhead expenses ( 30 bps ) , both as a percentage of net sales . in 2017 , advertising investment increased 10.2 % to $ 1,573 as compared with $ 1,428 in 2016 , and increased as a percentage of net sales to 10.2 % from 9.4 % in 2016 . replace_table_token_4_th replace_table_token_5_th 25 ( dollars in millions except per share amounts ) other ( income ) expense , net other ( income ) expense , net was $ 148 , $ 173 and $ 25 in 2018 , 2017 and 2016 , respectively . the components of other ( income ) expense , net are presented below : replace_table_token_6_th other ( income ) expense , net was $ 148 in 2018 as compared to $ 173 in 2017 . other ( income ) expense , net in both periods included charges related to the global growth and efficiency program . other ( income ) expense , net was $ 173 in 2017 as compared to $ 25 in 2016 . other ( income ) expense , net in both periods included charges related to the global growth and efficiency program . other ( income ) expense , net in 2016 also included a gain on the sale of land in mexico and charges for a litigation matter . excluding the items described above in all periods , as applicable , other ( income ) expense , net was $ 60 in 2018 , $ 21 in 2017 and $ 12 in 2016 . replace_table_token_7_th 26 ( dollars in millions except per share amounts ) operating profit operating profit decreased to $ 3,694 in 2018 from $ 3,707 in 2017 . operating profit decreased 6 % to $ 3,707 in 2017 from $ 3,955 in 2016 . in 2018 , 2017 and 2016 , operating profit included charges related to the global growth and efficiency program . in 2016 , operating profit also included charges for a litigation matter and a gain on sale of land in mexico .
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results of operations net sales worldwide net sales were $ 15,544 in 2018 , up 0.5 % from 2017 , as volume growth of 1.0 % and net selling price increases of 0.5 % were partially offset by negative foreign exchange of 1.0 % . the company 's professional skin care acquisitions increased volume by 1.0 % . organic sales ( net sales excluding , as applicable , the impact of foreign exchange , acquisitions and divestments ) , a non-gaap financial measure as discussed below , increased 0.5 % in 2018 . net sales in the oral , personal and home care product segment were $ 13,156 in 2018 , even with 2017 , as volume growth of 1.0 % and net selling price increases of 0.5 % were offset by negative foreign exchange of 1.5 % . the company 's professional skin care acquisitions increased volume by 1.5 % . organic sales in the oral , personal and home care product segment in 2018 were even with 2017. organic sales in 2018 were even with 2017 as increases in oral care and home care organic sales were offset by a decline in personal care organic sales . the increase in oral care organic sales was primarily due to organic sales growth in the toothpaste category . the increase in the home care organic sales was primarily due to organic sales growth in the liquid cleaners and fabric softener categories . the decrease in personal care organic sales was due to declines in organic sales in the bar soap and underarm protection categories , which were partially offset by organic sales growth in the shower gel category .
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o verview resolute forest products is a global leader in the forest products industry , with a diverse range of products , including newsprint , specialty papers , market pulp and wood products , which are marketed in close to 90 countries . we own or operate over 40 pulp and paper mills and wood products facilities in the u.s. , canada and south korea , and power generation assets in canada . by capacity , we are the largest producer of newsprint in the world , the largest producer of uncoated mechanical papers in north america and the biggest canadian volume producer of wood products east of the rockies . we are also a significant north american producer of coated mechanical papers and market pulp . we report our activities in four business segments : newsprint , specialty papers , market pulp and wood products . we are guided by our vision and values , focusing on safety , profitability , accountability , sustainability and teamwork . these are the elements that we believe best define us : competitive cost structure - as a result of aggressive cost reductions and mill rationalizations , today we compete as a leading , lower-cost north american producer . maintaining this competitive advantage is our key focus . by challenging ourselves to optimize assets - maximizing the utilization of our most cost-effective mills and streamlining production to adapt to changing market dynamics - we seek to remain an industry cost leader and to maximize shareholder value and earnings power . synergistic and diversified asset base - our harvesting rights and extensive network of canadian sawmills not only makes us a significant lumber producer in eastern north america , but also give us the fiber management advantage of integration from the harvested log through the finished pulp or paper product at more than half of our facilities . in the u.s. , we source primarily from the lower-cost southeastern fiber basket . the diversified and complimentary nature of our asset base also provides earnings from multiple products . financial strength - we make disciplined capital management a priority ; we believe in maintaining a flexible and conservative capital structure . our business products our 2.9 million metric tons of capacity in newsprint represents approximately 10 % of worldwide capacity and 38 % of north american capacity . we sell newsprint to newspaper publishers all over the world and also to commercial printers in north america for uses such as inserts and flyers . in 2013 , international deliveries represented 44 % of total newsprint shipments . we have 2.0 million metric tons of capacity in specialty papers , which include uncoated mechanical and coated mechanical grades . approximately one third of our production of uncoated mechanical papers is high-gloss ( or supercalender ) paper , mainly used for magazines , coupons , retail inserts and newspaper supplements . we produce another third of high-bright papers for general commercial printing , educational textbooks , digital printing and tradebooks . the last third includes papers for directories , paperback books and other commercial applications . in total , our 1.4 million metric tons of uncoated mechanical papers capacity makes us the largest producer in north america , and the third largest in the world . we sell uncoated mechanical papers almost exclusively in north america . with 580,000 metric tons of capacity , we are north america 's third largest producer of coated mechanical papers , grades used for magazines , catalogs and advertising inserts . demand for these products is largely tied to consumer spending and advertising . we sell to major commercial printers , publishers , catalogers and retailers in north america . we operate seven pulp mills , five in the u.s. and two in canada , with total capacity of 1.7 million metric tons , making us the third largest pulp producer in north america . approximately 80 % of our virgin pulp capacity is softwood-based , including : northern bleached softwood kraft pulp ( or “ nbsk ” ) , southern bleached softwood kraft pulp ( or “ sbsk ” ) and fluff pulp . we are also a competitive producer of northern bleached hardwood kraft pulp ( or “ nbhk ” ) and southern bleached hardwood kraft pulp ( or “ sbhk ” ) , and a leading producer of recycled bleached kraft pulp ( or “ rbk ” ) . our market pulp - the pulp we produce but do not consume internally - is used to make a range of consumer products , like tissue , packaging , specialty paper products , diapers 23 and other absorbent products . approximately 32 % of our 2013 market pulp shipments were exported outside of north america , including significant exports to europe ( 14 % ) , asia ( 8 % ) and latin america ( 6 % ) . in 2013 , we shipped 1.5 billion board feet of construction-grade lumber within north america , mostly on the east coast . our sawmills produce dimension spruce-pine-fir ( or “ spf ” ) lumber and provide wood chips to our pulp and paper mills in canada and wood residue we use as fuel in our power cogeneration assets and other operations . we also produce i-joists for the construction industry and bed frame components , finger joints and furring strips . replace_table_token_6_th strategy our corporate strategy includes , on the one hand , a gradual retreat from certain paper grades , and on the other , using our strong financial position to act on opportunities to diversify and grow . that strategy is based on three core themes : operational excellence , disciplined use of capital and strategic initiatives . story_separator_special_tag we strengthened our financial position in three key ways : we reached an agreement-in-principle with company stakeholders in québec and in ontario to replace the corrective measures mechanism under the existing funding relief regulations in favor of stable , predictable and balanced pension funding for our canadian plans , which represented about 75 % of our unfunded pension obligations as of december 31 , 2013. the rising interest rate environment , strong asset returns , 2013 funding , the favorable currency impact and amendments to opeb plans all contributed to the elimination of $ 672 million of net pension and opeb liabilities from our balance sheet compared to 2012. we refinanced , on a very timely basis , all of our outstanding secured debt with $ 600 million of unsecured notes , at 5.875 % interest , reducing our cash interest burden by $ 16 million annually , adding 5 more years to maturity and improving our financial flexibility . concerning operational excellence initiatives : since 2012 , we optimized newsprint capacity by idling two machines and restarting the gatineau mill , for a net reduction of about 285,000 metric tons on an annualized basis . in our specialty papers segment , we idled three machines and restarted the dolbeau mill , for a net reduction of about 220,000 metric tons on an annualized basis . we restructured manning at two more sites in 2013 , eliminating 170 positions , without reducing operating capacity . we 've grown our pulp capacity by over 70 % with our 2012 acquisition of fibrek , and by the time our new sawmills in northern ontario begin production in early 2015 , along with other capacity initiatives we 're working on , we expect our annualized sawmill operating capacity to be around 1.9 billion board feet , a 30 % increase above 2013. in 2013 , we finished bringing online all four of our cogeneration assets from which we sell electricity externally - dolbeau ( specialty papers ) , gatineau ( newsprint ) , saint-félicien ( market pulp ) , and thunder bay ( newsprint and market pulp ) . together , they reduced our costs by approximately $ 45 million , not including other operational efficiencies realized with the operation of the cogeneration assets , such as labor efficiencies . we 've restructured and significantly improved the performance of the three pulp mills we acquired with fibrek in 2012. after a challenging start because of the extensive catch-up maintenance and environmental work required at the saint-félicien mill , we 've made the three mills more competitive than before we acquired them . on safety and environment : we achieved an osha incident rate of 1.02 in 2013. though we strive to have zero injuries , our 2013 safety performance is generally considered to be world-class . we 're closing in , ahead of schedule , on the goal we set as a member of the wwf climate savers program to reduce our ghg emissions by 65 % by 2015 , compared to 2000 levels . 26 we fell short of our internal commitment to reduce environmental incidents by 10 % in 2013 compared to 2012 , but we 've developed an action plan to address gaps and improve performance . for 2014 , we set a goal of reducing the number of mill environmental incidents by 10 % compared to 2013. r esults of o perations consolidated earnings selected annual financial information replace_table_token_9_th ( 1 ) we 've included fibrek 's results of operations in our consolidated financial statements , in the market pulp segment , as of may 2 , 2012 , the date we acquired a controlling interest . fibrek 's sales , operating income and net income in our results for 2013 were $ 456 million , $ 40 million and $ 40 million , respectively . its sales , operating loss and net loss in our 2012 results were $ 268 million , $ 9 million and $ 9 million , respectively . ( 2 ) earnings before interest expense , income taxes and depreciation , or “ ebitda ” , adjusted ebitda and adjusted ebitda margin are not financial measures recognized under generally accepted accounting principles , or “ gaap ” . ebitda is calculated as net income ( loss ) including noncontrolling interests from the consolidated statements of operations , adjusted for interest expense , income taxes and depreciation and amortization . adjusted ebitda means ebitda , excluding special items such as foreign exchange translation gains and losses , severance costs , closure costs , impairment and other related charges , inventory write-downs related to closures , start up costs of idled mills , gains and losses on dispositions of assets , net loss on extinguishment of debt , transaction costs and other charges or credits that are excluded from our segments ' performance from gaap operating income ( loss ) . adjusted ebitda margin is adjusted ebitda expressed as a percentage of sales . we believe that using measures such as ebitda , adjusted ebitda and adjusted ebitda margin is useful because they are consistent with the indicators management uses internally to measure the company 's performance and it allows the reader to more easily compare our ongoing operations and financial performance from period to period . ( 3 ) return on equity , or “ roe ” , is a non-gaap financial measure , calculated by dividing net income ( loss ) , excluding the special items identified below , by adjusted shareholders ' equity . roe is a measure of profitability that shows how much profit the company generated as a percentage of shareholder money invested .
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highlights replace_table_token_18_th ( 1 ) net income ( loss ) including noncontrolling interests is equal to operating income ( loss ) in this segment . ( 2 ) ebitda , a non-gaap financial measure , is reconciled below . for more information on the calculation and reason we include this measure , see note 1 under “ results of operations – consolidated earnings – selected annual financial information ” above . replace_table_token_19_th 43 industry trends source : pppc the chemical pulp market grew by over 1.5 million tons in 2013 , up 3 % . regionally , north american demand was up 5 % , china , 9 % , while western europe was down 1 % . softwood mills operated at a strong 94 % ratio in 2013. operational performance 44 2013 vs. 2012 operating income ( loss ) variance analysis sales sales in the market pulp segment were $ 1,053 million in 2013 , an increase of $ 239 million , or 29 % . the average transaction price was 2 % higher in 2013 , or $ 16 per metric ton . shipments rose by 329,000 metric tons , or 26 % . 263,000 metric tons of the increase relates to the three former fibrek pulp mills , reflecting the additional four months of results given the timing of the acquisition , as well as more operating time at the saint-félicien mill in light of the extensive downtime taken in 2012 to improve its operational and environmental performance . shipments from non-fibrek mills rose by 8 % as a result of stronger market conditions . not including downtime associated with the fort frances pulp mill , which represents a net capacity reduction , we took 147,000 metric tons less downtime in 2013 in light of the stronger market conditions and the extensive 2012 downtime at saint-félicien . we idled the fort frances kraft pulp mill in november of 2012 , reducing the production available for external sales by 63,000 metric tons on an annualized basis .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . `` risk factors '' and under `` cautionary note regarding forward-looking statements '' in this annual report . overview we are a biopharmaceutical company developing novel therapies designed to treat patients with cancer by inhibiting fundamental tumor-promoting pathways and by harnessing the immune system to attack cancer cells . our strategy is to identify , acquire , and develop molecules that will rapidly translate into high impact therapeutics that generate durable clinical benefit and enhanced patient outcomes . our two clinical stage programs are : dkn-01 : a monoclonal antibody that inhibits dickkopf-related protein 1 , or dkk1 . dkk1 is a protein that regulates the wnt signaling pathways and enables tumor cells to profilerate and spread , as well as suppresses the immune system from attacking the tumor . when dkn-01 binds to dkk1 , an anti-tumor effect can be generated . dkn-01-based therapies have generated responses and clinical benefit in several patient populations . we are currently studying dkn-01 in multiple ongoing clinical trials in patients with esophagogastric cancer , hepatobiliary cancer , gynecologic cancers , or prostate cancer . in january 2020 , we entered into an option and license agreement with beigene , ltd. , or beigene , which granted beigene the right to develop and commercialize dkn-01 in asia ( excluding japan ) , australia , and new zealand . 67 trx518 : a monoclonal antibody targeting the glucocorticoid-induced tumor necrosis factor-related receptor , or gitr . gitr is a receptor found on the surface of a wide range of immune cells . gitr stimulation activates tumor fighting white blood cells and decrease the activity of potentially tumor-protective immunosuppressive cells . trx518 has been specifically engineered to enhance the immune system 's anti-tumor response by activating gitr signaling without causing the immune cells to be destroyed . we conducted clinical trials of trx518 in patients with advanced solid tumors in combination with gemcitabine chemotherapy or with cancer immunotherapies known as pd-1 antagonists . in november 2019 , we announced that we have deprioritized continued development of trx518 . we intend to apply our extensive experience identifying and developing transformational products to aggressively develop these antibodies and build a pipeline of programs that has the potential to change the practice of cancer medicine . we have devoted substantially all of our resources to development efforts relating to our product candidates , including manufacturing and conducting clinical trials of our product candidates , providing general and administrative support for these operations and protecting our intellectual property . we do not have any products approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through proceeds from our sales of common stock and preferred stock and proceeds from the issuance of notes payablerelated party . we have incurred net losses in each year since our inception in 2011. our net loss was $ 32.9 million for the year ended december 31 , 2019 and $ 23.1 million for the year ended december 31 , 2018. as of december 31 , 2019 , we had an accumulated deficit of approximately $ 195.2 million . our net losses have resulted primarily from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we expect to continue to incur significant expenses and have operating losses for at least the next several years as we : continue the development of our product candidate , dkn-01 ; seek to obtain regulatory approvals for dkn-01 ; outsource the manufacturing of dkn-01 for clinical trials and any indications for which we receive regulatory approval ; contract with third parties for the sales , marketing and distribution of dkn-01 for any indications for which we receive regulatory approval ; maintain , expand and protect our intellectual property portfolio ; continue our research and development efforts ; add operational , financial and management information systems and personnel , including personnel to support our product development efforts ; and operate as a public company . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . accordingly , we will need to raise additional capital prior to the commercialization of dkn-01 or any other product candidate . until such time , if ever , as we can generate substantial revenue from product sales , we expect to finance our operating activities through a combination of equity offerings , debt financings , government or other third-party funding , commercialization , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements , such as the beigene agreement . however , we may be unable to raise additional funds or enter into such other arrangements when 68 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 product candidates . beigene license agreement on january 3 , 2020 , we entered into an exclusive option and license agreement ( the `` beigene agreement '' ) with beigene , ltd. ( `` beigene '' ) for the clinical development and commercialization of dkn-01 , our anti-dickkopf-1 ( dkk1 ) antibody , in asia ( excluding japan ) , australia , and new zealand . we retain exclusive rights for the development , manufacturing , and commercialization of dkn-01 for the rest of the world . story_separator_special_tag for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation , for personnel in executive , finance and administrative functions . general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal , patent , consulting , accounting and audit services . 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 , director and officer insurance costs as well as investor and public relations expenses associated with being a public company . interest income interest income consists primarily of interest income earned on cash and cash equivalents . during the years ended december 31 , 2019 and 2018 , interest income was $ 0.3 million and $ 0.4 million , respectively . research and development incentive income research and development incentive income includes payments under the r & d incentive program from the government of australia . the r & d incentive is one of the key elements of the australian government 's support for australia 's innovation system . it was developed to assist businesses to recover some of the costs of undertaking research and development . the research and development tax incentive provides a tax offset to eligible companies that engage in research and development activities . companies engaged in research and development may be eligible for either : a 43.5 % refundable tax offset for entities with an aggregated turnover of less than a $ 20 million per annum , or a 38.5 % non-refundable tax offset for all other entities . we recognize as other income the amount we expect to be reimbursed for qualified expenses . foreign currency translation adjustment foreign currency translation adjustment consists of gains ( losses ) due to the revaluation of foreign currency transactions attributable to changes in foreign currency exchange rates associated with our australian subsidiary . income taxes since our inception , we have not recorded any u.s. federal , state or foreign income tax benefits for the net losses we have incurred in each year , due to our uncertainty of realizing a benefit from those items . as of december 31 , 2019 , we had federal , state and foreign net operating loss carryforwards of $ 135.9 million , $ 117.6 million and $ 83.9 million , respectively . the federal and state net operating losses begin to expire in 2030 , while the foreign net operating losses carryforward indefinitely . 71 our federal net operating losses include $ 54.6 million which can be also carried forward indefinitely . we may be able to utilize our net operating loss carryforwards to reduce future federal and state income tax liabilities . however , these net operating losses are subject to various limitations under internal revenue code ( `` irc '' ) section 382 , which limits the use of net operating loss carryforwards to the extent there has been an ownership change of more than 50 percentage points . in addition , the net operating loss carryforwards are subject to examination by the taxing authorities and could be adjusted or disallowed due to such exams . although we have not undergone an irc section 382 analysis , it is possible that the utilization of our net operating loss carryforwards may be limited . as of december 31 , 2019 , we also had federal and state research and development tax credit carryforwards of $ 3.8 million and $ 0.6 million , respectively , which begin to expire in 2030 and whose future usage may also be limited to the extent there has been an ownership change of more than 50 percentage points . there is no provision for income taxes in the united states or israel , because we have historically incurred operating losses and maintain a full valuation allowance against our deferred tax assets in these jurisdictions . the deferred tax asset recorded in the consolidated balance sheets relates to our australian operations . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported expenses during the reporting periods . we evaluate these estimates and judgments on an ongoing basis . 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 . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing elsewhere in this report , we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . accrued research and development expenses as part of the process of preparing consolidated financial statements , we are required to estimate accrued research and development expenses .
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results of operations comparison of the years ended december 31 , 2019 and 2018 the following tables summarize our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_3_th research and development expenses replace_table_token_4_th research and development expenses were $ 24.4 million for the year ended december 31 , 2019 , compared to $ 21.8 million for the year ended december 31 , 2018. the increase of $ 2.6 million was primarily due to a $ 3.5 million increase in clinical trial costs due to an increase in patient enrollment , a $ 0.7 million increase in payroll and other related expenses due to an increase in headcount in our full time research and development employees and a $ 0.3 million increase in stock based compensation expense due to new stock options and restricted stock units granted to employees during the year ended december 31 , 2019. these increases were partially offset by a $ 1.5 million decrease in manufacturing costs related to clinical trial material due to timing of manufacturing campaigns and a $ 0.5 million decrease in consulting fees associated with research and development activities during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. general and administrative expenses general and administrative expenses were $ 9.1 million for the year ended december 31 , 2019 , compared to $ 8.9 million for the year ended december 31 , 2018. the increase of $ 0.2 million was due 74 to a $ 0.3 million increase in stock based compensation expense due to new stock options and restricted stock units granted to employees during the year ended december 31 , 2019. this increase was partially offset by a $ 0.1 million decrease in payroll and other related expenses .
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4. inventories inventories at december 31 were as follows : replace_table_token_38_th 61 hess corporation and consolidated subsidiaries notes to consolidated financial statements ( continued ) 5. property , plant and equipment property , plant and equipment at december 31 were as follows : replace_table_token_39_th capitalized exploratory well costs : the following table discloses the amount of capitalized exploratory well costs pending determination of proved reserves at december 31 , and the changes therein during the respective years : replace_table_token_40_th in 2015 , exploratory drilling activity primarily related to the gulf of mexico and the offshore stabroek license in guyana . for the years ended december 31 , 2015 , 2014 and 2013 , reclassifications to wells , facilities and equipment based on the determination of proved reserves primarily related to equatorial guinea , the stampede project in the gulf of mexico , ( which the co-owners sanctioned for development in 2014 ) and the shenzi project in the gulf of mexico , respectively . in 2015 , capitalized exploratory well costs charged to story_separator_special_tag we do not always control decisions made under joint operating agreements and the parties under such agreements may fail to meet their obligations . we conduct many of our e & p operations through joint operating agreements with other parties under which we may not control decisions , either because we do not have a controlling interest or are not operator under the agreement . there is risk that these parties may at any time have economic , business , or legal interests or goals that are inconsistent with ours , and therefore decisions may be made which are not what we believe is in our best interest . moreover , parties to these agreements may be unable to meet their economic or other obligations and we may be required to fulfill those obligations alone . in either case , the value of our investment may be adversely affected . we are subject to changing laws and regulations and other governmental actions that can significantly and adversely affect our business . federal , state , local , territorial and foreign laws and regulations relating to tax increases and retroactive tax claims , disallowance of tax credits and deductions , expropriation or nationalization of property , mandatory government participation , cancellation or amendment of contract rights , imposition of capital controls or blocking of funds , changes in import and export regulations , limitations on access to exploration and development opportunities , anti-bribery or anti-corruption laws , as well as other political developments may affect our operations . we transport some of our crude oil production , particularly from the bakken shale oil play , by rail . recent rail accidents have raised public awareness of rail safety and resulted in heightened regulatory scrutiny . in the wake of these accidents , several u.s. government agencies have issued safety advisories or emergency orders requiring rail carriers to take additional precautionary measures when shipping crude oil by rail . in 2015 , the department of transportation issued new standards for tank car design which could require hip to retrofit or upgrade its existing fleet of tank cars . the requirements of these new regulatory actions , as well as other possible regulations or voluntary measures by the rail industry aimed at increasing rail safety , may lead to a significant increase in the costs of transporting crude oil and other hydrocarbons by rail and otherwise adversely affect our operations . we have substantial capital requirements , and we may not be able to obtain needed financing on satisfactory terms , if at all . the exploration , development and production of crude oil and natural gas involves substantial costs , which may not be fully funded from operations . for example , in 2015 , we had a net loss attributable to hess corporation of $ 3,056 million , and if commodity prices remain low through 2016 , we are forecasting a net loss for 2016. two of the three major credit rating agencies that rate our debt have assigned an investment grade rating . in january 2016 , fitch ratings ( fitch ) affirmed our bbb credit rating but revised the rating outlook to negative . in february 2016 , standard and poor 's ratings services ( s & p ) lowered our investment grade credit rating one notch to bbb- with stable outlook and moody 's investors service ( moody 's ) lowered our credit rating to ba1 with stable outlook , which is below investment grade . although , currently we do not have any borrowings under our long-term credit facility , further ratings downgrades , continued weakness in the oil and gas industry or negative outcomes within commodity and financial markets could adversely impact our access to capital markets by increasing the costs of financing , or impacting our ability to obtain financing on satisfactory terms , or at all . any inability to access capital markets could adversely impact our financial adaptability and our ability to execute our strategy and may also expose us to heightened exposure to credit risk . political instability in areas where we operate can adversely affect our business . some of the international areas in which we operate , and the partners with whom we operate , are politically less stable than other areas and partners and may be subject to civil unrest , conflict , insurgency , geographic territorial border disputes , corruption , security risks and labor unrest . political and civil unrest in north africa and the middle east has affected and may affect our operations in these areas as well as oil and gas markets generally . the threat of terrorism around the world also poses additional risks to the operations of the oil and gas industry . our oil and gas operations are subject to environmental risks and environmental laws and regulations that can result in significant costs and liabilities . story_separator_special_tag the availability and cost of drilling rigs , equipment , supplies and skilled labor will fluctuate over time given the cyclical nature of the e & p industry . as a result , we may encounter difficulties in obtaining required services or could face an increase in cost . these consequences may impact our ability to run our operations and to deliver projects on time with the potential for material negative economic consequences . we manage commodity price risk through our risk management function but such activities may impede our ability to benefit from commodity price increases and can expose us to similar potential counterparty credit risk as impacts amounts due from the sale of hydrocarbons . we may enter into commodity price hedging arrangements to protect us from commodity price declines . these arrangements may , depending on the instruments used and the level of increases involved , limit any potential upside from commodity price increases . in addition , as with accounts receivable we may be exposed to potential economic loss should a counterparty be unable or unwilling to perform their obligations under the terms of a hedging agreement . cyber‑attacks targeting computer , telecommunications systems , and infrastructure used by the oil and gas industry 16 may materiall y impact our business and operations . computers and telecommunication systems are used to conduct our exploration , development and production activities and have become an integral part of our business . we use these systems to analyze and store financial and operating data and to communicate within our company and with outside business partners . cyber ‑attacks could compromise our computer and telecommunications systems and result in disruptions to our business operations or the loss of our data and propr ietary information . in addition , computers control oil and gas production , processing equipment , and distribution systems globally and are necessary to deliver our production to market . a cyber ‑attack against these operating systems , or the networks and infrastructure on which they rely , could damage critical production , distribution and or storage assets , delay or prevent delivery to markets , and make it difficult or impossible to accurately account for production and settle transactions . as a result , a cyber-attack could have a material adverse impact on our cash flows and results of operations . we routinely experience attempts by external parties to penetrate and attack our networks and systems . although such attempts to date have not resulted in any material breaches , disruptions , or loss of business critical information , our systems and procedures for protecting against such attacks and mitigating such risks may prove to be insufficient in the future and such attacks could have an adverse impact on our business and operations . in addition , as technologies evolve and these attacks become more sophisticated , we may incur significant costs to upgrade or enhance our security measures to protect against such attacks . item 1b . unresolved staff comments none . item 3. legal proceedings we , along with many companies engaged in refining and marketing of gasoline , have been a party to lawsuits and claims related to the use of methyl tertiary butyl ether ( mtbe ) in gasoline . a series of similar lawsuits , many involving water utilities or governmental entities , were filed in jurisdictions across the u.s. against producers of mtbe and petroleum refiners who produced gasoline containing mtbe , including us . the principal allegation in all cases was that gasoline containing mtbe is a defective product and that these parties are strictly liable in proportion to their share of the gasoline market for damage to groundwater resources and are required to take remedial action to ameliorate the alleged effects on the environment of releases of mtbe . the majority of the cases asserted against us have been settled . in june 2014 , the commonwealth of pennsylvania and the state of vermont each filed independent lawsuits alleging that we and all major oil companies with operations in each respective state , have damaged the groundwater in those states by introducing thereto gasoline with mtbe . the pennsylvania suit has been removed to federal court and has been forwarded to the existing mtbe multidistrict litigation pending in the southern district of new york . the suit filed in vermont is proceeding there in a state court . an action brought by the commonwealth of puerto rico was settled in conjunction with the bankruptcy court 's confirmation of hovensa 's liquidation plan , which is described below . we received a directive from the new jersey department of environmental protection ( njdep ) to remediate contamination in the sediments of the lower passaic river and the njdep is also seeking natural resource damages . the directive , insofar as it affects us , relates to alleged releases from a petroleum bulk storage terminal in newark , new jersey we previously owned . we and over 70 companies entered into an administrative order on consent with the environmental protection agency ( epa ) to study the same contamination ; this work remains ongoing . we and other parties settled a cost recovery claim by the state of new jersey and also agreed with epa to fund remediation of a portion of the site . the epa is continuing to study contamination and remedial designs for other portions of the river . to that end , in april 2014 epa issued a focused feasibility study ( “ ffs ” ) proposing to conduct bank-to-bank dredging of the lower eight miles of the passaic river at an estimated cost of $ 1.7 billion . epa may issue a record of decision ( “ rod ” ) in 2016 selecting a remedy for the lower eight miles based on the ffs , but the ultimate remedy ( and associated cost ) for the lower passaic river remains uncertain at this stage . the rod is unlikely to address an additional nine miles of the passaic river , which may require additional remedial action .
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consolidated results net loss was $ 3,056 million in 2015 compared with net income in the prior two years ( 2014 : $ 2,317 million ; 2013 : $ 5,052 million ) . excluding items affecting comparability summarized on page 28 , adjusted net loss was $ 1,113 million in 2015 24 compared with adjusted net income in the prior two years ( 2014 : $ 1,308 million ; 2013 : $ 1,892 million ) . annual production averaged 375,000 boepd ( 2014 : 329,000 boepd ; 2013 : 336,000 boepd ) and is expe cted to average between 330,000 boepd and 350,000 boepd in 2016 excluding any contribution from libya . total proved reserves were 1,086 million barrels of oil equivalent ( boe ) , 1,431 million boe , and 1,437 million boe at december 31 , 2015 , 2014 , and 2013 , respectively . lower crude oil prices in 2015 resulted in negative revisions of 234 million boe at december 31 , 2015 , primarily related to proved undeveloped reserves . significant 2015 activities the following is an update of significant e & p activities for 2015 : producing e & p assets : · in north dakota , net production from the bakken oil shale play averaged 112,000 boepd ( 2014 : 83,000 boepd ) , with the increase from prior-year primarily due to ongoing field development . during 2015 , we operated an average of 8.5 rigs , drilled 182 wells , completed 212 wells , and brought on production 219 wells , bringing the total operated production wells to 1,201 at december 31 , 2015. drilling and completion costs per operated well averaged $ 5.8 million in 2015 , down 21 % from 2014. in 2016 , we plan to operate an average of two rigs to drill approximately 50 wells and bring approximately 80 wells on production while reducing capital expenditures to $ 425 million , down from $ 1.3 billion in 2015. bakken production is forecast to average between 95,000 boepd and 105,000 boepd in 2016 .
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* * * in january 2009 , an action was filed by individuals against stgc , stewart title of california , inc. , cuesta title company and others in the superior court story_separator_special_tag management 's overview for the year ended december 31 , 2012 , net earnings attributable to stewart of $ 109.2 million , or $ 4.61 per diluted share , represent an improvement of $ 106.8 million over the same period in 2011. our strong operating results in 2012 allowed us to release in the fourth quarter $ 36.6 million ( $ 1.50 per diluted share ) of a tax asset valuation allowance ( originally established in 2008 ) , representing that portion of the allowance that had not been previously utilized to offset taxable income . the remaining valuation allowance of $ 12.1 million relates primarily to foreign tax credit carryforwards . total revenues in 2012 were $ 1.9 billion , an increase of 16.9 percent from $ 1.6 billion in 2011. revenues from our title segment operations increased 14.6 percent , to $ 1.7 billion in 2012. revenues from services provided by our mortgage services segment increased 44.0 percent to $ 178.0 million in 2012 from $ 123.6 million in 2011. cash provided by operations improved substantially in 2012 to $ 120.5 million compared to $ 23.4 million in 2011. mortgage services pretax earnings increased 45.7 percent to $ 48.6 million in 2012 compared to $ 33.4 million in 2011. the offerings in our mortgage services segment continue to expand , with new projects within the broad category of servicing support helping drive the increase in revenues over the last two quarters . as the real estate market recovers , the distressed servicing projects naturally retrench , and new service offerings have been introduced which allow our customers to outsource various other aspects of their servicing operations to us . our focus is on providing mortgage process outsourcing services which are high-quality , flexible , and responsive . we expect these service offerings to be more sustainable over market cycles . 2012 title losses as a percentage of title revenues declined to 8.1 percent from 9.4 percent in 2011. title losses , including adjustments to certain large claims in both periods , decreased 1.5 percent on the 14.7 percent increase in title operating revenues when compared to 2011. our overall loss experience continued to improve relative to prior year periods and was in line with our actuarial expectations , which allowed us to maintain the lower loss provisioning rate adopted effective with policies issued in the third quarter 2012. cash claim payments decreased 7.7 percent compared to 2011. losses incurred on known claims decreased 12.2 percent compared to 2011. the decline in cash claim payments and losses incurred on known claims continues a trend noted for several quarters . 13 critical accounting estimates actual results can differ from our accounting estimates . while we do not anticipate significant changes in our estimates , there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods . title loss reserves our most critical accounting estimate is providing for title loss reserves . our liability for estimated title losses as of december 31 , 2012 comprises both known claims ( $ 137.9 million ) and our estimate of claims that may be reported in the future ( $ 382.5 million ) . the amount of the reserve represents the aggregate , non-discounted future payments ( net of recoveries ) that we expect to incur on policy and escrow losses and in costs to settle claims . provisions for title losses , as a percentage of title operating revenues , were 8.1 % , 9.4 % and 9.6 % for the years ended december 31 , 2012 , 2011 and 2010 , respectively . actual loss payment experience , including the impact of large losses , is the primary reason for increases or decreases in our loss provision . a change of 100 basis points in this percentage , a reasonably likely scenario based on our historical loss experience , would have increased or decreased our provision for title losses and pretax operating results approximately $ 17.3 million for the year ended december 31 , 2012. our method for recording the reserves for title losses on both an interim and annual basis begins with the calculation of our current loss provision rate , which is applied to our current premium revenues resulting in a title loss expense for the period . this loss provision rate is set to provide for losses on current year policies and is determined using moving average ratios of recent actual policy loss payment experience ( net of recoveries ) to premium revenues . at each quarter end , our recorded reserve for title losses begins with the prior period 's reserve balance for claim losses , adds the current period provision to that balance and subtracts actual paid claims , resulting in an amount that our management compares to its actuarially-based calculation of the ending reserve balance necessary to provide for future title losses . the actuarially-based calculation is a paid loss development calculation where loss development factors are selected based on company data and input from our third-party actuaries . we also obtain input from third-party actuaries in the form of a reserve analysis utilizing generally accepted actuarial methods . while we are responsible for determining our loss reserves , we utilize this actuarial input to assess the overall reasonableness of our reserve estimation . if our recorded reserve amount is within a reasonable range ( +/- 4.0 % ) of our actuarially-based reserve calculation and the actuary 's point estimate , but not at the point estimate , our management assesses the major factors contributing to the different reserve estimates in order to determine the overall reasonableness of our recorded reserve , as well as the position of the recorded reserves relative to the point estimate and the estimated range of reserves . story_separator_special_tag 15 goodwill and other long-lived assets our evaluation of goodwill is normally completed annually in the third quarter using june 30 balances , but an evaluation may also be made whenever events may indicate impairment . this evaluation is based on a combination of a discounted cash flow analysis ( dcf ) and market approaches that incorporate market multiples of comparable companies and our own market capitalization . the dcf model utilizes historical and projected operating results and cash flows , initially driven by estimates of changes in future revenue levels , and risk-adjusted discount rates . our projected operating results are primarily driven by anticipated mortgage originations , which we obtain from projections by industry experts . fluctuations in revenues , followed by our ability to appropriately adjust our employee count and other operating expenses , or large and unanticipated adjustments to title loss reserves , are the primary reasons for increases or decreases in our projected operating results . our market-based valuation methodologies utilize ( i ) market multiples of earnings and or other operating metrics of comparable companies and ( ii ) our market capitalization and a control premium based on market data and factors specific to our ownership and corporate governance structure ( such as our class b common stock ) . to the extent that our future operating results are below our projections , or in the event of adverse market conditions , an interim review for impairment may be required , which may result in an impairment of goodwill . we evaluate goodwill based on five reporting units ( direct operations , agency operations , international operations , mortgage services and corporate ) . goodwill is assigned to these reporting units at the time the goodwill is initially recorded . once assigned to a reporting unit , the goodwill is pooled and no longer attributable to a specific acquisition . all activities within a reporting unit are available to support the carrying value of the goodwill . we also evaluate the carrying values of title plants and other long-lived assets when events occur that may indicate impairment . the process of determining impairment for our goodwill and other long-lived assets relies on projections of future cash flows , operating results , discount rates and overall market conditions , including our market capitalization . uncertainties exist in these projections and they are subject to changes relating to factors such as interest rates and overall real estate and financial market conditions , our market capitalization and overall stock market performance . actual market conditions and operating results may vary materially from our projections . based on these evaluations , we estimate and expense to current operations any loss in value of these assets . as part of our process , we have an option to 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 decide not to use a qualitative assessment or if we fail the qualitative assessment , then we obtain input from third-party appraisers regarding the fair value of our reporting units . while we are responsible for assessing whether an impairment of goodwill exists , we utilize the input from third-party appraisers to assess the overall reasonableness of our conclusions . we utilized a qualitative assessment for our annual goodwill impairment test and , based on our analysis , determined it was not more-likely-than-not that the fair value of our reporting units were less than their carrying amounts as of june 30 , 2012. there were no impairment charges for goodwill or material impairment charges for other long-lived assets during the three years ended december 31 , 2012. operations . our business has three main operating segments : title insurance and related services , mortgage services and corporate . our primary business is title insurance and settlement-related services . we close transactions and issue title policies on homes , commercial and other real properties located in all 50 states , the district of columbia and international markets through policy-issuing offices and agencies . we also provide loan origination and servicing support ; loan review services ; loss mitigation ; reo asset management ; home and personal insurance services ; and technology to streamline the real estate process . 16 factors affecting revenues . the principal factors that contribute to changes in operating revenues for our title and mortgage services segments include : mortgage interest rates ; availability of mortgage loans ; ability of potential purchasers to qualify for loans ; inventory of existing homes available for sale ; ratio of purchase transactions compared with refinance transactions ; ratio of closed orders to open orders ; home prices ; volume of distressed property transactions ; consumer confidence ; demand by buyers ; number of households ; premium rates ; market share ; opening of new offices and acquisitions ; number of commercial transactions , which typically yield higher premiums ; government or regulatory initiatives , including tax incentives ; and number of reo and foreclosed properties and related debt . to the extent inflation causes increases in the prices of homes and other real estate , premium revenues are also increased . conversely , falling home prices cause premium revenues to decline . premiums are determined in part by the insured values of the transactions we handle . these factors may override the seasonal nature of the title insurance business . historically , our first quarter is the least active and our third and fourth quarters are the most active in terms of title insurance revenues . industry data . published mortgage interest rates and other selected residential data for the years ended december 31 , 2012 , 2011 and 2010 follow ( amounts shown for 2012 are preliminary and subject to revision ) . the amounts below may not relate directly to or provide accurate data for forecasting our operating revenues or order counts .
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results of operations a comparison of our results of operations for 2012 with 2011 and 2011 with 2010 follows . factors contributing to fluctuations in results of operations are presented in the order of their monetary significance , and we have quantified , when necessary , significant changes . results from our mortgage services and corporate segments are included in year-to-year discussions and , when relevant , are discussed separately . title revenues . revenues from direct title operations increased $ 91.0 million , or 14.5 % , in 2012 and increased $ 1.1 million , or 0.2 % , in 2011. the largest revenue increases in 2012 were in texas , utah , colorado and washington , partially offset by decreases in nevada and georgia . the largest revenue increases in 2011 were in california and florida , partially offset by decreases in maryland and arizona . revenues from commercial and other large transactions increased $ 8.5 million to $ 111.5 million in 2012 and increased $ 10.3 million to $ 103.0 million in 2011. direct orders closed increased 16.7 % , while the average revenue per file closed ( including large commercial policies ) decreased 2.3 % in 2012 compared to 2011 due to an increase in residential refinancing closings in the same periods . direct operating revenues , excluding large commercial policies , increased 15.3 % , while the average revenue per closing decreased 1.2 % in 2012 compared to 2011. on average , refinance premium rates are 60 % of the title premium revenue of a similarly priced sale transaction . in 2011 direct orders closed decreased 7.7 % , while the average revenue per file closed ( including large commercial policies ) increased 8.7 % 18 compared to 2010 due to a decrease in residential refinancing closings in the same periods .
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securities , futures , commodities , investment , banking , savings and loan , or insurance activities , or to be associated with persons engaged in any such activity ; · been found by a court of competent jurisdiction in a civil action or by the sec or the commodity futures trading commission to have violated a federal or state securities or commodities law , and the judgment has not been reversed , suspended , or vacated ; · been the subject of , or a party to , any federal or state judicial or administrative order , judgment , decree , or finding , not subsequently reversed , suspended or vacated ( not including any settlement of a civil proceeding among private litigants ) , relating to an alleged violation of any federal or state securities or commodities law or regulation , any law or regulation respecting financial institutions or insurance companies including , but not limited to , a temporary or permanent injunction , order of disgorgement or restitution , civil money penalty or temporary or permanent cease-and-desist order , or removal or prohibition order , or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity ; or · been the subject of , or a party to , any sanction or order , not subsequently reversed , suspended or vacated , of any self-regulatory organization ( as defined in section 3 ( a ) ( 26 ) of the exchange act ( 15 u.s.c . 78c ( a ) ( 26 ) ) , any registered entity ( as defined in section 1 ( a ) ( 29 ) of the commodity exchange act ( 7 u.s.c . 1 ( a ) ( 29 ) ) , or any equivalent exchange , association , entity or organization that has disciplinary authority over its members or persons associated with a member . 26 except as set forth in our discussion below in “ certain relationships and related transactions , and director independence - transactions with related persons , ” none of our directors , director nominees or executive officers has been involved in any transactions with us or any of our directors , executive officers , affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the sec . audit committee and charter we do not currently have an audit committee . code of ethics we have not yet adopted a corporate code of ethics . when we do adopt a code of ethics , we will announce it via the filing of a current report on form 8-k. family relationships there are no family relationships among our officers , directors , or persons nominated for such positions . section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the securities exchange act of 1934 , as amended , requires our directors , executive officers , and stockholders holding more than 10 % of our outstanding common stock , to file with the securities and exchange commission initial reports of ownership and reports of changes in beneficial ownership of our common stock . executive officers , directors and greater-than-10 % stockholders are required by sec regulations to furnish us with copies of all section 16 ( a ) reports they file . based on a review of forms 3 , 4 , and 5 and amendments thereto furnished to the registrant during its most recent fiscal year ending august 31 , 2015 , the following represents each person who did not file on a timely basis reports required by section 16 ( a ) of the exchange act : name reporting person form 3/ # of transactions form 4/ # of transactions form 5/ # of transactions jeffrey canouse president , story_separator_special_tag forward looking statements this current report contains forward-looking statements relating to future events or our future financial performance . in some cases , you can identify forward-looking statements by terminology such as “ may ” , “ should ” , “ intends ” , “ expects ” , “ plans ” , “ anticipates ” , “ believes ” , “ estimates ” , “ predicts ” , “ potential ” , or “ continue ” or the negative of these terms or other comparable terminology . these statements are only predictions and involve known and unknown risks , uncertainties and other factors which may cause our or our industry 's actual results , levels of activity or performance to be materially different from any future results , levels of activity or performance expressed or implied by these forward-looking statements . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity or performance . you should not place undue reliance on these statements , which speak only as of the date that they were made . these cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future . except as required by applicable law , including the securities laws of the united states , we do not intend to update any of the forward-looking statements to conform these statements to actual results , later events or circumstances or to reflect the occurrence of unanticipated events . in this report unless otherwise specified , all dollar amounts are expressed in united states dollars and all references to “ common shares ” refer to the common shares of our capital stock . the management 's discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . overview we were incorporated as “ atheron , inc. ” in the state of nevada on may 8 , 2006. story_separator_special_tag securities , futures , commodities , investment , banking , savings and loan , or insurance activities , or to be associated with persons engaged in any such activity ; · been found by a court of competent jurisdiction in a civil action or by the sec or the commodity futures trading commission to have violated a federal or state securities or commodities law , and the judgment has not been reversed , suspended , or vacated ; · been the subject of , or a party to , any federal or state judicial or administrative order , judgment , decree , or finding , not subsequently reversed , suspended or vacated ( not including any settlement of a civil proceeding among private litigants ) , relating to an alleged violation of any federal or state securities or commodities law or regulation , any law or regulation respecting financial institutions or insurance companies including , but not limited to , a temporary or permanent injunction , order of disgorgement or restitution , civil money penalty or temporary or permanent cease-and-desist order , or removal or prohibition order , or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity ; or · been the subject of , or a party to , any sanction or order , not subsequently reversed , suspended or vacated , of any self-regulatory organization ( as defined in section 3 ( a ) ( 26 ) of the exchange act ( 15 u.s.c . 78c ( a ) ( 26 ) ) , any registered entity ( as defined in section 1 ( a ) ( 29 ) of the commodity exchange act ( 7 u.s.c . 1 ( a ) ( 29 ) ) , or any equivalent exchange , association , entity or organization that has disciplinary authority over its members or persons associated with a member . 26 except as set forth in our discussion below in “ certain relationships and related transactions , and director independence - transactions with related persons , ” none of our directors , director nominees or executive officers has been involved in any transactions with us or any of our directors , executive officers , affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the sec . audit committee and charter we do not currently have an audit committee . code of ethics we have not yet adopted a corporate code of ethics . when we do adopt a code of ethics , we will announce it via the filing of a current report on form 8-k. family relationships there are no family relationships among our officers , directors , or persons nominated for such positions . section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the securities exchange act of 1934 , as amended , requires our directors , executive officers , and stockholders holding more than 10 % of our outstanding common stock , to file with the securities and exchange commission initial reports of ownership and reports of changes in beneficial ownership of our common stock . executive officers , directors and greater-than-10 % stockholders are required by sec regulations to furnish us with copies of all section 16 ( a ) reports they file . based on a review of forms 3 , 4 , and 5 and amendments thereto furnished to the registrant during its most recent fiscal year ending august 31 , 2015 , the following represents each person who did not file on a timely basis reports required by section 16 ( a ) of the exchange act : name reporting person form 3/ # of transactions form 4/ # of transactions form 5/ # of transactions jeffrey canouse president , story_separator_special_tag forward looking statements this current report contains forward-looking statements relating to future events or our future financial performance . in some cases , you can identify forward-looking statements by terminology such as “ may ” , “ should ” , “ intends ” , “ expects ” , “ plans ” , “ anticipates ” , “ believes ” , “ estimates ” , “ predicts ” , “ potential ” , or “ continue ” or the negative of these terms or other comparable terminology . these statements are only predictions and involve known and unknown risks , uncertainties and other factors which may cause our or our industry 's actual results , levels of activity or performance to be materially different from any future results , levels of activity or performance expressed or implied by these forward-looking statements . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity or performance . you should not place undue reliance on these statements , which speak only as of the date that they were made . these cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future . except as required by applicable law , including the securities laws of the united states , we do not intend to update any of the forward-looking statements to conform these statements to actual results , later events or circumstances or to reflect the occurrence of unanticipated events . in this report unless otherwise specified , all dollar amounts are expressed in united states dollars and all references to “ common shares ” refer to the common shares of our capital stock . the management 's discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . overview we were incorporated as “ atheron , inc. ” in the state of nevada on may 8 , 2006.
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results of operations for the year ended august 31 , 2015 as compared to the year ended august 31 , 2014 : our operating results for the years ended august 31 , 2015 and 2014 are summarized as follows : replace_table_token_4_th revenues as of the end of the fiscal year ended august 31 , 2015 , there were no revenues at our title king , llc subsidiary . operating expenses for the years ended august 31 , 2015 and 2014 , we incurred $ 131,173 and $ 371,283 , respectively , in total operating expenses , a period-to-period decrease of $ 135,526. compensation expense related to series a preferred stock decreased $ 156,349 to $ -0- as this related to the one-time event from the issuance of series a preferred stock in 2014 . 19 index to financial statements interest expense for the years ended august 31 , 2015 were $ 155,958 as compared to as compared to interest expense of $ 163,819 for the years ended august 31 , 2014. net loss our net loss for the year ended august 31 , 2015 was ( $ 320,125 ) as compared to ( $ 737,408 ) for the year ended august 31 , 2014 , respectively . losses decreased due to decreased operations and no losses from the issuance of preferred stock or conversions of debt . our operating results for the years ended august 31 , 2014 and 2013 are summarized as follows : replace_table_token_5_th revenues we have had no operating revenues to date .
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our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. ” overview we are a clinical stage biopharmaceutical company focused on discovering and developing novel cellular immunotherapies for various forms of cancer , including both hematological cancers and solid tumors , as well as orphan inherited blood disorders . we are using our proprietary chemical induction of dimerization , or cid , technology platform to engineer and then control components of the immune system in real time . by incorporating our cid platform , our product candidates may offer better safety and efficacy outcomes than are seen with current cellular immunotherapies . we are developing next-generation product candidates in some of the most important areas of cellular immunotherapy , including hematopoietic stem cell transplantation , or hsct , chimeric antigen receptor t cell therapy , or car-ts , and t cell receptors , or tcrs . hsct , also known as bone marrow transplantation , has for decades been curative for many patients with hematological cancers or orphan inherited blood disorders . however , adoption of hsct to date has been limited by the risks of transplant-related morbidity and mortality from graft-versus-host-disease , or gvhd , and the potential for serious infections due to the lack of an effective immune system following a transplant . car-t and tcr cell therapies are an innovative approach in which a patient 's t cells are genetically modified to carry chimeric antigen receptors , or cars , or tcrs which redirect the t cells against cancer cells . while high objective response rates have been reported in some hematological malignancies , serious and sometimes fatal toxicities have arisen in patients treated with car-t cell therapies . these toxicities include instances in which the car-t cells have caused high levels of cytokines due to over-activation , referred to as “ cytokine release syndrome ” , frequent transient neurologic toxicities and cases in which they have attacked healthy organs as well as the targeted tumor , sometimes resulting in death . in solid tumors , where the behavior of car-t cells is particularly unpredictable and results have been inconsistent , researchers are developing enhanced car-t cell approaches called “ armored cars ” that raise even greater safety concerns . our proprietary cid platform is designed to address these challenges . events inside a cell are controlled by cascades of specialized signaling proteins . cid consists of molecular switches , modified forms of these signaling proteins , which are triggered inside the patient by infusion of a small molecule , rimiducid , instead of by natural upstream signals . we include these molecular switches in the appropriate immune cells and deliver the cells to the patient in the manner of conventional cellular immunotherapy . we have developed two such switches : a “ safety switch , ” designed to initiate programmed cell death , or apoptosis , of the immunotherapy cells , and an “ activation switch , ” designed to stimulate activation and in some cases proliferation of the immunotherapy cells . each of our technologies incorporates one of these switches , for enhanced , real time control of safety and efficacy : caspacide is our safety switch , incorporated into our hsct , and in certain of our car-t or tcr , product candidates , where it is inactive unless the patient experiences a serious side effect . in that event , rimiducid is administered to fully or partially eliminate the cells , with the goal of terminating or attenuating the therapy and resolving the serious side effect . cidecar consists of car-t cells modified to include the signaling domains of two proteins , myd88 and cd40 . together , these form our proprietary dual co-stimulatory domain , or mc , which is designed to activate t cells . incorporation of caspacide in a cidecar product candidate is intended to allow the enhanced potency of mc co-stimulation to be deployed safely in patients . gocar-t consists of car-t cells that are modified to include mc . in contrast to cidecar , mc is structured in gocar-t as a rimiducid-driven molecular switch , separate from the chimeric antigen receptor . gocar-t is designed to allow control of the activation and proliferation of the car-t cells through the scheduled administration of a course of rimiducid infusions that may continue until the desired patient outcome is achieved . in the event of emergence of side effects , the level of activation of the gocar-t cells is designed to be attenuated by extending the interval between rimiducid doses and or reducing the dosage per infusion . by incorporating our novel switch technologies , we are developing product candidates with the potential to elicit positive clinical outcomes and ultimately change the treatment paradigm in various areas of cellular immunotherapy . our lead clinical product candidate is described below . 59 bpx-501 . we are developing a caspacide product candidate , bpx-501 , as an adjunct t-cell therapy administered after allogeneic hsct . bpx-501 is designed to improve transplant outcomes by enhancing the recovery of the immune system following an hsct procedure . bpx-501 addresses the risk of infusing donor t cells by enabling the elimination of donor t cells through the activation of the caspacide safety switch if there is an emergence of uncontrolled gvhd . in addition , our preclinical product candidates are designed to overcome the current limitations of car-t and tcr therapies and include the following : bpx-701 is a caspacide-enabled natural high affinity t cell receptor , or tcr , product candidate designed to target malignant cells expressing the preferentially-expressed antigen in melanoma , or prame . initial planned indications for bpx-701 development are refractory or relapsed acute myeloid leukemia , or aml , and myelodysplastic syndromes , or mds , with an additional study planned for metastatic uveal melanoma . each of these is an orphan indication where prame is highly expressed and for which current treatment options are limited . story_separator_special_tag during 2011 , we entered into a grant agreement with cprit for approximately $ 5.7 million covering a three year period from july 1 , 2011 through june 30 , 2014. the grant initially allowed us to receive funds in advance of costs and allowable expenses being incurred . on a quarterly basis , we were required to submit a financial reporting package outlining the nature and extent of reimbursed costs under the grant . at the end of each period , any excess funds received in advance , or paid prior to reimbursement resulted in a deferred liability or grant receivable . the cprit grant expired as of june 30 , 2014. nih grant during 2013 , we entered into a grant agreement with the nih . the grant is a modular five year grant with funds being awarded each year based on the progress of the program being funded . grant money is not received until expenses for the program are incurred . we have been awarded approximately $ 1.0 million to date , of which $ 0.7 million has been received . we accrue the revenue based on the costs incurred for the programs associated with the grant . in the future , we may generate revenue from a combination of product sales , government or other third-party grants , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . we expect that any revenue we generate will fluctuate as a result of the timing and amount of license fees , milestone and other payments , and the amount and timing of payments that we receive upon the sale of our products , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses to date , our research and development expenses have related primarily to the development of our cid platform and the identification and development of our product candidates . research and development expenses consist of expenses incurred in performing research and development activities , including compensation and benefits for research and development employees and consultants , facilities 61 expenses , overhead expenses , cost of laboratory supplies , manufacturing expenses , fees paid to third parties and other outside expenses . research and development costs are expensed as incurred . clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed . we accrue for costs incurred as the services are being provided by monitoring the status of the clinical trial or project and the invoices received from our external service providers . we adjust our accrual as actual costs become known . where contingent milestone payments are due to third parties under research and development arrangements , the milestone payment obligations are expensed when the milestone events are achieved . we utilize our research and development personnel and infrastructure resources across several programs , and many of our costs are not specifically attributable to a single program . accordingly , we can not state precisely our total costs incurred on a program-by-program basis . 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 our research and development expenses to increase over the next several years as we seek to conduct our ongoing and planned clinical trials for bpx-501 , bpx-701 , bpx-601 and bpx-401 and as we selectively develop additional product candidates . however , it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include , but are not limited to , the following : per patient clinical trial costs ; the number of patients that participate in the clinical trials ; the number of sites included in the clinical trials ; the process of collection , differentiation , selection and expansion of immune cells for our cellular immuno-therapies ; the countries in which the clinical trials are conducted ; the length of time required to enroll eligible patients ; the number of doses that patients receive ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; and the efficacy and safety profile of the product candidates . the following table indicates our research and development expense by project/category for the periods indicated : replace_table_token_4_th the potential for success of any product candidate depends on numerous factors , including competition , manufacturing capability and commercial viability . we consider which programs to pursue and how much to fund each program based on scientific , clinical and competitive factors , as well as an assessment of each product candidate 's commercial potential 62 general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including share-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 , insurance costs and professional fees for consultancy , legal , accounting , audit and investor relations . we anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities , potential commercialization of our product candidates and the increased costs of operating as a public company .
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results of operations comparison of the years ended december 31 , 2015 and 2014 the following table sets forth our results of operations for the years ended december 31 , 2015 and 2014 : replace_table_token_5_th grant revenues grant revenues were $ 0.3 million and $ 1.8 million for the years ended december 31 , 2015 and 2014 , respectively . the decrease in grant revenues was primarily due to the expiration of our grant award from cancer prevention and research institute of texas in june 2014 . 63 research and development expenses research and development expenses were $ 33.6 million and $ 12.1 million for the years ended december 31 , 2015 and 2014 , respectively . the $ 21.5 million increase in research and development expenses for the twelve months ended december 31 , 2015 , was due to an increase in costs related to bpx-501 of $ 7.6 million , primarily due to the increase in clinical and manufacturing costs as a result of increased patient enrollment in our clinical trials . the increase in research and development expenses was also due to an increase of $ 3.7 million in costs related to our preclinical product candidates , bpx-701 , bpx-601 and bpx-401 , primarily related to ind enabling activities ; and the increase of $ 9.7 million in general research and development costs comprised of $ 6.3 million in personnel costs , $ 2.7 million in allocated overhead costs and $ 0.7 million in other costs . reclassifications certain research and development indirect costs , including facilities and overhead , were previously included in general and administrative costs . these research and development indirect costs are included in research and development expense in the year ended december 31 , 2015. the amounts for the year ended december 31 , 2014 have been reclassified to conform to the current year presentation .
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the adoption did not have a material impact on the consolidated financial statements . in july 2015 , the fasb issued guidance for the accounting for inventory . one of the main provisions of this guidance update is that an entity should measure inventory within the scope of this update at the lower of cost and net realizable value , except when inventory is measured using lifo or the retail inventory method . net realizable value is the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . in addition , the fasb has amended some of the other guidance in topic 330 to more clearly articulate the requirements for the measurement and disclosure of inventory . the amendments to u.s. gaap in this update for public business entities are effective for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years . the amendments in this update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period . the company adopted this guidance effective january 1 , 2017 and it did not have a material impact on the consolidated financial statements . in november 2015 , the fasb issued accounting guidance to simplify the presentation of deferred taxes . previously , u.s. gaap required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts . under this guidance , deferred tax liabilities and assets will be classified as noncurrent amounts . the standard is effective for reporting periods beginning after december 15 , 2016. the company adopted this guidance effective january 1 , 2017 and it did not have a material impact on the consolidated financial statements . in january 2017 , the fasb issued accounting guidance simplifying the test for goodwill impairment . the new guidance eliminates step 2 from the goodwill impairment test . an entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination . this update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after december 15 , 2019. early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. the company adopted this standard effective april 1 , 2017 , and its updated accounting policy for goodwill impairment is described above in this note 3. while the adoption story_separator_special_tag . statements in this form 10-k that are not strictly historical are forward-looking statements and include statements about products in development , results and analyses of pre-clinical studies , clinical trials and studies , research and development expenses , cash expenditures , and alliances and partnerships , among other matters . you can identify these forward-looking statements because they involve our expectations , intentions , beliefs , plans , projections , anticipations , or other characterizations of future events or circumstances . these forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors . these factors include , but are not limited to , risks relating to our ability to conduct and obtain successful results from ongoing clinical trials , commercialize our technology , obtain regulatory approval for our product candidates , contract with third parties to adequately test and manufacture our proposed therapeutic products , protect our intellectual property rights and obtain additional financing to continue our development efforts . some of these factors are more fully discussed in part i , item 1a , “ risk factors ” and in our consolidated financial statements and related notes , included elsewhere herein . we do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law . for further information regarding forward-looking statements , please refer to the “ information regarding forward-looking statements ” at the beginning of part i of this form 10-k. our management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations , financial condition and cash flows . overview we are a late-stage specialty pharmaceutical company initially focused on developing our clinically-validated and patent-protected plxguard delivery system to provide more effective and safer products . our plxguard delivery system works by releasing active pharmaceutical ingredients into the duodenum , the first part of the small intestine immediately below the stomach , rather than in the stomach itself . we believe this may improve the absorption of many drugs currently on the market or in development and reduces gastrointestinal ( gi ) side effects in an acute setting — including erosions , ulcers and bleeding — associated with aspirin and ibuprofen , and potentially other drugs . the fda approved our lead product , vazalore 325 mg , which is a novel formulation of aspirin using the plxguard delivery system intended to provide better antiplatelet effectiveness for cardiovascular disease prevention as compared to the current standard of care , enteric-coated aspirin and significantly reduce gi side effects as compared with immediate-release aspirin . vazalore 325 mg ( formerly pl2200 aspirin 325 mg and aspertec 325 mg ) was originally approved under the drug name aspirin , and the proprietary name ‘ vazalore ' was granted subsequent to the fda approval . story_separator_special_tag the company 's financial instruments ( cash and cash equivalents , receivables , accounts payable and accrued liabilities ) are carried in the consolidated balance sheet at cost , which reasonably approximates fair value based on their short-term nature . the company 's warrant liabilities are recorded at fair value , with changes in fair value being reflected in the statements of operations for the period of change . the fair value of the term loan approximates its face value of $ 7,500,000 based on the company 's current financial condition and on the variable nature of term loan 's interest feature as compared to current rates . research and development expenses costs incurred in connection with research and development activities are expensed as incurred . research and development expenses consist of direct and indirect costs associated with specific projects , manufacturing activities , and include fees paid to various entities that perform research related services for the company . stock -based compensation the company recognizes expense in the consolidated statements of operations for the fair value of all stock-based compensation to key employees , nonemployee directors and advisors , generally in the form of stock options and stock awards . the company uses the black-scholes option valuation model to estimate the fair value of stock options on the grant date . compensation cost is amortized on a straight-line basis over the vesting period for each respective award . the company adopted new accounting guidance , effective january 1 , 2017 , with respect to stock-based compensation and related income tax aspects , and now accounts for forfeitures as they occur rather than using an estimated forfeiture rate . the adoption did not have a material impact on our consolidated financial statements . adopted accounting guidance for a discussion of significant accounting guidance recently adopted or unadopted accounting guidance that has the potential of being significant , see note 3 of the notes to consolidated financial statements included elsewhere herein . r esults of operations r evenue total revenues were approximately $ 0.8 million for the years ended december 31 , 2018 and 2017. all the revenue recognized in 2018 and approximately $ 0.6 million of the revenue recognized in 2017 is attributable to work performed under an award of a national institutes of health grant , along with previously deferred revenue recognized upon the completion of effort . operating expenses total operating expenses were approximately $ 11.7 million during the year ended december 31 , 2018 , a 30 % decrease from operating expenses of approximately $ 16.6 million during the year ended december 31 , 2017. operating expenses for the years ended december 31 , 2018 and 2017 were as follows : replace_table_token_1_th 48 research and development expenses research and development expenses totaled approximately $ 3.9 million in the year ended december 31 , 2018 compared to $ 4.2 million in the prior year , a decrease of approximately $ 0.2 million . the expenses in both periods included continued product development and manufacturing activities for vazalore . story_separator_special_tag an impairment charge related to our acquired intangible assets of $ 2.3 million and ( vii ) approximately $ 0.6 million of noncash interest expense relating to a beneficial conversion feature . net cash provided by investing activities net cash provided by ( used in ) investing activities totaled approximately $ 0.7 million in net uses in the year ended december 31 , 2018 and primarily reflects capital expenditures for equipment purchases of $ 0.5 million and leasehold improvements of $ 0.2 million . net cash provided by investing activities totaled approximately $ 11.2 million in the year ended december 31 , 2017. in 2017 , cash acquired from dipexium in the merger totaled approximately $ 11.8 million and was partially offset by approximately $ 0.5 million of equipment purchases . net cash provided by financing activities net cash provided by financing activities totaled approximately $ 26.4 million in the year ended december 31 , 2017. net cash provided by financing activities in 2017 consisted of approximately $ 16.7 million of equity offering proceeds , $ 2.0 million pursuant to the note issued to dipexium prior to the merger , $ 7.1 million in net proceeds under a term loan from silicon valley bank , and approximately $ 0.6 million of proceeds pursuant to a convertible note which subsequently converted to old plx equity immediately prior to the closing of the merger . we had no cash flows from financing activities in 2018. future liquidity and needs as of december 31 , 2018 , we had working capital of approximately $ 10.1 million and cash and cash equivalents of approximately $ 14.3 million . in december 2018 , we entered into the purchase agreement with certain accredited investors in connection with the private placement , which closed on february 20 , 2019. based on our expected operating cash requirements and capital expenditures , we believe the company 's cash on hand at december 31 , 2018 , along with the proceeds from the private placement , is adequate to fund operations for at least twelve months from the date of filing of this form 10-k. we have not generated any revenue from the sale of products , have generated minimal revenue from licensing activities , and have incurred losses in each year since we commenced operations . as of december 31 , 2018 , we had an accumulated deficit of approximately $ 66.4 million . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue the development and commercialization of vazalore and our other product candidates . even if we do generate revenues , we may never achieve profitability , and even if we do achieve profitability in the future , we may not be able to sustain profitability in subsequent periods . our prior losses , combined with expected future losses , have had and will continue to have
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general and administrative expenses general and administrative expenses totaled approximately $ 7.8 million in the year ended december 31 , 2018 compared to approximately $ 10.2 million in the prior year , a decrease of approximately $ 2.4 million primarily attributable to public offering costs of $ 1.5 million allocated to the derivative warrants issued in connection with the june 2017 equity offering , lower compensation expense of $ 1.1 million , lower professional fees of $ 0.2 million , partially offset by prelaunch marketing spend in the 2018 period of $ 0.4 million . impairment charges in the fourth quarter of fiscal year 2017 , the company recognized impairment charges related to its intangible assets ( trademarks and in-process research and development ) acquired from dipexium , in connection with a change in operational strategy related to its locilex assets . we did not recognize any impairment charges in 2018. other income ( expense ) , net other income ( expense ) , net totaled approximately $ 11.9 million of net income for the year ended december 31 , 2018 compared to $ 0.4 million of net expense in the prior year . the change is largely attributable to the change in fair value of warrant liability of $ 12.1 million of other income . impact of the tax cuts and jobs act of 2017 on december 22 , 2017 , the president of the united states signed into law the tax cuts and jobs act of 2017 ( the “ tax act ” ) which included significant changes to the existing income tax laws for domestic corporations .
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70 vmware , inc. notes to consolidated financial statements ( continued ) the u.s. tax cuts and jobs act enacted on december 22 , 2017 ( the “ 2017 tax act ” ) introduced significant changes to u.s. income tax law . during december 2017 , the sec staff issued staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act , which allowed for the recognition of provisional tax amounts during a measurement period not to extend beyond one year of the enactment date . provisional taxes relating to the effect of the tax law changes , including the estimated transition tax and the remeasurement of u.s. deferred tax assets and liabilities , among others , story_separator_special_tag the following management 's discussion and analysis is provided in addition to the accompanying consolidated financial statements and notes to assist in understanding our results of operations and financial condition . in december 2019 , vmware completed the acquisition of pivotal software , inc. ( “ pivotal ” ) , which was , at the time , a subsidiary of vmware 's parent company , dell technologies inc. ( “ dell ” ) . the purchase of the controlling interest in pivotal from dell was accounted for as a transaction between entities under common control in accordance with accounting standards codification 805-50 , business combination - related issues , which requires retrospective combination of entities for all periods presented , as if the combination had been in effect since the inception of common control . as such , prior period 38 financial information has been recast . the recast financial statements combine vmware 's historical financial results with those of pivotal . additionally , effective with the fourth quarter of fiscal 2020 , vmware is presenting new revenue and cost of revenue line items entitled , “ subscription and saas revenue ” and “ cost of subscription and saas revenue. ” previously , subscription and software-as-a-service ( “ saas ” ) revenue was referred to as “ hybrid cloud subscription and saas revenue ” and was allocated between license revenue and services revenue on the consolidated statements of income . in light of our recent acquisitions , management decided to separately present revenue recognized from subscription and saas offerings as management believes it provides a more meaningful representation of the nature of its revenue . revenue and its related costs from prior periods were reclassified to conform to the current presentation . period-over-period changes are calculated based upon the respective underlying , non-rounded data . we refer to our fiscal years ended january 29 , 2021 , january 31 , 2020 and february 1 , 2019 as “ fiscal 2021 , ” “ fiscal 2020 , ” and “ fiscal 2019 , ” respectively . unless the context requires otherwise , we are referring to vmware , inc. and its consolidated subsidiaries when we use the terms “ vmware , ” the “ company , ” “ we , ” “ our ” or “ us. ” discussion regarding our financial condition and results of operations for fiscal 2020 as compared to fiscal 2019 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended january 31 , 2020 , filed with the sec on march 26 , 2020. overview we originally pioneered the development and application of virtualization technologies with x86 server-based computing , separating application software from the underlying hardware . information technology ( “ it ” ) driven innovation continues to disrupt markets and industries . technologies emerge faster than organizations can absorb , creating increasingly complex environments . it is working at an accelerated pace to harness new technologies , platforms and cloud models , ultimately guiding businesses through a digital transformation . to take on these challenges , we are working with customers in the areas of hybrid and multi-cloud , modern applications , networking , security and digital workspaces . our software provides a flexible digital foundation to enable customers in their digital transformations . our portfolio supports and addresses the key priorities of our customers including accelerating their cloud journey , migrating and modernizing their applications , empowering digital workspaces , transforming networking and embracing intrinsic security . we enable customers to digitally transform their operations as they ready their applications , infrastructure and employees for constantly evolving business needs . we sell our solutions using enterprise agreements ( “ eas ” ) or as part of our non-ea , or transactional , business . eas are comprehensive offerings that may include license and subscription and saas , offered both directly by us and through certain channel partners that also provide for multi-year maintenance and support . we continue to experience strong renewals resulting in additional license sales of both our existing and newer products and solutions . our vsphere and vrealize cloud management products form the foundation of our customers ' private cloud environments and provide the capabilities for our customers to extend their private cloud to the public cloud and to help them run , manage , secure and connect all their applications across all clouds and devices . during fiscal 2021 , we saw a decline in our on-premises license sales , which were negatively impacted by the covid-19 pandemic . during fiscal 2021 , revenue growth in our subscription and saas offerings was primarily driven by our vmware cloud provider program ( “ vcpp ” ) , vmware workspace one ( “ workspace one ” ) , vmware tanzu , vmware cloud on aws and vmware carbon black cloud . we expect revenue growth derived from our subscription and saas offerings to continue . in addition , we expect operating margin to be negatively impacted in fiscal 2022 as a result of our incremental investment in our subscription and saas portfolio . story_separator_special_tag cost of license revenue , cost of subscription and saas revenue , cost of services revenue and operating expenses our cost of services revenue and operating expenses primarily reflected increasing cash-based employee-related expenses , driven by incremental growth in salaries and headcount , both organic and through acquisitions , across most of our income statement expense categories , offset in part by decreased travel-related costs resulting from travel restrictions imposed in response to the covid-19 pandemic for fiscal 2021. cost of license revenue cost of license revenue primarily consists of the cost of fulfillment of our sd-wan offerings , royalty costs in connection with technology licensed from third-party providers and amortization of intangible assets . the cost of fulfillment of our software and hardware sd-wan offerings includes personnel costs and related overhead associated with delivery of our products . cost of license revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_7_th cost of license revenue remained relatively consistent in fiscal 2021 compared to fiscal 2020. cost of subscription and saas revenue cost of subscription and saas revenue primarily includes personnel costs and related overhead associated with hosted services supporting our saas offerings . additionally , cost of subscription and saas revenue also includes depreciation of equipment supporting our subscription and saas offerings . 42 cost of subscription and saas revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_8_th cost of subscription and saas revenue increased in fiscal 2021 compared to fiscal 2020. the increase was primarily due to increased amortization of intangible assets of $ 83 million and growth in costs associated with hosted services to support our saas offerings of $ 64 million . the increase was also driven by increased equipment and depreciation of $ 31 million , as well as growth in cash-based employee-related cost of $ 16 million , which was driven by incremental growth in headcount and salaries , both organic and through acquisitions . cost of services revenue cost of services revenue primarily includes the costs of personnel and related overhead to deliver technical support for our products and costs to deliver professional services . additionally , cost of services revenue includes depreciation of equipment supporting our service offerings . cost of services revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_9_th cost of services revenue increased in fiscal 2021 compared to fiscal 2020. the increase was primarily due to growth in cash-based employee-related expenses of $ 112 million , primarily driven by incremental growth in headcount and salaries , both organic and through acquisitions . the increase was also driven by increased stock-based compensation of $ 16 million , primarily driven by increased restricted stock unit awards granted to our employees . these increases were partially offset by decreased travel-related costs of $ 49 million , resulting from travel restrictions imposed in response to the covid-19 pandemic , as well as decreased facilities-related costs of $ 15 million . research and development expenses research and development expenses include the personnel and related overhead associated with the development of our product software and service offerings . we continue to invest in and focus on expanding our subscription and saas offerings . 43 research and development expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_10_th research and development expenses increased in fiscal 2021 compared to fiscal 2020. the increase was primarily due to growth in cash-based employee-related expenses of $ 237 million , primarily driven by incremental growth in headcount and salaries , both organic and through acquisitions , as well as increased stock-based compensation of $ 65 million , primarily driven by increased restricted stock unit awards granted to our employees . the increase was also driven by increased equipment and depreciation of $ 51 million . these increases were partially offset by decreased travel-related costs of $ 34 million resulting from travel restrictions imposed in response to the covid-19 pandemic , as well as a decrease in capitalized internal-use software development costs of $ 21 million and facilities-related costs of $ 13 million . sales and marketing expenses sales and marketing expenses include personnel costs , sales commissions and related overhead associated with the sale and marketing of our license , subscription and saas and services offerings , as well as the cost of product launches and marketing initiatives . a significant portion of our sales commissions are deferred and recognized over the expected period of benefit . sales and marketing expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_11_th sales and marketing expenses increased in fiscal 2021 compared to fiscal 2020. the increase was primarily due to growth in cash-based employee-related expenses of $ 154 million , primarily driven by incremental growth in headcount and salaries , both organic and through acquisitions , as well as increased stock-based compensation of $ 28 million , primarily driven by increased restricted stock unit awards granted to our employees . the increase was also driven by increased equipment and depreciation of $ 17 million . these increases were partially offset by decreased travel-related costs of $ 169 million resulting from travel restrictions imposed in response to the covid-19 pandemic . general and administrative expenses general and administrative expenses include personnel and related overhead costs to support the business . these expenses include the costs associated with finance , human resources , it infrastructure and legal , as well as expenses related to corporate costs and initiatives . 44 general and administrative expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_12_th general and administrative expenses decreased in fiscal 2021 compared to fiscal 2020. the decrease was primarily driven by a decrease in litigation expenses of $ 474 million due to the derecognition of accrued litigation loss of $ 237 million recognized in fiscal 2020 in connection with certain patent litigation , as well as decreased acquisition-related costs of $ 41 million .
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results of operations approximately 70 % of our sales are denominated in the united states ( “ u.s. ” ) dollar . in certain countries , however , we also invoice and collect in various foreign currencies , principally euro , british pound , japanese yen , australian dollar , and chinese renminbi . in addition , we incur and pay operating expenses in currencies other than the u.s. dollar . as a result , our financial statements , including our revenue , operating expenses , unearned revenue and the resulting cash flows derived from the u.s. dollar equivalent of foreign currency transactions , are affected by foreign exchange fluctuations . revenue our revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_5_th 40 revenue from our subscription offerings consisted primarily of our vcpp cloud-based offerings that are billed to customers on a consumption basis and revenue from vmware tanzu and other offerings that are billed on a subscription basis . revenue from our saas offerings consisted primarily of our unified endpoint management mobile solution within workspace one , vmware cloud on aws , cloudhealth by vmware and vmware sd-wan by velocloud offerings , and newer saas offerings , such as vmware carbon black cloud . license revenue relating to the sale of on-premises licenses that are part of a multi-year contract is generally recognized upon delivery of the underlying license , whereas revenue derived from our subscription and saas offerings is generally recognized over time as customers consume the services or ratably over the term of the subscription , commencing upon provisioning of the service . license revenue license revenue decreased during fiscal 2021 compared to fiscal 2020 , as a result of the economic impact of the covid-19 pandemic on license sales , and due to a shift in demand from our on-premises solutions sold with perpetual licenses to cloud-based solutions .
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prior to 2014 , pathfinder bancorp , mhc , the company 's then mutual holding company parent , whose activities are not included in the consolidated financial statements or the md & a , held 60.4 % of the company 's outstanding common stock and the public held 39.6 % of the outstanding common stock . on october 16 , 2014 , pathfinder bancorp , mhc converted from the mutual to stock form of organization . in connection with the conversion , the company sold 2,636,053 of common stock to depositors at $ 10.00 per share . shareholders of pathfinder-federal , the company 's predecessor , received 1.6472 shares of the company 's common stock for each share of pathfinder-federal common stock they owned immediately prior to completion of the transaction . following the completion of the conversion , pathfinder-federal was succeeded by the company , a maryland corporation named pathfinder bancorp , inc. , and pathfinder bancorp , mhc ceased to exist . the company had 4,353,850 and 4,352,203 shares outstanding at december 31 , 2015 and december 31 , 2014 , respectively . 33 `` '' our business strategy has been to transition from a traditional savings bank primarily focused on originating one-to-four family residential real estate loans to that of a commercial bank with a more diversified loan composition , while at the same time , maintaining our high standards of customer service and convenience . we have emphasized developing our business banking by offering products that are attractive to small businesses in our market area . notwithstanding this strategy , a significant portion of our lending activity has been , and will continue to be , the origination of one-to-four family residential real estate loans . highlights of our business strategy are as follows : · expanding our business banking . we have increased our emphasis on servicing the needs of small businesses in our market area . we intend to use our branch office network and experienced commercial loan and deposit specialists to provide convenient commercial loan and deposit products and services to business customers , including merchant and remote deposit capture services . we believe that by developing our commercial relationships with small businesses we will be able to offer a variety of services and deposit products that will provide a growing source of fee income . we have introduced new products and services in order to attract new business customers , and we will continue to expand our products to help meet the needs of our business customers . · continuing our emphasis on commercial business and commercial real estate lending . in recent years , we have sought to significantly increase our commercial business and commercial real estate lending , consistent with safe and sound underwriting practices . in this regard , we have added personnel who are experienced in originating and underwriting commercial real estate and commercial business loans . we view the growth of our commercial business and commercial real estate loans as a means of diversifying and increasing our interest income and establishing relationships with local businesses , which offer a recurring and potentially broader source of fee income and deposits than traditional one-to-four family residential real estate lending . we anticipate th a t our emphasis on commercial business and commercial real estate lending will complement our traditional one-to-four family residential real estate lending . · diversifying our products and services with a goal of increasing non-interest income over time . we have sought to reduce our dependence on net interest income by increasing fee income from the value-added services that we provide . we offer property and casualty and life insurance through our subsidiary , pathfinder risk management company , inc. , and its insurance agency subsidiary , the fitzgibbons agency , llc . additionally , pathfinder bank 's investment services provides brokerage services for purchasing stocks , bonds , mutual funds , annuities , and long-term care products . we intend to gradually grow these businesses . we believe that there will be opportunities to cross-sell these products to our deposit and borrower customers which will increase our non-interest income . · continuing to grow our customer relationships and deposit base by expanding our branch network . as conditions permit , we will expand our branch network through a combination of de novo branching and acquisitions of branches or other financial services companies . we believe that as we expand our branch network , our customer relationships and deposit base will continue to grow . we do not currently have any agreements or understandings regarding specific de novo branches or acquisitions . additionally , we have committed significant resources to establish a banking platform to accommodate future growth by upgrading our information technology , maintaining a robust risk management and compliance staff , and credit analysts , and upgrading our physical infrastructure . we believe that these investments will enable us to achieve operational efficiencies with minimal additional investments , while providing increased convenience for our customers . · utilizing the net proceeds from recent capital raises to continue the controlled growth of pathfinder bank . on october 14 , 2014 , the company received $ 24.9 million in net proceeds from the sale of approximately 2.6 million shares of common stock as a result of the conversion . on october 15 , 2015 , the company executed the $ 10.0 million non-amortizing subordinated loan with an unrelated third party that is scheduled to mature on october 1 , 2025. the subordinated loan is senior in the company 's credit repayment hierarchy only to the company 's common equity and , as a result , qualifies as tier 2 capital for all future periods when applicable . on february 15 , 2016 , the company retired $ 13 million in series b preferred stock owned by the small business lending facility ( `` sblf '' ) and has used , and will continue to use , the remaining net proceeds from conversion to provide capital for asset growth and increased lending . story_separator_special_tag the judgment about the level of future taxable income , including that which is considered capital , is inherently subjective and is reviewed on a continual basis as regulatory and business factors change . a valuation allowance of $ 265,000 was maintained at december 31 , 2015 , as management believes it may not generate sufficient future taxable income in the form of capital gains in the future to offset its capital loss carry forward position before those potential tax benefits expire . the company 's effective tax rate differs from the statutory rate due primarily to non-taxable interest income and bank owned life insurance . see note 17 to the accompanying financial statements . pension obligations . pension and postretirement benefit plan liabilities benefits and expenses are based upon actuarial assumptions of future events , including fair value of plan assets , interest rates , and the length of time the company will have to provide those benefits . the assumptions used by management are discussed in note 14 to the consolidated financial statements contained herein . evaluation of investment securities for other-than-temporary-impairment ( `` otti '' ) . the company carries all of its available-for-sale investments at fair value with any unrealized gains or losses reported net of tax as an adjustment to shareholders ' equity and included in accumulated other comprehensive income ( loss ) , except for the credit-related portion of debt security impairment losses and otti of equity securities which are charged to earnings . the company 's ability to fully realize the value of its investments in various securities , including corporate debt securities , is dependent on the underlying creditworthiness of the issuing organization . in evaluating the debt security ( both available-for-sale and held-to-maturity ) portfolio for other-than-temporary impairment losses , management considers ( 1 ) if we intend to sell the security before recovery of its amortized cost ; ( 2 ) if it is `` more likely than not '' we will be required to sell the security before recovery of its amortized cost basis ; or ( 3 ) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . when the fair value of a held-to-maturity or available-for-sale security is less than its amortized cost basis , an assessment is made as to whether otti is present . the company considers numerous factors when determining whether a potential otti exists and the period over which the debt security is expected to recover . the principal factors considered are ( 1 ) the length of time and the extent to which the fair value has been less than the amortized cost basis , ( 2 ) the financial condition of the issuer and ( guarantor , if any ) and adverse conditions specifically related to the security , industry or geographic area , ( 3 ) failure of the issuer of the security to make scheduled interest or principal payments , ( 4 ) any changes to the rating of the security by a rating agency , and ( 5 ) the presence of credit enhancements , if any , including the guarantee of the federal government or any of its agencies . evaluation of goodwill . management performs an annual evaluation of the company 's goodwill for possible impairment . based on the results of the 2015 evaluation , management has determined that the carrying value of goodwill is not impaired as of december 31 , 2015. the evaluation approach is described in note 10 of the consolidated financial statements . estimation of fair value . the estimation of fair value is significant to several of our assets ; including investment securities available-for-sale , interest rate derivative ( discussed in detail in note 22 of the consolidated financial statements ) , intangible assets , foreclosed real estate , and the value of loan collateral when valuing loans . these are all recorded at either fair value , or the lower of cost or fair value . fair values are determined based on third party sources , when available . furthermore , accounting principles generally accepted in the united states require disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements . fair values on our available-for-sale securities may be influenced by a number of factors ; including market interest rates , prepayment speeds , discount rates , and the shape of yield curves . 36 `` '' fair values for securities available-for-sale are obtained from an independent third party pricing service . where available , fair values are based on quoted prices on a nationally recognized securities exchange . if quoted prices are not available , fair values are measured using quoted market prices for similar benchmark securities . management made no adjustments to the fair value quotes that were provided by the pricing source . the fair values of foreclosed real estate and the underlying collateral value of impaired loans are typically determined based on evaluations by third parties , less estimated costs to sell . when necessary , appraisals are updated to reflect changes in market conditions . recent events on december 18 , 2015 , the board of directors declared a quarterly dividend of $ 0.05 per common share . the dividend was payable on february 1 , 2016 to shareholders of record on january 11 , 2016. story_separator_special_tag > `` '' rate/volume analysis net interest income can also be analyzed in terms of the impact of changing interest rates on interest-earning assets and interest-bearing liabilities , and changes in the volume or amount of these assets and liabilities . the following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the company 's interest income and interest expense during the periods indicated .
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executive summary and results of operations the company reported net income of $ 2.8 million for 2015 as compared to $ 2.7 million for 2014. basic and diluted earnings per share in 2015 were $ 0.67 and $ 0.66 , respectively , as compared to $ 0.64 and $ 0.63 in 2014 , respectively . modest declines in return on average assets , partially the result of declines in net interest margin occurred in 2015 as compared to 2014. the most significant metric that decreased between these two years was return on average equity as the $ 24.9 million in net proceeds received as a result of the october 2014 conversion significantly increased average equity . for 2015 , return on average assets was 0.48 % as compared to 0.51 % for the prior year and driven by an increase in non-interest expenses , partially offset by the increase in net interest income . the increase in average balances of loans and taxable investment securities as well as the decrease in average rates paid on time deposits and fhlbny borrowings primarily drove the increase in net interest income . additionally , noninterest income was $ 4.2 million , an increase of $ 413,000 , or 11.0 % , compared to $ 3.8 million for the prior year . the improvement in noninterest income was due primarily to an increase in income from other charges , commissions and fees of $ 257,000 , higher net gains of $ 112,000 on the sales and redemptions of securities , and increases in income from bank owned life insurance of $ 93,000. the increase was partially offset by a $ 38,000 decrease in loan servicing fees as well as a $ 45,000 decrease in deposit account fees .
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unless otherwise noted , the address for each person listed is 99 hudson street , 5th floor , new york , new york 10013. applicable percentages are based on 10,693,259 shares outstanding on february 27 , 2015. replace_table_token_9_th * less than 1 % . 45 ( 1 ) based on the information contained in schedule 13g/a filed with the sec on february 17 , 2015 by ecor1 capital , llc , ecor1 capital fund , l.p. and ecor1 capital fund qualified , l.p. according to the schedule 13g/a , all three reporting persons hold shared voting and dispositive power over the shares . ecor1 capital fund , l.p. directly owned 383,729 shares of common stock and story_separator_special_tag overview 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 thereto and other financial information appearing elsewhere in this form 10-k. we are a biopharmaceutical company committed to developing novel oral therapies for the cure of intractable infectious diseases , focusing on hepatitis b virus ( hbv ) and c. difficile-associated infections ( cdad ) . on july 11 , 2014 , assembly biosciences merged with a private company assembly pharmaceuticals , inc. , which was founded in 2012. the merger resulted in a shift in strategic focus , the addition of a new lead drug development program for the company , and changes in personnel . the target of our lead program is a clinical cure for hbv , for which we are developing a series of new compounds , known as core protein allosteric modulators , or cpams , with the potential to modulate the hbv core protein—a polyfunctional essential viral protein-—at multiple complementary points in the viral lifecycle . our cdad program is based on the targeted delivery of novel microbiome-based therapies in a proprietary oral formulation , applying our novel coating and encapsulation technology that allows for targeted delivery of complex agents to select regions of the gastrointestinal , or gi , tract . using this proprietary delivery platform , we aim to deliver several types of beneficial bacteria , in novel “ synthetic formats ' , to the gastrointestinal , or gi , tract . 27 we currently have administrative offices in new york city and research facilities in san francisco , california . research activities for the hbv program are also being conducted at indiana university at bloomington , under the aegis of adam zlotnick , phd , assembly co-founder and head of our hbv scientific advisory board . since inception of the parent company , we have had no revenue from product sales , and have funded our operations principally through debt financings prior to our initial public offering in 2010 and through equity financings since then . our operations to date have been primarily limited to organizing and staffing our company , licensing our product candidates , developing clinical trials for our product candidates , establishing manufacturing for our product candidates , maintaining and improving our patent portfolio and raising capital . we have generated significant losses to date , and we expect to continue to generate losses as we continue to develop our product candidates . as of december 31 , 2014 , we had an accumulated deficit of $ 135,512,072. net cash outflows after the assembly merger was approximately $ 7.5 million .. because we do not generate revenue from any of our product candidates , our losses will continue as we seek regulatory approval and commercialization of our product candidates . as a result , our operating losses are likely to be substantial over the next several years as we continue the development of our product candidates and thereafter if none is approved or successfully launched . we are unable to predict the extent of any future losses or when we will become profitable , if at all . financial operations overview research and development expense research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , target validation , lead optimization and the development of our product candidates , which include : · employee-related expenses including salaries , benefits , and stock-based compensation expense ; · expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research and development , preclinical and clinical activities on our behalf and the cost of consultants ; · the cost of lab supplies and acquiring , developing , and manufacturing preclinical study materials ; and · facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance , and other operating costs . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . we use our employee and infrastructure resources across multiple research and development programs , and we allocate internal employee-related and infrastructure costs , as well as certain third party costs , to each of our 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_4_th diltiazem and iferanserin were our prior product candidates that we are no longer developing . since the assembly merger in july 2014 , the hbv and microbiome programs are currently the only focus of our company . the successful discovery and 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 our product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from our product candidates . story_separator_special_tag we test goodwill and indefinite-lived intangible assets each year on december 31. we review the carrying value of goodwill and indefinite-lived intangible assets utilizing a discounted cash flow model , and , where appropriate , a market value approach is also utilized to supplement the discounted cash flow model . we make assumptions regarding estimated future cash flows , discount rates , long-term growth rates and market values to determine each reporting unit 's estimated fair value accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses . this process involves reviewing quotations and contracts , identifying 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 if necessary . the significant estimates in our accrued research and development expenses include fees paid to cros in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to cros on our estimates of the services received and efforts expended pursuant to quotes and contracts with cros that conduct research and development 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 research and development expense . in accruing service fees , we estimate the time period over which services will be performed 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 adjust the accrual or prepaid 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 could result in us reporting amounts that are too high or too low in any particular period . use of estimates the preparation of financial statements in conformity with u.s. gaap requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported revenue , if any , and expenses during the reporting periods . on an ongoing basis , management evaluates their estimates and judgments . management bases estimates on historical experience and on various other factors that they 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 might differ from these estimates under different assumptions or conditions . the company 's significant estimates and assumptions include the initial fair value , recoverability and useful lives of intangible assets , including goodwill and the grant date fair value of stock-based compensation . stock-based compensation we apply the fair value recognition provisions of financial accounting standards board accounting standards codification topic 718 , compensation-stock compensation , which we refer to as asc 718 , to account for stock-based compensation . we recognize stock-based compensation expense related to stock options granted to employees and directors for their services on the board of directors based on the estimated fair value of each stock option on the date of grant , net of estimated forfeitures , using the black-scholes option-pricing model . the grant date fair value of awards subject to service-based vesting , net of estimated forfeitures , is recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the respective awards . in accordance with the asc 718 , stock options subject to both performance- and service-based vesting conditions are recognized using an accelerated recognition model if achievement of the performance requirements is considered to be probable . we account for stock options granted to non-employees , which primarily consist of consultants and members of our scientific advisory board , using the fair value method . stock options granted to non-employees are subject to periodic revaluation over their vesting terms and stock-based compensation expense is recognized using an accelerated recognition model . we use the black-scholes option pricing model to estimate the fair value of stock option awards using various assumptions that require management to apply judgment and make estimates , including : · the expected term of the stock option award , which we calculate using the simplified method , as prescribed by the securities and exchange commission staff accounting bulletin no . 107 , share-based payment , as we have insufficient historical information regarding our stock options to provide a basis for an estimate ; 30 · the expected volatility of the underlying common stock , which we estimate based on the historical volatility of a representative group of publicly traded biopharmaceutical companies with similar characteristics to us , including development candidates in earlier stages of drug development and areas of therapeutic focus ; · the risk-free interest rate , which we based on the yield curve of u.s. treasury securities with periods commensurate with the expected term of the options being valued ; · the expected dividend yield , which we estimate to be zero based on the fact that we have never paid cash dividends and have no present
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results of operations general to date , we have not generated any revenues from operations and , at december 31 , 2014 , we had an accumulated deficit of approximately $ 136 million primarily as a result of research and development expenses , purchases of in-process research and development and general and administrative expenses . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , research and development payments in connection with strategic partnerships and or product sales , our 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 significant revenues . 31 comparison of the years ended december 31 , 2014 and december 31 , 2013 research and development expense research and development expense was $ 10,716,737 for the year ended december 2014 , a decrease of $ 4,312,341 or 28.7 % from $ 15,029,078 for the same period in 2013. the reason for the net decrease in research and development expenses is due to the winding down of our diltiazem program which resulted in a $ 9,987,000 reduction of costs in 2014 , offset by increases in expenses related to the microbiome program of approximately $ 1,560,000 , increases in expenses related to the hbv program of approximately $ 2,536,000 and additional stock-based compensation of $ 2,020.000 due to new options granted to all employees .
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it should be read in conjunction with the audited consolidated financial statements and notes appearing elsewhere in this annual report on form 10-k. the bank offers a wide range of financial services . as of the filing date of this report , the bank operates 26 branches in southern california , 14 branches in northern california , 11 branches in new york state , four branches in washington state , three branches in illinois , two branches in texas , one branch in maryland , massachusetts , nevada , and new jersey , one branch in hong kong , and a representative office in beijing , in shanghai , and in taipei . the bank is a commercial bank , servicing primarily individuals , professionals , and small to medium-sized businesses in the local markets in which its branches are located . the financial information presented herein includes the accounts of the bancorp , its subsidiaries , including the bank , and the bank 's consolidated subsidiaries . all material transactions between these entities are eliminated . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities at the date of our consolidated financial statements . actual results may differ from these estimates under different assumptions or conditions . certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . management believes the following are critical accounting policies that require the most significant judgments and estimates used in the preparation of the consolidated financial statements : allowance for credit losses the determination of the amount of the provision for credit losses charged to operations reflects management 's current judgment about the credit quality of the loan portfolio and takes into consideration changes in lending policies and procedures , changes in economic and business conditions , changes in the nature and volume of the portfolio and in the terms of loans , changes in the experience , ability , and depth of lending management , changes in the volume and severity of past due , non-accrual , and adversely classified or graded loans , changes in the quality of the loan review system , changes in the value of underlying collateral for collateral-dependent loans , the existence and effect of any concentrations of credit and the effect of competition , legal and regulatory requirements , and other external factors . the nature of the process by which we determine the appropriate allowance for loan losses requires the exercise of considerable judgment . the allowance is increased by the provision for loan losses and decreased by charge-offs when management believes the collectability of a loan is confirmed . subsequent recoveries , if any , are credited to the allowance . a weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies , bankruptcies , or defaults , and a higher level of non-performing assets , net charge-offs , and provision for loan losses in future periods . 45 the total allowance for credit losses consists of two components : specific allowances and general allowances . to determine the adequacy of the allowance in each of these two components , we employ two primary methodologies , the individual loan review analysis methodology and the classification migration methodology . these methodologies support the basis for determining allocations between the various loan categories and the overall adequacy of our allowance to provide for probable losses inherent in the loan portfolio . these methodologies are further supported by additional analysis of relevant factors such as the historical losses in the portfolio , and environmental factors which include trends in delinquency and non-accrual , and other significant factors , such as the national and local economy , the volume and composition of the portfolio , the strength of management and loan staff , underwriting standards , and the concentration of credit . the bank 's management allocates a specific allowance for “ impaired credits , ” in accordance with accounting standard codification ( “ asc ” ) section 310-10-35. for non-impaired credits , a general allowance is established for those loans internally classified and risk graded pass , watch , special mention , or substandard based on historical losses in the specific loan portfolio and a reserve based on environmental factors determined for that loan group . the level of the general allowance is established to provide coverage for management 's estimate of the credit risk in the loan portfolio by various loan segments not covered by the specific allowance . the allowance for credit losses is discussed in more detail in “ risk elements of the loan portfolio — allowance for credit losses ” below . management has reviewed the foregoing critical accounting policies and related disclosures with the audit committee of the company 's board of directors . story_separator_special_tag change in the mix of interest-earning assets : average gross loans , which generally have a higher yield than other types of investments , comprised 89.0 % of total average interest-earning assets in 2018 , an increase from 87.5 % in 2017. average investment securities comprised 9.0 % of total average interest-bearing assets in 2018 , a decrease from 9.6 % in 2017 . story_separator_special_tag ● changes in rate : the average yield of interest-bearing assets increased to 4.22 % in 2017 from 4.04 % in 2016. increase in rate on loans contributed $ 15.4 million to interest income , increase in rate on deposit with other financial institutions contributed $ 2.5 million to interest income , and increase rate on investment securities contributed $ 122,000 to interest income , partially offset by decrease in rate on fhlb stock which caused a $ 868,000 decrease to interest income . the changes in rate contributed to interest income increase of $ 17.2 million . ● change in the mix of interest-earning assets : average gross loans , which generally have a higher yield than other types of investments , comprised 87.5 % of total average interest-earning assets in 2017 , an increase from 86.0 % in 2016. average investment securities comprised 9.6 % of total average interest-bearing assets in 2017 , a decrease from 11.1 % in 2016. interest expense decreased by $ 758,000 , or 0.9 % , to $ 80.4 million in 2017 , compared with $ 81.2 million in 2016 , primarily due to decreased cost from securities sold under agreements to repurchase offset by increased interest cost from money market accounts , time deposits and fhlb advances and other borrowings . the overall decrease in interest expense was primarily due to decreases in both volume and rates in securities sold under agreements to repurchase offset by increases in volume from all other interest bearing liabilities and increase in rate on time deposits and other borrowings from financial institutions as discussed below : ● changes in volume : average interest-bearing deposits increased $ 893.2 million , or 10.4 % , and average fhlb advances and other borrowings increased $ 129.7 million , or 102 % , partially offset by a $ 245.1 million , or 64.2 % , decrease in average securities sold under agreements to repurchase . the changes in volume caused a decrease in interest expense of $ 2.6 million . ● changes in rate : the average cost of securities sold under agreements to repurchase decreased to 3.11 % in 2017 from 4.01 % in 2016. the average cost of interest-bearing deposits increased to 0.70 % in 2017 from 0.69 % in 2016. the changes in rate caused interest expense to increase by $ 1.8 million . ● change in the mix of interest-bearing liabilities : average interest-bearing deposits of $ 9.4 billion increased to 94.8 % of total interest-bearing liabilities in 2017 compared to 93.2 % in 2016. average fhlb advances and other borrowings of $ 256.4 million increased to 2.6 % of total interest-bearing liabilities in 2017 compared to 0.5 % in 2016. offsetting the increase , average securities sold under agreements to repurchase decreased to 1.4 % of total interest-bearing liabilities in 2017 compared to 4.2 % in 2016. net interest margin , defined as net interest income to average interest-earning assets , was 3.63 % in 2017 compared to 3.38 % in 2016 . 49 the following table sets forth information concerning average interest-earning assets , average interest-bearing liabilities , and the yields and rates paid on those assets and liabilities . average outstanding amounts included in the table are daily averages . interest-earning assets and interest-bearing liabilities replace_table_token_3_th ( 1 ) yields and amounts of interest earned include loan fees . non-accrual loans are included in the average balance . ( 2 ) calculated by dividing net interest income by average outstanding interest-earning assets . 50 net interest income — changes due to rate and volume ( 1 ) replace_table_token_4_th ( 1 ) changes in interest income and interest expense attributable to changes in both volume and rate have been allocated proportionately to changes due to volume and changes due to rate . provision for credit losses the provision for credit losses represents the charge against current earnings that is determined by management , through a credit review process , as the amount needed to maintain an allowance for loan losses and an allowance for off-balance sheet unfunded credit commitments that management believes to be sufficient to absorb credit losses inherent in the bank 's loan portfolio and credit commitments . the bank recorded a reversal of $ 4.5 million provision for credit losses in 2018 compared with a reversal of $ 2.5 million in 2017 , and a reversal of $ 15.7 million in 2016. net recoveries for 2018 were $ 3.6 million , or 0.03 % of average loans , compared to net recoveries for 2017 of $ 6.8 million , or 0.06 % of average loans , and net charge-offs for 2016 of $ 4.3 million , or 0.04 % of average loans . non-interest income non-interest income decreased $ 4.6 million , or 12.7 % , to $ 31.7 million for 2018 , from $ 36.3 million for 2017 , compared to $ 33.4 million for 2016. non-interest income includes depository service fees , letters of credit commissions , securities gains ( losses ) , gains ( losses ) from loan sales , gains from sale of premises and equipment , gains on acquisition , and other sources of fee income . these other fee-based services include wire transfer fees , safe deposit fees , fees on loan-related activities , fee income from our wealth management division , and foreign exchange fees . comparison of 201 8 with 201 7 the decrease in non-interest income from 2017 to 2018 was primarily due to a decrease of $ 5.3 million in gain from acquisition of sinopac bancorp in 2017 and a $ 2.8 million increase in net losses from equity securities , offset by a $ 2.8 million increase in fees and commissions income from wealth management . no other-than-temporary write-down was recorded in 2018 and 2017 .
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results of operations overview for the year ended december 31 , 2018 , we reported net income of $ 271.9 million , or $ 3.33 per diluted share , compared to net income of $ 176.0 million , or $ 2.17 per share , in 2017 , and net income of $ 175.1 million , or $ 2.19 per share , in 2016. the $ 95.9 million increase in net income from 2017 to 2018 was primarily the result of increases in net interest income and other operating income and decreases in income taxes , partially offset by increases in amortization expense of investments in alternative energy partnerships , and in salaries and employee benefits . the return on average assets in 2018 was 1.70 % , compared to 1.19 % in 2017 , and to 1.31 % in 2016. the return on average stockholders ' equity was 13.18 % in 2018 , compared to 9.10 % in 2017 , and to 9.88 % in 2016 . 46 highlights ● total loans increased for the year by $ 1.1 billion , or 8.5 % , to $ 14.0 billion from $ 12.9 billion in 2017 . ● net interest margin for 2018 increased to 3.79 % compared to 3.63 % in 2017. net income available to common stockholders and key financial performance ratios are presented below for the three years indicated : replace_table_token_2_th net interest income comparison of 201 8 with 201 7 net interest income increased $ 70.2 million , or 14.2 % , from $ 495.7 million in 2017 to $ 565.9 million in 2018. the increase in net interest income was due primarily to the increase in loan interest income , offset by increases in interest expense from time deposits and other interest-bearing deposits .
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currently , the company expects to fund its capital expenditures with existing cash , cash generated from operating activities and utilization of the company 's line of credit . the company is also purs u ing $ 3.5 million in permanent financing as a source of funds for the expansion . international activity the company markets its products in numerous countries in various regions of the world , including north america , europe , latin america , and asia . the company 's 201 5 foreign sales of $ 4.9 million were approximately 2 7 . 9 % of total sales , compared to the 201 4 foreign sales of $ 5 . 3 million , which were 28.4 % of total sales . the company experienced a decrease in foreign sales across all geographic regions in 201 5 due to poor general econom ic conditions in europe and a strong u.s. dollar . the company 's foreign transactions are primarily negotiated , invoiced and paid in u.s. dollars , though a portion is transacted in euros . ikonics has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures , which management does not believe to be significant based on the scope and geographic diversity of the company 's foreign operations as of december 31 , 201 5 . furthermore , the impact of foreign exchange on the company 's balance sheet and operating results was not material in either 201 5 or 201 4 . future outlook ikonics has spent on average approximately 4 % of annual sales in research and development and has made capital expenditures related to its dtx and ams programs . the company plans to maintain its efforts in this area to expedite internal product development as well as to form technological alliances with outside experts to commercialize new product opportunities . the company continues to make progress on its ams business initiative . the company has entered into agreements with major aerospace companies a long with working on smaller development programs to determine the feasibility of using its unique technologies in the production of military and commercial aircraft . progress is being made on a number of these in-house feasibility projects , and the company believes that several of these could lead to ongoing business . in anticipation of this business , the company is expanding its ams capacity and patent applications . the company is also continuing to pursue dtx related business initiatives . in addition to making efforts towards growing the inkjet technology business , the company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping . the company is currently working on production improvements to enhance its customer offerings . the company has been awarded european , japanese and united states patents on its dtx technologies . the company has modified its dtx technology to enter the market for prototyping and 3d printing . domestically , both the domestic and ikonics imaging units remain profitable in mature markets and require aggressive strategies to grow market share . although there will be challenges , the company believes these businesses will continue to grow and prosper . in addition to its traditional emphasis on domestic markets , the company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence . however , the strong u.s. dollar made this challenging during 2015 , and the company anticipates continued strength of the u.s. dollar in the near term . in addition to the $ 3.5 million building expansion to accommodate the ams division and the implementation of a new erp system , other future activities undertaken to expand the company 's business may include acquisitions , building improvements , equipment additions , new product development and marketing opportunities . 16 off-balance sheet arrangements the company has no off-balance sheet arrangements . recent accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers . asu 2014-09 supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . in august 2015 , the fasb issued asu 2015-14 , revenue from contracts with customers : deferral of the effective date , which defers the adoption of asu 2014-09 to annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . earlier application is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . the company is currently evaluating the effect that adopting this new accounting guidance will have on its condensed statements of operations , cash flows and financial position . in 2014 , the fasb issued asu no . 2014-15 , presentation of financial statements—going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern , intended to define management 's responsibility to evaluate whether there is substantial doubt about an organization 's ability to continue as a going concern and to provide related footnote disclosures . asu 2014-15 is effective for the company in the year ended december 31 , 2016 , and interim periods beginning march 31 , 2017 , with early application permitted . the company does not anticipate a material impact to the financial statements once implemented . in 2015 , the fasb issued asu no . 2015-11 , inventory ( topic 330 ) related to simplifying the measurement of inventory which story_separator_special_tag currently , the company expects to fund its capital expenditures with existing cash , cash generated from operating activities and utilization of the company 's line of credit . the company is also purs u ing $ 3.5 million in permanent financing as a source of funds for the expansion . international activity the company markets its products in numerous countries in various regions of the world , including north america , europe , latin america , and asia . the company 's 201 5 foreign sales of $ 4.9 million were approximately 2 7 . 9 % of total sales , compared to the 201 4 foreign sales of $ 5 . 3 million , which were 28.4 % of total sales . the company experienced a decrease in foreign sales across all geographic regions in 201 5 due to poor general econom ic conditions in europe and a strong u.s. dollar . the company 's foreign transactions are primarily negotiated , invoiced and paid in u.s. dollars , though a portion is transacted in euros . ikonics has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures , which management does not believe to be significant based on the scope and geographic diversity of the company 's foreign operations as of december 31 , 201 5 . furthermore , the impact of foreign exchange on the company 's balance sheet and operating results was not material in either 201 5 or 201 4 . future outlook ikonics has spent on average approximately 4 % of annual sales in research and development and has made capital expenditures related to its dtx and ams programs . the company plans to maintain its efforts in this area to expedite internal product development as well as to form technological alliances with outside experts to commercialize new product opportunities . the company continues to make progress on its ams business initiative . the company has entered into agreements with major aerospace companies a long with working on smaller development programs to determine the feasibility of using its unique technologies in the production of military and commercial aircraft . progress is being made on a number of these in-house feasibility projects , and the company believes that several of these could lead to ongoing business . in anticipation of this business , the company is expanding its ams capacity and patent applications . the company is also continuing to pursue dtx related business initiatives . in addition to making efforts towards growing the inkjet technology business , the company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping . the company is currently working on production improvements to enhance its customer offerings . the company has been awarded european , japanese and united states patents on its dtx technologies . the company has modified its dtx technology to enter the market for prototyping and 3d printing . domestically , both the domestic and ikonics imaging units remain profitable in mature markets and require aggressive strategies to grow market share . although there will be challenges , the company believes these businesses will continue to grow and prosper . in addition to its traditional emphasis on domestic markets , the company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence . however , the strong u.s. dollar made this challenging during 2015 , and the company anticipates continued strength of the u.s. dollar in the near term . in addition to the $ 3.5 million building expansion to accommodate the ams division and the implementation of a new erp system , other future activities undertaken to expand the company 's business may include acquisitions , building improvements , equipment additions , new product development and marketing opportunities . 16 off-balance sheet arrangements the company has no off-balance sheet arrangements . recent accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers . asu 2014-09 supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . in august 2015 , the fasb issued asu 2015-14 , revenue from contracts with customers : deferral of the effective date , which defers the adoption of asu 2014-09 to annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . earlier application is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . the company is currently evaluating the effect that adopting this new accounting guidance will have on its condensed statements of operations , cash flows and financial position . in 2014 , the fasb issued asu no . 2014-15 , presentation of financial statements—going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern , intended to define management 's responsibility to evaluate whether there is substantial doubt about an organization 's ability to continue as a going concern and to provide related footnote disclosures . asu 2014-15 is effective for the company in the year ended december 31 , 2016 , and interim periods beginning march 31 , 2017 , with early application permitted . the company does not anticipate a material impact to the financial statements once implemented . in 2015 , the fasb issued asu no . 2015-11 , inventory ( topic 330 ) related to simplifying the measurement of inventory which
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results of operations year ended december 31 , 201 5 compared to year ended december 31 , 201 4 sales . the company 's net sales de creased 5 . 0 % in 201 5 to $ 1 7 . 6 million compared to the record net sales of $ 1 8 .5 million in 201 4 . compared to 2014 , ikonics imaging sales in 2015 decreased $ 691 ,000 , or 14 . 9 % , to $ 4.0 million . ikonics imaging sales in 2014 benefitted from a large non-recurring initial stocking order from its new 13 distributor , jds industries . lower ikonics imaging glass sales related to a change in glass suppliers also contributed to the sales decrease . ikonics imaging 's previous glass supplier discontinued selling through distributors . export sales in 2015 decreased $ 353,000 , or 6.7 % , compared to 2014 as sales were negatively impacted by the weaker european economy and stronger u.s. dollar . european and asian sales were most affected by the strong u.s. dollar . lower film and emulsion sales in 2015 resulted in a $ 239,000 , or 3.0 % , decrease in domestic sales versus the same period in 2014. partially offsetting these sales decreases was a $ 301,000 , or 92 % increase in ams sales as the company has begun to recei ve repeatable production orders which the company e xpects to continue through 2016. dtx sales also increased $ 54,000 or 12.7 % in 2015 versus 2014 as a result of higher film sales . gross profit . gross profit in 2015 was $ 6.1 million , or 3 5.0 % of sales , compared to $ 6 . 7 million , or 36 . 3 % of sales in 2014. the 2014 gross margin percentage benefited from the initial stocking order from jds industries . that initial stocking order was mainly comprised of film products , which have higher gross margins .
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in conjunction with the issuance of the 360,000 shares , the company granted moriah a put option pursuant to which such shares could be put to the company for $ 234,000 ( the “ 2008 put option ” ) . on august 7 , 2009 , the put options expired when moriah elected not to exercise its put options . at december 31 , 2008 story_separator_special_tag introduction the following discussion should be read in conjunction with the financial statements and notes thereto . our fiscal year ends december 31. this document contains certain forward-looking statements including , among others , anticipated trends in our financial condition and results of operations and our business strategy . these forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties . ( see part i , item 1a , `` risk factors `` ) . actual results could differ materially from these forward-looking statements . important factors to consider in evaluating such forward-looking statements include ( i ) changes in external factors or in our internal budgeting process which might impact trends in our results of operations ; ( ii ) unanticipated working capital or other cash requirements ; ( iii ) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate ; and ( iv ) various competitive market factors that may prevent us from competing successfully in the marketplace . overview we design and manufacture miniature displays , which we refer to as oled-on-silicon-microdisplays , and microdisplay modules for virtual imaging , primarily for incorporation into the products of other manufacturers . microdisplays are typically smaller than many postage stamps , but when viewed through a magnifier they can contain all of the information appearing on a high-resolution personal computer screen . our microdisplays use organic light emitting diodes , or oleds , which emit light themselves when a current is passed through the device . our technology permits oleds to be coated onto silicon chips to produce high resolution oled-on-silicon microdisplays . we believe that our oled-on-silicon microdisplays offer a number of advantages in near to the eye applications over other current microdisplay technologies , including lower power requirements , less weight , fast video speed without flicker , and wider viewing angles . in addition , many computer and video electronic system functions can be built directly into the oled-on-silicon microdisplay , resulting in compact systems with lower expected overall system costs relative to alternate microdisplay technologies . since our inception in 1996 through 2004 , we derived the majority of our revenues from fees paid to us under research and development contracts , primarily with the u.s. government . we have devoted significant resources to the development and commercial launch of our products including our z800 gaming headset . we commenced limited initial sales of our svga+ microdisplay in may 2001 and commenced shipping samples of our svga-3d microdisplay in february 2002. from inception to december 31 , 2010 , we have recognized an aggregate of approximately $ 97.8 million from sales of our products . as of january 31 , 2011 , we had a backlog of approximately $ 9.8 million in products ordered for delivery through december 31 , 2011. at february 28 , 2010 , we had a backlog of $ 6.8 million in products ordered for delivery through december 31 , 2010. this backlog consists of non-binding purchase orders and purchase agreements . these products are being applied or considered for near-eye and headset applications in products such as thermal imagers , night vision goggles , entertainment headsets , handheld internet and telecommunication appliances , viewfinders , and wearable computers to be manufactured by original equipment manufacturer ( oem ) customers . we have also shipped our z800 3dvisor personal display systems . in addition to marketing oled-on-silicon microdisplays as components , we also offer microdisplays as an integrated package , which we call microviewer that includes a compact lens for viewing the microdisplay and electronic interfaces to convert the signal from our customer 's product into a viewable image on the microdisplay . we have developed a strong portfolio of our own patents , manufacturing know-how and technology to create high performance oled-on-silicon microdisplays and related optical systems . we believe our technology and intellectual property portfolio , gives us a leadership position in oled and oled-on-silicon microdisplay technology . we believe that we are the only company to demonstrate publicly , market and produce in significant quantities full-color small molecule oled-on-silicon microdisplays . in 2010 , we continued to advance our technology . we are making good progress toward developing a hd resolution display that is under 1 inch in diagonal for the u.s. army telemedicine and technology research center ( tatrc ) . we are making great strides in oled architectures that could double or triple oled efficiency . we continue to place our microdisplays with additional customers . in 2010 , we announced a $ 15 million notice of contract award from itt , a new customer . company history as of january 1 , 2003 , we were no longer classified as a development stage company . we transitioned to manufacturing our product and have significantly increased our marketing , sales , and research and development efforts , and expanded our operating infrastructure . currently , most of our operating expenses are labor related and semi-fixed . if we are unable to generate significant revenues , our net income in any given period could be less than expected . critical accounting policies the securities and exchange commission ( `` sec '' ) defines `` critical accounting policies '' as those that require application of management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . not all of the accounting policies require management to make difficult , subjective or complex judgments or estimates . story_separator_special_tag we must assess the likelihood that any deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant judgment is required in determining our provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets . from inception through the third quarter of 2010 , we maintained a full valuation allowance against our deferred tax assets as we were unable to determine that it was more likely than not that we would generate sufficient future taxable income to utilize them . during the years ended december 31 , 2010 , 2009 and 2008 , we utilized $ 6.3 million , $ 4.7 million , and $ 0 million , respectively , of historical net operating losses to offset taxable income in each of these periods . at december 31 , 2010 , we had deferred tax assets , including net operating losses and tax credits that would offset $ 111 million of future taxable income . in the fourth quarter of 2010 , we determined that it was more likely than not that we would generate future taxable income and , as a result , recorded a $ 9.1 million reduction of our deferred tax asset valuation allowance and corresponding income tax benefit . in determining future taxable income , assumptions are made to forecast operating income , the reversal of temporary timing differences and the implementation of tax planning strategies . management uses significant judgment in the assumptions it uses to forecast future taxable income which are consistent with the forecasts used to manage the business . realization of the deferred tax asset is dependent upon future earnings which there is uncertainty as to the timing . we will continue to monitor the realizability of the deferred tax asset . 19 as of december 31 , 2010 , the valuation allowance against the net deferred tax assets was $ 32.4 million . the valuation allowance will be maintained until further sufficient positive evidence exists to support an additional reduction in the valuation allowance . story_separator_special_tag accounting fees of $ 0.1 million and recruiting expenses of $ 0.2 million . other ( expense ) income other income ( expense ) , net consists primarily of interest income earned on investments , interest expense and other costs related to the debt and miscellaneous income . for the year ended december 31 , 2010 , interest expense was approximately $ 115 thousand as compared to approximately $ 466 thousand for the year ended december 31 , 2009. for the year ended december 31 , 2010 , the interest expense associated with debt was approximately $ 60 thousand , loan fees associated with the new line of credit was approximately $ 27 thousand , and interest on liquidated damages expense related to registration payment arrangements of approximately $ 28 thousand . for the year ended december 31 , 2009 , the interest expense associated with debt was approximately $ 63 thousand , loan fees associated with the new line of credit were approximately $ 13 thousand , interest on liquidated damages expense related to registration payment arrangements was approximately $ 28 thousand and the amortization of the deferred costs associated with the debt was approximately $ 362 thousand . the decrease in interest expense was primarily a result of fully amortizing the deferred debt issuance costs in 2009. other income for the year ended december 31 , 2010 was approximately $ 16 thousand as compared to approximately $ 67 thousand for the year ended december 31 , 2009. the other income for the year ended december 31 , 2010 was interest income of approximately $ 10 thousand and $ 6 thousand from equipment salvage . the other income for the year ended december 31 , 2009 was interest income of approximately $ 6 thousand ; approximately $ 4 thousand of miscellaneous income ; and approximately $ 57 thousand for a settlement of a liability . income tax ( benefit ) expense for the year ended december 31 , 2010 , income tax benefit was approximately $ 8.9 million and for the year ended december 31 , 2009 , the income tax expense was $ 90 thousand . for 2010 , we incurred $ 0.13 million of income tax expense related to alternative minimum tax , which is not offset by operating loss carryforwards . as a result of profitability over the past two years , we concluded that it was more likely than not that we would generate sufficient taxable income to utilize the benefit from a portion of our net operating loss carryforwards ; therefore , we recorded a $ 9.1 million reduction of our deferred tax asset valuation allowance and corresponding income tax benefit . net income net income totaled $ 14.8 million for the year ended december 31 , 2010 as compared to $ 4.3 million for the year ended december 31 , 2009. net income for the twelve months ended december 31 , 2010 would have been $ 7.5 million excluding the one-time charges of a $ 1.1 million severance charge , $ 0.7 million litigation settlement offer , and the tax benefit of $ 9.1 million related to the reversal of valuation allowance . year ended december 31 , 2009 compared to year ended december 31 , 2008 21 revenues revenues increased by approximately $ 5.1 million to a total of approximately $ 23.8 million for the year ended december 31 , 2009 from approximately $ 18.7 million for the year ended december 31 , 2008 , representing an increase of 27 % . the increase in revenue was due to increased customer demand . for the year ended december 31 , 2009 , product revenue increased approximately $ 4.0 million as compared to the year ended december 31 , 2008. the 26 % increase was due to higher customer demand and product availability for our oled displays and z800s .
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results of operations the following table presents certain financial data as a percentage of total revenue for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_3_th year ended december 31 , 2010 compared to year ended december 31 , 2009 revenues revenues increased by approximately $ 6.7 million to a total of approximately $ 30.5 million for the year ended december 31 , 2010 from approximately $ 23.8 million for the year ended december 31 , 2009 , representing an increase of 28 % . the increase in revenue was due to increased customer demand of our oled displays and active research and development contracts . for the year ended december 31 , 2010 , product revenue increased approximately $ 3.8 million as compared to the year ended december 31 , 2009. the 19 % increase was due to higher customer demand along with a shift in the mix of products . for the year ended december 31 , 2010 , contract revenue increased 70 % or approximately $ 2.9 million as compared to the year ended december 31 , 2009. the increase was a result of an increase in the number of active research and development projects in 2010 as compared to 2009. cost of goods sold cost of goods sold is comprised of costs of product revenue and contract revenue . cost of product revenue includes materials , labor and manufacturing overhead related to our products . cost of contract revenue includes direct and allocated indirect costs associated with performance on contracts . cost of goods sold for the year ended december 31 , 2010 were approximately $ 12.0 million as compared to approximately $ 10.2 million for the year ended december 31 , 2009 , an increase of approximately $ 1.8 million .
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p. o ' hanlon james p. story_separator_special_tag overview the company is a self-managed and self-administered lodging reit incorporated in maryland in august 2004 to pursue opportunities in the full-service , primarily upscale and upper-upscale segments of the hotel industry located in primary and secondary markets in the mid-atlantic and southern united states . we commenced operations in december 2004 when the company completed its initial public offering and thereafter consummated the acquisition of six initial hotel properties . since the company 's initial public offering , we have engaged in the following acquisitions and dispositions : on july 22 , 2005 , we acquired the crowne plaza jacksonville riverfront ( formerly , the hilton jacksonville riverfront ) . on august 10 , 2006 , we sold the holiday inn downtown williamsburg . on september 20 , 2006 , we acquired the louisville ramada riverfront inn , which went through an extensive renovation and re-opened in may 2008 as the sheraton riverside louisville . on august 8 , 2007 , through our joint venture with carlyle , we acquired a 25.0 % indirect noncontrolling interest in the crowne plaza hollywood beach resort , a newly renovated 311-room hotel in hollywood , florida . on october 29 , 2007 , we acquired a hotel in tampa , florida , formerly known as the tampa clarion hotel , which went through an extensive renovation and re-opened in march 2009 as the crowne plaza tampa westshore . on april 24 , 2008 , we acquired the hampton marina hotel in hampton , virginia , which has been renovated and was converted to the crowne plaza hampton marina in october 2008 . 47 on november 13 , 2013 , we acquired the crowne plaza houston downtown in houston , texas . on march 27 , 2014 , we acquired the georgian terrace in atlanta , georgia . our hotel portfolio currently consists of twelve full-service , primarily upscale and upper-upscale hotels with 3,009 rooms , ten of which operate under well-known brands such as hilton , crowne plaza , sheraton and holiday inn , and one independent hotel . eleven of these hotels , totaling 2,698 rooms , are 100 % owned by subsidiaries of the operating partnership . we also own a 25.0 % indirect non-controlling interest in the crowne plaza hollywood beach resort through a joint venture with carlyle . as of december 31 , 2014 , we owned the following hotel properties : replace_table_token_9_th ( 1 ) we believe that the georgian terrace would carry a chain scale designation of upper upscale if it were a branded hotel . we conduct substantially all our business through the operating partnership , sotherly hotels lp . the company is the sole general partner of the operating partnership and owns an approximate 80.6 % interest in the operating partnership , with the remaining interest being held by limited partners who were contributors of our initial hotel properties and related assets . to qualify as a reit , neither the company nor the operating partnership can operate our hotels . therefore , our wholly-owned hotel properties are leased to our trs lessees that are wholly-owned subsidiaries of the operating partnership , which then engage a hotel management company to operate the hotels under a management agreement . our trs lessees have engaged chesapeake hospitality to manage our hotels . our trs lessees , and their parent , mhi hospitality trs holding , inc. , are consolidated into each of our financial statements for accounting purposes . the earnings of mhi hospitality trs holding , inc. are subject to taxation similar to other c corporations . key operating metrics in the hotel industry , room revenue is considered the most important category of revenue and drives other revenue categories such as food , beverage , catering , parking and telephone . there are three key performance indicators used in the hotel industry to measure room revenues : occupancy , or the number of rooms sold , usually expressed as a percentage of total rooms available ; average daily rate , or adr , which is total room revenue divided by the number of rooms sold ; and 48 revenue per available room or revpar , which is total room revenue divided by the total number of available rooms . revpar changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in adr . for example , an increase in occupancy at a hotel would lead to additional variable operating costs ( such as housekeeping services , laundry , utilities , room supplies , franchise fees , management fees , credit card commissions and reservations expense ) , but could also result in increased non-room revenue from the hotel 's restaurant , banquet or parking facilities . changes in revpar that are primarily driven by changes in adr typically have a greater impact on operating margins and profitability as they do not generate all the additional variable operating costs associated with higher occupancy . we also use ffo , adjusted ffo and hotel ebitda as measures of our operating performance . see non-gaap financial measures . story_separator_special_tag as of december 31 , 2014. corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2014 increased approximately $ 0.7 million , or 16.6 % , to approximately $ 5.1 million compared to corporate general and administrative expenses of approximately $ 4.4 million for the year ended december 31 , 2013. the increase in corporate and administrative costs is attributable to acquisition charges related to the georgian terrace , along with increases in employee compensation , accounting , legal and professional fees . interest expense . story_separator_special_tag food and beverage revenues at our properties for the year ended december 31 , 2013 increased approximately $ 0.1 million , or 0.4 % , to approximately $ 22.1 million compared to food and beverage revenue of approximately $ 22.0 million for the year ended december 31 , 2012. a significant increase in food and beverage revenue at the doubletree by hilton brownstone university in raleigh , north carolina as well as food and beverage revenue of approximately $ 0.4 million associated with our acquisition of the crowne plaza houston downtown offset decreases at several other properties in our portfolio . other operating revenues for the year ended december 31 , 2013 decreased approximately $ 0.1 million , or 1.6 % , to approximately $ 4.5 million compared to other operating revenues for the year ended december 31 , 2012 of approximately $ 4.6 million . most of the decrease was associated with lower guaranteed no-show fees . hotel operating expenses . hotel operating expenses , which consist of room expenses , food and beverage expenses , other direct expenses , indirect expenses , and management fees , increased approximately $ 1.1 million , or 1.7 % , for the year ended december 31 , 2013 to approximately $ 65.5 million compared to hotel operating expenses for the year ended december 31 , 2012 of approximately $ 64.4 million . the entire increase is attributable to the acquisition of the crowne plaza houston downtown . rooms expense at our properties for the year ended december 31 , 2013 increased approximately $ 0.6 million , or 3.4 % , to approximately $ 17.2 million compared to rooms expense of approximately $ 16.6 million for the year ended december 31 , 2012. the increase in rooms expense was directly related to the 3.3 % increase in room revenue . 52 food and beverage expenses at our properties for the year ended december 31 , 2013 decreased approximately $ 0.3 million , or 1.7 % , to approximately $ 14.0 million compared to food and beverage expense of approximately $ 14.3 million for the year ended december 31 , 2012. the decrease in food and beverage expense was generally attributable to operating efficiencies which produced higher profit margins on very little change in food and beverage revenue . indirect expenses at our properties for the year ended december 31 , 2013 increased approximately $ 0.8 million , or 2.2 % , to approximately $ 33.8 million compared to indirect expenses of approximately $ 33.0 million for the year ended december 31 , 2012. sales and marketing costs , franchise fees , utilities , repairs and maintenance , insurance , management fees , real and personal property taxes as well as general and administrative costs at the property level are included in indirect expenses . most of the increase in indirect expenses related to expenses that increase proportionally with increases in occupancy and or revenue , including management fees and franchise fees . approximately $ 0.6 million of the increase was attributable to the acquisition of the crowne plaza houston downtown . decreases in energy costs , real estate taxes and incentive management fees offset increases in other indirect costs . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2013 decreased approximately $ 0.2 million , or 2.2 % , to approximately $ 8.5 million compared to depreciation and amortization expense of approximately $ 8.7 million for the year ended december 31 , 2012. impairment of investment in hotel properties , net . the impairment of investment in hotel properties , net for the years ended december 31 , 2013 and 2012 was approximately $ 0.6 million and $ 0 , respectively . our review of possible impairment at one of our hotel properties revealed an excess of current carrying cost over the estimated undiscounted future cash flows , which was triggered by a change in re-evaluation of future revenues based on anticipated market conditions , market penetration and costs necessary to achieve such market penetration , resulting in an impairment to fair market value by an amount of approximately $ 0.6 million , as of december 31 , 2013. corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2013 increased approximately $ 0.3 million , or 6.9 % , to approximately $ 4.4 million compared to corporate general and administrative expenses of approximately $ 4.1 million for the year ended december 31 , 2012. the increase in corporate and administrative costs is attributable to acquisition charges related to the crowne plaza houston downtown , costs associated with the company 's name change as well as higher staff costs . interest expense . interest expense for the year ended december 31 , 2013 decreased approximately $ 0.8 million , or 0.1 % , to approximately $ 9.6 million compared to approximately $ 10.4 million of interest expense for the year ended december 31 , 2012. if not for the premiums paid to redeem shares of preferred stock in june 2012 , march 2013 , august 2013 and september 2013 , we would have experienced a reduction in interest expense of approximately $ 1.4 million due mostly to a lower effective average interest rate on our debt . equity income ( loss ) in joint venture . equity in the income of the joint venture increased approximately $ 0.3 million , or 163.5 % , to approximately $ 0.5 million for the year ended december 31 , 2013 compared to equity in the income of the joint venture of approximately $ 0.2 million for the year ended december 31 , 2012 and represents our 25.0 % share of the net income of the crowne plaza hollywood beach resort . a 45.1 % increase in net operating income contributed significantly to the increase in net income .
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results of operations comparison of year ended december 31 , 2014 to year ended december 31 , 2013 the following table illustrates the key operating metrics for the years ended december 31 , 2014 and 2013 for our wholly-owned properties during each respective reporting period ( actual properties ) as well as the key operating metrics for the nine wholly-owned properties that were under our control during all of 2013 ( same-store properties ) . accordingly , the same-store data does not reflect the performance of the crowne plaza houston downtown , which was acquired in november 2013 , or the georgian terrace , which was acquired in march 2014. each table excludes performance data for the crowne plaza hollywood beach resort , which was acquired through a joint venture and in which we have a 25.0 % indirect interest . replace_table_token_10_th revenue . total revenue for the year ended december 31 , 2014 was approximately $ 122.9 million , an increase of approximately $ 33.6 million , or 37.6 % , from total revenue for the year ended december 31 , 2013 of approximately $ 89.4 million . approximately $ 31.0 million of the increase is attributable to our acquisitions of the crowne plaza houston downtown and the georgian terrace . within the remainder of the portfolio , revenue increases were strongest at our hilton savannah desoto , the doubletree by hilton brownstone university , the crowne plaza jacksonville riverfront , the crowne plaza tampa westshore and the sheraton louisville riverside properties . these increases offset revenue decreases at our properties in wilmington , north carolina and philadelphia , pennsylvania . room revenues at our properties for the year ended december 31 , 2014 increased approximately $ 21.8 million , or 34.7 % , to approximately $ 84.6 million compared to room revenues for the year ended december 31 , 2013 of approximately $ 62.8 million .
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in general , the most significant activity of the vies is the operation and maintenance of their production or procurement processes related to electricity , recs , aecs or natural gas . comed and peco do not have control over the operation and maintenance of the entities considered vies and they do not bear operational risk related to the associated activities . furthermore , comed and peco have no debt or equity investments in the vies and do not provide any other financial support through liquidity arrangements , guarantees or other commitments other than purchase commitments described in note 18commitments and contingencies . accordingly , neither comed nor peco considers itself to be the primary beneficiary of these vies . as of the balance sheet date , the carrying amounts of assets and liabilities in comed 's and peco 's consolidated balance sheets that relate to their involvement with these vies were predominately related to working capital accounts and generally represented the amounts owed by comed and peco for the purchases associated with the current billing cycles under the contracts . 197 combined notes to consolidated financial statements ( continued ) ( dollars in millions , except per share data unless otherwise noted ) the financing trust of comed , comed financing iii , and the financing trusts of peco , peco trust iii and peco trust iv , are not consolidated in exelon 's , comed 's or peco 's financial statements . these financing trusts were created to issue mandatorily redeemable trust preferred securities . comed and peco have concluded that they do not have a variable interest in comed financing iii , peco trust iii or peco trust iv as each registrant financed its equity interest in the financing trusts through the issuance of subordinated debt and , therefore , has no equity at risk . comed and peco , as the sponsors of the financing trusts , are obligated to pay the operating expenses of the trusts . peco pett , a financing trust , was created in 1998 by peco to purchase and own intangible transition property ( itp ) and to issue transition bonds to securitize $ 5 billion of peco 's stranded cost recovery authorized by the papuc pursuant to the competition act . peco made an initial capital contribution of $ 25 million to pett . itp represented the irrevocable right of peco to collect intangible transition charges ( itc ) . itc consisted of the portion of ctcs that were sold by peco to pett and securitized through the various issuances of pett 's transition bonds from 1999 through 2001 as authorized by the papuc . itc provided pett with an asset sufficient to recover the aggregate principal amount of the transition bonds issued , plus amounts sufficient to provide for the credit enhancement , interest payments , servicing fees and other expenses relating to the transition bonds . pett 's assets were restricted for the sole purpose of satisfying pett 's obligation to its transition bondholders and payment of various administrative fees . peco did not provide ongoing financial support to pett or guarantee pett 's performance , and the transition bondholders did not have recourse to peco . peco had continuing involvement in pett in its role as the servicer of the itc collections , for which peco received a fee . pett was consolidated in exelon 's and peco 's financial statements on january 1 , 2010 pursuant to authoritative guidance relating to the consolidation of vies that became effective on that date . under previously issued authoritative guidance , pett was deconsolidated in accordance with a prescribed quantitative approach , based on expected losses , for determining the primary beneficiary . under the new guidance , peco concluded that it was the primary beneficiary of pett due to peco 's involvement in the design of pett , its role as servicer , and its right to dissolve pett and receive any of its remaining assets following retirement of the transition bonds and payment of pett 's other expenses . the consolidation of pett did not have a significant impact on peco 's results of operations or statement of cash flows . upon retirement of the outstanding transition bonds on september 1 , 2010 , the remaining cash balance was remitted to peco , and pett was dissolved on september 20 , 2010. revenues ( exelon , generation , comed and peco ) operating revenues . operating revenues are recorded as service is rendered or energy is delivered to customers . at the end of each month , the registrants accrue an estimate for the unbilled amount of energy delivered or services provided to customers . comed records its best estimates of the distribution and transmission revenue impacts resulting from changes in rates that comed believes are probable of approval by the icc and ferc in accordance with its formula rate mechanisms . see notes 2regulatory matters and 4accounts receivable for further information . 198 combined notes to consolidated financial statements ( continued ) ( dollars in millions , except per share data unless otherwise noted ) rtos and isos . in rto and iso markets that facilitate the dispatch of energy and energy-related products , the registrants generally report sales and purchases conducted on a net hourly basis in either revenues or purchased power on their consolidated statements of operations , the classification of which depends on the net hourly activity . option contracts , swaps and commodity derivatives . certain option contracts and swap arrangements that meet the definition of derivative instruments are recorded at fair value with subsequent changes in fair value recognized as revenue or expense , unless hedge accounting is applied . premiums received and paid on option contracts are recognized as revenue or expense over the terms of the contracts . if the derivatives meet hedging criteria , changes in fair value are recorded in oci . comed has not elected hedge story_separator_special_tag in general , the most significant activity of the vies is the operation and maintenance of their production or procurement processes related to electricity , recs , aecs or natural gas . comed and peco do not have control over the operation and maintenance of the entities considered vies and they do not bear operational risk related to the associated activities . furthermore , comed and peco have no debt or equity investments in the vies and do not provide any other financial support through liquidity arrangements , guarantees or other commitments other than purchase commitments described in note 18commitments and contingencies . accordingly , neither comed nor peco considers itself to be the primary beneficiary of these vies . as of the balance sheet date , the carrying amounts of assets and liabilities in comed 's and peco 's consolidated balance sheets that relate to their involvement with these vies were predominately related to working capital accounts and generally represented the amounts owed by comed and peco for the purchases associated with the current billing cycles under the contracts . 197 combined notes to consolidated financial statements ( continued ) ( dollars in millions , except per share data unless otherwise noted ) the financing trust of comed , comed financing iii , and the financing trusts of peco , peco trust iii and peco trust iv , are not consolidated in exelon 's , comed 's or peco 's financial statements . these financing trusts were created to issue mandatorily redeemable trust preferred securities . comed and peco have concluded that they do not have a variable interest in comed financing iii , peco trust iii or peco trust iv as each registrant financed its equity interest in the financing trusts through the issuance of subordinated debt and , therefore , has no equity at risk . comed and peco , as the sponsors of the financing trusts , are obligated to pay the operating expenses of the trusts . peco pett , a financing trust , was created in 1998 by peco to purchase and own intangible transition property ( itp ) and to issue transition bonds to securitize $ 5 billion of peco 's stranded cost recovery authorized by the papuc pursuant to the competition act . peco made an initial capital contribution of $ 25 million to pett . itp represented the irrevocable right of peco to collect intangible transition charges ( itc ) . itc consisted of the portion of ctcs that were sold by peco to pett and securitized through the various issuances of pett 's transition bonds from 1999 through 2001 as authorized by the papuc . itc provided pett with an asset sufficient to recover the aggregate principal amount of the transition bonds issued , plus amounts sufficient to provide for the credit enhancement , interest payments , servicing fees and other expenses relating to the transition bonds . pett 's assets were restricted for the sole purpose of satisfying pett 's obligation to its transition bondholders and payment of various administrative fees . peco did not provide ongoing financial support to pett or guarantee pett 's performance , and the transition bondholders did not have recourse to peco . peco had continuing involvement in pett in its role as the servicer of the itc collections , for which peco received a fee . pett was consolidated in exelon 's and peco 's financial statements on january 1 , 2010 pursuant to authoritative guidance relating to the consolidation of vies that became effective on that date . under previously issued authoritative guidance , pett was deconsolidated in accordance with a prescribed quantitative approach , based on expected losses , for determining the primary beneficiary . under the new guidance , peco concluded that it was the primary beneficiary of pett due to peco 's involvement in the design of pett , its role as servicer , and its right to dissolve pett and receive any of its remaining assets following retirement of the transition bonds and payment of pett 's other expenses . the consolidation of pett did not have a significant impact on peco 's results of operations or statement of cash flows . upon retirement of the outstanding transition bonds on september 1 , 2010 , the remaining cash balance was remitted to peco , and pett was dissolved on september 20 , 2010. revenues ( exelon , generation , comed and peco ) operating revenues . operating revenues are recorded as service is rendered or energy is delivered to customers . at the end of each month , the registrants accrue an estimate for the unbilled amount of energy delivered or services provided to customers . comed records its best estimates of the distribution and transmission revenue impacts resulting from changes in rates that comed believes are probable of approval by the icc and ferc in accordance with its formula rate mechanisms . see notes 2regulatory matters and 4accounts receivable for further information . 198 combined notes to consolidated financial statements ( continued ) ( dollars in millions , except per share data unless otherwise noted ) rtos and isos . in rto and iso markets that facilitate the dispatch of energy and energy-related products , the registrants generally report sales and purchases conducted on a net hourly basis in either revenues or purchased power on their consolidated statements of operations , the classification of which depends on the net hourly activity . option contracts , swaps and commodity derivatives . certain option contracts and swap arrangements that meet the definition of derivative instruments are recorded at fair value with subsequent changes in fair value recognized as revenue or expense , unless hedge accounting is applied . premiums received and paid on option contracts are recognized as revenue or expense over the terms of the contracts . if the derivatives meet hedging criteria , changes in fair value are recorded in oci . comed has not elected hedge
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results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 and year ended december 31 , 2010 compared to year ended december 31 , 2009 a discussion of peco 's results of operations for 2011 compared to 2010 and for 2010 compared to 2009 is set forth under results of operationspeco in exelon corporationresults of operations of this form 10-k. liquidity and capital resources peco 's business is capital intensive and requires considerable capital resources . peco 's capital resources are primarily provided by internally generated cash flows from operations and , to the extent necessary , external financing , including the issuance of long-term debt , commercial paper or participation in the intercompany money pool . peco 's access to external financing at reasonable terms is dependent on its credit ratings and general business conditions , as well as that of the utility industry in general . if these conditions deteriorate to where peco no longer has access to the capital markets at reasonable terms , peco has access to a revolving credit facility . at december 31 , 2011 , peco had access to a revolving credit facility with aggregate bank commitments of $ 600 million . see the credit matters section of liquidity and capital resources for additional discussion . capital resources are used primarily to fund peco 's capital requirements , including construction , retirement of debt , the payment of dividends and contributions to exelon 's pension plans .
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the company expects that story_separator_special_tag this management 's discussion and analysis is based upon the financial statements of secureworks which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap , and should be read in conjunction with our consolidated financial statements and related notes included in this report . in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed or implied in our forward-looking statements . factors that could cause or contribute to these differences include those discussed in “ risk factors. ” our fiscal year is the 52- or 53-week period ending on the friday nearest january 31. we refer to our fiscal years ended january 31 , 2020 , february 1 , 2019 and february 2 , 2018 , as fiscal 2020 , fiscal 2019 and fiscal 2018 , respectively . fiscal 2020 , fiscal 2019 and fiscal 2018 each included 52 weeks . all percentage amounts and ratios presented in this management 's discussion and analysis were calculated using the underlying data in thousands . the following discussion focuses on our fiscal 2020 and fiscal 2019 financial condition and results of operations , including comparisons of the years ended january 31 , 2020 and february 1 , 2019 . for discussion and analysis related to our financial condition and results of operations for fiscal 2018 , including comparisons of the years ended february 1 , 2019 and february 2 , 2018 , refer to part ii , item 7. management 's discussion and analysis of financial condition and results of operations in our annual report on form 10-k for fiscal 2019 , which was filed with the securities and exchange commission on march 28 , 2019. except where the context otherwise requires or where otherwise indicated , all references to “ secureworks ” “ we , ” “ us , ” “ our ” and “ our company ” in this management 's discussion and analysis refer to secureworks corp. and our subsidiaries on a consolidated basis , all references to “ dell ” refer to dell inc. and its subsidiaries on a consolidated basis and all references to “ dell technologies ” refer to dell technologies inc. , the ultimate parent company of dell inc. overview we are a leading global provider of technology-driven information security solutions singularly focused on protecting our customers from cyber attacks . we combine deep expertise from service to thousands of customers , machine learning and automation from our proprietary technology , and actionable insights from our team of elite researchers and analysts to create a powerful network effect that provides increasingly strong protection for our customers . by aggregating and analyzing data from various sources around the world , we prevent security breaches , detect malicious activity in real time , respond rapidly and predict emerging threats . our vision is to be the essential cybersecurity company for a digitally connected world . through our vendor-neutral approach , we create integrated and comprehensive solutions by proactively managing the collection of “ point ” products deployed by our customers to address specific security issues and provide supplemental solutions where gaps exist in our customers ' defenses . we seek to provide the right level of security for each customer 's unique situation , which evolves as the customer 's organization grows and changes . we have pioneered an integrated approach that delivers a broad portfolio of information security solutions to organizations of varying size and complexity . our flexible and scalable solutions support the evolving needs of the largest , most sophisticated enterprises staffed with in-house security experts , as well as small and medium-sized businesses and government agencies with limited in-house capabilities and resources . our solutions enable organizations to : prevent security breaches by fortifying their cyber defenses , detect malicious activity , respond rapidly to security breaches , and predict emerging threats . our solutions leverage the proprietary technologies , processes and extensive expertise and knowledge of the tactics , techniques and procedures of the adversary that we have developed over more than 21 years . key elements of our strategy include : maintain and extend our technology leadership , expand and diversify our customer base , deepen our existing customer relationships , and attract and retain top talent . 47 our technology-driven information security solutions offer an innovative approach to prevent , detect , respond to and predict cybersecurity breaches . through our managed security solutions , which are largely sold on a subscription basis , we provide global visibility and insight into malicious activity , enabling our customers to detect and effectively remediate threats quickly . in fiscal 2020 , we launched our first software-as-a-service application , red cloak threat detection and response ( tdr ) and related managed detection and response ( mdr ) powered by red cloak . this application gives customers visibility across their entire environment , applies advanced analytics developed using machine and deep learning on diverse data from a wide range of sources , and leverages workflows designed using our 21 years of security operations expertise and integrated orchestration and automation capabilities that increase the speed of response actions . threat intelligence , which is typically deployed as part of our managed security solutions , delivers early warnings of vulnerabilities and threats along with actionable information to help prevent any adverse impact . in addition to these solutions , we also offer a variety of services , which includes security and risk consulting and incident response to accelerate adoption of our capabilities . through security and risk consulting , we advise customers on a broad range of security and risk-related matters . incident response minimizes the impact and duration of security breaches through proactive customer preparation , rapid containment and thorough event analysis followed by effective remediation . story_separator_special_tag to support future sales , we will need to continue to devote resources to the development of our global sales force . we have made and plan to continue to make significant investments in expanding our go-to-market efforts with direct sales , channel partners and marketing . any investments we make in our sales and marketing operations will occur before we realize any benefits from such investments . the investments we have made , or intend to make , to strengthen our sales and marketing efforts may not result in an increase in revenue or an improvement in our results of operations . although we believe our investment in sales and marketing will help us improve our results of operations in the long term , the resulting increase in operating expenses attributable to these sales and marketing functions may continue to adversely affect our profitability in the near term . the continued growth of our business also depends in part on our ability to sell additional solutions to our existing customers . as our customers realize the benefits of the solutions they previously purchased , our portfolio of solutions provides us with a significant opportunity to expand these relationships . investment in our people . the difficulty in providing effective information security is exacerbated by the highly competitive environment for identifying , hiring and retaining qualified information security professionals . our technology leadership , brand , exclusive focus on information security , customer-first culture , and robust training and development program have enabled us to attract and retain highly-talented professionals with a passion for building a career in the information security industry . these professionals are led by a highly experienced and tenured management team with extensive it security expertise and a record of developing successful new technologies and solutions to help protect our customers . we will continue to invest in attracting and retaining top talent to support and enhance our information security offerings . 49 key operating metrics in recent years , we have experienced broad growth across our portfolio of technology-driven information security solutions being provided to all sizes of customers . we have achieved much of this growth by providing solutions to large enterprise customers , which generate substantially more average revenue than our small and medium-sized business , or smb , customers , and by continually expanding the volume and breadth of the security solutions that we provide to all customers . execution of this strategy has resulted in steady growth in our average revenue per customer . this growth has required continuous investment in our business , resulting in net losses . we believe these investments are critical to our success , although they may continue to impact our profitability . we believe the operating metrics described below provide further insight into the long-term value of our subscription agreements and our ability to maintain and grow our customer relationships . relevant key operating metrics are presented below as of the dates indicated and for the annual periods then ended : replace_table_token_4_th subscription customer base . we define our subscription customer base as the number of customers who subscribe to our managed security solutions as of a particular date . we believe that growing our existing customer base and our ability to grow our average subscription revenue per customer represent significant future revenue opportunities for us . total customer base . we define our total customer base as the number of customers that subscribe to our managed security solutions as well as customers that buy professional and other services from us , as of a particular date . annual and monthly recurring revenue . we define recurring revenue as the value of our subscription contracts as of a particular date . because we use recurring revenue as a leading indicator of future annual revenue , we include operational backlog . we define operational backlog as the recurring revenue associated with pending contracts , which are contracts that have been sold but for which the service period has not yet commenced . our increase in recurring revenue has been driven primarily by our continuing ability to expand our offerings and sell additional solutions to existing customers , as well as by larger subscription contracts to our enterprise customers . average subscription revenue per customer . our average subscription revenue per customer is primarily related to the persistence of cyber threats and the results of our sales and marketing efforts to increase the awareness of our solutions . additionally , our customer composition of both enterprise and smb companies provides us with an opportunity to expand our professional services revenue . as of january 31 , 2020 , february 1 , 2019 , and february 2 , 2018 , approximately 60 % , 50 % , and 44 % , respectively , of our professional services customers subscribed to our managed security solutions . revenue retention rate . our revenue retention rate is an important measure of our success in retaining and growing revenue from our subscription-based customers . to calculate our revenue retention rate for any period , we compare the monthly recurring revenue excluding operational backlog of our subscription-based customer base at the beginning of the fiscal year , which we call our base recurring revenue , to the monthly recurring revenue excluding operational backlog from that same cohort of customers at the end of the period , which we call our retained recurring revenue . by dividing the retained recurring revenue by the base recurring revenue , we measure our success in retaining and growing installed revenue from the specific cohort of customers we served at the beginning of the period . our calculation includes the positive revenue impacts of selling and installing additional solutions to this cohort of customers and the negative revenue impacts of customer or service attrition during the period . however , the calculation does not include the positive impact on revenue from sales of solutions to any customers acquired during the period .
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results of operations fiscal 2020 compared to fiscal 2019 the following table summarizes our key performance indicators for the fiscal years ended january 31 , 2020 and february 1 , 2019 . replace_table_token_7_th _ ( 1 ) see `` non-gaap financial measures '' and `` reconciliation of non-gaap financial measures '' for more information about these non-gaap financial measures , including our reasons for including the measures , material limitations with respect to the usefulness of the measures , and a reconciliation of each non-gaap financial measure to the most directly comparable gaap financial measure . non-gaap financial measures as a percentage of revenue are calculated based on non-gaap revenue . revenue net revenue , which we refer to as revenue , increase d $ 34.1 million , or 6.6 % , in fiscal 2020 , compared with fiscal 2019. the revenue increase resulted primarily from revenue generated by subscription-based solutions . revenue attributable to our subscription-based solutions represented approximately 76 % of revenue in fiscal 2020 and fiscal 2019. our existing customers continued to increase their contracted subscriptions for our solutions , with our retention rate increasing 6 % in fiscal 2020. revenue for certain services provided to or on behalf of dell under our commercial agreements with dell totaled approximately $ 27.2 million and $ 16.6 million for fiscal 2020 and 2019 , respectively . for more information regarding the commercial agreements , see `` notes to consolidated financial statements— note 13 —related party transactions '' in our consolidated financial statements included in this report . we primarily generate revenue from sales in the united states . however , for fiscal 2020 , international revenue , which we define as revenue contracted through non-u.s. entities , increased to $ 140.3 million , or 21.9 % . currently , our international customers are primarily located in the united kingdom , japan , and canada . we are focused on continuing to grow our international customer base in future periods .
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company overview circor international , inc. designs , manufactures and markets flow control solutions and other highly engineered products and sub-systems for markets including oil & gas , aerospace , power and process , and industrial solutions . circor has a diversified product portfolio with recognized , market-leading brands that fulfill its customers ' unique application needs . see part 1 , item 1 , business , for additional information regarding the description of our business . we expect continued project delays and capital expenditure reductions by many national oil companies and oil majors resulting in much lower demand for our large engineered valves business . however , we expect to see modest growth in other markets we serve : certain power generation markets , the global liquefied natural gas market , north american upstream and certain mid and down-stream energy markets . the growth in the power market is driven by the u.s. and a number of large projects in southeast asia and europe . we continue to implement actions to mitigate the impact on our earnings with the lower demand and increasingly competitive environment . in addition , we will continue to focus on acquisition growth opportunities and we are investing in products and technologies that help solve our customers ' most difficult problems . we expect to further simplify circor by standardizing technology , reducing facilities , consolidating suppliers and achieving world class operational excellence , including product management . we believe our cash flow from operations and financing capacity is adequate to support these activities . finally , continuing to attract and retain talented personnel , including the enhancement of our global sales , operations , and engineering organization , remains an important part of our strategy during 2017. basis of presentation all significant intercompany balances and transactions have been eliminated in consolidation . we manage our businesses in two segments : energy and advanced flow solutions . we operate and report financial information using a 52-week fiscal year ending december 31. the data periods contained within our quarterly reports on form 10-q reflect the results of operations for the 13-week , 26-week and 39-week periods which generally end on the sunday nearest the calendar quarter-end date . critical accounting policies the company 's discussion and analysis of its financial condition and results of operations is based upon its financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosure of contingent liabilities . on an on-going basis , management evaluates its significant estimates , including those related to contracts accounted for under the percentage of completion method , bad debts , inventories , business combinations , intangible assets and goodwill , delivery penalties , income taxes , and contingencies and litigation . management believes the most complex and sensitive judgments , because of their significance to the consolidated financial statements , result primarily from the need to make estimates about the effects of matters that are inherently uncertain . management bases its estimates on historical experience , current market and economic conditions and other assumptions that management believes are reasonable . the results of these estimates form the basis for judgments about the carrying value of assets and liabilities where the values are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . there have been no significant changes from the methodology applied by management for critical accounting estimates previously disclosed in our annual report on form 10-k for the fiscal year ended december 31 , 2015 . the company acquired critical flow solutions ( `` cfs '' ) in october 2016 and as a result adopted the percentage of completion accounting for certain long-term capital contracts . for goodwill , we perform an impairment assessment at the reporting unit level on an annual basis as of the end of our october month end or more frequently if circumstances warrant . our annual impairment assessment is a two-step process . in fiscal year 2016 when we performed our analysis , the fair value of each of our reporting units exceeded the respective carrying amount , and no goodwill impairments were recorded . the fair values utilized for our 2016 goodwill assessment exceeded the carrying amounts by approximately 465 % , 188 % , and 224 % for our energy , aerospace , and power , process , & industrial reporting units , respectively . the growth rate assumptions utilized were consistent with growth rates within the markets that we serve . 18 if our results significantly vary from our estimates , related projections , or business assumptions in the future due to change in industry or market conditions , we may be required to record impairment charges . by way of example , a 55 % reduction in our aerospace reporting unit projected and terminal cash flows would not result in the fair value being lower than the carrying value . story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > ( 1,524 ) special and restructuring charges , net ( 1 ) 17,171 14,354 2,817 restructuring related inventory charges ( 1 ) 2,846 9,391 ( 6,545 ) amortization of inventory step-up 1,366 — — impairment charges 208 2,502 ( 2,294 ) acquisition amortization 9,901 6,838 3,063 brazil restatement impact — 3,228 ( 3,228 ) restructuring and other cost , net 14,321 21,959 ( 9,004 ) consolidated operating income $ 10,918 $ 26,174 $ ( 15,256 ) consolidated operating margin 1.8 % 4.0 % ( 1 ) see special and restructuring charges , net in note 4 to the consolidated financial statements , for additional details . energy segment replace_table_token_4_th energy segment net revenues decreased $ 61.6 million , or 16 % , in 2016 compared to 2015 . the decrease was primarily driven by lower shipment volumes in our north american short-cycle business ( -15 % ) . story_separator_special_tag other ( income ) expense , net other income , net , was $ 2.1 million for 2016 compared to other expense , net of ( $ 0.9 million ) in 2015 . the difference of $ 3.0 million was primarily due to the impact of foreign currency fluctuations . comprehensive ( loss ) income comprehensive loss was reduced from a comprehensive loss of $ 22.2 million as of december 31 , 2015 to a comprehensive loss of $ 0.2 million as of december 31 , 2016 , primarily driven by an increase of $ 16.9 million in favorable foreign currency balance sheet remeasurements . these favorable foreign currency balance sheet remeasurements were driven by the brazilian real ( $ 9.9 million ) and euro ( $ 6.3 million ) . as of december 31 , 2016 , we have a cumulative currency translation adjustment of $ 17.3 million regarding our brazil entity . if we were to cease to have a controlling financial interest in the brazil entity , we would incur a non-cash charge of $ 17.3 million , which would be included as a special charge within the results of operations . ( benefit from ) provision for income taxes the effective tax rate was ( - 4 % ) for 2016 compared to 56 % for 2015 . the primary drivers for the lower tax rate in 2016 include the tax benefit associated with the repatriation of foreign earnings which we completed in 2016 ( -27 % ) , reduced foreign losses in 2016 with no tax benefit ( -27 % ) , mix of lower taxed foreign earnings to us earnings ( -18 % ) , and other items in 2016 including the prior year impact of a foreign audit settlement ( -14 % ) . this was partially offset by the establishment of a valuation allowance for certain state net operating loss carryforwards ( +26 % ) . 22 restructuring actions our announced restructuring actions which result in savings are summarized as follows : during 2016 , we initiated certain restructuring activities , under which we continue to simplify our business ( `` 2016 actions '' ) . under these restructurings , we reduced expenses , primarily through reductions in force and closing a number of smaller facilities . in july 2015 , we announced the closure of one of the two corona , california manufacturing facilities ( `` california restructuring '' ) . under this restructuring , we are reducing certain general , manufacturing and facility related expenses . on february 18 , 2015 , we announced a restructuring action ( `` 2015 announced restructuring '' ) , under which we continued to simplify our businesses . under this action , we reduced certain general , administrative and manufacturing related expenses , primarily personnel related . the table below ( in millions ) outlines the cumulative effects on past and future earnings resulting from our announced restructuring plans . replace_table_token_8_th as shown in the table above our projected cumulative restructuring savings have exceeded our original planned savings amounts . this is primarily attributed to reducing additional general , administrative and manufacturing related expenses . the expected periods of realization of the restructuring savings are consistent with our original plans . our restructuring actions are funded by cash generated by operations . we expect to incur restructuring related special charges between $ 0.7 million and $ 0.9 million to complete our 2016 announced restructuring . these restructuring actions are expected to be funded with cash generated from operations . our 2015 announced restructuring and california restructuring have been completed and , as such , no additional restructuring charges are expected to be incurred in connection with these actions . 23 2015 compared with 2014 consolidated operations replace_table_token_9_th net revenues in 2015 were $ 656.3 million , a decrease of $ 185.2 million from 2014. the business divestitures resulted in a decrease in revenues of $ 51.2 million and unfavorable effects of currency translation resulted in a decrease in revenues of $ 46.3 million in 2015. sales increased $ 21.0 million due to our april 2015 acquisition of schroedahl . aside from the effects of currency translation , divestitures and acquisitions , revenues decreased $ 108.6 million ( -13 % ) primarily due to decreased demand in our north american short-cycle energy business . segment results ( in thousands ) 2015 2014 change net revenues energy $ 383,655 $ 552,973 $ ( 169,318 ) advanced flow solutions 272,612 288,473 ( 15,861 ) consolidated net revenues $ 656,267 $ 841,446 $ ( 185,179 ) operating income energy - segment operating income $ 50,386 $ 79,742 $ ( 29,356 ) afs - segment operating income 33,811 29,883 3,928 corporate expenses ( 21,710 ) ( 23,415 ) 1,705 subtotal 62,487 86,210 ( 23,723 ) special restructuring charges , net 4,634 5,246 ( 612 ) special other charges , net 9,720 7,491 2,229 special and restructuring charges , net ( 1 ) 14,354 12,737 1,617 restructuring related inventory charges 9,391 7,989 1,402 impairment charges 2,502 726 1,776 acquisition amortization 6,838 — 6,838 brazil restatement impact 3,228 — 3,228 restructuring and other cost , net 21,959 8,715 13,244 consolidated operating income $ 26,174 $ 64,757 $ ( 38,583 ) consolidated operating margin 4.0 % 7.7 % ( 1 ) see special and restructuring charges , net in note 4 to the consolidated financial statements , for additional details . 24 energy segment replace_table_token_10_th energy segment net revenues decreased $ 169.3 million , or 31 % , in 2015 compared to 2014 . the decrease was primarily driven by lower shipment volumes in our north american short-cycle business ( -15 % ) , a business divestiture ( -7 % ) , the downstream instrumentation business ( -4 % ) and unfavorable foreign currency ( -6 % ) . the unfavorable foreign currency is primarily due to the weakening of the euro against the u.s. dollar .
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results of operations 2016 compared with 2015 consolidated operations replace_table_token_3_th net revenues in 2016 were $ 590.3 million , a decrease of $ 66.0 million from 2015. the unfavorable effects of currency translation resulted in a decrease in revenues of $ 3.6 million in 2016. sales increased $ 25.1 million due to 2015 acquisition of schroedahl and 2016 acquisition of cfs . aside from the effects of currency translation and acquisitions , revenues decreased $ 87.5 million ( - 13 % ) primarily due to decreased demand in our north american short-cycle energy business . segment results the company 's management evaluates segment operating performance using `` segment operating income '' which we define as operating income before restructuring charges ( including inventory-related restructuring ) , special charges , impairment charges , amortization from acquisitions subsequent to 2011 , amortization expense related to the step-up in fair value of the inventory acquired through business acquisitions , and 2015 brazil restatement impact . the company uses this measure because it helps management understand and evaluate the segments ' operating results and facilitate a comparison of performance for determining compensation . accordingly , the following segment data is reported on this basis . 19 ( in thousands ) 2016 2015 change net revenues energy $ 322,046 $ 383,655 $ ( 61,609 ) advanced flow solutions 268,213 272,612 ( 4,399 ) consolidated net revenues $ 590,259 $ 656,267 $ ( 66,008 ) operating income energy - segment operating income $ 34,619 $ 50,386 $ ( 15,767 ) afs - segment operating income 33,463 33,811 ( 348 ) corporate expenses ( 25,672 ) ( 21,710 ) ( 3,962 ) subtotal 42,410 62,487 ( 20,077 ) restructuring charges , net 8,975 4,634 4,341 special charges , net 8,196 9,720 < td
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in 2013 , none of our executive officers served ( i ) on the compensation committee of any entity that had one or more of its executive officers serving on our board of directors or our compensation committee , or ( ii ) on the board of directors or board of trustees of any entity that had one or more of its executive officers serving on our compensation committee . a majority of the members of our compensation committee serve as independent directors or independent trustees and compensation committee members of other public companies to which rmr or its affiliates provide management services . executive compensation the following tables , narratives and footnotes discuss the compensation of our chief executive officer , chief financial officer and all of our other executive officers at december 31 , 2013 , who are our named executive officers . the compensation information for the persons included in the compensation tables are for services rendered to us and our subsidiaries and do not include information regarding any compensation received by such persons for services rendered to rmr . 87 2013 summary compensation table replace_table_token_19_th * represents the grant date fair value of shares granted in 2013 , 2012 story_separator_special_tag ( dollars in thousands ) overview the following discussion should be read in conjunction with the financial statements included elsewhere in this annual report . our revenues and income are subject to potentially material changes as a result of the market prices and availability of fuel . these factors are subject to the worldwide petroleum products supply chain , which historically has incurred price and supply volatility and , in some cases , shocks as a result of , among other things , severe weather , terrorism , political crises , wars and other military actions and variations in demand , which are often the result of changes in the macroeconomic environment . over the past few years there has been significant volatility in the cost of fuel . fuel prices increased during the first quarter of 2011 and were volatile for the remaining portion of the year as a result of , among other reasons , concerns the u.s. and global economies were sliding into another recession . during the first half of 2012 , prices generally decreased due to continued global economic concerns , including economic conditions in europe . however , during the third quarter of 2012 fuel prices generally rose due to tensions in the middle east and economic stimulus programs in europe and elsewhere . during the fourth quarter of 2012 , fuel prices declined and at the end of 2012 were near the prices we experienced at the end of 2011. during the first quarter of 2013 , prices generally declined and were at a lower level than the prices experienced during the first quarter of 2012. during the second quarter of 2013 , fuel prices again rose and at the end of the second quarter of 2013 approximated the prices we experienced at the end of the second quarter of 2012. then , during the third quarter of 2013 , fuel prices again rose , but were generally at a lower level than the prices experienced during the third quarter of 2012. during the fourth quarter of 2013 , fuel prices again rose and at the end of 2013 , fuel prices approximated those experienced at the end of 2012. recent gains in fuel supplies and sources within the united states and canada have helped to maintain relative market price stability , but as export markets and capabilities increase for fuel that price stabilization factor may be less effective . we expect that changes in our costs for fuel products can largely be passed on to our customers , but often there are delays in passing on price changes that can affect our fuel gross margins . although other factors have an effect , during periods of rising fuel commodity prices fuel gross margins per gallon tend to be lower than they otherwise may have been and during periods of falling fuel commodity prices fuel gross margins per gallon tend to increase . also , fuel price increases and volatility can have negative effects on our sales and profitability and increase our working capital requirements . we expect that the fuel markets will continue to be volatile for the foreseeable future . for more information about fuel market risks that may affect us and our actions to mitigate those risks , see item 7a , `` quantitative and qualitative disclosures about market risk '' elsewhere in this annual report . we believe that recent u.s. economic data has been mixed , though generally positive , and the strength and sustainability of any economic expansion is uncertain . the condition of the u.s. economy generally , and the financial condition and activity of the trucking industry in the u.s. specifically , impacted our financial results during 2011 through 2013 , and we expect that they will continue to impact our financial results in future periods . the trucking industry is the primary customer for our goods and services . freight and trucking demand in the u.s. historically generally reflects the level of commercial activity in the u.s. economy . during the period from 2011 through 2013 , the u.s. economy slowly improved and the financial condition and activity level in the trucking industry similarly slowly improved ; however , these improvements appear to be uneven and may not affect all market participants equally . story_separator_special_tag as of december 31 , 2013 , the travel centers we have acquired since the beginning of 2011 have been owned by us for an average of 17 months , with the planned renovations completed at only 23 of these properties for an average of 14 months . the 31 convenience stores we acquired on december 16 , 2013 , do not require significant renovations . the table below shows the gross revenues in excess of cost of goods sold and site level operating expenses for the properties we began to operate for our own account since the beginning of 2011 , whether by way of acquisition from franchisees or others or takeover of operations upon termination of a franchisee sublease , from the beginning of the period shown ( or the date we began to operate such property for our own account , if later ) . because sites were acquired at various dates during the periods presented , these amounts are intended to indicate directional trends only . replace_table_token_8_th ( 1 ) includes 31 convenience stores acquired in december 2013. the amounts presented in the above table are the gross amounts recognized during the periods presented . certain of the travel centers we have acquired were franchises of ours from whom we generated revenues and incurred costs prior to our acquiring the site . the rent , royalties and fuel revenues in excess of the related cost of goods sold and site level operating expenses we recognized during the twelve month period prior to each of our acquisitions of travel centers previously operated by our franchisees for the properties acquired in 2011 , 2012 and 2013 , were $ 194 , $ 3,705 and $ 1,417 , respectively . on january 2 , 2013 , the american taxpayer relief act of 2012 became law . the law included the reinstatement , retroactive to january 1 , 2012 , of the `` blender 's credit for biodiesel and renewable 52 diesel '' . this tax credit had previously expired on december 31 , 2011 , and , accordingly , we did not recognize any benefit directly related to these tax credits in our 2012 operating results , although , in the absence of the tax credits , market dynamics tend to adjust prices to compensate somewhat for the value of the lost tax credits . the reinstatement of this credit entitled us to receive in 2013 approximately $ 3,887 of refunds related to certain fuel purchases made during 2012. we recognized this amount , net of our estimate of uncollectible amounts , in our operating results for 2013. under the new law , the credit expired on december 31 , 2013 , and we reflected any benefit from it in our operating results as we purchased qualifying fuel during 2013. congress did not extend this tax credit before the end of 2013 or since ; consequently , to date during 2014 we have not received rebates as a result of this tax credit for any fuel purchases we have made during 2014. we do not expect that this situation will have a significant effect on our 2014 fuel gross margin because of the expected market pricing dynamics that take the lack of the tax credit into account , but our fuel gross margin may be negatively affected to some extent . there can be no assurance that industry conditions will not deteriorate or that any one or more of the risks identified under the sections `` risk factors , '' `` warning concerning forward looking statements '' or elsewhere in our annual report ; or some other unidentified risk will not manifest itself in a manner which is material and adverse to our results of operations , cash flow or financial position . summary of site counts the changes in the number of our sites and in their method of operation ( company operated , franchisee leased and operated or franchisee owned and operated ) can be significant factors influencing the changes in our results of operations . the following table summarizes the changes in the composition of our business during the past three years : replace_table_token_9_th ( 1 ) includes at each period presented two travel centers we operate that are owned by a joint venture in which we own a minority interest . ( 2 ) includes at each period presented two convenience stores we operate that are owned by a joint venture in which we own a minority interest . 53 ( 3 ) the number of sites presented as of december 31 , 2010 , 2011 and 2012 , was revised in order to reflect as separate locations two convenience stores we operated as of each of these dates ; we previously considered these convenience stores to be ancillary operations to our nearby travel centers and did not count separately . in january 2014 , we acquired an additional travel center that we now operate . we currently intend to continue to selectively acquire additional travel centers and convenience stores and to otherwise expand our business . relevance of fuel revenues and fuel volumes due to the price volatility of fuel products and our pricing to fuel customers , we believe that fuel revenue is not a reliable metric for analyzing our results of operations from period to period . as a result solely of changes in fuel prices , our fuel revenue may materially increase or decrease , in both absolute amounts and on a percentage basis , without a comparable change in fuel sales volumes or in fuel gross margin per gallon . we consider fuel volumes and fuel gross margin to be better measures of comparative performance than fuel revenues . however , fuel pricing and revenues can impact our working capital requirements ; see `` liquidity and capital resources '' below . story_separator_special_tag 2011 ; we may be able to recover all or a portion of this amount from our suppliers , but we have not recognized a benefit for such recovery in our 2013 results .
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results of operations ( dollars and gallons in thousands ) year ended december 31 , 2013 compared to december 31 , 2012 the following table presents changes in our operating results for the year ended december 31 , 2013 , as compared with the year ended december 31 , 2012. replace_table_token_10_th 54 same site results comparisons as part of the discussion and analysis of our operating results we sometimes refer to increases and decreases in results on a same site basis . for purposes of these comparisons , we include a location in the following same site comparisons only if we ( or a franchisee of ours for purposes only of the rent and royalty revenues results ) continuously operated it from january 1 , 2012 , through december 31 , 2013. we do not exclude locations from the same site comparisons as a result of expansions in their size or changes in the services offered . we excluded from the same site comparisons the two travel centers and two convenience stores we operate for a joint venture in which we own a 40 % interest because we account for this investment using the equity method of accounting and , therefore , the related revenues and expenses are not included in the respective line items in our consolidated results of operations . replace_table_token_11_th ( 1 ) includes fuel volume , gross margin , revenues and expenses of locations that were company operated during the entirety of each of the periods presented . revenues . revenues for 2013 , were $ 7,944,731 , which represented a decrease from 2012 , of $ 50,993 , or 0.6 % , primarily resulting from a decrease in fuel revenue partially offset by an increase in nonfuel revenue .
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each of the gabelli reporting persons has the sole power to vote or direct the vote and sole power to dispose or to direct the disposition of the shares of voting common stock reported for it , either for its own benefit or for the benefit of its investment clients or its partners , as the case may be , except that ( i ) gamco does not have the authority to vote 81,500 of the reported shares , ( ii ) gabelli funds has sole dispositive and voting power with respect to the shares of voting common stock held by certain funds for which it provides advisory services ( the “ funds ” ) so long as the aggregate voting interest of all joint filers does not exceed 25 % of their total voting interest in loral and , in that event , the proxy voting committee of each fund shall respectively vote that fund 's shares , ( iii ) at any time , the story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements ( the “ financial statements ” ) included in item 15 of this annual report on form 10-k . loral space & communications inc. , a delaware corporation , together with its subsidiaries , is a leading satellite communications company engaged , through our ownership interests in affiliates , in satellite-based communications services . disclosure regarding forward-looking statements except for the historical information contained in the following discussion and analysis , the matters discussed below are not historical facts , but are “ forward-looking statements ” as that term is defined in the private securities litigation reform act of 1995. in addition , we or our representatives have made and may continue to make forward-looking statements , orally or in writing , in other contexts . these forward-looking statements can be identified by the use of words such as “ believes , ” “ expects , ” “ plans , ” “ may , ” “ will , ” “ would , ” “ could , ” “ should , ” “ anticipates , ” “ estimates , ” “ project , ” “ intend , ” or “ outlook ” or other variations of these words . these statements , including without limitation those relating to telesat , are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or quantify . actual events or results may differ materially as a result of a wide variety of factors and conditions , many of which are beyond our control . for a detailed discussion of these and other factors and conditions , please refer to the risk factors section above , the commitments and contingencies section below and to our other periodic reports filed with the securities and exchange commission ( “ sec ” ) . we operate in an industry sector in which the value of securities may be volatile and may be influenced by economic and other factors beyond our control . we undertake no obligation to update any forward-looking statements . overview business recent developments on november 23 , 2020 , loral entered into the transaction agreement with telesat , telesat partnership , telesat corporation , telesat canholdco , merger sub , psp and red isle , under which merger sub will merge with and into loral , with loral surviving the merger as a wholly owned subsidiary of telesat partnership , and loral stockholders receiving common shares of telesat corporation and or units of telesat partnership that will be exchangeable for common shares of telesat corporation following the expiration of a six-month lock-up period . the transaction agreement contains a number of customary conditions that must be fulfilled to complete the transaction , including ( i ) approval of ( a ) a majority of the outstanding loral voting common stock and ( b ) a majority of the outstanding loral voting common stock not held by mhr , psp , any other party to the transaction agreement or certain of their respective affiliates ; ( ii ) the parties having obtained certain regulatory consents and approvals ; ( iii ) no legal proceedings having been commenced that would enjoin or prohibit the consummation of the transaction ; ( iv ) the listing of the class a and class b shares of telesat corporation on a u.s. securities exchange ; ( v ) no “ material adverse effect ” ( as defined in the transaction agreement ) having occurred ; ( vi ) telesat remaining in good standing with respect to its material debt obligations ; ( vii ) the accuracy of certain representations ( subject to certain qualifications as to materiality ) and material performance of certain covenants by the parties , subject to specified exceptions ; ( viii ) effectiveness of the registration statement on form f-4 and the issuance of a receipt for each of the canadian preliminary and final prospectuses in respect of the transaction ; ( ix ) no u.s. , canadian or spanish governmental agency having commenced civil or criminal proceeding against loral alleging that any member of the “ loral group ” has criminally violated any law , and no member of the “ loral group ” having been indicted or convicted for , or plead nolo contendere to , any such alleged criminal violation ; ( x ) loral remaining solvent and not having entered into any bankruptcy or related proceeding ; and ( xi ) the delivery by the parties of certain closing deliverables . if the parties have confirmed that all the conditions are satisfied or waived ( other than those conditions that by their terms are to be satisfied at the closing , but which conditions are capable of being satisfied at the closing ) , then psp and loral will each have the right to extend the closing for any number of periods of up to 30 days each and no longer than 120 days in the aggregate , from the date on which the closing otherwise would have occurred . story_separator_special_tag under the terms of the mou , the investment by the government of québec will consist of cad 200 million in preferred equity as well as a cad 200 million loan . telesat expects that a final agreement will be completed in the coming months . while telesat has entered into agreements with tas and mda , the execution of the definitive manufacturing agreements with them , the commencement of full construction activities and the final constellation deployment schedule are subject to , and conditional upon , the progress of the financing for the program . similarly , the government of quebec 's cad 400 million investment is subject to a number of conditions , including financing and the entering into of a further definitive agreement . telesat continues to take a number of steps to advance telesat lightspeed 's business plan , including putting in place arrangements with launch providers , ground systems operators , and antenna manufacturers ( to advance the development of economical and high efficiency antenna systems ) . telesat currently estimates that telesat lightspeed will require a capital investment of approximately $ 5 billion . telesat anticipates diverse sources of financing , including ( subject to compliance with telesat 's borrowing covenants ) telesat 's current cash-on-hand , expected cash flows of telesat 's geo business , proceeds telesat expects to receive from the repurposing of c-band spectrum , potential future equity issuance , and future borrowings , including from export credit agencies . in july 2019 , telesat announced that it had entered into a memorandum of understanding with the government of canada regarding a partnership intended to ensure access to affordable high-speed internet connectivity across rural and remote areas of canada through the development of the telesat lightspeed constellation . the partnership is expected to generate cad 1.2 billion in revenue for telesat over 10 years , which includes up to cad 600 million from the government of canada . in may 2019 , telesat entered into an agreement with the government of canada pursuant to which the government of canada will contribute up to cad 85 million through july 31 , 2023 to support the development of the telesat lightspeed constellation . as of december 31 , 2020 and 2019 , telesat recorded cad 12 million and cad 5.0 million , respectively , relating to the agreement . repurposing of c-band spectrum in a number of countries , regulators plan to adopt new spectrum allocations for terrestrial mobile broadband and 5g , including certain c-band spectrum currently allocated to satellite services . telesat currently use c-band spectrum in a number of countries , including the u.s. and canada . to the extent that telesat is able to assist in making the c-band spectrum it uses available for use for terrestrial mobile broadband and 5g , telesat may be entitled to certain compensation . in february 2020 , the fcc issued a final report and order on expanding flexible use of the 3.7 to 4.2 ghz band . the report and order provided that telesat would receive as much as $ 344.4 million from the repurposing of c-band spectrum in the u.s. provided that telesat takes the necessary actions to move its services in the continental u.s. out of the 3700 — 4000 mhz spectrum band and into the 4000 — 4200 mhz band and takes the necessary steps to ensure that its end user antennas will not be subject to terrestrial interference . telesat believes that it can meet all the requirements to receive the $ 344.4 million . 54 a similar repurposing of c-band spectrum is currently underway in canada as well , with the government of canada launching a public consultation on repurposing c-band spectrum in august 2020. in the consultation document , in addition to its own proposal , the government of canada included a proposal put forward by telesat whereby telesat — the sole satellite operator licensed to use c-band in canada — would accelerate , and be fully responsible for , the clearing of a portion of the c-band spectrum for 5g . in return , telesat would be compensated for clearing and repurposing the spectrum . comments were submitted to the government on october 26 , 2020 , and reply comments were submitted on november 30 , 2020. telesat anticipates a decision in 2021. telesat lightspeed asset transfers in december 2020 , in connection with telesat 's ongoing financing activities related to its planned telesat lightspeed constellation , telesat designated certain of its subsidiaries as unrestricted subsidiaries under its amended senior secured credit facilities and the indentures governing its senior secured notes and senior notes . on december 31 , 2020 , telesat and telesat spectrum general partnership ( “ tsgp ” ) , a wholly owned restricted subsidiary of telesat , entered into a series of transactions in which telesat and tsgp transferred to certain unrestricted subsidiaries ( i ) assets relating to the telesat lightspeed network , including ngso spectrum authorizations , u.s. market access rights , certain ip , certain fixed assets and certain contracts , and ( ii ) c-band assets , including canadian c-band licenses and u.s. c-band market access rights , together with the right to receive proceeds from the repurposing thereof . in connection with such asset transfers , the applicable unrestricted subsidiaries entered into certain market access and control agreements permitting telesat and tsgp to retain access and or control over the transferred assets . concurrently with these transactions , telesat contributed $ 193 million in cash to telesat leo holdings inc. , an unrestricted subsidiary of telesat . these transactions are collectively referred to as the “ leo transactions. ” immediately prior to the leo transactions , telesat prepaid outstanding term loans under its amended senior secured credit facilities in an aggregate principal amount of $ 341.4 million .
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consolidated operating results please refer to critical accounting matters set forth below in this section . 2020 compared with 2019 the following compares our consolidated results for 2020 and 2019 as presented in our financial statements : operating loss replace_table_token_3_th general and administrative expenses were comparable for the years ended december 31 , 2020 and 2019. the recovery of affiliate doubtful receivable in 2020 represents the receipt of $ 5.9 million from xtar in full and final settlement of the past due receivable outstanding of $ 6.6 million under the loral management agreement . interest and investment income year ended december 31 , 2020 2019 ( in thousands ) interest and investment income $ 1,050 $ 5,727 interest and investment income decreased by $ 4.7 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 due to the lower cash balance resulting primarily from payment of cash dividends of $ 170.1 million and $ 46.4 million in may 2020 and december 2020 , respectively , and lower interest rates earned on the cash balance during the year 2020 as compared to 2019 . other expense year ended december 31 , 2020 2019 ( in thousands ) other expense $ 10,898 $ 4,586 for the years ended december 31 , 2020 and 2019 , other expense includes transaction related expenses of $ 10.2 million and $ 4.0 million , respectively .
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executive overview national health investors , inc. , established in 1991 as a maryland corporation , is a self-managed real estate investment trust ( “ reit ” ) specializing in sale-leaseback , joint-venture , mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments . our portfolio consists of lease , mortgage and other note investments in independent living facilities , assisted living facilities , entrance-fee communities , senior living campuses , skilled nursing facilities , specialty hospitals and medical office buildings . other investments have included marketable securities and a joint venture structured to comply with the provisions of the reit investment diversification empowerment act of 2007 ( “ ridea ” ) through which we invested in facility operations managed by an independent third-party . we fund our real estate investments primarily through : ( 1 ) operating cash flow , ( 2 ) debt offerings , including bank lines of credit and term debt , both unsecured and secured , and ( 3 ) the sale of equity securities . portfolio at december 31 , 2016 , we had investments in real estate , mortgage and other notes receivable involving 205 facilities located in 32 states . these investments involve 129 senior housing properties , 71 skilled nursing facilities , 3 hospitals , 2 medical office buildings and other notes receivable . these investments ( excluding our corporate office of $ 1,175,000 ) consisted of properties with an original cost of $ 2,471,679,000 , rented under triple-net leases to 27 lessees , and $ 133,493,000 aggregate carrying value of mortgage and other notes receivable due from 11 borrowers . we classify the properties in our portfolio as either senior housing or medical properties . we further classify our senior housing properties as either need-driven ( assisted living facilities and senior living campuses ) or discretionary ( independent living facilities and entrance-fee communities ) . medical properties within our portfolio include skilled nursing facilities , medical office buildings and specialty hospitals . 24 the following tables summarize our investments in real estate and mortgage and other notes receivable as of december 31 , 2016 ( dollars in thousands ) : replace_table_token_9_th replace_table_token_10_th 25 for the year ended december 31 , 2016 , our tenants who provided more than 3 % of our total revenues were ( parent company , in alphabetical order ) : bickford senior living ; east lake capital management ; the ensign group ; holiday retirement ; national healthcare corporation ; and senior living communities . as of december 31 , 2016 , our average effective annualized rental income was $ 8,141 per bed for snfs , $ 15,364 per unit for alfs , $ 14,328 per unit for ilfs , $ 20,810 per unit for efcs , $ 42,499 per bed for hospitals , and $ 11 per square foot for mobs . we currently invest a portion of our funds in highly liquid marketable securities , including the common shares of other publicly held healthcare reits . at december 31 , 2016 , such investments had a carrying value of $ 11,745,000 . areas of focus we are evaluating and will potentially make additional investments during the remainder of 2017 while we continue to monitor and improve our existing properties . we seek tenants who will become mission-oriented partners in relationships where our business goals are aligned . this approach fuels steady , and thus , enduring growth for those partners and for nhi . within the context of our growth model , we rely on a cost-effective access to debt and equity capital to finance acquisitions that will drive our earnings . there is significant competition for healthcare assets from other reits , both public and private , and from private equity sources . large-scale portfolios continue to command premium pricing , due to the continued abundance of private and foreign buyers seeking to invest in healthcare real estate . this combination of circumstances places a premium on our ability to execute acquisitions and negotiate leases that will generate meaningful earnings growth for our shareholders . we emphasize growth with our existing tenants and borrowers as a way to insulate us from other competition . with lower capitalization rates for existing healthcare facilities , there has been increased interest in constructing new facilities in hopes of generating better returns on invested capital . using our relationship-driven model , we continue to look for opportunities to support new and existing tenants and borrowers with the capital needed to expand existing facilities and to initiate ground-up development of new facilities . we concentrate our efforts in those markets where there is both a demonstrated demand for a particular product type and where we perceive we have a competitive advantage . the projects we agree to finance have attractive upside potential and are expected to provide above-average returns to our shareholders to mitigate the risks inherent with property development and construction . on december 16 , 2015 , the federal open market committee of the federal reserve announced an increase in its benchmark federal funds rate by 25 basis points . the anticipation of this second increase in the federal funds rate in the past year has been a primary source of much volatility in reit equity markets . the committee also guided expectations for three rate hikes in 2017. as a result , there will be pressure on the spread between our cost of capital and the returns we earn . we expect that pressure to be partially mitigated by market forces that would tend to result in higher capitalization rates for healthcare assets and higher lease rates indicative of historical levels . our cost of capital has increased over the past year as we transition some of our short term revolving borrowings into debt instruments with longer maturities and fixed interest rates . managing long-term risk involves trade-offs with the competing alternative goal of maximizing short-term profitability . our intention is to strike an appropriate balance between these competing interests within the context of our investor profile . story_separator_special_tag strong demographic trends provide the context for continued growth in 2017 and the years ahead . we plan to fund any new real estate and mortgage investments during 2017 using our liquid assets and debt financing . should the weight of additional debt as a result of new acquisitions suggest the need to rebalance our capital structure , we would then expect to access the capital 27 markets through an atm or other equity offerings . our disciplined investment strategy implemented through measured increments of debt and equity sets the stage for annual dividend growth , continued low leverage , a portfolio of diversified , high-quality assets , and business relationships with experienced operators who we make our priority , continue to be the key drivers of our business plan . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates and cause our reported net income to vary significantly from period to period . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . our significant accounting policies and the associated estimates , judgments and the issues which impact these estimates are as follows : valuations and impairments our tenants and borrowers who operate snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has experienced significant professional liability claims which has resulted in an increase in the cost of insurance to cover potential claims . in previous years , these factors have combined to cause a number of bankruptcy filings , bankruptcy court rulings and court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property . for our mortgage and other notes receivable , we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis . on a quarterly basis , we review our notes receivable for ability to realize on such notes when events or circumstances , including the non-receipt of contractual principal and interest payments , significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions , indicate that the carrying amount of the note receivable may not be recoverable . if necessary , impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or , if foreclosure is probable , the fair value of the collateral securing the note receivable . we evaluate our marketable securities for other-than-temporary impairments . an impairment of a marketable security would be considered “ other-than-temporary ” unless we have the ability and intent to hold the investment for a period of time sufficient for a forecasted market price recovery up to ( or beyond ) the cost of the investment and evidence indicates the cost of the investment is recoverable within a reasonable period of time . the initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the interest or the estimated fair value of the assets prior to our acquisition of interests in the entity . an aggregate basis difference between the cost 28 of our equity method investee and the amount of underlying equity in its net assets is primarily attributable to goodwill , which is not amortized . we evaluate for impairment our equity method investments and related goodwill based upon a comparison of the estimated fair value of the investments to their carrying value . when we determine a decline in the estimated fair value of such an investment below its carrying value is other than temporary , an impairment is recorded . no impairments to the carrying value of our equity method investee have been recorded for any period presented . the determination of the fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value that is other than temporary involves significant judgment .
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investment highlights since january 1 , 2016 , we have made or announced the following real estate and note investments ( $ in thousands ) : replace_table_token_14_th senior living communities on november 8 , 2016 , we acquired evergreen woods , a 299-unit entrance-fee community in connecticut , for $ 74,000,000 in cash , inclusive of a $ 3,708,000 regulatory deposit . the facility was added to our existing master lease with senior living at the existing lease rate of 6.77 % , subject to 4 % escalation in january 2017 and 2018 and 3 % annually thereafter with an initial term of 13 years , plus renewal options . because evergreen woods was previously owner-operated , we accounted for our purchase of the property as an asset acquisition . as part of this transaction , we allocated $ 7,724,000 of the purchase price to the relative fair value of the land and $ 62,568,000 to the relative fair value of building and improvements . in march 2016 , we extended mezzanine loans of $ 12,000,000 and $ 2,000,000 to affiliates of senior living to partially fund construction of a 186-unit senior living campus on daniel island in north carolina . the loans , which are payable monthly , bear interest at 10 % per annum and mature in march 2021. the loans , having a total balance of $ 10,778,000 at december 31 , 2016 , are in addition to the $ 15,000,000 revolving line of credit we provided senior living in connection with our 2014 lease of 8 retirement communities . chancellor on august 31 , 2016 , we acquired two facilities consisting of a senior living campus and a memory-care facility in mcminnville , oregon , for $ 36,650,000 in cash inclusive of closing costs of $ 150,000. we leased the facilities to chancellor health care for an initial lease term of 15 years , with renewal options , at an initial annual lease rate of 7.5 % plus annual escalators .
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we have three operating divisions : ( a ) security , providing security and inspection systems and turnkey security screening solutions ; ( b ) healthcare , providing patient monitoring , diagnostic cardiology and anesthesia systems ; and ( c ) optoelectronics and manufacturing , providing specialized electronic components for our security and healthcare divisions , as well as to third parties for applications in the defense and aerospace markets , among others . security division . through our security division , we design , manufacture and market security and inspection systems worldwide for sale primarily to u.s. and foreign government agencies , and provide turnkey security screening solutions . these products and services are used to inspect baggage , cargo , vehicles and other objects for weapons , explosives , drugs , radioactive material and other contraband as well as to screen people . revenues from our security division accounted for 46 % of our total consolidated revenues for fiscal 2013. healthcare division . through our healthcare division , we design , manufacture , market and service patient monitoring , diagnostic cardiology and anesthesia delivery and ventilation systems worldwide for sale primarily to hospitals and medical centers . our products monitor patients in critical , emergency and perioperative care areas of the hospital and provide such information , through wired and wireless networks , to physicians and nurses who may be at the patient 's bedside , in another area of the hospital or even outside the hospital . revenues from our healthcare division accounted for 29 % of our total consolidated revenues for fiscal 2013. optoelectronics and manufacturing division . through our optoelectronics and manufacturing division , we design , manufacture and market optoelectronic devices and provide electronics manufacturing services worldwide for use in a broad range of applications , including aerospace and defense electronics , security and inspection systems , medical imaging and diagnostics , telecommunications , office automation , computer peripherals , industrial automation , automotive diagnostic systems and renewable energy . we also provide our optoelectronic devices and value-added manufacturing services to our own security and healthcare divisions . revenues from our optoelectronics and manufacturing division accounted for approximately 25 % of our total consolidated revenues for fiscal 2013. story_separator_special_tag available to us in the various jurisdictions in which we operate . tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities . significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties . we review our tax positions quarterly and adjust the balances as new information becomes available . deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as from net operating loss and tax credit carryforwards . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies . these sources of income inherently rely on estimates . to provide insight , we use our historical experience and our short and long-range business forecasts . we believe it is more likely than not that a portion of the deferred income tax assets may expire unused and therefore have established a valuation allowance against them . although realization is not assured for the remaining deferred income tax assets , we believe it is more likely than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods . however , deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable . business combinations . under the acquisition method of accounting , we allocate the fair value of the consideration paid for the businesses to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values . we record the excess of purchase price over the aggregate fair values as goodwill . we engage third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed for larger transactions . these valuations require us to make significant estimates and assumptions , especially with respect to intangible assets and the fair value of contingent payment obligations . critical estimates in valuing purchased technology , customer lists and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets . if the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values , we could experience impairment charges . in addition , we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense . if our estimates of the economic lives change , depreciation or amortization expenses could be accelerated or slowed . impairment of long-lived assets . goodwill represents the excess purchase price of net tangible and intangible assets acquired in business combinations over their estimated fair value . goodwill is allocated to our 45 segments based on the nature of the product line of the acquired business . the carrying value of goodwill is not amortized , but is annually tested for impairment during our second quarter and more often if there is an indicator of impairment . intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite . we assess qualitative factors of each of our reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . such assessments indicated that it is not more likely than not that the fair value of each reporting unit is less than its carrying amount , including goodwill . story_separator_special_tag overall , increases attributable to new product offerings within our patient monitoring product line were offset by soft markets . revenues for the optoelectronics and manufacturing division for fiscal 2013 increased $ 32.9 million , or 20 % , to $ 198.5 million from $ 165.6 million for fiscal 2012. this increase was primarily attributable to a $ 43.5 million or 50 % increase in our contract manufacturing sales , as a result of an expanded customer base partially offset by a decrease in commercial optoelectronics sales of $ 10.6 million , or 14 % , primarily as a result of reduced sales volumes to customers in the solar energy and healthcare industries , as well as a soft european market . fiscal 2012 compared with fiscal 2011. net revenues for fiscal 2012 increased $ 136.9 million , or 21 % , to $ 793.0 million from $ 656.1 million for fiscal 2011. revenues for the security division for fiscal 2012 increased $ 97.1 million , or 33 % , to $ 391.8 million , from $ 294.7 million for fiscal 2011. the increase was primarily attributable to : ( i ) an $ 80.6 million , or 35 % , increase in equipment sales , primarily attributable to our performance as a prime contractor and hardware systems integrator on a large contract ; and ( ii ) an $ 11.8 million , or 19 % , increase in service revenue due to the growing installed base of products from which we derive service revenue as warranty periods expire . 47 revenues for the healthcare division for fiscal 2012 increased $ 20.6 million , or 10 % , to $ 235.6 million , from $ 215.0 million for fiscal 2011. the increase was primarily attributable to new product introductions primarily in our patient monitoring business with increases primarily in north america . revenues for the optoelectronics and manufacturing division for fiscal 2012 increased $ 19.2 million , or 13 % , to $ 165.6 million from $ 146.4 million for fiscal 2011. this increase was driven by an increase in commercial optoelectronic sales of $ 7.4 million or 10 % and by an increase in contract manufacturing sales of $ 11.9 million , 16 % , as a result of an expanded customer base . gross profit replace_table_token_9_th fiscal 2013 compared with fiscal 2012. gross profit increased $ 21.8 million , or 8 % , to $ 290.4 million for fiscal 2013 , from $ 268.6 million for fiscal 2012. our gross margin during the period increased to 36.2 % from 33.9 % for the prior-year period . the increase was attributable to : i ) increased revenue from our turnkey screening services in our security division , which provided higher margins than product sales and ii ) the impact of lower than average margin related to the single large contract in our security division where we served as a prime contractor and hardware systems integrator in the prior-year period . these improvements were partially offset by : i ) the impact of the reduced revenue in our healthcare division , which has historically generated the highest gross margin across the three divisions and ii ) the impact of the increased revenue from our optoelectronic and manufacturing division , which has historically generated the lowest gross margin across all three divisions . fiscal 2012 compared with fiscal 2011. gross profit increased $ 29.3 million , or 12 % , to $ 268.6 million for fiscal 2012 , from $ 239.3 million for fiscal 2011 , primarily as a result of a 21 % increase in sales . our gross margin during the period declined to 33.9 % from 36.5 % for the prior-year period . the decrease was mainly due to a less favorable mix of the products we sold , as sales by our healthcare division , which generates the highest gross margin of our three divisions , increased at a lesser rate rather than that of our security division . in addition , the product mix within our security division negatively impacted gross margin as a significant portion of growth in our security division was attributable to large hardware systems integration contract . operating expenses replace_table_token_10_th selling , general and administrative sg & a expenses consisted primarily of compensation paid to sales , marketing and administrative personnel , professional service fees and marketing expenses . 48 fiscal 2013 compared with fiscal 2012. for fiscal 2013 , sg & a expenses increased by $ 8.1 million , or 5 % , to $ 159.8 million , from $ 151.7 million for fiscal 2012. this $ 8.1 million increase was primarily attributable to : i ) an increase of $ 6.6 million of sg & a expenses related to our turnkey screening solutions business ; and ii ) an increase of $ 2.1 million in our optoelectronics and manufacturing division in support of our 20 % external revenue growth . as a percentage of revenue , sg & a expenses were 19.9 % for fiscal 2013 , compared to 19.1 % for the comparable prior year period . fiscal 2012 compared with fiscal 2011. for fiscal 2012 , sg & a expenses increased by $ 9.1 million , or 6 % , to $ 151.7 million , from $ 142.6 million for fiscal 2011. this $ 9.1 million increase was primarily attributable to : i ) an increase of $ 4.3 million of sg & a expenses related our turnkey screening solutions business and ii ) an increase in overall sg & a spending of $ 4.8 million , or 3 % to support our 21 % revenue growth . as a percentage of revenue , sg & a expenses were 19.1 % for fiscal 2012 , compared to 21.7 % for the comparable prior year period as we further leveraged our infrastructure . research and development our security and healthcare divisions have historically invested substantial amounts in r & d .
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consolidated results fiscal 2013 compared with fiscal 2012. we reported consolidated operating profit of $ 74.4 million for fiscal 2013 , an $ 8.5 million or 13 % improvement over the $ 65.9 million operating profit reported for fiscal 2012. this improved profitability was driven primarily by a 2.3 % improvement in our gross margin , which resulted in a $ 21.8 million increase in gross profit which was partially offset by a $ 6.7 million or 3 % increase in operating expenses to support our growth initiatives and by a $ 6.6 million increase in impairment , restructuring and other charges . fiscal 2012 compared with fiscal 2011. we reported consolidated operating profit of $ 65.9 million for fiscal 2012 , an $ 18.1 million or 38 % improvement over the $ 47.8 million operating profit reported for fiscal 2011. this improved profitability was driven primarily by a 21 % increase in sales , which resulted in a $ 29.3 million increase in gross profit and a $ 2.0 million reduction in impairment , restructuring and other charges . these increases were partially offset by a $ 9.1 million , or 6 % , increase in sg & a expenses to support the sales growth and by a $ 4.1 million , or 9 % , increase in r & d expenses in support of new product development . 43 acquisitions . historically , an active acquisition program has been an important element of our corporate strategy . over the past three years , each of our acquisitions has not been considered materially significant , either individually or in the aggregate . we continue to believe that an active acquisition program supports our long-term strategic goals and we intend to look to acquisitions to strengthen our competitive position , expand our customer base and augment our considerable research and development programs .
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substantially all of this difference is comprised of goodwill . revaluing the investment from russian rubles to the u.s. dollar as of january 30 , 2021 resulted in a cumulative translation loss and reduced the carrying value of our investment by $ 35 million . the cumulative translation loss has been recorded in our consolidated balance sheets as a component of accumulated other comprehensive loss . other indefinite-lived intangible assets consisting of tradename and customer relationships are amortized straight line over their useful lives of story_separator_special_tag tjx provides projections and other forward-looking statements in the following discussions particularly relating to our future financial performance . these forward-looking statements are estimates based on information currently available to us , are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995 , and subject to the cautionary statements set forth on page 2 of this form 10-k. our results are subject to risks and uncertainties including , but not limited to , those described in part i , item 1a , risk factors , and those identified from time to time in our other filings with the securities and exchange commission . tjx undertakes no obligation to publicly update any forward-looking statements , whether as a result of new information , future developments or otherwise . the discussion that follows relates to our 52-week fiscal years ended january 30 , 2021 ( fiscal 2021 ) and february 1 , 2020 ( fiscal 2020 ) . our 52-week fiscal year ended february 2 , 2019 is referred to as fiscal 2019 and our 52-week fiscal year ended january 29 , 2022 is referred to as fiscal 2022. the following is a discussion of our consolidated operating results , followed by a discussion of our segment operating results . discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and fiscal 2019 that are not included in this form 10-k can be found in `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of our annual report on form 10-k for the fiscal year ended february 1 , 2020. overview we are the leading off-price apparel and home fashions retailer in the u.s. and worldwide . our mission is to deliver great value to our customers every day . we do this by selling a rapidly changing assortment of apparel , home fashions and other merchandise at prices generally 20 % to 60 % below full-price retailers ' ( including department , specialty , and major online retailers ) regular prices on comparable merchandise , every day . we operate over 4,500 stores through our four main segments : in the u.s. , marmaxx ( which operates t.j. maxx , marshalls , tjmaxx.com and marshalls.com ) and homegoods ( which operates homegoods and homesense ) ; tjx canada ( which operates winners , homesense and marshalls in canada ) ; and tjx international ( which operates t.k . maxx , homesense and tkmaxx.com in europe , and t.k . maxx in australia ) . in addition to our four main segments , sierra operates sierra.com and retail stores in the u.s. the results of sierra are included in the marmaxx segment . impact of the covid-19 pandemic after a novel coronavirus disease ( “ covid-19 ” ) emerged and spread worldwide , the world health organization declared covid-19 a pandemic in march 2020 , and national , state and local governments and private entities began issuing various restrictions , including travel restrictions , restrictions on public gatherings , stay at home orders and advisories and quarantine or isolation protocols . we temporarily closed all of our stores , online businesses , distribution centers and offices in march 2020 , with associates working remotely where possible . during april 2020 , we temporarily furloughed the majority of hourly store and distribution center associates in the u.s. and canada , with employee benefits coverage for eligible associates continuing during the temporary furlough at no cost to impacted associates . we also took comparable actions with respect to portions of our european and australian workforces . when we began to reopen stores and distribution centers in may 2020 , we implemented new health and safety practices , including practices related to personal protective equipment , enhanced cleaning and social distancing protocols . early in the fourth quarter of fiscal 2021 , in response to increasing cases of covid-19 , hundreds of our stores had additional temporary closures , the vast majority being in europe and canada , and additional stores may close temporarily in the future . we continue to monitor developments , including government requirements and recommendations at the national , state , and local level that could result in possible additional impacts to our operations . our results for fiscal 2021 were negatively impacted by the temporary closure of our stores for approximately 24 % of fiscal 2021 in the aggregate . this represents total store days closed due to the covid-19 pandemic as a percentage of potential total store days open . see additional details below by segment . fiscal 2021 marmaxx 20 % homegoods 20 tjx canada 29 tjx international 36 total 24 % 25 as of march 30 , 2021 , we had approximately 580 stores , primarily in europe , that were temporarily closed due to government mandates in response to the covid-19 global pandemic . we expect closures in europe and canada to impact our first quarter fiscal 2022 results as stores are expected to be closed for approximately 71 % and 12 % of the quarter , respectively . although the majority of our germany and netherlands stores were reopened by the end of march , additional operating restrictions have been imposed , including appointment requirements , limited business hours and capacity constraints . in total , based on current restrictions , we expect stores to be closed for approximately 12 % of the first quarter of fiscal 2022. all of our e-commerce businesses remain open , including tkmaxx.com in the u.k. story_separator_special_tag given the substantial reduction in our sales and the reduced cash flow projections as a result of the temporary store closures during fiscal 2021 due to the covid-19 pandemic , we determined that triggering events had occurred and that impairment assessments were warranted for certain stores . this resulted in impairment charges of $ 72 million for fiscal 2021 , related to operating lease right of use assets and store fixed assets . operating expenses we incurred additional payroll costs associated with monitoring occupancy limits to comply with social distancing protocols and implementing enhanced cleaning regimens in our stores , distribution centers , and offices . in addition , we provided discretionary appreciation bonuses during fiscal 2021 to store and distribution center associates and incurred incremental costs for personal protective equipment and additional cleaning supplies . we expect that many of these costs will continue in fiscal 2022. we have implemented , and plan to continue to implement , cost saving initiatives to reduce some ongoing variable and discretionary spending . in response to the covid-19 pandemic , governments in the u.s. , u.k. , canada and various other jurisdictions have implemented programs to encourage companies to retain and pay employees who are unable to work or are limited in the work that they can perform in light of closures or a significant decline in sales . throughout fiscal 2021 we continued to qualify for certain of these provisions , which partially offset related expenses . during fiscal 2021 , these programs reduced our expenses by approximate ly $ 0.5 billion on our consolidated statements of income . story_separator_special_tag roman ' , sans-serif ; font-size:11pt ; font-style : italic ; font-weight:700 ; line-height:120 % '' > net sales net sales for fiscal 2021 totaled $ 32.1 billion , a 23 % decrease over fiscal 2020. the decrease in net sales was driven by temporary store closures as a result of the covid-19 pandemic and lower customer traffic , with stores closed in the aggregate for approximately 24 % of fiscal 2021. net sales from our e-commerce businesses combined amounted to approximately 3 % of total sales . as a result of the extended store closures due to the covid-19 pandemic and our policy relating to the treatment of extended store closures when calculating comp store sales under our historical definition , we had no stores classified as comp stores at the end of fiscal 2021. in order to provide a performance indicator for our stores as they reopened , since the second quarter of fiscal 2021 , we have been temporarily reporting a new sales measure , open-only comp store sales . open-only comp store sales includes stores initially classified as comp stores at the beginning of fiscal 2021 that have had to temporarily close due to the covid-19 pandemic . this measure reports the sales increase or decrease of these stores for the days the stores were open in the current period against sales for the same days in the prior year . open-only comp sales of our foreign segments are calculated by translating the current year using the prior year 's exchange rates . our historical definition of comp store sales is presented below for reference . open-only comp store sales were down 4 % for fiscal 2021 as compared to last year . these results reflect a decrease in customer traffic , partially offset by an increased average basket across all divisions . our stores were closed in the aggregate for approximately 24 % of fiscal 2021. home fashion across all major segments outperformed apparel for fiscal 2021. we define customer traffic to be the number of transactions in stores and average ticket to be the average retail price of the units sold . we define average transaction or average basket to be the average dollar value of transactions . historical definition of comp store sales we are temporarily reporting a new sales measure , open-only comp store sales , as described above . the following reflects the way that we have historically classified and reported comp sales results . historically , we defined comparable store sales , or comp sales , to be sales of stores that have been in operation for all or a portion of two consecutive fiscal years , or in other words , stores that are starting their third fiscal year of operation . we calculated comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned . relocated stores and stores that have changed in size are generally classified in the same way as the original store , and we believe that the impact of these stores on the consolidated comp percentage is immaterial . 28 sales excluded from comp sales ( “ non-comp sales ” ) consist of sales from : – new stores - stores that have not yet met the comp sales criteria , which represents a substantial majority of non-comp sales – stores that are closed permanently or for an extended period of time – sales from our e-commerce sites , meaning sierra.com , tjmaxx.com , marshalls.com and tkmaxx.com we determine which stores are included in the comp sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year unless a store is closed permanently or for an extended period during that fiscal year . beginning in fiscal 2020 , sierra stores that otherwise fit the comp store definition are included in comp stores in our marmaxx segment . comp sales of our foreign segments are calculated by translating the current year 's comp sales using the prior year 's exchange rates . this removes the effect of changes in currency exchange rates , which we believe is a more accurate measure of segment operating performance . comp sales may be referred to as “ same store ” sales by other retail companies . the method for calculating comp sales varies across the retail industry , therefore our measure of comp sales may not be comparable to that of other retail companies .
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results of operations matters affecting comparability as a result of the covid-19 pandemic , our stores were closed in the aggregate for approximately 24 % of fiscal 2021. in addition to lost revenues , we continued to pay wages and provide benefits to many of our associates during the closures , and incurred incremental operating expenses upon reopening for new health and safety practices . this significantly impacted the operating results of all of our divisions and our expense ratios as compared to the prior year . highlights of our financial performance for fiscal 2021 include the following : – net sales decreased 23 % to $ 32.1 billion for fiscal 2021 , versus fiscal 2020 sales of $ 41.7 billion . as of january 30 , 2021 , the number of stores in operation ( including stores that had been temporarily closed due to covid-19 ) increased 1 % and selling square footage increased 1 % compared to the end of fiscal 2020 . – diluted earnings per share for fiscal 2021 were $ 0.07 versus $ 2.67 per share in fiscal 2020 . – pre-tax margin ( the ratio of pre-tax income to net sales ) for fiscal 2021 was 0.3 % , a 10.3 percentage point decrease compared with 10.6 % in fiscal 2020 . – the debt extinguishment charge of $ 0.3 billion reduced fiscal 2021 pre-tax margin by 1.0 percentage point and reduced earnings per share by $ 0.19 per share . – our cost of sales , including buying and occupancy costs , ratio for fiscal 2021 was 76.3 % , a 4.8 percentage point increase compared with 71.5 % in fiscal 2020 . – our selling , general and administrative ( “ sg & a ” ) expense ratio for fiscal 2021 was 21.8 % , a 3.9 percentage point increase compared with 17.9 % in fiscal 2020 .
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we believe by combining our volumes with ciner group 's soda ash exports from turkey , our withdrawal from ansac will allow us to leverage the larger , global ciner group soda ash operations , which we expect will eventually lower our cost position and improve our ability to optimize our market share both domestically and internationally . energy costs one of the primary impacts to our profitability is our energy costs . because we depend upon natural gas and electricity to power our trona ore mining and soda ash processing operations , our net sales , earnings and cash flow from operations are sensitive to changes in the prices we pay for these energy sources . our cost of energy , particularly natural gas , has been relatively low in recent years , and , despite the historic volatility of natural gas prices , we believe that we will continue to benefit from relatively low prices in the near future . however , we expect to continue to hedge a portion of our forecasted natural gas purchases to mitigate volatility . in addition , we have begun installation of a new electricity/steam co-generation facility that is estimated to reduce our electricity spend by roughly one-third per year . we expect to commence operations of the co-generation facility in the second half of 2019 . 49 how we evaluate our business productivity of operations our soda ash production volume is primarily dependent on the following three factors : ( 1 ) operating rate , ( 2 ) quality of our mined trona ore and ( 3 ) recovery rates . operating rate is a measure of utilization of the effective production capacity of our facility and is determined in large part by productivity rates and mechanical on-stream times , which is the percentage of actual run times over the total time scheduled . we implement two planned outages of our mining and surface operations each year , typically in the second and third quarters . during these outages , which are scheduled to last approximately one week each , we repair and replace equipment and parts . periodically , we may experience minor unplanned outages or unplanned extensions to planned outages caused by various factors , including equipment failures , power outages or service interruptions . the quality of our mine ore is determined by measuring the trona ore recovered as a percentage of the deposit , which includes both trona ore and insolubles . plant recovery rates are generally determined by calculating the soda ash produced divided by the sum of the soda ash produced plus soda ash that is not recovered from the process . all of these factors determine the amount of trona ore we require to produce one short ton of soda ash and liquor , which we refer to as our “ ore to ash ratio. ” our ore to ash ratio for the years ended december 31 , 2018 , 2017 and 2016 , was 1.54 : 1.0 ; 1.50 : 1.0 and 1.50 : 1.0 , respectively . freight and logistics the soda ash industry is logistics intensive and involves careful management of freight and logistics costs . these freight costs make up a large portion of the total delivered cost to the customer . delivered costs to most domestic customers and ansac primarily relates to rail freight services . some domestic customers may elect to arrange their own freight and logistic services . delivered costs to non-ansac international customers primarily consists of both rail freight services to the port of embarkation and the additional ocean freight to the port of disembarkation . union pacific is our largest provider of domestic rail freight services and accounted for 78.6 % , 74.3 % and 83.1 % of our total freight costs for the years ended december 31 , 2018 , 2017 and 2016 , respectively . the increase in the percentage of freight that is related to union pacific is due to a greater portion of sales to domestic customers and ansac primarily consisting of only rail freight services . during 2017 , freight charges included ocean freight charges related to sales to ciner ic ve dis ticaret anonim sirketi ( “ cidt ” ) which were not a contributor to our total freight costs during the year ended december 31 , 2018 as the previous contract with cidt concluded in the 2017 year . our transportation agreement with union pacific expires on december 31 , 2019 , and there can be no assurance that it will be renewed on terms favorable to us or at all . please read “ risk factors-risks inherent in our business and industry- “ for the year ended december 31 , 2018 , approximately 93.5 % of our soda ash was shipped via rail , and we rely on one rail line to service our facility under a contract that expires in 2019. interruptions of service on this rail line could adversely affect our results of operations and our ability to make cash distributions to our unitholders . ” if we do not ship at least a significant portion of our soda ash production on the union pacific rail lined during a twelve-month period , we must pay union pacific a shortfall payment under the terms of our transportation agreement . for the years ended december 31 , 2018 , 2017 and 2016 , we had no shortfall payments and do not expect such payments in the future . net sales net sales include the amounts we earn on sales of soda ash . we recognize revenue from our sales when control of goods transfers to the customer . story_separator_special_tag selling , general and administrative expenses selling , general and administrative expenses incurred by our affiliates on our behalf are allocated to us based on the time the employees of those companies spend on our business and the actual direct costs they incur on our behalf . selling , general and administrative expenses incurred by ansac on our behalf are allocated to us based on the proportion of ansac 's total volumes sold for a given period attributable to the soda ash sold by us to ansac . on october 23 , 2015 , the partnership entered into a services agreement ( the “ services agreement ” ) , among the partnership , our general partner and ciner corp. pursuant to the services agreement , ciner corp has agreed to provide the partnership with certain corporate , selling , marketing , and general and administrative services , in return for which the partnership has agreed to pay ciner corp an annual management fee , subject to quarterly adjustments , and reimburse ciner corp for certain third-party costs incurred in connection with providing such services . in addition , under the joint venture agreement governing ciner wyoming , ciner wyoming reimburses us for employees who operate our assets and for support provided to ciner wyoming . results of operations a discussion and analysis of the factors contributing to our results of operations is presented below for the periods and as of the dates indicated . the financial statements , together with the following information , are intended to provide investors with a reasonable basis for assessing our historical operations , but should not serve as the only criteria for predicting our future performance . 51 the following tables set forth our results of operations for the years ended december 31 , 2018 , 2017 and 2016 . replace_table_token_8_th ( 1 ) ore to ash ratio expresses the number of short tons of trona ore needed to produce one short ton of soda ash and liquor and includes our deca rehydration recovery process . in general , a lower ore to ash ratio results in lower costs and improved efficiency . ( 2 ) ore grade is the percentage of raw trona ore that is recoverable as soda ash free of impurities . a higher ore grade will produce more soda ash than a lower ore grade . ( 3 ) for a discussion of the non-gaap financial measure adjusted ebitda , please read “ non-gaap financial measures ” of this management 's discussion and analysis . 52 analysis of results of operations the following table sets forth a summary of net sales , sales volumes and average sales price , and the percentage change between the periods : replace_table_token_9_th 2018 compared to 2017 story_separator_special_tag million under the ciner wyoming credit facility , offset by repayments of $ 143.0 million as well as $ 11.4 million of repayments on other long-term debt ; and 54 $ 10.0 million available for borrowing under the ciner resources credit facility as of december 31 , 2018 , subject to availability . we expect our ongoing working capital and capital expenditures to be funded by cash generated from operations and borrowings under the ciner wyoming credit facility . we are currently considering plans to increase maintenance and expansion capital expenditures at our wyoming facility to both adequately maintain the physical assets and to increase our operating income and operational capacity needs at the wyoming facility . the amount , timing and classification of any such capital expenditures could affect the amount of cash that is available to be distributed to our unitholders . in addition , we are subject to business and operational risks that could adversely affect our cash flow and access to borrowings under the ciner resources credit facility and the ciner wyoming credit facility . our ability to satisfy debt service obligations , to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance , which , in turn , will be affected by prevailing economic conditions , our business and other factors , some of which are beyond our control . in addition , we are subject to business and operational risks that could adversely affect our cash flow and access to borrowings under the ciner resources credit facility and the ciner wyoming credit facility . our ability to satisfy debt service obligations , to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance , which , in turn , will be affected by prevailing economic conditions , our business and other factors , some of which are beyond our control . on january 31 , 2019 , the partnership declared a cash distribution approved by the board of directors of our general partner . the cash distribution for the fourth quarter of 2018 of $ 0.567 per unit was paid on february 28 , 2019 to unitholders of record on february 11 , 2019 . see part ii , item 8 , financial statements and supplementary data - note 3 , “ net income per unit and cash distribution ” , for more information . we intend to pay a quarterly distribution to unitholders of record , to the extent we have sufficient cash from our operations after establishment of cash reserves , funding of any acquisitions and expansion capital expenditures and payment of fees and expenses , including payments to our general partner and its affiliates . capital requirements working capital is the amount by which current assets exceed current liabilities . our working capital requirements have been , and will continue to be , primarily driven by changes in accounts receivable and accounts payable , which generally fluctuate with changes in volumes , contract terms and market prices of soda ash in the normal course of our business . other factors impacting changes in accounts receivable and accounts payable could include the timing of collections from customers and
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consolidated results net sales . net sales decreased by 2.1 % to $ 486.7 million for the twelve months ended december 31 , 2018 from $ 497.3 million for the twelve months ended december 31 , 2017 , driven by a decrease in soda ash volumes sold of 3.4 % primarily as a result of unexpected equipment repairs needed , which were resolved during our second quarter , as well as lower production volume in the third quarter primarily due to ore grade degradation . the decrease in international sales prices was driven by the absence of international sales to cidt in 2018. during 2017 , international average sales prices reflected the increase in freight costs driven by export sales volume to cidt . cost of products sold . cost of products sold , including depreciation , depletion and amortization expense and freight costs , decreased slightly to $ 383.4 million for the twelve months ended december 31 , 2018 from $ 383.8 million for the twelve months ended december 31 , 2017 , primarily due to a decrease in freight costs of 4.5 % to $ 139.1 million for the twelve months ended december 31 , 2018 , compared to $ 145.7 million for the twelve months ended december 31 , 2017 . the decrease in freight costs was driven by no export sales volumes to cidt during the twelve months ended december 31 , 2018 compared to the prior year in addition to lower volumes sold compared to the prior year . the decrease in freight costs was partially offset by an increase in employee compensation , medical claims , as well as higher plant consulting fees , for the twelve months ended december 31 , 2018 compared to the prior year . selling , general and administrative expenses .
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risk factors ” and “ cautionary note regarding forward-looking statements , ” included elsewhere in this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements or implied in historical results and trends . the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. overview we are a clinical and preclinical stage oncology focused antisense drug development company utilizing a novel technology that achieves systemic delivery for target specific protein inhibition for any gene product that is over-expressed in disease . our drug delivery and antisense technology , called dnabilize , is a platform that uses p-ethoxy , which is a dna backbone modification that is intended to protect the dna from destruction by the body 's enzymes when circulating in vivo , incorporated inside of a neutral charged lipid bilayer . we believe this combination allows for high efficiency loading of antisense dna into non-toxic , cell-membrane-like structures for delivery of the antisense drug substance into cells . in vivo , the dnabilize delivered antisense drug substances are systemically distributed throughout the body to allow for reduction or elimination of proteins in blood diseases and solid tumors . using dnabilize as a platform for drug manufacturing , we currently have two antisense drug candidates in development to treat a total of five different disease indications . our lead drug candidate , prexigebersen , the unique nonproprietary ( generic ) drug name for bp1001 designated by the united states adopted names council , targets the protein grb2 and has entered the efficacy portion of phase ii clinical trials for aml and is preparing to enter the safety segment of a phase ii clinical trial for blast phase and accelerated phase cml . prexigebersen is also in preclinical studies for solid tumors , including ovarian and breast cancer . our second drug candidate , bp1002 , targets the protein bcl2 , which is responsible for driving cell proliferation in up to 60 % of all cancers . bp1002 is in preparation for an ind application and expected to begin a phase i clinical trial for lymphoma in 2017. we currently maintain the license agreement with md anderson , under which we license from md anderson the delivery technology platform and prexigebersen and bp1002 . we are developing antisense drug candidates to treat cancer and autoimmune disorders where targeting a single protein may be advantageous and result in reduced adverse effects as compared to small molecule inhibitors with off-target and non-specific effects . we have composition of matter and method of use intellectual property for the manufacture of neutral charged dna-liposome complexes . as of december 31 , 2016 , we had an accumulated deficit of $ 32.1 million . our net loss was $ 6.8 million , $ 5.5 million and $ 4.5 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . we expect to continue to incur significant operating losses and we anticipate that our losses may increase substantially as we expand our drug development programs and commercialization efforts . to achieve profitability , we must enter into license or development agreements with third parties , or successfully develop and obtain regulatory approval for one or more of our drug candidates and effectively commercialize any drug candidates we develop . in addition , if we obtain regulatory approval for one or more of our drug candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . there can be no assurance that we will be able to raise additional capital when needed or on terms that are favorable to us , if at all . even if we succeed in developing and commercializing one or more of our drug candidates , we may not be able to generate sufficient revenue and we may never be able to achieve or sustain profitability . financial operations overview revenue we have not generated significant revenues to date . our ability to generate revenues from our drug candidates , which we do not expect will occur for many years , if ever , will depend heavily on the successful development and eventual commercialization of our drug candidates . during 2016 , the company entered into a fixed fee service agreement with a preclinical stage biotechnology company in connection with a development project involving our dnabilize technology , pursuant to which we agreed to perform certain evaluation services in exchange for $ 50,000. as of december 31 , 2016 , the company has recorded $ 13,000 in revenue under the agreement . payments received prior to the company 's performance of work are recorded as deferred revenue and recognized as revenue once the work is performed . in the future , we may generate revenue from a combination of product sales , third-party grants , service agreements , strategic alliances and licensing arrangements . we expect that any revenue we generate will fluctuate due to the timing and amount of services performed , milestones achieved , license fees earned and payments received upon the eventual sales of our drug candidates , in the event any are successfully commercialized . if we fail to complete the development of any of our drug candidates or obtain regulatory approval for them , our ability to generate future revenue will be adversely affected . 43 research and development expenses research and development expenses consist of costs associated with our research activities , including the development of our drug candidates . story_separator_special_tag the 2014 shelf registration statement was filed to register the offering and sale of up to $ 100.0 million of our common stock , preferred stock , warrants to purchase common stock or preferred stock or any combination thereof , either individually or in units . on december 20 , 2016 , we filed a shelf registration on form s-3 with the sec , which was declared effective by the sec on january 9 , 2017 ( the “ 2017 shelf registration statement ” ) , at which time the offering of unsold securities under 2014 shelf registration statement was deemed terminated pursuant to rule 415 ( a ) ( 6 ) under the securities act . the 2017 registration statement was filed to register the offering , issuance and sale of ( i ) up to $ 125.0 million of our common stock , preferred stock , warrants to purchase common stock or preferred stock or any combination thereof , either individually or in units , including offers and sales of our common stock under the controlled equity offering sm sales agreement ( the “ sales agreement ” ) with cantor fitzgerald & co. ( “ cantor fitzgerald ” ) described below and ( ii ) up to 5,441,176 shares of our common stock pursuant to the exercise of warrants that were issued in the 2014 registered direct offering and the 2016 registered direct offering , each as described below . the foregoing does not constitute an offer to sell or the solicitation of an offer to buy securities , and shall not constitute an offer , solicitation or sale in any jurisdiction in which such offer , solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction . 2014 registered direct offering on january 15 , 2014 , we entered into a securities purchase agreement , as amended , with certain investors , pursuant to which we agreed to sell an aggregate of 5.0 million shares of our common stock and warrants to purchase a total of 2.5 million shares of our common stock to such certain investors for gross proceeds of approximately $ 15.0 million under the 2014 shelf registration statement ( the “ 2014 registered direct offering ” ) . the 2014 registered direct offering closed on january 21 , 2014. the net proceeds to the company from the 2014 registered direct offering , after deducting the placement agent 's fees and expenses , our estimated offering expenses , and excluding any potential future proceeds from the exercise of the warrants issued in the offering , were approximately $ 13.8 million . “ at the market ” offering on june 24 , 2015 , we entered into the sales agreement with cantor fitzgerald , as sales agent , pursuant to which we may offer and sell , from time to time , through cantor fitzgerald shares of our common stock . sales of shares of common stock under the sales agreement will be made pursuant to the 2017 shelf registration statement and a related prospectus filed with the sec on january 10 , 2017 , for an aggregate offering price of up to $ 25.0 million . under the sales agreement , cantor fitzgerald may sell shares by any method deemed to be an “ at the market ” offering as defined in rule 415 under the securities act . we will pay cantor fitzgerald a commission of 3.4 % of the aggregate gross proceeds from each sale of shares under the sales agreement and have agreed to provide cantor fitzgerald with customary indemnification and contribution rights . we have also agreed to reimburse cantor fitzgerald for certain specified expenses . pursuant to the securities purchase agreement described below , we are subject to certain restrictions on our ability to offer and sell shares of our common stock under the sales agreement . as of december 31 , 2016 , we have not offered or sold any shares of common stock under the sales agreement . 2016 registered direct offering on june 29 , 2016 , we entered into a securities purchase agreement ( the “ securities purchase agreement ” ) with certain healthcare focused institutional investors pursuant to which we agreed to sell an aggregate of 5,882,352 shares of our common stock and warrants to purchase up to 2,941,176 shares of our common stock for gross proceeds of approximately $ 10.0 million under the 2014 registration statement ( the “ 2016 registered direct offering ” ) . the 2016 registered direct offering closed on july 5 , 2016. the net proceeds to the company from the 2016 registered direct offering , after deducting the placement agent 's fees and expenses and our offering expenses , and excluding the proceeds , if any , from the exercise of the warrants issued in the offering , were approximately $ 9.3 million . for more information , see note 1 to the consolidated financial statements included herein . future capital requirements we expect to continue to incur significant operating expenses in connection with our ongoing activities , including conducting clinical trials , manufacturing and seeking regulatory approval of our drug candidates , prexigebersen and bp1002 . accordingly , we will continue to require substantial additional capital to fund our projected operating requirements . such additional capital may not be available when needed or on terms favorable to us . in addition , we may seek additional capital due to favorable market conditions or strategic considerations , even if we believe we have sufficient funds for our current and future operating plan . there can be no assurance that we will be able to continue to raise additional capital through the sale of our securities in the future . our future capital requirements may change and will depend on numerous factors , which are discussed in detail in “ item 1a . risk factors ” of this annual report on form 10-k. off-balance sheet arrangements as of december 31 , 2016 , we did not have any material off-balance sheet arrangements .
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results of operations comparisons of the year ended december 31 , 2016 to the year ended december 31 , 2015 revenue . our revenue was $ 13,000 for the year ended december 31 , 2016. we had no revenue in the year ended december 31 , 2015. the increase in revenue represents revenue that has been recorded pursuant to a fixed fee service agreement with a preclinical stage biotechnology company in connection with a development project involving our dnabilize technology , pursuant to which we agreed to perform certain evaluation services in exchange for $ 50,000. payments received prior to the company 's performance of work are recorded as deferred revenue and recognized as revenue once the work is performed . research and development expenses . our research and development expense was $ 5.5 million for the year ended december 31 , 2016 , an increase of $ 2.5 million compared to the year ended december 31 , 2015. the increase in research and development expense was primarily due to the release of drug material for our phase ii clinical trial for prexigebersen in aml and associated clinical trial costs as well as increased salaries and benefits expense . the following table sets forth our research and development expenses ( in thousands ) : replace_table_token_2_th general and administrative expenses . our general and administrative expense was $ 3.0 million for the year ended december 31 , 2016 , an increase of $ 0.5 million compared to the year ended december 31 , 2015. the increase in general and administrative expense was primarily due to increased third party fees related to corporate communications , stock-based compensation expense and salaries and benefits expense . the following table sets forth our general and administrative expenses ( in thousands ) : replace_table_token_3_th net operating loss . our net loss from operations was $ 8.5 million for the year ended december 31 , 2016 , an increase of $ 3.0
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the decrease in row aranesp ® sales for 2014 reflects price declines offset partially by unit demand in international markets . the decrease in u.s. aranesp ® sales for 2013 was driven by declines in unit demand . the unit declines reflect changes in practice patterns resulting from changes to the label and to the reimbursement environment that occurred during 2011. the decrease in row aranesp ® sales for 2013 reflects unit declines and price pressure in europe . sensipar ® /mimpara ® total sensipar ® /mimpara ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_13_th the increases in global sensipar ® /mimpara ® sales for 2014 and 2013 were driven primarily by unit growth and increases in the average net sales price in the united states ; however , the increases in 2014 were offset partially by unfavorable changes in u.s. wholesaler and , based on prescription data , end-user inventories . 47 other products other product sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_14_th * change in excess of 100 % operating expenses operating expenses were as follows ( dollar amounts in millions ) : replace_table_token_15_th * change in excess of 100 % restructuring we announced a restructuring plan during the second half of 2014 to invest in continuing innovation and the launch of our new pipeline molecules while improving our cost structure . as part of the plan , we stated that we would reduce our staff by 3,500 to 4,000 by the end of 2015 and close our facilities in washington state and colorado and reduce the number of buildings at our headquarters in thousand oaks , california . company-wide , these actions will result in an approximate 23 % reduction in our facilities footprint . we estimate that these actions will result in pre-tax accounting charges in the range of $ 935 million to $ 1,035 million . during the year ended december 31 , 2014 , we initiated the above-noted actions and incurred $ 558 million of restructuring costs . we expect that substantially all remaining restructuring actions and related estimated costs will be incurred in 2015 . 48 net savings were not significant in 2014 due to investments in later stage clinical programs , new product launch preparation and external business development . additional information required for our restructuring plan is incorporated herein by reference to part iv—note 2 , restructuring and other cost savings initiatives , to the consolidated financial statements . cost of sales cost of sales increased to 22.0 % of total revenues for 2014 , driven by acquisition-related expenses that included an increase of $ 642 million of non-cash amortization of intangible assets acquired in the onyx acquisition . the year ended december 31 , 2014 , also included impairment and accelerated depreciation charges pursuant to our restructuring initiative of $ 104 million and a $ 99-million charge related to the termination of the supply contract with roche as a result of acquiring the licenses to filgrastim and pegfilgrastim effective january 1 , 2014. cost of sales decreased to 17.9 % of total revenues for 2013 , driven primarily by lower royalties and higher average net sales prices , offset partially by changes in product mix . the excise tax imposed by puerto rico on the gross intercompany purchase price of goods and services from our manufacturer in puerto rico ( puerto rico excise tax ) also slightly contributed to the decrease . the rate was 3.75 % in 2012 , 2.75 % in the first half of 2013 and 4.0 % effective july 1 , 2013 through december 31 , 2017. see part iv—note 5 , income taxes , to the consolidated financial statements for further discussion of the puerto rico excise tax . excluding the impact of the excise tax , cost of sales would have been 20.1 % , 16.0 % and 16.5 % of total revenues for 2014 , 2013 and 2012 , respectively . research and development r & d costs are expensed as incurred and include primarily salaries , benefits and other staff-related costs ; facilities and overhead costs ; clinical trial and related clinical manufacturing costs ; contract services and other outside costs ; information systems ' costs and amortization of acquired technology used in r & d with alternative future uses . r & d expenses also include costs and cost recoveries associated with k-a and third-party r & d arrangements , including upfront fees and milestones paid to third parties in connection with technologies which had not reached technological feasibility and did not have an alternative future use . net payment or reimbursement of r & d costs is recognized when the obligations are incurred or as we become entitled to the cost recovery . the company groups all of its r & d activities and related expenditures into three categories : ( 1 ) discovery research and translational sciences ( drts ) , ( 2 ) later stage clinical programs and ( 3 ) marketed products . these categories include the company 's r & d activities as set forth in the following table : category description drts r & d expenses incurred in activities substantially in support of early research through the completion of phase 1 clinical trials . these activities encompass our drts functions , including drug discovery , toxicology , pharmacokinetics and drug metabolism , and process development . story_separator_special_tag later stage clinical programs r & d expenses incurred in or related to phase 2 and phase 3 clinical programs intended to result in registration of a new product or a new indication for an existing product in the united states or the eu . marketed products r & d expenses incurred in support of the company 's marketed products that are authorized to be sold in the united states or the eu . includes clinical trials designed to gather information on product safety ( certain of which may be required by regulatory authorities ) and their product characteristics after regulatory approval has been obtained , as well as the costs of obtaining regulatory approval of a product in a new market after approval in either the united states or the eu has been obtained . r & d expense by category was as follows ( in millions ) : replace_table_token_16_th 49 the increase in r & d expense for 2014 was driven primarily by increased costs of $ 326 million associated with onyx across all categories of r & d spend , as well as increased costs associated with other later stage clinical program support . overall , costs associated with later stage clinical programs support increased $ 337 million , offset partially by reduced expenses associated with marketed products support of $ 102 million and drts activities of $ 21 million . drts expenses included a $ 60 million upfront payment related to our cancer immunotherapy collaboration with kite pharma , inc. the increase in r & d expense for 2013 was driven primarily by an increase of $ 665 million in our later stage clinical programs , including evolocumab and kyprolis ® ; and an increase of $ 96 million in drts activities , offset partially by reduced expenses associated with marketed products support of $ 58 million . selling , general and administrative sg & a expenses are comprised primarily of salaries , benefits and other staff-related costs associated with sales and marketing , finance , legal and other administrative personnel ; facilities and overhead costs ; outside marketing , advertising and legal expenses ; the bpd fee ; and other general and administrative costs . advertising costs are expensed as incurred . sg & a expenses also include costs and cost recoveries associated with marketing and promotion efforts under certain collaboration arrangements . net payment or reimbursement of sg & a costs is recognized when the obligations are incurred or we become entitled to the cost recovery . the decrease in sg & a expense for 2014 was driven primarily by the expiration of the enbrel profit share in october 2013 , which reduced expenses by $ 818 million . that decline was offset partially by the addition of $ 183 million as a result of the onyx acquisition , an additional $ 129 million accrual for the bpd fee as the final regulations accelerated the expense recognition criteria for the fee obligation by one year and increased commercial expenses of $ 109 million in preparation for new product launches . historically , under our enbrel collaboration agreement , we paid pfizer a percentage of annual gross profits on our enbrel sales in the united states and canada on a scale that increased with gross profits . the enbrel co-promotion term expired on october 31 , 2013 , and we are required to pay pfizer residual royalties on a declining percentage of net enbrel sales in the united states and canada . the royalty percentage was 12 % through october 31 , 2014 , declining to 11 % through october 31 , 2015 and 10 % through october 31 , 2016. the increase in sg & a expense for 2013 was driven primarily by the addition of onyx of $ 276 million , of which $ 215 million was acquisition-related . included in these costs are advisory , legal and regulatory costs , and compensation-related payments . the compensation payments include cash payments for accelerated vesting of equity awards as part of the acquisition that were previously granted under the onyx equity award programs which would not have otherwise vested . sg & a also increased by $ 98 million related primarily to favorable changes in 2012 to the estimated bpd fee . other other operating expenses for 2014 included certain charges related to our restructuring plan , primarily separation costs of $ 377 million . it also included a $ 46 million write-off of a non-key ipr & d program acquired in a prior year business combination . other operating expenses for 2013 included $ 113 million of adjustments to our estimated contingent consideration liability related to the biovex group , inc. ( biovex ) business combination , certain charges related to our other cost savings initiatives of $ 71 million , which included severance expenses , and $ 12 million of other charges related primarily to legal proceedings . other operating expenses for 2012 included charges of $ 175 million related to our other cost savings initiatives , which included severance and expenses associated with abandoning leased facilities , legal charges of $ 64 million and other operating expenses of $ 56 million , comprised primarily of adjustments to our estimated contingent consideration liability related to the biovex business combination . non-operating expenses/income and provision for income taxes non-operating expenses/income and provision for income taxes were as follows ( dollar amounts in millions ) : replace_table_token_17_th 50 interest expense , net the increase in interest expense , net in 2014 was due primarily to a higher average balance of debt outstanding offset partially by lower average borrowing rates compared with 2013. the decrease in interest expense , net in 2013 compared with 2012 was due primarily to the decrease in non-cash interest resulting from the settlement of our 0.375 % 2013 convertible notes in february 2013 offset partially by increases resulting from the higher average balance of other outstanding debt and financing fees
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results of operations product sales worldwide product sales were as follows ( dollar amounts in millions ) : replace_table_token_7_th future sales of our products will depend , in part , on the factors discussed in the overview , part 1—item 1. business—marketing , distribution and selected marketed products—competition , part 1—item 1a . risk factors and any additional factors discussed in the individual product sections below . in addition , for a list of our products ' significant competitors , see part 1—item 1. business—marketing , distribution and selected marketed products—competition . neulasta ® /neupogen ® total neulasta ® and total neupogen ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_8_th the increase in global neulasta ® sales for 2014 was driven primarily by an increase in the average net sales price in the united states . the decrease in global neupogen ® sales for 2014 was driven by the $ 155-million order from the u.s. government in 2013. excluding the special order , u.s. and global sales declined 17 % and 7 % , respectively , which reflected decreases in unit demand in the united states , offset partially by the increased sales as a result of acquiring rights to filgrastim in certain regions effective january 1 , 2014. in december 2014 , the fda granted approval of the neulasta ® delivery kit , including the on-body injector for neulasta ® , which enables the healthcare provider to initiate administration of neulasta ® on the same day as cytotoxic chemotherapy with delivery of the patient 's full dose of neulasta ® the day following chemotherapy administration , consistent with the neulasta ® prescribing information . the increase in global neulasta ® sales for 2013 was driven by an increase in the average net sales price in the united states , offset partially by a decline in units . the increase in global neupogen ® sales for 2013 was driven by the $ 155-million order 45 from the u.s.
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this discussion contains forward-looking statements , within the meaning of section 27a of securities act , section 21e of the exchange act , and the private securities litigation reform act of 1995 , including statements regarding our expected financial condition , business and financing plans . these statements involve risks and uncertainties . our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly under the heading “ risk factors. ” overview we are a biopharmaceutical company focused on developing and commercializing therapeutic products for the prevention and treatment of infectious and inflammatory diseases . 36 our primary focus is to develop our lead product candidate , neutrolin ® , for potential commercialization in the u.s. and other key markets . we have in-licensed the worldwide rights to develop and commercialize neutrolin , which is a novel anti-infective solution ( a formulation of taurolidine , citrate and heparin 1000 u/ml ) under development in the u.s. for the reduction and prevention of catheter-related infections and thrombosis in patients requiring central venous catheters in clinical settings such as dialysis , critical/intensive care , and oncology . infection and thrombosis represent key complications among critical care/ intensive care and cancer patients with central venous catheters . these complications can lead to treatment delays and increased costs to the healthcare system when they occur due to hospitalizations , the need for iv antibiotic treatment , long-term anticoagulation therapy , removal/replacement of the central venous catheter , related treatment costs and increased mortality . we believe neutrolin has the potential to address a significant unmet medical need and represents a significant market opportunity . in july 2013 , we received ce mark approval for neutrolin . in december 2013 , we commercially launched neutrolin in germany for the prevention of catheter-related bloodstream infections and maintenance of catheter patency in hemodialysis patients using a tunneled , cuffed central venous catheter for vascular access . to date , neutrolin is registered and may be sold in certain european union and middle eastern countries for such treatment . in april 2017 , we entered into a commercial collaboration with hemotech sas covering france and french overseas territories . we initiated a phase 3 clinical trial in hemodialysis patients with a central venous catheter ( “ lock-it-100 ” ) in december 2015 two pivotal trials to demonstrate the safety and effectiveness of neutrolin are required by the u.s. food and drug administration ( “ fda ” ) to secure marketing approval in the united states . in april 2017 , a safety review by an independent data safety monitoring board , or dsmb was completed . the dsmb unanimously concluded that it is safe to continue the lock-it-100 clinical trial as designed based on its evaluation of data from the first 279 patients randomized into the trial . on august 2 , 2017 , we announced that the fda had agreed to key changes to the lock-it-100 clinical trial . we believe that the changes endorsed by the fda will facilitate our ability to complete patient enrollment of our the ongoing phase 3 clinical trial in hemodialysis patients with central venous catheters , as previously announced , in mid-year 2018 , and to complete the trial once we have accumulated the requisite number of crbsi events . we sought guidance from the fda to address , in part , the apparent overall lower rate of catheter-related blood stream infection ( crbsi ) events from patients in the study , as announced in april 2017. changes to the study included 1 ) the utilization of a clinical adjudication committee ( cac ) to assess suspected crbsis ; 2 ) the use of the cac to critically and independently assess suspected crbsis in a blinded fashion based on a single positive blood culture and supporting documentation , rather than two positive blood cultures as required per protocol ; 3 ) the ability to capture cases occurring outside of dialysis centers to facilitate more complete capture of crbsi events in the study , particularly when patients present with crbsi events outside of the dialysis center setting e.g . emergency rooms or urgent care centers ; and 4 ) a revision of the design of the study to detect a treatment effect of 55 % or greater when comparing the neutrolin and heparin control arms . the fda agreed that cases adjudicated by the cac to be crbsi events and the per protocol definition of crbsi events will be included in the primary analysis of the primary efficacy endpoint of the lock-it-100 study . the amended study assumptions including a reduction in statistical power have resulted in a reduction in the total number of crbsi events required from 161 events to 56 events to complete the study . we believe that these changes will allow the identification of more infections , enabling a single interim analysis , which is anticipated to occur in the second quarter of 2018. should the interim analysis show sufficient efficacy it may be possible to conclude the study earlier than projected . we are sponsoring a pre-clinical research collaboration for the use of taurolidine as a possible combination treatment for rare orphan pediatric tumors . in february 2018 , the fda granted orphan drug designation to taurolidine for the treatment of neuroblastoma . we are also evaluating opportunities for the possible expansion of taurolidine as a platform compound for use in certain medical devices . patent applications have been filed in wound closure , surgical meshes , wound management , and osteoarthritis , including visco-supplementation . based on initial feasibility work , we are advancing pre-clinical studies for taurolidine-infused surgical meshes , suture materials , and hydrogels . we will seek to establish development/commercial partnerships as these programs advance . 37 in august 2017 , the company secured a research grant from the national institutes of health ( nih ) to expand the company 's antimicrobial hydrogel medical device program . story_separator_special_tag at december 31 , 2017 , the total cost of the contract had increased to $ 32.7 million from its original amount of $ 19.2 million , of which approximately $ 14.4 million has been expended through december 31 , 2017. we are pursuing additional opportunities to generate value based on taurolidine , an active component of neutrolin . based on initial feasibility work , we are advancing pre-clinical studies for taurolidine-infused surgical meshes , suture materials , and hydrogels , which will require a pma regulatory pathway for approval . we are also involved in a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors . in february 2018 , the fda granted orphan drug designation to taurolidine for the treatment of neuroblastoma . selling , general and administrative expense selling , general and administrative , or sg & a , expense includes costs related to commercial personnel , medical education professionals , marketing and advertising , salaries and other related costs , including stock-based compensation expense , for persons serving in our executive , sales , finance and accounting functions . other sg & a expense includes facility-related costs not included in r & d expense , promotional expenses , costs associated with industry and trade shows , and professional fees for legal services and accounting services . change in fair value of derivative liabilities in november 2017 , we entered into a backstop agreement with an existing long-term institutional investor to purchase additional series f convertible preferred stock at $ 1,000 per share , at our sole discretion , beginning january 15 , 2018 through march 31 , 2018. as consideration for the backstop agreement , we issued 564,858 warrants , exercisable for three years , to purchase shares of our common stock at a per share exercise price of $ 0.001. these warrants were initially classified as derivative liability as we had a conditional obligation to settle these warrants by issuing a variable number of shares with variations of the obligation based on inputs other than the fair value of our shares ( i.e . the amount subject to the backstop agreement ) . in november 2017 , we initially recorded a derivative liability of $ 270,592 and a corresponding reduction to additional paid in capital based on the initial black scholes valuation . in december 2017 , the number of warrants issued was determined and , as a result , the derivative liability was reclassified to equity . prior to the reclassification to equity , an expense of $ 56,487 for the change in fair value of derivative liability was recorded on our consolidated statement of operations and comprehensive income ( loss ) during the fourth quarter of 2018. as previously disclosed , at the time we issued the warrants in our may 2017 public offering , we did not have a sufficient number of authorized shares of common stock to cover the shares issuable upon exercise of the warrants and therefore recorded and classified the fair value of the warrants as a derivative liability at the issuance date and marked-to-market at each balance sheet date . the change in the fair value of derivative liability is the difference between the fair value of the warrants recorded on issuance date and the fair value of warrants at the balance sheet date , with any decrease or increase in the estimated fair value being recorded in other income ( expense ) . on august 9 , 2017 , we amended our certificate of incorporation to increase our authorized shares and we , as of that date , have sufficient authorized shares to cover shares issuable upon the conversion of the warrants . the fair value of these warrants was re-measured on august 10 , 2017 , the date the warrants became exercisable , with any increase or decrease in value recorded as a loss or gain in the income statement and the fair value of the warrants at august 10 , 2017 was reclassified from liability to equity . 39 foreign currency exchange transaction gain ( loss ) foreign currency exchange transaction gain ( loss ) is the result of re-measuring transactions denominated in a currency other than our functional currency and is reported in the consolidated statement of operations as a separate line item within other income ( expense ) . the intercompany loans outstanding are not expected to be repaid in the foreseeable future and the nature of the funding advanced is of a long-term investment nature . as such , unrealized foreign exchange movements related to long-term intercompany loans are recorded in other comprehensive income ( loss ) . interest income interest income consists of interest earned on our cash and cash equivalents and short-term investments . interest expense interest expense consists of interest incurred on financing of expenditures . story_separator_special_tag $ 17,000 and $ 19,000 gains in 2017 and 2016 , respectively . liquidity and capital resources sources of liquidity as a result of our cost of sales , r & d and sg & a expenditures and the lack of substantial product sales revenue , we have not been profitable and have generated operating losses since we began operations . during the year ended december 31 , 2017 , we received net proceeds of $ 12,798,000 from the may 2017 public offering resulting from the issuance of an aggregate of 18,619,301 and 29,046,110 shares of common stock and warrants , respectively ; $ 5,543,000 from the issuance of 8,925,504 shares of common stock under our at-the-market-issuance sales agreement ; $ 1,877,000 from the issuance of 2,000 shares of our series f convertible preferred stock ; $ 300,000 from the sale of 624,246 shares of common stock to our directors and executive officers and to certain of our employees ; and $ 6,800 from the exercise of 10,000 stock options .
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results of operations comparison of the years ended december 31 , 2017 and 2016 the following is a tabular presentation of our consolidated operating results for the years ended december 31 ( in thousands ) : replace_table_token_2_th revenue . revenue for the year ended december 31 , 2017 was $ 329,000 as compared to $ 224,000 for the same period in 2016 , an increase of $ 105,000. the increase occurred due to higher sales of neutrolin in the european union of $ 110,000 , particularly in france under the distribution agreement with hemotech . cost of sales . cost of sales for the year ended december 31 , 2017 was $ 115,000 as compared to $ 367,000 for the same period in 2016 , a decrease of $ 252,000. the decrease reflected a $ 327,000 reduction in inventory reserve during the year ended december 31 , 2017 as compared to an increase of $ 130,000 in the inventory reserve for the same period in 2016. the reduction of inventory reserve in 2017 was mainly due to higher sales in 2017 as compared to 2016 , and longer shelf life of the products manufactured . the decrease was partially offset by a $ 148,000 increased cost of materials related to higher sales during the year ended december 31 , 2017 and an increase in ongoing stability studies cost of $ 81,000 . 40 research and development expense .
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we have a loan agreement with midfirst bank ( “ the bank ” ) including term loan # 1 comprised of tranche a of $ 11.5 million and tranche b of $ 4.3 million , both with the maturity date of december 1 , 2025. tranche a has a fixed interest rate of 4.23 % and interest is payable monthly . the loan agreement also includes term loan # 2 in the amount of $ 3.0 million , which is secured by a warehouse and land with the maturity date of june 28 , 2021 , and a $ 15.0 million revolving loan ( “ line of credit ” ) through august 15 , 2020. on june 15 , 2018 , the company executed the eighth amendment loan agreement with the bank which extended the termination date until august 15 , 2019 , reduced the interest rate pricing grid for all floating rate borrowings covered by the loan agreement , released the personal guaranty of randall w. white and carol white , along with other covenant restrictions being lessened . the amendment also included an adjustment to the adjusted funded debt to ebitda ratio for covenant compliance . on february 7 , 2019 , the company executed the ninth amendment loan agreement which removed the covenant prohibiting the company from repurchasing its shares and identified certain limitations on the amount of funds that the company could use to repurchase shares . on august 15 , 2019 , the company executed the tenth amendment loan agreement which extended the termination date of the line of credit to august 15 , 2020 , amended the definition of libor margin , reduced the frequency of reports to the lender , amended the adjusted funded debt to ebitda ratio and amended the compliance and borrowing base certificates reporting requirements . we had no borrowings outstanding on our revolving credit agreement at february 29 , 2020 and february 28 , 2019. available credit under the revolving credit agreement was $ 11.0 million and $ 12.4 million at february 29 , 2020 and february 28 , 2019 , respectively . tranche b of term loan # 1 , term loan # 2 and the line of credit accrue interest monthly , at the bank adjusted libor index plus a tiered pricing rate based on the company 's adjusted funded debt to ebitda ratio ( 3.89 % at february 29 , 2020 ) . 13 the loan agreement also contains a provision for our use of the bank 's letters of credit . the bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that the sum of the line of credit plus the letters of credit issued would not exceed the borrowing base in effect at the time . for the year ended february 29 , 2020 , we had no letters of credit outstanding . the agreement contains provisions that require us to maintain specified financial ratios , restrict transactions with related parties , prohibit mergers or consolidation , disallow additional debt , and limit the amounts of dividends declared , investments , capital expenditures , leasing transactions , and establish a dollar limit on the amount of shares that can be repurchased . the following table reflects aggregate future maturities of long-term debt during the next five fiscal years and thereafter as follows : replace_table_token_7_th in september 2002 , the board of directors authorized a minimum annual cash dividend of 20 % of net earnings . on february 16 , 2017 , we announced that we were suspending dividends to focus all resources and cash requirements toward financing future growth . in may 2018 , the board of directors of the company approved the reinstatement of dividends . in april 2008 , our board of directors amended our 1998 stock repurchase plan , establishing that we may purchase up to an additional 1,000,000 shares as market conditions warrant . in february 2019 , our board of directors approved a new stock repurchase plan to replace the amended 2008 plan . under the new 2019 plan , the company is authorized to purchase up to 800,000 shares of common stock , which represented approximately 10 % of the outstanding shares as of february 28 , 2019 , of which 537,159 remains available to purchase as of february 29 , 2020. management believes using excess liquidity to purchase outstanding shares enhances the value to the remaining shareholders and that these repurchases will have no adverse effect on our short-term and long-term liquidity . contractual obligations we are a smaller reporting company and are not required to provide this information . off balance sheet arrangements as of february 29 , 2020 , we had no off-balance sheet arrangements that have , or are reasonably likely to have , a current or future material effect on our financial condition , results of operations , liquidity , capital expenditures or capital resources . seasonality the company experiences increased sales in the fall season . we experience an increase in inventory during the summer in anticipation for the fall increase in sales . in addition , new titles are released twice a year , in the spring and fall , which increases our inventory the months preceding these scheduled releases . the company uses available cash or working capital borrowings to fund these increases in inventory . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . story_separator_special_tag the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our valuation of inventory , allowance for uncollectible accounts receivable , allowance for sales returns , long-lived assets and deferred income taxes . 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 . 14 actual results may materially differ from these estimates under different assumptions or conditions . historically , however , actual results have not differed materially from those determined using required estimates . our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at the date of grant . for awards subject to service conditions , compensation expense is recognized over the vesting period on a straight-line basis . awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche . forfeitures are recognized when they occur . the restricted share awards granted under the 2019 long-term incentive plan ( “ 2019 lti plan ” ) contain both service and performance conditions . the company recognizes share compensation expense only for the portion of the restricted share awards that are considered probable of vesting . shares are considered granted , and the service inception date begins , when a mutual understanding of the key terms and conditions between the company and the employees have been established . the fair value of these awards are determined based on the closing price of the shares on the grant date . the probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment . for certain awards that provide discretion to adjust the allocation of the restricted shares , the service-inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions between the company and the employees has not yet been established . for awards in which the service-inception date precedes the grant date , compensation cost is accrued beginning on the service-inception date . the company estimates the award 's fair value on each subsequent reporting date , until the grant date , based on the closing market price of the company 's common stock . on the grant date , the award 's fair value is fixed , subject to the remaining performance conditions , and the cumulative amount of previously recognized compensation expense is adjusted to the fair value at the grant date . during fiscal years 2020 and 2019 , the company recognized $ 0.7 million and $ 0.4 million , respectively , of compensation expense associated with the shares granted . revenue recognition sales associated with product orders are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are generally paid at the time the product is ordered . sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet . sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . estimated allowances for sales returns are recorded as sales are recognized . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily received from the retail stores of our publishing division . those damages occur in the stores , not in shipping to the stores , and we typically do not offer credit for damaged returns . it is industry practice to accept non-damaged returns from retail customers . management has estimated and included a reserve for sales returns of $ 0.2 million for the fiscal years ended february 29 , 2020 and february 28 , 2019. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns ( collectively “ allowance for doubtful accounts ” ) . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 0.2 million and $ 0.3 million as of february 29 , 2020 and february 28 , 2019 , respectively . included within this allowance is $ 0.1 million of reserve for vendor discounts to sell remaining inventory as of february 29 , 2020 and february 28 , 2019. inventory our inventory contains over 2,000 titles , each with different rates of sale depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in china , europe , singapore , india , malaysia and
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result of operations the following table shows our statements of earnings data : replace_table_token_4_th see the detailed discussion of net revenues , gross margin and operating expenses by reportable segment below . the following is a discussion of significant changes in the non-segment related operating expenses , other income and expenses and income taxes during the respective periods . non-segment operating results operating expenses not associated with a reporting segment were $ 13.1 million for fiscal year ended february 29 , 2020 compared to $ 13.6 million for the same period a year ago . operating expenses decreased $ 0.5 million due to a decrease in freight handling costs of $ 0.2 million from a reduction in shipments compared to the prior fiscal year , a $ 0.2 million decrease in payroll primarily related to $ 0.1 million of reduced wages in our warehouse due to less revenues and a $ 0.1 million decrease in short-term incentive plan expenses for current year , and reduced bank fees of $ 0.1 million due to improved pricing agreements . interest expense remained consistent totaling $ 0.9 million for the fiscal year ended february 29 , 2020 , compared to $ 0.9 million reported for fiscal year ended february 28 , 2019. other income remained consistent totaling $ 1.6 million for the fiscal years ended february 29 , 2020 and february 28 , 2019. income taxes decreased $ 0.4 million to $ 2.1 million for the fiscal year ended february 29 , 2020 , from $ 2.5 million for the same period a year ago . this decrease was primarily related to a decrease in taxable income for the current fiscal year compared to prior fiscal year . the effective tax rate remained consistent at 27.2 % for the fiscal year ended february 29 , 2020 , as compared to 27.3 % for the fiscal year ended february 28 , 2019 .
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the provisions of this guidance are to be applied using a retrospective transition method to each period presented , and if it is impracticable to apply the amendments retrospectively for some of the issues , asu 2016-15 allows the amendments for those issues to be applied prospectively as of the earliest date practicable . asu 2015-16 is effective for annual reporting periods beginning after december 15 , 2017 , and interim periods within those years , with early adoption permitted . the company is evaluating the requirements of this guidance . the adoption is not expected to have a material impact on the company 's consolidated financial position , results of operations and cash flows . in june 2016 , the fasb issued accounting standards update no . 2016-13 , financial instruments - credit losses ( topic 326 ) , measurement of credit losses on financial instruments ( `` asu 2016-13 `` ) . asu 2016-13 changes how entities story_separator_special_tag this annual report on form 10-k , including the following management 's discussion and analysis , contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this annual report on form 10-k. for this purpose , any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements . words such as “ believes , ” “ plans , ” “ anticipates , ” “ expects , ” “ will ” and similar expressions are intended to identify forward-looking statements . our actual results may differ materially from the plans , intentions or expectations we disclose in the forward-looking statements we make . we have included important factors above under the heading “ risk factors ” in item 1a above that we believe could cause actual results to differ materially from the forward-looking statements we make . we are not obligated to publicly update any forward-looking statements , whether as a result of new information , future events or otherwise . accounting period our fiscal year ends on the sunday nearest december 31. we report fiscal years under a 52/53 week format and as a result , certain fiscal years will contain 53 weeks . each of the fiscal years ended january 1 , 2017 ( `` fiscal year 2016 '' ) and december 28 , 2014 ( `` fiscal year 2014 '' ) included 52 weeks . the fiscal year ended january 3 , 2016 ( `` fiscal year 2015 '' ) included 53 weeks . the additional week in fiscal year 2015 has been reflected in our third quarter . the fiscal year ending december 31 , 2017 will include 52 weeks . overview of fiscal year 2016 we realigned our businesses at the beginning of the fourth quarter of fiscal year 2016 to better organize around customer requirements , positioning us to grow in attractive end markets and expand share with our core product offerings . we created two new reporting segments , discovery & analytical solutions and diagnostics , which will enable us to deliver improved customer focus , more value-add collaboration and breakthrough innovations . microfluidics and automation products within our former research business were moved to a new applied genomics group within the diagnostics segment . in addition , we also moved our medical imaging business into discontinued operations due to its pending sale . the results reported for fiscal year 2016 reflect our new segment structure and the exclusion of our medical imaging business from continuing operations . financial information in this report relating to fiscal years 2015 and 2014 has been retrospectively adjusted to reflect these changes . during fiscal year 2016 , we continued to see good performance from acquisitions , investments in our ongoing technology and sales and marketing initiatives . our overall revenue in fiscal year 2016 increase d $ 10.7 million , or 1 % , as compared to fiscal year 2015 , reflecting an increase of $ 26.1 million , or 5 % , in our diagnostics segment revenue , which was partially offset by a decrease of $ 15.4 million , or 1 % , in our discovery & analytical solutions segment revenue . the decrease in our discovery & analytical solutions segment was primarily driven by decreases in revenue in our academic and government product offerings within our life sciences research market and a decrease in our environmental and food businesses due to weak harvest conditions , which were partially offset by increased demand in our laboratory services business . the increase in our diagnostics segment revenue during fiscal year 2016 was primarily due to strong performance of our newborn and infectious disease screening solutions in emerging markets such as china , as well as in europe . in our discovery & analytical solutions segment , excluding the unfavorable impact of foreign currency exchange , we experienced flat growth during fiscal year 2016 in several of our products within our life science research end market , as compared to fiscal year 2015 . during fiscal year 2016 , we experienced increased demand for our onesource laboratory service and informatics businesses . our onesource laboratory service business offers services designed to enable our customers to increase efficiencies and production time while reducing maintenance costs , all of which continue to be critical for them . this was offset by decreases in revenue in our environmental and food business due to weak harvest conditions as well as in our academic and government product offerings due to reduced government funding . we anticipate that the continued development of contaminant regulations and corresponding testing protocols will result in increased demand for efficient , analytically sensitive and information rich testing solutions . in our diagnostics segment , we experienced growth from continued expansion in our newborn screening , blood banking and screening businesses . story_separator_special_tag stock-based compensation expense was $ 1.0 million for fiscal year 2016 , as compared to $ 1.3 million for fiscal year 2015 . the amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $ 0.4 million for fiscal year 2016 , as compared to $ 7.3 million for fiscal year 2015 . acquisition and divestiture-related expenses , contingent consideration and other costs added an incremental expense of $ 0.1 million for each of fiscal years 2016 and 2015 . in addition to the factors noted above , the increase in gross margin was primarily the result of favorable changes in product mix , with an increase in sales of higher gross margin product offerings and benefits from our initiatives to improve our supply chain . 2015 compared to 2014 . cost of revenue for fiscal year 2015 was $ 1,140.6 million , as compared to $ 1,135.3 million for fiscal year 2014 , an increase of approximately $ 5.3 million , or 0.5 % . as a percentage of revenue , cost of revenue decrease d to 29 54.2 % in fiscal year 2015 from 54.8 % in fiscal year 2014 , resulting in an increase in gross margin of approximately 66 basis points to 45.8 % in fiscal year 2015 from 45.2 % in fiscal year 2014 . amortization of intangible assets decrease d and was $ 42.4 million for fiscal year 2015 , as compared to $ 48.7 million for fiscal year 2014 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 1.2 million for fiscal year 2015 , as compared to a loss of $ 8.2 million for fiscal year 2014 . stock-based compensation expense was $ 1.3 million for fiscal year 2015 , as compared to $ 1.4 million for fiscal year 2014 . the amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $ 7.3 million for fiscal year 2015 , as compared to $ 2.4 million for fiscal year 2014 . acquisition and divestiture-related expenses , contingent consideration and other costs added an incremental expense of $ 0.1 million for each of fiscal years 2015 and 2014 . in addition to the factors noted above , the increase in gross margin was primarily the result of benefits from our initiatives to improve our supply chain , which was partially offset by unfavorable changes in product mix , with an increase in sales of lower gross margin product offerings and negative impacts from foreign exchange rates . selling , general and administrative expenses 2016 compared to 2015 . selling , general and administrative expenses for fiscal year 2016 were $ 600.9 million , as compared to $ 587.2 million for fiscal year 2015 , an increase of approximately $ 13.7 million , or 2 % . as a percentage of revenue , selling , general and administrative expenses increase d to 28.4 % in fiscal year 2016 from 27.9 % in fiscal year 2015 . amortization of intangible assets increase d and was $ 40.7 million for fiscal year 2016 , as compared to $ 33.8 million for fiscal year 2015 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 14.9 million for fiscal year 2016 , as compared to a loss of $ 11.1 million for fiscal year 2015 . stock-based compensation expense decrease d and was $ 15.2 million for fiscal year 2016 , as compared to $ 15.5 million for fiscal year 2015 . during fiscal year 2015 , we recorded $ 0.8 million in legal costs for a particular case . acquisition and divestiture-related expenses , contingent consideration and other costs added an incremental expense of $ 17.5 million for fiscal year 2016 as compared to $ 0.7 million for fiscal year 2015 . in addition to the above items , the increase in selling , general and administrative expenses was primarily the result of costs related to growth investments , which was partially offset by the result of lower costs as a result of cost containment and productivity initiatives . 2015 compared to 2014 . selling , general and administrative expenses for fiscal year 2015 were $ 587.2 million , as compared to $ 648.2 million for fiscal year 2014 , a decrease of approximately $ 61.0 million , or 9 % . as a percentage of revenue , selling , general and administrative expenses decrease d to 27.9 % in fiscal year 2015 , compared to 31.3 % in fiscal year 2014 . amortization of intangible assets increase d and was $ 33.8 million for fiscal year 2015 , as compared to $ 32.2 million for fiscal year 2014 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 11.1 million for fiscal year 2015 , as compared to loss of $ 67.0 million for fiscal year 2014 . stock-based compensation expense increase d and was $ 15.5 million for fiscal year 2015 , as compared to $ 12.2 million for fiscal year 2014 . during fiscal year 2015 , we recorded $ 0.8 million in legal costs for a particular case compared to $ 6.6 million for fiscal year 2014 . during fiscal year 2014 , we recorded a benefit of $ 2.3 million for cost reimbursements related to a particular site , of which $ 1.2 million was for future monitoring and mitigation activities . acquisition and divestiture-related expenses , contingent consideration and other costs added an incremental expense of $ 0.7 million for fiscal year 2015 and $ 3.1 million for fiscal year 2014 . in addition to the above items , the decrease in selling , general and administrative expenses was primarily the result of lower costs as a result of cost containment and productivity initiatives , which was partially offset by the impact from foreign currency exchange rates , and the impact of an additional week during fiscal year 2015. research and development expenses 2016 compared to 2015 .
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fiscal year 2014 , a decrease of $ 196.2 million . for fiscal year 2015 , we used $ 72.0 million of net cash for acquisitions , as compared to $ 271.5 million used in fiscal year 2014 . capital expenditures for fiscal year 2015 were $ 28.2 million , primarily for manufacturing equipment and other capital equipment purchases , as compared to $ 27.2 million in fiscal year 2014 . these cash outflows were partially offset by proceeds from the settlement of life insurance policies of $ 0.8 million in fiscal year 2015 , as compared to $ 0.5 million in fiscal year 2014 . financing activities . net cash used in the financing activities of our continuing operations was $ 107.1 million for fiscal year 2015 , as compared to net cash provided by the financing activities of our continuing operations of $ 30.9 million for fiscal year 2014 , a change of $ 138.1 million . for fiscal year 2015 , we repurchased 1.5 million shares of our common stock , including 95,129 shares of our common stock pursuant to our equity incentive plans , for a total cost of $ 76.4 million , including commissions . this compares to repurchases of 1.4 million shares of our common stock , including 98,269 shares of our common stock pursuant to our equity incentive plans , for a total cost of $ 65.5 million , including commissions , for fiscal year 2014 . this use of cash in fiscal year 2015 was partially offset by proceeds from the issuance of common stock under stock plans of $ 14.9 million . this compares to proceeds from the issuance of common stock under stock plans of $ 24.5 million in fiscal year 2014 .
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million and $ 2.4 million for the years ended story_separator_special_tag the following information should be read in conjunction with the audited consolidated financial information and the notes thereto included in this annual report on form 10-k. in addition to historical information , the following discussion and other parts of this annual report contain forward-looking statements that involve risks and uncertainties . you should not place undue reliance on these forward-looking statements . actual events or results may differ materially due to competitive factors and other factors discussed in item 1a . “ risk factors ” and elsewhere in this annual report . these factors may cause our actual results to differ materially from any forward-looking statement . overview we are an industry leader for real-time operational intelligence and performance analytics for service assurance and cyber security solutions that are used in many of the most demanding service provider , enterprise and government networks . our solutions , based on proprietary adaptive service intelligence ( asi ) technology , help customers continuously monitor the service delivery environment to identify performance issues and to provide insight into network-based security threats . as a result , customers can quickly resolve issues that cause business disruptions or that adversely impact the user experience . we manufacture and market these products for integrated hardware and software solutions and are also well positioned to help customers deploy our software in commercial-off-the-shelf hardware and in virtualized form factors . regardless of the platform , customers use our solutions to help drive roi on their network and broader it initiatives while reducing the tangible risks associated with downtime , poor service quality and compromised security . we report revenues and income under five operating segments that aggregate under a single reportable segment . we have been a technology innovator for three-plus decades since our founding in 1984. our market-leading solutions change how organizations manage and optimize the delivery of business applications and services , assure user experience across global ip networks and help protect networks from unwanted security threats . through both internal development and acquisitions , we have continually enhanced and expanded our product portfolio to meet the evolving needs of customers worldwide . our software analytics capture and transform terabytes of network traffic data in real time into high value , actionable information that enables customers to optimize network performance , manage applications , enhance security and gain insight into the end-user experience . our mission is to enable enterprise and service providers to realize maximum benefit with minimal risk from technology advances , like ip convergence , network function virtualization ( nfv ) , software defined networking ( sdn ) , virtualization , cloud , mobility , bring your own device ( byod ) , web , and the evolving internet by managing the inherent complexity in a cost-effective manner . our asi technology , which we have developed in support of this mission , has the potential of not only expanding our leadership in our core markets , but can also serve as the underlying technology platform that can extend use of our solutions across our global customer base . our operating results are influenced by a number of factors , including , but not limited to , the mix and quantity of products and services sold , pricing , costs of materials used in our products , growth in employee related costs , including commissions , and the expansion of our operations . factors that affect our ability to maximize our operating results include , but 32 are not limited to , our ability to introduce and enhance existing products , the marketplace acceptance of those new or enhanced products , continued expansion into international markets , development of strategic partnerships , competition , successful acquisition integration efforts , our ability to achieve expense reductions and make structural improvements in the current economic conditions . on july 14 , 2015 , we completed the transaction , which was structured as a reverse morris trust transaction whereby danaher contributed the communications business to newco . the total equity consideration was approximately $ 2.3 billion based on issuing approximately 62.5 million new shares of netscout common stock to the existing holders of common units of newco , based on the july 13 , 2015 netscout common stock closing share price of $ 36.89 per share . the transaction is expected to more than double netscout 's total addressable market to over $ 8 billion by extending its reach into growth-oriented adjacent markets , including cyber security , with a broader range of market-leading products and capabilities , strengthen its go-to-market resources to better support a larger , more diverse and more global customer base , and increase netscout 's scale and elevate its strategic position within key accounts . for additional information regarding the transaction , see note 7 of our notes to consolidated financial statements . results overview netscout 's financial results for the fiscal year ended march 31 , 2016 include approximately eight and one-half months of contribution from the communications business . we continue to maintain strong liquidity . at march 31 , 2016 , we had cash , cash equivalents and marketable securities of $ 352.1 million . this represents an increase of $ 87.2 million over the previous fiscal year ended march 31 , 2015 . use of non-gaap financial measures we supplement the united states generally accepted accounting principles ( gaap ) financial measures we report in quarterly and annual earnings announcements , investor presentations and other investor communications by reporting the following non-gaap measures : non-gaap revenue , non-gaap net income and non-gaap diluted net income per share . non-gaap revenue eliminates the gaap effects of acquisitions by adding back revenue related to deferred revenue revaluation , an adjustment for a delayed transfer entity , and the amortization of acquired intangible assets . story_separator_special_tag we have established besp for product elements as the average or median selling price the element was recently sold for , whether sold alone or sold as part of a multiple element transaction . we also consider our overall pricing objectives and practices across different sales channels and geographies , and market conditions . we review sales of the product elements on a quarterly basis and update , when appropriate , our besp for such elements to ensure that it reflects recent pricing experience . we have established vsoe for a majority of our service elements based on historical stand-alone sales or by the renewal rate offered to the customer . however certain business units we acquired as part of the transaction are unable to establish vsoe for undelivered elements . this occurs because the pricing for standalone sales does not occur in tight bands around a midpoint , and they are not contractually fixed . in these scenarios we have typically established besp by creating wider bands around a midpoint for stand alone transactions or in some cases using cost plus a margin for the underlying services and products . if vsoe of fair value does not exist for a deliverable , we use our besp for that deliverable . for multi-element arrangements comprised only of software products and related services , we allocate a portion of the total arrangement consideration to the undelivered elements , primarily support agreements and professional services , using vsoe of fair value for the undelivered elements . the remaining portion of the total arrangement consideration is allocated to the delivered software , referred to as the residual method . vsoe of fair value of the undelivered elements is based on the price customers pay when the element is sold separately . we review the separate sales of the undelivered elements on a regular basis and update when appropriate , our vsoe of fair value for such elements to ensure that it reflects recent pricing experience . if we can not objectively determine the vsoe of the fair value of any undelivered software element , revenue is deferred until all elements are delivered and services have been performed , or until fair value can objectively be determined for any remaining undelivered elements . however , if the only undelivered element is maintenance and support , the entire arrangement fee is recognized over the service period . for multi-element arrangements comprised of a combination of hardware and software elements , the total arrangement consideration is bifurcated between the hardware and hardware related deliverables and the software and software related deliverables based on the relative selling prices of all deliverables as a group . then , arrangement consideration for the hardware and hardware-related services is recognized upon delivery or as the related services are provided outlined above and revenue for the software and software-related services is allocated following the residual method and recognized based upon delivery or as the related services are provided . our products are distributed through our direct sales force and indirect distribution channels through alliances with resellers . revenue arrangements with resellers are recognized on a sell-in basis ; that is , when we deliver the product to the reseller . we record consideration given to a reseller as a reduction of revenue to the extent we have recorded revenue from the reseller . with limited exceptions , our return policy does not allow product returns for a refund . returns have been insignificant to date . in addition , we have a history of successfully collecting receivables from the resellers . 35 marketable securities we measure the fair value of our marketable securities at the end of each reporting period . fair value is defined as the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date . marketable securities are recorded at fair value and have been classified as level 1 or 2 within the fair value hierarchy . fair values determined by level 1 inputs utilize quoted prices ( unadjusted ) in accessible 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 . valuation of goodwill , intangible assets and other acquisition accounting items we amortize acquired definite-lived intangible assets over their estimated useful lives . goodwill and other indefinite-lived intangible assets are not amortized but subject to annual impairment tests ; more frequently if events or circumstances occur that would indicate a potential decline in their fair value . we perform the assessment annually during the fourth quarter and on an interim basis if potential impairment indicators arise . we have identified five reporting units : ( 1 ) netscout , ( 2 ) arbor networks , ( 3 ) tektronix communications , ( 4 ) vss and ( 5 ) fnet and an indefinite-lived trade name . to test impairment , we first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the intangible asset is impaired . if based on our qualitative assessment , it is more likely than not that the fair value of the intangible asset is less than its carrying amount , quantitative impairment testing is required . however , if we conclude otherwise , quantitative impairment testing is not required . during fiscal year 2016 , we performed a quantitative analysis for goodwill and our non-amortizing intangible asset . we determined the fair value of the reporting unit 's goodwill using established income and market valuation approaches and the fair value of its trade names using a forward-looking relief from royalty model .
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results of operations comparison of years ended march 31 , 2016 and 2015 revenue product revenue consists of sales of our hardware products and licensing of our software products . service revenue consists of customer support agreements , consulting and training . during the fiscal year ended march 31 , 2016 , one direct customer accounted for more than 10 % of total revenue , while no indirect channel partner accounted for more than 10 % of total revenue . during the fiscal year ended march 31 , 2015 , two direct customers accounted for more than 10 % of our total revenue , while no indirect channel partner accounted for more than 10 % of total revenue . replace_table_token_7_th product . the 132 % , or $ 360.5 million , increase in product revenue compared to the same period last year was primarily due to $ 378.8 million in additional revenue resulting from the transaction . this increase was partially offset by an $ 11.4 million decrease in revenue from our legacy service provider sector and a $ 6.9 million decrease in revenue from our legacy general enterprise sector . going forward , we expect that the revenue mix in future quarters will likely be oriented toward service provider customers , consistent with recent quarterly trends . however , the timing and magnitude of certain projects will impact the quarterly revenue mix in any given quarter . service . the 78 % , or $ 141.2 million , increase in service revenue compared to the same period last year was primarily due to a $ 128.7 million increase from the expansion of our customer base due to the transaction and a $ 12.7 million increase in revenue from maintenance contracts in our legacy netscout business due to new maintenance contracts and renewals from a growing support base .
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this discussion contains forward‑looking statements that involve risks and uncertainties . for additional discussion , see “ special note regarding forward-looking statements ” above . overview we are a biopharmaceutical company focused on developing medicines for patients with neglected and rare diseases , with an ancillary focus on pediatric conditions , and on executing our responsible pricing model in the commercialization of our products that may be approved . our lead product candidate is benznidazole for the treatment of chagas disease , a parasitic illness that can lead to long-term heart , intestinal and neurological problems . we are developing one of our proprietary monoclonal antibodies , lenzilumab ( formerly known as kb003 ) , for the treatment of chronic myelomonocytic leukemia , or cmml , and potentially for the treatment of juvenile myelomonocytic leukemia , or jmml , both of which are rare hematologic cancers with high unmet medical need . we are exploring partnering opportunities to enable development of ifabotuzumab ( another of our proprietary monoclonal antibodies , formerly known as kb004 ) , for the potential treatment of serious pulmonary conditions and certain rare solid and hematologic cancers , and kb001-a which was being developed for the treatment of cystic fibrosis . with a focus on neglected , rare and orphan diseases , we believe we have the opportunity to benefit from various regulatory incentives , such as orphan drug exclusivity , breakthrough therapy designation , fast track designation , accelerated approval , priority review and priority review vouchers , or prvs , where available , that provide for certain periods of exclusivity , expedited review and or other benefits . upon regulatory approval of any of our products , we intend to apply our responsible pricing model , which focuses on affordability for patients and payers , transparency for all stakeholders , and delivery of a reasonable return in recognition of the risks we are taking in our development efforts . benznidazole is an oral small molecule antiprotozoal for the treatment of chagas disease , which is also known as american trypanosomiasis . benznidazole has undergone numerous clinical trials and studies that show efficacy against chagas disease and we believe is the current preferred treatment for chagas disease in the countries where it is approved . no treatments for chagas disease are approved by the united states food and drug administration , or fda for use in the united states . on june 30 , 2016 , we acquired certain worldwide rights relating to benznidazole for human use from savant neglected diseases , llc , or savant , and we are focused on the development necessary to seek and obtain fda approval of benznidazole . we believe benznidazole as a treatment for chagas disease could qualify for priority review and potentially other fda regulatory incentives , and to receive a prv if fda approves the drug for marketing . lenzilumab is a recombinant monoclonal antibody , or mab , that neutralizes soluble granulocyte-macrophage colony-stimulating factor , or gm-csf , a critical cytokine for the growth of certain hematologic malignancies and solid tumors and may be implicated in other serious conditions . consistent with our strategic focus on neglected and rare diseases , in july 2016 , we initiated dosing in a phase 1 clinical trial in patients with cmml to identify the maximum tolerated dose , or mtd , or recommended phase 2 dose of lenzilumab and to assess lenzilumab 's safety , pharmacokinetics , and clinical activity . we may assess interim data from the lenzilumab cmml phase i study to determine the feasibility of rapidly commencing a phase i study in jmml patients , or explore progressing directly with the jmml phase i study . jmml is associated with a very high unmet medical need and there are no fda-approved therapies . ifabotuzumab is an anti-epha3 mab that has the potential to offer a novel approach to treating serious pulmonary conditions as well as solid tumors and hematologic malignancies . epha3 is aberrantly expressed on the surface of tumor cells and stroma cells in certain cancers . we have completed the phase 1 dose escalation portion of a phase 1/2 clinical trial in ifabotuzumab in multiple hematologic malignancies . we are evaluating partnering opportunities for ifabotuzumab . 60 we also have an additional drug candidate , kb001-a , a recombinant , pegylated , anti‑pseudomonas pcrv high‑affinity fab antibody that we are no longer developing , but for which we are seeking strategic options including sale , license or partnerships . lenzilumab , ifabotuzumab and kb001-a were each developed with our proprietary , patent-protected humaneered® technology , which consists of methods for converting antibodies ( typically murine ) into engineered , high-affinity antibodies designed for human therapeutic use , typically for chronic conditions . our strategy also involves identifying , acquiring , developing and supporting the commercialization of additional treatments for neglected and rare diseases . we believe the treatment of neglected and rare diseases represents an opportunity to enter underserved patient populations . we also believe our focus on neglected and rare diseases provides us the opportunity to benefit from various regulatory incentives referenced above . the potential opportunities afforded by these regulatory programs provide an important incentive to support our efforts to develop medicines for patients with neglected and rare diseases and to apply our responsible pricing model for any of our approved products . our company has undergone a significant transformation in the last year . as a result of challenges facing us at the time , on december 29 , 2015 , we filed a voluntary petition for bankruptcy protection under chapter 11 of title 11 of the u.s. bankruptcy code . on june 30 , 2016 , our second amended plan of reorganization , dated may 9 , 2016 , as amended , or the plan , became effective and we emerged from our chapter 11 bankruptcy proceedings . story_separator_special_tag while our significant accounting policies are described in more detail in note 3 to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , reviewing the terms of our license agreements , communicating with our applicable 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 actual cost . some of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . examples of estimated accrued research and development expenses include fees to : · contract research organizations and other service providers in connection with clinical studies ; · contract manufacturers in connection with the production of clinical trial materials ; and · vendors in connection with preclinical development activities . 62 we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical 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 and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing these costs , we estimate the time period over which services will be performed for which we have not been invoiced 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 adjust the accrual accordingly . 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 our reporting changes in estimates in any particular period . stock‑based compensation our stock‑based compensation expense for stock options is estimated at the grant date based on the award 's fair value as calculated by the black‑scholes option pricing model and is recognized as expense over the requisite service period . the black‑scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term . the expected volatility is based on the historical stock volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to use the volatility of our own common stock . to estimate the expected term , we have opted to use the simplified method , which is the use of the midpoint of the vesting term and the contractual term . if any of the assumptions used in the black‑scholes option pricing model changes significantly , stock‑based compensation expense may differ materially in the future from that recorded in the current period . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and our expectations regarding future pre‑vesting termination behavior of employees . to the extent our actual forfeiture rate is different from our estimate , stock‑based compensation expense is adjusted accordingly . revenue recognition our contract revenue to date has been generated primarily through license agreements and research and development collaboration agreements . contract revenue may include nonrefundable , non‑creditable upfront fees , funding for research and development efforts , and milestone or other contingent payments for achievements with regards to our licensed products . we did not materially modify any previous material collaboration agreements or enter into any new such agreements from 2011 through the end of 2016. all collaboration agreements have been accounted for in accordance with the accounting guidance applicable to such arrangements prior to our adoption of accounting standards update , or asu , 2009‑13 , multiple‑deliverable revenue arrangements , and asu 2010‑17 , revenue recognition—milestone method , each of which we adopted on a prospective basis on january 1 , 2011. we recognize revenue when persuasive evidence of an arrangement exists , transfer of technology has been completed , services have been performed or products have been delivered , the fee is fixed and determinable , and collection is reasonably assured . for multiple element arrangements , we evaluate whether the components of each arrangement are to be accounted for as separate units of accounting based on certain criteria . upfront payments for licensing our intellectual property to date have not been separable from the activity of providing research and development services because the license has not been assessed to have stand‑alone value separate from the research and development services provided . such upfront payments are recorded as deferred revenue in the balance sheet and are recognized as contract revenue over the contractual or estimated substantive performance period , which is consistent with the term of the research and development obligations contained in the research and development collaboration agreement . payments resulting from our research and development efforts under license agreements are recognized as the activities are performed and are presented on a gross basis . revenue is recorded gross because we act as a principal , with discretion to choose suppliers , bear credit risk , and perform part of the services .
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results of operations general we have not generated net income from operations , except for the year ended december 31 , 2007 , during which we recognized a one‑time license payment from novartis . at december 31 , 2016 , we had an accumulated deficit of $ 240.6 million , primarily as a result of research and development and general and administrative expenses as well as costs incurred in reorganization . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , and research and development payments in connection with strategic partnerships , our 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 significant revenue or profits . research and development expenses conducting research and development is central to our business model . we expense both internal and external research and development costs as incurred . we track external research and development costs incurred by project for each of our clinical programs . we began tracking our external costs by project beginning january 1 , 2008 , and we have continued to refine our systems and our methodology in tracking external research and development costs . our external research and development costs consist primarily of : · expenses incurred under agreements with contract research organizations , investigative sites , and consultants that conduct our clinical trials and a substantial portion of our preclinical activities ; · the cost of acquiring and manufacturing clinical trial and other materials ; and · other costs associated with development activities , including additional studies .
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these statements may relate to , among other things , capital expenditures , cost reductions , cash flow , and operating improvements and are indicated by words or phrases such as “ anticipate , ” “ estimate , ” “ plans , ” “ expects , ” “ projects , ” “ should , ” “ will , ” “ management believes , ” “ the company believes , ” “ we believe , ” “ the company intends ” and similar words or phrases . these statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from the results described in those statements . these risks and uncertainties include , but are not limited to , the risks described in item 1a , `` risk factors '' of this report , economic and political consequences resulting from terrorist attacks and wars ; levels of industrial activity and economic conditions in the u.s. and other countries around the world ; pricing pressures and other competitive factors , and levels of capital spending in certain industries — all of which could have a material impact on our order rates and results , particularly in light of the low levels of order backlogs we typically maintain ; our ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis ; the relationship of the u.s. dollar to other currencies and its impact on pricing and cost competitiveness ; political and economic conditions in foreign countries in which we operate ; interest rates ; capacity utilization and its effect on costs ; labor markets ; market conditions and material costs ; and developments with respect to contingencies , such as litigation and environmental matters . the forward-looking statements included in this report are only made as of the date of this report , and we undertake no obligation to update them to reflect subsequent events or circumstances . investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here . 2014 overview and outlook idex is an applied solutions company specializing in fluid and metering technologies , health and science technologies , and fire , safety and other diversified products built to customer specifications . idex 's products are sold in niche markets to a wide range of industries throughout the world . accordingly , our businesses are affected by levels of industrial activity and economic conditions in the u.s. and in other countries where we do business and by the relationship of the u.s. dollar to other currencies . levels of capacity utilization and capital spending in the industries that use our products and overall industrial activity are important factors that influence the demand for our products . the company has three reportable business segments : fluid & metering technologies , health & science technologies and fire & safety/diversified products . within our three reportable segments , the company maintains six platforms , where we will invest in organic growth and acquisitions with a strategic view towards a platform with the potential for at least $ 500 million in revenue , and seven groups , where we will focus on organic growth and strategic acquisitions . the fluid & metering technologies segment contains the energy , water ( comprised of water services & technology and diaphragm & dosing pump technology ) , and chemical , food & process platforms as well as the agricultural group ( comprised of banjo . ) the health & science technologies segment contains the idex optics & photonics , scientific fluidics and material processing technologies platforms , as well as the sealing solutions and the industrial ( comprised of micropump and gast ) groups . the fire & safety/diversified products segment is comprised of the dispensing , rescue , band-it , and fire suppression groups . each platform or group is comprised of one or more of our 15 reporting units : five reporting units within fluid & metering technologies ( energy ; chemical , food , & process ; water services & technology ; banjo ; diaphragm & dosing pump technology ) ; six reporting units within health & science technologies ( idex optics and photonics ; scientific fluidics ; material processing technologies ; sealing solutions ; micropump ; and gast ) ; and four reporting units within fire & safety/diversified products ( dispensing , rescue , band-it , and fire suppression ) . the fluid & metering technologies segment designs , produces and distributes positive displacement pumps , flow meters , valves , injectors , and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food , chemical , general industrial , water and wastewater , agricultural and energy industries . the health & science technologies segment designs , produces and distributes a wide range of precision fluidics , rotary lobe pumps , centrifugal and positive displacement pumps , roll compaction and drying systems used in beverage , food processing , pharmaceutical and cosmetics , pneumatic components and sealing solutions , including very high precision , low-flow rate pumping solutions required in analytical instrumentation , clinical diagnostics and drug discovery , high performance molded and extruded , biocompatible medical devices and implantables , air compressors used in medical , dental and industrial applications , optical components and coatings for applications in the fields of scientific research , defense , biotechnology , life sciences , aerospace , telecommunications and electronics manufacturing , laboratory and commercial equipment used in the production of micro and nano scale materials , precision photonic solutions used in life sciences , research and defense markets , and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications . story_separator_special_tag sales within our fire suppression group increased as a result of orders for fire suppression trailers at power production facilities and stable project orders in china and north america . sales within our rescue group decreased slightly , due to delayed decision making for municipal projects in europe and asia . operating income and operating margin of $ 130.5 million and 26.0 % , respectively , were higher than the $ 102.7 million and 23.1 % recorded in 2013 , primarily due to volume leverage , partially offset by $ 1.0 million of restructuring charges recorded in 2014 . 16 performance in 2013 compared with 2012 replace_table_token_14_th sales in 2013 were $ 2.0 billion , a 4 % increase from 2012. this increase reflects a 2 % increase in organic sales and 2 % from acquisitions ( erc — april 2012 , matcon — july 2012 and ftl —march 2013 ) . organic sales to customers outside the u.s. represented approximately 51 % of total sales in the period compared with 50 % in 2012. in 2013 , fluid & metering technologies contributed 43 % of sales and 47 % of operating income ; health & science technologies contributed 35 % of sales and 30 % of operating income ; and fire & safety/diversified products contributed 22 % of sales and 23 % of operating income . gross profit of $ 873.4 million in 2013 increased $ 69.7 million , or 8.7 % , from 2012. gross margins were 43.1 % in 2013 and 41.1 % in 2012. sg & a expenses increased to $ 477.9 million in 2013 from $ 444.5 million in 2012. the $ 33.4 million increase reflects approximately $ 10.4 million of incremental costs from new acquisitions , $ 5.6 million of cost-out actions , a $ 1.7 million pension settlement , $ 1.2 million related to environmental reserve costs , and $ 18.6 million of volume-related expenses , partially offset by a $ 4.0 million gain on the settlement of the contingent consideration related to the matcon business acquired in july 2012. as a percentage of sales , sg & a expenses were 23.6 % for 2013 and 22.7 % for 2012. during 2012 , the company recorded pre-tax restructuring expenses totaling $ 32.5 million . these restructuring expenses were mainly attributable to employee severance related to employee reductions across various functional areas , the termination of a defined benefit pension plan and facility rationalization resulting from the company 's cost savings initiatives . these initiatives included exit costs related to five facility closures and severance benefits for 491 employees in 2012. operating income of $ 395.5 million in 2013 increased from the $ 128.2 million recorded in 2012 , primarily reflecting an increase in volume , improved productivity and the impact of the $ 198.5 million asset impairment charges and the $ 32.5 million of restructuring-related charges recorded in 2012. operating margin of 19.5 % in 2013 was up from 6.6 % in 2012 primarily due to volume leverage , productivity and the impact of asset impairment charges and restructuring-related charges in 2012. interest expense decreased slightly to $ 42.2 million in 2013 from $ 42.3 million in 2012. the decrease was principally due to lower debt levels . the provision for income taxes is based upon estimated annual tax rates for the year applied to federal , state and foreign income . the provision for income taxes increased to $ 97.9 million in 2013 compared to $ 48.6 million in 2012. the effective tax rate decreased to 27.7 % in 2013 compared to 56.3 % in 2012 , mainly due to the 2012 asset impairment charge recorded in the fourth quarter of 2012. the impairment charge increased our 2012 effective tax rate by 26.9 % . our effective tax rate was also impacted by recognition of the 2012 u.s. r & d credit in 2013 due to the enactment of the american taxpayer relief act of 2012 on january 2 , 2013 which reinstated the u.s. r & d credit retroactively to january 1 , 2012 , recognition of additional uk r & d tax benefits , revaluation of the uk deferred tax liability due to the reduction in the uk statutory tax rate , the settlement of the contingent consideration agreement related to the matcon business acquired in july 2012 , and the mix of global pre-tax income among jurisdictions . net income for the year of $ 255.2 million increased from the $ 37.6 million earned in 2012. diluted earnings per share in 2013 of $ 3.09 increased $ 2.64 from $ 0.45 in 2012. fluid & metering technologies segment replace_table_token_15_th 17 sales of $ 871.8 million increased $ 38.5 million , or 5 % , in 2013 compared with 2012. this increase reflected 4 % organic growth and 1 % favorable foreign currency translation . the increase in organic sales was attributable to growth across all our platforms and groups within the segment . in 2013 , organic sales increased approximately 3 % domestically and 6 % internationally . organic sales to customers outside the u.s. were approximately 46 % of total segment sales in 2013 , compared with 47 % in 2012. sales within our energy platform increased compared to 2012 , due to the strength of oem truck builds and electronic retrofits in north america . additional growth has been driven by growth across the lpg market , including north america , china , india and russia . sales within our cfp platform increased compared to 2012 on continued strength in the chemical markets , particularly with project opportunities in the middle east and asia , coupled with solid aftermarket performance . the cfp north american industrial distribution market started the year soft , but gradually recovered in the second half of 2013. sales increases within our agriculture group were driven by strong oem demand in north america , new product introductions and an increase in market share . the sales increase in wst was driven by share gains and strong global project activity , specifically for projects in the us and japan .
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results of operations the following is a discussion and analysis of our results of operations for each of the three years in the period ended december 31 , 2014 . for purposes of this item , reference is made to the consolidated statements of operations in part ii , item 8 , “ financial statements and supplementary data. ” segment operating income excludes unallocated corporate operating expenses . management 's primary measurements of segment performance are sales , operating income , and operating margin . in the following discussion , and throughout this report , references to organic sales , a non-gaap measure , refers to sales from continuing operations calculated according to generally accepted accounting principles in the united states but excludes ( 1 ) the impact of foreign currency translation and ( 2 ) sales from acquired businesses during the first twelve months of ownership . the portion of sales attributable to foreign currency translation is calculated as the difference between ( a ) the period-to-period change in organic sales and ( b ) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period . management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers . the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions because the nature , size , and number of acquisitions can vary dramatically from period to period and between the company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult .
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other fixed income securities within the portfolio also contain prepayment risk . the amortized cost and estimated fair value of debt securities available for sale at december 31 , 2019 , by contractual maturity , are shown below : replace_table_token_44_th ( a ) mortgage backed securities include an amortized cost of $ 194.1 million and a fair value of $ 197.5 million for obligations of u.s. government agencies issued by ginnie mae and an amortized cost of $ 660.8 million and a fair value of $ 661.9 million for obligations of u.s. government-sponsored enterprises issued by fannie mae and freddie mac . 67 proceeds from sales , gross gains ( losses ) realized on sales , maturities and other-than-temporary impairment charges related to securities available story_separator_special_tag the following discussion and analysis represents an overview of the financial condition and the results of operations of first commonwealth , and its subsidiaries , as of and for the years ended december 31 , 2019 , 2018 and 2017 . the purpose of this discussion is to focus on information concerning our financial condition and results of operations that is not readily apparent from the consolidated financial statements . in order to obtain a more thorough understanding of this discussion , you should refer to the consolidated financial statements , the notes thereto and other financial information presented in this annual report . story_separator_special_tag style= '' vertical-align : top ; '' > fasb asc topic 450 loans are segmented into groups with similar characteristics and an allowance for credit losses is allocated to each segment based on recent loss history and other relevant information . we then review the results to determine the appropriate balance of the allowance for credit losses . this review includes consideration of additional factors , such as the mix of loans in the portfolio , the balance of the allowance relative to total loans and nonperforming assets , trends in the overall risk profile in the portfolio , trends in delinquencies and nonaccrual loans , and local and national economic information and industry data , including trends in the industries we believe are higher risk . there are many factors affecting the allowance for credit losses ; some are quantitative , while others require qualitative judgment . these factors require the use of estimates related to the amount and timing of expected future cash flows , appraised values on impaired loans , estimated losses for each loan category based on historical loss experience by category , loss emergence periods for each loan category and consideration of current economic trends and conditions , all of which may be susceptible to significant judgment and change . to the extent that actual outcomes differ from estimates , additional provisions for credit losses could be required that could adversely affect our earnings or financial position in future periods . the loan portfolio represents the largest asset category on our consolidated statements of financial condition . results of operations— 2019 compared to 2018 net income net income for 2019 was $ 105.3 million , or $ 1.07 per diluted share , as compared to net income of $ 107.5 million , or $ 1.08 per diluted share , in 2018 . impacting net income in 2019 was an increase in net interest income of $ 17.6 million , offset by an increase in noninterest expense of $ 14.4 million , a decline in noninterest income of $ 3.2 million and an increase in provision for credit losses of $ 2.0 million . the decrease in noninterest income was primarily due to net securities gains of $ 8.1 million recognized in 2018 compared to $ 22 thousand recognized in 2019 . our return on average equity was 10.3 % and our return on average assets was 1.31 % for 2019 , compared to 11.4 % and 1.42 % , respectively , for 2018 . average diluted shares for the year 2019 were 1 % less than the comparable period in 2018 primarily due to $ 6.3 million of common stock buybacks completed during 2019. 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 % in 2019 and 2018. the taxable equivalent adjustment to net interest income for 2019 was $ 1.7 million compared to $ 2.0 million in 2018 . net interest income comprises a majority of our operating revenue ( net interest income before provision expense plus noninterest income ) at 76 % and 74 % for the years ended december 31 , 2019 and 2018 , respectively . net interest income , on a fully taxable equivalent basis , was $ 271.6 million for the year-ended december 31 , 2019 , a $ 17.4 million , or 7 % , increase compared to $ 254.2 million for the same period in 2018 . the net interest margin , on a fully taxable equivalent basis , increased 4 basis points to 3.75 % in 2019 from 3.71 % in 2018 . the net interest margin is affected by both 26 changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities . additionally , the net interest margin for the year ended december 31 , 2018 benefited by two basis points due to the recognition of previously unrecognized interest income on assets that had previously been impaired . story_separator_special_tag 29 the following table sets forth certain information regarding changes in net interest income attributable to changes in the volume of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated : replace_table_token_7_th ( a ) changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances . ( b ) changes in interest income have been computed on a fully taxable equivalent basis using the 21 % federal income tax statutory rate for 2019 and 2018 , and 35 % federal income tax statutory rate for 2017. provision for credit losses the provision for credit losses is determined based on management 's estimates of the appropriate level of the allowance for credit losses needed to absorb probable losses incurred in the loan portfolio , after giving consideration to charge-offs and recoveries for the period . the provision for credit losses is an amount added to the allowance against which credit losses are charged . 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 the provision for credit losses for the year 2019 totaled $ 14.5 million , an increase of $ 2.0 million , or 16.0 % , compared to the year 2018 . 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 a higher probability of slightly less favorable economic conditions . 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 . 30 the level of provision expense for the year-ended december 31 , 2018 is primarily a result of net charge-offs taken to resolve certain nonperforming loans . the level of provision expense in the commercial , financial , agricultural and other category was impacted by net charge-offs of $ 4.5 million , of which $ 3.3 million related to two commercial borrowers whose loans were sold or paid off during 2018. also impacting the level of provision expense for the commercial , financial , agricultural and other category is the company 's periodic assessment of the allowance for loan loss methodology , including portfolio migration analysis and loss emergence periods . the provision expense for the residential real estate category can be attributed to $ 107.5 million growth in the portfolio compared to december 31 , 2018 and $ 1.0 million in net charge-offs . the provision expense for the commercial real estate category is primarily due to $ 3.4 million in chargeoffs recorded on three commercial loans which were part of the same relationship and were sold or paid off during 2018. net charge-offs related to loans to individuals were $ 4.0 million for the year ended december 31 , 2018 , including $ 2.2 million related to indirect auto loans and $ 1.1 million related to personal lines of credit . the allowance for credit losses was $ 51.6 million , or 0.83 % , of total loans outstanding and 0.90 % of total originated loans at december 31 , 2019 , compared to $ 47.8 million , or 0.83 % , and 0.91 % , respectively , at december 31 , 2018 . nonperforming loans as a percentage of total loans decreased to 0.52 % at december 31 , 2019 from 0.55 % at december 31 , 2018 . the allowance to nonperforming loan ratio was 160.3 % as of december 31 , 2019 and 149.1 % at december 31 , 2018 . net charge-offs were $ 10.7 million for the year-ended december 31 , 2019 compared to $ 13.1 million for the same period in 2018 . the provision is a result of management 's assessment of credit quality statistics and other factors that would have an impact on probable losses in the loan portfolio and the methodology used for determining the appropriateness of the allowance for credit losses . the change in the allowance for credit losses is impacted by the estimated losses within the loan portfolio determined by factors including certain loss events , portfolio migration analysis , loss emergence periods , historical loss experience , delinquency trends , deterioration in collateral values and volatility in economic indicators such as growth in gdp , consumer price index , vacancy rates and unemployment levels . additionally , with the adoption of asu no 2016-13 , `` financial instruments - credit losses ( topic 326 ) , measurement of credit losses on financial instruments '' ( `` cecl '' ) , beginning on january 1 , 2020 , provision expense may become more volatile due to changes in cecl model assumptions of credit quality , macroeconomic factors and conditions , and loan composition , which drive the allowance for credit losses balance . management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at december 31 , 2019 .
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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 , 2019 , fcb operated 147 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 .
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77 the following table shows the results related to discontinued operations for the year ended may 31 , 2011. replace_table_token_44_th the transfer of the assets is summarized in the table below : august 25 , 2010 cash and cash equivalents $ 1,128,158 accounts receivable 187 prepaid expenses 3,000 capitalized acquisition costs 3,590,657 accounts payable ( 725,012 ) net assets transferred to corvus $ 3,996,990 12. supplemental cash flow information december 31 , 2013 december 31 , 2012 december 31 , 2011 may 31 , 2011 income taxes paid $ $ 150,607 $ $ non-cash investing and financing transactions continuing operations : derivative liability included in capitalized acquisition costs $ $ $ 23,100,000 $ 78 item 9. changes in and disagreements with accountants on accounting and financial disclosure . none . item 9a . controls and procedures disclosure controls and procedures as of december 31 , 2013 , an evaluation was carried out under the supervision of and with the participation of the company story_separator_special_tag current business activities general livengood gold project developments during the year ended december 31 , 2013 and to the date of this report , the company advanced its livengood gold project in alaska with the issuance of the technical report on the feasibility study in september 2013. the feasibility study had been underway since early 2012. the feasibility study evaluated a 100,000 ton per day project that would produce 8 million ounces of gold over 14 years . using the trailing three year gold price of $ 1,500 per ounce , the project generates a minimal positive return . the company is currently investigating a number of opportunities , including those identified in the feasibility study and those subsequently developed by the company , for optimization and reducing project costs . other developments in december 2013 , the company announced the appointment of thomas e. irwin as president and chief executive officer of the company effective january 1 , 2014. mr. irwin had been serving as vice president , supporting corporate strategic initiatives as well as being responsible for technical matters for the company 's livengood gold project . livengood gold project - feasibility study results the purpose of the feasibility study was to advance the livengood gold project to a level that will enable a decision as to whether to advance to permitting and the execution phase of the project . using the trailing three year gold price of $ 1,500 per ounce , the project generates an after-tax internal rate of return ( irr ) of 1.7 % . mining and production as envisioned in the feasibility study , the project design is a conventional , owner-operated , surface mine that will utilize large-scale mining equipment in a blast/load/haul operation . ore is planned to be processed in a 100,000 ton per day ( tpd ) comminution circuit consisting of a primary gyratory crusher , wet grinding in a single semi-autogenous ( sag ) mill and two ball mills , followed by a gravity gold circuit , a conventional carbon in leach ( cil ) circuit and a refinery . the 100,000 tpd mine plan contains 501 million tons of ore mined from the livengood open pit over the 14 year operating life . total gold recovered is expected to be 8 million ounces . average annual gold production over the life-of-mine ( lom ) is 577,600 ounces , averaging 698,500 ounces during the first five years of operations . mining and ore stockpiling will begin during construction phase and will be two years in advance of plant commissioning . 40 project economics the project economics were generated using the trailing three year average gold price of $ 1,500 per ounce resulting in an after-tax internal rate of irr of 1.7 % with an all-in cost of production of $ 1,474 per ounce . the following table provides additional details of the project 's economics ( after-tax ) at various gold prices . replace_table_token_7_th capital costs the total estimated cost to design , procure , construct and commission the facilities described in this section is $ 2.79 billion and sustaining capital of $ 893 million . in addition to the large-scale mining equipment and process circuit described above , the project will include a lined tailings management system , two water reservoirs , an administration office/shop/warehouse complex and a 440 person camp . the project will also include construction of an 80 kilometer ( 50 mile ) transmission line to the site from the existing grid power near fairbanks , alaska . the capital cost estimate is expressed in nominal 2013 us dollars . no provision has been included to offset future escalation , and the estimate excludes sunk costs ( costs prior to the start of detailed design ) and risks due to labor disputes , permitting delays , weather delays or any other force majeure occurrences . site deconstruction and reclamation will proceed in stages at a total cost of $ 353 million . initial reclamation and salvage will take 5 years with costs projected at $ 253.4 million . after site stabilization , preparation of final site configuration and ongoing water treatment is anticipated . the initial and sustaining capital includes a fully lined tailings management facility ; this facility has been included as best practices for environmental stewardship . key capital expenditures for initial and sustaining capital requirements are identified in the following table : replace_table_token_8_th note : may not add due to rounding . ( 1 ) total estimated reclamation costs are $ 353 million . 41 operating costs the following table presents a breakdown of all-in operating cost of production over the projected life of the project . operating costs were estimated based on second quarter 2013 current us dollars without escalation . lom operating cost is anticipated to be $ 1,030/oz and all-in after-tax lom costs is anticipated to be $ 1,474/oz . story_separator_special_tag · the feasibility study execution plan assumes an august 1 project release date , with mobilization to the site and construction to begin on october 1. this date was selected to conform to the optimum period for mobilization to the site and establishment of temporary support facilities prior to the onset of winter . this date also is optimum to allow full utilization of the entire winter season to pioneer construction activities at the various project facilities , all of which are located in permafrost terrain . the actual project release date is uncertain , given the combination of market variables and the multi-year permitting process that must be completed prior to a construction decision . there is a risk that a project release-date could be substantially different than august 1. next steps and opportunities the company believes that mill throughput and production schedule optimization studies may provide opportunities to reduce project capital costs . a lower mill throughput may offer an opportunity to enhance mill head grades in early years by a more aggressive stockpile management strategy than is assumed in the feasibility study . the company will also continue to advance environmental baseline work in support of future permitting in order to better position the livengood gold project for a construction decision when warranted by market conditions . there is also opportunity to expand the mineable resource by increasing the in-pit resource , as additional drilling may improve the classification of the material contained within the pit . additional drilling may expand the resource at depth and to the southwest , incorporating mineralized material below the current grade model . multiple exploration targets have been identified and may increase the resource with additional exploration . the company has also identified several opportunities with the potential to improve the performance of the project that warrant further study , including verification of preliminary indications of a higher head grade , verify modeling to improve recovery through intensive cyanide leach reactors , and reducing reagent consumption and energy costs . 45 results of operations summary of quarterly results replace_table_token_14_th replace_table_token_15_th story_separator_special_tag following discussion highlights certain selected financial information and changes in operations between the year ended december 31 , 2012 and the seven-month period ended december 31 , 2011. the company had cash and cash equivalents of $ 30,170,905 at december 31 , 2012 compared to $ 54,712,073 at december 31 , 2011. the company incurred a net loss of $ 56,643,462 for the year ended december 31 , 2012 , compared to a net loss of $ 43,309,957 for the seven-month period ended december 31 , 2011. share-based payment charges were $ 9,206,975 during the year ended december 31 , 2012 compared to $ 7,645,269 for the seven-month period ended december 31 , 2011. the increase in share-based payment charges during the period was mainly the result of stock option grants to new employees and vesting of prior stock option grants . the company granted 6,380,000 options during the year ended december 31 , 2012 compared to 2,700,000 options during the seven months ended december 31 , 2011 . 47 share based payment charges were allocated as follows : replace_table_token_17_th mineral property exploration expenses for the year ended december 31 , 2012 totaled $ 36,253,519 while the company acquired $ 2,127,693 in mineral property assets . during the seven-month period ended december 31 , 2011 total mineral property exploration expenses were $ 32,550,518 and the company acquired mineral property assets of $ 47,708,647. mineral property expenses during 2012 were comprised of costs related to drilling for geotechnical investigations , environmental baseline data gathering , field costs and engineering . similar exploration activities took place in 2011. in december 2011 , the company completed a transaction to acquire certain mining claims and related rights in the vicinity of the livengood gold project . this acquisition included both mining claims and all of the shares of livengood placers , inc. ( a nevada corporation ) . these assets were purchased for aggregate consideration of $ 36,600,000 allocated between cash consideration of $ 13,500,000 and a derivative liability with an estimated fair value of $ 23,100,000. the derivative liability is a contingent payment based on the average gold price from the date of the acquisition . the derivative liability ( payable in december 2016 ) will equal $ 23,148 for every dollar that the average gold price exceeds $ 720 per troy ounce . if the average gold price is less than $ 720 , there will be no additional contingent payment . the subject ground was previously vacant or was used for placer gold mining . also in december 2011 , the company exercised its option to acquire all the interests in the 169 state of alaska claims previously held under a separate lease . the company paid total cash consideration of $ 11,044,000 for the acquisition of these state of alaska mining claims that had an original term of ten years , commencing on september 11 , 2006. excluding share-based payment charges of $ 6,751,423 and $ 6,051,362 , respectively , wages and benefits for the year ended december 31 , 2012 increased to $ 6,891,635 from $ 3,948,874 for the seven-month period ended december 31 , 2011 as a result of certain severance payments along with increased personnel and hiring of new officers . excluding share-based payment charges of $ 2,288,148 and $ 1,503,919 , respectively , consulting fees for the year ended december 31 , 2012 increased to $ 1,022,277 from $ 307,085 for the seven-month period ended december 31 , 2011 as a result of a consulting agreement with the former interim chief executive officer and increased directors fees . insurance expense increased during the year ended december 31 , 2012 as a result of additional directors and officers insurance with the hiring of new executives and appointment of new directors during 2011 and 2012. aside from the impact of share-based payment charges , most other expense categories reflected only moderate change period over period .
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results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 the company had cash and cash equivalents of $ 13,925,601 at december 31 , 2013 compared to $ 30,170,905 at december 31 , 2012. the company incurred a net loss of $ 9,852,480 for the year ended december 31 , 2013 , compared to a net loss of $ 56,643,462 for the year ended december 31 , 2012. the following discussion highlights certain selected financial information and changes in operations between the year ended december 31 , 2013 and the year ended december 31 , 2012. mineral property exploration expenses for the year ended december 31 , 2013 totaled $ 8,188,995. during the year ended december 31 , 2012 total mineral property exploration expenses were $ 36,253,519 and the company acquired mineral property assets of $ 2,127,693. mineral property expenses during 2013 were comprised of costs related to process engineering and metallurgical studies performed to support the completion and filing of the feasibility study and environmental baseline data gathering . mineral property expenses incurred during 2012 were significantly higher due to geotechnical and condemnation drilling programs as well as an extensive metallurgical test program that took place in 2012. mineral property expenses during 2012 were comprised of costs related to drilling for geotechnical investigations , environmental baseline data gathering , field costs and engineering in support of data development for completion of the feasibility study .
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if mr. wolf 's employment is terminated story_separator_special_tag the following discussion of our financial condition and results of operations and comprehensive loss should be read in conjunction with the audited financial statements and notes thereto for the year ended december 31 , 2016 found in this report . in addition to historical information , the following discussion contains forward-looking statements that involve risks , uncertainties and assumptions . where possible , we have tried to identify these forward-looking statements by using words such as anticipate , believe , intends , or similar expressions . our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including , but not limited to , those set forth under risk factors in part i , item 1a of this report . company overview we are an immuno-oncology company developing novel therapies designed to activate a patient 's immune system against cancer utilizing an engineered form of gp96 . heat 's highly specific t cell-stimulating therapeutic vaccine platform technologies , impact ® ( immune pan-antigen cytotoxic therapy ) and compact ( combination pan-antigen cytotoxic therapy ) , form the basis of our product candidates . our platform technologies address two synergistic mechanisms of action : activation and proliferation of cd8+ t cells , or killer t cells ; and t cell co-stimulation . we believe the use of these technologies in combination with other immunotherapies has the potential to dramatically improve patient outcomes . using our impact ® platform technology , we have developed product candidates that consist of live , genetically-modified , irradiated human cancer cells which secrete a broad spectrum of tumor-associated antigens ( taas ) together with a potent immune response stimulator called gp96 . the secreted antigen-gp96/taa complexes are designed to activate a patient 's immune system to recognize and kill cancer cells that express the taas included in the product candidates , which we have selected to address the most prevalent taas present in the tumor signature of a specific cancer . our compact platform technology enables us to combine a pan-antigen t cell activating vaccine and a t cell co-stimulator in a single product , offering the potential benefits of combination immunotherapy without the need for multiple independent biologic products . using compact , we have engineered new product candidates that incorporate various ligand fusion proteins targeting co-stimulatory receptors ( ox40 , icos , 4-1bb , tl1a , etc . ) into the gp96-ig expression vector , resulting in a single product candidate that includes both a pan-antigen t cell priming vaccine and a t cell co-stimulator . using our platform technologies , we produce product candidates from allogeneic cell lines selected to express the broadest array of commonly shared tumor antigens for a specified type of cancer . unlike autologous or personalized therapeutic vaccine approaches that require the extraction of blood or tumor tissue from each patient and the creation of an individualized treatment , our product candidates are fully allogeneic and do not require extraction of individual patient 's material or custom manufacturing . as a result , our product candidates can be mass-produced and readily available for immediate patient use . because each patient receives the same treatment , we believe that our immunotherapy approach offers logistical , manufacturing and other cost benefits compared to patient-specific or precision medicine approaches . 61 our wholly-owned subsidiary , zolovax , inc. ( zolovax ) , is developing therapeutic and preventative vaccines to treat infectious diseases based on our gp96 vaccine technology , with a current focus on the development of a zika vaccine in collaboration with the university of miami . other infectious diseases of interest include hiv , west nile virus , dengue and yellow fever . using our impact ® platform technology , we have developed two product candidates : hs-110 ( viagenpumatucel-l ) as a potential treatment for patients with non-small cell lung cancer ( nsclc ) , currently in combination with an anti-pd-1 checkpoint inhibitor , and hs-410 ( vesigenurtacel-l ) as a product candidate to treat non-muscle invasive bladder cancer ( nmibc ) . to date , we have administered in excess of 1,000 doses of hs-410 and hs-110 collectively in almost 200 patients , generating a favorable safety profile and low toxicities . we are currently conducting a phase 2 trial of hs-110 , in combination with nivolumab ( opdivo® ) , a bristol-myers squibb pd-1 checkpoint inhibitor , to treat patients with nsclc and a phase 2 trial of hs-410 in patients with nmibc . we are devoting substantially all of our resources to developing hs-110 and hs-410 including conducting clinical trials , providing general and administrative support for these operations and protecting our intellectual property . we currently do not have any products approved for sale and we have not generated any significant revenue from product sales since our inception . we expect to continue to incur significant expenses and to incur increasing operating losses for at least the next several years . we anticipate that our expenses will increase substantially as we : · complete the ongoing clinical trials of our product candidates ; · maintain , expand and protect our intellectual property portfolio ; · seek to obtain regulatory approvals for our product candidates ; · continue our research and development efforts ; · add operational , financial and management information systems and personnel , including personnel to support our product development and commercialization efforts ; and · operate as a public company . we commenced active operations in june 2008. our operations to date have been primarily limited to organizing and staffing our company , business planning , raising capital , acquiring and developing our technology , identifying potential product candidates and undertaking preclinical and clinical studies of our most advanced product candidates . story_separator_special_tag the timing of immune response to hs-110 corresponded to the timing of observed clinical responses , and those responses appear to be sustained . furthermore , to-date 5 patients have been enrolled in the low tumor infiltrating lymphocytes ( til ) cohort . three of these 5 patients ( 60 % ) have experienced significant tumor reduction , which is higher than the 10 % response rate of low til patients reported by teng et al , cancer research 75 ( 11 ) june 1 , 2015 for existing data on nivolumab alone . on march 13 , 2017 , we issued a press release announcing that we achieved the safety and efficacy endpoints for the phase 1b trial evaluating hs-110 in combination with nivolumab ( opdivo ® ) , for the treatment of nsclc and that the trial met the expansion criteria to advance into a phase 2. five out of 15 patients treated with the hs-110/nivolumab combination had 20 % or greater tumor reduction . patients with increased levels of til at 10 weeks appeared to have a durable benefit , with six out of eight of these patients ( 75 % ) alive at the one-year follow-up point . the data monitoring committee concluded that the positive safety profile , mechanistic evidence and encouraging signs of synergistic efficacy warranted expansion to a phase 2 trial . 63 on december 6 , 2016 , we reported that 1-year results from the first eight trial patients showed that the hs-110/nivolumab combination was well tolerated with a safety profile consistent with single agent nivolumab . there were no additional toxicities seen in the hs-110/nivolumab combination compared to existing data on single agent nivolumab alone . hs-110 generated a robust antigen-specific immune response in several patients consistent with the mechanism of action seen in other hs-110 trials . additionally , the patients who responded best to the combination therapy ( immune responders ) had longer overall survival and better objective response rate than the non-immune responders , even though they had the same baseline immune function . immune responders in the study saw a 50 % objective response rate while non-immune responders saw a 0 % objective response rate . moreover , the immune responders had a better median overall survival than non-immune responders . the 1-year overall survival was 50 % for the responders and 25 % for the non-responders . finally , immune responders also saw a better median overall survival at 12.7 months , than non-immune responders , who saw a median overall survival of 7.1 months . researchers concluded that immune response may correlate with clinical efficacy and that hs-110 may have synergistic activity with immune checkpoint inhibitors . heat also conducted a phase 2 randomized , controlled trial using hs-110 in combination with cyclophosphamide versus chemotherapy alone in third-line and fourth-line nsclc patients . this trial , which enrolled 66 of 123 patients , was discontinued in 2015 to allow heat to instead focus on combinations with checkpoint inhibitors . data from the phase 2trial continues to accrue and will be reported in 2017. the trial was structured as a multicenter randomized study to evaluate the immune response , safety and efficacy endpoints of hs-110 when administered weekly for 12 weeks in combination with low-dose cyclophosphamide in an induction period followed by monotherapy hs-110 every nine weeks during maintenance for up to one year or until discontinuation from study treatment , whichever occurred first . patients randomized to the comparator arm were treated with one chemotherapy regimen until progression . blood samples were taken to evaluate the immune response and their correlation to overall survival , and where considered appropriate by the investigator , patients are invited to consent for pre- and post-treatment biopsies for exploratory biomarker analysis . the primary endpoint was overall survival ; secondary endpoints follow objective responses and immune response . hs-410 ( vesigenurtacel-l ) bladder cancer hs-410 ( vesigenurtacel-l ) is a biologic product candidate comprising a cancer cell line genetically modified using our impact ® technology platform to secrete a wide range of cancer antigens related to bladder cancer bound to gp96 molecules . we believe that hs-410 has the potential to activate a t cell mediated pan-antigen immune response that could be an effective treatment for patients with nmibc . we are currently conducting a phase 2 trial evaluating hs-410 either alone or in combination with intravesical standard of care , bacillus calmette-guérin ( bcg ) , for the treatment of high-risk nmibc . our phase 2 trial will examine safety , tolerability , immune response and preliminary clinical activity of hs-410 . the primary endpoint is one-year disease free survival . on november 30 , 2016 , we announced that we presented topline data from the 94-patient phase 2 trial at the society of urology annual meeting in san antonio , texas . researchers reported that there were encouraging signs of anti-tumor activity as hs-410 generated a robust antigen-specific immune response to multiple tumor-associated peptides in treated patients , while there were no immune responses of this type in the placebo . however , these responses did not translate into clinical outcomes , and there was no statistically significant difference in the primary endpoint between the vaccine and placebo arms of the trial . to better assess the durability of the positive immunological responses , and in keeping with clinical trial guidance recently issued by international bladder cancer group recommending a 2-year study duration for nmibc trials , we will continue to monitor all patients enrolled in the study for an additional 12 months . at that time , we will make a final determination on whether to progress our bladder program into a phase 3 trial . additional indications we continue to evaluate other potential indications for our impact ® and compact platform technologies . specifically , using compact , we have developed cell lines for several other cancers with the first product candidate being a second-generation therapy for non-small cell lung cancer ( hs-120 ) .
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results of operations year ended december 31 , 2016 and 2015 revenues for the year ended december 31 , 2016 , we recognized $ 341,643 in research funding revenue pursuant to our exclusive license agreement with shattuck labs , inc. ( shattuck ) pursuant to which shattuck acquired the rights to take over the research and development of certain preclinical assets . this revenue was for research and development services , which include labor and supplies , provided to shattuck . there was no revenue for the year ended december 31 , 2015. prior to 2015 , revenues were comprised of grant awards . we continue our efforts to secure future non-dilutive grant funding to subsidize ongoing research and development costs . operating expenses total operating expenses for the year ended december 31 , 2016 decreased 36 % to $ 13.4 million compared to $ 21.0 million for the year ended december 31 , 2015. operating expenses are primarily comprised of research and development and general and administrative expenses . for the year ended december 31 , 2016 , research and development expenses were $ 9.3 million and general and administrative expenses were $ 4.1 million as compared to research and development expenses of $ 16.7 million and general and administrative expenses of approximately $ 4.3 million for the year ended december 31 , 2015. for the year ended december 31 , 2016 , research and development expenses represented approximately 69 % of operating expenses and general and administrative expenses represented approximately 31 % of operating expenses . for the year ended december 31 , 2015 , research and development expenses represented approximately 79 % of operating expenses and general and administrative expenses represented approximately 21 % of operating expenses .
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disposition of cincinnati bell complete protection inc. assets on august 1 , 2011 story_separator_special_tag this annual report on form 10-k and the documents incorporated by reference herein contain forward-looking statements regarding future events and results that are subject to the `` safe harbor '' provisions of the private securities litigation reform act of 1995. all statements , other than statements of historical facts , are statements that could be deemed forward-looking statements . see `` private securities litigation reform act of 1995 safe harbor cautionary statement , '' for further information on forward-looking statements . executive summary for the year ended december 31 , 2012 , the company was a full-service regional provider of data and voice communications services over wireline and wireless networks , a full-service provider of data center colocation and related managed services , and a reseller of it and telephony equipment . in 2012 , we continued to execute on our plan to expand our growth products , comprised of our fioptics , strategic enterprise data and voip , and data center offerings . the additional revenue generated from these growth products more than offset the lower revenue from declining access line and wireless subscribers , and as a result , the company 's total revenue in 2012 increased by 1 % year-over-year to approximately $ 1.5 billion , its highest level in ten years . operating income in 2012 was $ 270 million , up 4 % compared to the prior year , driven primarily by a $ 50.3 million goodwill write-down in 2011 partially offset by $ 14.2 million of asset impairments in 2012. during the fourth quarter of 2012 , cyrusone and cyrusone finance corp. , as co-issuers , issued $ 525 million of 6.375 % senior notes due 2022 and used $ 480 million of the net proceeds of $ 511 million to repay intercompany payables to cbi . cyrusone retained approximately $ 31 million of the net proceeds to fund its data center expansion and other expenses . the company used the $ 480 million of proceeds to repay the outstanding balances under its 7 % senior notes due 2015 , outstanding borrowings under the former revolving credit facility , $ 73 million of the cbt notes , $ 91 million of the 8.375 % senior notes due 2020 , and associated premiums and expenses . on january 24 , 2013 , we completed the ipo of cyrusone , which owns and operates our former data center colocation business . cyrusone conducts its data center business through cyrusone lp , an operating partnership . after the ipo , we own approximately 1.9 million shares , or 8.6 % , of cyrusone 's common stock and are a limited partner in cyrusone lp , owning approximately 42.6 million , or 66 % , of its partnership units . the company may redeem its cyrusone lp units into common stock of cyrusone on a one-to-one basis , or for cash at the fair value of a share of cyrusone common stock , at the option of cyrusone , commencing on january 17 , 2014. although we effectively own approximately 69 % of the economic interests of cyrusone through our ownership of its common stock and partnership units of cyrusone lp , we no longer control its operations . further details of this transaction are provided in note 20 to the consolidated financial statements of this form 10-k report . highlights for 2012 were as follows : wireline wireline revenue in 2012 was $ 730.5 million , comparable to $ 732.1 million in 2011 , as the impact of higher revenue generated from its growing fioptics and enterprise data and voip product lines continues to mitigate the reductions in voice revenue caused by continued ilec access line losses . the company ended the year with 573,900 total access lines compared to 621,300 access lines at december 31 , 2011 , a loss of 8 % that is consistent with the 2011 losses . fioptics continued its strong growth during 2012 , and as of december 31 , 2012 , the company had “ passed ” and is now able to provide its fioptics suite of products to 205,000 homes and businesses , or approximately 26 % of the greater cincinnati market . operating income of $ 212.9 million in 2012 declined by $ 15.6 million compared to 2011 , due largely to the loss of high-margin access lines combined with additional costs to acquire new fioptics customers . wireless wireless revenue of $ 241.8 million in 2012 decreased by 13 % compared to 2011 , driven by a 13 % decrease in the company 's subscriber base . the company believes it continued to lose subscribers in 2012 due to customer preference for its competitors ' premium handsets on competitors ' lte networks . our postpaid smartphone subscriber base continues to be instrumental to increasing data revenue per subscriber ( e.g. , text messaging , emails , and internet service ) as this increase mitigates the decline 28 form 10-k part ii cincinnati bell inc. in voice revenue , resulting in a stable average revenue per subscriber . operating income of $ 51.2 million increased by $ 47.9 million compared to 2011 due primarily to the $ 50.3 million goodwill impairment loss that was recognized in 2011. although the wireless revenue decline of $ 35.8 million was substantial , the company was able to mostly offset this decline with the favorable impact of lower operating expenses . management believes it will not be able to offset the declining wireless revenues with cost reductions in 2013 to the extent it was able to achieve in 2012. it services and hardware it services and hardware revenue in 2012 was $ 315.7 million , up 5 % compared to 2011 , driven by an increase of $ 16.6 million , or 18 % , in revenue from managed and professional services due to higher customer demand for it outsourcing and consulting projects . story_separator_special_tag the lower tax provision reflects a decrease in pre-tax income in 2011 and the effects of one-time discrete adjustments related to 2010. the company has certain non-deductible expenses , including interest on securities originally issued to acquire its broadband business ( the `` broadband securities '' ) or securities that the company has subsequently issued to refinance the broadband securities . in periods without tax law changes , the company expects its effective tax rate to exceed statutory rates primarily due to the non-deductible expenses associated with the broadband securities . the company used federal and state net operating losses to defray payment of federal and state tax liabilities . as a result , the company had cash income tax refunds of $ 1.2 million in 2011 . discussion of operating segment results the company manages its business based upon products and service offerings . at december 31 , 2012 , we operated four business segments : wireline , wireless , it services and hardware and data center colocation . certain corporate administrative expenses have been allocated to our business segments based upon the nature of the expense and the relative size of the segment . intercompany transactions between segments have been eliminated . wireline the wireline segment provides local voice , data , long distance , entertainment , voip , and other services over its owned and other wireline networks . local voice services include local telephone service , switched access , and value-added services such as caller identification , voicemail , call waiting , and call return . data services include high-speed internet using dsl technology and over fiber using its gpon . data services also provide data transport for businesses , including lan services , dedicated network access , and metro ethernet and dwdm/optical wave data transport , which principally are used to transport large amounts of data over private networks . these services are provided to customers in southwestern ohio , northern kentucky , and southeastern indiana through the operations of cbt , an ilec in its operating territory of an approximate 25-mile radius of cincinnati , ohio . 31 form 10-k part ii cincinnati bell inc. cbt 's network has full digital switching capability and can provide data transmission services to approximately 96 % of its in-territory access lines via dsl . outside of the ilec territory , the wireline segment provides these services through cbet , which operates as a clec in the communities north of cbt 's operating territory including the dayton , ohio market . cbet provides voice and data services for residential and business customers on its own network and by purchasing unbundled network elements from the ilec . the wireline segment links the cincinnati and dayton , ohio geographies through its sonet , which provides route diversity via two separate paths . in 2012 , the company continued to expand its fioptics product suite of services , which are fiber-based entertainment , high-speed internet and voice services . at year end 2012 , the company passed and can provide fioptics service to 205,000 homes and businesses , or approximately 26 % of greater cincinnati . the penetration rate of this product is approximately 28 % of the total units that have been passed with the fioptics network . the wireline segment also includes long distance , audio conferencing , other broadband services including private line and mpls . replace_table_token_5_th 32 form 10-k part ii cincinnati bell inc. 2012 compared to 2011 revenues voice local service revenue includes local service , value added services , digital trunking , switched access , and information services . voice local service revenue was $ 255.4 million in 2012 , down $ 24.9 million , or 9 % , compared to 2011 . the decrease in revenue is primarily due to fewer local access lines compared to a year ago . access lines within the segment 's ilec territory decreased by 41,400 , or 7 % , to 511,000 at december 31 , 2012 from 552,400 at december 31 , 2011. the company had 62,900 clec access lines at december 31 , 2012 compared to 68,900 access lines at december 31 , 2011. the segment continues to lose access lines as a result of , among other factors , customers electing to solely use wireless service in lieu of traditional local wireline service , company-initiated disconnections of customers with credit problems , and customers electing to use service from other providers . data revenue consists of fioptics and dsl high-speed internet access , data transport , and lan interconnection services . data revenue was $ 306.9 million in 2012 , up $ 15.4 million , or 5 % , compared to 2011 . data transport and lan services increased by $ 13.0 million , or 7 % , year-over-year primarily as a result of increased demand by business customers for higher speed connections . revenue from fioptics high-speed internet service increased to $ 18.1 million in 2012 , up from $ 12.5 million in the prior year due to increased subscribers . as of december 31 , 2012 , the company had 56,800 high-speed internet fioptics customers , which is an increase of 17,500 subscribers , or 45 % , compared to december 31 , 2011. these revenue increases were partially offset by lower dsl revenue as dsl subscribers decreased by 7 % to 202,600 subscribers at the end of 2012 . long distance and voip revenue was $ 113.9 million in 2012 , an increase of $ 2.6 million , or 2 % , compared to 2011 . this increase was primarily due to an increase in voip and audio conferencing services , driven by a larger number of subscribers and higher usage . partially offsetting this favorable trend was a decrease in long distance residential revenue which declined by $ 3.6 million in 2012 . as of december 31 , 2012 , long distance subscriber lines totaled 417,900 , a 7 % decrease compared to the prior year .
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consolidated results of operations 2012 compared to 2011 service revenue was $ 1,272.8 million in 2012 , an increase of $ 22.0 million compared to 2011 . data center revenue increased by $ 36.6 million due to sales of new data center space and power , while managed and professional services revenue increased by $ 16.6 million in 2012 as a result of increased it outsourcing and consulting projects . these increases were partially offset by lower wireless service revenue which declined by $ 27.9 million in 2012 compared to 2011. growth in wireline fioptics , voip and audio conferencing service revenue was offset by declines in local voice , long distance and dsl revenues . product revenue totaled $ 201.1 million in 2012 , a decrease of $ 10.5 million , or 5 % , compared to 2011 . this decrease was largely due to lower sales of wireless handsets which drove a $ 7.9 million decrease in sales compared to 2011. in addition , sales of telecommunications and it hardware decreased by $ 1.4 million compared to 2011 , a reflection of the cyclical nature of capital spending by enterprise customers . cost of services was $ 489.9 million in 2012 compared to $ 464.3 million in 2011 , an increase of $ 25.6 million , or 6 % . contract services increased by $ 10.7 million over 2011 driven largely by increased use of outside contractors to support the growth in data center operations and fioptics , business data and voip services , and also due to positioning cyrusone to operate as a stand-alone publicly-traded company . operating taxes increased by $ 7.0 million from 2011 driven largely by higher regulatory rates and higher franchise taxes resulting from increased fioptics revenue and higher property taxes from our increased data center footprint .
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instead , an entity will perform only step one of its quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount , and then recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit 's story_separator_special_tag the following discussion is management 's analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of the corporation . it should be read in conjunction with the consolidated financial statements and footnotes and the selected financial data presented elsewhere in this report . within the tables presented , certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes . the detailed financial discussion that follows focuses on 2020 results compared to 2019. for a discussion of 2019 results compared to 2018 , see the corporation 's annual report on form 10-k for the year ended december 31 , 2019 . overview the corporation is a bank holding company headquartered in wisconsin , providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint . the corporation 's primary sources of revenue , through the bank , are net interest income ( predominantly from loans and investment securities ) and noninterest income ( principally fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits ) . on march 13 , 2020 , the president of the united states declared a national emergency in response to the global pandemic caused by covid-19 which has led to stay-at-home orders around the country , including the three state footprint the corporation does business . on march 27 , 2020 , the cares act was enacted to provide economic stimulus to impacted areas of the country . in response to this unprecedented declaration , the corporation took actions throughout the year that are described throughout this and other sections of this report . performance summary and 2021 outlook diluted earnings per common share of $ 1.86 in 2020 decreased $ 0.05 , or 3 % , from 2019. average loans of $ 24.5 billion for 2020 increased $ 1.4 billion , or 6 % , from a year ago , driven by increases in ppp and cre loans . average deposits of $ 26.0 billion for 2020 increased $ 1.3 billion , or 5 % , from a year ago . for 2021 , the corporation expects annual average commercial loan growth , excluding ppp loans , will be between 2 % and 4 % . net interest income of $ 763 million in 2020 decreased $ 73 million , or 9 % , from 2019. net interest margin of 2.53 % in 2020 decreased 33 bp from 2.86 % in 2019. the decrease was driven primarily by the lower interest rate environment . the corporation expects full year 2021 net interest margin to be between 2.55 % and 2.65 % . provision for credit losses was $ 174 million in 2020 , compared to $ 16 million in 2019. for 2021 , the corporation expects the provision for credit losses to be $ 70 million or less . noninterest income of $ 514 million in 2020 increased $ 133 million , or 35 % , from 2019 , primarily due to a $ 163 million gain on the sale of abrc during the second quarter of 2020 , partially offset by decreased insurance revenue resulting from the sale of the business . for 2021 , the corporation expects noninterest income will be between $ 280 million and $ 300 million . noninterest expense of $ 776 million in 2020 decreased $ 18 million , or 2 % , from 2019 , primarily driven by a $ 55 million reduction in personnel expense partially offset by a $ 45 million loss on prepayment of fhlb advances . for 2021 , the corporation expects noninterest expense will be approximately $ 675 million . 44 income statement analysis net interest income table 2 net interest income analysis replace_table_token_4_th ( a ) the yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21 % and is net of the effects of certain disallowed interest deductions . ( b ) nonaccrual loans and loans held for sale have been included in the average balances . ( c ) interest income includes amortization of net deferred loan origination costs and net accreted purchase loan discount . net interest income is the primary source of the corporation 's revenue . net interest income is the difference between interest income on interest-earning assets , such as loans and investment securities , and the interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities . net interest income is affected by the amount and composition of earning assets and interest-bearing liabilities , as well as the sensitivity of the balance sheet to changes in interest rates , including characteristics such as the fixed or variable nature of the financial instruments , contractual maturities , re-pricing frequencies , loan prepayment behavior , and the use of interest rate derivative financial instruments . 45 interest rate spread and net interest margin are utilized to measure and explain changes in net interest income . interest rate spread is the difference between the yield on earning assets and the rate paid on interest-bearing liabilities that fund those assets . the net interest margin is expressed as the percentage of net interest income to average earning assets . the net interest margin exceeds the interest rate spread because net free funds , principally noninterest-bearing demand deposits and stockholders ' equity , also support earning assets . to compare tax-exempt asset yields to taxable yields , the yield on tax-exempt loans and investment securities is computed on a fully tax-equivalent basis . net interest income , interest rate spread , and net interest margin are discussed on a fully tax-equivalent basis . story_separator_special_tag mortgage banking , net was $ 46 million in 2020 , an increase of $ 14 million , or 43 % , compared to 2019. there was a $ 43 million increase in gains and fair value adjustments on loans held for sale driven by higher refinance activity due to the lower rate environment , partially offset by an increase of $ 18 million in msrs impairment driven by lower rates . gains on the sale of branches was $ 7 million in 2020 , driven by the deposit premium on sold deposits , offset by costs to sell . see note 2 acquisitions and dispositions of the notes to the consolidated financial statements for more details on the branch sales that occurred during the fourth quarter of 2020. service charges and deposit account fees were down $ 7 million , or 11 % , from 2019 primarily driven by higher deposit account balances and reduced customer activity . 48 noninterest expense table 5 noninterest expense replace_table_token_7_th n/m = not meaningful ( a ) includes first staunton , huntington branch , and bank mutual acquisition related costs only ( b ) average full-time equivalent employees without overtime notable contributions to the change in 2020 noninterest expense personnel costs decreased $ 55 million , or 11 % from 2019 , primarily driven by a decrease in funding for the management incentive plan and lower staffing as a result of the sale of abrc . during the third quarter of 2020 , the corporation prepaid $ 950 million of long-term fhlb advances and incurred a loss of $ 45 million on the prepayment . business development and advertising decreased $ 11 million , or 38 % from 2019 , primarily driven by reductions in travel and entertainment costs and special event sponsorships , largely due to the covid-19 pandemic . income taxes the corporation recognized income tax expense of $ 20 million for 2020 , compared to income tax expense of $ 80 million for 2019. the decrease in income tax expense was primarily driven by corporate restructuring which allowed for the recognition of built in capital losses and tax basis step-up yielding a tax benefit of $ 63 million , partially offset by the gain on sale of abrc . tax expense was further decreased due to the decrease in income before tax in 2020 compared to 2019. the effective tax rate was 6.18 % for 2020 , compared to an effective tax rate of 19.61 % for 2019. see note 1 summary of significant accounting policies of the notes to consolidated financial statements for the corporation 's income tax accounting policy and section critical accounting policies . income tax expense recorded on the consolidated statements of income involves the interpretation and application of certain accounting pronouncements and federal and state tax laws and regulations , and is therefore considered a critical accounting policy . the corporation is subject to examination by various taxing authorities . examination by taxing authorities may impact the amount of tax expense and or the reserve for uncertainty in income taxes if their interpretations differ from those of management , based on their judgments about information available to them at the time of their examinations . see note 13 income taxes of the notes to consolidated financial statements for more information . 49 balance sheet analysis at december 31 , 2020 , total assets were $ 33.4 billion , up $ 1.0 billion , or 3 % , from december 31 , 2019. loans of $ 24.5 billion at december 31 , 2020 were up $ 1.6 billion , or 7 % , from december 31 , 2019 , driven by a $ 968 million , or 19 % , increase in cre lending and $ 768 million in ppp loans , which originated largely during the second quarter of 2020. the corporation a dded $ 370 million i n loans from the first staunton acquisition in the first quarter of 2020. see section loans and note 4 loans of the notes to consolidated financial statements for additional information on loans and see note 2 acquisitions and dispositions for additional information on the acquisition of first staunton . at december 31 , 2020 , total deposits of $ 26.5 billion were up $ 2.7 billion , or 11 % , from december 31 , 2019. during the first quarter of 2020 , the corporation assumed $ 439 million of deposits from the first staunton acquisition . in addition , the balance increases were primarily due to customers holding proceeds from government stimulus programs in their deposit accounts . see section deposits and customer funding and note 8 deposits of the notes to consolidated financial statements for additional information on deposits and see note 2 acquisitions and dispositions for additional information on the acquisition of first staunton . at december 31 , 2020 , fhlb advances of $ 1.6 billion decreased $ 1.5 billion , or 49 % from december 31 , 2019 , primarily driven by the corporation 's prepayment of $ 950 million in long-term fhlb advances during the third quarter of 2020. in addition , the corporation saw a decrease of $ 520 million in short-term fhlb advances from december 31 , 2019. see section other funding sources and note 9 short and long-term funding of the notes to consolidated financial statements for additional information on fhlb advances . on january 1 , 2020 , the corporation adopted asu 2016-13 using the modified retrospective approach which resulted in an increase to the allowance for loan losses of $ 112 million and an increase to the allowance for unfunded commitments of $ 19 million for a total increase to the acll of $ 131 million . a corresponding after tax decrease to common equity of $ 98 million was recorded along with a dta of $ 33 million .
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segment review as discussed in note 21 segment reporting of the notes to consolidated financial statements , the corporation 's reportable segments have been determined based upon its internal profitability reporting system , which is organized by strategic business unit . certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services , the type of customer , and the distribution of those products and services are similar . the reportable segments are corporate and commercial specialty ; community , consumer and business ; and risk management and shared services . the financial information of the corporation 's segments was compiled utilizing the accounting policies described in note 1 summary of significant accounting policies and note 21 segment reporting of the notes to consolidated financial statements . ftp is an important tool for managing the corporation 's balance sheet structure and measuring risk-adjusted profitability . by appropriately allocating the cost of funding and contingent liquidity to business units , the ftp process improves product pricing which influences the volume and terms of new business and helps to optimize the risk / reward profile of the balance sheet . this process helps align the corporation 's funding and contingent liquidity risk with its risk appetite and complements broader liquidity and interest rate risk management programs . ftp methodologies are designed to promote more resilient , sustainable business models and centralize the management of funding and contingent liquidity risks . through ftp , the corporation transfers these risks to a central management function that can take advantage of natural off-sets , centralized hedging activities , and a broader view of these risks across business units . the net ftp allocation is reflected as net intersegment interest income ( expense ) shown in note 21 segment reporting of the notes to consolidated financial statements .
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liquidation preference upon a liquidation of the company , the assets of the company or proceeds available for distribution to the company 's stockholders shall be paid as follows : ( a ) first , for each share of series b preferred stock the greater of ( i ) one times the original purchase price plus declared and unpaid dividends on such share , 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 in phase 2 clinical development for the treatment of chronic pain . nyx-2925 is being evaluated in two phase 2b studies in two chronic pain conditions : one evaluating the efficacy and safety in approximately 200 patients with painful diabetic peripheral neuropathy , or painful dpn , and the other evaluating the efficacy and safety in approximately 300 patients with fibromyalgia . due to challenges introduced by the covid-19 pandemic to patient recruitment , screening , and randomization , on march 27 , 2020 , we temporarily suspended the enrollment of new patients in these two phase 2 studies , with patients already enrolled permitted to continue as per protocol . nyx-783 is in phase 2 clinical development for the treatment of post-traumatic stress disorder , or ptsd . we are currently enrolling an initial exploratory phase 2 study to evaluate safety , tolerability , and signals of efficacy of nyx-783 in approximately 150 patients with ptsd . to date , approximately 80 % of the target enrollment has been achieved . while we have been able to manage and mitigate site-level disruptions to this study caused by the covid-19 pandemic to date , we are actively and continuously monitoring any further impacts the covid-19 pandemic may have on this study . nyx-458 is in phase 2 clinical development for the treatment of mild cognitive impairment associated with parkinson 's disease . we initiated an 92 initial exploratory phase 2 study of nyx-458 in patients with mild cognitive impairment associated with parkinson 's disease in december 2019. due to challenges introduced by the covid-19 pandemic to patient recruitment , screening , and randomization , on march 27 , 2020 , we temporarily suspended enrollment of new patients in this study . patients already enrolled in this study may continue as per protocol . the recent outbreak of covid-19 originated in wuhan , china in december 2019 and has since spread globally , including to the united states and european countries . the continued spread of covid-19 has already and could further adversely impact our clinical and or preclinical studies . in addition , covid-19 has resulted in significant governmental measures being implemented to control the spread of the virus , including quarantines , travel restrictions and business shutdowns . covid-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy , which may negatively affect our ability to raise additional capital on attractive terms or at all . see “ risk factors—risks related to our business , financial position , and need for additional capital—covid-19 may materially and adversely affect our business and our financial results. ” the extent to which covid-19 may impact our business will depend on future developments , which are highly uncertain and can not be predicted with confidence , such as the duration of the outbreak , the severity of covid-19 or the effectiveness of actions to contain and treat for covid-19 . we can not presently predict the scope and severity of any potential business shutdowns or disruptions , including to our ongoing and planned clinical studies . any such shutdowns or other business interruptions could result in material and negative effects to our ability to conduct our business in the manner and on the timelines presently planned , which could have a material adverse impact on our business , results of operation , and financial condition . 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 our expenses will increase significantly in connection with our ongoing activities , as we : · seek to address and recover from impacts of covid-19 ; 97 · advance the clinical development of our lead product candidates ; · continue to improve the manufacturing process for our product candidates ; and manufacture clinical supplies as our development progresses ; · continue the research and development of our preclinical product candidates ; · seek to identify and develop additional product candidates ; · maintain , expand , and protect our intellectual property portfolio ; · improve our operational , financial , and management systems to support our clinical development and other operations . outlook based on our research and development plans and our timing expectations related to the progress of our programs , we expect that our cash and cash equivalents as of december 31 , 2019 , when combined with the proceeds received from our follow-on offering discussed above , will be sufficient to fund our operations for at least the next 12 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 , including as a result of covid-19 . 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 effects of covid-19 , our ability to successfully enroll subjects in a timely way for the clinical studies and the pace and results of our preclinical and clinical development efforts . 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 operating activities during the year ended december 31 , 2019 , our cash used in operating activities was primarily due to our net loss of $ 57.4 million , partially offset by non‑cash charges of $ 9.5 million , consisting primarily of $ 9.0 million in stock‑based 98 compensation and $ 0.5 million in depreciation and amortization . net cash used in changes in our operating assets and liabilities of $ 4.2 million consisted primarily of a use of cash driven by changes in prepaid expenses and other assets , accounts payable and accrued expenses and other liabilities . during the year ended december 31 , 2018 , our cash used in operating activities was primarily due to our net loss of $ 53.3 million , 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 $ 2.0 million use of cash driven by changes in prepaid expenses and other assets , accounts receivable , accounts payable and accrued expenses and other liabilities . investing activities net cash used in investing activities was less than $ 0.1 million during the year ended december 31 , 2019 , consisting of purchases of laboratory equipment . net cash used in investing activities was $ 0.4 million during the year ended december 31 , 2018 , consisting of purchases of property and equipment , primarily laboratory equipment and leasehold improvements . financing activities net cash provided by financing activities was $ 0.2 million during the year ended december 31 , 2019 , consisting of proceeds received from the exercise of stock options offset by payment of deferred offering costs . 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. 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 . the following table summarizes our contractual obligations as of december 31 , 2019 ( in thousands ) : replace_table_token_4_th off‑balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off‑balance sheet arrangements , as defined in the rules and regulations of the sec . critical accounting policies and significant judgments and estimates we prepare our financial statements in accordance with generally accepted accounting principles in the united states , or u.s. gaap .
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results of operations comparison of years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 ( in thousands ) : replace_table_token_1_th 95 collaboration revenue collaboration revenue was $ 3.7 million for the year ended december 31 , 2019 , compared to $ 4.9 million for the year ended december 31 , 2018 and is attributable to the research collaboration with allergan . the decrease of 1.2 million was primarily due to the following : · $ 0.2 million decrease of goods and services within the research collaboration agreement with allergan ; and · $ 1.0 million decrease 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 . grant revenue the decrease of $ 1.6 million of grant revenue was primarily driven by a reduction in our research and development costs incurred under our grants from the u.s. government , as the activities underpinning our outstanding grants were completed in the first half of 2018 and , accordingly , we did not generate any grant-related revenues for the year ended december 31 , 2019. research and development expenses the following table summarizes our research and development expenses incurred during the years ended december 31 , 2019 and 2018 ( in thousands ) : replace_table_token_2_th research and development expenses were $ 44.3 million for the year ended december 31 , 2019 , compared to $ 48.8 million for the year ended december 31 , 2018. the decrease of $ 4.5 million was primarily due to the following : · approximately $ 9.9 million decrease for clinical , regulatory , and drug product costs related to nyx-2925 , as a result of the completion of our enrollment efforts for our phase 2 clinical study in patients with painful dpn in 2018 , enrollment efforts for an exploratory
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you should review the “ risk factors ” section of this annual report , and elsewhere in this report , for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . our fiscal year ends on april 30. references to fiscal 2019 are to the fiscal year ended april 30 , 2019. overview we are commercializing proprietary systems that generate electricity predominantly by harnessing the renewable energy of ocean waves . our pb3 powerbuoy® systems use proprietary technologies to convert the mechanical energy created by the rising and falling of ocean waves into electricity . we currently have developed our pb3 powerbuoy® product and are in process of developing two new complementary products , the hybrid powerbuoy® and subsea battery solutions . since fiscal 2002 , government agencies have accounted for a significant portion of our revenues . these revenues were largely for the support of our product development efforts relating to our technology . today our goal is to generate the majority of revenue from the sale of products and services , and sales and services to support our business operations . as we continue to develop and commercialize our products and services , we expect to have a net use of cash in operating activities unless or until we achieve positive cash flow from the commercialization of our products and services . 37 we are marketing our powerbuoy® , which is designed to generate power for use independent of the power grid , to customers that require electricity in remote locations . we believe there are a variety of potential applications for our powerbuoy® , within markets such as oil and gas , defense and security , science and research and communications , which we refer to collectively as autonomous application markets . we were incorporated in new jersey in 1984 , began business operations in 1994 , and were re-incorporated in delaware in 2007. we currently have five wholly-owned subsidiaries : ocean power technologies ltd. , organized under the laws of the united kingdom , reedsport opt wave park llc , organized under the laws of oregon , and oregon wave energy partners i , llc , organized under the laws of delaware , ocean power technologies ( australasia ) pty ltd ( “ opta ” ) , organized under the laws of australia . opta owns 100 % of victorian wave partners pty . ltd. ( “ vwp ” ) , which is also organized under the laws of australia . product development the development of our technology has been funded by capital we raised , by development engineering contracts we received starting in fiscal 1995 , including projects with the doe , the u.s. navy , the department of homeland security , and revenue generating projects with mes , pmo and eni . please see item 1 of this annual report- “ business - customers ” and “ business - historic projects ” for more information . through these historic projects , we also continued development of our powerbuoy® technologies . we are continuing to focus on marketing and developing our powerbuoy® products and services for use in autonomous power applications . during fiscal 2019 , we continued to focus on the commercialization of our powerbuoy® technology , while expanding the application of our pb3 product in autonomous application markets . in march 2018 , we entered into an agreement with eni that provides for a minimum 24-month contract that includes a lease and associated project management . in june 2018 , we entered into a contract with pmo for the lease of a pb3 powerbuoy® to be deployed in one of pmo 's offshore fields in the north sea . in august 2018 , we entered into an agreement with egp to evaluate a pb3 powerbuoy® deployment along the coast of chile through a detailed feasibility study as an offshore autonomous platform hosting oceanographic sensor systems . in february 2019 , we entered into a contract with the u.s. navy to carry out the first phase of a project to design and develop a buoy mooring system which incorporates fiber optics for the transmission of subsea sensor data to airplanes , ships , and satellites . in november 2017 we completed the phase i work under the contract with onr which focused on the initial concept design and development of a mass-on-spring pto-based powerbuoy® . we are waiting for onr funding to be approved for the next phase . working closely with potential customers , we also continued to analyze and further develop new applications for the powerbuoy® including subsea well monitoring for oil and gas , autonomous underwater vehicle ( “ auv ” ) charging , and independent telecommunications platforms . 38 in addition to the pb3 commercial product validation activities , a concerted effort has been underway which focuses on proactively implementing additional features driven by extensive and direct discussions with potential users , customers , marketing partners and end users in our target markets . such features include : ● the design , development and implementation of a versatile mooring interface that allows the pb3 to accommodate various types of mooring configurations depending on the specifics and the needs of the customer , eliminating the need for a redesign of the device . ● the design , development and implementation of a flexible power transmission system intended to support delivery of power and communication capabilities to customer payloads which are external to the powerbuoy® , and which may reside in the water column or on the seabed . ● the design and development of a combined power and communications single point mooring solution that allows for quick deployment of the powerbuoy® . additionally , and building upon our initial success in implementing an auto-ballast system in our commercial pb3 , we further enhanced this feature to achieve faster and more cost effective pb3 deployments and retrievals . story_separator_special_tag on july 22 , 2016 , the company entered into the second amendment to the purchase agreement ( the “ second amended purchase agreement ” ) with certain purchasers ( the “ july purchasers ” ) . pursuant to the terms of the second amended purchase agreement , the company sold an aggregate of 29,750 shares of common stock together with warrants to purchase up to an aggregate of 8,925 shares of common stock . each share of common stock was sold together with a warrant to purchase 0.30 of a share of common stock at a combined purchase price of $ 135.00. the net proceeds to the company from the offering were approximately $ 3.6 million , after deducting placement agent fees and estimated offering expenses payable by the company , but excluding the proceeds , if any , from the exercise of the warrants issued in the offering . the warrants were exercisable immediately at an exercise price of $ 187.20 per share . the warrants will expire on the fifth ( 5th ) anniversary of the initial date of issuance . on october 19 , 2016 , the company sold 138,000 shares of common stock at a price of $ 55.00 per share , which includes the sale of 18,000 shares of the company 's common stock sold by the company pursuant to the exercise , in full , of the over-allotment option by the underwriters in a public offering . the net proceeds to the company from the offering were approximately $ 6.9 million , after deducting placement agent fees and offering expenses payable by the company . on may 2 , 2017 , the company sold 309,638 shares of common stock at a price of $ 26.00 per share , which includes the sale of 40,388 shares of the company 's common stock sold by the company pursuant to the exercise , in full , of the over-allotment option by the underwriters in a public offering . the net proceeds to the company from the offering were approximately $ 7.2 million , after deducting placement agent fees and offering expenses payable by the company . on october 23 , 2017 , the company sold 286,972 shares of common stock at a price of $ 28.40 per share in a best efforts public offering . the net proceeds to the company from the offering were approximately $ 7.4 million , after deducting placement fees and offering expenses payable by the company . on august 13 , 2018 , the company entered into a common stock purchase agreement with aspire capital fund , llc ( “ aspire capital ” ) which provides that , subject to certain terms , conditions and limitations , aspire capital is committed to purchase up to an aggregate of $ 10.0 million of shares of the company 's common stock over a 30-month period that does not exceed 19.99 % of the outstanding common stock on the date of the agreement . shareholder approval was not needed since the number of common stock offered for sale in the common stock purchase agreement did not exceed 19.99 % of the outstanding common stock on the date of the agreement . in consideration for entering into the agreement , the company issued to aspire capital 21,429 shares of our common stock as a commitment fee . as of april 30 , 2019 , the company has sold 162,162 shares of common stock with an aggregate market value of $ 949,259 at an average price of $ 5.85 per share pursuant to this common stock purchase agreement . on january 7 , 2019 , the company entered into an at the market offering agreement ( “ 2019 atm facility ” ) with a.g.p./alliance global partners ( “ agp ” ) , under which the company may issue and sell to or through a.g.p./alliance global partners , acting as agent and or principal , shares of the company 's common stock having an aggregate offering price of up to $ 25 million . as of april 30 , 2019 , under the 2019 atm facility the company had issued and sold 151,561 shares of its common stock with an aggregate market value of $ 958,229 at an average price of $ 6.32 per share and paid agp a sales commission of approximately $ 33,469 related to those shares . on april 8 , 2019 , the company sold 1,542,000 shares of common stock , which includes the sale of 642,000 shares of the company 's common stock sold by the company pursuant to the exercise , in full , of the over-allotment option by the underwriters in a public offering , prefunded warrants to purchase up to 3,385,680 shares of common stock and common warrants to purchase up to 4,927,680 shares of our common stock in an underwritten public offering . the net proceeds to the company from the offering were approximately $ 15.7 million , after deducting underwriter fees and offering expenses payable by the company . the sale of additional equity or convertible securities could result in dilution to our stockholders . if additional funds are raised through the issuance of debt securities or preferred stock , these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations . we do not have any committed sources of debt or equity financing and we can not assure you that financing will be available in amounts or on terms acceptable to us when needed , or at all . if we are unable to obtain required financing when needed , we may be required to reduce the scope of our operations , including our planned product development and marketing efforts , which could materially and adversely affect our financial condition and operating results . if we are unable to secure additional financing , we may be forced to cease our operations . backlog as of april 30 , 2019 , our negotiated backlog was $ 0.9 million .
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results of operations this section should be read in conjunction with the discussion below under “ - liquidity and capital resources. ” fiscal years ended april 30 , 2019 and 2018 the following table contains selected statement of operations information , which serves as the basis of the discussion of our results of operations for the years ended april 30 , 2019 and 2018 : replace_table_token_4_th 44 revenues revenues for the fiscal years ended april 30 , 2019 and 2018 were approximately $ 0.6 million and $ 0.5 million , respectively . the increase of approximately $ 0.1 million or 24 % over 2018 was attributable to more new contracts signed and started at the end of fiscal year 2018 and beginning of fiscal year 2019 relating to eni , pmo , egp , and the u.s. navy sbir grant . the mes and onr contracts were completed in the first half of fiscal 2018. cost of revenues cost of revenues consists primarily of incurred material , labor and manufacturing overhead expenses , such as engineering expense , equipment depreciation and maintenance and facility related expenses , and includes the cost of powerbuoy® parts and services supplied by third-party suppliers . cost of revenues also includes powerbuoy® system delivery and deployment expenses and may include anticipated losses at completion on certain contracts . cost of revenues for the fiscal years ended april 30 , 2019 and 2018 were approximately $ 1.3 million and $ 0.8 million , respectively .
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these statements may constitute “ forward-looking statements ” as defined by federal securities laws and may include , but are not limited to , statements regarding future financial performance , liquidity , strategic business initiatives including personnel additions , expansion into new markets and the utilization of scorecard models , capital levels , the effect of future market and industry trends including competitive trends in the nonprime consumer finance markets , the corporation 's and each business segment 's loan portfolio and business prospects related to each segment 's loan portfolio , asset quality and adequacy of the allowances for loan losses and level of future charge-offs , trends regarding the provision for loan losses , trends regarding net loan charge-offs , trends regarding levels of nonperforming assets and troubled debt restructurings and expenses associated with nonperforming assets , the amount and timing of accretion associated with the fair value accounting adjustments recorded in connection with the 2013 acquisition of cvbk , adequacy of the allowance for indemnification losses , levels of noninterest income and expense , interest rates and yields including possible future changes in interest rate environments , the deposit portfolio including trends in deposit maturities and rates , interest rate sensitivity , market risk , regulatory developments , monetary policy implemented by the federal reserve board including changes to the federal funds target rate , capital requirements , growth strategy , hedging strategy and financial and other goals and the effect of the inclusion of the corporation 's stock in the russell 2000® index . these statements may address issues that involve estimates and assumptions made by management and risks and uncertainties . actual results could differ materially from historical results or those anticipated or implied by such statements . factors that could have a material adverse effect on the operations and future prospects of the corporation include , but are not limited to , changes in : · interest rates , such as volatility in yields on u.s. treasury bonds and increases or volatility in mortgage rates · general business conditions , as well as conditions within the financial markets · general economic conditions , including unemployment levels · the legislative/regulatory climate , including regulatory initiatives with respect to financial institutions , products and services in accordance with the dodd frank act , the cfpb and the regulatory and enforcement activities of the cfpb , and the application of the basel iii capital standards to the corporation and the bank · monetary and fiscal policies of the u.s. government , including policies of the u.s. treasury and the federal reserve board , and the effect of these policies on interest rates and business in our markets · the value of securities held in the corporation 's investment portfolios · demand for loan products · the quality or composition of the loan portfolios and the value of the collateral securing those loans · the commercial and residential real estate markets · the inventory level and pricing of used automobiles , including sales prices of repossessed vehicles · the level of net charge-offs on loans and the adequacy of our allowance for loan losses · deposit flows · demand in the secondary residential mortgage loan markets 28 · the level of indemnification losses related to mortgage loans sold · the strength of the corporation 's counterparties and the economy in general · competition from both banks and non-banks , including competition in the non-prime automobile finance markets · demand for financial services in the corporation 's market area · the corporation 's expansion and technology initiatives · reliance on third parties for key services · accounting principles , policies and guidelines and elections made by the corporation thereunder these risks and uncertainties , and the risks discussed in more detail in item 1a , “ risk factors , ” should be considered in evaluating the forward-looking statements contained herein . we caution readers not to place undue reliance on those statements , which speak only as of the date of this report . the following discussion supplements and provides information about the major components of the results of operations , financial condition , liquidity and capital resources of the corporation . this discussion and analysis should be read in conjunction with the accompanying consolidated financial statements . critical accounting policies the preparation of financial statements requires us to make estimates and assumptions . those accounting policies with the greatest uncertainty and that require management 's most difficult , subjective or complex judgments affecting the application of these policies , and the likelihood that materially different amounts would be reported under different conditions , or using different assumptions , are described below . allowance for loan losses : we establish the allowance for loan losses through charges to earnings in the form of a provision for loan losses . loan losses are charged against the allowance when we believe that the collection of the principal is unlikely . subsequent recoveries of losses previously charged against the allowance are credited to the allowance . the allowance represents an amount that , in our judgment , will be adequate to absorb probable losses inherent in the loan portfolio . our judgment in determining the level of the allowance is based on evaluations of the collectibility of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time , changes in the nature and volume of the loan portfolio , current economic conditions that may affect a borrower 's ability to repay and the value of collateral , overall portfolio quality and review of specific potential losses . this evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available . for more information , see the section titled “ asset quality ” within item 7. allowance for indemnifications : the allowance for indemnifications is established through charges to earnings in the form of a provision for indemnifications , which is included in other noninterest expenses . story_separator_special_tag if , however , we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery , we must determine what portion of the impairment is attributable to a credit loss , which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security . if there is no credit loss , there is no other-than-temporary impairment . if there is a credit loss , other-than-temporary impairment exists , and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income . for equity securities , impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until a recovery of fair 30 value . other-than-temporary impairment of an equity security results in a write-down that must be included in net income . we regularly review each investment security for other-than-temporary impairment based on criteria that includes the extent to which cost exceeds market price , the duration of that market decline , the financial health of and specific prospects for the issuer , our best estimate of the present value of cash flows expected to be collected from debt securities , our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery . other real estate owned ( oreo ) : assets acquired through , or in lieu of , loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure . subsequent to foreclosure , management periodically performs valuations of the foreclosed assets based on updated appraisals , general market conditions , recent sales of similar properties , length of time the properties have been held , and our ability and intention with regard to continued ownership of the properties . the corporation may incur additional write-downs of foreclosed assets to fair value less costs to sell if valuations indicate a further deterioration in market conditions . goodwill : the corporation 's goodwill was recognized in connection with the corporation 's acquisition of cvbk in october 2013 and c & f bank 's acquisition of c & f finance company in september 2002. the corporation reviews the carrying value of goodwill at least annually or more frequently if certain impairment indicators exist . in assessing the recoverability of the corporation 's goodwill , major assumptions used in determining impairment are increases in future income , sales multiples in determining terminal value and the discount rate applied to future cash flows . if an impairment test is performed , we will prepare a sensitivity analysis by increasing the discount rate , lowering sales multiples and reducing increases in future income . retirement plan : c & f bank maintains a non-contributory , defined benefit pension plan for eligible full-time employees as specified by the plan . plan assets , which consist primarily of mutual funds invested in marketable equity securities and corporate and government fixed income securities , are valued using market quotations . c & f bank 's actuary determines plan obligations and annual pension expense using a number of key assumptions . key assumptions may include the discount rate , the interest crediting rate , the estimated future return on plan assets and the anticipated rate of future salary increases . changes in these assumptions in the future , if any , or in the method under which benefits are calculated may affect pension assets , liabilities or expense . derivative financial instruments : the corporation uses derivatives primarily to manage risk associated with changing interest rates and to assist customers with their risk management objectives . the corporation 's derivative financial instruments may include ( 1 ) interest rate lock commitments ( irlcs ) on mortgage loans that will be held for sale and related forward sales commitments , ( 2 ) interest rate swaps with certain qualifying commercial loan customers and dealer counterparties and ( 3 ) interest rate swaps that qualify as cash flow hedges of the corporation 's trust preferred capital notes . the corporation recognizes derivative financial instruments at fair value as either an other asset or other liability in the consolidated balance sheet . because the irlcs , forward sales commitments and interest rate swaps with loan customers and dealer counterparties are classified as free standing derivatives , adjustments to reflect unrealized gains and losses resulting from changes in fair value of these instruments are reported in the income statement . the effective portion of the gain or loss on the corporation 's cash flow hedges is reported as a component of other comprehensive income , net of deferred income taxes , and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings . income taxes : determining the corporation 's effective tax rate requires judgment . the corporation 's net deferred tax asset is determined annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income . in addition , there may be transactions and calculations for which the ultimate tax outcomes are uncertain and the corporation 's tax returns are subject to audit by various tax authorities . although we believe that the estimates are reasonable , no assurance can be given that the final tax outcome will not be materially different than that which is reflected in the income tax provision and accrual . for further information concerning accounting policies , refer to item 8 , “ financial statements and supplementary data , ” under the heading “ note 1 : summary of significant accounting policies.
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results of operations net interest income the following table shows the average balance sheets , the amounts of interest earned on earning assets , with related yields , and interest expense on interest-bearing liabilities , with related rates , for each of the years ended december 31 , 2016 , 2015 and 2014. loans include loans held for sale . loans placed on a nonaccrual status are included in the balances and are included in the computation of yields , but had no material effect . accretion and amortization of fair value purchase adjustments are included in the computation of yields on loans and investments and on the cost of deposits and borrowings acquired in connection with the purchase of cvb . the cvb accretion contributed approximately 24 basis points to the yield on loans and 17 basis points to the yield on interest earning assets and net interest margin for the year ended december 31 , 2016 compared to approximately 25 basis points to the yield on loans and 18 basis points to both the yield on interest earning assets and the net interest margin for the year ended december 31 , 2015 and approximately 32 basis points to the yield on loans , 22 basis points to the yield on interest earning assets and 23 basis points to the net interest margin for the year ended december 31 , 2014. interest on tax-exempt loans and securities is presented on a taxable-equivalent basis ( which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid using the federal corporate income tax rate of 34 percent in all three years presented ) .
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we are currently serving more than 7,500 financial services organizations and leading marketplace and financial technology ( “ fintech ” ) brands across the globe . our solutions are embedded in native mobile apps and browsers to facilitate better online user experiences , fraud detection and reduction , and compliant transactions . mitek 's mobile deposit® solution is used today by millions of consumers in the united states ( “ u.s. ” ) and canada for mobile check deposit . mobile deposit® enables individuals and businesses to remotely deposit checks using their camera-equipped smartphone or tablet . our mobile deposit® solution is embedded within the financial institutions ' digital banking apps used by consumers and has now processed over four billion check deposits . mitek began selling mobile deposit® in early 2008 and received its first patent for this product in august 2010. mitek 's mobile verify® verifies a user 's identity online enabling organizations to build safer digital communities . scanning an identity document helps enable an enterprise to verify the identify of the person with whom they are conducting business , to comply with growing governmental anti-money laundering and know your customer regulatory requirements , and to improve the overall customer experience for digital onboarding . to be sure the person submitting the identity document is who they say they are , mitek 's mobile verify face comparison provides an additional layer of online verification and compares the face on the submitted identity document with the live selfie photo of the user . the combination of identity document capture and data extraction process enables the organization to prefill the end user 's application , with far fewer key strokes , thus reducing keying errors , and improving both operational efficiency and the customer experience . today , the financial services verticals ( banks , credit unions , lenders , payments processors , card issuers , fintech companies , etc . ) represent the greatest percentage of use of our solutions , but there is accelerated adoption by marketplaces , sharing economy , and hospitality sectors . mitek uses artificial intelligence and machine learning to constantly improve the product performance of mobile verify® such as speed and accuracy of approvals of identification documents . the core of our user experience is driven by mitek misnap , the leading image capture technology , which is incorporated across our product lines . it provides a simple , intuitive , and superior user-experience , making digital transactions faster , more accurate , and easier for the consumer . mobile fill® automates application prefill of any form with user data by simply snapping a picture of the driver 's license or other similar user identity document . checkreader enables financial institutions to automatically extract data from a check image received across any deposit channel—branch , atm , remote deposit capture , and mobile . through the automatic recognition of all fields on checks , whether handwritten or machine print , checkreader speeds the time to deposit for financial institutions and enables them to comply with check clearing regulations . we market and sell our products and services worldwide through internal , direct sales teams located in the u.s. , europe , and latin america as well as through channel partners . our partner sales strategy includes channel partners who are financial services technology providers and identity verification providers . these partners integrate our products into their solutions to meet the needs of their customers . fiscal year 2020 highlights revenues for the fiscal year ended september 30 , 2020 were $ 101.3 million , an increase of 20 % compared to revenues of $ 84.6 million for the fiscal year ended september 30 , 2019. net income was $ 7.8 million , or $ 0.18 per share , for the fiscal year ended september 30 , 2020 , compared to a net loss of $ 0.7 million , or $ 0.02 per share , for the fiscal year ended september 30 , 2019. cash provided by operating activities was $ 24.1 million for the fiscal year ended september 30 , 2020 , compared to $ 14.3 million for the fiscal year ended september 30 , 2019. during fiscal 2020 the total number of financial institutions licensing our technology exceeded 7,500. all of the top 10 u.s. retail banks , and nearly all of the top 50 u.s. retail banks utilize our technology . 24 we added new patents to our portfolio during fiscal year 2020 , bringing our total number of issued patents to 67 as of september 30 , 2020. in addition , we have 20 patent applications as of september 30 , 2020. acquisition of a2ia group ii , s.a.s . on may 23 , 2018 , mitek acquired all of the issued and outstanding shares of a2ia group ii , s.a.s . ( `` a2ia '' ) , a simplified joint stock company formed under the laws of france , pursuant to a share purchase agreement , by and among mitek , each of the holders of outstanding shares of a2ia and andera partners , s.c.a. , as representative of the sellers ( the “ a2ia acquisition ” ) . a2ia is a software development organization focused on delivering specialized and highly intelligent data extraction tools that enable customers to optimize their data capture , document processing , and workflow automation capabilities . upon completion of the a2ia acquisition , a2ia became a direct wholly owned subsidiary of mitek . as consideration for the a2ia acquisition , we ( i ) made a cash payment of $ 26.8 million , net of cash acquired ; ( ii ) issued 2,514,588 shares , or $ 21.9 million , of mitek 's common stock , par value $ 0.001 per share ( “ common stock ” ) ; and ( iii ) incurred liabilities of $ 0.2 million . the a2ia acquisition extends our global leadership position in both mobile check deposit and digital identity verification and combines the two market leaders in document recognition and processing . acquisition of icar vision systems , s.l . story_separator_special_tag however , in that case , we or another channel partner must establish a relationship with the end-users , which could take time to develop , if it develops at all . we have a growing number of competitors in the mobile image capture and identity verification industry , many of which have greater financial , technical , marketing , and other resources . however , we believe our patented mobile image capture and identity verification technology , our growing portfolio of products and geographic coverage for the financial services industry , and our market expertise gives us a distinct competitive advantage . to remain competitive , we must continue to offer products that are attractive to the consumer as well as being secure , accurate , and convenient . to help us remain competitive , we intend to further strengthen performance of our portfolio of products through research and development as well as partnering with other technology providers . in the second quarter of fiscal 2020 , concerns related to the spread of covid-19 began to create global business disruptions as well as disruptions in our operations and to create potential negative impacts on our revenues and other financial results . covid-19 was declared a pandemic by the world health organization on march 11 , 2020. in an effort to contain covid-19 or slow its spread , governments around the world have enacted various measures , including orders to close all businesses not deemed “ essential , ” isolate residents to their homes or places of residence , and practice social distancing when engaging in essential activities . we anticipate that these actions and the global health crisis caused by covid-19 will negatively impact business activity across the globe . the extent to which covid-19 will impact our business , operations , and financial results is uncertain and difficult to predict and depends on numerous evolving factors including the duration and severity of the outbreak . see item 1a : “ risk factors ” for additional details . in an effort to protect the health and safety of our employees , our workforce has transitioned to working remotely and employee travel , including to our international subsidiaries , has been severely curtailed . it is not clear what the potential effects of any such alterations or modifications may have on our business , including the effects on our customers or vendors , or on our financial results . we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state , local , or foreign authorities , or that we determine are in the best interests of our employees , customers , partners , and stockholders . we anticipate in certain circumstances that the current stay-at-home orders and impact of the covid-19 pandemic may accelerate the adoption of digital technologies and create future opportunities and uses for our products . however , we can not predict what the overall impact of the covid-19 pandemic will be on our business or financial condition as business and consumer activity decelerates across the globe . we continue to seek new and innovative opportunities to serve our customers ' needs . 26 results of operations comparison of the years ended september 30 , 2020 and 2019 the following table summarizes certain aspects of our results of operations for the fiscal year ended september 30 , 2020 compared to the fiscal year ended september 30 , 2019 ( in thousands , except percentages ) : replace_table_token_2_th ( 1 ) 2019 amount reflects reclassification to conform to the current year presentation . revenue total revenue increased $ 16.7 million , or 20 % , to $ 101.3 million in 2020 compared to $ 84.6 million in 2019. software and hardware revenue increased $ 7.3 million , or 16 % , to $ 54.2 million in 2020 compared to $ 46.8 million in 2019. this increase is primarily due to an increase in sales of our mobile deposit® , id_cloud , and checkreader software products . the increase was partially offset by declining software revenue from our legacy on-premise identity products which are being phased out . services and other revenue increased $ 9.4 million , or 25 % , to $ 47.2 million in 2020 compared to $ 37.7 million in 2019. this increase is primarily due to strong growth in mobile verify® transactional saas revenue of $ 7.7 million , or 36 % , in 2020 compared to 2019 , as well as an increase in maintenance revenue associated with checkreader and mobile deposit® software sales . cost of revenue cost of revenue includes personnel costs related to billable services and software support , direct costs associated with our hardware products , hosting costs , and the costs of royalties for third-party products embedded in our products . cost of revenue increased $ 0.9 million , or 8 % , to $ 13.2 million in 2020 compared to $ 12.3 million in 2019. as a percentage of revenue , cost of revenue decreased to 13 % in 2020 from 15 % in 2019. the increase in cost of revenue is primarily due to an increase in variable personnel , royalty , and hosting costs associated with a higher volume of mobile verify® transactions processed during 2020 compared to 2019. selling and marketing expenses selling and marketing expenses include payroll , employee benefits , stock-based compensation , and other headcount-related costs associated with sales and marketing personnel . selling and marketing expenses also include non-billable costs of professional services personnel , advertising expenses , product promotion costs , trade shows , and other brand awareness programs .
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results of operations comparison of the years ended september 30 , 2019 and 2018 the following table summarizes certain aspects of our results of operations for the fiscal year ended september 30 , 2019 compared to the fiscal year ended september 30 , 2018 ( in thousands , except percentages ) : replace_table_token_3_th ( 1 ) 2019 and 2018 amounts reflect reclassifications to conform to the current year presentation . revenue total revenue increased $ 21.0 million , or 33 % , to $ 84.6 million in 2019 compared to $ 63.6 million in 2018. software and hardware revenue increased $ 6.1 million , or 15 % , to $ 46.8 million in 2019 compared to $ 40.7 million in 2018. this increase is primarily due to an increase from the sale of a2ia products in 2019 compared to 2018 , as well as an increase in sales of our mobile deposit® software products , partially offset by declining software revenue from our legacy on-premise identity products which are being phased out . services and other revenue increased $ 14.9 million , or 65 % , to $ 37.7 million in 2019 compared to $ 22.9 million in 2018. this increase is primarily due to strong growth in transaction saas revenue of $ 8.3 million , or 63 % , in 2019 compared to 2018 and maintenance associated with the sale of our a2ia and mobile deposit® products . cost of revenue cost of revenue includes personnel costs related to billable services and software support , direct costs associated with our hardware products , hosting costs , and the costs of royalties for third-party products embedded in our products .
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in response to concerns expressed by shareholders and as described in further detail in the response to 2011 say on pay vote section later in this cd & a , the compensation committee worked with its independent compensation consultant , hay group , and management to improve the company 's executive compensation programs and policies to further link neo compensation with performance . no specific component of the program was altered for 2011 since the compensation committee had established the fiscal 2011 annual compensation program prior to the results of the say on pay vote . however , in february 2012 , the compensation committee made the following changes to the long-term incentive compensation program for neos ( other story_separator_special_tag results of operations overview our business is comprised of three segments . the north american retail division includes our retail stores in the u.s. which offer office supplies and services , computers and business machines and related supplies , and office furniture . most stores also have a copy and print center offering printing , reproduction , mailing and shipping . the north american business solutions division sells office supply products and services in the u.s. and canada directly to businesses through catalogs , internet web sites and a dedicated sales force . our international division sells office products and services through catalogs , internet web sites , a dedicated sales force and retail stores in europe and asia . our fiscal year results are based on a 52- or 53-week retail calendar ending on the last saturday in december . fiscal year 2011 is based on 53 weeks , with a 14-week fourth quarter . fiscal years 2010 and 2009 include 52 weeks . our comparable store sales relate to stores that have been open for at least one year . a summary of factors important to understanding our results for 2011 is provided below . the comparisons to prior years are discussed in the narrative that follows this overview . total company sales were $ 11.5 billion in 2011 , down 1 % compared to 2010. total company sales decreased 4 % in 2010 compared to 2009. sales for 2011 declined 2 % in the north american retail division and 1 % in the north american business solutions division . comparable store sales in the north american retail division decreased 2 % . international division sales decreased 1 % in u.s. dollars and 5 % in constant currencies . gross margin for 2011 improved approximately 100 basis points compared to 2010 , following an approximately 90 basis point increase from 2009. the increase in 2011 primarily reflects improvement from reduced promotional activity , lower property costs and changes in the mix of sales channels and products sold . we recognized charges of approximately $ 58 million in 2011 , primarily related to restructuring-related activity in the international division , store closures in the north american retail division and process improvement actions at the corporate level . charges recognized in 2010 and 2009 totaled approximately $ 87 million and $ 253 million , respectively . tax and related interest benefits of approximately $ 123 million were recognized in 2011 from the reversal of uncertain tax position accruals and the release of valuation allowances in certain jurisdictions based on positive earnings . tax settlements and related interest reversal were also recognized in 2010. the company continues to operate in the u.s. with full valuation allowances on deferred tax assets , contributing to significant effective tax rate volatility within the year and across years . at the end of 2011 , we had $ 571 million in cash and approximately $ 734 million available on our asset based credit facility . cash flow from operating activities was $ 200 million for 2011. story_separator_special_tag well as the first quarter 2011 acquisition of a business in sweden ( the portfolio changes ) , constant currency sales were 1 % lower in 2011 compared to 2010. the 53 rd week added approximately $ 28 million to total division sales . contract channel sales in constant currencies increased 3 % in 2011 and 1 % in 2010. the 2011 increase reflects growth in field sales as a result of staff added in the last two years , as well as the 2011 acquisition . constant currency sales in the direct business declined 6 % in 2011 , after considering the portfolio changes , and declined 5 % in 2010. division operating profit totaled approximately $ 93 million in 2011 , $ 111 million in 2010 , and $ 120 million in 2009. included in division operating profit for 2011 and 2010 were charges of approximately $ 31 million and $ 23 million , respectively . the 2011 charges primarily relate to severance and other costs associated with facility closures and streamlining processes . the 2010 charges resulted from the sale of operating subsidiaries in israel and japan , as well as facility closure and severance costs associated with consolidation arrangements in europe . 23 the 2010 subsidiary sales reflect the company 's decision to change its investment model in those countries from direct operations to continued cash flow from product sales and other arrangements . the company anticipates recognizing additional charges in 2012 as operational consolidation continues and the related accounting recognition criteria are met . the decreases in division operating profit in 2011 , 2010 and 2009 were impacted by the flow through impact of lower sales levels . gross profit as a percent of sales increased in 2011 , but decreased after considering the portfolio changes . this decrease reflects a change in the mix of direct and contract sales , product costs not passed along to customers , and a negative impact of the 53 rd week , partially offset by lower occupancy costs . operating expenses decreased across the division , reflecting benefits from restructuring activities initiated in prior periods . story_separator_special_tag the company is in the process of further assessing the g & a expenses charged to the divisions in determining their operating profit . we currently can not estimate when this analysis will be completed or the potential impacts 25 on the divisions , but the portion of g & a expenses allocated to the divisions in future years likely will be substantially increased . other income and expense replace_table_token_17_th interest expense was impacted by the reversal of accrued interest of $ 32 million in 2011 and $ 11 million in 2010 following settlements of uncertain tax positions . our accounting policy is to present interest accruals and reversals on uncertain tax positions as a component of interest expense . additionally , approximately $ 2 million of interest income was recognized in 2010 from one of the tax settlements . our net miscellaneous income consists of our earnings of joint venture investments , gains and losses related to foreign exchange transactions , investment results from our deferred compensation plan and realized gains and impairments of other investments . we recognized earnings from our joint venture in mexico , office depot de mexico , of approximately $ 34 million , $ 31 million and $ 31 million in 2011 , 2010 , and 2009 , respectively . these results also were impacted by foreign currency and other gains and losses in all periods . income taxes replace_table_token_18_th * income taxes as a percentage of earnings ( loss ) before income taxes . the effective tax rates for 2011 and 2010 reflect benefits from settlements of uncertain tax positions ( utps ) and from reversal of valuation allowances on deferred tax assets . the 2011 rate includes the reversal of $ 81 million of utp accruals relating to u.s. and foreign jurisdictions following closure of tax audits and the expiration of the statute of limitations on previously open tax years . the 2010 effective rate includes the reversal of approximately $ 30 million of utp accruals . in addition , 2011 and 2010 include approximately $ 9 million and $ 10 million , respectively , of discrete benefits from the release of valuation allowances in certain european countries because of improved performance in those jurisdictions . partially offsetting these tax benefits is income tax expense recognized for tax paying entities . because of significant valuation allowances that remain in other jurisdictions , deferred tax benefits are not recognized on certain loss generating entities . within our international operations , statutory tax expense is generally lower compared to the aggregate u.s. federal and state income tax rates . this is further impacted by favorable tax ruling within our international operations . the aggregate reversal of utps in 2010 was reduced by approximately $ 7 million which was offset against other tax-related accounts and had no impact on earnings . the utp reversals also resulted in a reversal of previously accrued interest expense of $ 32 million in 2011 and $ 11 million in 2010 , as well as recognition of $ 2 million of interest income in 2010. our accounting policy is to include accrued interest on utps , and any related reversals , as a component of interest expense in the condensed consolidated statement of operations . following the recognition of $ 322 million of valuation allowances in 2009 , we have regularly experienced substantial volatility in our effective tax rate for interim periods . because deferred income tax benefits can not be recognized in several jurisdictions , changes in the amount , mix and timing of projected pre-tax earnings in tax paying jurisdictions can have a significant impact on the annual expected tax rate which , applied against year-to-date results , can result in significant volatility in the overall effective tax rate . this interim volatility is likely to continue in future periods until the valuation allowances can be released . 26 we file a u.s. federal income tax return and other income tax returns in various states and foreign jurisdictions . with few exceptions , we are no longer subject to active u.s. federal , state or local income tax examinations for years before 2009. the u.s. federal tax returns for 2009 , 2010 and 2011 are under review . significant international tax jurisdictions include the u.k. , the netherlands , france and germany . generally , we are subject to routine examination for years 2006 and forward in these foreign jurisdictions . it is reasonably possible that some audits will close within the next twelve months which could result in a decrease of as much as $ 2.6 million or an increase of as much as $ 1.0 million to our accrued uncertain tax positions . as part of the ongoing 2009 and 2010 audits , the u.s. internal revenue service ( irs ) has proposed a deemed royalty assessment from our foreign operations with a tax and penalty amount of approximately $ 126 million . the company disagrees with this assessment and , based on the technical merits of this issue , believes that no accrual is required at this time . the company is working with its outside tax advisors and the irs to resolve this dispute in a timely manner . to the extent the irs were to prevail on this issue , the income statement and cash flow impact may be lowered because of available net operating losses and other deferred tax assets . 27 liquidity and capital resources liquidity during the second quarter of 2011 , the company entered into a $ 1.0 billion amended and restated credit agreement ( the amended credit agreement ) with a group of lenders , most of whom participated in the company 's previously existing $ 1.25 billion credit agreement . the amended credit agreement expires may 25 , 2016. the amended credit agreement reduces the applicable borrowing spread , permits the company to redeem , tender or otherwise repurchase its existing 6.25 % senior notes , subject to a $ 600 million minimum liquidity requirement , and modifies certain covenants .
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operating results discussion of other income and expense items , including material charges and changes in interest and taxes follows our review of segment results . 21 north american retail division replace_table_token_11_th sales in our north american retail division decreased 2 % in 2011 , 3 % in 2010 and 16 % in 2009. the decline in sales reflects the closing of 12 stores in canada during 2011 and , in 2009 , the closing of 120 underperforming stores as part of a strategic business review . comparable store sales in 2011 from the 1,107 stores that were open for more than one year decreased 2 % , with the fourth quarter down 5 % compared to the prior year . comparable store sales in 2010 from the 1,124 stores that were open for more than one year decreased 1 % . the 53 rd week in 2011 added approximately $ 78 million to the division 's full year reported sales . transaction counts were lower in both 2011 and 2010 , consistent with the comparable store sales declines . sales in technology services , copy and print depot , seating and office materials increased in 2011 compared to 2010 , while sales of technology products , technology peripheral items and some office supplies declined . sales in furniture , technology , technology services and copy and print depot increased in 2010 compared to 2009 ; sales of supplies declined . our decision to reduce promotions in select categories contributed to lower sales in both 2011 and 2010. the north american retail division reported operating profit of approximately $ 135 million in 2011 , $ 128 million in 2010 and $ 106 million in 2009. division operating profit in 2011 included approximately $ 12 million of charges associated with the closure of stores in canada .
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in april 2008 , the company 's majority-owned subsidiary , trellisware , issued additional shares of preferred stock in which the company invested $ story_separator_special_tag company overview we are a leading provider of advanced satellite and wireless communications and secure networking systems , products and services . we have leveraged our success developing complex satellite communication systems and equipment for the u.s. government and select commercial customers to develop end-to-end satellite network solutions for a wide array of applications and customers . our product and systems offerings are often linked through common underlying technologies , customer applications and market relationships . we believe that our portfolio of products , combined with our ability to effectively cross-deploy technologies between government and commercial segments and across different geographic markets , provides us with a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies . our customers , including the u.s. government , leading aerospace and defense prime contractors , network integrators and communications service providers , rely on our solutions to meet their complex communications and networking requirements . in addition , following our acquisition of wildblue , we are a leading provider of satellite broadband internet services in the united states . viasat operates in three segments : government systems , commercial networks and satellite services . government systems our government systems segment develops and produces network-centric ip-based secure government communications systems , products and solutions , which are designed to enable the collection and dissemination of secure real-time digital information between command centers , communications nodes and air defense systems . customers of our government systems segment include tactical armed forces , public safety first-responders and remote government employees . the primary products and services of our government systems segment include : government satellite communication systems , including an array of portable and fixed broadband modems , terminals , network access control systems and antenna systems using a range of satellite frequency bands for line-of-sight and beyond-line-of-sight isr and c2 missions , satellite networking services , as well as products designed for manpacks , aircraft , uavs , seagoing vessels , ground mobile vehicles and fixed applications . information assurance products that enable military and government users to communicate information securely over networks , and that secure data stored on computers and storage devices . tactical data links , including mids terminals for military fighter jets and their successor , mids-jtrs terminals , disposable weapon data links and portable small tactical terminals . on july 8 , 2010 , we completed the acquisition of all outstanding shares of the parent company of stonewood group limited ( stonewood ) , a privately held company registered in england and wales ( see note 9 to our consolidated financial statements ) . stonewood is a leader in the design , manufacture and delivery of data at rest encryption products and services . in connection with the acquisition , we paid approximately $ 14.2 million in cash and issued approximately 144,962 shares of viasat common stock to former stonewood stockholders . the acquisition was accounted for as a purchase and accordingly , the consolidated financial statements include the operating results of stonewood from the date of acquisition in our government systems segment . 36 commercial networks our commercial networks segment develops and produces a variety of advanced end-to-end satellite communication systems and ground networking equipment and products that address five key market segments : consumer , enterprise , in-flight , maritime and ground mobile applications . these communication systems , networking equipment and products are generally developed through a combination of customer and discretionary internal research and development funding . our satellite communication systems and ground networking equipment and products cater to a wide range of domestic and international commercial customers and include : consumer broadband , including next-generation satellite network infrastructure and ground terminals to access high capacity satellites . antenna systems for terrestrial and satellite applications , specializing in geospatial imagery , mobile satellite communication , ka-band gateways , and other multi-band antennas . mobile broadband satellite communication systems , designed for use in aircraft , seagoing vessels and high-speed trains . enterprise vsat networks and products , designed to provide enterprises with broadband access to the internet or private networks . satellite networking development programs , including specialized design and technology services covering all aspects of satellite communication system architecture and technology . satellite services our satellite services segment complements our government systems and commercial networks segments by providing wholesale and retail satellite-based broadband internet services in the united states via our distribution and capacity agreements , as well as managed network services for the satellite communication systems of our consumer , enterprise and mobile broadband customers . the primary services offered by our satellite services segment comprise : wholesale and retail broadband services , comprised of wildblue service , which provides two-way satellite-based broadband internet access to consumers and small businesses in the united states . our yonder worldwide mobile broadband services , comprised of global network management services for customers who use our arclight-based mobile satellite systems . on december 15 , 2009 , we acquired wildblue , a leading ka-band satellite broadband internet service provider . in connection with the acquisition , we paid approximately $ 442.7 million in cash and issued approximately 4.29 million shares of viasat common stock to wildblue equity and debt holders ( see note 9 to our consolidated financial statements ) . the acquisition was accounted for as a purchase and accordingly , the consolidated financial statements include the operating results of wildblue from the date of acquisition in our satellite services segment . sources of revenues with respect to our government systems and commercial networks segments , to date , our ability to grow and maintain our revenues has depended on our ability to identify and target markets where the customer places a high priority on the technology solution , and our ability to obtain additional sizable contract awards . story_separator_special_tag during fiscal years 2011 , 2010 and 2009 , we recorded losses of approximately $ 12.1 million , $ 9.3 million and $ 5.4 million , respectively , related to loss contracts . assuming the initial estimates of sales and costs under a contract are accurate , the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract . changes in these underlying estimates due to revisions in sales and future cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised . we believe we have established appropriate systems and processes to enable us to reasonably estimate future cost on our programs through regular quarterly evaluations of contract costs , scheduling and technical matters by business unit personnel and management . historically , in the aggregate , we have not experienced significant deviations in actual costs from estimated program costs , and when deviations that result in significant adjustments arise , we disclose the related impact in management 's discussion and analysis of financial condition and results of operations . however , these estimates require significant management judgment and a significant change in future cost estimates on one or more programs could have a material effect on our results of operations . a one percent variance in our future cost estimates on open fixed-price contracts as of april 1 , 2011 would change our income before income taxes by approximately $ 0.5 million . we also derive a substantial portion of our revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the authoritative guidance for revenue recognition ( asc 605 ) . under this standard , we recognize revenue when an arrangement exists , prices are fixed and determinable , collectability is reasonably assured and the goods or services have been delivered . we also enter into certain leasing arrangements with customers and evaluate the contracts in accordance with the authoritative guidance for leases ( asc 840 ) . our accounting for equipment leases involves specific determinations under the authoritative guidance , which often involve complex provisions and significant judgments . in accordance with the authoritative guidance for leases , we classify the transactions as sales type or operating leases based on ( 1 ) review for transfers of ownership of the property to the lessee by the end of the lease term , ( 2 ) review of the lease terms to determine if it contains an option to purchase the leased property for a price which is sufficiently lower than the expected fair value of the property at the date of the option , ( 3 ) review of the lease term to determine if it is equal to or greater than 75 % of the economic life of the equipment and ( 4 ) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90 % of the fair market value of the equipment at the inception of the lease . additionally , we consider the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception . revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site , if installation is required . revenues from equipment rentals under operating leases are recognized as earned over the lease term , which is generally on a straight-line basis . when a sale involves multiple elements , such as sales of products that include services , the entire fee from the arrangement is allocated to each respective element based on its relative fair value in accordance with the authoritative guidance for accounting for multiple element revenue arrangements ( asc 605-25 ) , and recognized when the applicable revenue recognition criteria for each element have been met . the amount of product and service revenue recognized is impacted by our judgments as to whether an arrangement includes multiple elements and , if so , whether sufficient objective and reliable evidence of fair value exists for those elements . changes to the elements in an arrangement and our ability to establish evidence for those elements could affect the timing of revenue recognition . collections in excess of revenues and deferred revenues represent cash collected from customers in advance of revenue recognition and are recorded in accrued liabilities for obligations within the next twelve months . deferred revenues extending beyond the twelve months are recorded within other liabilities in the consolidated financial statements . 39 allowance for doubtful accounts we make estimates of the collectability of our accounts receivable based on historical bad debts , customer creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . historically , our bad debt allowances have been minimal primarily because a significant portion of our sales has been to the u.s. government or is related to our satellite service commercial business , which we bill and collect in advance . our accounts receivable balance was $ 191.9 million , net of allowance for doubtful accounts of $ 0.5 million , as of april 1 , 2011 , and our accounts receivable balance was $ 176.4 million , net of allowance for doubtful accounts of $ 0.5 million , as of april 2 , 2010. warranty reserves we provide limited warranties on our products for periods of up to five years . we record a liability for our warranty obligations when we ship the products or they are included in long-term construction contracts based upon an estimate of expected warranty costs . amounts expected to be incurred within twelve months are classified as a current liability . for mature products , we estimate the warranty costs based on historical experience with the particular product .
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results of operations the following table presents , as a percentage of total revenues , income statement data for the periods indicated . replace_table_token_2_th fiscal year 2011 compared to fiscal year 2010 product revenues replace_table_token_3_th product revenues decreased from $ 584.1 million to $ 523.9 million during fiscal year 2011 when compared to fiscal year 2010. the product revenue decline was primarily due to lower product sales in our commercial networks segment related to enterprise vsat networks and products of $ 29.0 million and consumer broadband products of $ 29.0 million . our government systems segment also experienced product revenue reductions as tactical data link products revenues decreased by $ 23.2 million and information assurance products revenues decreased by $ 7.0 million . these decreases were offset by higher product sales of $ 15.5 million in antenna systems products , $ 10.7 million in government satellite communication systems and $ 6.1 million in next-generation broadband equipment development programs . in the fourth quarter of fiscal year 2011 , based on recent events , including communications with the dcma , changes in the regulatory environment for federal government contractors and the status of current government audits , we recorded an additional $ 5.0 million in contract-related reserves for our estimate of potential refunds to customers for potential cost adjustments on several multi-year u.s. government cost reimbursable contracts , which resulted in a decrease to revenues and earnings . for additional information , see risk factors our business could be adversely affected by a negative audit by the u.s. government in part i , item 1a of this report .
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equity-based compensation the company applies the fair value methodology in accounting for its equity-based compensation plan . f-14 mettler-toledo international inc. notes to the consolidated financial statements - ( continued ) ( in thousands , except share data , unless otherwise stated ) derivative financial instruments the company has limited involvement with derivative financial instruments and does not use them for trading purposes . as described more fully in note 6 , the company primarily enters into foreign currency forward exchange contracts to economically hedge certain short-term intercompany balances involving its international businesses . such contracts limit the company 's exposure to currency fluctuations on the underlying hedged item . these contracts are adjusted to fair market value story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements . changes in local currencies exclude the effect of currency exchange rate fluctuations . local currency amounts are determined by translating current and previous year consolidated financial information at an index utilizing historical currency exchange rates . we believe local currency information provides a helpful assessment of business performance and a useful measure of results between periods . we do not , nor do we suggest that investors should , consider such non-gaap financial measures in isolation from , or as a substitute for , financial information prepared in accordance with gaap . we present non-gaap financial measures in reporting our financial results to provide investors with an additional analytical tool to evaluate our operating results . we also include in the discussion below disclosures of immaterial qualitative factors that are not quantified . although the impact of such factors is not considered material , we believe these disclosures can be useful in evaluating our operating results . overview we operate a global business with sales that are diversified by geographic region , product range , and customer . we hold leading positions worldwide in many of our markets and attribute this leadership to several factors , including the strength of our brand name and reputation , our comprehensive offering of innovative instruments and solutions , our spinnaker sales and marketing program , and the breadth and quality of our global sales and service network . net sales in u.s. dollars increased 3 % in 2020 and 2 % in 2019. excluding the effect of currency exchange rate fluctuations , or in local currencies , net sales increased 2 % in 2020 and 5 % in 2019. net sales in 2020 were negatively impacted by the covid-19 pandemic , which reduced global customer demand as further described below . however , we continue to benefit from our strong global leadership positions , diversified customer base , innovative product offering , investment in emerging markets , significant installed base , and the impact of our sophisticated global sales and marketing programs . examples of these programs include identifying and investing in growth and market penetration opportunities , more effectively pricing our products and services , increasing our sales force effectiveness through improved guidance and redirecting resources to our most promising growth opportunities , increasing digitalization tools , and continuing to optimize our lead generation and lead nurturing processes . during 2020 , we accelerated our ability to use advanced analytics to identify and pursue growth opportunities , while increasing the effectiveness of our digital tools to support our global sales organization . we also successfully adapted to a remote work environment and increased overall engagement with our customers with our go-to-market and digital approaches . we remain cautious as 31 uncertainties relating to covid-19 and the global economy continue and market conditions may change quickly . net sales in local currencies may be adversely affected in future quarters by the covid-19 pandemic related to unfavorable economic conditions and reduced customer demand . our laboratory sales experienced solid growth in 2020 , particularly from life sciences and biotech customers . we also benefited from covid-19 testing and vaccine development and production preparation activities in biopharma . we expect to continue to benefit from favorable biopharma market trends including the continued need for covid-19 testing , treatment , and vaccine production activities . we should also benefit from increased customer demand for automation , digitalization , and safety ; new facility investments ; and continued focus on regulatory compliance including data integrity requirements . however , other segments such as academia and certain segments of chemical were negatively impacted in 2020 and may continue to be challenging . our industrial sales experienced a slight decline in 2020 as our product inspection business was particularly impacted in 2020 by reduced customer demand during covid-19 . core industrial experienced growth , which included strong growth in china . we continue to benefit from our focus on the more attractive , faster-growing segments of the market and strong execution of our growth initiatives in each region . emerging market economies , especially china , have historically been an important source of growth based upon the expansion of their domestic economies , and we expect this to be a continued source of future growth . our core industrial-related products are also especially sensitive to changes in economic growth . we expect our industrial markets to also benefit from our customers ' focus on brand protection , food safety , and productivity within our product inspection end-market . our food retailing sales decreased during 2020 primarily due to a lack of key account activity , weak market conditions , and minimal customer investments during covid-19 . traditionally , the spending levels in this sector have experienced more volatility than our other end-markets due to the timing of customer project activity and new regulations . in 2021 , we expect to continue to pursue the overall business growth strategies which we have followed in recent years : gaining market share . our global sales and marketing initiative , “ spinnaker , ” continues to be an important growth strategy . story_separator_special_tag for example , during 2017 , we acquired biotix , inc. , a u.s.-based manufacturer and distributor of plastic consumables associated with pipettes , including tips , tubes , and reagent reservoirs 33 used in the life sciences market , for an initial cash payment of $ 105 million plus additional cash consideration of $ 10 million that was paid in the first quarter of 2019. covid-19 the covid-19 pandemic has resulted in millions of confirmed cases throughout the world and in all countries where we conduct business . the outbreak has caused many governments to implement stay-at-home orders , quarantines , and significant restrictions on travel . several governments have also implemented work restrictions that prohibit many employees from going to their customary work locations and that require these employees to work remotely if possible . quarantines , travel bans , work and other restrictions were initially put in place on a national level in china in january 2020 , and with the global spread of the virus , subsequently adopted in other countries and regions with many restrictions in asia pacific , europe , north america , and south america . these restrictions continue to change as covid-19 evolves in each country and region . the health and safety of our employees and business partners have been our highest priority throughout the covid-19 pandemic , and we have implemented several preventative and protective measures relating to social distancing , hygiene , health monitoring , personal protective equipment , split shifts , and remote work . we have also implemented business continuity plans and have been able to continue to support our customers with their essential businesses such as life sciences , food manufacturing , chemicals ( e.g. , sanitizers , disinfectants , soaps , etc . ) , food retail , and transportation and logistics . our production and logistics facilities are currently operational , and our office-based employees have been able to work remotely in adherence to applicable jurisdictional stay-at-home orders . our supply chain is currently continuing with minimal interruption , and we generally maintain adequate product inventory levels and safety stock for certain components . we quickly adapted to leverage our digital and remote sales and service capabilities , while also meeting delivery requirements with our global supply chain . our service organization also continues to provide on-site and remote customer support to facilitate uptime , productivity , and regulatory compliance . we have also implemented various temporary cost containment measures related to workforce management and discretionary spending . our workforce management measures primarily included reduced work hours , salary freezes , and voluntary senior leadership salary reductions . we maintain adequate liquidity consisting of approximately $ 602.5 million of additional borrowings available under our credit agreement and $ 94.3 million of cash and cash equivalents as of december 31 , 2020. covid-19 presents several risks to our business as further described on page 14 in the risk factors section of this form 10-k. during the year ended december 31 , 2020 , covid-19 had a negative impact on our business , primarily related to reduced customer demand . we remain cautious as uncertainties related to covid-19 and the resulting impact to the global economy continue in most regions of the world and market conditions can change quickly . with the global spread of the virus and related negative impact to the global economy , we may experience reduced global sales volume due to lower customer demand . the longer-term effects on our business will be impacted by the global economy and any recession implications in different regions of the world . while it is extremely difficult to estimate the extent and duration of any covid-19 implications , the effects on our business , results of operations , and financial condition could be material . 34 results of operations — consolidated net sales net sales were $ 3.1 billion for the year ended december 31 , 2020 , compared to $ 3.0 billion in 2019 and $ 2.9 billion in 2018. this represents an increase of 3 % in 2020 and 2 % in 2019 in u.s. dollars and an increase of 2 % in 2020 and 5 % in 2019 in local currencies . net sales were negatively impacted by the covid-19 pandemic and related reduction in global customer demand on our operations . however , our competitive position increased due to our sophisticated sales and marketing program that was highly effective in the enhanced digital environment , and we strengthened our brand with our ability to serve customers throughout the crisis . our heightened focus on the most attractive market segments and differentiated resource allocation helped capture growth by pinpointing which customers would be most covid-19 resilient and which would recover faster . net sales during the second half of 2020 reflected improved customer demand in most businesses and regions with particularly strong growth in china and our laboratory-related products . we continue to benefit from the execution of our global sales and marketing programs , our innovative product portfolio , and investments in our field organization , particularly surrounding digital tools and techniques . however , we remain cautious as uncertainties relating to covid-19 and the global economy continue and market conditions may change quickly . net sales in local currencies may be adversely affected in future quarters by the covid-19 pandemic related to unfavorable economic conditions and reduced customer demand . in 2020 , our net sales by geographic destination increased in u.s. dollars compared to 2019 by 1 % in the americas and 3 % both in europe and in asia/rest of world . in local currencies , our net sales by geographic destination increased in 2020 by 2 % in the americas , 1 % in europe , and 3 % in asia/rest of world , with 7 % growth in china . a discussion of sales by operating segment is included below . as described in note 3 to our consolidated financial statements , our net sales comprise product sales of precision instruments and related services .
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effect of currency on results of operations our earnings are affected by changing exchange rates . we are particularly sensitive to changes in the exchange rates between the swiss franc , euro , chinese renminbi , and u.s. dollar . we have more swiss franc expenses than we do swiss franc sales because we develop and manufacture products in switzerland that we sell globally and have a number of corporate functions located in switzerland . when the swiss franc strengthens against our other trading currencies , particularly the u.s. dollar and euro , our earnings go down . we also have significantly more sales in the euro than we do expenses . when the euro weakens against the u.s. dollar and swiss franc , our earnings also go down . we estimate a 1 % strengthening of the swiss franc against the euro would reduce our earnings before tax by approximately $ 1.6 million to $ 1.8 million annually . we also conduct business throughout the world , including asia pacific , the united kingdom , eastern europe , latin america , and canada . fluctuations in these currency exchange rates against the u.s. dollar can also affect our operating results . the most significant of these currency exposures is the chinese renminbi . the impact on our earnings before tax of the chinese renminbi weakening 1 % against the u.s. dollar is a reduction of approximately $ 2.0 million to $ 2.2 million annually . in addition to the effects of exchange rate movements on operating profits , our debt levels can fluctuate due to changes in exchange rates , particularly between the u.s. dollar , the swiss franc , and euro .
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the residual values of our solar systems are determined at the inception of the lease by applying an estimated system fair value at the end of the lease term . for those systems classified as operating leases , rental revenue is recognized , net of executory costs , on a straight-line basis over the term of the lease . allowance for doubtful accounts and sales returns we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . a considerable amount of judgment is required to assess the likelihood of the ultimate realization of accounts receivable . we make our estimates of the collectability of our accounts receivable by analyzing historical bad debts , specific customer creditworthiness and current economic trends . in addition , at the time revenue is recognized from the sale of solar panels and balance of system components , we record estimates for sales returns which reduce revenue . these estimates are based on historical sales returns , analysis of credit memo data , among other known factors . warranty reserves we generally warrant or guarantee the performance of our solar panels that we manufacture at certain levels of power output for 25 years . in addition , we pass through to customers long-term warranties from the original equipment manufacturers of certain system components , such as inverters . warranties of 25 years from solar panel suppliers are standard in the solar industry , while inverters typically carry warranty periods ranging from 5 to 10 years . in addition , we generally warrant our workmanship on installed systems for periods ranging up to 10 years . we maintain reserves to cover the expected costs that could result from these warranties . our expected costs are generally in the form of product replacement or repair . warranty reserves are based on our best estimate of such costs and are recognized as a cost of revenue . we continuously monitor product returns for warranty failures and maintain a reserve for the related warranty expenses based on various factors including historical warranty claims , results of accelerated lab testing , field monitoring , vendor reliability estimates , and data on industry averages for similar products . historically , warranty costs have been within management 's expectations . valuation of inventories inventories are valued at the lower of cost or market value . we evaluate the recoverability of our inventories based on assumptions about expected demand and market conditions . our assumption of expected demand is developed based on our analysis of bookings , sales backlog , sales pipeline , market forecast and competitive intelligence . our assumption of expected demand is compared to available inventory , production capacity , available third-party inventory and growth plans . our factory production plans , which drive materials requirement planning , are established based on our assumptions of expected demand . we respond to reductions in expected demand by temporarily reducing manufacturing output and adjusting expected valuation assumptions as necessary . in addition , expected demand by geography has changed historically due to changes in the availability and size of government mandates and economic incentives . we evaluate the terms of our long-term agreements with suppliers , including joint ventures , for the procurement of polysilicon , ingots , wafers , and solar cells and establish accruals for estimated losses on adverse purchase commitments as necessary , such as lower of cost of market value adjustments , forfeiture of advanced deposits and liquidated damages . 51 obligations related to non-cancellable purchase orders for inventories match current and forecasted sales orders that will consume these ordered materials and actual consumption of these ordered materials are compared to expected demand regularly . we anticipate total obligations related to long-term supply agreements for inventories will be recovered because quantities are less than management 's expected demand for its solar power products . other market conditions that could affect the realizable value of our inventories and are periodically evaluated by management include the aging of inventories on hand , historical inventory turnover ratio , anticipated sales price , new product development schedules , the effect new products might have on the sale of existing products , product obsolescence , customer concentrations , and product merchantability , among other factors . if , based on assumptions about expected demand and market conditions , we determine that the cost of inventories exceeds its estimated market value or inventory is excess or obsolete , we record a write-down or accrual , which may be material , equal to the difference between the cost of inventories and the estimated market value . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required that could negatively affect our gross margin and operating results . if actual market conditions are more favorable , we may have higher gross margin when products that have been previously written down are sold in the normal course of business . stock-based compensation we provide share-based awards to our employees , executive officers and directors through various equity compensation plans including our employee stock option and restricted stock plans . we measure and record compensation expense for all share-based payment awards based on estimated fair values . the fair value of restricted stock awards and units is based on the market price of our common stock on the date of grant . we have not granted stock options subsequent to fiscal 2008. we are required under current accounting guidance to estimate forfeitures at the date of grant . our estimate of forfeitures is based on our historical activity , which we believe is indicative of expected forfeitures . in subsequent periods if the actual rate of forfeitures differs from our estimate , the forfeiture rates may be revised , as necessary . changes in the estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect story_separator_special_tag the residual values of our solar systems are determined at the inception of the lease by applying an estimated system fair value at the end of the lease term . for those systems classified as operating leases , rental revenue is recognized , net of executory costs , on a straight-line basis over the term of the lease . allowance for doubtful accounts and sales returns we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . a considerable amount of judgment is required to assess the likelihood of the ultimate realization of accounts receivable . we make our estimates of the collectability of our accounts receivable by analyzing historical bad debts , specific customer creditworthiness and current economic trends . in addition , at the time revenue is recognized from the sale of solar panels and balance of system components , we record estimates for sales returns which reduce revenue . these estimates are based on historical sales returns , analysis of credit memo data , among other known factors . warranty reserves we generally warrant or guarantee the performance of our solar panels that we manufacture at certain levels of power output for 25 years . in addition , we pass through to customers long-term warranties from the original equipment manufacturers of certain system components , such as inverters . warranties of 25 years from solar panel suppliers are standard in the solar industry , while inverters typically carry warranty periods ranging from 5 to 10 years . in addition , we generally warrant our workmanship on installed systems for periods ranging up to 10 years . we maintain reserves to cover the expected costs that could result from these warranties . our expected costs are generally in the form of product replacement or repair . warranty reserves are based on our best estimate of such costs and are recognized as a cost of revenue . we continuously monitor product returns for warranty failures and maintain a reserve for the related warranty expenses based on various factors including historical warranty claims , results of accelerated lab testing , field monitoring , vendor reliability estimates , and data on industry averages for similar products . historically , warranty costs have been within management 's expectations . valuation of inventories inventories are valued at the lower of cost or market value . we evaluate the recoverability of our inventories based on assumptions about expected demand and market conditions . our assumption of expected demand is developed based on our analysis of bookings , sales backlog , sales pipeline , market forecast and competitive intelligence . our assumption of expected demand is compared to available inventory , production capacity , available third-party inventory and growth plans . our factory production plans , which drive materials requirement planning , are established based on our assumptions of expected demand . we respond to reductions in expected demand by temporarily reducing manufacturing output and adjusting expected valuation assumptions as necessary . in addition , expected demand by geography has changed historically due to changes in the availability and size of government mandates and economic incentives . we evaluate the terms of our long-term agreements with suppliers , including joint ventures , for the procurement of polysilicon , ingots , wafers , and solar cells and establish accruals for estimated losses on adverse purchase commitments as necessary , such as lower of cost of market value adjustments , forfeiture of advanced deposits and liquidated damages . 51 obligations related to non-cancellable purchase orders for inventories match current and forecasted sales orders that will consume these ordered materials and actual consumption of these ordered materials are compared to expected demand regularly . we anticipate total obligations related to long-term supply agreements for inventories will be recovered because quantities are less than management 's expected demand for its solar power products . other market conditions that could affect the realizable value of our inventories and are periodically evaluated by management include the aging of inventories on hand , historical inventory turnover ratio , anticipated sales price , new product development schedules , the effect new products might have on the sale of existing products , product obsolescence , customer concentrations , and product merchantability , among other factors . if , based on assumptions about expected demand and market conditions , we determine that the cost of inventories exceeds its estimated market value or inventory is excess or obsolete , we record a write-down or accrual , which may be material , equal to the difference between the cost of inventories and the estimated market value . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required that could negatively affect our gross margin and operating results . if actual market conditions are more favorable , we may have higher gross margin when products that have been previously written down are sold in the normal course of business . stock-based compensation we provide share-based awards to our employees , executive officers and directors through various equity compensation plans including our employee stock option and restricted stock plans . we measure and record compensation expense for all share-based payment awards based on estimated fair values . the fair value of restricted stock awards and units is based on the market price of our common stock on the date of grant . we have not granted stock options subsequent to fiscal 2008. we are required under current accounting guidance to estimate forfeitures at the date of grant . our estimate of forfeitures is based on our historical activity , which we believe is indicative of expected forfeitures . in subsequent periods if the actual rate of forfeitures differs from our estimate , the forfeiture rates may be revised , as necessary . changes in the estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect
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results of operations revenue replace_table_token_5_th total revenue : our total revenue increased 4 % during fiscal 2013 as compared to fiscal 2012 primarily due to an overall increase in components sales generally made under long-term supply agreements , and timing of revenue recognition on certain large-scale solar power systems involving real estate . our total revenue increased 2 % in fiscal 2012 as compared to fiscal 2011 primarily due to the commencement of revenue recognition on additional large , utility-scale power systems in north america during fiscal 2012. these increases were partially offset by lower project construction and development activities and related revenue in the emea region . 55 concentrations : sales outside the americas segment represented approximately 33 % and 30 % of total revenue recognized during fiscal 2013 and fiscal 2012 , respectively . the decrease in percentage of sales within the americas segment is driven by additional component sales within the apac segment , primarily in japan , as well as expanded business activities outside of europe , including the middle east and africa . sales outside the americas segment represented approximately 30 % and 47 % of total revenue recognized during fiscal 2012 and fiscal 2011 , respectively . the increase in percentage of sales within the americas segment was primarily due to the commencement of revenue recognition on additional large-scale utility projects in north america , coupled with lower project construction and development activities and related revenue in europe due to reductions in government incentives and the resulting change in market demands . the table below represents our significant customers that accounted for greater than 10 percent of total revenue in fiscal 2013 , 2012 , and 2011 , respectively .
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as of december 31 , 2015 , we owned 71 properties ( 91 buildings ) , excluding one property ( one building ) classified as discontinued operations . our properties are located in 31 states and the district of columbia and contain approximately 10.7 million rentable square feet , of which 63 . 5 % was leased to the u.s. government , 20 . 1 % was leased to 12 state governments , 1.7 % was leased to the united nations , an international intergovernmental organization , 1.0 % was leased to two municipal tenant s , 8.2 % was leased to various non ‑governmental organizations and 5 . 5 % was available for lease as of december 31 , 2015. the u.s. government , 12 state governments , the united nations , and two municipal tenant s combined were responsible for 92.8 % and 9 3 . 0 % of our annualized rental income , as defined below , as of december 31 , 2015 and 2014 , respectively . as of december 31 , 2015 , we also owned 24,918,421 common shares , or approximately 27.9 % of the then outstanding common shares , of sir . sir is a reit that is primarily focused on owning and investing in net leased , single tenant properties . see note s 6 and 11 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k for more information regarding our investment in sir . we account for our investment in sir under the equity method . property operations as of december 31 , 201 5 , excluding one property ( one building ) classified as discontinued operations , 94 . 5 % of our rentable square feet were leased , compared to 94 . 9 % of our rentable square feet as of december 31 , 201 4 . occupancy data for our properties as of december 31 , 201 5 and 201 4 is as follows ( square feet in thousands ) : replace_table_token_5_th ( 1 ) based on properties we owned on december 31 , 201 5 and 2014 , and excludes one property ( one building ) classified as discontinued operations . ( 2 ) based on properties we owned on december 31 , 201 5 and which we owned continuously since january 1 , 201 4 , and excludes one property ( one building ) classified as discontinued operations . our comparable properties increased from 63 properties ( 79 buildings ) at december 31 , 2014 to 67 properties ( 86 buildings ) as a result of our acquisition of five properties ( eight buildings ) during the year ended december 31 , 2013 and the sale of one property ( one building ) during the year ended december 31 , 2015 . ( 3 ) s ubject to modest changes when space is re-measured or re-configured for tenants . ( 4 ) percent leased includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any , as of the measurement date . 48 the average annual effective rental rate per square foot for our properties for the years ended december 31 , 201 5 and 201 4 are as follows : replace_table_token_6_th ( 1 ) average annual effective rental rate per square foot represents total rental income during the period specified divided by the average rentable square feet leased during the period specified . excludes one property ( one building ) classified as discontinued operations . ( 2 ) based on properties we owned on december 31 , 201 5 and 2014 , respectively , and excludes one property ( one building ) classified as discontinued operations . ( 3 ) based on properties we owned on december 31 , 201 5 and which we owned continuously since january 1 , 201 4 , and excludes one property ( one building ) classified as discontinued operations . during the year ended december 31 , 2015 changes in rentable square feet leased and available for lease at our properties , excluding one property ( one building ) classified as discontinued operations , were as follows : replace_table_token_7_th ( 1 ) based on leases entered into during the year ended december 31 , 2015 . ( 2 ) subject to modest changes when space is re-measured or re-configured for tenants . e xcluding one property ( one building ) classified as disco ntinued operations , leases at our properties totaling 832 , 664 rentable square feet expired during the year ended december 31 , 2015 . during the year ended december 31 , 2015 , we entered into leases totaling 811,190 rentable square feet whic h includes lease renewals of 625 , 520 rentable square feet . the weighted ( by rentable square feet ) average rental rates for lea ses of 628,289 rentable square feet entered into with government tenants during the year ended december 31 , 2015 decreased by 2.6 % when compared to the weighted ( by rentable square feet ) average prior rents previously charged for the same space . the weighted ( by rentable square feet ) average rental ra tes for leases of 182,901 rentable square feet entered into with non-government tenants during the year ended december 31 , 2015 decreased by 1.8 % when compared to the weighted ( by rentable square feet ) average rental rates previously charged for the same space . story_separator_special_tag noi does not represent cash generated by operating activities in accordance with gaap and should not be considered as an alternative to net income ( loss ) , operating income or cash flow from operating activities determined in accordance with gaap , or as an indicator of our financial performance or liquidity , nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs . this measure should be considered in conjunction with net income ( loss ) , operating income and cash flow from operating activities as presented in our consolidated statements of comprehensive income ( loss ) and consolidated statements of cash flows . other real estate companies and reits may calculate noi differently than we do . ( 5 ) we calculate ffo and normalized ffo as shown above . ffo is calculated on the basis defined by the national association of real estate investment trusts , or nareit , which is net income ( loss ) , calculated in accordance with gaap , plus real estate depreciation and amortization and the difference between ffo attributable to an equity investment and equity in earnings of an equity investee but excluding impairment charges on real estate assets , carrying value adjustments of real estate assets held for sale , any gain or loss on sale of properties , as well as certain other adjustments currently not applicable to us . our calculation of normalized ffo differs from nareit 's definition of ffo because we include the difference between ffo and normalized ffo attributable to our equity investment in sir , we include estimated business management incentive fees , if any , only in the fourth quarter versus the quarter when they are recognized as expense in accordance with gaap and we exclude acquisition related costs , gains or losses on early extinguishment of debt , loss on impairment of sir investment , losses on issuance of shares by sir and loss on distribution to common shareholders of shares of class a common stock of rmr inc. we consider ffo and normalized ffo to be appropriate measures of operating performance for a reit , along with net income ( loss ) , operating income and cash flow from operating activities . we believe that ffo and normalized ffo provide useful information to investors because by excluding the effects of certain historical amounts , such as depreciation expense , ffo and normalized ffo may facilitate a comparison of our operating performance between periods and with other reits . ffo and normalized ffo are among the factors considered by our board of trustees when determining the amount of distributions to our shareholders . other factors include , but are not limited to , requirements to maintain our qualification for taxation as a reit , limitations in our credit agreement and public debt covenants , the availability to us of debt and equity capital , our expectation of our future capital requirements and operating performance , our receipt of distributions from sir and our expected needs and availability of cash to pay our obligations . ffo and normalized ffo do not represent cash generated by operating activities in accordance with gaap and should not be considered as alternatives to net income ( loss ) , operating income or cash flow from operating activities , determined in accordance with gaap , or as indicators of our financial performance or liquidity , nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs . these measures should be considered in conjunction with net income ( loss ) , operating income and cash flow from operating activities as presented in our consolidated statements of comprehensive income ( loss ) and consolidated statements of cash flows . other real estate companies and reits may calculate ffo and normalized ffo differently than we do . we refer to the 6 7 properties ( 86 buildings ) we owned on december 31 , 201 5 and which we have owned continuously since january 1 , 2014 , excluding one property ( one building ) classified as discontinued operations , as comparable properties . we refer to the four properties ( five buildings ) that we owned as of december 31 , 2015 , which we acquired during the period from january 1 , 2014 to december 31 , 2015 , as acquired properties . we refer to the one property ( one building ) that we sold during the period from january 1 , 2014 to december 31 , 2015 as the disposed property . our consolidated statements of comprehensive income ( loss ) for the year ended december 31 , 2015 include the operating results of the acquired properties for the entire year , as we acquired those properties prior to january 1 , 2015 , and the disposed property for less than the entire year , as that property was sold during 2015 . our consolidated statements of comprehensive income ( loss ) for the year ended december 31 , 2014 include the operating results of the acquired properties for less than the entire year , as we acquired those properties during the year , and the disposed property for the entire period , as we sold that property in 2015 . references to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended december 31 , 201 5 , compared to the year ended december 31 , 201 4 . rental income . the decrease in rental income reflects the net effect of acquired and disposed properties and a decrease in rental income for comparable properties . rental income from the acquired properties increased $ 8 , 077 . rental income from the disposed property decl ined $ 8 , 262 .
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also result ed in a decrease in government employment , government tenants improving their space utilization and consolidation into existing government owned properties , thereby reducing the demand for government leased space . our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations . however , relocation may become more prevalent if efforts by government tenants to improve their space utilization require significant reconfiguration of currently leased space . accordingly , we are unable to reasonably project what the financial impact of market conditions or changing government financial circumstances will be on our financial results for future periods . e xcluding one property ( one building ) classified as discontinued operations , a s of december 31 , 2015 , we had leases totaling 1 , 133,553 rentable square feet that were scheduled to expire through december 31 , 2016. as of february 16 , 2016 , tenants with leases totaling 172 , 303 rentable square feet , that are scheduled to expire through december 31 , 2016 , have notified us that they do not plan to renew their leases upon expiration , and we can provide no assurance as to whether additional tenants may or may not renew their leases upon expiration . based upon current market conditions and tenant negotiations for leases scheduled to expire through december 31 , 2016 , we expect that the rental rates we are likely to achieve on new or renewed leases for space under expiring leases through december 31 , 2016 will , in the aggregate and on a weighted ( by annualized revenues ) 50 average basis , be at or modestly lower than the rates currently being paid , thereby generally resulting in lo wer revenue from the same space .
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the bank of greene county 's principal business is attracting deposits from customers within its market area and investing those funds primarily in loans , with excess funds used to invest in securities . the bank of greene county currently operates 14 full-service branches , an administration office , a lending center , and an operations center in new york 's hudson valley region . in june 2004 , greene county commercial bank ( “ gccb ” ) was opened for the limited purpose of providing financial services to local municipalities . gccb is a subsidiary of the bank of greene county , and is a new york state-chartered commercial bank . greene county bancorp , inc. 's stock is traded on the nasdaq capital market under the symbol “ gcbc. ” greene county bancorp , mhc is a mutual holding company that owns 54.0 % of the company 's outstanding common stock . in june 2011 , greene property holdings , ltd. was formed as a new york corporation that has elected under the internal revenue code to be a real estate investment trust . greene properties holding , ltd. is a subsidiary of the bank of greene county . certain mortgages and notes held by the bank of greene county were transferred to and are beneficially owned by greene property holdings , ltd. the bank of greene county continues to service these loans . in december 2014 , greene risk management , inc. was formed as a nevada corporation that is operating as a pooled captive insurance company . the purpose of this company is to provide additional insurance coverage for the company and its subsidiaries related to the operations of the company for which insurance may not be economically feasible . overview of the company 's activities and risks greene county bancorp , inc. 's results of operations depend primarily on its net interest income , which is the difference between the income earned on greene county bancorp , inc. 's loan and securities portfolios and its cost of funds , consisting of the interest paid on deposits and borrowings . results of operations are also affected by greene county bancorp , inc. 's provision for loan losses , noninterest income and noninterest expense . noninterest income consists primarily of fees and service charges . greene county bancorp , inc. 's noninterest expense consists principally of compensation and employee benefits , occupancy , equipment and data processing , and other operating expenses . results of operations are also significantly affected by general economic and competitive conditions , changes in interest rates , as well as government policies and actions of regulatory authorities . additionally , future changes in applicable law , regulations or government policies may materially affect greene county bancorp , inc. critical accounting policies greene county bancorp , inc. 's critical accounting policies relate to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment . the allowance for loan losses is based on management 's estimation of an amount that is intended to absorb losses in the existing portfolio . the allowance for loan losses is established through a provision for loan losses based on management 's evaluation of the risk inherent in the loan portfolio , the composition of the portfolio , specific impaired loans and current economic conditions . such evaluation , which includes a review of all loans for which full collectability may not be reasonably assured , considers among other matters , the estimated net realizable value or the fair value of the underlying collateral , economic conditions , historical loan loss experience , management 's estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses . however , this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters . this critical accounting policy and its application are periodically reviewed with the audit committee and the board of directors . securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio . greene county bancorp , inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security , on which there is an unrealized loss , is impaired on an other-than-temporary basis . the company considers many factors , including the severity and duration of the impairment ; the intent and ability of the company to hold the equity security for a period of time sufficient for a recovery in value ; recent events specific to the issuer or industry ; and for debt securities , the intent to sell the security , the likelihood to be required to sell the security before it recovers the entire amortized cost , external credit ratings and recent downgrades . the company is required to record other-than-temporary impairment charges through earnings , if it has the intent to sell , or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis . in addition , the company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses , regardless of the intent or requirement to sell . credit loss is measured as the difference between the present value of an impaired debt security 's cash flows and its amortized cost basis . non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as the company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis . story_separator_special_tag replace_table_token_5_th 27 index loans net loans receivable increased $ 80.2 million , or 12.9 % , to $ 704.4 million at june 30 , 2018 from $ 624.2 million at june 30 , 2017. the loan growth experienced during fiscal 2018 consisted primarily of $ 26.0 million in commercial real estate loans , $ 24.3 million in commercial loans , $ 5.8 million in multi-family real estate loans , $ 10.5 million in residential real estate loans , and $ 13.7 million in construction loans . the continued low interest rate environment and , we believe , strong customer satisfaction from personal service , continued to enhance loan growth . if long term rates begin to rise , the company anticipates some reduced new loan demand as well as refinancing activities . the bank of greene county continues to use a conservative underwriting policy in regard to all loan originations , and does not engage in sub-prime lending or other exotic loan products . a significant decline in home values in the company 's market areas , however , could have a negative effect on the consolidated results of operations , as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios . updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower 's ability to repay the loan principal and interest , generally , when a loan is in a delinquent status . additionally , if an existing loan is to be modified or refinanced , generally , an appraisal is ordered to ensure continued collateral adequacy . loan portfolio composition set forth below is selected information concerning the composition of the bank of greene county 's loan portfolio in dollar amounts and in percentages ( before deductions for deferred fees and costs , unearned discounts and allowances for losses ) as of the dates indicated . replace_table_token_6_th ( 1 ) includes direct automobile loans ( on both new and used automobiles ) and personal loans . 28 index loan maturity schedule the following table sets forth certain information as of june 30 , 2018 regarding the amount of loans maturing or re-pricing in the bank of greene county 's portfolio . adjustable-rate loans are included in the period in which interest rates are next scheduled to adjust rather than the period in which they contractually mature , and fixed-rate loans are included in the period in which the final contractual repayment is due . lines of credit with no specified maturity date are included in the category “ within one year. ” replace_table_token_7_th the total amount of the above loans that mature or are due after june 30 , 2019 that have fixed interest rates is $ 353.0 million while the total amount of loans that mature or are due after such date that have adjustable interest rates is $ 197.0 million . the interest rate risk implications of the bank of greene county 's substantial preponderance of fixed-rate loans is discussed in detail above within the section management of interest rate risk . potential problem loans management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality and profitability of the company 's loan portfolio . the credit quality grade helps management make a consistent assessment of each loan relationship 's credit risk . consistent with regulatory guidelines , the bank of greene county provides for the classification of loans and other assets considered being of lesser quality . such ratings coincide with the `` substandard '' , `` doubtful '' and `` loss '' classifications used by federal regulators in their examination of financial institutions . assets that do not currently expose the insured financial institutions to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated `` special mention . '' for further discussion regarding how management determines when a loan should be classified see part ii , item 8 financial statements and supplemental data , note 4 , loans of this report . at june 30 , 2018 , the bank of greene county had $ 5.7 million of loans classified as substandard , and $ 11.7 million of loans designated as special mention . no loans were classified as either doubtful or loss at june 30 , 2018. nonaccrual loans and nonperforming assets loans are reviewed on a regular basis to assess collectability of all principal and interest payments due . management determines that a loan is impaired or nonperforming when it is probable at least a portion of the principal or interest will not be collected in accordance with contractual terms of the note . when a loan is determined to be impaired , the measurement of the loan is based on present value of estimated future cash flows , except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral . generally , management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and , therefore , interest on the loan will no longer be recognized on an accrual basis . the company identifies impaired loans and measures the impairment in accordance with fasb asc subtopic “ receivables – loan impairment. ” management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring . it should be noted that management does not evaluate all loans individually for impairment .
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summary of significant accounting policies of this report . 40 index unaudited quarterly financial data the following table sets forth a summary of selected financial data at and for the years ended june 30 , 2018 and 2017 and quarter ends within those years . replace_table_token_22_th item
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the company recognized revenue of $ 2,500 during the year ended december 31 , 2020. deferred revenue related to the jeil pharma agreement totaled $ 0.2 million as of december 31 , 2020. income taxes we account for income taxes in accordance with the provisions of asc 740‑10 , income taxes . a current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the year . deferred tax liabilities or assets are recognized for the estimated future tax effects of temporary differences between book and tax accounting and operating loss and tax credit carryforwards . a valuation allowance is established for deferred tax assets if we determine it to be more likely than not that the deferred tax asset will not be realized . the effects of story_separator_special_tag overview and recent developments rockwell medical is a commercial-stage , biopharmaceutical company developing and commercializing our next-generation parenteral iron technology platform , ferric pyrophosphate citrate ( “ fpc ” ) , which we believe has significant potential to lead to transformative treatments for iron deficiency in multiple disease states , that we believe could reduce healthcare costs and improve patients ' lives . we are also one of the two major suppliers of life saving hemodialysis concentrate products to kidney dialysis clinics in the united states . rockwell medical has evolved its strategy over the past year to develop into a more medically- , scientifically- and data-driven company . we believe future clinical , regulatory and commercial success requires us to generate compelling clinical data in each of our programs . our strategy is to accelerate rockwell 's growth by creating and developing pharmaceutical products based on our fpc technology for disease states where patients can benefit the most from an effective treatment for iron deficiency , while concurrently refining our dialysis business to drive incremental growth and efficiencies . we plan to leverage and build on the foundation provided by our current dialysis business serving kidney dialysis centers by developing a pipeline of additional potential drug therapies in multiple disease states . we have two novel , fda approved therapies , triferic and triferic avnu , which are the first two products developed from our fpc platform . we are marketing both products to kidney dialysis centers for their patients receiving dialysis . in 2021 , we intend to advance our fpc platform strategy by starting a phase ii trial for the treatment of iron deficiency anemia in patients outside of dialysis , who are receiving intravenous medications in the home infusion setting . in our r & d pipeline , we 52 are also exploring fpc 's impact in the treatment of hospitalized patients with acute heart failure , with the potential to begin another phase ii program in these patients in 2022. story_separator_special_tag and investments available-for-sale , and working capital of $ 56.7 million . net cash used in operating activities for the year ended december 31 , 2020 was approximately $ 29.6 million . based on the currently available working capital , capital raise and debt financing noted above , management believes the company currently has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report . in february 2020 , the company sold 3,670,212 shares of its common stock for proceeds of $ 8 million , net of issuance costs . on march 16 , 2020 , the company closed a debt financing transaction with net proceeds at closing of approximately $ 21.2 million , net of fees and expenses ( see note 15 for further detail ) . on september 23 , 2020 , the company sold 23,178,809 shares of its common stock for proceeds of $ 32.7 million , net of issuance costs ( see note 11 for further detail ) . during the year ended december 31 , 2020 , the company sold 1,128,608 shares of its common stock as part of its sales agreement with cantor fitzgerald & co. for proceeds of $ 2.3 million , net of issuance costs . approximately $ 32.3 million remains available for sale under this facility . see note 11 for further detail . the company expects it will require additional capital to sustain its operations and make the investments it needs to execute its strategic plan , including the commercialization of triferic ( dialysate ) and triferic avnu in dialysis , generating additional data for triferic in dialysis , developing fpc for iron deficiency anemia in patients undergoing home infusion and for progressing our pipeline development program of new indications for our fpc platform . if the company is unable to generate sufficient revenue from sales of its commercial products and from partnerships , the company will need to obtain additional equity or debt financing . if the company attempts to obtain additional debt or equity financing , the company can not assume that such financing will be available on favorable terms , if at all . in addition , the company is subject to certain covenants and cure provisions under our loan agreement with innovatus . as of the date of this report , the company believes that it will either be able to satisfy such covenants or , in the event of a breached covenant , exercise cure provisions to avoid an event of default . if we are unable to avoid an event of default , any required repayments could have an adverse effect on our liquidity ( see note 16 for further detail ) . 54 the covid-19 pandemic and resulting domestic and global disruptions have adversely affected our business and operations , including , but not limited to , our sales and marketing efforts and our research and development activities , and the operations of third parties upon whom we rely . story_separator_special_tag cash provided by ( used in ) investing activities net cash provided by investing activities was $ 3.2 million during the year ended december 31 , 2020. the net cash provided was primarily due to the purchase of investments available-for-sale of $ 29.3 million , offset by $ 33.6 million sale of our available-for-sale investments and $ 1.0 million for the purchase of equipment . net cash used in investing activities was $ 4.7 million during the year ended december 31 , 2019. the net cash used was primarily due to the purchase of investments available-for-sale of $ 41.7 million , offset by $ 38.3 million sale of our available-for-sale investments , $ 0.6 million for the purchase of equipment and $ 0.8 million for the purchase of research and development licenses acquired from a related party . cash provided by financing activities net cash provided by financing activities was $ 63.3 million during the year ended december 31 , 2020. the net cash provided was primarily due to net proceeds of $ 40.7 million and $ 2.3 million from the sale of our common stock , related to our public offerings and our at-the market offerings , respectively , net proceeds of $ 21.2 million from the term loan , partially offset by payment of $ 0.8 million related to a short term note payable . net cash provided by financing activities was $ 21.1 million during the year ended december 31 , 2019. the net cash provided was primarily due to net proceeds of $ 17.3 million and $ 5.1 million from the sale of our common stock , related to our public offering and our at-the market offerings , respectively , partially offset by payment of $ 1.1 million related to a short term note payable . off‑balance sheet arrangements we do not have any off‑balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition . critical accounting estimates and judgments our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . these accounting principles require us to make estimates , judgments and assumptions that affect the reported amounts of revenues , expenses , assets , liabilities , and contingencies . all significant estimates , judgments and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and updated when necessary . actual results could differ from these estimates . changes in estimates are reflected in our financial statements in the period of change based upon on‑going actual experience , trends , or subsequent realization depending on the nature and predictability of the estimates and contingencies . interim changes in estimates are generally applied prospectively within annual periods . certain accounting estimates , including those concerning revenue recognition , allowance for doubtful accounts , inventory reserves , share based compensation , impairments of long‑lived assets , and accounting for income taxes , are considered to be critical in evaluating and understanding our financial results because they involve inherently uncertain matters and their application requires the most difficult and complex judgments and estimates . these are described below . for further information on our accounting policies , see note 3 to our consolidated financial statements . revenue recognition the company recognizes revenue under accounting standards codification ( “ asc ” ) 606 , revenue from contracts with customers . the core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . the following five steps are applied to achieve that core principle : step 1 : identify the contract with the customer step 2 : identify the performance obligations in the contract step 3 : determine the transaction price 56 step 4 : allocate the transaction price to the performance obligations in the contract step 5 : recognize revenue when the company satisfies a performance obligation taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction , that are collected by us from a customer , are excluded from revenue . shipping and handling costs associated with outbound freight related to contracts with customers are accounted for as a fulfillment cost and are included in cost of sales when control of the goods transfers to the customer . accounts receivable accounts receivable are stated at invoice amounts . the carrying amount of trade accounts receivable is reduced by an allowance for doubtful accounts that reflects our best estimate of accounts that may not be collected . we review outstanding trade accounts receivable balances and based on our assessment of expected collections , we estimate the portion , if any , of the balance that may not be collected as well as a general valuation allowance for other accounts receivable based primarily on historical experience . all accounts or portions thereof deemed to be uncollectible are written off to the allowance for doubtful accounts . inventory inventory is stated at the lower of cost or net realizable value . cost is determined on the first‑in first‑out ( fifo ) method . inventory that is not expected to be converted to cash over the next year is classified as non-current . our policy is to reserve for our drug product inventory that we determine is unlikely to be sold to , or if sold , unlikely to be utilized by our customers on or before its expiration date . property and equipment property and equipment are recorded at cost and are depreciated using the straight‑line method over the useful lives of the assets , which range from three to ten years . expenditures for routine maintenance and repairs are expensed as incurred .
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results of operations the following table summarizes our operating results for the periods presented below ( dollars in thousands ) : replace_table_token_1_th net sales during the year ended december 31 , 2020 , our net sales were $ 62.2 million compared to net sales of $ 61.3 million during the year ended december 31 , 2019. net sales of hemodialysis concentrates to dialysis providers and distributors in the united states and abroad were $ 61.1 million for the year ended december 31 , 2020 compared to $ 60.8 million for the year ended december 31 , 2019. the increase of $ 0.3 million was primarily due to increase in sales to our domestic customers offset by a decrease in international sales . net sales of triferic ( dialysate ) were approximately $ 1.1 million for the year ended december 31 , 2020 compared to $ 0.5 million for the year ended december 31 , 2019. for each year ended december 31 , 2020 and 2019 , triferic net sales included approximately $ 0.2 million of deferred revenue recognized under the company 's license in the people 's republic of china with wanbang . cost of sales and gross profit cost of sales during the year ended december 31 , 2020 was $ 59.5 million , resulting in gross profit of $ 2.7 million during the year ended december 31 , 2020 , compared to cost of sales of $ 58.5 million and a gross profit of $ 2.8 million during the year ended december 31 , 2019. gross profit decreased by $ 0.1 million during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , due primarily to an increase in labor and material costs of $ 0.3 million to address protocols put in place from the ongoing covid-19 pandemic . gross profits are primarily related to our concentrates business at this time .
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replace_table_token_38_th rent expense for the years ended february 1 , 2015 , february 2 , 2014 , and february 3 , 2013 was $ 105,989 , $ 95,574 , and $ 82,428 , respectively , under operating lease agreements , consisting of minimum rental expense of $ 68,598 , $ 61,552 , and $ 54,050 , story_separator_special_tag this discussion summarizes our consolidated operating results , financial condition and liquidity during the three-year period ending february 1 , 2015 . our fiscal year ends on the sunday closest to january 31 of the following year , typically resulting in a 52 week year , but occasionally giving rise to an additional week , resulting in a 53 week year . fiscal 2014 and fiscal 2013 were 52 week years whereas fiscal 2012 was a 53 week year . net revenue numbers for fiscal 2012 include results from the 53rd week ; however , total comparable sales and comparable stores sales calculations exclude the 53rd week . the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based on current expectations that involve risks , uncertainties and assumptions , such as our plans , objectives , expectations and intentions set forth in the `` special note regarding forward-looking statements . '' our actual results and the timing of events may differ materially from those anticipated in these forward looking statements as a result of various factors , including those set forth in the `` item 1a . risk factors '' section and elsewhere in this annual report on form 10-k. overview fiscal 2014 was a year in which we continued to make investments we believe will help us to drive growth and expand our business . we have strengthened the foundation of our business through continued investments in product quality and supply chain and these investments will continue through fiscal 2015. throughout fiscal 2014 we also focused on our product assortment , guest experience , and our go-to-market process for our products . our improved product assortment helped to enhance our guest experience and contributed to the improved total comparative sales performance we saw in the second half of fiscal 2014. the opening of our new distribution center in columbus , ohio in fiscal 2014 has also helped improve guest experience through a reduction in our average transit times for online orders and will also benefit retail distribution to our corporate owned stores in the united states . we opened 48 net new corporate-owned stores in fiscal 2014 , of which 40 were in the united states . in addition to our plans for further new store openings in the united states , we are focused on accelerating our international expansion . during fiscal 2014 we opened corporate-owned stores for the first time in the united kingdom and singapore and opened showrooms for the first time in china . we will continue to utilize a community-based approach to building brand awareness and guest loyalty in new countries but will look to do so over a shorter period of time than previously , so that we can accelerate our international growth . we see potential for further expansion for our men 's category and our ivivva athletica brand . in the men 's category we expanded both in-store and online product assortment and we opened our first standalone men 's store in soho , new york . for ivivva , we opened 10 new stores during fiscal 2014 and will continue to invest in this brand and open further stores through fiscal 2015. in fiscal 2015 , we expect to substantially complete this foundational work and accelerate our investments in innovation to drive sustainable global growth . financial highlights our net revenue increased from $ 1.6 billion in fiscal 2013 to $ 1.8 billion in fiscal 2014 , representing an annual growth rate of 13 % . our increase in net revenue from fiscal 2013 to fiscal 2014 resulted from the addition of 48 net new corporate-owned stores and increased direct to consumer net revenue . total comparable sales , which includes comparable store sales and direct to consumer , increased 1 % in fiscal 2014 and increased by 3 % on a constant dollar basis . our direct to consumer segment is an increasingly substantial part of our growth strategy , and now represents 17.9 % of our net revenue compared to 16.5 % in fiscal 2013 and 14.4 % in fiscal 2012 . direct to consumer net revenue increased 24 % on a constant dollar basis primarily as the result of increased traffic on our e-commerce websites . corporate-owned stores accounted for 75.0 % of total net revenue in fiscal 2014 , 77.3 % of total net revenue in fiscal 2013 and 79.6 % of total net revenue in fiscal 2012 . comparable store sales decreased by 1 % on a constant dollar basis for fiscal 2014 primarily as the result of lower conversion rates and lower units purchased per transaction . 19 gross profit for fiscal 2014 increased by 9 % to $ 914.2 million , from $ 840.1 million in fiscal 2013 . as a percentage of net revenue , gross profit decreased to 50.9 % compared to 52.8 % in fiscal 2013 . the decrease in the gross margin percentage was primarily due to product mix , increased product costs , and increased air freight usage . income from operations for fiscal 2014 decreased by 4 % to $ 376.0 million , from $ 391.4 million in fiscal 2013 . as a percentage of net revenue , income from operations decreased to 20.9 % compared to 24.6 % of net revenue in fiscal 2013 . the decrease in income from operations was a result of an increase in selling , general and administration expenses , relative to the increase in net revenue , partially offset by an increase in gross margin . story_separator_special_tag the increase in net revenue from our direct to consumer segment was a result of increasing traffic on our e-commerce websites . other . net revenue from our other segment increased $ 28.7 million , or 29 % , to $ 127.8 million in fiscal 2014 from $ 99.1 million in fiscal 2013 . the increase in net revenue from our other segment was primarily due to increased sales from our outlets , showrooms , and temporary locations . we continue to employ our other segment strategy to increase interest in our product in markets where we may not have corporate-owned stores . gross profit gross profit increased $ 74.1 million , or 9 % , to $ 914.2 million in fiscal 2014 from $ 840.1 million in fiscal 2013 . increased net revenue resulted in an increased gross profit . a $ 17.5 million inventory provision related to the pull-back of black luon pants was recorded in cost of sales during fiscal 2013. the increase in gross profit was partially offset by increased costs related to our production , design , distribution and merchandising departments , as well as increases in fixed costs , such as occupancy costs and depreciation . gross profit , as a percentage of net revenue , or gross margin , decreased 190 basis points , to 50.9 % in fiscal 2014 from 52.8 % in fiscal 2013 . the decrease in gross margin resulted primarily from : a decrease of 210 basis points due to product mix , increased product costs , and increased air freight costs ; an increase in expenses related to our product and supply chain departments , relative to the increase in net revenue , of 70 basis points ; an increase in fixed costs , such as occupancy costs and depreciation , relative to the increase in net revenue , of 40 basis points ; and an unfavorable impact of foreign exchange rates on product costs which contributed to a decrease in gross margin of 40 basis points . the decrease in gross margin was partially offset by a decrease in provision for inventories , charged to cost of sales , of 110 basis points related to the pull-back of black luon pants which was recorded in the first quarter of fiscal 2013. a decrease in markdowns of 60 basis points driven by high sell-through of seasonal items also partially offset the decrease in gross margin . 22 selling , general and administrative expenses selling , general and administrative expenses increased $ 89.4 million , or 20 % , to $ 538.1 million in fiscal 2014 from $ 448.7 million in fiscal 2013 . the increase in selling , general and administrative expenses was principally comprised of : an increase in employee costs of $ 40.2 million as there were increases in hourly wages and a growth in labor hours associated with new corporate-owned stores , outlets , showrooms and other ; an increase in variable store costs of $ 5.7 million from new corporate-owned stores , outlets , showrooms and other ; an increase in variable costs such as distribution costs , credit card fees and packaging related to our direct to consumer segment of $ 6.0 million as a result of increased sales volume ; an increase in administrative costs related to our direct to consumer segment of $ 4.4 million associated with the growth in this channel and increased head count to support it ; an increase in head office employee costs of $ 5.7 million from increased head count in order to position us for long-term growth , partially offset by decreased stock-based compensation ; an increase in other head office costs of $ 5.2 million as a result of the overall growth of our business and investment in strategic initiatives and projects ; an increase in other costs , including occupancy costs not included in cost of goods sold , of $ 11.4 million ; and a decrease in net foreign exchange gains of $ 10.8 million . as a percentage of net revenue , selling , general and administrative expenses increased 180 basis points , to 30.0 % in fiscal 2014 from 28.2 % in fiscal 2013 . we expect selling , general and administrative expenses to increase throughout fiscal 2015 as we add administrative and sales personnel and increase our infrastructure to support the growth in our store base . income from operations income from operations decreased $ 15.3 million , or 4 % , to $ 376.0 million in fiscal 2014 from $ 391.4 million in fiscal 2013 . the decrease was a result of increased selling , general and administrative costs of $ 89.4 million , partially offset by increased gross profit of $ 74.1 million . the increase in selling , general and administrative costs was primarily driven by the increase in our business . on a segment basis , we determine income from operations without taking into account our general corporate expenses . we have reviewed our general corporate expenses and determined some costs previously classified as general corporate are direct segment expenses . accordingly , all prior year comparable information has been reclassified to conform to the current year classification . income from operations before general corporate expenses for fiscal 2014 and fiscal 2013 is summarized below and is expressed in dollar amounts . the percentages are presented as a percentage of net revenue of the respective operating segments . replace_table_token_12_th corporate-owned stores . income from operations from our corporate-owned stores segment decreased $ 15.7 million , or 4 % , to $ 356.6 million for fiscal 2014 from $ 372.3 million for fiscal 2013 primarily due to an increase in selling , general and administrative expenses related to employee costs as well as operating expenses associated with new stores , partially offset by an increase of $ 31.2 million in gross profit from increased sales .
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resulted in a $ 19.5 million increase to net revenue , including the effect of foreign currency fluctuations . excluding the effect of foreign currency fluctuations , comparable store sales increased 4 % , or $ 37.3 million , in fiscal 2013 . the increase in net revenue was partially offset by $ 18.7 million of net revenue from the 53rd week of fiscal 2012 , which was excluded in the calculation of comparable store sales . direct to consumer . net revenue from our direct to consumer segment increased $ 65.8 million , or 33 % , to $ 263.1 million in fiscal 2013 from $ 197.3 million in fiscal 2012 , including $ 4.2 million of net revenue from the 53rd week of fiscal 2012 . excluding the net revenue from the 53rd week of fiscal 2012 , net revenue from our direct to consumer segment increased 36 % ; excluding the effect of foreign exchange fluctuations , direct to consumer net revenue would have increased 38 % . the increase in net revenue from our direct to consumer segment was a result of increasing traffic on our e-commerce websites . other . net revenue from our other segment increased $ 16.2 million , or 20 % , to $ 99.1 million in fiscal 2013 from $ 82.9 million in fiscal 2012 , including $ 3.3 million of net revenue from the 53rd week of fiscal 2012. the increase in net revenue from our other segment was primarily due to increased sales from our outlets and showrooms sales channels . we continue to employ our other segment strategy to increase interest in our product in markets where we may not have corporate-owned stores . gross profit gross profit increased $ 77.2 million , or 10 % , to $ 840.1 million in fiscal 2013 from $ 762.8 million in fiscal 2012 .
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operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term . lease payments consist primarily of the fixed payments under the arrangement , less any lease incentives . variable lease payments are expensed as incurred and include certain non-lease components , such as maintenance and other services provided by the lessor to the extent the charges are variable . the company uses an estimate of its incremental story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion , particularly information with respect to our future results of operations or financial condition , business strategy and plans , and objectives of management for future operations , includes forward-looking statements that involve risks and uncertainties as described under the heading “ special note about forward-looking statements ” in this annual report on form 10-k. you should review the disclosure under the heading “ risk factors ” in this annual report on form 10-k for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements . unless the context otherwise requires , all references in this report to “ snowflake , ” the “ company ” , “ we , ” “ our , ” “ us , ” or similar terms refer to snowflake inc. and its subsidiaries . a discussion regarding our financial condition and results of operations for the fiscal year ended january 31 , 2021 compared to the fiscal year ended january 31 , 2020 is presented below . a discussion regarding our financial condition and results of operations for the fiscal year ended january 31 , 2020 compared to the fiscal year ended january 31 , 2019 can be found in “ management 's discussion and analysis of financial condition and results of operations ” in our final prospectus dated september 15 , 2020 and filed with the sec pursuant to rule 424 ( b ) ( 4 ) on september 16 , 2020. overview we believe in a data connected world where organizations have seamless access to explore , share , and unlock the value of data . to realize this vision , we deliver the data cloud , an ecosystem where snowflake customers , partners , data providers , and data consumers can break down data silos and derive value from rapidly growing data sets in secure , governed , and compliant ways . our platform is the innovative technology that powers the data cloud , enabling customers to consolidate data into a single source of truth to drive meaningful business insights , build data-driven applications , and share data . we provide our platform through a customer-centric , consumption-based business model , only charging customers for the resources they use . our cloud-native architecture consists of three independently scalable layers across storage , compute , and cloud services . the storage layer ingests massive amounts and varieties of structured and semi-structured data to create a unified data record . the compute layer provides dedicated resources to enable users to simultaneously access common data sets for many use cases without latency . the cloud services layer intelligently optimizes each use case 's performance requirements with no administration . this architecture is built on three major public clouds across 23 regional deployments around the world . these deployments are interconnected to deliver the data cloud , enabling a consistent , global user experience . we generate the substantial majority of our revenue from fees charged to our customers based on the storage , compute , and data transfer resources consumed on our platform as a single , integrated offering . for storage resources , consumption fees are based on the average terabytes per month of all of the customer 's data stored in our platform . for compute resources , consumption fees are based on the type of compute resource used and the duration of use or , for some features , the volume of data processed . for data transfer resources , consumption fees are based on terabytes of data transferred , the public cloud provider used , and the region to and from which the transfer is executed . our customers typically enter into capacity arrangements with a term of one to four years , or consume our platform under on-demand arrangements in which we charge for use of our platform monthly in arrears . consumption for most customers accelerates from the beginning of their usage to the end of their contract terms and often exceeds their initial capacity commitment amounts . when this occurs , our customers have the option to amend their existing agreement with us to purchase additional capacity or request early renewals . when a customer 's consumption during the contract term does not exceed its capacity commitment amount , it may have the option to roll over any unused capacity to future periods , generally on the purchase of additional capacity . for these reasons , we believe our deferred revenue is not a meaningful indicator of future revenue that will be recognized in any given time period . 44 tabl e of contents our go-to-market strategy is focused on acquiring new customers and driving continued use of our platform for existing customers . we primarily focus our selling efforts on large organizations and primarily sell our platform through a direct sales force , which targets technical and business leaders who are adopting a cloud strategy and leveraging data to improve their business performance . our sales organization is comprised of sales development , inside sales , and field sales personnel and is segmented by the size , region , and recently , industry of prospective customers . story_separator_special_tag our ability to attract new customers will depend on a number of factors , including our success in recruiting and scaling our sales and marketing organization , competitive dynamics in our target markets , and our ability to build and maintain partner relationships , including with global system integrators , resellers , and technology partners . we intend to expand our direct sales force , with a focus on increasing sales to large organizations . while our platform is built for organizations of all sizes and industries , we have only recently focused our selling efforts on large enterprise customers . we may not achieve anticipated revenue growth from expanding our sales force to focus on large enterprises if we are unable to hire , develop , integrate , and retain talented and effective sales personnel ; if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time ; or if our sales and marketing programs are not effective . investing in growth and scaling our business we are focused on our long-term revenue potential . we believe that our market opportunity is large , and we will continue to invest significantly in scaling across all organizational functions in order to grow our operations both domestically and internationally . we have a history of introducing successful new features and capabilities on our platform , and we intend to continue to invest heavily to grow our business to take advantage of our expansive market opportunity rather than optimize for profitability or cash flow in the near future . 46 tabl e of contents key business metrics we monitor the key business metrics set forth below to help us evaluate our business and growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts , and assess operational efficiencies . the calculation of the key business metrics discussed below may differ from other similarly titled metrics used by other companies , securities analysts , or investors . product revenue product revenue is a key metric for us because we recognize revenue based on platform consumption , which is inherently variable at our customers ' discretion , and not based on the amount and duration of contract terms . product revenue includes compute , storage , and data transfer resources , which are consumed by customers on our platform as a single , integrated offering . customers have the flexibility to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods , generally on the purchase of additional capacity at renewal . our consumption-based business model distinguishes us from subscription-based software companies that generally recognize revenue ratably over the contract term and may not permit rollover . because customers have flexibility in the timing of their consumption , which can exceed their contracted capacity or extend beyond the original contract term in many cases , the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from our platform . while customer use of our platform in any period is not necessarily indicative of future use , we estimate future revenue using predictive models based on customers ' historical usage to plan and determine financial forecasts . product revenue excludes our professional services and other revenue , which has been less than 10 % of revenue for each of the periods presented . remaining performance obligations remaining performance obligations ( rpo ) represent the amount of contracted future revenue that has not yet been recognized , including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods . rpo excludes performance obligations from on-demand arrangements and certain time and materials contracts that are billed in arrears . rpo is not necessarily indicative of future product revenue growth because it does not account for the timing of customers ' consumption or their consumption of more than their contracted capacity . moreover , rpo is influenced by a number of factors , including the timing of renewals , the timing of purchases of additional capacity , average contract terms , seasonality , and the extent to which customers are permitted to roll over unused capacity to future periods , generally upon the purchase of additional capacity at renewal . due to these factors , it is important to review rpo in conjunction with product revenue and other financial metrics disclosed elsewhere herein . total customers we count the total number of customers at the end of each period . for purposes of determining our customer count , we treat each customer account , including accounts for end-customers under a reseller arrangement , that has at least one corresponding capacity contract as a unique customer , and a single organization with multiple divisions , segments , or subsidiaries may be counted as multiple customers . for purposes of determining our customer count , we do not include customers that consume our platform only under on-demand arrangements . our customer count is subject to adjustments for acquisitions , consolidations , spin-offs , and other market activity . we believe that the number of customers is an important indicator of the growth of our business and future revenue trends . 47 tabl e of contents net revenue retention rate we believe the growth in use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects . we monitor our dollar-based net revenue retention rate to measure this growth . to calculate this metric , we first specify a measurement period consisting of the trailing two years from our current period end . next , we define as our measurement cohort the population of customers under capacity contracts that used our platform at any point in the first month of the first year of the measurement period .
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results of operations the following table sets forth our consolidated statements of operations data for the periods indicated ( in thousands ) : replace_table_token_5_th ( 1 ) includes stock-based compensation expense as follows ( in thousands ) : replace_table_token_6_th during the fiscal year ended january 31 , 2021 , we began recognizing , using an accelerated attribution method , stock-based compensation expense associated with our rsus granted prior to our ipo as the performance-based vesting condition applicable to such rsus was satisfied upon the effectiveness of our ipo in september 2020. we recognized stock-based compensation expense of $ 178.7 million associated with such rsus for the fiscal year ended january 31 , 2021. stock-based compensation expense for the fiscal year ended january 31 , 2019 included $ 30.3 million of compensation expense related to the amount paid in excess of the estimated fair value of common stock at the date of transaction in connection with two issuer tender offers . see note 11 to our consolidated financial statements included elsewhere in this annual report on form 10-k for further details . 53 tabl e of contents the following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated : replace_table_token_7_th comparison of the fiscal years ended january 31 , 2021 and 2020 revenue replace_table_token_8_th product revenue increased $ 301.6 million for the fiscal year ended january 31 , 2021 compared to the fiscal year ended january 31 , 2020 , primarily due to increased consumption of our platform by existing customers , as evidenced by our net revenue retention rate of 168 % as of january 31 , 2021. the increase in product revenue was also driven by an increase in capacity sales prices of approximately 8 % for the fiscal year ended january 31 , 2021 , compared to the prior fiscal year , primarily as a result of better discipline over discounting .
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87 story_separator_special_tag the following combined md & a should be read in conjunction with the consolidated financial statements and accompanying notes in this combined annual report on form 10-k. none of the registrants make any representation as to information related solely to evergy , evergy kansas central or evergy metro other than itself . the following md & a generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 can be found in md & a in part ii , item 7 , of the evergy companies ' combined annual report on form 10-k for the fiscal year ended december 31 , 2019. evergy , inc. story_separator_special_tag applicable technology developments . see `` cautionary statements regarding certain forward-looking information '' and part i , item 1a , risk factors , for additional information . agreements with elliott investment management l.p. and bluescape energy partners , llc on february 25 , 2021 , evergy entered into separate agreements with bluescape energy partners , llc , ( bluescape ) elliott investment management l.p. ( elliott ) and affiliates of elliott . as part of the agreement with bluescape ( the bluescape agreement ) , c. john wilder , executive chairman of bluescape , and mary l. landrieu , former u.s. senator for louisiana , will join the evergy board effective as of march 1 , 2021. in addition , pursuant to a securities purchase agreement , by and between evergy and an affiliate of bluescape , dated as of february 25 , 2021 ( the bluescape investment agreement ) , bluescape has agreed to purchase 2,269,447 shares of evergy 's common stock for approximately $ 113.2 million and will receive a warrant to purchase up to 3,950,000 additional shares of evergy 's common stock , in each case subject to satisfaction of customary closing conditions , 34 including the expiration of the waiting period under the hart-scott-rodino antitrust improvements act of 1976. the warrant will have a term of three years and an exercise price equal to $ 64.70. each of bluescape and elliott also agreed to customary standstill , voting and other provisions in connection with the foregoing . the foregoing summaries of the bluescape agreement and the bluescape investment agreement are qualified in their entirety by reference to the bluescape agreement and the bluescape investment agreement , respectively , a copy of which is attached as exhibit 10.1 and exhibit 10.2 , respectively , to evergy 's current report on form 8-k filed on february 26 , 2021 and are incorporated herein by reference . impact of covid-19 the covid-19 pandemic has had , and may continue to have , a significant impact on the way that the evergy companies conduct their operations , including the implementation of social distancing and other preventative protocols and the direction of employees to work remotely when possible . further , the spread of covid-19 has resulted in efforts to contain the virus , such as quarantines , restrictions on travel , closures and the reduced operations of businesses , governmental agencies and other institutions . the pandemic , along with the efforts to contain the virus , has caused and could continue to cause an economic slowdown or recession , result in significant disruptions or reductions in various public , commercial or industrial activities and cause employee absences . in the states of missouri and kansas as well as certain counties and municipalities within the evergy companies ' service territory , `` stay-at-home '' orders were in effect for parts of 2020 and could be implemented again in the future . governmental mandates that restrict the operation of businesses , governmental agencies and other institutions continue to remain in effect and a substantial portion of the evergy companies ' service territory is also required to utilize preventative measures such as the wearing of face coverings while in public areas . the announcement in late 2020 of multiple covid-19 vaccines with high expected effectiveness rates could serve to mitigate both the severity and ongoing duration of the covid-19 outbreak . however , both the magnitude and timing of the impact of the covid-19 vaccines is not yet known and could be subject to multiple factors including the available supply of vaccine , the vaccine adoption rate by the general public and the achievement of the vaccines ' expected effectiveness rates . management can not foresee whether the outbreak of covid-19 will be effectively contained , nor can it predict the severity and ongoing duration of its impact . during 2020 , evergy experienced an overall reduction in demand and shift of usage away from customers with relatively higher load requirements , such as industrial and commercial customers , towards customers with relatively lower load requirements , such as residential customers . in 2020 , approximately 39 % of evergy 's total revenues came from residential customers and approximately 45 % came from commercial and industrial customers , compared with approximately 37 % from residential customers and 47 % from commercial and industrial customers in 2019. the kcc and mpsc have established different prices for the evergy companies ' residential , commercial and industrial customers and a similar change in demand across each customer class will have a different impact on earnings . as a result , the impacts to evergy 's earnings from a reduction in demand from industrial and commercial customers have been partially offset by an increase in demand from residential customers . the evergy companies have also temporarily implemented policies , and in the future may implement additional policies , that are intended to ease the financial burden of the pandemic on customers . these policies , such as temporarily extending payment options and offering incentives for customer payments on overdue balances as well as the elimination of late payment fees and disconnections for non-payment , could lead to lower levels of operating cash flows compared to historical levels for the evergy companies . story_separator_special_tag regulatory proceedings see note 5 to the consolidated financial statements for information regarding regulatory proceedings . earnings overview the following table summarizes evergy 's net income and diluted earnings per share ( eps ) . replace_table_token_11_th net income attributable to evergy , inc. decreased in 2020 , compared to 2019 , primarily due to lower retail sales driven by unfavorable weather and a decrease in weather-normalized commercial and industrial demand primarily due to temporary business closures and hours of operation and capacity limitations as a result of covid-19 that were partially offset by an increase in weather-normalized residential demand and higher depreciation expense and higher interest expense ; partially offset by lower operating and maintenance expenses in 2020. diluted eps decreased in 2020 compared to 2019 , primarily due to the decrease in net income attributable to evergy discussed above , partially offset by a lower number of diluted weighted average common shares outstanding in 2020 , which increased eps by $ 0.14 for 2020. for additional information regarding the change in net income , refer to the evergy results of operations section within this md & a . adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) evergy 's adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) for 2020 were $ 705.5 million or $ 3.10 per share , respectively . for 2019 , evergy 's adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) were $ 694.0 million or $ 2.89 per share , respectively . in addition to net income attributable to evergy , inc. and diluted eps , evergy 's management uses adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) to evaluate earnings and eps without the costs resulting from rebranding , voluntary severance , advisor expenses and the revaluation of deferred tax assets and liabilities from a change in the kansas corporate income tax rate . non-gaap measures adjusted earnings and adjusted eps adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) are intended to enhance an investor 's overall understanding of results . adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) are used internally to measure performance against budget and in reports for management and the evergy board . adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) are financial measures that are not calculated in accordance with gaap and may not be comparable to other companies ' presentations or more useful than the gaap information provided elsewhere in this report . 37 the following table provides a reconciliation between net income attributable to evergy , inc. and diluted eps as determined in accordance with gaap and adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) . replace_table_token_12_th ( a ) reflects external costs incurred to rebrand the legacy westar energy and kcp & l utility brands to evergy and are included in operating and maintenance expense on the consolidated statements of comprehensive income . ( b ) reflects severance costs incurred associated with certain voluntary severance programs at the evergy companies and are included in operating and maintenance expense on the consolidated statements of comprehensive income . ( c ) reflects advisor expenses incurred associated with strategic planning and are included in operating and maintenance expense on the consolidated statements of comprehensive income . ( d ) reflects an income tax effect calculated at a statutory rate of approximately 26 % , with the exception of certain non-deductible items . ( e ) reflects the revaluation of evergy kansas central 's , evergy metro 's and evergy missouri west 's deferred income tax assets and liabilities from the kansas corporate income tax rate change and are included in income tax expense on the consolidated statements of comprehensive income . 38 2018 adjusted operating and maintenance expense the following table provides a reconciliation between 2018 operating and maintenance expense and 2018 pro forma operating and maintenance expense as determined in accordance with gaap and 2018 adjusted operating and maintenance expense ( non-gaap ) . evergy 's 2018 adjusted operating and maintenance expense ( non-gaap ) is used as the base for targeted operating and maintenance expense reductions by 2024 as part of evergy 's stp . replace_table_token_13_th ( a ) reflects pro forma adjustments made in accordance with article 11 of regulation s-x and asc 805 - business combinations . see note 2 to the consolidated financial statements in the evergy companies ' combined 2018 annual report on form 10-k for further information regarding these adjustments . ( b ) reflects severance costs incurred associated with certain voluntary severance programs at the evergy companies and are included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the evergy companies ' combined 2018 annual report on form 10-k. ( c ) reflects the portion of the $ 47.8 million deferral of merger transition costs to a regulatory asset in june 2018 that related to costs incurred prior to 2018. the remaining merger transition costs included within the $ 47.8 million deferral were both incurred and deferred in 2018 and did not impact earnings . this item is included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the evergy companies ' combined 2018 annual report on form 10-k. ( d ) reflects obsolete inventory write-offs for evergy kansas central 's unit 7 at tecumseh energy center , units 3 and 4 at murray gill energy center , units 1 and 2 at gordon evans energy center , evergy metro 's montrose station and evergy missouri west 's sibley station and are included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the evergy companies ' combined 2018 annual report on form 10-k. environmental matters see note 15 to the consolidated financial statements for information regarding environmental matters . related party transactions see note 17 to the consolidated financial statements for information regarding related party transactions .
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executive summary evergy is a public utility holding company incorporated in 2017 and headquartered in kansas city , missouri . evergy operates primarily through the following wholly-owned direct subsidiaries listed below . evergy kansas central is an integrated , regulated electric utility that provides electricity to customers in the state of kansas . evergy kansas central has one active wholly-owned subsidiary with significant operations , evergy kansas south . evergy metro is an integrated , regulated electric utility that provides electricity to customers in the states of missouri and kansas . evergy missouri west is an integrated , regulated electric utility that provides electricity to customers in the state of missouri . evergy transmission company owns 13.5 % of transource with the remaining 86.5 % owned by aep transmission holding company , llc , a subsidiary of aep . transource is focused on the development of competitive electric transmission projects . evergy transmission company accounts for its investment in transource under the equity method . 33 evergy kansas central also owns a 50 % interest in prairie wind , which is a joint venture between evergy kansas central and subsidiaries of aep and berkshire hathaway energy company . prairie wind owns a 108-mile , 345 kv double-circuit transmission line that provides transmission service in the spp . evergy kansas central accounts for its investment in prairie wind under the equity method . evergy kansas central , evergy kansas south , evergy metro and evergy missouri west conduct business in their respective service territories using the name evergy . collectively , the evergy companies have approximately 15,400 mws of owned generating capacity and renewable power purchase agreements and engage in the generation , transmission , distribution and sale of electricity to approximately 1.6 million customers in the states of kansas and missouri . the evergy companies assess financial performance and allocate resources on a consolidated basis ( i.e. , operate in one segment ) .
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level 2 : observable inputs other than those included in level 1. for example , quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets . level 3 : unobservable inputs reflecting management 's own assumptions about the inputs used in pricing the asset or liability . financial assets and financial liabilities measured at fair value on a recurring basis are as follows : replace_table_token_47_th investments represent securities held in a trust for the non-qualified deferred compensation plan . investments are classified as trading securities and are valued based on quoted prices in active markets for identical assets that we have the ability to access . investments are reported separately on the consolidated balance sheets . investments include an unrealized gain of $ 0.5 million as of december 31 , 2013 and an unrealized gain of $ 0.4 million as of december 31 , 2012. we use the income approach to measure the fair value of derivative instruments on a recurring basis . this approach calculates the present value of the future cash flow by measuring the change between the derivative contract rate and the published market indicative currency rate , multiplied by the contract notional values , and applying an appropriate discount rate as well as a factor of credit risk . the carrying amounts of cash and cash equivalents , trade receivables and accounts payables , as well as financial instruments included in other current assets and other current liabilities , approximate story_separator_special_tag operations executive overview we are a global technology solutions provider for the food processing and air transportation industries . we design , manufacture , test and service technologically sophisticated systems and products for customers through our jbt foodtech and jbt aerotech segments . we have established a large installed base of food processing equipment as well as airport support equipment and have built a strong global presence with manufacturing , sourcing , sales and service organizations located on six continents to support equipment that has been delivered to more than 100 countries . 26 we announced the implementation of a management succession plan in the third quarter of 2013. the company named tom giacomini president and chief executive officer , effective september 9 , 2013. charlie cannon , previously chairman , chief executive officer and president , remains with the company as executive chairman of the board . ron mambu , our outgoing chief financial officer announced plans to retire early in 2014 , and brian deck was appointed chief financial officer in january 2014. during the fourth quarter of 2013 , we made certain internal reporting structure changes . our automated systems business , previously part of the jbt aerotech segment is now included in the jbt foodtech segment . this change was driven by our long term strategic view of our business . we believe including the automated systems business in the foodtech segment will allow greater synergies among the food processing businesses and accelerate the application of automated systems technologies with our food processing customers . the discussion included in item 7 reflects this change for all periods . we continued to make progress in our 4g value creation strategy in 2013 and finished the year with increased revenue of $ 16.9 million , or $ 19.4 million in constant currency , as compared to 2012. our foodtech business delivered strong performance in 2013 , particularly the freezing and protein processing business in north america . we strengthened our presence in china , a key emerging market where we achieved success with locally designed and manufactured freezers . our aftermarket revenue continued to grow in both our foodtech and aerotech segments . as we evaluate our operating results , we consider performance indicators like segment revenue and operating profit in addition to the level of inbound orders and order backlog . story_separator_special_tag line-height : 1.25 ; margin : 0pt '' > jbt foodtech 's operating profit increased by $ 11.6 million , or $ 13.5 million in constant currency , in the year ended december 31 , 2012 compared to 2011. operating profit margin increased from 8.0 % to 10.0 % . the increase in operating profit was driven by $ 15.4 million of higher gross profit . higher sales volume resulted in an increase of $ 4.8 million in profits , while higher gross profit margin resulted in $ 10.6 million of higher profit . gross profit margin increased as a result of the favorable impact of higher aftermarket revenue and savings from our cost reduction initiatives . general and administrative expenses were $ 2.8 million higher primarily as a result of higher compensation and relocation costs . the remaining difference in operating profit was primarily due to lower research and development expenditures . jbt aerotech 2013 compared with 2012 jbt aerotech 's revenue decreased by $ 2.0 million in 2013 compared to 2012. revenue from gate equipment increased $ 8.4 million but was more than offset by decreased halvorsen sales and lower ground support equipment sales . lower revenue from maintenance contracts accounted for $ 5.3 million of the decreased revenue , but sales from aftermarket products , parts and services partly offset the decrease . jbt aerotech 's operating profit decreased by $ 2.1 million in 2013 compared to 2012. lower gross profit margin attributable to unfavorable gate equipment product mix and competitive pricing pressure within the ground support system business accounted for $ 2.9 million of the decrease , which was partly offset by higher margin from halvorsen parts and services . selling , general and administrative costs decreased approximately $ 0.4 million due to various cost cutting measures . research and development costs decreased $ 0.7 million due to lower expenditures in research and development activities in gate equipment . 2012 compared with 2011 jbt aerotech 's revenue decreased by $ 36.3 million in 2012 compared to 2011. new equipment revenue declined $ 38.1 million . story_separator_special_tag under internal revenue service ( irs ) guidance , no incremental tax liability is incurred on the proceeds of these loans as long as each individual loan has a term of 30 days or less and all such loans from each subsidiary is outstanding for a total of less than 60 days during the year . the amount outstanding subject to this irs guidance at december 31 , 2013 was approximately $ 105 million . during 2013 , each such loan was outstanding for less than 30 days , and all such loans were outstanding for less than 60 days in the aggregate . the u.s. parent used the proceeds of these intercompany loans to reduce outstanding borrowings under our 5-year credit facility . we may choose to access such funds again in the future to the extent they are available and can be transferred without significant cost , and use them on a temporary basis to repay outstanding borrowings or for other corporate purposes , but intend to do so only as allowed under this irs guidance . on october 27 , 2011 , our board of directors authorized a share repurchase program for up to $ 30 million of our common stock through december 31 , 2014. we repurchased $ 0.2 million of common stock in 2013 and have $ 25.9 million in remaining purchases under the authorization . the timing , price and volume of future repurchases will be based on market conditions , relevant securities laws and other factors . defined benefit pension plans we have defined benefit pension plans that cover certain domestic and international employees . our largest single pension plan is the u.s. qualified plan . at december 31 , 2013 , this plan accounted for 84 % of our consolidated defined benefit pension plans ' projected benefit obligation ( “ pbo ” ) and 96 % of the related plans ' assets . due to an increase in the discount rate used to value the pbo at december 31 , 2013 , the obligation decreased by approximately $ 29 million while the assets experienced a gain during 2013 of 10 % . we expect to contribute $ 8 million to our u.s. qualified plan during 2014 and $ 5 million to our other pension and postretirement benefit plans in 2014 . 31 contractual obligations and off-balance sheet arrangements the following is a summary of our contractual obligations at december 31 , 2013 : replace_table_token_9_th ( a ) our available long-term debt is dependent upon our compliance with covenants described under the heading “ financing agreements ” later in item 7. any violations of covenants or other events of default , which are not waived or cured , could have a material impact on our ability to maintain our committed financial arrangements and could accelerate our obligation to repay the amount due . ( b ) interest payments were determined using the weighted average rates for all debt outstanding as of december 31 , 2013 . ( c ) in the normal course of business , we enter into agreements with our suppliers to purchase raw materials or services . these agreements include a requirement that our supplier provide products or services to our specifications and require us to make a firm purchase commitment to our supplier . as substantially all of these commitments are associated with purchases made to fulfill our customers ' orders , the costs associated with these agreements will ultimately be reflected in cost of sales on our consolidated statements of income . ( d ) this amount primarily reflects discretionary contributions to our pension plans . required contributions for future years depend on factors that can not be determined at this time . the following is a summary of other off-balance sheet arrangements at december 31 , 2013 : replace_table_token_10_th to provide required security regarding our performance on certain contracts , we provide letters of credit , surety bonds and bank guarantees , for which we are contingently liable . in order to obtain these financial instruments , we pay fees to various financial institutions in amounts competitively determined in the marketplace . our ability to generate revenue from certain contracts is dependent upon our ability to obtain these off-balance sheet financial instruments . our off-balance sheet financial instruments may be renewed , revised or released based on changes in the underlying commitment . historically , our commercial commitments have not been drawn upon to a material extent ; consequently , management believes it is not likely that there will be claims against these commitments that would result in a negative impact on our key financial ratios or our ability to obtain financing . cash flows cash flows for each of the years in the three-year period ended on december 31 , 2013 were as follows : replace_table_token_11_th cash flows provided by continuing operating activities in 2013 were $ 63.1 million , representing a $ 23.5 million decrease compared to 2012. the change in the cash flows is primarily attributable to the year-end increase in inventories in 2013 as compared to 2012 due to the improved order backlog position . 32 cash required by investing activities during 2013 was $ 28.1 million representing a $ 4.5 million decrease compared to 2012. we invested $ 10 million in acquisitions during 2012 , while no cash was invested in acquisitions in 2013. we spent $ 29.2 million on capital purchases in 2013 , up from $ 24.7 million in 2012. our annual capital spending typically ranges from $ 20 million to $ 25 million to support the maintenance and upgrading of our installed base of leased equipment . we anticipate spending approximately $ 19 million on construction of a new jbt foodtech plant in lakeland , florida to replace an existing plant in the same area . we spent approximately $ 7 million on this project in 2013 and expect to spend approximately $ 10 million and $ 2 million , respectively , in 2014 and 2015. cash flows required by financing activities in 2013 were $ 101.6
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consolidated results of operations replace_table_token_5_th 2013 compared with 2012 total revenue increased $ 16.9 million or $ 19.4 million in constant currency in 2013 compared to 2012. the increase was mainly attributed to higher product and aftermarket revenue and partly offset by $ 4.1 million of lower airport services revenue . operating income decreased $ 7.7 million in 2013 compared to 2012. operating margin decreased from 6.6 % to 5.7 % . the decrease in operating income resulted from the following : ● gross profit increased $ 2.1 million or $ 3.1 million in constant currency . this is mainly the result of higher volumes . ● selling , general and administrative expenses increased by $ 7.7 million . the increase was attributed to several factors , primarily $ 3.8 million in investment in our aftermarket sales structure , $ 2.7 million of costs related to ceo and cfo succession and $ 1.7 million of higher self-insured healthcare expenses . ● research and development expense decreased by $ 0.3 million mainly reflecting a shift of engineering resources from research and development efforts to project production . ● restructuring expense increased $ 1.5 million due to severance costs incurred in connection with management restructuring . 27 income tax expense for 2013 reflects an income tax rate of 29 % compared to 31 % in 2012. the lower effective tax rate reflects additional research and development credits of $ 2.1 million claimed in the u.s. 2012 compared with 2011 total revenue decreased by $ 38.5 million in 2012 compared to 2011. the decrease in revenue was primarily driven by $ 41.2 million of lower product sales and $ 18.0 million of unfavorable foreign currency translation impact , offset by $ 13.7 million of higher aftermarket parts and services sales . operating income increased by $ 7.7 million in 2012 compared to 2011. operating income margin increased from 5.6 % to 6.6 % .
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50 h - income taxes the provision for income taxes was as follows : replace_table_token_25_th the provision for income taxes is different from the amount computed by applying the statutory federal income tax rate to income before income taxes for the following reasons : replace_table_token_26_th 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 story_separator_special_tag the following discussion should be read in conjunction with the company 's consolidated financial statements and notes thereto appearing in item 8 of this annual report on form 10-k. story_separator_special_tag critical to the company 's success . the rate at which the company adds new dealerships and is able to implement operating initiatives is limited by the number of trained managers and support personnel the company has at its disposal . excessive turnover , particularly at the dealership manager level , could impact the company 's ability to add new dealerships and to meet operational initiatives . the company has added resources to recruit , train , and develop personnel , especially personnel targeted to fill dealership manager positions . the company expects to continue to invest in the development of its workforce . 21 consolidated operations ( operating statement dollars in thousands ) replace_table_token_6_th 2013 compared to 2012 total revenues increased $ 34.5 million , or 8.0 % , in fiscal 2013 , as compared to revenue growth of 13.4 % in fiscal 2012 , principally as a result of ( i ) revenue growth from dealerships that operated a full 12 months in both periods ( $ 13.8 million ) , ( ii ) revenue growth from dealerships opened during fiscal 2012 ( $ 12.2 million ) , and ( iii ) revenues from dealerships opened during fiscal 2013 ( $ 8.5 million ) . the increase in revenue for fiscal 2013 is attributable to ( i ) an 8.0 % increase in retail unit volumes together with a 0.5 % increase in the average unit sales price , ( ii ) a 13.0 % increase in interest and other income partially offset by , ( iii ) a $ 2.2 million decrease in wholesale sales . cost of sales , as a percentage of sales , decreased to 57.5 % in fiscal 2013 from 57.7 % in fiscal 2012. the company 's cost of sales as a percentage of sales was positively affected by pricing efficiencies in the average selling price and the effect of lower wholesale sales , offset by higher losses on the payment protection plan product . the company 's selling prices are based upon the cost of the vehicle purchased , with lower-priced vehicles typically having higher gross margin percentages . the company will continue to focus efforts on minimizing the average retail sales price in order to help keep the contract terms shorter , which helps customers to maintain appropriate equity in their vehicles . the consumer demand for vehicles the company purchases for resale remains high . this high demand has been exacerbated by the overall decrease in new car sales during the last few years when compared to pre-recession levels , which can result in higher purchase costs for the company . 22 selling , general and administrative expenses , as a percentage of sales , increased 0.1 % to 17.6 % in fiscal 2013 from 17.5 % in fiscal 2012. the percentage increase was principally the result of lower sales levels during the second quarter as a large majority of the company 's operating costs are more fixed in nature . in dollar terms , overall selling , general and administrative expenses increased $ 5.4 million from fiscal 2012 , which consisted primarily of increased payroll costs and other incremental costs related to new lot openings . many of the company 's compensation arrangements are tied to financial performance and as such , more payroll costs are incurred during periods of improved financial results . provision for credit losses , as a percentage of sales , increased 2.0 % from 21.1 % in fiscal 2012 ( 21.5 % excluding the effect of the reduction in the allowance for credit losses ) to 23.1 % in fiscal 2013. credit losses as a percentage of sales increased due to the lower principal collections as a percentage of average finance receivables , continuing negative macro-economic and competitive factors especially related to increased funding to the deep subprime automobile industry . the company has implemented several operational initiatives for the collections area and continues to push for improvements and better execution of its collection practices . however , the extended negative macro-economic issues are expected to continue to put pressure on our customers and the resulting collections of our finance receivables . the company believes that the proper execution of its business practices is the single most important determinant of credit loss experience . interest expense as a percentage of sales increased to 0.7 % for fiscal 2013 compared to 0.6 % for fiscal 2012. higher average borrowings during the fiscal year 2013 ( $ 93.3 million compared to $ 70.2 million in the prior year ) were partially offset by lower interest rates on the company 's variable rate debt . 2012 compared to 2011 total revenues increased $ 50.9 million , or 13.4 % , in fiscal 2012 , as compared to revenue growth of 11.9 % in fiscal 2011 , principally as a result of ( i ) revenue growth from dealerships that operated a full 12 months in both periods ( $ 27.8 million ) , ( ii ) revenue growth from dealerships opened during fiscal 2011 ( $ 15.3 million ) , and ( iii ) revenues from dealerships opened during fiscal 2012 ( $ 7.8 million ) . story_separator_special_tag deferred tax liabilities , net increased $ 1.4 million at april 30 , 2013 as compared to april 30 , 2012 primarily due to increased finance receivables , partially offset by deferred tax assets related to the increased accrued liabilities , increased share based compensation and increased deferred payment protection plan revenue . borrowings on the company 's revolving credit facilities fluctuate primarily based upon a number of factors including ( i ) net income , ( ii ) finance receivables changes , ( iii ) income taxes , ( iv ) capital expenditures and ( v ) common stock repurchases . historically , income from continuing operations , as well as borrowings on the revolving credit facilities , have funded the company 's finance receivables growth , capital asset purchases and common stock repurchases . in fiscal 2013 the company had a $ 21.7 million net increase in total debt used to contribute to the funding of finance receivables growth of $ 46 million , an increase in inventory to support higher sales levels and new dealerships of $ 5.6 million , net capital expenditures of $ 5.5 million and common stock repurchases of $ 17.3 million . 25 liquidity and capital resources the following table sets forth certain historical information with respect to the company 's statements of cash flows ( in thousands ) : replace_table_token_9_th the primary drivers of operating profits and cash flows include ( i ) top line sales ( ii ) interest rates on finance receivables , ( iii ) gross margin percentages on vehicle sales , and ( iv ) credit losses , a significant portion of which relates to the collection of principal on finance receivables . the company generates cash flow from income from operations . historically , most or all of this cash is used to fund finance receivables growth , capital expenditures and common stock repurchases . to the extent finance receivables growth , capital expenditures and common stock repurchases exceed income from operations ; generally the company increases its borrowings under its revolving credit facilities . the majority of the company 's growth has been self-funded . cash flows from operations in fiscal 2013 compared to fiscal 2012 were negatively impacted by ( i ) lower collections as a percentage of finance receivables , ( ii ) increased inventory levels , and ( iii ) an increase in income taxes payable , net and in deferred income taxes , partially offset by ( iv ) higher non-cash charges including credit losses , depreciation , and losses on claims for payment protection plan and ( v ) higher values for inventory acquired in repossession and payment protection plan claims . finance receivables , net , increased by $ 36.9 million during fiscal 2013 . 26 cash flows from operations in fiscal 2012 compared to fiscal 2011 were positively impacted by ( i ) higher sales volumes and increased interest income , ( ii ) higher values for inventory acquired in both repossessions and payment protections plan claims , ( iii ) an increase in the change of accounts payable and accrued liabilities , offset by the net effect of other components of the change in finance receivables including originations and collections . finance receivables , net , increased by $ 28.9 million during fiscal 2012. the purchase price the company pays for a vehicle has a significant effect on liquidity and capital resources . several external factors can negatively affect the purchase cost of vehicles . decreases in the overall volume of new car sales , particularly domestic brands , leads to decreased supply in the used car market . also , the expansion of the customer base due in part to constrictions in consumer credit , as well as general economic conditions , can have an overall effect on the demand for the type of vehicle the company purchases for resale . because the company bases its selling price on the purchase cost for the vehicle , increases in purchase costs result in increased selling prices . as the selling price increases , it becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the company 's customers have limited incomes and their car payments must remain affordable within their individual budgets . the company has seen increases in the purchase cost of vehicles and resulting increases in selling prices over the last few years . management does expect a continuing tight supply of vehicles and a resulting pressure for increases in vehicle purchase costs . the company has devoted significant efforts to improve its purchasing processes to ensure adequate supply at appropriate prices . this is expected to result in gross margin percentages generally in the 42 % range in the near term with overall contract terms increasing due in part to competitive pressures , somewhat mitigated by software and operational changes which have been made to structure seasonal payments during income tax refund periods . in an effort to ensure an adequate supply of vehicles at appropriate prices , the company has increased the level of accountability for its purchasing agents including the establishment of sourcing and pricing guidelines . additionally , the company is expanding its purchasing territories to larger cities in close proximity to its dealerships and increasing its efforts to purchase vehicles from individuals at the dealership level as well as via the internet . the company believes that the amount of credit available for the sub-prime auto industry has increased recently and management expects the availability of consumer credit within the automotive industry to be higher over the near term when compared to recent history and that this will contribute to overall increases in demand for most , if not all , of the vehicles the company purchases for resale . increased competition resulting from availability of funding to the sub-prime auto industry has contributed to lower down payments and longer terms , which have had a negative effect on collection percentages , liquidity and credit losses when compared to prior periods .
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overview america 's car-mart , inc. , a texas corporation ( the “ company ” ) , is one of the largest publicly held automotive retailers in the united states focused exclusively on the “ integrated auto sales and finance ” segment of the used car market . references to the company include the company 's consolidated subsidiaries . the company 's operations are principally conducted through its two operating subsidiaries , america 's car mart , inc. , an arkansas corporation ( “ car-mart of arkansas ” ) , and colonial auto finance , inc. , an arkansas corporation ( “ colonial ” ) . collectively , car-mart of arkansas and colonial are referred to herein as “ car-mart. ” the company primarily sells older model used vehicles and provides financing for substantially all of its customers . many of the company 's customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems . as of april 30 , 2013 , the company operated 124 dealerships located primarily in small cities throughout the south-central united states . car-mart has been operating since 1981. car-mart has grown its revenues between approximately 3 % and 16 % per year over the last ten years ( average 12 % ) . growth results from same dealership revenue growth and the addition of new dealerships . revenue increased 8.0 % for the fiscal year ended april 30 , 2013 compared to fiscal 2012 primarily due to an 8.0 % increase in retail units sold , a 0.5 % increase in average retail sales price and a 13.0 % increase in interest income . the company 's primary focus is on collections . each dealership is responsible for its own collections with supervisory involvement of the corporate office .
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the company continues to evaluate the overall impact of the tcja on its business . there is continuing uncertainty in the tcja , and although changes or challenges can not be predicted , the company believes it has used reasonable assumptions and interpretations in applying the tcja . the company continues to monitor for legislative developments , issuance of regulations and technical memorandum to provide further clarification and or interpretations of the tcja and will adjust its financial statements as needed . rent expense the company 's operating leases for its cambridge , andover and burlington , massachusetts and dublin and columbus , ohio facilities provide for scheduled annual rent increases throughout each lease 's term . the company recognizes the effects of the scheduled rent increases on a straight-line basis over the full term of the leases . tenant improvement allowances provided by story_separator_special_tag story_separator_special_tag style= '' margin-top:6pt ; margin-bottom:0pt ; font-family : 'times new roman ' ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > srp-9001 ( micro-dystrophin gene therapy program ) , in collaboration with nationwide , aims to express micro-dystrophin – a smaller but still functional version of dystrophin . a unique , engineered micro-dystrophin is used because naturally-occurring dystrophin is too large to fit in an aav vector . in the fourth quarter of 2017 , an ind application for the micro- -61- dystrophin gene therapy program was cleared by the fda , and a phase 1/2a clinical trial in individuals with dmd was initiated . on october 3 , 2018 , nationwide presented positive results from the phase 1/2a clinical trial in four individuals with dmd enrolled in the trial . in the fourth quarter of 2018 , we commenced a placebo-controlled trial with the goal to establish the functional benefits of micro-dystrophin expressions . w e plan to conduct a confirmatory trial using commercial supply of srp-9001 by the end of 2019 , pending regulatory feedback . myo-101 . myonexus , one of our strategic partners , develops gene therapy programs for various forms of lgmds . the most advanced of myonexus ' product candidates , myo-101 , is designed to transfer a gene that codes for and restores beta-sarcoglycan protein with the goal of restoring the dystrophin associated protein complex . it utilizes the aavrh.74 vector system , the same vector used in the micro-dystrophin gene therapy program we are developing with nationwide . myonexus commenced a phase 1/2a trial of myo-101 in the fourth quarter of 2018 , and on february 27 , 2019 , we announced positive two-month data from the first three-patient cohort dosed in the myo-101 trial . galgt2 . an additional gene therapy program for dmd and other muscular dystrophies , also in collaboration with nationwide , aims to express the enzyme galgt2 from an aav vector . in the fourth quarter of 2017 , the ind application for galgt2 was cleared by the fda , and a phase 1/2a clinical trial testing galgt2 for the treatment of dmd was initiated . lys-saf 302 . we are collaborating with lysogene to develop a gene therapy , lys-saf302 , to treat mps iiia . the first patient has been dosed in aavance , a global phase 2/3 clinical trial of lys-saf302 , aiming at evaluating the effectiveness of a one-time delivery of a aavrh10 virus carrying the n-sgsh gene . neutrophin 3 ( cmt type 1a ) . a gene therapy program in collaboration with nationwide that aims to express nt-3 encoding the ntf3 gene to treat cmt neuropathies , including cmt type 1a . a clinical trial to test nt-3 gene therapy is planned to commence dosing in 2019 for cmt type 1a , pending regulatory feedback . we believe that the delivery of nt-3 gene may have applicability to other sub-types of cmt in addition to other muscle-wasting diseases . our pipeline includes 25 programs in various stages of pre-clinical and clinical development , reflecting our aspiration to apply our multifaceted approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases . we have developed proprietary state-of-the-art cmc and manufacturing capabilities that allow synthesis and purification of our product candidates to support both clinical development as well as commercialization . our current main focus in manufacturing is to continue scaling up production of our pmo-based therapies and optimizing manufacturing for ppmo and gene therapy-based product candidates . we have entered into certain manufacturing and supply arrangements with third-party suppliers which will in part utilize these capabilities to support production of certain of our product candidates and their components . in 2017 , we opened a facility in andover , massachusetts , which significantly enhances our research and development manufacturing capabilities . however , we currently do not have internal large scale gmp manufacturing capabilities to produce our product and product candidates for commercial and or clinical use . as of december 31 , 2018 , we had approximately $ 1,174.9 million of cash , cash equivalents and investments , consisting of $ 370.8 million of cash and cash equivalents , $ 803.1 million of short-term investments and $ 1.0 million of long-term restricted investment . we believe that our balance of cash , cash equivalents and investments is sufficient to fund our current operational plan for at least the next twelve months . the likelihood of our long-term success must be considered in light of the expenses , difficulties and delays frequently encountered in the development and commercialization of new pharmaceutical products , competitive factors in the marketplace and the complex regulatory environment in which we operate . we may never achieve significant revenue or profitable operations . story_separator_special_tag please read note 16 , stock-based compensation to the consolidated financial statements included elsewhere in this annual report on form 10-k for a further discussion of stock-based compensation . income tax the company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination . the calculation of our tax liabilities resulting from uncertain tax positions can involve significant judgment . further , the calculation may involve the application of complex tax regulations in a foreign jurisdiction . although we believe that we have adequately provided for tax liabilities resulting from uncertain tax positions , the actual amounts paid , if any , could have a material impact on our results of operations . interest and penalties associated with uncertain tax positions are classified as a component of income tax expense . please read note 2 , summary of significant accounting policies and recent accounting pronouncements to the consolidated financial statements included elsewhere in this annual report on form 10-k for a further discussion of our critical accounting policies and estimates . -64- the following table sets forth selected consolidated statements of operations data for each of the periods indicated : replace_table_token_3_th * nm : not meaningful -65- revenues revenues from product sales are recorded at the net sales price ( transaction price ) , which includes estimates of variable consideration for which reserves are established and which result from medicaid rebates , governmental chargebacks , including phs chargebacks , prompt pay discounts , co-pay assistance and distribution fees . these reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable ( if no payments are required of us ) or a current liability ( if a payment is required of us ) . these reserves are based on estimates of the amounts earned or to be claimed on the related sales . our estimates take into consideration current contractual and statutory requirements . the amount of variable consideration that is included in the transaction price may be constrained , and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period . actual amounts of consideration ultimately received or paid may differ from our estimates . if actual results in the future vary from our estimates , we will adjust these estimates , which would affect net product revenue and earnings in the period such variances become known . net product revenues for exondys 51 for 2018 increased by $ 146.5 million compared with 2017. net product revenues for exondys 51 for 2017 increased by $ 149.2 million compared with 2016. the increases primarily reflect the continuing increase in demand for exondys 51 in the u.s. cost of sales our cost of sales relates to sales of exondys 51 following its commercial launch in the u.s. prior to receiving regulatory approval for exondys 51 by the fda in september 2016 , we expensed such manufacturing and material costs as research and development expenses . for exondys 51 sold in 2017 and 2016 , the majority of related manufacturing costs incurred had previously been expensed as research and development expenses , as such costs were incurred prior to the fda approval of exondys 51. for exondys 51 sold in 2018 , only part of the related manufacturing costs incurred had previously been expensed as research and development expenses . the following table summarizes the components of our cost of sales for the periods indicated : replace_table_token_4_th * nm : not meaningful the cost of sales for 2018 increased $ 26.8 million compared with 2017. the increase was primarily driven by the following : $ 10.3 million increase in royalty payments to biomarin primarily as a result of the increasing demand for exondys 51 during 2018 ; $ 8.2 million and $ 3.4 million increases in inventory costs related to exondys 51 sold and overhead costs , respectively , reflect increasing demand for exondys 51 ; and $ 4.9 million increase in other inventory costs as a result of the write-off of certain batches of exondys 51 not meeting our quality specifications . -66- the cost of sales for 2017 increased $ 7.3 million compared wi th 2016 . the increase was primarily driven by the following : $ 4.7 million increase in royalty payments to biomarin as a result of the execution of the settlement and license agreements with biomarin in july 2017 as well as increasing demand for exondys 51 during 2017 ; and $ 1.4 million , $ 0.4 million and $ 0.8 million increases in overhead costs , inventory costs related to exondys 51 sold , and other inventory costs , respectively , reflect increasing demand for exondys 51. if product related costs had not previously been expensed as research and development expenses prior to receiving fda approval , the incremental inventory costs related to exondys 51 sold in 2018 , 2017 and 2016 would have been approximately $ 12.6 million , $ 8.6 million and $ 0.5 million , respectively . research and development expenses research and development expenses consist of costs associated with research activities as well as costs associated with our product development efforts , conducting pre-clinical trials , clinical trials and manufacturing activities . direct research and development expenses associated with our programs include clinical trial site costs , clinical manufacturing costs , costs incurred for consultants , up-front fees and milestones paid to third parties in connection with technologies that have not reached technological feasibility and do not have an alternative future use , and other external services , such as data management and statistical analysis support , and materials and supplies used in support of clinical programs . indirect costs of our clinical programs include salaries , stock-based compensation and allocation of our facility costs . research and development expenses represent a substantial percentage of our total operating expenses .
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f 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. this discussion contains forward-looking statements that involve risks and uncertainties . please review our legend titled “ forward-looking information ” at the beginning of this annual report on form 10-k which is incorporated herein by reference . 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 form 10-k. throughout this discussion , unless the context specifies or implies otherwise , the terms “ sarepta ” , “ we ” , “ us ” and “ our ” refer to sarepta therapeutics , inc. and its subsidiaries . overview we are a commercial-stage biopharmaceutical company focused on helping patients through the discovery and development of unique rna-targeted therapeutics , gene therapy and other genetic therapeutic modalities for the treatment of rare diseases . applying our proprietary , highly-differentiated and innovative technologies , and through collaborations with our strategic partners , we are developing potential therapeutic candidates for a broad range of diseases and disorders , including dmd , lgmds , cmt , mps iiia and pompe . our first commercial product in the u.s. , exondys 51 , was granted accelerated approval by the fda on september 19 , 2016. exondys 51 is indicated for the treatment of dmd in patients who have a confirmed mutation of the dmd gene that is amenable to exon 51 skipping . exondys 51 uses our pmo chemistry and exon-skipping technology to skip exon 51 of the dystrophin gene .
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this discussion and analysis contains forward-looking statements that involve risks and uncertainties . actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under part 1a.—risk factors and elsewhere in this annual report . see “ forward-looking statements. ” management overview we own and operate one of the world 's largest land-based drilling rig fleets and are a provider of offshore rigs in the united states and numerous international markets . our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies , consisting of equipment manufacturing , rig instrumentation and optimization software . we also specialize in wellbore placement solutions and are a leading provider of directional drilling and mwd systems and services . during 2016 , we entered into an agreement with saudi aramco , to form a new joint venture to own , manage and operate onshore drilling rigs in the kingdom of saudi arabia . the joint venture , which is equally owned by saudi aramco and nabors , commenced operations in the fourth quarter of 2017. the joint venture leverages our established business in saudi arabia to begin operations , with a focus on saudi arabia 's existing and future onshore oil and gas fields . on december 15 , 2017 , nabors completed the acquisition of tesco . tesco 's tubular services business will benefit our drilling solutions segment as we expand globally into key regions . the acquisition had the additional benefit of combining tesco 's rig equipment manufacturing , rental and aftermarket service business with our rig technologies segment , creating a leading rig equipment and drilling automation provider . under the terms of the acquisition , nabors acquired all common shares of tesco in an all-stock transaction , with tesco shareholders receiving 0.68 common shares of nabors for each tesco share owned , or approximately 32.1 million nabors common shares . outlook the demand for our services is a function of the level of spending by oil and gas companies for exploration , development and production activities . the primary driver of customer spending is their cash flow and earnings which are largely driven by oil and natural gas prices . the oil and natural gas markets have traditionally been volatile and tend to be highly sensitive to supply and demand cycles . the worldwide supply and demand for oil has improved over the past couple of years , while opec has successfully curtailed supply growth . the increase in the price of oil has spurred rig count growth in the u.s. and increased expression of interest for additional rigs internationally , which historically is less cyclical than the u.s. in the u.s. , our average rigs working during 2017 experienced a 63 % increase compared to 2016. internationally , our average rigs working during 2017 experienced a decrease of 9 % compared to 2016. due to the large number of idle rigs in the market at the beginning of the year , the increase in the demand for rigs resulted in the increase in average rigs working without considerable upward pressure on prices , or dayrates . however , as we entered new contracts or renewed existing ones throughout 2017 , most notably during the latter half of the year , we experienced favorable dayrate increases . this trend has continued into 2018. recent developments on december 22 , 2017 , the united states enacted the tax cuts and jobs act of 2017 ( “ tax reform act ” ) . among a number of significant changes to the current u.s. federal income tax rules , the tax reform act reduces the marginal u.s. corporate income tax rate from 35 percent to 21 percent , limits the current deduction for net interest expense , limits the use of net operating losses to offset future taxable income , and imposes a type of minimum tax designed to reduce the benefits derived from intercompany transactions and payments that result in base erosion . as a result of the tax reform act , we were required to revalue deferred tax assets and liabilities from 35 percent to 21 percent . this revaluation has resulted in recognition of an expense of approximately $ 138.6 million , which is included as 26 a component of income tax expense in continuing operations . we believe the other provisions of the tax reform act should not have a material impact on our consolidated financial statements . on december 22 , 2017 , staff accounting bulletin no . 118 ( `` sab 118 '' ) was issued to address the application of u.s. gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax reform act . in accordance with sab 118 , we have calculated our best estimate of the impact of the tax reform act in our year end income tax provision in accordance with our understanding of the tax reform act and guidance available as of the date of this filing . however , we are continuing to assess the impact that it will have on us and our preliminary assessment is subject to the finalization of management 's analysis related to certain matters . in january 2018 , nabors delaware completed an offering of $ 800 million aggregate principal amount of 5.75 % senior unsecured notes due february 1 , 2025 , which are fully and unconditionally guaranteed by us . the proceeds from this offering were used to repay indebtedness of nabors and its subsidiaries , including all of nabors delaware 's outstanding 6.15 % senior notes due february 2018. at december 31 , 2017 , we had $ 550.0 story_separator_special_tag u.s. operating results decreased in 2017 compared to 2016. we experienced a 63 % increase in the average number of rigs working during 2017 compared to 2016 , which was the primary contributor to the $ 251.2 million , or 45 % , 28 increase in operating revenues . however , dayrates were lower on average , mitigating the impact of increased activity on our average daily margins and adjusted operating income . additionally , positive results were partially offset by a decrease in operating revenue and adjusted operating income in our offshore operations . our results for 2016 included a favorable resolution of negotiations for one of our rigs in the gulf of mexico , which resulted in partial recovery of standby revenues for past quarters of approximately $ 20.9 million . the absence of this incremental revenue in combination with a decline in the number of rigs working in the gulf of mexico contributed to the overall decline in operating results . canada operating results increased in 2017 compared to 2016 due to an increase in drilling rig activity , as evidenced by the increase in average number of rigs working during 2017 compared to 2016. international operating results decreased in 2017 compared to 2016 primarily due to the loss of revenue and increased costs related to downtime incurred to perform structural work on many of our rigs in our largest international market during the first half of 2017. additionally , results were negatively impacted by a 9 % reduction in average number of rigs working during 2017 compared to 2016. partially offsetting these declines were increased drilling activity in colombia , kazakhstan and kuwait . drilling solutions operating results increased in 2017 compared to 2016 primarily due to a substantial increase in the performance tools revenue days . although prices on average have been lower in the u.s. , we have experienced increased pricing throughout 2017 , most notably during the fourth quarter as contracts are renegotiated . additionally , we have experienced growth across all product lines as a result of the significant increase in drilling activity in the u.s. during 2017 compared to 2016. rig technologies operating results increased in 2017 compared to 2016 due to the significant increase in drilling activity in the u.s. for the period and in the demand for our products and services . the revenue increase in the segment is driven by an increase in capital equipment deliveries from canrig . other financial information earnings ( losses ) from unconsolidated affiliates earnings ( losses ) from unconsolidated affiliates represents our share of the net income ( loss ) , as adjusted for our basis differences , of our equity method investments . we previously accounted for our investment in cjes under the equity method on a one-quarter lag through june 30 , 2016. on july 20 , 2016 , cjes voluntarily filed for protection under chapter 11 of the bankruptcy code . as a result , beginning with the third quarter of 2016 , we ceased accounting for our investment under the equity method of accounting . earnings ( losses ) from unconsolidated affiliates for the year ended december 31 , 2016 includes our share of the net income ( loss ) of cjes from october 1 , 2015 through march 31 , 2016 , resulting in a loss of $ 221.9 million , inclusive of charges of $ 138.5 million representing our share of cjes 's fixed asset impairment charges for the period . interest expense interest expense for 2017 was $ 222.9 million , representing an increase of $ 37.5 million , or 20 % , compared to 2016. the increase was primarily due to the additional interest expense related to the issuance of $ 600 million in aggregate principal amount of 5.5 % senior notes due 2023 during december 2016 as well as the issuance of $ 575 million in aggregate principal amount of 0.75 % senior exchangeable notes due 2024 during january 2017. this increase was partially offset by a reduction in interest expense due to the repayment of the term loan facility with proceeds of these offerings and with the repurchase or redemption of approximately $ 367.9 million in aggregate principal amount of 6.15 % senior notes due 2018 since december 31 , 2016 . 29 impairments and other charges impairments and other charges for 2017 was $ 44.5 million , which included $ 21.6 million in transaction related costs , $ 16.0 million loss recognized on the early extinguishment of debt resulting from debt repurchases and impairments of long-lived assets of $ 6.9 million comprised of underutilized rigs in our international drilling segment . other , net other , net for 2017 was $ 14.9 million of expense , which included net losses on sales and disposals of assets of approximately $ 19.0 million and foreign currency exchange losses of $ 1.6 million . other , net for 2016 was $ 44.2 million of expense , which was primarily comprised of net losses on sales and disposals of assets of approximately $ 14.8 million , legal and professional fees primarily of $ 12.9 million incurred in connection with preserving our interests in cjes , foreign currency exchange losses of $ 5.7 million and increases to litigation reserves of $ 3.9 million . income tax rate our worldwide effective tax rate during 2017 was 14.3 % compared to 15.6 % during 2016. the effective tax rate for 2017 includes a benefit for the release of reserves due to favorable audit outcomes during the year of $ 167.0 million . this was partially offset by a non-cash write-down of net deferred tax assets of $ 138.6 million attributable to the tax reform act passed during the fourth quarter of 2017. discontinued operations our discontinued operations during 2017 and 2016 consisted of our historical wholly owned oil and gas businesses .
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segment results of operations the following tables set forth certain information with respect to our reportable segments and rig activity : replace_table_token_9_th ( 1 ) represents a measure of the number of equivalent rigs operating during a given period . for example , one rig operating 182.5 days during a 365-day period represents 0.5 average rigs working . international average rigs working includes our equivalent percentage ownership of rigs owned by unconsolidated affiliates . ( 2 ) the number is so large that it is not meaningful . u.s. operating results decreased in 2016 compared to 2015 primarily due to the continued decline in drilling activity in the lower 48 states , reflected by a 48 % reduction in the average number of rigs working during 2016 compared to the prior period . the decline in drilling activity is the result of lower customer demand for drilling rigs due to the depressed oil price environment . this lower demand also resulted in lower dayrates for rigs , both of which contributed to the decrease in revenue as well as adjusted operating income ( loss ) . partially offsetting the decrease in drilling activity during 2016 was a favorable resolution of negotiations for one of our rigs in the gulf of mexico , which resulted in partial recovery of standby revenues for past quarters of approximately $ 20.9 million . while activity levels were lower on average throughout 2016 , we believe that activity levels bottomed in the earlier half of the year and we have seen a marked improvement over the second half of the year , reflected by an increase in our average rigs working of 50 % from the lowest point early in the second quarter to the end of the year . canada operating results decreased in 2016 compared to 2015 due to a decline in both drilling rig activity and dayrates .
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entertainment , consisting of the grand ole opry , the ryman auditorium , wsm-am , ole red , our equity investment in opry city stage , and our other nashville-based attractions . as a result of the reit conversion , we own our entertainment businesses in trss , which conduct their business consistent with past practice , except for the management agreements with marriott for the general jackson , wildhorse saloon and gaylord springs discussed above . corporate and other , consisting of our corporate expenses . 35 for the years ended december 31 , 2017 , 2016 and 2015 , our total revenues were divided among these business segments as follows : replace_table_token_5_th key performance indicators the operating results of our hospitality segment are highly dependent on the volume of customers at our hotels and the quality of the customer mix at our hotels , which are managed by marriott . these factors impact the price that marriott can charge for our hotel rooms and other amenities , such as food and beverage and meeting space . the following key performance indicators are commonly used in the hospitality industry : hotel occupancy ( a volume indicator ) ; average daily rate ( adr ) a price indicator calculated by dividing room revenue by the number of rooms sold ; revenue per available room ( revpar ) a summary measure of hotel results calculated by dividing room revenue by room nights available to guests for the period ; total revenue per available room ( total revpar ) a summary measure of hotel results calculated by dividing the sum of room , food and beverage and other ancillary service revenue by room nights available to guests for the period ; and net definite room nights booked a volume indicator which represents the total number of definite bookings for future room nights at our hotels confirmed during the applicable period , net of cancellations . hospitality segment revenue from our occupied hotel rooms is recognized as earned on the close of business each day and from concessions and food and beverage sales at the time of the sale . cancellation fees , as well as attrition fees , which are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for , are recognized as revenue in the period they are collected . almost all of our hospitality segment revenues are either cash-based or , for meeting and convention groups meeting credit criteria , billed and collected on a short-term receivables basis . the hospitality industry is capital intensive , and we rely on the ability of our hotels to generate operating cash flow to repay debt financing and fund maintenance capital expenditures . the results of operations of our hospitality segment are affected by the number and type of group meetings and conventions scheduled to attend our hotels in a given period . a variety of factors can affect the results of any interim period , including the nature and quality of the group meetings and conventions attending our hotels during such period , which meetings and conventions have often been contracted for several years in advance , the level of attrition our hotels experience , and the level of transient business at our hotels during such period . we rely on marriott , as the manager of our hotels , to manage these factors and to offset any identified shortfalls in occupancy . summary financial results the following table summarizes our financial results for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands , except percentages and per share data ) : replace_table_token_6_th 36 2017 results as compared to 2016 results the increase in our total revenues during 2017 , as compared to 2016 , is attributable to increases in our hospitality segment and entertainment segment revenues of $ 20.0 million and $ 15.5 million , respectively , as discussed more fully below . the increase in total operating expenses during 2017 , as compared to 2016 , is primarily the result of impairment charges in 2017 of $ 35.4 million , increases in hospitality segment , entertainment segment and corporate segment expenses of $ 11.0 million , $ 9.8 million and $ 4.4 million , respectively , as well as an increase in depreciation and amortization and preopening expenses of $ 2.1 million and $ 1.9 million , respectively , each as discussed more fully below . the above factors resulted in a $ 29.2 million decrease in operating income for 2017 , as compared to 2016. the $ 16.7 million increase in our net income in 2017 , as compared to 2016 , was due to the change in our operating income described above , and the following factors , each as described more fully below : a benefit for income taxes of $ 49.2 million in 2017 , as compared to a provision for income taxes of $ 3.4 million in 2016 , primarily related to the release of $ 53.4 million in valuation allowance in 2017. a $ 3.2 million decrease in other gains and losses , net , primarily due to 2017 including a loss on certain assets that were disposed of in our entertainment and corporate segments , as well as 2016 including a gain on the sale of an incidental piece of land associated with our hospitality segment . a $ 2.1 million increase in interest expense , due primarily to 2017 including the write-off of $ 0.9 million in deferred financing costs associated with the refinancing of our credit facility . story_separator_special_tag the following presents the financial results of our hospitality segment for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands , except percentages and performance metrics ) : replace_table_token_7_th ( 1 ) hospitality segment results and performance metrics include the results of our gaylord hotels and the inn at opryland for all periods presented . results of the ac hotel are included as of its opening date in april 2015 . ( 2 ) hospitality segment operating income does not include preopening costs of $ 0.3 million and $ 0.9 million in 2017 and 2015 , respectively . hospitality segment operating income also does not include impairment charges of $ 35.4 million and $ 19.2 million during 2017 and 2015 , respectively . see the discussion of these items set forth below . ( 3 ) we calculate hospitality segment revpar by dividing room revenue by room nights available to guests for the period . hospitality segment revpar is not comparable to similarly titled measures such as revenues . ( 4 ) we calculate hospitality segment total revpar by dividing the sum of room , food and beverage , and other ancillary services revenue ( which equals hospitality segment revenue ) by room nights available to guests for the period . hospitality segment total revpar is not comparable to similarly titled measures such as revenues . ( 5 ) same-store hospitality segment performance metrics do not include the ac hotel , which opened in april 2015. the increase in total hospitality segment revenue in 2017 , as compared to 2016 , is primarily due to increases in revenue of $ 12.5 million and $ 5.9 million at gaylord national and gaylord opryland , respectively , as discussed below . total hospitality revenues in 2017 include $ 10.9 million in attrition and cancellation fee collections , a $ 1.8 million decrease from 2016 . 39 the increase in total hospitality segment revenue in 2016 , as compared to the same period in 2015 , is primarily due to increases in revenue of $ 17.4 million , $ 12.6 million and $ 10.7 million at gaylord palms , gaylord opryland and gaylord texan , respectively , as discussed below . total hospitality revenues in 2016 include $ 12.7 million in attrition and cancellation fee collections , a $ 5.8 million increase from 2015. the percentage of group versus transient business based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_8_th the type of group based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_9_th the increase in rooms operating expenses in 2017 , as compared to 2016 , is primarily attributable to an increase at gaylord national , as described below . the decrease in rooms operating expenses in 2016 , as compared to 2015 , is primarily attributable to a decrease at gaylord national , as described below . the increase in food and beverage operating expenses in 2017 , as compared to 2016 , is primarily attributable to an increase at gaylord national , as described below . the increase in food and beverage operating expenses in 2016 , as compared to 2015 , is attributable to increases at gaylord palms and gaylord texan , as described below . other hotel expenses for the following years ended december 31 included ( in thousands ) : replace_table_token_10_th administrative employment costs include salaries and benefits for hotel administrative functions , including , among others , senior management , accounting , human resources , sales , conference services , engineering and security . administrative employment costs increased during 2017 , as compared to 2016 , primarily due to slight increases at gaylord opryland and gaylord national . utility costs decreased slightly during 2017 , as compared to 2016. property taxes increased during 2017 , as compared to 2016 , primarily due to increases at gaylord national and gaylord texan due to increased property valuations . other expenses , which include supplies , advertising , maintenance costs and consulting costs , increased during 2017 , as compared to 2016 , primarily as a result of various increases at gaylord opryland and gaylord national , partially offset by various decreases at gaylord palms and gaylord texan . administrative employment costs increased slightly during 2016 , as compared to 2015. utility costs decreased slightly during 2016 , as compared to 2015. property taxes increased slightly during 2016 , as compared to 2015. other expenses , increased during 2016 , as compared to 2015 , primarily as a result of various increases at each of our gaylord hotels properties . 40 as discussed above , each of our management agreements with marriott requires us to pay marriott a base management fee of approximately 2 % of gross revenues from the applicable property for each fiscal year or portion thereof . additionally , an incentive fee is based on the profitability of our gaylord hotels properties calculated on a pooled basis . we incurred $ 21.4 million , $ 20.8 million and $ 16.8 million in total base management fees to marriott related to our hospitality segment during 2017 , 2016 and 2015 , respectively . we also incurred $ 5.5 million , $ 4.4 million and $ 0.8 million related to incentive management fees for our hospitality segment during 2017 , 2016 and 2015 , respectively . management fees are presented throughout this annual report on form 10-k net of the amortization of the deferred management rights proceeds discussed in note 6 to the consolidated financial statements included herein . hospitality segment depreciation and amortization expense increased in 2017 , as compared to 2016 , primarily as a result of an increase at gaylord opryland , partially offset by a decrease at gaylord national , as described below . hospitality segment depreciation and amortization expense decreased in 2016 , as compared to
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results affecting net income general the following table summarizes the other factors which affected our net income for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands , except percentages ) : replace_table_token_17_th interest expense interest expense increased $ 2.1 million in 2017 , as compared to 2016 , due primarily to the write-off of $ 0.9 million in deferred financing costs associated with the refinancing of our credit facility , as well as increased interest expense associated with our new term loan a and increased borrowings under our refinanced term loan b. these increases were partially offset by increased capitalized interest in 2017. our weighted average interest rate on our borrowings , excluding the write-off of deferred financing costs during the period , was 4.5 % in 2017 as compared to 4.3 % in 2016. cash interest expense increased $ 5.7 million to $ 66.4 million in 2017 , as compared to 2016 , and noncash interest expense , which includes amortization of deferred financing costs and debt discounts , the write-off of deferred financing costs , and capitalized interest , decreased $ 3.5 million to $ ( 0.3 ) million in 2017 , as compared to 2016. interest expense remained stable at $ 63.9 million in 2016 and 2015 , as increased interest expense associated with our $ 400 million 5 % senior notes , which we issued in april 2015 , was offset by lower interest expense associated with our credit facility due to lower interest rate terms associated with the refinancing of our credit facility , as well as 2015 including the write-off of $ 1.9 million in 46 deferred financing costs related to the refinancing .
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when used in this form 10-k , the words `` estimate , '' `` anticipate , '' `` expect , '' `` believe , '' `` should '' and similar expressions are intended to be forward-looking statements . although the company believes that its plans , intentions and expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such plans , intentions or expectations will be achieved . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements are set forth under the heading `` risk factors '' in item 1a and elsewhere in this form 10-k. capitalized or defined terms included in this item 7 have the meanings set forth in item 1 of this form 10-k. business overview the company is engaged in the specialty managed healthcare business . through 2005 , the company predominantly operated in the managed behavioral healthcare business . as a result of certain acquisitions , the company expanded into radiology benefits management and specialty pharmaceutical management during 2006 , and into medicaid administration during 2009. the company provides services to health plans , insurance companies , employers , labor unions and various governmental agencies . the company 's business is divided into the following six segments , based on the services it provides and or the customers that it serves , as described below . managed behavioral healthcare two of the company 's segments are in the managed behavioral healthcare business . this line of business generally reflects the company 's coordination and management of the delivery of behavioral healthcare treatment services that are provided through its contracted network of third-party treatment providers , which includes psychiatrists , psychologists , other behavioral health professionals , psychiatric hospitals , general medical facilities with psychiatric beds , residential treatment centers and other treatment facilities . the treatment services provided through the company 's provider network include outpatient programs ( such as counseling or therapy ) , intermediate care programs ( such as intensive outpatient programs and partial hospitalization services ) , inpatient treatment and crisis intervention services . the company generally does not directly provide or own any provider of treatment services . the company provides its management services primarily through : ( i ) risk-based products , where the company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed per member per month fee , ( ii ) administrative services only ( `` aso '' ) products , where the company provides services such as utilization review , claims administration and or provider network management , but does not assume responsibility for the cost of the treatment services , and ( iii ) employee assistance programs ( `` eaps '' ) where the company provides short-term outpatient behavioral counseling services . the managed behavioral healthcare business is managed based on the services provided and or the customers served , through the following two segments : commercial . the managed behavioral healthcare commercial segment ( `` commercial '' ) generally reflects managed behavioral healthcare services and eap services provided under contracts with health plans and insurance companies for some or all of their commercial , medicaid and medicare members , as well as with employers , including corporations , governmental agencies , and labor unions . commercial 's contracts encompass risk-based , aso and eap arrangements . as of december 31 , 2011 , commercial 's covered lives were 3.7 million , 12.9 million and 12.6 million for risk-based , aso and eap products , respectively . for the year ended december 31 , 2011 , commercial 's revenue was $ 370.4 million , $ 97.8 million and $ 93.6 million for risk-based , aso and eap products , respectively . 36 public sector . the managed behavioral healthcare public sector segment ( `` public sector '' ) generally reflects services provided to recipients under medicaid and other state sponsored programs under contracts with state and local governmental agencies . public sector contracts encompass either risk-based or aso arrangements . as of december 31 , 2011 , public sector 's covered lives were 1.6 million and 0.3 million for risk-based and aso products , respectively . for the year ended december 31 , 2011 , public sector 's revenue was $ 1.5 billion and $ 5.9 million for risk-based and aso products , respectively . radiology benefits management the radiology benefits management segment ( `` radiology benefits management '' ) generally reflects the management of the delivery of diagnostic imaging and other therapeutic services to ensure that such services are clinically appropriate and cost effective . the company 's radiology benefits management services currently are provided under contracts with health plans and insurance companies for some or all of their commercial , medicaid and medicare members . the company also contracts with state and local governmental agencies for the provision of such services to medicaid recipients . the company offers its radiology benefits management services through risk-based contracts , where the company assumes all or a substantial portion of the responsibility for the cost of providing diagnostic imaging services , and through aso contracts , where the company provides services such as utilization review and claims administration , but does not assume responsibility for the cost of the imaging services . as of december 31 , 2011 , covered lives for radiology benefits management were 3.6 million and 12.0 million for risk-based and aso products , respectively . for the year ended december 31 , 2011 , revenue for radiology benefits management was $ 296.0 million and $ 48.3 million for risk-based and aso products , respectively . drug benefits management two of the company 's segments are in the drug benefits management business . story_separator_special_tag dispensing revenue the company recognizes dispensing revenue , which includes the co-payments received from members of the health plans the company serves , when the specialty pharmaceutical drugs are shipped . at the time of shipment , the earnings process is complete ; the obligation of the company 's customer to pay for the specialty pharmaceutical drugs is fixed , and , due to the nature of the product , the member may neither return the specialty pharmaceutical drugs nor receive a refund . revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans were $ 221.6 million , $ 234.8 million and $ 247.4 million for the years ended december 31 , 2009 , 2010 and 2011 , respectively . performance-based revenue the company has the ability to earn performance-based revenue under certain risk and non-risk contracts . performance-based revenue generally is based on either the ability of the company to manage care for its clients below specified targets , or on other operating metrics . for each such contract , the company estimates and records performance-based revenue after considering the relevant contractual terms and the data available for the performance-based revenue calculation . pro-rata performance-based revenue is recognized on an interim basis pursuant to the rights and obligations of each party upon termination of the contracts . performance-based revenues were $ 7.6 million , $ 13.1 million and $ 26.5 million for the years ended december 31 , 2009 , 2010 and 2011 , respectively . rebate revenue the company administers a rebate program for certain clients through which the company coordinates the achievement , calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients . each period , the company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the company 's clients , as well as historical and or anticipated sharing percentages . the company earns fees based upon the volume of rebates generated for its clients . the company does not record as rebate revenue any rebates that are passed through to its clients . total rebate revenues for the years ended december 31 , 2009 , 2010 and 2011 were $ 29.4 million , $ 25.5 million , and $ 32.8 million , respectively . cost of care , medical claims payable and other medical liabilities cost of care is recognized in the period in which members receive managed healthcare services . in addition to actual benefits paid , cost of care in a period also includes the impact of accruals for estimates of medical claims payable . medical claims payable represents the liability for healthcare claims reported but not yet paid and claims incurred but not yet reported ( `` ibnr '' ) related to the company 's managed healthcare businesses . such liabilities are determined by employing actuarial methods that are commonly used by health insurance actuaries and that meet actuarial standards of practice . the ibnr portion of medical claims payable is estimated based on past claims payment experience for member groups , enrollment data , utilization statistics , authorized healthcare services and other factors . this data is incorporated into contract-specific actuarial reserve models and is further 39 analyzed to create `` completion factors '' that represent the average percentage of total incurred claims that have been paid through a given date after being incurred . factors that affect estimated completion factors include benefit changes , enrollment changes , shifts in product mix , seasonality influences , provider reimbursement changes , changes in claims inventory levels , the speed of claims processing , and changes in paid claim levels . completion factors are applied to claims paid through the financial statement date to estimate the ultimate claim expense incurred for the current period . actuarial estimates of claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims . for the most recent incurred months ( generally the most recent two months ) , the percentage of claims paid for claims incurred in those months is generally low . this makes the completion factor methodology less reliable for such months . therefore , incurred claims for any month with a completion factor that is less than 70 percent are generally not projected from historical completion and payment patterns ; rather they are projected by estimating claims expense based on recent monthly estimated cost incurred per member per month times membership , taking into account seasonality influences , benefit changes and healthcare trend levels , collectively considered to be `` trend factors . '' medical claims payable balances are continually monitored and reviewed . if it is determined that the company 's assumptions in estimating such liabilities are significantly different than actual results , the company 's results of operations and financial position could be impacted in future periods . adjustments of prior period estimates may result in additional cost of care or a reduction of cost of care in the period an adjustment is made . further , due to the considerable variability of healthcare costs , adjustments to claim liabilities occur each period and are sometimes significant as compared to the net income recorded in that period . prior period development is recognized immediately upon the actuary 's judgment that a portion of the prior period liability is no longer needed or that additional liability should have been accrued . the following table presents the components of the change in medical claims payable for the years ended december 31 , 2009 , 2010 and 2011 ( in thousands ) : replace_table_token_7_th ( 1 ) for any given period , a portion of unpaid medical claims payable could be covered by reinvestment liability ( discussed below ) and may not impact the company 's results of operations for such periods . ( 2 ) medical claims payable is offset by customer withholds from capitation payments in situations in which the customer has the contractual requirement to pay providers for care incurred .
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results of operations the company evaluates performance of its segments based on profit or loss from continuing operations before stock compensation expense , depreciation and amortization , interest expense , interest income , gain on sale of assets , special charges or benefits , and income taxes ( `` segment profit '' ) . management uses segment profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources , risk assessment and employee compensation , among other matters . effective september 1 , 2010 , public sector has subcontracted with medicaid administration to provide pharmacy benefits management services on a risk basis for one of public sector 's customers . as such , revenue and cost of care related to this intersegment arrangement are eliminated . the company 's segments are defined above . 45 the table below summarizes , for the periods indicated , operating results by business segment ( in thousands ) : replace_table_token_10_th replace_table_token_11_th replace_table_token_12_th ( 1 ) stock compensation expense is included in direct service costs and other operating expenses , however this amount is excluded from the computation of segment profit since it is managed on a consolidated basis .
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in 2010 , we began licensing to original equipment manufacturers ( “ oems ” ) and tier 1 suppliers who embed our technology into products they develop , manufacture and sell . since 2010 , our licensing customers have sold approximately 73 million devices that use our technology . in october 2017 , we augmented our licensing business and started to manufacture and ship sensor modules that incorporate our technology . we sell these embedded sensors to oems , odm 's and tier 1 suppliers for use in their products . as of december 31 , 2019 , we had entered into forty-two technology license agreements with global oems and tier 1 suppliers . this compares with forty-one technology license agreements as of december 31 , 2018. during the year ended december 31 , 2019 , we had sixteen customers using our touch technology in products that were being shipped to their customers . the majority of our license fees earned in 2019 and 2018 were from customer shipments of printers . as of december 31 , 2019 , our license customers in the automotive and printer markets have not released all the products that are currently in development and that are planned to go into production and market release over the next 12 to 24 months . we now offer our technology to our current and new customers under either a license agreement or a supply agreement , where we sell them a manufactured embedded sensor module that has been customized for use in their products . as of december 31 , 2019 , we entered into three supply agreements to purchase our embedded sensor modules with global oems , odms and tier 1 suppliers . in addition to direct shipments to our customers , we distribute our embedded sensor modules through digikey . as of december 31 , 2019 , digikey sold and shipped 740 sensor module development kits . we anticipate our revenue will be generated by a combination of royalties from our existing and new license customers plus sales of our sensor modules . we intend to continue expanding our sensor module product offerings in 2020 , including new sensors for delivery to the automotive and other key markets in 2090. we expect that over time the sales of sensor modules may constitute the majority of our revenue . in the fourth quarter of 2016 , we started selling airbar , a neonode branded consumer product incorporating one of our sensor modules , through distributors and directly to consumers . we have no current plans to develop new neonode branded products for the consumer markets . 15 critical accounting policies and estimates the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and include the accounts of neonode inc. and its wholly owned subsidiaries , as well as pronode technologies ab ( sweden ) , a 51 % majority owned subsidiary of neonode technologies ab . the non-controlling interests are reported below net loss including non-controlling interests under the heading “ net loss attributable to non-controlling interests ” in the consolidated statements of operations , below comprehensive loss under the heading “ comprehensive income loss attributable to non-controlling interests ” in the consolidated statements of comprehensive loss and shown as a separate component of stockholders ' equity in the consolidated balance sheets . see “ non-controlling interests ” for further discussion . all inter-company accounts and transactions have been eliminated in consolidation . the consolidated balance sheets at december 31 , 2019 and 2018 and the consolidated statements of operations , comprehensive loss and cash flows for the years ending 2019 and 2018 include our accounts and those of our wholly owned subsidiaries as well as pronode technologies ab ( sweden ) . the accounting policies affecting our financial condition and results of operations are more fully described in note 2 to our consolidated financial statements . certain of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates , which inherently contain some degree of uncertainty . management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . the historical experience and assumptions form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenue and expenses that may not be readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following are critical accounting policies and related judgments and estimates used in the preparation of our consolidated financial statements . estimates the preparation of financial statements in conformity with u.s. gaap requires making estimates and judgments that affect , at the date of the financial statements , the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . actual results could differ from these estimates and judgments . significant estimates and judgments include , but are not limited to : for revenue recognition , determining the nature and timing of satisfaction of performance obligations , the standalone selling price of performance obligations , and transaction prices and assessing transfer of control ; measuring variable consideration and other obligations such as product returns and refunds , and product warranties ; provisions for uncollectible receivables ; determining the net realizable value of inventory ; recoverability of capitalized project costs and long-lived asset ; for leases , determining whether a contract contains a lease , allocating consideration between lease and non-lease components , determining incremental borrowing rates , and identifying reassessment events , such as modifications ; the valuation allowance related to our deferred tax assets ; and the fair value of options issued for stock-based compensation . story_separator_special_tag if actual credits received by distributors under these programs were to deviate significantly from our estimates , which are based on historical experience , our revenue could be adversely affected . under u.s. gaap , companies may make reasonable aggregations and approximations of returns data to accurately estimate returns . our airbar returns and warranty experience to date has enabled us to make reasonable returns estimates , which are supported by the fact that our product sales involve homogenous transactions . the reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was insignificant as of december 31 , 2019 and 2018. if the actual future returns were to deviate from the historical data on which the reserve had been established , our revenue could be adversely affected . accounts receivable and allowance for doubtful accounts our accounts receivable is stated at net realizable value . our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments . 18 inventory inventory is stated at the lower of cost or net realizable value , using the first-in , first-out method ( “ fifo ” ) valuation method . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period . in 2018 , after a comprehensive evaluation of our airbar business we recorded a $ 0.4 million write-down for obsolete or slow moving airbar component and finished goods inventory which is included in our cost of goods sold . in 2019 , we wrote down advance payments for a module component and an additional reservation of slow moving airbar components bought from a producing partner which together amounted to $ 0.3 million , which is included in our cost of goods . as of december 31 , 2019 , the company 's inventory consists primarily of components that will be used in the manufacturing of our sensor modules . we segregate inventory for reporting purposes by raw materials , work-in-process , and finished goods . investment in joint venture we invested $ 3,000 , a 50 % interest in neoeye ab . we account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence , but not control , over the investee . we are not required to guarantee any obligations of the jv and there have been no operations of neoeye through december 31 , 2019. projects in process projects in process consist of costs incurred toward the completion of various projects for certain customers . these costs are primarily comprised of direct engineering labor costs and project-specific equipment costs . these costs are capitalized on our balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy . costs capitalized in projects in process were $ 8,000 and $ 0 as of december 31 , 2019 and 2018 , respectively . 19 property and equipment property and equipment are stated at cost , net of accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows : estimated useful lives computer equipment 3 years furniture and fixtures 5 years equipment 7 years equipment purchased under a finance lease is depreciated over the term of the lease , if that lease term is shorter than the estimated useful life . upon retirement or sale of property and equipment , cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated statement of operations . maintenance and repairs are charged to expense as incurred . long-lived assets we assess any impairment by estimating the future cash flows from the associated asset in accordance with relevant accounting guidance . if the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated , we may incur charges for impairment of these assets . as of december 31 , 2019 , we believe there was no impairment of our long-lived assets . there can be no assurance , however , that market conditions will not change or sufficient demand for our products and services will continue , which could result in impairment of long-lived assets in the future . research and development research and development ( “ r & d ” ) costs are expensed as incurred . r & d costs consist mainly of personnel related costs in addition to some external consultancy costs such as testing , certifying and measurements . stock-based compensation expense we measure the cost of employee services received in exchange for an award of equity instruments , including share options , based on the estimated fair value of the award on the grant date , and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award , usually the vesting period , net of estimated forfeitures . we account for equity instruments issued to non-employees at their estimated fair value . when determining stock-based compensation expense involving options and warrants , we determine the estimated fair value of options and warrants using the black-scholes option pricing model . non-controlling interests we recognize any non-controlling interest , also known as a minority interest , as a separate line item in equity in the consolidated financial statements . a non-controlling interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to us . generally , any interest that holds less than 50 % of the outstanding voting shares is deemed to be a non-controlling interest ; however , there are other factors , such as decision-making rights , that are considered as well .
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results of operations we develop user interface and optical interactive touch and gesture solutions . since 2010 , under our licensing agreements , oems and tier 1 suppliers have sold approximately 73 million devices that use our technology . in december 2017 , we augmented our licensing business and started to manufacture and sell sensor modules that incorporate our technology . a summary of our financial results for the years ended december 31 , is as follows ( in thousands , except percentages ) : replace_table_token_8_th 24 revenues all of our sales for the years ended december 31 , 2019 and 2018 were to customers located in the united states , europe and asia . the following table presents revenues by market and nre for the years ended december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_9_th replace_table_token_10_th we have historically licensed our technology to oems , odm 's and tier 1 suppliers who embed it in their products based upon our custom designs and we charge these customers a non-recurring fee to offset our engineering costs . we sell a neonode branded consumer product , airbar and in october 2017 we added sales of embedded sensor modules to our business model . our sensor modules provide a hardware-based technology solution , which allows our customers a way to use our zforce air technology while forgoing the complex design and manufacturing phase associated with our licensing model . we now earn revenue from a combination of licensing plus selling our embedded sensor modules and airbar . during 2019 and 2018 we continued to focus our efforts on maintaining our current licensing customers and achieve design wins for new products both with current and future customers . we made investments enhancing the design of selected embedded sensor modules and setting-up partner networks for sales and distribution .
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see note 13 . earnings per share - basic income per share is computed by dividing income by the weighted-average number of shares outstanding during the year . diluted income per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the year . f-12 the following table sets forth the computation of basic and diluted earnings per share ( in thousands , except per share data ) : replace_table_token_18_th pervasiveness of estimates - the preparation of financial statements in conformity with accounting story_separator_special_tag general pawn operations accounted for approximately 91 % of the company 's revenue from continuing operations during fiscal 2012 . the company 's pawn revenue is derived primarily from merchandise sales of forfeited pawn collateral and used goods purchased directly from the general public . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn loan for all pawns that the company deems collection to be probable based on historical pawn redemption statistics . if a pawn loan is not repaid prior to the expiration of the automatic extension period , if applicable , the property is forfeited to the company and transferred to inventory at a value equal to the principal amount of the loan , exclusive of accrued interest . the company 's consumer loan and credit services revenue , which was approximately 9 % of consolidated revenue from continuing operations for fiscal 2012 , was derived primarily from credit services fees . the company recognizes service fee income on consumer loans and credit services transactions on a constant-yield basis over the life of the loan or credit extension , which is generally 180 days or less . the net defaults on consumer loans and credit services transactions and changes in the valuation reserve are charged to the consumer loan credit loss provision . the credit loss provision associated with the cso program and consumer loans are based primarily upon historical credit loss experience , with consideration given to recent credit loss trends , delinquency rates , economic conditions and management 's expectations of future credit losses . see additional discussion of the credit loss provision and related allowances and accruals in the section titled “ results of continuing operations. ” stores included in the same-store revenue calculations are those stores that were opened prior to the beginning of the prior-year comparative fiscal period and remained open through the end of the measurement period . also included are stores that were relocated during the year within a specified distance serving the same market , where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store . unless otherwise stated , non-retail sales of scrap jewelry are included in same-store revenue calculations . while the company has had significant increases in revenue due to new store openings and acquisitions , the company has also incurred increases in operating expenses attributable to the additional locations . operating expenses consist of all items directly related to the operation of the company 's stores , including salaries and related payroll costs , rent , utilities , equipment , advertising , property taxes , licenses , supplies and security . administrative expenses consist of items relating to the operation of the corporate offices , including the compensation and benefit costs of corporate management , area supervisors and other operations management personnel , collection operations and personnel , accounting and administrative costs , information technology costs , liability and casualty insurance , outside legal and accounting fees and stockholder-related expenses . 26 the following table details selected operating metrics regarding the company 's loan products , inventories , and store locations ( 1 ) : replace_table_token_6_th ( 1 ) inventory and loan amounts for stores in mexico are based on translating the mexican peso to the u.s. dollar at the exchange rate as of each year end . the exchange rates used for december 31 , 2012 , 2011 , and 2010 were 13.0 to 1 , 14.0 to 1 , and 12.4 to 1 , respectively . ( 2 ) amounts shown represent the gross amount owed by customers before allowances . active cso extensions of credit outstanding from the independent third-party lender are not included on the company 's balance sheet . ( 3 ) amounts shown represent the gross amount owed by customers before allowances . excludes title loan amounts . 27 replace_table_token_7_th discontinued operations in september 2012 , the company closed seven of its consumer loan stores located in the texas cities of austin and dallas due in part to city ordinances enacted during 2012 in these cities , which significantly restricted the company 's ability to provide credit services products . the company recorded a loss on disposal of $ 628,000 , net of tax , or $ 0.03 per share , from these stores . the after-tax operating results from operations for these texas stores were immaterial in 2012 , 2011 and 2010 . the company sold all ten of its illinois consumer loan stores in march 2011. the company recorded a gain of $ 5,979,000 , net of tax , or $ 0.19 per share , during fiscal 2011 from the sale of these stores . the after-tax earnings from operations for the illinois stores were an additional $ 514,000 , or $ 0.02 per share in fiscal 2011. comparable after-tax earnings were $ 2,881,000 , or $ 0.10 per share in fiscal 2010. in september 2010 , the company discontinued its internet-based credit services product offered in maryland due to a change in state law which significantly restricts the offering of such products . story_separator_special_tag the company considers consumer loans to be in default if they are not repaid on the due date and writes off the principal amount and service fees receivable as of the default date , leaving only active advances in the reported balance . net defaults and changes in the consumer loan allowance are charged to the consumer loan loss provision . 29 inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the public . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or market ; accordingly , inventory valuation allowances are established , if necessary , when inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . goodwill - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. pawn operations , u.s. consumer loan operations and mexico operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . long-lived assets - property and equipment and non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the asset may not be recoverable . an impairment loss is recognized if the sum of the expected future cash flows ( undiscounted and before interest ) from the use of the asset is less than the net book value of the asset . generally , the amount of the impairment loss is measured as the difference between the net book value of the asset and the estimated fair value of the related asset . the company has not recorded any impairment loss for the fiscal years ended december 31 , 2012 , 2011 and 2010 . stock-based compensation - all share-based payments to employees , including grants of employee stock options , are recognized in the financial statements based on the grant-date fair value . the company recognizes compensation cost net of estimated forfeitures and recognizes the compensation cost for only those awards expected to vest on a straight-line basis over the requisite service period of the award , which is generally the vesting term . guarantees - the company has determined that the letters of credit issued by the company to the independent lender as part of the cso program constitute a guarantee for which the company is required to recognize a liability for the fair value of the obligation undertaken by issuing the letters of credit . each letter of credit is issued at the time that the company 's credit services customer enters into an extension of credit agreement with the independent lender . the independent lender may present the letter of credit to the company for payment if the customer fails to repay the full amount of the loan and accrued interest after the due date of the extension of credit . each letter of credit expires approximately 30 days after the due date of the extension of credit . the company is entitled to seek recovery directly from its customers for amounts it pays the independent lender in performing under the letters of credit . the company records the estimated fair value of the liability under the letters of credit as a component of accrued liabilities . the independent lender is considered a variable interest entity of the company . the net loans outstanding represent less than 50 % of the independent lender 's total assets . in addition , the company does not have any ownership interest in the independent lender , does not exercise control over it and is not the primary beneficiary and , therefore , does not consolidate the independent lender 's results with its results . foreign currency transactions - the company has significant operations in mexico , where the functional currency for the company 's mexican subsidiaries is the mexican peso . the assets and liabilities of these subsidiaries are translated into u.s. dollars at the exchange rate in effect at each balance sheet date , and the resulting adjustments are accumulated in other comprehensive income ( loss ) as a separate component of stockholders ' equity . revenue and expenses are translated at the monthly average exchange rates occurring during each month . prior to translation , any u.s. dollar-denominated transactions of the mexican-based subsidiaries are remeasured into mexican pesos using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities . gains and losses from remeasurement of dollar-denominated monetary assets and liabilities in mexico are included in store operating expenses . the company 's management reviews and analyzes certain operating results , in mexico , on a constant currency basis because the company believes this better represents the company 's underlying business trends .
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results of continuing operations twelve months ended december 31 , 2012 , compared to twelve months ended december 31 , 2011 . the following table details the components of revenue for the fiscal year ended december 31 , 2012 , as compared to the fiscal year ended december 31 , 2011 ( in thousands ) . constant currency results exclude the effects of foreign currency translation and are calculated by translating current-year results at prior-year average exchange rates . the average value of the mexican peso to the u.s. dollar decreased from 12.4 to 1 in fiscal 2011 to 13.2 to 1 in fiscal 2012 . the end-of-period value of the mexican peso to the u.s. dollar increased from 14.0 to 1 at december 31 , 2011 , to 13.0 to 1 at december 31 , 2012 . as a result of these currency exchange movements , revenue from mexican operations translated into fewer u.s. dollars relative to the prior year , while net assets from mexican operations as of year end translated into more u.s. dollars relative to the prior year end . while the weakening of the mexican peso negatively affected the translated dollar-value of revenue , the cost of sales and operating expenses were reduced as well . the scrap jewelry generated in mexico is exported and sold in u.s. dollars , which does not contribute to the company 's peso-denominated earnings stream . replace_table_token_8_th domestic revenue accounted for approximately 46 % of the total revenue for fiscal 2012 , while international revenue ( from mexico ) accounted for 54 % of the total . 31 the following table details customer loans and inventories held by the company and active cso credit extensions from an independent third-party lender as of december 31 , 2012 , as compared to december 31 , 2011 ( in thousands ) . constant currency results exclude the effects of foreign currency translation and are calculated by translating current-year balances at the prior-year end-of-period exchange rate .
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in august 2018 , the fasb issued new accounting guidance that modifies the disclosure requirements in topic 820 , fair value measurement , by removing certain disclosure requirements related to the fair value hierarchy , modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements , such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements . this new accounting guidance also modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans . the company adopted this new accounting guidance on january 1 , 2020. the adoption of this new accounting guidance did not have a material effect on the company story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes 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 , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should read the “ risk factors ” section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview iqvia is a leading global provider of advanced analytics , technology solutions , and clinical research services to the life sciences industry . iqvia creates intelligent connections across all aspects of healthcare through its analytics , transformative technology , big data resources and extensive domain expertise . iqvia connected intelligence delivers powerful insights with speed and agility — enabling customers to accelerate the clinical development and commercialization of innovative medical treatments that improve healthcare outcomes for patients . with approximately 70,000 employees , we conduct operations in more than 100 countries . we are a global leader in protecting individual patient privacy . we use a wide variety of privacy-enhancing technologies and safeguards to protect individual privacy while generating and analyzing information on a scale that helps healthcare stakeholders identify disease patterns and correlate with the precise treatment path and therapy needed for better outcomes . our insights and execution capabilities help biotech , medical device and pharmaceutical companies , medical researchers , government agencies , payers and other healthcare stakeholders tap into a deeper understanding of diseases , human behaviors and scientific advances , in an effort to advance their path toward cures . we are managed through three reportable segments , technology & analytics solutions , research & development solutions and contract sales & medical solutions . technology & analytics solutions provides critical information , technology solutions and real world insights and services to our life science clients . research & development solutions , which primarily serves 45 biopharmaceutical clients , is engaged in research and development and provides clinical research and clinical trial services . contract sales & medical solutions provides contract sales to both biopharmaceutical clients and the broader healthcare market . for a description of our service offerings within our segments , refer to part i , item 1 , “ business ” . industry outlook for information about the industry outlook and markets that we operate in , refer to part i , item i , “ our market outlook ” . overview of the impact of covid-19 as a result of the global spread of covid-19 beginning in early march , we began to experience general business disruptions that impeded normal business activity including our ability to perform on-site monitoring and deliver offerings that rely on face-to-face interaction or in-person gatherings . these disruptions have impacted all three of our reportable segments . the research & development solutions business responded quickly to support our clients with the development of vaccines and therapies for covid-19 . we have been involved in clinical trials and studies for the virus , as well as patient recruitment for covid-19 trials . the pandemic has accelerated the need for remote and risk-based monitoring in clinical research , which in turn has accelerated the adoption of our virtual trial technology . this technology was deployed to speed vaccine development and helped secure full-service covid trials and new studies with top pharmaceutical clients . we continue to see gradual improvement in the accessibility of clinical research sites in the research & development solutions business . we are seeing a return to on-site monitoring visits which exceeded the number of remote visits during the second half of the year . in instances where sites remain physically inaccessible for clinical monitoring , remote monitoring and virtual solutions continue to be effective alternatives . site start-up activities continued to increase along with patient recruitment trends . in our technology & analytics solutions segment , our real-world business has been relatively well insulated from the impacts of the virus and it had strong growth for the year . the real-world business is advanced in the use of secondary data , remote monitoring and virtual research approaches , which helped us pivot quickly to working in the new remote world at the onset of the pandemic . however , the portion of our real-world business that requires site monitoring activity also experienced limitations on site accessibility , which led to a reduction in the associated revenue . within our technology & analytics solutions segment , we have had very little interruption in data supply and demand . our analytics and consulting businesses have performed well despite business development being hampered by lack of in-person interactions . story_separator_special_tag income tax expense ( benefit ) replace_table_token_14_th in 2020 , the u.s. treasury department issued final regulations regarding foreign derived intangible income ( “ fdii ” ) and global intangible low-taxed income ( “ gilti ” ) . we have determined we will elect the gilti high tax exception as allowed by the final regulations and we will amend our 2018 and 2019 us federal consolidated income tax returns resulting in a favorable impact of $ 26 million , which we recorded in 2020 . 49 in 2019 the u.s. treasury department issued final regulations on the transition tax and proposed regulations on foreign derived intangible income ( “ fdii '' ) which we analyzed . while the final regulations related to the transition tax did not have a material impact on us , the proposed guidance for fdii had an unfavorable impact . although the proposed guidance for fdii is not authoritative and subject to change in the regulatory review process , we reversed the tax benefit recorded in 2018 by recording a tax expense of $ 25 million for this impact . equity in earnings ( losses ) of unconsolidated affiliates replace_table_token_15_th equity in earnings ( losses ) of unconsolidated affiliates increased in 2020 compared to 2019 primarily due to higher earnings from our investment in novaquest pharma opportunities fund iii . net income attributable to non-controlling interests replace_table_token_16_th net income attributable to non-controlling interests primarily consists of quest 's interest in q 2 solutions . segment results of operations revenues and profit by segment are as follows : replace_table_token_17_th certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses . these costs primarily consist of stock-based compensation and expenses to integration activities and acquisitions . we also do not allocate depreciation and amortization or impairment charges to our segments . prior period segment results have been recast to conform to changes to management reporting in 2019. the recast impacts the allocation of selling , general and administrative expenses for 2018 . 50 technology & analytics solutions replace_table_token_18_th revenues 2020 compared to 2019 technology & analytics solutions ' revenues were $ 4,858 million in 2020 , an increase of $ 372 million , or 8.3 % , over 2019. this increase was comprised of constant currency revenue growth of approximately $ 365 million , or 8.1 % , reflecting revenue growth in the europe and africa region as well as the americas region . the revenue growth in these regions was driven by higher real-world and analytical services . see part ii—item 7— “ overview of the impact of covid-19 '' included elsewhere in this annual report on form 10-k for a discussion of the impact from covid-19 on technology & analytics solutions business activity . costs of revenue , exclusive of depreciation and amortization 2020 compared to 2019 technology & analytics solutions ' costs of revenue , exclusive of depreciation and amortization , were $ 2,900 million in 2020 , an increase of $ 237 million over 2019. this increase was comprised of constant currency increase of approximately $ 232 million , or 8.7 % , reflecting an increase in compensation and related expenses to support revenue growth . selling , general and administrative expenses 2 020 compared to 2019 technology & analytics solutions ' selling , general and administrative expenses increased $ 20 million in 2020 as compared to 2019. this increase was comprised of a constant currency increase of approximately $ 23 million , or 3.2 % , reflecting an increase in compensation and related expenses . research & development solutions replace_table_token_19_th backlog research & development solutions contracted backlog increased from $ 19.0 billion at december 31 , 2019 to $ 22.6 billion at december 31 , 2020 and we expect approximately $ 5.9 billion of this backlog to convert to revenue in the next 12 months . contracted backlog was $ 17.1 billion at december 31 , 2018 . 51 backlog represents , at a particular point in time , future revenues from work not yet completed or performed under signed contracts . once work begins on a project , revenues are recognized over the duration of the project . we believe that backlog is an indicator of future revenues but the timing of revenue will be affected by a number of factors , including the variable size and duration of projects , many of which are performed over several years , cancellations , and changes to the scope of work during the course of projects . projects that have been delayed remain in backlog , but the timing of the revenue generated may differ from the timing originally expected . additionally , projects may be terminated or delayed by the customer or delayed by regulatory authorities . in the event that a client cancels a contract , we typically would be entitled to receive payment for all services performed up to the cancellation date and subsequent client-authorized services related to winding down the canceled project . for more details regarding risks related to our backlog , see part i , item ia , “ risk factors—risks related to our business—the relationship of backlog to revenues varies over time. ” revenues 2020 compared to 2019 research & development solutions ' revenues were $ 5,760 million in 2020 , a decrease of $ 28 million , or 0.5 % , over 2019. this decrease was comprised of constant currency revenue decline of approximately $ 38 million , or 0.7 % , reflecting volume-related decreases in clinical services and lab testing impacted by covid-19 , largely offset by the incremental revenue from the clinical trials and studies to support the development of vaccines and therapies for covid-19 . see part ii—item 7— “ overview of the impact of covid-19 '' included elsewhere in this annual report on form 10-k for a discussion of the impact from covid-19 on research & development solutions business activity .
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consolidated results of operations for information regarding our results of operations for technology & analytics solutions , research & development solutions and contract sales & medical solutions , refer to “ segment results of operations ” later in this section . for a discussion of our results of operations comparison for 2019 and 2018 , refer to our annual report on form 10-k for the fiscal year ended december 31 , 2019 filed on february 18 , 2020. our reportable segment results of operations comparison for 2018 included below within this annual report on form 10-k reflects the change in segment presentation that occurred during the first quarter of 2019. revenues replace_table_token_6_th 47 2020 compared to 2019 in 2020 , our revenues increased $ 271 million , or 2.4 % , as compared to 2019. this increase was comprised of constant currency revenue growth of approximately $ 252 million , or 2.3 % , reflecting a $ 365 million increase in technology & analytics solutions , offset by a $ 38 million decrease in research & development solutions and a $ 75 million decrease in contract sales & medical solutions . costs of revenue , exclusive of depreciation and amortization replace_table_token_7_th 2020 compared to 2019 when compared to 2019 , costs of revenue , exclusive of depreciation and amortization , in 2020 increased $ 200 million , or 2.7 % . this increase included a constant currency increase of approximately $ 223 million , or 3.1 % , comprised of a $ 232 million increase in technology & analytics solutions , a $ 67 million increase in research & development solutions , offset by a $ 76 million decrease in contract sales & medical solutions .
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introduction throughout management 's discussion and analysis ( “ md & a ” ) the term , the “ company ” , refers to the consolidated entity of pathfinder bancorp , inc. pathfinder bank ( the “ bank ” ) and pathfinder statutory trust ii are wholly owned subsidiaries of pathfinder bancorp , inc. ; however , pathfinder statutory trust ii is not consolidated for reporting purposes ( see note 13 of the consolidated financial statements ) . pathfinder risk management company , inc. , and whispering oaks development corp. are wholly owned subsidiaries of pathfinder bank . on october 16 , 2014 , pathfinder bancorp , mhc converted from the mutual to stock form of organization ( the “ conversion ” ) . in connection with the conversion , the company sold 2,636,053 shares of common stock to depositors at $ 10.00 per share . shareholders of pathfinder bancorp , inc. , a federal corporation ( “ pathfinder-federal ” ) , the company 's predecessor , received 1.6472 shares of the company 's common stock for each share of pathfinder-federal common stock they owned immediately prior to completion of the transaction . following the completion of the conversion , pathfinder-federal was succeeded by the company and pathfinder bancorp , mhc ceased to exist . the company had 4,709,238 and 4,362,328 shares outstanding at december 31 , 2019 and december 31 , 2018 , respectively . on june 1 , 2016 , pathfinder bank , a savings bank chartered by the nysdfs , merged into pathfinder commercial bank , a limited purpose commercial bank also chartered by the nysdfs . prior to the merger , pathfinder bank owned 100 % of pathfinder commercial bank . on that same date , nysdfs expanded the powers that it had previously granted to pathfinder commercial bank and chartered pathfinder commercial bank as a fully-empowered commercial bank . simultaneously , the entity that had operated as “ pathfinder commercial bank ” changed its name to “ pathfinder bank. ” as a result of this charter conversion and accompanying name change , the entity now known as “ pathfinder bank ” is a commercial bank with the full range of powers granted under a commercial banking charter in new york state . the merger , which had no effect on the company 's results of operations , converted the consolidated bank from a savings bank to a commercial bank and was completed in order to better align the bank 's organization certificate with its long-term strategic focus . since the conversion , we have substantially transformed our business activities from those of a traditional savings bank to those of a commercial bank . this transformation of activities has significantly affected the overall composition of our balance sheet . while not reducing our role as a leading originator of one-to-four family residential real estate loans within our marketplace , which had been our primary focus as a savings bank , we have substantially grown our commercial business and commercial real estate loan portfolios since the conversion . as a commercial bank , we have been able to offer customized products and services to meet individual commercial customer needs and thereby more definitively differentiate our services from those offered by our competitors . as a result , we have been able to create a substantially more diversified loan portfolio than the one that was in place before the completion of the conversion . when compared to the bank 's loan portfolio composition prior to the conversion , it is our view that our current asset portfolio ( 1 ) significantly improves upon the distribution of credit risk across a broader range of borrowers , industries and collateral types , and ( 2 ) is more likely to generate consistent net interest margins in a broader range of interest rate environments due to the portfolio 's increased percentage of shorter-term and or adjustable-rate assets . in a concurrent effort , the bank has been able to fund the majority of the high level of growth in our loan portfolios primarily with deposits gathered from our local community . we believe that we have gathered these deposits at a reasonable overall cost in terms of deposit interest rates , as well as at a reasonable overall level of related infrastructure and customer support service expenses . on may 8 , 2019 , the company entered into a securities purchase agreement ( the “ securities purchase agreement ” ) with castle creek capital partners vii , l.p. ( “ castle creek ” ) , pursuant to which the company sold : ( i ) 37,700 shares of the company 's common stock , par value $ 0.01 per share , at a purchase price of $ 14.25 per share ( the “ common stock ” ) ; ( ii ) 1,155,283 shares of a new series of preferred stock , series b convertible perpetual preferred stock , par value $ 0.01 per share , at a purchase price of $ 14.25 per share ( the “ series b preferred stock ” ) ; and ( iii ) a warrant , with an approximate fair value of $ 373,000 , to purchase 125,000 shares of common stock at an exercise price initially equal to $ 14.25 per share ( the “ warrant ” ) , in a private placement transaction ( the “ private placement ” ) for gross proceeds of approximately $ 17.0 million . the securities purchase agreement contains significant representations , warranties , and covenants of the company and castle creek . the company also entered into subscription agreements dated as of may 8 , 2019 ( the “ subscription agreements ” ) with certain directors and executive officers of the company as well as other accredited investors . pursuant to the subscription agreements , the investors purchased an aggregate of 269,277 shares of common stock at $ 14.25 per share for gross proceeds of approximately $ 3.8 million , before payment of placement fees and related costs and expenses . story_separator_special_tag at december 31 , 2019 , castle creek elected to have an observer present at substantially all meetings of the company 's board of directors . we have consistently maintained our historically strong presence in consumer deposit gathering and residential mortgage lending activities . notwithstanding the retention of these business lines , we have strategically emphasized developing our business and commercial banking franchise by offering products that are attractive to small-to medium-sized businesses in our market area . we differentiate our commercial loan solutions and related services through the maintenance of high standards of customer service , solution flexibility and convenience . highlights of our business strategy are as follows : continuing our emphasis on commercial business and commercial real estate lending . in recent years , we have successfully increased our commercial business and commercial real estate lending activities and portfolio size , consistent with safe and sound underwriting practices . in this regard , we have added , and will continue to add , personnel who are experienced in originating , underwriting and servicing commercial real estate and commercial business loans . we view the growth of our commercial business and commercial real estate loans as a means of further diversifying and increasing our interest income . in increasing our business banking activities , we are continuously deepening relationships with local businesses , which offer recurring and potentially increasing sources of both fee income and lower-cost transactional - 33 - deposits . in that regard , our emphasis on commercial business and commercial real estate lending has complimented , and will continue to compliment , our traditional one-to-four family residential real estate lending and consumer deposit gathering franchise s . providing quality customer service . our strategy emphasizes providing quality customer service and meeting the financial needs of our customer base by offering a full complement of loan , deposit , financial services and online banking solutions . our competitive advantage is our ability to make decisions , such as approving loans , more quickly than our larger competitors . customers enjoy , and will continue to enjoy , access to senior executives and local decision makers at the bank and the flexibility that such access brings to their businesses . optimizing our deposit mix . we seek to enhance the overall characteristics of our organically-sourced deposit base by emphasizing both consumer and business nonmaturity deposit gathering . we also seek to reduce our overall reliance on borrowed funds and brokered deposits as a source of funding for future asset growth . during the second half of 2019 , we began a significant refocusing of the company 's resources , most notably through personnel training , modifications to incentive programs , and the high prioritization of operationalizing and or enhancing customer-facing technologies that are focused on transactional deposits . the goal of these efforts is to better position the company to compete in our marketplace for these types of deposits in future periods . we expect to make nonmaturity deposit gathering a point of significant organizational focus for the foreseeable future . continuing to grow our customer relationships and deposit base by expanding our branch network . as conditions permit , we will expand our branch network through a combination of de novo branching and , potentially , acquisitions of branches and or other financial services companies . we believe that as we expand our branch network , our customer relationships and deposit base will continue to grow . our branch expansion focus will be primarily within onondaga county , ny , which encompasses the greater syracuse , ny area . we currently have three branches in onondaga county , including the branch in clay , ny that we opened in the fourth quarter of 2018. we continue to actively seek opportunities for an increased presence within that marketplace . this is consistent with our belief that we have already achieved meaningful brand recognition among potential customers there . in addition to the full-service branches located in oswego and onondaga counties , we opened , in 2017 , a loan production office in utica , located in oneida county , ny , to increase our availability to potential commercial and business loan customers within that market area . we will continue to seek similar branch network expansion opportunities in the future . consistent with this strategy , in november 2018 , the bank acquired a property on west onondaga street in syracuse , which will be renovated and converted into another full-service banking location . we consider the syracuse southwest corridor neighborhood , where this property is located , to be an under-banked area within our target marketplace and believe that this branch will qualify for various economic incentives under new york state 's banking development district ( “ bdd ” ) program . the bdd program is designed to encourage the establishment of bank branches in areas where there is a demonstrated need for additional banking services . the program was developed in recognition of the fact that banks play a critically important role in promoting individual wealth , community development , and revitalization . this property investment demonstrates pathfinder bank 's firm commitment to servicing diverse economic areas within its geographic market . we plan to soon begin renovation work on the acquired facility and expect to open our new syracuse southwest branch office by the end of 2020. diversifying our products and services with a goal of increasing non-interest income over time . we have sought to reduce our dependence on net interest income by increasing fee-based income across a broad spectrum of loan and deposit products . it is expected that we will also benefit from increased ancillary income for service activities related to those products . the company completed a comprehensive study in late 2019 to better understand and monitor the competitive environment for these types of noninterest income opportunities and to improve its product design and customer relationship optimization strategies .
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executive summary and results of operations the company reported net income of $ 4.3 million for 2019 , an increase of $ 245,000 , or 6.1 % , as compared to net income of $ 4.0 million for 2018. net income increased during 2019 , as compared to the previous year , due to an increase in net interest income before the provision for loan losses of $ 2.5 million and an increase in noninterest income of $ 1.1 million . these increases were partially offset by an increase in noninterest expense of $ 2.2 million , an increase in income tax expense of $ 619,000 , and an increase in the provision for loan losses of $ 469,000. basic and diluted earnings per share in 2019 were both $ 0.80 , as compared to $ 0.97 and $ 0.94 in 2018 , respectively . return on average assets decreased two basis points to 0.43 % in 2019 from 0.45 % in 2018. return on average equity decreased 99 basis points to 5.34 % in 2019 as compared to 6.33 % in 2018. the decrease in return on average assets in 2019 , as compared to the previous year , was primarily due to average asset growth outpacing the increase in net income . average assets increased in 2019 by $ 107.6 million , or 12.0 % , as the company grew its total assets from $ 933.1 million at december 31 , 2018 to $ 1.1 billion at december 31 , 2019. the decrease in return on average equity in 2019 , as compared to the previous year , was primarily due to the growth in equity outpacing the increase in net income due to the completion of the private placement .
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unless the context requires otherwise , references to the `` coach brand '' do not include the stuart weitzman brand and references to the `` stuart weitzman brand '' do not include the coach brand . story_separator_special_tag calculated using unrounded numbers . replace_table_token_10_th nm - not meaningful gaap to non-gaap reconciliation the company 's reported results are presented in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the reported results during fiscal 2016 and 2015 reflect certain items , including the impact of the transformation plan , the operational efficiency plan , and acquisition-related costs , as noted in the following tables . refer to page 43 for further discussion on the non-gaap measures . coach , inc. gaap to non-gaap reconciliation for the years ended july 2 , 2016 and june 27 , 2015 replace_table_token_11_th 32 replace_table_token_12_th fiscal 2016 items in fiscal 2016 , the company incurred pre-tax charges , as follows : transformation and other actions - $ 44.1 million under our coach brand transformation plan primarily due to organizational efficiency costs , lease termination charges and accelerated depreciation as a result of store renovations within north america and select international stores ; operational efficiency plan - $ 43.9 million primarily related to organizational efficiency costs and , to a lesser extent , network optimization costs ; and acquisition-related costs - $ 35.1 million total charges related to the acquisition of stuart weitzman holdings llc , of which $ 27.6 million is primarily related to charges attributable to contingent payments and integration-related activities ( of which $ 19.4 million is recorded within unallocated corporate expenses within the coach brand and $ 8.2 million is recorded within the stuart weitzman segment , resulting in a decrease in operating income of $ 19.4 million and $ 8.2 million , respectively ) , and $ 7.5 million is related to the limited life impact of purchase accounting , primarily due to the amortization of the fair value of the order backlog asset , distributor relationships and inventory step-up , all recorded within the stuart weitzman segment resulting in a $ 7.5 million decrease in operating income . total transformation plan , operational efficiency plan and acquisition-related costs taken together increased the company 's sg & a expenses by $ 122.0 million and cost of sales by $ 1.1 million , negatively impacting net income by $ 91.2 million , or $ 0.33 per diluted share . refer to the `` executive overview '' herein and note 3 , `` restructuring activities , '' for further information regarding these plans . additional actions under our operational efficiency plan will continue into fiscal 2017 , with expected incremental charges of around $ 20 million to $ 35 million ( which will primarily relate to the costs of replacing and updating the company 's core technology platforms , as well as office location and supply chain consolidations ) . furthermore , the company expects to incur additional aggregate stuart weitzman pre-tax acquisition-related costs of around $ 20 million in fiscal 2017 , which will primarily include the impact of contingent payments , and to a lesser extent , office lease termination charges . fiscal 2015 items in fiscal 2015 , the company incurred charges as follows : transformation and other actions - $ 145.9 million under our coach brand transformation plan due to accelerated depreciation and lease termination charges as a result of store updates and closures within north america and select international stores , organizational efficiency charges and charges related to the destruction of inventory ; acquisition-related costs - $ 24.6 million total acquisition-related costs , of which $ 17.1 million primarily related to consulting and legal costs related to the acquisition of stuart weitzman holdings llc , as well as costs attributable to contingent payments related to the acquisition ( of which $ 15.8 million is recorded within unallocated corporate expenses within the coach brand and $ 1.3 million is recorded within the stuart weitzman segment , resulting in a decrease in operating income of $ 15.8 million and $ 1.3 million , respectively ) , and $ 7.5 million is related to the limited life impact of purchase accounting , primarily due to the amortization of the fair value of the inventory step-up and order backlog asset , all recorded within the stuart weitzman segment resulting in a $ 7.5 million decrease in operating income . these fiscal 2015 actions taken together increased the company 's sg & a expenses by $ 160.8 million and cost of sales by $ 9.7 million , negatively impacting net income by $ 128.8 million , or $ 0.47 per diluted share . 33 summary - fiscal 2016 net sales in fiscal 2016 increased 7.2 % , primarily due to the inclusion of a full fiscal year impact of the stuart weitzman brand , compared to approximately two months in the prior fiscal year , contributing to increased net sales of $ 301.7 million , as well as increased revenues from the coach brand international business , partially offset by a decline in the north america business . this increase is inclusive of the favorable impact of the 53rd week in fiscal 2016 , which resulted in incremental net revenues of $ 84.4 million . excluding the effects of foreign currency , net sales increased 9.1 % . our gross profit increased by 4.9 % to $ 3.05 billion during fiscal 2016 as compared to $ 2.91 billion in fiscal 2015 . excluding the impact of our non-gaap charges as described in the `` gaap to non-gaap reconciliation '' herein , gross profit increased by 4.6 % , to $ 3.05 billion . sg & a expenses increased by 4.7 % to $ 2.40 billion in fiscal 2016 . excluding non-gaap charges , sg & a expenses increased by 6.9 % to $ 2.28 billion . story_separator_special_tag the gross margin decline of 150 basis points ( or 160 basis points excluding non-gaap items ) was primarily due to the unfavorable effects of foreign currency on the coach brand , and the inclusion of the stuart weitzman business in our full year fiscal 2016 results ( which contains lower gross margins compared to the coach brand ) . gross profit for the coach brand , which includes the north america and international segments , as well as other and corporate unallocated results , decreased 1.4 % or $ 39.8 million to $ 2.85 billion in fiscal 2016. furthermore , gross margin for the coach brand decreased 90 basis points from 69.6 % in fiscal 2015 to 68.7 % in the fiscal 2016 , inclusive of an unfavorable 100 basis point foreign currency impact , as described below . north america gross profit decreased 6.1 % or $ 96.2 million to $ 1.48 billion in fiscal 2016 . gross margin decreased 210 basis points from 63.8 % in fiscal 2015 to 61.7 % in fiscal 2016 . the decrease in gross margin is primarily attributable to increased promotional activity , primarily in our outlet and wholesale channels , negatively impacting gross margin by 240 basis points , partially offset by the impact of an improved mix of elevated product sales and higher initial mark-ups , primarily in our outlet stores , favorably impacting gross margin by 40 basis points . international gross profit in creased 3.0 % or $ 37.4 million to $ 1.29 billion in fiscal 2016 . gross margin decreased 150 basis points from 77.0 % in fiscal 2015 to 75.5 % in fiscal 2016 . foreign currency negatively impacted gross margin by 210 basis points , primarily due to the japanese yen . excluding the impact of foreign currency , international gross margin increased 60 basis points , primarily due to the favorable effects of decreased duty costs , positively impacting gross margin by 70 basis points . furthermore , an improved mix of elevated product sales , particularly in greater china and japan , positively impacted gross margin by 50 basis points . these increases were partially offset by a less favorable geographic mix of our sales , negatively impacting gross margin by 40 basis points , particularly as a result of the growth of our europe and international wholesale businesses . corporate unallocated gross profit increased $ 24.8 million from $ 27.2 million in fiscal 2015 to $ 52.0 million in fiscal 2016 , primarily due to the impact of favorable inventory production variances , decreased transformation-related charges and decreased inventory reserve charges . stuart weitzman gross profit was $ 202.4 million in fiscal 2016 , and $ 19.9 in fiscal 2015 , due to the inclusion of a full fiscal year impact of the stuart weitzman brand , compared to approximately two months in the prior fiscal year . furthermore , gross margin was 58.7 % in fiscal 2016 , compared to 46.4 % in the short acquisition year of fiscal 2015 ( which included the short-term impact of the amortization of the fair value of the inventory step-up ) . selling , general and administrative expenses sg & a expenses are comprised of four categories : ( i ) selling ; ( ii ) advertising , marketing and design ; ( iii ) distribution and customer service ; and ( iv ) administrative . selling expenses include store employee compensation , occupancy costs , supply costs , wholesale and retail account administration compensation globally and coach international operating expenses . these expenses are affected by the number of stores open during any fiscal period and store performance , as compensation and rent expenses vary 35 with sales . advertising , marketing and design expenses include employee compensation , media space and production , advertising agency fees , new product design costs , public relations and market research expenses . distribution and customer service expenses include warehousing , order fulfillment , shipping and handling , customer service , employee compensation and bag repair costs . administrative expenses include compensation costs for “ corporate ” functions including : executive , finance , human resources , legal and information systems departments , as well as corporate headquarters occupancy costs , consulting fees and software expenses . administrative expenses also include global equity compensation expense . the company includes inbound product-related transportation costs from our service providers within cost of sales . the company , similar to some companies , includes certain transportation-related costs related to our distribution network in sg & a expenses rather than in cost of sales ; for this reason , our gross margins may not be comparable to that of entities that include all costs related to their distribution network in cost of sales . sg & a expenses increased 4.7 % or $ 107.2 million to $ 2.40 billion in fiscal 2016 as compared to $ 2.29 billion in fiscal 2015 . as a percentage of net sales , sg & a expenses decreased to 53.4 % during fiscal 2016 as compared to 54.6 % during fiscal 2015 . excluding non-gaap adjustments of $ 122.0 million in fiscal 2016 and $ 160.8 million in fiscal 2015 , as discussed in the `` gaap to non-gaap reconciliation '' herein , sg & a expenses increased 6.9 % or $ 146.0 million from fiscal 2015 ; and sg & a expenses as a percentage of net sales remained relatively flat at 50.7 % in fiscal 2016 compared to 50.8 % in fiscal 2015 . selling expenses were $ 1.57 billion , or 35.1 % of net sales , in fiscal 2016 compared to $ 1.53 billion , or 36.6 % of net sales , in fiscal 2015 .
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executive overview the fiscal year ended july 2 , 2016 was a 53-week period , and the fiscal years ended june 27 , 2015 and june 28 , 2014 were each 52-week periods . coach , inc. is a leading new york design house of modern luxury accessories and lifestyle brands . the coach brand was established in new york city in 1941 , and has a rich heritage of pairing exceptional leathers and materials with innovative design . coach , inc. acquired stuart weitzman , a leader in women 's designer footwear , during the fourth quarter of fiscal 2015. coach , inc. operates in three segments : north america ( coach brand ) , international ( coach brand ) , and stuart weitzman . the north america segment includes sales of coach brand products to north american customers through coach-operated stores ( including the internet ) and sales to north american wholesale customers . the international segment includes sales of coach brand products to customers through coach-operated stores and concession shop-in-shops in japan , mainland china , hong kong , macau , singapore , taiwan , malaysia , south korea , the united kingdom , france , ireland , spain , portugal , germany , italy , austria , belgium , the netherlands and switzerland . additionally , international includes sales to consumers through the internet in japan , mainland china , the united kingdom and south korea , as well as sales to wholesale customers and distributors in approximately 55 countries . the stuart weitzman segment includes worldwide sales generated by the stuart weitzman brand , primarily through department stores in north america and international locations , and within stuart weitzman operated stores ( including the internet ) in the united states , canada and europe . other , which is not a reportable segment , consists of sales and expenses generated by the coach brand in licensing and disposition channels .
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if the amount of non-contingent revenues allocated to a deliverable accounted for under the percentage-of-completion method of accounting is less than the costs to deliver such services , then such costs are deferred and recognized in future periods when the revenues become non-contingent . revenues are recognized in accordance with the company 's accounting policies for the separate deliverables when story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “ disclosure regarding forward-looking statements ” and “ risk factors ” in this annual report on form 10-k. we use the terms “ accenture , ” “ we , ” the “ company , ” “ our ” and “ us ” in this report to refer to accenture plc and its subsidiaries . all references to years , unless otherwise noted , refer to our fiscal year , which ends on august 31. for example , a reference to “ fiscal 2017 ” means the 12-month period that ended on august 31 , 2017 . all references to quarters , unless otherwise noted , refer to the quarters of our fiscal year . we use the term “ in local currency ” so that certain financial results may be viewed without the impact of foreign currency exchange rate fluctuations , thereby facilitating period-to-period comparisons of business performance . financial results “ in local currency ” are calculated by restating current period activity into u.s. dollars using the comparable prior-year period 's foreign currency exchange rates . this approach is used for all results where the functional currency is not the u.s. dollar . overview revenues are driven by the ability of our executives to secure new contracts and to deliver services and solutions that add value relevant to our clients ' current needs and challenges . the level of revenues we achieve is based on our ability to deliver market-leading services and solutions and to deploy skilled teams of professionals quickly and on a global basis . our results of operations are affected by economic conditions , including macroeconomic conditions and levels of business confidence . there continues to be significant volatility and economic and geopolitical uncertainty in many markets around the world , which may impact our business . we continue to monitor the impact of this volatility and uncertainty and seek to manage our costs in order to respond to changing conditions . there also continues to be volatility in foreign currency exchange rates . the majority of our net revenues are denominated in currencies other than the u.s. dollar , including the euro and the u.k. pound . unfavorable fluctuations in foreign currency exchange rates have had and could have in the future a material effect on our financial results . revenues before reimbursements ( “ net revenues ” ) for fiscal 2017 increased 6 % in u.s. dollars and 7 % in local currency compared to fiscal 2016 . demand for our services and solutions continued to be strong , resulting in growth across most areas of our business . during fiscal 2017 , revenue growth in local currency was very strong in products and strong in financial services , while there was solid growth in communications , media & technology and modest growth in health & public service and resources . we experienced very strong growth in growth markets and strong growth in europe , while growth in north america moderated . revenue growth in local currency was strong in both outsourcing and consulting during fiscal 2017 . while the business environment remained competitive , pricing was relatively stable . we use the term “ pricing ” to mean the contract profitability or margin on the work that we sell . in our consulting business , net revenues for fiscal 2017 increased 5 % in u.s. dollars and 6 % in local currency compared to fiscal 2016 . consulting revenue growth in local currency in fiscal 2017 was led by very strong growth in products , as well as strong growth in financial services and modest growth in communications , media & technology , while health & public service and resources had slight declines . our consulting revenue growth continues to be driven by strong demand for digital- , cloud- and security-related services and assisting clients with the adoption of new technologies . in addition , clients continue to be focused on initiatives designed to deliver cost savings and operational efficiency , as well as projects to integrate their global operations and grow and transform their businesses . in our outsourcing business , net revenues for fiscal 2017 increased 7 % in u.s. dollars and 8 % in local currency compared to fiscal 2016 . outsourcing revenue growth in local currency in fiscal 2017 was led by very strong growth in products , as well as strong growth in health & public service , communications , media & technology and financial services and solid growth in resources . we continue to experience growing demand to assist clients with cloud enablement and the operation and maintenance of digital-related services . in addition , clients continue to be focused on transforming their operations to improve effectiveness and cost efficiency . as we are a global company , our revenues are denominated in multiple currencies and may be significantly affected by currency exchange rate fluctuations . if the u.s. dollar strengthens against other currencies , resulting in unfavorable currency translation , our revenues , revenue growth and results of operations in u.s. dollars may be lower . if the u.s. dollar weakens against other currencies , resulting in favorable currency translation , our revenues , revenue growth and results of operations in u.s. dollars may be higher . story_separator_special_tag for additional information , see note 9 ( income taxes ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” 29 diluted earnings per share were $ 5.44 for fiscal 2017 , compared with $ 6.45 for fiscal 2016 . the pension settlement charge , net of taxes , decreased diluted earnings per share by $ 0.47 in fiscal 2017 . the gain on sale of businesses , net of taxes , increased diluted earnings per share by $ 1.11 in fiscal 2016 . excluding these impacts , diluted earnings per share would have been $ 5.91 and $ 5.34 for fiscal 2017 and 2016 , respectively . we have presented operating income , operating margin , effective tax rate and diluted earnings per share excluding the impacts of the fiscal 2017 pension settlement charge and the fiscal 2016 gain on sale of businesses , as we believe doing so facilitates understanding as to both the impacts of these items and our operating performance in comparison to the prior period . our operating income and diluted earnings per share are affected by currency exchange rate fluctuations on revenues and costs . most of our costs are incurred in the same currency as the related net revenues . where practical , we seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues , such as the costs associated with our global delivery model , by using currency protection provisions in our customer contracts and through our hedging programs . we seek to manage our costs , taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs . for more information on our hedging programs , see note 7 ( derivative financial instruments ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” bookings and backlog new bookings for fiscal 2017 were $ 37.4 billion , with consulting bookings of $ 19.8 billion and outsourcing bookings of $ 17.6 billion . we provide information regarding our new bookings , which include new contracts , including those acquired through acquisitions , as well as renewals , extensions and changes to existing contracts , because we believe doing so provides useful trend information regarding changes in the volume of our new business over time . new bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large outsourcing contracts . the types of services and solutions clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues . for example , outsourcing bookings , which are typically for multi-year contracts , generally convert to revenue over a longer period of time compared to consulting bookings . information regarding our new bookings is not comparable to , nor should it be substituted for , an analysis of our revenues over time . new bookings involve estimates and judgments . there are no third-party standards or requirements governing the calculation of bookings . we do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years . new bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations . the majority of our contracts are terminable by the client on short notice , and some without notice . accordingly , we do not believe it is appropriate to characterize bookings attributable to these contracts as backlog . normally , if a client terminates a project , the client remains obligated to pay for commitments we have made to third parties in connection with the project , services performed and reimbursable expenses incurred by us through the date of termination . 30 critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with u.s. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses . we continually evaluate our estimates , judgments and assumptions based on available information and experience . because the use of estimates is inherent in the financial reporting process , actual results could differ from those estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include certain aspects of accounting for revenue recognition and income taxes . revenue recognition our contracts have different terms based on the scope , deliverables and complexity of the engagement , the terms of which frequently require us to make judgments and estimates in recognizing revenues . we have many types of contracts , including time-and-materials contracts , fixed-price contracts and contracts with features of both of these contract types . in addition , some contracts include incentives related to costs incurred , benefits produced or adherence to schedules that may increase the variability in revenues and margins earned on such contracts . we conduct rigorous reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable . we recognize revenues from technology integration consulting contracts using the percentage-of-completion method of accounting , which involves calculating the percentage of services provided during the reporting period compared with the total estimated services to be provided over the duration of the contract . our contracts for technology integration consulting services generally span six months to two years . estimated revenues used in applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable . this method is followed where reasonably dependable estimates of revenues and costs can be made . estimates of total contract revenues and costs are continuously monitored during the term of the contract , and recorded revenues and estimated costs are subject to revision as the contract progresses .
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results of operations for fiscal 2017 compared to fiscal 2016 net revenues ( by operating group , geographic region and type of work ) and reimbursements were as follows : replace_table_token_6_th _ n/m = not meaningful amounts in table may not total due to rounding . our business in the united states represented 45 % , 46 % and 43 % of our consolidated net revenues during fiscal 2017 , 2016 and 2015 , respectively . no other country individually comprised 10 % or more of our consolidated net revenues during these periods . net revenues we have changed the structure of our communications , media & technology operating group to reflect the continued convergence of the communications , media and entertainment industries , as well as the opportunity we are seeing in the software and platform sectors . the new structure includes the following industry groups : communications & media ( telecommunications , cable , broadcasting and content & publishing ) ; software & platforms ( internet & social and software ) ; and high tech ( network equipment providers , aerospace & defense , consumer technology , semiconductor , medical equipment and enterprise markets ) . the following net revenues commentary discusses local currency net revenue changes for fiscal 2017 compared to fiscal 2016 : operating groups communications , media & technology net revenues increased 4 % in local currency , led by software & platforms in north america , as well as growth across all industry groups in growth markets . this growth was partially offset by a decline in communications & media in europe , as disruptions in the market continue to impact demand . financial services net revenues increased 7 % in local currency , led by banking & capital markets in europe and growth markets . health & public service net revenues increased 3 % in local currency , driven by public service in growth markets and europe .
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specifically , included in 2011 , 2010 and 2009 interest income was $ 3,051 , $ 3,419 and $ 3,195 , respectively , of tax-exempt interest income from certain investment securities and loans . an amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income totals discussed in certain sections of this management 's discussion and analysis , representing tax-equivalent adjustments of $ 1,471 , $ 1,623 and $ 1,505 in 2011 , 2010 and 2009 , respectively , which increased net interest income accordingly . the analysis of net interest income tables included in this annual report on form 10-k provide a reconciliation of tax-equivalent financial information to the company 's consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis , and is particularly useful to investors in understanding and evaluating the changes and trends in the company 's results of operations . other financial institutions commonly present net interest income on a tax-equivalent basis . this adjustment is considered helpful in the comparison of one financial institution 's net interest income to that of another institution , as each will have a different proportion of tax-exempt interest from their earning asset portfolios . moreover , net interest income is a component of a second financial measure commonly used by financial institutions , net interest margin , which is the ratio of net interest income to average earning assets . for purposes of this measure as well , other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution . the company follows these practices . executive overview general information bar harbor bankshares is a maine corporation and a registered bank holding company under the bank holding company act of 1956 , as amended . at december 31 , 2011 , the company had consolidated assets of $ 1.17 billion and was one of the larger independent community banking institutions in the state of maine . the company 's principal asset is all of the capital stock of bar harbor bank & trust ( the bank ) , a community bank incorporated in march , 1887. with twelve ( 12 ) branch office locations , the company is a diversified financial services provider , offering a full range of banking services and products to individuals , businesses , governments , and not-for-profit organizations throughout downeast and midcoast maine . 39 the company attracts deposits from the general public in the markets it serves and uses such deposits and other sources of funds to originate commercial business loans , commercial real estate loans , residential mortgage and home equity loans , and a variety of consumer loans . the company also invests in mortgage-backed securities issued by u.s. government agencies and government-sponsored enterprises , obligations of state and political subdivisions , as well as other debt securities . in addition to community banking , the company provides a comprehensive array of trust and investment management services through its second tier subsidiary , bar harbor trust services ( trust services ) , a maine chartered non-depository trust company . major sources of revenue the principal source of the company 's revenue is net interest income , representing the difference or spread between interest income from its loan and securities portfolios , and the interest expense paid on deposits and borrowed funds . in addition to net interest income , non-interest income is a significant source of revenue for the company and an important factor in its results of operations . the company 's non-interest income is derived from financial services including trust , investment management and third-party brokerage services , as well as service charges on deposit accounts , merchant credit card processing referral and transaction fees , realized gains or losses on the sale of securities , and a variety of other miscellaneous product and service fees . business strategy the company , as a diversified financial services provider , pursues a strategy of achieving long-term sustainable growth , profitability , and shareholder value , without sacrificing its soundness . the company works toward achieving this goal by focusing on increasing its loan and deposit market share in the coastal communities of maine , either organically or by way of strategic acquisitions . the company believes one of its more unique strengths is an understanding of the financial needs of coastal communities and the businesses vital to maine 's coastal economy , namely : tourism , hospitality , retail establishments and restaurants , seasonal lodging and campgrounds , biological research laboratories , fishing , lobstering , boat building , and marine services . operating under a community banking philosophy , the company 's key strategic focus is vigorous financial stewardship , deploying investor capital safely yet efficiently for the best possible returns . the company strives to provide unmatched service to its customers , while maintaining strong asset quality and a focus toward improving operating efficiencies . in managing its earning asset portfolios , the company seeks to utilize funding and capital resources within well-defined credit , investment , interest-rate and liquidity guidelines . in managing its balance sheet the company seeks to preserve the sensitivity of net interest income to changes in interest rates , and to enhance profitability through strategies that promise sufficient reward for understood and controlled risk . the company is deliberate in its efforts to maintain adequate liquidity under prevailing and expected conditions , and strives to maintain a balanced and appropriate mix of loans , securities , core deposits , brokered deposits and borrowed funds . material risks and challenges in its normal course of business , the company faces many risks inherent with providing banking and financial services . story_separator_special_tag management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources . actual results could differ from the amount derived from management 's estimates and assumptions under different assumptions or conditions . the company 's significant accounting policies are more fully enumerated in note 1 to the consolidated financial statements included in item 8 of this annual report on form 10-k. the reader of the financial statements should review these policies to gain a greater understanding of how the company 's financial performance is reported . management believes the following critical accounting policies represent the more significant estimates and assumptions used in the preparation of the consolidated financial statements : allowance for loan losses : the allowance for loan losses ( allowance ) is a significant accounting estimate used in the preparation of the company 's consolidated financial statements . the allowance , which is established through a provision for loan loss expense , is based on management 's evaluation of the level of allowance required in relation to the estimated inherent risk of probable loss in the loan portfolio . management regularly evaluates the allowance for adequacy by taking into consideration factors such as previous loss experience , the size and composition of the portfolio , current economic and real estate market conditions and the performance of individual loans in relation to contract terms and estimated fair values of collateral . the use of different estimates or assumptions could produce different provisions for loan losses . a smaller provision for loan losses results in higher net income , and when a greater amount of provision for loan losses is necessary , the result is lower net income . refer to part ii , item 7 , allowance for loan losses and provision , and part ii , item 8 , note 3 , loans and allowance for loan losses , of the consolidated financial statements , in this annual report on form 10-k , for further discussion and analysis concerning the allowance . other-than-temporary impairments on securities : one of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments . the evaluation of securities for other-than-temporary impairments is a quantitative and qualitative process , which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings . the risks and uncertainties include changes in general economic conditions , the issuer 's financial condition and or future prospects , the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses . 42 securities that are in an unrealized loss position , are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures . the primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include : ( a ) the cause of the impairment ; ( b ) the financial condition , credit rating and future prospects of the issuer ; ( c ) whether the debtor is current on contractually obligated interest and principal payments ; ( d ) the volatility of the securities fair value ; ( e ) performance indicators of the underlying assets in the security including default rates , delinquency rates , percentage of non-performing assets , loan to collateral value ratios , third party guarantees , current levels of subordination , vintage , and geographic concentration and ; ( f ) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred , including the expectation of the receipt of all principal and interest due . for securitized financial assets with contractual cash flows , such as private-label mortgage-backed securities , the company periodically updates its best estimate of cash flows over the life of the security . the company 's best estimate of cash flows is based upon assumptions consistent with an economic recession , similar to those the company believes market participants would use . if the fair value of a securitized financial asset is less than its cost or amortized cost and there has been an adverse change in timing or amount of anticipated future cash flows since the last revised estimate to the extent that the company does not expect to receive the entire amount of future contractual principal and interest , an other-than-temporary impairment charge is recognized in earnings representing the estimated credit loss if management does not intend to sell the security and believes it is more-likely-than-not the company will not be required to sell the security prior to recovery of cost or amortized cost . estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain assumptions and judgments regarding the future performance of the underlying collateral . in addition , projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral . refer to part ii , item 7 , impaired securities , and part ii , item 8 , note 1 of the consolidated financial statements in this annual report on form 10-k , for further discussion and analysis concerning other-than-temporary impairments . income taxes : the company estimates its income taxes for each period for which a statement of income is presented . this involves estimating the company 's actual current tax liability , as well as assessing temporary differences resulting from differing timing of recognition of expenses , income and tax credits , for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included in the company 's consolidated balance sheets .
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summary of loan loss experience replace_table_token_13_th the bank 's 2011 loan losses significantly exceeded historical experience . for the year ended december 31 , 2011 , total net loan charge-offs amounted to $ 2,674 , of which $ 1,822 or 68.1 % was attributed to the non-performing affordable housing project loan discussed immediately above . for the year ended december 31 , 2011 , annualized net charge-offs to average loans outstanding amounted to 0.37 % , compared with 0.24 % in 2010 . 61 the following table presents the five-year summary of the allowance by loan type at each respective year-end . allocation of allowance for loan losses ( at december 31 ) 2011 2010 2009 2008 2007 amount percent of loans in each category to total loans amount percent of loans in each category to total loans amount percent of loans in each category to total loans amount percent of loans in each category to total loans amount percent of loans in each category to total loans commercial and industrial , and agricultural $ 1,653 12.22 % $ 1,460 11.66 % $ 1,812 12.19 % $ 1,546 13.43 % $ 1,059 14.01 % real estate mortgages : real estate-construction and land devlopment 594 4.12 % 999 4.58 % 349 4.02 % 251 5.06 % 168 2.71 % real estate-mortgage 5,602 79.19 % 5,858 81.40 % 5,377 80.98 % 3,414 79.91 % 3,247 80.47 % installments and other loans to individuals 286 3.14 % 73 0.63 % 122 0.70 % 169 0.75 % 235 1.77 % tax exempt 86 1.33 % 110 1.73 % 154 2.11 % 66 0.85 % 34 1.04 % total $ 8,221 100.00 % $ 8,500 100.00 % $ 7,814 100.00 % $ 5,446 100.00 % $ 4,743 100.00 % bank owned life insurance bank-owned life insurance ( boli ) represents life insurance on the lives of certain retired employees who had provided positive consent allowing the bank to be the beneficiary of such policies .
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this summary is not intended to be exhaustive , nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this form 10-k , including in the “ business ” section and the “ risk factors ” above , the remainder of this “ management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) ” , and the consolidated financial statements and related notes . about electronic arts we develop , market , publish and distribute game software content and services that can be played by consumers on a variety of platforms , including video game consoles ( such as playstation 3 and 4 from sony and xbox 360 and xbox one from microsoft ) , personal computers , mobile phones and tablets . our ability to deliver games and services across multiple platforms , through multiple distribution channels , and directly to consumers ( online and wirelessly ) has been , and will continue to be , a cornerstone of our product strategy . we have adopted new business models and alternative revenue streams ( such as subscription , micro-transactions , and advertising ) in connection with our online and wireless product and service offerings . some of our games are based on our wholly-owned intellectual property ( e.g . , battlefield , mass effect , need for speed , dragon age , the sims , bejeweled , and plants vs. zombies ) , and some of our games are based on content that we license from others ( e.g . , fifa , madden nfl and star wars ) . our goal is to turn our intellectual properties into year-round businesses available on a range of platforms . our products and services may be purchased through physical and online retailers , platform providers such as console manufacturers and mobile carriers via digital downloads , as well as directly through our own distribution platform , including online portals such as origin . story_separator_special_tag part on the commercial success and adequate supply of , as well as our ability to develop commercially successful products and services for , these consoles . digital transformation . our business continues to transform from a traditional packaged goods business model to one in which our games and services are sold and delivered via a network connection , with digitally-delivered content , features and services helping to extend the life of the respective game offering . for example , many of our products that traditionally have been sold only as packaged goods products can now also be purchased and downloaded via a network connection . we also include digitally-delivered content , features and services as part of the product offering , either made available for free or at additional cost . additionally , our mobile and pc free-to-play games are available solely via digital delivery and are typically monetized through a micro-transaction business model through which we sell incremental content and or features in discrete transactions . we significantly increased the digital revenue that we derive from wireless , internet-derived and advertising products and services from $ 1,159 million in fiscal year 2012 to $ 1,440 million in fiscal year 2013 . during fiscal year 2014 , digital revenue was $ 1,833 million and we expect this portion of our business to continue to grow in fiscal 2015 and beyond . mobile and pc free-to-play games . the proliferation of mobile phones and tablets has significantly increased the consumer base for mobile games . the broad consumer acceptance of free-to-play business models , which allow consumers to try new games with no up-front cost and pay for additional content or in-game items through micro-transactions , has led to growth in the mobile gaming industry . likewise , the mass introduction and wide consumer acceptance of free-to-play , micro-transaction-based pc games played over the internet has also broadened our consumer base . we expect revenue generated from mobile and pc free-to-play games to remain an important part of our business . concentration of sales among the most popular games . in all major segments of our industry , we see a larger portion of games sales concentrated on the most popular titles , and many of those titles are sequels of prior games . we have responded to this trend by significantly reducing the number of games that we produce to provide greater focus on our most promising intellectual properties . for example , in fiscal year 2011 , we published over 30 titles for consoles and pc , while in fiscal year 2014 we published 11 ; in fiscal year 2015 , we expect to release 10 titles for console and pc . we have similarly reduced the number of major mobile titles that we publish . recent developments stock repurchase program . in may 2014 , a special committee of our board of directors , on behalf of the full board of directors , authorized a new program to repurchase up to $ 750 million of our common stock . this new stock repurchase program , which expires on may 31 , 2016 , supersedes and replaces the stock repurchase authorization approved by our board of directors in july 2012. under this program , we may purchase stock in the open market or through privately-negotiated transactions in accordance with applicable securities laws , including pursuant to pre-arranged stock trading plans . the timing and actual amount of the stock repurchases will depend on several factors including price , capital availability , regulatory requirements , alternative investment opportunities and other market conditions . we are not obligated to repurchase any specific number of shares under this program and it may be modified , suspended or discontinued at any time . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) . story_separator_special_tag determining the estimated offering period is inherently subjective and is subject to regular revision based on historical online usage . for example , in determining the estimated offering period for unspecified updates associated with our online-enabled games , we 27 consider the period of time consumers are online as online connectivity is required . on an annual basis , we review consumers ' online gameplay of all online-enabled games that have been released 12 to 24 months prior to the evaluation date . for example , if our evaluation date is april 1 , 2013 , we evaluate all online-enabled games released between april 1 , 2011 and march 31 , 2012. based on this population of games , for all players that register the game online within the first six months of release of the game to the general public , we compute the weighted-average number of days for each online-enabled game , based on when a player initially registers the game online to when that player last plays the game online . we then compute the weighted-average number of days for all online-enabled games by multiplying the weighted-average number of days for each online-enabled game by its relative percentage of total units sold from these online-enabled games ( i.e. , a game with more units sold will have a higher weighting to the overall computation than a game with fewer units sold ) . under a similar computation , we also consider the estimated period of time between the date a game unit is sold to a reseller and the date the reseller sells the game unit to an end consumer ( i.e. , time in channel ) . based on these two calculations we then consider the method of distribution . for example , physical software games sold at retail would have a composite offering period equal to the online gameplay plus time in channel as opposed to digitally distributed software games which are delivered immediately via digital download and thus have no concept of channel . additionally , we consider results from prior years , known online gameplay trends , as well as disclosed service periods for competitors ' games in determining the estimated offering period for future sales . while we consistently apply this methodology , inherent assumptions used in this methodology include which online-enabled games to sample , whether to use only units that have registered online , whether to weight the number of days for each game , whether to weight the days based on the units sold of each game , determining the period of time between the date of sale to reseller and the date of sale to the consumer and assessing online gameplay trends . prior to july 1 , 2013 , for most sales , we estimated the offering period to be six months and recognized revenue over this period in the month after delivery . during the three months ended june 30 , 2013 , we completed our annual evaluation of the estimated offering period and noted that generally , consumers are playing our games online over a longer period of time . based on this , we concluded that for physical software sales made after june 30 , 2013 , the estimated offering period should be increased to nine months , resulting in revenue being recognized over a longer period of time . the estimated offering period for digitally distributed software games is six months . other multiple-element arrangements in some of our multiple-element arrangements , we sell tangible products with software and or software-related offerings . these tangible products are generally either peripherals or ancillary collectors ' items , such as figurines and comic books . revenue for these arrangements is allocated to each separate unit of accounting for each deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price hierarchy described below . if the arrangement contains more than one software deliverable , the arrangement consideration is allocated to the software deliverables as a group and then allocated to each software deliverable in accordance with asc 985-605. we determine the selling price for a tangible product deliverable based on the following selling price hierarchy : vsoe ( i.e . , the price we charge when the tangible product is sold separately ) if available , third-party evidence ( “ tpe ” ) of fair value ( i.e . , the price charged by others for similar tangible products ) if vsoe is not available , or our best estimate of selling price ( “ besp ” ) if neither vsoe nor tpe is available . determining the besp is a subjective process that is based on multiple factors including , but not limited to , recent selling prices and related discounts , market conditions , customer classes , sales channels and other factors . in accordance with asc 605 , provided the other three revenue recognition criteria other than delivery have been met , we recognize revenue upon delivery to the customer as we have no further obligations . we must make assumptions and judgments in order to ( 1 ) determine whether and when each element is delivered , ( 2 ) determine whether vsoe exists for each undelivered element , and ( 3 ) allocate the total price among the various elements , as applicable . changes to any of these assumptions and judgments , or changes to the elements in the arrangement , could cause a material increase or decrease in the amount of revenue that we report in a particular period .
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financial results total net revenue for the fiscal year ended march 31 , 2014 was $ 3,575 million , a decrease of $ 222 million , or 6 percent , as compared to the fiscal year ended march 31 , 2013 , primarily due to an increase in our estimated offering period for physical games sold through retail from six to nine months , partially offset by an increase in net revenue before revenue deferral . at march 31 , 2014 , deferred net revenue associated with sales of online-enabled games increased by $ 446 million as compared to march 31 , 2013 , directly decreasing the amount of reported net revenue during the fiscal year ended march 31 , 2014 . at march 31 , 2013 , deferred net revenue associated with sales of online-enabled games decreased by $ 4 million as compared to march 31 , 2012 , directly increasing the amount of reported net revenue during the fiscal year ended march 31 , 2013 . disregarding the impact of the deferred net revenue , reported net revenue would have increased by approximately $ 228 million , or 6 % , during fiscal year 2014 as compared to the fiscal year 2013 . net revenue for fiscal year 2014 was driven by fifa 14 , fifa 13 and battlefield 4. battlefield 4 , which delivers 60 frames-per-second gameplay for 64 players , two commanders on tablets and other innovative features , was launched on five gaming platforms , including two new consoles . it has performed well in the fiscal year despite unanticipated launch issues . net income for the fiscal year ended march 31 , 2014 was $ 8 million as compared to $ 98 million for the fiscal year ended march 31 , 2013 .
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in addition to its existing single antigen vectors that target one tumor associated antigen , the company is actively engaged in the development of new constructs that will address multiple targets that are common to tumor types , 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-stage biotechnology company focused on the discovery , development and commercialization of proprietary lm -llo cancer immunotherapies with our lead program in phase 3 development . these immunotherapies are based on a platform technology that utilizes live attenuated listeria monocytogenes bioengineered to secrete antigen/adjuvant fusion proteins . these lm -llo strains are believed to be a significant advancement in immunotherapy as they integrate multiple functions into a single immunotherapy as they access and direct antigen presenting cells to stimulate anti-tumor t-cell immunity , stimulate and activate the immune system with the equivalent of multiple adjuvants , and simultaneously reduce tumor protection in the tumor microenvironment to enable the t-cells to eliminate tumors . story_separator_special_tag tax receivable of $ 1,609,349 from the sale of its state nols and research and development tax credits for the period ended october 31 , 2014. net loss we reported a net loss of $ 73.6 million , or $ 2.08 per share basic and diluted for the year ended october 31 , 2016 as compared to a net loss of $ 47.0 million , or $ 1.68 per share basic and diluted , for the year ended october 31 , 2015. fiscal year 2015 compared to fiscal year 2014 revenue we did not record any revenue for the year end october 31 , 2015. during the year end october 31 , 2014 , we transitioned from a development stage company to an operating company . on march 19 , 2014 , we and aratana entered into the agreement pursuant to which we granted aratana an exclusive , worldwide , royalty-bearing , license , with the right to sublicense , certain advaxis proprietary technology that enables aratana to develop and commercialize animal health products that will be targeted for treatment of osteosarcoma and other cancer indications in animals . under the terms of the agreement . aratana paid us an upfront payment of $ 1 million . as this license has stand-alone value to aratana ( who has the ability to sublicense ) and was delivered to aratana upon execution of the agreement , we properly recorded the $ 1 million payment as licensing revenue in the year ended october 31 , 2014 . 34 research and development expenses we make significant investments in research and development in support of our development programs both clinically and pre-clinically . research and development costs are expensed as incurred and primarily include salary and benefit costs , third-party grants , fees paid to clinical research organizations and supply costs . research and development expense was $ 24.4 million for the year ended october 31 , 2015 , compared with $ 8.9 million for the year ended october 31 , 2014 , an increase of $ 15.5 million . the increase was primarily a result of higher third-party costs , specifically related to axal support of clinical trial expense and manufacturing costs , for the cervical , anal , and head & neck cancer programs , as well as adxs-psa phase 1/2 trial support . in addition , stock based compensation costs rose by approximately $ 5.0 million due to a rise in our share price and an increase in the number of shares awarded as a result of an increased headcount . we anticipate a significant increase in research and development expenses on a continuous basis as a result of our intended expanded development and commercialization efforts primarily related to clinical trials and product development . in addition , we expect to incur expenses in the development of strategic and other relationships required to license , manufacture and distribute our product candidates when they are approved . general and administrative expenses general and administrative expenses primarily include salary and benefit costs for employees included in our finance , legal and administrative organizations , outside legal and professional services , and facilities costs . general and administrative expense was $ 24.2 million for the year ended october 31 , 2015 , compared with $ 11.7 million for the year ended october 31 , 2014 , an increase of $ 12.5 million . the increase was due to greater stock based compensation costs of approximately $ 11.0 million attributable to a rise in our share price and an increase in the number of shares awarded as a result of an increased headcount . furthermore , greater legal costs of approximately $ 0.6 million for consultation on a variety of corporate matters and $ 1.4 million in cash payments for investor relations . the aforementioned was partially offset by $ 0.5 million in severance costs related to a former employee in the prior period . we anticipate general and administrative expenses in the near term to remain comparable to current levels , exclusive of the impact of future stock awards and one-time expenses . interest income interest income was $ 114,219 for the year ended october 31 , 2015 , compared with $ 36,305 for the year ended october 31 , 2014. interest income earned for the year ended october 31 , 2015 reflected interest income earned on the company 's held-to-maturity investments and savings account balance . story_separator_special_tag cash used in investing activities for the year ended october 31 , 2015 was approximately $ 47.4 million resulting from investments in held-to-maturity investments , purchases of property and equipment to support expansion , legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . cash used in investing activities , for the year ended october 31 , 2014 , was approximately $ 440,000 resulting from legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . financing activities cash provided by financing activities for the year ended october 31 , 2016 was approximately $ 53.7 million , resulting from the sale of 3,047,446 shares of our common stock to amgen resulting in net proceeds of approximately $ 25 million and a registered direct offering of 2,244,443 shares of our common stock resulting in net proceeds of approximately $ 28.2 million . in addition , approximately $ 614,000 in proceeds was received on option and warrant exercises . this was partially offset by approximately $ 36,000 of taxes paid related to the net share settlement of equity awards . cash provided by financing activities for the year ended october 31 , 2015 was approximately $ 120.5 million , resulting primarily from registered direct offerings of 8,806,165 shares of our common stock resulting in net proceeds of approximately $ 63.1 million and a public offering of 2,800,000 shares of common stock resulting in net proceeds of approximately $ 56.7 million . in addition , the company received approximately $ 2.4 million from the proceeds received on option and warrant exercises . this was partially offset by approximately $ 1.6 million of taxes paid related to the net share settlement of equity awards . cash provided by financing activities , for the year ended october 31 , 2014 , was approximately $ 13.6 million , primarily resulting from the public offering of 4,692,000 shares of common stock at $ 3.00 per share , resulting in net proceeds of $ 12.6 million . in addition , we sold 306,122 shares of common stock to aratana at a price of $ 4.90 per share , resulting in net proceeds of approximately $ 1.5 million . we also issued gbp 108,724 shares of common stock pursuant to a stock purchase agreement with gbp , resulting in net proceeds of approximately $ 0.4 million . this was partially offset by approximately $ 0.9 million of taxes paid related to the net share settlement of equity awards . 36 our 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 , 2016 and october 31 , 2015 , we had an accumulated deficit of $ 207,706,825 and $ 134,054,259 , respectively and shareholders ' equity of $ 119,302,194 and $ 115,598,875 , respectively . the company believes its current cash position is sufficient to fund its business plan approximately through the second quarter of fiscal 2019. we have based this estimate on assumptions that may prove to be wrong , and we could use available capital resources sooner than currently expected . because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates , we are unable to estimate the amount of increased capital outlays and operating expenses associated with completing the development of our current product candidates . the company recognizes it may need to raise additional capital in order to continue to execute its business plan . there is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the company or whether the company will become profitable and generate positive operating cash flow . if the company is unable to raise sufficient additional funds , it will have to scale back its business plan , extend payables and reduce overhead until sufficient additional capital is raised to support further operations . there can be no assurance that such a plan will be successful . tabular disclosure of contractual obligations replace_table_token_6_th we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical studies and other services and products for operating purposes which are cancelable at any time by us , generally upon 30 days prior written notice . these payments are not included in this table of contractual obligations . we are obligated to make future payments to third parties under in-license agreements , including sublicense fees , royalties and payments that become due and payable on the achievement of certain development and commercialization milestones . as the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable , such commitments have not been included on our consolidated balance sheets or in the contractual obligations table above . off-balance sheet arrangements as of october 31 , 2016 , we had no off-balance sheet arrangements . critical accounting estimates the preparation of financial statements in accordance with gaap accepted in the u.s. requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : ● it requires assumptions to be made that were uncertain at the time the estimate was made , and ● changes in the estimate of difference estimates that could have been selected could have material impact in our results of operations or financial condition .
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results of operations fiscal year 2016 compared to fiscal year 2015 revenue during the year ended october 31 , 2016 , the company recorded revenue of $ 3,994,856. the company recognized $ 3,744,856 of revenue from the collaboration agreement with amgen related to amortization of the upfront fees received . in addition , $ 250,000 of revenue was due to the receipt of an annual exclusive license fee from gbp for the development and commercialization of axal . we did not record any revenue for the year ended october 31 , 2015. research and development expenses we make significant investments in research and development in support of our development programs both clinically and pre-clinically . research and development costs are expensed as incurred and primarily include salary and benefit costs , third-party grants , fees paid to clinical research organizations and supply costs . research and development expense was $ 48.8 million for the year ended october 31 , 2016 , compared with $ 24.4 million for the year ended october 31 , 2015 , an increase of $ 24.4 million . the increase was primarily a result of higher third-party costs , specifically related to axal support of clinical trial expenses , manufacturing , and consulting costs , for the cervical , anal , and head & neck cancer programs , as well as adxs-psa phase 1/2 trial support and preclinical support of adxs-neo . stock based compensation for existing and past employees increased by approximately $ 2.7 million due to increases in the number of awards . moreover , the increase in overall research and development expense was also a result of an increased number of employees to support the research and development initiatives . we anticipate a significant increase in research and development expenses on a continuous basis as a result of our intended expanded development and commercialization efforts primarily related to clinical trials and product development .
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our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in u.s. mutual funds , separately managed accounts , subadvised funds , and other t. rowe price products . the other t. rowe price products include : collective investment trusts , target date retirement trusts , open-ended investment products offered to investors outside the u.s. , and products offered through variable annuity life insurance plans in the u.s. we manage a broad range of u.s. , international and global stock , bond , and money market mutual funds and other investment products , which meet the varied needs and objectives of individual and institutional investors . investment advisory revenues depend largely on the total value and composition of assets under our management . accordingly , fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations . we incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients . these efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management . the general trend to passive investing has been persistent and accelerated in recent years , which has negatively impacted our new client inflows . however , over the long term we expect well-executed active management to play an important role for investors . in this regard , we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities . we are investing in key capabilities , including investment professionals , technologies , and new product offerings ; and , most importantly , are providing our clients with strong investment management expertise and service both now and in the future . in 2019 , we expect to advance our strategic priorities to sustain and deepen our investment talent , add investment capabilities both in terms of new strategies and new investment vehicles , expand capabilities through enhanced technology , and broaden our distribution reach globally . we currently expect our 2019 non-gaap operating expenses to grow in the range of 4 % to 7 % . this expense growth range factors in continued investments in the business , our cost optimization efforts , and the incremental cost of paying for all third-party investment research as and when implemented . we could elect to adjust our expense growth should unforeseen circumstances arise , including significant market movements . market trends . u.s. stocks declined in 2018 , the worst year for the u.s. equity market since 2008. stocks rose for much of the year , but market volatility-stemming from rising short-term interest rates and heightened global trade tensions , especially between the u.s. and china-was relatively high . while most major u.s. stock indexes reached all-time highs around the end of the third quarter , equities plunged in the final months of the year , with several indexes falling into or close to bear market territory down at least 20 % from recent highs by the end of the year . the market faltered amid forecasts for slowing corporate earnings growth in 2019 and fears that the federal reserve would continue to raise interest rates in 2019 even if indications of softness in the u.s. economy emerge . stocks in developed non-u.s. equity markets fared worse than u.s. shares . japanese shares dropped almost 13 % , as the export-oriented country was hurt by global trade tensions throughout the year and japan 's economic contraction in the third quarter . european stocks declined over 14 % in u.s. dollar terms amid political turmoil , slowing growth , and global trade tensions . emerging markets stocks performed slightly worse than shares in developed non-u.s. markets . in asia , global trade tensions hurt several emerging markets significantly . in emerging europe , turkish stocks plummeted roughly 41 % as the lira plunged due to factors such as elevated inflation and tensions with the u.s. in latin america , brazilian shares ended the year nearly flat after a fourth-quarter surge on optimism that brazil 's newly elected president will pursue business-friendly policies and pension reform . mexican stocks fell about 15 % amid concerns about the governing style of the country 's new president . page 24 results of several major equity market indexes for 2018 are as follows : s & p 500 index ( 4.4 ) % nasdaq composite index ( 1 ) ( 3.9 ) % russell 2000 index ( 11.0 ) % msci eafe ( europe , australasia , and far east ) index ( 13.4 ) % msci emerging markets index ( 14.3 ) % ( 1 ) returns exclude dividends global bond returns were generally negative for the year . u.s. fixed income performance was mostly flat to negative , as the federal reserve raised the federal funds target rate four times . treasury yields increased across all maturities ; the 10-year treasury note yield increased from 2.40 % to 2.69 % during the year but decreased from seven-year highs above 3.20 % in early october . in the investment-grade universe , asset- and mortgage-backed securities posted positive returns , while long-term corporate and treasury securities declined . municipal bonds easily outperformed taxable securities . high yield bonds fell as credit spreads-the yield differences between higher- and lower-quality bonds-widened due to late-year risk aversion . bond returns in developed non-u.s. markets were negative in u.s. dollar terms . while bond yields in some european markets declined and bond prices rose-especially late in the year-as investors fled equity market volatility , the stronger dollar versus the euro and the british pound hurt returns in dollar terms . japanese government bond ( `` jgb '' ) yields were little changed for the year , but a stronger yen versus the dollar lifted jgb returns to u.s. investors . story_separator_special_tag this is a contributing factor in why investment advisory revenue has generally grown slower than average assets under management in each of these vehicles over the same period . additionally , significant client transfers from mutual funds to lower fee vehicles or among product share classes in 2017 and 2018 have contributed to the investment advisory fees associated with subadvised and separate accounts and other investment products to grow slower than the related average assets under management . market fluctuations and net cash flows over the annual time periods have also shifted the asset and share class mix among different fee rates and products with tiered-fee structures . administrative , distribution , and servicing fees . administrative , distribution , and servicing fees represent fees earned from providing administrative and distribution services to our investment advisory clients , primarily u.s. mutual funds and their investors . for 2018 , these fees were $ 522.0 million , a decrease of $ 37.1 million from the comparable 2017 period . the decrease was primarily attributable to lower assets under management in the u.s. page 31 mutual funds resulting from client transfers among vehicles and share classes and the sharp market decline at the end of 2018. for 2017 , administrative , distribution , and servicing fees were $ 559.1 million , an increase of $ 9.3 million from the comparable 2016 period . the increase was primarily attributable to higher transfer agent and distribution servicing revenue due to client transfers among vehicles and share classes . the distribution and servicing fees we earn are related to 12b-1 plans of certain classes , including the advisor and r classes , of our u.s. mutual funds and are entirely offset by the costs paid to third-party intermediaries who source these assets . these costs are reported in the distribution and servicing cost line in the consolidated income statements . net revenues include the elimination of $ 6.2 million for 2018 , $ 5.6 million for 2017 , and $ 6.5 million for 2016 , earned from our consolidated t. rowe price investment products . the corresponding expenses recognized by these consolidated products were also eliminated from operating expenses . operating expenses replace_table_token_13_th ( 1 ) the percentage change in nonrecurring net charges ( recoveries ) related to dell appraisal rights matter is not meaningful ( n/m ) . compensation and related costs . compensation and related costs increased $ 143.7 million , or 8.6 % , for 2018 as compared with 2017 . the largest part of the increase was an increase in base salaries , benefits and related employee costs of $ 77.1 million , resulting from an increase of 6.2 % in average headcount , combined with a modest increase in salaries at the beginning of 2018. our operating results led to a $ 68.0 million increase in annual variable compensation and contributed to the $ 45.0 million increase in non-cash stock based compensation expense as the annual grant value was higher in 2018. additionally , our 2018 equity grant reflected the adoption of more favorable post-retirement vesting provisions , which shifted a greater percentage of the expense related to the annual grant to be recognized for 2018. the 2018 period also includes $ 9.0 million in one-time bonuses paid to certain associates from u.s. tax reform benefits . these increases were partially offset by lower market-related expense of $ 30.3 million from our supplemental savings plan and higher labor capitalization related to internally developed software . for 2017 , compensation and related costs increased $ 170.9 million , or 11.4 % , as compared with 2016 . the largest part of the change is attributable to a $ 116.9 million increase in salaries and related benefit expenses , which resulted primarily from a modest increase in salaries at the beginning of 2017 , combined with a 6.4 % increase in average headcount from 2016. the higher employee benefit expenses also includes increased health care costs as well as greater equity award-related payroll taxes due to the significant rise in our stock price during 2017. higher average headcount also drove up recruiting costs for 2017 compared with the 2016 period . our annual variable compensation for the 2017 period rose $ 59.8 million over the 2016 period . stronger markets during 2017 increased the supplemental savings plan liability resulting in additional compensation expense of $ 21.1 million for 2017 compared with the 2016 period . the increases in these compensation and related costs were offset in part by higher labor capitalization related to internally developed software for 2017 compared with the 2016 period , as we continue to invest in our technology capabilities . we had a reduction in our non-cash stock based compensation expense for 2017 , as we shifted our annual grant from twice a year to a single grant in december . page 32 distribution and servicing costs . distribution and servicing costs includes those costs incurred to distribute the t. rowe price products as well as client and shareholder servicing , recordkeeping , and administrative services . these costs were $ 281.2 million for 2018 , $ 262.6 million for 2017 , and $ 233.4 million for 2016 . the increases for 2018 from 2017 and for 2017 from 2016 are primarily driven by strong markets and net cash flows from the end of 2016 through the third quarter of 2018 , which grew the assets in those share classes and products for which we pay a related distribution and servicing fee . these costs include those distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our u.s. mutual funds and is offset entirely by the 12b-1 revenue we earn and report in administrative , distribution , and servicing fees . advertising and promotion . advertising and promotion costs were $ 99.6 million for 2018 , $ 92.4 million for 2017 , and $ 80.2 million for 2016 .
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results of operations . the following table and discussion sets forth information regarding our consolidated financial results for 2018 , 2017 and 2016 on a u.s. gaap basis as well as a non-gaap basis . the non-gaap basis adjusts for the impact of our consolidated t. rowe price investment products , the impact of market movements on the supplemental savings plan liability and related economic hedges , investment income related to certain other investments , and certain nonrecurring charges and gains . page 28 replace_table_token_9_th ( 1 ) the percentage change in non-operating income is not meaningful ( n/m ) . ( 2 ) see the reconciliation to the comparable u.s. gaap measures at the end of the results of operations section of this management 's discussion and analysis . on january 1 , 2018 , we adopted new accounting guidance related to revenue recognition . we elected to adopt the new guidance on a retrospective basis , which requires 2017 and 2016 results to be recast to reflect the impact . accordingly , the 2017 and 2016 net revenues and operating expenses presented in the table above and in the narrative that follows have been recast to reflect the impact of adopting this new accounting guidance . the new guidance requires certain revenue related expenses that are incurred in servicing our u.s. mutual funds to be recognized in operating expenses versus being presented net against the related revenues . as such , net revenues and operating expenses , primarily product-related , were recast to reflect an increase of $ 61.9 million in both 2017 and 2016 . additionally , we modified our income statement presentation in 2018 to increase operating expense transparency and to align expenses that have similar cost drivers . prior year amounts have been reclassified to conform to the new 2018 presentation .
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the operation and franchising of wendy 's restaurants in north america comprises virtually all of our current operations and represents a single reportable segment . the revenues and operating results of wendy 's restaurants outside of north america are not material . the results of operations discussed below may not necessarily be indicative of future results . the company 's fiscal reporting periods consist of 52 or 53 weeks ending on the sunday closest to december 31 and are referred to herein as ( 1 ) “ the year ended january 1 , 2017 ” or “ 2016 , ” which consisted of 52 weeks , ( 2 ) “ the year ended january 3 , 2016 ” or “ 2015 , ” which consisted of 53 weeks , and ( 3 ) “ the year ended december 28 , 2014 ” or “ 2014 , ” which consisted of 52 weeks . all references to years and quarters relate to fiscal periods rather than calendar periods . executive overview our continuing business as of january 1 , 2017 , the wendy 's restaurant system was comprised of 6,537 restaurants , of which 330 were owned and operated by the company . all of our company-operated restaurants are located in the u.s. as a result of the company completing its initiative during the second quarter of 2015 to sell all company-operated restaurants in canada to franchisees . wendy 's operating results are impacted by a number of external factors , including unemployment , general economic trends , intense price competition , commodity costs , labor costs and weather . wendy 's long-term growth opportunities will be driven by a combination of brand relevance and economic relevance . key components of growth include ( 1 ) systemwide same-restaurant sales growth through continuing core menu improvement , product innovation and customer count growth , ( 2 ) investing in our image activation program , which includes innovative exterior and interior restaurant designs for our new and reimaged restaurants and focused execution of operational excellence , ( 3 ) growth in new restaurants , including global growth , ( 4 ) increased restaurant utilization in various dayparts and brand access utilizing mobile technology , ( 5 ) building shareholder value through financial management strategies and ( 6 ) our system optimization initiative . wendy 's revenues for 2016 include : ( 1 ) $ 920.8 million of sales at company-operated restaurants , ( 2 ) $ 371.5 million of royalty revenue and fees and ( 3 ) $ 143.1 million of franchise rental income . in 2016 , substantially all of our wendy 's royalty agreements provided for royalties of 4.0 % of franchise revenues . 33 key business measures we track our results of operations and manage our business using the following key business measures , which include non-gaap financial measures : same-restaurant sales - beginning with the first quarter of 2016 , the company revised its reporting methodology for same-restaurant sales to simplify the reporting of its same-restaurant sales performance for reimaged restaurants and to better align with restaurant-industry practice . under the new methodology , the company includes restaurants in its comparable sales base as soon as reimaged restaurants reopen ( the “ new method ” ) . reimaged restaurants previously entered the comparable sales base after they had been open for three continuous months ( the “ old method ” ) . there was no change in the reporting methodology for new restaurants , which will continue to be excluded from same-restaurant sales until they have been open for 15 continuous months . the table summarizing the results of operations provides the same-restaurant sales percent change using the new method , as well as the old method . the new method is consistent with the metric used by our management for internal reporting and analysis . same-restaurant sales exclude the impact of currency translation . restaurant margin - we define restaurant margin as sales from company-operated restaurants less cost of sales divided by sales from company-operated restaurants . cost of sales includes food and paper , restaurant labor and occupancy , advertising and other operating costs . restaurant margin is influenced by factors such as restaurant openings and closures , price increases , the effectiveness of our advertising and marketing initiatives , featured products , product mix , the level of our fixed and semi-variable costs and fluctuations in food and labor costs . systemwide sales - systemwide sales is a non-gaap financial measure , which includes sales by both company-operated restaurants and franchised restaurants . franchised restaurants ' sales are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . the company believes systemwide sales data is useful in assessing consumer demand for the company 's products , the overall success of the wendy 's brand and , ultimately , the performance of the company . the company 's royalty revenues are computed as percentages of sales made by wendy 's franchisees . as a result , sales by wendy 's franchisees have a direct effect on the company 's royalty revenues and therefore on the company 's profitability . the company reviews systemwide sales for its international franchised restaurants on a constant currency basis . constant currency results exclude the impact of foreign currency translation and are derived by translating current year results at prior year average exchange rates . the company believes excluding the impact of foreign currency translation provides better year over year comparability . average unit volumes - we calculate company-operated restaurant average unit volumes by summing the average weekly sales of all company-operated restaurants which reported sales during the week . franchised restaurant average unit volumes is a non-gaap financial measure , which includes sales by franchised restaurants , which are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . story_separator_special_tag sale of the bakery on may 31 , 2015 , wendy 's completed the sale of 100 % of its membership interest in the new bakery company , llc and its subsidiaries ( collectively , the “ bakery ” ) to east balt us , llc ( the “ buyer ” ) for $ 78.5 million in cash ( subject to customary purchase price adjustments ) . the company recorded a pre-tax gain on the disposal of the bakery of $ 25.5 million during 2015 , which included transaction closing costs and a reduction of goodwill . the company recognized income tax expense associated with the gain on disposal of $ 14.9 million during 2015 , which included the impact of the disposal of non-deductible goodwill . in conjunction with the bakery sale , wendy 's entered into a transition services agreement with the buyer , pursuant to which wendy 's provided certain continuing corporate and shared services to the buyer through march 31 , 2016 for no additional consideration . the bakery 's results of operations and the gain on disposal have been included in discontinued operations . 35 sale of arby 's on july 4 , 2011 , wendy 's restaurants completed the sale of 100 % of the common stock of its then wholly-owned subsidiary , arby 's restaurant group , inc. ( “ arby 's ” ) to arg ih corporation ( “ arg ” ) , a wholly-owned subsidiary of arg holding corporation ( “ arg parent ” ) , for $ 130.0 million in cash ( subject to customary purchase price adjustments ) and 18.5 % of the common stock of arg parent ( through which wendy 's restaurants indirectly retained an 18.5 % interest in arby 's ) . the company received a $ 54.9 million dividend from our investment in arby 's in 2015 , which was recognized in “ investment income , net. ” related party transactions stock purchase agreement on june 2 , 2015 , the company entered into a stock purchase agreement to repurchase our common stock from nelson peltz , peter w. may ( messrs. peltz and may are members of the company 's board of directors ) and edward p. garden ( who served on the company 's board of directors until december 14 , 2015 ) and certain of their family members and affiliates , investment funds managed by trian fund management , l.p. ( an investment management firm controlled by messrs. peltz , may and garden , “ tfm ” ) and the general partner of certain of those funds ( together with messrs. peltz , may and garden , certain of their family members and affiliates and tfm , the “ trian group ” ) , who in the aggregate owned approximately 24.8 % of the company 's outstanding shares as of may 29 , 2015. pursuant to the agreement , the trian group agreed not to tender or sell any of its shares in the modified dutch auction tender offer the company commenced on june 3 , 2015. also pursuant to the agreement , the company agreed , following completion of the tender offer , to purchase from the trian group a pro rata amount of its shares based on the number of shares the company purchased in the tender offer , at the same price received by shareholders who participated in the tender offer . on july 17 , 2015 , after completion of the modified dutch auction tender offer , the company repurchased 18.4 million shares of its common stock from the trian group at the price paid in the tender offer of $ 11.45 per share , for an aggregate purchase price of $ 210.9 million . supply chain relationship agreement wendy 's has a purchasing co-op relationship agreement ( the “ wendy 's co-op ” ) with its franchisees which establishes quality supply chain co-op , inc. ( “ qscc ” ) . qscc manages , for the wendy 's system in the u.s. and canada , contracts for the purchase and distribution of food , proprietary paper , operating supplies and equipment under national agreements with pricing based upon total system volume . qscc 's supply chain management facilitates continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the wendy 's supply chain in the u.s. and canada . wendy 's and its franchisees pay sourcing fees to third-party vendors on certain products sourced by qscc . such sourcing fees are remitted by these vendors to qscc and are the primary means of funding qscc 's operations . should qscc 's sourcing fees exceed its expected needs , qscc 's board of directors may return some or all of the excess to its members in the form of a patronage dividend . wendy 's recorded its share of patronage dividends of $ 0.9 million , $ 1.3 million and $ 1.5 million in 2016 , 2015 and 2014 , respectively , which are included as a reduction of “ cost of sales. ” effective january 1 , 2011 , wendy 's leased 14,333 square feet of office space to qscc for an annual base rental of $ 0.2 million . the lease expired on december 31 , 2016. a new lease agreement was signed effective january 1 , 2017 , expiring on december 31 , 2020 for an annual base rental of $ 0.2 million . the wendy 's company received $ 0.2 million of lease income from qscc each year during 2016 , 2015 and 2014 , which has been recorded as a reduction of “ general and administrative. ” citationair aircraft lease agreement the wendy 's company , through a wholly-owned subsidiary , was party to a three-year aircraft management and lease agreement , which expired in march 2014 , with citationair , a subsidiary of cessna aircraft company , pursuant to which the company leased a corporate aircraft to citationair to use as part of its jet card program fleet .
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results of operations as a result of the sale of the bakery discussed above in “ executive overview - sale of the bakery , ” the bakery 's results of operations for the period from december 29 , 2014 through may 31 , 2015 and for the year ended 2014 have been included in “ income from discontinued operations , net of income taxes ” in the table below . the tables included throughout results of operations set forth in millions the company 's consolidated results of operations for the years ended january 1 , 2017 , january 3 , 2016 and december 28 , 2014 ( except average unit volumes , which are in thousands ) . replace_table_token_6_th 38 replace_table_token_7_th replace_table_token_8_th the tables below present key business measures which are defined and further discussed in the “ executive overview ” section included here-in . replace_table_token_9_th ( a ) excludes the impact of the 53 rd week in 2015 . ( b ) includes international franchised restaurants same-restaurant sales ( excluding venezuela due to the impact of venezuela 's highly inflationary economy ) . 39 replace_table_token_10_th ( a ) on a constant currency basis , systemwide sales for international franchised restaurants increased 3.8 % and 0.8 % during 2016 and 2015 , respectively . ( b ) excludes venezuela due to the impact of venezuela 's highly inflationary economy . ( c ) excludes the impact of the 53 rd week in 2015 . ( d ) the decrease in average unit volumes for international franchised restaurants is primarily driven by changes in the countries and territories in which the franchised restaurants operate , as well as the impact of foreign currency translation . replace_table_token_11_th replace_table_token_12_th the decrease in sales during 2016 was primarily due to the impact of wendy 's company-operated restaurants sold under our system optimization initiative , which resulted in a reduction in sales of $ 560.0 million .
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shares of the company 's non-voting common stock will be convertible on a share-for-share basis into common stock at the election of the holder subject to the company remaining in compliance with story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report . 2017 year in review the year 2017 marks our eleventh consecutive year of profitability . in 2017 , we increased our capacity by 16.1 % , as we grew our fleet of airbus single-aisle aircraft from 95 to 112 aircraft , launched service to 36 new markets and added 2 new destinations : hartford , connecticut and pittsburgh , pennsylvania . during 2017 , we earned net income of $ 420.6 million ( $ 6.06 per share , diluted ) , compared to net income of $ 264.9 million ( $ 3.76 per share , diluted ) in 2016 . the increase in earnings was a result of a 14.0 % increase in our traffic and stable average yield , year over year , along with a $ 199.3 million tax benefit ( $ 2.87 per diluted share ) as a result of the enactment of the tax cuts and jobs act of 2017. this increase was partially offset by a 20.3 % increase in operating expenses , as compared to the prior year . for the year ended december 31 , 2017 , we achieved an operating profit margin of 14.7 % on $ 2,647.7 million in operating revenues . our traffic grew by 14.0 % as we continued to address an underserved market with ultra-low fares . we maintained stable average yield , year over year , while we continued to experience competitive pressures throughout 2017. trasm in 2017 was 8.95 cent s , a decrease of 1.8 % compared to the prior year period . total revenue per passenger flight segment increased 1.9 % , year over year , from $ 107.41 to $ 109.49 driven by a 2.2 % increase in average non-ticket revenue per passenger flight segment and a 1.7 % increase in average ticket revenue per passenger flight segment , as compared to the prior year . our total non-ticket revenue increased by 14.3 % , or $ 160.3 million , to $ 1,281.6 million in 2017 . the increase in non-ticket revenue was primarily attributable to higher bag , passenger usage fee and seat revenue , as compared to the prior year . our unbundled model provides a more stable revenue stream as demonstrated during periods of lower passenger ticket yields . our operating cost structure is a primary area of focus and is at the core of our ulcc business model . our unit operating costs continue to be among the lowest of any airline in the united states . during 2017 , our adjusted casm ex-fuel increase d slightly by 1.1 % to 5.51 cent s. the increase on a per-asm basis was primarily due to increases in other operating and depreciation and amortization expense per asm , partially offset by decreases in aircraft rent and salaries , wages and benefits expense per asm . during 2017 , we took delivery of 17 new aircraft financed under secured debt arrangements , 2 aircraft financed under operating leases , purchased 1 previously leased aircraft and returned 2 aircraft to its lessor . in addition , we took delivery of 2 engines through cash purchases , 1 engine financed under an operating lease , and purchased 1 previously leased engine . as of december 31 , 2017 , our 112 airbus a320-family aircraft fleet was comprised of 31 a319s , 51 a320ceos , 5 a320neos and 25 a321ceos of which 46 aircraft are financed through secured debt , 58 are financed under operating leases and 8 are unencumbered . as of december 31 , 2017 , our aircraft orders consisted of 59 a320 family aircraft with airbus scheduled for delivery from 2018 through 2021 . operating revenues our operating revenues are comprised of passenger revenues and non-ticket revenues . passenger revenues . passenger revenues consist of the base fares that customers pay for air travel . non-ticket revenues . non-ticket revenues are generated from air travel-related charges for baggage , passenger usage fee ( puf ) for bookings through certain of our distribution channels , advance seat selection , itinerary changes , hotel and rental car travel packages and loyalty programs such as our free spirit affinity credit card program and $ 9 fare club . non-ticket revenues also include revenues derived from the sale of advertising to third parties on our website and on board our aircraft . substantially all of our revenues are denominated in u.s. dollars . passenger revenues , as well as most non-ticket revenues , are recognized once the related flight departs . accordingly , the value of tickets and portions of non-ticket revenues sold in advance of travel is included under our current liabilities as “ air traffic liability , ” or atl , until the related air travel is provided . some of our non-ticket revenues are recognized at the time the ancillary products are purchased or ancillary services 39 are provided , such as revenues from our subscription-based $ 9 fare club , which we recognize on a straight-line basis over 12 months . revenue generated from the free spirit credit card affinity program are recognized in accordance with the criteria as set forth in accounting standards update asu no . 2009-13. please see “ —critical accounting policies and estimates—frequent flier program. ” we recognize revenues net of certain taxes and airport passenger fees , which are collected by us on behalf of airports and governmental agencies and remitted to the applicable governmental entity or airport on a periodic basis . these taxes and fees include u.s. federal transportation taxes , federal security charges , airport passenger facility charges and foreign arrival and departure taxes . story_separator_special_tag we record a valuation allowance to reduce the deferred tax assets reported if , based on the weight of the evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards . in assessing the realizability of the deferred tax assets , we consider whether it is more likely than not that some or all of the deferred tax assets will be realized . in evaluating the ability to utilize our deferred tax assets , we consider all available evidence , both positive and negative , in determining future taxable income on a jurisdiction by jurisdiction basis . trends and uncertainties affecting our business we believe our operating and business performance is driven by various factors affecting airlines and their markets , trends affecting the broader travel industry and trends affecting the specific markets and customer base that we target . the following key factors may affect our future performance . competition . the airline industry is highly competitive . the principal competitive factors in the airline industry are fare pricing , total price , flight schedules , aircraft type , passenger amenities , number of routes served from a city , customer service , safety record , reputation , code-sharing relationships , frequent flier programs and redemption opportunities . price competition occurs on a market-by-market basis through price discounts , changes in pricing structures , fare matching , target promotions and frequent flier initiatives . airlines typically use discount fares and other promotions to stimulate traffic during normally slower travel periods to generate cash flow and to maximize unit revenue . the prevalence of discount fares can be particularly acute when a competitor has excess capacity that it is under financial pressure to sell . beginning in 2015 , and continuing into 2017 , the airline industry saw greater and more persistent price discounting than in the preceding several years . in addition , significant airline capacity increases in certain major cities exerted strong downward price pressure in those markets . finally , beginning in mid-2015 network carriers began matching low-cost carrier and ulcc pricing on portions of their marginal unsold capacity , particularly in their key hub markets . we expect the discounting trend to continue for the foreseeable future . moreover , the network carriers have developed a fare-class pricing approach , in which a portion of available seats may be sold at or near ulcc prices , but without most product features available to their passengers paying at higher fare levels on the same flight . broad fare discounting may have the effect of diluting the profitability of revenues of high-cost carriers but the fare-class approach may allow network carriers to continue offering a competitive price to ulccs on some flights or routes , while maintaining higher pricing to their traditional constituencies of business and more affluent travelers . refer to “ risk factors—risks related to our industry—we operate in an extremely competitive industry . '' 41 seasonality and volatility . our results of operations for any interim period are not necessarily indicative of those for the entire year because the air transportation business is subject to significant seasonal fluctuations . we generally expect demand to be greater in the second and third quarters compared to the rest of the year . the air transportation business is also volatile and highly affected by economic cycles and trends . consumer confidence and discretionary spending , fear of terrorism or war , weakening economic conditions , fare initiatives , fluctuations in fuel prices , labor actions , changes in governmental regulations on taxes and fees , weather and other factors have resulted in significant fluctuations in revenues and results of operations in the past . we believe demand for business travel historically has been more sensitive to economic pressures than demand for low-price travel . finally , a significant portion of our operations are concentrated in markets such as south florida , the caribbean , latin america and the northeast and northern midwest regions of the united states , which are particularly vulnerable to weather , airport traffic constraints and other delays . aircraft fuel . fuel costs represents one of our largest operating expenses , as it does for most airlines . fuel costs have been subject to wide price fluctuations in recent years . fuel availability and pricing are also subject to refining capacity , periods of market surplus and shortage and demand for heating oil , gasoline and other petroleum products , as well as meteorological , economic and political factors and events occurring throughout the world , which we can neither control nor accurately predict . we source a significant portion of our fuel from refining resources located in the southeast united states , particularly facilities adjacent to the gulf of mexico . gulf coast fuel is subject to volatility and supply disruptions , particularly in hurricane season when refinery shutdowns have occurred , or when the threat of weather-related disruptions has caused gulf coast fuel prices to spike above other regional sources . our fuel derivatives , if any , generally consist of united states gulf coast jet fuel swaps ( jet fuel swaps ) and united states gulf coast jet fuel options ( jet fuel options ) . both jet fuel swaps and jet fuel options can be used at times to protect the refining price risk between the price of crude oil and the price of refined jet fuel , and to manage the risk of increasing fuel prices . our fuel hedging practices are dependent upon many factors , including our assessment of market conditions for fuel , our access to the capital necessary to support margin requirements , the pricing of hedges and other derivative products in the market , our overall appetite for risk and applicable regulatory policies .
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resulting in a 14.7 % operating margin and net earnings of $ 420.6 million . in 2016 , we generated operating revenues of $ 2,322.0 million and operating income of $ 443.7 million resulting in a 19.1 % operating margin and net earnings of $ 264.9 million . operating revenues increased , year over year , mainly as a result of a 14.0 % increase in traffic . increased operations resulted in higher operating expenses across the board with the exception of special charges expense . aircraft fuel expense alone increased by 37.5 % , year over year , due to an increase in both fuel price per gallon and gallons consumed . as of december 31 , 2017 , our cash and cash equivalents was $ 800.8 million , an increase of $ 99.9 million compared to the prior year . cash and cash equivalents is driven by cash from our operating and financing activities offset by cash used to fund pdps and capital expenditures . in addition to cash and cash equivalents , as of december 31 , 2017 , we had $ 100.9 million in short-term investment securities . operating revenues replace_table_token_9_th 2017 compared to 2016 46 operating revenues increase d by $ 325.7 million , or 14.0 % , to $ 2,647.7 million in 2017 compared to 2016 , primarily due to an increase in traffic of 14.0 % , and a stable average yield of 10.76 cents , year over year . trasm for 2017 was 8.95 cent s , a decrease of 1.8 % compared to 2016 , as a result of a 1.6 point decrease in load factor and stable operating yields , year over year . total revenue per passenger flight segment increase d 1.9 % from $ 107.41 in 2016 to $ 109.49 in 2017 .
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cost of sales in both segments include costs to manufacture or source our products , including costs such as raw material and finished goods purchases , direct and indirect labor , overhead and incoming freight charges . unallocated corporate expenses primarily represent compensation and benefits for certain executive officers and all costs related to being a public company . segment assets include assets used in the operation of each segment and primarily consist of accounts receivable , inventories , and property , plant and equipment . the mattress fabrics segment also includes in segment assets , assets held for sale , goodwill , and non-compete agreements associated with certain acquisitions . the upholstery fabrics segment also includes assets held for sale in segment assets . story_separator_special_tag times new roman '' > * calculated as a percentage of income before income taxes . the tables on the following two pages set forth the company 's statements of operations by segment for the fiscal years ended april 29 , 2012 , may 1 , 2011 , and may 2 , 2010 . 27 culp , inc. statements of operations by segment for the twelve months ended april 29 , 2012 and may 1 , 2011 ( amounts in thousands ) replace_table_token_8_th notes : ( 1 ) the $ 77 represents employee termination benefits associated with our anderson , sc plant facility . ( 2 ) this $ 28 represents an impairment charge of $ 28 related to equipment associated with the upholstery fabrics segment that is classified as held for sale , a charge of $ 24 for lease termination and other exit costs , offset by a credit of $ 14 for employee termination benefits , and a credit of $ 10 for sales proceeds received on equipment with no carrying value . 28 culp , inc. statements of operations by segment for the twelve months ended may 1 , 2011 and may 2 , 2010 ( amounts in thousands ) replace_table_token_9_th notes : ( 1 ) this $ 28 represents an impairment charge of $ 28 related to equipment associated with the upholstery fabrics segment that is classified as held for sale , and a charge of $ 24 for lease termination and other exit costs , offset by a credit of $ 14 for employee termination benefits , and a credit of $ 10 for sales proceeds received on equipment with no carrying value . ( 2 ) the $ 58 represents a restructuring related charge of $ 108 for other operating costs associated with closed plant facilities , offset by a credit of $ 50 for the sale of inventory previously reserved for . ( 3 ) the $ 312 restructuring credit of $ 186 for employee termination benefits , a credit of $ 170 for sales proceeds received on equipment with no carrying value , a credit of $ 50 fo the sale of inventory previously reserved for , a credit of $ 14 for lease termination and other exit costs , offset by a charge of $ 108 for other operating costs associated with closed plant facilities . ( 4 ) n.m. - not meaningful . 29 2012 compared with 2011 segment analysis mattress fabrics segment net sales net sales were $ 145.5 million for fiscal 2012 , an increase of 19 % compared with $ 122.4 million for fiscal 2011. the $ 145.5 million in net sales represents the highest annual net sales in our history . also , net sales were $ 43.4 million in the fourth quarter of fiscal 2012 , an increase of 23 % compared with $ 35.2 million in the fourth quarter of fiscal 2011. this increase in net sales was primarily due to improved industry demand and our sales and marketing initiatives . we have been able to respond to this increased demand as we are benefitting from our recent investments in production facilities that have expanded our internal capacity . the bedding industry is evolving into a more decorative business with increased product diversity and growing consumer demand for better bedding and a higher quality mattress fabric . our expanded manufacturing platform has allowed us to better serve our customers by providing them with a diverse product line in all major product categories . this product diversity , along with our design capabilities , has created additional sales opportunities with customers who are leading suppliers in the bedding industry . as a result , we experienced sales gains across all major product categories in fiscal 2012 compared to fiscal 2011. the increase in net sales also reflects price increases we implemented starting in the fourth quarter of fiscal 2011 to partially offset the increased raw material costs noted below . sales and marketing initiatives in order to expand our product offerings and keep pace with the changing customer demand trends within the bedding industry , we entered into a joint product development , sales and marketing agreement with a. lava & son co. ( lava ) on may 21 , 2012. this agreement forms a new business named culp-lava applied sewn solutions and will provide us the opportunity to enter the business of designing , producing , and marketing sewn mattress covers . as we enter the business of sewn mattress covers , we will be able to leverage our design capabilities and expand our product offerings from mattress fabrics to finished covers . in connection with this agreement , lava will provide us with technical assistance and know-how for the start-up of the business and will work with us on the design , sales and marketing of sewn mattress covers . as part of the agreement , the new business will be fully funded and 100 % owned by us . we plan to establish a manufacturing facility located in the southeastern u.s. that will be selected by us . as a result , we will have two mirrored manufacturing facilities to better serve our customer base and meet current and expected demand trends in the bedding industry . story_separator_special_tag net sales of u.s.-produced upholstery fabrics were $ 13.4 million or 12 % of total upholstery fabric net sales in fiscal 2012 compared with $ 13.2 million or 14 % of total upholstery fabric net sales in fiscal 2011. our increase in net sales was primarily driven by growth of our china produced fabrics , as this platform has played a significant role in our global development in fiscal 2012 , with increased net sales to key customers located in the u.s. , the local china market , and other international customers . in the third quarter of fiscal 2011 , we established a wholly-owned subsidiary called culp europe in poland , and we continued to make progress in the development of this operation in fiscal 2012. we have been encouraged by the initial response from several of the largest furniture manufacturers and retailers in europe . during fiscal 2012 , culp europe accounted for 3 % of our total upholstery fabric net sales , and we expect this percentage to increase further over the next fiscal year . while we experienced a small operating loss for this operation during fiscal 2012 due to start-up costs , we expect this subsidiary to be more profitable in fiscal 2013. also , we are pleased with the sales and profit improvement during the fourth quarter of fiscal 2012 from our u.s. operation , with increased demand for both velvet and woven texture fabrics . we have struggled for several years with declining sales and low profitability with this operation . however , we felt it was strategically important to keep one u.s. upholstery fabric operation . our actions in the second quarter of fiscal 2012 to align our u.s. capacity with expected demand and increase prices had a favorable impact on profitability . we reported net sales of $ 4.1 million in the fourth quarter of fiscal 2012 from our u.s. operation , an increase of 44 % from $ 2.9 million in the second quarter of fiscal 2012. we are also encouraged by new placements with our u.s. produced fabrics and are expecting future sales growth and profitability in the first quarter of fiscal 2013. we are cautiously optimistic about our long-term prospects with this operation . gross profit and operating income gross profit was $ 15.0 million in fiscal 2012 , or 13.8 % of net sales , compared with $ 13.6 million , or 14.4 % of net sales , in fiscal 2011. sg & a expenses were $ 11.5 million , or 10.5 % of net sales in fiscal 2012 compared with $ 9.2 million , or 9.8 % in fiscal 2011. operating income was $ 3.5 million in fiscal 2012 , a decrease of 19 % compared with $ 4.4 million in fiscal 2011. operating margins were 3.2 % and 4.6 % of net sales for fiscal 2012 and 2011 , respectively . our gross profit and operating margins were affected by higher raw material costs . as a result , we implemented customer price increases starting in the fourth quarter of fiscal 2011 which continued in fiscal 2012. in addition , our gross profit and operating margins were affected by lower profitability in our u.s. velvet product line in the first half of fiscal 2012. in response , we aligned our u.s. capacity with expected demand and increased prices . as a result of these actions , our u.s. upholstery operation returned to profitability during the third quarter and continued to be profitable through the fourth quarter of fiscal 2012. in addition , operating margins were affected by increased sg & a expenses due to start-up expenses associated with our culp europe operation and an increase in incentive compensation accruals reflecting stronger financial results in relation to pre-established performance targets . 32 while our gross profit and operating margins for the full fiscal year for fiscal 2012 declined , our gross profit margins increased to 16 % in the fourth quarter of fiscal 2012 from 13 % for the third quarter of fiscal 2012. in addition , operating margins increased to 5.5 % in the fourth quarter of fiscal 2012 from 2.9 % in the third quarter of fiscal 2012. these increases in gross profit and operating margins in the fourth quarter of fiscal 2012 are primarily due to the increase in net sales and actions taken with our u.s. upholstery fabric operation noted above , as well as the stabilization of raw material price increases in the fourth quarter of fiscal 2012. segment assets segment assets consist of accounts receivable , inventory , property , plant and equipment , and assets held for sale . as of april 29 , 2012 , and may 1 , 2011 , accounts receivable and inventory totaled $ 31.5 million and $ 23.5 million , respectively . there were no assets classified as held for sale at april 29 , 2012. at may 1 , 2011 , assets held for sale totaled $ 60,000. at april 29 , 2012 , property , plant , and equipment totaled $ 1.1 million compared with $ 967,000 at may 1 , 2011. the $ 1.1 million at april 29 , 2012 , represents property , plant , and equipment located in the u.s. of $ 837,000 , located in china of $ 183,000 , and located in poland of $ 104,000. the $ 967,000 at may 1 , 2011 , represents property , plant , and equipment located in the u.s. of $ 727,000 , located in china of $ 184,000 , and located in poland of $ 56,000. other income statement categories selling , general and administrative expenses – sg & a expenses for the company as a whole were $ 25.0 million for fiscal 2012 compared with $ 21.1 million for fiscal 2011 , an increase of 19 % . this increase primarily pertains to start-up expenses associated with our culp europe operations that did not significantly occur until fiscal 2012 and increased incentive compensation expense , which reflects stronger financial results in relation to pre-established performance targets .
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executive summary net sales were $ 254.4 million in fiscal 2012 , an increase of 17.4 % , compared with $ 216.8 million for fiscal 2011. also , net sales were $ 75.7 million in the fourth quarter of fiscal 2012 , an increase of 25.4 % , compared with $ 60.4 million in the fourth quarter of fiscal 2011. the $ 75.7 million reported in the fourth quarter of fiscal 2012 is the highest quarterly net sales level in eight years . these results reflect improved industry demand and the benefits of our outstanding design capabilities and lean global manufacturing platform . income before income taxes was $ 14.2 million in fiscal 2012 , a decrease of 5.7 % compared with $ 15.1 million in fiscal 2011. despite the increase in net sales , income before income taxes declined primarily because of significant increases in raw material costs in both business segments and higher selling , general , and administrative expenses ( sg & a ) . to help partially offset the increased raw material costs , we implemented price increases in both business segments . while the increased raw material costs affected our operating margins for the full fiscal year for 2012 , raw material prices stabilized in the fourth quarter of fiscal 2012. sg & a was higher in fiscal 2012 compared to fiscal 2011 due to start-up expenses associated with our culp europe operations and an increase in incentive compensation accruals reflecting stronger financial results in relation to pre-established performance targets . sg & a as a percent of net sales was 9.8 % and 9.7 % in fiscal 2012 and 2011 , respectively .
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kyle guse pursuant to his employment agreement , if ( i ) the company terminates the employment of mr. guse without cause , or ( ii ) mr. guse terminates his employment for good reason , then mr. guse will be entitled to receive all accrued but unpaid compensation including pro-rated bonus , plus a severance payment equal to 12 months of base salary . in addition , upon such event , the vesting of 50 % of shares of common stock underlying unvested options then held by mr. guse will accelerate , and the options will remain exercisable for story_separator_special_tag the following discussion of the financial condition and results of operations should be read in conjunction with the financial statements and the related notes included elsewhere in this report . this discussion contains forward-looking statements , which are based on assumptions about the future of the company 's business . the actual results could differ materially from those contained in the forward-looking statements . please read “ forward-looking statements ” included elsewhere in this report for additional information regarding forward-looking statements . overview we are a clinical-stage pharmaceutical company focused on the development of novel therapeutics and delivery methods for the treatment of breast cancer and other breast conditions . our leading program uses our patented intraductal microcatheters which delivers pharmaceuticals through the breast ducts . we initiated a phase 2 clinical study in march 2016 using our microcatheters to deliver fulvestrant as a potential treatment of ductal carcinoma in-situ , or dcis , and breast cancer . this study is being conducted by columbia university medical center breast cancer programs . our second pharmaceutical program under development is afimoxifene topical gel , or aftg , for the treatment and prevention of hyperplasia of the breast . in addition to our clinical-stage pharmaceutical programs , we are in the process of evaluating other therapeutic candidates to treat other breast conditions , including breast cancer . factors we are considering in evaluating potential drug candidates include , for example , the ability to obtain expedited regulatory approval , significance of unmet medical need , size of the patient population , intellectual property opportunities and the anticipated pre-clinical and clinical pathway . through mid-2015 we were primarily focused on the development and commercialization of our medical devices and laboratory tests . our medical devices include the forecyte breast aspirator for distribution outside the united states and the fullcyte breast aspirator for the u.s. market . these devices are intended for the collection of nipple aspirate fluid , or naf , for cytological testing at a laboratory . the current version of the forecyte breast aspirator is ce-marked and the fullcyte breast aspirator has been cleared by the fda . we are not , however , currently marketing and promoting our breast aspirators as we are devoting substantially all of our resources to our pharmaceutical business . other devices under development include intraductal microcatheters for the potential administration of targeted pharmaceuticals , and various tools for potential use by breast surgeons . our laboratory tests have historically been developed and performed by the national reference laboratory for breast health , inc. , or the “ nrlbh. ” the nrlbh was our wholly-owned subsidiary until december 16 , 2015 when , pursuant to a stock purchase agreement , we sold approximately 81 % of the capital stock of the nrlbh to the nrl investment group , llc we have determined that the disposition of the lab business qualifies for reporting as a discontinued operation since the sale represents a strategic shift that will have a major effect on our operations and financial results . we have elected to recognize any subsequent gain from the earn-out payments as they are determined realizable . we are now focusing our business on our pharmaceutical programs . our key objectives are to advance our pharmaceutical candidates through phase 2 trials and then evaluate further development independently or through partners and to advance one or more of our pre-clinical programs into the clinical trial stage . revenue sources our business has provided us with two revenue sources : ( i ) sales-based revenue from the sale of our medical devices , such as our forecyte breast aspirator and fullcyte breast aspirator and patient kits to distributors , physicians , breast health clinics , and mammography clinics and ( ii ) service , or use-based , revenue from laboratory services performed by the nrlbh , such as preparation and interpretation of the naf samples sent to our laboratory for analysis and pharmacogenomics tests . our main source of revenue beginning in october 2014 has been from pharmacogenomics testing . as of the date of this report , we are not selling our medical devices and because of the sale of 81 % of the stock in the nrlbh , we are no longer generating revenue from laboratory testing . nrlbh revenue is disclosed as discontinued operations for both years ended 2014 and 2015. we do not anticipate generating additional revenue from other resources unless and until we develop and launch new pharmaceutical programs . 49 commercial lease agreements on march 4 , 2011 , we entered into a commercial lease agreement with sanders properties , llc for office space located in seattle , wa . the lease terminates on march 31 , 2016 and we plan to renew the lease for another term . on december 9 , 2011 , we entered into another commercial lease agreement with fred hutchinson research center for lab and office space located in seattle , wa . the lease provides for monthly rent of $ 16,395 for the period from february 24 , 2012 to august 31 , 2012 , $ 19,923 for the period from september 1 , 2012 to august 31 , 2013 , and $ 20,548 for the period from september 1 , 2013 to november 29 , 2014. the security deposit of $ 32,789 was paid in march 2012 and recorded as security deposit on the consolidated balance sheet . story_separator_special_tag we use discount rates that are commensurate with the risk and uncertainty inherent in the business and in our internally developed forecasts . discount rates used in valuations for these intangible assets ranged from 18 % to 21 % . share-based payments we follow the provisions of the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 718 , compensation – stock compensation ( “ asc 718 ” ) , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , non-employee directors , and consultants , including employee stock options . stock compensation expense based on the grant date 's fair value was estimated in accordance with the provisions of asc 718 and is recognized as an expense over the requisite service period . the fair value of each option grant is estimated using the black-scholes option-pricing model , which requires assumptions regarding the expected volatility of our stock options , the expected life of the options , an expectation regarding future dividends on our common stock , and estimation of an appropriate risk-free interest rate . our expected common stock price volatility assumption is based upon the volatility of our stock price . the expected life assumption for stock option grants was based upon the simplified method provided for under asc 718-10 , which averages the contractual term of the options of ten years with the average vesting term of four years . the dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future . the risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options . 51 we have estimated an annualized forfeiture rate of 10.0 % for options granted . we will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated . story_separator_special_tag uncertainty regarding utilization of our net operating carryforwards and due to our history of losses . liquidity and capital resources we have a history of operating losses as we have focused our efforts on raising capital and building our products and services in our pipeline . the company 's consolidated financial statements are prepared using generally accepted accounting principles in the united states of america applicable to a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the company has incurred net losses and negative operating cash flows since inception . for the year ended december 31 , 2015 , the company recorded a net loss of approximately $ 15.8 million and used approximately $ 14.0 million of cash in operating activities . as of december 31 , 2015 , the company had approximately $ 3.7 million in cash and cash equivalents and working capital of approximately $ 1.9 million . the company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern . the ability of the company to continue as a going concern is dependent on the company obtaining adequate capital to fund operating losses until it becomes profitable . the company can give no assurances that any additional capital that it is able to obtain , if any , will be sufficient to meet its needs , or that any such financing will be obtainable on acceptable terms . if the company is unable to obtain adequate capital , it could be forced to cease operations or substantially curtail is commercial activities . these conditions raise substantial doubt as to the company 's ability to continue as a going concern . the accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should the company be unable to continue as a going concern . during the first quarter of 2015 , we sold a total of 2,653,199 shares of common stock to aspire capital under the stock purchase agreement dated november 8 , 2013 with aggregate gross proceeds to us of $ 4,292,349. no shares remain available for sale to aspire under the terms of the november 8 , 2013 agreement with them and the agreement was subsequently terminated . on may 26 , 2015 , we entered into a new common stock purchase agreement with aspire capital fund , llc , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire capital is committed to purchase up to an aggregate of $ 25.0 million of shares of our common stock over the 30-month term of the purchase agreement . concurrently with entering into the purchase agreement , we also entered into a registration rights agreement with aspire capital , in which we agreed to file one or more registration statements , as permissible and necessary to register under the securities act of 1933 , registering the sale of the shares of our common stock that have been and may be issued to aspire capital under the purchase agreement . on november 11 , 2015 , we terminated the may 26 , 2015 agreement with aspire and entered into a new common stock purchase agreement which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire capital is committed to purchase up to an aggregate of $ 25.0 million of our shares of common stock over the approximately 30-month term of the purchase agreement . concurrently with entering into the purchase agreement , we also entered into a registration rights agreement with aspire capital in which we agreed to register 6,086,207 shares of our common stock .
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results of operations comparison of years ended december 31 , 2015 and 2014 revenue and cost of revenue : for the year ended december 31 , 2015 , substantially all of the revenue we recognized consisted of pharmacogenomics testing by the nrlbh . as a result of the sale of the nrlbh , the revenue and cost of revenue is presented as discontinued operations for both years ended 2015 and 2014. the nlrbh had a total net revenue of $ 5,524,874 , for the year ended december 31 , 2015 consisting of mainly pharmacogenomics testing . this represents an increase of approximately $ 5 million from the total net revenue of $ 525,954 from our forecyte device sales and laboratory testing for the year ended december 31 , 2014. substantially all of our revenue for the year ended december 31 , 2014 was recognized during the fourth quarter of 2014 when we launched the new pharmacogenomics testing in our laboratory . in march 2015 , we began the launch of the fullcyte breast aspirator in the u.s. and the forecyte breast aspirator in the eu , focusing initially on the netherlands , germany , switzerland , and the united kingdom ; however , we generated no revenue from device sales during the year .
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our offices in iowa , minnesota , wisconsin , florida , and colorado compete with other commercial banks , thrifts , credit unions , stockbrokers , finance divisions of auto and farm equipment companies , agricultural suppliers , and other agriculture-related lenders . some of these competitors are local , while others are statewide , regional or nationwide . we compete for deposits principally by offering depositors a wide variety of deposit programs , convenient office locations , hours and other services , and for loan originations primarily through the interest rates and loan fees we charge , the variety of our loan products and the efficiency and quality of services we provide to borrowers , with an emphasis on building long-lasting relationships . some of the financial institutions and financial service organizations with which we compete are not subject to the same degree of regulation as that imposed on federally insured state-chartered banks . the financial services industry is also likely to become more competitive as technological advances enable more companies to provide financial services without a physical presence in a given market . these technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties . we compete for loans principally through the range and quality of the services we provide , with an emphasis on building long-lasting relationships . our strategy is to serve our customers above and beyond their expectations through excellence in customer service and needs-based selling . we believe that our long-standing presence in the communities we serve and the personal service we emphasize enhance our ability to compete favorably in attracting and retaining individual and business customers . we actively solicit deposit-oriented clients and compete for deposits by offering personal attention , combined with electronic banking convenience , professional service and competitive interest rates . employees as of december 31 , 2018 , we had 597 full-time equivalent employees . we provide our employees with a comprehensive program of benefits , some of which are on a contributory basis , including comprehensive medical and dental plans , life insurance , 4 long-term and short-term disability coverage , a 401 ( k ) plan , and an employee stock ownership plan . none of our employees are represented by unions . our management considers its relationship with our employees to be good . company website we maintain a website for the bank at www.midwestone.com . we make available , free of charge , on this website our annual report on form 10-k , quarterly reports on form 10-q , current reports on form 8-k and amendments to those reports filed or furnished pursuant to section 13 ( a ) or 15 ( d ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) as soon as reasonably practicable after we electronically file such material with , or furnish it to , the securities and exchange commission ( the “ sec ” ) . information on , or accessible through , our website is not part of , or incorporated by reference in , this annual report on form 10-k. supervision and regulation general fdic-insured institutions , like the bank , their holding companies and their affiliates are extensively regulated under federal and state law . as a result , our growth and earnings performance may be affected not only by management decisions and general economic conditions , but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies , including the iowa division of banking ( the “ iowa division ” ) , the board of governors of the federal reserve system ( the “ federal reserve ” ) , the fdic and the consumer financial protection bureau ( the “ cfpb ” ) . furthermore , taxation laws administered by the internal revenue service and state taxing authorities , accounting rules developed by the financial accounting standards board ( the “ fasb ” ) , securities laws administered by the sec and state securities authorities , and anti-money laundering laws enforced by the u.s. department of the treasury ( “ treasury ” ) have an impact on our business . the effect of these statutes , regulations , regulatory policies and accounting rules are significant to our operations and results . federal and state banking laws impose a comprehensive system of supervision , regulation and enforcement on the operations of fdic-insured institutions , their holding companies and affiliates that is intended primarily for the protection of the fdic-insured deposits and depositors of banks , rather than shareholders . these laws , and the regulations of the bank regulatory agencies issued under them , affect , among other things , the scope of our business , the kinds and amounts of investments the company and the bank may make , reserve requirements , required capital levels relative to assets , the nature and amount of collateral for loans , the establishment of branches , the ability to merge , consolidate and acquire , dealings with our insiders and affiliates and the payment of dividends . in reaction to the global financial crisis and particularly following the passage of the dodd frank act , we experienced heightened regulatory requirements and scrutiny . although the reforms primarily targeted systemically important financial service providers , their influence filtered down in varying degrees to community banks over time and caused our compliance and risk management processes , and the costs thereof , to increase . after the 2016 federal elections , momentum to decrease the regulatory burden on community banks gathered strength . in may 2018 , the economic growth , regulatory relief and consumer protection act ( the “ regulatory relief act ” ) was enacted to modify or remove certain financial reform rules and regulations . story_separator_special_tag the primary focus of basel ii was on the calculation of risk weights based on complex models developed by each advanced approaches bank . because most banks were not subject to basel ii , the u.s. bank regulators worked to improve the risk sensitivity of basel i standards without imposing the complexities of basel ii . this “ standardized approach ” increased the number of risk-weight categories and recognized risks well above the original 100 % risk weight . it is institutionalized by the dodd-frank act for all banking organizations , even for the advanced approaches banks , as a floor . on september 12 , 2010 , the group of governors and heads of supervision , the oversight body of the basel committee on banking supervision , announced agreement on a strengthened set of capital requirements for banking organizations around the world , known as basel iii , to address deficiencies recognized in connection with the global financial crisis . the basel iii rule . in july 2013 , the u.s. federal banking agencies approved the implementation of the basel iii regulatory capital reforms in pertinent part , and , at the same time , promulgated rules effecting certain changes required by the dodd-frank act ( the “ basel iii rule ” ) . in contrast to capital requirements historically , which were in the form of guidelines , basel iii was released in the form of enforceable regulations by each of the regulatory agencies . the basel iii rule is applicable to all banking organizations that are subject to minimum capital requirements , including federal and state banks and savings and loan associations , as well as to bank and savings and loan holding companies , other than “ small bank holding companies ” ( generally holding companies with consolidated assets of less than $ 3 billion that do not have securities registered with the sec ) . banking organizations became subject to the basel iii rule on january 1 , 2015 and all parts of it were fully phased-in as of january 1 , 2019. the basel iii rule increased the required quantity and quality of capital and , for nearly every class of assets , it requires a more complex , detailed and calibrated assessment of risk and calculation of risk-weight amounts . 6 not only did the basel iii rule increase most of the required minimum capital ratios in effect prior to january 1 , 2015 , but it introduced the concept of common equity tier 1 capital , which consists primarily of common stock , related surplus ( net of treasury stock ) , retained earnings , and common equity tier 1 minority interests subject to certain regulatory adjustments . the basel iii rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered additional tier 1 capital ( primarily non-cumulative perpetual preferred stock that meets certain requirements ) and tier 2 capital ( primarily other types of preferred stock and subordinated debt , subject to limitations ) . a number of instruments that qualified as tier 1 capital under basel i do not qualify , or their qualifications changed . for example , noncumulative perpetual preferred stock , which qualified as simple tier 1 capital under basel i , does not qualify as common equity tier 1 capital , but qualifies as additional tier 1 capital . the basel iii rule also constrained the inclusion of minority interests , mortgage-servicing assets , and deferred tax assets in capital and requires deductions from common equity tier 1 capital in the event that such assets exceed a certain percentage of a banking institution 's common equity tier 1 capital . the basel iii rule required minimum capital ratios as of january 1 , 2015 , as follows : a ratio of minimum common equity tier 1 capital equal to 4.5 % of risk-weighted assets ; an increase in the minimum required amount of tier 1 capital from 4 % to 6 % of risk-weighted assets ; a continuation of the minimum required amount of total capital ( tier 1 plus tier 2 ) at 8 % of risk-weighted assets ; and a minimum leverage ratio of tier 1 capital to total quarterly average assets equal to 4 % in all circumstances . in addition , institutions that seek the freedom to make capital distributions ( including for dividends and repurchases of stock ) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5 % in common equity tier 1 capital attributable to a capital conservation buffer ( fully phased-in as of january 1 , 2019 ) . the purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress . factoring in the conservation buffer increases the minimum ratios depicted above to 7 % for common equity tier 1 capital , 8.5 % for tier 1 capital and 10.5 % for total capital . well-capitalized requirements . the ratios described above are minimum standards in order for banking organizations to be considered “ adequately capitalized. ” bank regulatory agencies uniformly encourage banks to hold more capital and be “ well-capitalized ” and , to that end , federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements . for example , a banking organization that is well-capitalized may : ( i ) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities ; ( ii ) qualify for expedited processing of other required notices or applications ; and ( iii ) accept , roll-over or renew brokered deposits . higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations .
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general . the bank is an iowa-chartered bank . the deposit accounts of the bank are insured by the fdic 's deposit insurance fund ( “ dif ” ) to the maximum extent provided under federal law and fdic regulations , currently $ 250,000 per insured depositor category . as an iowa-chartered fdic-insured bank , the bank is subject to the examination , supervision , reporting and enforcement requirements of the iowa division , the chartering authority for iowa banks , and the fdic , designated by federal law as the primary federal regulator of insured state banks that , like the bank , are not members of the federal reserve system ( nonmember banks ) . deposit insurance . as an fdic-insured institution , the bank is required to pay deposit insurance premium assessments to the fdic . the fdic has adopted a risk-based assessment system whereby fdic-insured institutions pay insurance premiums at rates based on their risk classification . for institutions like the bank that are not considered large and highly complex banking organizations , assessments are now based on examination ratings and financial ratios . the total base assessment rates currently range from 1.5 basis points to 30 basis points . at least semi-annually , the fdic updates its loss and income projections for the dif and , if needed , increases or decreases the assessment rates , following notice and comment on proposed rulemaking . the assessment base against which an fdic-insured institution 's deposit insurance premiums paid to the dif has been calculated since effectiveness of the dodd-frank act is based on its average consolidated total assets less its average tangible equity . this method shifted the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than u.s. deposits . the reserve ratio is the fdic insurance fund balance divided by estimated insured deposits . the dodd-frank act altered the minimum reserve ratio of the dif , increasing the minimum from 1.15 % to 1.35
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the average yield on investment securities decreased 62 basis points to 2.00 % for the year ended december 31 , 2019 from 2.62 % for the year ended december 31 , 2018 , attributable to the addition of lower yielding adjustable and floating rate mortgage-backed securities . dividends on federal home loan bank stock and other investments increased $ 93,000 primarily due to increases in interest-bearing demand deposits in banks and federal funds sold . the average balance of other interest-bearing deposits , including certificates of deposit in other financial institutions , and federal funds sold increased $ 3.3 million to $ 13.7 million at december 31 , 2019 from $ 10.4 million at december 31 , 2018. the average yield for other interest-earning assets increased 11 basis points to 2.45 % at december 31 , 2019 from 2.34 % at december 31 , 2018 . 43 interest expense . total interest expense increased $ 820,000 , or 39.4 % , to $ 2.9 million for the year ended december 31 , 2019. interest expense on deposit accounts increased $ 519,000 , or 36.3 % , to $ 1.9 million for the year ended december 31 , 2019 from $ 1.4 million for the year ended december 31 , 2018. the increase was primarily due to an increase of $ 8.7 million , or 32.8 % , in the average balance of savings accounts to $ 35.0 million for the year ended december 31 , 2019 from $ 26.4 million for the year ended december 31 , 2018. the increase in the average cost of savings accounts was 28 basis points . the average balance of interest-bearing demand accounts increased $ 10.5 million and the average cost of interest-bearing demand accounts decreased 71 basis points to 0.76 % at december 31 , 2019. the decrease in the average cost of interest-bearing demand deposits was due to the addition of lower cost kentucky federal interest-bearing accounts and the low cost of the stock subscription funds . the average balance of certificates of deposits increased $ 5.0 million while the average cost of certificates of deposits increased 39 basis points to 2.12 % at december 31 , 2019. interest expense on fhlb advances increased $ 301,000 to $ 955,000 for the year ended december 31 , 2019 from $ 654,000 for the year ended december 31 , 2018. the average balance of advances increased $ 7.7 million to $ 42.9 million for the year ended december 31 , 2019 compared to $ 35.2 million for the year ended december 31 , 2018 , while the average cost of these advances increased 37 basis points to 2.23 % from 1.86 % . the increase in the average balance of advances was due to management utilizing advances as a funding source for loan originations and to reduce national cd rateline certificates of deposit and replace these cd 's with longer term and lower rate fhlb advances . net interest income . net interest income increased $ 720,000 , or 14.7 % , to $ 5.6 million for the year ended december 31 , 2019 from $ 4.9 million for the year ended december 31 , 2018. average net interest-earning assets decreased $ 4.6 million compared to year end december 31 , 2018 . the interest rate spread increased to 2.69 % for the year ended december 31 , 2019 from 2.67 % for the year ended december 31 , 2018. the net interest margin decreased to 2.87 % for the year ended december 31 , 2019 from 2.91 % for the year ended december 31 , 2018. provision for loan losses . based on management 's analysis of the allowance for loan losses described in note 1 of our financial statements “ nature of operations and summary of significant accounting policies , ” we recorded a provision for loan losses of $ 25,000 for the year ended december 31 , 2019 and a provision for loan losses of $ 45,000 for the year ended december 31 , 2018. the allowance for loan losses was $ 1.4 million , or 0.78 % of total loans , at december 31 , 2019 , compared to $ 1.4 million or 0.81 % of total loans , at december 31 , 2018. the decrease in the provision for loan losses in 2019 compared to 2018 was due primarily to the continued low balances of nonperforming loans and delinquent loans during 2019 and decrease in historical charge-offs for the six year look back period . total nonperforming loans were $ 111,000 and $ 744,000 at december 31 , 2019 and 2018 , respectively . classified loans declined to $ 1.4 million at december 31 , 2019 , from $ 1.7 million at december 31 , 2018 , and loans past due greater than 30 days totaled $ 209,000 and $ 1.0 million at december 31 , 2019 and 2018 , respectively . loan charge-offs totaled $ 23,000 for the year ended december 31 , 2019 , and there were no loans charged-off during the year ended december 31 , 2018. as a percentage of nonperforming loans , the allowance for loan losses was 1,268 % and 189 % at december 31 , 2019 and 2018 , respectively . the allowance for loan losses reflects the estimate we believe to be adequate to cover incurred probable losses which were inherent in the loan portfolio at december 31 , 2019 and 2018. while we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable , such estimates and assumptions could be proven incorrect in the future , and the actual amount of future provisions may exceed the amount of past provisions , and the increase in future provisions that may be required may adversely impact our financial condition and results of operations . in addition , bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision story_separator_special_tag the average yield on investment securities decreased 62 basis points to 2.00 % for the year ended december 31 , 2019 from 2.62 % for the year ended december 31 , 2018 , attributable to the addition of lower yielding adjustable and floating rate mortgage-backed securities . dividends on federal home loan bank stock and other investments increased $ 93,000 primarily due to increases in interest-bearing demand deposits in banks and federal funds sold . the average balance of other interest-bearing deposits , including certificates of deposit in other financial institutions , and federal funds sold increased $ 3.3 million to $ 13.7 million at december 31 , 2019 from $ 10.4 million at december 31 , 2018. the average yield for other interest-earning assets increased 11 basis points to 2.45 % at december 31 , 2019 from 2.34 % at december 31 , 2018 . 43 interest expense . total interest expense increased $ 820,000 , or 39.4 % , to $ 2.9 million for the year ended december 31 , 2019. interest expense on deposit accounts increased $ 519,000 , or 36.3 % , to $ 1.9 million for the year ended december 31 , 2019 from $ 1.4 million for the year ended december 31 , 2018. the increase was primarily due to an increase of $ 8.7 million , or 32.8 % , in the average balance of savings accounts to $ 35.0 million for the year ended december 31 , 2019 from $ 26.4 million for the year ended december 31 , 2018. the increase in the average cost of savings accounts was 28 basis points . the average balance of interest-bearing demand accounts increased $ 10.5 million and the average cost of interest-bearing demand accounts decreased 71 basis points to 0.76 % at december 31 , 2019. the decrease in the average cost of interest-bearing demand deposits was due to the addition of lower cost kentucky federal interest-bearing accounts and the low cost of the stock subscription funds . the average balance of certificates of deposits increased $ 5.0 million while the average cost of certificates of deposits increased 39 basis points to 2.12 % at december 31 , 2019. interest expense on fhlb advances increased $ 301,000 to $ 955,000 for the year ended december 31 , 2019 from $ 654,000 for the year ended december 31 , 2018. the average balance of advances increased $ 7.7 million to $ 42.9 million for the year ended december 31 , 2019 compared to $ 35.2 million for the year ended december 31 , 2018 , while the average cost of these advances increased 37 basis points to 2.23 % from 1.86 % . the increase in the average balance of advances was due to management utilizing advances as a funding source for loan originations and to reduce national cd rateline certificates of deposit and replace these cd 's with longer term and lower rate fhlb advances . net interest income . net interest income increased $ 720,000 , or 14.7 % , to $ 5.6 million for the year ended december 31 , 2019 from $ 4.9 million for the year ended december 31 , 2018. average net interest-earning assets decreased $ 4.6 million compared to year end december 31 , 2018 . the interest rate spread increased to 2.69 % for the year ended december 31 , 2019 from 2.67 % for the year ended december 31 , 2018. the net interest margin decreased to 2.87 % for the year ended december 31 , 2019 from 2.91 % for the year ended december 31 , 2018. provision for loan losses . based on management 's analysis of the allowance for loan losses described in note 1 of our financial statements “ nature of operations and summary of significant accounting policies , ” we recorded a provision for loan losses of $ 25,000 for the year ended december 31 , 2019 and a provision for loan losses of $ 45,000 for the year ended december 31 , 2018. the allowance for loan losses was $ 1.4 million , or 0.78 % of total loans , at december 31 , 2019 , compared to $ 1.4 million or 0.81 % of total loans , at december 31 , 2018. the decrease in the provision for loan losses in 2019 compared to 2018 was due primarily to the continued low balances of nonperforming loans and delinquent loans during 2019 and decrease in historical charge-offs for the six year look back period . total nonperforming loans were $ 111,000 and $ 744,000 at december 31 , 2019 and 2018 , respectively . classified loans declined to $ 1.4 million at december 31 , 2019 , from $ 1.7 million at december 31 , 2018 , and loans past due greater than 30 days totaled $ 209,000 and $ 1.0 million at december 31 , 2019 and 2018 , respectively . loan charge-offs totaled $ 23,000 for the year ended december 31 , 2019 , and there were no loans charged-off during the year ended december 31 , 2018. as a percentage of nonperforming loans , the allowance for loan losses was 1,268 % and 189 % at december 31 , 2019 and 2018 , respectively . the allowance for loan losses reflects the estimate we believe to be adequate to cover incurred probable losses which were inherent in the loan portfolio at december 31 , 2019 and 2018. while we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable , such estimates and assumptions could be proven incorrect in the future , and the actual amount of future provisions may exceed the amount of past provisions , and the increase in future provisions that may be required may adversely impact our financial condition and results of operations . in addition , bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision
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summary of critical accounting policies the discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements , which are prepared in conformity with u.s. generally accepted accounting principles . the preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the reported amounts of income and expenses . we consider the accounting policies discussed below to be critical accounting policies . the estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions , resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations . as an “ emerging growth company ” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies . we intend to take advantage of the benefits of this extended transition period . accordingly , our financial statements may not be comparable to companies that comply with such new or revised accounting standards . the following represent our critical accounting policies : allowance for loan losses . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income . loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance .
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insurance underwriting included the following subsidiaries of the company : mendota insurance company , mendakota insurance company , mendakota casualty company , kingsway amigo insurance company ( `` amigo '' ) and kingsway reinsurance corporation ( `` kingsway re '' ) . mendota insurance company , mendakota insurance company and mendakota casualty company are referred to collectively herein as `` mendota . '' on july 16 , 2018 , the company announced that it had entered into a definitive agreement to sell mendota . on october 18 , 2018 , the company announced that the sale was completed . as a result , mendota has been classified as discontinued operations and the results of their operations are reported separately for all periods presented . as a consequence of classifying mendota as discontinued operations , the remaining composition of the insurance underwriting segment no longer meets the criteria of a reportable segment . as such , all segmented information has been restated to exclude the insurance underwriting segment for all periods presented . the operating results of amigo and kingsway re , previously included in the insurance underwriting segment , are now included in other income and expenses not allocated to segments , net . extended warranty includes the following subsidiaries of the company : iws acquisition corporation ( `` iws '' ) , trinity warranty solutions llc ( `` trinity '' ) , professional warranty service corporation ( `` pwsc '' ) and geminus holding company , inc. ( `` geminus '' ) . throughout this 2019 annual report , the term `` extended warranty '' is used to refer to this segment . iws is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions in 27 states and the district of columbia to their members . trinity sells heating , ventilation , air conditioning ( `` hvac '' ) , standby generator , commercial led lighting and refrigeration warranty products and provides equipment breakdown and maintenance support services to companies across the united states . as a seller of warranty products , trinity markets and administers product warranty contracts for certain new and used products in the hvac , standby generator , commercial led lighting and refrigeration industries throughout the united states . trinity acts as an agent on behalf of the third-party insurance companies that underwrite and guaranty these warranty contracts . trinity does not guaranty the performance underlying the warranty contracts it sells . as a provider of equipment breakdown and maintenance support services , trinity acts as a single point of contact to its clients for both certain equipment breakdowns and scheduled maintenance of equipment . trinity will provide such repair and breakdown services by contracting with certain hvac providers . pwsc sells new home warranty products and provides administration services to homebuilders and homeowners across the united states . pwsc distributes its products and services through an in-house sales team and through insurance brokers and insurance carriers throughout all states except alaska and louisiana . geminus primarily sells vehicle service agreements to used car buyers across the united states , through its subsidiaries , the penn warranty corporation ( `` penn '' ) and prime auto care , inc. ( `` prime '' ) . penn and prime distribute these products in 32 and 40 states , respectively , via independent used car dealerships and franchised car dealerships . leased real estate includes the company 's subsidiary , cmc industries , inc. ( `` cmc '' ) . cmc owns , through an indirect wholly owned subsidiary ( the `` property owner '' ) , a parcel of real property consisting of approximately 192 acres located in the state of texas ( the `` real property '' ) , which is subject to a long-term triple net lease agreement . the real property is also subject to a mortgage , which is recorded as note payable in the consolidated balance sheets ( the `` mortgage '' ) . throughout this 2019 annual report , the term `` leased real estate '' is used to refer to this segment . impact of covid-19 in march 2020 , the outbreak of covid-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the world health organization , and the outbreak has become increasingly widespread in the united states , including in the markets in which we operate . the covid-19 outbreak has had a notable impact on general economic conditions , including but not limited to the replace_table_token_23_th kingsway financial services inc. management 's discussion and analysis temporary closures of many businesses ; “ shelter in place ” and other governmental regulations ; and reduced consumer spending due to both job losses and other effects attributable to covid-19 . there remain many unknowns . the near-term impacts of covid-19 are primarily with respect to our extended warranty segment . as consumer spending has been impacted , including a decline in the purchase of new and used vehicles , and many businesses through which we distribute our products remain closed , we have seen cash flows being affected by a reduction in new warranty sales for vehicle service agreements . with respect to homeowner warranties , we have seen a reduction in new enrollments in our home warranty programs associated with the impact of covid-19 on new home sales in the united states . on march 27 , 2020 , the president of the united states signed the coronavirus aid , relief , and economic security ( `` cares '' ) act , a substantial tax-and-spending package intended to provide additional economic stimulus to address the impact of the covid-19 pandemic . we continue to monitor the impact of the covid-19 outbreak closely , as well as any effects that may result from the cares act . however , the extent to which the covid-19 outbreak will impact our operations or financial results is uncertain . story_separator_special_tag factors affecting the provision for unpaid loss and loss adjustment expenses include the continually evolving and changing regulatory and legal environment ; actuarial studies ; professional experience and expertise of the company 's claims department personnel and independent adjusters retained to handle individual claims ; the quality of the data used for projection purposes ; existing claims management practices , including claim-handling and settlement practices ; the effect of inflationary trends on future loss settlement costs ; court decisions ; economic conditions ; and public attitudes . the process for establishing the provision for loss and loss adjustment expenses begins with the collection and analysis of claim data . data on individual reported claims , both current and historical , including paid amounts and individual claim adjuster estimates , are grouped by common characteristics and evaluated by the company 's external reserving actuaries in their analyses to estimate ultimate claim liabilities . such data is occasionally supplemented with external data as available and when appropriate . our company 's external reserving actuaries use the following generally accepted actuarial loss and loss adjustment expenses reserving methods in our analysis , for each coverage or segment that we analyze : paid loss development - we use historical loss and loss adjustment expense payments over discrete periods of time to estimate future loss and loss adjustment expense payments . paid development methods assume that the patterns of paid loss and loss adjustment expenses that occurred in past periods will be similar to loss and loss adjustment expense payment patterns that will occur in future periods . incurred loss development - we use historical case incurred loss and loss adjustment expenses ( the sum of cumulative loss and loss adjustment expense payments plus outstanding unpaid case losses ) over discrete periods of time to estimate future loss and loss adjustment expenses . incurred development methods assume that the case loss and loss adjustment expenses reserving practices are consistently applied over time . frequency and severity - we use historical claim count development over discrete periods of time to estimate future claim counts . we divide projected ultimate claim counts by an exposure base ( earned premiums or exposures ) , select expected claim frequencies from the results , and adjust them for trends based on internal and external information . concurrently , we divide projected ultimate losses by the projected ultimate claim counts to select expected loss severities . we use internal and external information to trend the severities and combine them with the trended , projected frequencies to develop ultimate loss projections . replace_table_token_25_th kingsway financial services inc. management 's discussion and analysis the methods above all calculate an estimate of total ultimate losses . our provision for loss and loss adjustment expenses is calculated by subtracting total paid losses from our estimate of total ultimate losses . our estimate for ibnr is calculated by subtracting case reserves from our provision for loss and loss adjustment expenses . each estimation method has its own set of assumption variables and its own advantages and disadvantages , with no single estimation method being better than the others in all situations and no one set of assumptions being meaningful for all coverages or segments . for example , paid loss development does not make use of case reserves , and can be more stable when there are changes to the case reserving process . frequency and severity , by estimating the frequency separately from severity , can assist in understanding the underlying dynamics when either frequency or severity is changing substantially . the relative strengths and weaknesses of the particular estimation methods when applied to a particular group of claims can also change over time ; therefore , the actual choice of estimation method can change with each evaluation . the estimation methods chosen are those that are believed to produce the most reliable indication at a particular evaluation date . we monitor the actual emergence of loss and loss adjustment expenses data and compare it to the expected emergence implied by our booked estimates . differences in these are part of our considerations for whether it is appropriate to modify our assumptions for developing the estimated provision for unpaid loss and loss adjustment expenses . we review the adequacy of the provision for unpaid loss and loss adjustment expenses quarterly . for our year-end analysis , we re-estimate the ultimate losses for each coverage , by accident year . this involves performing a complete update of the historical development factors used in our analysis , incorporating the experience of the most recent calendar year . on a quarterly basis , we perform a more limited review , which can entail , for example , a comparison of the expected losses to be paid during the quarter versus actual payments , or other similar comparisons to determine the extent to which a given segment is performing as expected . in some cases , a re-estimation ( similar to the year-end analysis ) may be determined to be useful as part of a quarterly analysis , and we may make adjustments to ultimate losses in response to the results of this analysis . we adjust carried unpaid loss and loss adjustment expenses as we learn additional information , and reflect these adjustments in the accounting periods in which they are determined . a basic premise in most actuarial analyses is that past patterns demonstrated in the data will repeat themselves in the future , absent a material change in the associated risk factors . significant structural changes to the available data , product mix or organization can materially affect the provision for loss and loss adjustment expenses . informed judgment is applied throughout the process . this includes the application of various individual experiences and expertise to multiple sets of data and analyses . in addition to actuaries , experts involved with the reserving process also include underwriting and claims personnel and lawyers , as well as other company management .
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results of continuing operations a reconciliation of total segment operating income to net loss for the years ended december 31 , 2019 and december 31 , 2018 is presented in table 1 below : table 1 segment operating income for the years ended december 31 , 2019 and december 31 , 2018 for the years ended december 31 ( in thousands of dollars ) replace_table_token_31_th loss from continuing operations , net loss and diluted loss per share for the year ended december 31 , 2019 , we incurred a loss from continuing operations of $ 2.8 million ( loss of $ 0.25 per diluted share ) compared to $ 22.3 million ( loss of $ 1.13 per diluted share ) for the year ended december 31 , 2018 . the loss from continuing operations for the year ended december 31 , 2019 is primarily attributable to interest expense not allocated to segments , other income and expenses not allocated to segments , net and amortization of intangible assets , partially offset by net investment income , gain on change in fair value of limited liability investments , at fair value , gain on change in fair value of debt and operating income in extended warranty and leased real estate . the loss from continuing operations for the year ended december 31 , 2018 is primarily attributable to interest expense not allocated to segments , other income and expenses not allocated to segments , net , amortization of intangible assets , loss on change in fair value of limited liability investments , at fair value , loss on change in fair value of debt and equity in net loss of investee , partially offset by operating income in extended warranty and leased real estate . replace_table_token_32_th kingsway financial services inc. management 's discussion and analysis extended warranty the extended warranty service fee and commission income increase d 20.4 % ( or $ 7.8 million ) to $ 46.1
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the company completed the story_separator_special_tag the following discussion and analysis should be read together with the selected consolidated financial data and our consolidated financial statements and notes thereto included in this form 10-k. certain statements contained in this discussion may constitute forward‑looking statements within the meaning of the private securities litigation reform act of 1995. these statements involve a number of risks , uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward-looking statements , as discussed more fully in this form 10-k. see “ forward-looking statements ” and “ risk factors ” in part i , item 1a . overview and strategy we provide comprehensive 3d printing solutions , including 3d printers , materials , software , on demand manufacturing services and digital design tools . our solutions support advanced applications in a wide range of industries and key verticals including healthcare , aerospace , automotive and durable goods . our precision healthcare capabilities include simulation , virtual surgical planning ( “ vsp ” ) , and printing of medical and dental devices , models , surgical guides and instruments . our experience and expertise have proven vital to our development of an ecosystem and end-to-end digital workflow solutions which enable customers to optimize product designs , transform workflows , bring innovative products to market and drive new business models . we are pursuing a strategy focused on offering a comprehensive ecosystem that provides solutions aimed at healthcare , dental , aerospace , automotive and durable goods verticals to address professional and industrial applications . we believe a shift in 3d printing from prototyping to also using additive manufacturing for production is underway . we are focused on innovation and new products to drive expansion into 3d production through improving durability , reliability , repeatability and total cost of operations of 3d printing solutions . we have launched new 3d printers with increased speeds and capabilities as well as introduced materials with improved strength , durability , elasticity and high temperature capabilities , developments we believe are well suited for advanced and demanding applications . we have also expanded and strengthened our software portfolio to help enhance our customers ' workflows from digitize to design to simulate to manufacture , inspect and manage . we plan to continue to invest in development of hardware , software , materials and services to provide comprehensive solutions in plastics and metals to address significant market opportunities with a use-case by use-case approach , focusing on solving specific customer applications and needs within our targeted vertical markets . to execute this strategy , we are focusing on an operating framework and go-to-market model that drives sustainable , long-term growth and profitability . we are balancing investments to support process improvements , infrastructure enhancements and focused innovation to transform the company , while also driving an appropriate cost structure . we expect to be able to support growth by prioritizing and focusing our resources , leveraging our technology and domain expertise and maintaining and expanding strong customer and partner relationships . as with any growth strategy , there can be no assurance that we will succeed in accomplishing our strategic initiatives . recent developments throughout 2018 , we launched several next generation additive manufacturing solutions , a range of materials and new software releases . in february 2018 , we introduced the nextdent 5100 , a figure 4-based 3d printer specifically designed for dental labs , which we believe is a breakthrough product for digital dentistry in terms of cost and capabilities . at the same time , we launched several new materials , bringing the total number to 30 dental-specific materials for the nextdent 5100. additionally we launched the fabpro 1000 , a low cost , high productivity dlp-based 3d printer designed for dental and jewelry production as well as high functionality and throughput , industrial prototyping . we began shipping our next generation sls printer , the prox sls 6100 , with six production-grade materials to deliver superior part quality with greater efficiency and lower total cost of operation versus competitors . we launched the projet mjp 2500 ic designed to eliminate the cost and time of tooling and storage with 3d printed wax patterns that can be used seamlessly in existing foundry casting processes . we also commercialized figure 4 stand alone and production solutions , innovative , high-speed production solutions capable of six sigma repeatability and matching injection molding part quality . in june 2018 , we announced a strategic partnership with gf machining solutions ( `` gf '' ) , one of the world 's leading providers of complete solutions to the precision machining industry and to manufacturers of precision components . we believe this partnership greatly enhances our metals printing distribution , scalability and automation . in september 2018 , we debuted the dmp factory 500 , the first joint solution developed as part of our partnership with gf . the dmp factory 500 is optimized for scalability , repeatable high quality parts , high throughput and low total cost of operation with the ability to print the largest part diameter available today . we also began shipping the dmp flex 350 and dmp factory 350 , designed for volume production of critical 26 components for industrial applications such as aerospace , healthcare , and transportation . our dmp solutions offer durable and removable print modules , powder management modules , a broad range of metals materials and fully integrated 3dxpert software to help streamline the production of parts . all of the new products above were commercially available by december 31 , 2018 . 2018 story_separator_special_tag geographic regions . the increase in revenue in the emea region primarily reflects higher sales volume , including the addition of vertex and nextdent branded dental materials , and the favorable impact of foreign currency , partially offset by a shift in product mix and average selling price . story_separator_special_tag for the years ended december 31 , 2017 and 2016 , software services revenue contributed $ 43.9 million and $ 43.2 million , respectively . gross profit and gross profit margins 2018 compared to 2017 the following table sets forth gross profit and gross profit margins for the years ended december 31 , 2018 and 2017 . table 5 replace_table_token_7_th the increase in total consolidated gross profit is due to the increase in product sales , primarily higher sales of printers . in addition , the inventory adjustment discussed below had a negative impact on margins in the comparable period for the prior year . products gross profit margin increased , primarily due to inventory adjustments totaling $ 12.9 million in 2017 that were a result of a comprehensive review of our portfolio and inventory and related primarily to legacy plastics printers , refurbished and used metals printers and parts having minimal or no use over extended periods , and a small increase in gross profit margin as a result of ongoing supply chain cost reduction efforts . gross profit margin for materials decreased , reflecting the unfavorable impact of 30 mix driven by geographic sales mix and product mix . gross profit margin for services decreased , driven by lower on demand manufacturing margin which was partially offset by improved margins for software and maintenance services . on demand manufacturing services gross profit margin decreased to 35.9 % for the year ended december 31 , 2018 , compared to 43.1 % for the year ended december 31 , 2017 due to mix of sales and lower utilization as we invested in several facilities globally to upgrade and expand capacity while at the same time exiting certain other facilities . 2017 compared to 2016 the following table sets forth gross profit and gross profit margins for the years ended december 31 , 2017 and 2016 . table 6 replace_table_token_8_th the decrease in total consolidated gross profit is predominantly driven by changes in product mix . also contributing to the decrease were the inventory adjustments totaling $ 12.9 million in 2017 versus adjustments of $ 10.7 million in the same period of 2016. the 2017 inventory adjustment resulted from a comprehensive review of our portfolio and inventory during the year ended december 31 , 2017. the 2017 inventory adjustment primarily related to legacy plastics printers , refurbished and used metals printers and parts that have shown little to no use over extended periods . the majority of this adjustment relates to the products category . gross profit for materials decreased primarily due to the addition of vertex 's conventional dental materials , which are lower gross profit margin than 3d printing materials . gross profit margin for services decreased due to lower gross profit margins in printer services as we invested in addressing legacy issues and building out our service model , which offset the benefit of higher demand for healthcare services . on demand manufacturing services gross profit margin remained flat at 43.1 % for the year ended december 31 , 2017 , compared to 43.0 % for the year ended december 31 , 2016. operating expenses 2018 compared to 2017 the following table sets forth the components of operating expenses for the years ended december 31 , 2018 and 2017 . table 7 replace_table_token_9_th selling , general and administrative expenses increased due to additional employee related costs , in particular to support selling & marketing activities incurred in connection with the launch of new products during 2018 , continued investment in it infrastructure , and higher legal expenses ; partially offset by a reduction in outside services costs . research and development expenses remained relatively flat as our increased investment in our workforce was offset by a reduction in outside services costs and a reduced materials spend related to products which have been brought to market during 2018 . 31 2017 compared to 2016 the following table sets forth the components of operating expenses for the years ended december 31 , 2017 and 2016 . table 8 replace_table_token_10_th selling , general and administrative expenses increased primarily due to our investments in go-to-market and it infrastructure and additional talent and resources , as well as repairs and maintenance costs , offset by lower stock compensation expense due to the impact of adopting a new accounting standard which resulted in a change in our policy for accounting for award forfeitures . research and development expenses increased due to focused innovation to drive customers ' shift to 3d production , including investment in plastics , in particular our figure 4 platform , metals , materials and software as well as the addition of talent and resources . research and development for 2016 included $ 4.6 million of expense related to charges and write-offs in connection with our updated strategy and project reprioritization . income ( loss ) from operations the following table sets forth income ( loss ) from operations by geographic region for the years ended december 31 , 2018 , 2017 and 2016 . table 9 replace_table_token_11_th see “ gross profit and gross profit margins ” and “ operating expenses ” above . 32 interest and other expenses , net the following table sets forth the components of interest and other expenses , net , for the years ended december 31 , 2018 , 2017 and 2016 . table 10 replace_table_token_12_th the decrease for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 , is primarily due to the favorable impact of foreign currency . the increase for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016 , is attributable to impairment charges related to certain cost method investments and an unfavorable impact of foreign currency . see note 2 to the consolidated financial statements . benefit and provision for income taxes we recorded a $ 2.0 million and $ 7.8 million provision for income taxes for the years ended december 31 , 2018 and 2017 , respectively .
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summary total consolidated revenue for the year ended december 31 , 2018 increased by 6.4 % , or $ 41.6 million , to $ 687.7 million , compared to $ 646.1 million for the year ended december 31 , 2017 . these results reflect an increase in printers , materials and services revenue , as further discussed below . for the year ended december 31 , 2018 revenue from printers increased 24.5 % to $ 153.7 million compared to $ 123.4 million in the prior year . healthcare revenue includes sales of products , materials and services for healthcare-related applications , including simulation , training , planning , 3d printing of anatomical models , surgical guides and instruments and medical and dental devices . for the year ended december 31 , 2018 , healthcare revenue increased by 19.5 % , to $ 225.5 million , and made up 32.8 % of total revenue , compared to $ 188.7 million , or 29.2 % of total revenue , for the year ended december 31 , 2017 . the increase in healthcare revenue is driven by growth in products , including printers , materials and services , including virtual surgical planning and contract manufacturing services . for the year ended december 31 , 2018 , total software revenue , including haptics and scanners , from products and services increased 5.0 % to $ 96.3 million , and made up 14.0 % of total revenue , compared to $ 91.7 million , or 14.2 % of total revenue for the year ended december 31 , 2017 . gross profit for the year ended december 31 , 2018 increased by 6.4 % , or $ 19.6 million , to $ 324.4 million , compared to $ 304.8 million for the year ended december 31 , 2017 . gross profit margin was 47.2 % for the years ended december 31 , 2018 and 2017 .
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” overview we are the second largest cable operator in the united states and a leading broadband communications services company providing video , internet and voice services to approximately 26.2 million residential and business customers at december 31 , 2016 . in addition , we sell video and online advertising inventory to local , regional and national advertising customers and fiber-delivered communications and managed it solutions to larger enterprise customers . we also own and operate regional sports networks and local sports , news and community channels and sell security and home management services to the residential marketplace . see “ part i. item 1. business — products and services ” for further description of these services , including customer statistics for different services . 33 since 2012 , legacy charter has actively invested in its network and operations and improved the quality and value of the products and packages that legacy charter offered . through the roll-out of spectrum pricing and packaging we have simplified our offers and improved our packaging of products , delivering more value to new and existing customers . further , through the transition of our legacy charter markets to our all-digital platform , we increased our offerings to more than 200 hd channels in most of the legacy charter markets and offered internet speeds of at least 60 or 100 mbps , among other benefits . we believe that this product set combined with improved customer service , as we insource our workforce in our call centers and in our field operations , has led to lower customer churn and longer customer lifetimes . as a result of the transactions , 2016 revenues increased by over $ 18.6 billion year over year . we also saw an increase in expenses related to our increased scale . in september 2016 , we began launching spp to legacy twc markets and we expect that by mid 2017 , we will offer spp in all legacy twc and legacy bright house markets . in 2017 , we intend to begin converting the remaining legacy twc and legacy bright house analog markets to an all-digital platform . our corporate organization , as well as our marketing , sales and product development departments , are now centralized . field operations are managed through eleven regional areas , each designed to represent a combination of designated marketing areas and managed with largely the same set of field employees that were with the three legacy companies prior to completion of the transactions . over a multi-year period , legacy twc and legacy bright house customer care centers will migrate to legacy charter 's model of using segmented , virtualized , u.s.-based in-house call centers . we will focus on deploying superior products and service with minimal service disruptions as we integrate our information technology and network operations . we expect customer and financial results to trend similar to legacy charter following the implementation of the legacy charter operating strategies across the legacy twc and legacy bright house markets . as a result of implementing our operating strategy at legacy twc and legacy bright house , we can not be certain that we will be able to grow revenues or maintain our margins at recent historical rates . the company realized revenue , adjusted ebitda and income from operations during the periods presented as follows ( in millions ; all percentages are calculated using whole numbers . minor differences may exist due to rounding ) . replace_table_token_3_th adjusted ebitda is defined as consolidated net income plus net interest expense , income taxes , depreciation and amortization , stock compensation expense , loss on extinguishment of debt , ( gain ) loss on financial instruments , net , other ( income ) expense , net and other operating ( income ) expenses , such as merger and restructuring costs , other pension benefits , special charges and gain ( loss ) on sale or retirement of assets . see “ —use of adjusted ebitda and free cash flow ” for further information on adjusted ebitda and free cash flow . growth in total revenue , adjusted ebitda and income from operations was primarily due to the transactions . on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , total revenue growth was primarily due to growth in our internet and commercial businesses . on a pro forma basis , adjusted ebitda growth was primarily due to an increase in residential and commercial revenues offset by increases in programming costs and other operating costs . in addition to the factors discussed above , income from operations on a pro forma basis was affected by increases in depreciation and amortization , merger and restructuring costs and stock compensation expense . approximately 90 % , 91 % and 90 % of our revenues for years ended december 31 , 2016 , 2015 and 2014 , respectively , are attributable to monthly subscription fees charged to customers for our video , internet , voice and commercial services provided by our cable systems . generally , these customer subscriptions may be discontinued by the customer at any time subject to a fee for certain commercial customers . the remaining 10 % , 9 % and 10 % of revenue for fiscal years 2016 , 2015 and 2014 , respectively , is derived primarily from advertising revenues , franchise and other regulatory fee revenues ( which are collected by us but then 34 paid to local authorities ) , pay-per-view and vod programming , installation , processing fees or reconnection fees charged to customers to commence or reinstate service , and commissions related to the sale of merchandise by home shopping services . we incurred the following transition costs in connection with the transactions ( in millions ) . replace_table_token_4_th amounts included in transition operating expenses and transition capital expenditures represent incremental costs incurred to integrate the legacy twc and legacy bright house operations and to bring the three companies ' systems and processes into a uniform operating structure . story_separator_special_tag while we believe our existing capitalization policies are appropriate , a significant change in the nature or extent of our system activities could affect management 's judgment about the extent to which we should capitalize direct labor or overhead in the future . we monitor the appropriateness of our capitalization policies , and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies . we capitalized direct labor and overhead of $ 991 million , $ 420 million and $ 427 million , respectively , for the years ended december 31 , 2016 , 2015 and 2014 . valuation and impairment of property , plant and equipment . we evaluate the recoverability of our property , plant and equipment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable . such events or changes in circumstances could include such factors as the impairment of our indefinite life franchises , changes in technological advances , fluctuations in the fair value of such assets , adverse changes in relationships with local franchise authorities , adverse changes in market conditions , or a deterioration of current or expected future operating results . a long-lived asset is deemed impaired when the carrying amount of the asset exceeds the projected undiscounted future cash flows associated with the asset . no impairments of long-lived assets to be held and used were recorded in the years ended december 31 , 2016 , 2015 and 2014 . we utilize the cost approach as the primary method used to establish fair value for our property , plant and equipment in connection with business combinations . the cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility , then adjusts the value in consideration of physical depreciation and functional and economic obsolescence as of the appraisal date . the cost approach relies on management 's assumptions regarding current material and labor costs required to rebuild and repurchase significant components of our property , plant and equipment along with assumptions regarding the age and estimated useful lives of our property , plant and equipment . useful lives of property , plant and equipment . we evaluate the appropriateness of estimated useful lives assigned to our property , plant and equipment , based on annual analysis of such useful lives , and revise such lives to the extent warranted by changing facts and circumstances . any changes in estimated useful lives as a result of this analysis are reflected prospectively beginning in the period in which the study is completed . our analysis of useful lives in 2016 did not indicate a change in useful lives . the effect of a one-year decrease in the weighted average remaining useful life of our property , plant and equipment as of december 31 , 36 2016 would be an increase in annual depreciation expense of approximately $ 1.7 billion . the effect of a one-year increase in the weighted average remaining useful life of our property , plant and equipment as of december 31 , 2016 would be a decrease in annual depreciation expense of approximately $ 863 million . depreciation expense related to property , plant and equipment totaled $ 5.0 billion , $ 1.9 billion and $ 1.8 billion for the years ended december 31 , 2016 , 2015 and 2014 , respectively , representing approximately 20 % , 21 % and 22 % of costs and expenses , respectively . depreciation is recorded using the straight-line composite method over management 's estimate of the useful lives of the related assets as listed below : cable distribution systems 7-20 years customer premise equipment and installations 3-8 years vehicles and equipment 3-6 years buildings and improvements 15-40 years furniture , fixtures and equipment 6-10 years intangible assets valuation and impairment of franchises . the net carrying value of franchises as of december 31 , 2016 and 2015 was approximately $ 67.3 billion ( representing 45 % of total assets ) and $ 6.0 billion ( representing 34 % of total assets excluding restricted cash and cash equivalents ) , respectively . for more information and a complete discussion of how we value and test franchise assets for impairment , see note 6 to the accompanying consolidated financial statements contained in “ part ii . item 8. financial statements and supplementary data. ” we perform an impairment assessment of franchise assets annually or more frequently as warranted by events or changes in circumstances . we performed a qualitative assessment in 2016 . our assessment included consideration of the fair value appraisals of legacy charter and the newly-acquired operations performed as of the date of acquisition for tax and acquisition accounting purposes , respectively , along with a multitude of factors that affect the fair value of our franchise assets . examples of such factors include environmental and competitive changes within our operating footprint , actual and projected operating performance , the consistency of our operating margins , equity and debt market trends , including changes in our market capitalization , and changes in our regulatory and political landscape , among other factors . based on our assessment , we concluded that it was more likely than not that the estimated fair values of our franchise assets equals or exceeds their carrying values and that a quantitative impairment test is not required . the appraisals indicated that the fair value of our franchise assets exceeded carrying value by approximately 25 % in the aggregate , with the excess entirely attributable to the franchise assets of legacy charter to which acquisition accounting was not applied . at our unit of accounting level for franchise asset impairment testing , the amount by which fair value exceeds carrying value varies based on the extent to which the unit of accounting was comprised of newly-acquired operations .
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results of operations the following table sets forth the consolidated statements of operations for the periods presented ( dollars in millions , except per share data ) : replace_table_token_5_th revenues . total revenues grew $ 19.2 billion or 197 % in the year ended december 31 , 2016 as compared to 2015 and grew $ 646 million or 7.1 % in the year ended december 31 , 2015 as compared to 2014 . revenue growth primarily reflects the transactions 39 and increases in the number of residential internet and triple play customers and in commercial business customers , growth in rates driven by higher equipment revenue and rate increases offset by a decrease in basic video customers . the transactions increased revenues for year ended december 31 , 2016 as compared to 2015 by approximately $ 18.6 billion . on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , total revenue growth was 7 % for the year ended december 31 , 2016 compared to 2015 . revenues by service offering were as follows ( dollars in millions ; all percentages are calculated using whole numbers . minor differences may exist due to rounding ) : replace_table_token_6_th video revenues consist primarily of revenues from basic and digital video services provided to our residential customers , as well as franchise fees , equipment rental and video installation revenue . excluding the impacts of the transactions , residential video customers increased by 42,000 in 2016 and decreased by 2,000 in 2015 .
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business overview refer to item 1 “ business ” included elsewhere within this annual report for an overview of our business . acquisitions the application of acquisition accounting as a result of business combinations can significantly affect certain assets , liabilities and expenses . during the years ended september 30 , 2015 and 2014 , the company has completed a number of acquisitions as outlined below . there were no acquisitions during the year ended september 30 , 2016. see note 3 , “ acquisitions ” in the notes to the consolidated financial statements , included elsewhere within this annual report , for further additional detail regarding acquisition activity . armored autogroup - on may 21 , 2015 , the company completed the acquisition of aag , a consumer products company consisting primarily of armor all® branded appearance products , stp® branded performance chemicals , and a/c pro® branded do-it-yourself automotive air conditioner recharge products . the results of aag 's operations are included in the company 's consolida ted statements of income , since may 21 , 2015 and reported as a separate segment , gac . salix - on january 16 , 2015 , the company completed the acquisition of salix , a vertically integrated producer and distributor of natural rawhide dog chews , treats and snacks . the results of salix 's operations are included in the company 's consolidat ed statements of income , and as part of the pet segment , since january 16 , 2015 . european iams and eukanuba - on december 31 , 2014 , the company completed the acquisition of procter & gamble 's european iams and eukanuba pet food business ( “ european iams and eukanuba ” ) , including its brands for dogs and cats . the results of the european iams and eukanuba 's operations are included in the company 's consolidated statements of income , and as part of the pet segment , since december 31 , 2014 . tell manufacturing - on october 1 , 2014 , the company completed the acquisition of tell manufacturing , inc. ( “ tell ” ) , a manufacturer and distributor of commercial doors , locks and hardware . the results of tell 's operations are included in the company 's consolidated statements of income , and as part of the hhi segment , since october 1 , 2014 . liquid fence - on january 2 , 2014 , the company completed the acquisition of the liquid fence company ( “ liquid fence ” ) , a producer of animal repellents . the results of liquid fence 's operations are included in the company 's consolidated statements of income , and as part of the h & g segment , since january 2 , 2014 . 41 restructuring activity we continually seek to improve our operational efficiency , match our manufacturing capacity and product costs to market demand and better utilize our manufacturing resources . we have undertaken various initiatives to reduce manufacturing and operating costs . the most significant of these initiatives are outlined below . see note 4 , “ restructuring and related charges ” in the notes to the consolidated financial statements , included elsewhere within this annual report , for additional detail regarding restructuring and related activity . gac business rationalization initiatives – during the third quarter of the fiscal year ended september 30 , 2016 , the company implemented a series of initiatives through the gac segment to consolidate certain operations and reduce operating costs . these initiatives included headcount reductions and the exit of certain facilities . total costs associated with these initiatives are expected to be approximately $ 20 million and are anticipated to be incurred through september 30 , 2017 , of which $ 5.3 million has been incurred to date . hhi business rationalizatio n initiatives - during the fourth quarter of the fiscal year ended september 30 , 2014 , the company implemented a series of initiatives throughout the hhi business segment to reduce operating costs and exit low margin business outside of the u.s. these initiatives included headcount reductions , the exit of certain facilities and the sale of a portion of the global hhi operations . costs associated with these initiatives of $ 16.6 million were incurred to date and completed as of september 30 , 2016 . global expense rationalization initiatives - during the third quarter of the year ended september 30 , 2013 , the company implemented a series of initiatives to reduce operating costs . these initiatives consisted of headcount reductions in the gba and pet segments and in corporate . costs associated with these initiatives of $ 47.0 million were incurred to date and completed as of september 30 , 2016 . other restructuring activities – the company is entering or may enter into small , less significant initiatives and restructuring activities to reduce costs and improve margins throughout the organization . individually these activities are not substantial , and occur over a shorter time period ( less than 12 months ) . total costs associated with these initiatives are expected to be approximately $ 6 million , of which $ 2.9 million has been incurred to date . refinancing activity the following recent financing activity has a significant impact on the comparability of financial results on the condensed consolidated financial statements . see note 10 , “ debt ” in the notes to the consolidated financial statements , included elsewhere within this annual report , for additional detail regarding debt . during the year ended september 30 , 2016 , we refinanced a portion of our debt to extend maturities and reduce borrowing costs . on september 2 0 , 2016 , we issued 425 million aggregate principal amount of 4.00 % unsecured notes due 2026 ( the “ 4.00 % notes ” ) . story_separator_special_tag small appliances organic net sales increased $ 51.3 million , or 7.0 % for the year ended september 30 , 2015 compared to the year ended september 30 , 2014 ; driven by increased sales in north america of $ 25.1 million attributable to the success of new product launches ; increase in europe sales of $ 24.9 million from promotional activity ; and latin america sales of $ 2.0 million from new product introductions and volume increases in certain product lines . personal care o rganic net sales increased $ 12.9 million , or 2.4 % , for the year ended september 30 , 2016 compared to the year ended september 30 , 2015 ; primarily attributable to an increase in europe of $ 13.0 million and latin america of $ 9.5 million from higher volume due to promotional sales and market expansion ; offset by decrease in north america of $ 13.9 million for so fter point of sales in the category , reduction in retail inventory , shifting of holiday sales and competitive pricing . personal care organic net sales increased $ 35.5 million , or 6.5 % , for the year ended september 30 , 2015 compared to the year ended september 30 , 2014 ; driven by increased sales in north america of $ 11.6 million as a result of display location changes at a major customer , promotional activity and continued growth in e-commerce ; increased europe sales of $ 16.6 million due to new product sales and expansion in eastern european markets ; and increased latin america sales of $ 5.3 million from growth in mexico , new customers and effective promotional sales within the region . adjusted ebitda in the year en ded september 30 , 2016 increased $ 4.5 million and the adjusted ebitda margin improved 80 bps compared to the year ended september 30 , 2015. adjusted ebitda increased primarily due to the increase in net sales di scussed above , cost improvement and better product mix , offset by negative foreign currency impact of $ 76.5 million . the increase in adjusted ebitda margin is due to improved product mix and cost improvements . adjusted ebitda in the year ended september 30 , 2015 decreased $ 19.7 million and the adjusted ebitda margin improved by 10 bps compared to the year ended september 30 , 2014. adjusted ebitda decreased primarily due to decreased sales discussed above , which was partially offset by cost improvements and favorable product mix . adjusted ebitda margin increased due to cost improvements and product mix . see non-gaap measurements for reconciliation of net income to adjusted ebitda by segment . 45 hardware & home improvement ( hhi ) replace_table_token_10_th net sales increased $ 35.5 million , or 2.9 % , for the year ended september 30 , 2016 compared to the year ended september 30 , 2015 . organic net sales increased $ 50.2 million , or 4.2 % , attributable to increas es in the security product category of $ 40.0 million from an increase in point of sale , new product listings with key retail customers , increases in e-commerce volumes , and market growth with non-retail customers , partially offset by a $ 5.5 million decrease in sales with private label customers due to the transition in production of higher-margin branded product ; an increase in plumbing products of $ 14.7 million from the introduction of new products and promotional volumes with key retail customers ; partially offset by a $ 3.7 million decrease in hardware p roducts driven by a $ 22.8 million decrease for the expiration of a customer tolling agreement and planned exit of unprofitable businesses , mitigated by volume growth at existing retail and market expansion with non-retail customers in north america . net sales for the year ended september 30 , 2015 increased $ 39.5 million , or 3.4 % , compared to the year ended september 30 , 2014. organic net sales increased $ 20.7 million , or 1.8 % , due to an increase in north america sales as a result of higher domestic security and plumbing sales from retailers due to customer gains and from non-retailers through pricing and market growth , offset by a decrease in sales in apac of $ 14.2 million driven by the exit of low margin products and the expiration of a customer tolling agreement . adjusted ebitda in the year ended september 30 , 2016 increased $ 16 .1 million while adjusted ebitda margin increased by 80 bps from the year ended september , 2015. adjusted ebitda increased primarily due to the increase in net sales discussed above and cost improvements . adjusted ebitda margin increased due to cost improvements , partially offset by increased investment towards growth in emerging markets for electronics and e-commerce . adjusted ebitda in the year ended september 30 , 2015 increased $ 15.2 million while the adjusted ebitda margin improved by 70 bps compared to the year ended september 30 , 2014. adjusted ebitda increased due to the increase in net sales discussed above . adjusted ebitda margin increased due to cost improvements . global pet supplies ( pet ) replace_table_token_11_th net sales increased $ 67.5 million , or 8.9 % , for the year ended september 30 , 2016 compared to the year ended september 30 , 2015. organic net sales increased $ 1.2 million , 0.2 % , primarily due to inc reases in aquatic sales of $ 1 .1 million from timing of prior year holiday shipments , partially offset with the exit of lower margin business ; while compani on animal and pet food sales were consistent to prior year due to increased competition at key retailers , offset by growth with independent pet retailers , timing of promotional activity , and exiting of certain private label business .
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consolidated results of operations the following is summarized consolidated results of operations for sbh for the years ended september 30 , 2016 , 2015 and 2014 respectively : replace_table_token_6_th net sales . net sales for the year ended september 30 , 2016 increased $ 349.3 million , or 7.4 % , compared to the year ended september 30 , 2015. organic net sales for the year ended september 30 , 20 16 increased $ 123.7 million , or 2.6 % , compared to the year ended september 30 , 2015. net sales for the year ended september 30 , 2015 increased $ 261.3 million , or 5.9 % , compared to the year ended september 30 , 2014. organic net sales for the year ended september 30 , 2015 increased $ 91.1 million , or 2.1 % , compared to the year ended september 30 , 2014. organic net sales excludes the impact of foreign currency translation and acquisitions , and is considered a non-gaap measurement . see “ non-gaap measurements ” section included elsewhere in this annual report for a reconciliation of net sales to organic net sales . the following sets forth net sales by segment for the years ended september 30 , 2016 , 2015 and 2014 : replace_table_token_7_th the following sets forth the principal components of change in net sales from the year ended september 30 , 2016 to the year ended september 30 , 2015 , and from the year ended september 30 , 2015 to the year ended september 30 , 2014 : replace_table_token_8_th gross profit . gross profit for the year ended september 30 , 2016 increased $ 249.6 million compared to the year ended september 30 , 20 15 primarily attributable to the increase in net sales and increase in gross profit margin .
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as a result , the company will maintain a liability equivalent to 100 % of the proceeds from unredeemed gift cards , less estimated unredeemed gift cards . for the years ended december 31 , 2013 and 2012 and from the period august 12 , 2005 ( inception ) to december 31 , 2013 , there were no significant gift cards sales , therefore the “ unredeemed gift certificates ” liability was $ 0 at december 31 , 2013 and december 31 , 2012. in recognizing the unredeemed gift card income above , the company considered the guidance under asc 405-20-40 , liabilities-extinguishments of liabilities-derecognition paragraph 40-1 that states “ a debtor shall derecognize a liability if and only if it has been extinguished . a liability under this standard has been extinguished if either of the following conditions is met : ( a ) the debtor pays the creditor and is relieved of its obligation for the liability or ( b ) the debtor is legally released from being the primary obligor under the liability either judicially or by the creditor . ” the recognition of unredeemed gift card income is not expected to be material in future reporting periods . if we have future sales of gift cards , we will review historical gift card redemption information at each reporting period to assess the continued appropriateness of the gift card breakage rates and pattern of redemption . contingencies : certain conditions may exist which may result in a loss to the company , but which will only be resolved when one or more future events occur or fail to occur . the company 's management and its legal counsel assess such contingent liabilities , and such assessment inherently involves an exercise of judgment . in assessing loss contingencies related to legal proceedings that are pending against the company , or unasserted claims that may result in such proceedings , the company 's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein . if the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated , the estimated liability would be accrued in the company 's financial statements . if the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible , or is probable but can not be estimated , the nature of the contingent liability , together with an estimate of the range of possible loss if determinable and material , would be disclosed . loss contingencies considered remote are generally not disclosed unless they arise from guarantees , in which case the guarantees would be disclosed . recently-issued accounting standards : management does not believe that any recently issued , but not yet effective , accounting standards if currently adopted would have a material effect on the accompanying financial statements . note 3 – major customer the company has one major customer , which represents approximately 80 % and 21 % of total sales for the years ended december 31 , 2013 and 2012 , respectively . f-10 story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report . in addition to historical information , the following discussion contains certain forward-looking information . see “ special note regarding forward looking statements ” above for certain information concerning those forward looking statements . story_separator_special_tag margin-left : 0pt ; margin-right : 0pt '' > impact of potential loss of our major customer on our liquidity currently sales to our major customer constitute approximately 80 % of our total revenue . any substantial decrease in selling our products to them will substantially affect our operating results and liquidity . although we currently have a satisfactory relationship with our major customer , if they were to terminate their relationship or stop ordering products from us , these events would currently result in a loss of substantially all of our revenue which would have a material impact on the liquidity of our company . it is uncertain how long our major customer will continue to order products from us as we do not have any assurances from them as to how long they will continue ordering products from us . we do not have an exclusive agreement with them for selling our type of products to them . in the event that the company is not able to retain our major customer or obtain new customers , we will incur increased operating losses and we will need to raise additional capital to maintain our current operations . we presently are seeking to increase our web-based sales by attracting new customers to our websites . we are not presently negotiating any agreements with any new major customers . liquidity and capital resources as of december 31 , 2013 , we had cash of $ 4,484 , total assets of $ 4,484 and working capital of $ 2,901 compared to $ 3,013 in cash , $ 3,013 in total assets and $ 2,788 in working capital as of december 31 , 2012. the following table provides detailed information about our net cash flow for all financial statement periods presented in this report : cash flow replace_table_token_1_th 19 operating activities cash used in operating activities in the year ended december 31 , 2013 consisted of net loss as well as the effect of changes in working capital . story_separator_special_tag cash used in operating activities in the year ended december 31 , 2013 was $ 7,791 , which consisted of a net loss of $ 9,148 and cash provided by working capital of $ 1,358. the cash provided by working capital was due to an increase in accrued liabilities of $ 1,358. cash used in operating activities in the year ended december 31 , 2012 consisted of net income as well as the effect of changes in working capital . cash used in operating activities in the year ended december 31 , 2012 was $ 386 , which consisted of a net income of $ 1,845 , and cash used for working capital of $ 2,231. the cash used for working capital was due to a decrease in accrued liabilities . cash used in operating activities from august 12 , 2005 ( inception ) to december 31 , 2013 consisted of net income as well as the effect of changes in working capital . cumulative cash provided by operating activities was $ 64,926 , which consisted of a net income of $ 64,524 and cash provided by working capital of $ 403. the cash provided by working capital consisted of an increase in accrued liabilities . investing activities during the years ended december 31 , 2013 and 2012 we had no investing activities . we had no investing activities from august 12 , 2005 ( inception ) to december 31 , 2013. financing activities during the year ended december 31 , 2013 , we had net cash provided by financing activities of $ 9,262 as compared to net cash flows used in financing activities of $ 3,849 for the year ended december 31 , 2012 an increase of $ 13,111. this increase in cash provided by financing activities is due to proceeds from the sale of common stock of $ 5,000 , proceeds from shareholder advances of $ 5,000 and a decrease in distributions to shareholder of $ 3,111. we have net cash used in financing activities of $ 60,442 for the period august 12 , 2005 ( inception date ) to december 31 , 2013. during the year ended december 31 , 2013 , our total cash requirements may exceed our cash balances . currently , we do not have sufficient cash in our bank accounts to cover our estimated expenses for the next 12 months . our current average monthly negative cash flow is approximately $ 2,000 per month . based on our current cash position at december 31 , 2013 we have approximately 2 months of cash on hand to fund our current operations . we anticipate meeting our future cash requirements through a combination of equity financing from the proceeds of this offering and debt financing from our principal shareholder to fund the costs of this offering and the costs of being a public reporting company . although we anticipate meeting our future cash requirements though , among other things , debt financing from our principal shareholder , we do not currently have any agreements with our principal shareholder to provide such financing , written or unwritten . we estimate that our operating expenses , based on us being able to raise the necessary equity capital , will be approximately $ 100,000 as described in the table below . these estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources . replace_table_token_2_th 20 we intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing . we have an effective registration statement on file with the securities and exchange commission but currently do not have any arrangements in place for the completion of any financings and there is no assurance that we will be successful in completing any further financings or raising any capital . there is no assurance that any financing will be available or if available , on terms that will be acceptable to us . we may not raise sufficient funds to fully carry out any business plan . off-balance sheet arrangements as of the date of this report , we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders . inflation the effect of inflation on our revenues and operating results has not been significant . critical accounting policies our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete listing of these policies is included in note 2 of the notes to our financial statements for the year ended december 31 , 2013 and 2012 and for the period august 12 , 2005 ( date of inception ) to december 31 , 2013. we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . revenue recognition sales to consumers are recorded when goods are shipped and are reported net of allowances for estimated returns and allowances in the accompanying statements of operations . the customer authorizes us to charge their credit card at the time of purchase with the understanding their credit card will be charged upon shipment . we recognize revenue based on the below three criteria . our policy is to allow the return of any unused merchandise purchased from us for any reason for a 15-day period after the date of sale . delivery has occurred . we have our vendors drop ship inventory to our customers and we recognize revenue when we are notified that shipment has occurred . fee is fixed or
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overview we are a web-based retailer of clothing , accessories and other personalized gifts for children . we currently sell our products through our website www.polkadotpatch.com . we do not have any stores or outlets . we are in the process of rebranding our business under the name maple tree kids . we are devoting a substantial amount of our efforts promoting our personalized children products , creating a new logo , marketing and sales collateral , and creating a new website , www.mapletreekids.com and as a result of these corporate development efforts , we are considered a development stage company . we acquire our products from 35 wholesale vendors all located in the united states who will also drop-ship the inventory we purchase from them to our customers . we do not manufacture any of our own products . we have not entered into any formal supply agreements with these vendors . we are required to pay in full for products purchased from these vendors upon delivery . if the prices charged by these vendors increase and we are not able to pass on the increased price to our customers , then our margins will be reduced and this will affect our potential for future profitability . principal factors affecting our financial performance our operating results are primarily affected by the following factors : · our auditors have issued a going concern opinion . this means that there is substantial doubt that we can continue as an ongoing business for the next 12 months .
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we are the market leader in the united states in the performance sport boat category through our malibu and axis wake research boat brands , the leader in the united states in the 20 ' - 40 ' segment of the sterndrive boat category through our cobalt brand and in a leading position in the fiberglass outboard fishing boat market with our pursuit brand . our product portfolio of premium brands are used for a broad range of recreational boating activities including , among others , water sports , general recreational boating and fishing . our passion for consistent innovation , which has led to propriety technology such as surf gate , has allowed us to expand the market for our products by introducing consumers to new and exciting recreational activities . we design products that appeal to an expanding range of recreational boaters and water sports enthusiasts whose passion for boating and water sports is a key component of their active lifestyle and provide consumers with a better customer-inspired experience . with performance , quality , value and multi-purpose features , our product portfolio has us well positioned to broaden our addressable market and achieve our goal of increasing our market share in the expanding recreational boating industry . we currently sell our boats under four brands—malibu ; axis ; cobalt ; and pursuit . our flagship malibu boats offer our latest innovations in performance , comfort and convenience , and are designed for consumers seeking a premium performance sport boat experience . retail prices of our malibu boats typically range from $ 60,000 to $ 190,000. we launched our axis boats in 2009 to appeal to consumers who desire a more affordable performance sport boat product but still demand high performance , functional simplicity and the option to upgrade key features . retail prices of our axis boats typically range from $ 60,000 to $ 110,000. our cobalt boats consist of mid to large-sized luxury cruisers and bowriders that we believe offer the ultimate experience in comfort , performance and quality . retail prices for our cobalt boats typically range from $ 60,000 to $ 770,000. our recent acquisition of pursuit expands our product offerings into the saltwater outboard fishing market and includes center console , dual console and offshore models . retail prices for our pursuit boats typically range from $ 80,000 to $ 800,000. we sell our boats through a dealer network that we believe is the strongest in the recreational powerboat category . as of july 1 , 2019 , our worldwide distribution channel consisted of over 350 dealer locations globally . our dealer base is an important part of our consumers ' experience , our marketing efforts and our brands . we devote significant time and resources to find , develop and improve the performance of our dealers and believe our dealer network gives us a distinct competitive advantage . as a result of our innovation , process improvements , acquisition strategy and strong dealer network and management team , among other reasons , we have achieved fiscal year 2019 net sales , net income and adjusted ebitda of $ 684.0 million , $ 69.7 million and $ 125.9 million , respectively , compared to $ 497.0 million , $ 31.0 million and $ 92.7 million , respectively , for fiscal year 2018 and $ 281.9 million , $ 31.1 million and $ 55.7 million , respectively , for fiscal year 2017 . for the fiscal year ended june 30 , 2019 , net sales increased 37.6 % , gross margin as a percentage of sales increased to 24.3 % , net income increased 125.1 % and adjusted ebitda increased 35.8 % compared to the fiscal year ended june 30 , 2018 . our results for fiscal year 40 2019 include pursuit since our acquisition on october 15 , 2018. our results for fiscal years 2019 and 2018 include cobalt since our acquisition on july 6 , 2017. for the definition of adjusted ebitda and a reconciliation to net income , see “ gaap reconciliation of non-gaap financial measures. ” beginning in fiscal year 2019 , we report our results of operations under four reportable segments : malibu u.s. , malibu australia , cobalt , and pursuit , based on our boat manufacturing operations . the malibu u.s. and malibu australia segments participate in the manufacturing , distribution , marketing and sale of malibu and axis performance sport boats . the malibu u.s. segment primarily serves markets in north america , south america , europe , and asia while the malibu australia operating segment principally serves the australian and new zealand markets . our cobalt and pursuit segments participate in the manufacturing , distribution , marketing and sale of cobalt and pursuit boats , respectively , throughout the world . malibu u.s. is our largest segment and represented 51.0 % , 59.0 % and 91.8 % of our net sales for fiscal years 2019 , 2018 , and 2017 respectively . we acquired cobalt in july 2017 and it represented 30.2 % and 36.3 % of our net sales for fiscal year 2019 and 2018. we acquired pursuit in october 2018 and it represented 15.0 % of our net sales for fiscal year 2019. malibu australia represented 3.8 % , 4.7 % and 8.2 % of our net sales for fiscal years 2019 , 2018 and 2017 , respectively . see note 19 to our consolidated financial statements included elsewhere in this annual report on form 10-k for more information about our reporting segments . refinancing of credit facilities on may 14 , 2019 , our subsidiary , malibu boats , llc , as the borrower entered into the second incremental facility amendment and second amendment to its existing second amended and restated credit agreement dated as of june 28 , 2017 ( as amended , the “ credit agreement ” ) . story_separator_special_tag each of these items includes personnel and related expenses , supplies , non-manufacturing overhead , third-party professional fees and various other operating expenses . further , selling and marketing expenditures include the cost of advertising and various promotional sales incentive programs . general and administrative expenses include , among other things , salaries , benefits and other personnel related expenses for employees engaged in product development , engineering , finance , information technology , human resources and executive management . other costs include outside legal and accounting fees , investor relations , risk management ( insurance ) and other administrative costs . general and administrative expenses also include product development expenses associated with our engines vertical integration initiative and acquisition or integration related expenses . other ( income ) expense , net other ( income ) expense , net consists of interest expense and other income or expense , net . interest expense consists of interest charged under our outstanding debt , interest on our interest rate swap arrangement , changes in the fair value of our interest rate swap we entered into on july 1 , 2015 , and amortization of deferred financing costs on our credit facilities . other income includes a portion of the amounts received from the settlement of our litigation with mastercraft boat company , llc ( `` mastercraft '' ) entered into on may 2 , 2017 and adjustments to our tax receivable agreement liability in the fourth quarter of fiscal year 2017 and first and second quarter of fiscal year 2018. income taxes malibu boats , inc. is subject to u.s. federal and state income tax in multiple jurisdictions with respect to our allocable share of any net taxable income of the llc . the llc is a pass-through entity for federal purposes but incurs income tax in certain state jurisdictions . the income tax provision reflects a reported effective income tax rate of 24.1 % , 65.4 % , and 36.2 % attributable to malibu boats , inc. 's share of income for fiscal years 2019 , 2018 and 2017 , respectively . our statutory tax rate for fiscal year 2019 is 21 % . the reported effective tax rate for fiscal year 2019 differs from the statutory federal income tax rate of 21 % primarily due to the impact of u.s. state taxes . 42 our effective tax rate is also impacted by the addition of new tax jurisdictions as a result of the pursuit acquisition , the impact of the non-controlling interests in the llc , the benefits of the foreign derived intangible income deduction , and the research and development tax credit . net income attributable to non-controlling interest as of june 30 , 2019 and 2018 , we had a 96.2 % and 95.2 % controlling economic interest and 100 % voting interest in the llc . we consolidate the llc 's operating results for financial statement purposes . net income attributable to non-controlling interest represents the portion of net income attributable to the llc members . outlook industry-wide marine retail registrations continue to recover from the years following the global financial crisis . according to statistical surveys , inc. , domestic retail registration volumes of performance sport boats , fiberglass sterndrive and fiberglass outboards increased at a compound annual growth rate of approximately 6.0 % between 2011 and 2018 , for the 50 reporting states . this has been led by growth in our core market , performance sport boats , having produced a double-digit compound annual growth rate over that period . domestic retail demand growth has continued in performance sport boats for calendar year 2019 , however the growth rate has decelerated compared to prior years . fiberglass sterndrive and outboard boats , the target markets for our cobalt and pursuit branded products , have seen their combined market grow at a 5.4 % compound annual growth rate between 2011 and 2018. that growth has been driven by the outboard market where pursuit is focused and cobalt is a new entrant and where we plan to meaningfully expand our market share in the future . while cobalt 's primary market for sterndrive propulsion has been challenged , their performance continues to be helped by market share gains and they continue to see registration growth . during 2019 the fiberglass outboard market has actually begun a modest contraction , however , in foot lengths 23 feet and greater , where pursuit competes , the market continues to grow , and pursuit is gaining share . we expect the growing demand for our products to continue , albeit at a lower pace than the past eight years , and there are numerous variables that have the potential to impact our volumes , both positively and negatively . for example , we believe the substantial decrease in the price of oil , broad strength of the u.s. dollar and recently implemented tariffs has resulted in reduced demand for our boats in certain markets . to date , growth in our domestic market has offset significantly diminished demand from economies that are driven by the oil industry and international markets . consumer confidence , expanded or eroded , is a variable that could also impact demand in both directions . other challenges that could impact demand for recreational powerboats include higher interest rates reducing retail consumer appetite for our product , the availability of credit to our dealers and retail consumers , fuel costs , a meaningful reduction in the value of global or domestic equity markets , the continued acceptance of our new products in the recreational boating market , our ability to compete in the competitive power boating industry , and the costs of labor and certain of our raw materials and key components . since 2008 , we have increased our market share among manufacturers of performance sport boats due to new product development , improved distribution , new models , and innovative features .
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results of operations the table below sets forth our consolidated results of operations , expressed in thousands ( except unit volume and net sales per unit ) and as a percentage of net sales , for the periods presented . our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods . certain totals for the table below will not sum to exactly 100 % due to rounding . 45 replace_table_token_3_th comparison of the fiscal year ended june 30 , 2019 to the fiscal year ended june 30 , 2018 net sales net sales for fiscal year 2019 increased $ 187.0 million , or 37.6 % , to $ 684.0 million , compared to fiscal year 2018 . unit volume for fiscal year 2019 increased 1,070 units , or 17.0 % , to 7,362 units compared to fiscal year 2018 . the increase in net sales and unit volumes was driven primarily by our acquisition of pursuit in october 2018 , as well as increased demand for our malibu , axis and cobalt brands coupled with year-over-year price increases . 46 net sales attributable to our malibu u.s. segment increased $ 55.8 million , or 19.0 % , to $ 349.0 million for fiscal year 2019 compared to fiscal year 2018. unit volumes attributable to our malibu u.s. segment increased 456 units for fiscal year 2019 compared to fiscal year 2018. the increase in net sales and unit volume for malibu u.s. was driven primarily by strong demand for new models and optional features , which led to a higher net sales per unit for malibu and axis models . net sales was also impacted by year-over-year price increases on all of our malibu and axis models . net sales from our cobalt segment increased $ 26.2 million , or 14.6 % , to $ 206.6
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unless the context otherwise requires , in this annual report on form 10-k , `` hc2 '' means hc2 holdings , inc. and the `` company , '' `` we '' and `` our '' mean hc2 together with its consolidated subsidiaries . `` u.s. gaap '' means accounting principles accepted in the united states of america . our business we are a diversified holding company with principal operations conducted through seven operating platforms or reportable segments : construction ( `` dbmg '' ) , marine services ( `` gmsl '' ) , energy ( `` ang '' ) , telecommunications ( `` ics '' ) , insurance ( `` cig '' ) , life sciences ( `` pansend '' ) , and other , which includes businesses that do not meet the separately reportable segment thresholds . we continually evaluate acquisition opportunities and monitor a variety of key indicators of our underlying platform companies in order to maximize stakeholder value . these indicators include , but are not limited to , revenue , cost of revenue , operating profit , adjusted ebitda and free cash flow . furthermore , we work very closely with our subsidiary platform executive management teams on their operations and assist them in the evaluation and diligence of asset acquisitions , dispositions and any financing or operational needs at the subsidiary level . we believe 60 that this close relationship allows us to capture synergies within the organization across all platforms and strategically position the company for ongoing growth and value creation . the potential for additional acquisitions and new business opportunities , while strategic , may result in acquiring assets unrelated to our current or historical operations . as part of any acquisition strategy , we may raise capital in the form of debt and or equity securities ( including preferred stock ) or a combination thereof . we have broad discretion and experience in identifying and selecting acquisition and business combination opportunities and the industries in which we seek such opportunities . many times , we face significant competition for these opportunities , including from numerous companies with a business plan similar to ours . as such , there can be no assurance that any of the past or future discussions we have had or may have with candidates will result in a definitive agreement and , if they do , what the terms or timing of any potential agreement would be . as part of our acquisition strategy , we may utilize a portion of our available cash to acquire interests in possible acquisition targets . any securities acquired are marked to market and may increase short-term earnings volatility as a result . we believe our track record , our platform and our strategy will enable us to deliver strong financial results , while positioning our company for long-term growth . we believe the unique alignment of our executive compensation program , with our objective of increasing long-term stakeholder value , is paramount to executing our vision of long-term growth , while maintaining our disciplined approach . having designed our business structure to not only address capital allocation challenges over time , but also maintain the flexibility to capitalize on opportunities during periods of market volatility , we believe the combination thereof positions us well to continue to build long-term stakeholder value . our operations refer to note 1. organization and business to our consolidated financial statements included elsewhere in this report on form 10-k for additional information . seasonality our industry can be highly cyclical and subject to seasonal patterns . our volume of business in our construction and marine services segments may be adversely affected by declines or delays in projects , which may vary by geographic region . project schedules , particularly in connection with large , complex , and longer-term projects can also create fluctuations in the services provided , which may adversely affect us in a given period . for example , in connection with larger , more complicated projects , the timing of obtaining permits and other approvals may be delayed , and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on such projects when they move forward . examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include : weather or project site conditions , financial condition of our customers and their access to capital ; margins of projects performed during any particular period ; economic , and political and market conditions on a regional , national or global scale . accordingly , our operating results in any particular period may not be indicative of the results that can be expected for any other period . marine services net revenue within our marine services segment can fluctuate depending on the season . revenues are relatively stable for our marine services maintenance business as the core driver is the annual contractual obligation . however , this is not the case with our installation business ( other than for long-term charter arrangements ) , in which revenues show a degree of seasonality . revenues in our marine services installation business are driven by our customers ' need for new cable installations . generally , weather downtime , and the additional costs related to downtime , is a significant factor in customers determining their installation schedules , and most installations are therefore scheduled for the warmer months . as a result , installation revenues are generally lower towards the end of the fourth quarter and throughout the first quarter , as most business is concentrated in the northern hemisphere . other than as described above , our businesses are not materially affected by seasonality . story_separator_special_tag debt issuance in january 2017 , the company issued an additional $ 55.0 million in aggregate principal amount of its 11.0 % notes due 2019. hc2 used a portion of the proceeds from the issuance to repay all $ 35.0 million in outstanding aggregate principal amount of hc22 's 11.0 % bridge note due 2019. in june 2017 , the company issued an additional $ 38.0 million of aggregate principal amount of the 11.0 % notes to investment funds affiliated with three institutional investors in a private placement offering ( the `` june 2017 notes '' ) , in order to begin funding acquisitions and general working capital needs . the company has issued an aggregate of $ 400.0 million of its 11.0 % notes pursuant to the indenture dated november 20 , 2014 , by and among hc2 , the guarantors party thereto and u.s. bank national association , a national banking association , as trustee ( the `` 11.0 % notes indenture '' ) . on november 9 , 2017 , broadcasting entered into a $ 75.0 million bridge loan ( the `` bridge loan '' ) to finance acquisitions in the broadcast television distribution market . broadcasting borrowed $ 45.0 million of principal amount of the bridge loan on the same day . on december 15 , 2017 , broadcasting borrowed an additional $ 15.0 million of principal amount of the bridge loan . on february 4 , 2018 , broadcasting entered into a first amendment to the bridge loan to add an additional $ 27.0 million in principal borrowing capacity to the bridge loan . on february 6 , 2018 , broadcasting borrowed $ 42.0 million in principal amount of bridge loans , the net proceeds of which will be used to finance certain acquisitions , to pay fees , costs and expenses relating to the bridge loans , and for general corporate purposes . the total aggregate principal amount of the bridge loans outstanding after the february 6 , 2018 the total borrowing under the bridge loan was $ 102.0 million . dividends during the three months ended december 31 , 2017 , hc2 received $ 4.5 million and $ 2.0 million in dividends from our construction and telecommunications segments , respectively . during the year ended december 31 , 2017 , hc2 received $ 18.4 million and $ 8.0 million in dividends from our construction and telecommunications segments , respectively . tax sharing agreement under a tax sharing agreement , dbmg reimburses hc2 for use of its net operating losses . during the three months ended december 31 , 2017 , hc2 received $ 5.0 million from dbmg under this tax sharing agreement . during the year ended december 31 , 2017 , hc2 received $ 10.0 million from dbmg under this tax sharing agreement . preferred share conversion in may 2017 , the company entered into an agreement with dg value partners , lp and dg value partners ii master funds lp , holders ( collectively , `` dg value '' ) to convert and exchange all of dg value 's 2,308 shares of series a and 1,000 shares of series a-1 convertible participating preferred stock into a total of 803,469 shares of the company 's common stock . financial presentation background in the below section within this management 's discussion and analysis of financial condition and results of operations , we compare , pursuant to u.s. gaap and sec disclosure rules , the company 's results of operations for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , and for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . 63 results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016 , and the year ended december 31 , 2016 compared to the year ended december 31 , 2015 presented below is a disaggregated table that summarizes our results of operations and a comparison of the change between the periods presented ( in thousands ) : replace_table_token_8_th net revenue : net revenue for the year ended december 31 , 2017 increased $ 76.0 million to $ 1,634.1 million from $ 1,558.1 million for the year ended december 31 , 2016 . all segments except for our telecommunication segment recognized increased revenues during the year ended december 31 , 2017 . the construction segment was a major driver of the increase , largely due to contribution from large complex projects which have brought in greater revenue when compared to the previous period and additional revenues from bds and pdc , both of which were acquired in the fourth quarter of 2016. also contributing to the increase in revenues was our energy segment , which experienced increased compressed natural gas ( `` cng '' ) sales from new fueling stations acquired or developed during 2016 which have incurred a full year of operations in 2017. further , growth in the insurance segment was primarily driven by an increase in the asset base for both fixed maturity securities and mortgage loans and yield improvements for fixed maturity securities when compared to the previous period . finally , increased revenues from our marine services segment were driven by higher offshore power installation revenues . these increases were offset by decreases in revenues from our telecommunications segment as a result of a decrease in wholesale traffic volumes as the segment has been focused on a wholesale traffic termination mix that maximizes margin contribution . 64 net revenue for the year ended december 31 , 2016 increased $ 437.3 million to $ 1,558.1 million from $ 1,120.8 million for the year ended december 31 , 2015 . this increase was due primarily to our telecommunications segment , as a result of growth in wholesale traffic volumes , the addition of revenues associated with our insurance company which was acquired in december 2015 , and an increase in revenue in our marine services segment driven by increased maintenance revenues as a result of the cwind acquisition .
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segment results of operations in the company 's consolidated financial statements , other operating ( income ) expense includes ( i ) ( gain ) loss on sale or disposal of assets , ( ii ) lease termination costs and ( iii ) asset impairment expense . each table summarizes the results of operations of our operating segments and compares the amount of the change between the periods presented ( in thousands ) . construction segment replace_table_token_9_th net revenue : net revenue from our construction segment for the year ended december 31 , 2017 increased $ 76.3 million to $ 579.0 million from $ 502.7 million for the year ended december 31 , 2016 . the increase was due primarily to contribution from large complex projects which have brought in greater revenue when compared to the previous periods and additional revenues from bds and pdc , both of which were acquired in the fourth quarter of 2016. net revenue from our construction segment for the year ended december 31 , 2016 decreased $ 11.1 million to $ 502.7 million from $ 513.8 million for the year ended december 31 , 2015 . the decrease was primarily due to softness in industrial market opportunities , particularly impacting the gulf coast region , as well as from the delayed start of several large-scale commercial projects in the southwest and pacific regions , which were in the design phase . cost of revenue : cost of revenue from our construction segment for the year ended december 31 , 2017 increased $ 78.0 million to $ 478.0 million from $ 400.0 million for the year ended december 31 , 2016 . the increase was driven by the increases in revenues . cost of revenue from our construction segment for the year ended december 31 , 2016 decreased $ 30.2 million to $ 400.0 million from $ 430.1 million for the year ended december 31 , 2015 .
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we are using these technologies to develop targeted immunotherapeutics comprised of antibodies , adjuvants and monotherapies and antibody-drug conjugates that prevent or treat cancer and other diseases that modify undesirable activity by the body 's own proteins or cells . our lead drug candidates include rindopepimut ( also referred to as rintega® and cdx-110 ) and glembatumumab vedotin ( also referred to as cdx-011 ) . rindopepimut is a targeted immunotherapeutic in a pivotal phase 3 study for the treatment of front-line glioblastoma and a phase 2 study for the treatment of recurrent glioblastoma . glembatumumab vedotin is a targeted antibody-drug conjugate in a randomized , phase 2b study for the treatment of triple negative breast cancer and a phase 2 study for the treatment of metastatic melanoma . we also have a number of earlier stage drug candidates in clinical development , including varlilumab ( also referred to as cdx-1127 ) , a fully human therapeutic monoclonal antibody for cancer indications , cdx-1401 , a targeted immunotherapeutic aimed at antigen presenting cells , or apc , for cancer indications and cdx-301 , an immune cell mobilizing agent and dendritic cell growth factor . our drug candidates address market opportunities for which we believe current therapies are inadequate or non-existent . we are building a fully integrated , commercial-stage biopharmaceutical company that develops important therapies for patients with unmet medical needs . our program assets provide us with the strategic options to either retain full economic rights to our innovative therapies or seek favorable economic terms through advantageous commercial partnerships . this approach allows us to maximize the overall value of our technology and product portfolio while best ensuring the expeditious development of each individual product . the following table includes the programs that we currently believe are significant to our business : replace_table_token_11_th the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties . completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . it is not unusual for the clinical development of these types of product candidates to each take five years or more , and for total development costs to exceed $ 100 million for each product 47 candidate . our estimates that clinical trials of the type we generally conduct are typically completed over the following timelines : clinical phase estimated completion period phase 1 1 - 2 years phase 2 1 - 5 years phase 3 1 - 5 years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol , including , among others , the following : the number of patients that ultimately participate in the trial ; the duration of patient follow-up that seems appropriate in view of results ; the number of clinical sites included in the trials ; the length of time required to enroll suitable patient subjects ; and the efficacy and safety profile of the product candidate . we test potential product candidates in numerous preclinical studies for safety , toxicology and immunogenicity . we may then conduct multiple clinical trials for each product candidate . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain product candidates in order to focus our resources on more promising product candidates . an element of our business strategy is to pursue the research and development of a broad portfolio of product candidates . this is intended to allow us to diversify the risks associated with our research and development expenditures . to the extent we are unable to maintain a broad range of product candidates , our dependence on the success of one or a few product candidates increases . regulatory approval is required before we can market our product candidates as therapeutic products . in order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval , the regulatory agency must conclude that our clinical data is safe and effective . historically , the results from preclinical testing and early clinical trials ( through phase 2 ) have often not been predictive of results obtained in later clinical trials . a number of new drugs and biologics have shown promising results in early clinical trials , but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals . furthermore , our business strategy includes the option of entering into collaborative arrangements with third parties to complete the development and commercialization of our product candidates . in the event that third parties take over the clinical trial process for one of our product candidates , the estimated completion date would largely be under control of that third party rather than us . we can not forecast with any degree of certainty which proprietary products , if any , will be subject to future collaborative arrangements , in whole or in part , and how such arrangements would affect our development plan or capital requirements . our programs may also benefit from subsidies , grants , contracts or government or agency-sponsored studies that could reduce our development costs . as a result of the uncertainties discussed above , among others , it is difficult to accurately estimate the duration and completion costs of our research and development projects or when , if ever , and to what extent we will receive cash inflows from the commercialization and sale of a product . our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements , when appropriate , could significantly increase our capital requirements and could adversely impact our liquidity . these uncertainties could force us to seek additional , external sources of financing from time to time in order to continue with our business strategy . story_separator_special_tag group 2 includes 25 patients who are refractory to avastin having received avastin in either the frontline or recurrent setting with subsequent progression and who received rindopepimut plus avastin in a single treatment arm . in august 2013 , we announced the addition of an expansion cohort of up to 75 patients , called group 2c , to better characterize the potential activity of rindopepimut in this refractory patient population . this decision was based on early evidence of anti-tumor activity , including stable disease , tumor shrinkage and investigator-reported response . in total , group 2c enrolled 28 patients . the primary endpoint is six month progression-free survival rate ( pfs-6 ) for groups 1 and 2 and objective response rate ( orr ) for group 2c . other study endpoints include pfs-6 , orr , pfs , overall survival , or os and safety and tolerability . in november 2014 , we reported the following interim data from the react study . rindopepimut plus avastin was very well tolerated ( dosing up to 26+ months ) and the results demonstrated clear 50 signs of clinical activity in advanced patient populations , including evidence of anti-tumor activity ( tumor shrinkage , objective response and stable disease ) . strong immune response correlated with improved outcome . in avastin-naïve patients treated with both rindopepimut and avastin , a statistically significant survival benefit was seen compared to the control patients . group 1 interim data pfs-6 : pfs-6 by investigator read was 27 % for patients treated with rindopepimut compared to 11 % for control patients ( p=0.048 ) survival : the os demonstrated a statistically significant benefit ( p=0.0208 ) with a hazard ratio of 0.47 ( 0.25 , 0.91 ) in favor of the rindopepimut treated patients . median os was 12.0 months for patients treated with rindopepimut compared to 8.8 months for control patients . response rate : 7 out of 29 patients ( 24 % ) evaluable for response on the rindopepimut arm experienced a confirmed objective response versus 5 out of 30 patients ( 17 % ) evaluable for response on the control arm . assessments of response were conducted by study investigators according to rano criteria . other : all subgroup analyses , including performance status , steroid use and recent resection , show a hazard ratio in favor of rindopepimut treatment . group 2/2c interim data survival : median os was 5.1 months ( 95 % ci 3.2 , 6.5 ) for these heavily pretreated , refractory egfrviii-positive patients . 46 % of patients in group 2/2c were alive at 6 months . response rate : based on investigator assessment , two patients experienced complete response , of which one was unconfirmed , and two patients experienced partial response , of which one was unconfirmed , in group 2. two of these four patients did not meet the protocol defined definition of refractory in group 2 , the only two such patients enrolled . no additional objective responses were observed in group 2c and the study did not meet the criteria ( defined as two responses in the first 23 patients enrolled in group 2c ) for continued enrollment . ten patients with measurable disease experienced objective tumor shrinkage across group 2/2c . final data is anticipated by mid-year 2015 and we intend to present this data at a peer-reviewed medical meeting in this same time frame . glembatumumab vedotin glembatumumab vedotin is an antibody-drug conjugate , or adc , that consists of a fully-human monoclonal antibody , cr011 , linked to a potent cell-killing drug , monomethyl-auristatin e , or mmae . the cr011 antibody specifically targets glycoprotein nmb , referred to as gpnmb , that is over-expressed in a variety of cancers including breast cancer and melanoma . the adc technology , comprised of mmae and a stable linker system for attaching it to cr011 , was licensed from seattle genetics , inc. and is the same as that used in the marketed product adcetris® . the adc is designed to be stable in the bloodstream . following intravenous administration , glembatumumab vedotin targets and binds to gpnmb and upon internalization into the targeted cell , glembatumumab vedotin is designed to release mmae from cr011 to produce a cell-killing effect . the fda has granted fast track designation to glembatumumab vedotin for the treatment of advanced , refractory/resistant gpnmb-expressing breast cancer . treatment of breast cancer : the phase 1/2 study of glembatumumab vedotin administered intravenously once every three weeks evaluated patients with locally advanced or metastatic breast cancer who had received prior therapy ( median of seven prior regimens ) . the study began with a bridging phase to confirm the maximum tolerated dose , or mtd , and then expanded into a phase 2 open-label , multi-center study . the study confirmed the safety of glembatumumab vedotin at the 51 pre-defined maximum dose level ( 1.88 mg/kg ) in 6 patients . an additional 28 patients were enrolled in an expanded phase 2 cohort ( for a total of 34 treated patients at 1.88 mg/kg , the phase 2 dose ) to evaluate the pfs rate at 12 weeks . the 1.88 mg/kg dose was well tolerated in this patient population with the most common adverse events of rash , alopecia , and fatigue . the primary activity endpoint , which called for at least 5 of 25 ( 20 % ) patients in the phase 2 study portion to be progression-free at 12 weeks , was met as 9 of 26 ( 35 % ) evaluable patients were progression-free at 12 weeks . for all patients treated at the maximum dose level , tumor shrinkage was seen in 62 % ( 16/26 ) and median pfs was 9.1 weeks . a subset of 10 patients had `` triple negative disease , '' a more aggressive breast cancer subtype that carries a high risk of relapse and reduced survival as well as limited therapeutic options due to lack of over-expression of her2/neu , estrogen and progesterone receptors .
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results of operations year ended december 31 , 2014 compared with year ended december 31 , 2013 replace_table_token_16_th net loss the $ 36.5 million increase in net loss for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was primarily the result of an increase in research and development and general and administrative expenses , partially offset by an increase in investment and other income . revenue the $ 0.7 million increase in product development and licensing agreements revenue for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was primarily related to our bms agreement . in may 2014 , we entered into a clinical trial collaboration with bms whereby bms 59 made a one-time payment to us of $ 5.0 million which we are recognizing as revenue over our estimated performance period of five years . the $ 1.1 million increase in contracts and grants revenue for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was primarily related to our rockefeller university agreement pursuant to which we perform research and development services for rockefeller . the agreement includes an approved project plan for the development services of $ 4.8 million and a term of three years . the $ 2.3 million decrease in product royalty revenue for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was due to the termination of our agreement with glaxosmithkline plc which occurred upon the expiration of the last relevant patent right covered by the agreement . the terminated retained interests in rotarix® net royalties which were not sold to paul royalty fund ii , l.p. had been equal to the amount payable to cincinnati children 's hospital medical center and recognized as royalty expense by us .
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as a result of the merger , we created a new financial services segment , which consists entirely of legacy markit 's business ( and also includes ipreo from the date of acquisition in august 2018 ) , and we have included revenue and expense attributable to legacy markit in the financial services segment from the date of the merger . in our discussion and analysis of comparative periods , we have quantified the legacy markit contribution wherever we have deemed such amounts to be meaningful . while identified amounts may provide indications of general trends , the analysis can not completely address the effects attributable to the merger . executive summary business overview we are a world leader in critical information , analytics , and solutions for the major industries and markets that drive economies worldwide . we deliver next-generation information , analytics , and solutions to customers in business , finance , and government , improving their operational efficiency and providing deep insights that lead to well-informed , confident decisions . we have more than 50,000 business and government customers , including 80 percent of the fortune global 500 and the world 's leading financial institutions . headquartered in london , we are committed to sustainable , profitable growth . on july 12 , 2016 , the merger was completed pursuant to the merger agreement between ihs , markit , and merger sub , and merger sub merged with and into ihs , with ihs continuing as the surviving corporation and an indirect and wholly owned subsidiary of ihs markit . upon completion of the merger , markit became the combined group holding company and was renamed ihs markit ltd. in accordance with the terms of the merger agreement , ihs stockholders received 3.5566 common shares of ihs markit for each share of ihs common stock they owned . to best serve our customers , we are organized into the following four industry-focused segments : resources , which includes our energy and chemicals product offerings ; transportation , which includes our automotive ; maritime & trade ; and aerospace , defense & security product offerings ; consolidated markets & solutions , which includes our product design ; technology , media & telecom ( “ tmt ” ) ; and economics & country risk ( “ ecr ” ) product offerings ; and financial services , which includes our financial information , processing , and solutions product offerings , as well as our product offerings from ipreo , our recent acquisition . we believe that this sales and operating model helps our customers do business with us by providing a cohesive , consistent , and effective product , sales , and marketing approach by segment . our recurring fixed revenue and recurring variable revenue represented approximately 84 percent of our total revenue in 2018 . our recurring revenue is generally stable and predictable , and we have long-term relationships with many of our customers . our business has seasonal aspects . our first quarter generally has our lowest quarterly levels of revenue and profit . we also experience event-driven seasonality in our business ; for instance , ceraweek , an annual energy conference , is typically held in the second quarter of each year . another example is the biennial release of the bpvc engineering standard , which generates revenue for us predominantly in the third quarter of every other year . the most recent bpvc release was in the third quarter of 2017. during 2018 , we focused our efforts on integrating our organizational structure , innovating and developing new product offerings , and managing our capital allocation . in 2018 , we completed our key merger integration activities . we also introduced 34 or enhanced many of our product offerings , and we took advantage of the opportunity to further enhance our financial services product portfolio with the ipreo acquisition . related to our capital structure , our corporate credit rating improved to investment-grade in the second quarter of 2018. for 2019 , we expect to focus our efforts on the following actions : increase in geographic , product , and customer penetration . we believe there are continued opportunities to add new customers and to increase the use of our products and services by existing customers . we plan to add new customers and build our relationships with existing customers by leveraging our existing sales channels , broad product portfolio , global footprint , and industry expertise to anticipate and respond to the changing demands of our end markets . introduce innovative offerings and enhancements . in recent years , we have launched several new product offerings addressing a wide array of customer needs , and we expect to continue to innovate using our existing data sets and industry expertise , converting core information to higher value advanced analytics . our investment priorities are primarily in energy , automotive , and financial services , and we intend to continue to invest across our business to increase our customer value proposition . balance capital allocation . our capital allocation focus for the majority of 2019 will be to de-lever to our capital policy target leverage ratio of 2.0-3.0x . over the long term , we expect to balance capital allocation between returning capital to shareholders ( through consistent share repurchases ) and completing mergers and acquisitions , focused primarily on targeted transactions in our core end markets that will allow us to continue to build out our strategic position . key performance indicators we believe that revenue growth , adjusted ebitda ( both in dollars and margin ) , and free cash flow are key financial measures of our success . adjusted ebitda and free cash flow are financial measures that are not recognized terms under u.s. generally accepted accounting principles ( “ non-gaap ” ) . revenue growth . we review year-over-year revenue growth in our segments as a key measure of our success in addressing customer needs . we measure revenue growth in terms of organic , acquisitive , and foreign currency impacts . story_separator_special_tag because not all companies use identical calculations , our presentation of non-gaap financial measures may not be comparable to other similarly titled measures of other companies . they are not presentations made in accordance with u.s. gaap , are not measures of financial condition or liquidity , and should not be considered as an alternative to profit or loss for the period determined in accordance with u.s. gaap or operating cash flows determined in accordance with u.s. gaap . as a result , these performance measures should not be considered in isolation from , or as a substitute analysis for , results of operations as determined in accordance with u.s. gaap . strategic acquisitions acquisitions have historically been an important part of our growth strategy . we completed three acquisitions during the year ended november 30 , 2018 for a total purchase price of approximately $ 1.9 billion . in 2017 , we completed two acquisitions for a total purchase price of approximately $ 0.4 billion . we paid a total purchase price of approximately $ 1.1 billion for two acquisitions we completed during the year ended november 30 , 2016 , in addition to the merger . our consolidated financial statements include the results of operations and cash flows for these business combinations beginning on their respective dates of acquisition . for a more detailed description of our recent acquisition activity , see “ item 8 - financial statements and supplementary data - notes to consolidated financial statements - note 3 ” in part ii of this form 10-k. 36 global operations approximately 40 percent of our revenue is transacted outside of the united states ; however , only about 20 percent of our revenue is transacted in currencies other than the u.s. dollar . as a result , a strengthening u.s. dollar relative to certain currencies has historically resulted in a negative impact on our revenue ; conversely , a weakening u.s. dollar has historically resulted in a positive impact on our revenue . however , the impact on operating income is diminished due to certain operating expenses denominated in currencies other than the u.s. dollar . our largest foreign currency exposures are the british pound , euro , canadian dollar , singapore dollar , and indian rupee . see “ quantitative and qualitative disclosures about market risk – foreign currency exchange rate risk ” for additional discussion of the impacts of foreign currencies on our operations . pricing information we customize many of our sales offerings to meet individual customer needs and base our pricing on a number of factors , including various price segmentation models which utilize customer attributes , value attributes , and other data sources . attributes can include a proxy for customer size ( e.g. , barrels of oil equivalent and annual revenue ) , industry , users , usage , breadth of the content to be included in the offering , and multiple other factors . because of the level of offering customization we employ , it is difficult for us to evaluate pricing impacts on a period-to-period basis with absolute certainty . this analysis is further complicated by the fact that the offering sets purchased by customers are often not constant between periods . as a result , we are not able to precisely differentiate between pricing and volume impacts on changes in revenue comprehensively across the business . other items cost of operating our business . we incur our cost of revenue primarily through acquiring , managing , and delivering our offerings . these costs include personnel , information technology , data acquisition , and occupancy costs , as well as royalty payments to third-party information providers . our sales , general , and administrative expenses include wages and other personnel costs , commissions , corporate occupancy costs , and marketing costs . a large portion of our operating expenses are not directly commensurate with volume sold , particularly in our recurring revenue business model . stock-based compensation expense . we issue equity awards to our employees primarily in the form of restricted stock units , performance stock units , and stock options , for which we record cost over the respective vesting periods . the typical vesting period is three years . as of november 30 , 2018 , we had approximately 8.8 million unvested rsus/rsas and 6.2 million unvested stock options outstanding . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap . in applying u.s. gaap , we make significant estimates and judgments that affect our reported amounts of assets , liabilities , revenues , and expenses , as well as disclosure of contingent assets and liabilities . we believe that our accounting estimates and judgments are reasonable when made , but in many instances , alternative estimates and judgments would also be acceptable . in addition , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from our estimates . to the extent that there are material differences between these estimates and actual results , our financial condition or results of operations will be affected . we base our estimates on historical experience and other assumptions that we believe are reasonable , and we evaluate these estimates on an ongoing basis . we refer to accounting estimates of this type as critical accounting policies and estimates , which are discussed further below . revenue recognition . the majority of our offerings are provided under agreements containing standard terms and conditions . approximately 84 percent of our 2018 revenue was derived from recurring revenue arrangements , which are initially deferred and then recognized ratably as delivered over the term of the agreement for annual contractual periods billed up front , or is billed and recognized on a periodic basis . these standard agreements typically do not require any significant judgments about when revenue should be recognized .
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results of operations total revenue total revenue for 2018 increased 11 percent compared to the same period of 2017 . total revenue for 2017 increased 32 percent compared to the same period in 2016 . the table below displays the percentage point change in revenue due to organic , acquisitive , and foreign currency factors when comparing 2018 to 2017 and 2017 to 2016 . markit 's revenue of $ 1.233 billion for the year ended november 30 , 2017 , less the $ 68 million increase from the year ended november 30 , 2016 , has been included in the calculation of acquisitive growth in the table immediately below , and the components of markit 's $ 68 million revenue growth from 2016 to 2017 have been included in their related factors in the table further below . we have noted financial services growth percentages as not meaningful ( n/m ) where applicable , as absolute growth percentages are not meaningful comparisons due to the timing of the merger in 2016. replace_table_token_2_th organic revenue growth in 2018 and 2017 was attributable to both recurring and nonrecurring revenue growth . the recurring-based business represented 84 percent of total revenue in 2018 , compared to 83 percent and 82 percent of total revenue in 2017 and 2016 , respectively . the recurring-based business increased 6 percent organically in 2018 and 3 percent organically in 2017 , led in each year by transportation and financial services offerings , with resources also contributing to the organic growth in 2018. the non-recurring business increased 6 percent organically in 2018 , led by transportation and resources offerings , and increased 9 percent organically in 2017 , led by transportation and financial services offerings . the non-recurring revenue increase in 2017 was also partially due to the timing of the biennial cycle of the bpvc standard , which contributed approximately $ 12 million of revenue in the 2017 results .
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our customers use our solutions to make better decisions 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 organize our business in two segments : decision analytics and risk assessment . our decision analytics segment provides solutions to our customer in insurance , energy and specialized markets , and financial services . our decision analytics segment revenues represented approximately 64.1 % and 63.7 % of our revenues for the years ended december 31 , 2017 and 2016 , respectively . our risk assessment segment provides statistical , actuarial and underwriting data for the u.s. p & c insurance industry . our risk assessment segment revenues represented 35.9 % and 36.3 % of our revenues for the years ended december 31 , 2017 and 2016 , respectively . on june 1 , 2016 , we sold our healthcare business , verisk health . results of operations for the healthcare business are reported as discontinued operations for the year ended december 31 , 2016 and for all prior periods presented . see note 9 of our consolidated financial statements included in this annual report on form 10-k. as necessary , the amounts have been retroactively adjusted in all periods presented to give recognition to the discontinued operations . 30 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 proxy for the cash generated by the business . ebitda growth serves as a measure of our ability to balance the size of revenue growth with cost management and investing for future growth . 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 subscriptions , long-term agreements and on a transactional basis , 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 . our long-term agreements are generally for periods of three to five years . we recognize revenue from subscriptions ratably over the term of the subscription and most long-term agreements are recognized ratably over the term of the agreement . certain of our solutions are also paid for by our customers on a transactional basis . for example , we have solutions that allow our customers to obtain property-specific rating and underwriting information to price a policy on a commercial building , or compare a p & c insurance , medical or workers ' compensation claim with information in our databases . we also provide advisory services , which help our customers get more value out of our analytics and their subscriptions . for the years ended december 31 , 2017 and 2016 , 19.2 % and 16.5 % of our revenues were derived from providing transactional recurring and non-recurring solutions , respectively . we earn these revenues as our solutions are delivered or services performed . in general , they are billed monthly at the end of each month . for the years ended december 31 , 2017 and 2016 , 75.2 % and 78.6 % of the revenues in our decision analytics segment were derived from subscriptions and long-term agreements for our solutions , respectively . for the years ended december 31 , 2017 and 2016 , 90.8 % and 92.0 % of the revenues in our risk assessment segment were derived from subscriptions and long-term agreements for our solutions , respectively . our customers in this segment include most of the p & c insurance providers in the u.s. principal operating costs and expenses personnel expenses are a major component of both our cost of revenues and selling , general and administrative expenses . personnel expenses , which represented 50.1 % and 47.7 % of our total expenses for the years ended december 31 , 2017 and 2016 , respectively , include salaries , benefits , incentive compensation , equity compensation costs , sales commissions , employment taxes , recruiting costs , and outsourced temporary agency costs . story_separator_special_tag falling renewable energy costs around the world will also underpin the ongoing shift towards a low carbon economy . we will continue to evolve our offerings to meet the needs of our customers in a dynamic market and remain increasingly well positioned to serve our customers ' information and analytical needs . market trends continue to influence our financial services vertical in important ways . as we look forward towards 2018 , increasing trends in delinquency and fraud rates have resulted in an increased demand for robust risk solutions . in order to better serve our customers , add to our data asset , and expand our expertise , we made a number of strategic acquisitions in the 32 past year , most importantly ( 1 ) g2 , which provides merchant risk intelligence solutions for acquirers , commercial banks and their value chain partners . g2 provides solutions to manage and monitor merchant and business risk within an increasingly complex payments ecosystem using advanced artificial intelligence technologies combined with expert analysts . ( 2 ) lci , a company that provides bankruptcy management solutions to improve customer 's profitability through recovery of bankrupt accounts while protecting the customer 's brand by conforming to industry compliance . lci maintains bankruptcy data ( servicing more than 1.3 billion accounts ) , bankruptcy process automation software , expert services , and research to automate expensive processes in the bankruptcy lifecycle . ( 3 ) fintellix , a company that provides risk and regulatory reporting solutions to enterprise banks at a significantly lower cost of compliance , as well as jumpstarting analytics capabilities in smaller and regional banks . we stand confident of our position with these acquisitions , with the proprietary data and solutions we offer , to help our customers achieve their business and regulatory objectives . description of acquisitions we acquired twenty-one businesses since january 1 , 2015. these acquisitions affect the comparability of our consolidated results of operations between periods . see note 8 to our consolidated financial statements included in this annual report on form 10-k for further discussions on the below acquisitions . 2017 acquisitions on december 29 , 2017 , we acquired 100 percent of the stock of poweradvocate , inc. , or poweradvocate , a provider of market , cost intelligence , and supply chain solutions serving the energy sector . within our decision analytics segment , poweradvocate expands our offerings to the energy sector by adding proprietary spend data and cost models and providing insight into customers ' cost savings opportunities . on december 22 , 2017 , we acquired the net assets of service software , llc. , or service software , a provider of business management software for the construction industry . within our decision analytics segment , service software expands our offerings to the insurance sector by integrating with the existing loss quantification solutions , which makes it possible for restoration professionals to save time by sharing job information , reducing duplicate data entry , and increasing productivity . on november 9 , 2017 , we acquired 100 percent of the stock of rebmark legal solutions ltd. , or rebmark , a provider of injury claims solutions , within the decision analytics segment . rebmark 's solutions aid claimant and defendant lawyers , barristers , and claims handlers with the preparation of schedules of loss , which is useful in complex , high-value injury claims where calculations can be time-consuming and there is greater potential for error . on august 31 , 2017 , we acquired 100 percent of the stock of lundquist consulting , inc. , or lci , a provider of risk insight , prediction , and management solutions for banks and creditors . lci has become part of the financial services vertical within the decision analytics segment . this acquisition brings together our proprietary data assets and lci 's proprietary time-series data , including consumer and commercial bankruptcies , consumer behavior , and legal and technical terms associated with debtor settlements . on august 23 , 2017 , we acquired 100 percent of the stock of sequel business solutions ltd. , or sequel , a provider of commercial and specialty insurance and reinsurance software based in the u.k. sequel has become part of the insurance vertical within the decision analytics segment . the acquisition of sequel further enhances our comprehensive offerings to the global complex commercial and specialty insurance industry , enabling integrated global data analytics through a specialized end-to-end workflow solution . on august 3 , 2017 , we acquired 100 percent of the stock of g2 web services llc , or g2 , a provider of merchant risk intelligence solutions for acquirers , commercial banks , and other payment system providers . g2 has become part of the financial services vertical within the decision analytics segment . the acquisition of g2 positions us to further enhance our offerings to clients and partners , by providing solutions that help fight fraud , transaction laundering , and reputational risk within the global payments and e-commerce ecosystem . during the three months ended june 30 , 2017 , we acquired the net assets of blue skies consulting , llc , controlcam , llc , krawietz aerial photography , llc , richard crouse & associates , inc. , rocky mountain aerial surveys , inc. , skyview aerial photo , inc. , and valley air photos , llc , altogether the aerial imagery acquisitions , a group of similar but unrelated companies , which give us broad geographic coverage of the u.s. for aerial image capture purposes . the aerial imagery acquisitions provide multi-spectral aerial photographic services with expertise in offering digital photogrammetric and remote sensing data for mapping and surveying applications .
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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 , 2017 . 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_10_th liquidity and capital resources as of december 31 , 2017 and 2016 , we had cash and cash equivalents and available-for-sale securities of $ 146.1 million and $ 138.5 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 . when cash is received for prepayment of invoices , we record an asset ( cash and cash equivalents ) on our balance sheet with the offset recorded as a current liability ( deferred revenues ) .
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prior to adoption , the company presented changes in restricted cash as an operating activity in story_separator_special_tag you should read the following discussion and analysis of financial condition and operating results our financial statements and the related notes appearing at the end of this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth in the section of this form 10-k captioned item 1a . risk factors and elsewhere in this form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . for convenience of presentation some of the numbers have been rounded in the text below . overview we are a vertically integrated , clinical stage gene therapy company with five programs in clinical development and a broad pipeline of preclinical and research programs . we have core capabilities in viral vector design and optimization , gene therapy manufacturing as well as a potentially transformative gene regulation technology . led by an experienced management team , we have taken a portfolio approach by licensing , acquiring and developing technologies that give us depth across both product candidates and indications . though initially focusing on the eye , salivary gland and central nervous system , we intend to expand our focus in the future to develop additional gene therapy treatments for patients suffering from a range of serious diseases . we are an exempted company incorporated under the laws of the cayman islands in 2018 , and prior to that , we commenced operations as meiragtx limited , a private limited company incorporated under the laws of england and wales in 2015. our discussion of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . since our formation , we have devoted substantially all of our resources to developing our technology platform , establishing our viral vector manufacturing facility and developing manufacturing processes , advancing the product candidates in our ophthalmology , salivary gland and neurodegenerative disease programs , building our intellectual property portfolio , organizing and staffing our company , business planning , raising capital , and providing general and administrative support for these operations . in 2016 , we completed the acquisition of assets held by bri-alzan , inc. , a delaware corporation , including a worldwide license agreement to develop certain preclinical technology for the treatment of als . in october 2018 , we acquired vector neurosciences , inc. , a delaware corporation . in connection with that acquisition , we acquired its aav-gad gene therapy program which had completed a randomized , sham-controlled phase 2 study for treatment of parkinson 's disease . to date , we have financed our operations primarily with cash on hand and proceeds from the sales of our series a ordinary shares , convertible preferred c shares and ordinary shares . through december 31 , 2018 , we received gross proceeds of approximately $ 203.7 million from sales of our ordinary shares , series a ordinary shares and convertible preferred c shares . as of december 31 , 2018 , we had cash and cash equivalents of $ 68.1million . we are a clinical stage company and have not generated any product revenues to date . we have five clinical programs and a pipeline of preclinical programs . since inception , we have incurred significant operating losses . our net losses for the years ended december 31 , 2018 and 2017 were $ 82.9 million and $ 31.1 million , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 148.3 million . while we do not expect to generate revenue from sales of any products for several years , if at all , in january 2019 , we entered into the collaboration agreement , which provides for janssen to pay us an $ 100 million upfront payment and provide us with research funding , and we are eligible to receive potential milestone payments and royalties . our total operating expenses were $ 78.1 million and $ 31.7 million for the years ended december 31 , 2018 and 2017 , respectively . while we expect our operating expenses to increase substantially in connection with our ongoing development activities related to our product candidates , we believe that these increases may be partially offset by the research funding in connection with a collaboration , option and license agreement we entered into in january 2019. we anticipate that our expenses will increase due to costs associated with our 122 clinical development program targeting in achromatopsia due to mutations in the cngb3 or cnga3 gene , inherited retinal dystrophy caused by mutations in rpe65 , or rpe65-deficiency , and x-linked retinitis pigmentosa , or xlrp . in addition , we expect to continue incurring increasing costs associated with our clinical activities for haqp1 for the treatment of radiation-induced xerostomia and xerostomia associated with sjogren 's syndrome . we are currently evaluating potential next steps for clinical development of aav-gad , which remains pending future discussions with regulatory agencies . we also expect to incur expenses related to research activities in additional therapeutic areas to expand our pipeline , hiring additional personnel in manufacturing , research , clinical trials , quality and other functional areas , and associated cash and share-based compensation expense , as well as the further development of internal manufacturing capabilities and capacity and other associated costs including the management of our intellectual property portfolio . as a result of these anticipated expenditures , we will require additional capital , which we may raise through equity offerings , debt financings , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or other sources to enable us to complete the development and potential commercialization of our product candidates . furthermore , we expect to continue incurring costs associated with being a public company . story_separator_special_tag in january and february , 2019 , we amended and restated the following agreements : ( i ) the license agreement , dated february 4 , 2015 , as amended , between athena vision ltd. and uclb ; ( ii ) the license agreement , dated july 28 , 2017 , as amended , between meiragtx uk ii limited and uclb ; and ( iii ) the license agreement , dated march 15 , 2018 , among meiragtx limited , meiragtx uk ii limited and uclb to establish new stand-alone license agreements for our inherited retinal disease ( ird ) programs . in connection with the stand-alone agreement related to cngb3 , we agreed to make an upfront payment to uclb of £1,500,000 and issue £1,500,000 of our ordinary shares . on january 30 , 2019 , we entered into a strategic collaboration with janssen to develop and commercialize gene therapies for the treatment of inherited retinal diseases ( irds ) . this collaboration 124 agreement provides for janssen to pay us an $ 100 million upfront payment and provide us with research funding , and we are eligible to receive potential milestone payments and royalties . we will collaborate with janssen to develop our current clinical programs in retinitis pigmentosa and two genetic forms of achromatopsia and janssen has the exclusive right to commercialize these products globally . we will manufacture these products for commercial supply . janssen will pay 100 % of the clinical and commercialization costs of the products and we are eligible to receive untiered 20 percent royalties on net sales of products and additional development and commercialization milestones of up to $ 340 million . in addition , we will enter a research collaboration with janssen in the area of irds , with janssen paying for the majority of the research costs . janssen has the right to exclusively license any product coming out of the collaboration at the time of an ind . janssen will then pay 100 % of the clinical and commercialization costs for these products and we will receive an untiered royalty in the high teens on net sales as well as development milestones . in addition , we have entered into a manufacturing research collaboration with janssen to further develop processes for manufacturing aav viral vectors in which the costs of the research will be shared . on march 1 , 2019 , we consummated a private placement with various investors , including one of our existing shareholders perceptive life sciences master fund ltd. , pursuant to which we issued and sold an aggregate of 5,797,102 ordinary shares for gross proceeds of approximately $ 80.0 million . the financing was led by jjdc , the investment arm of johnson & johnson , which made a $ 40.0 million equity investment in the company and received 2,898,550 ordinary shares . components of our results of operations operating expenses our operating expenses since inception have consisted primarily of general and administrative costs and research and development costs . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including share-based compensation , for personnel in our executive , finance , business development and administrative functions . general and administrative expenses also include legal fees relating to intellectual property and corporate matters ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; and office facility-related expenses , which include direct depreciation costs . we expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities . we have also incurred and expect to continue to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with nasdaq and sec requirements ; director and officer insurance costs ; and investor and public relations costs . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , and include : employee-related expenses , including salaries , benefits and travel of our research and development personnel ; expenses incurred in connection with third-party vendors that conduct clinical and preclinical studies and manufacture the drug product for the clinical trials and preclinical activities ; acquisition of in-process research and development ; 125 costs associated with clinical and preclinical activities including costs related to facilities , supplies , rent , insurance , certain legal fees , share-based compensation , and depreciation ; and expenses incurred with the development and operation of our manufacturing facility . we expense research and development costs as incurred . we typically use our employee and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs , license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates . these costs are included in other research and development expenses in the table below . the following table summarizes our research and development expenses : replace_table_token_1_th research and development activities are central to our business model . we expect that our research and development expenses will continue to increase substantially for the foreseeable future as we initiate additional preclinical and clinical trials of our existing product candidates and continue to discover and develop additional product candidates . this increase in research and development costs may be partially offset by the research funding provided in connection with the collaboration agreement we entered into in january 2019 we can not determine with certainty the duration and costs of future clinical trials of our product candidates or any other product candidate we may develop or if , when , or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval .
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results of operations the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 , respectively replace_table_token_2_th general and administrative expenses general and administrative expenses were $ 44.5 million for the year ended december 31 , 2018 , compared to $ 9.3 million for the year ended december 31 , 2017. the increase of $ 35.2 million was primarily due to increases of $ 19.7 million in payroll , $ 14.0 million in share-based compensation , $ 1.1 million in legal , $ 0.7 million in insurance $ 0.5 million in accounting , $ 0.4 million in travel , and $ 0.3 million in investor relations , which was partially offset by a decrease of $ 1.5 million in rent . research and development expenses research and development expenses for the year ended december 31 , 2018 were $ 33.6 million , compared to $ 22.4 million for the year ended december 31 , 2017. the increase of $ 11.2 million was primarily due to an increase in costs of $ 3.0 million for clinical trial costs related to our ophthalmology programs , $ 3.0 million for acquired neurology research and development , $ 2.3 million related costs of payroll and consultants , $ 1.6 million of depreciation , $ 1.3 million related to the preparation for production of our manufacturing facility , $ 1.0 million in share-based compensation , and $ 0.7 million in rent , which was partially offset an increase of $ 1.7 million in the research and development credit in the united kingdom in 2018 .
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net income and earnings per share for 2012 were $ 20.4 million and $ 2.27 , respectively , representing increases over 2011 net income and earnings per share of 4.8 % and 3.2 % , respectively . dividends per share were $ .96 for 2012 , or 6.7 % more than the $ .90 per share declared in 2011. returns on average assets ( roa ) and average equity ( roe ) for 2012 were .99 % and 10.19 % , respectively , versus 1.05 % and 11.15 % , respectively , for 2011. an increase in average unrealized gains on available-for-sale securities accounts for a significant portion of the decline in roe . the increase in net income for 2012 is primarily attributable to an increase in net interest income of $ 1.4 million , or 2.3 % , a decrease in the provision for loan losses of $ 433,000 , and an increase in noninterest income , excluding securities gains , of $ 287,000 , or 4.6 % . partially offsetting the positive earnings impact of these items was a net loss of $ 338,000 on a deleveraging transaction executed in the second quarter of this year , an increase in noninterest expense , before debt extinguishment costs , of $ 731,000 , or 2.0 % , and an increase in income tax expense of $ 73,000. despite a $ 1.0 million increase in income before income taxes , income tax expense only increased by $ 73,000 largely because of a $ 869,000 increase in tax-exempt income on municipal securities . the increase in net interest income resulted from an increase in average interest-earning assets of $ 204.8 million , or 11.4 % , as partially offset by a 29 basis point decline in net interest margin . the growth in average interest-earning assets is principally comprised of increases in average loans outstanding of $ 125.7 million , or 13.3 % , nontaxable securities of $ 61.5 million , or 20.2 % , and taxable securities of $ 24.1 million , or 4.7 % . although net interest margin declined year-over-year as loans repriced and cash flows were deployed in a very low interest rate environment , it was relatively stable throughout 2012 at 3.37 % , 3.36 % , 3.35 % and 3.30 % for the first , second , third and fourth quarters of 2012 , respectively . management 's continued efforts to make loans a larger portion of total assets and reduce deposit and borrowing costs contributed to this stabilization . 13 the most significant sources of funding for the growth in the average balances of loans and securities were growth in the average balances of savings , now and money market deposits of $ 93.2 million , or 12.5 % , noninterest-bearing checking deposits of $ 48.3 million , or 11.5 % , and borrowings of $ 31.0 million , or 13.7 % . the decrease in the provision for loan losses for 2012 is due to a reduction in specific reserves on loans individually deemed to be impaired and the stabilization of historical loss rates . the impact of these items in reducing the provision was partially offset by an increased level of loan growth . the $ 287,000 increase in noninterest income , excluding securities gains , for 2012 is primarily attributable to an increase in investment management division income , an increase in mortgage assignment and other loan related fees , and a decrease in losses on loans held-for-sale . the positive impact on earnings of these items was partially offset by a decrease in return check charges incurred by the bank 's customers . the increase in noninterest expense , before debt extinguishment costs , largely resulted from increases in salaries , depreciation and certain loan related costs , as partially offset by a reduction in amounts expensed for the settlement of pending litigation . analysis of fourth quarter 2012 earnings . for the fourth quarter of 2012 , net income and earnings per share were $ 5.1 million and $ .56 , respectively , representing increases over the same quarter last year of 6.8 % and 5.7 % , respectively . the increase in net income for the fourth quarter of 2012 versus the same quarter last year is primarily attributable to a decrease in the provision for loan losses of $ 699,000 and an increase in noninterest income of $ 71,000 , or 4.5 % , as partially offset by a decrease in net interest income of $ 143,000 , or .9 % , and an increase in noninterest expense of $ 79,000 , or .8 % . the net positive earnings impact of these items was partially offset by a related increase in income tax expense of $ 225,000. the decline in net interest income occurred because the negative impact of a 20 basis point decline in net interest margin for the quarter more than offset the positive impact of quarterly growth in average interest-earnings assets of 4.7 % . the provision for loan losses decreased for the current quarter largely because of a reduction in specific reserves on loans individually deemed to be impaired . the impact of these items in reducing the provision was partially offset by an increased level of loan growth . asset quality . the bank 's allowance for loan losses to gross loans ( reserve coverage ratio ) was 1.62 % at december 31 , 2012 compared to 1.68 % at the beginning of the year . the reduction in the reserve coverage ratio is largely due to a reduction in specific reserves on loans individually deemed to be impaired . the $ 3.6 million provision for loan losses for 2012 is mostly attributable to loan growth and $ 1.3 million of chargeoffs on three loans . the $ 4.1 million provision for loan losses for 2011 was mostly attributable to loan growth , $ 1.5 million of chargeoffs on two loans and a 13 basis point increase in the reserve coverage ratio . story_separator_special_tag the corporation earned $ 19.5 million , or $ 2.20 per share , for 2011 versus $ 18.4 million , or $ 2.30 per share , for 2010. returns on average assets and average equity were 1.05 % and 11.15 % , respectively , for 2011 versus 1.11 % and 12.94 % , respectively , for 2010. gains on sales of securities were $ 138,000 in 2011 versus $ 1.7 million in 2010. excluding the gains from each year , net income was up $ 2.0 million , or 11.6 % , versus the reported increase of $ 1.1 million , or 5.8 % . earnings per share for 2011 includes the dilutive effect of 1.4 million shares of common stock sold in july 2010 , while 2010 earnings per share only include the dilutive effect of this sale from the date of sale through the close of the year . the increase in net income for 2011 was primarily attributable to an increase in net interest income of $ 3.1 million and a reduction in income tax expense of $ 427,000. income tax expense declined primarily because of an increase of $ 2.0 million , or 20.4 % , in tax-exempt income on municipal securities . partially offsetting the positive impact of the aforementioned items was the $ 1.6 million decrease in gains on sales of securities and an increase in occupancy and equipment expense of $ 662,000 , or 10.2 % . the increase in net interest income for 2011 was primarily attributable to growth in the average balances of all categories of interest-earning assets as partially offset by an eighteen basis point decline in net interest margin . on an overall basis , total average interest-earning assets grew by $ 195.6 million , or 12.3 % . loans and municipal securities , the bank 's two highest yielding asset categories , grew by $ 83.1 million or 9.6 % , and $ 61.8 million , or 25.5 % , respectively , while taxable securities and interest-bearing bank balances , the bank 's two lowest yielding asset categories , grew by $ 45.8 million , or 9.7 % , and $ 4.9 million , or 33.4 % , respectively . funding this growth were increases in noninterest-bearing checking deposits of $ 47.5 million , or 12.7 % , capital of $ 32.3 million , or 22.7 % , savings , now and money market deposits of $ 94.4 million , or 14.5 % , and long-term debt of $ 34.6 million , or 21.0 % . the 2011 decrease in net interest margin occurred primarily because the negative impact of market driven declines in yield on the bank 's securities and loan portfolios far outweighed the positive impact of management 's successful efforts to lower the bank 's overall funding cost . the funding cost reduction would have been greater had management not engaged in a liability extension strategy involving additional long-term borrowings and extending the duration of the bank 's time deposits . this strategy resulted in paying more for funding in the near term in exchange for possibly reducing the negative impact that future increases in interest rates could have on the corporation 's earnings . occupancy and equipment expense increased when comparing 2011 to 2010 largely because of the cost of opening six new branches since the beginning of 2010. despite the cost of personnel needed to staff the new branches and the impact of normal annual salary increases , salaries expense for 2011 was only 2.1 % higher than 2010 and employee benefits expense declined by $ 237,000 , or 4.5 % . salaries expense was contained by partially staffing the new branches with experienced personnel from existing branches and staff reductions through attrition . as a result of these efficiency measures , which management believes were executed without compromising internal controls or service quality , the number of full-time-equivalent employees was virtually unchanged when comparing year-end 2011 to 2010. a significant portion of the decrease in employee benefits expense was attributable to a decrease in retirement plan expense . 15 analysis of fourth quarter 2011 earnings . net income for the fourth quarter of 2011 was $ 4.7 million , or $ .53 per share , as compared to $ 5.3 million , or $ .60 per share , for the preceding quarter and $ 4.1 million , or $ .46 per share , for the same quarter last year . the increase in net income for the fourth quarter of 2011 versus the same quarter last year was primarily attributable to an increase in net interest income of $ 921,000 and an increase in noninterest income , before gains on sales of securities , of $ 276,000. the positive impact of these items was partially offset by an increase in noninterest expense of $ 517,000. net interest income was up for the same reasons discussed with respect to the full 2011 year . noninterest income was up largely because the fourth quarter of 2010 included a $ 300,000 charge to establish a valuation allowance on one loan held for sale . the increase in noninterest expense occurred largely because the fourth quarter of 2011 included charges for litigation and real estate taxes paid by the bank to protect its interest in problem loans . the decline in net income for the fourth quarter of 2011 versus the preceding quarter was primarily attributable to an increase in the provision for loan losses of $ 670,000 and the aforementioned charges for litigation and problem loan expense . the fourth quarter 2011 provision for loan losses resulted from a combination of loan growth , $ 335,000 in net chargeoffs , an increase of $ 172,000 in reserves allocated to loans individually deemed to be impaired and an increase in collective impairment reserves on pools of loans primarily due to management 's current assessment of national and local economic conditions . asset quality .
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net interest income average balance sheet ; interest rates and interest differential . the following table sets forth the average daily balances for each major category of assets , liabilities and stockholders ' equity as well as the amounts and average rates earned or paid on each major category of interest-earning assets and interest-bearing liabilities . replace_table_token_3_th ( 1 ) tax-equivalent basis . interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the corporation 's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to federal income taxes yielding the same after-tax income . the tax-equivalent amount of $ 1.00 of nontaxable income was $ 1.52 in each period presented , based on a federal income tax rate of 34 % . ( 2 ) for the purpose of these computations , nonaccruing loans are included in the daily average loan amounts outstanding . 18 rate/volume analysis . the following table sets forth the effect of changes in volumes , rates and rate/volume on tax-equivalent interest income , interest expense and net interest income . replace_table_token_4_th ( 1 ) represents the change not solely attributable to change in rate or change in volume but a combination of these two factors . the rate/volume variance could be allocated between the volume and rate variances shown in the table based on the absolute value of each to the total for both . net interest income – 2012 versus 2011 net interest income on a tax-equivalent basis was $ 66.7 million in 2012 , an increase of $ 1.8 million , or 2.8 % , from $ 64.9 million in 2011. the increase resulted from an increase in average interest-earning assets of $ 204.8 million , or 11.4 % , as partially offset by a 29 basis point decline in net interest margin .
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