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we seek to accomplish this by consistently earning profits from insurance and reinsurance underwriting and generating meaningful risk-adjusted investment returns , while managing our capital opportunistically . for the year ended december 31 , 2016 , 67.6 % of our group-wide gross written premiums originated from the u.s. e & s lines market including business assumed by our casualty reinsurance segment . we also have a specialty admitted insurance business in the united states . we intend to concentrate substantially all of our underwriting in casualty insurance and reinsurance , and for the year ended december 31 , 2016 , we derived 98.1 % of our group-wide gross written premiums from casualty insurance and reinsurance . we focus on writing business in specialty markets where our underwriters have particular expertise and where we have long-standing distribution relationships ; maintaining a strong balance sheet with appropriate reserves ; monitoring reinsurance recoverables carefully ; managing our investment portfolio actively without taking undue risk ; using technology to monitor trends in our business ; responding rapidly to market opportunities and challenges ; and actively managing our capital . we report our business in four segments : excess and surplus lines , specialty admitted insurance , casualty reinsurance and corporate and other . the excess and surplus lines segment offers e & s commercial lines liability and property insurance in every u.s. state and the district of columbia through james river insurance and its wholly-owned subsidiary , james river casualty . james river insurance and james river casualty are both non-admitted carriers . non-admitted carriers writing in the e & s market are not bound by most of the rate and form regulations imposed on standard market companies , allowing them flexibility to change the coverage terms offered and the rate charged without the time constraints and financial costs associated with the rate and form filing process . in 2016 , the average account in this segment ( excluding commercial auto policies ) generated annual gross written premiums of approximately $ 18,000. the excess and surplus lines segment distributes primarily through wholesale insurance brokers . members of our management team have participated in this market for over three decades and have long-standing relationships with the wholesale agents who place e & s lines accounts . the excess and surplus lines segment produced 50.3 % of our gross written premiums and 56.8 % of our net written premiums for the year ended december 31 , 2016. the specialty admitted insurance segment focuses on niche classes within the standard insurance markets , such as workers ' compensation coverage for residential contractors , light manufacturing operations , transportation workers and healthcare workers in north carolina , virginia , south carolina , and tennessee as well as fronting and program business . in our fronting and program business , we retain a small percentage of the risk and seek to earn fee income by allowing other carriers and producers to use our licensure , ratings , and infrastructure . through falls lake national insurance company and its subsidiaries , this segment has admitted licenses in 48 states and the district of columbia and distributes through a variety of sources , including independent retail agents , program administrators and mgas . the specialty admitted insurance segment produced 24.7 % of our gross written premiums and 10.0 % of our net written premiums for the year ended december 31 , 2016. the casualty reinsurance segment consists of jrg re , our bermuda domiciled reinsurance subsidiary , which provides proportional and working layer casualty reinsurance to third parties and to our u.s.-based insurance subsidiaries . the casualty reinsurance segment 's underwriting results presented herein include only the results of reinsurance written with unaffiliated companies and do not include the 75 premiums and losses ceded under our internal quota share arrangement described below , which are captured in our excess and surplus lines and specialty admitted insurance segments . typically , we structure our reinsurance contracts as quota share arrangements , with loss mitigating features , such as commissions that adjust based on underwriting results . we frequently include risk mitigating features in our excess working layer treaties , which allows the ceding company to capture a greater percentage of the profits should the business prove more profitable than expected , or alternatively provides us with additional premiums should the business incur higher than expected losses . we believe these structures allow us to participate in the risk side-by-side with the ceding company and best align our interests with the interests of our cedents . treaties with loss mitigation features including sliding scale ceding commissions represented 85.6 % of the gross premiums written by our casualty reinsurance segment during 2016. we typically do not assume large individual risks in our casualty reinsurance segment , nor do we write property catastrophe reinsurance . two of the three largest unaffiliated accounts written by jrg re in 2016 were assumed from e & s carriers . the casualty reinsurance segment distributes through traditional reinsurance brokers . the casualty reinsurance segment produced 25.0 % of our gross written premiums and 33.2 % of our net written premiums for the year ended december 31 , 2016. we have intercompany reinsurance agreements under which we cede 70 % of the pooled net written premiums of our u.s. subsidiaries ( after taking into account third-party reinsurance ) to jrg re . this business is ceded to jrg re under a proportional , or quota-share , reinsurance treaty that provides for an arm 's length ceding commission . we exclude the effects of these agreements for the presentation of the excess and surplus lines and specialty admitted insurance segments included herein consistent with the manner in which we manage the business . at december 31 , 2016 , 67.3 % of our cash and invested assets were held in bermuda , which benefits from a favorable operating environment , including an absence of corporate income or investment taxes . story_separator_special_tag % specialty admitted insurance 28,395 30,844 59,239 52.1 % casualty reinsurance 102,178 128,258 230,436 55.7 % total $ 251,748 $ 509,380 $ 761,128 66.9 % our reserve committee consists of our chief actuary , chief executive officer , chief operating officer , chief financial officer , and chief accounting officer . additionally , the presidents and chief actuaries of each of our three operating segments assist in the evaluations of their respective segments . the reserve committee meets quarterly to review the actuarial recommendations made by each chief actuary and uses its best judgment to determine the best estimate to be recorded for the reserve for losses and loss adjustment expenses on our balance sheet . the reserve committee believes that using judgment to supplement the actuarial recommendations is necessary to arrive at a best estimate given the nature of the business that we write and the limited operating experience of the casualty reinsurance segment , the fronting and program business in the specialty admitted insurance segment and the commercial auto underwriting division in the excess and surplus lines segment . 77 the process of estimating the reserve for losses and loss adjustment expenses requires a high degree of judgment and is subject to a number of variables . in establishing the quarterly actuarial recommendation for the reserve for losses and loss adjustment expenses , our internal actuaries estimate an initial expected ultimate loss ratio for each of our product lines by accident year ( or for our casualty reinsurance segment , on a contract by contract basis ) . input from our underwriting and claims departments , including premium pricing assumptions and historical experience , are considered by our internal actuaries in estimating the initial expected loss ratios . our actuaries generally utilize five actuarial methods in their estimation process for the reserve for losses and loss adjustment expenses . these five methods utilize , to varying degrees , the initial expected loss ratio , detailed statistical analysis of past claims reporting and payment patterns , claims frequency and severity , paid loss experience , industry loss experience , and changes in market conditions , policy forms , exclusions , and exposures . the five actuarial methods that we use in our reserve estimation process are : expected loss method the expected loss method multiplies earned premiums by an initial expected loss ratio . incurred loss development method the incurred loss development method uses historical loss reporting patterns to estimate future loss reporting patterns . in this method , our actuaries apply historical loss reporting patterns to develop incurred loss development factors that are applied to current reported losses to calculate expected ultimate losses . paid loss development method the paid loss development method is similar to the incurred loss development method , but it uses historical loss payment patterns to estimate future loss payment patterns . in this method , our actuaries apply historical loss payment patterns to develop paid loss development factors that are applied to current paid losses to calculate expected ultimate losses . bornhuetter-ferguson incurred loss development method the bornhuetter-ferguson incurred loss development method divides the projection of ultimate losses into the portion that has already been reported and the portion that has yet to be reported . the portion that has yet to be reported is estimated as the product of premiums earned for the accident year , the initial expected ultimate loss ratio and an estimate of the percentage of ultimate losses that are unreported at the valuation date . bornhuetter-ferguson paid loss development method the bornhuetter-ferguson paid loss development method is similar to the bornhuetter-ferguson incurred loss development method , except this method divides the projection of ultimate losses into the portion that has already been paid and the portion that has yet to be paid . the portion that has yet to be paid is estimated as the product of premiums earned for the accident year , the initial expected ultimate loss ratio and an estimate of the percentage of ultimate losses that are unpaid at the valuation date . different reserving methods are appropriate in different situations , and our actuaries use their judgment and experience to determine the weighting of the methods detailed above to use for each accident year and each line of business and , for our casualty reinsurance segment , on a contract by contract basis . for example , the current accident year has very little incurred and paid loss development data on which to base reserve projections . as a result , we rely heavily on the expected loss method in estimating reserves for the current accident year . we generally set our initial expected loss ratio for the current accident year consistent with our pricing assumptions . we believe that this is a reasonable and appropriate reserving assumption for the current accident year since our pricing assumptions are actuarially driven and since we expect to make an acceptable return on the new business that we write . if actual loss emergence is better than our initial expected loss ratio assumptions , we will experience favorable development , and if it is worse than our initial expected loss ratio assumptions , we will experience adverse development . conversely , sufficient incurred and paid loss development is available for our oldest accident years , so more weight is 78 given to the incurred loss development method and the paid loss development method than the expected loss method . the bornhuetter-ferguson incurred loss development and paid loss development methods blend features of the expected loss method and the incurred and paid loss development methods . the bornhuetter-ferguson methods are typically used for the more recent prior accident years .
| underwriting results the following table compares our combined ratios by segment : replace_table_token_12_th excess and surplus lines segment results for the excess and surplus lines segment are as follows : replace_table_token_13_th ( 1 ) see “ — reconciliation of non-gaap measures. ” ( 2 ) underwriting results include fee income of $ 10.1 million and $ 3.2 million for the years ended december 31 , 2016 and 2015 , respectively . 91 combined ratio . the combined ratio of the excess and surplus lines segment for the year ended december 31 , 2016 was 84.3 % , comprised of a loss ratio of 62.6 % and an expense ratio of 21.7 % . the combined ratio of the excess and surplus lines segment for the year ended december 31 , 2015 was 80.2 % , comprised of a loss ratio of 54.5 % and an expense ratio of 25.8 % . loss ratio . the loss ratio of 62.6 % for the year ended december 31 , 2016 includes $ 24.1 million , or 8.0 percentage points , of net favorable development in our loss estimates for prior accident years . the loss ratio of 54.5 % for the year ended december 31 , 2015 includes $ 25.4 million , or 10.6 percentage points , of net favorable development in our loss estimates for prior accident years . the significant favorable reserve development in this segment reflects benign loss activity and continuing positive loss trends . expense ratio . the expense ratio decreased from 25.8 % in 2015 to 21.7 % in 2016. the decrease in the expense ratio is primarily attributable to the 25.1 % increase in net earned premiums without a proportional increase in the total amount of operating expenses and to the increase in fee income from $ 3.2 million in 2015 to $ 10.1 million in 2016. underwriting profit .
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while it is reasonably possible that such excess liabilities , if they were to occur , could be material to operating results in any given quarter or year of their recognition , we do not believe that it is reasonably possible that such excess liabilities would have a material adverse effect on our long-term results of operations , liquidity or consolidated financial position . our story_separator_special_tag our consolidated financial statements include the accounts of park-ohio holdings corp. and its subsidiaries . all significant intercompany transactions have been eliminated in consolidation . the historical financial information discussed below is not directly comparable on a year-to-year basis , primarily due to recording of a reversal of a tax valuation allowance in 2011 , restructuring and unusual charges in 2011 , 2010 and 2009 acquisitions in 2010 and refinancing in 2011. executive overview we are an industrial total supply management tm and diversified manufacturing business , operating in three segments : supply technologies , aluminum products and manufactured products . our supply technologies business provides our customers with total supply management tm , a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers ' manufacturing floor , from strategic planning to program implementation . total supply management tm includes such services as engineering and design support , part usage and cost analysis , supplier selection , quality assurance , bar coding , product packaging and tracking , just-in-time and point-of-use delivery , electronic billing services and ongoing technical support . the principal customers of supply technologies are in the heavy-duty truck , automotive and vehicle parts , electrical distribution and controls , consumer electronics , power sports/fitness equipment , hvac , agricultural and construction equipment , semiconductor equipment , plumbing , aerospace and defense , and appliance industries . aluminum products casts and machines aluminum engine , transmission , brake , suspension and other components such as pump housings , clutch retainers/pistons , control arms , knuckles , master cylinders , pinion housings , brake calipers , oil pans and flywheel spacers for automotive , agricultural equipment , construction equipment , heavy-duty truck and marine equipment oems , primarily on a sole-source basis . aluminum products also provides value-added services such as design and engineering and assembly . manufactured products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products including induction heating and melting systems , pipe threading systems , industrial oven systems , injection molded rubber components , and forged and machined products . manufactured products also produces and provides services and spare parts for the equipment it manufactures . the principal customers of manufactured products are oems , sub-assemblers and end users in the steel , coatings , forging , foundry , heavy-duty truck , construction equipment , bottling , automotive , oil and gas , rail and locomotive manufacturing and aerospace and defense industries . sales , earnings and other relevant financial data for these three segments are provided in note b to the consolidated financial statements , included elsewhere herein . sales and profitability continued to grow substantially in 2011 , continuing the trend of the prior year , as the domestic and international economies come out of the recession . net sales increased 19 % and net income increased 94 % in 2011 compared to 2010. net income in 2011 was affected by a $ 16.8 million reversal of the deferred tax asset valuation allowance , $ 5.4 million of restructuring and impairment charges and debt refinancing costs of $ 7.3 million . during the fourth quarter of 2009 , the company recorded $ 7.0 million of asset impairment charges associated with general weakness in the economy including the railroad industry . the charges were composed of $ 1.8 million of inventory impairment included in cost of products sold and $ 5.2 million for impairment of property and equipment in 2009 , the company recorded a gain of $ 6.3 million on the purchase of $ 15.2 million principal amount of the senior subordinated notes . 26 approximately 19 % of the company 's consolidated net sales are to the automotive markets . in 2009 , the company recorded a charge of $ 4.2 million to fully reserve for the account receivable from metaldyne resulting from its bankruptcy . during the third quarter of 2010 , supply technologies completed the acquisition of certain assets and assumed specific liabilities relating to the acs business of lawson products , inc. for $ 16.0 million in cash and a $ 2.2 million subordinated promissory note payable in equal quarterly installments over three years . acs is a provider of supply chain management solutions for a broad range of production components through its service centers throughout north america . the company recorded a gain of $ 2.2 million representing the excess of the aggregate fair value of purchased net assets over the purchase price . see note c to the consolidated financial statements included elsewhere herein . on september 30 , 2010 , the company entered a bill of sale with rome , a producer of aluminum high pressure die castings , pursuant to which rome agreed to transfer to the company substantially all of its assets in exchange for approximately $ 7.5 million of notes receivable due from rome held by the company . see note c to the consolidated financial statements included elsewhere herein . on december 31 , 2010 , the company through its subsidiary , ajax tocco magnethermic , acquired the assets and the related induction heating intellectual property of pillar for $ 10.3 million in cash . pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market . see note c to the consolidated financial statements included elsewhere herein . during the third quarter of 2010 , the company recorded an asset impairment charge of $ 3.5 million related to the writedown of one of its investments . story_separator_special_tag during the fourth quarter of 2009 , these notes were sold to a wholly-owned foreign subsidiary of park-ohio industries , inc. income taxes : replace_table_token_16_th the company released $ 5.8 million of the valuation allowance attributable to continuing operations in 2010 compared to $ 1.8 million in 2009. as of december 31 , 2010 and 2009 , the company determined that it was not more likely than not that its net u.s. and certain foreign deferred tax assets would be realized . the provision for income taxes was $ 2.0 million in 2010 compared to $ ( .8 ) million in 2009. the effective income tax rate was 11.6 % in 2010 , compared to 13 % in 2009. the company 's net operating loss carryforward precluded the payment of most u.s. federal income taxes in both 2010 and 2009. at december 31 , 2010 , the company had net operating loss carryforwards for u.s. federal income tax purposes of approximately $ 24.7 million , which will expire between 2023 and 2029 . 32 liquidity and sources of capital our liquidity needs are primarily for working capital and capital expenditures . our primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of our long-term debt securities . in 2003 , we entered into a revolving credit facility with a group of banks which , as subsequently amended , matures at april 7 , 2016 and , as amended , currently provides for availability of up to $ 200 million subject to an asset-based formula . we have the option to increase the availability under the revolving loan portion of the credit facility by $ 50.0 million . the revolving credit facility is secured by substantially all our accounts receivable and inventory in the united states and canada . borrowings from this revolving credit facility will be used for general corporate purposes . as of december 31 , 2011 , the company had $ 93.0 million outstanding under the revolving credit facility , and approximately $ 68.1 million of unused borrowing availability . on march 5 , 2012 , the company entered into an agreement to acquire frs , a leading manufacturer of industrial hose products and fuel filler and hydraulic fluid assemblies , in an all cash transaction valued at $ 97.5 million . frs products include fuel filler , hydraulic , and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel , power steering , transmission oil cooling , hydraulic and thermoplastic hose . frs sells to automotive and industrial customers throughout north america , europe and asia . frs has five production facilities located in florida , michigan , ohio , tennessee and the czech republic . the transaction is expected to close by march 30 , 2012 subject to a number of customary conditions , including the expiration of waiting periods and the receipt of approvals under hart-scott-rodino antitrust improvements act . the transaction is expected to be funded by the company 's cash of $ 40.0 million ( $ 10.0 million domestic and $ 30.0 million foreign ) , a new $ 25.0 million seven-year amortizing term loan secured by certain real estate and machinery and equipment of the company for which the company has received a commitment letter from its bank group and $ 32.5 million of borrowings under the company 's revolving credit facility . current financial resources ( working capital and available bank borrowing arrangements ) and anticipated funds from operations are expected to be adequate to meet current cash requirements for at least the next twelve months . the future availability of bank borrowings under the revolving loan portion of the credit facility is based on the company 's ability to meet a debt service ratio covenant , which could be materially impacted by negative economic trends . failure to meet the debt service ratio could materially impact the availability and interest rate of future borrowings . in 2009 , the company purchased $ 15.2 million aggregate principal amount of the 8.375 % notes for $ 8.9 million . after writing off $ .1 million of deferred financing costs , the company recorded a net gain of $ 6.3 million . the company may from time to time seek to refinance , retire or purchase its outstanding debt through cash purchases and or exchanges for equity securities , in open market purchases , privately negotiated transactions or otherwise . it may also repurchase shares of its outstanding common stock . any such actions will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved may be material . disruptions , uncertainty or volatility in the credit markets may adversely impact the availability of credit already arranged and the availability and cost of credit in the future . these market conditions may limit the company 's ability to replace , in a timely manner , maturing 33 liabilities and access the capital necessary to grow and maintain its business . accordingly , the company may be forced to delay raising capital or pay unattractive interest rates , which could increase its interest expense , decrease its profitability and significantly reduce its financial flexibility . the company had cash and cash equivalents held by foreign subsidiaries of $ 61.2 million and $ 33.7 million at december 31 , 2011 and 2010 , respectively . for each of its foreign subsidiaries , the company makes a determination regarding the amount of earnings intended for permanent reinvestment , with the balance , if any , available to be repatriated to the united states . the cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the foreign subsidiaries ' operational activities and or future foreign investments . at december 31 , 2011 , management believed that sufficient liquidity was available in the united states , and it is our current intention to permanently reinvest undistributed earnings of our foreign subsidiaries outside of the united states .
| results of operations 2011 versus 2010 net sales by segment : replace_table_token_7_th net sales increased $ 153.1 million to $ 966.6 million in 2011 compared to $ 813.5 million in 2010 as the company experienced volume increases in the supply technologies and manufactured products segments . supply technologies sales increased 23 % primarily due to volume ( $ 53.8 million ) increases in the heavy-duty truck , electrical , industrial equipment , auto , power sports , hvac , furniture , agricultural and construction equipment industries and price increases of $ 7.3 million , which were offset primarily by declines in the instruments , medical and semi-conductor industries . in addition , there were $ 29.8 million of incremental sales resulting from the acquisition of the acs business . aluminum products sales decreased 12 % , resulting primarily from the completion of certain automotive supply contracts ( $ 31.7 million ) offset by sales of $ 9.6 million resulting from the acquisition of the rome business and price increases of $ 5.4 million . manufactured products sales increased 29 % primarily due to increased business in the capital equipment and forged and machined products business units offset by a minor decline in the rubber products business unit . in addition , there were $ 26.3 million of incremental sales resulting from the acquisition of pillar . 28 cost of products sold & gross profit : replace_table_token_8_th cost of products sold increased $ 119.8 million in 2011 to $ 799.2 million compared to $ 679.4 million in 2010 , while gross margin increased to 17.3 % in 2011 from 16.5 % in 2010. cost of products sold increased primarily due to sales increases and increases in commodity prices , including the prices of steel , aluminum , nickel and copper . manufactured products gross margin increased primarily due to volume increases . gross margin in the aluminum products segment decreased primarily from reduced sales volume .
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the unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities , and not related to the underlying credit story_separator_special_tag operations this discussion and analysis reviews our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations . the information in this section has been derived from the consolidated financial statements and footnotes thereto that appear in item 8 of this form 10-k. the information contained in this section should be read in conjunction with these consolidated financial statements and footnotes and the business and financial information provided in this form 10-k. overview our principal business consists of attracting retail deposits from the general public and investing those funds , along with borrowed funds , in loans secured by first and second mortgages on one- to four-family residences ( including home equity loans and lines of credit ) , commercial and multifamily , consumer and commercial business loans and construction and land loans . we offer a wide variety of secured and unsecured consumer loan products , including manufactured home loans , floating home loans , automobile loans , boat loans and recreational vehicle loans . we intend to continue emphasizing our residential mortgage , commercial and multifamily and commercial business lending , while continuing to originate home equity and consumer loans . as part of our business , we focus on residential mortgage loan originations , most of which we sell to fannie mae . we sell 38 many of these loans with servicing retained to maintain the direct customer relationship and promote our emphasis on strong customer service . we originated $ 112.3 million , $ 82.3 million and $ 118.8 million of one- to four-family residential mortgage loans during the years ended december 31 , 2015 , 2014 and 2013 , respectively . during these same periods , we sold $ 72.6 million , $ 52.7 million and $ 108.9 million , respectively , of one- to four-family residential mortgage loans . our operating revenues are derived principally from earnings on interest earning assets , service charges and fees , and gains on the sale of loans . our primary sources of funds are deposits , federal home loan bank ( fhlb ) advances , and payments received on loans and securities . we offer a variety of deposit accounts that provide a wide range of interest rates and terms , generally including savings , money markets , now accounts , term certificates and demand accounts . our noninterest expenses consist primarily of salaries , incentive pay , commissions , and employee benefits , expenses for occupancy , marketing , professional fees , data processing , fdic deposit insurance premiums and regulatory expenses . salaries and benefits consist primarily of the salaries and wages paid to our employees , payroll taxes , directors ' fees , expenses for retirement , share-based compensation and other employee benefits . occupancy expenses , which are the fixed and variable costs of buildings and equipment , consist primarily of lease payments , property taxes , depreciation charges , maintenance and the cost of utilities . our strategic plan targets consumers , small and medium size businesses , and professionals in our market area for loans and deposits . in pursuit of these goals and managing the size of our loan portfolio , we focus on including a significant amount of commercial business and commercial and multifamily loans in our portfolio . a significant portion of these commercial and multifamily and business loans have adjustable rates , higher yields or shorter terms and higher credit risk than traditional fixed-rate mortgages . our commercial loan portfolio ( commercial and multifamily and commercial business loans ) increased to $ 194.6 million or 42.2 % of our loan portfolio at december 31 , 2015 , from $ 188.4 million or 43.6 % of our loan portfolio at december 31 , 2014 , and $ 171.2 million or 43.7 % of our loan portfolio at december 31 , 2013. in addition to higher balances in commercial lending , we also benefit from additional lending opportunities in our construction and land development portfolio . our construction and land development portfolio increased to $ 57.0 million or 12.4 % of our loan portfolio at december 31 , 2015 , from $ 46.3 million or 10.7 % of our loan portfolio as of december 31 , 2014 and $ 44.3 million or 11.3 % as of december 31 , 2013. additional commercial and multifamily , and construction and land loans have improved our net interest income and helped further diversify our loan portfolio mix . our provision for loan losses expense was significantly lower in 2015 and 2014 than during the three previous years and reflects decreased levels of delinquencies , classified loans and net charge-offs . recent accounting standards for a discussion of recent accounting standards , please see note 2 - accounting pronouncements recently issued or adopted in the notes to consolidated financial statements in item 8 of this form 10-k. critical accounting policies certain of our accounting policies are important to an understanding of our financial condition , since they require management to make difficult , complex or subjective judgments , which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances that could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . management believes that its critical accounting policies include determining the allowance for loan losses , accounting for other-than-temporary impairment of securities , accounting for mortgage servicing rights , accounting for other real estate owned , and accounting for deferred income taxes . story_separator_special_tag revenue and expenses from operations and subsequent adjustments to the carrying amount of the property are included in other non-interest expense in the consolidated statements of income . in some instances , 40 we may make loans to facilitate the sales of oreo . management reviews all sales for which it is the lending institution for compliance with sales treatment under provisions established by asc topic 360 , accounting for sales of real estate . any gains related to sales of oreo are deferred until the buyer has a sufficient initial and continuing investment in the property . income taxes . income taxes are reflected in our financial statements to show the tax effects of the operations and transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes . asc topic 740 , accounting for income taxes , requires the asset and liability approach for financial accounting and reporting for deferred income taxes . deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities . they are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting . the deferred income provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period . in formulating our deferred tax asset , we are required to estimate our income and taxes in the jurisdiction in which we operate . this process involves estimating our actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatment of items , such as depreciation and the provision for loan losses , for tax and financial reporting purposes . valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not all or some portion of the potential deferred tax asset will not be realized . business and operating strategies and goals our goal is to deliver returns to shareholders by increasing higher-yielding assets ( including commercial and multifamily and commercial business loans ) , increasing core deposit balances , reducing expenses , managing problem assets and exploring expansion opportunities . we seek to achieve these results by focusing on the following objectives : focusing on asset quality . our goal is to maintain or improve upon our level of nonperforming assets by managing credit risk on the current loan portfolio and new originations . we are focused on actively monitoring and managing all segments of our loan portfolio in order to proactively identify and mitigate risk . we continue to devote significant efforts and resources to reduce our problem assets . nonperforming assets decreased to $ 2.9 million at december 31 , 2014 , compared to $ 4.2 million at december 31 , 2014 and decreased from $ 3.1 million at december 31 , 2013. improving earnings by expanding product offerings . we intend to prudently maintain the percentage of our assets consisting of higher-yielding commercial real estate and commercial business loans , which offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than one-to four- family mortgage loans while maintaining our focus on residential lending . we also intend to selectively add additional products to further diversify revenue sources and to capture more of each customer 's banking relationship by cross selling loan and deposit products and additional services to our customers . we intend to further build relationships with small businesses through new and existing product offerings including merchant services , remote deposit capture , online and mobile cash management , and online tools for wires , ach and bill payment . with our long experience and expertise in residential lending we believe we can be effective in capturing the opportunities of these market changes in residential lending . we continue to develop correspondent relationships to sell some mortgage loans servicing-released . emphasizing lower cost core deposits to manage the funding costs of our loan growth . our strategic focus is to emphasize total relationship banking with our customers to internally fund our loan growth . we are also focused on reducing wholesale funding sources , including fhlb advances , through the continued growth of core customer deposits . we believe that a continued focus on customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit . we intend to increase demand deposits by growing retail and business banking relationships . new technology and services are generally reviewed for business development and cost saving opportunities . we continue to experience growth in customer use of our online and mobile banking services , which allows customers to conduct a full range of services on a real-time basis , including balance inquiries , transfers and electronic bill paying while providing our customers greater flexibility and convenience in conducting their banking . in addition to our retail branches , we maintain state of the art technology-based products , such as business cash management , business remote deposit products and an online personal financial management and consumer remote deposit product . total deposits increased to $ 440.0 million 41 at december 31 , 2015 , from $ 407.8 million at december 31 , 2014 , and $ 348.3 million at december 31 , 2013. at december 31 , 2015 , core deposits , which we define as our non-time deposit accounts and time deposit accounts less than $ 250,000 , increased $ 22.7 million to $ 377.3 million while fhlb advances increased $ 9.9 million to $ 40.4 million from december 31 , 2014. maintaining our customer service focus . exceptional service , local involvement ( including volunteering and contributing to the communities where we are located ) and timely decision-making are integral parts of our business strategy .
| general . net income increased $ 550,000 to $ 4.8 million , or $ 1.86 per diluted common share for the year ended december 31 , 2015 , from $ 4.2 million , or $ 1.63 per diluted common share for the year ended december 31 , 2014. the primary reasons for the improvement were increases in net interest income and noninterest income and a decrease in the provision for loan losses , partially offset by higher noninterest expense . interest income . interest income increased by $ 1.1 million , or 5.1 % , to $ 22.5 million for the year ended december 31 , 2015 , from $ 21.4 million for the year ended december 31 , 2014. the increase in interest income for the year primarily reflected the increase in the average balance of interest-earning assets , in particular our average balance of loans receivable which outpaced the decline in the weighted average yield on our interest-earning assets during the year ended december 31 , 2015 as compared to the prior year . our weighted average yield on interest-earning assets was 4.76 % for the year ended december 31 , 2015 , compared to 5.06 % for the year ended december 31 , 2014. the weighted average yield on loans decreased , to 5.08 % for the year ended december 31 , 2015 from 5.18 % for the year ended december 31 , 2014. the average balance of gross loans receivable increased $ 29.1 million , or 7.1 % , for the year ended december 31 , 2015 as compared to the prior year . the weighted average yield on available for sale securities was 0.64 % for the year ended december 31 , 2015 compared to 1.54 % for the year ended december 31 , 2014. the average balance of available for sale securities and interest bearing accounts increased $ 20.8 million , or 150.9 % , for the year ended december 31 , 2014 as compared to the prior year .
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also , 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 . kost forer gabbay & kasierer kost forer gabbay & kasierer , a member of ernst & young global tel-aviv , israel february 20 story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections of this annual report on form 10-k captioned “ selected financial data ” and “ business ” and our consolidated financial statements and the related notes to those statements included elsewhere in this form 10-k. in addition to historical financial information , the following discussion and analysis contains forward‑looking statements that involve risks , uncertainties , and assumptions . our actual results and timing of selected events may differ materially from those anticipated in these forward‑looking statements as a result of many factors , including those discussed under the sections of this annual report captioned “ special note regarding forward‑looking statements ” and “ risk factors ” . overview we are a leading provider of intelligent inverter solutions that are changing the way power is harvested and managed in solar pv systems . our dc optimized inverter solution maximizes power generation at the individual pv module level while lowering the cost of energy produced by the solar pv system . our systems allow for superior power harvesting and module management by deploying power optimizers at each pv module while maintaining a competitive system cost by using a simplified dc‑ac inverter . our systems are monitored through our cloud‑based monitoring platform that enables lower system operating and maintenance ( “ o & m ” ) costs . we believe that these benefits , along with our comprehensive and advanced safety features , are highly valued by our customers . we are a leader in the global module-level power electronics ( “ mlpe ” ) market according to gtm research , and as of december 31 , 2017 , we have shipped approximately 22.7 million power optimizers and 950,000 inverters . more than 560,000 installations , many of which may include multiple inverters , are currently connected to , and monitored through , our cloud‑based monitoring platform . as of december 31 , 2017 , we have shipped approximately 6.7 gw of our dc optimized inverter systems . our products have sold in approximately 54 countries , and are installed in solar pv systems in 121 countries . we primarily sell our products directly to large solar installers , epcs , and indirectly to thousands of smaller solar installers through large distributors and electrical equipment wholesalers . our sales strategy focuses on top‑tier customers in markets where electricity prices , irradiance ( amount of sunlight ) , and government policies make solar pv installations economically viable . we also sell our power optimizers to several pv module manufacturers that offer pv modules with our power optimizer physically embedded into their modules . in the year ended december 31 , 2017 , we sold our products to approximately 230 direct customers in 48 countries and as of december 31 , 2017 , approximately 355,000 indirect customers had registered with us through our cloud‑based monitoring platform . in the year ended december 31 , 2017 , one customer accounted for revenues of above 10 % and our top three customers ( all distributors ) together represented 29.9 % of our revenues . we were founded in 2006 with the goal of addressing the lost power generation potential that is inherent in the use of traditional solar pv inverter technology , thereby increasing the return on investment in solar pv systems . the following is a chronology of some of our key milestones : in 2012 , we shipped our millionth power optimizer and increased our sales personnel presence in the u.s. market . in 2013 , we introduced our third generation power optimizer , based on our third generation asic , with a power rating of up to 700 watts and improved heat dissipation capabilities for high reliability and lower cost . in march 2015 , we completed our initial public offering and started to trade on the nasdaq global select market under the ticker sedg . in september 2015 , we released information about the development of our new hd-wave inverter technology . in january 2016 , we announced the immediate international availability of our storedge solution . in february 2016 , we shipped our ten millionth power optimizer . 33 in june 2016 , we received the intersolar award in the photovoltaics category for our hd-wave technology inverter and began shipments of our hd-wave inverter . in may 2017 , we unveiled our new s-series power optimizer , an intersolar award finalist in the photovoltaics category . in july 2017 , we launched the world 's first inverter-integrated electric vehicle ( ev ) charger , supplementing grid power with pv power . in september 2017 , we approved an expansion for our residential offering in australia with higher production of single-phase inverters and launched a line of three-phase inverters . in september 2017 , we released our dc optimized inverter solution in south korea . our revenues were $ 325.1 million , $ 489.8 million , $ 240.0 million , and $ 607.0 million for fiscal 2015 and 2016 , the six months ended december 31 , 2016 , and fiscal 2017 , respectively . gross margins were 25.2 % , 31.0 % , 33.7 % , and 35.4 % , for fiscal 2015 and 2016 , the six months ended december 31 , 2016 , and fiscal 2017 , respectively . net profits were $ 21.1 million , $ 76.6 million , $ 25.4 million , and $ 84.2 million for fiscal 2015 and 2016 , for the six months ended december 31 , 2016 , and fiscal 2017 , respectively . we continue to focus on our long‑term growth and profitability . story_separator_special_tag the expansion of current manufacturing sites by our contract manufacturers allowed us to reduce these expenses in fiscal 2015 as well as to build sufficient inventory to continue our growth without the need to ship substantial amounts of products by air . in 2016 , we managed to continuously increase the efficiency of our supply chain , reduce our reliance on air freight to a minimum and use ocean freight for the majority of our shipments . in 2017 , global shortages in power components used in our products and in other industries , such as electrical motor drives and uninterrupted power systems ( ups ) caused delays in our ongoing manufacturing . this phenomenon combined with increased demand for our products required us use expensive air shipments in order to meet our delivery schedule , which negatively affected our gross profit . we expect component shortages to continue to affect us in upcoming quarters , a combination of increased component safety stocks , qualification of additional suppliers , and increased capacity of our existing vendors coupled with continued expansion of the current manufacturing sites by our contract manufacturers , and the development and deployment of our proprietary automated assembly line ( described below ) , will provide sufficient manufacturing capacity to meet our forecasted demands with lower shipment volumes of products by air freight . we completed development of our first proprietary automated assembly line for our power optimizers and had 3 additional automated assembly lines deployed in the first half of 2017. we expect to continue to invest in additional automated assembly lines in the future . we have designed and are responsible for funding all of the capital expenses associated with existing and future automated assembly lines . the current and expected capital expenses associated with these automated assembly lines will be funded out of our cash flows . key components of our logistics supply channel consist of third party distribution centers in the u.s. , europe , australia , and japan . finished goods are either shipped to our customers directly from our contract manufacturers or shipped to third-party distribution centers and then , finally , shipped to our customers . 35 cost of revenues also includes our operations and support departments ' costs . the operations department is responsible for production management such as planning , procurement , supply chain , production methodologies , and machinery planning , logistics management and manufacturing support to our contract manufacturers , as well as the quality assurance of our products . our support department provides customer and technical support at various levels through our call centers around the world as well as second and third-level support services which are provided by support personnel located in our headquarters . our full‑time employee headcount in our operations and support departments has grown from 106 as of june 30 , 2015 to 175 as of june 30 , 2016 , to 244 as of december 31 , 2016 , and to 348 as of december 31 , 2017. gross profit may vary from quarter to quarter and is primarily affected by our average selling prices , product costs , product mix , customer mix , geographical mix , shipping method , warranty costs , and seasonality . operating expenses operating expenses consist of research and development , sales and marketing , and general and administrative expenses . personnel‑related costs are the most significant component of each of these expense categories and include salaries , benefits , payroll taxes , commissions , and stock‑based compensation . our full‑time employee headcount in our research and development , sales and marketing , and general and administrative departments has grown from 334 as of june 30 , 2015 to 434 as of june 30 , 2016 , to 475 as of december 31 , 2016 , and to 660 as of december 31 , 2017. we expect to continue to hire significant numbers of new employees to support our growth . the timing of these additional hires could materially affect our operating expenses in any particular period , both in absolute dollars and as a percentage of revenue . we expect to continue to invest substantial resources to support our growth and anticipate that each of the following categories of operating expenses will increase in absolute dollar amounts for the foreseeable future . research and development expenses , net research and development expenses , net include personnel‑related expenses such as salaries , benefits , stock‑based compensation , and payroll taxes . our research and development employees are engaged in the design and development of power electronics , semiconductors , software , and power line communications and networking . our research and development expenses also include third‑party design and consulting costs , materials for testing and evaluation , asic development and licensing costs , depreciation expense , and other indirect costs . we devote substantial resources to ongoing research and development programs that focus on enhancements to and cost efficiencies in our existing products and timely development of new products that utilize technological innovation , thereby maintaining our competitive position . research and development expenses are presented net of the amount of any grants we receive for research and development in the period in which we receive the grant . we previously received grants and other funding from the binational industrial research and development foundation and the israel innovation authority ( the iia ) . certain of those grants required us to pay royalties on sales of certain of our products , which were recorded as cost of revenues . as of december 31 , 2017 , no such royalty obligations remained . sales and marketing expenses sales and marketing expenses consist primarily of personnel‑related expenses such as salaries , sales commissions , benefits , payroll taxes , and stock‑based compensation . these expenses also include travel , fees of independent consultants , trade shows , marketing , costs associated with the operation of our sales offices , and other indirect costs .
| results of operations the following tables set forth our consolidated statements of operations for the calendar years ended december 31 , 2016 and 2017 , the six months ended december 31 , 2015 and 2016 , and for the fiscal years ended june 30 , 2015 and 2016. we have derived this data from our consolidated financial statements included elsewhere in this annual report . this information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this this annual report . the results of historical periods are not necessarily indicative of the results of operations for any future period . 38 comparison of year ended december 31 , 2016 ( unaudited ) and year ended december 31 , 2017 ( audited ) replace_table_token_5_th revenues replace_table_token_6_th revenues increased by $ 117.1 million , or 23.9 % , in 2017 as compared to 2016 , primarily due to an increase in the number of systems sold outside of the u.s. specifically , non-u.s. revenues comprised 42.5 % of our revenues in 2017 as compared to 34.0 % in 2016 , with significant growth in revenues coming from germany and the netherlands as well as from non-u.s. markets outside of europe .
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we conduct operations worldwide and are managed in the following geographical regions : united states , europe , japan and rest of world . our products are categorized into the following main areas : surgical heart valve therapy , transcatheter heart valves , and critical care . 24 financial results the following is a summary of our financial performance ( dollars in millions , except per share data ) : replace_table_token_6_th our sales growth was driven by our transcatheter heart valves product group due to strong growth in europe and , starting in 2013 , the united states . our gross profit margin has benefited from a more profitable product mix , led by the increased transcatheter heart valve sales , but has been tempered by higher manufacturing costs as we have prepared for new product launches . net income in 2013 also benefited from the $ 52.3 million litigation award , net of tax , received from medtronic , inc. we continue to significantly invest in research and development to extend and defend our leadership position . healthcare environment , opportunities and challenges the medical device industry is highly competitive and continues to evolve . our success is measured both by the development of innovative products and the value we bring to our stakeholders . we are committed to developing new technologies and providing innovative patient care , and we are committed to defending our intellectual property . to strengthen our leadership and enable future growth opportunities , in 2013 we invested 15.8 percent of our net sales in research and development . in the coming year , we expect increased competition with our transcatheter heart valves as our competitors begin introducing products in the united states and europe . the following is a summary of important transcatheter heart valve developments during 2013 : clinical evidence in the partner ii trial demonstrated similar outcomes between the edwards sapien transcatheter heart valve and the edwards sapien xt transcatheter heart valve in inoperable patients , a positive step toward the approval of sapien xt and its lower profile delivery system ; longer-term updates from the partner trial strengthened the evidence that the sapien valve is a safe and less-invasive alternative for patients who need valve replacement , but are at high surgical risk ; and we received regulatory approval and reimbursement for our edwards sapien xt valve in japan and , in january 2014 , regulatory approval in europe to launch our sapien 3 valve . united states studies of the sapien 3 valve were initiated in august 2013. we are dedicated to generating robust clinical and economic evidence increasingly expected by patients , clinicians and payors in the new healthcare environment , with a goal of enhancing the value of delivering comprehensive care . 25 story_separator_special_tag style= '' font-family : times ; '' > transcatheter heart valves the $ 155.6 million increase in net sales of transcatheter heart valves in 2013 was due primarily to : the edwards sapien transcatheter heart valve in the united states , which increased net sales by $ 97.2 million ; 27 the edwards sapien xt transcatheter heart valve , which increased net sales by $ 61.8 million , due primarily to an increase in international sales ; and foreign currency exchange rate fluctuations , which increased net sales by $ 5.2 million , due primarily to the strengthening of the euro against the united states dollar ; partially offset by : a $ 14.1 million sales reserve for estimated transcatheter heart valve product returns expected in 2014 upon introduction of the edwards sapien 3 transcatheter valve system in europe and the edwards sapien xt transcatheter heart valve in the united states . additional sales reserves are expected in 2014 for incremental estimated transcatheter heart valve product returns . the $ 218.3 million increase in net sales of transcatheter heart valves in 2012 was due primarily to : the edwards sapien transcatheter heart valve , which increased net sales by $ 176.7 million , due primarily to the launch in the united states in the fourth quarter of 2011 ; and the edwards sapien xt transcatheter heart valve , which increased net sales by $ 63.8 million , due primarily to an increase in international sales ; partially offset by : foreign currency exchange rate fluctuations , which decreased net sales by $ 16.7 million , due primarily to the weakening of the euro against the united states dollar . during the fourth quarter of 2013 , we completed enrollment in cohort a , the surgical arm of the partner ii trial , which is evaluating the edwards sapien xt transcatheter heart valve for the united states market . we submitted our pre-market approval for cohort b of the partner ii trial to the fda during the second quarter of 2013 and the fda 's evaluation remains pending . cohort b is designed for patients with a higher risk profile who are deemed inoperable . also during the second quarter of 2013 , we received approval for sapien xt in japan , and began commercial sales in october 2013. during the third quarter of 2013 , we received approval for sapien in australia and sapien xt in canada , and received fda approval to expand the partner ii trial to include a 500 patient cohort to study the edwards sapien 3 transcatheter valve system in high risk and inoperable patients . also , in the third quarter of 2013 , the fda revised the label for our sapien valve to remove references to specific access points , now making it available for patients who need alternate access points . in january 2014 , we received fda approval to expand the partner ii trial to include a 1,000 patient single-arm , non-randomized cohort to study the edwards sapien 3 transcatheter valve system in the treatment of intermediate risk patients with severe symptomatic aortic stenosis . in addition , in january 2014 , we received ce mark for sapien 3 in europe and immediately commenced a launch . story_separator_special_tag we recorded a charge of $ 5.0 million related to the upfront licensing fee . european receivables reserve during 2011 , we recorded a $ 12.8 million charge to reflect the increased risk associated with our southern european receivables , primarily greece . interest expense interest expense was $ 9.8 million , $ 4.4 million and $ 3.1 million in 2013 , 2012 and 2011 , respectively . the $ 5.4 million increase in interest expense for 2013 resulted primarily from a higher average debt balance as compared to the prior year and higher average interest rates due to the issuance in october 2013 of $ 600.0 million of 2.875 % fixed-rate unsecured senior notes . the $ 1.3 million increase in interest expense for 2012 resulted primarily from higher average interest rates and a higher average debt balance as compared to the prior year . interest income interest income was $ 4.6 million , $ 4.8 million and $ 3.4 million in 2013 , 2012 and 2011 , respectively . the $ 0.2 million decrease in interest income for 2013 resulted primarily from lower average interest rates , partially offset by higher average investment balances . the $ 1.4 million increase in interest income for 2012 resulted primarily from the recognition of interest income on discounted accounts receivables in southern europe , partially offset by lower average interest rates . other expense ( income ) , net ( in millions ) replace_table_token_13_th the foreign exchange losses relate to the foreign currency fluctuations in our global trade and intercompany receivable and payable balances , offset by the gains and losses on derivative instruments intended as an economic hedge of those exposures . the loss ( gain ) on investments in unconsolidated affiliates primarily represents our net share of gains and losses in investments accounted for under the equity method , and realized gains and losses on our available-for-sale and cost method investments . 31 in september 2009 , we sold our hemofiltration product line . in connection with the transaction , we were entitled to earn-out payments up to $ 9.0 million based on certain revenue objectives to be achieved by the buyer over the two years following the sale . as of march 31 , 2011 , all earn-out payments had been earned . provision for income taxes our effective income tax rates for 2013 , 2012 and 2011 were impacted as follows ( in millions ) : replace_table_token_14_th certain previously reported amounts in the above table have been reclassified to conform to our current year presentation . reserve for uncertain tax positions as of december 31 , 2013 and 2012 , the liability for income taxes associated with uncertain tax positions was $ 127.7 million and $ 113.6 million , respectively . we estimate that these liabilities would be reduced by $ 30.9 million and $ 26.1 million , respectively , from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments , state income taxes and timing adjustments . the net amounts of $ 96.8 million and $ 87.5 million , respectively , if not required , would favorably affect our effective tax rate . a reconciliation of the beginning and ending amount of unrecognized tax benefits , excluding interest , penalties and foreign exchange , is as follows ( in millions ) : replace_table_token_15_th we recognize interest and penalties , if any , related to uncertain tax positions in the provision for income taxes . as of december 31 , 2013 , we had accrued $ 4.5 million ( net of $ 3.3 million tax benefit ) of interest related to uncertain tax positions , and as of december 31 , 2012 , we had accrued $ 3.1 million ( net of $ 2.1 million tax benefit ) of interest related to uncertain tax positions . during 2013 , 2012 and 2011 , we recognized interest expense , net of tax benefit , of $ 1.4 million , $ 1.0 million and $ 0.4 million , respectively , in `` provision for income taxes `` on the consolidated statements of operations . 32 we strive to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time . while we have accrued for matters we believe are more likely than not to require settlement , the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated financial statements . furthermore , we may later decide to challenge any assessments , if made , and may exercise our right to appeal . the uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes , such as lapsing of applicable statutes of limitations , proposed assessments by tax authorities , negotiations between tax authorities , identification of new issues and issuance of new legislation , regulations or case law . management believes that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from these uncertain tax positions . at december 31 , 2013 , all material state , local and foreign income tax matters have been concluded for years through 2006. during the third quarter of 2013 , the internal revenue service ( `` irs '' ) completed its fieldwork for the 2009 and 2010 tax years . the case is currently in suspense pending finalization of an advance pricing agreement ( `` apa '' ) and joint committee of taxation approval . the irs began its examination of the 2011 and 2012 tax years during the fourth quarter of 2013. we have also entered into an apa process between the switzerland and the united states governments for the years 2009 through 2013 covering transfer pricing matters . these transfer pricing matters are significant to our consolidated financial statements , and the final outcome of the negotiations between the two governments is uncertain .
| results of operations net sales by major regions ( dollars in millions ) replace_table_token_7_th the $ 127.5 million increase in net sales in the united states in 2013 was due primarily to : transcatheter heart valves , which increased net sales by $ 106.1 million , driven primarily by sales of the edwards sapien transcatheter heart valve . procedure volume increased following the fda action in october 2012 to expand the indicated patient population and access routes compared to the original 2011 approval . the $ 18.4 million increase in international net sales in 2013 was due primarily to : transcatheter heart valves , which increased net sales by $ 52.4 million , driven primarily by sales of the edwards sapien xt transcatheter heart valve ; and surgical heart valve products , which increased net sales by $ 15.4 million , driven primarily by sales of the carpentier-edwards perimount magna mitral ease and edwards intuity elite valves ; partially offset by : foreign currency exchange rate fluctuations , which decreased net sales by $ 43.9 million , due primarily to the weakening of the japanese yen against the united states dollar , partially offset by the strengthening of the euro against the united states dollar .
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we recorded a non-cash charge of $ 391,000 , related to the impairment of these restaurants in the fiscal quarter ending september 24 , 2019. in july story_separator_special_tag story_separator_special_tag in the first fiscal quarter of 2020 which we estimate contributed approximately $ 460,000. restaurant sales increased $ 2,373,000 from the prior year due to the same store sales increase . one restaurant was not included in same store sales while closed for a major remodel in fiscal 2019. sales increased $ 359,000 in fiscal 2020 from the prior year due to the closure . one restaurant closed during fiscal 2020 and was excluded from same store sales . sales decreased $ 642,000 due to this closure . the average menu price increase in fiscal 2020 over fiscal 2019 was approximately 4.0 % . additionally , net revenues for fiscal 2020 were reduced by $ 26,000 in lower franchise revenues compared to fiscal 2019. fiscal 2020 and fiscal 2019 include franchise advertising contributions of $ 231,000 and $ 295,000 , respectively . average good times restaurant sales for company-operated restaurants open the entire fiscal year for fiscal 2020 and 2019 were as follows : fiscal year 2020 2019 company-operated $ 1,299,000 $ 1,166,000 during fiscal 2020 , company-operated good times restaurants ' sales for restaurants that had been open a full eighteen months ranged from a low of $ 846,000 to a high of $ 2,315,000. food and packaging costs : for fiscal 2020 , food and packaging costs decreased $ 1,076,000 from $ 32,471,000 ( 29.6 % of restaurant sales ) in fiscal 2019 to $ 31,395,000 ( 28.8 % of restaurant sales ) . 25 bad daddy 's food and packaging costs were $ 21,323,000 ( 27.9 % of restaurant sales ) in fiscal 2020 , down from $ 23,006,000 ( 28.8 % of restaurant sales ) in fiscal 2019. this decrease is primarily attributable to lower restaurant sales during the current fiscal year versus prior fiscal year . the decrease as a percent of sales is attributable to menu mix shift from a limited menu during the ongoing covid-19 pandemic , improved cost on soft beverage because refills are not available on off-premise sales , reduced discounting due to the reduction in on-premises sales , and increased pricing charged on sales through third-party delivery services , typically at a 10 % to 20 % premium to purchases made in-store or through our online ordering system . purchase prices generally increased on beef and bacon but generally decreased on chicken , on a year-over-year basis . good times food and packaging costs were $ 10,072,000 ( 30.7 % of restaurant sales ) in fiscal 2020 , up from $ 9,465,000 ( 31.5 % of restaurant sales ) in fiscal 2019 , the result of increased sales . this decrease as a percent of sales is due primarily to the impact of higher menu pricing and menu engineering , which offset purchase price increases on our primary ingredients . payroll and other employee benefit costs : for fiscal 2020 , payroll and other employee benefit costs decreased $ 2,779,000 from $ 41,221,000 ( 37.5 % of restaurant sales ) in fiscal 2019 to $ 38,442,000 ( 35.2 % of restaurant sales ) . bad daddy 's payroll and other employee benefit costs were $ 27,465,000 ( 36.0 % of restaurant sales ) for fiscal 2020 , down from $ 30,224,000 ( 37.9 % of restaurant sales ) in fiscal 2019. the $ 2,759,000 decrease was primarily attributable to lower restaurant sales during the current fiscal year versus the prior fiscal year . as a percent of sales , payroll and employee benefits costs decreased by 1.9 % primarily attributable to staffing reductions associated with the full and partial closures of our dining rooms for much of the third and fourth fiscal quarters as well as reductions in management staffing . good times payroll and other employee benefit costs were $ 10,977,000 ( 33.5 % of restaurant sales ) in fiscal 2020 , consistent with $ 10,997,000 ( 36.6 % of restaurant sales ) in fiscal 2019. payroll and other employee benefits decreased approximately $ 279,000 in fiscal 2020 due to one company-owned restaurant that was closed in december 2019. this was offset by a $ 259,000 increase in payroll and other employee benefit expenses primarily due to an increase in restaurant sales compared to the same prior year period . as a percent of sales , payroll and employee benefits costs decreased by 1.1 % in fiscal 2020 compared to fiscal 2019. this decrease is primarily attributable to the leveraging impact of the significant sales increases in the third and fourth fiscal quarters of 2020. the average wage paid to our employees increased approximately 4.2 % in fiscal 2020 compared to fiscal 2019. the 4.2 % increase is attributable to a very competitive labor market in colorado and state mandated increases in the minimum wage rate . occupancy costs : occupancy costs include rent , real and personal property taxes , common area maintenance expenses , licenses and insurance expense . for fiscal 2020 , occupancy costs increased $ 524,000 from $ 8,353,000 ( 7.6 % of restaurant sales ) in fiscal 2019 to $ 8,877,000 ( 8.1 % of restaurant sales ) . bad daddy 's occupancy costs were $ 6,025,000 ( 7.9 % of restaurant sales ) for fiscal 2020 , up from $ 5,413,000 ( 6.8 % of restaurant sales ) in fiscal 2019. the $ 612,000 increase was primarily attributable to the four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020 , offset by rent abatements of approximately $ 85,000 granted by various landlords due to the covid-19 pandemic . the increase as a percentage of sales was due to general increases in our operating lease costs as well as the deleveraging effect of lower restaurant sales . story_separator_special_tag bad daddy 's advertising costs increased $ 27,000 from $ 821,000 ( 1.0 % of restaurant sales ) in fiscal 2019 to $ 848,000 ( 1.1 % of restaurant sales ) in fiscal 2020. bad daddy 's advertising costs consist primarily of menu development , printing costs , local store marketing and social media . all restaurants contribute to an advertising materials fund based on a percentage of restaurant sales . the current and prior years include advertising costs of $ 13,000 and $ 14,000 , respectively , associated with franchise advertising contributions . we anticipate that in fiscal 2021 bad daddy 's advertising costs as a percentage of restaurant sales will remain consistent with fiscal 2020. good times advertising costs decreased $ 383,000 from $ 1,528,000 ( 5.0 % of restaurant sales ) in fiscal 2019 to $ 1,145,000 ( 3.4 % of restaurant sales ) in fiscal 2020. this $ 383,000 decline is due primarily to reduced contributions made to the regional advertising cooperative , driven by the completion of a shift in media mix from cable tv to radio . the current and prior years include advertising costs of $ 231,000 and $ 295,000 , respectively , associated with franchise advertising contributions . good times advertising costs consists primarily of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales which are used to provide television and radio advertising , social media , on-site and point-of-purchase . the percentage contribution paid to the regional advertising cooperative was reduced at the start of the current fiscal year associated with a change in expected media mix . advertising costs are presented gross , with franchisee contributions to the fund being recognized as a component of franchise revenues . as a percentage of total revenue , we expect advertising costs to remain relatively stable , between approximately 3.0 % and 3.5 % of total revenue for the good times segment . 27 franchise costs : for fiscal 2020 , franchise costs decreased $ 18,000 from $ 38,000 in fiscal 2019 to $ 20,000 in fiscal 2020. the costs are primarily related to the good times franchised restaurants . gain or loss on restaurant asset disposals : for fiscal 2020 , the gain on restaurant asset disposals was $ 45,000 compared to a gain of $ 5,000 in fiscal 2019. the gain in fiscal 2019 was primarily comprised of a deferred gain on previous sale lease-back transactions related to two good times restaurants partially offset by a loss related to the retirement of unused assets . the gain in fiscal 2020 is primarily comprised of a deferred gain on previous sale lease-back transactions related to two good times restaurants and a gain of $ 8,000 related to the sale of miscellaneous restaurant equipment . long-lived asset impairment charges : for fiscal 2020 , asset impairment charges increased $ 2,835,000 from $ 2,771,000 in fiscal 2019 to $ 5,606,000 in fiscal 2020. we review long-lived assets and intangibles subject to amortization for impairment when there are factors that indicate the carrying value of such assets may not be recoverable . based upon the analysis we performed at september 24 , 2019 , we identified five restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets . two of these restaurants are good times restaurants . we recorded a non-cash charge of $ 391,000 , related to the impairment of these restaurants in the fiscal quarter ending september 24 , 2019. in july of 2019 , the company entered into a sublease agreement for one of these two restaurants . the tenant took possession on january 1 , 2020 and the sublease commenced in may 2020. three of these restaurants are bad daddy 's restaurants . we recorded non-cash charges of $ 2,380,000 related to the impairment of these restaurants during the fiscal quarter ending september 24 , 2019. based upon the analysis we performed at march 31 , 2020 , we identified five additional restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets . the restaurants are all bad daddy 's restaurants . we recorded non-cash charges of $ 4,359,000 related to the impairment of these restaurants during the quarter ended march 31 , 2020. based upon the analysis we performed at june 30 , 2020 , we identified one additional bad daddy 's restaurant where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets and recorded non-cash charges of $ 932,000 related to the impairment of this restaurant during the quarter ending june 30 , 2020. given the results of our analysis at september 29 , 2020 , we identified one additional good times restaurant where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets and recorded non-cash charges of $ 315,000 related to the impairment of this restaurant during the quarter ending september 29 , 2020. goodwill impairment charges : we review goodwill for impairment on an annual basis or whenever indications of impairment arise . prior to fiscal 2020 , no goodwill impairment charges were deemed necessary . in the fiscal quarter ended march 31 , 2020 , we recorded goodwill impairment of $ 10,000,000. in march 2020 , the outbreak of the covid-19 pandemic prompted authorities in most jurisdictions where we operate to issue stay-at-home orders , leading to an unexpected significant disruption to our business requiring us to close restaurant dining rooms and operate bad daddy 's restaurants under a delivery and carry-out model . as such , the consequences of the outbreak of the covid-19 pandemic coupled with a sustained decline in our stock price were determined to be indicators of impairment for our bad daddy 's reporting unit .
| results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. overview please see “ item 1 business-recent developments ” for a discussion regarding the impact of , and the company 's actions taken in response to , the covid-19 pandemic on our business . we operate as two reportable business segments : good times burgers and frozen custard restaurants ( “ good times ” ) and bad daddy 's burger bar restaurants ( “ bad daddy 's ” ) . all of our good times restaurants compete in the quick service drive-through segment of the restaurant industry while our bad daddy 's restaurants compete in the full-service casual dining segment of the restaurant industry . we believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results . refer to note 10 , segment reporting , in the notes to our consolidated financial statements for more information . 23 the company 's fiscal year is a 52/53-week year ending on the last tuesday of september . in a 52-week fiscal year , each of the company 's quarterly periods comprise 13 weeks . the additional week in a 53-week fiscal year is added to the first quarter , making such quarter consist of 14 weeks . fiscal 2020 had a quarter with 14 weeks . our discussion for fiscal years 2020 and 2019 , which ended on september 29 , 2020 and september 24 , 2019 , respectively , cover periods of 53 full calendar weeks in fiscal 2020 and 52 full calendar weeks in fiscal 2019. the following tables present information about our reportable segments for the respective periods , all dollar values are represented in thousands : replace_table_token_3_th ( 1 ) includes direct and allocated corporate general and administrative costs .
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our actual results may differ materially from those discussed in the forward looking statements as a result of various factors , including , without limitation , those set forth under part i , item 1a , `` risk factors , '' and other matters included elsewhere in this annual report on form 10-k. the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated and combined financial statements and the notes thereto included elsewhere in this annual report on form 10-k , as well as the information presented under part ii , item 6 , `` selected financial data '' of this annual report on form 10-k. forward-looking statements many statements made in this annual report on form 10-k that are not statements of historical fact , including statements about our beliefs and expectations , are `` forward-looking statements '' within the meaning of section 27a of the securities act and should be evaluated as such . forward-looking statements include information concerning possible or assumed future results of operations , including descriptions of our business plan and strategies . these statements often include words such as `` anticipate , '' `` expect , '' `` suggests , '' `` plan , '' `` believe , '' `` intend , '' `` estimates , '' `` targets , '' `` projects , '' `` should , '' `` could , '' `` would , '' `` may , '' `` will , '' `` forecast , '' and other similar expressions . we base these forward-looking statements or projections on our current expectations , plans and assumptions that we have made in light of our experience in the industry , as well as our perceptions of historical trends , current conditions , expected future developments and other factors we believe are appropriate under the circumstances and at such time . as you read and consider this annual report on form 10-k , you should understand that these statements are not guarantees of performance or results . the forward-looking statements and projections are subject to and involve risks , uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections . although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made , you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections . factors that may materially affect such forward-looking statements and projections include : adverse developments in economic conditions and , particularly , in conditions in the automotive and transportation industries ; our inability to successfully execute on our growth strategy ; risks associated with our non-u.s. operations ; currency-related risks ; increased competition ; risks of the loss of any of our significant customers or the consolidation of msos , distributors and or body shops ; price increases or interruptions in our supply of raw materials ; failure to develop and market new products and manage product life cycles ; litigation and other commitments and contingencies ; significant environmental liabilities and costs as a result of our current and past operations or products , including operations or products related to our business prior to the acquisition ; unexpected liabilities under any pension plans applicable to our employees ; risk that the insurance we maintain may not fully cover all potential exposures ; failure to comply with the anti-corruption laws of the united states and various international jurisdictions ; failure to comply with anti-terrorism laws and regulations and applicable trade embargoes ; business disruptions , security threats and security breaches ; our ability to protect and enforce intellectual property rights ; intellectual property infringement suits against us by third parties ; our substantial indebtedness ; our ability to obtain additional capital on commercially reasonable terms may be limited ; our ability to realize the anticipated benefits of any acquisitions and divestitures ; 35 our joint ventures ' ability to operate according to our business strategy should our joint venture partners fail to fulfill their obligations ; ability to recruit and retain the experienced and skilled personnel we need to compete ; work stoppages , union negotiations , labor disputes and other matters associated with our labor force ; terrorist acts , conflicts , wars and natural disasters that may materially adversely affect our business , financial condition and results of operations ; transporting certain materials that are inherently hazardous due to their toxic nature ; weather conditions that may temporarily reduce the demand for some of our products ; reduced demand for some of our products as a result of improved safety features on vehicles and insurance company influence ; the amount of the costs , fees , expenses and charges related to being a public company ; any statements of belief and any statements of assumptions underlying any of the foregoing ; carlyle 's ability to control our common shares ; other factors disclosed in this annual report on form 10-k ; and other factors beyond our control . these cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this annual report on form 10-k. we undertake no obligation to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . basis of presentation axalta 's consolidated financial statements as of december 31 , 2014 and 2013 , and for the years ended december 31 , 2014 and 2013 and the period from august 24 , 2012 through december 31 , 2012 , included elsewhere in this annual report on form 10-k , represent those of the successor . the consolidated financial statements of axalta were prepared using the acquisition method of accounting . story_separator_special_tag net sales in our performance coatings segment decreased at a 2 % cagr o ver the same period as a result of lower volumes in both our refinish and industrial end-markets in developed markets . in emea , volumes declined as a result of a difficult economic environment . in north america , our lack of participation in the mso market prior to the acquisition had a negative impact on our volumes as mso body shops increased the number of vehicles serviced at the expense of independent body shop customers . these factors in developed markets were partially offset by continued refinish net sales growth in the emerging markets . with 13 of our 17 most senior managers joining our company since the acquisition , 2014 was the first full fiscal year of results under our current senior management team . our net sales increased 2 % for the year ended december 31 , 2014 compared to the pro forma year ended december 31 , 2013 ( see `` unaudited pro forma consolidated and combined financial information '' ) , driven by 3 % growth in our performance coatings segment and 1 % growth in our transportation coatings segment , with growth in both segments across all regions except latin america . excluding latin america , where difficult economic conditions contributed to weaker demand and unfavorable currency translation , our net sales grew 3 % for the year ended december 31 , 2014 compared to the pro forma year ended december 31 , 2013. the following trends have impacted our segment and end-market sales performance in 2014 : performance coatings : improving economic conditions in europe , our recent wins with growing mso customers in north america and continued growth in asia pacific drove higher volumes . transportation coatings : significant growth in asia pacific driven by increases in light vehicle production combined with increased north american commercial truck production builds were largely offset by significantly lower light vehicle volumes in latin america . 37 since the acquisition , we have implemented numerous initiatives to reduce our fixed and variable costs that have improved our adjusted ebitda margin in 2014 compared to the pro forma prior year . examples include transitioning our it systems to more cost-effective solutions that better meet our needs as an independent company , developing a global procurement organization to reduce procurement costs and investing in a european manufacturing re-alignment to position the region for profitable growth . these initiatives are contributing to our financial results and we believe they will continue to drive profitability improvements over the next several years . our business serves four end-markets globally as follows : replace_table_token_3_th acquisition accounting we allocated the purchase price paid to acquire the dpc business to the acquired assets and liabilities assumed based on their respective estimated fair value as of the acquisition date . the application of acquisition accounting resulted in an increase in amortization and depreciation expense relating to our acquired intangible assets and property , plant and equipment . in addition to the increase in the net carrying value of property , plant and equipment , we revised the remaining depreciable lives of property , plant and equipment to reflect the estimated remaining useful lives for purposes of calculating periodic depreciation expense . we adjusted the carrying values of the joint ventures to reflect their estimated fair values at the date of purchase . we adjusted the value of inventory to its estimated fair value , which increased the costs recognized upon the sale of this acquired inventory . we also provided for deferred income taxes for the future tax consequences of acquisition date basis differences between the carrying amounts of assets and liabilities utilized for financial reporting purposes and the respective amounts used for income tax purposes . the excess of the purchase price over the estimated fair value of assets and liabilities was assigned to goodwill , which is not amortized for accounting purposes but is subject to testing for impairment at least annually . see note 5 to our consolidated and combined financial statements included elsewhere in this annual report on form 10-k for further discussion on the acquisition . factors affecting our operating results the following discussion sets forth certain components of our statements of operations as well as factors that impact those items . net sales we generate revenue from the sale of our products across all major geographic areas . our net sales include total sales less estimates for returns and price allowances . price allowances include discounts for prompt payment as well as volume-based incentives . our overall net sales are generally impacted by the following factors : fluctuations in overall economic activity within the geographic markets in which we operate ; underlying growth in one or more of our end-markets , either worldwide or in particular geographies in which we operate ; the type of products used within existing customer applications , or the development of new applications requiring products similar to ours ; changes in product sales prices ( including volume discounts and cash discounts for prompt payment ) ; changes in the level of competition faced by our products , including price competition and the launch of new products by competitors ; 38 our ability to successfully develop and launch new products and applications ; and fluctuations in foreign exchange rates . while the factors described above impact net sales in each of our operating segments , the impact of these factors on our operating segments can differ , as described below . for more information about risks relating to our business , see part i , item 1a , `` risk factors—risks related to our business . '' other revenue other revenue consists primarily of consulting and other service revenue and royalty income . cost of goods sold ( `` cost of sales '' ) our cost of sales consists principally of the following : production materials costs . we purchase a significant amount of the materials used in production on a global lowest-cost basis . employee costs .
| results of operations the following discussion should be read in conjunction with the information contained in the accompanying financial statements and related notes included elsewhere in this annual report on form 10-k. our historical results of operations set forth below may not necessarily reflect what would have occurred if we had been a separate standalone entity prior to the acquisition or what will occur in the future . successor year ended december 31 , 2014 compared to successor year ended december 31 , 2013 , predecessor period january 1 , 2013 through january 31 , 2013 , and the pro forma year ended december 31 , 2013 the following table was derived from the successor 's consolidated statements of operations for the years ended december 31 , 2014 and 2013 and from the predecessor 's combined statement of operations for the period from january 1 , 2013 through january 31 , 2013 included elsewhere in this annual report on form 10-k. it should be noted that the results of operations for the successor year ended december 31 , 2013 only include the results of dpc from the date of the acquisition . prior to the acquisition , axalta generated no revenue and only incurred merger and acquisition related costs and debt financing costs in anticipation of the acquisition . we have also presented pro forma financial results for the year ended december 31 , 2013 as if the acquisition and the related financing had occurred on january 1 , 2013. we believe this information , and the related comparisons , provide a more meaningful comparison for the years presented .
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a key factor in unit margins is the value difference between crude oil supplies in the mid-continent region of the u.s. versus crude oil supply costs in the eastern region of the u.s. we have been able to capture some of this value difference by shipping crude oil from the texas gulf coast to other locations . we held crude oil inventory at a weighted average composite price as follows at the dates indicated ( in barrels ) : replace_table_token_13_th historically , prices received for crude oil have been volatile and unpredictable with price volatility expected to continue . see “ item 1a . risk factors . ” 22 transportation our transportation segment revenues , operating earnings ( losses ) and selected costs were as follows for the periods indicated ( in thousands ) : replace_table_token_14_th ( 1 ) represents the percentage increase ( decrease ) from the prior year . our revenue rate structure includes a component for fuel costs in which fuel cost fluctuations are largely passed through to the customer over time . revenues , net of fuel cost , were as follows for the periods indicated ( in thousands ) : replace_table_token_15_th ( 1 ) revenues , net of fuel cost , is a non-gaap financial measure and is utilized for internal analysis of the results of our transportation segment . 2017 compared to 2016 . revenues , net of fuel cost , increased by $ 0.3 million during the year ended december 31 , 2017 , primarily as a result of increased activity in our transportation segment . we began to see a slight increase in transportation activity during late 2017 , and we continue to pursue our strategy of streamlining operations and diversifying offerings in our transportation segment . this increase in services resulted in an increase in variable expenses related to transportation activities . fuel increased by $ 0.7 million as a result of an increase in the price of diesel during 2017 as compared to 2016. our operating results for 2017 were also adversely impacted by hurricane harvey , which affected the gulf coast area in late august and early september of 2017 , resulting in decreased revenues and lower mileage during 2017 . 2016 compared to 2015 . revenues , net of fuel cost , decreased by $ 8.5 million during the year ended december 31 , 2016 as compared to 2015 , because of lower demand as indicated by the decreased mileage during 2016 as compared to 2015. the combination of lower demand and excess industry-wide trucking capacity led to pressures on volumes and freight rates throughout 2016. the result is an adverse impact on operating earnings . during 2016 , we reduced expenses through staff reductions and selling of older inefficient equipment . fuel decreased by $ 2.4 million as a result of lower mileage during 2016 as compared to 2015 . 23 equipment additions and retirement for the transportation fleet were as follows for the periods indicated : replace_table_token_16_th the sale of retired equipment produced gains of less than $ 0.1 million , $ 0.4 million and less than $ 0.1 million during the years ended december 31 , 2017 , 2016 and 2015 , respectively . our customers are primarily in the domestic petrochemical industry . customer demand is affected by low natural gas prices ( a basic feedstock cost for the petrochemical industry ) and high export demand for petrochemicals . during 2016 , the competitive landscape in the transportation sector remained difficult and led to lower revenues in this segment . during late 2017 , we have seen an increase in customer demand for chemical tank trucking , and we are working on capturing those opportunities . oil and gas our upstream crude oil and natural gas exploration and production segment revenues and operating earnings ( losses ) were primarily a function of crude oil and natural gas prices and volumes . we accounted for our upstream operations under the successful efforts method of accounting . as a result of arec 's bankruptcy filing in april 2017 and our loss of control of this subsidiary , we deconsolidated arec effective with its bankruptcy filing and recorded our investment in arec under the cost method of accounting . our results for 2017 are only through april 30 , 2017 , during the period in which arec was consolidated . our upstream crude oil and natural gas exploration and production segment revenues , operating earnings ( losses ) and selected costs were as follows for the periods indicated ( in thousands ) : replace_table_token_17_th ( 1 ) represents the percentage increase ( decrease ) from the prior year . ( 2 ) results for 2017 represents amounts for the period from january 1 , 2017 through april 30 , 2017 . 2017 compared to 2016 . our upstream crude oil and natural gas exploration and production revenues and depreciation and depletion expense decreased $ 2.0 million and $ 1.1 million , respectively , during the year ended december 31 , 2017 as compared to 2016. these decreases were primarily as a result of the deconsolidation of arec effective with its bankruptcy filing in april 2017 ( four months of revenues and expenses in 2017 versus twelve months of revenues and expenses in 2016 ) as well as production declines offsetting commodity price increases in 2017 . 24 2016 compared to 2015 . our upstream crude oil and natural gas exploration and production segment revenues and depreciation and depletion expense decreased $ 1.7 million and $ 3.5 million , respectively , during the year ended december 31 , 2016 as compared to 2015 , primarily as a result of production declines . story_separator_special_tag on december 22 , 2017 , the tax cut and jobs act was enacted into law resulting in a reduction in the federal corporate income tax rate from 35 percent to 21 percent for years beginning in 2018. at december 31 , 2017 , we had a deferred tax liability of approximately $ 3.3 million ( reflecting a reduction of approximately $ 2.0 million resulting from the lower rate under which those deferred taxes would be expected to be recovered or settled ) . as a result of the lower tax rate , we expect to see a decrease in either our provision for or benefit from income taxes during 2018 as compared to 2017. see note 11 in the notes to consolidated financial statements for further information . 26 liquidity and capital resources liquidity our liquidity is from our cash balance and net cash provided by operating activities and is therefore dependent on the success of future operations . if our cash inflow subsides or turns negative , we will evaluate our investment plan and remain flexible . one of our wholly owned subsidiaries , arec , filed for bankruptcy in april 2017. over the past few years , we have de-emphasized our upstream operations and do not expect this chapter 11 filing by arec to have a material adverse impact on any of our core businesses . in connection with its bankruptcy filing , arec entered into the dip credit agreement with ae . arec borrowed approximately $ 0.4 million under the dip credit agreement , and the amount was repaid during the third quarter of 2017 with proceeds from the sales of the assets . ae was the primary creditor in arec 's chapter 11 process . as a result of an auction process ( see note 1 in the notes to consolidated financial statements ) , arec sold its assets for approximately $ 5.2 million during 2017. after settlement of certain claims in late 2017 , ae received approximately $ 2.8 million from arec . ae anticipates receiving an additional $ 0.4 million in 2018 when the bankruptcy case is dismissed . at december 31 , 2017 , 2016 and 2015 , we had no bank debt or other forms of debenture obligations . we maintain cash balances in order to meet the timing of day-to-day cash needs . cash and working capital , the excess of current assets over current liabilities , were as follows at the dates indicated ( in thousands ) : replace_table_token_19_th we maintain a stand-by letter of credit facility with wells fargo bank , national association to provide for the issuance of up to $ 60 million in stand-by letters of credit for the benefit of suppliers of crude oil within our crude oil marketing segment and for other purposes . stand-by letters of credit are issued as needed and are canceled as the underlying purchase obligations are satisfied by cash payment when due . the issuance of stand-by letters of credit enables us to avoid posting cash collateral when procuring crude oil supply . we are currently using the letter of credit facility for a letter of credit related to our insurance program . at december 31 , 2017 , we had $ 2.2 million outstanding under this facility . during january 2018 , the letter of credit amount outstanding decreased to approximately $ 0.9 million . no letter of credit amounts were outstanding at december 31 , 2016 . we believe current cash balances , together with expected cash generated from future operations , and the ease of financing truck and trailer additions through leasing arrangements ( should the need arise ) will be sufficient to meet our short-term and long-term liquidity needs . we utilize cash from operations to make discretionary investments in our marketing and transportation businesses . with the exception of operating and capital lease commitments primarily associated with storage tank terminal arrangements , leased office space and tractors , our future commitments and planned investments can be readily curtailed if operating cash flows decrease . see “ other items ” below for information regarding our operating and capital lease obligations . the most significant item affecting future increases or decreases in liquidity is earnings from operations , and these earnings are dependent on the success of future operations . see “ part i , item 1a . risk factors . ” 27 cash flows from operating , investing and financing activities our consolidated cash flows from operating , investing and financing activities were as follows for the periods indicated ( in thousands ) : replace_table_token_20_th operating activities . net cash flows provided by operating activities for the year ended december 31 , 2017 increased by $ 19.2 million when compared to 2016. this increase was primarily due to an increase in revenues , partially offset by increased operating and general and administrative expenses . net cash flows provided by operating activities for the year ended december 31 , 2016 decreased by $ 18.5 million when compared to 2015. this decrease was primarily due to a decrease in revenues , partially offset by a decrease in operating and general and administrative expenses . at various times each month , we may make cash prepayments and or early payments in advance of the normal due date to certain suppliers of crude oil within our marketing operations . crude oil supply prepayments are recouped and advanced from month to month as the suppliers deliver product to us . in addition , in order to secure crude oil supply , we may also “ early pay ” our suppliers in advance of the normal payment due date of the twentieth of the month following the month of production . these “ early payments ” reduce cash and accounts payable as of the balance sheet date . we also require certain customers to make similar early payments or to post cash collateral with us in order to support their purchases
| results of operations marketing our crude oil marketing segment revenues , operating earnings and selected costs were as follows for the periods indicated ( in thousands ) : replace_table_token_10_th ( 1 ) represents the percentage increase ( decrease ) from the prior year . volume and price information were as follows for the periods indicated : replace_table_token_11_th ( 1 ) reflects the volume purchased from third parties at the field level of operations . 2017 compared to 2016 . crude oil marketing revenues increased by $ 223.5 million during the year ended december 31 , 2017 as compared to 2016 primarily as a result of an increase in the market price of crude oil , which increased revenues by approximately $ 329.7 million , partially offset by lower crude oil volumes , which decreased revenues by approximately $ 106.2 million . the average crude oil price received was $ 39.30 for 2016 , which increased to $ 49.88 for 2017 . 20 our marketing operating earnings for the year ended december 31 , 2017 decreased by $ 5.3 million as compared to 2016 , primarily as a result of declines in crude oil volumes , including declines as a result of the effects of hurricane harvey , which affected the gulf coast area in late august and early september 2017 , as well as a narrowing of margins during 2017. operating earnings were also impacted by inventory valuation changes ( as shown in the table below ) and the implementation in august 2017 of a voluntary early retirement program for certain employees , which resulted in an increase in personnel expenses of approximately $ 0.4 million . during the latter part of 2017 , volumes began increasing as activity in certain marketing areas increased primarily as a result of increased wellhead purchases .
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during the year ended december 31 , 2020 , the company sold 84,016 shares of common stock under the maxim atm for gross proceeds to the company of $ 139,588 . total issuance costs for the year ended december 31 , 2020 were $ 160,939 . on march 21 , 2021 , we terminated the equity distribution agreement and as a result no further sales of common stock will be made thereunder . 2020 offering of consisting of common stock , series c convertible preferred stock and warrants on december 8 , 2020 , the company entered into an underwriting agreement with maxim group , llc , pursuant to which the company agreed to issue and sell registered units consisting of an aggregate of : ( i ) 14,575,000 shares of the company 's common stock at $ 1.00 per share ; ( ii ) 5,425 shares of series c convertible preferred stock , par value $ 0.001 per share at $ 1,000.00 per share and ( iii ) warrants convertible into up to 15,000,000 shares of common stock . the warrants were immediately exercisable at a price of $ 1.00 per share of common stock and expire four years from the date of issuance . on december 28 , 2020 , the company also closed on the overallotment provision of the underwriting agreement which included the sale of an additional 3,000,000 shares of common stock and 2,250,000 warrants . net proceeds in total were $ 20,976,244 , after deducting expenses relating to the offering of $ 2,023,756 , including dealer-manager fees and expenses , and excluding any proceeds received upon exercise of any warrants . proceeds of $ 16,749,926 , net of issuance costs of $ 825,074 have been included in the statement of stockholders ' equity under the caption issuance of common stock and warrants . proceeds from the sale of common stock and warrants of $ 8,196,428 have been allocated to the common stock warrant liability . proceeds of $ 5,165,111 , net of issuance costs of $ 259,889 have been included in the statement of stockholders ' equity under the caption issuance of series c convertible preferred stock and warrants . proceeds from the sale of series c convertible preferred stock and warrants of $ 2,474,080 have been allocated to the common stock warrant liability . issuance costs of $ 938,793 that were allocated to the warrant liabilities were expensed during 2020. accounting treatment the company allocated the proceeds from the sale of the common stock and warrant units and preferred stock and warrant units to the separate securities issued . the company determined that , on the date of issuance , the warrants include provisions that could require net-cash settlement and therefore , the warrants should be accounted for as liabilities . at the end of each reporting period , the changes in fair value of the warrants during the period were recorded in non-operating expense in the consolidated story_separator_special_tag overview the following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this annual 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 . company overview we are a clinical-stage biopharmaceutical company seeking to discover and develop innovative medicines in areas of significant unmet medical need in oncology and infectious diseases , with a current focus on breast cancer , other breast conditions and covid-19 . our drug under development for breast cancer and other breast conditions is endoxifen which is being developed primarily in two settings : one to reduce tumor cell activity in breast cancer patients in the “ window of opportunity ” between diagnosis of breast cancer and surgery ; and another for women with dense breast tissue to reduce the density . our two covid-19 drugs under development are at-h201 , to improve lung function of moderate to severely ill , hospitalized covid-19 patients by inhalation ; and at-301 , a nasal spray for covid-19 patients for at-home use . our business strategy is to advance our programs through clinical studies including with partners , and opportunistically add programs in areas of high unmet medical need through acquisition , collaboration , or internal development . summary of leading programs endoxifen for mbd . mammographic breast density ( `` mbd '' ) is an emerging public health issue affecting over 10 million women in the u.s. studies conducted by others have shown that mbd increases the risk of developing breast cancer and that reducing mbd can reduce the incidence of breast cancer . we believe our proprietary oral endoxifen may reduce mbd , based in part on our previous successful phase 2 study of our topical endoxifen . endoxifen is an active metabolite of tamoxifen which is an fda-approved drug to treat and prevent breast cancer in high risk women . endoxifen has been studied in over 160 participants in atossa-conducted clinical studies . we contracted with stockholm south general hospital to conduct a randomized , double-blinded , placebo-controlled phase 2 study of our oral endoxifen in pre-menopausal women with measurable mbd who will be dosed over six months . this study will evaluate safety , tolerability and efficacy of endoxifen . the study is subject to approval by the european medical product authority and ethics board . we expect to open this study in stockholm soon after receiving all necessary regulatory approvals , provided covid-19 restrictions permit patient recruitment . no assurance can be given that reduction in mbd is an approvable indication or that the regulators will approve opening the study in sweden . story_separator_special_tag we received input from the fda on potential pathways to develop at-h201 and the fda requested that we provide , among other things , additional pre-clinical and other information on at-h201 . we have also applied to the regulatory authorities to conduct the initial clinical study of at-h201 in australia . impact of the novel coronavirus the continued spread of the covid-19 pandemic is affecting the united states and global economies and may affect the company 's operations and those of third parties on which the company relies , including causing possible disruptions in the supply of the company 's endoxifen , at-h201 , at-301 and the conduct of current and future clinical trials . in addition , the covid-19 pandemic may affect the operations of the u.s. fda and other health authorities including similar entities/agencies in sweden and australia , which could result in delays in meetings , reviews and approvals . the evolving covid-19 pandemic could also directly or indirectly impact the pace of enrollment in our clinical trials for at least the next several months and possibly longer as patients may avoid or may not be able to travel to healthcare facilities and physicians ' offices except for a health emergency . such facilities and offices may also be required to focus limited resources on non-clinical trial activities , including treatment of covid-19 patients , and may not be available , in whole or in part , for clinical trial activities related to the company 's products under development . additionally , while the potential economic impact brought by , and the duration of , the covid-19 pandemic is difficult to assess or predict , the impact of the covid-19 pandemic on the global financial markets may reduce the company 's ability to access capital , which could negatively impact the company 's short-term and long-term liquidity . the ultimate impact of the covid-19 pandemic is highly uncertain and subject to change . we do not yet know the full extent of potential delays or impacts on our business , financing or clinical trial activities or on healthcare systems or the global economy as a whole . however , these effects could have a material adverse impact on the company 's liquidity , capital resources , operations , financial position and business and those of the third parties on which we rely . we have not experienced any delay in drug supply for our ongoing and planned clinical studies , including studies of endoxifen , at-301 and at-h201 . we anticipate commencing the mbd endoxifen trial soon after receiving all necessary regulatory approvals ; subject to delays in enrollment due to covid-19 disruptions , which could take several months or longer . we will continue to monitor future enrollment in studies for potential restrictions on site visits , mammograms or the impositions of new restrictions on trials as a result of the covid-19 pandemic . 37 research and development phase we are in the research and development phase and are not currently marketing any products . we do not anticipate generating revenue unless and until we develop and launch our pharmaceutical programs . commercial lease agreements on november 1 , 2018 , the company entered into an operating lease to pay $ 3,660 monthly rent for a term of 22 months with ww 107 spring street llc to lease office space at 107 spring street , seattle , washington . in may 2020 , we amended our office lease and extended the expiration from august 31 , 2020 to february 28 , 2021. in the first quarter of 2021 , the company entered into an operating lease to pay monthly rent of $ 750 for a term of 12 months . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in note 3 to our consolidated financial statements , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements . research and development research and development ( `` r & d '' ) costs are generally expensed as incurred . r & d expenses include , for example , manufacturing expenses for our drugs under development , expenses associated with clinical trials and associated salaries and benefits . r & d expenses also include an estimated allocation of the ceo 's salary and related benefits including non-cash stock-based compensation expense based on time devoted to r & d . stock-based payments we follow the provisions of asc 718 , compensation – stock compensation , which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees , non-employee directors , and consultants , including employee stock options .
| results of operations comparison of years ended december 31 , 2020 and 2019 revenue and cost of revenue : for the years ended december 31 , 2020 and 2019 , we have no source of sustainable revenue and no associated cost of revenue . operating expenses : total operating expenses were $ 14,607,000 for the year ended december 31 , 2020 , which is a decrease of $ 2,658,000 or 15 % , from the year ended december 31 , 2019. operating expenses for 2020 consisted of research and development ( `` r & d '' ) expenses of $ 6,608,000 and general and administrative ( `` g & a '' ) expenses of $ 7,999,000. operating expenses for 2019 consisted of r & d expenses of $ 6,645,000 , and g & a expenses of $ 10,620,000. the basis for the decreased operating expenses in 2020 is explained below . research and development expenses : r & d expenses for the year ended december 31 , 2020 , were $ 6,608,000 , a decrease of $ 37,000 or 1 % from total r & d expenses in 2019 of $ 6,645,000. the decrease in r & d expense is attributed primarily to a decrease in stock-based compensation of approximately $ 2,214,000 , which is a non-cash charge , offset by an increase in salaries of approximately $ 428,000 , professional fees and clinical trials expenses of approximately $ 1,696,000 , as compared to the same period in 2019. we expect our r & d expenses to increase into 2021 as we seek to commence a study of at-h201 , complete a preclinical and commence a phase 1 study of at-301 , launch a phase 2 clinical trial of endoxifen in women with high breast density , and continue the development of other indications and therapeutics .
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the forward-looking statements are dependent upon events , risks , and uncertainties that may be outside our control , including among other things , the risk factors discussed in “ item 1a . risk factors ” of this annual report on form 10-k. our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , market prices for oil and natural gas , production volumes , estimates of proved reserves , capital expenditures , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this annual report on form 10-k , all of which are difficult to predict . in light of these risks , uncertainties , and assumptions , the forward-looking events discussed may not occur . see “ cautionary remarks regarding forward-looking statements ” in the front of this annual report on form 10-k. overview we are a growth-oriented master limited partnership formed in september 2013 to provide services to the oil and gas industry . we provide independent pipeline inspection and integrity services to various energy e & p and midstream companies and their vendors in our pipeline inspection and pipeline & process services segments throughout the united states and canada . the pipeline inspection segment is comprised of the operations of our tir entities and the pipeline & process services segment is comprised of the operations of brown . we also provide saltwater disposal and other water and environmental services to u.s. onshore oil and natural gas producers and trucking companies through our water services segment . we operate nine ( eight owned ) saltwater disposal facilities , all of which are in the bakken shale region of the williston basin in north dakota . we also have a management agreement in place to provide staffing and management services to one 25 % -owned saltwater disposal facility in the bakken shale region . in all of our business segments , we work closely with our customers to help them comply with increasingly complex and strict environmental and safety rules and regulations applicable to production and pipeline operations , assisting in reducing their operating costs . 61 how we generate revenue we generate revenue in our pipeline inspection segment primarily by providing inspection services on midstream pipelines , gathering systems , and distribution systems , including data gathering and supervision of third-party construction , inspection , and maintenance and repair projects . our results in this segment are driven primarily by the number of inspectors that perform services for our customers and the fees that we charge for those services , which depend on the type and number of inspectors used on a particular project , the nature of the project , and the duration of the project . the number of inspectors engaged on projects is driven by the type of project , prevailing market rates , the age and condition of customers ' midstream pipelines , gathering systems , and distribution systems , and the legal and regulatory requirements relating to the inspection and maintenance of those assets . we charge our customers on a per-inspector basis , including per diem charges , mileage , and other reimbursement items . we generate revenue in our pipeline & process services segment primarily by providing hydrostatic testing services to major natural gas and petroleum companies and pipeline construction companies . we perform these services on newly-constructed and existing natural gas and crude oil pipelines . we generally charge our customers in this segment on a fixed-bid basis . bid prices vary based on the size and length of the pipeline being inspected , the complexity of services provided , and the utilization of our work force and equipment . our results in this segment are driven primarily by the number of field personnel that perform services for our customers , the fees that we charge for those services ( which depend on the type and number of field personnel used on a particular project ) , the type of equipment used and the fees charged for the utilization of that equipment , and the nature and duration of the project . we generate revenue in our water services segment primarily by treating flowback and produced water and injecting the saltwater into our saltwater disposal facilities . our water services results are driven primarily by the volumes of produced water and flowback water we receive and the fees we charge for our services . these fees are charged on a per-barrel basis under contracts that are short-term in nature and vary based on the quantity and type of saltwater disposed , competitive dynamics , and operating costs . the volumes of saltwater disposed at our saltwater disposal facilities are driven by water volumes generated from existing oil and natural gas wells during their useful lives and the development of new wells located near our facilities . producers ' willingness to engage in new drilling is determined by a number of factors , the most important of which are the prevailing and projected prices of oil , natural gas , and natural gas liquids , the cost to drill and operate a well , the availability and cost of capital , and environmental and governmental regulations . we generally expect the level of drilling to positively correlate with long-term trends in prices of oil , natural gas , and natural gas liquids . we also generate revenue by managing one saltwater disposal facility . in addition , for minimal marginal cost , we generate revenue by selling residual oil we recover from the flowback and produced water . our ability to recover residual oil is dependent upon the residual oil content in the saltwater we treat , which is , among other things , a function of water type , chemistry , source , and temperature . generally , where outside temperatures are lower , there is less residual oil content and separation is more difficult . story_separator_special_tag under our amended and restated omnibus agreement , holdings charges us an annual administrative fee of $ 4.0 million ( payable in equal quarterly installments ) for the provision of certain administrative services . this fee is subject to an increase by an annual amount equal to ppi plus one percent or , with the concurrence of the conflicts committee , in the event of an expansion of our operations , including through acquisitions or internal growth . this administrative fee will increase to $ 4.5 million in 2019 , based on the cumulative increase in the ppi since the inception of the omnibus agreement . to the extent that holdings incurs overhead expenses in excess of our annual administrative fee that are attributable to the operations of the partnership , these expenses are reported in our consolidated statements of operations within general and administrative and as contributions attributable to general partner in our consolidated statement of owners ' equity . 63 included in this administrative fee are general and administrative expenses attributable to operating as a publicly traded partnership , such as expenses associated with annual and quarterly sec reporting ; tax return and schedule k-1 preparation and distribution expenses ; sarbanes-oxley compliance ; listing on the new york stock exchange ; independent registered public accounting firm fees ; certain legal fees ; investor relations , registrar , and transfer agent fees ; and director compensation . our partnership agreement provides that holdings will determine and allocate expenses related to our operations and may provide us other services for which we will be charged fees as determined in good faith . payments to holdings and its affiliates following the termination of our amended and restated omnibus agreement could be substantial and could reduce the amount of cash we have available to distribute to our unitholders . during the years ended december 31 , 2017 and 2016 , holdings provided sponsor support to the partnership by waiving certain payments of the quarterly administrative fee ( in 2017 , holdings waived the fee for two of the quarters ; in 2016 , holdings waived the fee for all four quarters ) . we reported the amount of the waived fees within general and administrative in our consolidated statements of operations and as contributions attributable to general partner in our consolidated statement of owners ' equity . depreciation , amortization and accretion . depreciation , amortization and accretion expense primarily consists of the decrease in value of assets as a result of using the assets over their estimated useful life . depreciation and amortization are recorded on a straight-line basis . we estimate that our assets have useful lives ranging from 3 to 39 years . the fixed assets of our water services segment constituted approximately 79 % of the net book value of our consolidated fixed assets as of december 31 , 2018. segment gross margin , adjusted ebitda , and distributable cash flow we view segment gross margin as one of our primary management tools , and we track this item on a regular basis , both as an absolute amount and as a percentage of revenues compared to prior periods . we also track adjusted ebitda , defined as net income ( loss ) plus interest expense , depreciation and amortization expense , income tax expense , impairments , non-cash allocated expenses , and equity-based compensation ( less certain other unusual or non-recurring items ) . we use distributable cash flow , defined as adjusted ebitda less cash interest paid , cash taxes paid , maintenance capital expenditures , and cash distributions on preferred equity , as an additional measure to analyze our performance . distributable cash flow does not reflect changes in working capital balances , which could be significant , as headcounts of the pipeline inspection segment vary from period to period . adjusted ebitda and distributable cash flow are non-gaap , supplemental financial measures used by management and by external users of our financial statements , such as investors , lenders , and analysts , to assess : ● our operating performance as compared to those of other providers of similar services , without regard to financing methods , historical cost basis , or capital structure ; ● the ability of our assets to generate sufficient cash flow to support our indebtedness and make distributions to our partners ; ● the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities ; ● our ability to incur and service debt and fund capital expenditures ; and ● the viability of acquisitions and other capital expenditure projects and the rates of return on various investment opportunities . adjusted ebitda and distributable cash flow are not financial measures presented in accordance with gaap . we believe that the presentation of these non-gaap financial measures provides useful information to investors in assessing our financial condition and results of operations . net income ( loss ) is the gaap measure most directly comparable to adjusted ebitda . the gaap measure most directly comparable to distributable cash flow is net cash provided by operating activities . our non-gaap financial measures should not be considered as alternatives to the most directly comparable gaap financial measures . each of these non-gaap financial measures has important limitations as an analytical tool because it excludes some , but not all , of the items that affect the most directly comparable gaap financial measure . you should not consider adjusted ebitda or distributable cash flow in isolation or as a substitute for analysis of our results as reported under gaap . because adjusted ebitda and distributable cash flow may be defined differently by other companies in our industry , our definitions of these non-gaap financial measures may not be comparable to similarly titled measures of other companies , thereby diminishing their utility .
| segment operating results pipeline inspection the following table summarizes the operating results of our pipeline inspection segment for the years ended december 31 , 2018 and 2017. replace_table_token_11_th revenue . revenue of the pipeline inspection segment increased $ 19.4 million during 2018 compared to 2017 due to increases in headcount and in the average revenue billed per inspector . average inspector headcount increased by 6.0 % , from 1,145 in 2017 to 1,214 in 2018. average revenue per inspector increased 1.1 % . fluctuations in the average revenue per inspector are routine , given that we charge different rates for different types of inspectors and different types of inspection services . revenue attributable to our u.s. operations increased $ 41.5 million during 2018 compared to 2017 , due to increased activity by our clients and increased business development efforts , including the expansion of the non-destructive examination business and the formation of our mechanical integrity service business line . to help mitigate volatility in revenues associated with new construction projects , we continue to focus on areas of inspection that are less impacted by economic conditions , such as maintenance projects and projects associated with public utility companies . revenues of our subsidiary that serves public utility companies increased by $ 13.6 million in 2018 compared to 2017. revenues of our subsidiary that performs nondestructive examination services increased by $ 4.8 million in 2018 compared to 2017. the increase in revenues of our u.s. operations was partially offset by a decrease of $ 22.1 million in revenue attributable to our canadian operations , due primarily to the fact that we ceased to perform certain services for the largest customer of our canadian subsidiary . costs of services . costs of services increased $ 14.5 million during 2018 compared to 2017 , consistent with the increase in revenue for the year . gross margin .
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income tax benefits from the exercise of stock options result in a decrease in current income taxes payable and , to the extent not previously recognized as a reduction in income tax expense , an additional increase in capital surplus . no options were exercised during 2009 , 2008 and 2007. story_separator_special_tag of operations critical accounting policies the financial condition and results of operations presented in the consolidated financial statements , accompanying notes to the consolidated financial statements , selected financial data appearing elsewhere within this report , and management 's discussion and analysis are dependent upon cib marine 's accounting policies . the selection and application of these accounting policies involve judgments about matters that affect the amounts reported in the financial statements and accompanying notes . presented below are discussions of those accounting policies that management believes are the most important ( “ critical accounting policies ” ) to the portrayal and understanding of cib marine 's financial condition and results of operations . these critical accounting policies require difficult , subjective and complex judgments about matters that are inherently uncertain . these estimates are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates or judgments . certain policies inherently have a greater reliance on the use of estimates and as such have a greater possibility of producing results that could be materially different than originally reported . see note 2 to the consolidated financial statements appearing in item 8 of part ii of this form 10-k. allowance for loan losses cib marine monitors and maintains an allowance for loan losses to absorb an estimate of probable losses inherent in the loan portfolio . cib marine maintains policies and procedures that address the systems of controls over the following areas of the allowance : the systematic methodology used to determine the appropriate level of the allowance to provide assurances they are maintained in accordance with gaap ; the accounting policies for loan charge-offs and recoveries ; the assessment and measurement of impairment in the loan portfolio ; and the loan grading system . cib marine evaluates certain commercial loans individually for impairment as required by the fasb . loans evaluated individually for impairment include nonaccrual loans , loans past due 90 days or more and still accruing , restructured loans and other loans identified by management as being impaired . the evaluations are based upon discounted expected cash flows from the loan or collateral valuations and all other known relevant information . if the evaluation shows that a loan is individually impaired , then a specific reserve is established for the amount of impairment . loans , including all residential real estate , home equity and consumer loans which are not evaluated individually are assessed for impairment with groups of loans that have similar characteristics . for loans which are not individually evaluated , cib marine makes estimates of losses for groups of loans . loans are grouped by similar characteristics , including the type of loan , the assigned loan grade and the general collateral type . a loss rate reflecting the expected losses inherent in a group of loans is derived based upon estimates of expected default and loss rates for the group of loans in part based upon cib marine 's loss history and related migration analysis . the resulting estimate of losses for groups of loans are adjusted for relevant environmental factors and other conditions , including : borrower and industry concentrations ; levels and trends in delinquencies , charge-offs and recoveries ; changes in underwriting standards and risk selection ; level of experience and ability of lending management ; national and local economic conditions ; and off-balance sheet positions . the amount of estimated impairment for individually evaluated loans and the estimate of losses for groups of loans are added together for a total estimate of loan losses . the estimate of losses for groups of loans includes an assessment of a range of likely loss outcomes and the most likely outcome is used . this total estimate of loan losses is compared to the allowance for loan losses of cib marine as of the evaluation date . if the estimate of losses is greater than the allowance , an additional provision to the allowance would be made . if the estimate of losses is less than the allowance , the allowance would be reduced . cib marine recognizes the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used to estimate loan losses . if different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses , an additional provision for loan losses would be made , which amount may be material to the consolidated financial statements . 28 measurement of fair value a portion of cib marine 's assets and liabilities are carried at fair value on the consolidated balance sheets , with changes in fair value recorded either through earnings or other comprehensive income in accordance with applicable gaap . these include cib marine 's available for sale securities , interest-rate derivatives related to mortgage loan originations , and other equity securities . the estimation of fair value also affects certain other loans held for sale , which are not recorded at fair value but at the lower of cost or market . the determination of fair value is important for certain other assets , including impaired loans , and other real estate owned that are periodically evaluated for impairment using fair value estimates . fair value is generally defined as the amount at which an asset or liability could be exchanged in a current transaction between willing , unrelated parties , other than in a forced or liquidation sale . story_separator_special_tag on september 16 , 2009 , the trups holders approved a pre-packaged plan of reorganization ( the “ plan ” ) under chapter 11 of the bankruptcy code , which the company filed in bankruptcy court . for the nine months ended september 30 , 2009 , cib marine incurred additional operating losses of $ 30.0 million and its total stockholders ' equity at september 30 , 2009 was a negative $ 9.4 million . the emergence from bankruptcy on december 30 , 2009 resulted in cib marine 's recording of a $ 54.5 million extraordinary gain , net of amortization and reorganization costs , on the extinguishment of its trups indebtedness and the issuance of $ 51.0 million of cib marine preferred . for 2009 , cib marine showed net income of $ 13.7 million . excluding the impact of the extraordinary net gain , the company would have recorded a net loss of $ 40.8 million in 2009 compared to a net loss of $ 34.4 million in 2008 and a net loss of $ 13.8 million in 2007. total assets declined 21.7 % to $ 709.9 million at december 31 , 2009 , compared to $ 906.4 million at december 31 , 2008 , as the company de-leveraged its balance sheet . at december 31 , 2009 , the positive financial impact of the gain recognized upon emergence from bankruptcy and the implementation of the plan allowed cib marine 's tier 1 leverage ratio to improve to 12.08 % . at december 31 , 2009 , cibm bank 's tier 1 leverage capital ratio to total assets at the end of the period was 10.31 % . results of operations story_separator_special_tag interest earned on loans includes amortized loan fees of $ 0.02 million , $ 0.4 million and $ 0.6 million for the years ended december 31 , 2009 , 2008 and 2007 , respectively . ( 5 ) includes fixed assets and deposits of branches held for sale or sold during 2008 and 2007 . ( 6 ) interest rates and amounts include the effects of derivatives entered into for interest rate risk management and accounted for as fair value hedges . ( 7 ) net interest rate spread is the yield on average interest-earning assets less the rate on interest-bearing liabilities . ( 8 ) net interest margin is the ratio of net interest income , on a tax-equivalent basis , to average interest-earning assets . net interest income decreased $ 6.1 million from $ 21.6 million in 2008 to $ 15.5 million in 2009. the decrease in net interest income was primarily driven by an overall reduction in earning assets and rising non-performing assets . the volumes of earning assets declined $ 171.8 million while interest-bearing liabilities declined $ 136.5 million , and non-performing assets increased from $ 18.1 to $ 59.5 million from december 31 , 2008 to december 31 , 2009. in addition , for the year ended december 31 , 2009 compared to 2008 , the percentage of lower yielding federal funds sold and interest bearing bank deposits increased as a proportion of interest-earning asset . net interest income decreased $ 1.0 million , or 4.4 % , from $ 22.6 million in 2007 to $ 21.6 million in 2008. the decrease was mainly attributable to a greater decline in interest income versus the decline in interest expense resulting primarily from declines during the first and fourth quarters 2008 in the federal funds rate , the prime rate and short-term u.s. dollar london interbank offered rates ( “ libor ” ) , which are used to reset interest rates on variable rate loans . this was partially offset by the net interest income derived from the increased volume of total interest-earning assets . cib marine has various strategies to improve and maintain quality net interest income , including growing loans extended to local commercial banking relationships , , reducing nonperforming assets , improving the composition of deposits , deposit product costs , managing investments to improve performance of the portfolio , using collateralized borrowings such as fhlbc advances and repurchase agreements when they have a relative cost advantage over other bank funding sources and it is consistent with cib marine 's liquidity strategy , adjusting its deposit interest rates , which often lag key banking indices when those indices change rapidly , and implementing strategies to reduce the level of interest accruals related to its debentures ( see discussion of cib marine 's capital plan outlined in the liquidity and capital sections in this part ii , item 7 of this form 10-k ) . 31 the following table presents an analysis of changes in net interest income resulting from changes in average volumes of interest-earning assets and interest-bearing liabilities , and average rates earned and paid . replace_table_token_5_th ( 1 ) in the future , cib marine does not expect to realize all of the tax benefits associated with tax-exempt assets due to substantial losses it has incurred , and at december 31 , 2009 , 2008 and 2007 no u.s. federal or state loss carryback potential remains . accordingly , 2009 , 2008 and 2007 are not presented on a tax-equivalent basis . ( 2 ) fhlbc and federal reserve bank stock are included in average balance and yields . ( 3 ) variances which were not specifically attributable to volume or rate have been allocated proportionally between volume and rate using absolute values as a basis for the allocation . nonaccruing loans were included in the average balances used in determining yields . interest income total interest income decreased $ 16.7 million , or 29.8 % , from $ 56.1 million in 2008 to $ 39.4 million in 2009. the decline in interest-earning assets volume caused a $ 9.5 million decrease in interest income , with $ 5.0 million and $ 4.5 million decrease from a decline in loans and investment security volumes , respectively .
| operating results in 2009 , cib marine reported net income available to common shareholders of $ 13.7 million , which included a $ 54.5 million extraordinary gain , net of amortization and reorganization costs , on the restructuring of its trups debt . excluding this extraordinary net gain , cib marine would have reported a net loss of $ 40.8 million for 2009 compared to a net loss of $ 34.4 million in 2008 and a net loss of $ 13.8 million in 2007. excluding the extraordinary net gain , loss from continuing operations would have increased in 2009 by $ 5.3 million to $ 41.5 million , compared to $ 36.2 million in 2008 and $ 15.2 million in 2007. net income from discontinued operations decreased to $ 0.7 million compared to $ 1.8 million in 2008 and $ 1.4 million in 2007 . 30 2009 compared with 2008 operating results excluding the 2009 extraordinary net gain , the $ 5.3 million increase in net loss from continuing operations was primarily due to a $ 6.1 million reduction in net interest income , a $ 5.3 million increase in the provision for loan losses and a $ 2.9 million decrease in noninterest income reflecting the impact of the 2008 gain recognized on the sale of the deposits of cib marine 's florida banking subsidiary , partially offset by a $ 8.9 million reduction in noninterest expense . the reduction in net interest income between the periods is primarily attributable to a reduction in interest-earning assets .
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some of the information contained in this discussion and analysis are set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . see “ special note regarding forward-looking statements. ” our actual results may differ substantially from those referred to herein due to a number of factors , including but not limited to risks described in the section entitled “ risk factors ” and elsewhere in this annual report . restatement as discussed in the “ explanatory note regarding restatement ” and note 14 to the consolidated financial statements included this annual report on form 10-k , we are amending and restating our audited consolidated financial statements and related disclosures for the year ended december 31 , 2012. the following discussion and analysis of our financial condition and results of operations incorporates the restated amounts . for this reason , the data set forth in this section may not be comparable to discussion and data in our previously filed registration statements on form 10 or form s-1 for the fiscal year ended december 31 , 2012. overview ampliphi biosciences is a biotechnology company focused on the discovery , development and commercialization of novel phage therapeutics . our proprietary pipeline is based on the use of bacteriophages , a family of viruses that infect only bacteria . phages have powerful and highly selective mechanisms of action that permit them to target and kill specific bacterial pathogens , including the so-called multi-drug-resistant ( mdr ) or “ superbug ” strains . we are combining our proprietary approach and expertise in identifying , characterizing and developing naturally occurring bacteriophages with that of our collaboration partners in bacteriophage biology , drug engineering , development and manufacturing , to develop second-generation bacteriophage products . we believe that phages represent a promising means to treat bacterial infections , especially those that have developed resistance to current medicines . our lead programs consist of three product candidates : ampliphage-001 for the treatment of p. aeruginosa lung infections in cystic fibrosis ( cf ) patients ; ampliphage-002 , for the treatment of methicillin-resistant s. aureus ( mrsa ) infections ; and ampliphage-004 for the treatment of c. difficile infections . we have incurred net losses since our inception . our operations to date have been limited to research and development and raising capital . since november 2010 , we have raised approximately $ 5.6 million through the sale and issuance of convertible notes and warrants to purchase common stock . in june and july of 2013 , we completed a private placement of shares of our series b convertible preferred stock and warrants to purchase common stock , which raised approximately $ 7.0 million in addition to converting approximately $ 6.3 million in outstanding convertible notes . in december 2013 , we completed a private placement of shares of our common stock , which raised approximately $ 18 million , prior to commissions . to date , we have not generated any revenue and have primarily financed our operations through the sale and issuance of convertible notes and the private placement of our equity securities . as of december 31 , 2013 , we had a deficit accumulated of $ 387.2 million . we recorded annual net losses of $ 58.4 million in 2013 and $ 1.1 million in 2012. we anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of our product candidates . 50 we expect our research and development expenses to increase as we pursue regulatory approval for our product candidates . we also expect to incur additional expenses associated with operating as a public company . as a result , we expect to continue to incur significant and increasing operating losses at least for the next several years . we do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for at least one of our product candidates . we currently expect to use our existing cash and cash equivalents for the continued research and development of our product candidates and for working capital and other general corporate purposes . we may also use a portion for the potential acquisition of , or investment in , product candidates , technologies , formulations or companies that complement our business , although we have no current understandings , commitments or agreements to do so . we expect that these funds will not be sufficient to enable us to complete all necessary development of any potential product candidates . accordingly , we will be required to obtain further funding through other public offerings , debt financing , collaboration and licensing arrangements or other sources . adequate additional funding may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we would be forced to delay , reduce or eliminate our research and development programs . financial operations overview revenue to date , we have not generated any revenue from the sale of our product candidates and do not expect to generate any revenue from the sale of our product candidates in the near term . in the last two years , we recognized $ 1.0 million in revenue related to license agreements and grants from governments and academic institutions . these revenues were used in our new focus , the development of phages . research and development expenses research and development costs consist of the costs associated with our research and discovery activities , conducting clinical trials , manufacturing development efforts and activities related to regulatory filings . our research and development expenses consist of salaries , non-cash stock-based compensation , costs of outside collaborators and outside services , royalty and license costs and facility , occupancy and utility expenses . we expense research and development costs as incurred . story_separator_special_tag where the expected term of our stock-based awards does not correspond with the terms for which interest rates are quoted , we perform a straight-line interpolation to determine the rate from the available term maturities . · forfeiture rate : we apply an estimated forfeiture rate that is derived from historical forfeited shares . if the actual number of forfeitures differs from our estimates , we may record additional adjustments to compensation expense in future periods . the weighted-average assumptions used in the black-scholes option pricing model to determine the fair value of the stock option grants were as follows : replace_table_token_2_th warrant and preferred shares conversion feature liability we account for warrants and the preferred shares conversion feature with anti-dilution ( “ down-round ” ) provisions under the guidance of asc 815 , derivatives and hedging and emerging issue task force statement 07-5 : determining whether an instrument ( or embedded feature ) is indexed to an entity 's own stock , which require the warrants and the preferred shares conversion feature to be recorded as a liability and adjusted to fair value in each reporting period . we estimate the fair values of these securities using a black scholes valuation model . accounting for income taxes our income tax policy records the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets , as well as operating loss and tax credit carry-forwards . we have recorded a full valuation allowance to reduce our deferred tax assets , as based on available objective evidence ; it is more likely than not that the deferred tax assets will not be realized . in the event that we were to determine that we would be able to realize our deferred tax assets in the future , an adjustment to the deferred tax assets would increase net income in the period such determination was made . recent accounting pronouncements in september 2011 , the fasb issued accounting standards update ( asu ) no . 2011-08 , intangibles — goodwill and other ( topic 350 ) : testing goodwill for impairment that simplifies how public and nonpublic entities test goodwill for impairment . the amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in asc topic 350. the more-likely-than-not threshold is defined as having a likelihood of more than 50 % . the guidance also includes examples of the types of events and circumstances to consider in conducting the qualitative assessment . the amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011. we elected to early adopt this standard and used these new guidelines in assessing goodwill impairment for the consolidated financial statements . 53 on may 16 , 2013 , the fasb issued a proposed accounting standards update , leases ( topic 842 ) : a revision of the 2010 proposed accounting standards update , leases ( topic 840 ) . the proposal affects operating leases , especially with properties , and requires lessees to recognize assets and liabilities arising from those leases . the draft also proposes changes in accounting for purchase options and contingent rentals , which would affect the measurement of assets and liabilities for capital leases . an entity will be required to recognize all outstanding leases within the scope of the draft as of the date of initial application using a simplified retroactive approach . the exposure draft proposes that lessee and lessors should apply a right-of-use model in accounting for all leases , with few exceptions . an entity has a right to use an asset if it has control over the asset which is fulfilled if one of the three conditions outlined in the document are met . for leases within the scope of the draft , a lessee would recognize a “ right of use ” asset representing its right to use and the liability to make lease payments . a lessor would recognize an asset representing its right to receive lease payments using a performance obligation approach or a derecognition approach depending on its exposure to risks . there are numerous disclosures that would also be required such as a reconciliation of the opening and closing balances for the leased asset and liabilities . this proposed guidance could impact all companies that participate in leasing activities . we do not believe this proposed accounting standard will have a significant impact on the company 's future financial reporting . jobs act in april 2012 , the jobs act was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for an “ emerging growth company. ” as an “ emerging growth company , ” we are electing not to take advantage of the extended transition period afforded by the jobs act for the implementation of new or revised accounting standards , and as a result , we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies . section 107 of the jobs act provides that our decision not to take advantage of the extended transition period is irrevocable . in addition , we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the jobs act .
| results of operations comparison of the years ended december 31 , 2013 and 2012 revenue for the years ended december 31 , 2013 and 2012 , we recognized $ 0.3 million and $ 0.7 million in revenue , respectively . for the years ended december 31 , 2013 and 2012 , we earned $ 0.3 million and $ 0.6 million of revenue through sublicensing agreements involving our former gene therapy program , respectively . for the year ended december 31 , 2012 , we also earned $ 0.1 million in grant revenue . research and development research and development expenses were $ 6.5 million for the year ended december 31 , 2013 , compared to $ 1.5 million for the year ended december 31 , 2012. the $ 5.0 million increase in expenses is due to an increase in discovery , laboratory , nonclinical testing , research and development collaborations , consulting and clinical development planning expenses for all of our product candidates . research and development expenses are expected to increase in 2014 compared to 2013 as we plan to continue devoting substantial resources to research and development in future periods as we start clinical trials and continue our discovery efforts . 54 general and administrative general and administrative expenses were $ 8.8 million for 2013 , compared to $ 3.2 million for 2012. the $ 5.6 million increase is due to placement agent fees associated with the june 2013 series b preferred shares placement and the december 2013 common stock private placement , higher legal expenses due to preparation to become a public company , and staffing expenses . we currently expect our general and administrative expenses to increase in 2014 compared to 2013 due to the costs associated with being a public company .
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an increase in the expected life will increase compensation expense . forfeiture rate — this is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested . this estimate is based on historical experience . an increase in the forfeiture rate will decrease compensation expense . dividend yield —this is the estimated dividend yield for the weighted average expected life of the option granted . an increase in the dividend yield will decrease compensation expense . 55 index the company issues shares for options when exercised . a summary of stock option activity is as follows : replace_table_token_29_th the aggregate intrinsic values in the table above represent the total difference between the company 's closing stock price at each year-end and the option exercise price , multiplied by the number of in-the-money options at each year-end . as of december 31 , 2016 , total unrecognized compensation expense related to non-vested stock options was approximately $ 21.3 million with a weighted story_separator_special_tag the following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results , financial condition , liquidity and capital resources during the three-year period ended december 31 , 2016 ( our fiscal years 2016 , 2015 and 2014 ) . this discussion should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included elsewhere in this report . this discussion contains forward-looking statements . see “ forward-looking statements ” and “ risk factors ” included elsewhere in this report . overview founded in 1938 , tractor supply company is the largest operator of rural lifestyle retail stores in the united states . the company is focused on supplying the needs of recreational farmers and ranchers and others who enjoy the rural lifestyle ( which we refer to as the “ out here ” lifestyle ) , as well as tradesmen and small businesses . as of december 31 , 2016 , we operated 1,738 retail stores in 49 states under the names tractor supply company , del 's feed & farm supply and petsense . we also operate websites under the names tractorsupply.com and petsense.com . our stores are located primarily in towns outlying major metropolitan markets and in rural communities , and they offer the following comprehensive selection of merchandise : equine , livestock , pet and small animal products , including items necessary for their health , care , growth and containment ; hardware , truck , towing and tool products ; seasonal products , including heating , lawn and garden items , power equipment , gifts and toys ; work/recreational clothing and footwear ; and maintenance products for agricultural and rural use . our current and long-term growth strategy is to : ( 1 ) expand domestic geographic market presence through opening new retail stores , ( 2 ) enhance financial performance through comparable store sales growth achieved through targeted merchandising and marketing programs with an “ everyday value price ” philosophy supported by strong customer service , ( 3 ) enhance product margin through strategic product sourcing , inventory and markdown management , a strong exclusive brand offering , and optimization of product pricing and transportation costs , ( 4 ) leverage operating costs by focusing on opportunities for continuous improvement and elimination of waste in all of our processes , ( 5 ) expand market opportunities via omni-channel enhancements , tying together our website product content , social media , digital and online shopping experience , and ( 6 ) expand through selective acquisitions , as such opportunities arise , to add complementary businesses and to enhance penetration into new and existing markets to supplement organic growth . over the past five years , we have experienced considerable growth in stores , growing from 1,085 stores at the end of 2011 to 1,738 stores ( 1,595 tractor supply and del 's retail stores and 143 petsense retail stores ) at the end of fiscal 2016 , and in sales , with a compounded annual growth rate of approximately 9.9 % . given the size of the communities that we target , we believe that there is ample opportunity for new store growth in existing and new markets . we have developed a proven method for selecting store sites and have identified approximately 900 additional opportunities for new tractor supply stores . we also believe that there is opportunity for up to 1,000 petsense stores . executive summary in 2016 , we opened 113 new tractor supply stores in 37 states and began operating 143 petsense stores in 26 states , as compared to 114 new tractor supply stores in 2015 , resulting in a selling square footage increase of approximately 10.8 % in fiscal 2016 and approximately 8.0 % in fiscal 2015 . net sales increased 8.9 % to $ 6.78 billion in fiscal 2016 from $ 6.23 billion in fiscal 2015 . comparable store sales increased 1.6 % in fiscal 2016 versus a 3.1 % increase in fiscal 2015 . gross profit increased 8.5 % to $ 2.33 billion in fiscal 2016 from $ 2.14 billion in fiscal 2015 , and gross margin decreased 10 basis points to 34.3 % of net sales in fiscal 2016 from 34.4 % of net sales in fiscal 2015 . operating income decreased 20 basis points to 10.2 % of net sales in fiscal 2016 from 10.4 % of net sales in fiscal 2015 . in fiscal 2016 , diluted earnings per share grew 9.0 % to $ 3.27 compared to $ 3.00 in fiscal 2015 . we ended the year with $ 53.9 million in cash and outstanding debt of $ 275.0 million , after returning $ 454.0 million to our stockholders through stock repurchases and dividends . story_separator_special_tag thus , we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding . we do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2016. if a 10 % reserve had been applied against our outstanding vendor funding due as of december 31 , 2016 , net income would have been affected by approximately $ 1.3 million in fiscal 2016. although it is unlikely that there will be any significant reduction in historical levels of vendor funding , if such a reduction were to occur in future periods , the company could experience a higher inventory balance and higher cost of sales . freight we incur various types of transportation and delivery costs in connection with inventory purchases and distribution . such costs are included as a component of the overall cost of inventories ( on an aggregate basis ) and recognized as a component of cost of merchandise sold as the related inventory is sold . we allocate freight as a component of total cost of sales without regard to inventory mix or unique freight burden of certain categories . this assumption has been consistently applied for all years presented . we have not made any material changes in the accounting methodology used to establish our capitalized freight balance or freight allocation in the financial periods presented . if a 10 % increase or decrease had been applied against our current inventory capitalized freight balance as of december 31 , 2016 , net income would have been affected by approximately $ 6.9 million in fiscal 2016 . 22 index description judgments and uncertainties effect if actual results differ from assumptions self-insurance reserves : we self-insure a significant portion of our employee medical insurance , workers ' compensation and general liability insurance plans . we have stop-loss insurance policies to protect from individual losses over specified dollar values . provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience , demographic factors and severity factors . the full extent of certain claims , especially workers ' compensation and general liability claims , may not become fully determined for several years . our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience , including actuarial calculations . we have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves . however , if we experience a significant increase in the number of claims or the cost associated with these claims , we may be exposed to losses that could be material . a 10 % change in our self-insurance reserves as of december 31 , 2016 , would have affected net income by approximately $ 3.5 million in fiscal 2016. sales tax audit reserve : a portion of our sales are to tax-exempt customers , predominantly agricultural-based . we obtain exemption information as a necessary part of each tax-exempt transaction . many of the states in which we conduct business will perform audits to verify our compliance with applicable sales tax laws . the business activities of our customers and the intended use of the unique products sold by us create a challenging and complex compliance environment . these circumstances also create some risk that we could be challenged as to the accuracy of our sales tax compliance . when establishing our sales tax audit reserve , we review our past audit experience and assessments with applicable states to continually determine if we have potential exposure for non-compliance . any estimated liability is based on an initial assessment of compliance risk as well as our historical experience with each respective state . we continually reassess the exposure based on historical audit results , changes in policies , preliminary and final assessments made by state sales tax auditors , and additional documentation that may be provided to reduce the assessment . our sales tax audit reserve contains uncertainties because management is required to make assumptions and to apply judgment regarding the complexity of agricultural-based exemptions , the ambiguity in state tax regulations , the number of ongoing audits and the length of time required to settle with the state taxing authorities . we have not made any material changes to our sales tax audit assessment methodology in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate the sales tax liability reserve . however , if our estimates regarding the ultimate sales tax liability are inaccurate , we may be exposed to losses or gains that could be material . a 10 % change in our sales tax audit reserve as of december 31 , 2016 , would have affected net income by approximately $ 0.7 million in fiscal 2016 . 23 index description judgments and uncertainties effect if actual results differ from assumptions tax contingencies : our income tax returns are periodically audited by united states federal and state tax authorities . these audits include questions regarding our tax filing positions , including the timing and amount of deductions and the allocation of income among various tax jurisdictions . at any time , multiple tax years are subject to audit by the various tax authorities . in evaluating the exposures associated with our various tax filing positions , we record a liability for uncertain tax positions taken or expected to be taken in a tax return .
| results of operations the following table sets forth , for the periods indicated , certain items in our consolidated statements of income expressed as a percentage of net sales . replace_table_token_11_th ( a ) our gross margin amounts may not be comparable to those of other retailers since some retailers include all of the costs related to their distribution network in cost of merchandise sold and others ( like our company ) exclude a portion of these distribution network costs from gross margin and instead include them in selling , general and administrative expenses ; refer to note 1 – significant accounting policies , of the notes to consolidated financial statements , included in item 8 financial statements and supplementary data , of this annual report on form 10-k. 27 index fiscal 2016 compared to fiscal 2015 net sales increased 8.9 % to $ 6.78 billion in fiscal 2016 from $ 6.23 billion in fiscal 2015 . the fourth quarter included an extra sales week as a part of the company 's 53-week calendar in 2016 , which represented 1.6 % of the overall 8.9 % sales increase over prior year . comparable store sales for fiscal 2016 were $ 6.41 billion , a 1.6 % increase over fiscal 2015 . this compares to a 3.1 % comparable store sales increase in the prior year . the comparable store transaction count increased 2.6 % , while comparable store average ticket decreased 0.9 % for fiscal 2016 . comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales , excluding certain adjustments to net sales . stores closed during the year are removed from our comparable store metrics calculations . stores relocated during the years being compared are not removed from our comparable store metrics .
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the estimated allowance for uncollectible amounts is based primarily on management 's evaluation of the story_separator_special_tag overview management 's discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes that appear elsewhere in this annual report on form 10-k. invacare is a multi-national company with integrated capabilities to design , manufacture and distribute durable medical devices . the company makes products that help people move , breathe , rest and perform essential hygiene , and with those products the company supports people with congenital , acquired and degenerative conditions . the company 's products and solutions are important parts of care for people with a range of challenges , from those who are active and involved in work or school each day and may need additional mobility or respiratory support , to those who are cared for in residential care settings , at home and in rehabilitation centers . the company operates in facilities in north america , europe and asia pacific , which are the result of dozens of acquisitions made over the company 's forty one year history . some of these acquisitions have been combined into integrated operating units , while others have remained relatively independent . covid-19 impact the company continues to actively monitor the impact of the coronavirus ( covid-19 ) , which negatively impacted the company 's business in 2020 with regard to reduced net sales on a global basis year-over-year primarily related to mobility and seating products . in addition , the company experienced a decrease in 2020 operating income in the europe segment as a result of a significant decline in net sales related to the pandemic . the extent to which the company 's operations will be impacted by the pandemic will depend largely on future developments , which remain highly uncertain and difficult to accurately predict , including , among other things , new information which may emerge concerning the severity of the pandemic and actions by government authorities to contain covid-19 or treat its impact , such as reimposed public health restrictions or restrictions on access to healthcare facilities . in 2020 , as an “ essential ” business making medical devices , the company had continued to operate in all but one of its facilities which had temporarily suspended operations , having taken the recommended public health measures to ensure worker and workplace safety . the company continues to experience high demand globally for its respiratory products . these products are being deployed in the fight against the covid-19 pandemic in expanded medical facilities to relieve the strain on hospital systems by providing more medical beds and access to purified oxygen needed in respiratory care . the company continues to work to increase its capacity to produce these critical products and resolve global supply chain challenges that are compounded by the effects of the pandemic . as a result , there are practical limits to the extent the company can increase output . in addition , the company has continued to experience cost increases from pandemic-related supply chain disruptions . the initial stages of the pandemic appropriately focused the provision of healthcare to urgent non-elective care , reducing access to clinicians and healthcare facilities on which other parts of the company 's business rely to engage with customers for product trials and fittings . as a result , and combined with various stay-at-home orders , the company experienced a global decline in quotes for mobility and seating products , and a resultant decline in orders starting in the second quarter of 2020. the company realized sequential sales growth on a consolidated basis in the third and fourth quarters of 2020 , primarily driven by europe , as access to customers improved from the low point of the second quarter of 2020. while the company believes the decline in demand for mobility and seating product is temporary in nature , the rebound of the business will depend on the continued restoration of access to healthcare and loosening of public health restrictions , and will be impacted by several items including government actions and policies related to the pandemic , and the magnitude of the pandemic . the company continues to optimize its balance sheet for the current environment . in the third quarter of 2020 , the company repurchased $ 24,466,000 aggregate principal amount of its 2021 notes . earlier in the year , the company entered into separate privately negotiated agreements with certain holders to exchange an aggregate of $ 73,875,000 of its 2021 and 2022 notes into new 5 % series ii convertible senior exchange notes ( the `` series ii 2024 notes '' ) of the company . this transaction enhanced the company 's financial flexibility in reducing short-term debt by extending a significant portion of near-term convertible debt to november 2024. these actions , as well as other actions completed in the first half of 2020 , for example completing the divestiture of dynamic controls and obtaining an unsecured loan under the coronavirus aid , relief , and economic security ( `` cares '' ) act , borrowing availability under the abl revolver , and the anticipated generation of adjusted ebitda and free cash flow , should provide the company sufficient liquidity to manage the business and meet its obligations . strategy the company historically had a strategy to be a leading provider of durable medical equipment to health 43 part ii management discussion & analysis - overview care providers in global markets by providing the broadest portfolio available . this strategy has not kept pace with certain reimbursement changes , competitive dynamics and company-specific challenges . since 2015 , the company has made a major shift in its strategy . the company has since been aligning its resources to produce products and solutions that assist customers and end-users with their most clinically complex needs . by focusing the company 's efforts to provide the best possible assistance and outcomes to the people and caregivers who use its products , the company aims to improve its financial condition for sustainable profit and growth . story_separator_special_tag in addition , while the new it system implementation is a key project for the company in north america during 2021 , benefits related to improved customer experience and efficiencies have not been considered in the guidance as a result of the anticipated timing to roll out the new system in north america . cash flow is expected to fund one-time payments of approximately $ 5 million for severance costs related to the german plant consolidation , and approximately $ 10 million to fund the payment of the majority of vat and other taxes deferred from 2020 implemented by many jurisdictions as result of the pandemic . the company has historically generated negative cash flow performance during the first half of the year . this pattern is expected to continue due to the timing of annual one-time payments such as customer rebates and employee bonuses earned during the prior year , and higher working capital usage from seasonal inventory increases . further , the first quarter of 2021 is expected to continue to be negatively impacted by limitations to access to healthcare impacted by the pandemic . the absence of these payments and seasonally stronger sales in the second half of the year typically result in more favorable cash flow performance in the second half of the year . the company expects improvement in segment operating performance , reduced working capital and slightly lower capital expenditures . the company anticipates spending $ 20 million on capital expenditures in 2021. the company participates in growing markets and believes its long-term economic potential remains strong . the company believes that the continued generation of earnings driven by operational performance , cash balances on hand , and expected free cash flow will support the company 's on-going business improvement plans and enable it to address future debt maturities . favorable long-term demand ultimately , demand for the company 's products and services is based on the need to provide care for people with certain conditions . the company 's medical devices provide solutions for end-users and caregivers . therefore , the demand for the company 's medical equipment is largely driven by population growth and the incidence of certain conditions where treatment may be supplemented by the company 's devices . the company also provides solutions to help equipment providers and residential care operators deliver cost-effective and high-quality care . the company believes that its commercial team , customer relationships , products and solutions , supply chain infrastructure , and strong research and development pipeline will create favorable business potential . 45 part ii story_separator_special_tag style= '' border-bottom:1pt solid # 000000 ; padding:0 1pt '' > gross profit 2020 versus 2019 consolidated gross profit as a percentage of net sales increased by 60 basis points to 28.8 % in 2020 as compared to 28.2 % in 2019. gross profit as a percentage of net sales improved significantly for north america and all other , while europe margins declined significantly impacted by the pandemic . gross profit dollars decreased due to lower net sales in 2020 , primarily in europe . europe - gross profit as a percentage of net sales decreased 110 basis points in 2020 compared to the prior year and gross margin dollars decreased by $ 22,951,000. the decrease in margin dollars was principally due to lower sales as result of the pandemic and unfavorable manufacturing variances on lower volume . north america - gross profit as a percentage of net sales increased by 260 basis points in 2020 compared to the prior year while gross margin dollars increased by $ 11,133,000. the increase in gross profit dollars was primarily due to favorable material costs , improved product mix and lower freight costs offset by unfavorable operational variances . all other - gross profit as a percentage of net sales , increased 610 basis points in 2020 compared to the prior year and gross profit dollars decreased $ 4,997,000. all other primarily relates to the company 's asia pacific businesses . the decrease in gross profit dollars was primarily driven by reduced sales from the divestiture of the dynamic controls business as of mach 7 , 2020. research and development the company continued to invest strategically in research and development activities in 2020. the company dedicated funds to applied research activities to ensure that new and enhanced design concepts are available to its businesses . research and development expenditures , which are included in costs of products sold , decreased to $ 12,275,000 in 2020 from $ 15,836,000 in 2019. the decline in expense in 2020 was primarily related to the divestiture of dynamic controls . the expenditures , as a percentage of net sales , were 1.4 % and 1.7 % in 2020 and 2019 , respectively . 49 part ii md & a - gross profit 2019 versus 2018 consolidated gross profit as a percentage of net sales was 28.2 % in 2019 as compared to 27.5 % in 2018. gross profit as a percentage of net sales for 2018 decreased by 70 basis points as compared to 2018. the gross margin improvement reflects the effective mitigation of the previously estimated approximately $ 5,000,000 annual negative impact of tariffs , to an actual negative impact of less than $ 2,000,000 , as well as lower material and freight costs . gross profit as a percentage of net sales improved significantly for north america while europe margins were flat and all other declined . gross profit dollars decreased due to lower net sales and unfavorable foreign currency translation which negatively impacted consolidated gross profit by $ 10,742,000 in 2019. europe - gross profit as a percentage of net sales was unchanged in 2019 compared to the prior year and gross margin dollars decreased by $ 7,913,000. the decrease in margin dollars was principally due to unfavorable foreign currency and unfavorable sales mix .
| results of operations results of operations net sales 2020 versus 2019 replace_table_token_6_th the table above provides net sales change as reported and as adjusted to exclude the impact of foreign exchange translation and divestitures ( constant currency net sales ) . “ constant currency net sales '' is a non-generally accepted accounting principles ( `` gaap '' ) financial measure , which is defined as net sales excluding the impact of foreign currency translation and divestitures . the current year 's functional currency net sales are translated using the prior year 's foreign exchange rates . these amounts are then compared to the prior year 's sales to calculate the constant currency net sales change . for the divestiture impact , the company adjusted the net sales of the dynamic controls business which was divested as of march 7 , 2020. management believes that this financial measure provides meaningful information for evaluating the core operating performance of the company . consolidated net sales for 2020 decreased 8.3 % for the year , to $ 850,689,000 from $ 927,964,000 in 2019. foreign currency translation increased net sales by 0.4 percentage points with the divestiture decreasing net sales by 1.5 percentage points . constant currency net sales decreased 7.2 % compared to 2019 as mobility and seating declined by $ 60,432,000 , or 15.6 % and lifestyle products declined by $ 28,520,000 or 6.6 % . both of these product categories were negatively impacted by the pandemic as a result of restrictions which limited access to certain product selections . these were partially offset by increases for respiratory products of $ 26,168,000 or 36.1 % . europe - european net sales decreased 12.2 % in 2020 compared to 2019 to $ 468,041,000 from $ 533,048,000 as foreign currency translation increased net sales by 0.6 percentage points .
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all statements other than statements of historical fact are statements that could be deemed to be forward-looking statements , including any statements regarding the expected amounts of future restructuring charges , future expansion plans , trends in future sales or results of operations , gross margin or operating margin , expenses , earnings or losses from operations , cash flow , inventory turns , synergies or other financial items ; any statements of the plans , strategies and objectives of management for future operations ; any statements concerning developments , performance or industry ranking ; any statements regarding future economic conditions or performance ; any statements regarding pending investigations , claims or disputes ; any statements of expectation or belief ; and any statements of assumptions underlying any of the foregoing . generally , the words “ anticipate , ” “ believe , ” “ plan , ” “ expect , ” “ future , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ estimate , ” “ predict , ” “ potential , ” “ continue ” and similar expressions identify forward-looking statements . our forward-looking statements are based on current expectations , forecasts and assumptions and are subject to risks , uncertainties and changes in condition , significance , value and effect . as a result of the factors described herein , and in the documents incorporated herein by reference , including , in particular , those factors described under “ item1a . risk factors affecting operating results ” we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the securities and exchange commission . overview we are a leading independent global provider of customized , integrated electronics manufacturing services ( ems ) . our revenue is generated from sales of our services primarily to original equipment manufacturers ( oems ) in the communications ; industrial , defense and medical ; enterprise computing and storage ; and multimedia markets . our strategy is to leverage our comprehensive service offering , vertically integrated manufacturing services , technology products and solutions , advanced technologies , and global capabilities to further penetrate diverse end markets that we believe offer significant growth opportunities and have complex products that require higher value-added services . we believe this strategy differentiates us from our competitors and will drive more sustainable revenue growth and provide opportunities for us to ultimately achieve operating margins that exceed industry standards . there are many challenges to successfully executing our strategy . for example , we compete with a number of companies in each of our key end markets . these include companies that are much larger than we are and smaller companies that focus on a particular niche . although we believe we are well-positioned in each of our key end markets and are continuing to differentiate ourselves from our competitors , competition remains intense . additionally , growing and leveraging our components manufacturing services to drive vertical integration and improve our operating margins continues to be challenging due to excess capacity and operational inefficiencies . lastly , revenue from optical customers decreased throughout 2011 and is expected to decrease further in our upcoming quarter , as is revenue from our vertically integrated components operations . revenue from defense and aerospace customers decreased significantly in 2011 , but appears to have stabilized . these revenue decreases create pressure on our operating margins since our vertically integrated components operations typically have a higher contribution margin than our standard ems operations our optical products and defense and aerospace business require a high level of infrastructure . and our defense and aerospace business is typically one of our higher margin businesses . we continue to address these challenges on both a short-term and long-term basis . in late 2008 , the business environment became challenging due to adverse global economic conditions . these conditions slowed global economic growth and resulted in recessions in many locations , including the u.s. , europe and certain countries in asia . these conditions materially and adversely impacted our financial condition and results of operations for 2009. global economic conditions improved throughout 2010 , contributing to a substantial increase in our business volume . as a result of this increase in business volume and the realization of benefits from our previous restructuring actions , our net sales and gross profit increased significantly during 2010 and we had our first profitable year since 2001. in 2011 , our net sales increased 4.5 % and we achieved another profitable year . however , the economic environment continues to be challenging due to high levels of unemployment , concerns about debt levels and possible recessions in certain countries , and other factors . recently , these conditions have resulted in reduced demand for many of our customers ' products , causing these customers to reduce or reschedule their orders with us . additionally , we may experience supply chain constraints in the near term due to the recent floods in thailand . because of these factors , we are cautious as we enter 2012. we have experienced fluctuations in our results of operations in the past and may continue to experience such fluctuations in the future . all references in this section to our operating results pertain only to our continuing operations and all references to years refer to our fiscal years ending on the last saturday of each year closest to september 30th . fiscal 2011 and 2010 are each 36 52 weeks and 2009 was 53 weeks , with the additional week included in the fourth quarter . the additional week in 2009 did not significantly affect our results of operations . a relatively small number of customers have historically generated a significant portion of our net sales . sales to our ten largest customers represented 49.9 % of our net sales for 2011 and 2010 and 48.0 % of our net sales for 2009 . story_separator_special_tag write-offs or write-downs of inventory could relate to : declines in the market value of inventory ; inventory held for specific customers who are experiencing financial difficulty ; and changes in customer demand for inventory , such as cancellation of orders , and our purchases of inventory beyond customer needs that result in excess quantities on hand that we are not able to return to the vendor , use to fulfill orders from other customers or charge back to the customer . our practice is to dispose of excess and obsolete inventory as soon as practicable after such inventory has been identified as having no value to us . property , plant and equipment —we review property , plant and equipment for impairment whenever events or 38 changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable . an asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate . if an asset or asset group is considered impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds its fair value . an asset group is the unit of accounting for a long-lived asset or assets to be held and used , which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . for our standard ems operations , we have determined that each plant is an asset group . for our vertically integrated components operations , we have determined that each individual components plant , together with the other plants with which it is vertically integrated , is an asset group . for asset groups for which a building is the primary asset , we estimate fair value primarily based on data provided by commercial real estate brokers . for other assets , we estimate fair value based on projected discounted future net cash flows . management applies significant judgment in estimating future cash flows . income taxes— we estimate our income tax provision or benefit in each of the jurisdictions in which we operate , including estimating exposures related to examinations by taxing authorities . we believe our accruals for tax liabilities are adequate for all open years , based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter . although we believe our accruals for tax liabilities are adequate , tax regulations are subject to interpretation and the tax controversy process is inherently lengthy and uncertain ; therefore , our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions . to the extent the probable tax outcome of these matters changes , such changes in estimates will impact our income tax provision in the period in which such determination is made . we must also make judgments regarding the realizability of deferred tax assets . the carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets . we evaluate positive and negative evidence each reporting period when assessing the need for a valuation allowance . a valuation allowance is established for deferred tax assets when we believe realization of such assets is not more likely than not . our judgments regarding future taxable income may change due to changes in market conditions , new or modified tax laws , tax planning strategies or other factors . if our assumptions , and consequently our estimates , change in the future , the valuation allowances we have established may be increased or decreased , resulting in a respective increase or decrease in income tax expense . as of october 1 , 2011 , we had a valuation allowance against certain of our deferred tax assets , primarily our u.s. deferred tax assets . the primary reason we have a valuation allowance against our u.s. deferred tax assets is our cumulative u.s. pre-tax book loss over the past three years . this key objective negative evidence is generally difficult to overcome . we believe it is reasonably possible within the next 12 months that all or a portion of our u.s. valuation allowance will be released if u.s. operations continue to generate taxable income . however , the exact timing will be dependent on the levels of income achieved and management 's visibility into future period results . any release of the valuation allowance may result in a decrease in income tax expense or recognition of an income tax benefit . our effective tax rate is highly dependent upon the amount and geographic distribution of our worldwide income or losses , the tax regulations and tax holidays in each geographic region , the utilization of net operating losses , the availability of tax credits and carryforwards , and the effectiveness of our tax planning strategies . we only recognize or continue to recognize tax positions that meet a “ more likely than not ” threshold of being upheld . we recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense . 39 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 0.3 % for 2011 , 0.2 % for 2010 , and 0.3 % for 2009. the increase in absolute dollars from 2010 to 2011 was primarily attributable to investments in new projects in multiple business units . the decrease in absolute dollars from 2009 to 2010 was primarily the result of reduced spending due to the completion of certain projects in 2009. restructuring liabilities for employee severance are recorded when payment of severance is considered probable and the amount is estimable .
| results of operations years ended october 1 , 2011 , october 2 , 2010 and october 3 , 2009 . the following table presents our key operating results . replace_table_token_6_th the following table presents certain statements of operations data expressed as a percentage of net sales . replace_table_token_7_th net sales net sales increased from $ 6.3 billion for 2010 to $ 6.6 billion for 2011 , an increase of 4.5 % . net sales increased from $ 5.2 billion for 2009 to $ 6.3 billion for 2010 , an increase of 22.0 % . sales by end market were as follows : replace_table_token_8_th the increase from 2010 to 2011 in our communications end market is primarily attributable to increased demand from existing customers , both for established programs and new program wins for new technologies introduced by our customers . despite a significant decrease in demand from defense customers resulting primarily from reduced u.s. defense budget spending , sales in our industrial defense and medical end market were relatively flat from 2010 to 2011 due to stronger demand from industrial and medical customers . sales to customers in our enterprise computing and storage end market decreased from 2010 to 2011 as a result of certain customer programs going end-of-life , the effect of which was not completely offset by new programs . sales to customers in our multimedia market decreased from 2010 to 2011 primarily as a result of reduced demand 40 from one program . the increase from 2009 to 2010 across all of our end markets was primarily the result of improved demand from customers under existing programs and new program wins . gross margin gross margin was 7.7 % , 7.6 % and 6.2 % in 2011 , 2010 and 2009 , respectively . the increase from 2010 to 2011 was primarily a result of the profit contribution from increased business volume and improved operational performance in components manufacturing services .
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the shares were issued subject to certain vesting conditions , restrictions on transfer and a company right of repurchase of any unvested share at their original purchase price . these shares are placed in escrow until vested , and have rights to vote and participate in dividends and distributions . the combined grant date intrinsic value for this award was $ 1,704,094 and 7,996,153 of the shares have service and fundraising vesting conditions . under the service vesting condition , shares vest monthly over 48 months , commencing from the first closing of series a convertible preferred stock financing on october 22 , 2012 . 1,599,231 of these shares were subject to performance milestones and fundraising vesting conditions . the fundraising vesting conditions for all shares were satisfied as story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated and combined financial statements and related notes included elsewhere in this annual report . this discussion and other parts of this annual report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biopharmaceutical company focused on developing novel therapeutics for serious unmet medical needs , with an initial focus on muscle wasting conditions and oncology . our product candidates are biologics targeting myostatin and activin , members of the tgf-ß protein superfamily , which play roles in the growth and maintenance of muscle and many other body tissues . our lead product candidate , pinta 745 , is in a phase 2 clinical trial for pew in esrd patients . our second product candidate is stm 434. we commenced a phase 1 clinical study of stm 434 for ovarian cancer and other solid tumors in 2014. we have five additional product candidates targeting the tgf-ß pathway in preclinical development . in addition , we have an exclusive option to license certain t-cell programs from msk . we intend to license or acquire additional product candidates to develop and commercialize . our current product candidate portfolio was acquired through licensing arrangements with amgen in exchange for convertible preferred stock and future milestone payments and royalties . through these arrangements , we obtained licenses to patent rights and the ability to use certain proprietary know-how to develop and commercialize a portfolio of seven product candidates . the arrangement did not provide for the acquisition of employees , facilities or ongoing services . we are responsible for obtaining all regulatory approvals and developing commercial scale manufacturing processes to enable eventual commercialization of these product candidates . under the terms of these agreements , we made an upfront payment of $ 250,000 and issued 615,384 shares of series a-1 convertible preferred stock on a combined basis to amgen . we are also required to make additional payments of up to $ 86.0 million to amgen based upon the achievement of certain development and regulatory approval milestones , as well as additional payments based on achievement of commercial milestones and future net sales of products resulting from development of these product candidates , if any . of the $ 86.0 million , $ 14.0 million in potential payments relate to milestones for clinical trials . we have only a limited operating history . since our inception in 2012 , we have devoted substantially all of our resources to identify , acquire and develop our product candidates , including conducting preclinical and clinical studies and providing general and administrative support for these operations . in october 2014 , we completed our initial public offering of 5,750,000 shares of common stock at an offering price to the public of $ 11.00 per share . we received net proceeds of approximately $ 56.5 million , after deducting underwriting discounts and commissions and offering expenses . in connection with our initial public offering , our shares of convertible preferred stock were automatically converted into 12,298,515 shares of common stock , resulting in the reclassification of $ 74.6 million from mezzanine equity to additional paid-in capital in the fourth quarter of 2014. in february 2015 , we completed a follow-on public offering of 4,147,358 share of common stock at an offering price of $ 18.00 per share . we received net proceeds of approximately $ 69.4 million after deducting underwriting discounts and commissions and offering expenses . we have never generated revenues and have incurred net losses since inception . our net losses were $ 28.0 million , $ 8.8 million and $ 4.1 million for the years ended december 31 , 2014 and 2013 and the period from august 22 , 2012 ( inception ) to december 31 , 2012. as of december 31 , 2014 , we had an accumulated deficit of $ 40.9 million . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations . our cash and cash equivalents and short-term investment balances at december 31 , 2014 totaled $ 104.1 million , which we intend to use to fund our operations . 73 financial overview basis of presentation and recapitalization atara , nina , pinta and santa maria were incorporated in august 2012. atara was formed as a management company with the sole purpose of providing management , financial and administrative services for nina , pinta and santa maria . story_separator_special_tag as the licensed compounds are at an early stage of development and the underlying technology has no alternative future uses , the total consideration was expensed in 2012. general and administrative expenses general and administrative expenses consist primarily of personnel costs , allocated facilities costs and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs consist of salaries , benefits and stock-based compensation . we anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates . we also anticipate increased expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with nasdaq listing and sec requirements , director and officer insurance premiums and investor relations costs associated with being a public company . interest income interest income consists of interest earned on our cash , cash equivalents and marketable securities as well as interest on notes receivable issued to one of our employees related to the purchase of restricted common stock . critical accounting policies and significant judgments and estimates this discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with gaap . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 75 accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate and accrue expenses , the largest of which is related to accrued research and development expenses . this process involves reviewing contracts and purchase orders , 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 costs . costs for preclinical study and clinical trial activities are recognized based on an evaluation of our vendors ' progress towards completion of specific tasks , using data such as patient enrollment , clinical site activations or information provided to us by our vendors regarding their actual costs incurred . payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed . we determine accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of trials , or the services completed . our estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time . for the years ended december 31 , 2014 and 2013 and the period from august 22 , 2012 ( inception ) to december 31 , 2012 , there have been no material changes to our estimates of accrued research and development expenses . costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided . estimated fair value of series a-1 convertible preferred stock in consideration for the licenses of our product candidate portfolio , we issued 615,384 shares of series a-1 convertible preferred stock and paid $ 250,000 to amgen . we estimated the fair value of our series a-1 preferred stock to be $ 2.8 million by using the option pricing model ( “ opm ” ) backsolve method . opm treats the rights of the holders of shares of preferred and common stock as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of preferred stock , as well as their rights to participation and conversion . thus , the estimated value of the series a-1 convertible preferred stock can be determined by estimating the value of its portion of each of these call option rights . the opm backsolve method derives the implied equity value of a company from a recent transaction involving the company 's own securities issued on an arm's-length basis . this implied equity value was then allocated to each part of our capital structure , including our series a-1 convertible preferred stock and common stock . significant assumptions used at the time of valuation included an estimated volatility of 53.3 % , a risk free interest rate of 0.28 % and time to a liquidity event of 2.25 years . stock-based compensation we account for stock-based compensation expense , including the expense of restricted common stock awards and grants of restricted stock units ( “ rsus ” ) and stock options that may be settled in shares of our common stock , based on the fair values of the equity instruments issued . the fair value is determined on the measurement date , which is generally the date of grant for employee awards and the date when the service performance is completed for non-employees . the fair value for our restricted common stock awards is their intrinsic value , which is the difference between the fair value of the underlying stock at the measurement date and the purchase price . the fair value of our rsus is the fair value of the underlying stock at the measurement date .
| results of operations comparison of the years ended december 31 , 2014 , 2013 and comparison of the period from august 22 , 2012 ( inception ) to december 31 , 2012 research and development expenses replace_table_token_4_th research and development expenses increased during the years ended december 31 , 2014 , 2013 and the period from august 22 , 2012 ( inception ) to december 31 , 2012 consisted of the following costs by program : replace_table_token_5_th pinta 745 costs increased by $ 0.7 million in 2014 as compared to 2013 due primarily to a $ 0.9 million increase in outsourced development and third party costs to support the phase 2 clinical trial that commenced during the fourth quarter of 2013. this increase was partially offset by a $ 0.2 million decrease in outside consultant costs incurred in 2014 as compared to 2013 . 78 pinta 745 costs increased by $ 1.6 million in 2013 as compared to 2012 primarily due to a $ 0.4 million increase in outside consultants ' costs and $ 0.7 million of direct costs to support the phase 2 clinical trial that commenced during the fourth quarter of 2013. in addition , in 2013 and as part of our licenses with amgen , we purchased clinical drug and placebo supplies for $ 0.6 million , which we will use in our phase 2 trial . in the future , we anticipate that costs related to the future clinical drug supply will increase as we contract with a third party supplier to manufacture these materials .
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1 for which the accounting under asc 740 is complete . to the story_separator_special_tag the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ substantially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under “ risk factors ” and elsewhere in this report . the following discussion should be read together with our consolidated financial statements and the related notes included elsewhere in this report . 31 overview we are a fabless semiconductor company that designs , develops and markets static random access memories , or srams , that operate at speeds of less than 10 nanoseconds , which we refer to as very fast srams , and low latency dynamic random access memories , or lldrams , primarily for the networking and telecommunications markets . we are subject to the highly cyclical nature of the semiconductor industry , which has experienced significant fluctuations , often in connection with fluctuations in demand for the products in which semiconductor devices are used . our revenues have been substantially impacted by significant fluctuations in sales to our largest customer , nokia . we expect that future direct and indirect sales to nokia will continue to fluctuate significantly on a quarterly basis . the networking and telecommunications market has accounted for a significant portion of our net revenues in the past and has declined during the past several years and is expected to continue to decline . however , with no debt , substantial liquidity and a history of positive cash flows from operations , we believe we are in a better financial position than many other companies of our size . revenues . our revenues are derived primarily from sales of our very fast sram products . sales to networking and telecommunications oems accounted for 55 % to 66 % of our net revenues during our last three fiscal years . we also sell our products to oems that manufacture products for military and aerospace applications such as radar and guidance systems , missiles and satellites , for professional audio applications such as sound mixing systems , for test and measurement applications such as high-speed testers , for automotive applications such as smart cruise control and voice recognition systems , and for medical applications such as ultrasound and cat scan equipment . as is typical in the semiconductor industry , the selling prices of our products generally decline over the life of the product . our ability to increase net revenues , therefore , is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higher average selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products . although we expect the average selling prices of individual products to decline over time , we believe that , over the next several quarters , our overall average selling prices will increase due to a continuing shift in product mix to a higher percentage of higher price , higher density products . our ability to increase unit sales volumes is dependent primarily upon increases in customer demand but , particularly in periods of increasing demand , can also be affected by our ability to increase production through the availability of increased wafer fabrication capacity from tsmc and powerchip , our wafer suppliers , and our ability to increase the number of good integrated circuit die produced from each wafer through die size reductions and yield enhancement activities . we may experience fluctuations in quarterly net revenues for a number of reasons . historically , orders on hand at the beginning of each quarter are insufficient to meet our revenue objectives for that quarter and are generally cancelable up to 30 days prior to scheduled delivery . accordingly , we depend on obtaining and shipping orders in the same quarter to achieve our revenue objectives . in addition , the timing of product releases , purchase orders and product availability could result in significant product shipments at the end of a quarter . failure to ship these products by the end of the quarter may adversely affect our operating results . furthermore , our customers may delay scheduled delivery dates and or cancel orders within specified timeframes without significant penalty . we sell our products through our direct sales force , international and domestic sales representatives and distributors . sales to consignment warehouses , who purchase products from us for use by contract manufacturers , are recorded upon delivery to the contract manufacturer . sales to certain distributors were previously made under agreements allowing for returns or credits under certain circumstances . we therefore deferred recognition of revenue on sales to those distributors under these terms until products were resold by the distributor . during fiscal 2018 , we revised our distribution agreements to these distributors to eliminate ship from stock and debits and price protection . under these revised distribution agreements , selling prices are now fixed and determinable on the date of shipment and revenue is recognized upon shipment . under these revised distribution agreements , we recognized additional 32 revenue of $ 2.0 million in fiscal 2018 on the dates that the distribution agreements were revised for product held by our distributors as the price became fixed and determinable . historically , a small number of oem customers have accounted for a substantial portion of our net revenues , and we expect that significant customer concentration will continue for the foreseeable future . many of our oems use contract manufacturers to manufacture their equipment . accordingly , a significant percentage of our net revenues is derived from sales to these contract manufacturers and to consignment warehouses . in addition , a significant portion of our sales are made to foreign and domestic distributors who resell our products to oems , as well as their contract manufacturers . direct sales to contract manufacturers and consignment warehouses accounted for 34.9 % , 39.0 % and 37.6 story_separator_special_tag the results of operations of mikamonu and the estimated fair value of the assets acquired were included in our consolidated financial statements beginning november 23 , 2015. under the terms of the acquisition agreement , we paid the former mikamonu shareholders initial cash consideration of approximately $ 4.4 million at the closing on november 23 , 2015. in addition , $ 484,000 was deposited in escrow to provide a fund for potential future indemnification claims by us . the majority of this escrow deposit , or $ 479,000 , was paid to the former mikamonu shareholders in may 2017. we are also required to pay the former mikamonu shareholders future contingent consideration consisting of retention payments and “ earnout ” payments , as described below . we will make cash retention payments of up to an additional $ 2.5 million to the three former mikamonu shareholders in installments over a four-year period , conditioned on the continued employment of dr. avidan akerib , mikamonu 's co-founder and chief technologist . the retention amount of $ 2.5 million has been deposited in escrow . of this amount , $ 750,000 is included in prepaid expenses and other current assets , $ 1,000,000 is included in 34 other assets on the consolidated balance sheet at march 31 , 2018 and $ 743,000 was paid to the former mikamonu shareholders during the quarter ended december 31 , 2017. we will also make “ earnout ” payments to the former mikamonu shareholders in cash or shares of our common stock , at our discretion , during a period of up to ten years following the closing if certain product development milestones and revenue targets for products based on the mikamonu technology are achieved . earnout amounts of $ 750,000 are payable at march 31 , 2018 based on the achievement of certain product development milestones and are included in accrued expenses and other liabilities on the consolidated balance sheet at march 31 , 2018. additional earnout amounts of $ 2,750,000 and $ 4,000,000 will be payable if certain revenue milestones are achieved by january 1 , 2021 and january 1 , 2022 , respectively ; and additional payments , up to a maximum of $ 30 million , equal to 5 % of net revenues from the sale of qualifying products in excess of certain thresholds , will be made quarterly through december 31 , 2025. the portion of the retention payment contingently payable to dr. akerib ( approximately $ 1.2 million ) will be recorded as compensation expense over the period that his services are provided to us . the portion of the retention payment contingently payable to the other former mikamonu shareholders ( approximately $ 1.3 million ) plus the maximum amount of the potential earnout payments totals approximately $ 38.8 million . we determined that the fair value of this contingent consideration liability was $ 5.8 million at the acquisition date . the contingent consideration liability is included in other accrued expenses on the consolidated balance sheet at march 31 , 2017 and 2018 in the amount of $ 5.1 million and $ 4.4 million , respectively , and is included in accrued expenses and other liabilities at march 31 , 2017 and 2018 in the amount of $ 1.1 million . the fair value of the contingent consideration liability was determined as of the acquisition date using unobservable inputs . these inputs include the estimated amount and timing of future revenues , the probability of success ( achievement of the various contingent events ) and a risk-adjusted discount rate of approximately 14.8 % used to adjust the probability-weighted cash flows to their present value . subsequent to the acquisition date , at each reporting period , the contingent consideration liability will be re-measured at then current fair value with changes recorded in the consolidated statement of operations . changes in any of the inputs may result in significant adjustments to the recorded fair value . re-measurement of the contingent consideration liability at march 31 , 2018 resulted in a reduction of the contingent consideration liability of $ 466,000 due to increased discount rates . acquisition-related costs of approximately $ 426,000 are included in selling , general and administrative expenses in the consolidated statements of operations for the fiscal year ended march 31 , 2016. the allocation of the purchase price to acquired identifiable intangible assets and goodwill was based on their estimated fair values at the date of acquisition . the fair value allocated to patents was $ 3.5 million and the residual value allocated to goodwill was $ 8.0 million . 35 story_separator_special_tag were $ 0 and $ 71,000 in the years ended march 31 , 2018 and 2017 , respectively . net loss . net loss increased from $ 115,000 in fiscal 2017 to $ 4.5 million in fiscal 2018. this increase was primarily due to the changes in net revenues , gross profit and operating expenses discussed above . fiscal year ended march 31 , 2017 compared to fiscal year ended march 31 , 2016 net revenues . net revenues decreased by 8.6 % from $ 52.7 million in fiscal 2016 to $ 48.2 million in fiscal 2017. the reduction reflected the continuing weakness in the global networking and telecommunications markets and , in particular , continued weakness in asia . direct and indirect sales to nokia , currently our largest customer , increased by $ 2.7 million from $ 17.1 million in fiscal 2016 to $ 19.8 million fiscal 2017 , reflecting increased demand for its systems that incorporate our products . however , direct and indirect sales to cisco systems , historically our largest customer , decreased by $ 200,000 from $ 4.5 million in fiscal 2016 to $ 4.3 million in fiscal 2017 due to softness in the market for its switches and routers that incorporate our products .
| results of operations the following table sets forth statement of operations data as a percentage of net revenues for the periods indicated : replace_table_token_5_th fiscal year ended march 31 , 2018 compared to fiscal year ended march 31 , 2017 net revenues . net revenues decreased by 11.5 % from $ 48.2 million in fiscal 2017 to $ 42.6 million in fiscal 2018. the decrease in net revenues was primarily the result of a 19.9 % decline i n total units shipped in fiscal 2018 compared to fiscal 2017 that was partially offset by an increase of 4.4 % in the overall average selling price of all units shipped in fiscal 2018 compared to fiscal 2017. the increase in the average selling price was due to a change in product mix , as we sold more higher density , higher average selling price product in fiscal 2018. the reduction in net revenues reflected the continuing weakness in the global networking and telecommunications markets and , in particular , continued weakness in asia . the networking and telecommunications markets represented 55 % of shipments in fiscal 2018 compared to 66 % in fiscal 2017. the decline in networking and telecommunications shipments has been partially offset by an increase in shipments to our military market which represented 25 % of shipments in fiscal 2018 compared to 17 % of shipments in fiscal 2017. during fiscal 2018 we revised our distribution agreements to eliminate ship from stock and debits and price protection . under these revised distribution agreements , we recognized additional revenue of $ 2.0 million in fiscal 2018 on the dates that the distribution agreements were revised for product held by our distributors as the price became fixed and determinable .
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md & a is organized as follows : > overview : this section provides a general description of our business , as well as recent developments we believe are important in understanding our results of operations and financial condition or in understanding anticipated future trends . > outlook : this section provides a discussion of management 's general outlook about market demand , our competitive position and product development . > separation from former parent : this section provides a general discussion of our separation from our former parent . > basis of presentation : this section provides a discussion of the basis on which our consolidated financial statements were prepared , including our historical results of operations and adjustments thereto , primarily related to allocations of general corporate expenses from our former parent . > results of operations : this section provides an analysis of our results of operations for the three years ended december 31 , 2011 , 2010 and 2009 . > liquidity and capital resources : this section provides a discussion of our financial condition and an analysis of our cash flows for the three years ended december 31 , 2011 , 2010 and 2009. this section also provides a discussion of our contractual obligations , other purchase commitments and customer credit risk that existed at december 31 , 2011 , as well as a discussion of our ability to fund our future commitments and ongoing operating activities through internal and external sources of capital . > critical accounting policies : this section identifies and summarizes those accounting policies that significantly impact our reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application . > quantitative and qualitative disclosures about market risk : this section discusses how we monitor and manage exposure to potential gains and losses associated with changes in interest rates , foreign currency exchange rates and commodity prices . overview the company is a leader in home and security products focused on the design , manufacture and sale of market leading branded products in the following categories : kitchen and bath cabinetry , plumbing and accessories , advanced material windows products and entry door systems , and security and storage products . for the year ended december 31 , 2011 , net sales based on country of destination were : replace_table_token_6_th 25 consumer confidence , general economic conditions , existing home sales , new home sales , home prices and credit availability significantly influence demand for our products . during 2008 and 2009 , the u.s. home products market declined substantially due to the u.s. recession , resulting in a decrease in home sales and a contraction in new home construction . as a result , our sales and operating income declined substantially , and we implemented initiatives to reduce costs and streamline our supply chains by reducing manufacturing facilities and headcount by approximately 40 % . during 2010 and 2011 , market conditions stabilized and our sales increased as a result of growth with new and existing customers . in 2010 , our operating income increased significantly compared to 2009 due to favorable operating leverage on higher sales , the benefit of reduced cost structures , and lower restructuring and other charges . in 2011 , operating income decreased , primarily due to asset impairment charges , recognition of defined benefit plan actuarial losses , increased raw material and transportation costs , higher restructuring and other charges , and cabinet promotional activity . outlook we expect that a u.s. home products market recovery from the current low levels will be gradual and uneven . the recovery of the u.s. home products market will largely depend on consumer confidence , employment , home prices and credit availability . over the long term , we believe that the u.s. home products market will benefit from favorable population and immigration trends , which will drive demand for new housing units , and from aging existing housing stock that will continue to need to be repaired and remodeled . we remain focused on our initiatives designed to outperform our markets . we believe our strong brand positions , consumer focused innovation , flexible and efficient supply chains , and excellent customer service will position our business to perform well in the marketplace . however , we expect that near term results will continue to be challenging as consumers remain cautious . in addition , we expect costs may be higher for raw materials and transportation , a consumer preference for lower-priced valued oriented products will persist , and a heavy promotional environment for large ticket discretionary purchases such as kitchen cabinets will continue through 2012 but remain at about the same level as we experienced in 2011. we strive to offset the unfavorable impact of these items with productivity initiatives and price increases . separation from former parent on september 27 , 2011 , the board of directors of our former parent approved the separation . the separation was accomplished by increasing the total number of issued and outstanding shares of home & security common stock such that 155,052,629 shares of home & security common stock were available for distribution to holders of common stock of our former parent . in accordance with the separation and distribution agreement between our former parent and the company , the distribution of home & security common stock was made on october 3 , 2011 , with our former parent stockholders receiving one share of home & security common stock for each share of former parent common stock held as of 6:00 p.m. new york city time on september 20 , 2011. in addition , we paid a dividend of $ 548.9 million to our former parent prior to the separation on october 3 , 2011 and made a payment of $ 6.0 million to our former parent on january 3 , 2012. following the separation , our former parent changed its name to beam inc. and retained no ownership interest in home & security . story_separator_special_tag our revenue and profit margin expectations were lowered based upon the results of our annual planning process that was completed in the fourth quarter and included consideration of our actual fourth quarter 2011 results , including lower 2011 sales due to the expiration of u.s. tax incentives for purchases of energy-efficient home products , as well as our projection of the recovery of the u.s. home products market , > restructuring and other charges of $ 20.0 million before tax ( $ 12.5 million after tax ) associated with cabinet and window manufacturing facility closures , 28 > business separation costs of $ 2.4 million and > the impact of foreign exchange , which had a favorable impact compared to 2010 , of approximately $ 20 million on net sales , approximately $ 5 million on operating income and approximately $ 1 million on net income . the effects of foreign exchange on the company 's results are principally associated with movements in the canadian dollar and the euro . in 2010 , financial results included : > restructuring and other charges of $ 12.5 million before tax ( $ 8.5 million after tax ) associated with product line integration and facility consolidations and > the impact of foreign exchange , which had a favorable impact compared to 2009 , of approximately $ 40 million on net sales , approximately $ 15 million on operating income and approximately $ 10 million on net income . the effects of foreign exchange on the company 's results are principally associated with movements in the canadian dollar and the euro . in 2009 , financial results included : > restructuring and other charges of $ 52.0 million before tax ( $ 27.5 million after tax ) associated with supply chain realignment and capacity and cost reduction initiatives , including the announced closure of seven u.s. manufacturing facilities , as well as workforce reductions . 2011 compared to 2010 total home & security net sales net sales increased $ 95.1 million , or 3 % , to $ 3,328.6 million . the increase was primarily due to expanding relationships with key customers , new product introductions , the impact of price increases to help mitigate raw material and transportation cost increases , and an approximately $ 20 million impact of favorable foreign currency . these increases were partially offset by weaker market conditions , including the impact of expiring governmental tax incentives in the u.s. and canada in 2010 , and higher promotional spending . cost of products sold cost of products sold increased $ 155.0 million , or 7 % , primarily due to recognition of actuarial losses related to defined benefit plans ( a $ 41.0 million loss in 2011 compared to a $ 2.5 million gain in 2010 ) , higher sales , increased raw material costs ( mainly for brass , steel , wood and resins ) and costs to support new product introductions . the increase was partially offset by the benefit of productivity initiatives . selling , general and administrative expenses selling , general and administrative expenses increased $ 66.3 million , or 8 % , primarily due to recognition of actuarial losses related to defined benefit plans ( a $ 39.0 million loss in 2011 compared to a $ 1.0 million gain in 2010 ) , planned increases in strategic spending to support growth initiatives and new product introductions , as well as higher transportation costs . these increases were partially offset by a lower allocation of general administrative expenses from our former parent and other expense reductions . in addition , expense comparisons were unfavorably impacted by the 2010 favorable resolution of litigation ( approximately $ 8 million ) . 29 amortization of intangible assets amortization of intangible assets decreased $ 1.3 million due to a customer relationship intangible that was fully amortized in the third quarter of 2010. restructuring charges restructuring charges were $ 4.7 million and $ 8.0 million in the year ended december 31 , 2011 and 2010 , respectively . the 2011 charges related to cabinet and window manufacturing facility closures . asset impairment charges in the fourth quarter of 2011 , we recorded asset impairment charges of $ 90.0 million ( $ 55.3 million after tax ) related to indefinite-lived tradenames in the advanced material windows & door systems segment . these charges were primarily the result of reduced revenue growth and profit margin expectations associated with our simonton tradename over the next two to three years . our revenue and profit margin expectations were lowered based upon the results of our annual planning process that was completed in the fourth quarter and included consideration of our actual fourth quarter 2011 results , including lower 2011 sales due to the expiration of u.s. tax incentives for purchases of energy-efficient home products , as well as our projection of the recovery of the u.s. home products market . we did not record asset impairment charges in 2010. business separation costs we recorded $ 2.4 million of business separation costs during the year ended december 31 , 2011 related to non-cash non-recurring costs associated with the modification of outstanding share-based compensation awards as a result of the separation . operating ( loss ) income operating ( loss ) income decreased $ 214.0 million , to a loss of $ 15.6 million , primarily due to asset impairment charges of $ 90.0 million , recognition of actuarial losses related to defined benefit plans ( $ 80.0 million ) , and higher raw material and transportation costs ( approximately $ 75 million ) . operating income also decreased due to higher promotional spending and business separation costs , and an unfavorable comparison to the 2010 favorable resolution of litigation ( approximately $ 8 million ) . operating income benefited from higher sales , price increases and productivity initiatives .
| results by segment kitchen & bath cabinetry net sales increased $ 63.1 million , or 6 % , on higher sales volume due to new business wins and new product introductions , as well as approximately $ 20 million of favorable foreign exchange . net sales were unfavorably impacted by a further decline in the market due to continued pressure on big-ticket remodeling , as well as an approximately $ 9 million impact of one less shipping week in 2010. operating income increased $ 53.3 million to $ 28.2 million , primarily due to higher net sales and related favorable operating leverage , as well as lower restructuring and other charges ( $ 26.8 million ) and the benefit of cost reduction initiatives . operating income was unfavorably impacted by strategic investments to drive growth , as well as higher raw material and transportation costs . plumbing & accessories net sales increased $ 88.8 million , or 11 % , primarily on higher volume due to expanded customer penetration , new product introductions and international growth , as well as customer inventory replenishment as market conditions stabilized . in addition , foreign exchange had a favorable impact of approximately $ 15 million . operating income increased $ 18.3 million , or 16 % , primarily due to higher sales and the related favorable operating leverage , the impact of cost reduction projects , favorable foreign exchange ( approximately $ 10 million ) and lower restructuring and other charges ( $ 3.0 million ) . these benefits were significantly offset by higher raw material costs ( primarily brass , zinc and steel ) , increased transportation costs , unfavorable product mix and higher advertising and promotional expenses . advanced material windows & door systems net sales increased $ 49.9 million , or 9 % , on higher sales volume across product categories and favorable mix of products in entry doors .
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our actual results may differ materially from those anticipated in these forward-looking statements . overview we are located near austin , texas . we were formed to develop and commercialize our ppsa technology , which improves the performance , size , weight and manufacturing cost of electronic power converters for several large vertical markets . we were founded on may 17 , 2007. to date , our operations have been funded through the sale of our common stock and convertible debt , through u.s. department of energy grants and , to a lesser extent , through technology licensing revenue . our total revenue generated from inception to date as of december 31 , 2013 is $ 4,283,102 , with the majority of that revenue coming from government grants and engineering fees . we have successfully applied these revenues to research and product development , reducing our capital requirements . we will continue to pursue research and development grants , where available , for the purpose of performing the necessary research and development of our products . we can make no assurances that additional grants will be available in the future . 27 we have completed development and industry certification of our first two products , a 30kw pv inverter and a 30kw battery converter , both using the same universal power converter hardware design with different embedded software . we are currently developing our third product , which is a 30kw 3-port hybrid converter . these are products that we plan to use to promote long term licensing opportunities for the company . as a result , we believe the revenue from our early product sales is not the most important metric of our growing success . we believe the quality and the level of interest from prospective customers and potential licensees is the most important metric , although we can not provide any assurance that such prospective customers and potential licensees will materialize for us . we are currently focused on three vertical markets pv inverters , distributed grid energy storage , and ev dc charging . the pv inverter market is the largest and most mature , but it is also in a hypercompetitive state with slow growth and an increasing number of suppliers . our initial pv inverter product was developed as the first implementation of ppsa in order to validate our technology . we continue to leverage the pv inverter market for valuable product refinement feedback , including feature and performance requirements as well as improving the quality and robustness of our product designs . we plan to integrate our proven pv inverter functionality with grid energy storage and or dc charging functionality to create high value hybrid and micro-grid systems . the distributed grid energy storage market is an evolving market . we believe that this market will grow quickly , but is currently limited by the lack of commercially available , certified solutions . we believe our battery converter is highly competitive in this market . we have achieved several design wins with customers that we believe can generate product sales and may be converted to licensing agreements longer term . most of our initial battery converter sales have been made to potential customers as they evaluate our converters for possible integration into their commercial grid energy storage market products . we believe our ability to negotiate attractive licensing terms would improve if high market demand is established for our products . we believe the ev dc charging market is an attractive market . our approach to this market offers features to reduce installation costs , operational costs , and create new value-added capabilities . similar to the distributed grid energy storage market , we are working with several customers to achieve design wins and help them integrate our product into their solutions . our initial focus is on the california ev dc charging market , and we believe we can establish design wins and ecosystem relationships in this space . we are also developing next generation products , including our 3-port hybrid converter , micro-grid converter , and new power switch components that we believe will further extend the differentiation and value of our products . we developed a new 3-port hardware design that will be used for both products , although we expect to make some incremental hardware design improvements based on initial hardware testing . our next step will be to develop enhanced embedded control software for these products . when that step is complete , we plan to sell sample products to early customers , and then make incremental hardware and software improvements based on feedback from them . after these improvements are implemented , we expect to work with intertek on industry certification , including ul1741 compliance . as discussed below , the development of new power switch components is being funded by the u.s. department of energy 's $ 2.5 million arpa-e grant . we believe the department of energy grant will be sufficient to prove this technology 's capability and build a prototype ppsa product with these switches . after the bi-directional power switch technology is proven , we plan to redesign our growing number of products to use these new components . plan of operation our strategy is to continue to commercialize our technology though the development of a variety of products and licensing . we have completed development of our first two products , we are developing additional products and , based on customer feedback from system installations , we will continue to improve our products . our goal is to have these products validate our technology and lay the foundation for licensing our technology platform into applications across the global power converter marketplace . story_separator_special_tag we use the proportional-performance method when a service contract specifies a number of acts to be performed and we have the ability to determine the pattern and value in which service is provided to the customer . the company was awarded a grant from arpa-e on january 30 , 2012. the purpose of the grant is to perform research and development on components that may improve the efficiency of the company 's technology . arpa-e 's share of the research and development project is $ 2.5 million out of a total approximate $ 2.8 million cost of the project . the company works with arpa-e 's program manager to agree upon the specifications and work plans for the grant . the company then directs all the work to be performed by arpa-e approved subcontractors , which historically have been universities but may include commercial subcontractors . upon completion of the work , the company submits to arpa-e for payment of ninety percent of the costs incurred by the company . this has historically been done on a quarterly basis , but it may be as frequently as monthly . the company bears responsibility for the remaining ten percent of the total costs incurred by the company under the agreed work plans , which amount is included ( less any costs that the applicable subcontractor has agreed to share ) in our cost of revenues . all invoices are supported with copies of expenses and invoices that the company has received from arpa-e approved subcontractors . notwithstanding the foregoing , the company is the primary obligor of all the costs incurred under the work plans for the grant , except for any costs that the applicable subcontractor has agreed to share . the agreement with arpa-e establishes go/no go milestones and deliverables . for each go/no go milestone and deliverable , the arpa-e program director must review the company 's work under the previously agreed work plan , confirm in writing that the company has achieved the go/no go milestone and deliverable , and authorize the company to commence work on the next milestone and deliverable under a corresponding next work plan . if the project were to stop due to an arpa-e determination that a milestone or deliverable had not been met , then the company would not submit to arpa-e for payment any further invoices ( except for costs incurred under the previously agreed work plan ) . the payment conditions of the $ 150,000 phase i sbir grant that we received are substantially similar to those of the arpa-e grant , except that in the case of the sbir grant , the company receives payment from sbir of one hundred percent of the costs incurred by the company under the agreed work plans . nevertheless , the company is the primary obligor of all the costs incurred under the agreed work plans for the sbir grant . revenues from government grants are recognized in accordance with the provisions of sab no . 104 in the period during which the related costs are incurred , provided that the company has incurred the costs in accordance with the specifications and work plans for the applicable grant . expenses included in cost of revenues are directly related to research and development activities performed by our subcontractors in order to fulfill the specifications and work plans for the applicable grant . there are no contingencies or ongoing obligations of the company related to these grant arrangements , other than the obligation of the company to submit to the applicable government entity invoices for costs incurred by the company under the agreed work plans for the applicable grant . under no circumstances is the company required to repay monies that it receives under any of its government grants , provided that the company receives no more than the government 's agreed share of the total cost of the project and , with respect to the arpa-e grant , provided that the company meets its obligation to cover its share of costs as described above . costs incurred related to the grants are recorded as grant research and development costs . the company believes that recognizing the government grants as revenues is a better reflection of the economics of the arrangements as ( i ) there are no contingencies or ongoing obligations of the company associated with its receipt of or right to retain the funds that it receives under its grants , ( ii ) the company is the primary obligor of all the costs incurred under the work plans for the grants , and ( iii ) the company has full discretion on the use of the monies that it receives under the grants . in addition , the company earns the grant funding through the performance of research and development activities , which is one of the company 's 30 primary business activities . the company also believes that this presentation provides transparency to users of the company 's financial statements of the business activities associated with these grants , specifically , grant revenues and grant costs . royalty income is recognized as earned based on the terms of the contractual agreements , and has no direct costs . research and development . grant research and development are costs incurred solely related to grant revenues , and are classified as a line item under cost of revenues . other research and development costs are presented as a line item under operating expenses and are expensed as incurred . patents . the company capitalizes legal costs and filing fees associated with obtaining patents on its new inventions . once the patents have been issued , the company amortizes these costs over the shorter of the legal life of the patent ( generally a maximum of 20 years ) or its estimated economic life using the straight-line method . income taxes .
| results of operations comparison of the year ended december 31 , 2013 to the year ended december 31 , 2012 revenues . revenues for the year ended december 31 , 2013 of $ 1,892,424 were $ 765,517 , or 68 % , higher than the $ 1,126,907 we earned in revenues for the year ended december 31 , 2012. the increase in revenue was due to a $ 667,599 increase in grant revenues and a $ 97,918 increase in the sale of products and services . total grant revenues for the year ended december 31 , 2013 were $ 1,374,956 , including $ 1,229,036 from the arpa-e grant and $ 145,920 from a department of energy sbir grant , as compared to grant revenues for the year ended december 31 , 2012 of $ 707,357 , including $ 693,938 from the arpa-e grant and $ 13,419 from other grants . revenues related to the arpa-e grant increased because the project was fully underway for the full year ended december 31 , 2013. in the year ended december 31 , 2013 , revenue from the sale of our products was $ 417,468. in the year ended december 31 , 2012 , revenue from the sale of products and services was $ 319,550 , of which $ 265,650 was from the sale of our products and $ 53,900 was for engineering services . revenues from royalties from lockheed martin corporation for both years were $ 100,000. cost of revenues . as a result of the increase in grant research and development costs and the cost of sales of our products , cost of revenues increased for the year ended december 31 , 2013 , to $ 2,146,973 from $ 1,123,864 for the year ended december 31 , 2012 , which is an increase of $ 1,023,109 , or approximately 91 % .
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these agencies approve natural gas rates designed to provide us the opportunity to generate revenues to recover the cost of natural gas delivered to our customers and our fixed and variable costs such as depreciation , interest , maintenance and overhead costs , and to earn a reasonable return for our shareholders . with the exception of atlanta gas light , our largest utility , the earnings of our regulated utilities can be affected by customer consumption patterns that are a function of weather conditions , price levels for natural gas and general economic conditions that may impact our customers ' ability to pay for gas consumed . various mechanisms exist that limit our exposure to weather changes within typical ranges in all of our jurisdictions . our retail energy operations segment , which consists of southstar , also is weather sensitive and uses a variety of hedging strategies , such as weather derivative instruments and other risk management tools , to mitigate potential weather impacts . our sequent subsidiary within our wholesale services segment is temperature insensitive , but generally has greater opportunity to capture operating margin due to price volatility as a result of extreme weather . our energy investments segment 's primary activity is our natural gas storage business , which develops , acquires and operates high-deliverability salt-dome storage assets in the gulf coast region of the united states . while this business also can generate additional revenue during times of peak market demand for natural gas storage services , the majority of our storage services are covered under medium to long-term contracts at a fixed market rate . story_separator_special_tag result , our reported earnings for the wholesale services and retail energy operations segments reflect changes in the fair values of certain derivatives . these values may change significantly from period to period and are reflected as gains or losses within our operating revenues or our oci for those derivative instruments that qualify and are designated as accounting hedges . the net losses on weather hedges during 2009 at retail energy operations were more than offset by corresponding increases in operating margin due to colder weather the hedges were designed to protect against . elizabethtown gas utilizes certain financial derivatives in accordance with a directive from the new jersey bpu to create a hedging program to hedge the impact of market fluctuations in natural gas prices . these derivative products are accounted for at fair value each reporting period . in accordance with regulatory requirements , realized gains and losses related to these financial derivatives are reflected in deferred natural gas costs and ultimately included in billings to customers . unrealized gains and losses are reflected as a regulatory asset or liability , as appropriate , in our consolidated statements of financial position . seasonality the operating revenues and ebit of our distribution operations , retail energy operations and wholesale services segments are seasonal . during the heating season , natural gas usage and operating revenues are generally higher because more customers are connected to our distribution systems and natural gas usage is higher in periods of colder weather than in periods of warmer weather . occasionally in the summer , sequent 's operating revenues are impacted due to peak usage by power generators in response to summer energy demands . seasonality also affects the comparison of certain statements of financial position items such as receivables , unbilled revenue , inventories and short-term debt across quarters . however , these items are comparable when reviewing our annual results . approximately 70 % of these segments ' operating revenues and 79 % of these segments ' ebit for the year ended december 31 , 2009 were generated during the first and fourth quarters of 2009 , and are reflected in our consolidated statements of income for the quarters ended march 31 , 2009 and december 31 , 2009. our base operating expenses , excluding cost of gas , interest expense and certain incentive compensation costs , are incurred relatively equally over any given year . thus , our operating results can vary significantly from quarter to quarter as a result of seasonality . results of operations we generate nearly all our operating revenues through the sale , distribution and storage of natural gas . we include in our consolidated revenues an estimate of revenues from natural gas distributed , but not yet billed , to residential and commercial customers from the latest meter reading date to the end of the reporting period . no individual customer or industry accounts for a significant portion of our revenues . the following table provides more information regarding the components of our operating revenues . glossary of key terms 23 replace_table_token_7_th we evaluate segment performance using the measures of operating margin and ebit , which include the effects of corporate expense allocations . our operating margin and ebit are not measures that are considered to be calculated in accordance with gaap . operating margin is a non-gaap measure that is calculated as operating revenues minus cost of gas , which excludes operation and maintenance expense , depreciation and amortization , taxes other than income taxes , and the gain or loss on the sale of our assets ; these items are included in our calculation of operating income as reflected in our consolidated statements of income . ebit is also a non-gaap measure that includes operating income , other income and expenses . items that we do not include in ebit are financing costs , including interest and debt expense and income taxes , each of which we evaluate on a consolidated level . we believe operating margin is a better indicator than operating revenues for the contribution resulting from customer growth in our distribution operations segment since the cost of gas can vary significantly and is generally billed directly to our customers . we also consider operating margin to be a better indicator in our retail energy operations , wholesale services and energy investments segments since it is a direct measure of operating margin before overhead costs . story_separator_special_tag glossary of key terms 25 replace_table_token_10_th 2009 vs. 2008 vs. 2009 vs. 2008 vs. 2007 vs. quarter ended december 31 , 2008 2007 normal normal normal normal 2009 2008 2007 colder ( warmer ) colder ( warmer ) colder ( warmer ) colder ( warmer ) colder ( warmer ) georgia 1,048 1,181 1,092 877 8 % 25 % 13 % 4 % ( 16 ) % new jersey 1,633 1,614 1,728 1,605 ( 7 ) % 8 % ( 1 ) % 6 % ( 2 ) % virginia 1,100 1,065 1,151 965 ( 7 ) % 19 % ( 3 ) % 5 % ( 12 ) % florida 164 158 201 45 ( 21 ) % 347 % ( 4 ) % 23 % ( 73 ) % tennessee 1,212 1,283 1,291 969 ( 1 ) % 33 % 6 % 7 % ( 20 ) % maryland 1,678 1,662 1,691 1,558 ( 2 ) % 9 % ( 1 ) % 1 % ( 7 ) % ( 1 ) obtained from the national oceanic and atmospheric administration , national climatic data center . normal represents the ten-year averages from january 2000 to december 2009. replace_table_token_11_th replace_table_token_12_th ( 1 ) a portion of the ohio customers represents customer equivalents , which are computed by the actual delivered volumes divided by the expected average customer usage . glossary of key terms 26 segment information operating margin , operating expenses and ebit information for each of our segments are contained in the following tables for the last three years . replace_table_token_13_th ( 1 ) these are non-gaap measurements . a reconciliation of operating margin to operating income and ebit to earnings before income taxes and net income is contained in “ results of operations ” herein . ( 2 ) includes intercompany eliminations distribution operations replace_table_token_14_th retail energy operations replace_table_token_15_th wholesale services replace_table_token_16_th glossary of key terms 27 the following table indicates the components of wholesale services ' operating margin for 2009 , 2008 and 2007. replace_table_token_17_th for more information on sequent 's expected operating revenues from its storage inventory in 2010 and discussion of commercial activity , see description of the inventory roll-out schedule in item 1 “ business. ” energy investments replace_table_token_18_th liquidity and capital resources overview our primary sources of liquidity are cash provided by operating activities , short-term borrowings under our commercial paper program ( which is supported by our credit facility ) and borrowings under subsidiary lines of credit . our capital market strategy has continued to focus on maintaining a strong consolidated statement of financial position ; ensuring ample cash resources and daily liquidity ; accessing capital markets at favorable times as needed ; managing critical business risks ; and maintaining a balanced capital structure through the appropriate issuance of equity or long-term debt securities . our issuance of various securities , including long-term and short-term debt , is subject to customary approval , or review by state and federal regulatory bodies including state public service commissions , the sec and the ferc . furthermore , a substantial portion of our consolidated assets , earnings and cash flow is derived from the operation of our regulated utility subsidiaries , whose legal authority to pay dividends or make other distributions to us is subject to regulation . we believe the amounts available to us under our credit facility and the issuance of debt and equity securities together with cash provided by operating activities will continue to allow us to meet our needs for working capital , pension contributions , construction expenditures , anticipated debt redemptions , interest payments on debt obligations , dividend payments , common share repurchases and other cash needs through the next several years . nevertheless , our ability to satisfy our working capital requirements and debt service obligations , or fund planned capital expenditures , will substantially depend upon our future operating performance ( which will be affected by prevailing economic conditions ) , and financial , business and other factors , some of which are beyond our control . we will continue to evaluate our need to increase available liquidity based on our view of working capital requirements , including the impact of changes in natural gas prices , liquidity requirements established by rating agencies and other factors . see item 1a , “ risk factors , ” for additional information on items that could impact our liquidity and capital resource requirements . the following table provides a summary of our operating , investing and financing activities for the last three years . replace_table_token_19_th cash flow from operating activities we prepare our statement of cash flows using the indirect method . under this method , we reconcile net income to cash flows from operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments during the period . these reconciling items include depreciation and amortization , changes in derivative financial instrument assets and liabilities , deferred income taxes and changes in the consolidated statements of financial position for working capital from the beginning to the end of the period . glossary of key terms 28 our operations are seasonal in nature , with the business depending to a great extent on the first and fourth quarters of each year . as a result of this seasonality , our natural gas inventories are usually at their highest levels in november each year , and largely are drawn down in the heating season , providing a source of cash as this asset is used to satisfy winter sales demand . the injections in and price fluctuations of our natural gas inventories , which meet customer demand during the winter heating season , can cause significant variations in our cash flow from operations from period to period and are reflected in changes to our working capital .
| executive summary regulatory strategy we continue to actively pursue a regulatory strategy that reduces the lag between our investments in infrastructure and the recovery of those investments through various rate mechanisms . our regulatory planning includes rate design proposals that should provide stabilized revenues through decoupling , or separating the recovery of fixed costs for providing service from the volumes of customer throughput . our rate cases also include proposals for energy-efficiency programs that should help customers lower the amount of gas used and conserve energy . capital projects we continue to focus aggressively on capital discipline and cost control , while moving ahead with projects and initiatives that we expect to have current and future benefits and provide an appropriate return on invested capital . in 2009 , our infrastructure improvement programs were approved in georgia and new jersey . additionally , the magnolia pipeline project , completed in november 2009 , allowing access to elba island lng , should enable us to meet future demand for and diversify our supply of natural gas for atlanta gas light customers . our hampton roads crossing pipeline project , with portions placed in service in december 2009 and the remainder in january 2010 , provides additional infrastructure to accommodate growth to the virginia natural gas distribution system . in addition , our golden triangle storage project in beaumont , texas is on schedule and we expect the first cavern to be in operation in the second half of 2010. customer growth we continue to see challenging economic conditions in all of the areas we serve and , as a result , have experienced lower than expected customer growth in our distribution operations and retail energy operations segments throughout 2009 , a trend we expect to continue through 2010. for the year ended december 31 , 2009 , our distribution operations customer growth rate was ( 0.3 ) % , compared to 0.1
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the promissory notes issued in connection with the loc agreements provided the lenders with the right to convert all or any portion of the principal and accrued and unpaid interest into our common stock on the same terms as our 2019 senior convertible notes . by the third quarter of 2020 , we had drawn the full $ 700,000 under the loc agreement with dkbk . on october 6 , 2020 , in connection with the closing of our underwritten public offering , dkbk converted the $ 700,000 principal amount and related accrued interest into 199,537 shares of our common stock story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties . you should review the section titled “ risk factors ” in this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described below . overview we are a clinical-stage biopharmaceutical company focused on the development of drug products that are intended to provide treatment for patients who have a high unmet medical need condition that effects survival or the patient 's quality of life and have few or no treatment options . we currently have three drugs in various stages of clinical development . our most advanced product candidate , pcs499 , is an oral tablet that is a deuterated analog of one of the major metabolites of pentoxifylline ( ptx or trental® ) . we have completed a phase 2a trial for pcs499 and will begin recruiting for a phase 2 trial in the first half of 2021. in addition , we have in-licensed pcs6422 ( eniluracil ) from elion oncology and pcs12852 from yuhan corporation . pcs6422 will be orally administered with capecitabine in a phase 1b dose-escalation study in patients with advanced refractory gastrointestinal ( gi ) tract tumors , with recruitment beginning in the first half of 2021. pcs12852 has already been evaluated in clinical studies in south korea and we anticipate a response back to our pre-ind meeting questions by march 31 , 2021. our remaining two drug assets whose active molecules have been shown to be clinically efficacious require additional toxicology data in order to advance these candidates to an ind stage of development . 52 our strategy our strategy is to acquire or in-license development candidates that will not only treat a specific group of patients with unmet medical needs , but may also have the potential to chart a more efficient path to registration . in many instances , these clinical candidates have significant pre-clinical and clinical data that we can leverage to high value inflection points while de-risking the programs and adding in optionality to potential future indications . the regulatory science approach our team has developed over the last 20+ years seeks to leverage the earlier data and identify the least risk path toward commercialization/registration of these drugs . we apply rigorous standards to identify drugs for our portfolio , namely : i. the drug must represent a treatment option to patients with a high unmet medical need condition by improving survival and or quality of life for these patients , ii . the drug or its metabolite or a drug with similar pharmacological properties must have demonstrated some evidence of efficacy in the target population , and iii . the drug can be quickly developed such that within 2-4 years , critical value-added clinical milestones can be achieved while advancing the drug closer to commercialization and adding to the potential for a high return on investment . in order to add significant value to our in-licensed drugs within 2 to 4 years , the drugs must be in the clinical development stage and not in discovery stage , and during those 2 to 4 years we must be able to obtain clinical data to support the added value . the additional clinical data could range from a clinical proof-of-concept data to further demonstrate that the proposed pharmacology occurs clinically in the targeted patient population to a pivotal well-designed randomized controlled trial . our portfolio specifically includes drugs that ( i ) already have clinical proof-of-concept data demonstrating the desired pharmacological activity in humans or , minimally , clinical evidence in the form of case studies or clinical experience demonstrating the drug or a similar drug pharmacologically can successfully treat patients with the targeted indication ; ( ii ) target indications for which the fda believes that a single positive pivotal study demonstrating efficacy provides enough evidence that the clinical benefits of the drug and its approval outweighs the risks associated with the drug or the present standard of care ( e.g. , some orphan indications , many serious life-threatening conditions , some serious quality of life conditions ) ; and or ( iii ) target indications where the prevalence of the condition and the likelihood of patients enrolling in a study meet the desired time-frame to demonstrate that the drug can , at some level , treat or potentially treat patients with the condition . to advance our mission , we have assembled an experienced and talented management and product development team . our team is experienced in developing drug products through all principal regulatory tiers from ind enabling studies to nda submission . our combined scientific , development and regulatory experience has resulted in more than 30 drug approvals by the fda , over 100 meetings with the fda and involvement with more than 50 drug development programs , including drug products targeted to patients who have an unmet medical need . story_separator_special_tag in connection with the yuhan , aposense and elion license agreements , we recorded $ 2 million , $ 2.5 million and $ 4.2 million ( including $ 800,000 in the acquisition of in-process research and development for the year ended december 31 , 2020 related to future issuance of 200,000 shares of common stock to elion on the first and second anniversary date of the license agreement ) , respectively , for a total of $ 8.7 million of acquired in-process research and development expense during the year ended december 31 , 2020. we believe the in-process research and development assets acquired have no alternative future use . we did not acquire any in-process research and development assets in 2019. general and administrative expenses . our general and administrative expenses for the year ended december 31 , 2020 increased by $ 1,649,565 to $ 3,264,474 when compared to $ 1,614,909 for the year ended december 31 , 2019. the increase related mostly to increased payroll and related costs of $ 1,415,029 ( including an increase in employee stock-based compensation of $ 1,308,991 ) as we began paying closer-to-market salary rates . we also experienced an increase of $ 141,175 in professional fees as we evaluated opportunities to in-license additional drugs , as well as an increase of $ 53,226 in other administrative costs such as insurance and office expenses . our tax expense also increased by $ 71,816 in 2020 compared to 2019 due to an increase in our delaware franchise taxes . this increase was primarily due to the impact of our 1-for-7 reverse stock split in december 2019 on the computation of our franchise tax . on june 25 , 2020 , we amended our articles of incorporation to reduce the number of authorized shares in part to decrease our future delaware franchise tax . these increases were offset by a decrease of $ 15,727 in expenses such as travel , repairs and maintenance and training . reimbursable expenses from corlyst of $ 119,001 for rent and other costs during the year ended december 31 , 2020 were $ 15,954 greater than the same period in 2019. we expect the general and administrative expenses to continue to increase as we add staff to support our growing research and development activities and the administration required to operate as a public company . other income and expense . interest expense was $ 281,122 and $ 36,658 for the years ended december 31 , 2020 and 2019 , respectively , related to our 2019 senior notes , borrowings on the loc agreement with dkbk , and the ppp loan . included in interest expense is the amortization of debt issuance costs totaling $ 199,900 and $ 0 for the years ended december 31 , 2020 and 2019 , respectively . interest income was $ 3,174 and $ 11,548 for the years ended december 31 , 2020 and 2019 , respectively . interest income represents interest earned on money market funds . 56 income tax benefit . an income tax benefit of $ 1,001,019 and $ 602,716 was recognized for the years ended december 31 , 2020 and 2019 , respectively . a deferred tax liability was created as a result of our acquisition of concert 's license and “ know-how ” in exchange for processa stock that had been issued in the internal revenue code section 351 transaction on march 19 , 2018. the section 351 transaction treated the acquisition of the know-how for stock as a tax-free exchange . as a result , under asc 740-10-25-51 income taxes , processa recorded a deferred tax liability of $ 3,037,147 for the acquired temporary difference between the financial reporting basis of $ 11,038,929 and the tax basis of $ 1,782. the deferred tax liability will be reduced for the effect of the non-deductibility of the amortization of the intangible asset and may be offset by the deferred tax assets resulting from net operating tax losses ( see note 4 – income taxes ) . this offset results in the recognition of a deferred tax benefit shown in the consolidated statements of operations . liquidity and capital resources on october 6 , 2020 , we closed an underwritten public offering of 4,800,000 shares of common stock for a public offering price of $ 4.00 per share . net proceeds from the offering were approximately $ 17.1 million . on february 24 , 2021 , we closed a private placement for the sale of 1,321,132 shares of our common stock at a purchase price of $ 7.75 per share to accredited and institutional investors for gross proceeds of $ 10.2 million . net proceeds from the offering were $ 9.9 million . at december 31 , 2020 , we had $ 15,416,224 in cash . net cash used in our operating activities during the year ended december 31 , 2020 totaled $ 3,143,196 compared to $ 2,750,145 for the year ended december 31 , 2019. we have incurred losses since inception , devoting substantially all of our efforts toward research and development , and have an accumulated deficit of approximately $ 25.4 million at december 31 , 2020. during the year ended december 31 , 2020 , we generated a net loss of approximately $ 14.4 million and we expect to continue to generate operating losses and negative cash flow from operation for the foreseeable future . however , we believe our cash balance at december 31 , 2020 , along with the $ 9.9 million in net proceeds from the february 2021 private placement , is adequate to fund our budgeted operations through 2023. our ability to execute our longer-term operating plans , including unplanned future clinical trials for our portfolio of drugs depend on our ability to obtain additional funding from the sale of equity and or debt securities , a strategic transaction or other funding transactions . we plan to continue to actively pursue financing alternatives , but there can be no assurance that we will obtain the necessary funding in the future when necessary .
| results of operations comparison of the year ended december 31 , 2020 and 2019 the following table summarizes our operations loss during the periods indicated : replace_table_token_1_th 54 revenues . we had no revenue during the years ended december 31 , 2020 and 2019. we do not currently have any revenue under contract or any immediate sales prospects . research and development expenses . our research and development costs are expensed as incurred . research and development expenses include ( i ) licensing of compounds for product testing and development , ( ii ) program and testing related expenses , ( iii ) amortization of the exclusive pcs499 license intangible asset used in research and development activities , and ( iv ) internal research and development staff related payroll , taxes and employee benefits , external consulting and professional fees related to the product testing and our development activities . non-refundable advance payments for goods and services to be used in future research and development activities are recorded as prepaid expenses and expensed when the research and development activities are performed . during the year ended december 31 , 2020 , our research and development expenses increased by $ 851,812 to $ 3,172,385 when compared to $ 2,320,573 for the year ended december 31 , 2019. costs for the years ended december 31 , 2020 and 2019 were as follows : replace_table_token_2_th our research and development salaries and benefits increased by $ 662,092 for the year ended december 31 , 2020 when compared to the same period in 2019 related to an increase in stock-based compensation of $ 749,830 , which was offset by a decrease in salaries and related benefits of $ 87,738. the decrease in salaries and related benefits related to the departure of two research and development team members in the first quarter of 2020. we also recognized higher research and development expenses for preclinical , clinical trial and other costs of $
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the functional currency of the company 's other foreign subsidiaries is the local currency of the country in which the subsidiary operates . the assets and liabilities of these foreign subsidiaries are translated into u.s. dollars at the rates of exchange at the balance sheet dates . income and expense accounts are translated at the average exchange rates in effect during the period . gains and losses resulting from translation adjustments are included as story_separator_special_tag as used herein , the terms “ ebix , ” “ the company , ” “ we , ” “ our ” and “ us ” refer to ebix , inc. , a delaware corporation , and its consolidated subsidiaries as a combined entity . the information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document . the discussion below contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements involve risks and uncertainties including , but not limited to : demand and acceptance of services offered by us , our ability to achieve and maintain acceptable cost levels , pricing levels and actions by competitors , regulatory matters , general economic conditions , and changing business strategies . forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations , including , but not limited to our performance in future periods , our ability to generate working capital from operations , the adequacy of our insurance coverage , and the results of litigation or investigations . our forward-looking statements can be identified by the use of terminology such as “ anticipates , ” “ expects , ” “ intends , ” “ believes , ” “ will ” or the negative thereof or variations thereon or comparable terminology . except as required by law , we undertake no obligation to publicly update or revise any forward-looking statement , whether as a result of new information , future events or otherwise . overview ebix is a leading international supplier of on-demand software and e-commerce solutions to the insurance , financial , and healthcare industries . ebix operates data exchanges in the areas of finance , travel , life insurance , annuities , employee health benefits , risk management , workers compensation , insurance underwriting , and p & c insurance . each of these exchanges connects multiple entities within the financial and insurance markets enabling the participant to seamlessly and efficiently carry and process data from one end to another . ebix 's life , annuity , and employee health benefit exchanges currently operate primarily in the united states . the p & c exchanges operate primarily in australia , new zealand , the united kingdom , and brazil . ebix financial and travel exchanges currently operate primarily in india and certain asean countries . ebix provides application software products for the insurance industry including carrier systems , agency systems and exchanges , as well as custom software development . approximately 76 % of the company 's revenues are recurring . rather than license our products in perpetuity , we typically either license them for a few years with ongoing support revenues , or license them on a limited term basis using a subscription hosting or asp model . our goal is to be the leading powerhouse of back-end insurance transactions in the world . during 2017 , combined subscription-based and transaction-based revenues increased by $ 50.9 million to $ 276.7 million , while as a percentage of the company 's total revenues remained at 76 % in 2017 , as compared to 2016. in 2017 subscription based revenues increased by $ 12.5 million to $ 201.5 million , and as a percentage of the company 's total revenues decreased to 55 % in 2017 , as compared to 63 % in the year 2016. the company 's technology vision is on the convergence of all processes in a manner such that data can seamlessly flow from entity to entity once an initial data entry has been made . our customers include many of the top insurance and financial sector companies in the world . the insurance and financial markets continue to focus on initiatives to reduce paper-based processes and facilitate improvements in efficiency both at the back-end side and also at the consumer-end side , involving all entities and directly impacts the manner in which insurance and financial products are distributed . management believes that both the insurance and financial industry will continue to experience significant change and increased efficiencies through online exchanges as reduced paper-based processes are becoming increasingly a norm across the world insurance and financial markets . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of revenue growth , operating income , operating margin , income from continuing operations , diluted earnings per share , and cash provided by operating activities . we monitor these indicators , in conjunction with our corporate governance practices , to ensure that our business is efficiently managed and that effective controls are maintained . the key performance indicators for the twelve months ended december 31 , 2017 , 2016 and 2015 were as follows : 28 replace_table_token_6_th story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > 2016 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued . this is typically done for efficiency and or competitive reasons . the impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially adversely affected reported revenues . story_separator_special_tag twelve months ended december 31 , 2016 and 2015 operating revenue the company derives its revenues primarily from professional and support services , which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our asp platforms , revenue generated from software development projects and associated fees for consulting , implementation , training , and project management provided to customers using our systems , and business process outsourcing revenue . ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2016 and 2015. replace_table_token_10_th during the twelve months ended december 31 , 2016 our total revenue increased $ 32.8 million , or 12.4 % , to $ 298.3 million compared to $ 265.5 million in 2015. the company leverages product cross-selling opportunities across all channels , as facilitated 32 by our operating philosophy and business acquisition strategy . with respect to business acquisitions completed during the fiscal years 2016 and 2015 on a pro forma basis , as disclosed in the table in note 4 “ pro forma financial information ” to the enclosed consolidated financial statements , combined pro forma revenues increased $ 20.5 million or 7.0 % to $ 315.8 million for the year 2016 from the $ 295.3 million of pro forma revenue for the year 2015 , with the change in exchange rates adversely affecting reported revenues by ( $ 3.3 ) million , whereas there was a 12.4 % increase in reported revenues for the same comparative periods . the cause for the difference between the 12.4 % increase in reported 2016 revenue versus 2015 revenue , as compared to the 7.0 % increase in 2016 pro forma versus 2015 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2016 and 2015 , specifically wdev , hope health , the ebixhealth jv , via media health , and pb systems with the company 's pre-existing operations . the 2016 and 2015 pro forma financial information assumes that all such business acquisitions were made on january 1 , 2015 , whereas the company 's reported financial statements for 2016 only includes the operating results from the businesses since the effective date that they were acquired by ebix , and thusly includes only two months of wdev , two months of hope health , and six full months of the ebixhealth jv . similarly , the 2015 pro forma financial information includes a full year of results for wdev , hope health , the ebixhealth jv , via media health , and pb systems as if they had been acquired on january 1 , 2015 , whereas the company 's reported financial statements for the 2015 includes only ten months of financial results for via media health , and seven months for pb systems , and no financial results for wdev , hope health , and the ebixhealth jv . the pro forma analysis is based on the following premises : 2016 and 2015 pro forma revenue contains actual revenue of the acquired entities before acquisition date , as reported by the sellers , as well as actual revenue of the acquired entities after acquisition . growth in revenues of the acquired entities after acquisition date are only reflected for the period after their acquisition . revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business . any existing products sold to new customers acquired through the acquisition customer base , has also been assigned to the acquired section of our business . 2015 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued . this is typically done for efficiency and or competitive reasons . the impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially adversely affected reported revenues . during each of the years 2016 , 2015 and 2014 the change in foreign currency exchange rates decreased reported consolidated operating revenues by $ ( 3.3 ) million , $ ( 10.7 ) million , and $ ( 3.2 ) million , respectively . the specific components of our revenue and the changes experienced during the past year are discussed immediately below . exchange division revenues increased by $ 15.7 million , or 8 % , principally due to new exchange clients primarily in the us and europe , and cross selling of products and services to existing clients as facilitated by the 2016 and 2015 acquisitions of via media health . broker p & c systems division revenue decreased by $ 0.4 million , or 3 % , principally due to the effects of exchange rate fluctuations adversely affecting our australian operations . during the past two years the reported revenues in the broker systems channel have been decreasing due essentially to the effects of changing currency exchange rates . risk compliance solutions division revenues increased by $ 18.3 million , or 33 % , primarily due to new e-governance revenues associated with our indian operations , consulting service revenues generated by the 2015 business acquisition of pb systems , november 2016 acquisition of wdev and the full consolidation of the ebix/ihc joint venture . carrier p & c systems division revenues decreased by $ 772 thousand , or 18 % . revenues in this division have decreased during the last two years due the completion of certain large projects resulting in decreased professional service revenues .
| results of operations replace_table_token_7_th twelve months ended december 31 , 2017 and 2016 operating revenue the company derives its revenues primarily from professional and support services , which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our asp platforms , revenue generated from software development projects and associated fees for consulting , implementation , training , and project management provided to customers using our systems , and business process outsourcing revenue . ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2017 and 2016 . 29 replace_table_token_8_th the company is continuing to evaluate the classification of the 2017 acquisitions that collectively make up the ebixcash financial exchanges , refer to part i , item i business . currently they are reported under exchange channel , but is subject to change based on the conclusions of our evaluations . during the twelve months ended december 31 , 2017 our total revenue increased $ 65.7 million , or 22.0 % , to $ 364.0 million compared to $ 298.3 million in 2016 . the company leverages product cross-selling opportunities across all channels , as facilitated by our operating philosophy and business acquisition strategy . with respect to business acquisitions completed during the fiscal years 2017 and 2016 on a pro forma basis , as disclosed in the table in note 4 “ pro forma financial information ” to the enclosed consolidated financial statements , combined pro forma revenues increased $ 6.4 million or 1.5 % to $ 440.5 million for the year 2017 from the $ 434.2 million of pro forma revenue for the year 2016 , with the change in exchange rates favorably affecting reported revenues by $ 2.1 million , whereas there was a 22.0 % increase in reported revenues for the same comparative periods .
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general and administrative expenses as a percentage of gross sales were 4.8 % for fiscal year 2012 and 6.0 % for fiscal year 2011. the tax provision for fiscal year 2012 was $ 856,800. the effective rate for fiscal year 2012 was 37.6 % and for fiscal year 2011 was 37.5 % . our effective tax rate is higher than the federal statutory rate due to state income taxes . 13 contractual obligations we are a smaller reporting company and are not required to provide this information . 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 . 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 uncollectable 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 . 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 date of grant and recognized as compensation expense . revenue recognition sales are recognized and recorded when products are shipped . products are shipped fob shipping point . the ubam division 's sales are paid at the time the product is shipped . these sales accounted for 58 % of net revenues in fiscal year 2012 and 64 % of net revenues in fiscal year 2011. estimated allowances for sales returns are recorded as sales are recognized and recorded . 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 from the retail stores . the damages occur in the stores , not in shipping to the stores . it is industry practice to accept returns from wholesale customers . transportation revenue , the amount billed to the customer for shipping the product , is recorded when products are shipped . management has estimated and included a reserve for sales returns of $ 100,000 as of both february 29 , 2012 and february 28 , 2011. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments . an estimate of uncollectable 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 allowance for doubtful accounts of $ 456,300 and $ 462,800 as of february 29 , 2012 and february 28 , 2011 , respectively . inventory management continually estimates and calculates the amount of non-current inventory . the inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ½ years of anticipated sales was classified as noncurrent inventory . noncurrent inventory balances were $ 888,000 and $ 903,000 at february 29 , 2012 and february 28 , 2011 , respectively . 14 inventories are presented net of a valuation allowance . management has estimated and included a valuation allowance for both current and noncurrent inventory . this allowance is based on management 's identification of slow moving inventory on hand . management has estimated a valuation allowance for both current and noncurrent inventory of $ 365,000 and $ 330,700 as of february 29 , 2012 and february 28 , 2011 , respectively . our product line contains approximately 1,500 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 europe , china , singapore , india , malaysia and dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us . our principal supplier , based in england , imposes minimum order requirements before reprinting a title . at the current time we must reorder 6,500 or more of a title in order to get a solo print run . if we order less than 6,500 of a title , then we normally share a print run with the supplier 's other customers , which can result in more lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led management to determine that 2 ½ years represents a story_separator_special_tag general and administrative expenses as a percentage of gross sales were 4.8 % for fiscal year 2012 and 6.0 % for fiscal year 2011. the tax provision for fiscal year 2012 was $ 856,800. the effective rate for fiscal year 2012 was 37.6 % and for fiscal year 2011 was 37.5 % . our effective tax rate is higher than the federal statutory rate due to state income taxes . 13 contractual obligations we are a smaller reporting company and are not required to provide this information . 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 . 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 uncollectable 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 . 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 date of grant and recognized as compensation expense . revenue recognition sales are recognized and recorded when products are shipped . products are shipped fob shipping point . the ubam division 's sales are paid at the time the product is shipped . these sales accounted for 58 % of net revenues in fiscal year 2012 and 64 % of net revenues in fiscal year 2011. estimated allowances for sales returns are recorded as sales are recognized and recorded . 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 from the retail stores . the damages occur in the stores , not in shipping to the stores . it is industry practice to accept returns from wholesale customers . transportation revenue , the amount billed to the customer for shipping the product , is recorded when products are shipped . management has estimated and included a reserve for sales returns of $ 100,000 as of both february 29 , 2012 and february 28 , 2011. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments . an estimate of uncollectable 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 allowance for doubtful accounts of $ 456,300 and $ 462,800 as of february 29 , 2012 and february 28 , 2011 , respectively . inventory management continually estimates and calculates the amount of non-current inventory . the inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ½ years of anticipated sales was classified as noncurrent inventory . noncurrent inventory balances were $ 888,000 and $ 903,000 at february 29 , 2012 and february 28 , 2011 , respectively . 14 inventories are presented net of a valuation allowance . management has estimated and included a valuation allowance for both current and noncurrent inventory . this allowance is based on management 's identification of slow moving inventory on hand . management has estimated a valuation allowance for both current and noncurrent inventory of $ 365,000 and $ 330,700 as of february 29 , 2012 and february 28 , 2011 , respectively . our product line contains approximately 1,500 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 europe , china , singapore , india , malaysia and dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us . our principal supplier , based in england , imposes minimum order requirements before reprinting a title . at the current time we must reorder 6,500 or more of a title in order to get a solo print run . if we order less than 6,500 of a title , then we normally share a print run with the supplier 's other customers , which can result in more lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led management to determine that 2 ½ years represents a
| condition and results of operations md & a contains statements that are forward-looking and include numerous risks which you should carefully consider . additional risks and uncertainties may also materially and adversely affect our business . you should read the following discussion in connection with our financial statements , including the notes to those statements , included in this document . our fiscal years end on february 29 ( 28 ) . management summary educational development corporation is the sole distributor in the united states of the usborne line of children 's books . we operate two separate divisions , publishing and usborne books and more ( “ ubam ” ) , to sell these books . our corporate headquarters , including the distribution facility for both divisions , is located in tulsa , oklahoma . these two divisions each have their own customer base . the publishing division markets its products on a wholesale basis to various retail accounts . the ubam division markets its products to individual consumers as well as to school and public libraries through direct-selling consultants . publishing division the publishing division operates in a market that is highly competitive , with a large number of companies engaged in the selling of books . the most recent annual sales data indicate sales in the book industry were approximately $ 11.7 billion for calendar year 2010. sales in the trade industry , defined as wholesale sales to retailers , were approximately $ 5.3 billion for calendar year 2010. the publishing division 's customer base includes national book chains , regional and local bookstores , toy and gift stores , school supply stores and museums . to reach these markets , the publishing division utilizes a combination of commissioned sales representatives located throughout the country and a commissioned inside sales group located in our headquarters . the vice president of the publishing division manages sales to the national chains .
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“ equipment ” means each item of and all of the technology equipment and other similar capital equipment ( medical technology equipment , telecommunications technology equipment , inventory management equipment ) purchased , owned , operated , and or leased by the partnership or in which the partnership has acquired a direct or indirect interest , as more fully described in the partnership agreement , together with all appliances , parts , instruments , accessories , furnishings , or other equipment included therein and all substitutions , renewals , or replacements of , and all additions , improvements , and accessions to , any and all thereof . “ finance lease ” generally means a full-payout , non-cancellable agreement in which the customer is responsible for maintenance , taxes and insurance . the term also refers in article 2a of the uniform commercial code to a special type of lease in which the lessor , lessee and the manufacturer have contractual relationships and the lessor at all times , with the lessee 's acknowledgement , remains a passive investor where the lessee makes most equipment decisions directly with the manufacturer . “ full payout net lease ” means an initial net lease of the equipment under which the non-cancelable rental payments due ( and which can be calculated at the commencement of the net lease ) during the initial non-cancelable fixed term ( not including any renewal or extension period ) of the lease or other contract for the use of the equipment are at least sufficient to recover the purchase price of the equipment . “ general partner ” means commonwealth income & growth fund , inc. and any additional , substitute or successor general partner of the partnership . “ gross lease revenues ” means partnership gross receipts from leasing or other operation of the equipment , except that , to the extent the partnership has leased the equipment from an unaffiliated party , it shall mean such receipts less any lease expense . “ irs ” means the internal revenue service . “ limited partner ” means a person who acquires units and who is admitted to the partnership as a limited partner in accordance with the terms of the partnership agreement . “ net dispositions proceeds ” means the net proceeds realized by the partnership from the refinancing , sale or other disposition of equipment , story_separator_special_tag the following is a discussion of our current financial position and results of operations . this discussion should be read together with the partnership 's financial statements contained under item 8 of this annual report on form 10-k. this discussion should also be read in conjunction with the disclosures above regarding “ forward-looking statements. ” 16 introduction we were formed for the purpose of acquiring various types of business-essential technology equipment , including computer information technology , telecommunications , medical technology and other similar capital equipment . we offered for sale up to 2,500,000 units of the limited partnership at the purchase price of $ 20 per unit in a public offering that commenced on november 13 , 2009 ( the “ offering ” ) . we reached the minimum offering amount , broke escrow and commenced operations on march 31 , 2010. a total of 1,572,900 units were sold in the offering , for a total of approximately $ 31,432,000 in limited partner contributions . our management team consists of the officers of our corporate general partner , commonwealth income & growth fund , inc. we have utilized the net proceeds of our public offering to purchase equipment that is subject to leases with businesses throughout the united states . we have also utilized debt financing ( not in excess of 30 % of the aggregate cost of the equipment owned or subject to conditional sales contracts at the time the debt is incurred ) to purchase additional equipment . we acquire and lease equipment principally to u.s. corporations and other institutions pursuant to operating and finance leases . we retain the flexibility to enter into full payout net leases and conditional sales contracts , but have not done so . competitive outlook as discussed in “ competition ” in item 1 above , the commercial leasing and financing industry is highly competitive and is characterized by competitive factors that vary based upon product and geographic region . we compete primarily on the basis of pricing , terms and structure , particularly on structuring flexible , responsive , and customized financing solutions for our customers . our investments are often made directly rather than through competition in the open market . this approach limits the competition for our typical investment , which is intended to enhance returns . we believe our investment model will represent the best way for individual investors to participate in investing in business-essential equipment . nevertheless , to the extent that our competitors compete aggressively on any combination of the foregoing factors , our results could be adversely impacted . principal investment objectives our principal investment objectives are to : acquire , lease and sell equipment to generate revenues from operations sufficient to provide annual cash distributions to our limited partners ; a ) preserve and protect limited partners ' capital ; b ) use a portion of cash flow and net disposition proceeds derived from the sale , refinancing or other disposition of equipment to purchase additional equipment ; and c ) refinance , sell or otherwise dispose of equipment in a manner that will maximize proceeds . 17 industry overview we invest in various types of domestic information technology equipment leases located solely within the united states . our investment objective is to acquire primarily high technology equipment . we believe that dealing in high technology equipment is particularly advantageous due to a robust aftermarket . information technology has developed rapidly in recent years and is expected to continue to do so . story_separator_special_tag critical accounting policies and use of estimates our management 's discussion and analysis of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . management 's estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that our critical accounting policies affect our more significant judgments and complex estimates used in the preparation of our financial statements . 18 revenue recognition the partnership is principally engaged in business of leasing equipment . ancillary to the partnership 's principal equipment leasing business , the partnership also sells certain equipment and may offer certain services to support its customers . the partnership 's lease transactions are principally accounted for under topic 842 on january 1 , 2019. prior to topic 842 , the partnership accounted for these transactions under topic 840 , leases ( “ topic 840 ” ) . lease revenue includes revenue generated from leasing equipment to customers , including re-rent revenue , and is recognized as either on a straight line basis or using the effective interest method over the length of the lease contract , if such lease is either an operating lease or finance lease , respectively . the partnership 's sale of equipment along with certain services provided to customers is recognized under asc topic 606 , revenue from contracts with customers , ( “ topic 606 ” ) , which was adopted on january 1 , 2018. prior to adoption of topic 606 , the partnership recognized these transactions under asc topic 605 , revenue recognized , and ( “ topic 605 ” ) . the partnership recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer . the amount of revenue recognized reflects the consideration the partnership expects to be entitled to in exchange for such products or services . for the year ended december 31 , 2020 , the partnership 's lease portfolio consisted of operating leases and finance leases . for operating leases , lease revenue is recognized on a straight-line basis in accordance with the terms of the lease agreement . finance lease interest income is recorded over the term of the lease using the effective interest method . upon the end of the lease term , if the lessee has not met the return conditions as set out in the lease , the partnership is entitled in certain cases to additional compensation from the lessee . the partnership 's accounting policy for recording such payments is to treat them as revenue . gains or losses from sales of leased and off-lease equipment are recorded on a net basis in the partnership 's statement of operations . gains from the termination of leases are recognized when the lease is modified and terminated concurrently . our leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index . partnership 's accounting policy for sales and property taxes collected from the lessees are presented in the current period as gross revenues and expenses . long-lived assets depreciation on technology and inventory management equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to five years . once an asset comes off lease or is released , the partnership reassesses the useful life of an asset . the partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable . the partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset . if the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists . the amount of the impairment is determined based on the difference between the carrying value and the fair value . fair value is determined based on estimated discounted cash flows to be generated by the asset , third party appraisals or comparable sales of similar assets , as applicable , based on asset type . residual values are determined by management and are calculated using information from both internal and external sources , as well as other economic indicators . reimbursable expenses reimbursable expenses are comprised of both ongoing operational expenses and fees associated with the allocation of salaries and benefits , referred to as other lp expenses . reimbursable expenses , which are charged to the partnership by ccc in connection with the administration and operation of the partnership , are allocated to the partnership based upon several factors including , but not limited to , the number of investors , compliance issues , and the number of existing leases . for example , if a partnership has more investors than another program sponsored by ccc , then higher amounts of expenses related to investor services , including mailing and printing costs will be allocated to that partnership . also , while a partnership is in its offering stage , higher compliance costs are allocated to it than to a program not in its offering stage , as compliance resources are utilized to review incoming investor suitability and proper documentation . finally , lease related expenses , such as due diligence , correspondence , collection efforts and analysis and staff costs , increase as programs purchase more leases , and decrease as leases terminate and equipment is sold .
| results from operations for the year ended december 31 , 2020 , we recognized revenue of approximately $ 1,939,000 , expenses of approximately $ 2,480,000 and other gain of approximately $ 31,000 , resulted in a net loss of approximately $ 510,000. for the year ended december 31 , 2019 , we recognized revenue of approximately $ 2,281,000 , expenses of approximately $ 2,798,000 and other loss of approximately $ 184,000 , resulted in a net loss of approximately $ 701,000 . the reduction in net loss is primarily due to more leases were expiring than new leases acquiring as well as an overall reduction in expenses including but not limited to , depreciation and amortization expense , equipment management fees and legal fees , partially offset by a decline in overall revenue . the partnership had 58 active operating leases that generated lease revenue of approximately $ 1,798,000 for the year ended december 31 , 2020 and had 68 active operating leases that generated lease revenue of approximately $ 2,006,000 for the year ended december 31 , 2019. management expects to add new leases to partnership 's portfolio throughout 2021 , primarily through debt refinancing . the partnership is continuously monitoring its lessee concentration to potentially reduce the risk associated with a high concentration of activity in a few lessees . the partnership 's equipment portfolio consists of approximately 37 % high end servers , 29 % desk and lap tops , 12 % servers\other , 11 % digital storage , 6 % multifunction centers , 2 % inventory control systems\printers , 2 % high volume & spec printers and 1 % manufacturing equipment . the general partner continuously monitors and seeks to decrease the concentration of equipment by type to diversify the equipment portfolio and potentially reduce the overall risk to the investor .
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the maximum awards ranged from 150 % to 162.5 % of the target award . replace_table_token_29_th ( 1 ) customer satisfaction means : with respect to mr. weisz , mr. geller and , on and after september 23 , 2011 , mr. hunter , marriott vacations worldwide customer satisfaction ; with respect to mr. cunningham , north america timeshare operations customer satisfaction ; with respect to mr. story_separator_special_tag you should read the following discussion of our results of operations and financial condition together with our audited historical consolidated financial statements and accompanying notes that we have included elsewhere in this annual report as well as the discussion in the section of this annual report entitled business. this discussion contains forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on our current expectations , estimates , assumptions and projections about our industry , business and future financial results . our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those we discuss in the sections of this annual report entitled risk factors and special note about forward-looking statements. our consolidated financial statements , which we discuss below , reflect our historical financial condition , results of operations and cash flows . the financial information discussed below and included in this annual report , however , may not necessarily reflect what our financial condition , results of operations or cash flows would have been had we been operated as a separate , independent entity during all of the periods presented , or what our financial condition , results of operations and cash flows may be in the future . business overview we are the exclusive worldwide developer , marketer , seller and manager of vacation ownership and related products under the marriott vacation club and grand residences by marriott brands . we are also the exclusive global developer , marketer and seller of vacation ownership and related products under the ritz-carlton destination club brand , and we have the non-exclusive right to develop , market and sell whole ownership residential products under the ritz-carlton residences brand . ritz-carlton generally provides on-site management for ritz-carlton branded properties . our business is grouped into four segments : north america , luxury , europe and asia pacific . we operate 64 properties ( under 71 separate resort management contracts ) in the united states and eight other countries and territories . we generate most of our revenues from four primary sources : selling vacation ownership products ; managing our resorts ; financing consumer purchases of vacation ownership products ; and renting vacation ownership inventory . see the section of this annual report entitled businesssegments for further details of our individual properties by segment . as described in footnote no . 1 , summary of significant accounting policies , in the notes to our financial statements included in this annual report , through the date of the spin-off , the financial statements discussed below were prepared on a stand-alone basis and were derived from the consolidated financial statements and accounting records of marriott international . these financial statements have been prepared as if the spin-off had taken place as of the earliest 35 period presented and include an allocation of certain marriott international expenses as discussed in the section of this annual report entitled selected financial data. the financial statements reflect our historical financial position , results of operations and cash flows as we have historically operated , in conformity with gaap . all significant intracompany transactions and accounts within these financial statements have been eliminated . beginning november 22 , 2011 , for periods following completion of the spin-off , our financial results also include the impact of the royalty fee payable under our license agreements and the dividend payable on the mandatorily redeemable preferred stock of mvw us holdings , our consolidated subsidiary ( included in interest expense ) . conditions for our vacation ownership business have remained relatively unchanged throughout 2011 compared to 2010. in 2011 : we generated $ 1,613 million of total revenues , including $ 634 million from the sale of vacation ownership products , and $ 321 million of cash flows from operating activities . we continued to expand our marriott vacation club destinations tm ( mvcd ) points-based vacation ownership program in north america and the caribbean , offering greater flexibility , further personalization and more experience opportunities for our owners . as of the end of 2011 , almost 92,000 of our weeks-based owners had enrolled in this program , representing over 167,000 weeks . we generated $ 18 million of cash proceeds from the disposal of excess land and inventory in our luxury segment . as discussed in more detail below and in footnote no . 19 , impairment charges , in the notes to our financial statements , in preparing for the spin-off , management approved a plan in the third quarter of 2011 to accelerate cash flow through the monetization of certain excess undeveloped land and excess built luxury inventory . as a result of adopting this plan , we recorded a pre-tax non-cash impairment charge of $ 324 million in our statement of operations to write-down the value of these assets . below is a summary of significant accounting policies used in our business that will be used in describing our results of operations . sales of vacation ownership products we recognize revenues from our sales of vacation ownership products when all of the following conditions exist : a binding sales contract has been executed ; the statutory rescission period has expired ; the receivable is deemed collectible ; the criteria for percentage of completion accounting are met ; and the remainder of our obligations are substantially completed . sales of vacation ownership products may be made for cash or we may provide financing . story_separator_special_tag we provide day-to-day-management services , including housekeeping services , operation of a reservation system , maintenance , and certain accounting and administrative services for property owners ' associations . we receive compensation for such management services which is generally based on either a percentage of total costs to operate the resorts or a fixed fee arrangement . we earn these fees regardless of usage or occupancy . with the launch of the mvcd program in mid-2010 , we also receive certain annual and transaction based fees charged to owners and other third parties for services . resort management and other services expenses include costs to operate the food and beverage and other ancillary operations and overall customer support services , including reservations . 37 financing we offer financing to qualified customers for the purchase of most types of our vacation ownership products . the average fico score of customers who were u.s. citizens or residents who financed a vacation ownership purchase was as follows : replace_table_token_8_th the typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the note receivable , which is generally 10 years . the interest income earned from the financing arrangements is earned on an accrual basis on the principal balance outstanding over the life of the arrangement and is recorded as financing revenues on our statements of operations . financing revenues include interest income earned on notes receivable as well as fees earned from servicing the existing loan portfolio . financing expenses include costs in support of the financing , servicing and securitization processes . in the event of a default , we generally have the right to foreclose on or revoke the vacation ownership interest . we typically return interests that we reacquire through foreclosure or revocation back to developer inventory . as discussed above , we record a notes receivable reserve at the time of sale and classify the reserve as a reduction to revenues from the sales of vacation ownership products in our statements of operations . historical default rates , which represent annual defaults as a percentage of each year 's beginning gross notes receivable balance , were as follows : replace_table_token_9_th on january 2 , 2010 , the first day of our 2010 fiscal year , we adopted the new consolidation standard . we use certain special purpose entities to securitize notes receivable originated with the sale of vacation ownership products , which prior to our adoption of the new consolidation standard were treated as off-balance sheet entities . we retain the servicing rights and varying subordinated interests ( residual interests ) in the securitized notes receivable . pursuant to gaap in effect prior to 2010 , we did not consolidate these special purpose entities in our financial statements because the notes receivable securitization transactions were executed through qualified special purpose entities and qualified as sales of financial assets . as a result of adopting the new consolidation standard on the first day of 2010 , we consolidated 13 existing qualifying special purpose entities associated with past notes receivable securitization transactions , and we recorded a one-time non-cash after-tax reduction to shareholders ' equity of $ 141 million ( $ 238 million pre-tax ) in the first quarter of 2010 , representing the cumulative effect of a change in accounting principle . the following table highlights some of the key changes in treatment of various items on our balance sheets and statement of operations resulting from our adoption of the new consolidation standard . after the january 2 , 2010 adoption of the new consolidation standard prior to the january 2 , 2010 adoption of the new consolidation standard gains on securitization of notes receivable not recorded recorded in our statements of operations securitized notes receivable ( balance sheet ) remain on our balance sheets removed from our balance sheets retained interest in securitized notes receivable ( balance sheet ) not recorded recorded on our balance sheets accretion of retained interests not recorded recorded in our statements of operations interest income on securitized notes recorded in our statements of operations not recorded reversal of the notes receivable reserve upon securitization not recorded recorded in our statements of operations debt issued upon securitization of notes receivable recorded on our balance sheets not recorded 38 see footnote no . 5 , fair value measurements , in the notes to our financial statements for further information on the valuation of our retained interests in securitized notes receivable prior to adoption of the new consolidation standard . rental we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory . we obtain rental inventory from : unsold inventory ; and inventory we control because owners have elected various usage options . rental revenues are primarily the revenues we earn from renting this inventory . since the launch of the mvcd program , we also recognize rental revenue from the utilization of plus points when those points are redeemed for rental stays at one of our resorts or upon expiration . rental expenses include : maintenance fees on unsold inventory ; costs to provide alternate usage rights , including marriott rewards points , for owners who elect to exchange their inventory ; subsidy payments to property owners ' associations at resorts that are in the early phases of construction where maintenance fees collected from the owners are not sufficient to support operating costs of the resort ; marketing costs and direct operating and related expenses in connection with the rental business ( e.g. , housekeeping , credit card expenses and reservation services ) ; and costs associated with the banking and borrowing usage option that is available under our mvcd program . rental metrics , including the average daily transient rate or the number of transient keys rented , may not be comparable between periods given fluctuation in available occupancy by location , unit size ( e.g.
| consolidated results the following discussion presents an analysis of results of our operations for 2011 , 2010 and 2009. replace_table_token_10_th ( 1 ) financing revenues and interest expenses reflect the impact of adopting the new consolidation standard in 2010 . 40 revenues and expenses 2011 compared to 2010 revenues increased by $ 29 million ( 2 percent ) to $ 1,613 million in 2011 from $ 1,584 million in 2010 , reflecting $ 25 million of higher rental revenues , $ 13 million of higher cost reimbursements , and $ 11 million of higher resort management and other services revenues , partially offset by $ 19 million of lower financing revenues and $ 1 million of lower sales of vacation ownership products . rental revenues increased $ 25 million ( 13 percent ) to $ 212 million in 2011 from $ 187 million in 2010 from the recognition of $ 27 million of plus points revenue ( upon utilization of plus points for stays at our resorts in 2011 or upon expiration of plus points ) , a company-wide 2 percent increase in transient keys rented ( 20,000 additional keys ) driven by an increase in available keys due to owners banking significantly more points than were borrowed in 2011 , as well as the impact of higher rental demand mainly at our north america and europe properties that resulted in a company-wide 2 percent increase in transient rate ( nearly a $ 4.50 increase per key ) . this increase was partially offset by the loss of rental units in our asia pacific segment associated with the disposition in the 2010 fourth quarter of an operating hotel that we originally acquired for conversion into vacation ownership products .
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forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and generally contain words such as “ believes , ” expects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ estimates , ” or “ anticipates ” or similar expressions . our forward-looking statements are subject to risks and uncertainties , which may cause actual results to differ materially from those projected or implied by the forward-looking statement . forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance . you should not place undue reliance on forward-looking statements , which speak only as of the date hereof . see “ item 1a . risk factors ” and “ forward-looking statements ” for a discussion of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements . overview we are a hospitality company that develops and operates upscale , high-energy restaurants and lounges and provides turn-key food and beverage services for hospitality venues including boutique hotels , casinos and other high-end locations in the united states and the united kingdom . we opened our first restaurant in january 2004 in new york city and as of december 31 , 2013 , we owned and operated 10 and managed 9 restaurants and lounges throughout the united states and london . our primary restaurant brand is stk , a steakhouse concept that features a high-energy , fun environment that encourages social interaction . we currently operate six stk restaurants in major metropolitan cities in the united states and london , and we have two additional restaurants in washington , d.c. and miami . we anticipate that the stk in washington d.c. will open in april 2014 and the stk in miami will open during the fourth quarter of 2014. on february 10 , 2014 , a wholly-owned subsidiary of one group entered into a lease agreement with walt disney parks and resorts u.s. , inc. with respect to the opening of an stk restaurant in orlando , florida , which is expected to open in 2015. the average unit volume , check and beverage mix for stk restaurants that have been open a full twelve months were $ 11.0 million , $ 127 and 41 % , respectively . 34 in addition to operating stand-alone restaurants , we also operate turn-key food and beverage services at high-end boutique hotels and casinos , which , in some cases , include upscale restaurants , such as stk . our diversified portfolio of differentiated , high-energy food and beverage hospitality solutions provides landlords and owners a choice of having one or several of our concepts and or services in their venues . these locations are operated under our management agreements under which we earn a management fee based on revenue and an incentive fee based on profitability of the underlying operations . we typically target food and beverage hospitality opportunities where we believe we can generate $ 500,000 to $ 750,000 of annual pre-tax income exclusive of any related stk revenues or profits . we also own or manage a small number of other standalone restaurants and lounges . net losses for the year ended december 31 , 2013 and december 31 , 2012 were $ 21.9 million and $ 2.8 million , respectively , and included a derivative expense of $ 10.1 million related to the potential exercise of our publicly traded warrants , a one-time change of control premium of $ 5.0 million and transactions costs of $ 4.6 million for the years ended december 31 , 2013 , as well as a loss from discontinued operations of $ 5.4 million and $ 10.0 million for the years ended december 31 , 2013 and 2012 , respectively . the loss from discontinued operations reflects our exiting of non-strategic and underperforming units during these periods and includes the closing of the bagatelle unit in las vegas during 2013 as well as the proposed termination of the management agreement with the palms hotel in las vegas for the heraea concept and the proposed termination of the lease with the palms hotel in las vegas for the xishi concept . in addition , we closed the one concept in atlantic city in 2012 and a kiosk in new york city which featured burgers and shakes in 2013. our growth strategies and outlook our growth model is comprised of the following four primary drivers : expansion of stk . we have identified over 50 additional major metropolitan markets globally where we could grow our stk brand over time . we expect to open as many as two to three stks annually in the next three years and to target approximately 25 % annual unit growth thereafter provided that we have enough capital , acceptable locations and quality restaurant managers available to support that pace of growth . we believe that the completion of the merger will enable us to opportunistically invest more of our own capital in projects in order to capture a greater proportion of the economic returns . however , there can be no assurance that we will be able to open new stks at the rate we currently expect or that our pipeline of planned offerings will be fully realized . expansion through new food & beverage hospitality projects . we believe we are well positioned to leverage the strength of our brands and the relationships we have developed with global hospitality providers to drive the continued growth of our food and beverage hospitality projects , which traditionally have provided fee income with minimal capital expenditures . we continue to receive significant inbound inquiries regarding new services in new hospitality opportunities globally and to work with existing hospitality clients to identify and develop additional opportunities in their venues . story_separator_special_tag risk factors — increases in the prices of , and or reductions in the availability of commodities , primarily beef , could adversely affect our business and results of operations ” . 36 unit operating expenses . we measure unit operating expenses for company-owned units as a percentage of owned unit net revenues . unit operating expenses include the following : payroll and related expenses . payroll and related expenses consists of manager salaries , hourly staff payroll and other payroll-related items , including taxes and fringe benefits . we measure our labor cost efficiency by tracking total labor costs as a percentage of food and beverage revenues . occupancy . occupancy comprises all occupancy costs , consisting of both fixed and variable portions of rent , deferred rent expense , which is a non-cash adjustment included in our adjusted ebitda calculation as defined below , common area maintenance charges , real estate property taxes , utilities and other related occupancy costs and is measured by tracking occupancy as a percentage of revenues . direct operating expenses . direct operating expenses consists of supplies , such as paper , small wares , china , silverware and glassware , cleaning supplies and laundry and linen costs and typically tracks revenues . outside services . outside services includes music and entertainment costs , such as the use of live dj 's , promoter costs , security services and commissions paid to event staff for banquet sales . repairs and maintenance . repairs and maintenance consists of facility and computer maintenance contracts as well as general repair work to maintain the facilities . these costs will typically increase as the facility gets older . marketing . marketing includes the cost of goods used specifically for complimentary purposes as well as general public relation costs related to the specific unit , but excluding any discounts such as management and employee meals . marketing costs will typically be higher during the first eighteen months of a unit 's operations . 37 general and administrative , net . general and administrative expenses are comprised of all corporate overhead expenses , including payroll and related benefits , professional fees , such as legal and accounting fees , insurance and travel expenses . certain general and administrative expenses are allocated specifically to units and are credited and include shared services such as reservations , events and marketing . general and administrative expenses are expected to grow as we grow , including legal , accounting and other professional fees incurred as a public company . depreciation and amortization . depreciation and amortization consists principally of charges related to the depreciation of fixed assets including leasehold improvements , equipment and furniture and fixtures . as we accelerate our restaurant openings , depreciation and amortization is expected to increase as a result of our increased capital expenditures . management and royalty fees . in certain of our units , we pay outside third parties a management fee based on a percentage of sales or a fixed fee . historically , a majority of management fees related to one property , tenjune , and related to the use of an outside management company to operate this lounge concept . this management agreement was terminated in february 2013. royalty fees are paid to the 50 % owner of the trademark rights to the name “ asellina ” and “ cucina asellina ” . pre-opening expenses . pre-opening expenses consist of costs incurred prior to opening an owned or managed unit which are comprised principally of manager salaries and relocation costs , employee payroll and related training costs for new employees and lease costs incurred prior to opening . we expect these costs to increase as we accelerate our company-owned restaurant openings , which may have a material impact on our operating results in future periods . preopening expenses vary from location to location depending on a number of factors , including the proximity of our existing restaurants ; the amount of rent expensed during the construction and in-restaurant training periods ; the size and physical layout of each location ; the number of management and hourly employees required to operate each restaurant ; the relative difficulty of the restaurant staffing process ; the cost of travel and lodging for different metropolitan areas ; the timing of the restaurant opening ; and the extent of unexpected delays , if any , in obtaining necessary licenses and permits to open the restaurant . provision for income taxes . the company accounts for income taxes in accordance with fasb asc 740 “ accounting for income taxes ” . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating losses and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . after an evaluation of the realizability of the company 's deferred tax assets , the company increased its valuation allowance by $ 10,300,000 during 2013. see note 11 , “ incomes taxes , ” for a further discussion of the company 's provision for income taxes . equity in ( income ) loss of subsidiaries . this represents the income or loss that we record under the equity method for entities that are not consolidated . included in this amount is our ownership in bagatelle new york for which we have effective ownership of approximately 51 % representing 5.23 % ownership directly by us and 45.90 % ownership through two of our subsidiaries . adjustments for noncontrolling interest . this represents the allocation of net income or loss attributable to the minority interest in those of our subsidiaries which are not wholly-owned . ebitda and adjusted ebitda . we define ebitda as net income before interest expense , provision for income taxes and depreciation and amortization .
| results of operations the following table sets forth certain statements of income data for the periods indicated : replace_table_token_7_th 40 the following table sets forth certain statements of income data as a percentage of revenues for the periods indicated : replace_table_token_8_th ( 1 ) these expenses are being shown as a percentage of owned unit net revenues . 41 year ended december 31 , 2013 compared to year ended december 31 , 2012 revenues owned unit net revenues . owned unit net revenues decreased $ 17.8 million , or 31.5 % , from $ 56.4 million for the year ended december 31 , 2012 to $ 38.6 million for the year ended december 31 , 2013. this decrease was primarily due to a decrease of $ 12.8 million in revenues due to the temporary closure and renovation of the perry hotel in miami in which we operate one stk and also provide food and beverage services to the hotel . we expect this stk to reopen in april 2014. we anticipate providing food and beverage services to the perry hotel ( to be renamed as “ 1 hotel south beach ” ) when the hotel reopens . while the perry hotel paid us $ 5 million in 2012 for the option to terminate our food and beverage services agreement , it has not indicated its intent to actually terminate the agreement with us as it will trigger substantial additional payments to us if it does so ( $ 1,200,000 if terminated between january 1 , 2014 and december 31 , 2014 , $ 798,000 if terminated between january 1 , 2015 and december 31 , 2015 and $ 399,600 if terminated between january 1 , 2016 and december 31 , 2016 ) .
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our clearpoint system , which is in commercial use , is used to perform minimally invasive surgical procedures in the brain . we anticipate that our cleartrace system , which is a product candidate still in development , will be used to perform minimally invasive surgical procedures in the heart . in 2015 , we suspended development of the cleartrace system so that we could focus our resources on the clearpoint system . both systems utilize intra-procedural mri to guide the procedures and are designed to work in a hospital 's existing mri suite . we believe that our two product platforms , subject to appropriate regulatory clearance and approval , will deliver better patient outcomes , enhance revenue potential for both physicians and hospitals , and reduce costs to the healthcare system . 41 in 2010 , we received regulatory clearance from the fda to market our clearpoint system in the u.s. for general neurological procedures . in 2011 , we also obtained ce marking approval for our clearpoint system , which enables us to sell our clearpoint system in the european union . substantially all of our product revenues for the years ended december 31 , 2015 and 2014 relate to sales of our clearpoint system products . we do not have regulatory clearance or approval to sell our cleartrace system for commercial use ; however , in 2014 we recognized an isolated sale of certain cleartrace system components to a research site for non-commercial use . we have financed our operations and internal growth primarily through the sale of equity securities , the issuance of convertible and other secured notes , and license arrangements . we have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development . as of december 31 , 2015 , we had an accumulated deficit of $ 85.9 million . we may continue to incur operating losses as we commercialize our clearpoint system products , continue to develop our cleartrace system , and expand our business . factors which may influence future results of operations the following is a description of factors which may influence our future results of operations , and which we believe are important to an understanding of our business and results of operations . revenues in june 2010 , we received 510 ( k ) clearance from the fda to market our clearpoint system in the u.s. for general neurological procedures . future revenues from sales of our clearpoint system products are difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling , general and administrative expenses . we can not sell our cleartrace system for commercial use until we receive regulatory clearance or approval . generating recurring revenues from the sale of disposable products is an important part of our business model for our clearpoint system . we anticipate that , over time , recurring revenues will constitute an increasing percentage of our total revenues as we leverage installations of our clearpoint system to generate recurring sales of our clearpoint disposable products . our product revenues were approximately $ 4.4 million for the year ended december 31 , 2015 , and were almost exclusively related to our clearpoint system . our revenue recognition policies are more fully described in the “ critical accounting policies and significant judgments and estimates ” section below . cost of product revenues cost of product revenues includes the direct costs associated with the assembly and purchase of components for disposable products and clearpoint system reusable products which we have sold , and for which we have recognized the revenue in accordance with our revenue recognition policy . cost of product revenues also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our clearpoint placement program , as well as provisions for obsolete , impaired , or excess inventory . cost of product revenues also includes similar applicable costs associated with the sale of any cleartrace system components for non-commercial use . research and development costs our research and development costs consist primarily of costs associated with the conceptualization , design , testing , and prototyping of our clearpoint system products and our cleartrace system components . such costs include salaries , travel , and benefits for research and development personnel , including related share-based compensation ; materials and laboratory supplies in research and development activities ; consultant costs ; sponsored research and product development with third parties ; and licensing costs related to technology not yet commercialized . we anticipate that , over time , our research and development expenses may increase as we : ( i ) continue to develop enhancements to our clearpoint system ; ( ii ) resume our cleartrace system product development efforts ; and ( iii ) expand our research to apply our technologies to additional product applications . from our inception through december 31 , 2015 , we have incurred approximately $ 45 million in research and development expenses . product development timelines , likelihood of success , and total costs can vary widely by product candidate . there are also risks inherent in the regulatory clearance and approval process . at this time , we are unable to estimate with any certainty the costs that we will incur in the continuing development of our cleartrace system for commercialization . 42 selling , general and administrative expenses our selling , general and administrative expenses consist primarily of salaries , incentive-based compensation , travel and benefits , including related share-based compensation ; marketing costs ; professional fees , including fees for attorneys and outside accountants ; occupancy costs ; insurance ; medical device excise taxes ; and other general and administrative expenses , which include , but are not limited to , corporate licenses , director fees , hiring costs , taxes , postage , office supplies and meeting costs . story_separator_special_tag this valuation model requires the input of highly subjective assumptions , including the expected stock volatility , estimated award terms and risk-free interest rates for the expected terms . to estimate the expected terms , we utilize the “ simplified ” method for “ plain vanilla ” options discussed in the sec 's staff accounting bulletin 107 , or sab 107. we believe that all factors listed within sab 107 as prerequisites for utilizing the simplified method apply to us and to our share-based compensation arrangements . we intend to utilize the simplified method for the foreseeable future until more detailed information about exercise behavior becomes available . we based our estimate of expected volatility on the average of historical volatilities of publicly traded companies we deemed similar to us because we lack our own relevant historical volatility data . we will consistently apply this methodology until we have sufficient historical information regarding the volatility of our own share prices to use as the input for all of our share-based fair value calculations . we utilize risk-free interest rates based on a zero-coupon u.s. treasury instrument , the term of which is consistent with the expected term of the share-based award . we have not paid , and do not anticipate paying , cash dividends on shares of our common stock ; therefore , the expected dividend yield is assumed to be zero . research and development costs . costs related to research , design and development of products are charged to research and development expense as incurred . these costs include direct salary and employee benefit-related costs for research and development personnel , costs for materials used in research and development activities , sponsored research and costs for outside services . since most of the expenses associated with our development service revenues relate to existing internal resources , these amounts are included in research and development costs . story_separator_special_tag center ; width : 100 % '' > other income ( expense ) . during each of the years ended december 31 , 2015 and 2014 , we recorded gains of $ 1.5 million , resulting from changes in the fair value of our derivative liabilities associated with certain warrants we issued in equity private placement transactions . net other income was $ 231,000 and $ 252,000 for the years ended december 31 , 2015 and 2014 , respectively . other income for the year ended december 31 , 2015 related primarily to grants received for research , and for the year ended december 31 , 2014 other income related primarily to negotiated reductions in amounts payable to service providers . net interest expense for the year ended december 31 , 2015 was $ 1.2 million , compared with $ 1.0 million for the same period in 2014. the increase is due to an increase in the amortization of debt discount and deferred financing costs associated with prior year financing transactions , including such costs associated with the march 2014 private placement of notes payable that were outstanding during the entire year ended december 31 , 2015 , as compared with the approximate nine-month period the debt was outstanding during the year ended december 31 , 2014. liquidity and capital resources the cumulative net loss from the company 's inception through december 31 , 2015 was $ 85.7 million . net cash used in operating activities was $ 8.6 million for the year ended december 31 , 2015 and $ 7.3 million for the year ended december 31 , 2014. since inception , the company has financed its operations principally from the sale of equity securities , the issuance of notes payable and license arrangements . recent such financing activities consist of : ( i ) a december 2015 private placement of equity , which resulted in net proceeds of $ 4.7 million ; ( ii ) a december 2014 private placement of equity , which resulted in net proceeds of $ 9.3 million ; and ( iii ) a march 2014 private placement of debt and warrants , which resulted in net proceeds of $ 3.5 million . in addition , in march 2014 , the company completed a transaction with boston scientific that resulted in the cancellation of $ 4.3 million in related party convertible notes payable held by boston scientific , which were scheduled to mature in 2014 ( see note 6 to the consolidated financial statements included elsewhere in this annual report ) . the company 's plans for the next twelve months reflect management 's anticipation of increases in revenues from sales of the clearpoint system and related disposable products as a result of greater utilization at existing installed sites and the installation of the clearpoint system at new sites . management also anticipates maintaining recurring operating expenses at historical levels , with expected decreases in general and administrative expenses , resulting primarily from the operational restructuring discussed in note 5 to the consolidated financial statements included elsewhere in this annual report being offset by increases in selling and marketing expenses associated with the anticipated growth in revenues . however , there is no assurance that the company will be able to achieve its anticipated results , and even in the event such results are achieved , the company expects to continue to consume cash in its operations over at least the next twelve months . in addition , as discussed in note 7 to such consolidated financial statements , the brainlab note matures in april 2016 , with both principal of $ 4.3 million and accrued interest of $ 740,000 at the maturity date payable in a single installment upon maturity .
| results of operations comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 replace_table_token_2_th nm= not meaningful product revenues . product revenues were $ 4.4 million for the year ended december 31 , 2015 , and $ 3.4 million for the same period in 2014 , an increase of $ 1 million , or 31 % . 44 clearpoint disposable product sales for the year ended december 31 , 2015 were $ 3.5 million , compared with $ 2.6 million for the same period in 2014 , representing an increase of $ 885,000 , or 34 % . this increase was due primarily to a greater number of procedures performed using our clearpoint system within a larger installed base for clearpoint in the 2015 period , relative to the same period in 2014. clearpoint reusable product sales for the year ended december 31 , 2015 were $ 907,000 , compared with $ 767,000 for the same period in 2014 , representing an increase of $ 141,000 , or 18 % . sales of our reusable products , which consist primarily of computer hardware and software bearing sales prices that are appreciably higher than those for disposable products , may vary , sometimes significantly , from period to period . development service revenues . during the year ended december 31 , 2015 , we recorded development service revenues of $ 37,000 , as compared with $ 104,000 during the year ended december 31 , 2014. the change reflects the completion of a development project we performed on a contract basis in 2014. we do not expect development service revenues to be a long-term ongoing source of revenues . other service revenues . other service revenues , comprised of revenues from installation of clearpoint systems and from clearpoint service contracts , were $ 141,000 for the year ended december 31 , 2015 , compared with $ 122,000 for the same period in 2014 , representing an increase of $ 19,000 , or 15 % .
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stockholders ' equity for the years ended december 31 , 2017 and 2016 f-5 consolidated statements of cash flows for the years ended december 31 , 2017 and 2016 f-6 notes to consolidated financial statements f-7 f- 1 report of independent registered public accounting firm to the board of directors and stockholders of net element , inc. miami , florida opinion on the financial statements we have audited the accompanying consolidated balance sheets of net element , inc. ( the “ company ” ) at december 31 story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements contained in this report and the discussion under “ forward-looking statements ” on page 2 at the beginning of this report and the risk factors set forth in part i , item 1a of this report . story_separator_special_tag transaction processing . net revenues were $ 60,064,824 for the year ended december 31 , 2017 as compared to $ 54,286,859 for the year ended december 31 , 2016. the increase in net revenues is primarily due to continued organic growth of north american merchants with emphasis on value-added offerings partially offset by a $ 3,229,460 decrease in net revenues from our international transaction solutions segment as we experience increased competition , decreased margins and reorganizing assignments from our international transaction solutions segment . cost of revenues represents direct costs of generating revenues , including commissions , mobile operator fees , purchases of short numbers , interchange expense and processing fees . cost of revenues for the year ended december 31 , 2017 were $ 51,237,212 as compared to $ 45,708,241 for the year ended december 31 , 2016. the year over year increase in cost of revenues of $ 5,528,971 was driven by a $ 7,922,799 increase due to increased north american transaction solutions sales for the year ended december 31 , 2017. this was partially offset by a $ 2,393,828 decrease in the international transaction solutions segment cost of revenues due to the decrease in international transaction solutions revenues from digital provider . gross margin for the year ended december 31 , 2017 was $ 8,827,613 , or 14.7 % of net revenue , as compared to $ 8,578,618 , or 15.8 % of net revenue , for the year ended december 31 , 2016. the primary reason gross margin percentages decreased was due to increased ( lower margin ) business mix from north american transaction solutions and a decrease in digital provider business that had higher margins . total operating expenses were $ 17,425,030 for the year ended december 31 , 2017 , as compared to total operating expenses of $ 17,416,066 for the year ended december 31 , 2016. total operating expenses for the year ended december 31 , 2017 consisted of general and administrative expenses of $ 10,629,773 , non-cash compensation of $ 2,940,424 , a bad debt provision of $ 1,320,848 and depreciation and amortization of $ 2,533,985. for the year ended december 31 , 2016 , operating expenses consisted of general and administrative expenses of $ 8,797,883 , non-cash compensation of $ 3,463,435 , a bad debt provision of $ 1,688,237 , and depreciation and amortization of $ 3,466,511 . 32 general and administrative expenses for the years ended december 31 , 2017 and 2016 consisted of operating expenses not otherwise delineated in our consolidated statements of operations and comprehensive loss and include salaries and benefits , professional fees , rent , business development , travel expense , filing fees , transaction gains or losses , office expenses , communication expenses , insurance expenses , and other expenses required to run our business , as follows : replace_table_token_7_th 33 salaries , benefits , taxes and contractor payments were $ 5,749,399 for the year ended december 31 , 2017 as compared to $ 4,750,185 for the year ended december 31 , 2016 , representing an increase of $ 999,214. the increase in salaries of $ 999,214 was due primarily to the increase of corporate salaries of $ 575,542 , resulting primarily from a $ 300,000 increase in discretionary bonus granted to our ceo by the board of directors and to a lesser extent increases in executive salaries . the $ 320,817 increase in the north american transaction solutions segment was primarily due to increases in headcount and sales incentives for key employees as the business grew . the $ 102,855 increase in the international transaction solutions segment was primarily due to fluctuations in the ruble exchange rate . professional fees were $ 2,636,838 for the year ended december 31 , 2017 as compared to $ 2,714,839 for the year ended december 31 , 2016 , representing a decrease of $ 78,001 as follows : replace_table_token_8_th replace_table_token_9_th replace_table_token_10_th professional fees decreased by $ 78,001 primarily due to a decrease in general legal fees because of decreases in litigation and consulting fees partially offset by an increase in sec compliance due to increased public market transactions . transaction gains and losses represent changes in exchange rates between our functional currency and the foreign currency in which the transaction is denominated . during the years ended december 31 , 2017 and 2016 , respectively , we incurred $ 38,816 and $ 740,543 of foreign currency transaction losses . other general and administrative expenses were $ 216,397 for the year ended december 31 , 2017 as compared to $ 160,162 for the year ended december 31 , 2016 , representing an increase of $ 56,235. the increase was caused primarily by a $ 43,272 increase in taxes due to a 2016 tax refund in the international transaction solutions segment that was not present in 2017 . story_separator_special_tag operating activities used $ 5.0 million of cash for the twelve months ended december 31 , 2017 as compared to using $ 3.3 million of cash for the twelve months ended december 31 , 2016. negative operating cash flow for the twelve months ended december 31 , 2017 was primarily due to paying off accounts payables and accrued liabilities as the company had an increase in its cash balance as a result of equity sales at the end of 2017. investing activities used $ 1.8 million of cash for the year ended december 31 , 2017 as compared to using $ 1.5 million of cash for the year ended december 31 , 2016. the increase in cash used by investing activities for the year ended december 31 , 2017 was primarily attributable to the $ 0.5 million increase in acquisition costs as we gain additional market share for our north american transactions solutions segment . for the year ended december 31 , 2017 , financing activities provided cash of $ 17.6 million , primarily from $ 14.9 million from equity financing and $ 3.7 million in proceeds from indebtedness . for the year ended december 31 , 2016 , financing activities provided cash of $ 4.4 million , primarily from $ 3.2 million from proceeds from indebtedness , $ 0.3 million in cash paid for stock and warrants and $ 1 million from related party advances from our ceo and board member . effective june 30 , 2014 , tot group , inc. and its subsidiaries as co-borrowers , tot payments , llc , tot bps , llc , tot fbs , llc , process pink , llc , tot hps , llc and tot new edge , llc ( collectively , the “ co-borrowers ” ) , entered into a loan and security agreement ( “ credit facility ” ) with rbl capital group , llc ( “ rbl ” ) , as lender ( the “ rbl loan agreement ” ) . the original terms provided us with an 18-month , $ 10 million credit facility with interest at the higher of 13.90 % per annum or the prime rate plus 10.65 % . interest on drawn amounts outstanding after november 30 , 2015 carry interest at an additional three percent per annum until repaid in full , with other amounts , obligations or payments due carrying an annual default rate not to exceed the lesser of ( i ) the prime rate plus 13 % per annum and ( ii ) 18.635 % per annum . on may 2 , 2016 , we renewed our credit facility with rbl , increasing the facility from $ 10 million to $ 15 million and extending the term through february 2019. at december 31 , 2017 and 2016 , we had $ 10,455,912 and $ 10,455,087 available under the credit facility , respectively . the co-borrowers obligations to rbl pursuant to the rbl loan agreement are secured by a first priority security interest in all of the co-borrowers tangible and intangible assets , including but not limited to their merchants , merchant contracts and proceeds thereof , and all right title and interest in co-borrowers ' processing contracts , contract rights , and portfolio cash flows with all processors of the co-borrowers . as further described below , the following borrowings from the credit facility were converted into rbl term notes : during july 2014 , we entered into a $ 3,315,000 rbl term note . net proceeds from the term note were used to repay a $ 3.0 million note previously due to mbf merchant capital , llc ( “ mbf ” ) in addition to approximately $ 239,000 for working capital . the term note required interest-only payments at 13.90 % interest through january 2015 commencing in august 2014 followed by monthly interest and principal payments of $ 90,421 through january 2019. the term note required payment of a 2 % front-end fee due at issuance and a 4 % back-end fee due at final payment . during 2016 , crede cg iii , ltd. ( “ crede ” ) purchased $ 1,849,481 of the principal balance of this note held by rbl in various tranches . we repurchased and extinguished the purchased notes in exchange for 135,237 shares of our common stock . ( see “ note 13 —crede cg iii , ltd. ” ) . during december 2016 , the remaining balance of the term note was refinanced into another rbl term note . during february 2015 , we entered into a $ 400,000 rbl term note . the term note provided for interest-only payments at 13.9 % through july 2015 , with monthly interest and principal payments of $ 10,911 from august 2015 through july 2019. we paid $ 8,000 in costs related to this term note . the term note was purchased by crede in various tranches during june 2016 , which we repurchased and extinguished in exchange for 21,928 shares of our common stock . 36 during march 2015 , we entered into a $ 250,000 rbl term note . the term note provided for interest-only payments at 13.9 % through july 2015 , with monthly interest and principal payments of $ 6,819 from august 2015 through july 2019. we paid $ 5,000 in costs related to this term note . this term note was purchased by crede in may 2016 , which we repurchased and extinguished in exchange for 9,174 shares of our common stock . during may 2016 , we entered into a $ 250,000 rbl term note . the term note provided for interest-only payments at 14.15 % interest through october 2016 , with monthly interest and principal payments of $ 6,850 from november 2016 through october 2020. the term note required payment of a 2 % front-end fee at issuance and a 4 % back-end fee due at the final payment .
| overview net element is a global financial technology and value-added solutions group that supports companies in accepting electronic payments in a multi-channel environment that spans across point-of-sale ( “ pos ” ) , e-commerce and mobile devices . we operate in two reportable business operating segments : ( i ) north american transaction solutions and ( ii ) international transaction solutions . for additional information about our business segments , see “ business segments ” under part i , item 1 of this report . we enable merchants of all sizes to accept and process over 100 different payment options in more than 120 currencies , including credit , debit and prepaid payments . we also provide merchants with value-added services and technologies including integrated payment technologies , pos solutions , security solutions , fraud management , information solutions and analytical tools . total transactions processed during 2017 were 154 million compared to 187 million for 2016. the decrease in transactions processed was primarily attributable to our international transaction solutions segment , which saw a 35 % decrease from 100 million in 2016 to 65 million transactions in 2017 , due to the consolidation of our mobile solutions business with our online solutions business . transactions processed for our north american transaction solutions segment increased by 2 % from 87.2 million in 2016 to 89 million in 2017 due to bigger ticket items being purchased as our sales volume increased 18 % . total transaction dollars processed during 2017 was $ 2.80 billion compared to $ 2.45 billion for 2016. the increase in transaction dollars processed came primarily from our north american transactions solutions segment , which saw an 18 % increase from $ 1.9 billion in 2016 to $ 2.3 billion processed in 2017. our international transaction solutions segment was flat during 2017 due to reorganization and consolidation of the mobile solutions business . growth in the north american transactions solutions segment was primarily organic .
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upon closing of the merger , acquisition sub was merged with and into the company , and the company , as the surviving corporation in the merger , became a wholly-owned subsidiary of the company and the corporate name was changed to adma biologics , inc. for accounting purposes , the merger was accounted for as a reverse acquisition , with the company as the accounting acquiror ( legal acquiree ) and parentco as the accounting acquiree ( legal acquiror ) , effectively a recapitalization of the company . following the merger , the company story_separator_special_tag this discussion , which refers to the historical results of adma and its predecessor business , should be read in conjunction with the other sections of this annual report , including “ risk factors , ” “ business ” and the consolidated financial statements and other consolidated financial information included in this report . the various sections of this discussion contain a number of forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report . see “ special note regarding forward-looking statements. ” our actual results may differ materially . financial operations overview revenues revenue for the year ended december 31 , 2014 , of $ 5,915,545 is comprised of $ 5,839,989 from the sale of normal source human plasma collected at our plasma collection center and plasma-derived medicinal products and $ 75,556 of license revenues attributed to the out-licensing of ri-002 to biotest ag to market and sell in europe and selected countries in north africa and the middle east . in exchange , biotest pharmaceuticals corporation , or biotest , a subsidiary of biotest ag , has provided us with certain services in accordance with the related license agreement and is obligated to pay us certain amounts in the future if certain milestones are achieved . depending upon the agreement with the customer , revenue is recognized at the time of transfer of title and risk of loss or revenue is recognized at the time of delivery if we retain the risk of loss during shipment . our revenues are substantially attributed to one customer . revenue from license fees and research and development services rendered are recognized as revenue when we have completed the performance obligations under the terms of the license agreement with biotest . deferred revenue of $ 1,700,000 was recorded in the second quarter of 2013 as a result of certain research and development services to be provided in accordance with a license agreement and is recognized over the term of the license . deferred revenue is amortized for a period of approximately 20 years , the term of the license agreement . research and development expense research and development , or r & d , expense consists of clinical research organization and clinical trial costs related to our clinical trial , consulting expenses relating to regulatory affairs , quality control and manufacturing , assay development and ongoing testing costs , drug product manufacturing including the cost of plasma , plasma storage and transportation costs , as well as wages , stock-based compensation and benefits for employees directly related to the research and development of ri-002 . all r & d costs are expensed as incurred . 36 the process of conducting pre-clinical studies and clinical trials necessary to obtain fda approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's early clinical data , investment in the program , competition , manufacturing capabilities and commercial viability . as a result of the uncertainties discussed above , the uncertainty associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when , or to what extent , we will generate revenues from the commercialization and sale of any of our product candidates . development timelines , probability of success and development costs vary widely . we expect that our r & d expenses should remain consistent in 2015 from amounts previously reported in 2014 as we prepare for our regulatory biologics license application or bla filing with the fda and associated regulatory costs and filing fees . general and administrative expense general and administrative , or g & a expense , consists of wages , stock-based compensation and benefits for senior management and staff unrelated to r & d , consulting fees for commercialization planning and market research , legal fees , accounting and auditing fees , information technology , rent , maintenance and utilities , insurance , travel and other expenses related to the general operations of the business . g & a expense also includes a write-off of deferred financing fees related to our financing activities during 2013. we expect that our g & a expense will continue to increase during 2015 as a result of commercial planning , market research costs and the hiring of additional staff related to commercialization and marketing in anticipation of the commercial development of ri-002 . interest income and interest expense interest income consists of interest earned on our cash and cash equivalents and short-term investments . interest expense consists of interest incurred on our notes payable , as well as the amortization and write-off of deferred financing costs and debt discounts . story_separator_special_tag on february 24 , 2014 , we entered into the first amendment to the loan agreement , or loan amendment , under which we have borrowed $ 15.0 million in the aggregate as of december 31 , 2014 , comprised of $ 10.0 million on the closing date , ( $ 5.0 million of which was used to refinance existing debt with hercules ) and an additional $ 5.0 million we accessed in december 2014 when we successfully announced the clinical endpoints of our phase iii clinical study of ri-002 as a treatment for primary immunodeficiency diseases in a manner that supports a bla filing . the loan bears interest at a rate per annum equal to the greater of ( i ) 8.75 % and ( ii ) the sum of ( a ) 8.75 % plus ( b ) the prime rate ( as reported in the wall street journal ) minus ( c ) 5.75 % . payment-in-kind interest accrues on the outstanding principal balance of the loan compounded monthly at 1.95 % per annum . such accrued and unpaid interest is added to the principal balance of the loan on the first day of each month beginning on the month after the closing . we are obligated to begin to repay the principal over 18 months beginning october 1 , 2015 , unless accelerated as a result of certain events of default . a backend fee equal to $ 132,500 is due the earliest of april 1 , 2016 , which is related to the original loan agreement , the prepayment date and the date that the secured obligations become due and payable . in addition , a first amendment commitment fee and a facility fee in the amount of $ 15,000 and $ 135,000 , respectively , were paid at closing . in the event we elect to prepay the loan , we are obligated to pay a prepayment charge corresponding to a percentage of the principal amount of the loan , with such percentage being : 2.5 % if prepayment occurs in the first year , 1.5 % if prepayment occurs in the second year and 0.5 % if prepayment occurs after the second year but prior to the final day of the term . the loan matures no later than january 1 , 2018. the loan is secured by our assets , except for our intellectual property ( which is subject to a negative pledge ) . interest is due and payable on the 1st of every month and at the termination date , unless accelerated as a result of an event of default . the loan agreement contains customary representations , warranties and covenants , including limitations on incurring indebtedness , engaging in mergers or acquisitions and making investments , distributions or transfers . the representations , warranties and covenants contained in the loan agreement were made only for purposes of such agreement and as of a specific date or specific dates , were solely for the benefit of the parties to such agreement , and may be subject to limitations agreed upon by the contracting parties , including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the loan agreement . events of default under the agreement include , but are not limited to : ( i ) insolvency , liquidation , bankruptcy or similar events ; ( ii ) failure to pay any debts due under the loan agreement or other loan documents on a timely basis ; ( iii ) failure to observe any covenant or secured obligation under the loan agreement or other loan documents , which failure , in most cases , is not cured within 10 days of written notice by lender ; ( iv ) occurrence of any default under any other agreement between us and the lender , which is not cured within 10 days ; ( v ) occurrence of an event that could reasonably be expected to have a material adverse effect ; ( vi ) material misrepresentations ; ( vii ) occurrence of any default under any other agreement involving indebtedness in excess of $ 50,000 or the occurrence of a default under any agreement that could reasonably be expected to have a material adverse effect ; and ( viii ) certain money judgments are entered against us or a certain portion of our assets are attached or seized . remedies for events of default include acceleration of amounts owing under the loan agreement and taking immediate possession of , and selling , any collateral securing the loan . 41 in connection with the original loan agreement , we issued to hercules a warrant to purchase 31,750 shares of common stock with an exercise price of $ 7.56 , and under the amended loan agreement , we issued to hercules a warrant to purchase an additional 58,000 shares of its common stock , comprised of a warrant to purchase 23,200 shares of common stock issued in february 2014 and a warrant to purchase 34,800 shares of common stock issued in december 2014 , each issued upon the drawdown of each $ 5.0 million of additional debt , with an exercise price set at the lower of ( i ) $ 7.50 per share or ( ii ) the price per share of the next round of financing over the next twelve months , subject to customary anti-dilution adjustments . the warrants expire after 10 years and have piggyback registration rights with respect to the shares of common stock underlying the warrant . in addition , we have also granted hercules the option to invest ( until the loan maturity date ) up to $ 1.0 million in future equity financings at the same terms as the other investors . the loan agreement contains certain provisions that require the warrants issued to hercules to be accounted for as a liability and to be “ mark-to-market ” each reporting period .
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 summary table the following table presents a summary of our results of operations for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. replace_table_token_2_th 37 revenue we recorded revenue of $ 5,915,545 during the year ended december 31 , 2014 compared to $ 3,067,577 during the year ended december 31 , 2013. product revenue was $ 5,839,989 for the year ended december 31 , 2014 , from the sale of blood plasma collected in our fda-licensed , gha and mfds-certified norcross , georgia based blood plasma collection center compared to product revenue of $ 3,023,503 for the year ended december 31 , 2013. product revenue for the year ended december 31 , 2014 was primarily attributed to sales made under our plasma supply agreement with biotest , pursuant to which biotest purchases normal source plasma from our georgia facility to be used in their manufacturing . the increase in product revenue of $ 2,816,486 was attributed to increased advertising and promotions , expanded donor collection hours and days as well as the implementation and use of additional plasma donor equipment . for the years ended december 31 , 2014 and 2013 , license revenue was $ 75,556 and $ 44,074 , respectively , which relates to services provided by biotest in accordance with our license agreement with them . we have not generated any revenue from our therapeutics , research and development business . cost of product revenue cost of product revenue was $ 3,742,367 for the year ended december 31 , 2014 , an increase of $ 1,718,926 from $ 2,023,441 for the year ended december 31 , 2013. the increased cost of product revenue for the year ended december 31 , 2014 was related to increased costs associated with the increased production and sale of normal source plasma .
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this amount was gross of debt issuance costs which are further disclosed in note 1. borrowings under the revolver were subject to a borrowing base , bore interest at a rate equal to 30 day libor plus a margin that ranged from 2.75 percent to 3.25 percent ( an effective rate of 3.5000 percent per annum at january 3 , 2016 ) story_separator_special_tag this management 's discussion and analysis of financial condition and results of operation is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity , and certain other factors that may affect our future results . you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the accompanying consolidated financial statements and the related notes to consolidated financial statements for the fifty-two weeks ended january 1 , 2017 and january 3 , 2016 included in this annual report on form 10-k. our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below as well as in other sections of this annual report on form 10-k , particularly in “ business , ” “ risk factors ” and “ special note regarding forward-looking statements. ” we make no guarantees regarding outcomes , and assume no obligation to update the forward-looking statements herein , except as may be required by law . basis of presentation the company 's policy is that fiscal years end on the sunday closest to the end of the calendar year end . our 2016 fiscal year ended on january 1 , 2017 and our 2015 year ended on january 3 , 2016 . the company 's operations are classified in one reportable business segment . although we have expanded the products that we manufacture and sell to include components used in the appliance , hvac and water heater industries , products for these industries are manufactured at facilities that also manufacture or are capable of manufacturing products for the automotive industries . all of our manufacturing locations have similar capabilities , and most plants serve multiple markets . the manufacturing operations for our automotive , appliance , hvac and water heater products share management and labor forces and use common personnel and strategies for new product development , marketing and the sourcing of raw materials . we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ” ; and disclose certain executive compensation and related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . we will remain an “ emerging growth company ” for up to five years from our initial public offering , or until the earliest to occur of ( 1 ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1.0 billion , ( 2 ) the date that we become a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , which would occur if the market value of our common stock that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter or ( 3 ) the date on which we have issued more than $ 1.0 billion in non-convertible debt during the preceding three year period . story_separator_special_tag $ 17.30 million outstanding was repaid on the revolving line of credit . initial public offering on july 7 , 2015 , we completed our initial public offering ( the “ ipo ” ) of 2,702,500 shares of common stock at a price to the public of $ 9.50 per share , including 352,500 shares subject to an over-allotment option granted to the underwriters . after underwriting discounts , commissions , and approximate fees and expenses of the offering , as set forth in our registration statement for the ipo on form s-1 , we received net ipo proceeds of approximately $ 22.2 million . we used part of these proceeds to repay the $ 13.1 million principal amount of our 16 % senior subordinated note together with accrued interest through the date of payment . we used the remaining proceeds to temporarily reduce borrowings under the revolving line of credit portion of our senior secured credit facility . story_separator_special_tag the increase in net sales for the fifty-two weeks ended january 1 , 2017 is attributable to our increased market penetration and content per vehicle and new product introductions , including approximately eight months of sales from the intasco acquisition that occurred on april 29 , 2016 included in the results for the fifty-two weeks ended january 1 , 2017 , and a full year of sales for the fifty-two weeks ended january 1 , 2017 , compared to eighteen weeks in the fifty-two weeks ended january 3 , 2016 , from the great lakes acquisition that occurred on august 31 , 2015. cost of sales the major components of cost of sales are raw materials purchased from third parties , direct labor and benefits , and manufacturing overhead , including facility costs , utilities , supplies , repairs and maintenance , insurance , freight costs of products shipped to customers and depreciation . replace_table_token_4_th 28 cost of sales as a percent of net sales replace_table_token_5_th cost of sales as a percentage of net sales for the fifty-two weeks ended january 1 , 2017 increased to 75.9 % from 75.6 % for the fifty-two weeks ended january 3 , 2016 . the increase in cost of sales as a percentage of net sales was attributable to higher direct labor and benefits and manufacturing overhead as a percentage of net sales , partially offset by lower material costs as a percentage of net sales . material costs as a percentage of net sales decreased to 51.0 % for the fifty-two weeks ended january 1 , 2017 from 51.4 % for the fifty-two weeks ended january 3 , 2016 . material costs for the fifty-two weeks ended january 1 , 2017 as a percentage of net sales were lower compared to the fifty-two weeks ended january 3 , 2016 primarily due to favorable product mix . direct labor and benefit costs as a percentage of net sales was 15.0 % for the fifty-two weeks ended january 1 , 2017 compared to 14.6 % for the fifty-two weeks ended january 3 , 2016 . labor and benefit costs as a percentage of net sales in the fifty-two weeks ended january 1 , 2017 were higher due to an increase in health insurance claims paid under our self-insured benefit plans , as well as an increase in direct and temporary labor hours as a result of a change in product mix , and the addition of manufacturing capabilities to some of our existing facilities . manufacturing overhead costs as a percentage of net sales were 9.9 % for the fifty-two weeks ended january 1 , 2017 compared 9.6 % for the fifty-two weeks ended january 3 , 2016 . manufacturing overhead as a percentage of net sales in the fifty-two weeks ended january 1 , 2017 were higher due primarily to higher rent costs as we added capacity in order to meet expected future demand , and increased indirect labor costs as we upgraded our staff . depreciation costs as a percentage of net sales in the fifty-two weeks ended january 1 , 2017 were also slightly higher than last year as we added machine capacity , again to meet expected future demand , and to increase capabilities in certain of our facilities . gross profit as a result of the increase in cost of sales as a percentage of net sales described above , gross profit as a percentage of net sales for the fifty-two weeks ended january 1 , 2017 decreased to 23.2 % from 23.6 % for the fifty-two weeks ended january 3 , 2016 . selling , general and administrative expenses ( “ sg & a ” ) replace_table_token_6_th sg & a as a percentage of net sales for the fifty-two weeks ended january 1 , 2017 decreased to 16.1 % from 16.3 % for the fifty-two weeks ended january 3 , 2016 . the decrease is primarily related to the company effectively leveraging its cost structure as fixed costs in sg & a represent a lower percentage of overall net sales in the fifty-two weeks ended january 1 , 2017 compared to the fifty-two weeks ended january 3 , 2016 . this decrease was partially offset by higher transaction costs related to the intasco acquisition in april of 2016 , as well as by an increase in health insurance claims paid under our self-insured benefit plans . 29 restructuring expenses fifty-two weeks ended january 1 , 2017 fifty-two weeks ended january 3 , 2016 ( in thousands ) restructuring expenses $ 35 $ 374 restructuring expenses for the fifty-two weeks ended january 1 , 2017 were $ 0.04 million compared to $ 0.38 million for the fifty-two weeks ended january 3 , 2016 . the restructuring expenses were all related to the closure of the murfreesboro facility which was announced in october 2015 and most expenses were incurred in the fifty-two weeks ended january 3 , 2016 . operating income as a result of the foregoing factors , operating income for the fifty-two weeks ended january 1 , 2017 was $ 11.98 million compared to operating income of $ 10.08 million for the fifty-two weeks ended january 3 , 2016 . non-operating expense non-operating expense for the fifty-two weeks ended january 1 , 2017 was $ 2.04 million compared to $ 2.73 million for the fifty-two weeks ended january 3 , 2016 . the change in non-operating expense was primarily driven by interest expense . interest expense was approximately $ 2.13 million for the fifty-two weeks ended january 1 , 2017 , compared to $ 2.76 million for the fifty-two weeks ended january 3 , 2016 .
| overview unique is engaged in the engineering and manufacture of multi-material foam , rubber , and plastic components utilized in noise , vibration and harshness , acoustical management , water and air sealing , decorative and other functional applications . the 25 company combines a long history of organic growth with some more recent strategic acquisitions to diversify both product capabilities and markets served . unique 's markets served are the north america automotive and heavy duty truck , as well as the appliance , water heater and hvac markets . sales are conducted directly with major automotive and heavy duty truck , appliance , water heater and hvac companies , referred throughout this annual report on form 10-k as oems , or indirectly through the tier 1 suppliers of these oems . the company has its principal executive offices in auburn hills , michigan and has sales , engineering and production facilities in auburn hills , michigan , concord , michigan , lafayette , georgia , louisville , kentucky , evansville , indiana , ft. smith , arkansas , bryan , ohio , port huron , michigan , monterrey , mexico , queretaro , mexico and london , ontario . the company also has an independent client sales representative who maintains offices in baldham , germany . unique derives the majority of its net sales from the sales of foam , rubber plastic , and tape adhesive related automotive products . these products are produced from a variety of manufacturing processes including die cutting , compression molding , thermoforming , reaction injection molding , and fusion molding . we believe unique has a broader array of processes and materials utilized than any of its direct competitors , based on our product offerings . by sealing out air noise and water intrusion , and by providing sound absorption and blocking , unique 's products improve the interior comfort of a vehicle , increasing perceived vehicle quality and the overall experience of its passengers .
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shares purchased under the srp will have the status story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements . the following information contains forward-looking statements , which are subject to risks and uncertainties . should one or more of these risks or uncertainties materialize , actual results may differ materially from those expressed or implied by the forward-looking statements . please see `` forward-looking statements '' elsewhere in this report for a description of these risks and uncertainties . overview american realty capital trust v , inc. ( the `` company , '' `` we , '' `` our '' or `` us '' ) , incorporated on january 22 , 2013 , is a maryland corporation that intends to qualify as a real estate investment trust ( `` reit '' ) for u.s. federal income tax purposes beginning with the taxable year ended december 31 , 2013. on april 4 , 2013 , we commenced our initial public offering ( our `` ipo '' ) on a `` reasonable best efforts '' basis of up to 68.0 million shares of common stock , $ 0.01 par value per share , at a price of $ 25.00 per share , subject to certain volume and other discounts , pursuant to a registration statement on form s-11 , as amended ( file no . 333-187092 ) ( the `` registration statement '' ) , filed with the u.s. securities and exchange commission ( the `` sec '' ) under the securities act of 1933 , as amended . the registration statement also covers up to 14.7 million shares of common stock available pursuant to a distribution reinvestment plan ( the `` drip '' ) under which our common stockholders may elect to have their distributions reinvested in additional shares of our common stock . on april 25 , 2013 , we received and accepted aggregate subscriptions in excess of the minimum of $ 2.0 million in shares of common stock , broke escrow and issued shares of common stock to our initial investors who were admitted as stockholders . as permitted under our registration statement , we reallocated the remaining 14.5 million drip shares available under the registration statement to the primary offering . concurrent with such reallocation , we registered an additional 14.7 million shares to be issued under the drip pursuant to a registration statement on form s-11 , as amended ( file no . 333-191255 ) , which became effective on october 5 , 2013. our ipo closed on october 31 , 2013 . as of december 31 , 2013 , we had 63.0 million shares of common stock outstanding , including unvested restricted shares and shares issued pursuant to the drip , and had received total gross proceeds from the ipo and the drip of $ 1.6 billion . as of december 31 , 2013 , the aggregate value of all share issuances and subscriptions of common stock outstanding was $ 1.6 billion , based on a per share value of $ 25.00 ( or $ 23.75 for shares issued pursuant to the drip ) . until the date ( the `` nav pricing date '' ) on which we file our second quarterly financial filing with the sec , pursuant to the securities exchange act of 1934 , as amended ( the `` exchange act '' ) , following the earlier to occur of ( i ) our acquisition of at least $ 1.4 billion in total portfolio assets and ( ii ) april 4 , 2015 , which is two years from the effective date of our ipo , the purchase price per share for shares issued pursuant to the drip are initially equal to $ 23.75 per share , or 95.0 % of the purchase price of shares of common stock in our ipo . thereafter , the per share purchase price pursuant to the drip will vary quarterly and will be equal to our net asset value ( `` nav '' ) divided by the number of shares outstanding as of the end of business on the first day of each fiscal quarter after giving effect to any share purchases or repurchases effected in the prior quarter or per share nav . we were formed to acquire a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant retail properties that are net leased to investment grade and other creditworthy tenants . all such properties may be acquired and operated by us alone or jointly with another party . we may also originate or acquire first mortgage loans secured by real estate . we purchased our first property and commenced active operations on april 29 , 2013 . as of december 31 , 2013 , we owned 239 properties with an aggregate purchase price of $ 1.1 billion , comprised of 7.5 million rentable square feet which were 100.0 % leased with a weighted-average remaining lease term of 12.1 years . substantially all of our business is conducted through american realty capital operating partnership v , l.p. ( the `` op '' ) , a delaware limited partnership . we are the sole general partner and hold substantially all the units of limited partner interests in the op ( `` op units '' ) . american realty capital trust v special limited partner , llc ( the `` special limited partner '' ) , an entity wholly owned by ar capital , llc ( the `` sponsor '' ) , contributed $ 2,020 to the op in exchange for 90 op units , which represents a nominal percentage of the aggregate op ownership . story_separator_special_tag real estate investments investments in real estate are recorded at cost . improvements and replacements are capitalized when they extend the useful life of the asset . costs of repairs and maintenance are expensed as incurred . depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings , 15 years for land improvements , five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests . 48 we are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate . these assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate , we would depreciate these investments over fewer years , resulting in more depreciation expense and lower net income on an annual basis . we are required to present the operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the statement of operations at fair value for all periods presented . properties that are intended to be sold are to be designated as `` held for sale '' on the balance sheet . long-lived assets are carried at cost and evaluated for impairment when events or changes in circumstances indicate such an evaluation is warranted or when they are designated as held for sale . valuation of real estate is considered a `` critical accounting estimate '' because the evaluation of impairment and the determination of fair values involve a number of management assumptions relating to future economic events that could materially affect the determination of the ultimate value , and therefore , the carrying amounts of our real estate . additionally , decisions regarding when a property should be classified as held for sale are also highly subjective and require significant management judgment . events or changes in circumstances that could cause an evaluation for impairment include the following : a significant decrease in the market price of a long-lived asset ; a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition ; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset , including an adverse action or assessment by a regulator ; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ; and a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset . we review our portfolio on an ongoing basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability . in general , our review of recoverability is based on an estimate of the future undiscounted cash flows , excluding interest charges , expected to result from the property 's use and eventual disposition . these estimates consider factors such as expected future operating income , market and other applicable trends and residual value expected , as well as the effects of leasing demand , competition and other factors . if impairment exists due to the inability to recover the carrying value of a property , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property . we are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate . these assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income . purchase price allocation we allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values . tangible assets include land , land improvements , buildings , fixtures and tenant improvements on an as-if vacant basis . we utilize various estimates , processes and information to determine the as-if vacant property value . estimates of value are made using customary methods , including data from appraisals , comparable sales , discounted cash flow analysis and other methods . amounts allocated to land , land improvements , buildings and fixtures are based on cost segregation studies performed by independent third-parties or on our analysis of comparable properties in our portfolio . identifiable intangible assets and liabilities , as applicable , include amounts allocated to acquire leases for above- and below-market lease rates , the value of in-place leases , and the value of customer relationships , as applicable . the aggregate value of intangible assets and liabilities , as applicable , related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant . factors considered by us in our analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property , taking into account current market conditions and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period , which typically ranges from six to 12 months . we also estimate costs to execute similar leases including leasing commissions , legal and other related expenses .
| results of operations for period from january 22 , 2013 ( date of inception ) to december 31 , 2013 rental income rental income was $ 21.9 million for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 . rental income was driven by our acquisition and operation of 239 properties with an aggregate base purchase price of $ 1.1 billion , comprising 7.5 million rentable square feet which were 100.0 % leased on a weighted-average basis as of december 31 , 2013 . operating expense reimbursements operating expense reimbursement revenue was $ 2.4 million for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 . pursuant to certain of our lease agreements , tenants are required to reimburse us for certain property operating expenses , in addition to base rent , whereas under certain other lease agreements , the tenants are directly responsible for all operating costs of the respective properties . property operating expenses property operating expenses were $ 2.8 million for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 . these costs primarily related to ground lease rent and real estate taxes on our properties . acquisition and transaction related costs acquisition and transaction related costs for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 were $ 26.9 million . these expenses related to acquisition fees , legal fees and other closing costs associated with our purchase of 239 properties with an aggregate purchase price of $ 1.1 billion . general and administrative expenses general and administrative expenses of $ 2.4 million for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 primarily included board member compensation , insurance expense , state taxes and professional fees .
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asu 2018-07 specifies that topic 718 applies to all story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report , particularly those under “ risk factors. ” overview we are a phase 3 , clinical stage pharmaceutical company , focused on the development and commercialization of novel therapeutics to treat rare , chronic and serious inflammatory and fibrotic diseases with clear unmet medical needs . our product lenabasum is a novel synthetic , oral , endocannabinoid drug designed to resolve chronic inflammation and fibrotic processes . we are currently developing lenabasum to treat four life-threatening diseases : systemic sclerosis ( ssc ) , cystic fibrosis ( cf ) , dermatomyositis ( dm ) and systemic lupus erythematosus ( sle ) . lenabasum is a synthetic , rationally-designed oral small-molecule drug that selectively binds to the cannabinoid receptor type 2 , or cb2 , found on activated immune cells , fibroblasts and other cell types including muscle and bone cells . lenabasum stimulates the production of specialized pro-resolving lipid mediators ( spms ) that act to resolve inflammation and halt fibrosis by activating endogenous pathways . these pathways are activated in healthy individuals during the course of normal immune responses but are dysfunctional in patients with chronic inflammatory and fibrotic diseases . by its binding to cb2 , lenabasum drives innate immune responses from the activation phase into the resolution phase . cb2 plays a central role in modulating and resolving inflammation by , in effect , turning heightened inflammation “ off ” and restoring homeostasis . this has been demonstrated in animal models lacking cb2 as well as humans with genetic polymorphism in the cb2 gene , as these exhibit excessive inflammation and fibrosis in response to activators of the innate immune system . 59 lenabasum has generated positive clinical data in three consecutive phase 2 studies in diffuse cutaneous ssc , cf and skin-predominant dm . lenabasum is currently being evaluated in a phase 3 ssc study that has enrolled 365 patients , a phase 2b cf study that is expected to enroll 415 patients ( that is being supported by a development award for up to $ 25 million ( the “ 2018 cff award ” ) from the cystic fibrosis foundation ( “ cff ” ) ) , and a phase 2 sle study that is expected to enroll 100 patients and is being funded by a grant through the national institutes of health ( “ nih ” ) . in dm , we received guidance from the fda on the protocol design for the next clinical study , and announced the commencement of an international phase 3 study on december 17 , 2018. this trial is a 1-year , double-blind , randomized , placebo-controlled study testing efficacy and safety of lenabasum in approximately 150 adults with dm . subjects are randomized to receive lenabasum 20 mg twice per day , lenabasum 5 mg twice per day , or placebo twice per day in a 2:1:2 ratio . the primary efficacy outcome is american college of rheumatology/european league against rheumatism 2016 total improvement score ( “ tis ” ) in adult dermatomyositis and polymyositis , a composite measure of improvement from baseline in six endpoints : physician global assessment of disease activity , physician global assessment of extramuscular disease activity , patient global assessment of disease activity , health assessment questionnaire ( patient-reported disability ) , manual muscle testing , and muscle enzymes . change in the cutaneous dermatomyositis activity and severity index ( “ cdasi ” ) activity score is a secondary efficacy outcome . open-label extension studies are ongoing in ssc and dm following the completion of the phase 2 studies in these indications . the u.s. food and drug administration , or the fda , has granted lenabasum orphan designation as well as fast track status for ssc and cf , and orphan drug designation for dm . the european medicines authority , or the ema , has granted lenabasum orphan designation for ssc , cf and dm . since our inception , we have devoted substantially all of our efforts to business planning , research and development , recruiting management and technical staff , acquiring operating assets and raising capital . our research and development activities have included conducting pre-clinical studies , developing manufacturing methods and the manufacturing of our drug lenabasum for clinical trials and conducting clinical studies in patients . two of the four clinical programs for lenabasum are being supported by non-dilutive awards and grants . the national institutes of health , or nih , has funded the majority of the clinical development costs for the dm phase 2 clinical trial and is funding the sle phase 2 clinical trials . in cystic fibrosis , the phase 2b clinical trial is being supported by the 2018 cff award and the phase 2 clinical trial was partially funded by a $ 5 million award ( the “ 2015 cfft award agreement ” ) from the cystic fibrosis foundation therapeutics , inc. , or cfft , a non-profit drug discovery and development affiliate of the cystic fibrosis foundation . in september 2018 , we acquired an exclusive worldwide license ( the “ jenrin agreement ” ) to develop , manufacture and market drug candidates from more than 600 compounds targeting the endocannabinoid system from jenrin discovery llc ( “ jenrin ” ) . the pipeline includes crb-4001 , jenrin 's 2nd generation , peripherally-restricted , cb1 inverse agonist targeting liver , lung , heart and kidney fibrotic diseases . the current portfolio for crb-4001 includes multiple issued and pending patent applications . story_separator_special_tag asc 606 , however , may require a company to recognize such payments before the payment-triggering event is completely achieved based on the company 's estimate of the amount of consideration to which it will be entitled in exchange for transferring the services , subject to management 's assessment of whether it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . we adopted asc 606 in the first quarter of 2018 using the modified retrospective method according to which the cumulative effect of initially applying asc 606 is recognized at the date of initial application , and elected to utilize a practical expedient and did not restate contracts that were completed as of the date of adoption . since we have concluded our performance obligations and have completed recognizing revenue under the 2015 cfft award discussed in the third quarter of 2017 , there was no cumulative effect to record at the date of our adoption of asc 606 and no revenue to recognize for the first quarter of 2018 related to the 2015 cfft award . revenue from awards for the years ended december 31 , 2019 and 2018 was $ 9,143,568 and $ 4,822,272 , respectively , recognized in accordance with asc 606 and pertains only to the 2018 cff award . revenue from licenses for the year ended december 31 , 2019 included the recognition of the $ 27,000,000 upfront payment received from kaken in march 2019 for which we satisfied the combined performance obligation by june 30 , 2019 , upon which we recognized the $ 27,000,000 as revenue in the second quarter of 2019. no revenue from licenses was recognized for the year ended december 31 , 2018. we will assess any new agreements we enter into under asc 606 , including whether such agreements fall under the scope of such standard . this standard applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases , insurance , collaboration arrangements and financial instruments . under asc 606 , an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . the five-step model is applied to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determine those that are performance obligations , and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . revenue associated with the performance obligation is being recognized as revenue as the research and development services are provided using an input method , according to the costs incurred as related to the research and development activities and the costs expected to be incurred in the future to satisfy the performance obligation . the transfer of control occurs over this time period and , in management 's judgment , is the best measure of progress towards satisfying the performance obligation . the research and development services related to this performance obligation are expected to be performed over an approximately two year and nine month period expected to be completed in the third quarter of 2020. amounts received prior to revenue recognition are recorded as deferred revenue . amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets . amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue , net of current portion . amounts recognized as revenue , but not yet received or invoiced are generally recognized as contract assets . 62 revenue to date , we have not generated any revenues from the sales of products . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for the marketing of lenabasum , which we expect will take a number of years and is subject to significant uncertainty . we recognized $ 9,143,568 and $ 4,822,272 of revenue from awards in the years ended december 31 , 2019 and 2018 , respectively . amounts recognized in revenue from awards for the years ended december 31 , 2019 and 2018 were in connection with our entry on january 26 , 2018 into the cystic fibrosis program related investment agreement ( “ investment agreement ) with the cystic fibrosis foundation ( “ cff ” ) , a non-profit drug discovery and development corporation , pursuant to which we received a development award for up to $ 25 million in funding ( the “ 2018 cff award ” ) to support a phase 2b clinical trial ( the “ phase 2b clinical trial ” ) of lenabasum in patients with cystic fibrosis of which we received $ 6.25 million in the first quarter of 2018 and an additional $ 6.25 million in the second quarter of 2018.
| results of operations comparison of year ended 2019 to 2018 revenue from awards and licenses . we have recognized approximately $ 36,144,000 and $ 4,882,000 of revenue from awards and licenses in the years ended december 31 , 2019 and 2018 , respectively . revenue from awards for the years ended december 31 , 2019 and 2018 was $ 9,143,568 and $ 4,822,272 , respectively , recognized in accordance with asc 606 and pertains only to the 2018 cff award . we received an aggregate of $ 12.5 million during the year ended december 31 , 2018 and an additional $ 5.0 million during the year ended december 31 , 2019 upon our achievement of milestones related to the progress of the phase 2b clinical trial , as set forth in the investment agreement . the remainder of the 2018 cff award is payable to us incrementally upon the achievement of the remaining milestones related to the progress of the phase 2b clinical trial , as set forth in the investment agreement . revenue for the year ended december 31 , 2019 also included the recognition of revenue from licenses for the $ 27,000,000 upfront payment received from kaken in march 2019 for which we satisfied the combined performance obligation by june 30 , 2019 , upon which we recognized the $ 27,000,000 as revenue in the second quarter of 2019 .
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the license agreements do not meet content library asset recognition criteria because either the fee is not known or reasonably determinable for a specific title or it is known but the story_separator_special_tag overview we are the world 's leading internet subscription service for enjoying tv shows and movies . our subscribers can instantly watch unlimited tv shows and movies streamed over the internet to their tvs , computers and mobile devices and in the united states , our subscribers can receive standard definition dvds , and their high definition successor , blu-ray discs ( collectively referred to as dvd ) , delivered quickly to their homes . our core strategy is to grow our streaming subscription business domestically and globally . we are continuously improving the customer experience , with a focus on expanding our streaming content , enhancing our user interface and extending our streaming service to even more internet-connected devices , while staying within the parameters of our consolidated net income and operating segment contribution profit targets . in the past , we have focused on operating margin targets . going forward , we will be operating within the parameters of contribution profit targets for each of our operating segments . contribution profit is defined as revenue less cost of revenues and marketing expenses . we are a pioneer in the internet delivery of tv shows and movies , launching our streaming service in 2007. since this launch , we have developed an ecosystem of internet-connected devices and have licensed increasing amounts of content that enable consumers to enjoy tv shows and movies directly on their tvs , computers and mobile devices . as a result of these efforts , we have experienced growing consumer acceptance of and interest in the delivery of tv shows and movies directly over the internet . we believe that the dvd portion of our domestic service will be a fading differentiator to our streaming success . prior to july 2011 , in the united states , our streaming and dvd-by-mail operations were combined and subscribers could receive both streaming content and dvds under a single hybrid plan . in july 2011 , we introduced dvd only plans and separated the combined plans , making it necessary for subscribers who wish to receive both dvds-by-mail and streaming content to have two separate subscription plans . this resulted in a price increase for our members who were taking a combination of our unlimited dvds-by-mail and unlimited streaming services . we made a subsequent announcement during the third quarter of 2011 concerning the rebranding of our dvd-by-mail service and the separation of the dvd-by-mail and streaming websites . the consumer reaction to the price change , and to a lesser degree , the branding announcement , was very negative leading to significant customer cancellations . we subsequently retracted our plans to rebrand our dvd-by-mail service and separate the dvd-by-mail and streaming websites . in september 2010 , we began international operations by offering our streaming service in canada . in september 2011 , we expanded our streaming service to latin america and the caribbean . in january 2012 , we launched our streaming service in the uk and ireland . we anticipate significant contribution losses in the international streaming segment in 2012. until we reach our goal of global profitability , we do not intend to launch additional international markets . 23 as a result of the changes to our pricing and plan structure , we no longer offer a single subscription plan including both dvd-by-mail and streaming in the us . domestic subscribers who wish to receive dvds-by-mail and watch streaming content must elect both a dvd-by-mail subscription plan and a streaming subscription plan . accordingly , beginning with the third quarter of 2011 , management views the number of paid subscriptions as the key driver of revenues . the following metrics reflect these changes . replace_table_token_6_th ( 1 ) for purposes of determining the number of unique subscribers , domestic subscribers who have elected both a dvd and a streaming subscription plan are considered a single unique subscriber . ( 2 ) churn is a monthly measure defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions , then divided by three months . churn ( annualized ) is the average of churn for the four quarters of each respective year . as we evolve our focus from our dvd to streaming service , we will be slightly changing how we treat our domestic subscribers so that they are in line with our international subscribers . beginning in the first quarter of 2012 , domestic members who are on payment holds will no longer be counted as unique subscribers nor will they be included in our subscription metrics . members who cancel mid-period will continue to receive service until the end of the period and will accordingly be counted as subscribers and in our subscription metrics until the end of the period . these changes may impact our subscription metrics but we do not expect such impacts to be material . there is no effect on revenue from these changes . the following represents our consolidated performance highlights for 2011 , 2010 and 2009 : replace_table_token_7_th ( 3 ) see liquidity and capital resources for a definition of free cash flow and a reconciliation of free cash flow to net cash provided by operating activities. 24 due to the announcement of changes to our domestic plan offerings , pricing , and branding in the third quarter of 2011 , we experienced an increase in the number of subscriber cancellations , resulting in a net loss of unique domestic subscribers in the third quarter of 2011. however , unique domestic subscribers returned to growth in the fourth quarter of 2011 driven by the continued popularity of domestic streaming subscriptions . story_separator_special_tag in addition , content delivery expenses increased due to higher costs associated with our use of third-party delivery networks resulting from an increase in the total number of hours of streaming content viewed by our subscribers . fulfillment costs associated with content processing and customer service centers expenses increased $ 13.5 million primarily due to a $ 12.4 million increase in personnel costs resulting from a 10.0 % increase in headcount to support the higher volume of content delivery and growth in subscribers . in addition , encoding costs increased $ 7.0 million in support of the increasing number of titles and platforms offered for streaming content . these increases were partially offset by a $ 4.7 million increase in costs related to free-trials allocated to marketing due primarily to the 74.7 % increase in gross subscriber additions . credit card fees increased $ 20.0 million as a result of the 29.5 % growth in revenues . operating expenses marketing marketing expenses consist primarily of advertising expenses and also include payments made to our affiliates and consumer electronics partners and payroll related expenses . advertising expenses include promotional activities such as television and online advertising , as well as allocated costs of revenues relating to free trial periods . payments to our affiliates and consumer electronics partners may be in the form of a fixed-fee or may be a revenue sharing payment . replace_table_token_13_th the $ 108.8 million increase in marketing expenses was primarily attributable to a $ 119.6 million increase in marketing program spending , attributable to increased spending in television , radio and online advertising 29 coupled with an increase in payments to our affiliates . approximately half of these increases were incurred in our international segments in large part due to our launch in latin america and the caribbean . these increases were partially offset by a decrease in direct mail and inserts , and payments made to our consumer electronics partners . the increase in marketing program spending was partially offset by decreases in the costs of free trials . replace_table_token_14_th the $ 56.1 million increase in marketing expenses was primarily attributable to an increase of $ 17.4 million in domestic spending related to our consumer electronics partners , as we continued to expand the number of devices on which subscribers can view netflix content . the increase is also due to a $ 16.2 million increase in other marketing program spending , principally in tv and radio advertising to promote our service , offset by a decrease in direct mail and inserts . in addition , costs of free trials increased $ 21.0 million due to the 67.7 % increase in domestic gross unique subscriber additions , coupled with shipments of instant streaming discs which enable subscribers to stream content to certain consumer electronic devices and the expanded use of one month free trials . subscriber acquisition cost decreased primarily due to continued strong organic subscriber growth . technology and development technology and development expenses consist of payroll and related costs incurred in making improvements to our service offering , including testing , maintaining and modifying our user interfaces , our recommendation and merchandising technology , as well as , telecommunications systems and infrastructure and other internal-use software systems . technology and development expenses also include costs associated with computer hardware and software . replace_table_token_15_th the $ 95.7 million increase in technology and development expenses was primarily the result of an $ 83.0 million increase in personnel-related costs . these increases are primarily due to a 54 % growth in average headcount supporting continued improvements in our streaming service and international expansion , coupled with an $ 18.7 million increase in stock-based compensation expense . replace_table_token_16_th the $ 48.8 million increase in technology and development expenses was primarily the result of a $ 27.7 million increase in personnel-related costs and a $ 14.2 million increase in facilities and equipment related expenses . these increases are primarily due to a 21.0 % growth in headcount supporting continued improvements to our service . personnel-related costs also increased due to a $ 5.7 million increase in stock-based compensation expense . in addition , costs paid for cloud computing services increased $ 7.7 million . 30 general and administrative general and administrative expenses consist of payroll and related expenses for executive and administrative personnel , as well as recruiting , professional fees and other general corporate expenses . general and administrative expenses also include the gain on disposal of dvds . replace_table_token_17_th the $ 53.5 million increase in general and administrative expenses was primarily attributable to an increase in personnel-related costs of $ 33.6 million attributed to an $ 11.5 million increase in stock-based compensation and a 32 % increase in average headcount . legal costs increased $ 6.6 million primarily resulting from an increase in costs associated with various claims against us . we expect legal costs to continue at a high level for the foreseeable future as we defend these claims . other miscellaneous expenses primarily related to the use of outside and professional services , taxes , and insurance increased by $ 13.3 million . replace_table_token_18_th the $ 17.7 million increase in general and administrative expenses was primarily attributable to an increase in personnel-related costs of $ 11.7 million attributed to a $ 7.6 million increase in stock-based compensation expense and a 23.1 % increase in headcount .
| results of operations the following table sets forth , for the periods presented , the line items in our consolidated statements of operations as a percentage of total revenues . the information contained in the table below should be read in conjunction with the financial statements and notes thereto included in item 8 , financial statements and supplementary data of this annual report on form 10-k. replace_table_token_8_th revenues we derive our revenues from monthly subscription fees and recognize subscription revenues ratably over each subscriber 's monthly subscription period . we currently generate substantially all of our revenues in the united states . in the domestic streaming segment , we derive revenues from services consisting solely of streaming content offered through a subscription plan priced at $ 7.99 per month . in the domestic dvd segment , we derive revenues from our dvds-by-mail subscription services . the price per plan for dvds-by-mail varies from $ 7.99 to $ 43.99 per month based on the number of dvds that a subscriber may have out at any given point . customers electing access to high definition blu-ray discs in addition to standard definition dvds pay a surcharge ranging from $ 2 to $ 4 per month for our most popular plans . in july 2011 , in the united states , we introduced dvd only plans and separated unlimited dvds-by-mail and unlimited streaming making it necessary for subscribers who opt to receive both dvds-by-mail and streaming to have two separate subscription plans .
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our forward-looking statements reflect our current views about future events , are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements . factors that may cause differences between actual results and those contemplated by forward- looking statements include , but are not limited to , those discussed in “ risk factors. ” we undertake no obligation to publicly update or revise any forward-looking statements , including any changes that might result from any facts , events , or circumstances after the date hereof that may bear upon forward-looking statements . furthermore , we can not guarantee future results , events , levels of activity , performance , or achievements . overview genprex is a clinical stage gene therapy company developing a new approach to treating cancer , based upon our novel proprietary technology platform , including our initial product candidate , oncoprex immunogene therapy , or oncoprex . our platform technologies are designed to encapsulate cancer fighting genes into nanoscale hollow spheres called nanovesicles , which are then administered intravenously and taken up by tumor cells where they express proteins that are missing or found in low quantities and modulate the immune environment to restore defective cancer fighting functions . we hold an exclusive worldwide license from the university of texas md anderson cancer center , or md anderson , to patents covering the therapeutic use of a series of genes that have been shown in preclinical and clinical research to have cancer fighting properties . researchers at md anderson have conducted a phase i clinical trial and the phase i portion of a phase i/ii clinical trial and are conducting the phase ii portion of that phase i/ii clinical trial in non-small cell lung cancer , or nsclc . md anderson researchers have collaborated with other researchers to identify other genes , such as those in the 3p21.3 chromosomal region , that may act as tumor suppressors or have other cancer fighting functions . data from preclinical studies performed by others suggest that product candidates that could be derived from our technology platform could be effective against other types of cancer , including breast , head and neck , renal cell ( kidney ) , and soft tissue cancer , as well as nsclc . therefore , our platform technologies may allow delivery of a number of cancer fighting genes , alone or in combination with other cancer therapies , to combat multiple types of cancer . on april 3 , 2018 , we completed our initial public offering , in which we sold an aggregate of 1,280,000 shares of our common stock at $ 5.00 per share , resulting in net proceeds of $ 5.025 million after underwriting discounts , commissions and offering expenses . jobs act and recent accounting pronouncements the jobs act , enacted in 2012 , provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act of 1933 , as amended , for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . we have implemented all new accounting pronouncements that are in effect and may affect our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that would have a material impact on our financial position or results of operations . critical accounting policies and significant judgments and estimates our financial statements have been prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results , and they require our most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . 78 research and development costs we record accrued expenses for costs invoiced from research and development activities conducted , on our behalf , by third-party service providers , which include the conduct of pre-clinical studies and clinical trials and use of contract research and manufacturing activities . we record the costs of research and development activities based upon the amount of services provided , and we include these costs in accrued liabilities in the balance sheets and within research and development expense in the statement of operations . these costs are a significant component of our research and development expenses . we estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services . we make significant judgments and estimates in determining the accrued balance in each reporting period . story_separator_special_tag the decrease of $ 26,113 was primarily due to increased patent prosecution expenses necessary to protect our intellectual property during the year ended december 31 , 2016. cash provided by financing activities net cash provided by financing activities was $ 793,971 and $ 2,705,872 for the years ended december 31 , 2017 and 2016 , respectively . the $ 1,911,901 decrease in net cash provided by financing activities was primarily due to the company 's strategic financial activities during the 2016 year in order to raise sufficient capital to expand clinical operations and prepare for an initial public offering in the coming year . 81 item 7a . quantitative and qualitati ve disclosures about market risk . the primary objective of our investment activities is to preserve our capital to fund our operations . we also seek to maximize income from our investments without assuming significant risk . to achieve our objectives , we maintain a portfolio of cash equivalents and investments in securities of high credit quality . as of december 31 , 2017 , we had cash of $ 161,251 consisting of cash and investments in money market funds . a significant portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase . however , because our investments are primarily short-term in duration , we believe that our exposure to interest rate risk is not significant and a 1 % movement in market interest rates would not have a significant impact on the total value of our portfolio . we actively monitor changes in interest rates . item 8. financial statements and supplementary data . the financial statements and supplementary data required by this item are included after part iv of this annual report on form 10-k beginning on page f-1 . 82 item 9. changes in a nd disagreements with accou ntants on accounting and financial disclosure . none . item 9a . controls and procedures . evaluation of disclosure controls and procedures as required by rules 13a-15 ( b ) and 15d-15 ( b ) of the exchange act , our management with the participation of our chief executive officer and our chief financial officer , evaluated the effectiveness of our disclosure controls and procedures as of december 31 , 2017. the term “ disclosure controls and procedures ” as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act , means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the exchange act is recorded , processed , summarized and reported , within the time periods specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the exchange act is accumulated and communicated to the company 's management , including its principal executive and principal financial officer , as appropriate to allow timely decisions regarding required disclosure . management recognizes that any controls and procedures , no matter how well designed and operated , can provide only reasonable assurance of achieving their objectives , and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures . based on the evaluation of our disclosure controls and procedures as of december 31 , 2017 , our chief executive officer and our chief financial officer concluded that , as of such date , our disclosure controls and procedures were effective at the reasonable assurance level . management 's report on internal control over financial reporting this annual report on form 10-k does not include a report of management 's assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the sec for newly public companies . changes in internal control over financial reporting there were no changes in our internal control over financial reporting that occurred during the quarter ended december 31 , 2017 that have materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . inherent limitations of disclosure controls and internal control over financial reporting because of their inherent limitations , our disclosure controls and procedures and our internal control over financial reporting may not prevent material errors or fraud . a control system , no matter how well conceived and operated , can provide only reasonable , not absolute , assurance that the objectives of the control system are met . the effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to risks , including that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate . item 9b . other information . none . 83 part iii item 10. directors , executive officers and corporate governance . the following table sets forth certain information regarding our executive officers and directors as of april 10 , 2018. name age position executive officers j. rodney varner 61 chief executive officer , secretary , director and chairman of the board of directors julien l. pham , md , mph 41 president and chief operating officer ryan m. confer 36 chief financial officer non-employee directors david e. friedman 54 director robert w. pearson 55 director set forth below is biographical information about each of the individuals named in the tables above : executive officers j. rodney varner is a co-founder of genprex and has served as our chief executive officer and secretary , and as a member of our board of directors and as chairman of our board of directors since august 2012. mr. varner also served as our president until april 10 , 2018.
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following summarizes our results of operations for the years ended december 31 , 2017 and 2016. research and development expense . research and development expense consists primarily of the discovery and development of our current and potential product candidates ; costs related to production of clinical supplies , including fees paid to contract manufacturers , fees paid to clinical consultants , clinical trial sites and vendors , including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data ; and costs related to compliance with drug development regulatory requirements . research and development expense was $ 289,934 for the year ended december 31 , 2017 as compared to $ 354,883 for the year ended december 31 , 2016. this slight decrease of $ 64,949 was primarily due to the company 's greater emphasis on completing the initial public offering in 2017. we expect research and development expense to increase significantly in future periods as we expand our clinical and research programs . general and administrative expense . general and administrative expense primarily consists of personnel costs , travel , information technology , facilities , and professional service fees . professional services fees primarily consist of legal , accounting and consulting costs . general and administrative expense for the year ended december 31 , 2017 was $ 3,019,171 as compared to $ 3,776,414 for the year ended december 31 , 2016. the $ 757,243 decrease in general and administrative expense is related primarily to a larger than normal equity-based compensation amount issued in 2016 to recruit leadership and technical talent to our team . excluding this expense , an increase of $ 576,283 for the year ended december 31 , 2017 versus december 31 , 2016 was primarily due to increased headcount , associated employee-related expenses , and expenses related to the company 's initial public offering .
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eqm reimburses eqt gathering for such services pursuant to the terms of its omnibus agreement with eqt ( described below ) . eqm is allocated the portion of operating and maintenance expense and selling , general and administrative story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements , and the notes thereto , included in item 8 of this annual report on form 10-k. executive overview key transactions during 2016 included the october 2016 acquisition , the ovc project being placed in-service , phase one of the range resources header pipeline project being placed in-service , the $ 500 million senior notes offering and the atm offerings as discussed in the overview section of item 1 , `` business . '' eqm reported net income of $ 538.0 million in 2016 compared with $ 455.1 million in 2015 . the increase primarily resulted from higher revenues from both gathering and transmission and storage , which were primarily driven by affiliate production development in the marcellus shale , higher other income and lower net interest expense . these items were partly offset by higher income taxes and an increase in operating expenses , consistent with the growth of the business . eqm reported net income of $ 455.1 million in 2015 compared with $ 284.8 million in 2014 . the increase primarily resulted from higher revenues from both gathering and transmission and storage , which were primarily driven by affiliate production development in the marcellus shale , lower income tax expense and higher other income . these items were partly offset by an increase in operating expenses , consistent with the growth of the business , and higher net interest expense . on january 19 , 2017 , eqm declared a cash distribution to eqm unitholders of $ 0.85 per unit , which represented a 4 % increase over the previous distribution paid on november 14 , 2016 of $ 0.815 per unit and a 20 % increase over the distribution paid on february 12 , 2016 of $ 0.71 per unit related to the fourth quarter of 2015 . total distributions related to 2016 were $ 3.19 per unit compared to $ 2.635 per unit total distributions related to 2015 , a 21 % increase . business segment results operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and is subject to evaluation by the chief operating decision maker in deciding how to allocate resources . other income and net interest expense are managed on a consolidated basis . eqm has presented each segment 's operating 48 income and various operational measures in the following sections . management believes that the presentation of this information provides useful information to management and investors regarding the financial condition , results of operations and trends of segments . eqm has reconciled each segment 's operating income to eqm 's consolidated operating income and net income in note 4 to the consolidated financial statements . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > prior to the conversion to a note receivable for accounting purposes and higher equity income related to eqm 's portion of the mvp joint venture 's afudc on the mvp . other income increased by $ 5.4 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 primarily driven by increased afudc - equity of $ 3.0 million mainly attributable to increased spending on the ovc project and higher equity income related to eqm 's portion of the mvp joint venture 's afudc on the mvp . in 2017 , afudc - equity is expected to decrease substantially as a result of the ovc beginning service on october 1 , 2016 , and distributions received from ees included in other income will be zero as a result of the preferred interest conversion to a note receivable . equity income related to eqm 's portion of the mvp joint venture 's afudc on the mvp is expected to increase in 2017 as spending on the project increases . net interest expense decreased by $ 4.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily driven by higher capitalized interest and afudc - debt of $ 3.8 million associated with increased spending primarily on the ovc , decreased interest expense of $ 2.8 million on lower credit facility borrowings and interest income subsequent to the preferred interest conversion to a note receivable . the items which decreased net interest expense were partly offset by interest incurred on the long term debt issued in november 2016. net interest expense increased by $ 10.5 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 primarily related to a full year of interest on eqm 's long-term debt issued in august 2014 and increased interest on eqm 's credit facility borrowings partly 51 offset by higher capitalized interest and afudc - debt associated with increased spending on regulated projects . as a result of the ovc beginning service on october 1 , 2016 , afudc - debt will substantially decrease in 2017. see note 11 to the consolidated financial statements included in item 8 of this annual report on form 10-k for discussion of income tax expense ( benefit ) . see “ investing activities ” and “ capital requirements ” in the “ capital resources and liquidity ” section below for a discussion of capital expenditures . story_separator_special_tag net income for avc including decreased depreciation expense related to the 40 year useful life of the pipeline was $ 20.6 million , $ 27.5 million and $ 22.0 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively ( see note 2 to the consolidated financial statements included in item 8 of this annual report on form 10-k ) . ( f ) the calculation of distributable cash flow changed from the prior period in order to reflect the cash payments from the preferred interest in a consistent manner despite the change in accounting treatment . see note ( a ) . ( g ) as a result of increased significance of capitalized interest and afudc - debt in 2016 , this line item was added as an adjustment to the calculation of distributable cash flow for the year ended december 31 , 2016. had distributable cash flow been calculated on a consistent basis , it would have been $ 5.6 million and $ 2.3 million lower for the years ended december 31 , 2015 and 2014 , respectively , than the numbers presented herein . ( h ) ongoing maintenance capital expenditures are expenditures ( including expenditures for the construction or development of new capital assets or the replacement , improvement or expansion of existing capital assets ) made to maintain , over the long term , eqm 's operating capacity or operating income . eqt has reimbursement obligations to eqm for certain maintenance capital expenditures under the terms of the eqm omnibus agreement . for further explanation of these reimbursable maintenance capital expenditures , see “ capital requirements. ” for the years ended december 31 , 2016 , 2015 and 2014 , ongoing maintenance capital expenditures , net of reimbursements , excludes ongoing maintenance of $ 6.5 million , $ 9.8 million and $ 3.1 million , respectively , attributable to avc , rager , the gathering assets , nwv gathering and jupiter prior to acquisition . see `` executive overview '' above for a discussion of eqm 's net income , the gaap financial measure most directly comparable to adjusted ebitda . adjusted ebitda increased by $ 123.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and $ 193.4 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , in each case , primarily as a result of higher operating income on increased revenues driven by production development in the marcellus shale , the acquisitions for each period , which resulted in ebitda subsequent to the transaction being reflected in adjusted ebitda , and distributions from ees . 54 net cash provided by operating activities , the gaap financial measure most directly comparable to distributable cash flow , increased by $ 48.2 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and $ 164.9 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 as discussed in “ capital resources and liquidity . '' distributable cash flow increased by $ 116.8 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and $ 177.0 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , in each case mainly attributable to the increase in adjusted ebitda . outlook eqm 's principal business objective is to increase the quarterly cash distributions that it pays to its unitholders over time while ensuring the ongoing growth of its business . eqm believes that it is well positioned to achieve growth based on the combination of its relationship with eqt and its strategically located assets , which cover portions of the marcellus , upper devonian and utica shales that lack substantial natural gas pipeline infrastructure . eqm believes it has a competitive advantage in pursuing economically attractive organic expansion projects in its areas of operations , which eqm believes will be a key driver of growth in the future . eqm is also currently pursuing organic growth projects that are expected to provide access to markets in the gulf coast and southeast regions . additionally , eqm may pursue asset acquisitions from third parties or , if eqt were to purchase assets or companies that contain midstream assets , eqt may make those assets available to eqm . should eqt choose to pursue midstream asset sales , it is under no contractual obligation to offer the assets to eqm . eqm expects that the following expansion projects will allow it to capitalize on drilling activity by eqt and third party producers : range resources header pipeline . eqm expects to complete this project in the second quarter of 2017 , including the installation of approximately 25 miles of pipeline and 32,000 horsepower compression . the pipeline is estimated to cost approximately $ 250 million and provide total firm capacity of 600 mmcf per day , which is fully reserved under a ten-year firm capacity reservation commitment contract . eqm expects to invest approximately $ 40 million on the project in 2017 . affiliate gathering expansion . eqm expects to invest $ 200 million to $ 230 million in 2017 on gathering expansion projects supported by eqt production development in the marcellus . eqm plans to install approximately 30 miles of gathering pipeline and 10,000 horsepower compression in its gathering systems across northern west virginia and southwestern pennsylvania during 2017 . mountain valley pipeline . the mvp joint venture is a joint venture with affiliates of each of nextera energy , inc. , consolidated edison , inc. , wgl holdings , inc. and rgc resources , inc. eqm is the operator of the mvp and owned a 45.5 % interest in the mvp joint venture as of december 31 , 2016 .
| gathering results of operations replace_table_token_5_th ( a ) includes fees on volumes gathered in excess of firm contracted capacity . ( b ) includes volumes gathered under interruptible contracts and volumes gathered in excess of firm contracted capacity . year ended december 31 , 2016 compared to year ended december 31 , 2015 gathering revenues increased by $ 62.4 million primarily as a result of higher affiliate and third party volumes gathered in 2016 compared to 2015 , driven by production development in the marcellus shale . eqm increased firm reservation fee revenues in 2016 compared to 2015 as a result of affiliates and third parties contracting for additional capacity under firm contracts , which resulted in increased firm gathering capacity of approximately 300 mmcf per day following the completion of the nwv gathering and jupiter expansion projects in the fourth quarter of 2015. the decrease in usage fees under interruptible contracts was primarily due to these additional contracts for firm capacity . operating expenses increased by $ 16.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . selling , general and administrative expenses increased as a result of higher allocations and personnel costs from eqt . the increase in depreciation and amortization expense resulted from additional assets placed in-service , including those associated with the nwv gathering and jupiter expansion projects . 49 year ended december 31 , 2015 compared to year ended december 31 , 2014 gathering revenues increased by $ 101.2 million primarily as a result of higher affiliate volumes gathered driven by production development in the marcellus shale . eqm significantly increased firm reservation fee revenues in 2015 compared to 2014 as a result of increased capacity under firm contracts with affiliates . the decrease in usage fees was primarily due to affiliates contracting for additional firm capacity .
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risk factors ” and the “ cautionary statement regarding forward-looking statements ” section of this annual report on form 10-k , that could cause our actual results to differ materially from the results described herein or implied by such forward-looking statements . overview outfront media is a real estate investment trust ( “ reit ” ) , which provides advertising space ( “ displays ” ) on out-of-home advertising structures and sites in the united states ( the “ u.s. ” ) and canada . we currently manage our operations through three operating segments— ( 1 ) u.s. billboard and transit , which is included in our u.s. media reportable segment , ( 2 ) international and ( 3 ) sports marketing . international and sports marketing do not meet the criteria to be a reportable segment and accordingly , are both included in other ( see item 8. , note 18. segment information to the consolidated financial statements ) . prior to april 1 , 2016 , our international segment included our advertising businesses in canada and latin america . on april 1 , 2016 , we sold all of our equity interests in certain of our subsidiaries ( the “ disposition ” ) , which held all of the assets of our outdoor advertising business in latin america . ( see item 8. , note 12. acquisitions and dispositions : dispositions to the consolidated financial statements . ) the operating results of our outdoor advertising business in latin america through april 1 , 2016 , are included in our consolidated financial statements for 2016 , 2015 and 2014 , and are included in other in our segment reporting . business we are one of the largest providers of advertising space on out-of-home advertising structures and sites across the u.s. and canada . our inventory consists of billboard displays , which are primarily located on the most heavily traveled highways and roadways in top nielsen designated market areas ( “ dmas ” ) , and transit advertising displays operated under exclusive multi-year contracts with municipalities in large cities across the u.s. and canada . we also have marketing and multimedia rights agreements with colleges , universities and other educational institutions , which entitle us to to operate on-campus advertising displays , as well as manage marketing opportunities , media rights and experiential entertainment at sports events . in total , we have displays in all of the 25 largest markets in the u.s. and over 150 markets in the u.s. and canada . our top market , high profile location focused portfolio includes sites such as the bay bridge in san francisco , various locations along sunset boulevard in los angeles , and sites in and around both grand central station and times square in new york . the breadth and depth of our portfolio provides our customers with a range of options to address their marketing objectives , from national , brand-building campaigns to hyper-local campaigns that drive customers to the advertiser 's website or retail location “ one mile down the road. ” using geopath out of home ratings , the out-of-home advertising industry 's audience measurement system , we provide advertisers with the size and demographic composition of the audience that is exposed to individual displays or a complete campaign . as part of our on smart media technology development initiative , we are developing hardware and software solutions for enhanced demographic and location targeting , and engaging ways to connect with consumers on-the-go . additionally , our outfront mobile network allows our customers to further leverage location targeting with interactive mobile advertising that uses geofence technology to push mobile ads to consumers within a pre-defined radius around a corresponding billboard display or other designated advertising location . we believe out-of-home advertising continues to be an attractive form of advertising , as our displays are always on , are always viewable and can not be turned off , skipped , blocked or fast-forwarded . further , out-of-home advertising can be an effective “ stand-alone ” medium , as well as an integral part of a campaign to reach audiences using multiple forms of media , including television , radio , print , online , mobile and social media advertising platforms . we provide our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising . in addition to leasing displays , we provide other value-added services to our customers , such as pre-campaign category research , consumer insights , creative design support , print production and post-campaign tracking and analytics , as well as use of a real-time mobile operations reporting system that facilitates proof of performance to customers for substantially all of our business . 37 u.s. media . our u.s. media segment generated 25 % of its revenues in the new york city metropolitan area in 2016 , 27 % in 2015 and 23 % in 2014 , and generated 16 % in the los angeles metropolitan area in 2016 , 15 % in 2015 , and 13 % in 2014 . our u.s. media segment generated revenues of $ 1.39 billion in 2016 , $ 1.34 billion in 2015 and $ 1.16 billion in 2014 , and operating income before depreciation , amortization , net ( gain ) loss on dispositions , stock-based compensation , restructuring charges , loss on real estate assets held for sale and acquisition costs ( “ adjusted oibda ” ) of $ 473.8 million in 2016 , $ 451.1 million in 2015 and $ 409.2 million in 2014 . ( see the “ segment results of operations ” section of this md & a . ) other ( includes international and sports marketing ) . other generated revenues of $ 120.1 million in 2016 , $ 169.5 million in 2015 and $ 191.3 million in 2014 , and adjusted oibda of $ 17.8 million in 2016 , $ 24.3 million in 2015 , and $ 31.3 million in 2014 . story_separator_special_tag our management believes organic revenues are useful to users of our financial data because it enables them to better understand the level of growth of our business period to period . since organic revenues are not calculated in accordance with gaap , it should not be considered in isolation of , or as a substitute for , revenues as an indicator of operating performance . organic revenues , as we calculate it , may not be comparable to similarly titled measures employed by other companies . ( b ) see the “ reconciliation of non-gaap financial measures ” and “ revenues ” sections of this md & a for reconciliations of operating income to adjusted oibda , net income ( loss ) to ffo and affo and revenues to organic revenues . adjusted oibda we calculate adjusted oibda as operating income ( loss ) before depreciation , amortization , net ( gain ) loss on dispositions , stock-based compensation , restructuring charges , loss on real estate assets held for sale and acquisition costs . we calculate adjusted oibda margin by dividing adjusted oibda by total revenues . adjusted oibda and adjusted oibda margin are among the primary measures we use for managing our business , evaluating our operating performance and planning and forecasting future periods , as each is an important indicator of our operational strength and business performance . our management believes users of our financial data are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in managing , planning and executing our business strategy . our management also believes that the presentations of adjusted oibda and adjusted oibda margin , as supplemental measures , are useful in evaluating our business because eliminating certain non-comparable items highlight operational trends in our business that may not otherwise be apparent when relying solely on gaap financial measures . it is management 's opinion that these supplemental measures provide users of our financial data with an important perspective on our operating performance and also make it easier for users of our financial data to compare our results with other companies that have different financing and capital structures or tax rates . ffo and affo we calculate ffo in accordance with the definition established by the national association of real estate investment trusts ( “ nareit ” ) . ffo reflects net income ( loss ) adjusted to exclude gains and losses from the sale of real estate assets , depreciation and amortization of real estate assets , amortization of direct lease acquisition costs , the non-cash effect of loss on 39 real estate assets held for sale and the same adjustments for our equity-based investments , as well as the related income tax effect of adjustments , as applicable . we calculate affo as ffo adjusted to include cash paid for direct lease acquisition costs as such costs are generally amortized over a period ranging from four weeks to one year and therefore are incurred on a regular basis . affo also includes cash paid for maintenance capital expenditures since these are routine uses of cash that are necessary for our operations . in addition , affo excludes costs related to the acquisition and restructuring charges , as well as certain non-cash items , including non-real estate depreciation and amortization , stock-based compensation expense , accretion expense , the non-cash effect of straight-line rent and amortization of deferred financing costs , and the non-cash portion of income taxes , as well as the related income tax effect of adjustments , as applicable . our calculation of affo was revised in 2016 to adjust for the non-cash portion of income taxes instead of adjusting for current or deferred income taxes , as management believes that this calculation of affo is more consistent with affo presented by other reits and analyzed by users of our financial data . this change is reflected in the calculation of affo for 2015. we use ffo and affo measures for managing our business and for planning and forecasting future periods , and each is an important indicator of our operational strength and business performance , especially compared to other reits . our management believes users of our financial data are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in managing , planning and executing our business strategy . our management also believes that the presentations of ffo , affo , and related per weighted average share amounts , as supplemental measures , are useful in evaluating our business because adjusting results to reflect items that have more bearing on the operating performance of reits highlight trends in our business that may not otherwise be apparent when relying solely on gaap financial measures . it is management 's opinion that these supplemental measures provide users of our financial data with an important perspective on our operating performance and also make it easier to compare our results to other companies in our industry , as well as to reits . since adjusted oibda , adjusted oibda margin , ffo and affo and , as applicable , related per weighted average share amounts , are not measures calculated in accordance with gaap , they should not be considered in isolation of , or as a substitute for , operating income ( loss ) , net income ( loss ) , revenues and net income ( loss ) per common share for basic and diluted earnings per share , the most directly comparable gaap financial measures , as indicators of operating performance . these measures , as we calculate them , may not be comparable to similarly titled measures employed by other companies . in addition , these measures do not necessarily represent funds available for discretionary use and are not necessarily a measure of our ability to fund our cash needs .
| summary of significant accounting policies : adoption of new accounting standards to the consolidated financial statements . replace_table_token_21_th term loan the interest rate on the term loan due in 2021 ( the “ term loan ” ) was 3.0 % per annum as of december 31 , 2016 . as of december 31 , 2016 , a discount of $ 1.0 million on the term loan remains unamortized . the discount is being amortized through interest expense , net , on the consolidated statement of operations . during 2016 , we made aggregate discretionary payments of $ 90.0 million on the term loan . senior unsecured notes as of december 31 , 2016 , a discount of $ 0.5 million on $ 150.0 million aggregate principal amount of the 5.250 % senior unsecured notes due 2022 , remains unamortized . the discount is being amortized through interest expense , net , on the consolidated statement of operations . as of december 31 , 2016 , a premium of $ 3.0 million on $ 100.0 million aggregate principal amount of the 5.625 % senior unsecured notes , due 2024 , remains unamortized . the premium is being amortized through interest expense , net , on the consolidated statement of operations . revolving credit facility we have a $ 425.0 million revolving credit facility , which matures in 2019 ( the “ revolving credit facility ” ) . as of december 31 , 2016 , there were no outstanding borrowings under the revolving credit facility . the commitment fee based on the amount of unused commitments under the revolving credit facility was $ 1.8 million in 2016 and $ 1.9 million in each of 2015 and 2014. as of december 31 , 2016 , we had issued letters of credit totaling approximately $ 31.7 million against the revolving credit facility .
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pursuant to the settlement with bristol ( see note 9 ) , the company recognized royalty revenue of $ 14,753,000 for the fiscal year ended december 31 , 2012 , $ 8,769,000 for the nine-month fiscal year ended december 31 , 2011 and $ 10,251,000 for the fiscal year ended march 31 , 2011. revenue earned from bristol royalties is recorded in the periods when it is earned based on royalty reports sent by bristol to the company . the company has no continuing obligations to bristol as a result of this settlement . the company 's royalty agreement with bristol provides that the company will receive such royalty payments from bristol through december 31 , 2013. therapeutics licensing agreements activities under licensing agreements are evaluated in accordance with asc 605-25 to determine if they represent a multiple element revenue arrangement . the company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting . the company accounts for those components as separate units of accounting if the following two criteria are met : the delivered item or items have value to the customer on a stand-alone basis . if there is a general right of return relative to the delivered items , delivery or performance of the undelivered items is considered probable and within our control . factors considered in this determination include , among other things , whether any other vendors sell the items separately and if the licensee could use the delivered item for its intended purpose without the receipt of 61 the remaining deliverables . if multiple deliverables included in an arrangement are separable into different units of accounting , the company allocates the arrangement consideration story_separator_special_tag this annual report on form 10-k contains forward-looking statements which are made pursuant to the safe harbor provisions of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended ( the exchange act ) . the forward-looking statements in this annual report on form 10-k do not constitute guarantees of future performance . investors are cautioned that statements in this annual report on form 10-k that are not strictly historical statements , including , without limitation , statements regarding current or future financial performance , potential impairment of future earnings , management 's strategy , plans and objectives for future operations or acquisitions , product development and sales , clinical trials and results , litigation strategy , product candidate research , development and regulatory approval , selling , general and administrative expenditures , intellectual property , development and manufacturing plans , availability of materials and product and adequacy of capital resources and financing plans constitute forward-looking statements . such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated , including , without limitation , the risks identified under the caption risk factors and other risks detailed in this annual report on form 10-k and our other filings with the securities and exchange commission . we assume no obligation to update any forward-looking information contained in this annual report on form 10-k , except as required by law . overview we are a life sciences company that develops , manufactures and markets high-value , consumable bioprocessing products for life sciences companies and biopharmaceutical manufacturing companies worldwide . we are a world-leading manufacturer of both native and recombinant forms of protein a , critical reagents used in biomanufacturing to separate and purify monoclonal antibodies , a type of biologic drug . we also supply several growth factor products used to increase cell culture productivity during the biomanufacturing process . in the burgeoning area of disposable biomanufacturing technologies , we have developed and currently market a series of opus ( open-platform , user-specified ) chromatography columns for use in clinical-scale manufacturing . these pre-packed , plug-and-play columns are uniquely flexible and customizable to our customers ' media and size requirements . we generally manufacture and sell protein a and growth factors to life sciences companies under long-term supply agreements and sell our chromatography columns , as well as media and quality test kits , directly to biopharmaceutical companies or contract manufacturing organizations . we refer to these activities as our bioprocessing business . on december , 20 , 2011 , we significantly increased the size of our bioprocessing business through a strategic acquisition . we acquired certain assets and assumed certain liabilities of novozymes biopharma sweden , ab ( novozymes ) in lund , sweden , including the manufacture and supply of cell culture ingredients and protein a affinity ligands for use in industrial cell culture , stem and therapeutic cell culture and biopharmaceutical manufacturing ( the novozymes biopharma business and the acquisition of the novozymes biopharma business , the novozymes acquisition ) for a total upfront cash payment of 20.65 million euros ( ~ $ 26.9 million ) . as a result of the novozymes acquisition , we nearly doubled the size of our bioprocessing business . historically , repligen also conducted activities aimed at developing proprietary therapeutic drug candidates , often with a potential of entering into a collaboration with a larger commercial stage pharmaceutical or biotechnology company in respect of these programs . in addition , we have out-licensed certain intellectual property to bristol-myers squibb company , or bristol , from which we receive royalties on bristol 's net sales in the united states of their product orencia ® . as part of our strategic decision in 2012 to focus our efforts on our core bioprocessing business , we scaled back our efforts on our clinical development programs and increased our efforts to find collaboration partners to pursue the development and , if successful , commercialization of these drug programs . the current status of our development portfolio is : on december 28 , 2012 , we out-licensed our sma program , led by rg3039 , to pfizer inc. , or pfizer . story_separator_special_tag pursuant to the settlement with bristol , we recognized royalty revenue of $ 14,753,000 for the fiscal year ended december 31 , 2012 , $ 8,769,000 for the nine-month fiscal year ended december 31 , 2011 and $ 10,251,000 for the fiscal year ended march 31 , 2011. revenue earned from bristol royalties is recorded in the periods when it is earned based on royalty reports sent by bristol to us . we have no continuing obligations to bristol as a result of this settlement . our royalty agreement with bristol provides that we will receive such royalty payments on sales of orencia ® by bristol through december 31 , 2013. pfizer license agreement in december 2012 , we entered into an exclusive worldwide licensing agreement ( the license agreement ) with pfizer to advance the sma program , which is led by rg3039 and also includes backup compounds and enabling technologies . pursuant to the terms of the license agreement , we received $ 5 million from pfizer as an upfront payment on january 22 , 2013 and are entitled to receive up to $ 65 million in potential future payments , a portion of which may be owed to third parties . these potential payments are approximately equally divided between milestones related to clinical development and initial commercial sales in specific geographies . in addition , we are entitled to receive royalties on any future sales of rg3039 or any sma compounds developed under the license agreement . the royalty rates are tiered and begin in the high single-digits for rg-3039 or lesser amounts for any backup compounds developed under the license agreement . our receipt of these royalties is subject to an obligation under an existing in-license agreement and other customary offsets and deductions . there are no refund provisions in this agreement . activities under this agreement were evaluated in accordance with asc 605-25 to determine if they represented a multiple element revenue arrangement . we identified the following deliverables in the pfizer agreement : an exclusive license to research , develop , manufacture , commercialize and use rg3039 and backup compounds for the treatment of sma and other disorders ( the license ) ; research and development services designed to transition the sma program to pfizer pursuant to a transition plan ( the transition services ) ; the completion of the second cohort of a phase i clinical trial that was underway at the time the license agreement was signed ; and an inventory of rg3039 , that could be used in clinical development , specifically to complete the phase i clinical trial , referenced immediately above ( the clinical trial material ) . two criteria must be met in order for a deliverable to be considered a separate unit of accounting . the first criterion requires that the delivered item or items have value to the customer on a stand-alone basis . the second 27 criterion , which relates to evaluating a general right of return , is not applicable because such a provision does not exist in the license agreement . the deliverables outlined above were deemed to have stand-alone value and to meet the criteria to be accounted for as separate units of accounting . factors considered in this determination included , among other things , whether any other vendors sell the items separately and if pfizer could use the delivered item for its intended purpose without the receipt of the remaining deliverables . if multiple deliverables included in an arrangement are separable into different units of accounting , the multiple-element arrangements guidance addresses how to allocate the arrangement consideration to those units of accounting . the amount of allocable arrangement consideration is limited to amounts that are fixed or determinable . arrangement consideration is allocated at the inception of the arrangement to the identified units of accounting based on their relative selling price . we identified the arrangement consideration to allocate among the units of accounting as the $ 5.0 million non-refundable up-front payment and excluded the potential milestone payments provided for in the license agreement from the arrangement consideration as they were not considered fixed or determinable at the time the license agreement was signed . because we had not sold these items on a standalone basis previously , we had no vendor-specific objective evidence of selling price . furthermore , we did not have detailed third-party evidence of selling price , and as a result we used our best estimate of selling price for each item . in determining these prices , we considered what we would be willing to sell the items for on a standalone basis , what the market would bear for such items and what another party might charge for these items . the up-front arrangement consideration allocated to the license was recognized upon delivery of the license as the risks and rewards associated with the license transferred at that time . we used a discounted cash flow analysis to determine the value of the license . key assumptions in the analysis included : the estimated market size for a compound targeted at sma , the estimated remaining costs of development and time to commercialization , and the probability of successfully developing and commercializing the program . based on this analysis , we allocated $ 4,876,000 to the value of the license and recognized this amount as revenue in the fiscal year ended december 31 , 2012. the remaining $ 124,000 of value was allocated based on the following : the estimated selling price of the transition services was approximately $ 600,000 resulting in consideration allocation of approximately $ 76,000. we were able to derive a price for these services , in part because they are similar to services provided by a contract research organization . we based the selling price of the transition services on internal full-time equivalent personnel costs and external costs that we expect to incur to transition the program to pfizer .
| results of operations on december 15 , 2011 , we changed our fiscal year end from march 31 to december 31. as a result of this change , we filed a transition report on form 10-k covering the nine-month transition period ending december 31 , 2011. as a result of this change , fiscal 2012 refers to the twelve month period from january 1 , 2012 through december 31 , 2012 . fiscal 2011 refers to the nine-month transition period from april 1 , 2011 through december 31 , 2011 . fiscal 2010 refers to the unaudited nine-month period from april 1 , 2010 through december 31 , 2010. the following discussion of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the related footnotes thereto . revenues total revenues for fiscal years 2012 , 2011 and 2010 were comprised of the following : replace_table_token_3_th substantially all of our bioprocessing products are based on recombinant protein a and are sold to customers who incorporate our manufactured products into their proprietary antibody purification systems to be sold directly to the pharmaceutical industry . monoclonal antibodies are a well-established class of drug with applications in rheumatoid arthritis , asthma and a variety of cancers . sales of our bioprocessing products are therefore impacted by the timing of large-scale production orders and the regulatory approvals for such antibodies , which may result in significant quarterly fluctuations . for fiscal 2012 , bioprocessing product sales increased by $ 28,619,000 or 217 % as compared to fiscal 2011 driven predominantly by the acquisition of the novozymes business which contributed $ 23,425,000 in revenue , the longer fiscal period in fiscal 2012 and increased demand from certain key customers . we sell our assorted bioprocessing products at various price points . the mix of products sold varies and impacts the fluctuations in total product revenue and cost of product revenues from period to period .
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management utilizes such methodologies to assign a fair value ( the estimated price that , in an orderly transaction at the valuation date , would be received to sell an asset , or paid to transfer a liability , as the case may be ) to each such financial instrument . for mortgage-backed securities , or `` mbs , `` tbas , clos , and corporate debt and equity , management seeks to obtain at least one third-party valuation , and often obtains multiple valuations when available . management has been able to obtain third-party valuations on the vast majority of these instruments and expects to continue to solicit third-party valuations in the future . management generally values each financial instrument at the average of third-party valuations story_separator_special_tag executive summary we invest in a diverse array of real-estate-related and other financial assets , including residential and commercial mortgage loans , residential mortgage-backed securities , or `` rmbs , '' commercial mortgage-backed securities , or `` cmbs , '' consumer loans and asset-backed securities , or `` abs , '' including abs backed by consumer loans , collateralized loan obligations , or `` clos , '' non-mortgage- and mortgage-related derivatives , equity investments in loan origination companies , and other strategic investments . we are externally managed and advised by our manager , an affiliate of ellington . ellington is a registered investment adviser with a 26-year history of investing in the agency and credit markets . we conduct all of our operations and business activities through the operating partnership . as of december 31 , 2020 , we have an ownership interest of approximately 98.7 % in the operating partnership . the remaining ownership interest of approximately 1.3 % in the operating partnership represents the interests in the operating partnership that are owned by an affiliate of our manager , our directors , and certain current and former ellington employees and their related parties , and is reflected in our financial statements as a non-controlling interest . our primary objective is to generate attractive , risk-adjusted total returns for our stockholders . we seek to attain this objective by utilizing an opportunistic strategy to make investments , without restriction as to ratings , structure , or position in the capital structure , that we believe compensate us appropriately for the risks associated with them rather than targeting a specific yield . our evaluation of the potential risk-adjusted return of any potential investment typically involves weighing the potential returns of such investment under a variety of economic scenarios against the perceived likelihood of the various scenarios . potential investments subject to greater risk ( such as those with lower credit ratings and or those with a lower position in the capital structure ) will generally require a higher potential return to be attractive in comparison to investment alternatives with lower potential return and a lower degree of risk . however , at any particular point in time , depending on how we perceive the market 's pricing of risk both generally and across sectors , we may favor higher-risk assets or we may favor lower-risk assets , or a combination of the two , in the interests of portfolio diversification or other considerations . through december 31 , 2020 , our credit portfolio , which includes all of our investments other than rmbs for which the principal and interest payments are guaranteed by a u.s. government agency or a u.s. government-sponsored entity , or `` agency rmbs , '' has been the primary driver of our risk and return , and we expect that this will continue in the near- to medium-term . for more information on our targeted assets , see `` —our targeted asset classes '' below . we believe that ellington 's capabilities allow our manager to identify attractive assets in these classes , value these assets , monitor and forecast the performance of these assets , and opportunistically hedge our risk with respect to these assets . we continue to maintain a highly leveraged portfolio of agency rmbs to take advantage of opportunities in that market sector , to help maintain our exclusion from registration as an investment company under the investment company act , and to help maintain our qualification as a reit . unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the investment company act and or to our qualification as a reit , we expect that we will continue to maintain some amount of agency rmbs . the strategies that we employ are intended to capitalize on opportunities in the current market environment . subject to maintaining our qualification as a reit , we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . subject to maintaining our qualification as a reit , we opportunistically hedge our credit risk , interest rate risk , and foreign currency risk ; however , at any point in time we may choose not to hedge all or a portion of these risks , and we will generally not hedge those risks that we believe are appropriate for us to take at such time , or that we believe would be impractical or prohibitively expensive to hedge . we also use leverage in our credit strategy , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2020 , we financed the vast majority of our agency rmbs assets , and a portion of our credit assets , through repurchase agreements , which we sometimes refer to as `` repos , '' which we account for as collateralized borrowings . we expect to continue to finance the vast majority of our agency rmbs through the use of repos . story_separator_special_tag cmbs and commercial mortgage loans . cmbs ; and . commercial mortgage loans and other commercial real estate debt . consumer loans and abs . consumer loans ; . abs , including abs backed by consumer loans ; and . retained tranches from securitizations to which we have contributed assets . mortgage-related derivatives . to-be-announced mortgage pass-through certificates , or `` tbas '' ; . credit default swaps , or `` cds , '' on individual rmbs , on the abx , cmbx and primex indices and on other mortgage-related indices ; and . other mortgage-related derivatives . non-agency rmbs . rmbs backed by prime jumbo , alt-a , non-qm , manufactured housing , and subprime mortgages ; . rmbs backed by fixed rate mortgages , adjustable rate mortgages , or `` arms , '' option-arms , and hybrid arms ; . rmbs backed by mortgages on single-family-rental properties ; . rmbs backed by first lien and second lien mortgages ; . investment grade and non-investment grade securities ; . senior and subordinated securities ; . ios , pos , iios , and inverse floaters ; . collateralized debt obligations , or `` cdos '' ; . rmbs backed by european residential mortgages , or `` european rmbs '' ; and . retained tranches from securitizations in which we have participated . residential mortgage loans . residential non-performing mortgage loans , or `` npls '' ; . re-performing loans , or `` rpls , '' which generally are loans that were modified and or formerly npls where the borrower has resumed making payments in some form or amount ; . residential `` transition loans , '' such as residential bridge loans and residential `` fix-and-flip '' loans ; . non-qm loans ; and . retained tranches from securitizations to which we have contributed assets . other . real estate , including commercial and residential real property ; . strategic debt and or equity investments in loan originators and mortgage-related entities ; . corporate debt and equity securities and corporate loans ; . mortgage servicing rights , or `` msrs '' ; . credit risk transfer securities , or `` crts '' ; and . other non-mortgage-related derivatives . 68 tabl e of contents agency rmbs our agency rmbs assets consist primarily of whole pool ( and to a lesser extent , partial pool ) pass-through certificates , the principal and interest of which are guaranteed by a federally chartered corporation , such as the federal national mortgage association , or `` fannie mae , '' the federal home loan mortgage corporation , or `` freddie mac , '' or the government national mortgage association , within the u.s. department of housing and urban development , or `` ginnie mae , '' and which are backed by arms , hybrid arms , or fixed-rate mortgages . in addition to investing in pass-through certificates which are backed by traditional mortgages , we have also invested in agency rmbs backed by reverse mortgages . reverse mortgages are mortgage loans for which neither principal nor interest is due until the borrower dies , the home is sold , or other trigger events occur . mortgage pass-through certificates are securities representing undivided interests in pools of mortgage loans secured by real property where payments of both interest and principal , plus prepaid principal , on the securities are made monthly to holders of the security , in effect `` passing through '' monthly payments made by the individual borrowers on the mortgage loans that underlie the securities , net of fees paid to the issuer/guarantor and servicers of the securities . whole pool pass-through certificates are mortgage pass-through certificates that represent the entire ownership of ( as opposed to merely a partial undivided interest in ) a pool of mortgage loans . our agency rmbs assets are typically concentrated in specified pools . specified pools are fixed-rate agency pools consisting of mortgages with special characteristics , such as mortgages with low loan balances , mortgages backed by investor properties , mortgages originated through the government-sponsored `` making homes affordable '' refinancing programs , and mortgages with various other characteristics . our agency strategy also includes rmbs that are backed by arms or hybrid arms and reverse mortgages , and cmos , including ios , pos , and iios . clos clos are a form of asset-backed security collateralized by syndicated corporate loans . we have retained , and may retain in the future , tranches from clo securitizations for which we have participated in the accumulation of the underlying assets , typically by providing capital to a vehicle accumulating assets for such clo securitization . such vehicles may enter into warehouse financing facilities in order to facilitate such accumulation . securitizations can effectively provide us with long-term , locked-in financing on the related collateral pool , with an effective cost of funds well below the expected yield on the collateral pool . our clo holdings may include both debt and equity interests . cmbs we acquire cmbs , which are securities collateralized by mortgage loans on commercial properties . the majority of cmbs issued are fixed rate securities backed by fixed rate loans made to multiple borrowers on a variety of property types , though single-borrower cmbs and floating rate cmbs have also been issued . the majority of cmbs utilize senior/subordinate structures , similar to those found in non-agency rmbs . subordination levels vary so as to provide for one or more aaa credit ratings on the most senior classes , with less senior securities rated investment grade and non-investment grade , including a first loss component which is typically unrated . this first loss component is commonly referred to as the `` b-piece , '' which is the most subordinated ( and therefore highest yielding and riskiest ) tranche of a cmbs securitization . much of our focus within the cmbs sector has been on b-pieces , but we also acquire other cmbs with more senior credit priority .
| agency rmbs portfolio performance summary in march 2020 , a precipitous decline in interest rates and high levels of interest rate volatility generated net realized and unrealized losses on our interest rate hedges , and while our agency rmbs did appreciate in price , they significantly underperformed our hedges , as yield spreads widened on agency pools across the board . furthermore , tbas outperformed specified pools during the first quarter , depressing pay-ups on our specified pool portfolio . as a result , we experienced a significant net loss on our agency strategy for the first quarter . pay-ups are price premiums for specified pools relative to their tba counterparts , and generally reflect , among other factors , the prepayment protection that specified pools provide . during the second quarter , asset purchases by the federal reserve continued to be significant , and the liquidity stresses of the first quarter subsided . our agency strategy performed exceptionally well during the second quarter , driven by significantly higher pay-ups on our specified pools . pay-ups on specified pools expanded as investors sought prepayment protection amidst record-low mortgage rates and increasing actual and projected prepayment rates . our agency strategy also benefited from the appreciation of our reverse mortgage pools , driven by strong investor demand and a recovery in yield spreads after the distress in march . our agency strategy continued to perform well in the second half of 2020 , driven by continued strong price performance from our specified pools and wide net interest margins . during most of 2020 , mortgage rates declined and actual and expected prepayment rates rose , which benefited pay-ups on our prepayment-protected specified pools . average pay-ups on our specified pools increased to 2.05 % as of december 31 , 2020 , from 1.10 % 2 as of december 31 , 2019 . 2 conformed to current period calculation methodology . as the year progressed , we also increased our holdings of long tbas held for investment , which we concentrated in current coupon production .
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f-12 stock options the estimated fair values of stock options granted and the assumptions used for the black-scholes option pricing model were as follows : replace_table_token_16_th we estimate the fair value of each option on the grant date or other measurement date if applicable using a black-scholes option-pricing model , which requires us to make predictive assumptions regarding future stock price volatility , employee exercise behavior and dividend yield . we estimate our future stock price volatility using the historical volatility of comparable public companies over the expected term of the option . our expected term represents the period of time that options granted are expected to be outstanding determined using the simplified or lattice methods . the risk-free interest rate for periods during the expected term of the options is based on the u.s. treasury zero-coupon yield curve in effect at the time of grant . we have not nor do we expect to pay dividends for the foreseeable future . options may be priced at 100 percent or more of the fair market value on the date of grant , and generally vest over six years after the date of grant . options generally expire within 10 years after the date of grant . information on stock option activity follows : replace_table_token_17_th stock-based compensation expense related to stock option awards was $ 4.4 million in 2018 , $ 11.7 million in 2017 , and zero in 2016. the options granted under the plans were originally only exercisable upon a triggering event or initial public offering as defined by the plans . when we completed our ipo on july 25 , 2017 , we recognized compensation expense of $ 5.6 million . in december 2017 , an employee 's stock options were modified in connection with the employee 's termination to provide for continued vesting through the end of 2018. we recognized incremental stock-based compensation expense of $ 0.7 million related to this modification . the aggregate intrinsic value of options outstanding and exercisable at december 31 , 2018 , was $ 5.9 million and the weighted average remaining contractual term was 7.6 years as of that date . f-13 net cash proceeds from the exercise of stock options less shares used for minimum withholding taxes and the intrinsic value of options exercised were as follows : replace_table_token_18_th restricted stock units units settled in stock subject to a restricted period may be granted to key employees under the 2017 plan . restricted stock units generally vest and become unrestricted over five years after the date of grant . information on restricted stock unit activity follows : replace_table_token_19_th replace_table_token_20_th the total grant-date fair value of restricted stock unit awards that vested was $ 2.7 million in 2018 and $ 0.3 million in 2017. as of december 31 , 2018 , unrecognized compensation expense related to non-vested stock options and restricted stock units was $ 9.9 million . this expense will be recognized over 50 months on average for stock options and over 47 months on average for restricted stock units , assuming no change in the remeasurement value of grants made to non-employees in this calculation . we treat stock-based compensation awards granted to employees of the cellectis as deemed dividends . we recorded deemed dividends of $ 2.3 million story_separator_special_tag story_separator_special_tag ize:8pt '' > 51 the decrease in 2018 was primarily due to decreases in non-cash stock compensation expense of $ 5.5 million partially offset by increases in costs to acquire grain prior to commercialization of $ 2.8 million and employee-related costs . the 2017 increase was due to non-cash stock compensation expense of $ 6.1 million associated with accelerated vesting of awards from our ipo and an increase in sub-contracted r & d , including third-party germplasm breeding , third-party germplasm trials and meal and oil product testing . due to the number of ongoing projects and our ability to use resources across several projects , we do not record or maintain information regarding the costs incurred for our r & d programs on a program-specific basis . selling , general , and administrative expenses the 2018 increase was due to costs incurred to increase our headcount in advance of the anticipated commercialization of our first product and increases in professional services expenses associated with being a public company and turnover in our executive ranks , partially offset by a decrease in non-cash stock compensation expense of $ 2.2 million . the 2017 increase was due to non-cash stock compensation expense of $ 6.0 million associated with accelerated vesting of awards from our ipo , increased personnel expenses and increased legal and professional fees , partially offset by reduced management fees . interest , net interest , net is the result of interest income resulting from investments of cash and cash equivalents , partially offset by interest expense on our financing lease obligations . it has remained relatively constant over time , driven by balances , yields , and timing of our capital raises and financing activities . liquidity and capital resources liquidity until the completion of our ipo in july 2017 , we funded our operations primarily through cash infusions provided by cellectis . on july 25 , 2017 , we completed our ipo of common stock . in the aggregate , we received net proceeds from the ipo of approximately $ 58.0 million , after deducting underwriting discounts and commissions of $ 3.1 million and offering expenses totaling approximately $ 3.3 million . on may 22 , 2018 , we completed a follow-on offering of our common stock . we sold an aggregate of 4,057,500 shares at a public offering price of $ 15.00 per share . story_separator_special_tag if we raise additional funds through the issuance of additional debt or equity securities , it could result in dilution to our existing stockholders and increased fixed payment obligations , and these securities may have rights senior to those of our common shares . any of these events could significantly harm our business , financial condition and prospects . 54 the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties , and actual results could vary as a result of a number of factors . we have based this estimate on assumptions that may prove to be wrong , and we could use our available capital resources sooner than we currently expect . our future funding requirements , both near and long-term , will depend on many factors , including , but not limited to : the initiation , progress , timing , costs and results of field trials for our product candidates ; the outcome , timing and cost of compliance with all regulatory obligations imposed by u.s. and non-u.s. regulatory authorities , including the possibility that regulatory authorities will require that we perform studies ; the ability of our product candidates to progress through late stage development successfully , including through field trials ; the cost of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; our need to expand our r & d activities ; our need and ability to hire additional personnel ; our need to implement additional infrastructure and internal systems ; the effect of competing technological and market developments ; and the cost of establishing sales , marketing and distribution capabilities for any products we commercialize . if we can not expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital , our business , financial condition and results of operations could be materially adversely affected . contractual obligations , commitments and contingencies forward purchase contracts we enter into purchase agreements for grain with settlement values based on commodity futures market prices . these agreements allow our counterparty to fix their sale prices to us at various times as defined in the contract . any realized and unrealized gains and losses from these contracts have been recorded as r & d expenses because we had yet to commercialize the associated product . the fair market value for these contracts is estimated based on commodity futures market prices . increases or decreases in these prices will impact the values of these contracts and could lead to significant changes in our financial condition , results of operations and cash flows from operating activities . sale-leaseback of headquarters and lab facility in september 2017 we consummated a sale-leaseback transaction with a third party for our corporate headquarters and lab facility . the headquarters facility is composed of a 40,000 square-foot office and lab building , with greenhouses and outdoor research plots . we are deemed the owner for accounting purposes . the lease has a term of twenty years , with four options to extend its term for five years , each subject to there being no default under the lease terms beyond any cure period and us occupying the property at the time of extension . in 2017 we received $ 7 million in connection with the sale of the land and uncompleted facility . the facility serves as our corporate headquarters and lab facilities . we obtained a temporary certificate of occupancy in may 2018 and the lease commenced . under the lease , we pay an annual base rent of eight percent of the total project cost with scheduled increases in rent of 7.5 percent on the sixth , eleventh and sixteenth anniversaries of the start of the lease commencement as well as on the first day of each renewal term . currently , we pay an annual base rent of approximately $ 1.4 million . 55 we are also responsible for all operating costs and expenses associated with the property . beginning on the eighteenth month anniversary of the start of the lease , if the landlord decides to sell the property , we have a right of first refusal to purchase the property on the same terms offered to any third party . concurrent with entering into the lease , cellectis guaranteed all of our obligations under the lease agreement . cellectis ' guarantee of our obligations will terminate at the end of the second consecutive calendar year in which our tangible net worth exceeds $ 300 million , as determined in accordance with generally accepted accounting principles . at a point when cellectis owns 50 % or less of our outstanding common stock , we have agreed to indemnify cellectis for any obligations incurred by cellectis under its guaranty of our obligations under the lease . sale-leaseback of equipment in december 2018 we consummated a sale-leaseback transaction with a third party to finance equipment . the lease has a term of four years and we may add up to $ 1.1 million of future equipment purchases to the financing agreement . we were required to deposit cash into a restricted account in an amount equal to the future rent payments required by the lease . as of december 31 , 2018 , we had contractual obligations and commercial commitments as follows : replace_table_token_6_th ( a ) the commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms , including fixed or minimum services to be used , fixed , minimum or variable price provisions , and the approximate timing of the actions under the contracts .
| executive overview we are a healthy food ingredient company . we leverage proprietary intellectual property , our technical expertise , and an end-to-end supply chain to deliver healthier food ingredients , such as healthier oils and high fiber wheat , to consumers . using our proprietary technologies and expertise , including talen gene-editing technology exclusively licensed to us in the field of agriculture , we develop food crops with targeted traits quickly and more cost effectively than traditional methods . we believe that we are able to identify a consumer need and develop a product from concept to fork in cycles as short as six years by utilizing these proprietary technologies . we believe that we are well-positioned to address consumer preferences that are evolving to demand healthier , more nutritionally rich foods . to bring our consumer-centric products to the marketplace , we intend to repurpose and leverage existing supply chain capacity by contracting , tolling or partnering with players in the existing supply chain , such as seed production companies , seed distributors , farmers , crushers , millers , and refiners . we expect this will allow us to apply our resources to maximizing innovation and product development while minimizing our capital expenditures and overhead . we intend to strategically out-license our intellectual property to maximize our market opportunity . 49 our first commercial product is a high oleic soybean designed to produce a healthier oil that has increased heat stability with zero trans fats per serving . we completed our first sales of our high oleic soybean oil and high oleic soybean meal in the first quarter of 2019. among our other product candidates are other soybean products and a high fiber wheat . we are an early-stage company and have incurred net losses since our inception . at december 31 , 2018 , we had an accumulated deficit of $ 82.4 million .
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to estimate the enterprise value of the portfolio company , some or all of the traditional market valuation methods and factors are weighed based on the individual circumstances of the portfolio company in order to estimate the story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes as of december 31 , 2015 and 2014 and for the years ended december 31 , 2015 , 2014 and 2013 included in this form 10-k. overview we are an asset management firm offering yield solutions to retail and institutional investors . we focus on credit-related investment strategies , primarily originating senior secured loans to private middle market companies in the united states that have revenues between $ 50 million and $ 1 billion . we generally hold these loans to maturity . our national direct origination franchise , with over 80 people , provides capital to the middle market in the u.s. as of december 31 , 2015 , we had approximately $ 4.8 billion of aum in two business development companies , mcc and sic , as well as private investment vehicles . as of january 25 , 2016 , we had over $ 5.0 billion of aum . over the past 13 years , we have provided in excess of $ 6 billion of capital to over 300 companies across 35 industries in north america . we manage two permanent capital vehicles , both of which are bdcs , as well as long-dated private funds and smas . our focus on senior secured credit , combined with the permanent and long-dated nature of our vehicles , generally leads to predictable management fee and incentive fee income . our year over year aum growth as of december 31 , 2015 was 30 % and our compounded annual growth rate of aum from december 31 , 2010 through december 31 , 2015 was 37 % , which have been driven in large part by the growth in our permanent capital vehicles . · permanent capital vehicles : mcc and sic , have a total aum of $ 2.5 billion as of december 31 , 2015 . · long-dated private funds and smas : mof ii , mof iii and smas , have a total aum of $ 2.2 billion as of december 31 , 2015. since the launch of our first permanent capital vehicle in january 2011 , permanent capital has grown to represent 53 % of our aum as of december 31 , 2015. for the year ended december 31 , 2015 , 89 % of our revenues were generated from management fees and performance fees derived primarily from net interest income on senior secured loans . direct origination , careful structuring and active monitoring of the loan portfolios we manage are important success factors in our business , which can be adversely affected by difficult market and political conditions , such as the turmoil in the global capital markets from 2007 to 2009. since our inception in 2006 , we have adhered to a disciplined investment process that employs these principles with the goal of delivering strong risk-adjusted investment returns while protecting investor capital . we believe that our ability to directly originate , structure and lead deals enables us to consistently lend at higher yields with better terms . in addition , the loans we manage generally have a contractual maturity of between three and seven years and are typically floating rate , which we believe positions our business well for rising interest rates . our senior management team has , on average , over 20 years of experience in credit , including originating , underwriting , principal investing and loan structuring . we have made significant investments in our corporate infrastructure and have over 80 employees , including over 40 investment , origination and credit management professionals , and over 40 operations , accounting , legal , compliance and marketing professionals , each with extensive experience in their respective disciplines . we believe that our revenue is consistent and predictable due to our investment strategy and nature of our fees . the significant majority of our revenue is derived from management fees , which include base management fees earned on all of our investment products as well as part i incentive fees earned from our permanent capital vehicles . our base management fees are generally calculated based upon fee earning assets and paid quarterly in cash . our part i incentive fees from our permanent capital vehicles are typically 15 % to 20 % of net investment income , subject to a hurdle rate , and are also paid quarterly in cash . we also earn performance fees from our long-dated private funds and smas . typically , these performance fees are 15 % or 20 % of the total return above a hurdle rate . these performance fees are accrued quarterly and paid after return of all invested capital and an amount sufficient to achieve the hurdle rate of return . we also receive incentive fees related to realized capital gains in our permanent capital vehicles that we refer to as part ii incentive fees . part ii incentive fees are payable annually and are calculated at the end of each applicable year by subtracting ( i ) the sum of cumulative realized capital losses and unrealized capital depreciation from ( ii ) cumulative aggregate realized capital gains . if the amount calculated is positive , then the part ii incentive fee for such year is equal to 20 % of such amount , less the aggregate amount of part ii incentive fees paid in all prior years . if such amount is negative , then no part ii incentive fee will be payable for such year . as our investment strategy is focused on generating yield from senior secured credit , historically we have not generated part ii incentive fees . 41 our primary expenses are compensation to our employees , performance fee compensation and general , administrative and other expenses . story_separator_special_tag from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will entitle medley group llc , without regard to the number of shares of class b common stock held by it , to a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to the number of llc units held by such holder . at the completion of our ipo , our pre-ipo owners were comprised of all of the non-managing members of medley llc . however , medley llc may in the future admit additional non-managing members that would not constitute pre-ipo owners . if at any time the ratio at which llc units are exchangeable for shares of our class a common stock changes from one-for-one as set forth in the exchange agreement , the number of votes to which class b common stockholders are entitled will be adjusted accordingly . holders of shares of our class b common stock will vote together with holders of our class a common stock as a single class on all matters on which stockholders are entitled to vote generally , except as otherwise required by law . 42 other than medley management inc. , holders of llc units , including our pre-ipo owners , are , subject to limited exceptions , prohibited from transferring any llc units held by them upon consummation of our ipo , or any shares of class a common stock received upon exchange of such llc units , until the third anniversary of our ipo without our consent . thereafter and prior to the fourth and fifth anniversaries of our ipo , such holders may not transfer more than 33 1/3 % and 66 2/3 % , respectively , of the number of llc units held by them upon consummation of our ipo , together with the number of any shares of class a common stock received by them upon exchange therefor , without our consent . while this agreement could be amended or waived by us , our pre-ipo owners have advised us that they do not intend to seek any waivers of these restrictions . the diagram below depicts our current organizational structure ( excluding those operating subsidiaries with no material operations or assets ) : ( 1 ) the class b common stock provides medley group llc with a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc . from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will provide medley group llc with a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock . 43 ( 2 ) if our pre-ipo owners exchanged all of their llc units for shares of class a common stock , they would hold 80.15 % of the outstanding shares of class a common stock , entitling them to an equivalent percentage of economic interests and voting power in medley management inc. , medley group llc would hold no voting power or economic interests in medley management inc. and medley management inc. would hold 100 % of outstanding llc units and 100 % of the voting power in medley llc . ( 3 ) certain individuals , entities and other partners engaged in our business continue to own interests directly in selected operating subsidiaries , including , in certain instances , entities that receive management , performance and incentive fees from funds that we advise . for additional information concerning these interests , see “ business — fee structure. ” ( 4 ) an entity controlled by a former employee held limited liability company interests in mcc advisors llc that entitled it to approximately 4.86 % of the net incentive fee income through october 29 , 2015 from mcc advisors llc . another entity controlled by a former employee holds limited liability company interests in mcc advisors llc that entitles it to approximately 5.75 % of the net incentive fee income through august 20 , 2016 from mcc advisors llc . ( 5 ) sc distributors , llc owns 20 % of sic advisors llc and is entitled to receive distributions of up to 20 % of the gross cash proceeds received by sic advisors llc from the management and incentive fees payable by sierra income corporation to sic advisors llc , net of certain expenses , as well as 20 % of the returns of the investments held at sic advisors llc . ( 6 ) as of december 31 , 2015 , certain former employees and former members of medley llc hold approximately 41 % of the limited liability company interests in mof ii gp llc , the entity that serves as general partner of mof ii , entitling the holders to share the performance fees earned from mof ii . trends affecting our business we believe that our disciplined investment philosophy contributes to the stability of our firm 's performance . as of december 31 , 2015 , approximately 53 % of our aum was in permanent capital vehicles , which have unlimited duration and attractive total returns . our results of operations , including the fair value of our aum , are affected by a variety of factors , including conditions in the global financial markets as well as economic and political environments , particularly in the united states .
| results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2015 , 2014 and 2013. the consolidated financial statements of medley have been prepared on substantially the same basis for all historical periods presented ; however , our consolidated funds are not the same entities in all periods shown due to changes in ownership percentages of certain funds and the early adoption of asu 2015-02 , consolidation ( topic 810 ) – amendments to the consolidation analysis , which resulted in the deconsolidation of our consolidated funds effective january 1 , 2015. in prior years , we consolidated funds where through our management contract and other interests we are deemed to have the power , through voting or similar rights , to direct the activities of the legal entity that most significantly impact the entity 's economic performance . as previously described , the consolidation of these funds had the impact of increasing interest and other income of consolidated funds , interest and other expenses of consolidated funds and net investment gains ( losses ) of consolidated funds , but had no net effect on the net income attributable to our consolidated results for the years ended december 31 , 2014 and 2013. replace_table_token_11_th 56 we refer to “ standalone financial information ” or information presented on a “ standalone basis ” as information derived from our consolidated balance sheets and statements of operations for the periods prior to 2015 , that has been adjusted to eliminate the effects of the consolidated funds on our consolidated balance sheets and statements of operations . for the years ended december 31 , 2014 and 2013 , revenues from management fees , performance fees and investment income on a standalone basis were greater than those presented on a consolidated basis in accordance with u.s. gaap because certain revenues recognized from consolidated funds were eliminated in consolidation .
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right of use assets are included as a component of other assets , and lease liabilities are included with other liabilities in our consolidated balance sheet . a short-term operating lease has an original term of 12 months or less and does not have a purchase option . in recognizing right of use assets and related lease liabilities , we account for lease and non-lease components ( such as taxes , insurance and common area maintenance costs ) separately when such amounts are readily determinable under our lease contracts . lease payments over the expected term were discounted using our incremental borrowing rate referenced to the fhlb advance rates for borrowings of similar term . we also consider renewal and termination options in the determination of the term of the lease . if it is reasonably certain that a renewal or termination option will be exercised , the effect story_separator_special_tag for a discussion of our financial condition and results of operations for fiscal 2018 as compared to fiscal 2017 , see “ 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 the fiscal year ended december 31 , 2018 filed with the sec on march 1 , 2019. forward-looking statements we make statements in this report , and we may from time to time make other statements , regarding our outlook or expectations for earnings , revenues , expenses and or other financial , business or strategic matters regarding or affecting us that are forward-looking statements within the meaning of the private securities litigation reform act of 1995 , as amended . forward-looking statements are typically identified by words such as “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ outlook , ” “ target , ” “ estimate , ” “ forecast , ” “ project , ” by future conditional verbs such as “ will , ” “ should , ” “ would , ” “ could ” or “ may , ” or by variations of such words or by similar expressions . these statements are not historical facts , but instead represent our current expectations , plans or forecasts and are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared . forward-looking statements are subject to numerous assumptions , risks ( both known and unknown ) and uncertainties , and other factors which change over time . forward-looking statements speak only as of the date they are made . we do not assume any duty and do not undertake to update our forward-looking statements . because forward-looking statements are subject to assumptions , risks , uncertainties , and other factors , actual results or future events could differ , possibly materially , from those that we anticipated in our forward-looking statements and future results could differ materially from our historical performance . the following factors , among others , could cause our future results to differ materially from the plans , objectives , goals , expectations , anticipations , estimates and intentions expressed in forward-looking statements : our ability to successfully implement growth and other strategic initiatives , reduce expenses and to integrate and fully realize cost savings and other benefits we estimate in connection with acquisitions , and limiting any business disruption arising therefrom ; oversight of the bank by the cfpb ; adverse publicity , regulatory actions or litigation with respect to us or other well-known companies and the financial services industry in general and a failure to satisfy regulatory standards ; the effects of and changes in monetary and policies of the board of governors of the federal reserve system and the u.s. government , respectively ; our ability to make accurate assumptions and judgments about an appropriate level of allowance for loan losses and the collectability of our loan portfolio , including changes in the level and trend of loan delinquencies and write-offs that may lead to increased losses and non-performing assets in our loan portfolio , result in our allowance for loan losses not being adequate to cover actual losses , and require us to materially increase our reserves ; our use of estimates in determining the fair value of certain of our assets , which may prove to be incorrect and result in significant declines in valuation ; our ability to manage changes in market interest rates ; our ability to capitalize on our substantial investments in our information technology and operational infrastructure and systems ; changes in other economic , competitive , governmental , regulatory , and technological factors affecting our markets , operations , pricing , products , services and fees ; and our success at managing the risks involved in the foregoing and managing our business . 24 additional factors that may affect our results are discussed in this annual report on form 10-k under item 1a , “ risk factors ” and elsewhere in this report or in other filings with the sec . these risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . you should read such statements carefully . libor transition and phase-out we have a significant amount of loans , borrowings and swaps that are tied to libor benchmark interest rates . it is anticipated that the libor index will be phased out by the end of 2021 and the federal reserve bank of new york has established the sofr as its recommended alternative to libor . we have created a sub-committee of our asset liability management committee to address libor transition and phase-out issues . this committee includes personnel from legal , loan operations , risk , it , credit , business intelligence , treasury , corporate banking , marketing , audit , accounting and corporate development . we are currently reviewing loan documentation , technology systems and procedures we will need to implement for the transition . story_separator_special_tag sale of residential mortgage loans at december 31 , 2018 , we held residential mortgage loans with an unpaid principal balance of $ 1.6 billion in our held for sale portfolio . these loans represented substantially all of the remaining 15-year and 30-year fixed rate residential mortgage loans acquired in the astoria merger . we sold $ 1.4 billion of these loans in the first six months of 2019 and transferred the remaining loans with an unpaid principal balance of $ 128.8 million to portfolio loans in the second quarter of 2019 . see note 24 . “ quarterly results of operations ( unaudited ) ” in the notes to consolidated financial statements for information regarding our quarterly results for 2019 and 2018 . story_separator_special_tag style= '' font-family : inherit ; font-size:9pt ; '' > commercial real estate loans include multi-family loans . ( 3 ) adc represents acquisition , development and construction loans . ( 4 ) commercial loans include all c & i and commercial finance , commercial real estate and adc loans . ( 5 ) includes the effect of net deferred loan origination fees and costs , accretion of net purchase accounting adjustments , prepayment fees and late charges and non-accrual loans . ( 6 ) includes interest bearing mortgage escrow balances . ( 7 ) net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities . ( 8 ) net interest earning assets represents total interest earning assets less total interest bearing liabilities . the ratio of interest earning assets to interest bearing liabilities was 128.6 % , 126.1 % and 136.0 % for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the following table presents the dollar amount of changes in interest income ( on a fully tax equivalent basis ) and interest expense for the major categories of our interest earning assets and interest bearing liabilities . information is provided for each category of interest earning assets and interest bearing liabilities with respect to ( i ) changes attributable to changes in volume ( i.e. , changes in average balances multiplied by the prior period average rate ) ; and ( ii ) changes attributable to rate ( i.e. , changes in average rate multiplied by prior period average balances ) . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated proportionately to the change due to volume and the change due to rate . 30 replace_table_token_12_th 2019 compared to 2018 tax equivalent net interest income decreased $ 49,877 to $ 933,757 for the year ended december 31 , 2019 compared to $ 983,634 for the year ended december 31 , 2018 . the decrease in tax equivalent net interest income was mainly due to higher interest expense in 2019 relative to 2018 and a decrease of $ 20,729 in accretion income on acquired loans , which was $ 91,212 for 2019 compared to $ 111,941 for 2018 . we repositioned our balance sheet in 2019 as residential mortgage loan interest income was replaced with commercial loan interest income and the decline in interest income from securities was substantially offset by a decline in interest expense on borrowings . the average volume of interest earning assets decreased $ 769,369 , or 2.8 % , for 2019 relative to 2018 , which was mainly due to the residential loan sale and securities sales . the tax equivalent net interest margin decreased to 3.49 % for 2019 compared to 3.57 % for 2018 , mainly due to the decline in accretion income on acquired loans . interest earning assets yielded 4.55 % for 2019 compared to 4.45 % for 2018 , which was mainly due to increasing commercial loan assets and reducing lower yielding residential loans and securities . the cost of interest bearing liabilities was 1.36 % for the year ended december 31 , 2019 compared to 1.10 % for 2018 . the increase in the cost of interest bearing liabilities was mainly due to increases in market rates of interest between the periods . 31 the average balance of commercial loans outstanding increased $ 2,128,902 , or 14.0 % , during 2019 , compared to 2018 . the increase was the result of organic growth from our commercial banking teams , the woodforest portfolio acquisition and the santander portfolio acquisition . commercial loans represented 84.9 % of total average loans during 2019 , compared to 75.3 % for 2018. this is consistent with our goal of having commercial loans represent 85.0 % of total loans . the yield on commercial loans was 5.02 % in 2019 , compared to 4.93 % for 2018 . interest income from commercial loans increased $ 121,430 in 2019 , compared to 2018 . the increase in yield on commercial loans was mainly due to growth in higher yielding commercial real estate loans and run-off from lower yielding multi-family loans acquired in the astoria merger . additionally , accretion income on acquired commercial loans was $ 61,190 in 2019 compared to $ 55,217 in 2018 ; mainly due to the woodforest portfolio acquisition and the santander portfolio acquisition . the average balance of residential mortgage loans declined $ 1,844,294 during 2019 compared to 2018 . the decline was mainly due to the sale of $ 1,409,334 of residential mortgage loans in the first quarter of 2019 , which is discussed above in “ recent developments , ” and continued repayments . the average yield on residential mortgage loans was 5.11 % in 2019 compared to 5.12 % in 2018 . accretion income on acquired residential mortgage loans was $ 29,004 during 2019 compared to $ 54,608 for 2018 . total accretion income on acquired loans was $ 91,212 for 2019 and contributed 45 basis points to the yield on loans . accretion income on acquired loans was $ 111,941 for 2018 and contributed 55 basis points to the yield on loans .
| results of operations we reported net income available to common stockholders of $ 419.1 million , or $ 2.03 per diluted common share for 2019 , compared to net income available to common stockholders of $ 439.3 million , or $ 1.95 per diluted common share for 2018 , and net income available to common stockholders of $ 91.0 million , or $ 0.58 per diluted common share , for 2017 . results for 2019 included continued organic growth from our commercial banking teams and , the results from the woodforest portfolio acquisition since february 28 , 2019 ; and the results from the santander portfolio acquisition since november 29 , 2019. results for 2018 included the results from the advantage funding acquisition since april 2 , 2018 ; and the integration of astoria 's operating activities , including conversion of astoria 's legacy deposit systems , progress on our real estate consolidation strategy , and the realization of anticipated efficiencies , which have resulted in reduced staffing levels and operating efficiencies . results for 2017 included the combined results from the astoria merger from october 2 , 2017 . the table below summarizes our results of operations on a tax equivalent basis . tax equivalent adjustments are the result of increasing income from tax-free securities by an amount equal to the taxes that would be paid if the income were fully taxable based on the 35 % federal tax rate that was in effect for 2017 and the 21 % federal tax rate that was in effect for 2019 and 2018 , thus making tax-exempt yields comparable to taxable asset yields . 26 dollar amounts in tables and the accompanying discussion that follows are stated in thousands , except for per share amounts and ratios .
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this discussion of our financial condition and results of operations contains certain statements that are not strictly historical and are “ forward-looking ” statements and involve a high degree of risk and uncertainty . actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in our operations , development efforts and business environment , including those set forth in this item 7 , and in the sections entitled “ 1a . risk factors ” and “ 1 . business ” in this report and uncertainties described elsewhere in this report . all forward-looking statements included in this report are based on information available to the company as of the date hereof . general company overview we are a specialty biopharmaceutical company focused on developing and commercializing products in the therapeutic areas of respiratory disease and allergy . our products and product candidates in the allergy and respiratory markets include symjepi ( epinephrine ) injection 0.3mg which was approved by the u.s. food and drug administration , or fda , in 2017 for use in the emergency treatment of acute allergic reactions , including anaphylaxis ; symjepi ( epinephrine ) injection 0.15mg which is intended for use in the treatment of anaphylaxis for patients weighing 33-65 pounds for which the company submitted a supplemental new drug application , or snda , to the fda in november 2017 ; a naloxone injection product candidate ( apc-6000 ) based on the approved symject injection device and intended for the treatment of opioid overdose for which the company submitted an investigational new drug application , or ind , in december 2017 ; and a beclomethasone metered dose inhaler product candidate ( apc-1000 ) intended for the treatment of asthma and for which the company submitted an ind in january 2018 ; and fluticasone ( apc-4000 ) dry powder inhaler , or dpi , product candidate for the treatment of asthma . our goal is to create low cost therapeutic alternatives to existing treatments . consistent across all specialty pharmaceuticals product lines , we intend to submit a new drug applications , or nda , under section 505 ( b ) ( 2 ) , or section 505 ( j ) abbreviated new drug applications , or anda , to the fda , whenever possible , in order to potentially reduce the time to market and to save on costs , compared to those associated with section 505 ( b ) ( 1 ) ndas for new drug products . our u.s. compounding , inc. , subsidiary , or usc , which we acquired in april 2016 and which is registered as a drug compounding outsourcing facility under section 503b of the u.s. food , drug & cosmetic act , as amended , or fdca , and the u.s. drug quality and security act , or dqsa , provides prescription compounded medications , including compounded sterile preparations and nonsterile compounds , to patients , physician clinics , hospitals , surgery centers and other clients throughout most of the united states . usc 's product offerings broadly include , among others , corticosteroids , hormone replacement therapies , hospital outsourcing products , injectables , urological preparations , ophthalmic preparations , topical compounds for pain and men 's and women 's health products . usc 's compounded formulations in many circumstances are offered as alternatives to drugs approved by the fda . usc also provides certain veterinary pharmaceutical products for animals . to achieve our goals and support our overall strategy , we will need to raise a substantial amount of funding and make significant investments in , among other things , new product development and working capital . symjepi ( epinephrine ) injection 0.3mg product on june 15 , 2017 , fda approved the company 's symjepi ( epinephrine ) injection 0.3mg product for the emergency treatment of allergic reactions ( type i ) including anaphylaxis . symjepi ( epinephrine ) injection 0.3mg is intended to deliver a dose of epinephrine , which is used for emergency , immediate administration in acute anaphylactic reactions to insect stings or bites , allergic reaction to certain foods , drugs and other allergens , as well as idiopathic or exercise-induced anaphylaxis . on november 27 , 2017 , we submitted an snda to the fda for a lower dose version ( 0.15mg ) . symjepi ( epinephrine ) injection 0.3mg is designed for patients weighing 66 pounds or greater . the lower dose symjepi ( epinephrine ) injection 0.15mg product candidate is intended for patients weighing 33 to 66 pounds . on february 9 , 2018 , we received correspondence from the fda indicating that the agency had determined that the snda was sufficiently complete to permit a substantive review . the agency indicated that no potential review issues were identified as of the date of the correspondence and that if no major deficiencies were identified in the agency 's continued review , the agency was targeting september 3 , 2018 , to communicate proposed labeling and , if necessary , any post-marketing requirement or commitment requests . there can be no assurances regarding the timing of outcome of the fda 's review of our snda . in connection with our process of exploring commercialization options for symjepi ( epinephrine ) injection 0.3mg in the u.s. market after the fda approval , we retained an investment bank to assist us . we determined to engage in a process with the goal of maximizing the value of the asset . the process has been ongoing and as of the date of this report , we are in discussions with potential partners regarding commercialization of the product . however , the timing of a commercial launch will depend on a number of factors , including without limitation whether we enter into an agreement with a commercialization partner and , if we enter into such an agreement , the terms of any such agreement and the plans of the commercialization partner . story_separator_special_tag the income tax benefit for 2016 reflected the tax benefit arising from the recognition of a deferred tax liability related to the identifiable intangibles recorded in connection with the company 's acquisition of usc , and resulted from a reassessment of the valuation allowance in accordance with the generally accepted accounting principles for reporting business combinations . the income tax benefit does not result in any cash saving benefits to the company . the income tax benefit for 2017 reflected the remeasurement of the net deferred tax liability as part of the tax cuts and jobs act , enacted on december 22 , 2017. see note 19 to the financial statements appearing elsewhere herein . liquidity and capital resources we have incurred net losses of approximately $ 25.5 million and $ 19.4 million for years ended december 31 , 2017 and 2016 , respectively . since our inception , june 6 , 2006 , and through december 31 , 2017 , we have an accumulated deficit of approximately $ 114.0 million . since inception and through december 31 , 2017 , we have financed our operations principally through debt financing and through public and private issuances of common stock and preferred stock . since inception , we have raised a total of approximately $ 135 million in debt and equity financing transactions , consisting of approximately $ 23.5 million in debt financing and approximately $ 111.4 million in equity financing transactions . we anticipate that we will need significant additional funding during 2018 to satisfy our obligations and fund the future expenditures that we believe will be required to support commercialization of our products and conduct the clinical and regulatory work to develop our product candidates . we expect to finance future cash needs primarily through proceeds from equity or debt financings , loans , sales of assets , out-licensing transactions , and or collaborative agreements with corporate partners , and from revenues from our sale of compounded pharmacy formulations . we have used the net proceeds from debt and equity financings for general corporate purposes , which have included funding for research and development , selling , general and administrative expenses , working capital , reducing indebtedness , pursuing and completing acquisitions or investments in other businesses , products or technologies , and for capital expenditures . assuming adequate funding , we anticipate that we may make capital expenditures during 2018 of at least approximately $ 5 million to $ 6 million including , without limitation , expenditures relating to a new usc facility and the construction of manufacturing assembly lines for our symjepi ( epinephrine ) injection 0.3mg product and naloxone ( apc-6000 ) product candidate . as part of our acquisition of usc in april of 2016 , the company assumed debt of approximately $ 5.7 million and entered into a secured $ 2 million line of credit agreement , both of which were included in the debt financing of $ 23.5 million referenced above . net cash used in operating activities from continuing operations for the years ended december 31 , 2017 and 2016 were approximately $ 15.1 million and $ 21.2 million , respectively . net cash used in operating activities decreased primarily due to the increase in accounts payable , accrued other expenses , accrued bonuses and a reduction in accounts receivable as compared to 2016. net cash provided by ( used in ) investing activities was approximately ( $ 2,088,000 ) and $ 261,000 for years ended december 31 , 2017 and 2016 , respectively . the net cash used in investing activities increased primarily due to the purchase of additional equipment . net cash provided by financing activities was approximately $ 30.5 million and $ 21.9 million for the years ended december 31 , 2017 and 2016 , respectively . net cash provided by financing activities increased primarily due to the issuance of common stock and exercise of warrants by certain private investors . 47 loan agreements in connection with our acquisition of usc and the transactions contemplated by the merger agreement relating to the usc acquisition , we assumed approximately $ 5,722,000 principal amount of debt obligations under two loan agreements and related loan documents relating to the building , real property and equipment that certain third parties agreed to transfer to the company or usc in connection with the merger , as well as the two loan agreements to which usc is a party , a working capital loan and an equipment loan , and related loan documents evidencing loans previously made to usc , and we agreed to become an additional co-borrower under the loan documents . the lender in all of the usc loan documents was first federal bank and or its successor bear state bank , referred to as lender or the bank . in november 2016 , we entered into amendments of our loan agreements with the bank . under the loan agreements , we are required to make current periodic interest and principal payments under the amended loan documents , in an amount of approximately $ 57,000 per month ; the amount of required interest payments is subject to change depending on future changes in interest rates . the balances of the usc working capital line , building loan and equipment loan are due and payable on february 28 , 2018 , august 8 , 2019 and october 1 , 2019 , respectively . there was no outstanding balance on the usc working capital line at its maturity date , and that agreement has not currently been renewed or extended . though the maturity dates of the usc loans may be extended at later dates . we also entered into a loan and security agreement with the lender , referred to as the adamis working capital line , pursuant to which we may borrow up to an aggregate of $ 2,000,000 to provide working capital to usc , subject to the terms and conditions of the loan agreement .
| results of operations our consolidated results of operations are presented for the year ending december 31 , 2017 and for the year ending december 31 , 2016 . 45 years ended december 31 , 2017 and 2016 revenues revenues were approximately $ 13,073,000 and $ 6,474,000 for the years ended december 31 , 2017 and 2016 , respectively . revenues for the year ended december 31 , 2016 were adversely affected by the suspension of production of usc 's sterile compounded formulations , product recall and remediation efforts in the third and fourth quarters of 2015 and the first quarter of 2016. usc resumed production and sales of compounded sterile formulations in march and april 2016. the suspension of production and sales of compounded sterile formulations adversely affected usc 's relationships with certain of its customers and adversely affected sales of compounded sterile formulations in 2016. the increase in revenues for the year ended 2017 compared to the comparable period of 2016 was primarily due to the revenues of usc for the first quarter of 2016 and through the april 11 , 2016 , acquisition date not being included in our revenues for 2016 as well as an increase in the volume of sales of usc 's compounded pharmaceutical formulations resulting in part from increased sales and marketing personnel and efforts . although our goal is to increase revenues from sales of compounded formulations and preparations by usc , we can not provide any assurances regarding the level of revenues and profitability in future periods from sales of compounded formulations and preparations by usc . cost of sales cost of sales was approximately $ 7,420,000 and $ 4,854,000 for the years ended december 31 , 2017 and 2016 , respectively .
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on april 24 , 2014 , the company entered into an asset purchase agreement ( the “ asset purchase agreement ” ) with equus holdings , inc. and redwood acquisition , inc. ( now known as rimage corporation , “ buyer ” ) . under the terms of the asset purchase agreement , the company agreed to sell to buyer all of the assets primarily used or primarily held for use in connection with its disc publishing business . buyer also agreed to assume on the closing date certain agreements and liabilities relating to the disc publishing business and the acquired assets . at a special meeting of the company 's shareholders held on june 27 , 2014 , the company 's shareholders approved the sale of the disc publishing assets as contemplated by the asset purchase agreement , and on july 1 , 2014 , the sale was completed . as a result , effective june 27 , 2014 , the disc publishing business was classified as held for sale and qualified for presentation as discontinued operations effective with the reporting of the company 's financial results for the second quarter of 2014. the transactions described in the asset purchase agreement are referred to in this section as the “ asset sale transaction. ” for additional information on the asset purchase agreement and the asset sale transaction , please see the company 's current reports on form 8-k dated april 24 , 2014 and july 1 , 2014 and note 2 “ divestiture of disc publishing business. ” on october 3 , 2014 , the company entered into share purchase agreements to acquire 100 % of the outstanding shares of kulu valley ltd. , a private limited company incorporated in england and wales ( “ kulu ” ) . the acquisition was made to expand qumu 's addressable market through the offering of kulu valley 's best-in-class video content creation capabilities and easy-to-deploy pure cloud solution , and provides kulu 's customers with access to industry leading video content management and delivery capability . as a result of the transaction , kulu is a wholly-owned subsidiary of the company . for additional information on the acquisition transaction , please see note 3 to the consolidated financial statements . as a result of the sale of its disc publishing business in the asset sale transaction and expansion of its video content management business with the acquisition of kulu , the company has one reportable segment , the enterprise video content management software business . in accordance with asc 205-20 , the results of the discontinued disc publishing business and associated financial impacts from the sale of this business have been presented as discontinued operations for the year ended december 31 , 2014. current year , as 22 well as previously reported results for prior-year comparable periods , have been restated to reflect this reclassification , and are presented in the “ net income from discontinued operations , net of tax ” line item on the consolidated statements of operations . in accordance with asc 205-20 , no general corporate charges were allocated to the discontinued business . the assets and liabilities of the discontinued business are presented on the consolidated balance sheets as assets and liabilities from discontinued operations . other than consolidated amounts reflecting operating results and balances for both the continuing and discontinued operations , all remaining amounts presented in the accompanying consolidated financial statements reflect the financial results and financial position of the company 's continuing enterprise video content management software business . the following discussion of year-to-year changes and trends in financial statement results under `` management 's discussion and analysis of financial condition and results of operations ” aligns with the financial statement presentation described above . story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-align : justify ; font-size:10pt ; '' > total research and development expenses were $ 9.5 million , $ 8.7 million and $ 7.7 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively , representing 35.8 % , 49.3 % and 78.3 % of revenues , respectively . the year-over-year increase in expenses reflects an increase in project spending to support development of expanded software functionality and increased employee costs in each successive year . the addition of engineering employees through the acquisition of kulu valley in october 2014 was the primary driver to the growth in engineering headcount in 2014. total selling , general and administrative expenses for the years ended december 31 , 2014 , 2013 and 2012 were $ 30.6 million , $ 20.6 million and $ 17.1 million , respectively , representing 115 % , 116 % and 174 % of revenues , respectively . the $ 10.0 million increase in expenses from 2013 to 2014 was driven by an increase in sales and marketing headcount , higher sales commissions stemming from an increase in revenues and increased spending on marketing programs to support sales growth . also contributing to the increase in selling , general and administrative expenses in 2014 were increased legal , consulting and other outsourced costs . these costs were required to support corporate development activity associated with the acquisition of kulu valley in the fourth quarter of 2014 as well as transition activities related to separating the back office processes and systems of the company 's enterprise video content management software business from the disc publishing business , which was sold effective july 1 , 2014. the $ 3.5 million increase in selling , general and administrative expenses from 2012 to 2013 resulted from investments to support the growth of the business , including increased sales headcount and sales commissions stemming from an increase in revenues relative to the prior year and non-recurring severance costs . also contributing to the increase in expenses in 2013 relative to 2012 were higher incentive compensation expenses resulting from above target performance under employee short-term and long-term incentive plans . during the year ended december 31 , 2012 , the company recorded a $ 22.2 million goodwill and $ 7.3 story_separator_special_tag related net loss per diluted share amounts were $ 0.96 in 2014 , $ 1.12 in 2013 and $ 4.85 in 2012. liquidity and capital resources the company expects it will be able to maintain current operations and anticipated capital expenditure requirements for the foreseeable future through its cash reserves and proceeds received from the sale of the company 's disc publishing business on july 1 , 2014 , as well as any cash flows that may be generated from current operations . at december 31 , 2014 , the company had aggregate working capital of $ 33.4 million , down $ 15.3 million from working capital of $ 48.7 million at december 31 , 2013. the primary contributors to the decrease in working capital were the net outlay of $ 11.6 million in cash to acquire kulu valley in october 2014 , the generation of a net loss from continuing operations adjusted for non-cash items of $ 24.8 million and purchases of property and equipment of $ 1.1 million , partially offset by gross proceeds , including restricted cash held in escrow , of 25 approximately $ 22 million from the sale of the disc publishing business . qumu has no long-term debt and does not require significant capital investment for its ongoing operations . the company 's primary source of cash from operating activities has been cash collections from sales of products and services to customers . the company expects cash inflows from operating activities to be affected by increases or decreases in sales and timing of collections . the company 's primary use of cash for operating activities has been for personnel costs , payment of royalties associated with third-party software licenses and purchases of equipment to fulfill customer orders . the company expects cash flows from operating activities to be affected by fluctuations in revenues , personnel costs and the amount and timing of royalty payments and equipment purchases as the company continues to support the growth of the business . the amount of cash , cash equivalent and marketable securities held by the company 's international subsidiaries that are not available to fund domestic operations unless repatriated was $ 3.8 million as of december 31 , 2014. the company currently does not intend to repatriate the cash and related balances held by its international subsidiaries . net cash provided by ( used in ) operating activities totaled in the aggregate $ ( 22.6 ) million , $ 2.4 million and $ ( 1.9 ) million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the $ 25.0 million increase in cash used in operating activities in 2014 relative to 2013 resulted from a $ 16.1 million increase in cash used for continuing operating activities to support the growth of the software business and a reduction in cash provided by discontinued operations of $ 8.9 million . the increase in cash used for continuing operating activities was driven by a $ 9.0 million increase in net loss adjusted for the impact of non-cash and non-operating items and $ 7.1 million in unfavorable changes in operating assets and liabilities . primarily contributing to the change in operating assets and liabilities in 2014 compared to the prior year were unfavorable changes of $ 7.3 million in receivables , $ 1.9 million in prepaid expenses and other assets , $ 1.4 million in prepaid income taxes and $ 1.5 million in accrued compensation , partially offset by favorable changes of $ 4.7 million in deferred revenue . the unfavorable change in accounts receivable in 2014 compared to the prior year was due to a $ 4.2 million increase in revenues in the fourth quarter of 2014 relative to the same period in the prior year and the timing of sales and associated collections from customers . the unfavorable change in prepaid expenses and other assets was primarily due to an increase in and related deferral of software royalties , software licenses and hardware costs , a portion of which are directly associated with revenues that have not yet been recognized as of december 31 , 2014. the unfavorable change in prepaid income taxes in 2014 occurred primarily as a result of the receipt of significant federal income tax refunds in 2013. the unfavorable change in accrued compensation was primarily due to cash payments for liabilities associated with the establishment in 2013 of a long-term incentive plan and the achievement of above-target performance under the company 's short-term incentive plan for 2013 , with associated payments under both plans occurring during the first half of 2014. the favorable change in deferred revenue for the year ended december 31 , 2014 compared to 2013 was primarily due to an increase in revenue deferrals , impacted by a higher mix of term-based software license arrangements relative to perpetual license arrangements and a growing base of maintenance contracts attached to new software license sales . net cash provided by ( used in ) investing activities totaled , in the aggregate , $ ( 3.2 ) million , $ 6.9 million and $ ( 24.5 ) million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . primarily driving the use of cash in 2014 was the company 's net outlay of $ 11.6 million in cash as part of its acquisition of kulu valley in october 2014 , purchases of marketable securities , net of related maturities , of $ 10.2 million and purchases of property and equipment of $ 1.1 million , partially offset by cash provided by discontinued operations for the company 's receipt of proceeds from the sale of the disc publishing business of $ 19.7 million . the $ 6.9 million of cash provided in investing activities in 2013 was driven primarily by $ 8.2 million of maturities of marketable securities , net of related purchases , partially offset by $ 0.7 million in purchases of property and equipment and a $ 0.4 million investment in briefcam .
| results of operations qumu provides the tools businesses need to create , manage , secure , deliver and measure the success of their videos . qumu helps thousands of organizations around the world enhance the way they communicate and realize the greatest possible value from video and other rich content they create and publish . qumu 's video platform supports both live and on-demand streaming , and also incorporates secure download capabilities . the company markets its products to customers in north america , europe and asia . the company 's enterprise video content management software products are deployed primarily through the sale of software licenses , software on a server appliance , software-enabled devices and a cloud-based software-as-a-service ( saas ) platform . software maintenance contracts , professional services and managed services are also sold with these solutions . software license and appliance revenues on the accompanying consolidated statements of operations include the company 's sale of appliances , software-enabled devices and perpetual software licenses . service revenues on the consolidated statements of operations include revenues from maintenance contracts , software and maintenance subscription and cloud-based sass arrangements , managed services and professional services . qumu has no long-term debt and does not require significant capital investment as it outsources to third-party vendors the required fabrication of its hardware-related products . revenues . the table below describes qumu 's revenues by product category ( in thousands ) : replace_table_token_8_th total revenues for the continuing enterprise video content management software business were $ 26.5 million for 2014 , reflecting a 50 % increase from total revenues of $ 17.7 million in 2013 , which increased 80 % from total revenues of $ 9.8 million in 2012. the $ 8.8 million increase in total revenues from 2013 to 2014 reflects a $ 4.1 million increase in software license and appliance revenues and a $ 4.7 million increase in service revenues .
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power and pse & g each make representations only as to itself and make no representations whatsoever as to any other company . pseg 's business consists of three reportable segments , which are : power , our wholesale energy supply company that integrates its generating asset operations with its wholesale energy , fuel supply , energy trading and marketing and risk management activities primarily in the northeast and mid-atlantic united states , pse & g , our public utility company which provides transmission and distribution of electric energy and gas in new jersey ; implements demand response and energy efficiency programs and invests in solar generation , and energy holdings , which principally owns and manages a portfolio of lease investments and solar generation projects . our business discussion in part i , item 1. business provides a review of the regions and markets where we operate and compete , as well as our strategy for conducting our businesses within these markets , focusing on operational excellence , financial strength and making disciplined investments . our risk factor discussion in part i item 1a provides information about factors that could have a material adverse impact on our businesses . the following discussion provides an overview of the significant events and business developments that have occurred during 2012 and key factors that we expect will drive our future performance . this discussion refers to the consolidated financial statements ( statements ) and the related notes to consolidated financial statements ( notes ) . this discussion should be read in conjunction with such statements and notes . overview of 2012 and future outlook 2012 overview during 2012 , our financial results continued to be adversely impacted by lower prices for electricity and natural gas in the markets we serve . electricity prices remained low due to a combination of a slow recovery in demand growth and sustained low natural gas prices . the slow economic recovery negatively impacts utility sales , and the wholesale energy and capacity markets in which we operate . the continued decline in wholesale natural gas prices resulting from greater supply from shale production has further contributed to the steady decline in the wholesale price of electricity . in the face of reduced pricing and lower demand for electricity , we continued to pursue our three-pronged strategy of operational excellence , financial strength and disciplined investment . our focus has been to change the business mix of our operations with increased investments in our regulated utility . through our regulated utility operations , we secured higher and more stable transmission revenues in 2012 resulting from our annual transmission formula rate update filing with the federal energy regulatory commission ( ferc ) and made additional solar and energy efficiency investments in new jersey , on which we receive contemporaneous returns . through allocating capital to transmission and distribution infrastructure projects , we were able to take advantage of a low interest rate environment and tap into an available labor pool in the region , while enhancing the reliability of our service to our customers . additionally , these sources of revenue allowed us to partially offset the impact of lower prices for electricity and natural gas , while the reduction in supply costs allows us to continue to invest in infrastructure improvements without raising our utility customers ' rates . while we have been successfully increasing our regulated utility earnings , we have not fully compensated for the reduction in generation earnings . over the past few years , we experienced a decline in wholesale energy prices . basic generation service ( bgs ) rates also declined , resulting in lower revenues for our generation business . as bgs rates reached a level closer to current spot market prices , customer migration away from bgs supply contracts continued in 2012 , but at a slower pace as there was less incentive to switch to third party suppliers . in addition , at year-end we were severely impacted by superstorm sandy , which resulted in the highest level of customer outages in our history . we sustained significant damage to some of our generation , transmission and distribution facilities . we received an order from the new jersey board of public utilities ( bpu ) allowing us to defer incurred , uninsured , incremental storm restoration costs associated with our gas and electric distribution systems . 43 as of december 31 , 2012 , power had incurred approximately $ 85 million in costs related to superstorm sandy , primarily comprised of repairs at certain generating stations and damage to materials and supplies , both at our fossil fleet . all the costs were recognized in operation and maintenance expense , offset by $ 19 million of a pending future recovery of insurance proceeds . power estimates that it will incur additional future costs primarily relating to repairs to , and replacement of , equipment and property up to approximately $ 215 million . as of december 31 , 2012 , pse & g had incurred approximately $ 295 million of costs to restore service to pse & g 's distribution and transmission systems and $ 5 million to repair its infrastructure and return it to pre-storm conditions . of the costs incurred , approximately $ 40 million was recognized in operation and maintenance expense , $ 75 million was recorded as property , plant and equipment and $ 180 million was recorded as a regulatory asset because such costs were deferred as approved by the bpu under an order received in december 2012. pse & g recognized $ 6 million of insurance proceeds . we are working with our insurance carriers with regard to other losses and expenses due to the storm but no assurances can be given relative to the timing or amount of insurance recovery . for additional information on the impacts of superstorm sandy , see item 8. financial statements and supplementary data-note 13. commitments and contingent liabilities . story_separator_special_tag these areas include upgrading our energy infrastructure , responding to trends in environmental protection and providing new energy supplies in domestic markets with growing demand . we also have several projects where we are investing to continue to improve our operational performance . as noted above , over the past few years , we have shifted our focus to investing at the utility . our capital expenditure forecast includes approximately $ 6.1 billion in spending over the next three years , 80 % of which is at pse & g . in addition , in 2012 we : invested approximately $ 1.1 billion in transmission infrastructure projects , completed the peach bottom steam path retrofit , added 400 mw of additional capacity with new peaking plants in new jersey and connecticut , completed solar projects in arizona and delaware , with the expectation to complete an additional arizona solar project in 2013 , made additional investments in our capital infrastructure program ( cip ii ) and our energy efficiency and demand response programs , and obtained bpu and njdep approvals of the north central reliability transmission project . on february 20 , 2013 , we filed a petition with the bpu describing $ 3.9 billion of improvements we recommend making to our electric and gas distribution systems over a ten year period to harden and improve resiliency for the future . in addition , we anticipate investing an additional $ 1.5 billion in improvements to our transmission system for the same reason . see capital requirements for additional information . 45 there is no guarantee that our projects currently underway or any future initiatives will be achieved since many issues need to be favorably resolved , such as regulatory approvals . delays in the construction schedules of our projects could impact their costs as well as the timing of expected revenues . future outlook our future success will depend on our ability to continue to maintain strong operational and financial performance in a difficult economy and cost-constrained environment and to respond to the issues and challenges described below and take advantage of these and other regulatory and legislative initiatives . in order to do this , we must continue to : focus on controlling costs while maintaining our safety , reliability and compliance standards , successfully re-contract our open supply positions , execute our capital investment program , including investments for growth that yield contemporaneous and attractive risk-adjusted returns while enhancing the reliability of the service we provide to our customers , advocate for measures to ensure the implementation by pjm and ferc of market design rules that continue to protect competition and achieve appropriate rpm and bgs pricing , and reach out to and engage multiple stakeholders , including regulators , government officials , customers and investors . for 2013 and beyond , the key issues and challenges we expect our business to confront include the continuing potential for sustained lower natural gas and electricity prices , both at market hubs and at locations where we operate , challenges to competitive markets , including support for subsidized generation in many states , particularly in new jersey , customer migration away from our bgs supply contracts , uncertainty in the national and regional economic recovery and continuing customer conservation efforts , which impact customer demand , regulatory and political uncertainty , particularly with regard to future energy policy , design of energy and capacity markets , transmission policy and environmental regulation , the aftermath of hurricane irene and superstorm sandy , including addressing the bpu 's review of performance and communications , as well as cost recovery and opportunities for investment in system strengthening and improvements , compressed margins and reduced utilization at coal plants , uncertain pension expenses and funding requirements given market volatility , liquidating the remaining portfolio of non-core assets where possible , while managing risk , monitoring financially stressed power plant leveraged lease investments , and successfully managing the transition to our operation of long island power authority 's ( lipa ) transmission and distribution system . 46 story_separator_special_tag style= '' width:54px ; '' > lower average prices realized on generation sold into the pjm and new york ( ny ) power pools and mtm losses due from the realization of prior year unrealized gains and adverse changes in unrealized prices in 2012 for forward positions , lower average pricing and lower volumes of electricity sold under our bgs contracts , net of lower cost to serve , lower volumes on wholesale load contracts in pjm , lower operating reserve , ancillary and reliability must run ( rmr ) revenues primarily in pjm and new england , lower average pricing and volumes of gas sold under our bgss contracts , net of lower cost to serve , and higher operation and maintenance expense due to damage to our generation infrastructure , primarily our fossil fleet , from superstorm sandy and higher refueling and maintenance costs at our nuclear plants . these decreases were partially offset by lower planned outages and maintenance costs in 2012 at certain of our fossil plants , and 49 lower interest expense due to the maturity of senior notes in april 2011 and the early redemption of senior notes in december 2011. for the year ended december 31 , 2011 , the primary reasons for the decrease in income from continuing operations were lower average pricing and lower volumes of electricity sold under our bgs contracts , as a result of customer migration , higher operation and maintenance expense related to planned outage work at certain of our fossil plants , and higher depreciation expense related to the completion of installation of back-end technology at two of our fossil plants .
| results of operations replace_table_token_18_th replace_table_token_19_th ( a ) power 's and pse & g 's results in 2012 include after-tax expenses of $ 39 million and $ 24 million , respectively , for operation and maintenance ( o & m ) costs due to severe damage caused by superstorm sandy . see item 8. financial statements and supplementary data—note 13. commitments and contingencies . ( b ) pse & g 's results in 2010 include an after-tax charge of $ 72 million related to an agreement to refund previous market transition charge ( mtc ) collections in the succeeding two years . ( c ) energy holdings ' results include an after-tax charge of $ 170 million taken in 2011 related to the reserve for assets underlying a leveraged lease receivable . see item 8. financial statements and supplementary data—note 8. financing receivables . ( d ) other includes parent company interest and financing costs , donations , certain administrative and general expenses . ( e ) see item 8. financial statements and supplementary data—note 4. discontinued operations and dispositions . the 2012 year-over-year decrease in our income from continuing operations was driven by the following : lower average pricing and volumes for electricity sold under our bgs contracts , lower average prices realized on generation sold into various power pools , unfavorable amounts related to the mtm activity , discussed below , higher operation and maintenance costs due to severe damage caused by superstorm sandy to our transmission and distribution system throughout our service territory as well as to some of our generation infrastructure in the northern part of new jersey . the decreases were partially offset by : the absence of the $ 170 million after-tax charge taken in 2011 on leveraged leases related to dynegy and the settlement proceeds received in 2012 ( see item 8. financial statements and supplementary data—note 8. financing receivables ) , and higher transmission revenues at pse & g .
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our management , including our chief executive officer and chief financial officer , conducted an evaluation of the effectiveness of our internal control over financial reporting as of december 31 , 2016. in making its evaluation , management used the criteria set forth by the committee of sponsoring organizations of the treadway commission ( coso ) in internal control — integrated framework . based on this evaluation , management concluded that the company 's internal control over financial reporting were not effective as of december 31 , 2016. our management determined that our internal controls over financial reporting was not effective based on the identification of certain material weaknesses . a material weakness is a significant deficiency , or combination of significant deficiencies , that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected . the determination that our internal control over financial reporting was not effective was based on the identification of the following material weakness : · failure to properly recognize and measure the fair value of equity and equity-linked awards issued to employees and non-employees . our policies and procedures failed to identify the need to consider certain areas of us gaap applicable to awards issued to employees and non-employees and correlated fair value considerations and remeasurement where applicable . our management believes that the accompanying information in this report , as of , and for the year ended december 31 , 2016 , fairly reflects the company 's financial position , results of operations , and cash flows . · insufficient corporate governance policies . not all of our corporate processes are formally documented . decisions made by the board and carried out by management may not be consistently applied or completed timely thereby increasing the likelihood of potential misunderstandings or incorrect implementation regarding key decisions affecting our operations and management . · despite the addition of two new independent directors and an independent audit committee during 2016 , at december 31 , 2016 , our level of independent director oversight still posed risk of management override and potential fraud . 25 the following provides a description of the material weaknesses identified in prior periods along with a description of our remediation actions : · in their evaluation for the period ended december 31 , 2015 , our ceo and cfo determined that we had insufficient documentation of our corporate governance policies . as a result , there was a risk that decisions made by the board , and carried out by management may not be consistently applied or completed timely thereby increasing the likelihood of potential misunderstandings or incorrect implementation regarding key decisions affecting our operations and management . remediation actions : as of december 31 , 2016 , we have formalized the documentation and implementation of our key corporate governance policies resulting in our ceo and cfo 's determination that the likelihood of preventing or detecting a material misstatement in our financial reporting is probable . in this regard , we have formally documented many of our key corporate governance policies and , with the assistance of the independent committees discussed below , are working on developing further governance policies . · in prior reporting periods , we had a lack of segregation of accounting duties . we did not have a sufficient number of employees to segregate our accounting and recording functions . remediation actions : during the year ended december 31 , 2016 , we engaged 9 new employees to perform our day to day accounting functions , including the addition of a controller . in addition , we substantially enhanced our oversight of those charged with financial reporting duties . we believe that this former material weakness has been remediated . · prior to december 31 , 2016 , we lacked a sufficient number of independent directors providing oversight to sufficiently reduce the risk of management override and potential fraud . remediation actions : during 2016 , we appointed two additional independent directors , resulting in three out of six directors determined to be independent at december 31 , 2016. further , in january 2017 we appointed an additional independent director , resulting in a majority of independent directors for the first time . as of december 31 , 2016 , the following board committees were in place : audit committee and governance committee . further in march of 2017 a compensation committee was also formed . each of these standing committees has been specifically charged with certain oversight functions . all of these standing committees are comprised of independent directors , except that our ceo mr. sanford sits on the governance committee . · in prior periods , we did not have an independent audit committee , with a “ financial expert , ” as that term is defined in applicable regulations , to provide the appropriate level of monitoring of our financial reporting process . remediation actions : during 2016 , the board formed an audit committee , which is currently comprised of two independent directors . additionally , one of the audit committee members satisfies the sec 's definition of a “ financial expert . ” our sophisticated , independent audit committee provides the appropriate level of monitoring of our financial reporting processes . accordingly , we believe this former material weakness was fully story_separator_special_tag the following discussion should be read together with our financial statements and related notes appearing elsewhere in this report . this discussion contains forward-looking statements based upon current expectations that involve numerous risks , uncertainties and assumptions . our actual results could differ materially from those anticipated in these forward-looking statements for many reasons . story_separator_special_tag we have started to implement the net promoter score ( “ nps ” ) into how we evaluate ourselves as a company , as well as introducing nps into how we support our agents and manage transaction flow . by using both nps and more agile management style , systems we have been able to launch and implement value added features and benefits in short order . we believe this offers us a unique advantage in terms of developing value for our agents and brokers . we believe that using tools like nps and having an agile management mindset provides us with the means to stay more relevant to our agents and brokers in an always changing business . we expect that more and more brokerages will eventually use tools similar to nps and agile in their management process which may again reduce the speed at which we are able to add value compared to other brokerages however at this point in time we feel this does give us a competitive advantage in growing exp realty . results of operations for the years ended december 31 , 2016 and 2015 revenues during the year ended december 31 , 2016 , net revenues increased approximately 137 % to $ 54,179,511 from the prior annual period ended december 31 , 2015. our gross revenue increased partially by our on-going success in attracting additional agents and brokers resulting in a higher overall volume of completed transactions . additionally , our success in attracting more seasoned and successful agents and brokers resulted in higher gross revenue transactions than we experienced in the prior periods . as we continue to focus our growth on organic expansion , by attracting additional agents and brokers in untapped geographical north american markets , we expect that our gross revenue will increase significantly for at least the next twelve months . operating expenses replace_table_token_2_th our cost of revenue fluctuates in direct correlation with our gross revenue based on its incurrence being driven by agent commissions and revenue sharing . in addition to fees generated from residential real estate transactions , we generate revenue from fees charged to our agents for monthly access to our technology tools and training platform . the slight decrease in our gross margins , from 14.9 % in 2015 to 13.8 % in 2016 is related to slight increases in additional fees incurred to attract new agents and brokers to support our aggressive growth strategy . general and administrative costs consist of wages , including non-cash based fluctuations in stock compensation , dues , operating leases , utilities , travel , and other general overhead expenses . the increase in general and administrative costs for the year ended december 31 , 2016 was primarily attributable to the re-measurement in the intrinsic value of equity-awards outstanding prior to 2013 totaling $ 20,495,234. excluding this re-measurement cost , our general and administrative costs increased by $ 7,855,669 compared to the same period ended december 31 , 2015. this increase is primarily related to increases related to the 85 % increase in full-time employees inclusive of officer level individuals with higher salaries and stock based awards ; and additional facilities costs to support our approximate 180 % increase in brokers and agents . 20 professional fees include costs related to legal , accounting , and other consultants . the approximate 47 % increase in our professional fees primarily related to non-recurring fees associated with the engagement of professional service providers to support the execution of our agent and broker growth initiatives . during 2016 , we engaged additional third parties to expand our market awareness programs . sales and marketing include costs related to lead capture , digital and print media , trade shows , in addition to other promotional materials . the approximate 170 % increase during 2016 was the result of our growth in the number of agents and brokers , and expanding our brand awareness in existing and prospective geographical regions . liquidity and capital resources replace_table_token_3_th our net working capital increase is primarily the result of the completion of a private placement of our restricted and unregistered shares sold in december 2016 for net cash proceeds of $ 532,206. at december 31 , 2016 , we had a significant number of transactions pending , resulting in receivables of $ 3,015,767 , a 783 % increase from december 31 , 2015. further , related to the large number of pending transactions as of december 31 , 2016 , our current liabilities increased by approximately 437 % from december 31 , 2015 primarily related to outstanding commissions payable of $ 2,417,621. the following table presents our cash flows for the years ended december 31 , 2016 and 2015 : replace_table_token_4_th net cash provided by operating activities for the year ended december 31 , 2016 increased by approximately 195 % from 2015 primarily as a result of the continued success we are experiencing in our agent equity program providing for the settlement of commissions earned in the form of restricted and unregistered shares of common stock . additionally , our sales volumes significantly increased year over year . our investing activities for december 31 , 2016 and 2015 solely consisted of the acquisition of fixed assets . in addition to leasing and furnishing new office space in reno , we continued aggressive improvement to our core cloud office platform and transactional management systems . throughout the next year , we expect to continue to allocate additional resources for the further development and improvement of our technology .
| overview we are a cloud-based real estate brokerage organization operating in most u.s. states and one canadian province . as a cloud-based real estate brokerage for the residential real estate market , we have embraced and adopted a number of cloud-based technologies in order to grow into an international brokerage without the burden of physical bricks and mortar or redundant staffing costs . accelerating growth if 2015 was a year of foundational growth , 2016 was the year that exp realty became a true national presence as it increased its net real estate brokerage agent and broker base from just over 850 at the beginning of the year to over 2,400 at the end of 2016 , serving markets in most u.s. states and one canadian province . agent ownership in 2015 , the company extended equity incentive programs whereby agents and brokers of exp realty could become eligible for awards of the company 's common stock through the achievement of production and agent attraction benchmarks . under this program , agents and brokers who qualify , and who remain with exp realty in good standing for 3 years following their eligibility notice , can be awarded shares in the company , in furtherance of the company 's objective to operate an agent-owned brokerage . in 2016 , approximately 1,400 of our agents and brokers were granted equity awards due to reaching milestones set around production and agent attraction efforts , all of which have a 3-year vesting requirement . 17 in 2015 , the company also introduced a program whereby agents and brokers could elect to receive 5 % of their commission payable in the form of restricted company common stock . in 2016 , approximately 825 exp realty agents and brokers took advantage of this program resulting in 785,504 restricted and unregistered shares of common stock being issued .
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such statements reflect the current view of company with respect to future events and are subject to risks , uncertainties , assumptions , and other factors ( including the statements in the section “ results of operations ” below ) , and any businesses that company may acquire . should one or more of these risks or uncertainties materialize , or should the underlying assumptions prove incorrect , actual results may differ significantly from those anticipated , believed , estimated , expected , intended , or planned . although the company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions , the company can not guarantee future results , levels of activity , performance , or achievements . except as required by applicable law , including the securities laws of the united states , the company does not intend to update any of the forward-looking statements to conform these statements to actual results . readers are urged to carefully review and consider the various disclosures made throughout the entirety of annual report , which attempts to advise interested parties of the risks and factors that may affect our business , financial condition , results of operations , and prospects . our financial statements are prepared in us dollars and in accordance with accounting principles generally accepted in the united states . see “ foreign currency translation and comprehensive income ( loss ) ” below for information concerning the exchange rates at which renminbi ( “ rmb ” ) were translated into us dollars ( “ usd ” ) at various pertinent dates and for pertinent periods . overview of business background china recycling energy corporation ( the “ company ” or “ creg ” ) was incorporated on may 8 , 1980. on march 8 , 2007 , the company again changed its name from china digital wireless , inc. to its current name , china recycling energy corporation . the company , through its subsidiaries , sells and leases energy saving systems and equipment to its customers in the people 's republic of china ( “ prc ” ) . typically , the company transfers ownership of the waste energy recycling power generating projects to its customers at the end of each sales-type lease and provides financing to its customers for the cost of the projects as described below . the company is in the process of transforming and expanding into an energy storage integrated solution provider . we plan to pursue disciplined and targeted expansion strategies for market areas we currently do not serve . we actively seek and explore opportunities to apply energy storage technologies to new industries or segments with high growth potential , including industrial and commercial complexes , large scale photovoltaic ( pv ) and wind power stations , remote islands without electricity , and smart energy cities with multi-energy supplies . 42 in december 2019 , a novel strain of coronavirus ( covid-19 ) was reported and the world health organization has declared the outbreak to constitute a “ public health emergency of international concern. ” this pandemic , which continues to spread to additional countries , and is disrupting supply chains and affecting production and sales across a range of industries as a result of quarantines , facility closures , and travel and logistics restrictions in connection with the outbreak . however , as a result of prc government 's effort on disease control , most cities in china were reopened , the outbreak in china is under the control . the company disposed all of its systems and currently holds only five power generating systems through erdos tch , the company initially expected to resume production of these five power generating systems in july 2020 from the renovation and furnace safety upgrade , but the resumption of operations was further delayed due to government 's request for erdos ' production line rectification for lowering its energy consumption per unit of gdp ; the company expects the resumption date to be july 2021. as of this report date , there are some new covid-19 cases discovered in a few provinces of china , however , the number of new cases is not significant due to prc government 's strict control . for the years ended december 31 , 2020 and 2019 , the company had a net income of $ 4.05 million and net loss $ 8.77 million , respectively . the company has an accumulated deficit of $ 43.03 million as of december 31 , 2020. the company is in the process of transforming and expanding into an energy storage integrated solution provider as described above . the historical operating results indicate substantial doubt exists related to the company 's ability to continue as a going concern . however , the company had $ 107.80 million cash on hand at december 31 , 2020 as a result of collection the full payment from all the projects that were disposed earlier , this satisfies the company 's estimated liquidity needs 12 months from the issuance of the financial statements . the company believes that the actions discussed above are probable of occurring and the occurrence , as well as the cash flow discussed , mitigate the substantial doubt raised by its historical operating results . management also intends to raise additional funds by way of a private or public offering , or by obtaining loans from banks or others . while the company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions , there can be no assurances to that effect . the ability of the company to continue as a going concern is dependent upon the company 's ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering , or debt financing including bank loans . story_separator_special_tag the company evaluated the modified terms for payments based on actual electricity sold as minimum lease payments as defined in asc 840-10-25-4 , since lease payments that depend on a factor directly related to the future use of the leased property are contingent rentals and , accordingly , are excluded from minimum lease payments in their entirety . the company wrote off the net investment receivables of these leases at the lease modification date . 45 in addition , erdos tch has 30 % ownership in datangshidai ( binzhou ) energy savings technology co. , ltd. ( “ binzhou energy savings ” ) , 30 % ownership in datangshidai datong recycling energy technology co. , ltd. ( “ datong recycling energy ” ) , and 40 % ownership in datang shidai tianyu xuzhou recycling energy technology co , ltd. ( “ tianyu xuzhou recycling energy ” ) . these companies were incorporated in 2012 but had no operations since then nor any registered capital contribution was made . shenqiu yuneng biomass power generation projects on may 25 , 2011 , xi'an tch entered into a letter of intent ( “ loi ” ) with shenqiu yuneng thermal power co. , ltd. ( “ shenqiu ” ) to reconstruct and transform a thermal power generation system owned by shenqiu into a 75t/h bmpg system for $ 3.57 million ( rmb 22.5 million ) . the project commenced in june 2011 and was completed in the third quarter of 2011. on september 28 , 2011 , xi'an tch entered into a biomass power generation asset transfer agreement with shenqiu ( the “ shenqiu transfer agreement ” ) . pursuant to the shenqiu transfer agreement , shenqiu sold xi'an tch a set of 12 mw bmpg systems ( after xi'an tch converted the system for bmpg purposes ) . as consideration for the bmpg systems , xi'an tch paid shenqiu $ 10.94 million ( rmb 70 million ) in cash in three installments within six months upon the transfer of ownership of the systems . by the end of 2012 , all the consideration was paid . on september 28 , 2011 , xi'an tch and shenqiu also entered into a biomass power generation project lease agreement ( the “ 2011 shenqiu lease ” ) . under the 2011 shenqiu lease , xi'an tch agreed to lease a set of 12 mw bmpg systems to shenqiu at a monthly rental of $ 286,000 ( rmb 1.8 million ) for 11 years . upon expiration of the 2011 shenqiu lease , ownership of this system will transfer from xi'an tch to shenqiu at no additional cost . in connection with the 2011 shenqiu lease , shenqiu paid one month 's rent as a security deposit to xi'an tch , in addition to providing personal guarantees . on october 8 , 2012 , xi'an tch entered into a loi for technical reformation of shenqiu project phase ii with shenqiu for technical reformation to enlarge the capacity of the shenqiu project phase i ( the “ shenqiu phase ii project ” ) . the technical reformation involved the construction of another 12 mw bmpg system . after the reformation , the generation capacity of the power plant increased to 24 mw . the project commenced on october 25 , 2012 and was completed during the first quarter of 2013. the total cost of the project was $ 11.1 million ( rmb 68 million ) . on march 30 , 2013 , xi'an tch and shenqiu entered into a bmpg project lease agreement ( the “ 2013 shenqiu lease ” ) . under the 2013 shenqiu lease , xi'an tch agreed to lease the second set of 12 mw bmpg systems to shenqiu for $ 239,000 ( rmb 1.5 million ) per month for 9.5 years . when the 2013 shenqiu lease expires , ownership of this system will transfer from xi'an tch to shenqiu at no additional cost . on january 4 , 2019 , xi'an zhonghong , xi'an tch , and mr. chonggong bai entered into a projects transfer agreement ( the “ agreement ” ) , pursuant to which xi'an tch will transfer two biomass power generation projects in shenqiu ( “ shenqiu phase i and ii projects ” ) to mr. bai for rmb 127,066,000 ( $ 18.55 million ) . mr. bai agreed to transfer all the equity shares of his wholly owned company , xi'an hanneng enterprises management consulting co. ltd. ( “ xi'an hanneng ” ) to beijing hongyuan recycling energy investment center , llp ( the “ hyref ” ) as repayment for the loan made by xi'an zhonghong to hyref as consideration for the transfer of the shenqiu phase i and ii projects ( see note 9 ) . the transfer of projects was completed february 15 , 2019. the company recorded $ 208,359 loss from the transfer . mr. bai transferred all the equity shares of his wholly owned company , xi'an hanneng to the hyref fund as repayment for the loan on january 10 , 2019. xi'an hanneng will own 47,150,000 shares of xi'an huaxin new energy co. , ltd for the repayment of shenqiu system and huayu system . however , xi'an hanneng was not able to obtain all the huaxin shares due to halted trading of huaxin stock by neeq for not filing its 2018 annual report . on december 19 , 2019 , xi'an tch , xi'an zhonghong , guohua ku and chonggong bai jointly and severally agreed to buy back all outstanding capital equity of xi'an hanneng which was transferred to hyref by chonggong bai earlier . the total buy back price was rmb 261,727,506 ( $ 37.52 million ) including accrued interest of rmb 14,661,506 ( $ 2.10 million ) , and was paid in full by xi'an tch . on december 20 , 2019 , mr. bai , xi'an tch and xi'an zhonghong , agreed to have mr. bai repay the company in cash for the transfer price of xuzhou huayu and shenqiu in five installment payments .
| results of operations comparison of years ended december 31 , 2020 and 2019 the following table sets forth the results of our operations for the periods indicated as a percentage of net sales . certain columns may not add due to rounding . replace_table_token_1_th sales . total sales for the years ended december 31 , 2020 and 2019 were $ 0 and $ 697,028 , respectively . the sales in 2019 were from the contingent rental income of erdos tch . cost of sales . cost of sales ( “ cos ” ) for the years ended december 31 , 2020 and 2019 were $ 0. gross profit . gross income for the years ended december 31 , 2020 and 2019 were $ 0 and $ 867,431 a gross margin of 0 % and 100 % . interest income on sales-type leases . interest income on sales-type leases for the years ended december 31 , 2020 and 2019 was $ 0 and $ 170,403 , respectively . the company disposed all of its systems and currently holds only five power generating systems through erdos tch , erdos tch operations was ceased due to renovation and furnace safety upgrade , the company originally expected to resume production of these five power generating systems in july 2020 , but the resumption of operations was further delayed due to government 's request for erdos ' production line rectification for lowering its energy consumption per unit of gdp , the company expects to resume the production in july 2021. operating ( income ) expenses . operating ( income ) expenses consisted of general and administrative expenses , and bad debts expense ( reversal ) totaling $ ( 5,827,019 ) for the year ended december 31 , 2020 , compared to $ 9,974,519 operating expenses for the year ended december 31 , 2019 , a decrease of $ 15,801,538 or 158 % .
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risk factors ” , “ item 6. selected financial data ” , our consolidated financial statements and related notes thereto , as well as other cautionary statements and risks described elsewhere in this annual report on form 10-k , before deciding to purchase , hold or sell shares of our common stock . 23 overview our company and our businesses starting with a focus on pc graphics , nvidia invented the gpu to solve some of the most complex problems in computer science . we have extended our focus in recent years to the revolutionary field of ai . fueled by the sustained demand for better 3d graphics and the scale of the gaming market , nvidia has evolved the gpu into a computer brain at the intersection of vr , hpc , and ai . our two reportable segments - gpu and tegra processor - are based on a single underlying architecture . from our proprietary processors , we have created platforms that address four large markets where our expertise is critical : gaming , professional visualization , datacenter , and automotive . our gpu product brands are aimed at specialized markets including geforce for gamers ; quadro for designers ; tesla and dgx for ai data scientists and big data researchers ; and grid for cloud-based visual computing users . our tegra brand integrates an entire computer onto a single chip , and incorporates gpus and multi-core cpus to drive supercomputing for autonomous robots , drones , and cars , as well as for game consoles and mobile gaming and entertainment devices . headquartered in santa clara , california , nvidia was incorporated in california in april 1993 and reincorporated in delaware in april 1998. recent developments , future objectives and challenges fiscal year 2019 story_separator_special_tag are powered by rtx gpus . for our professional visualization platform , we announced the quadro gv100 gpu with rtx technology , making real-time ray tracing possible on professional design and content creation applications . we also unveiled the quadro rtx series , which is designed to revolutionize the workflow of designers and artists on the desktop , and announced the nvidia cuda-accelerated redcode raw decode sdk , enabling developers and studios to edit 8k video . for our datacenter platform , we unveiled many advances to our deep learning computing platform - including nvidia tesla v100 gpus with 32gb memory , nvidia nvswitch gpu interconnect fabric , the nvidia dgx-2 and hgx-2 for ai and hpc , the nvidia rtx server , and tensorrt 4 ai inference accelerator software . in addition , we introduced rapids , an open-source gpu-acceleration platform for data science and machine learning , launched the nvidia t4 cloud gpu and nvidia tensorrt hyperscale inference platform for advanced acceleration in hyperscale datacenters , announced gpu acceleration for kubernetes to facilitate enterprise inference deployment on multi-cloud gpu clusters , and announced that five of the world 's seven fastest supercomputers are powered by nvidia gpus . tegra processor business during fiscal year 2019 , for the automotive market , we introduced the nvidia drive autopilot level 2+ automated driving system , announced nvidia drive agx design wins with toyota , volvo cars and isuzu motors , and announced that daimler and bosch have selected nvidia 's drive platform to bring automated and driverless vehicles to city streets . we also began production of our xavier single-chip autopilot soc , started shipping the nvidia drive agx xavier developer kit , and introduced the nvidia drive constellation server with drive sim software to safely test drive autonomous vehicles over billions of miles in virtual reality by leveraging nvidia gpus and nvidia drive pegasus . in addition , we launched the nvidia jetson agx xavier module to help build the next-generation of autonomous machines and announced that yamaha motor co. will use nvidia to power its upcoming lineup of autonomous machines . 25 critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , cost of revenue , expenses and related disclosure of contingencies . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , inventories , income taxes , goodwill , cash equivalents and marketable securities , stock-based compensation , and litigation , investigation and settlement costs and other contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . we believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated financial statements . our management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors . the audit committee has reviewed our disclosures relating to our critical accounting policies and estimates in this annual report on form 10-k. revenue recognition we derive our revenue from product sales , including hardware and systems , license and development arrangements , and software licensing . we determine revenue recognition through the following steps : ( 1 ) identification of the contract with a customer ; ( 2 ) identification of the performance obligations in the contract ; ( 3 ) determination of the transaction price ; ( 4 ) allocation of the transaction price to the performance obligations in the contract ; and ( 5 ) recognition of revenue when , or as , we satisfy a performance obligation . story_separator_special_tag our estimates of deferred tax assets and liabilities may change based , in part , on added certainty or finality to an anticipated outcome , changes in accounting standards or tax laws in the united states , or foreign jurisdictions where we operate , or changes in other facts or circumstances . in addition , we recognize liabilities for potential united states and foreign income tax contingencies based on our estimate of whether , and the extent to which , additional taxes may be due . if we determine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment , we may be required to recognize an income tax benefit or additional income tax expense in our financial statements accordingly . as of january 27 , 2019 , we had a valuation allowance of $ 562 million related to state and certain foreign deferred tax assets that management determined are not likely to be realized due to projections of future taxable income and potential utilization limitations of tax attributes acquired as a result of stock ownership changes . to the extent realization of the deferred tax assets becomes more-likely-than-not , we would recognize such deferred tax asset as an income tax benefit during the period . we recognize the benefit from a tax position only if it is more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position . our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense . the tcja , which was enacted in december 2017 , significantly changed u.s. tax law , including a reduction of the u.s. federal corporate income tax rate from 35 % to 21 % , a requirement for companies to pay a one-time transition tax on the earnings of certain foreign subsidiaries that were previously tax deferred , and the creation of new taxes ( global intangible low-taxed income , or gilti ) on certain foreign-source earnings . as a fiscal year-end taxpayer , certain provisions of the tcja began to impact us in the fourth quarter of fiscal year 2018 , while other provisions impacted us beginning in fiscal year 2019. the sec had provided guidance in staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( sab 118 ) , which allowed companies to record provisional amounts during a measurement period up to one year 27 from the enactment date . as of january 27 , 2019 , we completed our accounting for all of the enactment-date income tax effects of the tcja and elected to account for gilti in deferred taxes . refer to note 13 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information specific to accounting for income taxes and the impacts from the enactment of the tcja . goodwill goodwill is subject to our annual impairment test during the fourth quarter of our fiscal year , or earlier , if indicators of potential impairment exist , using either a qualitative or a quantitative assessment . our impairment review process compares the fair value of the reporting unit in which the goodwill resides to its carrying value . we have identified two reporting units , gpu and tegra processor , for the purposes of completing our goodwill analysis . goodwill assigned to the gpu and tegra processor reporting units as of january 27 , 2019 was $ 210 million and $ 408 million , respectively . determining the fair value of a reporting unit requires us to make judgments and involves the use of significant estimates and assumptions . we also make judgments and assumptions in allocating assets and liabilities to each of our reporting units . we base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . during the fourth quarter of fiscal year 2019 , we used the qualitative assessment to test goodwill for impairment for each reporting unit and concluded there was no impairment . refe r to note 5 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information . cash equivalents and marketable securities cash equivalents consist of financial instruments which are readily convertible into cash and have original maturities of three months or less at the time of acquisition . marketable securities consist of highly liquid debt investments with maturities greater than three months when purchased . we measure our cash equivalents and marketable securities at fair value . the fair values of our financial assets are determined using quoted market prices of identical assets or quoted market prices of similar assets from active markets . all of our available-for-sale debt investments are subject to a periodic impairment review . we record a charge to earnings when a decline in fair value is significantly below cost basis and judged to be other-than-temporary , or have other indicators of impairments . we performed an impairment review of our debt investment portfolio as of january 27 , 2019 . we concluded that our debt investments were appropriately valued and that no other-than-temporary impairment charges were necessary on our portfolio of available-for-sale debt investments as of january 27 , 2019 . refe r to notes 7 and 8 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information . stock-based compensation our stock-based compensation expense is associated with restricted stock units , or rsus , performance stock units that are based on our corporate financial performance targets , or psus , performance stock units that are based on market conditions , or market-based psus , and our employee stock purchase plan .
| summary replace_table_token_4_th revenue for fiscal year 2019 increased 21 % year over year , reflecting growth in each of our market platforms - gaming , professional visualization , datacenter , and automotive . gpu business revenue was $ 10.17 billion , up 25 % from a year earlier . tegra processor business revenue - which includes automotive , soc modules for gaming platforms , and embedded edge ai platforms - was $ 1.54 billion , up slightly from a year ago . gaming revenue was $ 6.25 billion , up 13 % from a year ago driven by growth in gaming gpus . gaming gpu growth was fueled by turing-based gpus for desktops and by gaming notebooks based on our max-q technology . we experienced significant volatility in our gaming revenue during fiscal year 2019. we believe demand for our desktop gaming gpu products used by end users for cryptocurrency mining and its after-effects have distorted trends in gaming revenue . we also believe that deteriorating macroeconomic conditions , particularly in china have impacted consumer demand for our geforce gaming gpu products . in addition , sales of certain high-end geforce gaming gpus using our new turing architecture that we released during fiscal year 2019 were lower than we expected for the launch of a new architecture . as a result , during a portion of fiscal year 2019 , we shipped a higher amount of desktop gaming gpu products relative to where end user demand turned out to be and subsequently compensated by shipping a lower amount of desktop gaming gpu products relative to end user demand to allow the channel to work down that inventory . for fiscal year 2020 , we expect our gaming revenue to be slightly down compared to fiscal year 2019 , with expected growth from sales of turing-based gpu products and notebook gpu products partially offsetting decreases that we believe were caused by the previously-noted factors . professional visualization revenue was $ 1.13
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the total final purchase price for fotolia was $ 807.5 million of which $ 745.1 million was allocated to goodwill that was non-deductible for tax purposes , $ 204.4 million to identifiable intangible assets and $ 142.0 million to net liabilities assumed . we also completed other immaterial business acquisitions during the fiscal years presented . pro forma information has not been presented for any of our fiscal 2017 , 2016 and 2015 acquisitions as the impact to our consolidated financial statements was not material . note 3. story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes thereto . acquisitions during fiscal 2017 , we completed our acquisition of tubemogul , a publicly held video advertising platform company , for $ 560.8 million . as of the end of fiscal 2017 , we are continuing to integrate tubemogul into our digital marketing reportable segment . during fiscal 2015 , we completed our acquisition of privately held fotolia , a leading marketplace for royalty-free photos , images , graphics and hd videos , for $ 807.5 million . during fiscal 2015 , we integrated fotolia into our digital media reportable segment . we also completed other immaterial business acquisitions during the fiscal years presented . pro forma information has not been presented for any of our fiscal 2017 , 2016 and 2015 acquisitions as the impact to our consolidated financial statements was not material . see note 2 of our notes to consolidated financial statements for further information regarding these acquisitions . critical accounting policies and estimates in preparing our consolidated financial statements in accordance with gaap and pursuant to the rules and regulations of the sec , we make assumptions , judgments and estimates that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis , we evaluate our assumptions , judgments and estimates . we also discuss our critical accounting policies and estimates with the audit committee of the board of directors . we believe that the assumptions , judgments and estimates involved in the accounting for revenue recognition and income taxes have the greatest potential impact on our consolidated financial statements . these areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates , so we consider these to be our critical accounting policies . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . revenue recognition our revenue is derived from the subscription , non-software related hosted services , perpetual and term-based licensing of software products , associated software maintenance and support plans , consulting services , training and technical support . most of our enterprise customer arrangements are complex , involving multiple solutions and various license rights , bundled with post-contract customer support and other meaningful rights that together provide a complete end-to-end solution to the customer . throughout the contract period , customers use our solutions to complete various phases of the creative and or marketing processes allowing them to concurrently work on multiple projects . in response to evolving customer and market expectations , we frequently expand and improve our technology to keep up with the pace of change , to provide enhancements to our tools to meet industry needs and to provide support at each stage of the customer 's life cycle . we recognize revenue when all four revenue recognition criteria have been met : persuasive evidence of an arrangement exists ; we have delivered the product or performed the service ; the fee is fixed or determinable ; and collection is probable . determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report . we enter into multiple element revenue arrangements in which a customer may purchase a combination of software , upgrades , maintenance and support , hosted services and consulting . for our software and software-related multiple element arrangements , we must : ( 1 ) determine whether and when each element has been delivered ; ( 2 ) determine whether undelivered products or services are essential to the functionality of the delivered products and services ; ( 3 ) determine the fair value of each undelivered element using vendor-specific objective evidence ( “ vsoe ” ) ; and ( 4 ) allocate the total price among the various elements . vsoe of fair value is used to allocate a portion of the price to the undelivered elements and the residual method is used to allocate the remaining portion to the delivered elements . absent vsoe , revenue is deferred until the earlier of the point at which vsoe of fair value exists for any undelivered element or until all elements of the arrangement have been delivered . however , if the only undelivered element is maintenance and support , the entire 35 arrangement fee is recognized ratably over the performance period . changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue that we report in a particular period . we determine vsoe for each element based on historical stand-alone sales to third parties or from the stated renewal rate for the elements contained in the initial arrangement . in determining vsoe , we require that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range . story_separator_special_tag we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . in addition , we are subject to the continual examination of our income tax returns by the u.s. internal revenue service ( “ irs ” ) and other domestic and foreign tax authorities . we expect future examinations to focus on our intercompany transfer pricing practices as well as other matters . we regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from such examinations . we believe such estimates to be reasonable ; however , the final determination of any of these examinations could significantly impact the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income , such as income from operations or capital gains income . actual operating results and the underlying amount and category of income in future years could render our current assumptions , judgments and estimates of recoverable net deferred taxes inaccurate . any of the assumptions , judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates , thus materially impacting our financial position and results of operations . we are a united states-based multinational company subject to tax in multiple u.s. and foreign tax jurisdictions . a significant portion of our foreign earnings for the current fiscal year were earned by our irish subsidiaries . in addition to providing for u.s. income taxes on earnings from the united states , we provide for u.s. income taxes on the earnings of foreign subsidiaries unless the subsidiaries ' earnings are considered permanently reinvested outside the united states . while we do not anticipate changing our intention regarding permanently reinvested earnings as of the balance sheet date , if certain foreign earnings previously treated as permanently reinvested are repatriated , the related u.s. tax liability may be reduced by any foreign income taxes paid on these earnings . our income tax expense has differed from the tax computed at the u.s. federal statutory income tax rate due primarily to discrete items and to earnings considered as permanently reinvested in foreign operations . unanticipated changes in our tax rates could affect our future results of operations . our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned , by changes in or our interpretation of tax rules and regulations in the jurisdictions in which we do business , by unanticipated decreases in the amount of earnings in countries with low statutory tax rates , by unexpected negative changes in business and market conditions that could reduce certain tax benefits , or by changes in the valuation of our deferred tax assets and liabilities . in addition , in the united states , the european commission , countries in the european union and other countries where we do business , we are subject to potential changes in relevant tax , accounting and other laws , regulations and interpretations , including changes to tax laws applicable to corporate multinationals such as adobe . these countries and other governmental bodies have or could make unprecedented assertions about how earnings in their jurisdictions might be determined that are contrary to the way in which we have interpreted and historically applied the rules and regulations described above in our income tax returns filed in such jurisdictions . in the current global tax policy environment , any changes in laws , regulations and interpretations related to these assertions could adversely affect our effective tax rates or result in other costs to us , which could adversely affect our operations and financial results . moreover , we are subject to the continual examination of our income tax returns by the irs and other domestic and foreign tax authorities . these tax examinations are expected to focus on our intercompany transfer pricing practices as well as other matters . we regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for adjustments that may result from these examinations . we can not provide assurance that the final determination of any of these examinations will not have an adverse effect on our operating results and financial position . recent accounting pronouncements see note 1 of our notes to consolidated financial statements for information regarding recent accounting pronouncements that are of significance , or potential significance to us . 37 story_separator_special_tag div > total digital media arr of approximately $ 5.23 billion as of december 1 , 2017 increased by $ 1.24 billion , or 31 % , from $ 3.99 billion as of december 2 , 2016 . the change in our digital media arr was primarily due to strong adoption of our creative cloud and adobe document cloud offerings . creative revenue of $ 4.17 billion increased by $ 997.8 million , or 31 % , during fiscal 2017 , from $ 3.18 billion in fiscal 2016 . the increase was primarily due to the increase in subscription revenue associated with our creative cloud offerings . 39 adobe experience cloud revenue of $ 2.03 billion increased by $ 398.9 million , or 24 % , during fiscal 2017 , from $ 1.63 billion in fiscal 2016 . the increase was primarily due to increases in revenue associated with our advertising cloud offerings , including tubemogul which we acquired in the first quarter of fiscal 2017 , and increases in subscription revenue associated with our adobe marketing cloud offerings , including aem and adobe campaign .
| results of operations overview of 2017 for fiscal 2017 , we reported strong financial results consistent with the continued execution of our long-term plans for our two strategic growth areas , digital media and digital marketing , while continuing to market and license a broad portfolio of products and solutions . in our digital media segment , we are a market leader with creative cloud , our subscription-based offering for creating and publishing content and applications . creative cloud delivers value through frequent product updates , storage and access to user files stored in the cloud with syncing of files across users ' machines , access to marketplace , social and community-based features with our adobe stock and behance services , app creation capabilities and affordable pricing for cost-sensitive customers . we offer creative cloud for individuals , students , teams and enterprises . we expect creative cloud will drive sustained long-term revenue growth through a continued expansion of our customer base by acquiring new users on account of creative cloud 's low cost of entry and delivery of additional features and value , as well as keeping existing customers current on our latest release . we have also built out a marketplace for creative cloud subscribers to enable the delivery and purchase of stock content in our adobe stock service . overall , our strategy with creative cloud is designed to enable us to increase our revenue with users , attract more new customers , and grow a recurring and predictable revenue stream that is recognized ratably . we continue to implement strategies that will accelerate awareness , consideration and purchase of subscriptions to our creative cloud offerings . these strategies include increasing the value creative cloud users receive , such as offering new mobile applications , as well as targeted promotions and offers that attract past customers and potential users to try out and ultimately subscribe to creative cloud .
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these statements are often , but not always , made through the use of words or phrases such as “ may , ” “ should , ” “ could , ” “ predict , ” “ potential , ” “ believe , ” “ will likely result , ” “ expect , ” “ continue , ” “ will , ” “ anticipate , ” “ seek , ” “ estimate , ” “ intend , ” “ plan , ” “ projection , ” “ would ” and “ outlook , ” or the negative version of those words or other comparable words or phrases of a future or forward‑looking nature . these forward‑looking statements are not historical facts and are based on current expectations , estimates and projections about our industry , management 's beliefs and certain assumptions made by management , many of which , by their nature , are inherently uncertain and beyond our control . accordingly , we caution you that any such forward‑looking statements are not guarantees of future performance and are subject to risks , assumptions and uncertainties that are difficult to predict . although we believe that the expectations reflected in these forward‑looking statements are reasonable as of the date made , actual results may prove to be materially different from the results expressed or implied by the forward‑looking statements . there are or will be important factors that could cause our actual results to differ materially from those indicated in these forward‑looking statements , including , but not limited to , the risks described in “ part i – item 1a . – risk factors ” and the following : · natural disasters and adverse weather , acts of terrorism , an outbreak of hostilities or other international or domestic calamities and other matters beyond our control ; · the geographic concentration of our markets in beaumont and houston , texas ; · our ability to prudently manage our growth and execute our strategy ; · risks associated with our acquisition and de novo branching strategy , including our entry into new markets ; · changes in management personnel ; · the amount of nonperforming and classified assets that we hold and the time and effort necessary to resolve nonperforming assets ; · deterioration of our asset quality ; · interest rate risk associated with our business ; · business and economic conditions generally and in the financial services industry , nationally and within our primary markets ; · volatility and direction of oil prices and the strength of the energy industry , generally and within texas ; · the composition of our loan portfolio , including the identity of our borrowers and the concentration of loans in specialized industries ; · changes in the value of collateral securing our loans ; · our ability to maintain important deposit customer relationships and our reputation ; · our ability to maintain effective internal control over financial reporting ; · operational risks associated with our business ; · increased competition in the financial services industry , particularly from regional and national institutions ; · volatility and direction of market interest rates ; · liquidity risks associated with our business ; · systems failures or interruptions involving our information technology and telecommunications systems or third‑party servicers ; · interruptions or breaches in our information system security ; · the failure of certain third-party vendors to perform ; · environmental liability associated with our lending activities ; · the institution and outcome of litigation and other legal proceedings against us or to which we may become subject ; · the costs and effects of regulatory or other governmental inquiries , the results of regulatory examinations or reviews or the ability to obtain required regulatory approvals ; 48 · changes in the laws , rules , regulations , interpretations or policies relating to financial institution , accounting , tax , trade , monetary and fiscal matters ; · further government intervention in the u.s. financial system ; and · other risks , uncertainties , and factors that are discussed from time to time in our reports and documents filed with the sec . the foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this annual report on form 10-k. if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward‑looking statements . any forward‑looking statement speaks only as of the date on which it is made and we do not undertake any obligation to publicly update or review any forward‑looking statement , whether as a result of new information , future developments or otherwise . new factors emerge from time to time and it is not possible for us to predict which will arise . in addition , we can not assess the impact of each factor on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward‑looking statements . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ item 6. selected financial data ” and our consolidated financial statements and the accompanying notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate . certain risks , uncertainties and other factors , including those set forth in “ item 1a . – risk factors ” and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis . we assume no obligation to update any of these forward-looking statements . story_separator_special_tag the increase of $ 432,000 for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , is primarily due to increased legal , audit and consulting fees . professional and director fees include expenditures relating to a security incident involving the possible unauthorized access of certain personal information in the possession of the bank . based on a report of an independent forensic investigation firm , we believe that a phishing incident occurred where certain emails and attachments from two employee email accounts may have been accessed by an unauthorized person . we believe that these email accounts contained certain personal information for approximately 7,800 individuals . we stopped the identified unauthorized access and we have contacted such individuals and reported the incident to law-enforcement authorities . our investigation has not found any evidence that the incident involved any unauthorized access to or use of any of the bank 's internal computer systems or network , and we believe that the access was limited to information that was contained in the email accounts of the two employees . we incurred total out-of-pocket expenses of $ 65,000 during 2018 related to this incident and estimate we may incur an additional $ 40,000 of out-of-pocket expenses related to this incident . advertising and marketing expenses . advertising and promotion‑related expenses were $ 1.8 million and $ 1.5 million for the year ended december 31 , 2018 and 2017 , respectively . the increase in 2018 was primarily due to an increase in media costs associated with the company 's branding campaign that began early in the second quarter of 2017 and continued into 2018. repossessed real estate and other assets . costs related to repossessed real estate and other assets decreased $ 537,000 , or 88.2 % , during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. the decrease was due to a reduction in the number of repossessed and other assets in 2018 , as compared to 2017 , and a resulting decrease in related costs . telephone and communications . telephone and communication costs increased $ 214,000 during 2018 , as compared to 2017 , primarily due to increased equipment costs and monthly fees . income tax expense the amount of income tax expense we incur is impacted by the amounts of our pre‑tax income , tax‑exempt income and other nondeductible expenses . deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . for the years ended december 31 , 2018 and 2017 , income tax expense totaled $ 11.4 million and $ 16.5 million and our effective tax rate for those periods was 19.4 % and 37.4 % , respectively . the decrease in tax expense for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , is due to the tax cuts and jobs act of 2017 , or tax act , which was effective january 1 , 2018. the tax act lowered the corporate federal income tax rate in the u.s. from 35 % to 21 % . as a result , we recorded a deferred tax asset remeasurement adjustment of $ 3.9 million in 2017 to 54 reflect the impact of this rate change . the tax rate for 2017 would have been 28.6 % without the impact of the deferred tax remeasurement adjustment . results of operations year ended december 31 , 2017 vs year ended december 31 , 2016 net income for 2017 was $ 27.6 million compared to $ 27.2 million for 2016 , an increase of $ 363,000 , or 1.3 % . this increase is primarily due to a $ 6.2 million increase in net interest income , a $ 4.8 million increase in noninterest expense and a $ 4.4 million increase in income taxes . see further analysis of these fluctuations in the related discussions that follow . replace_table_token_12_th net interest income net interest income for the year ended december 31 , 2017 was $ 107.8 million , compared to $ 101.5 million for the year ended december 31 , 2016 , an increase of $ 6.2 million , or 6.1 % . for the year ended december 31 , 2017 , net interest margin and net interest spread were 3.97 % and 3.72 % , respectively , compared to 3.87 % and 3.63 % for the year ended december 31 , 2016. the increase in the net interest margin and net interest spread was primarily attributable to the increase in the average outstanding balances for our loans and securities portfolios . changes in rates paid on interest‑bearing deposits for 2017 and 2016 had a minimal impact on the net interest margin . increases in rates on interest-earning assets increased net interest income by $ 2.6 million and increased rates paid on interest-bearing liabilities decreased net interest income by $ 526,000 for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 . 55 the following tables present for the periods indicated , average outstanding balances for each major category of interest‑earning assets and interest‑bearing liabilities , the interest income or interest expense and the average yield or rate for the periods indicated . replace_table_token_13_th ( 1 ) includes average outstanding balances of loans held for sale of $ 769,000 and $ 905,000 for the year ended december 31 , 2017 and 2016 , respectively . ( 2 ) net interest spread is the average yield on interest‑earning assets minus the average rate on interest‑bearing liabilities . ( 3 ) net interest margin is equal to net interest income divided by average interest‑earning assets .
| results of operations year ended december 31 , 2018 vs year ended december 31 , 2017 net income for 2018 was $ 47.3 million compared to $ 27.6 million for 2017 , an increase of $ 19.7 million , or 71.5 % . this increase is primarily due to a $ 16.9 million increase in net interest income and a $ 5.1 million decrease in income taxes , partially offset by a $ 3.7 million increase in noninterest expense . see further analysis of these fluctuations in the related discussions that follow . replace_table_token_7_th net interest income net interest income for the year ended december 31 , 2018 was $ 124.7 million , compared to $ 107.8 million for the year ended december 31 , 2017 , an increase of $ 16.9 million , or 15.7 % . interest income increased in 2018 , as compared to 2017 due to higher average loans and securities and higher average yields on loans , securities and federal funds sold . interest expense increased in 2018 , as compared to 2017 , due to higher average interest-bearing deposits and higher rates on interest-bearing deposits , offset by lower interest expense in 2018 due to the payoff of our note payable in the fourth quarter of 2017. increases in rates on interest-earning assets increased net interest income by $ 10.1 million and increased rates paid on interest-bearing liabilities decreased net interest income by $ 3.0 million for the year december 31 , 2018 , compared to the year ended december 31 , 2017 . 50 the following table presents for the periods indicated , average outstanding balances for each major category of interest‑earning assets and interest‑bearing liabilities , the interest income or interest expense and the average yield or rate for the periods indicated . any nonaccrual loans have been included in the table as loans carrying a zero yield .
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on january 24 , 2021 , we entered into an agreement with omers for the sale of our u.s. project development operations , which comprises the business of developing , contracting for the construction of , and selling utility-scale pv solar power systems . the transaction includes our approximately 10 gw ac utility-scale solar project pipeline , including the advanced-stage horizon , madison , ridgely , rabbitbrush , and oak trail projects that are expected to commence construction in the next two years ; the 30 mw ac barilla solar project , which is operational ; and certain other equipment . in addition , omers has agreed to certain module purchase commitments . the completion of the transaction is contingent on a number of closing conditions , including the receipt of regulatory approval from ferc , the expiration of the mandatory waiting period under u.s. antitrust laws , a review of the transaction by cfius , and other customary closing conditions . assuming satisfaction of such closing conditions , we expect the sale to be completed in the first half of 2021. in january 2020 , we entered into a memorandum of understanding ( “ mou ” ) to settle a class action lawsuit filed in 2012 in the united states district court for the district of arizona ( hereafter “ arizona district court ” ) against the company and certain of our current and former officers and directors ( the “ class action ” ) . pursuant to the mou , we paid a total of $ 350 million to settle the claims brought on behalf of all persons who purchased or otherwise acquired the company 's shares during a specified period , in exchange for mutual releases and a dismissal with prejudice of the complaint upon court approval of the settlement . the settlement contained no admission of liability , wrongdoing , or responsibility by any of the parties . the arizona district court entered an order in june 2020 that granted final approval of the settlement and dismissed the class action with prejudice . in june 2020 , we entered into an agreement in principle to settle certain claims filed in 2015 in the arizona district court by putative stockholders that opted out of the class action ( the “ opt-out action ” ) . in july 2020 , the parties executed a definitive settlement agreement pursuant to which we agreed to pay a total of $ 19 million in exchange for mutual releases and a dismissal with prejudice of the opt-out action . the agreement contained no admission of liability , wrongdoing , or responsibility by any of the parties . in july 2020 , first solar funded the settlement and the parties filed a joint stipulation of dismissal . in september 2020 , the arizona district court entered an order dismissing the case with prejudice . market overview the solar industry continues to be characterized by intense pricing competition , both at the module and system levels . in particular , module average selling prices in many global markets have declined in recent years and are expected to continue to decline in the future . furthermore , the covid-19 pandemic has adversely affected certain purchasers of modules and systems , which may result in additional pressure on demand and average selling prices . in the aggregate , we believe manufacturers of solar cells and modules have significant installed production capacity , relative to global demand , and the ability for additional capacity expansion . accordingly , we believe the solar 54 industry may from time to time experience periods of structural imbalance between supply and demand ( i.e. , where production capacity exceeds global demand ) , and that such periods will also put pressure on pricing , which may be exacerbated by the covid-19 pandemic 's disruption of the global economy . additionally , intense competition at the system level may result in an environment in which pricing falls rapidly , thereby potentially increasing demand for solar energy solutions but constraining the ability for project developers and diversified module manufacturers to sustain meaningful and consistent profitability . in light of such market realities , we continue to focus on our strategies and points of differentiation , which include our advanced module technology , our manufacturing process , our diversified capabilities , our financial viability , and the sustainability advantage of our modules and systems . global solar markets continue to expand and develop , in part aided by demand elasticity resulting from declining average selling prices , both at the module and system levels , which have promoted the widespread adoption of solar energy . as a result of such market opportunities , we are expanding our manufacturing capacity and developing solar projects in certain markets as we execute on our utility-scale project pipeline . see the tables under “ management 's discussion and analysis of financial condition and results of operations – systems project pipeline ” for additional information about projects within our advanced-stage pipeline . although we expect a meaningful portion of our future consolidated net sales , operating income , and cash flows to be derived from such projects , we expect third-party module sales to continue to have a more significant impact on our operating results as we expand capacity and leverage the benefits of our series 6 module technology . lower industry module and system pricing is expected to contribute to diversification in global electricity generation and further demand for solar energy . over time , however , declining average selling prices may adversely affect our results of operations to the extent we have not already entered into contracts for future module or system sales . our results of operations could also be adversely affected if competitors reduce pricing to levels below their costs , bid aggressively low prices for module sale agreements or ppas , or are able to operate at minimal or negative operating margins for sustained periods of time . story_separator_special_tag our long-term strategic plans are focused on our goal to create long-term shareholder value through a balance of growth , profitability , and liquidity . in executing such plans , we are focusing on providing utility-scale pv solar energy solutions in key geographic markets that we believe have a compelling need for mass-scale pv solar electricity , including markets throughout the united states , japan , europe , india , and certain other strategic markets . while these markets are expected to exhibit strong long-term demand for solar energy , the economic disruption caused by the covid-19 pandemic has adversely affected near-term demand for electricity at the grid level . as a result , such temporary decline in load may adversely affect demand for specific forms of generation , such as our pv solar energy solutions , depending on the severity and duration of the economic disruption . given these market dynamics , we continue to focus on opportunities in which our pv solar energy solutions compete directly with traditional forms of energy generation on an lcoe or similar basis , or complement such generation offerings . these opportunities include the retirement and replacement of aging fossil fuel-based generation resources with utility-scale pv solar energy solutions . for example , cumulative global retirements of coal generation plants are expected to approximate 900 gw dc by 2040 , representing a significant increase in the potential market for solar energy . 56 this focus on our core module and utility-scale offerings exists within a current market environment that includes rooftop and distributed generation solar , particularly in the united states . while it is unclear how rooftop and distributed generation solar might impact our core utility-scale based offerings over the next several years , we believe that utility-scale solar will continue to be a compelling offering for companies with technology and cost leadership and will continue to represent an increasing portion of the overall electricity generation mix . however , our module offerings in certain international markets may be driven , in part , by future demand for rooftop and distributed generation solar solutions . our ability to provide utility-scale offerings on economically attractive terms depends , in part , on market factors outside our control , such as the availability of debt and or equity financing ( including , in the united states , tax equity financing ) , interest rate fluctuations , domestic or international trade policies , and government support programs . adverse changes in these factors could increase the cost of utility-scale systems , which could reduce demand for such systems and limit the number of potential buyers . for example , we generally sell projects we have developed within our systems business to purchasers that depend on financing to fund the initial capital expenditures required to develop , build , and or purchase a system . although governments and central banks around the world have implemented significant measures to support capital markets , the economic disruption caused by the covid-19 pandemic may result in a long-term tightening of the supply of capital in global financial markets ( including , in the united states , a reduction in total tax equity availability ) . a reduction in the supply of project debt or equity financing ( including , in the united states , tax equity financing ) caused by the covid-19 pandemic could make it difficult for our customers to secure the financing necessary to develop , build , purchase , or install systems . similarly , purchasers of modules may cease or significantly reduce business operations , cease or delay module procurement , encounter an inability to obtain financing , including due to a reduction in the supply of project debt financing or equity investments ( including , in the united states , tax equity financing ) , conserve capital resources , or take other actions in response to the covid-19 pandemic , which may reduce demand and average selling prices for our modules . in certain markets , demand for our utility-scale offerings may be affected by specific regulations or policies of governmental bodies or utility regulators . for example , in june 2020 , the japanese legislature enacted an amendment to the electricity business law enforcement order for the ministry of economy , trade and industry of japan which , among other things , is expected to invalidate the feed-in-tariff certificates for projects that fail to achieve construction plan acceptance , submit an interconnection application , and or achieve commercial operation within a set period of time following dates specified in their respective certificates . the amendment , which becomes effective in april 2022 , applies to all projects regardless of generation type and is intended to release grid capacity reserved for delayed projects to enable other newly developed projects to utilize such capacity at a lower cost of electricity to consumers . the deadline by which a project must achieve construction plan acceptance , submit an interconnection application , and or achieve commercial operation varies by project , but is no earlier than march 2023. any deadlines that precede the expected construction plan acceptance and or commercial operation dates of our various projects in japan could adversely affect the value of such projects and our ability to secure any related project financing . we intend to focus our resources in those markets and energy applications in which solar power can be a least-cost , best-fit energy solution , particularly in regions with significant current or projected electricity demand , relatively high existing electricity prices , strong demand for renewable energy generation , and high solar resources . as a result , we closely evaluate and monitor the appropriate level of resources required to support such markets and their associated sales opportunities . we have dedicated , and intend to continue to dedicate , significant capital and human resources to reduce the total installed cost of pv solar energy and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market .
| 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 the related notes thereto included in this annual report on form 10-k. in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions as described under the “ note regarding forward-looking statements ” that appears earlier in this annual report on form 10-k. our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors , including those discussed under item 1a . “ risk factors , ” and elsewhere in this annual report on form 10-k. this discussion and analysis does not address certain items in respect of the year ended december 31 , 2018 in reliance on amendments to disclosure requirements adopted by the sec in 2019. see item 7 . “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2019 for comparative discussions of our results of operations and liquidity and capital resources for the years ended december 31 , 2019 and 2018. executive overview we are a leading global provider of pv solar energy solutions . we design , manufacture , and sell pv solar modules with an advanced thin film semiconductor technology and also develop and sell pv solar power systems that primarily use the modules we manufacture . additionally , in certain markets we provide o & m services to system owners . we have substantial , ongoing r & d efforts focused on various technology innovations . we are the world 's largest thin film pv solar module manufacturer and one of the world 's largest pv solar module manufacturers .
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‘ occidental '' refer to occidental petroleum corporation , our former parent , and its subsidiaries . the separation and spin-off we are an independent oil and natural gas exploration and production company operating properties within the state of california . we were incorporated in delaware as a wholly owned subsidiary of occidental petroleum corporation ( occidental ) on april 23 , 2014 , and remained a wholly owned subsidiary of occidental until november 30 , 2014. prior to november 30 , 2014 , all material existing assets , operations and liabilities of occidental 's california business were consolidated under us . on november 30 , 2014 , occidental distributed shares of our common stock on a pro-rata basis to occidental stockholders and we became an independent , publicly traded company ( the spin-off ) . occidental initially retained approximately 18.5 % of our outstanding shares of common stock , which it distributed to occidental stockholders on march 24 , 2016. basis of presentation and certain factors affecting comparability until the spin-off , the accompanying financial statements were derived from the consolidated financial statements and accounting records of occidental and were presented on a combined basis for the pre-spin-off periods . these financial statements reflect the historical results of operations , financial position and cash flows of the california business . all financial information presented after the spin-off consists of our stand-alone consolidated results of operations , financial position and cash flows . we account for our share of oil and gas exploration and production ventures , in which we have a direct working interest , by reporting our proportionate share of assets , liabilities , revenues , costs and cash flows within the relevant lines on the balance sheets and statements of operations and cash flows . the statements of operations for periods prior to the spin-off include expense allocations for certain corporate functions and centrally-located activities historically performed by occidental . these functions include executive oversight , accounting , treasury , tax , financial reporting , finance , internal audit , legal , risk management , information technology , government relations , public relations , investor relations , human resources , procurement , engineering , drilling , exploration , marketing , ethics and compliance , and certain other shared services . these allocations were based primarily on specific identification of time or activities associated with us , employee headcount or our relative size compared to occidental . our management believes the assumptions underlying the financial statements , including the assumptions regarding allocating expenses from occidental , are reasonable . however , the financial statements for the pre-spin-off periods may not include all of the actual expenses that would have been incurred , may include duplicative costs and may not reflect our results of operations , financial position and cash flows had we operated as a stand-alone public company during the periods presented . actual costs that would have been incurred if we had been a stand-alone company prior to the spin-off would depend on multiple factors , including organizational structure and strategic and operating decisions . prior to the spin-off , we participated in occidental 's centralized treasury management program and did not incur any debt . excess cash generated by our business was distributed to occidental , and likewise our cash needs were provided by occidental in the form of contributions . had we been a stand-alone company for the full year 2014 , and had the same level of debt throughout the year as we did on december 31 , 2014 , of approximately $ 6.4 billion , we would have incurred $ 314 million of interest expense , on a pro-forma basis , for the year ended december 31 , 2014 , compared to the $ 72 million pre-tax interest expense reported in our statement of operations for the year then ended . on may 31 , 2016 we completed a reverse stock split using a ratio of one share of common stock for every ten shares then outstanding . share and per share amounts included in this report have been restated for all periods presented to reflect this stock split . 53 business environment and industry outlook our operating results and those of the oil and gas industry as a whole are heavily influenced by commodity prices . oil and gas prices and differentials may fluctuate significantly , generally as a result of changes in supply and demand and other market-related variables . these and other factors make it impossible to predict realized prices reliably . much of the global exploration and production industry has been challenged at recent price levels , putting pressure on the industry 's ability to generate positive cash flow and access capital . average oil prices continued the decline that began in the last half of 2014 into the first quarter of 2016. in mid-2016 , global oil prices began to recover from the apparent low point of this commodity cycle . the recovery further strengthened following the production cuts announced at the november 2016 meeting of the organization of the petroleum exporting countries ( opec ) . while global oil prices improved modestly through the end of 2016 and began to trade in a narrower range , daily average prices were still lower for the full year of 2016 compared to 2015. natural gas liquids ( ngls ) prices improved relative to crude oil prices throughout 2016 due to tighter supplies , the strength of industry exports and higher contract prices on natural gasoline . full year average natural gas prices were lower in 2016 than in 2015. however , prices rebounded modestly in the second half of the year due to lower production , higher demand and warmer weather . story_separator_special_tag during the course of the year , we also increased the valuation allowance by $ 480 million . the resulting $ 398 million increase in the valuation allowance had the effect of increasing our effective tax rate by 199 % . the first quarter 2016 reduction in the valuation allowance resulted from our evaluation in early 2016 of our assets and liabilities at the time of our fourth quarter 2015 debt exchange , which generated $ 1.4 billion of cancellation of debt income ( codi ) for tax purposes . at that date , our evaluation indicated that our liabilities exceeded the value of our assets , both calculated in accordance with tax rules , enabling us to move the liability related to codi to deferred tax liabilities . the resulting increase of our deferred tax liabilities that could be offset against assets caused an $ 82 million reduction in the valuation allowance . during the course of the year , based on prevailing product prices , we concluded that we could not realize , on a more-likely-than-not basis , any of the deferred tax assets being generated through operating losses . accordingly , we provided full allowances against such assets generated during the year by the amount of $ 480 million . we evaluate our deferred tax assets to determine if a valuation allowance is required to reduce our gross deferred tax assets to an amount expected to be realized . we expect to realize $ 375 million of our gross deferred tax assets through reversals of taxable temporary differences . we have maintained a full valuation allowance on our deferred tax assets above this amount as there is not sufficient evidence to support the reversal of any portion of this allowance . given our recent and anticipated future earnings trends , we do not believe any of the valuation allowance will be released within the next 12 months . the amount of the deferred tax assets considered realizable could however be adjusted if estimates or amounts of deferred tax liabilities change . federal and state cancellation of debt income as a result of our 2015 and 2016 debt transactions and modifications , we generated codi of $ 1.4 billion and $ 1.3 billion , respectively ( $ 2.7 billion in the aggregate ) , for both u.s. federal and california state tax purposes . these respective amounts were excluded from taxable income in those years because we determined that our liabilities exceeded the value of our assets for tax purposes immediately prior to each of the transactions . in exchange for this exclusion , tax rules require us to reduce the tax basis of our assets . accordingly , we reduced our net operating losses and the basis of property , plant and equipment by $ 1.2 billion for u.s. federal and $ 1.9 billion for california . we were not required to make any further reductions in those assets because , beyond this point , our liabilities would have exceeded the tax basis of our assets . accordingly , any tax liability attributable to the remaining approximately $ 1.5 billion of federal and $ 800 million of california codi was relieved without any future tax liability . as a result , we recorded a benefit of $ 577 million for this permanent reduction of tax liability , which reduced our effective tax rate by 288 % . 56 operations we conduct our operations , in large part , through fee interests , land leases and other contractual arrangements . we believe we are the largest private oil and natural gas mineral acreage holder in california , with interests in approximately 2.3 million net acres , approximately 60 % of which we hold in fee . our oil and gas leases have a primary term ranging from one to ten years , which is extended through the end of production once it commences . we also own a network of strategically placed infrastructure that is integrated with , and complementary to , our operations , including gas plants , oil and gas gathering systems , a power plant and other related assets , to maximize the value generated from our production . our share of production and reserves from operations in the wilmington field is subject to contractual arrangements similar to production-sharing contracts ( pscs ) that are in effect through the economic life of the assets . under such contracts we are obligated to fund all capital and production costs . we record a share of production and reserves to recover a portion of such capital and production costs and an additional share for profit . our portion of the production represents volumes : ( 1 ) to recover our partners ' share of capital and production costs that we incur on their behalf , ( 2 ) for our share of contractually defined base production and ( 3 ) for our share of production in excess of contractually defined base production for each period . we realize our share of capital and production costs , and generate returns , through our defined share of production from ( 2 ) and ( 3 ) above . these contracts do not transfer any right of ownership to us and reserves reported from these arrangements are based on our economic interest as defined in the contracts . our share of production and reserves from these contracts decreases when product prices rise and increases when prices decline assuming comparable capital investment and production costs ; however , our net economic benefit is greater when product prices are higher . the contracts represented slightly less than 20 % of our production for the year ended december 31 , 2016. in september 2016 , the psc representing the majority of the field production adjusted to eliminate the base production sharing split . our share of the base production was smaller than our share of excess production . accordingly , we now receive a modestly larger share of total field production after cost recovery .
| financial and operating results 2016 compared to 2015 realized crude oil prices , including the effect of cash received from settled hedges , decreased 15 % from $ 49.19 to $ 42.01 per barrel . reduced capital investment by 81 % from $ 401 million in 2015 to $ 75 million in 2016. average daily oil and gas production volumes decreased 12.5 % from 160,000 to 140,000 boe . production costs decreased 16 % from $ 951 million to $ 800 million . general and administrative expenses decreased 30 % from $ 354 million to $ 248 million , and adjusted general and administrative expenses decreased 20 % . in 2016 , net income of $ 279 million included a net gain of $ 805 million on early extinguishment of debt and $ 283 million of non-cash derivative losses . adjusted net loss increased 2 % from $ 311 million to $ 317 million . 2015 compared to 2014 realized crude oil prices , including the effect of cash received from settled hedges , decreased 47 % from $ 92.30 to $ 49.19 per barrel . reduced capital investment by 81 % from $ 2,089 million in 2014 to $ 401 million in 2015. average daily oil and gas production volumes increased 1 % from 159,000 to 160,000 boe . production costs decreased 10 % from $ 1,057 million to $ 951 million . general and administrative expenses increased 17 % from $ 302 million to $ 354 million , and adjusted general and administrative expenses decreased 2 % . in 2015 , net loss of $ 3.6 billion included after-tax asset impairments of $ 2.9 billion . adjusted net income decreased from income of $ 650 million to a loss of $ 311 million .
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63 3. restructuring and impairment a description of significant restructuring and related impairment charges is included below : 2017 restructuring plan on july 27 , 2017 , the company 's board of directors approved a restructuring plan ( the “ 2017 restructuring plan ” ) to more closely align its financial resources with the critical priorities of the business . after completion of the 2017 restructuring plan , the company recognized approximately $ 100.4 million of pre-tax story_separator_special_tag the information contained in this section should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this form 10-k under the captions “ risk factors , ” “ selected financial data , ” and “ business. ” overview we are a leading developer , marketer and distributor of branded performance apparel , footwear and accessories . the brand 's moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products . our products are sold worldwide and worn by athletes at all levels , from youth to professional , on playing fields around the globe , as well as by consumers with active lifestyles . the under armour connected fitness platform powers the world 's largest digital health and fitness community and our strategy is focused on engaging with these consumers and increasing awareness and sales of our products . our net revenues grew to $ 4,976.6 million in 2017 from $ 2,332.1 million in 2013 . we believe that our growth in net revenues has been driven by a growing interest in performance products and the strength of the under armour brand in the marketplace . our long-term growth strategy is focused on increased sales of our products through ongoing product innovation , investment in our distribution channels and international expansion . while we plan to continue to invest in growth , we also plan to improve efficiencies throughout our business as we seek to gain scale through our operations and return on our investments . financial highlights for full year 2017 as compared to the prior year period include : net revenues increased 3 % . wholesale revenue decreased 3 % and direct-to-consumer revenues increased 14 % . apparel , footwear and accessories revenue increased 2 % , 3 % and 10 % , respectively . revenue in our north america segment decreased 5 % . revenue in our asia-pacific , emea and latin america segments grew 61 % , 42 % and 28 % , respectively , with 11 % growth in our connected fitness segment . selling , general and administrative expense increased 14 % . gross margin decreased 140 basis points . a large majority of our products are sold in north america ; however , we believe our products appeal to athletes and consumers with active lifestyles around the globe . internationally , our net revenues are generated from a mix of wholesale sales to retailers , sales to distributors and sales through our direct to consumer sales channels in europe , latin america , and asia-pacific . in addition , a third party licensee sells our products in japan . we believe there is an increasing recognition of the health benefits of an active lifestyle . we believe this trend provides us with an expanding consumer base for our products . we also believe there is a continuing shift in consumer demand from traditional non-performance products to performance products , which are intended to provide better performance by wicking perspiration away from the skin , helping to regulate body temperature and enhancing comfort . we believe that these shifts in consumer preferences and lifestyles are not unique to the united states , but are occurring in a number of markets globally , thereby increasing our opportunities to introduce our performance products to new consumers . we plan to continue to grow our business over the long term through increased sales of our apparel , footwear and accessories , expansion of our wholesale distribution , growth in our direct to consumer sales channel and expansion in international markets . although we believe these trends will facilitate our growth , we also face potential challenges that could limit our ability to take advantage of these opportunities or negatively impact our financial results , including , among others , the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers . additionally , we may not be able to successfully execute on our long-term strategies , or successfully manage the increasingly complex operations of our global business effectively . although we have announced restructuring plans , we may not fully realize the expected benefits of these plans or other operating or cost-saving initiatives . in addition , we may not consistently be able to anticipate consumer preferences and develop new and innovative products that meet changing preferences in a timely manner . furthermore , our industry is very competitive , and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability . we also rely on third-party suppliers and manufacturers outside the u.s. to provide fabrics and to produce our products , and disruptions to our supply chain could harm our business . for a more complete discussion of the risks facing our business , refer to the “ risk factors ” section included in item 1a . 28 recent developments on july 27 , 2017 , our board of directors approved a restructuring plan ( the “ 2017 restructuring plan ” ) to more closely align our financial resources with the critical priorities of our business . after completion of the 2017 restructuring plan , we recognized approximately $ 100.4 million of pre-tax charges in connection with this plan . in addition to these charges , we also recognized restructuring related goodwill impairment charges of approximately $ 28.7 million for our connected fitness business . story_separator_special_tag selling , general and administrative expenses increased $ 326.1 million to $ 1,823.1 million in 2016 from $ 1,497.0 million in 2015. as a percentage of net revenues , selling , general and administrative expenses remained consistent at 37.8 % in 2016 and in 2015. selling , general and administrative expense was impacted by the following : marketing costs increased $ 59.7 million to $ 477.5 million in 2016 from $ 417.8 million in 2015. this increase was primarily due to key north american retail marketing campaigns , our investments in sponsorships and increased marketing in connection with the growth of our international business . this increase was offset by lower incentive compensation expense for marketing employees . as a percentage of net revenues , marketing costs decreased to 9.9 % in 2016 from 10.5 % in 2015. other costs increased $ 266.4 million to $ 1,345.6 million in 2016 from $ 1,079.2 million in 2015. this increase was primarily due to higher personnel and other costs incurred for the continued expansion of our direct to consumer distribution channel , including increased investment for our factory house and brand house stores . additionally , we incurred $ 17.0 million in expenses related to the liquidation of the sports authority , comprised of $ 15.2 million in bad debt expense and $ 1.8 million of in-store fixture impairment . this increase was offset by lower incentive compensation expense . as a percentage of net revenues , other costs increased to 27.9 % in 2016 from 27.2 % in 2015. income from operations increased $ 8.9 million , or 2.2 % , to $ 417.5 million in 2016 from $ 408.5 million in 2015. income from operations as a percentage of net revenues decreased to 8.6 % in 2016 from 10.3 % in 2015. interest expense , net increased $ 11.8 million to $ 26.4 million in 2016 from $ 14.6 million in 2015. this increase was primarily due to interest on the net increase of $ 284.2 million in total debt outstanding . other expense , net decreased $ 4.4 million to $ 2.8 million in 2016 from $ 7.2 million in 2015. this decrease was due to higher net gains on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our derivative financial instruments as compared to the prior period . provision for income taxes decreased $ 22.8 million to $ 131.3 million in 2016 from $ 154.1 million in 2015. our effective tax rate was 33.8 % in 2016 compared to 39.9 % in 2015. our effective tax rate for 2016 was lower than the effective tax rate for 2015 primarily due to increased international profitability and a tax benefit related to our prior period acquisitions . 34 segment results of operations the net revenues and operating income ( loss ) associated with our segments are summarized in the following tables . intersegment revenue is generated by connected fitness which runs advertising campaigns for other segments . year ended december 31 , 2017 compared to year ended december 31 , 2016 net revenues by segment are summarized below : replace_table_token_10_th the increase in total net revenues was driven by the following : net revenues in our north america operating segment decreased $ 202.9 million to $ 3,802.4 million in 2017 from $ 4,005.3 million in 2016 primarily due to lower sales in our wholesale channel driven by lower demand . net revenues in our emea operating segment increased $ 139.4 million to $ 470.0 million in 2017 from $ 330.6 million in 2016 primarily due to unit sales growth to wholesale partners in germany and the united kingdom and our our first full year of sales in russia . net revenues in our asia-pacific operating segment increased $ 165.0 million to $ 433.6 million in 2017 from $ 268.6 million in 2016 primarily due to growth in our direct-to-consumer channel . net revenues in our latin america operating segment increased $ 39.5 million to $ 181.3 million in 2017 from $ 141.8 million in 2016 primarily due to unit sales growth to wholesale partners and through our direct to consumer channels in mexico , chile , and brazil . net revenues in our connected fitness operating segment increased $ 8.7 million to $ 89.2 million in 2017 from $ 80.4 million in 2016 primarily driven by increased subscribers on our fitness applications and higher licensing revenue . operating income ( loss ) by segment is summarized below . the majority of corporate expenses within north america have not been allocated to our other segments . replace_table_token_11_th 35 the decrease in total operating income was driven by the following : operating income in our north america operating segment decreased $ 388.2 million to $ 20.2 million in 2017 from $ 408.4 million in 2016 primarily due to the decreases in net sales and gross margins discussed above and $ 63.2 million in restructuring and impairment charges . operating income in our emea operating segment increased $ 6.6 million to $ 18.0 million in 2017 from $ 11.4 million in 2016 primarily due to sales growth discussed above , which was partially offset by continued investment in operations . operating income in our asia-pacific operating segment increased $ 13.7 million to $ 82.0 million in 2017 from $ 68.3 million in 2016 primarily due to sales growth discussed above . this increase was offset by investments in our direct to consumer business and entry into new territories . operating loss in our latin america operating segment increased $ 3.2 million to $ 37.1 million in 2017 from $ 33.9 million in 2016 primarily due to $ 11.5 million in restructuring and impairment charges . this increase in operating loss was offset by sales growth discussed above . operating loss in our connected fitness segment increased $ 18.4 million to $ 55.3 million in 2017 from $ 36.8 million in 2016 primarily due to $ 47.8 million in restructuring and impairment charges .
| consolidated results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 net revenues increased $ 151.2 million , or 3.1 % , to $ 4,976.6 million in 2017 from $ 4,825.3 million in 2016 . net revenues by product category are summarized below : replace_table_token_8_th the increase in net sales was driven primarily by : apparel unit sales growth in multiple categories led by men 's and women 's training and golf ; and accessories unit sales growth in multiple categories led by men 's training ; and footwear unit sales growth in multiple categories led by running . license revenues increase d $ 16.7 million , or 16.8 % , to $ 116.6 million in 2017 from $ 99.8 million in 2016 . this increase in license revenues was driven primarily by increased distribution of our licensed products in north america . connected fitness revenue increase d $ 8.8 million , or 10.9 % , to $ 89.2 million in 2017 from $ 80.4 million in 2016 primarily driven by increased subscribers on our fitness applications and higher licensing revenue . gross profit decreased $ 1.9 million to $ 2,238.7 million in 2017 from $ 2,240.6 million in 2016 . gross profit as a percentage of net revenues , or gross margin , decreased 140 basis points to 45.0 % in 2017 compared to 46.4 % in 2016 .
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prior to a return to service , an operator must develop a return to service plan for the applicable helicopter model that must be approved by the relevant regulatory authority . such a plan would need to include a detailed safety case , outlining specific maintenance processes and tooling and training requirements . in addition , these directives mandate that an operator must comply with an easa directive issued on june 23 , 2017 that requires the replacement of , and prescribes reduced service limits and inspections with respect to , certain identified parts . easa also requires the installation of a new easa-approved full flow magnetic plug device and imposes maintenance protocols to support the inspection of the main gearbox oil system particle detection . even though h225 helicopters are no longer suspended by the regulatory authorities , there is not confidence amongst our customers , their employees , and the unions to which our customers ' employees belong in a detailed safety case that would justify a return to service of the h225 model helicopters . as a result , we believe a full return to service for the h225 helicopters in offshore oil and gas operations is unlikely . we will not operate the h225 helicopters in our fleet unless and until we can develop a detailed safety case that demonstrates the h225 model helicopter can be operated safely . during the third quarter of 2017 , we determined that we can not develop such a case and that a broad-based return to service is improbable . we therefore can not operate the h225 helicopters in our operations as we had planned at the time the helicopters were purchased . we own nine h225 helicopters , including five currently located in the u.s. , three currently located in brazil , and one currently located in norway . since the accident , we have utilized other heavy and medium helicopters to service our operations . these developments led us to conclude that the cash flows associated with our h225 helicopters are largely independent from the cash flows associated with the remainder of our fleet and should be evaluated separately for impairment . we have performed an impairment analysis on our h225 helicopters , capital parts , and related inventory and determined that the projected undiscounted cash flows over the remaining useful life were less than the carrying amount . we determined that the book value exceeded the fair value and recorded a $ 117 million impairment charge in the three months ended september 30 , 2017. as of december 31 , 2017 , the net book value of our h225 helicopters and related inventory of parts and equipment was $ 37.8 million . 39 airbus lawsuit on november 21 , 2016 , we filed a lawsuit in the district court of dallas county , texas against airbus alleging breaches of various contracts between us , fraudulent inducement and unjust enrichment in connection with the sale by airbus of h225 model helicopters to us . we seek compensation for our monetary damages in an amount to be determined . we can not predict the ultimate outcome of the litigation , and we may spend significant resources pursuing our legal remedies against airbus . tax special regularization program during the fourth quarter of 2017 , our brazil subsidiary elected to enter certain settled and open tax claims in the tax special regularization program ( the “ pert program ” ) pursuant to brazil provisional measure no . 783 issued on may 31 , 2017. the pert program allows for the partial settement of debts , both income tax debts and non-income-based tax debts , due by april 30 , 2017 to brazil 's federal revenue service with the use of tax credits , including income tax loss carryforwards . a $ 3.5 million income tax benefit was recorded during the fourth quarter attributable to utilization of income tax loss carryforwards under the pert program offset by the accrual of additional operating expense associated with certain indirect tax claims enrolled into the pert program . fleet developments and capital commitments we focus on the modernization of our fleet and the standardization of equipment . oil and gas companies typically require modern helicopters that offer enhanced safety features and greater performance . in response to this demand , we have transformed our fleet significantly . since the beginning of 2005 , we have added 147 helicopters , disposed of 128 helicopters and reduced the average age of our owned fleet from 17 years to 13 years . we spent $ 16.8 million , $ 39.2 million and $ 60.1 million to acquire helicopters and other equipment in the years ended december 31 , 2017 , 2016 and 2015 , respectively , primarily for heavy and medium helicopters , spare helicopter parts and facility improvements . as of march 5 , 2018 , we had unfunded commitments of $ 85.9 million , primarily pursuant to agreements to purchase eight helicopters , consisting of three aw189 heavy helicopters and five aw169 light twin helicopters . the aw189 helicopters are scheduled to be delivered in 2018 through 2019 . delivery dates for the aw169 helicopters have not been determined . in addition , we had outstanding options to purchase up to an additional ten aw189 helicopters . if these options were exercised , the helicopters would be delivered in 2019 and 2020 . approximately $ 87.2 million of these commitments ( inclusive of deposits paid on options not yet exercised ) may be terminated without further liability other than aggregate liquidated damages of $ 2.2 million . story_separator_special_tag components of revenues and expenses we derive our revenues primarily from operating and leasing our equipment , and our profits depend on our cost of capital , the acquisition costs of assets , our operating costs and our reputation . operating revenues recorded under u.s. gulf of mexico , alaska and international are primarily generated from offshore oil and gas exploration , development and production activities and , in alaska , include revenues from utility services . these revenues are typically earned through a combination of fixed monthly fees plus an incremental charge based on flight hours flown . charter revenues are typically earned through either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged daily . operating revenues recorded under dry-leasing are generated from leases to third-party operators where we are not responsible for the operation of the helicopters . for certain of these leases , we also provide crew training , management expertise , and logistical and maintenance support . leases typically call for a fixed monthly fee only , but may also include an additional charge based on flight hours flown and or the level of personnel support . the majority of our dry-leasing revenues have been generated by helicopters deployed internationally . operating revenues for emergency response services are earned through a fixed monthly fee plus an incremental charge for flight hours flown , and charter revenues are typically earned through an hourly rate with a minimum number of hours to be charged daily . operating revenues recorded under flightseeing are generated on a per passenger basis . the aggregate cost of our operations depends primarily on the size and asset mix of the fleet . our operating costs and expenses are grouped into the following categories : personnel ( includes wages , benefits , payroll taxes , savings plans , subsistence and travel ) ; repairs and maintenance ( primarily routine activities and hourly charges for power-by-the-hour ( “ pbh ” ) maintenance contracts that cover helicopter refurbishments and engine and major component overhauls that are performed in accordance with planned maintenance programs ) ; 40 insurance ( including the cost of hull and liability insurance premiums and loss deductibles ) ; fuel ; leased-in equipment ( includes the cost of leasing helicopters and equipment ) ; and other ( primarily base expenses , property , sales and use taxes , communication costs , freight expenses , and other ) . we engage a number of third-party vendors to maintain the engines and certain components on some of our helicopter models under pbh maintenance contracts . these programs require us to pay for the maintenance service ratably over the contract period , typically based on actual flight hours . pbh providers generally bill monthly based on hours flown in the prior month , the costs being expensed as incurred . in the event we place a helicopter in a program after a maintenance period has begun , it may be necessary to pay an initial buy-in charge based on hours flown since the previous maintenance event . this buy-in charge is normally recorded as a prepaid expense and amortized as an operating expense over the remaining pbh contract period . if a helicopter is sold or otherwise removed from a program before the scheduled maintenance work is carried out , we may be able to recover part of our payments to the pbh provider , in which case we record a reduction to operating expense . we also incur repairs and maintenance expense through vendor arrangements whereby we obtain repair quotes and authorize service through a repair order process . our policy of expensing all repair costs as incurred may result in operating expenses varying substantially when compared with a prior year or prior quarter if a disproportionate number of repairs , refurbishments or overhauls are undertaken . this variation can be exacerbated by the timing of entering or exiting third-party pbh programs and the timing of vendor credits . for helicopters that we lease to third parties under arrangements whereby the customer assumes operational responsibility , we often provide maintenance and parts support but generally we incur no other material operating costs . in most instances , our leases require clients to procure adequate insurance , but we purchase contingent hull and liability coverage to mitigate the risk of a client 's coverage failing to respond . in some instances , we provide training and other services to support our lease customers . 41 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in the prior year due to the repurchase of $ 5.0 million of our 7.750 % senior notes . income tax benefit . income tax benefit was $ 119.3 million higher in the current year primarily due to approximately $ 70.0 million related to the impact of the tax act , as well as the tax impact of the impairment of our h225 helicopters , capital parts and inventory during the current year . equity earnings . equity earnings , net of tax , were $ 0.3 million higher in the current year primarily due to higher earnings at our dart holding company ltd. ( “ dart ” ) joint venture . year ended december 31 , 2016 compared with year ended december 31 , 2015 operating revenues . operating revenues were $ 34.6 million lower in the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015. operating revenues from oil and gas operations in the u.s. gulf of mexico were $ 30.8 million lower in 2016. operating revenues from medium helicopters were $ 16.8 million lower primarily due to lower utilization and lower average rates . operating revenues from heavy helicopters were $ 8.1 million lower primarily due to fewer helicopters on contract and lower average rates . operating revenues from light
| results of operations replace_table_token_6_th 42 operating revenues by service line . the following table sets forth our operating revenues by service line for the years ended december 31 , 2017 , 2016 and 2015 . replace_table_token_7_th _ ( 1 ) primarily oil and gas activities , but also includes revenues from utility services such as firefighting . ( 2 ) we sold our fbo on may 1 , 2015. year ended december 31 , 2017 compared with year ended december 31 , 2016 operating revenues . operating revenues were $ 15.9 million lower in the twelve months ended december 31 , 2017 ( the “ current year ” ) compared to the twelve months ended december 31 , 2016 ( the “ prior year ” ) . operating revenues from oil and gas operations in the u.s. were $ 5.9 million lower in the current year . operating revenues from light twin and single engine helicopters were $ 8.7 million and $ 6.2 million lower , respectively , primarily due to lower utilization . operating revenues from medium and heavy helicopters were $ 7.2 million and $ 2.7 million higher , respectively , primarily due to higher utilization . miscellaneous revenues were $ 0.8 million lower primarily due to the recognition of a contract termination fee in the prior year . operating revenues from international oil and gas operations were $ 1.3 million higher . operating revenues in colombia increased by $ 1.7 million primarily due to a short-term contract and higher utilization . operating revenues in brazil increased by $ 0.6 million primarily due to the strengthening of the brazilian real relative to the u.s. dollar , partially offset by lower utilization . these increases were partially offset by a $ 1.0 million decrease in suriname primarily due to lower utilization .
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fair value of financial instruments , including derivative instruments story_separator_special_tag the following discussion and analysis of the results of operations and financial condition of the company and the operating partnership should be read in connection with the consolidated financial statements and notes thereto . due to the company 's ability to control the operating partnership and its subsidiaries , the operating partnership and each such subsidiary entity has been consolidated with the company for financial reporting purposes , except for two unconsolidated operating properties . capitalized terms used herein and not defined are as defined elsewhere in this annual report on form 10-k for the year ended december 31 , 2016 . forward-looking statements forward-looking statements in this item 7 as well as elsewhere in this annual report on form 10-k are intended to be made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. these statements are based on current expectations , estimates , projections and assumptions made by management . while the company 's management believes the assumptions underlying its forward-looking statements are reasonable , such information is inherently subject to uncertainties and may involve certain risks , which could cause actual results , performance or achievements of the company to differ materially from anticipated future results , performance or achievements expressed or implied by such forward-looking statements . many of these uncertainties and risks are difficult to predict and beyond management 's control . forward-looking statements are not guarantees of future performance , results or events . the forward-looking statements contained herein are made as of the date hereof and the company undertakes no obligation to update or supplement these forward-looking statements . factors that might cause such differences include , but are not limited to the following : we intend to actively acquire , develop and rehab multifamily properties for rental operations as market conditions dictate . we may also acquire multifamily properties that are unoccupied or in the early stages of lease up . we may 38 be unable to lease up these apartment properties on schedule , resulting in decreases in expected rental revenues and or lower yields due to lower occupancy and rental rates as well as higher than expected concessions or higher than expected operating expenses . we may not be able to achieve rents that are consistent with expectations for acquired , developed or rehabbed properties . we may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position , to complete a development property or to complete a rehab . additionally , we expect that other real estate investors with capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts . this competition ( or lack thereof ) may increase ( or depress ) prices for multifamily properties . we may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms . we have acquired in the past and intend to continue to pursue the acquisition of properties , including large portfolios of properties , that could increase our size and result in alterations to our capital structure . the total number of apartment units under development , costs of development and estimated completion dates are subject to uncertainties arising from changing economic conditions ( such as the cost of labor and construction materials ) , competition and local government regulation ; debt financing and other capital required by the company may not be available or may only be available on adverse terms ; labor and materials required for maintenance , repair , capital expenditure or development may be more expensive than anticipated ; occupancy levels and market rents may be adversely affected by national and local political , economic and market conditions including , without limitation , new construction and excess inventory of multifamily and owned housing/condominiums , increasing portions of owned housing/condominium stock being converted to rental use , rental housing subsidized by the government , other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing , governmental regulations , slow or negative employment growth and household formation , the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers , changes in social preferences and the potential for geopolitical instability , all of which are beyond the company 's control ; and additional factors as discussed in part i of this annual report on form 10-k , particularly those under “ item 1a . risk factors ” . forward-looking statements and related uncertainties are also included in the notes to consolidated financial statements in this report . overview equity residential ( “ eqr ” ) , a maryland real estate investment trust ( “ reit ” ) formed in march 1993 , is an s & p 500 company focused on the acquisition , development and management of rental apartment properties in urban and high-density suburban coastal gateway markets where today 's affluent renters want to live , work and play . erp operating limited partnership ( “ erpop ” ) , an illinois limited partnership , was formed in may 1993 to conduct the multifamily residential property business of equity residential . eqr has elected to be taxed as a reit . references to the “ company , ” “ we , ” “ us ” or “ our ” mean collectively eqr , erpop and those entities/subsidiaries owned or controlled by eqr and or erpop . references to the “ operating partnership ” mean collectively erpop and those entities/subsidiaries owned or controlled by erpop . eqr is the general partner of , and as of december 31 , 2016 owned an approximate 96.2 % ownership interest in , erpop . story_separator_special_tag the sale of the starwood portfolio combined with the other 2016 dispositions has resulted in the company 's exit from the south florida , denver and new england ( excluding boston ) markets and has substantially completed the company 's portfolio transformation which started approximately ten years ago . see further discussion below regarding the company 's 2016 disposition activity . 40 we endeavor to attract and retain the best employees by providing them with the education , resources and opportunities to succeed . we have a commitment to diversity in all of its forms and strive to promote and maintain a work environment where all employees are treated with dignity and respect , offered opportunities for professional development and valued for their unique contributions to the company 's success . we provide many classroom and on-line training courses to assist our employees in interacting with prospects and residents as well as extensively train our customer service specialists in maintaining our properties and improvements , equipment and appliances . we actively promote from within and many senior corporate and property leaders have risen from entry level or junior positions . we monitor our employees ' engagement by surveying them annually and have consistently received high engagement scores . we have a commitment to sustainability and consider the environmental impacts of our business activities . sustainability and social responsibility are key drivers of our focus on creating the best apartment communities for residents to live , work and play . we have a dedicated in-house team that initiates and applies sustainable practices in all aspects of our business , including investment activities , development , property operations and property management activities . with its high density , multifamily housing is , by its nature , an environmentally friendly property type . our recent acquisition and development activities have been primarily concentrated in pedestrian-friendly urban and close-in suburban locations near public transportation . when developing and renovating our properties , we strive to reduce energy and water usage by investing in energy saving technology while positively impacting the experience of our residents and the value of our assets . we continue to implement a combination of irrigation , lighting , hvac and renewable energy improvements at our properties that will reduce energy and water consumption . the company was named the 2016 global residential listed sector leader in sustainability by gresb , a globally recognized analysis of the sustainability indicators of more than 750 real estate portfolios worldwide . the company was also recently awarded the residential leader in the light award for sustainability by nareit . for additional information regarding our sustainability efforts , see our december 2016 corporate social responsibility and sustainability report at our website , www.equityapartments.com . for 2017 , we continue to have an express company-wide goal regarding enhanced sustainability efforts . employees , including our executives , will have their performance against our various social responsibility goals evaluated as part of our annual performance review process . current environment following the approval by the company 's board of trustees , the company executed an agreement with controlled affiliates of starwood capital group ( `` starwood '' ) on october 23 , 2015 to sell a portfolio of 72 operating properties consisting of 23,262 apartment units located in five markets across the united states for $ 5.365 billion ( the `` starwood transaction '' or `` starwood portfolio '' ) . on january 26 and 27 , 2016 , the company closed on the sale of the entire portfolio described above . the sale of the starwood portfolio , combined with the other 2016 dispositions , has resulted in the company 's exit from the south florida , denver and new england ( excluding boston ) markets and has substantially completed the company 's portfolio transformation which started approximately ten years ago . these sales have narrowed the company 's focus , which is now entirely directed towards our six coastal markets . we believe the assets sold will have lower long-term returns ( as compared to investments in our six coastal markets ) and that we sold them for prices that are favorable . given the strong demand for multifamily assets in our six coastal markets from institutional investors and the challenge in recycling $ 6.8 billion of capital in this competitive marketplace , the company believed the best risk-adjusted use of the sale proceeds was to distribute a portion to our shareholders and use the remainder to repay outstanding debt ( see further discussion below ) . the company used the majority of the proceeds from the starwood transaction and other 2016 dispositions to pay two special dividends to its shareholders and holders of op units of $ 11.00 per share/unit in the aggregate . the company paid special dividends of $ 8.00 per share/unit ( approximately $ 3.0 billion ) on march 10 , 2016 and $ 3.00 per share/unit ( approximately $ 1.1 billion ) on october 14 , 2016. the company used the majority of the remaining proceeds to reduce aggregate indebtedness in order to make the transaction leverage neutral . the company retired approximately $ 2.0 billion in secured and unsecured debt , the majority of which was scheduled to mature in 2016 and 2017 , improving the company 's already strong credit metrics . as a result of the starwood transaction and the other 2016 completed dispositions , the company 's portfolio has changed significantly from the portfolio summary included in the company 's 2015 annual report on form 10-k. the following table sets forth certain information by market relating to the company 's properties at december 31 , 2016 as compared to december 31 , 2015 : 41 portfolio summary as of december 31 , 2015 portfolio summary as of december 31 , 2016 % of average % of average apartment stabilized rental apartment stabilized rental markets/metro areas properties units noi ( a ) rate ( b ) properties units noi ( a ) rate ( b ) los angeles 70 16,064 14.5 % $ 2,209 70 15,857 18.3 %
| results of operations in conjunction with our business objectives and operating strategy , the company continued to invest in apartment properties located in our six coastal markets and sell apartment properties located primarily in the less dense portion of suburban markets during the years ended december 31 , 2016 and december 31 , 2015 . in summary , we : year ended december 31 , 2016 : acquired four consolidated apartment properties consisting of 573 apartment units for $ 249.3 million at a weighted average acquisition cap rate ( see definition below ) of 4.8 % ; sold 98 consolidated apartment properties consisting of 29,440 apartment units for $ 6.8 billion , which includes the sale of the starwood portfolio consisting of 72 consolidated rental properties containing 23,262 apartment units for $ 5.365 billion , at a weighted average disposition yield ( see definition below ) of 5.4 % and generating an unlevered irr ( see definition below ) of 11.8 % ; sold one unconsolidated property consisting of 336 apartments units for $ 74.5 million ( our share of the net sales proceeds approximated $ 12.4 million ) , generating a disposition yield of 5.6 % ; sold our entire interest in the management contracts and related rights associated with the military housing ventures at joint base lewis mcchord consisting of 5,161 apartment units for approximately $ 63.3 million and sold three land parcels for $ 57.5 million ; and started the construction on one project consisting of 222 apartment units totaling approximately $ 88.0 million of development costs and substantially completed construction on five projects consisting of 2,141 apartment units totaling approximately $ 1.1 billion of development costs .
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`` risk factors '' beginning on page 11 and in the section entitled `` forward-looking statements '' on page 3. overview we are a firm that provides integrated engineering , consulting , and construction management services . our project teams help our commercial and governmental clients implement environmental , energy , infrastructure , and pipeline projects from initial concept to delivery and operation . we provide our services almost entirely in the united states of america . we generate revenue and cash flows from fees for professional and technical services . as a service company , we are more labor-intensive than capital-intensive . our revenue and cash flow is driven by our ability to attract and retain qualified and productive employees , identify business opportunities , secure new and renew existing client contracts , provide outstanding service to our clients and execute projects successfully . our income from operations is derived from our ability to generate revenue under our contracts in excess of our direct costs , subcontractor costs , other contract costs , and general and administrative ( `` g & a '' ) expenses . in the course of providing our services , we routinely subcontract services . generally , these subcontractor costs are passed through to our clients and , in accordance with accounting principles generally accepted in the united states of america ( `` u.s. gaap '' ) and consistent with industry practice , are included in gross revenue . because subcontractor services can change significantly from project to project , changes in gross revenue may not be indicative of business trends . accordingly , we also report net service revenue ( `` nsr '' ) , which is gross revenue less subcontractor costs and other direct reimbursable charges , and our discussion and analysis of financial condition and results of operations uses nsr as a primary point of reference . the following table presents the approximate percentage of nsr by contract type : replace_table_token_4_th our cost of services ( `` cos '' ) includes professional compensation and related benefits together with certain direct and indirect costs such as rents , utilities and travel . professional compensation represents the majority of these costs . our g & a expenses are comprised primarily of our corporate headquarters costs related to corporate executive management , finance , accounting , information technology , administration and legal . these costs are generally unrelated to specific client projects and can vary as expenses are incurred to support corporate activities and initiatives . our revenue , expenses and operating results may fluctuate significantly from year to year as a result of numerous factors , including : unanticipated changes in contract performance that may affect profitability , particularly with contracts that are fixed-price or have funding limits ; seasonality of the spending cycle , notably for state and local government entities , and the spending patterns of our commercial sector clients ; budget constraints experienced by our federal , state and local government clients ; divestitures or discontinuance of operating units ; the timing and impact of acquisitions ; employee hiring , utilization and turnover rates ; the number and significance of client contracts commenced and completed during the period ; 21 creditworthiness and solvency of clients ; the ability of our clients to terminate contracts without penalties ; delays incurred in connection with contracts ; the size , scope and payment terms of contracts ; contract negotiations on change orders and collection of related accounts receivable ; the timing of expenses incurred for corporate initiatives ; competition ; litigation ; changes in accounting rules ; the credit markets and their effect on our customers ; general economic or political conditions ; and employee expenses such as medical and other benefits . acquisitions and divestitures acquisitions . we continuously evaluate the marketplace for strategic acquisition opportunities . a fundamental component of our profitable growth strategy is to pursue acquisitions that will expand our platform in key u.s. markets . where the impact of acquisitions is noted in discussing results , it refers to acquisitions effected within the last twelve months of the end of the relevant period . fiscal year 2016 acquisition on november 30 , 2015 , we acquired the professional services business ( `` pipeline services '' ) of willbros group ( `` willbros '' ) in an all cash transaction . the $ 124.5 million purchase price consisted of ( i ) an initial cash payment of $ 120.0 million paid at closing , and , ( ii ) a second cash payment due of $ 7.5 million payable at the earlier of certain willbros contract novations ( or written approval of a subcontract ) and willbros obtaining certain consents , or march 15 , 2016 , net of a preliminary estimate working capital adjustment due from willbros . the second cash payment was made in two tranches , with $ 2.4 million paid in march 2016 and the remaining balance paid in july 2016 in conjunction with the final net working capital settlement . goodwill of $ 60.3 million was initially recorded prior to impairment , all of which is expected to be tax deductible , and other intangible assets of $ 44.5 million were recorded as a result of this acquisition . the goodwill recognized is attributable to the future strategic growth opportunities arising from the acquisition , pipeline service 's highly skilled assembled workforce , which does not qualify for separate recognition , and the expected cost synergies of the combined operations . the pipeline services operating segment has contributed $ 60.7 million in gross revenue , $ 48.4 million in net service revenue , and an operating loss of $ ( 7.5 ) million to our results for the period from november 30 , 2015 through june 30 , 2016 . fiscal year 2015 acquisition on september 29 , 2014 , we acquired all of the outstanding stock of nova training inc. and all of the outstanding membership interests of nova earthworks , llc ( collectively `` nova '' ) based in midland , texas . story_separator_special_tag primary services include : roadway , bridge and related surface transportation design ; structural design and inspection of bridges ; program management ; construction engineering inspection and construction management for roads and bridges ; civil engineering for municipalities and public works departments ; geotechnical engineering services ; and security assessments , design and construction management . pipeline services : the pipeline services operating segment provides pipeline and facilities engineering , epc/epcm , field services and integrity services to the oil and gas transmission and midstream markets , as well as at government facilities . we specialize in providing engineering services to assist clients in designing , engineering and constructing or expanding pipeline systems , compressor stations , pump stations , fuel storage facilities , terminals , and field gathering and production facilities . our expertise extends to the engineering of a wide range of project peripherals , including various types of support buildings and utility systems , power generation and electrical transmission systems , communications systems , fire protection , water and sewage treatment , water transmission , roads and railroad sidings . we also provide project management , engineering and material procurement services to the refining industry and government agencies , including mechanical , civil , structural , electrical instrumentation/controls and environmental engineering . we provide 23 full-service integrity management program offerings including program development , data services , risk analysis , corrosion evaluation , integrity engineering and integrity construction services . we are partnered with google to provide a cloud-based pipeline life-cycle integrity management solution , integra link , which utilizes google 's geospatial technology platform to help oil and gas pipeline companies visualize and utilize their data and information . our chief operating decision maker is our chief executive officer ( `` ceo '' ) . our ceo manages the business by evaluating the financial results of the four operating segments , focusing primarily on segment revenue and segment profit . we utilize segment revenue and segment profit because we believe they provide useful information for effectively allocating resources among operating segments ; evaluating the health of our operating segments based on metrics that management can actively influence ; and gauging our investments and our ability to service , incur or pay down debt . specifically , our ceo evaluates segment revenue and segment profit and assesses the performance of each operating segment based on these measures , as well as , among other things , the prospects of each of the operating segments and how they fit into our overall strategy . our ceo then decides how resources should be allocated among our operating segments . we do not track our assets by operating segment , and consequently , it is not practical to show assets by operating segment . segment profit includes all operating expenses except the following : costs associated with providing corporate shared services ( including certain depreciation and amortization ) , goodwill and intangible asset write-offs , stock-based compensation expense and amortization of intangible assets . depreciation expense is primarily allocated to operating segments based upon their respective use of total operating segment office space . assets solely used by corporate are not allocated to the operating segments . inter-segment balances and transactions are not material . the accounting policies of the operating segments are the same as those for us as a whole except as discussed herein . the following table presents the approximate percentage of our nsr by operating segment : replace_table_token_5_th business trend analysis energy : the utilities in the united states are in the midst of a multi-year upgrade of the electric transmission grid to improve capacity , reliability and distribution of sources of generation . years of underinvestment coupled with a favorable regulatory environment have provided a good business opportunity for those serving this market . according to the edison electric institute , electric utilities throughout the united states will be investing over $ 60 billion in the performance of this work over the next several years . economic impacts have slowed the pace of this investment , yet they do not appear to have affected the long term plan of investment . demand for energy efficiency services continues to be supported by increasing state and federal funds targeted at energy efficiency . the regional green house gas initiative and system benefit charges at the state or utility level have expanded the marketplace for energy efficiency program management services . investment within the renewable portfolios also remains strong . we are well established in the northeast and mid-atlantic regions and are growing our presence in the southeast and in texas and california where demand for services is the highest . environmental : although there had been signs of growth in this market following a slowdown caused by general economic conditions , market demand for environmental services continues to be mixed . the last decade saw growth in nearly all aspects of this market . the fundamental market drivers remain in place , and this market also benefits from evolving regulatory developments particularly with respect to air quality , and the continuing need to enhance our aging transportation and energy infrastructure . while we expect oil and gas activity and major capital projects to be constrained in the near term , the outlook for services related to other areas of the market , such as environmental remediation , construction , transaction support , the retirement of coal plants and the need to transport natural gas remains favorable . renewables and other energy source initiatives present important market opportunities but are linked to federal and state policy changes which will be required for the markets to commit long-term capital to projects such as pipelines and related infrastructure . infrastructure : long-term prospects should be favorable and our backlog is up significantly . the overall infrastructure construction markets are expected to benefit from the federal funding certainty provided by the new $ 305 billion highway bill known as the fixing america 's surface transportation ( fast ) act .
| infrastructure operating segment results replace_table_token_9_th gross revenue increased $ 13.2 million , or 18.8 % , to $ 83.4 million for fiscal year 2016 from $ 70.2 million for fiscal year 2015 . the increase in gross revenue was primarily driven by increased demand from state transportation and commercial clients for the upgrade of existing infrastructure . nsr increased $ 8.1 million , or 16.5 % , to $ 57.2 million for fiscal year 2016 from $ 49.1 million for fiscal year 2015 . the nsr growth was primarily the result of the same factors driving gross revenue growth as noted above . the increases in gross revenue and nsr were all due to organic activities . the infrastructure operating segment 's profit increased $ 2.9 million , or 31.1 % , to $ 12.0 million for fiscal year 2016 from $ 9.2 million for fiscal year 2015 . the increased profit performance was due to the growth in revenue in addition to improvements in our cost structure . for fiscal year 2016 the infrastructure operating segment 's profit , as a percentage of nsr , increased to 21.1 % from 18.7 % in the prior year . pipeline services operating segment results replace_table_token_10_th pipeline services operating results for fiscal year 2016 are for the post-acquisition period from november 30 , 2015 to june 30 , 2016 . during this seven month period , pipeline services contributed $ 60.7 million in gross revenue , $ 48.4 million in nsr , and had a segment loss of $ 7.5 million . continued uncertainty surrounding the oil and gas markets , including depressed commodity prices also impacted current period operating results . specifically , the uncertain market outlook has constrained capital spending , resulting in lower demand for our services and increased competition for new contracts .
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an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit 's fair value , however , the story_separator_special_tag results of operations you should read the following discussion and analysis of our results of operations , financial condition and liquidity in conjunction with our consolidated financial statements and the related notes . 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 strategies for our business , statements regarding the industry outlook , our expectations regarding the future performance of our business , and the other non-historical statements contained herein are forward-looking statements . see “ cautionary note regarding forward-looking statements. ” you should also review item 1a — “ risk factors ” for a discussion of important factors that could cause actual results to differ materially from the results described herein or implied by such forward-looking statements . general overview of fiscal year 2017 revenues for the year ended december 31 , 2017 , our total revenues increased by 4.6 % ( from $ 662.6 million to $ 692.8 million ) over the previous year . for the year ended december 31 , 2017 , electricity segment revenues were $ 468.3 million , compared to $ 436.3 million for the year ended december 31 , 2016 , an increase of 7.3 % . product segment revenues for the year ended december 31 , 2017 were $ 224.5 million , compared to $ 226.3 million for the year ended december 31 , 2016 , a decrease of 0.8 % . during the years ended december 31 , 2017 and 2016 , our consolidated power plants generated 5,489,234 mwh and 5,396,959 mwh , respectively , an increase of 1.7 % for the year ended december 31 , 2017 , our electricity segment generated approximately 67.6 % of our total revenues ( 65.8 % in 2016 ) , while our product segment generated approximately 32.4 % of our total revenues ( 34.2 % in 2016 ) . for the year ended december 31 , 2017 , approximately 85.3 % of our electricity segment revenues were from ppas with fixed energy rates which are not affected by fluctuations in energy commodity prices . we have variable price ppas in california and hawaii , which provide for payments based on the local utilities ' avoided cost , which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others , as follows : ● the energy rates under the ppas in california for each of heber 2 power plant in the heber complex and the g2 power plant in the mammoth complex , a total of between 30 and 40 mw , change primarily based on fluctuations in natural gas prices ; and ● the prices paid for the electricity pursuant to the 25 mw ppa for the puna complex in hawaii change primarily as a result of variations in the price of oil as well as other commodities . historically , we have entered into derivatives transactions to reduce our economic exposure to fluctuations in the price of natural gas and oil . we recently entered into a derivative transaction to reduce our economic exposure to fluctuations in the price of natural gas from february 2017 to december 2017. for the year ended december 31 , 2017 , we recorded a net loss of $ 0.4 million under derivatives and foreign currency transaction gains ( losses ) . revenues attributable to our electricity segment are based on the sale of electricity generated by our geothermal and recovered energy-based power plants and , following the acquisition of our viridity business during fiscal year 2017 , the provision of energy storage , demand response and energy management services to our customers . revenues attributable to our product segment are based on the sale of equipment , epc contracts and the provision of various services to our customers . product segment revenues may vary from period to period because of the timing of our receipt of purchase orders and the progress of our equipment manufacturing and execution of the relevant project . our management assesses the performance of our two operating segments differently . in the case of our electricity segment , when making decisions about potential acquisitions or the development of new projects , management typically focuses on the internal rate of return of the relevant investment , technical and geological matters and other business considerations . management evaluates our operating power plants based on revenues , expenses , and ebitda , and our projects that are under development based on costs attributable to each such project . management evaluates the performance of our product segment based on the timely delivery of our products , performance quality of our products , revenues and costs actually incurred to complete customer orders compared to the costs originally budgeted for such orders . 102 trends and uncertainties trends , factors and uncertainties may impact our operations and financial condition , including many that we do not or can not foresee . however , we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following trends , factors and uncertainties that are from time to time also subject to market cycles : ● there has been increased demand for energy generated from geothermal and other renewable resources in the u.s. as costs for electricity generated from renewable resources have become more competitive . much of this is attributable to legislative and regulatory requirements and incentives , such as state rps and federal tax credits such as ptcs or itcs ( which are discussed in more detail in the section entitled “ government grants and tax benefits ” below ) . story_separator_special_tag a decrease in the price of oil as well as in other commodities will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from oil , which will result in a reduction of the energy rate that we may charge under this ppa . in order to reduce our exposure to oil we signed fixed rate ppas for the remaining 13 mw . ● the pricing under our ppas for the g2 power plant in the mammoth complex and heber 2 power plant in the heber complex for a total of between 30 mw and 40 mw is variable rate based on srac pricing that is impacted by natural gas prices . in 2016 , we signed a fixed rate ppa that reduced our exposure to fluctuations in natural gas prices at the ormesa complex starting in november 2017. in addition , to further reduce our exposure to natural gas prices , we enter , from time to time , into derivative transactions . in january 2017 , we acquired put options with a strike price of $ 3.00 to hedge our exposure to decreasing natural gas prices to below $ 3.00 per mmbtu . ● the amounts that we are paid under our ppas for electricity , capacity and other energy attributes vary for a number of reasons , including : ○ market conditions when the ppa is signed ; ○ the competitive environment in the power market where the power plant is located and the power and other energy attributes are sold ; and ○ in the case of contracts described in the prior bullets with variable pricing components , current oil and natural gas prices . 104 this means , among other things , that the average price per mwh , which is one of the metrics some investors may use to evaluate power plant revenues , can fluctuate from period to period . based on total electricity segment revenues ( excluding revenues related to our viridity business ) , we earned , on average , $ 84.80 and $ 80.80 per mwh in 2017 and 2016 , respectively . oil and natural gas prices , together with other factors that affect our electricity segment revenues , could cause changes in our average price per mwh in the future . ● the viability of a geothermal resource depends on various factors such as the resource temperature , the permeability of the resource ( i.e. , the ability to get geothermal fluids to the surface ) and operational factors relating to the extraction and injection of the geothermal fluids . such factors , together with the possibility that we may fail to find commercially viable geothermal resources in the future , represent significant uncertainties that we face in connection with our growth expectations . ● as our power plants ( including their respective well fields ) age , they may require increased maintenance with a resulting decrease in their availability , potentially leading to the imposition of penalties if we are not able to meet the requirements under our ppas as a result of any decrease in availability . ● our foreign operations are subject to significant political , economic and financial risks , which vary by country as well as hostilities that may arise in the countries we operate . as of the date of this annual report , those risks include security conditions in israel , the partial privatization of the electricity sector in guatemala and the political uncertainty currently prevailing in some of the countries in which we operate as further discussed above under “ risk factors ” . although we maintain among other things political risk insurance for most of our investments in foreign power plants to mitigate these risks , insurance does not provide complete coverage with respect to all such risks . ● turkey 's geothermal market is one of the fastest growing markets in the geothermal industry worldwide , mainly due to governmental and regulatory support . turkey is ranked seventh globally with an installed geothermal capacity of approximately 1,000 mw . since 2006 , we have supplied our state of the art binary equipment to over 20 projects in turkey , which account for over 40 % of the total installed geothermal capacity in turkey as of december 2017. as a major equipment supplier in the turkish geothermal market we are involved in a number of projects that are currently under construction and plan to continue our marketing efforts to secure new contracts . our revenue exposure to the turkish market is increasing and we expect higher exposure in 2018 , as we signed a number of new contracts in turkey . while we do not see any immediate impact from the failed coup in turkey and the recent vote for the constitutional amendment bill on our business and operations , adverse economic developments in this region or a decline in government support for the development of geothermal power in the country could affect local demand for the geothermal equipment and services we provide or the prices we may charge for such equipment and services . we are monitoring any change in the political and business environments that may affect our future business and operations in the country . ● we established a facility in turkey in order to locally produce several power plant components that entitle our customers to increased incentives under the renewable energy laws . the use of local equipment in renewable energy based generating facilities in turkey entitles such facilities to significant benefits under turkish law , provided such facilities have obtained an rer certificate from emra , which requires the issuance of a local certificate .
| results of operations our historical operating results in dollars and as a percentage of total revenues are presented below . a comparison of the different years described below may be of limited utility due to ( i ) our recent construction or disposition of new power plants and enhancement of acquired power plants and ( ii ) fluctuation in revenues from our product segment . replace_table_token_10_th 112 replace_table_token_11_th comparison of the year ended december 31 , 2017 and the year ended december 31 , 2016 total revenues total revenues for the year ended december 31 , 2017 were $ 692.8 million , compared to $ 662.6 million for the year ended december 31 , 2016 , representing a 4.6 % increase from the prior period . this increase was attributable to our electricity segment , in which revenues increased by 7.3 % compared to the corresponding period in 2016 . 113 electricity segment revenues attributable to our electricity segment for the year ended december 31 , 2017 , were $ 468.3 million , compared to $ 436.3 million for the year ended december 31 , 2016 , representing a 7.3 % increase from the prior period . this increase was primarily attributable to : ( i ) the full year consolidation of our bouillante power plant in guadeloupe , effective july 5 , 2016 , with revenues of $ 21.7 million for the year ended december 31 , 2017 , compared to $ 8.1 million for the year ended december 31 , 2016 ; ( ii ) the commencement of commercial operation of our platanares power plant in honduras , effective september 2017 , with revenues of $ 10.0 million for the year ended december 31 , 2017 and of our tungsten mountain power plant in nevada , effective december 2017 , with revenues of $ 2.2 million for the year ended december 31 , 2017 ; ( iii ) an increase in generation at our puna power plant attributable to successful improvement of the resource performance ;
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you should read this analysis in conjunction with our audited consolidated financial statements and the related notes contained elsewhere in this annual report on form 10-k. this discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance . these statements are only predictions , and actual events or results may differ materially . in evaluating such statements , you should carefully consider the various factors identified in this annual report on form 10-k , which could cause actual results to differ materially from those expressed in , or implied by , any forward-looking statements , including those set forth in “ risk factors ” in this annual report on form 10-k. see “ special note regarding forward-looking statements. ” company overview we are a leading independent distributor and manufacturer of controlled environment agriculture ( “ cea ” , principally hydroponics ) equipment and supplies , including a broad portfolio of our own innovative portfolio of proprietary branded products . we primarily serve the u.s. and canadian markets , and believe we are one of the leading competitors by market share in these markets in an otherwise highly fragmented industry . for over 40 years , we have helped growers make growing easier and more productive . our mission is to empower growers , farmers and cultivators with products that enable greater quality , efficiency , consistency and speed in their grow projects . hydroponics is the farming of plants using soilless growing media and often artificial lighting in a controlled indoor or greenhouse environment . hydroponics is the primary category of cea and we use the terms cea and hydroponics interchangeably . our products are used to grow , farm and cultivate cannabis , flowers , fruits , plants , vegetables , grains and herbs in controlled environment settings that allow end users to control key farming variables including temperature , humidity , co2 , light intensity spectrum , nutrient concentration and ph . through cea , growers are able to be more efficient with physical space , water and resources , while enjoying year-round and more rapid grow cycles as well as more predictable and abundant grow yields , when compared to other traditional growing methods . we reach commercial farmers and consumers through a broad and diversified network of over 2,000 wholesale customer accounts , who we connect with primarily through our proprietary ecommerce marketplace . over 80 % of our net sales are into the specialty hydroponic retailers , through which growers are able to enjoy specialized merchandise assortments and knowledgeable staff . we also distribute our products across the u.s. and canada to a diversified range of retailers of commercial and home gardening equipment and supplies that include garden centers , hardware stores , ecommerce retailers , commercial greenhouse builders , and commercial resellers . recent developments initial public offering on december 14 , 2020 , we completed our ipo , in which we issued and sold 9,966,667 shares of our common stock , including the full exercise by the underwriters of their option to purchase 1,300,000 additional shares of our common stock , at a public offering price of $ 20.00 per share , which resulted in net proceeds of $ 182.3 million after deducting underwriting discounts and commissions and offering expenses . the proceeds from the ipo were used ( i ) to repay the amounts outstanding under the term loan credit agreement among our subsidiary obligors , brightwood loan services , llc and the other lenders party thereto ( as amended to date , the “ term loan agreement ” ) of $ 76.6 million ( includes accrued interest and fees of $ 0.3 million ) , ( ii ) to paydown certain amounts outstanding under the encina credit facility of $ 33.4 million , ( iii ) to repay $ 3.3 million under the promissory note to jpmorgan chase , n.a . through the u.s. small business administrative paycheck protection program ( the “ ppp loan ” ) , and ( iv ) to pay $ 2.6 million to settle the series a preferred stock dividend . our common stock began trading on the nasdaq global select market on december 10 , 2020 . 47 effects of coronavirus on our business the world health organization recognized covid-19 as a public health emergency of international concern on january 30 , 2020 and as a global pandemic on march 11 , 2020. public health responses have included national pandemic preparedness and response plans , travel restrictions , quarantines , curfews , event postponements and cancellations and closures of facilities including local schools and businesses . while the rollout of vaccines has begun , the timing of vaccinations , herd immunity , and the lifting of shelter in place and similar restrictions and movement restrictions is unknown . the global pandemic and actions taken to contain covid-19 have adversely affected the global economy and financial markets . in response to the covid-19 pandemic , we implemented business continuity plans designed to address the impact of the covid-19 pandemic on our business , such as restrictions on non-essential business travel , the institution of work-from-home practices and the implementation of strategies for workplace safety at our facilities . in march 2020 , the majority of the employees at our headquarters transitioned to working remotely . for several weeks following the initial outbreak of covid-19 , we experienced a material impact to our supply chain that inhibited growth and results of operations . and from time-to-time during the covid-19 pandemic , we experienced delays in the receipt of goods from international and domestic suppliers as well as a general slowdown in freight processing times resulting in shipping delays and higher periodic freight costs . it is difficult to predict the extent to which covid-19 may continue to spread . story_separator_special_tag selling , general and administrative selling , general and administrative expenses consists primarily of marketing and advertising , stock-based compensation , depreciation and amortization of all other assets and other selling , general and administrative costs , including but not limited to salaries , benefits , bonuses , professional fees and various costs related to becoming a publicly-traded company . we expect selling , general and administrative expenses to increase in absolute dollar terms as we scale our operations to meet increased demand for our products and operate as a public company with increased costs associated with insurance , finance , legal and accounting functions ; however , we also expect that the significant increase in our scale will result in selling , general and administrative expenses as a percentage of net sales decreasing over time . 49 results of operations data the results of operations data in the following tables for the years ended december 31 , 2020 , 2019 and 2018 have been derived from the audited consolidated financial statements included elsewhere in this annual report on form 10-k. story_separator_special_tag december 31 , 2020. loss on debt extinguishment loss on debt extinguishment for the year ended december 31 , 2020 resulted from the write-off of unamortized deferred financing costs associated with the payoff of the term loan agreement in connection with the ipo . similar costs in 2019 resulted from the write-off of unamortized deferred financing costs when the bofa credit facility was refinanced with the encina credit facility . income tax expense income tax expense for the year ended december 31 , 2020 generally reflects minimum u.s. state income taxes which do not fluctuate with pre-tax income or loss and canadian taxes in one of our profitable canadian subsidiaries . the net income tax benefit for the year ended december 31 , 2019 is comprised of two amounts : ( i ) minimum u.s. state and canadian provincial taxes which do not fluctuate with pre-tax income or loss ; and , ( ii ) a deferred income tax benefit of $ 0.7 million primarily generated from the tax consequence of the impairment write-off which is not expected to recur . cumulative dividends allocated to series a convertible preferred stock our series a preferred stock accrued a cumulative dividend during 2020 which is presented as a reduction of net loss which results in the net loss attributable to common stockholders . dividends did not accrue prior to 2020. upon the consummation of our ipo in december 2020 , the series a preferred stock automatically converted into 2,291,469 shares of our common stock and we paid $ 2.6 million in cash to settle the series a preferred stock dividend . 51 results of operations – comparison of years ended december 31 , 2019 and 2018 the following table sets forth our consolidated statements of operations for the years ended december 31 , 2019 and 2018 , including amounts and percentages of net sales for each year and the year-to-year change in dollars and percent ( amounts in thousands ) : replace_table_token_2_th net sales net sales for the year ended december 31 , 2019 increased $ 23.3 million or 11.0 % compared to the year ended december 31 , 2018. the increase was primarily due to an increase in the volume sold during the period . for the year ended december 31 , 2019 , we realized an approximate 11.6 % increase in volume offset by a 0.6 % decrease in price . our sales in certain non-u.s. markets were impacted by it system challenges experienced during the integration of our canadian businesses , an issue we do not expect to continue in 2020. the increase in u.s. volume sold was primarily related to ( i ) higher demand from the end-markets across numerous u.s. states , including but not limited to oklahoma , michigan and california and ( ii ) higher demand for our proprietary and preferred branded products which grew at a faster pace than our distributed brands for the year ended december 31 , 2019. gross profit gross profit for the year ended december 31 , 2019 increased $ 3.0 million or 12.5 % compared to the year ended december 31 , 2018. the increase in gross profit was primarily related to ( i ) the 11.0 % increase in net sales and ( ii ) a small increase in gross profit margin percentage ( gross profit as a percent of net sales ) associated with a more favorable mix of proprietary and exclusive branded products as compared to the prior year . this increase was partially offset by the year-over-year decrease in net sales ( as noted above ) and associated gross profit in non-u.s. markets . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2019 increased $ 1.6 million or 3.7 % compared to the year ended december 31 , 2018. the increase was primarily due to ( i ) higher outside accounting and it consultant expense of $ 2.0 million related to increased preparation for the ipo and ( ii ) higher bad debt expenses of $ 0.4 million primarily attributable to the challenges in the canadian market in 2019 offset by lower facility expenses of $ 0.7 million due to adjusting our warehouse footprint . impairment , restructuring and other certain expenses of $ 10.0 million for 2019 and $ 7.2 million for 2018 primarily related to recognition of impairment on intangible assets , several restructuring and recapitalization events , and fees for various statutory filings . the impairment in 2019 related to the impairment of our intangible asset for customer relationships ; in 2018 , the impairment was for goodwill . restructuring and recapitalization events refer to our debt refinancing in 2019 and 2018 ; our preferred stock offering in 2019 ; the recapitalization and reverse merger in 2018 ; and , other similar activities related to our capitalization . in 2019 , we filed a registration statement which was delayed , and the third-party costs were expensed .
| results of operations – comparison of years ended december 31 , 2020 and 2019 the following table sets forth our consolidated statements of operations for the years ended december 31 , 2020 and 2019 , including amounts and percentages of net sales for each year and the year-to-year change in dollars and percent ( amounts in thousands ) : replace_table_token_1_th net sales net sales for the year ended december 31 , 2020 increased by $ 107.1 million or 45.6 % compared to the year ended december 31 , 2019. the increase in net sales was primarily due to a 42.0 % increase in volume of products sold and a 3.6 % increase in price of products sold . the increase in volume of products sold was primarily related to ( i ) higher demand from the end-markets across numerous u.s. states , including but not limited to michigan , oklahoma and california , and canada and ( ii ) higher demand for our proprietary and preferred branded products which grew at a faster pace than our distributed brands during the period . the increase in price was primarily related to list price increases and more effective sales incentives . although we can not precisely quantify in absolute or relative terms , our accelerated rate of growth in net sales for the year ended december 31 , 2020 correlates with shelter-in-place orders issued in march 2020 in response to the covid-19 pandemic . a portion of our net sales during this period could be related to pull-through demand for our products due to higher consumption of cea products from individuals spending more time at home due to shelter-in-place measures . although uncertainty created by the covid-19 pandemic remains , and various state budgets remain under economic pressure , creating a greater chance of further cannabis legalization , we can not assure you that such growth will continue .
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the partnership also obtained a waiver of any prior noncompliance with financial covenants . the modification provides that justice will pay the $ 2,500,000 balance on its line of credit facility over a period of four years , to mature on april 30 , 2014. this term loan calls for monthly principal and interest payments , calculated on a six-year amortization schedule , with interest only from may 1 , 2010 to august 31 , 2010. pursuant to the modification , the annual floating interest rate was reduced by 0.5 % to the wsj prime rate plus 2.5 % ( with a minimum floor rate of 5.0 % per annum ) . the modification includes financial covenants written to reflect the current economic conditions that all hotels are facing . the covenants include specific financial ratios and a return to minimum profitability after june 30 , 2011. management believes that the partnership has the ability to meet the specific covenants . the partnership was in compliance with the covenants as of june 30 , 2011. the loan continues as unsecured . the outstanding balance was $ 2,202,000 and $ 2,500,000 as of june 30 , 2011 and 2010 respectively ; the interest rate was 5.75 % . the partnership has short-term financing agreements with a financial institution for the payment of its general , property , and workers ' compensation insurance . the notes payable under these financing agreements bear interest at 3.8 story_separator_special_tag story_separator_special_tag 2011 as the hospitality industry began to see some recovery . as a result , the hotel 's average daily rate increased significantly by $ 20 for the fiscal year ended june 30 , 2011 compared to the fiscal year ended june 30 , 2010. the modest decrease in occupancy of 1 % was due to the hotel being able to reduce the amount of discounted internet business that it was forced to take in the prior year to maintain occupancy in a very competitive market . as a result , the hotel was able to achieve a revpar number that was $ 15 higher than fiscal 2010. during the past year we have seen our management team guide our hotel through a difficult economic period by taking bold steps to reduce expenses and implement innovative strategies in order to improve operations and enhance our competitiveness in the market . currently , we are working on a new executive lounge on the 26 th floor of the hotel that is expected to open in early october 2011. we have also taken actions to improve out internet connectivity throughout the hotel and will be providing more technological amenities for our guests . 19 we will continue in our efforts to upgrade our guest rooms and facilities and explore new and innovative ways to differentiate the hotel from its competition . moving forward , we will also focus on cultivating more international business , especially from china , and capturing a higher percentage of corporate and group travel . during the last twelve months , we have seen some improvement in business and leisure travel . if that trend in the san francisco market and the hotel industry continues , it should translate into an increase in room revenues and profitability . however , like all hotels , we will remain subject to the uncertain domestic and global economic environment . while operating in a highly competitive rental market , real estate operations remained relatively consistent . the company had real estate revenues were $ 13,932,000 for the year ended june 30 , 2011 compared with revenues of $ 13,738,000 for the year ended june 30 , 2010. real estate operating expenses were $ 7,444,000 and $ 7,101,000 for the comparative periods . depreciation related to the company 's real estate operations increased to $ 2,646,000 for the year ended june 30 , 2011 from $ 1,960,000 for the year ended june 30 , 2010 primarily as the result of a one-time depreciation expense catch-up of $ 727,000 recorded in the current year due to the reclass of the company 's held for sale property from discontinued operations to continuing operations . management continues to review and analyze the company 's real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies . in january 2011 , the company sold its 132-unit apartment complex located in san antonio , texas for $ 5,500,000 and recognized a gain on the sale of real estate of $ 3,290,000. the company received net proceeds of $ 2,030,000 after selling costs and the pay-off of the related outstanding mortgage note payable of $ 3,215,000. the proceeds were placed with a third party accommodator for the purpose of executing a section 1031 tax-deferred exchange for another property . in april 2011 , the company purchased a 9-unit beachside apartment complex located in marina del rey , california for $ 4,000,000 to effectuate that exchange . as part of the purchase , the company obtained a 10-year mortgage note payable in the amount of $ 1,487,000. the interest rate on the loan is fixed at 5.60 % per annum , with monthly principal and interest payments based on a 30-year amortization schedule . the note matures in may 2021. the company had a net gainon marketable securities of $ 2,675,000 for the year ended june 30 , 2011 as compared to a net loss on marketable securities of $ 747,000 for the year ended june 30 , 2010. for the year ended june 30 , 2011 , the company had a net realized gain of $ 47,000 and a net unrealized gain of $ 2,628,000. for the year ended june 30 , 2010 , the company had a net realized gain of $ 3,993,000 and a net unrealized loss of $ 4,740,000. gains and losses on marketable securities and other investments may fluctuate significantly from period to period in the future and could have a significant impact story_separator_special_tag as a result , justice was able to pay some limited partnership distributions in fiscal years 2008 and 2009. however , due to the significant downturn in the san francisco hotel market beginning in september 2008 and the continued weakness in domestic and international economies , no partnership distributions were paid in fiscal 2011 and 2010. during such periods , the company has to depend more on the revenues generated from the investment of its cash and marketable securities and from its general partner management fees . since we have seen some recent improvements in the operations of the hotel , and the san francisco market in general , the partnership may be in a position to consider limited partnership distributions in fiscal 2012. the general partners will continue to monitor and review the operations and financial results of the hotel and to set the amount of any future distributions that may be appropriate based on operating results , cash flows and other factors , including establishment of reasonable reserves for debt payments and operating contingencies . the new justice compensation agreement that became effective on december 1 , 2008 , when portsmouth assumed the role of managing general partner of justice , has provided additional cash flows to the company . under the new compensation agreement , portsmouth is now entitled to 80 % of the minimum base fee to be paid to the general partners of $ 285,000 , while under the prior agreement , portsmouth was entitled to receive only 20 % of the minimum base fee . as a result of that new agreement and the increase in hotel gross revenues in fiscal 2011 , total general partner fees paid to portsmouth for the year ended june 30 , 2011 increased to $ 323,000 , compared to $ 264,000 for the year ended june 30 , 2010. to meet its substantial financial commitments for the renovation and transition of the hotel to a hilton , justice had to rely on borrowings to meet its obligations . on july 27 , 2005 , justice entered into a first mortgage loan with the prudential insurance company of america in a principal amount of $ 30,000,000 ( the “ prudential loan ” ) . the term of the prudential loan is for 120 months at a fixed interest rate of 5.22 % per annum . the prudential loan calls for monthly installments of principal and interest in the amount of approximately $ 165,000 , calculated on a 30-year amortization schedule . the loan is collateralized by a first deed of trust on the partnership 's hotel property , including all improvements and personal property thereon and an assignment of all present and future leases and rents . the prudential loan is without recourse to the limited and general partners of justice . the principal balance of the prudential loan was $ 27,176,000 as of june 30 , 2011 . 22 on march 27 , 2007 , justice entered into a second mortgage loan with prudential ( the “ second prudential loan ” ) in a principal amount of $ 19,000,000. the term of the second prudential loan is for 100 months and matures on august 5 , 2015 , the same date as the first prudential loan . the second prudential loan is at a fixed interest rate of 6.42 % per annum and calls for monthly installments of principal and interest in the amount of $ 119,000 , calculated on a 30-year amortization schedule . the second prudential loan is collateralized by a second deed of trust on the partnership 's hotel property , including all improvements and personal property thereon and an assignment of all present and future leases and rents . the second prudential loan is also without recourse to the limited and general partners of justice . the principal balance of the second prudential loan was $ 18,003,000 as of june 30 , 2011. effective april 29 , 2010 , the partnership obtained a modification of its $ 2,500,000 unsecured revolving line of credit facility with east west bank ( formerly united commercial bank ) that was to mature on april 30 , 2010 , and converted that line of credit facility to an unsecured term loan . the modification provides that justice will pay the $ 2,500,000 balance on its line of credit facility over a period of four years , to mature on april 30 , 2014. this term loan calls for monthly principal and interest payments of $ 41,000 , calculated on a nine-year amortization schedule , with interest only from may 1 , 2010 to august 31 , 2010. pursuant to the modification , the annual floating interest rate was reduced by 0.5 % to the wall street journal prime rate plus 2.5 % ( with a minimum floor rate of 5.0 % per annum ) . the modification provides for new financial covenants that include specific financial ratios and a return to minimum profitability after june 30 , 2011. management believes that the partnership has the ability to meet the specific covenants and the partnership was in compliance with the covenants as of june 30 , 2011. as of june 30 , 2011 , the interest rate was 5.75 % and the outstanding balance was $ 2,202,000. despite the downturns in the economy , the hotel has continued to generate positive cash flows . while the debt service requirements related to the two prudential loans , as well as the new term loan to pay off the line of credit , may create some additional risk for the company and its ability to generate cash flows in the future since the partnership 's assets had been virtually debt free for a number of years , management believes that cash flows from the operations of the hotel and the garage will continue to be sufficient to meet all of the partnership 's current and future obligations and financial requirements .
| results of operations the company 's principal sources of revenue continue to be derived from the investment of its 68.8 % owned subsidiary , portsmouth , in the justice investors limited partnership ( “ justice ” or the “ partnership ” ) , rental income from its investments in multi-family real estate properties and income received from investment of its cash and securities assets . portsmouth has a 50.0 % limited partnership interest in justice and serves as the managing general partner of justice . evon corporation ( “ evon ” ) serves as the other general partner . justice owns the land , improvements and leaseholds at 750 kearny street , san francisco , california , known as the hilton san francisco financial district ( the “ hotel ” ) . the financial statements of justice have been consolidated with those of the company . see note 2 to the consolidated financial statements . the hotel is operated by the partnership as a full service hilton brand hotel pursuant to a franchise license agreement with hilton hotels corporation . the term of the agreement is for a period of 15 years commencing on january 12 , 2006 , with an option to extend the license term for another five years , subject to certain conditions . justice also has a management agreement with prism hospitality l.p. ( “ prism ” ) to perform the day-to-day management functions of the hotel . until september 30 , 2008 , the partnership also derived income from the lease of the parking garage to evon . effective october 1 , 2008 , justice entered into an installment sale agreement with evon to purchase the remaining term of the garage lease and related garage assets , and assumed the contract with ace parking for the operations of the garage . justice also leases a portion of the lobby level of the hotel to a day spa operator .
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under the agreement , the parties will collaborate on the development , manufacturing and commercialization of magrolimab and other licensed antibodies . each party will be responsible for conducting development and commercialization of licensed antibodies in its respective territory at its own cost . further , each party will have the right to participate , at its cost , in global clinical studies of magrolimab and other licensed antibodies conducted by the other party . the company received a one-time upfront nonrefundable payment from ono of 1.7 billion japanese yen ( $ 15.7 million us dollars based on the exchange rate as of the date of the agreement ) and is eligible to receive up to an additional 11.2 billion japanese yen if specified future development and commercial milestones are achieved by ono . the company is also eligible to receive tiered percentage royalties spanning from the mid-teens to the low-twenties on future net sales of magrolimab and other licensed antibodies in the ono territory , subject to certain offsets . 102 forty 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 in conjunction with our financial statements and related notes included in part ii , item 8 of this annual report on form 10-k. this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities exchange act of 1933 , as amended , or the securities act , and section 21e of the securities exchange act of 1934 , as amended , or the exchange act . forward-looking statements are identified by words such as “ believe , ” “ will , ” “ may , ” “ estimate , ” “ continue , ” “ anticipate , ” “ intend , ” “ should , ” “ plan , ” “ expect , ” “ predict , ” “ could , ” “ potentially ” or the negative of these terms or similar expressions . you should read these statements carefully because they discuss future expectations , contain projections of future results of operations or financial condition , or state other “ forward-looking ” information . these statements relate to our future plans , objectives , expectations , intentions and financial performance and the assumptions that underlie these statements . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements . factors that might cause such a difference include , but are not limited to , those discussed in this report in part i , item 1a — “ risk factors , ” and elsewhere in this report . forward-looking statements are based on our management 's beliefs and assumptions and on information currently available to our management . these statements , like all statements in this report , speak only as of their date , and we undertake no obligation to update or revise these statements in light of future developments . we caution investors that our business and financial performance are subject to substantial risks and uncertainties . overview we are a clinical-stage immuno-oncology company focused on developing novel therapies to activate macrophages in the fight against cancer . we founded forty seven based on the insight that blocking cd47 , a key signaling molecule that is overexpressed on cancer cells , renders tumors susceptible to macrophages . by harnessing macrophages , we believe that our lead product candidate , magrolimab ( formerly known as 5f9 ) , can transform the treatment of cancer . magrolimab has demonstrated promising activity in multiple phase 1b/2 clinical trials in which we have treated over 400 cancer patients with solid or hematologic tumors . in march 2020 , forty seven entered into a definitive agreement to be acquired by gilead sciences , inc. , which is expected to close during the second quarter of 2020. we are also preparing to advance two additional investigational compounds into clinical testing . fsi-174 , an anti-ckit antibody , is being developed alone or in combination with magrolimab as a novel , all-antibody conditioning regimen to address the limitations of current stem cell transplantation conditioning regimens . fsi-189 , an anti-sirpα antibody , is being developed for the treatment of cancer , as well as certain non-oncology conditions , including transplantation conditioning . we focus our efforts on targeting the cd47 pathway as a way to engage macrophages in fighting tumors . macrophages function as first responders , swallowing foreign and abnormal cells , including cancer cells , and mobilizing other components of the immune system including t cells and antibodies . cancer cells use cd47 , a “ do n't eat me ” signal , in order to evade detection by the immune system and subsequent destruction by macrophages . overexpression of cd47 is common to nearly all types of tumors including myelodysplastic syndrome , or mds , acute myelogenous leukemia , or aml , non-hodgkin 's lymphoma , or nhl , colorectal cancer , or crc , gastric cancer , lung cancer , and ovarian cancer with overexpression correlating with poor prognosis in many of these cancers . despite the central role of macrophages as cell-eating scavengers and first responders , the pharmaceutical industry is only beginning to bring this key group of cells into the fight against cancer . our company was founded in 2014 by leading scientists at stanford university who uncovered the fundamental role of cd47 in cancer evasion . story_separator_special_tag the merger agreement provides , among other things , that following the consummation of the offer and subject to the satisfaction or waiver of the conditions set forth in the merger agreement and in accordance with the relevant provisions of the dgcl and other applicable law , purchaser will merge with and into the company , the separate existence of purchaser will cease and the company will continue as the surviving corporation and as a wholly owned subsidiary of parent . we expect the merger to close during the second quarter of 2020 , subject to the regulatory approvals and other customary closing conditions described above and in the merger agreement . additional information about the proposed transaction is set forth in our filings with the securities and exchange commission , or the sec . components of results of operations license revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future . under the exclusive license and collaboration agreement with ono pharmaceutical co. , ltd. , or the ono agreement , we have recognized as revenue the upfront nonrefundable payment related to a license grant . under the ono agreement , we are eligible to receive milestone payments . these milestone payments are fully constrained , and not recognized currently in revenue , due to the uncertainty in achieving the milestones . we are also eligible to receive royalty payments related to the ono agreement which would be recognized as the underlying product sales occur . research and development expenses research and development expenses consist primarily of costs incurred for the development of our lead product candidate , magrolimab , and other product candidates , which include : expenses incurred under agreements with third-party contract organizations and investigative clinical trial sites that conduct research and development activities on our behalf , and consultants ; costs related to production of clinical materials , including fees paid to contract manufacturers ; laboratory and vendor expenses related to the execution of preclinical and clinical trials ; employee-related expenses , which include salaries , benefits and stock-based compensation ; and facilities and other expenses , which include expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies . we expense all research and development costs in the periods in which they are incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors , collaborators and third-party service providers . the costs of intangible assets that are purchased from others for a particular research and development project and that have no alternative future uses are considered research and development costs and are expensed when incurred . nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized . the capitalized amounts are then expensed as the related goods are delivered and as services are performed . 75 the largest component of our operating expenses has historically been our investment in research and development activities related to the clinical development of our lead product candidate , magrolimab , as well as other product candidates in preclinical development including fsi-189 , an anti-sirpα antibody , and fsi-174 , an anti-ckit antibody . we recognize the funds from research and development grants as a reduction of research and development expense when the related eligible research costs are incurred . research and development grants received during 2019 and 2018 totaled $ 3.5 million and $ 7.6 million , respectively . in january 2018 , we entered into a clinical trial collaboration and supply agreement with ares trading s.a , a subsidiary of merck kgaa or merck . reimbursement under this collaboration agreement is recorded as a reduction to research and development expense . for the year ended december 31 , 2019 and 2018 , we recognized $ 1.7 million and $ 1.2 million , respectively , as a reduction to research and development expenses under this collaboration agreement . we entered into the ono agreement in july 2019 and a research collaboration agreement with bluebird bio , inc. , or bluebird in september 2019. reimbursement under both collaboration agreements is recorded as a reduction to research and development expense . for the year ended december 31 , 2019 , we recognized $ 0.9 million and $ 1.2 million as a reduction to research and development expenses under the ono agreement and the bluebird a greement , respectively . we expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates , as our product candidates advance into later stages of development , and as we begin to conduct larger clinical trials . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming , and the successful development of our product candidates is highly uncertain . as a result , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of personnel-related costs , facilities costs , depreciation and amortization expenses and professional services expenses , including legal , human resources , audit and accounting services . personnel-related costs consist of salaries , benefits and stock-based compensation . facilities costs consist of rent and maintenance of facilities .
| results of operations years ended december 31 , 2019 and 2018 replace_table_token_1_th license revenue license revenue increased $ 15.7 million compared to the year ended december 31 , 2018. the increase in license revenue was due to the license granted under the ono agreement . research and development expenses the following tables summarize the period-over-period changes in research and development expenses for the periods indicated : replace_table_token_2_th research and development expenses increased by $ 27.1 million , or 48 % , to $ 83.8 million in 2019 from $ 56.7 million in 2018. the increase was primarily due to a $ 17.2 million increase in third party costs related to advancing our current clinical programs focused on our lead product candidate , magrolimab , and associated contract manufacturing costs , a $ 11.1 million increase in our other preclinical and discovery programs costs as we expanded our immuno-oncology efforts , a $ 4.8 million increase in personnel-related costs , including stock-based compensation , and a $ 2.3 million increase in expenses related to a decrease in grant funding reimbursement due to decreased funding recognized under the cirm and lls grants partially offset by increased cost share reimbursement under the merck , bluebird and ono collaboration agreements . these increases were partially offset by a $ 8.2 million decrease in our license fees primarily due to the upfront license fees related to the blink asset purchase and synthon license agreements recognized in 2018 .
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( 6 ) 10.5 purchase and sale agreement dated effective as of october 5 , 2007 between hallador petroleum company , as purchaser and savoy energy limited partnership , as seller ( 7 ) 10.6 hallador petroleum company 2008 restricted stock unit plan . ( 8 ) * 10.7 form of amended and restated purchase and sale agreement dated july 24 , 2008 to purchase additional minority interest from sunrise coal , llc 's minority members ( 9 ) 10.8 amended and restated promissory note dated december 12 , 2008 , in the principal amount of $ 13,000,000 , issued by sunrise coal , llc in favor of hallador petroleum company ( 10 ) 10.9 form of purchase and sale agreement dated september 16 , 2009 ( 11 ) 10.10 form of subscription agreement dated september 15 , 2009 ( 11 ) 10.11 form of hallador petroleum company restricted stock unit issuance agreement . ( 11 ) * 10.12 2009 stock bonus plan ( 12 ) * 10.13 $ 165,000,000 revolving credit facility ( 13 ) 10.14 stock purchase agreement ( vectren fuels ) ( 14 ) 10.15 second amended restated credit agreement – august 29 , 2014 ( 15 ) 14 code of ethics for senior financial officers . ( 4 ) * 21.1 list of subsidiaries ( 16 ) 23.1 consent of eks & h lllp ( 16 ) 23.2 consent of brock engineering , llc ( 16 ) 23.3 consent of netherland , sewell & associates , inc. ( 16 ) 31 sox 302 certifications ( 16 ) 32 sox 906 certification ( 16 ) 95 mine safety disclosure ( 16 ) 99 2014 sec reserve report by netherland , sewall & associates ( 16 ) 101 interactive data files . replace_table_token_29_th * management agreements 42 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . hallador energy company date : march 6 , 2015 w. anderson bishop w. anderson bishop , cfo and cao pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . david hardie david hardie director march 6 , 2015 victor p. stabio victor p. stabio chairman march 6 , 2015 bryan lawrence bryan lawrence director march 6 , 2015 brent bilsland brent bilsland president , ceo and director march 6 , 2015 john van heuvelen john van heuvelen director march 6 , 2015 43 story_separator_special_tag our consolidated financial statements should be read in conjunction with this discussion . overview the largest portion of our business is devoted to coal mining in the state of indiana through sunrise coal , llc ( a wholly-owned subsidiary ) serving the electric power generation industry . we also own a 40 % equity interest in savoy energy , l.p. , a private oil and gas exploration company with operations in michigan , and a 50 % interest in sunrise energy , llc , a private gas exploration company with operations in indiana . we account for our investments in savoy and sunrise energy using the equity method . on august 29 , 2014 , we consummated the acquisition of vectren fuels , inc. ( vfi ) for $ 311 million . see note 2 to the financial statements . vectren fuels , headquartered in evansville , indiana , owned three underground coal mines in southwestern indiana , including the oaktown 1 and oaktown 2 mines in oaktown , indiana , and the prosperity mine located in petersburg , indiana . the prosperity mine was idled on august 29 , 2014. the two underground mines located near oaktown , indiana are seven miles south of our carlisle underground mine . oaktown 2 is contiguous to our carlisle mine and war eagle reserve . thus , we intend to mine part of oaktown 2 's reserve from our carlisle portal and all of our war eagle reserve from the oaktown 2 portal ( as noted later in the reserve table ) . 12 oaktown 1 , oaktown 2 , carlisle and war eagle are now one large underground mining complex representing 160 million tons of controlled reserves , with three portals , two wash plants and two rail facilities , located on the csx . we anticipate total capacity for the three mines to be roughly 9.7 million tons annually . additionally , the capacity of our ace in the hole mine is .5 million tons annually . thus , our total mining capacity is 10.2 million tons annually . our largest contributor to revenue and earnings has been the carlisle underground coal mine located in western indiana , about 30 miles south of terre haute . we now expect both oaktown 1 and oaktown 2 to significantly contribute to revenue and earnings . for 2014 , over 80 % of our coal sales were to customers with large scrubbed coal-fired power plants in the state of indiana . our mines and coal reserves are strategically located in close proximity to our primary customers , which reduces transportation costs and thus provides us with a competitive advantage with respect to those customers ; our closest customer 's plant is 13 miles away and the farthest indiana customer is 100 miles away . we have access to our primary customers directly through either the csx railroad ( nyse : csx ) or through the indiana rail road , majority owned by the csx . story_separator_special_tag 14 · transportation - carlisle has a double 100 rail car loop facility and a four-hour certified batch load-out facility connected to the csx railroad . the indiana rail road ( inrd ) also has limited running rights on the csx to our mine . dual rail access gives us a freight advantage to more customers . long term , the csx anticipates our coal being shipped to southeast markets via their railroad . we sell our coal fob the mine and substantially all of our coal is transported by rail . however , on occasion we have shipped to three power plants via truck . ace in the hole mine ( ace ) ( surface ) – assigned in november 2012 we purchased for $ 6 million permitted fee coal reserves , coal leases and surface properties near clay city , indiana in clay county . the ace mine is 42 road miles northeast of the carlisle mine . we control 2.7 million tons of proven coal reserves of which we own .9 million tons in fee . we mine two primary seams of low sulfur coal which make up 2.6 million of the 2.7 million tons controlled . both of the primary seams are low sulfur ( < 2 # so 2 ) . mine development began in late december 2012 , and we began shipping coal in late august 2013. we truck low sulfur coal from ace to carlisle and or oaktown to blend with high sulfur coal . many utilities in the southeastern u.s. have scrubbers with lower sulfur limits ( 4 # so 2 ) which can not accept the higher sulfur contents of the ilb ( 4.5 # - 6 # so 2 ) . blending high sulfur coal to a lower sulfur specification enables us to market our high sulfur coals to more customers . we also expect to ship low sulfur coal from ace direct to unscrubbed customers that require low sulfur ( 1.5 # so 2 ) . we expect the maximum capacity of ace to be 500,000 tons annually . the ace mine is a multi-seam open pit strip mine . the majority of the seams are sold raw , but some of the seams will be washed prior to sales depending on quality . to convert the tons sold raw the in-place tonnage is taken times a pit recovery of 94 % based on seam thickness . to convert the tons sold washed the in-place tonnage is taken times a pit recovery based on seam thickness then reduced by the projected plant recovery of 72 % . oaktown 1 mine ( underground ) – assigned we have 44 million tons controlled and rated proved and probable of the indiana coal v seam . all reserves are located in knox county , in . oaktown 2 mine / war eagle reserve ( underground ) – assigned we have combined 20 million tons of our oaktown 2 mine with 43 million tons from our war eagle reserve to create a combined 63 million tons of reserve based in both knox county , indiana and lawrence county , illinois . both the oaktown 2 reserve and war eagle reserve will be mined through the oaktown 2 portal . in future reporting we will only refer to the combined reserve as oaktown 2. access to the oaktown 1 mine is via a 90 foot deep box cut and a 2,200 foot slope on a 14 percent grade , reaching coal in excess of 375 feet below the surface . access to the oaktown 2 mine is via an 80 foot deep box cut and a 2,600 foot slope on a 14 percent grade , reaching coal in excess of 400 feet below the surface . our underground mines are room and pillar mines meaning that main airways and transportation entries are developed and maintained while remote-controlled continuous miners extract coal from so-called rooms by removing coal from the seam , leaving pillars to support the roof . shuttle cars or similar transportation are used to transport coal to a conveyor belt for transport to the surface . the two oaktown mines are separated by a sandstone channel . the coal seam thickness ranges from 4 feet to over 9 feet . the mine 's wash plant was originally sized to process 800 tons per hour and has been expanded to 1,600 tons per hour to accommodate the second mine . the two mines are connected to a railway equipped to handle 110 to 120 car unit trains . coal is also transported via truck to customers . bulldog mine ( underground ) – unassigned we have leased roughly 19,300 acres in vermillion county , illinois near the village of allerton . based on our reserve estimates we currently control 35.8 million tons of coal reserves . a considerable amount of our leased acres has yet to receive any exploratory drilling , thus we anticipate our controlled reserves to grow as we continue drilling . the permitting process was started in the summer of 2011 , and we filed the formal permit with the state of illinois and the appropriate federal regulators during june 2012. in july 2014 , we were notified by the illinois department of natural resources ( ildnr ) that our permit had been deemed complete which starts the timeline for the ildnr public review process . it is our estimation that our permit will be approved or denied in 2015 . 15 full-scale mine development will not commence until we have a sales commitment . we estimate the costs to develop this mine to be $ 150 million at full capacity of three million tons annually . unassigned reserves represent coal reserves that would require new mineshafts , mining equipment , and plant facilities before operations could begin on the property . the primary reason for this distinction is to inform investors which coal reserves will require substantial capital expenditures
| results of operations the column for the 3 rd and 4 th quarter of 2014 in the table below includes the mines acquired from vectren on august 29 , 2014. quarterly coal sales and cost data ( in 000 's , except for per ton data ) : replace_table_token_5_th replace_table_token_6_th during 2014 , much of management 's time , effort and attention was focused on the vectren fuels acquisition , a transaction that essentially tripled our size . two thirds of our employees were new to us in september 2014 and we continue to spend time integrating them into our methodologies . we are extremely grateful for the time , effort and dedication of our employees that made the transaction possible . additionally , rail service was poor throughout the industry in 2014. unfortunately , we were not immune from this issue . of our eight contracted customers , three struggled to provide us with the adequate freight . we made several changes to improve transportation in 2015 and so far the results are encouraging . we realize the combination of poor transportation and the challenge of acquiring vectren fuels did not help contain our costs structure throughout much of 2014. in the 4 th quarter , we were able to reduce our costs to $ 29.61/ton , a significant improvement over the 3 rd quarter per ton costs of $ 35.30. we believe we will be able to maintain our cost structure below $ 30/ton in 2015 . 17 2014 v. 2013 for 2014 , we sold 5,398,000 tons at an average price of $ 43.33/ton . for 2013 , we sold 3,188,000 tons at an average price of $ 43.11/ton . the increase is attributable to the vectren acquisition . operating costs and expenses averaged $ 31.43/ton in 2014 compared to $ 29.52 in 2013. the reasons for the increase are discussed above .
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investment securities the fair value for each purchased security was the quoted market price at the close of the trading story_separator_special_tag this discussion should be read in conjunction with our consolidated financial statements and related notes in item 8. financial statements and supplementary data of this report . in the following discussion , unless otherwise noted , references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date for the previous year . critical accounting policies we have established certain accounting policies in preparing our consolidated financial statements that are in accordance with accounting principles generally accepted in the united states . our significant accounting policies are presented in note 1 to the consolidated financial statements in item 8. financial statements and supplementary data of this report . certain of these policies require the use of judgments , estimates and economic assumptions which may prove inaccurate or are subject to variation that may significantly affect our reported results of operations and financial position for the periods presented or in future periods . management believes that the judgments , estimates and economic assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time . we consider the following policies to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements . allowance for loan and lease losses the allowance for loan and lease losses ( alll ) is established to absorb known and inherent losses in our loan and lease portfolio . our methodology in determining the appropriate level of the alll includes components for a general valuation allowance in accordance with the contingencies topic of the financial accounting standards board accounting standards codification ( fasb asc ) , a specific valuation allowance in accordance with the receivables topic of the fasb asc and an unallocated component . both quantitative and qualitative factors are considered in determining the appropriate level of the alll . quantitative factors include historical loss experience , delinquency and charge-off trends and the evaluation of specific loss estimates for problem loans . qualitative factors include existing general economic and business conditions in our market areas as well as the duration of the current business cycle . changes in any of the factors mentioned could have a significant impact on our calculation of the alll . our alll policy and the judgments , estimates and economic assumptions involved are described in greater detail in the allowance for loan and lease losses and unfunded commitments and letters of credit section of this discussion and in note 1 to the consolidated financial statements in item 8. financial statements and supplementary data of this report . business combinations the company applies the acquisition method of accounting for business combinations . under the acquisition method , the acquiring entity in a business combination recognizes 100 percent of the assets acquired and liabilities assumed at their acquisition date fair values . management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values . any excess of the purchase price over amounts allocated to assets acquired , including identifiable intangible assets , and liabilities assumed is recorded as goodwill . where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price , a bargain purchase gain is recognized . acquisition-related costs are expensed as incurred . acquired impaired loans loans acquired at a discount for which it is probable that all contractual payments will not be received are accounted for under asc topic 310-30 , loans and debt securities acquired with deteriorated credit quality ( asc 310-30 ) . these loans are recorded at fair value at the time of acquisition . fair value of acquired impaired 29 loans is determined using a discounted cash flow model based on assumptions about the amount and timing of principal and interest payments , principal repayments and estimates of principal defaults , loss given default and current market rates . estimated credit losses are included in the determination of fair value , therefore , an allowance for loan losses is not recorded on the acquisition date . the excess of expected cash flows at acquisition over the initial investment in acquired loans ( accretable yield ) is recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable . subsequent to acquisition , the company aggregates loans into pools of loans with common risk characteristics . increases in estimated cash flows over those expected at the acquisition date are recognized as interest income , prospectively . decreases in expected cash flows after the acquisition date are recognized by recording an allowance for loan losses . loans accounted for under asc 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable . accordingly , acquired impaired loans that are contractually past due are still considered to be accruing and performing loans . if the timing and amount of future cash flows is not reasonably estimable , the loans may be classified as nonaccrual loans and the purchase price discount on those loans is not recorded as interest income until the timing and amount of future cash flows can be reasonably estimated . fdic loss sharing asset in conjunction with the fdic-assisted acquisitions , the bank entered into loss sharing agreements with the fdic . at the date of the acquisitions , the company elected to account for amounts receivable under the loss sharing agreements as a loss sharing asset in accordance with the business combinations topic of the fasb asc . story_separator_special_tag total assets at december 31 , 2010 were $ 4.26 billion , up 33 % from $ 3.20 billion at the end of 2009. at december 31 , 2010 net assets acquired covered by fdic loss share agreements ( referred to as covered assets or loans ) represented $ 531.5 million and the loss sharing asset associated with the company 's loss share agreements with the fdic was $ 206.0 million . the allowance for noncovered loan and lease losses increased to $ 61.0 million at december 31 , 2010 from $ 53.5 million at december 31 , 2009. the company 's allowance amounts to 3.18 % of total uncovered loans , compared with 2.66 % at the end of 2009. separate from the allowance for noncovered loan and lease losses , the company recorded expense of $ 6.1 million and $ 0 through the provision for losses on covered loans in 2010 and 2009 respectively . the impact to earnings of the $ 6.1 million of provision expense for covered loans is offset through noninterest income by a $ 4.9 million increase in the loss sharing asset related to the company 's loss share agreements with the fdic . nonperforming assets totaled $ 126.7 million as of december 31 , 2010 , compared with $ 129.5 million at december 31 , 2009. net loan charge-offs were $ 33.8 million in 2010 , compared with $ 52.8 million in 2009. the company 's commercial business portfolio experienced a $ 13.4 million increase in nonaccrual loans with a december 31 , 2010 balance of $ 32.4 million . the increase in nonaccrual loans within the commercial business portfolio was more than offset by a $ 38.3 million decline in the real estate construction portfolio . 31 investment securities available for sale totaled $ 763.9 million at december 31 , 2010 compared to $ 620.0 million at december 31 , 2009. deposits totaled $ 3.33 billion at december 31 , 2010 compared to $ 2.48 billion at december 31 , 2009. core deposits totaled $ 3.00 billion at december 31 , 2010 , comprising 90 % of total deposits compared to $ 2.07 billion , or 83 % , of total deposits at december 31 , 2009. the company is well capitalized with a total risk-based capital ratio of 24.47 % at december 31 , 2010 compared to 19.60 % at december 31 , 2009. these ratios reflect the net proceeds to the company of $ 229.1 million from an underwritten public offering of common shares completed in may , 2010 as well as the payment of $ 76.9 million for the retirement of the preferred shares issued under the u.s. department of the treasury 's capital purchase program and $ 3.3 million paid by the company to retire the warrants associated with the preferred shares . business combinations on january 22 , 2010 , columbia state bank acquired all of the deposits and certain assets of columbia river bank from the fdic , which was appointed receiver of columbia river bank . columbia state bank acquired approximately $ 912.9 million in assets and approximately $ 893.4 million in deposits located in 21 branches in oregon and washington . columbia river bank 's loans and other real estate assets acquired of approximately $ 696.1 million are subject to a loss-sharing agreement with the fdic . the company participated in a competitive bid process in which the accepted bid included a 1 % deposit premium on non-brokered deposits and a negative bid of $ 43.9 million on net assets acquired . on january 29 , 2010 columbia state bank acquired substantially all of the deposits and assets of american marine bank from the fdic , which was appointed receiver of american marine bank . columbia state bank acquired approximately $ 307.8 million in assets and approximately $ 254.0 million in deposits located in 11 branches on the western puget sound . american marine bank 's loans and other real estate assets acquired of approximately $ 257.5 million is subject to a loss-sharing agreement with the fdic . in addition , columbia state bank will continue to operate the trust and wealth management division of american marine bank . the company participated in a competitive bid process in which the accepted bid included a 1 % deposit premium on non-brokered deposits and a negative bid of $ 23.0 million on net assets acquired . 32 results of operations summary a summary of the company 's results of operations on for each of the last five years ended december 31 follows : replace_table_token_7_th nm not meaningful net interest income net interest income is the difference between interest income and interest expense . net interest income on a fully taxable-equivalent basis expressed as a percentage of average total interest-earning assets is referred to as the net interest margin , which represents the average net effective yield on interest-earning assets . 33 the following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities , the total dollar amounts of interest income on interest-earning assets and interest expense on interest-bearing liabilities , the average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities by category and in total , net interest income , net interest spread , net interest margin and the ratio of average interest-earning assets to interest-earning liabilities : story_separator_special_tag when compared to 2008. management believes that it is useful for investors to understand the impact of the impairment charge , net gains on sales of securities and proceeds from redemption of visa and mastercard stock on the company 's results of operations . 36 the following table presents the significant components of noninterest income and the related dollar and percentage change from period to period : replace_table_token_10_th service charges , loan fees and other fees increased $ 9.5 million in 2010 over 2009 , or 63 % , due to higher transaction volumes .
| net interest income summary replace_table_token_8_th ( 1 ) nonaccrual loans were included in loans . amortized net deferred loan fees were included in the interest income calculations . the amortization of net deferred loan fees was $ 2.1 million in 2010 , $ 2.8 million in 2009 , $ 3.5 million in 2008 . ( 2 ) yields on fully taxable equivalent basis , based on a marginal tax rate of 35 % . 34 net interest income is impacted by the volume ( changes in volume multiplied by prior rate ) , interest rate ( changes in rate multiplied by prior volume ) and the mix of interest-earning assets and interest-bearing liabilities . the following table shows changes in net interest income on a fully taxable-equivalent basis between 2010 and 2009 , as well as between 2009 and 2008 broken down between volume and rate . changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates : changes in net interest income replace_table_token_9_th taxable-equivalent net interest income totaled $ 170.5 million in 2010 , compared with $ 120.5 million for 2009. relatively flat interest rates from 2009 to 2010 resulted in a slight uptick in the yield on interest earning assets . the significant increase in net interest income during 2010 resulted from a combination of a higher volume of total interest earning assets and a significant reduction in the average rate paid on deposits . the yield on earning assets increased 3 basis points while the cost of interest-bearing liabilities declined 54 basis points . the net effect of the additional volume of interest earning assets and interest bearing liabilities was an increase in net interest income of $ 25.0 million .
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common stock warrants the company accounts for its common stock warrants under guidance now codified in asc 815 that clarifies the determination of whether an instrument ( or an embedded feature ) is indexed to an entity 's own stock , which would qualify for classification as liabilities . the guidance required the company 's outstanding warrants to be classified as liabilities and to be fair valued at each reporting period , with the changes in fair value recognized as other income ( expense ) in the company 's consolidated statements of operations . 83 in 2014 , warrants to purchase 2,106,792 shares of common stock were cashless exercised for 1,108,582 shares of common stock . in addition , warrants to purchase 2,328,766 shares of common stock were exercised on a cash basis for net proceeds of approximately $ 4.8 million . in 2013 , warrants to purchase 2,367,636 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 may contain forward-looking statements based upon current expectations that involve risks and uncertainties , including those set forth under the heading “ risk factors ” and elsewhere in this annual report on form 10-k. our actual results and the timing of selected events discussed below could differ materially from those expressed in , or implied by , these forward-looking statements . overview we are a biotechnology company using our expertise in the tumor microenvironment to discover and develop therapeutic agents that selectively target tumor cells for the treatment of patients living with cancer . our lead investigational small molecule , evofosfamide ( formerly th-302 ) , is being evaluated in two pivotal phase 3 clinical trials , one registrational phase 2 clinical trial and multiple earlier-stage clinical trials . we have a global license and co-development agreement for evofosfamide with merck kgaa , darmstadt , germany , with an option to co-commercialize in the united states . evofosfamide was discovered by our scientists based on our hypoxia-targeted therapeutics prodrug technology . hypoxia , or abnormally low oxygen concentration , is a common feature of the tumor microenvironment in most solid tumors and in the bone marrow of patients with hematological malignancies ( also known as cancers of the bone marrow , for example , leukemias and multiple myeloma ) . we believe that by virtue of targeting tumor hypoxia , evofosfamide may have broad clinical applicability across many types of solid tumors and some hematological malignancies . to explore this broad therapeutic potential of evofosfamide , we are conducting multiple clinical trials to evaluate its safety and efficacy in solid tumors and hematological malignancies in combination with currently marketed anticancer drugs , including traditional chemotherapeutic agents and antiangiogenic agents , and as monotherapy for certain cancers . the most advanced clinical study of evofosfamide is a global pivotal phase 3 clinical trial of evofosfamide plus doxorubicin versus doxorubicin alone in patients with locally advanced unresectable or metastatic soft tissue sarcoma , which we refer to as the 406 trial . the trial enrollment completion was announced in december 2013 ; the study enrolled 640 patients . in september 2014 , we announced that an independent data monitoring committee , or idmc , completed the pre-planned interim efficacy and safety analyses of unblinded data for our 406 trial . based on the idmc 's analyses , which included an assessment of both benefit and risk , the idmc recommended that the 406 trial should continue as planned to its natural conclusion . we will remain blinded to the data from the 406 trial until the primary efficacy analysis is conducted , which is scheduled to occur after 434 deaths are reported . we currently project that the required number of events will be reached in the latter half of 2015 , with the results of the primary efficacy analysis expected to be available shortly thereafter . in january 2013 , we announced that our partner merck kgaa initiated the global pivotal phase 3 maestro ( m etast a tic or unr es ectable pancrea t ic adenoca r cin o ma ) study assessing the efficacy and safety of evofosfamide in combination with gemcitabine in patients with previously untreated , locally advanced unresectable or metastatic pancreatic adenocarcinoma . the phase 3 maestro clinical trial was initiated after our randomized and controlled phase 2 clinical trial of evofosfamide plus gemcitabine versus gemcitabine ( which we refer to as the 404 trial ) met its primary efficacy endpoint , demonstrating an improvement in progression-free survival when evofosfamide was combined with gemcitabine in this patient population . in october 2014 , we announced that our partner merck kgaa , through its biopharmaceutical division , completed target enrollment of 660 patients in the maestro clinical trial . currently , we estimate that the protocol-specified events for the maestro trial may be reached in the second half of 2015 , with the results of the primary efficacy analysis to be available shortly thereafter . in march 2014 , we announced that merck kgaa initiated a phase 1 dose escalation study assessing the safety , tolerability and anti-tumor activity of evofosfamide in combination with gemcitabine and nab-paclitaxel ( abraxane ® ) in patients with previously untreated , locally advanced unresectable or metastatic pancreatic adenocarcinoma . in june 2014 , we announced the initiation of a 440-patient , randomized , double-blind , placebo-controlled trial of evofosfamide in combination with pemetrexed in patients with second-line advanced non-squamous non-small cell lung cancer ( which we refer to as the 415 trial ) . the international phase 2 trial is designed to support registration and will compare the combination of evofosfamide plus pemetrexed versus the combination of pemetrexed plus placebo as second-line therapy in this patient population . the study 's primary efficacy endpoint is overall survival and secondary endpoints include safety and assessment of anti-tumor activity as determined by progression-free survival and objective response rate . story_separator_special_tag research and development expenses may fluctuate significantly from period to period as a result of the progress and results of our clinical trials . 55 revenue we have not generated any revenue from the commercial sales of our product candidates since our inception and do not expect to generate any revenue from the commercial sales of our product candidates in the near term . we recognized revenue of $ 14.7 million and $ 12.5 million during the years ended december 31 , 2014 and 2013 , respectively , from the amortization of the $ 110 million in upfront and milestone payments earned in 2012 and 2013 from our collaboration with merck kgaa . we recognized revenue of $ 5.9 million during the year ended december 31 , 2012 , from the amortization of the $ 67.5 million in upfront and milestone payments earned in 2012 from our collaboration with merck kgaa . we are amortizing the upfront and milestone payments over the estimated period of performance ( product development period ) . we will periodically review and , if necessary , revise the estimated periods of performance of our collaboration . research and development expenses research and development expenses consist primarily of costs of conducting clinical trials , salaries and related costs for personnel including non-cash stock-based compensation , costs of clinical materials , costs for research projects and preclinical studies , costs related to regulatory filings , and facility costs . contracting and consulting expenses are a significant component of our research and development expenses as we rely on consultants and contractors in many of these areas . we recognize expenses as they are incurred . our accruals for expenses associated with preclinical and clinical studies and contracts associated with clinical materials are based upon the terms of the service contracts , the amount of services provided and the status of the activities . story_separator_special_tag 2014 due to the continued execution of existing clinical trials and the start of new clinical trials . expenses will fluctuate based upon many factors including the degree of collaborative activities , timing of manufacturing batches of evofosfamide and th-4000 api and drug product , numbers of patients enrolled in our clinical trials and the outcome of each clinical trial event . 57 the process of conducting the clinical research necessary to obtain fda and foreign regulatory approvals is costly , uncertain and time consuming . we consider the active management of our research and development programs to be critical to our long-term success . the actual probability of success for evofosfamide , th-4000 and potential future clinical product candidates may be impacted by a variety of factors , including , among others , the quality of the product candidate , early clinical data , investment in the program and the availability of adequate funding , competition , manufacturing capability and commercial viability . furthermore , our strategy may include entering into collaborations with third parties , such as our evofosfamide collaboration with merck kgaa , to participate in the development and commercialization of our product candidates . in these situations , the preclinical development or clinical trial process for a product candidate and the estimated completion date may largely be under the control of that third party and not under our control . we can not forecast with any degree of certainty which of our future clinical product candidates will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements . in addition , the length of time required for clinical development of a particular product candidate and our development costs for that product candidate may be impacted by the scope and timing of enrollment in clinical trials for the product candidate , unanticipated additional clinical trials that may be required , future decisions to develop a product candidate for subsequent indications , and whether in the future we decide to pursue development of the product candidate with a collaborator or independently . for example , evofosfamide may have the potential to be approved for multiple indications , and we do not yet know how many of those indications we and merck kgaa will pursue . in this regard , the decision to pursue regulatory approval for subsequent indications will depend on several variables outside of our control , including the strength of the data generated in our and merck kgaa 's prior and ongoing clinical studies and the willingness of merck kgaa to jointly fund such additional work . furthermore , the scope and number of clinical studies required to obtain regulatory approval for each pursued indication is subject to the input of the applicable regulatory authorities , and we have not yet sought such input for all potential indications that we and merck kgaa may elect to pursue , and even after having given such input applicable regulatory authorities may subsequently require additional clinical studies prior to granting regulatory approval based on new data generated by us or other companies , or for other reasons outside of our control . in addition , our development of th-4000 is at a very early stage and it is possible that th-4000 may not be found to be safe or effective in our planned phase 2 proof-of-concept study or in any other studies that we may conduct , and we may otherwise fail to realize the anticipated benefits of our licensing of this product candidate . the risks and uncertainties associated with our research and development projects are discussed more fully in item 1a—risk factors . as a result of the risks and uncertainties discussed in item 1a—risk factors and above , we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects , anticipated completion dates or when and to what extent we will receive cash inflows from the commercialization and sale of a product candidate , including evofosfamide . to date , we have not commercialized any of our product candidates and in fact may never do so .
| general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for our personnel in the executive , public relations , finance , patent , corporate development and other administrative functions , including non-cash stock-based compensation , as well as consulting costs for functions for which we either do not staff or only partially staff , including market research and recruiting . other costs include professional fees for legal and accounting services , insurance and facility costs . stock-based compensation we recognize stock-based compensation in accordance with the fair value provisions of accounting standard codification ( “ asc ” ) 718 , “ compensation—stock compensation. ” refer to the discussion of accounting treatment of stock based compensation below under “ critical accounting policies . ” results of operations for the years ended december 31 , 2014 , 2013 and 2012 revenue we recognized $ 14.7 million and $ 12.5 million in revenue for the years ended december 31 , 2014 and 2013 , respectively , from the amortization of the aggregate of $ 110 million in upfront and milestone payments earned in 2013 and 2012 from our collaboration with merck kgaa . for the year ended december 31 , 2012 , we recognized $ 5.9 million in revenue from the amortization of the $ 67.5 million in upfront and milestone payments earned in 2012 from our collaboration with merck kgaa . we are amortizing the upfront payment and milestones earned over the period of performance ( product development period ) . we will periodically review and , if necessary , revise the estimated periods of performance of our collaboration .
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through our operating subsidiaries , we offer the following principal services : wireless . in the united states , we offer wireless voice and data services to retail customers under the `` alltel '' name in rural markets located principally in the southeast and midwest . additionally , we offer wholesale wireless voice and data roaming services to national , regional , local and selected international wireless carriers in rural markets located principally in the southwest and midwest united states . we also offer wireless voice and data services to retail customers in guyana , the caribbean and smaller markets in the united states . wireline . our local telephone and data services include our operations in guyana and the mainland united states . we are the exclusive licensed provider of domestic wireline local and long distance telephone services in guyana and international voice and data communications into and out of guyana . we also offer facilities-based integrated voice and data communications services to enterprise and residential customers in new england , primarily in vermont , and wholesale transport services in vermont and new york state . the following chart summarizes the operating activities of our principal subsidiaries , the segments in which we report our revenue and the markets we served as of december 31 , 2012 : services segment markets tradenames wireless u.s. wireless united states ( rural markets ) alltel , choice island wireless aruba , bermuda , turks and caicos , u.s. virgin islands mio , cellone , islandcom , choice international integrated telephony guyana cellink wireline international integrated telephony guyana gt & t , emagine u.s. wireline united states ( new england and new york state ) sovernet , ion we provide management , technical , financial , regulatory , and marketing services to our subsidiaries and typically receive a management fee equal to a percentage of their respective revenue . management fees from consolidated subsidiaries are eliminated in consolidation . we are dependent on our u.s. wireless segment for the substantial majority of our revenue and profits . for the year ended december 31 , 2012 , approximately 77 % of our consolidated revenue was generated by our u.s. wireless segment . our u.s. retail wireless revenue is primarily driven by the number of subscribers to our services , their adoption of our enhanced service offerings and their related voice and data usage . the number of subscribers and their usage volumes and patterns also has a major impact on the profitability of our u.s. retail wireless operations . as of december 31 , 2012 , our u.s. retail wireless services were provided to approximately 588,000 customers under the `` alltel '' brand name . our wireless licenses provide mobile data and voice coverage to a network footprint covering a population of approximately four and a half million people as of december 31 , 2012. through the acquisition of a portion of the former alltel network from verizon wireless ( the `` alltel acquisition '' ) , we acquired a regional , non-contiguous wireless network that requires continued network expansion and improvements as well as roaming support to ensure ongoing nationwide coverage . in late july 2011 , we completed the transition of our alltel customers from the legacy alltel information technology systems , platforms and customer care 36 centers to our own ( the `` alltel transition '' ) and , as a result , eliminated many of the duplicate costs associated with the migration in the second half of 2011 and into 2012. our retail wireless business competes with national , regional and local wireless providers offering both prepaid and postpaid services such as our primary competitor , verizon wireless . we provide wholesale roaming services in a number of areas in the u.s. , including in areas in which we also have retail wireless operations . our wholesale wireless revenue is an important part of our overall u.s. wireless segment revenue because this revenue has a higher margin of profitability than our retail revenue . wholesale wireless revenue is primarily driven by the number of sites and base stations we operate , the amount of voice and data traffic from the subscribers of other carriers that each of these sites generates , and the rate we get paid from other carrier customers for serving that traffic . the most significant competitive factor we face in our u.s. wholesale wireless business is the extent to which our carrier customers choose to roam on our networks or elect to build or acquire their own infrastructure in a market , reducing or eliminating their need for our services in those markets . pending sale of u.s. retail wireless business in the second quarter of 2010 , we completed the acquisition of a portion of the former alltel network from verizon wireless through our u.s. retail wireless business , which now provides wireless voice and data services in rural markets of the united states under the `` alltel '' brand name ( the `` alltel acquisition '' ) and , in the third quarter of 2011 , completed the migration of the alltel assets to our own information technology systems , telecommunications networks and platforms ( the `` alltel transition '' ) . on january 21 , 2013 , we entered into a purchase agreement with at & t mobility llc ( `` at & t '' ) to sell certain of the assets used in our alltel business ( the `` alltel sale '' ) . under the terms of the agreement , at & t will purchase the operations in an all-cash transaction valued at approximately $ 780 million . for the year ended december 31 , 2012 , our alltel business constituted approximately $ 464.4 million , or 63 % , of our consolidated revenues and $ 41.4 million , or 42 % of our consolidated operating income . story_separator_special_tag wholesale revenue is generated from providing mobile voice or data services to the customers of other wireless carriers and also includes revenue from other related wholesale services such as the provision of network switching services and certain wholesale transport services using our wireless subsidiaries ' networks . 39 retail revenue the retail portion of our u.s. wireless revenue was $ 337.8 million for the year ended december 31 , 2012 , as compared to $ 370.2 million for the year ended december 31 , 2011 , a decrease of $ 32.4 million , or 9 % . the decrease in retail u.s. wireless revenues was primarily the result of a decline in postpaid subscribers , which typically generate higher average revenues than prepaid customers , that we experienced during the past year due to post-alltel acquisition challenges we have faced . we believe that this decline is due in part to the effects of the separation of our markets from the formerly unified alltel market , leaving many of our subscribers near the edge or outside of our licensed territory . in late july 2011 , we completed our alltel transition , which enabled us to enhance our service offerings and further control churn . these subscriber-related functions had been somewhat constrained during the transition period and contributed to a continued decline in our u.s. retail wireless revenue . as of december 31 , 2012 , we had approximately 588,000 u.s. retail wireless subscribers ( including 425,000 postpaid subscribers and 163,000 prepaid subscribers ) , an increase of 6,000 subscribers from the approximately 582,000 subscribers we had as of december 31 , 2011 and a 3,000 subscriber increase from the approximately 585,000 subscribers we had as of september 30 , 2012. despite our net increase in total subscribers , postpaid subscribers have declined in the past year from 458,000 at december 31 , 2011. we will continue to focus on improving gross additions to our subscriber base in future periods as we concentrate our efforts on increasing distribution , by means such as the 2012 re-launch of our u-prepaid branded offering in walmart stores in our markets , and increasing awareness of our value proposition to potential customers in our markets . however , we believe that the gross additions to our postpaid subscriber base could be hindered by our operational challenges we face with our rural and geographically dispersed markets as well as by challenges in obtaining some of the more popular handset devices . our overall u.s. retail wireless churn decreased from 3.89 % for the year ended december 31 , 2011 to 3.42 % for the year ended december 31 , 2012. this improvement was the result of our ability to better control customer care and other churn factors since the end of the alltel transition period . however , our churn may increase in the near term as we are in a period of higher than normal contract expirations . this , along with our challenges in obtaining the most popular handset devices , could lead to a decline in subscriber levels . wholesale revenue the wholesale portion of our u.s. wireless revenue decreased slightly from $ 202.0 million for the year ended december 31 , 2011 to $ 201.9 million for the year ended december 31 , 2012. while an increase in data volume led to an increase in data traffic , this was entirely offset during the year as the industry-wide trend of lower voice traffic continued . in addition , verizon and at & t 's network overbuilds following their acquisition of former alltel properties contributed to our declined in revenue for the segment . we expect that data volume may increase in the next several quarters as customer usage of data and smart phone penetration continues to increase . such increase , however , may be completely offset by a number of factors , including any reductions in the roaming rates that we charge , continued declines in overall voice traffic or decisions by our roaming partners to no longer roam on our networks or to expand their networks in areas where we operate . in addition , in the near term , it is unlikely we will be able to replace the approximate $ 16.0 million of revenue we derived from our wholesale network in the midwest that we sold to a roaming partner in late december 2012 although we are embarking on some network upgrades and expansions in 2013 that should benefit wholesale revenue before the end of 2013. international wireless revenue . international wireless revenue includes retail and wholesale voice and data wireless revenue from our operations in bermuda and the caribbean , including the u.s. virgin islands . 40 international wireless revenue increased by $ 9.4 million , or 13 % , to $ 81.6 million for the year ended december 31 , 2012 , from $ 72.2 million for the year ended december 31 , 2011 due mainly to our bermuda merger in 2011 and subscriber growth in the u.s. virgin islands in 2012. this increase was partially offset by a decrease in roaming revenue in certain of our other international operations . while we have experienced subscriber growth in a number of our international markets , competition remains strong , and due to the fact that the majority of our international wireless subscribers are prepaid subscribers , revenue and subscriber levels could shift relatively quickly in future periods . wireline revenue . wireline revenue is generated by our wireline operations in guyana , including international telephone calls into and out of that country , our integrated voice and data operations in new england and our wholesale transport operations in new york state . this revenue includes basic service fees , measured service revenue , and internet access fees , as well as installation charges for new lines , monthly line rental charges , long distance or toll charges , maintenance and equipment sales .
| results of operations years ended december 31 , 2010 and 2011 replace_table_token_9_th u.s. wireless revenue . retail revenue the retail portion of our u.s. wireless revenue was $ 370.2 million for the year ended december 31 , 2011 as compared to $ 293.1 million for the year ended december 31 , 2010. the increase of $ 77.1 million , or 26 % , was the result of 2011 representing a full year of operations of our alltel 45 acquisition , which we completed in april 2010 , and was partially offset by a decrease in subscribers during the period subsequent to the acquisition . as of december 31 , 2011 , we had approximately 582,000 u.s. retail wireless subscribers ( including 458,000 postpaid subscribers and 124,000 prepaid subscribers ) , a decrease of 136,000 from the approximate 718,000 subscribers we had as of december 31 , 2010. in addition to ordinary competitive forces , the decrease in subscribers was due to tightening of credit and contract policies post-alltel acquisition , the loss of a significant prepaid distribution channel , the high percentage of subscribers with expiring contracts due to our predecessor 's emphasis on one-year customer contracts and a number of other factors . among these other factors were the effects of separating our markets from the formerly unified alltel market , leaving many of our subscribers near the edge or outside of our licensed territory . wholesale revenue the wholesale portion of our u.s. wireless revenue increased to $ 202.0 million for the year ended december 31 , 2011 from $ 159.8 million for the year ended december 31 , 2010 , an increase of $ 42.2 million , or 26 % . the increase in wireless wholesale revenue was primarily due to a full year of operations from our alltel acquisition , which we completed in april 2010 , as well as an increase in data usage from both our legacy u.s. roaming network and the alltel network .
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our revenues are based primarily on the company 's level of assets under management ( “ aum ” ) and fees associated with our various investment products . gamco offers a wide range of solutions for clients across value and growth equity , esg , convertibles , sector-focused strategies including gold and utilities , merger arbitrage , and fixed income . in 1977 , gamco launched its flagship all cap value strategy , gabelli value , and in 1986 launched its mutual fund business . as of december 31 , 2020 , we had $ 32.6 billion of aum . we conduct our investment advisory business principally through two subsidiaries , which are registered investment advisors : gabelli funds , llc ( open-end and closed-end funds ) ( “ gabelli funds ” ) and gamco asset management inc. ( institutional and pwm ) ( “ gamco asset ” ) . g.distributors , llc ( “ g.distributors ” ) , our broker-dealer subsidiary , acts as an underwriter and distributor of our open-end funds and actively managed non-transparent etfs . in december 2019 , a novel strain of coronavirus ( “ covid-19 ” ) surfaced in china and has since spread quickly to numerous countries , including the u.s. on march 11 , 2020 , covid-19 was identified as a global pandemic by the world health organization . in response to its spread , governmental authorities have imposed restrictions on travel and congregation and the temporary closure of many non-essential businesses in affected jurisdictions , including , beginning in march 2020 , in the u.s. as world leaders focused on the unprecedented human and economic challenges of covid-19 , global equity markets plunged as the coronavirus pandemic spread . in march , the unfolding events led to the worst month for stocks since 2008 and the worst first quarter since 1937. in the remainder of the year , as a result of unprecedented fiscal and monetary stimulus and the fast tracking of potential covid-19 vaccines , some of which have been approved and have begun to be distributed , the markets have rebounded strongly . the pandemic and resulting economic dislocations have had adverse consequences on our aum , resulting in decreased revenues , partially offset by decreased variable operating and compensation expenses . as a result of this pandemic , the majority of our employees ( “ teammates ” ) are working remotely . however , there has been no material impact of remote work arrangements on our operations , including our financial reporting systems , internal control over financial reporting , and disclosure controls and procedures , and there has been no material challenge in implementing our business continuity plan . 24 organizational chart this is the current organizational chart of the company : story_separator_special_tag 28 distribution fees and other income primarily include distribution fee revenue earned in accordance with rule 12b-1 of the investment company act of 1940 , as amended ( “ company act ” ) , along with sales charges and underwriting fees associated with the sale of the mutual funds plus other revenues . distribution fees fluctuate based on the level of aum and the amount and type of mutual funds sold directly by g.distributors or through various distribution channels . compensation costs include variable and fixed compensation and related expenses paid to officers , portfolio managers , sales , trading , research , and all other professional teammates . variable compensation paid to sales teammates and portfolio management generally represents 40 % of revenues and is the largest component of total compensation costs . distribution costs include marketing , product distribution , and promotion costs . the management fee is incentive-based and entirely variable compensation in the amount of 10 % of the aggregate pre-tax profits , which is paid to mr. mario j. gabelli ( “ mr . gabelli ” ) or his designee for acting as ceo pursuant to his 2008 employment agreement so long as he is an executive of gbl and devotes the substantial majority of his working time to the business . other operating expenses include general and administrative operating costs . non-operating income/ ( loss ) includes gain/ ( loss ) from investments , net ( which includes both realized and unrealized gains and losses from securities ) , interest and dividend income , interest expense , and shareholder-designated charitable contribution . the gain/ ( loss ) from investments , net is derived from our proprietary investment portfolio consisting of various public investments . the following table ( in thousands , except per share data ) and discussion of our results of operations are based upon data derived from the consolidated statements of income contained in our consolidated financial statements and should be read in conjunction with those statements included in part ii , item 8 of this form 10-k. replace_table_token_6_th 29 year ended december 31 , 2020 compared to year ended december 31 , 2019 overview net income for 2020 was $ 58.7 million , or $ 2.20 per fully diluted share , versus $ 81.9 million , or $ 2.98 per fully diluted share , in 2019. the year to year comparison was impacted by lower revenues and lower non-operating income offset partially by lower variable compensation . revenues total revenues were $ 259.7 million in 2020 , $ 52.7 million or 16.9 % lower than the total revenues of $ 312.4 million in 2019. the change in total revenues by component was as follows ( dollars in millions ) : replace_table_token_7_th investment advisory fees excluding incentive fees , which comprised 86.5 % of total revenues in 2020 , are directly influenced by the level and mix of average aum . average total aum decreased 14.8 % to $ 31.0 billion in 2020 as compared to $ 36.4 billion in 2019. average equity aum decreased 17.1 % to $ 28.1 billion in 2020 from $ 33.9 billion in 2019 , primarily from net outflows . story_separator_special_tag the reconciliation of operating income before management fee and operating margin before management fee , both of which are non-gaap measures , to their respective generally accepted accounting principles ( “ gaap ” ) measures is provided at the end of this section . non-operating income/ ( loss ) total non-operating loss was $ 15.9 million for the year ended december 31 , 2020 , compared to a loss of $ 9.3 million in 2019. this is comprised of net loss from investments of $ 8.7 million in 2020 as compared to a net loss from investments of $ 5.4 million in 2019 ; interest and dividend income of $ 0.8 million in 2020 versus $ 3.2 million in 2019 ; interest expense of $ 2.6 million in 2020 as compared to $ 2.6 million in 2019 ; and shareholder-designated charitable contributions of $ 5.4 million in 2020 and $ 4.5 million in 2019. the effective tax rate was 29.9 % for the year ended december 31 , 2020 , versus 24.6 % for the year ended december 31 , 2019. this increase is primarily as a result of non-deductibility of certain expenses as a result of the 2017 tax cuts and jobs act . non-gaap information and reconciliation operating income before management fee expense is used by management for purposes of evaluating its business operations . we believe this measure is useful in illustrating the operating results of the company as management fee expense is based on pre-tax income before management fee expense , which includes non-operating items including gain/ ( loss ) from investments , net from our proprietary investment portfolio , interest and dividend income , interest expense , and shareholder-designated charitable contribution . we believe that an investor would find this useful in analyzing our business operations without the impact of the non-operating items such as trading and investment portfolios , interest and dividend income , interest expense , or shareholder-designated charitable contribution . reconciliation of gaap financial measures to non-gaap ( in thousands ) : replace_table_token_8_th 31 deferred compensation the company deferred , through dccas , the cash compensation of the ceo relating to all of 2016 ( “ 2016 dcca ” ) and the fourth quarter of 2017 ( “ fourth quarter 2017 dcca ” ) to provide the company with flexibility to pay down debt and enhance our ability to execute lift-outs , make acquisitions , and seed new products . we have made substantial progress toward this objective , having reduced our debt since the november 2015 spin-off of associated capital group , inc. the dccas deferred the ceo 's compensation expense by amortizing it over each dcca 's respective vesting period . the ceo was not entitled to receive the compensation until the end of each respective vesting period , so u.s. gaap specifies that the expense is amortized over the vesting period . the 2016 dcca was expensed ratably over 4 years and the fourth quarter 2017 dcca was expensed ratably over 18 months . in addition to the ratable vesting , the expense was marked to market at each reporting period as the dcca expense was indexed to gbl 's stock price . notwithstanding its ability to settle these agreements in stock , gamco made a cash payment to the ceo on each respective vesting date . while the agreements did not change the original calculation of the ceo 's compensation , our reporting under u.s. gaap for his compensation did change due to the ratable vesting and the indexing to the gbl stock price . the original value of the dccas was based on the compensation earned in the period divided by the volume weighted average price ( “ vwap ” ) of the gbl stock price for the period ( “ original vwap ” ) to calculate the number of restricted stock units ( “ rsus ” ) granted . upon vesting , each dcca was paid out based on the lesser of the vwap of gbl 's stock price on the vesting date ( “ vesting date vwap ” ) and the original vwap multiplied by the number of rsus . the table below shows a summary of the dccas ( in millions , except rsus and vwaps ) : replace_table_token_9_th on april 1 , 2019 , the fourth quarter 2017 dcca vested in accordance with the terms of the agreement and a cash payment in the amount of $ 11.0 million was made to the ceo . this payment was reduced by $ 4.5 million resulting from the dcca rsus being indexed to gbl 's stock price and utilizing the lesser of the vesting date vwap ( $ 20.7916 ) versus the original vwap over the fourth quarter of 2017 ( $ 29.1875 ) . on january 2 , 2020 , the 2016 dcca vested in accordance with the terms of the agreement and a cash payment of $ 43.7 million was made to the ceo . this payment was reduced by $ 32.3 million resulting from the dcca rsus being indexed to gbl 's stock price and utilizing the lesser of the vesting date vwap ( $ 18.8812 ) versus the original vwap over 2016 ( $ 32.8187 ) . accordingly , this vesting schedule resulted in an $ 16.3 million decrease in compensation expense in 2020 versus 2019 as well as a $ 4.5 million decrease in management fee expense in 2020 as compared to 2019. the following tables show the amortization and earnings per share ( “ eps ” ) impact , inclusive of the indexing to the gbl stock price , of the dccas by quarter ( in thousands , except per share data ) : replace_table_token_10_th the following tables ( in thousands , except per share data ) show a reconciliation of our results for the years ended december 31 , 2020 and 2019 between the u.s. gaap basis and a non-gaap adjusted basis ( “ as adjusted ” ) as if all of the 2016 dcca was recognized in 2016 and the fourth quarter 2017 dcca expense was recognized in 2017 without regard to the vesting schedule
| 2020 business and investment highlights the covid-19 pandemic has had no material impact on our operations , including our financial reporting systems , internal control over financial reporting , and disclosure controls and procedures . there has been no material challenge in implementing our business continuity plan . from july 1st to december 31st , gamco paid the premiums for all teammates enrolled in our healthcare plans . our 30 th annual pump , valve & water systems symposium took place on february 27 th in new york city . the meeting featured presentations by senior management of several leading industrial companies with an emphasis on industrial and municipal water use and the role of technology . on april 2 nd , we hosted our 6 th annual waste & environmental services symposium via webcast . the timely conference featured presentations by leading companies . gabelli funds filed the registration statement for the gabelli activeshares etfs in may . these actively managed etfs will have the same tax and operating cost advantages of mindless etfs and will be priced intraday . on may 15 th , we hosted our 35 th gamco investor client symposium with over 500 clients and prospects attending on a virtual basis . in june , we made a tactical decision to invest directly in short-term u.s. treasury bills to enhance the marginal return on our cash balances . on june 4 th , the 12 th annual entertainment & broadcasting symposium hosted virtual presentations from more than a dozen companies in media and entertainment . on august 10 th , we announced that our board of directors approved a $ 0.25 per share shareholder designated charitable contribution . on august 24 th , we hosted our 26 th annual aerospace & defense symposium via webcast . the timely conference featured presentations by leading companies .
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this discussion contains `` forward-looking statements '' as that term is defined in the private securities litigation reform act of 1995 and in other securities laws . see `` cautionary note regarding forward-looking statements '' on page iii of this annual report and `` item 1a . risk factors '' beginning on page 12 of this annual report . overview proposed recall acquisition on june 8 , 2015 , we entered into the recall agreement with recall to acquire recall by way of the scheme . under the terms of the recall agreement , recall shareholders are entitled to receive the cash supplement as well as either ( 1 ) 0.1722 shares of our common stock for each recall share or ( 2 ) the cash election . the cash election is subject to the cash election cap . amounts paid to recall shareholders that represent the cash supplement are excluded from the calculation of the cash election cap . assuming a sufficient number of recall shareholders elect the cash election such that we pay the cash election cap , we expect to issue approximately 50.7 million shares of our common stock and , based on the exchange rate between the united states dollar and the australian dollar as of february 19 , 2016 , pay approximately us $ 323.0 million to recall shareholders in connection with the recall transaction which , based on the closing price of our common stock as of february 19 , 2016 , would result in a total purchase price to recall shareholders of approximately $ 1,791.0 million . completion of the scheme is subject to customary closing conditions , including among others , ( i ) approval by recall shareholders of the scheme by the requisite majority under the australian corporations act , ( ii ) expiration or earlier termination of any applicable waiting period and receipt of regulatory consents , approvals and clearances , in each case , under the hart-scott-rodino antitrust improvements act of 1976 , as amended , and under relevant antitrust/competition and foreign investment legislation in other relevant jurisdictions , ( iii ) the absence of any final , non-appealable order , decree or law preventing , making illegal or prohibiting the completion of the recall transaction , ( iv ) approval from the nyse to the listing of additional shares of our common stock to be issued in the recall transaction , ( v ) the establishment of a secondary listing on the asx to allow recall shareholders to trade our common stock via chess depository interests on the asx , ( vi ) recall 's delivery of tax opinions in accordance and in compliance with certain tax matter agreements to which recall is a party and ( vii ) no events having occurred that would have a material adverse effect on recall or us . we continue to work toward closing of the recall transaction and related integration planning . we currently estimate total operating and capital expenditures associated with the recall transaction to be approximately $ 380.0 million , the majority of which is expected to be incurred by the end of 2018. this amount consists of approximately $ 80.0 million of recall deal close costs and approximately $ 300.0 million of recall integration costs . of these amounts , approximately $ 47.1 million was incurred through december 31 , 2015 ( $ 24.7 million of recall deal close costs and $ 22.4 million of recall integration costs ) , including approximately $ 47.0 million of operating expenditures and approximately $ 0.1 million of capital expenditures . divestitures in december 2014 , we divested our secure shredding operations in australia , ireland and the united kingdom ( the `` international shredding operations '' ) in a stock transaction for approximately $ 26.2 million of cash at closing . the assets sold primarily consisted of customer contracts and certain long-lived assets . we have concluded that this divestiture did not meet the requirements to be presented as a discontinued operation and , therefore , have recorded a pretax gain on sale in other ( income ) expense , net of approximately $ 6.9 million ( $ 10.2 million , inclusive of a tax benefit ) in our consolidated statement of operations for the year ended december 31 , 2014. revenues from our international shredding operations in 2014 represented less than 1 % of our consolidated revenues . the international shredding operations in australia were previously included in the other international business segment and the international shredding operations in ireland and the united kingdom were previously included in the western european business segment . 37 cost optimization plans during the third quarter of 2013 , we implemented a plan that called for certain organizational realignments to advance our growth strategy and reduce operating costs ( the “ organizational restructuring ” ) , which was completed in 2014. as a result of the organizational restructuring , we recorded charges of $ 23.4 million and $ 3.5 million for the years ended december 31 , 2013 and 2014 , respectively , primarily related to employee severance and associated benefits . costs included in our results from operations associated with the organizational restructuring are as follows ( in thousands ) : replace_table_token_11_th costs recorded by segment associated with the organizational restructuring are as follows ( in thousands ) : replace_table_token_12_th during the third quarter of 2015 , we implemented a plan that calls for certain organizational realignments to reduce our overhead costs , particularly in our developed markets , in order to optimize our selling , general and administrative cost structure and to support investments to advance our growth strategy ( the “ transformation initiative ” ) , which is expected to be completed by the end of 2017. as a result of the transformation initiative , we recorded charges of $ 10.2 million for the year ended december 31 , 2015 , primarily related to employee severance and associated benefits . story_separator_special_tag trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels , achievement of incentive compensation targets , workforce productivity and variability in costs associated with medical insurance and workers ' compensation . the expansion of our international businesses has impacted the major cost of sales components and selling , general and administrative expenses . our international operations are more labor intensive than our operations in north america and , therefore , labor costs are a higher percentage of international segment revenue . in addition , the overhead structure of our 39 expanding international operations has not achieved the same level of overhead leverage as our north american segments , which may result in an increase in selling , general and administrative expenses , as a percentage of consolidated revenue , as our international operations become a more meaningful percentage of our consolidated results . our depreciation and amortization charges result primarily from the capital-intensive nature of our business . the principal components of depreciation relate to storage systems , which include racking structures , building and leasehold improvements , computer systems hardware and software and buildings . amortization relates primarily to customer relationship acquisition costs and is impacted by the nature and timing of acquisitions . our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our entities outside the united states . it is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our consolidated statement of operations . as a result of the relative size of our international operations , these fluctuations may be material on individual balances . our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred . therefore , the impact of currency fluctuations on our operating income and operating margin is partially mitigated . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the percentage change in the results from one period to another period in this report using constant currency presentation . the constant currency growth rates are calculated by translating the 2013 results at the 2014 average exchange rates and the 2014 results at the 2015 average exchange rates . the following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our united states dollar-reported revenues and expenses : replace_table_token_13_th replace_table_token_14_th 40 non-gaap measures adjusted oibda adjusted oibda is defined as operating income before depreciation , amortization , intangible impairments , ( gain ) loss on disposal/write-down of property , plant and equipment ( excluding real estate ) , net , recall costs ( as defined below ) and reit costs ( as defined below ) . adjusted oibda margin is calculated by dividing adjusted oibda by total revenues . we use multiples of current or projected adjusted oibda in conjunction with our discounted cash flow models to determine our estimated overall enterprise valuation and to evaluate acquisition targets . we believe adjusted oibda and adjusted oibda margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment . these measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business . adjusted oibda does not include certain items that we believe are not indicative of our core operating results , specifically : ( 1 ) ( gain ) loss on disposal/write-down of property , plant and equipment ( excluding real estate ) , net ; ( 2 ) gain on sale of real estate , net of tax ; ( 3 ) intangible impairments ; ( 4 ) recall costs ( as defined below ) ; ( 5 ) reit costs ( as defined below ) ; ( 6 ) other expense ( income ) , net ; ( 7 ) income ( loss ) from discontinued operations , net of tax ; ( 8 ) gain ( loss ) on sale of discontinued operations , net of tax ; and ( 9 ) net income ( loss ) attributable to noncontrolling interests . adjusted oibda also does not include interest expense , net and the provision ( benefit ) for income taxes . these expenses are associated with our capitalization and tax structures , which we do not consider when evaluating the operating profitability of our core operations . finally , adjusted oibda does not include depreciation and amortization expenses , in order to eliminate the impact of capital investments , which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues . adjusted oibda and adjusted oibda margin should be considered in addition to , but not as a substitute for , other measures of financial performance reported in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) , such as operating or net income ( loss ) or cash flows from operating activities from continuing operations ( as determined in accordance with gaap ) . reconciliation of operating income to adjusted oibda ( in thousands ) : replace_table_token_15_th _ ( 1 ) includes operating expenditures associated with our proposed acquisition of recall , including costs to complete the recall transaction , including advisory and professional fees , as well as costs incurred to integrate recall with our existing operations , including moving , severance , facility upgrade , reit conversion and system upgrade costs ( `` recall costs '' ) . ( 2 ) includes costs associated with our 2011 proxy contest , costs associated with our conversion to a reit , excluding reit compliance costs beginning january 1 , 2014 which we expect to recur in future periods ( `` reit costs '' ) .
| results of operations comparison of year ended december 31 , 2015 to year ended december 31 , 2014 and comparison of year ended december 31 , 2014 to year ended december 31 , 2013 ( in thousands ) : replace_table_token_18_th replace_table_token_19_th _ ( 1 ) see `` non-gaap measures—adjusted oibda '' in this annual report for the definition , reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors . 48 revenues replace_table_token_20_th replace_table_token_21_th _ ( 1 ) constant currency growth rates are calculated by translating the 2014 results at the 2015 average exchange rates and the 2013 results at the 2014 average exchange rates . ( 2 ) our revenue internal growth rate represents the weighted average year-over-year growth rate of our revenues after removing the effects of acquisitions , divestitures and foreign currency exchange rate fluctuations . we calculate revenue internal growth in local currency for our international operations . consolidated storage rental revenues decreased $ 22.3 million , or 1.2 % , to $ 1,837.9 million for the year ended december 31 , 2015 from $ 1,860.2 million for the year ended december 31 , 2014 . in the year ended december 31 , 2015 , consolidated storage rental internal growth and the net impact of acquisitions/divestitures were offset by unfavorable fluctuations in foreign exchange rates compared to the year ended december 31 , 2014 . foreign currency exchange rate fluctuations decreased our reported storage rental revenue growth rate for the year ended december 31 , 2015 by 5.2 % , compared to the same prior year period .
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item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by this item is included in the company 's proxy statement relating to the 2018 annual meeting of shareholders and is incorporated herein by reference . item 13. certain relationships and related transactions and director independence the information required by this item is included in the company 's proxy statement relating to the 2018 annual meeting of shareholders and is incorporated herein by reference . item 14. principal accounting fees and services the information required by this item is included in the company 's proxy statement relating to the 2018 annual meeting of shareholders and is incorporated herein by reference . page 43 part iv item 15. exhibits and financial statement schedules ( a ) financial statements : ( 1 ) consolidated balance sheets as of may 31 , 2018 and 2017 consolidated statements of operations and comprehensive income ( loss ) for the years ended may 31 , 2018 , 2017 and 2016 consolidated statements of cash flows for the years ended may 31 , 2018 , 2017 and 2016 consolidated statements of stockholders ' equity for the years ended may 31 , 2018 , 2017 and 2016 notes to consolidated financial statements for the years ended may 31 , 2018 , 2017 and 2016 reports of independent registered public accounting firms ( 2 ) financial statement schedules : all financial statement schedules are omitted either because they are not applicable , not required , or the required information is included in the financial statements or notes thereto . ( 3 ) exhibits : reference is made to the list on page 45 of the exhibits filed with this report . page 44 index to exhibits exhibits description exhibits marked with an asterisk ( * ) are incorporated by reference to exhibits or appendices previously filed with the securities and exchange commission , as indicated by the references in brackets . all other exhibits are filed herewith . * 2.1 asset purchase agreement between schmitt industries , inc. , and glenn valliant , an individual doing business as optical dimensions , dated september 30 , 2009 . [ form 10-q for the fiscal quarter ended november 30 , 2009 , exhibit 2.1 ] * 3.1 second restated articles of incorporation of schmitt industries , inc. [ form 10-k for the fiscal year ended may 31 , 1999 , exhibit 3 ( i ) ] * 3.2 second restated bylaws of schmitt industries , inc. [ form 10-k for the fiscal year ended may 31 , 1999 , exhibit 3 ( ii ) ] * 4.1 see exhibits 3.1 and 3.2 for provisions of the articles of incorporation and bylaws defining the rights of security holders . * 10.1 schmitt industries , inc. 2014 equity incentive plan . [ appendix a to schedule 14a filed on august 26 , 2014 ] * 14.1 code of ethics and business conduct . [ form 10-k for the fiscal year ended may 31 , 2004 , exhibit 14.1 ] 21.1 subsidiaries of schmitt industries , inc. as of may 31 , 2018 . 23.1 consent of independent registered public accounting firm . 31.1 certification of principal executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . 31.2 certification of principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . 32.1 certification of principal executive officer and principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 100.ins xbrl instance document 100.sch xbrl taxonomy extension schema document 100.cal xbrl taxonomy extension calculation linkbase document 100.lab xbrl taxonomy extension label linkbase document 100.pre xbrl taxonomy extension presentation linkbase document 100.def xbrl taxonomy extension definition linkbase document management contract or compensatory plan or arrangement required to be filed as an exhibit to this form 10-k. page 45 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . schmitt industries , inc. by : david w. case david w. case president and chief executive officer date : august 21 , 2018 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on august 21 , 2018. signature title michael j. ellsworth michael j. ellsworth chairman of the board david w. case david w. case director , president and chief executive officer ( principal executive officer ) ann m. ferguson ann m. ferguson chief financial officer and treasurer ( principal financial and accounting officer ) maynard brown maynard brown director charles davidson charles davidson director david m. hudson david m. hudson director page 46 story_separator_special_tag results of operations overview schmitt industries , inc. ( the company ) , an oregon corporation , designs , manufactures and sells high precision test and measurement products for two main business segments : the balancer segment and the measurement segment . for the balancer segment , the company designs , manufactures and sells computer-controlled vibration detection , balancing and process control systems for the worldwide machine tool industry , particularly for grinding machines . story_separator_special_tag page 18 story_separator_special_tag or $ ( 0.36 ) per fully diluted share , for the year ended may 31 , 2017. net income for fiscal 2018 was the result of the combination of increased sales in the balancing segment and increases in the overall gross margin . fiscal year ended may 31 , 2017 compared to fiscal year ended may 31 , 2016 net sales for the fiscal year ended may 31 , 2017 , net sales increased $ 712,290 , or 6.1 % , to $ 12,397,643 from $ 11,685,353 for the fiscal year ended may 31 , 2016. balancer segment sales increased $ 119,728 , or 1.7 % , to $ 7,082,474 for fiscal 2017 as compared to $ 6,962,746 for fiscal 2016. this increase was primarily attributed to stronger sales in asia and other regions of the world , offset by lower shipments into north america in the early part of fiscal 2017. sales by geographic markets for the balancer segment for the years ended may 31 , 2017 and 2016 were as follows : replace_table_token_6_th measurement segment sales increased $ 592,562 , or 12.5 % , to $ 5,315,169 for fiscal 2017 as compared to $ 4,722,607 for fiscal 2016. during fiscal 2017 , the company made the decision to no longer focus on and eventually to phase out the sms and lasercheck product lines , which have historically been included in the measurement segment . sales by product line for the measurement segment for the years ended may 31 , 2017 and 2016 were as follows : replace_table_token_7_th gross margin gross margin in fiscal 2017 decreased to 39.4 % compared to 41.7 % in fiscal 2016. the variances in gross margin between the periods presented were primarily influenced by shifts in the product sales mix from higher to lower margin product line sales . operating expenses operating expenses decreased $ 429,278 , or 6.8 % , to $ 5,874,491 in fiscal 2017 to $ 6,303,769 in fiscal 2016. general , administrative and sales expenses decreased $ 397,770 , or 6.6 % , to $ 5,618,327 in fiscal 2017 as compared to $ 6,016,097 in the prior fiscal year . these decreases were primarily attributed to reductions in sales related payroll expense and reduction in specific sales-related travel and marketing where sales were not being generated commensurate with the costs being incurred . in addition , the overall decrease was impacted by reductions in administrative related payroll and other administrative expenses , offset in part by increases in professional expenses . other income ( expense ) other income ( expense ) consists of interest income , interest expense , foreign currency exchange gain ( loss ) and other income ( expense ) . interest income was $ 2,309 and $ 1,338 in fiscal 2017 and page 21 2016 , respectively . fluctuations in interest income are impacted by the levels of our average cash and investment balances and changes in interest rates . interest expense , which is primarily related to the capital lease of a piece of manufacturing equipment , was $ 2,982 and $ 2,988 in fiscal 2017 and 2016 , respectively . foreign currency exchange loss was $ 63,744 and $ 57,406 in fiscal 2017 and 2016 , respectively . the foreign currency exchange loss fluctuated with the strength of foreign currencies against the u.s. dollar during the respective periods . provision for income taxes the effective tax rate in fiscal 2017 was 2.7 % . the effective tax rate on consolidated net loss in fiscal 2017 differed from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance . the effective tax rate in fiscal 2016 was 1.3 % . the effective tax rate on consolidated net loss in fiscal 2016 differed from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance . net income ( loss ) net loss was $ 1,073,364 , or $ ( 0.36 ) per fully diluted share , for the year ended may 31 , 2017 as compared to net loss of $ 1,515,189 , or $ ( 0.51 ) per fully diluted share , for the year ended may 31 , 2016. net loss for fiscal 2017 was the result of the combination of lower sales in the north america balancer in the first half of the fiscal year , lower overall margins and decreases in sales associated with our sms and lasercheck product lines . liquidity and capital resources the company 's working capital increased $ 2,737,161 to $ 8,247,973 as of may 31 , 2018 compared to $ 5,510,812 as of may 31 , 2017. cash , cash equivalents and restricted cash increased $ 1,243,926 from $ 867,607 as of may 31 , 2017 to $ 2,111,533 as of may 31 , 2018. on december 20 , 2017 , the company completed its subscription rights offering ( the rights offering ) in which 998,635 common shares were issued , resulting in proceeds to the company , net of expenses , of $ 2,386,029 which is reflected in net cash provided by financing activities for the year ended may 31 , 2018. pursuant to the rights offering , the company issued one right for each common share to shareholders of record as of november 27 , 2017. holders of the rights were entitled to purchase common shares by submitting three rights and $ 2.50 for each share to be purchased . the new shares were issued on december 27 , 2017. cash used in operating activities was $ 1,002,849 in fiscal 2018 as compared to cash used in operating activities of $ 148,288 in fiscal 2017 and cash used in operations of $ 819,808 in fiscal 2016. with the successful completion of the rights offering in december 2017 , the company was able to invest in inventory , which represents the most significant component of the cash
| results of operations replace_table_token_3_th fiscal year ended may 31 , 2018 compared to fiscal year ended may 31 , 2017 net sales net sales increased $ 1,490,420 , or 12.0 % , to $ 13,888,063 for the fiscal year ended may 31 , 2018 ( fiscal 2018 ) from $ 12,397,643 in the fiscal year ended may 31 , 2017 ( fiscal 2017 ) . the balancer segment focuses its sales efforts on end-users , rebuilders and original equipment manufacturers of grinding machines within the worldwide machine tool industry , with our primary target geographic markets being north america , asia , and europe . balancer segment sales increased $ 1,944,356 , or 27.5 % , to $ 9,026,830 in fiscal 2018 compared to $ 7,082,474 in fiscal 2017. this increase was attributed to stronger sales in each of our target markets . sales by geographic markets for the balancer segment for the years ended may 31 , 2018 and 2017 were as follows : replace_table_token_4_th the levels of demand for our balancer products in any of these geographic markets can not be forecasted with any certainty given current economic trends and the historical volatility experienced in this market . the measurement segment includes two main product lines : the acuity ® product line , which includes laser-based distance measurement and dimensional sizing laser sensors ; and the xact ® product line , which includes ultrasonic-based remote tank monitoring products and related monitoring revenues . measurement sales decreased $ 453,936 , or 8.5 % , to $ 4,861,233 in fiscal 2018 as compared to $ 5,315,169 in fiscal 2017. during fiscal 2017 , the company made the decision to no longer focus on and eventually phase out the sms and lasercheck product page 19 lines , which have historically been included in the measurement segment .
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collectively , the company refers to 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. 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 contained in or implied by any forward-looking statements . factors that could cause or contribute to these differences include those under “ risk factors ” included in part i , item 1a or in other parts of this annual report on form 10-k. overview everbridge is a global software company that provides enterprise software applications that automate and accelerate organizations ' operational response to critical events in order to keep people safe and businesses running . during public safety threats such as active shooter situations , terrorist attacks or severe weather conditions , as well as critical business events such as it outages , cyber-attacks or other incidents such as product recalls or supply-chain interruptions , customers rely on our critical event management platform to quickly and reliably aggregate and assess threat data , locate people at risk and responders able to assist , automate the execution of pre-defined communications processes and track progress on executing response plans . our customers use our platform to identify and assess hundreds of different types of threats to their organizations , people , assets or brand . our solutions enable organizations to deliver intelligent , contextual messages to , and receive verification of delivery from , hundreds of millions of recipients , across multiple communications modalities such as voice , sms and e-mail , in over 200 countries and territories , in 22 languages and dialects – all simultaneously . our critical event management platform is comprised of a comprehensive set of software applications that address the full spectrum of tasks an organization has to perform to manage a critical event , including mass notification , incident management , safety connection , it alerting , visual command center , public warning , crisis management , community engagement , risk intelligence and secure messaging . we believe that our broad suite of integrated , enterprise applications delivered via a single global platform is a significant competitive advantage in the market for critical event management solutions , which we refer to generally as cem . our customer base has grown from 867 customers at the end of 2011 to more than 5,000 customers as of december 31 , 2019. as of december 31 , 2019 , our customers were based in 50 countries and included eight of the 10 largest u.s. cities , eight of the 10 largest u.s.-based investment banks , 46 of the 50 busiest north american airports , nine of the 10 largest global consulting firms , seven of the 10 largest global automakers , all four of the largest global accounting firms , nine of the 10 largest u.s.-based health care providers , and six of the 10 largest u.s.-based health insurers . we provide our applications to customers of varying sizes , including enterprises , small businesses , non-profit organizations , educational institutions and governmental agencies . our customers span a wide variety of industries including technology , energy , financial services , healthcare and life sciences , manufacturing , media and entertainment , retail , higher education and professional services . we sell all of our critical event management applications on a subscription basis . we generally enter into contracts that range from one to three years in length , with an average contract duration of 2.0 years as of december 31 , 2019 , and generally bill and collect payment annually in advance . we derive most of our revenue from subscriptions to applications . over 92 % of the revenue that we recognized in each of the eight most recently completed quarters was generated from contracts entered into in prior quarters or renewals of those contracts ; the balance of the revenue that we recognized in each such quarter was generated from contracts entered into with new customers or new contracts , other than renewals , entered into with existing customers in such quarter . historically , we derived more than 61 % of our revenue in each of the last three fiscal years from sales of our mass notification application . our pricing model is based on the number of applications subscribed to and , per application , the number of people , locations and things connected to our platform as well as the volume of communications . we also offer premium services including data feeds for social media , threat intelligence and weather . we generate additional revenue by expanding the number of applications that our customers subscribe to and the number of contacts and devices connected to our platform . we generated revenue of $ 200.9 million in 2019 , $ 147.1 million in 2018 , $ 104.4 million in 2017 and $ 76.8 million in 2016 , representing year-over-year increases of 37 % in 2019 , 41 % in 2018 and 36 % in 2017. we had net losses of $ 52.3 million , $ 47.5 million , $ 19.6 million and $ 11.3 million in 2019 , 2018 , 2017 and 2016 , respectively . as of december 31 , 2019 , and 2018 , 23 % and 19 % of our customers , respectively , were located outside of the united states and these customers generated 22 % and 19 % of our total revenue for the years ended december 31 , 2019 and 2018 , respectively . 51 we have focused on rapidly growing our business and believe that the future growth of our business is dependent on many factors , including our ability to increase the functionality of our platform and applications , expand our customer base , accelerate adoption of our applications beyond mass notification within our existing customer base and expand our international presence . story_separator_special_tag all revenue billed in advance of services being delivered is recorded in deferred revenue . the initial subscription period typically ranges from one to three years . we offer varying levels of customer support based on customer needs and the complexity of their businesses , including the level of usage by a customer in terms of minutes or the amount of data used to transmit the notifications . our pricing model is based on the number of applications subscribed to and , per application , the number of people , locations and things connected to our platform as well as the volume of communications . we also offer premium services including data feeds for social media , threat intelligence and weather . we generate additional revenue by expanding the number of premium features and applications that our customers subscribe to and the number of contacts connected to our platform . we also sell professional services , which primarily consist of fees for deployment and optimization services as well as training . in addition , on occasion we may sell our software and related post contract support for on premise usage which is outside of our core business . these sales have been to a limited number of customers and is not a significant revenue stream for us . cost of revenue cost of revenue includes expenses related to the fulfillment of our subscription services , consisting primarily of employee-related expenses for data center operations and customer support , including salaries , bonuses , benefits and stock-based compensation expense . cost of revenue also includes hosting costs , messaging costs and depreciation and amortization . as we add data center capacity and support personnel in advance of anticipated growth , our cost of revenue will increase and , if anticipated revenue growth does not occur , our gross profit will be adversely affected . operating expenses operating expenses consist of sales and marketing , research and development and general and administrative expenses . salaries , bonuses , stock-based compensation expense and other personnel costs are the most significant components of each of these expense categories . we include stock-based compensation expense incurred in connection with the grant of stock options within the applicable operating expense category based on the equity award recipient 's functional area . sales and marketing sales and marketing expense primarily consists of employee-related expenses for sales , marketing and public relations employees , including salaries , bonuses , commissions , benefits and stock-based compensation expense . sales and marketing expense also includes trade show , market research , advertising and other related external marketing expense as well as office and software related costs to support sales . we defer certain sales commissions related to acquiring new customers or services and amortize these expenses ratably over the period of benefit that we have determined to be four years . sales commissions attributable to professional services are expensed within 53 twelve months of selling the service to the customer . we plan to continue to expand our sales and marketing functions to grow our customer base and increase sales to existing customers . this growth will include adding sales personnel and expanding our marketing activities to continue to generate additional leads and build brand awareness . in the near term , we expect our sales and marketing expense to increase on an absolute dollar basis as we hire new sales representatives in the united states and worldwide and grow our marketing staff . research and development research and development expense primarily consists of employee-related expenses for research and development staff , including salaries , bonuses , benefits and stock-based compensation expense . research and development expense also includes the cost of certain third-party services , office related costs to support research and development activities , software subscriptions and hosting costs . we capitalize certain software development costs that are attributable to developing new applications and adding incremental functionality to our platform and amortize these costs over the estimated life of the new application or incremental functionality , which is generally three years . we focus our research and development efforts on improving our applications , developing new applications and delivering new functionality . in the near term , we expect our research and development expense to increase on an absolute dollar basis as we continue to increase the functionality of our platform and applications . general and administrative general and administrative expense primarily consists of employee-related expenses for administrative , legal , finance and human resource personnel , including salaries , bonuses , benefits and stock-based compensation expense . general and administrative expense also includes professional fees , insurance premiums , corporate expenses , transaction-related costs , office-related expenses , facility costs , depreciation and amortization and software license costs . in the near term , we expect our general and administrative expense to increase on an absolute dollar basis as we incur the costs associated with being a publicly traded company . interest and investment income interest income consists of interest earned on our cash balances held at financial institutions . investment income consist of interest earned on our short-term investments which consist of u.s. treasuries , u.s. government agency obligations and money market funds . interest expense interest expense consists of interest on our outstanding debt obligations including amortization of debt discounts and offering costs . loss on extinguishment of convertible notes loss on extinguishment of convertible notes relates to the partial extinguishment of our 2022 notes . other income and expense , net other income and expense , net consists primarily of realized foreign currency gains and losses . 54 story_separator_special_tag $ 3.7 million in depreciation and amortization , $ 0.8 million to support compliance as a public company , a $ 0.6 million increase in office related expenses to support the administrative team , and an increase of $ 0.2 million in software subscription costs .
| results of operations the following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods . the results of operations for the year ended december 31 , 2019 and as of december 31 , 2019 reflects the adoption of asu 2016-02 , leases ( “ topic 842 ” ) . see notes 2 and 18 of the notes to consolidated financial statements for more information . financial data for the years ended december 31 , 2018 and 2017 and as of december 31 , 2018 does not reflect the adoption of topic 842. the results of operations for the years ended december 31 , 2019 and 2018 and as of december 31 , 2019 and 2018 reflect the adoption of asu no . 2014-09 , revenue from contracts with customers ( `` topic 606 '' ) . see notes 2 and 15 of the notes to consolidated financial statements for more information . financial data for the year ended december 31 , 2017 does not reflect the adoption of topic 606.the period-to-period comparison of our historical results is not necessarily indicative of the results that may be expected in the future ( in thousands ) : replace_table_token_6_th ( 1 ) includes stock-based compensation expense and depreciation and amortization of acquired intangible assets as follows ( in thousands ) : replace_table_token_7_th 55 the following table sets forth our consolidated statements of operations as a percentage of revenue ( 1 ) : replace_table_token_8_th ( 1 ) columns may not add up to 100 % due to rounding . * represents less than 0.5 % of revenue .
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the company will pay greenhill an aggregate total of 2 % of all proceeds and consideration paid to the company by amag in connection with the license agreement , including future milestone and royalty payments , after crediting the $ 2,500,000 that was paid to greenhill upon entering into the amag license agreement . the company also reimbursed greenhill $ 7,263 for certain expenses incurred in connection with its advisory services . pursuant to the license agreement , the company has assigned to amag the company 's manufacturing and supply agreements with catalent belgium s.a. to perform fill , finish and packaging of vyleesi . 59 palatin technologies , inc. and subsidiary notes to consolidated financial statements ( 5 ) agreement with fosun : on september 6 , 2017 , the company entered into the fosun license agreement for exclusive rights to commercialize vyleesi in china . under the terms of the agreement , the company received $ 4,500,000 in october 2017 , which consisted of an upfront payment of $ 5,000,000 less $ 500,000 that was withheld in accordance with tax withholding requirements in china and recorded as an expense during the year ended june 30 , 2018. the company will receive a $ 7,500,000 milestone payment when regulatory approval in china is obtained , provided that a commercial supply agreement for vyleesi has been entered into . palatin has the potential to receive up to $ 92,500,000 in additional sales related milestone payments and high single-digit to low double-digit royalties on net sales in the licensed territory . all development , regulatory , sales , marketing , and commercial activities and associated costs in the licensed territory will be the sole responsibility of fosun . ( 6 ) agreement with kwangdong : on november 21 , 2017 , the company entered into the kwangdong license agreement for exclusive rights to commercialize vyleesi in korea . under the terms of the agreement , the company received $ 417,500 in december 2017 , consisting of an upfront payment of $ 500,000 , less $ 82,500 , which was withheld in accordance with tax withholding requirements in korea and recorded as an expense during the year ended june 30 , 2018. based upon certain refund provisions , the upfront payment has been recorded as non-current deferred revenue at june 30 , 2018. the company will receive a $ 3,000,000 milestone payment based on the first commercial sale in korea . palatin has the potential to receive up to $ 37,500,000 in additional sales related milestone payments and mid-single-digit to low double-digit royalties on net sales in the licensed territory . all development , regulatory , sales , marketing , and commercial activities and associated costs in the licensed territory will be the sole responsibility of kwangdong . ( 7 ) prepaid expenses and other current assets prepaid expenses and other current assets consist of the following : replace_table_token_11_th ( 8 ) investments the following summarizes the carrying value of our available-for-sale investments , which consist of corporate debt securities : replace_table_token_12_th ( 9 ) fair value measurements the fair value of cash equivalents is classified using a hierarchy prioritized based on inputs . level 1 inputs are quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability , either directly or indirectly through market corroboration , for substantially the full term of the financial instrument . level 3 inputs are unobservable inputs based on management 's own assumptions used to measure assets and liabilities at fair value . a financial asset or liability 's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement . 60 palatin technologies , inc. and subsidiary notes to consolidated financial statements the following table provides the assets carried at fair value : replace_table_token_13_th ( 10 ) property and equipment , net property and equipment , net , consists of the following : replace_table_token_14_th the aggregate cost of assets acquired under capital leases was $ 146,115 as of both june 30 , 2018 and 2017. accumulated amortization associated with assets acquired under capital leases was $ 122,115 and $ 106,115 as of june 30 , 2018 and 2017 , respectively . ( 11 ) accrued expenses accrued expenses consist of the following : replace_table_token_15_th ( 12 ) notes payable : notes payable consist of the following : replace_table_token_16_th 61 palatin technologies , inc. and subsidiary notes to consolidated financial statements on december 23 , 2014 , the company story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements filed as part of this annual report . forward-looking statements the following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws . you are urged to carefully review our description and examples of forward-looking statements included earlier in this annual report on form 10-k immediately prior to part i , under the heading “ forward-looking statements. ” forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements . you are urged to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results , including those made in part i , item 1a of this annual report on form 10-k , and any of those made in our other reports filed with the sec . you are cautioned not to place undue reliance on the forward-looking statements included herein , which speak only as of the date of this document . story_separator_special_tag the amounts of project spending above exclude general research and development spending , which was $ 4,536,204 and $ 3,699,143 in fiscal 2017 and fiscal 2016 , respectively . the increase in general research and development spending is primarily attributable to additional staffing and secondarily to the recognition of stock-based compensation . cumulative spending from inception to june 30 , 2017 was approximately $ 279,000,000 on our vyleesi program and approximately $ 125,400,000 on all our other programs ( which include pl-3994 , pl-8177 , other melanocortin receptor agonists , other discovery programs and terminated programs ) . due to various risk factors described herein under “ risk factors , ” including the difficulty in currently estimating the costs and timing of future phase 1 clinical trials and larger-scale phase 2 and phase 3 clinical trials for any product under development , we can not predict with reasonable certainty when , if ever , a program will advance to the next stage of development or be successfully completed , or when , if ever , related net cash inflows will be generated . general and administrative – general and administrative expenses , which consist mainly of compensation and related costs , were $ 9,610,147 for fiscal 2017 compared to $ 6,179,084 for fiscal 2016. the increase in general and administrative expenses is primarily attributable to payment for professional services of greenhill & co. llc relating to entering into our license agreement with amag and secondarily attributable to employee related expenses recognized in the year . other income ( expense ) – total other expense , net was $ ( 2,262,039 ) and $ ( 2,462,801 ) for fiscal 2017 and fiscal 2016 , respectively . for fiscal 2017 , we recognized $ ( 2,288,309 ) of interest expense primarily related to our venture debt offset by $ 26,270 of investment income . for fiscal 2016 , we recognized $ ( 2,513,027 ) of interest expense primarily related to our venture debt offset by $ 50,226 of investment income . income taxes – income tax expense was $ 500,000 in fiscal 2017 compared to no income tax expense or benefit in fiscal 2016. the fiscal 2017 income tax expense related to estimated alternative minimum tax ( “ amt ” ) expense based on estimated federal alternative minimum taxable income attributable to the $ 60,000,000 initial payment from amag . effects of inflation we do not believe that inflation has had a material impact on our business , revenues or operating results during the periods presented . 42 liquidity and capital resources since inception , we have incurred net operating losses , primarily related to spending on our research and development programs . we have financed our net operating losses primarily through debt and equity financings and amounts received under collaborative agreements . our product candidates are at various stages of development and will require significant further research , development and testing and some may never be successfully developed or commercialized . we may experience uncertainties , delays , difficulties and expenses commonly experienced by early stage biopharmaceutical companies , which may include unanticipated problems and additional costs relating to : ● the development and testing of products in animals and humans ; ● product approval or clearance ; ● regulatory compliance ; ● gmp compliance ; ● intellectual property rights ; ● product introduction ; ● marketing , sales and competition ; and ● obtaining sufficient capital . failure to enter into or successfully perform under collaboration agreements and obtain timely regulatory approval for our product candidates and indications would impact our ability to increase revenues and could make it more difficult to attract investment capital for funding our operations . any of these possibilities could materially and adversely affect our operations and require us to curtail or cease certain programs . during fiscal 2018 , net cash provided by operating activities was $ 1,703,103 compared to net cash provided by operating activities of $ 12,881,527 in fiscal 2017 , compared to cash used in operating activities of $ 47,363,814 in fiscal 2016. the difference in cash provided by operations in fiscal 2018 compared with fiscal 2017 was the result of the initial payment in fiscal 2017 and lower cash receipts relating to the license agreement with amag . the difference of cash provided by and cash used in operations in fiscal 2017 compared to fiscal 2016 was primarily the result of the receipt of the initial payment of $ 60,000,000 relating to the license agreement with amag . during fiscal 2018 , net cash provided by investing activities was $ 227,549 , which consisted of $ 250,000 of proceeds from maturity of investments offset by $ 22,451 used for the acquisition of equipment . during fiscal 2017 , net cash provided by investing activities was $ 991,596 , which consisted of $ 1,124,999 of proceeds from the maturity of investments offset by $ 133,403 used for the acquisition of equipment . during fiscal 2016 , net cash used in investing activities was $ 1,404,717 , consisting primarily of the purchase of investments . during fiscal 2018 , net cash used in financing activities was $ 4,130,805 , which consisted of payments of capital lease obligations of $ 14,324 , payment of withholding taxes related to restricted stock units of $ 45,165 , and payment of debt obligations of $ 8,000,000 , offset by proceeds from the exercise of stock options , and common stock warrants of $ 2,670,910 and sale of common stock of $ 1,257,774. during fiscal 2017 , net cash provided by financing activities was $ 18,324,533 , which consisted of net proceeds from our underwritten offerings of units consisting of our common stock and warrants in august and december 2016 of $ 23,856,973 and proceeds from the exercise of warrants of $ 164,358 , offset by $ 5,696,798 for the payments on notes payable , capital lease payments and the payment of withholding taxes related to restricted
| results of operations year ended june 30 , 2018 compared to the year ended june 30 , 2017 : revenue – for the fiscal year ended june 30 , 2018 ( “ fiscal 2018 ” ) , we recognized $ 67,134,758 in revenue pursuant to our license agreements with amag and fosun compared to $ 44,723,827 in revenue for the year ended june 30,2017 ( “ fiscal 2017 ” ) . on january 8 , 2017 , we entered into a license agreement ( the “ amag license agreement ” ) with amag which provided for $ 60,000,000 as a one-time initial payment . pursuant to the terms of and subject to the conditions in the amag license agreement , amag reimbursed us $ 25,000,000 , less certain expenses directly paid or to be paid by amag for reasonable , documented , direct out-of-pocket expenses we incurred following the effective date of the license agreement in connection with development and regulatory activities necessary to file an nda for vyleesi for hsdd in the united states , less certain other expenses directly paid or to be paid by amag . the company recognized $ 42,134,758 and $ 44,723,827 for fiscal 2018 and fiscal 2017 respectively as license and contract revenue which included additional billings for amag related vyleesi costs of $ 1,151,243 and $ 707,342 in fiscal 2018 and fiscal 2017 , respectively . in addition , pursuant to the terms of and subject to the conditions in the amag license agreement , the company will be eligible to receive from amag ( i ) up to $ 80,000,000 in specified regulatory milestone payments upon achievement of certain regulatory milestones , and ( ii ) up to $ 300,000,000 in sales milestone payments based on achievement of certain annual net sales for all products in the territory . on june 4 , 2018 the fda accepted the vyleesi nda for filing .
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actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , as more fully described in the cautionary statement and elsewhere in this annual report on form 10-k. 20 chs inc. ( `` chs '' , `` we '' or `` us '' ) is a diversified company , which provides grain , foods and energy resources to businesses and consumers on a global basis . as a cooperative , we are owned by farmers , ranchers and their member cooperatives across the united states . we also have preferred shareholders that own shares of our five series of preferred stock , which are each listed and traded on the nasdaq global select market . we provide a full range of production agricultural inputs such as refined fuels , propane , farm supplies , animal nutrition and agronomy products , as well as services , which include hedging , financing and insurance services . we own and operate petroleum refineries and pipelines and market and distribute refined fuels and other energy products under the cenex ® brand through a network of member cooperatives and independent retailers . we purchase grains and oilseeds directly and indirectly from agricultural producers primarily in the midwestern and western united states . these grains and oilseeds are either sold to domestic and international customers or further processed into a variety of grain-based food products or renewable fuels . the consolidated financial statements include the accounts of chs and all of our wholly-owned and majority-owned subsidiaries and limited liability companies . the effects of all significant intercompany transactions have been eliminated . prior to fiscal 2015 , our renewable fuels marketing business was included in our energy segment and our renewable fuels production business was included in our ag segment . at the beginning of fiscal 2015 , we reconfigured certain parts of our business to better align our ethanol supply chain . as a result , our renewable fuels marketing business is now managed together with our renewable fuels production business within our ag segment . in accordance with accounting standards codification ( `` asc '' ) topic 280 , segment reporting , we have identified our operating segments to reflect the manner in which our chief operating decision maker evaluates performance and manages the business , and we have aggregated those operating segments into our energy , ag , nitrogen production , and foods reportable segments , as well as our corporate and other category . prior period segment information has been revised to ensure comparability . our energy segment produces and provides primarily for the wholesale distribution of petroleum products and transportation of those products . our ag segment purchases and further processes or resells grains and oilseeds originated by our country operations business , by our member cooperatives and by third parties , and also serves as a wholesaler and retailer of crop inputs . our nitrogen production segment consists solely of our equity method investment in cf nitrogen and produces and distributes nitrogen fertilizer , a commodity chemical . our foods segment consists solely of our equity method investment in ventura foods and is a processor and distributor of edible oils used in food preparation and a packager of food products . corporate and other primarily represents our non-consolidated wheat milling joint venture , as well as our business solutions operations , which consist of commodities hedging , insurance and financial services related to crop production . corporate administrative expenses and interest are allocated to each business segment , and corporate and other , based on direct usage for services that can be tracked , such as information technology and legal , and other factors or considerations relevant to the costs incurred . many of our business activities are highly seasonal and operating results vary throughout the year . our revenues and income are generally lowest during the second and fourth fiscal quarters and highest during the first and third fiscal quarters . for example , in our ag segment , our crop nutrients and country operations businesses generally experience higher volumes and income during the spring planting season and in the fall , which corresponds to harvest . our grain marketing operations are also subject to fluctuations in volume and earnings based on producer harvests , world grain prices and demand . our energy segment generally experiences higher volumes and profitability in certain operating areas , such as refined products , in the summer and early fall when gasoline and diesel fuel usage is highest and is subject to global supply and demand forces . other energy products , such as propane , may experience higher volumes and profitability during the winter heating and crop drying seasons . our revenues , assets and cash flows can be significantly affected by global market prices for commodities such as petroleum products , natural gas , grains , oilseeds , crop nutrients and flour . changes in market prices for commodities that we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings . commodity prices are affected by a wide range of factors beyond our control , including the weather , crop damage due to disease or insects , drought , the availability and adequacy of supply , government regulations and policies , world events , and general political and economic conditions . our business is cyclical and in recent years the ag and energy economies were near the peak of the cycle . the ag and energy industries have fallen off of their peaks and entered into a down cycle characterized by reduced commodity prices and lower margins globally . this down cycle also impacts the nitrogen fertilizer industry and as a result , we are similarly impacted in our nitrogen production business . we are unable to predict how long this down cycle will last or how severe it may be . story_separator_special_tag consolidated cost of goods sold was $ 29.4 billion for the year ended august 31 , 2016 , compared to $ 33.1 billion for the year ended august 31 , 2015 , which represents a $ 3.7 billion ( 11 % ) decrease . our energy segment cost of goods sold , after elimination of intersegment costs , decreased by approximately $ 2.5 billion ( 33 % ) to $ 5.0 billion during the year ended august 31 , 2016 , compared to the prior year . the decrease in cost of goods sold is primarily due to decreases in our refined fuels and propane businesses . specifically , refined fuels cost of goods sold decreased $ 1.8 billion ( 30 % ) , which reflects a $ 0.52 per gallon ( 24 % ) decrease in the average cost of refined fuels when compared to the prior year . the propane cost of goods sold decreased $ 432.3 million ( 47 % ) , primarily from an average cost decrease of $ 0.38 per gallon ( 37 % ) and a 16 % decrease in volumes . our ag segment cost of goods sold , after elimination of intersegment costs , decreased by $ 1.2 billion ( 5 % ) to $ 24.3 billion , during the year ended august 31 , 2016 , compared to the prior year . grain cost of goods sold in our ag segment totaled $ 16.6 billion and $ 16.8 billion during the years ended august 31 , 2016 and 2015 , respectively . the costs of grains and oilseed procured through our ag segment in the year ended august 31 , 2016 decreased $ 269.5 million compared to the year ended august 31 , 2015. the majority of the decrease was driven by a lower average cost per bushel of $ 0.98 ( 16 % ) , which accounted for $ 3.2 billion of the decrease , partially offset by a 17 % increase in volumes of $ 2.9 billion for the year ended august 31 , 2016 , compared to the prior year . our processing and food ingredients cost of goods sold in our ag segment of $ 1.5 billion increased $ 36.9 million ( 2 % ) for the year ended august 31 , 2016 , compared to the year ended august 31 , 2015. the net increase is comprised of $ 879.2 million in higher volumes , partially offset by $ 815.0 million from a lower average cost of oilseeds purchased for further processing , when compared to the year ended august 31 , 2015. changes in cost are typically driven by the market price of soybeans purchased . in addition , in fiscal 2016 , we recorded a non-cash charge of $ 27.3 million associated with the disposal and impairment of certain fixed assets at our domestic and international facilities . wholesale crop nutrients cost of goods sold in our ag segment totaled $ 1.9 billion and decreased $ 361.2 million ( 15 % ) during the year ended august 31 , 2016 , compared to the year ended august 31 , 2015. the decrease is the result of a 15 % lower average cost per ton and a decrease in the tons sold of less than 1 % , when compared to the prior year . renewable fuels cost of goods sold associated with our marketing and production operations decreased $ 172.5 million ( 11 % ) for the year ended august 31 , 2016 , compared to the year ended august 31 , 2015. this was primarily due to a decrease in the average cost per gallon of $ 0.21 ( 12 % ) which was partially offset by an increase in volumes , when compared to the prior year . our ag segment other product cost of goods sold , primarily feed and farm supplies , decreased $ 321.6 million ( 12 % ) for the year ended august 31 , 2016 , compared to the year ended august 31 , 2015 , primarily the result of decreased country operations retail sales of feed and farm supplies and the purchase price of energy related products . marketing , general and administrative . marketing , general and administrative expenses of $ 649.1 million for the year ended august 31 , 2016 , decreased by $ 126.3 million ( 16 % ) compared to the prior year . in fiscal 2015 there was a $ 116.5 million charge related to our decision not to proceed with the development of a nitrogen fertilizer plant in spiritwood , north dakota , which did not reoccur in fiscal 2016. the remaining decrease is primarily due to a reduction of compensation expenses , including a significant reduction of incentive compensation accruals , partially offset by a net increase in receivables specific reserves related to an international customer and a domestic customer and increased costs related to prior year acquisitions included for the full year in fiscal 2016. gain/loss on investments . gain on investments for the year ended august 31 , 2016 increased by $ 4.0 million compared to the year ended august 31 , 2016. the increase was related to gains on bond transactions specific to our international operations . interest expense , net . net interest of $ 75.3 million for the year ended august 31 , 2016 , increased $ 15.0 million ( 25 % ) compared to the previous year . approximately $ 50.9 million of the increase was related to interest expense associated with increased debt balances in fiscal 2016 as well as lower capitalized interest of $ 26.9 million associated with our ongoing capital projects . this was partially offset by additional interest income of $ 28.0 million and a decrease of $ 34.8 million associated with a decrease in patronage earned by the noncontrolling interests of ncra ( now known as chs mcpherson ) . 24 equity income from investments .
| results of operations comparison of the years ended august 31 , 2016 and 2015 general . we recorded income before income taxes of $ 419.9 million during the year ended august 31 , 2016 , compared to $ 768.2 million recorded during the year ended august 31 , 2015 , a decrease of $ 348.3 million ( 45 % ) . results reflect decreased pretax earnings in our energy and ag segments , as well as corporate and other , partially offset by increased pretax earnings in our foods segment , which was previously reported as a component of corporate and other , and our new nitrogen production segment , which reflects the results of our strategic investment in cf nitrogen . our energy segment generated income before income taxes of $ 275.4 million for the year ended august 31 , 2016 , compared to $ 538.1 million for the year ended august 31 , 2015 , representing a decrease of $ 262.7 million ( 49 % ) , primarily due to significantly reduced refining margins in fiscal 2016. our transportation business also experienced a decline while our propane and lubricants businesses earnings increased versus the prior year . we are subject to the renewable fuel standard ( `` rfs '' ) which requires refiners to blend renewable fuels ( e.g. , ethanol , biodiesel ) into their finished transportation fuels or purchase renewable energy credits , known as renewable identification numbers ( `` rins '' ) , in lieu of blending . the epa generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year . we generate rins under the rfs in our renewable fuels operations and through our blending activities at our terminals , however we can not generate enough rins to meet the needs of our refining capacity and rins must be purchased on the open market . the price of rins can be volatile .
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these statements may be identified by words such as “ estimate ” , “ forecast ” , “ project ” , “ plan ” , “ intend ” , “ believe ” , “ expect ” , “ anticipate ” , or variations or negatives thereof or by similar or comparable words or phrases . forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements . these risks and uncertainties include , but are not limited to , the following : changes to or new interpretations of u.s. or international tax regulations , the global financial and economic situation ; the duration and impact of the covid-19 pandemic and efforts to mitigate its spread ; changes in levels of unemployment and other economic conditions in the united states or foreign countries where the company does business , or in particular regions or industries ; reduction in the supply of candidates for contract employment or the company 's ability to attract candidates ; the entry of new competitors into the marketplace or expansion by existing competitors ; the ability of the company to maintain existing client relationships and attract new clients in the context of changing economic or competitive conditions ; the impact of competitive pressures , including any change in the demand for the company 's services , on the company 's ability to maintain its margins ; the possibility of the company incurring liability for its activities , including the activities of its engagement professionals , or for events impacting its engagement professionals on clients ' premises ; the possibility that adverse publicity could impact the company 's ability to attract and retain clients and candidates ; the success of the company in attracting , training , and retaining qualified management personnel and other staff employees ; the company 's ability to comply with governmental regulations affecting personnel services businesses in particular or employer/employee relationships in general ; whether there will be ongoing demand for sarbanes-oxley or other regulatory compliance services ; the company 's reliance on short-term contracts for a significant percentage of its business ; litigation relating to prior or current transactions or activities , including litigation that may be disclosed from time to time in the company 's securities and exchange commission ( “ sec ” ) filings ; the ability of the company to manage its international operations and comply with foreign laws and regulations ; the impact of fluctuations in foreign currency exchange rates ; the possibility that the additional costs the company will incur as a result of health care reform legislation may adversely affect the company 's profit margins or the demand for the company 's services ; the possibility that the company 's computer and communications hardware and software systems could be damaged or their service interrupted or the company could experience a cybersecurity breach ; and the possibility that the company may fail to maintain adequate financial and management controls and as a result suffer errors in its financial reporting . additionally , with respect to protiviti , other risks and uncertainties include the fact that future success will depend on its ability to retain employees and attract clients ; there can be no assurance that there will be ongoing demand for sarbanes-oxley or other regulatory compliance services ; failure to produce projected revenues could adversely affect financial results ; and there is the possibility of involvement in litigation relating to prior or current transactions or activities . because long-term contracts are not a significant part of the company 's business , future results can not be reliably predicted by considering past trends or extrapolating past results . executive overview the company 's financial results during 2020 were affected by the economic crisis resulting from the covid-19 pandemic , primarily in the company 's staffing business . annual service revenues reached $ 5.11 billion in 2020 , a decrease of 15.9 % from the prior year . full-year 2020 net income decreased to $ 306 million and diluted net income per share decreased to $ 2.70. both the temporary and consultant staffing segment and the permanent placement staffing segment experienced revenue declines , while revenue in the risk consulting and internal audit services segment increased 11.8 % in 2020 compared to last year . demand for the company 's contract and consulting staffing , permanent placement staffing , and risk consulting and internal audit services is largely dependent upon general economic and labor trends both domestically and abroad . although covid-19 continues to impact the global economy , the company has prioritized the health and safety of its employees , and a majority of global staffing and protiviti employees continue working remotely . the company has maintained full operations even where physical locations have remained closed . we believe that the company is well positioned to participate fully as broader economic growth returns . despite continued general economic declines , there is still strong competition for skilled talent , which increases the company 's value to clients . the extent of the economic disruption on the company 's operational and financial performance will depend on future developments , including the duration and spread of the pandemic and related actions taken by the u.s. government , state and local government officials , and international governments to prevent disease spread , all of which are uncertain and can not be predicted . 16 given the magnitude of the covid-19 impact on the company 's business , we have worked to effectively manage our costs and pursue revenue-generation opportunities . protiviti continued its record of multi-year double-digit revenue growth , with particular strength in its technology consulting practice , and it continues to benefit fro m multiple solutions offerings and pipeline , including particularly robust growth from the blended solutions with the company 's temporary and consultant staffing operations . story_separator_special_tag in 2020 revenues for the two staffing segments of the company were down whereas revenue was up for the company 's risk consulting and internal audit segment when compared to 2019. the company 's revenues for the year ended december 31 , 2020 were adversely affected by the global stay-at-home orders , significant travel restrictions , and business closures which resulted in global economic disruptions . revenue declines were experienced both domestically and internationally . risk consulting and internal audit services continued to post strong growth rates . contributing factors for each reportable segment are discussed below in further detail . temporary and consultant staffing revenues were $ 3.48 billion for the year ended december 31 , 2020 , decreasing by 21.2 % compared to revenues of $ 4.41 billion for the year ended december 31 , 2019. key drivers of temporary and consultant staffing revenues include average hourly bill rates and the number of hours worked by the company 's engagement professionals on client engagements . on an as adjusted basis , temporary and consultant staffing revenues decreased 21.5 % for 2020 , compared to 2019 , due primarily to fewer hours worked by the company 's engagement professionals , partially offset by a 6.4 % increase in weighted average bill rates . in the u.s. , 2020 revenues decreased 21.4 % on an as reported basis and 21.7 % on an as adjusted basis , compared to 2019. for the company 's international operations , 2020 revenues decreased 20.4 % on an as reported basis and decreased 20.6 % on an as adjusted basis , compared to 2019. permanent placement staffing revenues were $ 370 million for the year ended december 31 , 2020 , decreasing by 30.6 % compared to revenues of $ 533 million for the year ended december 31 , 2019. key drivers of permanent placement staffing revenues consist of the number of candidate placements and average fees earned per placement . on an as adjusted basis , permanent placement staffing revenues decreased 30.9 % for 2020 compared to 2019 , primarily driven by a decrease in number of placements . in the u.s. , 2020 revenues decreased 31.7 % on an as reported basis and 32.0 % on an as adjusted basis , compared to 2019. for the company 's international operations , 2020 revenues decreased 28.1 % on an as reported basis , and decreased 28.3 % on an as adjusted basis , compared to 2019. historically , demand for permanent placement services is even more sensitive to economic and labor market conditions than demand for temporary and consultant staffing and this is expected to continue . risk consulting and internal audit services revenues were $ 1.26 billion for the year ended december 31 , 2020 , increasing by 11.8 % compared to revenues of $ 1.13 billion for the year ended december 31 , 2019. key drivers of risk consulting and internal audit services revenues are the billable hours worked by consultants on client engagements and average hourly bill rates . on an as adjusted basis , risk consulting and internal audit services revenues increased 11.0 % for 2020 compared to 2019 , driven primarily by an increase in billable hours . in the u.s. , 2020 revenues increased 15.4 % on an as reported basis , or 14.9 % on an as adjusted basis , compared to 2019. for the company 's international operations , 2020 revenues decreased 0.8 % on an as reported basis , or decreased 2.3 % on an as adjusted basis , compared to 2019 . 19 a reconciliation of the non-gaap year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the year ended december 31 , 2020 , is presented in the following table : replace_table_token_2_th gross margin . the company 's gross margin dollars were $ 2.01 billion for the year ended december 31 , 2020 , down 20.3 % from $ 2.53 billion for the year ended december 31 , 2019. contributing factors for each reportable segment are discussed below in further detail . gross margin dollars for temporary and consultant staffing represent revenues less costs of services , which consist of payroll , payroll taxes and benefit costs for engagement professionals , and reimbursable expenses . the key drivers of gross margin are : i ) pay-bill spreads , which represent the differential between wages paid to engagement professionals and amounts billed to clients ; ii ) fringe costs , which are primarily composed of payroll taxes and benefit costs for temporary and consultant staffing employees ; and iii ) conversion revenues , which are earned when a temporary position converts to a permanent position with the company 's client . gross margin dollars for the company 's temporary and consultant staffing division were $ 1.31 billion for the year ended december 31 , 2020 , down 21.7 % from $ 1.68 billion for the year ended december 31 , 2019. as a percentage of revenues , gross margin dollars for temporary and consultant staffing were 37.8 % in 2020 , down from 38.0 % in 2019. this year-over-year decline in gross margin percentage was primarily attributable to lower conversion revenues . gross margin dollars for permanent placement staffing represent revenues less reimbursable expenses . gross margin dollars for the company 's permanent placement staffing division were $ 369 million for the year ended december 31 , 2020 , down 30.6 % from $ 532 million for the year ended december 31 , 2019. because reimbursable expenses for permanent placement staffing are de minimis , gross margin dollars are substantially explained by the decline in revenues previously discussed . gross margin dollars for risk consulting and internal audit services represent revenues less costs of services , which consist primarily of professional staff payroll , payroll taxes , benefit costs and reimbursable expenses .
| results of operations demand for the company 's temporary and consultant staffing , permanent placement staffing and risk consulting and internal audit services is largely dependent upon general economic and labor market conditions both domestically and abroad . because of the inherent difficulty in predicting economic trends , future demand for the company 's services can not be forecast with certainty . the company 's investments in technology have allowed its internal staff to remain fully functional while working remotely during this pandemic . while uncertainty remains in the overall economic environment , we enter 2021 with renewed optimism about the company 's positioning for future growth . we have retained our key staff and they are committed to driving our success as the backbone of our enterprise . our technology investments have facilitated remote working models internally and , with the company 's advanced ai-driven capabilities , are providing clients with real-time choices of candidates from outside their local market area . owing to its diversified solution offerings , protiviti continues its record of multi-year double-digit revenue growth . the collaboration between protiviti and staffing is at an all-time high . the company 's temporary and permanent staffing business conducts placement activities through 326 offices in 42 states , the district of columbia and 17 foreign countries , while protiviti has 62 offices in 23 states and 12 foreign countries . the company has changed its consolidated statements of operations to separately present ( income ) loss from investments held in employee deferred compensation trusts . under the company 's employee deferred compensation plans , employees direct the investment of their account balances , and the company invests amounts held in the associated investment trusts consistent with these directions . as realized and unrealized investment gains and losses occur , the company 's deferred compensation obligation to employees changes accordingly .
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step two of the goodwill impairment analysis measures the impairment charge by allocating the reporting unit 's fair value story_separator_special_tag the following discussion and analysis of our results of operations and financial condition for the fiscal years ended march 31 , 2015 , 2014 and 2013 , should be read in conjunction with our audited consolidated financial statements and the notes to those statements included in item 8. financial statements and supplementary data , of this annual report on form 10-k. our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , opinions , expectations , anticipations and intentions and beliefs . actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors . see “ cautionary note regarding forward-looking statements , ” “ business ” and “ risk factors , ” sections elsewhere in this annual report on form 10-k. in the following discussion and analysis of results of operations and financial condition , certain financial measures may be considered “ non-gaap financial measures ” under the sec rules . these rules require supplemental explanation and reconciliation , which is provided in this annual report on form 10-k. enersys ' management uses the non-gaap measures , ebitda and adjusted ebitda , in its computation of compliance with loan covenants . these measures , as used by enersys , adjust net earnings determined in accordance with gaap for interest , taxes , depreciation and amortization , and certain charges or credits as permitted by our credit agreements , that were recorded during the periods presented . enersys ' management uses the non-gaap measures , '' primary working capital '' and `` primary working capital percentage '' ( see definition in “ overview ” below ) along with capital expenditures , in its evaluation of business segment cash flow and financial position performance . these non-gaap disclosures have limitations as analytical tools , should not be viewed as a substitute for cash flow or operating earnings determined in accordance with gaap , and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . this supplemental presentation should not be construed as an inference that the company 's future results will be unaffected by similar adjustments to operating earnings determined in accordance with gaap . overview enersys ( the “ company , ” “ we , ” or “ us ” ) is the world 's largest manufacturer , marketer and distributor of industrial batteries . we also manufacture , market and distribute products such as battery chargers , power equipment , battery accessories , and outdoor equipment enclosure solutions . additionally , we provide related aftermarket and customer-support services for our products . we market our products globally to over 10,000 customers in more than 100 countries through a network of distributors , independent representatives and our internal sales force . we operate and manage our business in three geographic regions of the world—americas , emea and asia , as described below . our business is highly decentralized with manufacturing locations throughout the world . more than half of our manufacturing capacity is located outside the united states , and approximately 60 % of our net sales were generated outside the united states . the company has three reportable business segments based on geographic regions , defined as follows : americas , which includes north and south america , with our segment headquarters in reading , pennsylvania , usa ; emea , which includes europe , the middle east and africa , with our segment headquarters in zurich , switzerland ; and asia , which includes asia , australia and oceania , with our segment headquarters in singapore . we evaluate business segment performance based primarily upon operating earnings exclusive of highlighted items . highlighted items are those that the company deems are not indicative of ongoing operating results , including those charges that the company incurs as a result of restructuring activities and those charges and credits that are not directly related to ongoing business segment performance . all corporate and centrally incurred costs are allocated to the business segments based principally on net sales . we evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary working capital levels ( see definition of primary working capital in “ liquidity and capital resources ” below ) . although we monitor the three elements of primary working capital ( receivables , inventory and payables ) , our primary focus is on the total amount due to the significant impact it has on our cash flow . 22 our management structure , financial reporting systems , and associated internal controls and procedures , are all consistent with our three geographic business segments . we report on a march 31 fiscal year-end . our financial results are largely driven by the following factors : global economic conditions and general cyclical patterns of the industries in which our customers operate ; changes in our selling prices and , in periods when our product costs increase , our ability to raise our selling prices to pass such cost increases through to our customers ; the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity ; the extent to which we can control our fixed and variable costs , including those for our raw materials , manufacturing , distribution and operating activities ; changes in our level of debt and changes in the variable interest rates under our credit facilities ; and the size and number of acquisitions and our ability to achieve their intended benefits . we have two primary product lines : reserve power products and motive power products . story_separator_special_tag in order to realize cost savings benefits for a majority of these initiatives , costs are incurred either in the form of capital expenditures , funding the cash obligations of previously recorded restructuring expenses or current period expenses . during fiscal 2012 , we announced restructuring programs related to our operations in emea , primarily consisting of the transfer of manufacturing of select products between certain of our manufacturing operations and restructuring of our selling , general and administrative operations . these actions were completed during fiscal 2014 and resulted in the reduction of approximately 85 employees with an estimated annual savings of $ 6.0 million . during fiscal 2013 , we announced further restructuring related to improving the efficiency of our manufacturing operations in emea , primarily consisting of cash expenses for employee severance-related payments and non-cash expenses associated with the write-off of certain fixed assets and inventory . these actions were substantially completed in fiscal 2015 and resulted in the reduction of approximately 140 employees . our fiscal 2015 operating results reflect the full benefit of the estimated $ 7.0 million of favorable annualized pre-tax earnings impact of the fiscal 2013 programs . there are no further costs to be incurred under these programs . during fiscal 2014 , we announced additional restructuring programs to improve the efficiency of our manufacturing , sales and engineering operations in emea including the restructuring of its manufacturing operations in bulgaria . the restructuring of the bulgaria operations was announced during the third quarter of fiscal 2014 and consists of the transfer of motive power and a portion of reserve power battery manufacturing to our facilities in western europe . we estimate that the total charges for all actions announced during fiscal 2014 will amount to approximately $ 23.4 million , primarily from non-cash charges related to the write-off of fixed assets and inventory of approximately $ 11.0 million , along with cash charges for employee severance-related payments and other charges of $ 12.4 million . we estimate that these actions will result in the reduction of approximately 500 employees upon completion . our fiscal 2015 operating results reflect approximately $ 19.0 million of the total estimated $ 20.0 million of favorable annualized pre-tax earnings impact of the fiscal 2014 programs . we expect to be committed to an additional $ 1.2 million of restructuring charges related to these programs during fiscal 2016 , and expect to complete the program during fiscal 2016 . 24 critical accounting policies and estimates our significant accounting policies are described in notes to consolidated financial statements in item 8. in preparing our financial statements , management is required to make estimates and assumptions that , among other things , affect the reported amounts in the consolidated financial statements and accompanying notes . these estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change , and where they can have a material impact on our financial condition and operating performance . we discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements . if actual results were to differ materially from the estimates made , the reported results could be materially affected . revenue recognition we recognize revenue when the earnings process is complete . this occurs when risk and title transfers , collectibility is reasonably assured and pricing is fixed or determinable . shipment terms to our battery product customers are either shipping point or destination and do not differ significantly between our business segments of the world . accordingly , revenue is recognized when risk and title is transferred to the customer . amounts invoiced to customers for shipping and handling are classified as revenue . taxes on revenue producing transactions are not included in net sales . we recognize revenue from the service of reserve power and motive power products when the respective services are performed . management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations . also , revenues are recorded net of provisions for sales discounts and returns , which are established at the time of sale . these estimates are based on our past experience . asset impairment determinations we test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred . we perform our annual goodwill impairment test on the first day of our fourth quarter for each of our reporting units based on the income approach , also known as the discounted cash flow ( “ dcf ” ) method , which utilizes the present value of future cash flows to estimate fair value . we also use the market approach , which utilizes market price data of companies engaged in the same or a similar line of business as that of our company , to estimate fair value . a reconciliation of the two methods is performed to assess the reasonableness of fair value of each of the reporting units . the future cash flows used under the dcf method are derived from estimates of future revenues , operating income , working capital requirements and capital expenditures , which in turn reflect specific global , industry and market conditions . the discount rate developed for each of the reporting units is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows , including the potential variability in the amount and timing of the cash flows . a terminal growth rate is applied to the final year of the projected period and reflects our estimate of stable growth to perpetuity .
| overview our sales in fiscal 2014 were $ 2.5 billion , an 8.6 % increase from prior year 's sales primarily due to improvement in organic volume and acquisitions of approximately 5 % and 3 % , respectively . gross margin percentage in fiscal 2014 increased by 40 basis points to 25.4 % compared to fiscal 2013 , mainly due to organic volume of 5 % and improved pricing offsetting increased commodity costs . our fourth quarter gross margin was the highest compared to other quarters in the fiscal year . a discussion of specific fiscal 2014 versus fiscal 2013 operating results follows , including an analysis and discussion of the results of our reportable segments . net sales net sales by reportable segment were as follows : replace_table_token_13_th the americas segment 's revenue increased by $ 140.7 million or 12.5 % in fiscal 2014 , as compared to fiscal 2013 , primarily due to an increase in organic volume , acquisitions and pricing of approximately 7 % , 5 % and 1 % , respectively , partially offset by a negative currency translation impact of approximately 1 % . 34 the emea segment 's revenue increased by $ 39.9 million or 4.3 % in fiscal 2014 , as compared to fiscal 2013 primarily due to an increase of 1 % each in organic volume and pricing and a 2 % increase due to currency translation impact . the asia segment 's revenue increased by $ 16.2 million or 7.2 % in fiscal 2014 as compared to fiscal 2013. higher organic volume and acquisitions contributed approximately 10 % and 2 % , respectively , partially offset by a decrease in pricing and currency translation impact of approximately 2 % and 3 % , respectively .
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these forward-looking statements include , but are not limited to , statements concerning our strategy , future operations , future financial position , future revenues , projected costs , expectations regarding demand and acceptance for our financial products , growth opportunities and trends in the market in which we operate , prospects , and plans and objectives of management . the words anticipates , believes , estimates , expects , intends , may , plans , projects , will , would , and similar expressions are intended to identify forward-looking statements , although not all forward-looking statements contain these identifying words . we may not actually achieve the plans , intentions , or expectations disclosed in our forward-looking statements , and you should not place undue reliance on our forward-looking statements . actual results or events could differ materially from the plans , intentions , and expectations disclosed in the forward-looking statements that we make . these forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements , including without limitation , the risks set forth elsewhere in this annual report on form 10-k. the forward-looking information we have provided in this annual report on form 10-k pursuant to the safe harbor established under the private securities litigation reform act of 1995 should be evaluated in the context of these factors . forward-looking statements speak only as of the date they were made , and we undertake no obligation to update or revise such statements , except as required by the federal securities laws . the following discussion should be read in conjunction with , and is qualified in its entirety by reference to , our audited consolidated financial statements , including the notes thereto . overview we are a diversified specialty consumer finance company providing a broad array of loan products primarily to customers with limited access to consumer credit from banks , thrifts , credit card companies , and other traditional lenders . we began operations in 1987 with four branches in south carolina and have expanded our branch network to 300 locations in the states of alabama , georgia , new mexico , north carolina , oklahoma , south carolina , tennessee , and texas as of december 31 , 2014. most of our loan products are secured , and each is structured on a fixed rate , fixed term basis with fully amortizing equal monthly installment payments , repayable at any time without penalty . our loans are sourced through our multiple channel platform , including in our branches , through direct mail campaigns , independent and franchise automobile dealerships , online credit application networks , retailers , and our consumer website . we operate an integrated branch model in which nearly all loans , regardless of origination channel , are serviced through our branch network , providing us with frequent in-person contact with our customers , which we believe improves our credit performance and customer loyalty . our goal is to consistently and soundly grow our finance receivables and manage our portfolio risk while providing our customers with attractive and easy-to-understand loan products that serve their varied financial needs . our diversified product offerings include : small loans our small loan portfolio is comprised of branch small loan receivables and convenience check receivables . as of december 31 , 2014 , we had approximately 289,700 small loans outstanding , representing $ 319.5 million in finance receivables . this includes 115,000 branch small installment loans and 174,700 convenience check loans , representing $ 128.2 million and $ 191.3 million in finance receivables , respectively . large loans as of december 31 , 2014 , we had approximately 12,600 large installment loans outstanding , representing $ 46.1 million in finance receivables . 47 automobile loans as of december 31 , 2014 , we had approximately 17,300 automobile purchase loans outstanding , representing $ 154.4 million in finance receivables . this includes 9,200 indirect automobile loans and 8,100 direct automobile loans , representing $ 93.2 million and $ 61.2 million in finance receivables , respectively . retail loans as of december 31 , 2014 , we had approximately 25,900 retail purchase loans outstanding , representing $ 26.1 million in finance receivables . insurance products we offer our customers optional payment protection insurance options relating to many of our loan products . branch small loans , convenience checks , and large loans are our core products and will be the drivers of our future growth . our primary sources of revenue are interest and fee income from our loan products , of which interest and fees relating to branch small loans , convenience checks , and automobile loans have historically been the largest component . we also offer automobile loans and retail loans through online credit application networks . in addition to interest and fee income from loans , we derive revenue from optional insurance products purchased by customers of our direct loan products . factors affecting our results of operations our business is driven by several factors affecting our revenues , costs , and results of operations , including the following : growth in loan portfolio . the revenue that we derive from interest and fees from our loan products is largely driven by the amount of loans that we originate . we originated or purchased approximately 143,500 , 172,900 , and 120,900 new loan accounts during 2014 , 2013 , and 2012 , respectively . average finance receivables grew 36.5 % from $ 264.5 million in 2011 to $ 361.1 million in 2012 , grew 32.2 % to $ 477.4 million in 2013 , and grew 10.9 % to $ 529.5 million in 2014. we source our loans through our branches and our direct mail program , as well as through automobile dealerships and retailers that partner with us . our loans are made almost exclusively in geographic markets served by our network of branches . story_separator_special_tag the type and terms of our optional credit insurance products vary from state to state based on applicable laws and regulations . we offer optional credit life insurance , credit accident and health insurance , and involuntary unemployment insurance . we require property insurance on any personal property securing loans and offer customers the option of providing proof of such insurance purchased from a third party in lieu of purchasing property insurance from us . we also require proof of liability and collision insurance for any vehicles securing loans , and we obtain automobile collision insurance on behalf of customers who permit their other insurance coverage to lapse . we issue insurance certificates as agents on behalf of an unaffiliated insurance company and then remit to the unaffiliated insurance company the premiums we collect ( net of refunds on prepaid loans and net of commission on new business ) . the unaffiliated insurance company cedes life insurance premiums to our wholly-owned insurance subsidiary , rmc reinsurance , ltd. ( rmc reinsurance ) , as written and non-life premiums as earned . as of december 31 , 2014 , we had pledged a $ 1.9 million letter of credit to the unaffiliated insurance company to secure payment of life insurance claims . we maintain a cash reserve for life insurance claims in an amount determined by the unaffiliated insurance company . the unaffiliated insurance company maintains the reserves for non-life claims . other income . our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment , fees for extending the due date of a loan , and returned check charges . due date extensions are only available to a customer once every thirteen months , are available only to customers who are current on their loans , and must be approved by personnel at our headquarters . provision for credit losses . provisions for credit losses are charged to income in amounts that we judge as sufficient to maintain an allowance for credit losses at an adequate level to provide for losses on the related finance receivables portfolio . credit loss experience , delinquency of finance receivables , the value of underlying collateral , and management 's judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses . our provision for credit losses fluctuates so that we maintain an adequate credit loss allowance that reflects our estimate of losses in our loan portfolio . therefore , changes in our charge-off rates may result in changes to our provision for credit losses . future adjustments to the allowance may be necessary if there are significant changes in economic conditions or portfolio performance . in september 2014 , the company changed the time-based element of the charge-off policy from 365 days contractually delinquent to 180 days . the updated policy improves consistency and creates better alignment with industry practice . the policy change generated a one-time charge-off of $ 2.1 million as of september 2014. the amount was charged against the allowance for credit losses which included a full specific valuation allowance for these delinquent accounts and , therefore , did not impact the provision for loan losses . the charge-off policy change modified our historic loss rate and the resulting general reserve . in addition , we converted bankrupt accounts with confirmed plans from the bankruptcy court from delinquent to current status . the bankrupt accounts continue to be accounted for as troubled debt restructurings and considered impaired finance receivables . as a net result of these changes , the provision for credit losses increased by $ 318,000 in september 2014 . 50 in addition to the time-based element , we previously charged credit losses against the allowance when management believed the finance receivable was no longer collectible . the factors used to determine whether a finance receivable is uncollectible were the age of the account , supervisory review of collection efforts , and other factors such as customers relocating to an area where collection is not practical . this discretionary element was eliminated from the policy in december 2014 , subject to certain exceptions . general and administrative expenses . our general and administrative expenses are comprised of four categories : personnel , occupancy , marketing , and other . we measure our general and administrative expenses as a percentage of total revenue , which we refer to as our efficiency ratio , and as a percentage of average finance receivables . our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries , bonuses , benefits , and related payroll taxes associated with all of our branch , field , and headquarters employees . our occupancy expenses consist primarily of the cost of renting our branches , all of which are leased , as well as the utility , telecommunication , software , data processing , and other non-personnel costs associated with operating our branches . our marketing expenses consist primarily of costs associated with our direct mail campaigns ( including postage and costs associated with selecting recipients ) and maintaining our web site , as well as telephone directory advertisements and some local marketing by branches . these costs are expensed as incurred . other expenses consist primarily of legal , audit , consulting , office supplies , credit bureau charges , and postage . our general and administrative expenses have increased as a result of the additional legal , accounting , insurance , and other expenses associated with being a public company . we expect compliance costs to increase due to the regulatory environment in the consumer finance industry , and we expect legal costs to increase as a result of the securities class action lawsuit .
| results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of total revenue : replace_table_token_16_th 52 the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of average receivables : replace_table_token_17_th 53 regional management corp. selected financial data years ended december 31 , 2014 and 2013 ( unaudited ) ( in thousands ) replace_table_token_18_th replace_table_token_19_th replace_table_token_20_th ( 1 ) represents balance of loan origination and refinancing net of unearned finance charges replace_table_token_21_th 54 replace_table_token_22_th replace_table_token_23_th replace_table_token_24_th 55 replace_table_token_25_th ( 1 ) remaining balance of convenience checks originated in the summer of 2014 that contained a higher percentage of lower credit quality customers comparison of the year ended december 31 , 2014 , versus the year ended december 31 , 2013 the following is a discussion of the changes in finance receivables by product type : branch small loans branch small loans outstanding increased by $ 18.4 million , or 16.8 % , to $ 128.2 million at december 31 , 2014 , from $ 109.8 million at december 31 , 2013. the growth in receivables at the branches opened in 2014 contributed to the growth in overall branch small loans outstanding . convenience checks convenience checks outstanding increased by $ 12.1 million , or 6.8 % , to $ 191.3 million at december 31 , 2014 , from $ 179.2 million at december 31 , 2013. our direct mail campaigns drove loan growth in existing and new branches . large loans large loans outstanding increased by $ 2.8 million , or 6.5 % , to $ 46.1 million at december 31 , 2014 , from $ 43.3 million at december 31 , 2013. the increase was primarily due to the addition of expertise in this product type and increased marketing of it .
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the forward-looking statements are made as of the date of this annual report , and we assume no obligation to update the forward-looking statements , or to update the reasons why actual results could differ from those projected in the forward-looking statements . investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the securities and exchange commission pursuant to the securities act of 1933 and the securities exchange act of 1934 , including our reports on forms 10-q and 8-k. the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in item 8 of this annual report . overview and recent developments we are a communications asset company . we own 100 % of straight path spectrum , 100 % of straight path ventures , and 84.5 % of straight path ip group . straight path spectrum 's wholly-owned subsidiary , straight path spectrum , llc holds wireless spectrum . straight path ventures develops next generation wireless technology , particularly for 39 ghz . straight path ip group owns intellectual property primarily related to communications over the internet , and the licensing and other businesses related to this intellectual property . we were formerly a subsidiary of idt . on july 31 , 2013 , we were spun-off from idt to its stockholders and became an independent public company . 35 straight path spectrum the following events were discussed above : on july 14 , 2016 , the fcc voted to adopt the umfu report and order , which opens four mmw bands for flexible mobile and fixed wireless services . the rules apply to 28 ghz ( 27.50-28.35 ghz , or lmds a1 ) , 37 ghz ( 37.0-38.6 ghz ) , and 39 ghz ( 38.6-40.0 ghz ) bands , and a new unlicensed band at 60 ghz ( 64.0-71.0 ghz ) . on january 11 , 2017 , we entered into the consent decree with the fcc settling the fcc 's investigation regarding straight path spectrum 's spectrum licenses on the terms specified therein . for further discussion , please see note 11 – regulatory enforcement . on april 9 , 2017 , we and idt entered into the idt term sheet to settle potential claims related to certain claims under agreements related to the spin-off , and the sale of our interest in straight path ip group to idt . for further discussion , please see note 3 to the consolidated financial statements in this annual report – settlement of claims with idt and sale of straight path ip group . o n may 11 , 2017 , we entered into the verizon merger agreement with verizon and merger sub . straight path ventures straight path ventures is developing next generation wireless technology primarily for 39 ghz at its gigabit mobility lab in plano , texas . on august 22 , 2016 , straight path ventures filed a provisional patent application with the uspto for new 39 ghz transceiver technology . on october 12 , 2016 , straight path ventures filed a patent application with the uspto for new millimeter-wave transceiver technologies . on august 31 , 2017 , straight path ventures demonstrated its prototype 39 ghz gigarray ® solutions that achieved 800 megabits per second at a distance of 500 meters . straight path ip group on april 9 , 2017 , we and idt entered into the idt term sheet to settle claims potential under agreements related to the spin-off , and the sale of our interest in straight path ip group to idt . for further discussion , please see note 3 to the consolidated financial statements in this annual report – settlement of claims with idt and sale of straight path ip group . on october 9 , 2014 , the ptab issued an administrative decision stating that claims 1-7 and 32-42 of the ‘ 704 patent are unpatentable . straight path ip group appealed that decision . on november 25 , 2015 , the cafc reversed the ptab 's decision and remanded the case back to the ptab for further proceedings . on may 23 , 2016 , the ptab issued a final written decision finding none of the challenged claims unpatentable . following the favorable cafc decision , the ptab denied pending petitions for ipr of the ‘ 704 patent and other patents held by straight path ip group . as well , the ptab found nearly all the claims patentable over the prior art in pending iprs . the petitioners have appealed to the cafc . on june 23 , 2017 , the cafc affirmed the ptab 's decision . following the second affirmance by the cafc , the stays that had been in place in the civil actions pending in federal district court , except in the suit against several verizon affiliates . in that suit , on july 5 , 2017 , the court lifted the stay that had been in place pending the outcome of the cafc appeal and set a scheduling conference for september 15 , 2017. however , on september 11 , 2017 , the parties jointly agreed to a 90-day stay . the court granted the stay until december 8 , 2017. straight path ip group has also filed complaints against apple , avaya , and cisco . expert discovery is underway in the apple and cisco actions . however , avaya recently filed voluntary petitions under chapter 11 of the u.s. bankruptcy code . on may 2 , 2017 , straight path ip group filed a proof of claim in the avaya bankruptcy proceeding . in addition , on september 13 , 2017 , apple filed a request for ex parte reexamination of u.s. patent no . 7,149,208 in the uspto . for further discussion of these actions and other legal proceedings , please see item 3 to part i “ legal proceedings ” in this annual report . story_separator_special_tag selling , general and administrative expense increased in fiscal 2017 compared to fiscal 2016 primarily as a result of the increase in the number of employees and increases in salaries including the change in allocation of corporate level compensation costs between entities , an increase of non-cash stock-based compensation charges related to the issuances of restricted common stock and stock options to employees , marketing expenses related to the installation of radio links , increased legal costs due to the shareholder litigation , regulatory enforcement activity , and the costs incurred for the merger with verizon . straight path ip group segment replace_table_token_5_th revenues . we have filed a series of lawsuits claiming infringement of a number of our key patents seeking both damages and injunctive relief . many of these actions were settled and we had entered into licensing agreements with the former defendants . in connection with the settlements and licenses , straight path ip group recognized revenue of approximately $ 1.7 million in fiscal 2016. the gross payments under settlement and licensing agreements that were secured since our spin-off ( the beginning of fiscal 2014 ) totaled $ 18.3 million . as of october 31 , 2015 , all of which has been collected . most of these settlement agreements included license fees for the duration of the license term ( which was over the remaining life of the covered patents ) , and were allocated across fiscal 2014 , 2015 and 2016 in the amounts of $ 4.2 million , $ 12.5 million and $ 1.6 million respectively , based on the settlement dates and if the settlement included a look back period for damages . primarily all of the revenue from these settlements or licensing agreements was recognized as of september 30 , 2015 . 40 the ptab 's october 2014 decision on the ‘ 704 patent previously had a materially adverse impact on our ongoing enforcement efforts . during the pendency of the appeal from that decision and related iprs , a number of pending civil actions brought by straight path ip group against various defendants were stayed or dismissed without prejudice . in light of the favorable outcome on appeal , the favorable ptab rulings in the related ipr proceedings , and the subsequent affirmance on a second appeal , straight path ip group has re-commenced all of its civil litigations in federal district court ( except for one that has been stayed by mutual agreement of the parties and one of which is subject to a bankruptcy proceeding ) . for further discussion of these actions , please see item 3 to part i “ legal proceedings ” in this annual report . direct cost of revenues . direct cost of revenues consisted of legal expenses directly related to revenues from the litigation settlements described above . we incurred an aggregate of $ 9.0 million in expenses directly related to these settlements , which was recognized ratably in proportion to the recognition of the related revenue . we generally paid law firms that represented us in litigation against alleged infringers of our intellectual property rights a percentage of the amounts recovered ranging from 0 % to 40 % depending on several factors . in addition , beginning on october 2 , 2017 , straight path ip group will pay one of the law firms $ 100,000 per month as a non-refundable fee creditable against any contingency payment that may be paid to that firm in the future . there are also other directly related legal expenses , such as expert testimony , travel , filing fees , and others . selling , general and administrative expense . selling , general and administrative expenses decreased in fiscal 2017 compared to fiscal 2016 primarily as a result of the change in the allocation of corporate level compensation costs ( including stock-based compensation for the issuances of restricted common stock and stock options to officers and employees ) among our segments due to changes in relative levels of operations and management 's time , and , and increased legal costs due to straight path ip group 's appeal of the ptab 's decision on the ‘ 704 patent and related iprs . straight path ventures segment replace_table_token_6_th research and development . research and development consists of expenses related to development by our gigabit mobility lab of next generation wireless technology for 39 ghz . selling , general and administrative . selling , general and administrative expenses consist primarily of payroll and related payroll taxes and benefits as well as stock compensation expenses . 41 fiscal 2016 compared to year ended july 31 , 2015 ( “ fiscal 2015 ” ) consolidated replace_table_token_7_th revenues . revenues generated by straight path spectrum were $ 461,000 and $ 426,000 in fiscal 2016 and fiscal 2015 , respectively . revenues increased due to revenue from the lease of spectrum to new customers ( wireless network operators ) . revenues generated by straight path ip group were $ 1.7 million and $ 12.8 million in fiscal 2016 and fiscal 2015 , respectively . revenues generated by straight path ip group decreased substantially due to the expiration of the licensed patents . we were recognizing revenue over the terms of the settlements and license agreements related to such patents entered into in prior periods . primarily all of the revenue was recognized as of september 30 , 2015. direct cost of revenues . direct cost of revenues decreased in fiscal 2016 compared to fiscal 2015 primarily due to the decrease in the direct cost of revenues of straight path ip group . the straight path ip group direct cost of revenues were costs related to enforcement efforts and litigation settlements and licensing arrangements and were recognized over the same time period as corresponding revenues . research and development .
| results of operations year ended july 31 , 2017 ( “ fiscal 2017 ” ) compared to year ended july 31 , 2016 ( “ fiscal 2016 ” ) we evaluate the performance of our operating business segments based primarily on income ( loss ) from operations . accordingly , the income and expense line items below income ( loss ) from operations are only included in our discussion of the consolidated results of operations . consolidated replace_table_token_3_th revenues . revenues generated by straight path spectrum were $ 658,000 and $ 461,000 in fiscal 2017 and fiscal 2016 , respectively . revenues increased due to revenue from the lease of spectrum to new customers ( wireless network operators ) prior to the consent decree with the fcc . the consent decree prohibits and the merger agreement with verizon restricts us from entering into new spectrum leases . no revenues were generated by straight path ip group in fiscal 2017 because no new licenses or settlements were entered into and the revenue from prior settlements or license agreements were fully realized in prior periods due to the expiration of the licensed patents . revenues were $ 0 and $ 1.7 million in fiscal 2017 and fiscal 2016 , respectively . revenues generated by straight path ip group decreased substantially due to the expiration of the licensed patents . we were recognizing revenue over the terms of the settlements and license agreements related to such patents entered into in prior periods . primarily all of the revenue was recognized as of september 30 , 2015 . 38 direct cost of revenues . direct cost of revenues decreased in fiscal 2017 compared to fiscal 2016. straight path spectrum incurred all of the direct costs of revenue in fiscal 2017. direct cost of revenues includes governmental fees and connectivity costs .
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generally , the terms of these agreements provide that the company receives some or all of the following : ( i ) upfront payments upon consummation of the agreement ; ( ii ) reimbursements for costs incurred by the company for research and development and or manufacturing efforts related to specific applications provided for in the agreement ; ( iii ) milestone payments upon the achievement of specified development , regulatory and commercial activities ; and ( iv ) royalties on sales of products arising from the collaboration or licensing agreement . the agreement typically continues in perpetuity unless terminated and story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , `` business '' and item 8 , `` financial statements and supplementary data . '' for information on risks and uncertainties related to our business that may make past performance not indicative of future results , or cause actual results to differ materially from any forward-looking statements , see `` special note regarding forward-looking statements , '' and part i , item 1a , `` risk factors . '' financial overview we have incurred significant losses since our inception . we anticipate that we may continue to incur significant losses for the foreseeable future , and we may never achieve or maintain profitability . outside of collaboration and license fee payments and sales of products and services , which vary over time , we have not generated significant revenues , including revenues or royalties from product sales by us or our collaborators . certain of our consolidated subsidiaries require regulatory approval and or commercial scale-up before they may commence significant product sales and operating profits . 58 sources of revenue historically , we have derived our collaboration and licensing revenues through agreements with counterparties for the development and commercialization of products enabled by our technologies . generally , the terms of these collaborations provide that we receive some or all of the following : ( i ) technology access fees upon signing ; ( ii ) reimbursements of costs incurred by us for our research and development and or manufacturing efforts related to specific applications provided for in the collaboration ; ( iii ) milestone payments upon the achievement of specified development , regulatory and commercial activities ; and ( iv ) royalties on sales of products arising from the collaboration . our technology access fees and milestone payments may be in the form of cash or securities of the collaborator . our collaborations contain multiple arrangements , and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period . we are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties . from time to time , we and certain collaborators may cancel the agreements or we may repurchase rights to the exclusive fields from collaborators , relieving us of any further performance obligations under the agreement . upon such circumstances or when we determine no further performance obligations are required of us under an agreement , we may recognize any remaining deferred revenue as either collaboration revenue or as a reduction of in-process research and development expense , depending on the circumstances . we generate product and service revenues primarily through sales of products or services that are created from technologies developed or owned by us . our primary current offerings include sales of advanced reproductive technologies , including our bovine embryo transfer and in vitro fertilization processes and from genetic preservation and sexed semen processes and applications of such processes to other livestock , as well as sales of livestock and embryos produced using these processes and used in production . we recognize revenue when control of the promised product is transferred to the customer or when the promised service is completed . in future periods , our revenues will depend in part on our ability to partner our more mature programs and capabilities , the number of collaborations to which we are party , the advancement and creation of our programs and programs within our collaborations and the extent to which we or our collaborators bring products enabled by our technologies to market . we expect our collaboration revenues will decrease considerably as a result of our reacquisition of rights to fields previously licensed to collaborators , after which we no longer expect to receive reimbursement of costs incurred by us for research and development services and will no longer recognize previously deferred revenues associated with the terminated collaboration . our revenues will also depend upon our ability to maintain or improve the volume and pricing of our current product and service offerings and to develop and scale up production of new offerings from the various technologies of our subsidiaries . our future revenues may also include additional revenue streams we may acquire through mergers and acquisitions . in light of our limited operating history and experience , there can be no assurance as to the timing , magnitude and predictability of revenues to which we might be entitled . cost of products and services cost of products and services includes primarily labor and related costs , drugs and supplies used primarily in the embryo transfer and in vitro fertilization processes , livestock and feed used in production , and facility charges , including rent and depreciation . fluctuations in the price of livestock and feed have not had a significant impact on our operating margins and no derivative financial instruments are used to mitigate the price risk . research and development expenses we recognize research and development expenses as they are incurred . story_separator_special_tag depreciation and amortization increased $ 5.8 million primarily as a result of ( i ) the amortization of developed technology acquired from oxitec , which began in november 2016 upon the completion of certain operational and regulatory events , and ( ii ) the amortization of developed technology acquired from genvec in june 2017. rent and utilities expenses increased $ 3.3 million due to the expansion of certain facilities to support our increased headcount . selling , general and administrative expenses sg & a expenses increased $ 3.8 million , or 3 percent , over the year ended december 31 , 2016. salaries , benefits and other personnel costs increased $ 4.2 million primarily due to increased headcount to support our expanding operations . legal and professional fees increased $ 4.2 million primarily due to ( i ) increased legal fees to defend ongoing litigation and to support our evolving corporate strategy and ( ii ) consulting fees related to potential business opportunities and public relations . these increases were partially offset by $ 4.3 million in litigation expenses recorded in 2016 arising from the entrance of a court order in our trial with xy . impairment loss impairment loss for the year ended december 31 , 2017 of $ 16.8 million resulted from our annual test for goodwill and indefinite-lived intangible asset impairment in the fourth quarter . based on the price per share received by aquabounty in its recent underwritten public offering , we determined that it was more likely than not that the fair value of our aquabounty reporting unit was less than the carrying value and recorded a $ 13.0 million impairment charge representing the estimated excess of carrying value over fair value of this reporting unit . additionally , in the fourth quarter of 2017 , we decided to forgo further development of certain of our in-process research and development assets and as a result recorded a $ 3.0 million impairment charge . total other income ( expense ) , net total other income ( expense ) , net , increased $ 70.3 million , or 147 percent , over the year ended december 31 , 2016. this increase was primarily attributable to ( i ) the change in fair market value of our equity securities portfolio , investments in preferred stock , and other convertible instruments and ( ii ) a full year of dividend income from our investment in preferred stock of ziopharm . equity in net loss of affiliates equity in net loss of affiliates for the years ended december 31 , 2017 and 2016 includes our pro-rata share of the net losses of our investments we account for using the equity method of accounting . the $ 6.8 million , or 32 percent , decrease was primarily due to the temporary redeployment of certain resources away from jv programs towards supporting prospective new platforms and additional collaborations . liquidity and capital resources sources of liquidity we have incurred losses from operations since our inception and as of december 31 , 2018 , we had an accumulated deficit of $ 1.3 billion . from our inception through december 31 , 2018 , we have funded our operations principally with proceeds received from private and public equity and debt offerings , cash received from our collaborators and through product and service sales made directly to customers . as of december 31 , 2018 , we had cash and cash equivalents of $ 102.8 million and short-term investments of $ 119.7 million . cash in excess of immediate requirements is typically invested primarily in money market funds and united states government debt securities in order to maintain liquidity and preserve capital . we currently generate cash receipts primarily from sales of products and services , reimbursement of research and development services performed by us and from strategic transactions involving our subsidiaries . 67 cash flows the following table sets forth the significant sources and uses of cash for the periods set forth below : replace_table_token_12_th cash flows from operating activities : in 2018 , our net loss was $ 514.7 million , which includes the following significant noncash expenses totaling $ 440.0 million : ( i ) $ 236.7 million of expense related to reacquired in-process research and development previously licensed to certain of our collaborators , ( ii ) $ 60.5 million of impairment loss , ( iii ) $ 36.3 million of stock-based compensation expense , ( iv ) $ 33.1 million of depreciation and amortization expense , ( v ) $ 30.2 million of net unrealized and realized losses on our equity securities and preferred stock , ( vi ) $ 20.9 million of loss on disposal of assets , ( vii ) $ 11.6 million of equity in net loss of affiliates , and ( viii ) $ 10.7 million of shares issued as payment for services . these expenses were partially offset by ( i ) $ 21.3 million of net changes in deferred income taxes and ( ii ) $ 14.8 million of noncash dividend income . additionally , we had a $ 20.0 million net increase in our operating assets and liabilities primarily as a result of the recognition of previously deferred revenue . in 2017 , our net loss was $ 126.8 million , which includes the following significant noncash expenses totaling $ 114.9 million : ( i ) $ 41.6 million of stock-based compensation expense , ( ii ) $ 31.1 million of depreciation and amortization expense , ( iii ) $ 16.8 million of impairment losses , ( iv ) $ 14.3 million of equity in net loss of affiliates , and ( v ) $ 11.1 million of shares issued as payment for services . these expenses were partially offset by $ 16.8 million of noncash dividend income . additionally , we had a $ 74.6 million net increase in our operating assets and liabilities .
| results of operations comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 , together with the changes in those items in dollars and as a percentage : replace_table_token_8_th ( 1 ) revenues in 2018 are accounted for under asc 606 and revenues in 2017 are accounted for under asc 605. we adopted asc 606 on january 1 , 2018 using the modified retrospective method , which applies the changes in accounting prospectively and does not restate prior periods . ( 2 ) including $ 60,238 and $ 130,670 from related parties for the years ended december 31 , 2018 and 2017 , respectively . 62 collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2018 and 2017 , together with the changes in those items . replace_table_token_9_th ( 1 ) for the years ended december 31 , 2018 and 2017 , revenue recognized from collaborations with harvest start-up entities include genten therapeutics , inc. ; crs bio , inc. ; exotech bio , inc. ; ad skincare , inc. ; and thrive agrobiotics , inc. for the year ended december 31 , 2017 , revenues recognized from collaborations with harvest start-up entities also include relieve genetics , inc. collaboration and licensing revenues decreased $ 68.7 million , or 47 percent , from the year ended december 31 , 2017 due to ( i ) the mutual termination in 2017 of our second ecc with ziopharm for the treatment of graft-versus-host disease , ( ii ) a decrease in research and development services for certain of our eccs as we redeployed certain resources towards supporting prospective new platforms and partnering opportunities and began to focus more on the further development of relationships and structures that provide us with more control and ownership over the development
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net revenue includes results from the 53rd week ; however , total comparable sales , comparable store sales , and changes in direct to consumer net revenue exclude the 53rd week . fiscal 2017 and fiscal 2016 were 52 week years . 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. we disclose material non-public information through one or more of the following channels : our investor relations website ( http : //investor.lululemon.com/ ) , the social media channels identified on our investor relations website , press releases , sec filings , public conference calls , and webcasts . overview fiscal 2018 was a particularly strong year for our company . in addition , we were happy to welcome our new ceo , calvin mcdonald . net revenue grew 24 % , and total comparable sales increased 18 % . we leveraged investments made across the enterprise over the last several years , while at the same time continuing to invest in our future . we surpassed several of our fiscal 2020 goals in fiscal 2018 , two years ahead of schedule . these include achieving operating margin of 21.5 % , gross margin of 55.2 % , and e-commerce becoming 26.1 % of our global business . fueling our performance this year was strength across our product assortment , 13 % square footage growth driven by new stores and our remodel program , and a robust e-commerce business . in addition , our brand activations , local community events , and educators continue to connect us with our guests in a truly unique manner . our product design and development teams successfully launched new product innovations , while also leveraging our core product collections and expanding our office/travel/commute category . we took several steps toward expanding our bra category by launching the speed up and fine form styles and also the like nothing bra , our first bra developed for all day wear . for men , we launched our out-of-mind short liner in our three core styles , rolled out the city sweat collection , and further expanded our abc pant offering with a new slim silhouette . we also expanded our outerwear assortment with more cold weather styles including the cloudscape jacket for women and outpour parka for men . we look forward to delivering on a strong pipeline of innovation and product roll-outs in fiscal 2019. during the year , we opened 36 net new company-operated stores , including 15 in north america , 13 in asia pacific , and eight in europe . we also expanded our seasonal store strategy this year with approximately 45 seasonal stores in operation during the holiday season . these stores allow us to better cater to our guests in select markets during the holidays , while also helping introduce new guests into our brand . as of february 3 , 2019 , we had 70 stores in asia pacific and 21 stores in europe . we expanded into two new markets in europe this year - france and sweden . in asia , we opened seven new stores in china , in addition to growing our local e-commerce presence via tmall and launching a store on the wechat platform . in fiscal 2018 , we leveraged the improvements we made to our websites over the past 18 months while continuing to enhance the customer experience . the sales performance of our e-commerce business was strong throughout the year , with direct to consumer revenues increasing by 45 % , excluding the 53rd week of fiscal 2018 . in fiscal 2019 , we plan to continue to develop our omni-channel experience to serve guests wherever and however they choose to shop . we will continue to leverage our ship-from-store capabilities and build on the early success of our new buy online , pick-up in store initiative . our grassroots approach to brand-building - locally led by our stores , enables us to connect with and uniquely understand our guest . in fiscal 2018 , we continued to hold our marquee events including our annual seawheeze half marathon in vancouver , the ghost race in 12 cities in north america , the sweatlife festival in london , and unroll china events across multiple cities . we are also particularly pleased with our brand activations this year including our 20th birthday celebration , our donations to local community-based organizations via our here to be program , including on international day of yoga , and our announcement of 100 % pay equity which closely followed international women 's day . 19 we look forward to continuing this strong momentum into fiscal 2019 fueled by product innovations , new store openings , remodels , and further enhancements to our e-commerce sites and supply chain . financial highlights the summary below provides both gaap and non-gaap financial measures . the adjusted financial measures for fiscal 2018 and 2017 exclude the amounts recognized in connection with u.s. tax reform , taxes on the repatriation of foreign earnings , and the restructuring of our ivivva operations and its related tax effects . for the fiscal year ended february 3 , 2019 , compared to the fiscal year ended january 28 , 2018 : net revenue increased 24 % to $ 3.3 billion . on a constant dollar basis , net revenue increased 25 % . story_separator_special_tag the increase in selling , general and administrative expenses was primarily due to : an increase in costs related to our operating channels of $ 135.3 million , comprised of : – an increase in employee costs of $ 66.5 million primarily from a growth in labor hours and benefits , mainly associated with new company-operated stores and other new operating locations , and due to higher retail bonus expenses ; – an increase in variable costs such as distribution costs , credit card fees , and packaging costs of $ 43.1 million primarily as a result of increased net revenue ; and – an increase in other costs of $ 25.7 million primarily due to an increase in digital marketing expenses , brand and community costs , and other costs associated with our operating locations including security and repairs and maintenance ; an increase in head office costs of $ 65.0 million , comprised of : – an increase in employee costs of $ 38.0 million primarily due to additional employees to support the growth in our business and increased incentive and stock-based compensation expense ; and – an increase in other costs of $ 27.0 million primarily due to an increase in brand and community costs , depreciation , professional fees , and information technology costs ; and a decrease in net foreign exchange and derivative revaluation gains of $ 5.9 million . as a percentage of net revenue , selling , general and administrative expenses decreased 30 basis points , to 33.8 % in fiscal 2018 from 34.1 % in fiscal 2017 . asset impairment and restructuring costs during fiscal 2017 , we incurred asset impairment and restructuring costs totaling $ 38.5 million in connection with the restructuring of our ivivva operations . this included lease termination costs of $ 21.1 million , long-lived asset impairment charges of $ 11.6 million , employee related costs of $ 4.2 million , and other restructuring costs of $ 1.6 million . we did not have any asset impairment and restructuring costs in fiscal 2018 . please refer to note 13 to the audited consolidated financial statements included in item 8 of part ii of this report for further information on these adjustments . income from operations income from operations increased $ 249.8 million , or 55 % , to $ 705.8 million in fiscal 2018 from $ 456.0 million in fiscal 2017 . operating margin increased 430 basis points to 21.5 % compared to 17.2 % in fiscal 2017 . in connection with the restructuring of our ivivva operations , we recognized pre-tax costs totaling $ 47.2 million in fiscal 2017 . this included costs of $ 8.7 million recognized in cost of goods sold , and asset impairment and restructuring costs totaling $ 38.5 million . excluding these charges from the comparatives of fiscal 2017 , income from operations increased 40 % and operating margin increase d 250 basis points . on a segment basis , we determine income from operations without taking into account our general corporate expenses and the costs we incurred in connection with the restructuring of our ivivva operations . in the first quarter of fiscal 2018 , we reviewed our general corporate expenses and determined certain costs which were previously classified as general corporate expenses are more appropriately classified within our direct to consumer segment . accordingly , comparative figures have been reclassified to conform to the financial presentation adopted for the current year . 23 segmented income from operations before general corporate expenses and restructuring related costs for fiscal 2018 and fiscal 2017 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_11_th company-operated stores . segmented income from operations from our company-operated stores increase d $ 111.2 million , or 24 % , to $ 575.5 million for fiscal 2018 from $ 464.3 million for fiscal 2017 . the increase was primarily the result of increased gross profit of $ 176.9 million which was primarily due to increased net revenue and higher gross margin . this was partially offset by an increase in selling , general and administrative expenses , primarily due to increased employee costs , increased store operating expenses including higher credit card fees , distribution costs , and packaging costs as a result of higher net revenue , and due to increased community , security , and repairs and maintenance costs . income from operations as a percentage of company-operated stores net revenue increased by 180 basis points , primarily due to an increase in gross margin and leverage on selling , general and administrative expenses . direct to consumer . segmented income from operations from our direct to consumer increase d $ 130.0 million , or 58 % , to $ 354.1 million in fiscal 2018 from $ 224.1 million in fiscal 2017 . the increase was primarily the result of increased gross profit of $ 187.0 million which was primarily due to increased net revenue and higher gross margin . this was partially offset by an increase in selling , general and administrative expenses primarily due to higher variable costs including distribution costs , credit card fees , and packaging costs as a result of higher net revenue , higher digital marketing expenses , and increased employee costs . income from operations as a percentage of direct to consumer net revenue has increased by 240 basis points , primarily due to leverage on selling , general and administrative expenses and an increase in gross margin . other . other segmented income from operations increase d $ 27.0 million , or 76 % , to $ 62.6 million in fiscal 2018 from $ 35.6 million in fiscal 2017 . the increase was primarily the result of increased gross profit of $ 44.9 million which was primarily due to increased net revenue and higher gross margin .
| results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of net revenue : replace_table_token_8_th replace_table_token_9_th comparison of fiscal 2018 to fiscal 2017 net revenue net revenue increase d $ 639.1 million , or 24 % , to $ 3.3 billion in fiscal 2018 from $ 2.6 billion in fiscal 2017 . on a constant dollar basis , assuming the average exchange rates in fiscal 2018 remained constant with the average exchange rates in fiscal 2017 , net revenue increased $ 651.3 million , or 25 % . the increase in net revenue was primarily due to increased direct to consumer net revenue , net revenue generated by new company-operated stores , and an increase in comparable store sales . total comparable sales , which includes comparable store sales and direct to consumer , and excludes net revenue of $ 53.0 million from the 53rd week of fiscal 2018 , increased 18 % in fiscal 2018 compared to fiscal 2017 . total comparable sales increased 18 % on a constant dollar basis . 21 our net revenue on a segment basis for fiscal 2018 and fiscal 2017 is summarized below . net revenue is expressed in dollar amounts . the percentages are presented as a percentage of total net revenue . replace_table_token_10_th company-operated stores . net revenue from our company-operated stores segment increase d $ 289.3 million , or 16 % , to $ 2.1 billion in fiscal 2018 from $ 1.8 billion in fiscal 2017 . the following contributed to the increase in net revenue from our company-operated stores segment : net revenue from company-operated stores we opened or significantly expanded subsequent to january 28 , 2018 , and are therefore not included in comparable store sales , increased net revenue by $ 182.7 million .
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cautionary statements this annual report on form 10-k and the documents incorporated by reference in this annual report on form 10-k contain “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. the information in this management 's discussion and analysis of financial condition and results of operations , except for the historical information , contains forward-looking statements . these forward-looking statements reflect the company 's current views with respect to future events and financial performance . the words “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ estimate , ” “ forecast , ” “ project , ” “ may , ” will , ” “ would , ” “ could , ” “ should ” and similar expressions are intended to identify these “ forward-looking statements. ” you should read statements that contain these words carefully because they discuss future expectations , contain projections of future results of operations or of financial position or state other “ forward-looking ” information . all forecasts and projections in this report are “ forward-looking statements , ” and are based on management 's current expectations of the company 's near-term results , based on current information available pertaining to the company . the important factors listed below , as well as any cautionary language elsewhere in this annual report on form 10-k , provide examples of risks , uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements . the risks which could cause actual results to differ from those contained in such “ forward looking statements ” include , without limitation , the risks described under item 1a of this annual report on form 10-k for the year ended december 31 , 2013 under the headings “ risks relating to our business and industry , ” “ manufacturing risks , ” “ international risks ” and “ risks related to owning our securities ” as well as in the company 's quarterly reports on form 10-q and current reports on form 8-k as filed with the securities and exchange commission . any forward-looking statements in this annual report on form 10-k are not guarantees of future performance , and actual results , developments and business decisions may differ from those envisaged by such forward-looking statements , possibly materially . we disclaim any duty to update any forward-looking statements . overview this overview is not a complete discussion of the company 's financial condition , changes in financial condition and results of operations ; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows and must be read in its entirety in order to fully understand the company 's financial condition and results of operations . entegris , inc. is a leading provider of a wide range of products and services for purifying , protecting and transporting the critical materials used in processing and manufacturing in the microelectronics and other high-technology industries . entegris derives most of its revenue from the sale of products and services to the semiconductor and related industries . the company 's customers consist primarily of semiconductor manufacturers , semiconductor equipment and materials suppliers as well as thin film transistor-liquid crystal display ( tft-lcd ) and hard disk manufacturers , which are served through direct sales efforts , as well as sales and distribution relationships , in the united states , asia , europe and the middle east . the company offers a diverse product portfolio which includes more than 17,000 standard and customized products that it believes provide the most comprehensive offering of contamination control solutions and microenvironment products and services to maintain the purity and integrity of critical materials used by the semiconductor and other high-technology industries . certain of these products are unit-driven and consumable products that rely on the level of semiconductor manufacturing activity to drive growth , while others are capital-expenditure driven and rely on expansion of manufacturing capacity to drive growth . the company 's unit-driven and consumable products includes membrane-based liquid filters and housings , metal-based gas filters , resin-based gas purifiers , wafer shippers , disk-shipping containers and test assembly and packaging products and consumable graphite and silicon carbide components used in plasma etch , ion implant and chemical vapor deposition processes in semiconductor manufacturing . the company 's capital expense-driven products include components , systems and subsystems that use electro-mechanical , pressure differential and related technologies to permit semiconductor and other electronics manufacturers to monitor and control the flow and condition of process liquids used in these manufacturing processes , and process carriers that protect the integrity of in-process wafers . key operating factors key factors , which management believes have the largest impact on the overall results of operations of entegris , inc. , include : level of sales since a significant portion of the company 's product costs ( except for raw materials , purchased components and direct labor ) are largely fixed in the short-to-medium term , an increase or decrease in sales affects gross profits and overall profitability significantly . also , increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions , which are highly variable in nature . the 31 company 's sales are subject to the effects of industry cyclicality , technological change , substantial competition , pricing pressures and foreign currency fluctuation . variable margin on sales the company 's variable margin on sales is determined by selling prices and the costs of manufacturing and raw materials . this is affected by a number of factors , which include the company 's sales mix , purchase prices of raw material ( especially polymers , stainless steel and purchased components ) , competition , both domestic and international , direct labor costs , and the efficiency of the company 's production operations , among others . fixed cost structure . story_separator_special_tag accounts receivable-related valuation accounts the company maintains allowances for doubtful accounts and for sales returns and allowances . significant management judgments and estimates must be made and used in connection with establishing these valuation accounts . the company provides an allowance for doubtful accounts for all individual receivables judged to be unlikely for collection . in addition , for all other accounts receivable , the company records an allowance for doubtful accounts based on a combination of factors . specifically , management considers the age of receivable balances , historical bad debt write-off experience and current economic circumstances . the company 's allowance for doubtful accounts was $ 1.8 million and $ 2.3 million at december 31 , 2013 and 2012 , respectively . the decrease in 2013 primarily reflects the reversal of the recording of allowances for specific individual receivables . an allowance for sales returns and allowances is established based on historical and current trends in both sales and product returns . at december 31 , 2013 and 2012 , the company 's reserve for sales returns and allowances was $ 0.7 million and $ 1.2 million , respectively . the decrease in 2013 primarily reflects changes in the underlying variables of the company 's determination of its sales return allowances . inventory valuation the company uses certain estimates and judgments to properly value its inventory . the company 's inventories are recorded at the lower of cost or market . the company evaluates its ending inventories for obsolescence and excess quantities each quarter . this evaluation includes analyses of inventory levels , historical write-off trends , expected product lives , and historical and projected sales levels by product . inventories that are considered obsolete are written off or a full allowance is recorded . in addition , allowances are established for inventory quantities in excess of forecasted demand . inventory allowances were $ 6.6 million and $ 5.7 million at december 31 , 2013 and 2012 , respectively . the company 's inventories include materials and products subject to technological obsolescence , which are sold in highly competitive industries . if future demand or market conditions are less favorable than current conditions or the company 's projected outlook for sales , inventory write-downs or additional allowances may be required and would be reflected in cost of sales in the period the revision is made . impairment of long-lived assets as of december 31 , 2013 , the company had $ 186.4 million of net property , plant and equipment and $ 43.5 million of net intangible assets . the company routinely considers whether indicators of impairment of the value of its long-lived assets , particularly its manufacturing equipment , and its intangible assets , are present . a long-lived asset ( asset group ) shall be tested for recoverability whenever events or changes in circumstances ( triggering events ) indicate that its carrying amount may not be recoverable . the following are examples of such events or changes in circumstances : a. a significant decrease in the market price of a long-lived asset ( asset group ) b. a significant adverse change in the extent or manner in which a long-lived asset ( asset group ) is being used or in its physical condition 33 c. a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator d. an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ( asset group ) e. a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset ( asset group ) f. a current expectation that , more likely than not , a long-lived asset ( asset group ) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . if such indicators are present , it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value . if less , an impairment loss is recognized based on the excess of the carrying amount of the assets in the group over its respective fair value . fair value is determined by discounting estimated future cash flows , appraisals or other methods deemed appropriate . if the asset groups determined to be impaired are to be held and used , the company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets ' carrying value . the fair value of the assets then becomes the assets ' new carrying value , which is depreciated or amortized over the remaining estimated useful life of the assets . the company 's long-lived assets are grouped with other assets and liabilities at the lowest level ( asset groups ) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities . the company has four significant asset groups , identified by assessing the company 's identifiable cash flows and the interdependence of such cash flows : contamination control solutions ( ccs ) , microenvironments ( me ) , poco graphite ( poco ) and entegris specialty coatings ( esc ) . as described above , the evaluation of the recoverability of long-lived assets requires the company to make significant estimates and assumptions . these estimates and assumptions primarily include , but are not limited to , the identification of the asset group at the lowest level of independent cash flows , the primary asset of the group and long-range forecasts of revenue and costs , reflecting management 's assessment of general economic and industry conditions , operating income , depreciation and amortization and working capital requirements .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 the following table sets forth the results of operations and the relationship between various components of operations , stated as a percent of net sales , for the years ended december 31 , 2013 and 2012 . the company 's historical financial data was derived from its consolidated financial statements and related notes included elsewhere in this annual report . replace_table_token_7_th net sales for the year ended december 31 , 2013 , net sales were $ 693.5 million , down $ 22.4 million , or 3 % , from sales for the year ended december 31 , 2012 . the year-over-year declines in net sales primarily reflected continued softness in semiconductor industry spending , though the company experienced growth and signs of stabilization in the fourth quarter , and changes in foreign currency rates . in line with industry data , overall demand from the company 's semiconductor industry customers for 2013 reflected lower demand from leading edge fabs , aggregate fab utilization rates remained well below peak levels and semiconductor industry capital spending remained restrained . the company 's operating segments experienced mixed sales results . see the “ segment analysis ” included below in this section for additional detail . 35 the sales decrease in 2013 included unfavorable foreign currency translation effects of $ 18.6 million related to the year-over-year weakening of most international currencies versus the u.s. dollar , most notably the japanese yen . excluding this factor , net sales fell approximately 1 % in 2013 when compared to 2012 . on a geographic basis , total sales to north america were 29 % , asia pacific 43 % , europe 13 % and japan 15 % in 2013 . total sales to north america were 31 % , asia pacific 38 % , europe 12 % and japan 19 % in 2012 .
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64 integrated electrical services , inc. notes to consolidated financial statements ( all amounts in thousands except share amounts ) borrowings under story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto , set forth in item 8 , financial statements and supplementary data of this form 10-k. for additional information , see disclosure regarding forward looking statements in part i of this form 10-k. overview executive overview please refer to item 1 . business of this form 10-k for a discussion of the company 's services and corporate strategy . integrated electrical services , inc. , a delaware corporation , is a holding company that owns and manages diverse operating subsidiaries , comprised of providers of industrial infrastructure services to a variety of end markets . our operations are currently organized into four principal business segments : communications , residential , commercial & industrial , and infrastructure solutions . industry trends our performance is affected by a number of trends that drive the demand for our services . in particular , the markets in which we operate are exposed to many regional and national trends such as the demand for single and multi-family housing , the need for mission critical facilities as a result of technology-driven advancements , the degree to which in-house maintenance departments outsource maintenance and repair work , output levels and equipment utilization at heavy industrial facilities , demand for our railroad locomotive parts , and changes in commercial , institutional , public infrastructure and electric utility spending . over the long term , we believe that there are numerous factors that could positively drive demand and affect growth within the industries in which we operate , including ( i ) population growth , which will increase the need for commercial and residential facilities , ( ii ) aging public infrastructure , which must be replaced or repaired , ( iii ) increased emphasis on environmental and energy efficiency , which may lead to both increased public and private spending , and ( iv ) the low price of natural gas which is expected to spur the construction of and modifications to heavy industrial facilities . however , there can be no assurance that we will not experience a decrease in demand for our services due to economic , technological or other factors , including the slowdown in the oil and gas sector , which may reduce the demand for housing in the texas region , where our residential division operates . for a further discussion of the industries in which we operate , please see item 1 . business operating segments of this form 10-k. business outlook while differences exist among the company 's segments , on an overall basis , demand for the company 's services increased in fiscal 2015 as compared to fiscal 2014 , resulting in aggregate year-over-year revenue growth . in addition , the company 's previous investment in growth initiatives and other business-specific factors discussed below contributed to year-over-year revenue growth . among our segments , year-over-year revenue growth rates during fiscal 2015 were led primarily by growth in our communications segment followed closely by our residential segment . the combination of increasing revenue , increasing project bid margins , effective project 28 execution , and efficient scaling of operations as the economy improves have resulted in a year over year increase in profitability . provided that no significant deterioration in general economic conditions occurs , the company expects total revenues from existing businesses to increase on a year-over-year basis during fiscal 2016 due to an increase in overall demand for the services we provide . despite this expectation of growth within certain segments , we remain focused on controlled growth within certain markets which continue to experience highly competitive margins and increasing costs . to continue to grow our business , including through acquisitions , and to fund working capital , we may require a significant amount of cash . our ability to generate cash depends on many factors that are beyond our control , including demand for our services , the availability of projects at margins acceptable to us , the ultimate collectability of our receivables , our ability to borrow on our 2012 credit facility , and our ability to raise funds in the capital markets , among many other factors . we anticipate that the combination of cash on hand , cash flows from operations and available capacity under our 2012 credit facility will provide sufficient cash to enable us to meet our working capital needs , debt service requirements and capital expenditures for property and equipment through the next twelve months . we expect that our fixed asset requirements will range from $ 2.0 to $ 3.0 million for the fiscal year ending on september 30 , 2016 , and we may acquire these assets either through capital expenditures or through lease agreements . story_separator_special_tag texas in the year ended september 30 , 2014. residential 2015 compared to 2014 replace_table_token_11_th 31 revenue . revenues increased $ 23.8 million during the year ended september 30 , 2015 , an increase of 13.0 % as compared to the year ended september 30 , 2014. single-family construction revenues increased by $ 15.9 million , primarily from growth in texas , where the economy has experienced continued growth and population expansion . we continue to monitor how demand in this region may be affected by a slowdown in the oil and gas sector ; we believe that sustained low levels of oil prices could result in a tapering of regional growth and lower revenues in this segment of our business . revenue for multi-family construction increased by $ 3.3 million for the year ended september 30 , 2015 as compared with the same period in 2014 , primarily as a result of increased demand , particularly on the east coast and in texas . cable and service activity , as well as revenue from solar installations , also increased year over year . gross profit . story_separator_special_tag selling , general and administrative expenses during the year ended september 30 , 2015 increased by $ 0.5 million , or 3.8 % , compared to the year ended september 30 , 2014. selling , general and administrative expense as a percentage of revenues in the commercial & industrial segment decreased by 0.3 % during the year ended september 30 , 2015 , as we benefited from increased activity . 2014 compared to 2013 replace_table_token_14_th revenue . revenues decreased $ 37.2 million during the year ended september 30 , 2014 , a decrease of 18.3 % compared to the year ended september 30 , 2013. our commercial & industrial segment is impacted not only by construction industry trends , but also specific industry and local economic trends . impacts from these trends on 33 our revenues may be delayed due to the long lead time of our projects . during the year ended september 30 , 2014 , our revenue decrease was the result of large commercial projects for which we recognized substantial revenue in the year ended september 30 , 2013 , but are now complete or nearing completion . gross profit . gross profit during the year ended september 30 , 2014 increased by $ 2.6 million , or 17.0 % , as compared to the year ended september 30 , 2013. commercial & industrial 's gross margin percentage increased 3.3 % to 10.9 % during the year ended september 30 , 2014. the increase in margin was primarily the result of improved productivity , as well as a more selective bidding strategy . in particular , we recognized improved margins in the year ended september 30 , 2014 as compared to 2013 on our ongoing major project related to the construction of an infectious disease facility which has been underway since 2009. however , gross margin on this project is still below average for our commercial projects in both 2013 and 2014. project bid margins have continued to improve in 2014 ; however , the market remains competitive , and we expect continued pressure on our ability to increase project bid margins in most of the markets we serve . selling , general and administrative expenses . selling , general and administrative expenses during the year ended september 30 , 2014 increased by $ 0.1 million , or 0.8 % , compared to the year ended september 30 , 2013. selling , general and administrative expense as a percentage of revenues in the commercial & industrial segment increased by 1.6 % during the year ended september 30 , 2014 , reflective of higher incentive compensation costs in connection with increased profitability . infrastructure solutions 2015 compared to 2014 replace_table_token_15_th revenue . revenues in our infrastructure solutions segment decreased by $ 0.7 million during the year ended september 30 , 2015 , a decrease of 1.5 % compared to the year ended september 30 , 2014. the decrease in revenue was driven primarily by a decrease in demand for power assemblies by certain of our large rail customers . this decrease was partially offset by improved demand for electric motor repair services and the expansion of our customer base . revenue for the year ended september 30 , 2015 includes $ 2.9 million from southern industrial sales and services , inc. ( southern rewinding ) , a columbus , georgia-based motor repair and related field services company , which we acquired in may , 2015. we believe the reduction in demand for power assemblies from our current large rail customers will continue for the foreseeable future , as they shift the majority of their ongoing maintenance and repair work to a single preferred vendor . gross profit . our infrastructure solutions segment 's gross profit during the year ended september 30 , 2015 increased by $ 0.7 million , or 6.8 % , as compared to the year ended september 30 , 2014. gross profit increased due to higher volume of electric motor repair services combined with the addition of southern rewinding , which contributed $ 0.9 million of gross margin for the year ended september 30 , 2015. gross profit as a percentage of revenue increased from 20.9 % for the year ended september 30 , 2014 to 22.7 % for the year ended september 30 , 2015. although revenues were down , we were able to improve our margins through a focus on workflow and process improvement , as well as cost management . further , the favorable service and project mix at southern rewinding contributed to the higher margin percentage year over year . although margins have continued to improve year over year , the markets in which we operate remain competitive due to the current economic conditions of some of the larger industries we serve , particularly the steel and rail industries . as such , we expect continued pressure on our ability to increase margins . 34 selling , general and administrative expenses . our infrastructure solutions segment 's selling , general and administrative expenses during the year ended september 30 , 2015 increased by $ 0.2 million compared to the year ended september 30 , 2014. selling , general and administrative expense as a percentage of revenue increased from 19.7 % for the year ended september 30 , 2014 to 20.3 % for the year ended september 30 , 2015. the increases were a result of certain one-time legal expenses and costs associated with the acquisition of southern rewinding , combined with the addition of selling , general and administrative expenses associated with southern rewinding 's operations . these increases were partially offset by cost reductions made at our locations that service our large rail and steel industry customers , due to the decrease in demand for our services during the year ended september 30 , 2015 . 2014 compared to 2013 replace_table_token_16_th our infrastructure solutions business was created on september 13 , 2013 with the acquisition of miscor group , ltd. therefore , amounts shown above include the results of operations beginning september 13 , 2013 only .
| results of operations we report our operating results across our four operating segments : communications , residential , commercial & industrial and infrastructure solutions . expenses associated with our corporate office are classified as a fifth segment . the following table presents selected historical results of operations of ies . the infrastructure solutions segment was added in connection with the acquisition of miscor group , ltd. in september 2013. replace_table_token_8_th consolidated revenues for the year ended september 30 , 2015 were $ 61.5 million greater than for the year ended september 30 , 2014 , an increase of 12.0 % . revenues increased as both the communications and residential segments recognized double digit revenue growth driven by an increase in demand for their service offerings 29 combined with continued improvement of conditions in the markets in which they operate . the commercial and industrial segment also contributed to the overall year over year growth while the infrastructure solutions segment reported a minor decline in revenue , primarily due to a decrease in demand for power assemblies by certain of our large rail customers . our overall gross profit percentage increased to 17.4 % during the year ended september 30 , 2015 as compared to 16.2 % during the year ended september 30 , 2014. gross profit as a percentage of revenue increased at all of our operating segments . this was primarily accomplished through improved project execution combined with a favorable mix of projects in progress and other services in demand . selling , general and administrative expenses include costs not directly associated with performing work for our customers . these costs consist primarily of compensation and benefits related to corporate , segment and branch management ( including incentive-based compensation ) , occupancy and utilities , training , professional services , information technology costs , consulting fees , travel and certain types of depreciation and amortization .
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we offer rental car reservations worldwide through rentalcars.com . we also allow consumers to easily compare airline ticket , hotel reservation and rental car reservation information from hundreds of travel websites at once through kayak 's websites and mobile applications ( or `` apps '' ) . we refer to our company and all of our subsidiaries and brands , including booking.com , priceline.com , agoda.com , kayak and rentalcars.com , collectively as `` the priceline group , '' the `` company , '' `` we , '' `` our '' or `` us . '' we launched our business in the united states in 1998 under the priceline.com brand and have since expanded our operations to include booking.com , agoda.com , kayak , and rentalcars.com , which are independently managed and operated brands . our principal goal is to serve consumers with worldwide leadership in online travel services . our business is driven primarily by international results , which consist of the results of booking.com , agoda.com and rental cars.com , as well as the results of kayak 's international based websites , in each case regardless of where the consumer is resident , from where the consumer makes a reservation or where the travel service is provided . during the year ended december 31 , 2013 , our international business ( the substantial majority of which is generated by booking.com ) represented approximately 85 % of our gross bookings ( an operating and statistical metric referring to the total dollar value , generally inclusive of all taxes and fees , of all travel services purchased by our customers ) , and approximately 94 % of our consolidated operating income . a significant majority of our gross profit is earned in connection with facilitating accommodation reservations . we derive substantially all of our gross profit from the following sources : commissions earned from facilitating reservations of accommodations , rental cars , cruises and other travel services ; transaction gross profit and customer processing fees from our accommodation , rental car , and vacation package reservation services ; advertising revenues primarily earned by kayak from sending referrals to travel service providers and otas as well as from advertising placements on kayak 's websites and mobile apps ; and global distribution system ( `` gds '' ) reservation booking fees related to our name your own price ® accommodation , rental car and airline ticket reservation services , and price-disclosed airline ticket and rental car reservation services . the retail and semi-opaque travel services offered by our u.s. and international brands are recorded in revenue on a `` net '' basis and have no associated cost of revenue . our priceline.com u.s. brand offers merchant name your own price ® opaque travel services , which are recorded in revenue on a `` gross '' basis and have associated cost of revenue . therefore , revenue increases and decreases are impacted by changes in the mix of our revenues between name your own price ® travel services and other travel services . gross profit reflects the commission or net margin earned for our retail , name your own price ® and semi-opaque travel services . consequently , gross profit has become an increasingly important measure of evaluating growth in our business because , in contrast to our revenues , it is not affected by the mix between our name your own price ® travel services and our other travel services . over the last several years we have experienced strong growth in our accommodation reservation services . we believe this growth is the result of , among other things , the broader shift of travel purchases from offline to online , the widespread adoption of mobile devices , the high growth of travel overall in emerging markets such as asia-pacific and south america , and the continued innovation and execution by our teams around the world to build accommodation supply , content and distribution and to improve the customer experience on our websites and mobile apps . we experienced strong year-over-year growth in recent years , though that growth has generally decelerated . for example , for the year ended december 31 , 2013 , our accommodation room night reservation growth was 37 % , a deceleration from 40 % in 2012 and 53 % in 2011. given 40 the size of our hotel reservation business , we believe it is highly likely that our year-over-year growth rates will continue to decelerate , though the rate of deceleration may fluctuate . many governments around the world , including the u.s. government and certain european governments , are operating at large financial deficits , resulting in high levels of sovereign debt in such countries . failure to reach political consensus regarding workable solutions to these issues has resulted in a high level of uncertainty regarding the future economic outlook . this uncertainty , as well as concern over governmental austerity measures including higher taxes and reduced government spending , could impair consumer spending and adversely affect travel demand . at times , we have experienced volatility in transaction growth rates and weaker trends in hotel average daily rates ( `` adrs '' ) across many regions of the world , particularly in those european countries that appear to be most affected by economic uncertainties . we believe that these business trends are likely impacted by weak economic conditions and sovereign debt concerns . disruptions in the economies of such countries could cause , contribute to or be indicative of deteriorating macro-economic conditions . in addition , during periods of elevated uncertainty , the value of the u.s. dollar compared to other currencies , including the euro , has often increased , which adversely affects our gross bookings , gross profit , operating income and net income as expressed in u.s. dollars . story_separator_special_tag our major competitors and certain new market entrants are offering mobile applications for travel products and other functionality , including proprietary last-minute discounts for accommodation reservations . advertising and distribution opportunities may be more limited on mobile devices given their smaller screen sizes . the gross profit earned on a mobile transaction may be less than a typical desktop transaction due to different consumer purchasing patterns . for example , accommodation reservations made on a mobile device typically are for shorter lengths of stay and are not made as far in advance . further , given the device sizes and technical limitations of tablets and smartphones , mobile consumers may not be willing to download multiple apps from multiple travel service providers and instead prefer to use one or a limited number of apps for their mobile travel activity . as a result , the consumer experience with mobile apps as well as brand recognition and loyalty are likely to become increasingly important . we have made significant progress creating mobile offerings , which have received strong reviews and solid download trends , and which are driving a material and increasing share of our business . we believe that mobile bookings present an opportunity for growth and are necessary to maintain and grow our business as consumers increasingly turn to mobile devices instead of a personal computer and to mobile applications instead of a web browser . if we are unable to continue to rapidly innovate and create new , user-friendly and differentiated mobile offerings and efficiently and effectively advertise and distribute on these platforms , or if our mobile apps are not downloaded and used by consumers , we could lose market share to existing competitors or new entrants and our future growth and results of operations could be adversely affected . apple , inc. , one of the most innovative and successful companies in the world and producer of , among other things , the iphone and ipad , obtained a patent for `` itravel , '' a mobile app that would allow a traveler to check in for a travel reservation . in addition , apple 's iphone operating system includes `` passbook , '' a virtual wallet app that holds tickets , boarding passes , coupons and gift cards , and along with itravel , may be indicative of apple 's intent to enter the travel reservations business in some capacity . apple has substantial market share in the smart phone category and controls integration of offerings , including travel services , into its mobile operating system . apple also has more experience producing and developing mobile apps and has access to greater resources than we have . apple may use or expand itravel , passbook , siri ( apple 's voice recognition `` concierge '' service ) or another mobile app as a means of entering the travel reservations marketplace . similarly , google 's android operating system is the leading smart phone operating system in the world . as a result , google could leverage its android operating system to give its travel services a competitive advantage , either technically or with prominence on its google play app store or within its mobile search results . to the extent apple or google use their mobile operating systems or app distribution channels to favor their own travel service offerings , our business could be harmed . there has been a proliferation of new channels through which accommodation providers can offer reservations . for example , some accommodations offer reservations through `` daily deal '' websites such as groupon and living social , which sell coupons to customers at a substantial discount . in 2011 , expedia , one of our largest competitors , entered into a partnership with groupon to facilitate accommodation reservations to groupon customers under the `` groupon getaways '' brand name . new entrants , such as hoteltonight , backbid , guestmob , tingo , hipmunk and room 77 , have developed new and differentiated offerings that endeavor to provide savings on accommodation reservations to consumers and that compete directly with us . if any of these new services are successful , we may experience less demand for our services and are likely to face more competition for access to the limited supply of discounted hotel room rates . 42 in august 2013 , expedia and travelocity announced that they had entered into an exclusive , long-term strategic marketing agreement , whereby expedia will power the technology platforms for travelocity 's existing websites in the united states and canada , while providing travelocity access to expedia 's supply and customer services . to the extent this arrangement enhances expedia 's and or travelocity 's ability to compete with us in the affected markets , our market share and results of operations could be adversely affected . we use third party websites , including online search engines ( primarily google ) and meta-search and travel research services , and affiliate marketing as primary means of generating traffic to our websites . as a result , our online advertising expense has increased significantly in recent years , a trend we expect to continue . in addition , our online advertising expense has generally been growing faster than our gross profit due to ( 1 ) lower returns on investment ( `` rois '' ) from our online advertising , ( 2 ) brand mix within the priceline group and ( 3 ) channel mix within certain of our brands . our online advertising rois were down year-over-year for the year ended december 31 , 2013 . furthermore , our international brands are generally growing faster than our u.s. brands , and typically spend a higher percentage of gross profit on online advertising . finally , certain of our brands are obtaining an increasing share of traffic through paid online advertising channels .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 operating and statistical metrics our financial results are driven by certain operating metrics that encompass the booking activity generated by our travel services . specifically , reservations of accommodation room nights , rental car days and airline tickets capture the volume of units purchased by our customers . gross bookings is an operating and statistical metric that captures the total dollar value , generally inclusive of taxes and fees , of all travel services booked by our customers and is widely used in the travel business . international gross bookings reflect gross bookings generated principally by our booking.com , agoda.com , and rentalcars.com businesses and domestic gross bookings reflect gross bookings generated principally by our priceline.com business , in each case without regard to the travel destination or the location of the customer purchasing the travel . gross bookings resulting from accommodation room nights , rental car days and airline tickets reserved through our international and u.s. operations for the years ended december 31 , 2013 and 2012 were as follows ( numbers may not total due to rounding ) : replace_table_token_4_th gross bookings increased by 37.7 % for the year ended december 31 , 2013 , compared to the same period in 2012 ( growth on a local currency basis was approximately 38 % ) , principally due to growth of 36.9 % in accommodation room night reservations and growth of 37.0 % in rental car day reservations . the 42.5 % increase in international gross bookings ( growth on a local currency basis was approximately 42 % ) was primarily attributable to growth in hotel and accommodation room night reservations for our booking.com and agoda.com businesses , as well as growth in rental car day reservations for our rentalcars.com business .
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we operate our business in a manner that permits exclusion from the “ investment company ” definition under the investment company act of 1940. note 2 – summary of significant accounting policies basis of presentation and consolidation our consolidated financial statements have been story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements , which are included in part iv , item 15 of this report . overview we are a maryland corporation primarily focused on investing in , financing and managing residential and commercial mortgage-backed securities ( “ mbs ” ) and other mortgage-related assets . our objective is to provide attractive risk-adjusted returns to our stockholders , primarily through dividends and secondarily through capital appreciation . to achieve this objective , we primarily invest in the following : residential mortgage-backed securities ( “ rmbs ” ) that are guaranteed by a u.s. government agency such as the government national mortgage association ( “ ginnie mae ” ) or a federally chartered corporation such as the federal national mortgage association ( “ fannie mae ” ) or the federal home loan mortgage corporation ( “ freddie mac ” ) ( collectively “ agency rmbs ” ) ; commercial mortgage-backed securities ( “ cmbs ” ) that are guaranteed by a u.s. government agency such as ginnie mae or a federally chartered corporation such as fannie mae or freddie mac ” ) ( collectively “ agency cmbs ” ) ; rmbs that are not guaranteed by a u.s. government agency or a federally chartered corporation ( “ non-agency rmbs ” ) ; cmbs that are not guaranteed by a u.s. government agency or a federally chartered corporation ( “ non-agency cmbs ” ) ; replace_table_token_38_th credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ( “ gse crt ” ) ; residential and commercial mortgage loans ; and other real estate-related financing arrangements . we conduct our business through ias operating partnership l.p. ( our “ operating partnership ” ) . we are externally managed and advised by invesco advisers , inc. ( our “ manager ” ) , an indirect wholly owned subsidiary of invesco ltd. we have elected to be taxed as a real estate investment trust ( “ reit ” ) for u.s. federal income tax purposes under the provisions of the internal revenue code of 1986. to maintain our reit qualification , we are generally required to distribute at least 90 % of our reit taxable income to our stockholders annually . we operate our business in a manner that permits our exclusion from the definition of an “ investment company ” under the 1940 act . capital activities on december 16 , 2019 , we declared the following dividends : a dividend of $ 0.50 per share of common stock payable on january 28 , 2020 to stockholders of record as of the close of business on december 27 , 2019 ; a dividend of $ 0.4844 per share of series a preferred stock payable on january 27 , 2020 to stockholders of record as of the close of business on january 1 , 2020 ; on february 7 , 2019 , we completed a public offering of 16,100,000 shares of common stock at the price of $ 15.73 per share . total net proceeds were approximately $ 249.5 million after deducting offering expenses . on august 16 , 2019 , we completed a public offering of 14,000,000 shares of common stock at the price of $ 15.86 per share . total net proceeds were approximately $ 219.3 million after deducting offering expenses . on february 6 , 2020 , we completed a public offering of 20,700,000 shares of common stock at the price of $ 16.78 per share . total net proceeds were approximately $ 347.0 million after deducting estimated offering costs . we may sell up to 17,000,000 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement . these shares are registered with the sec under our shelf registration statement ( as amended and or supplemented ) . during the year ended december 31 , 2019 , we issued 2,540,260 shares of common stock under our equity distribution agreement for proceeds of $ 40.1 million , net of approximately $ 846,000 in commissions and fees . we may sell up to 7,000,000 shares of our preferred stock from time to time in at-the-market or privately negotiated transactions . these shares are registered with the sec under our shelf registration statement ( as amended and or supplemented ) . as of december 31 , 2019 , we have not sold any shares of preferred stock under the equity distribution agreement . during the year ended december 31 , 2019 , we did not repurchase any shares of our common stock . factors impacting our operating results our operating results can be affected by a number of factors and primarily depend on the level of our net interest income and the market value of our assets . our net interest income , which includes the amortization of purchase premiums and accretion of purchase discounts , varies primarily as a result of changes in market interest rates and prepayment speeds , as measured by the constant prepayment rate ( “ cpr ” ) on our target assets . interest rates and prepayment speeds vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . the market value of our assets can be impacted by credit spread premiums ( yield advantage over u.s. treasury notes ) and the supply of , and demand for , target assets in which we invest . story_separator_special_tag sofr is an overnight rate instead of a term rate , making sofr an inexact replacement for libor . there is currently no perfect way to create robust , forward-looking , sofr term rates . market participants are still considering how various types of financial instruments and securitization vehicles should react to a discontinuation of libor . it is possible that not all of our assets and liabilities will transition away from libor at the same time , and it is possible that not all of our assets and liabilities will transition to the same alternative reference rate , in each case increasing the difficulty of hedging . switching existing financial instruments and hedging transactions from libor to sofr requires calculations of a spread . industry organizations are attempting to structure the spread calculation in a manner that minimizes the possibility of value transfer between replace_table_token_40_th counterparties , borrowers , and lenders by virtue of the transition , but there is no assurance that the calculated spread will be fair and accurate or that all asset types and all types of securitization vehicles will use the same spread . we and other market participants have less experience understanding and modeling sofr-based assets and liabilities than libor-based assets and liabilities , increasing the difficulty of investing , hedging , and risk management . we have material contracts that are indexed to usd-libor and are monitoring this activity and evaluating the related risks . however , it is not possible to predict the effect of any of these developments , and any future initiatives to regulate , reform or change the manner of administration of libor could result in adverse consequences to the rate of interest payable and receivable on , market value of and market liquidity for libor-based financial instruments . our manager is finalizing its global assessment of exposure in relation to our libor-based instruments and benchmarks and is prioritizing the mitigation of risks associated with the forecasted changes to financial instruments and performance benchmarks referencing existing libor rates . in october 2019 , the irs and treasury proposed regulations that are expected to provide taxpayers relief from adverse impacts resulting from the transition away from libor to an alternative reference rate . the proposed regulations make clear that a change in the reference rate ( and associated alterations to payment terms ) of a financial instrument is generally not considered a taxable event , provided the fair value of the modified instrument is substantially equivalent to the fair value of the unmodified instrument . investment activities the table below shows the allocation of our stockholders ' equity as of december 31 , 2019 and 2018 : replace_table_token_41_th ( 1 ) commercial credit includes non-agency cmbs , multifamily gse crts , commercial loans and investments in unconsolidated ventures . ( 2 ) residential credit includes non-agency rmbs , single family gse crts and a loan participation interest . the table below shows the breakdown of our investment portfolio as of december 31 , 2019 and 2018 : replace_table_token_42_th during 2019 , we purchased $ 4.7 billion of newly issued fixed-rate agency rmbs , $ 3.7 billion of agency cmbs , $ 452.0 million of non-agency cmbs , $ 113.1 million of non-agency rmbs and $ 233.6 million of gse crt . we funded these replace_table_token_43_th purchases by leveraging the proceeds of our february 2019 and august 2019 common stock issuances and with cash proceeds from paydowns and sales of securities . during 2019 , our sales consisted primarily of 30 year fixed-rate agency rmbs and hybrid arm securities . as of december 31 , 2019 our holdings of 30 year fixed-rate agency rmbs represented 48 % of our total investment portfolio versus 56 % of our total investment portfolio as of december 31 , 2018 . we have purchased newly issued 30 year fixed-rate agency rmbs over the past 12 months as the return on equity profile for these securities is attractive as valuations have been impacted by higher interest rate volatility , reduced federal reserve demand and expectations for increased supply , in addition to lower funding costs given changes in the outlook for short-term interest rates . we have focused our purchases on 30 year specified pools priced at modest pay-ups to generic agency rmbs because these securities have characteristics that reduce prepayment risk . as of december 31 , 2019 our holdings of agency cmbs represented approximately 22 % of our total investment portfolio versus 6 % as of december 31 , 2018 . our agency cmbs holdings as of december 31 , 2019 include unsettled tba securities with an amortized cost of approximately $ 99.3 million . we began investing in agency cmbs issued by freddie mac and fannie mae in the second quarter of 2018 and began investing in agency cmbs issued by ginnie mae in the third quarter of 2019. we have increased our holdings of agency cmbs in 2019 because these securities benefit from prepayment protection characteristics and have an attractive return on equity profile . agency cmbs benefit from a guarantee of principal and interest payments from governmental agencies and federally chartered corporations . further , the hedging costs are less sensitive to interest rate risk given limited extension beyond initial expected maturity dates and underlying loan prepayment protection . our investments that have credit exposure include non-agency cmbs , non-agency rmbs , gse crts , a commercial real estate loan , and a loan participation interest . rather than relying on the rating agencies , we utilize proprietary models as well as third party applications to quantify and monitor the credit risk associated with these holdings . our analysis generally begins at the underlying asset level , where we gather detailed information on loan , borrower , and property characteristics that inform our expectations for future performance . in addition to base case cash flow projections , we perform a range of scenario stresses to gauge the sensitivity of returns to potential deviations in underlying asset behavior .
| results of operations our consolidated results of operations for the years ended december 31 , 2019 , 2018 and 2017 are summarized below : replace_table_token_56_th replace_table_token_57_th interest income and average earning asset yields the table below presents information related to our average earning assets and earning asset yields as of and for the years ended december 31 , 2019 , 2018 and 2017 . replace_table_token_58_th ( 1 ) average balances for each period are based on weighted month-end average earning assets . ( 2 ) average earning asset yields for the period were calculated by dividing interest income , including amortization of premiums and discounts , by the average month-end earning assets based on the amortized cost of the investments . all yields are annualized . ( 3 ) gse crt average earning asset yields exclude coupon interest associated with embedded derivatives on securities not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income ( loss ) , net under u.s. gaap . our primary source of income is interest earned on our investment portfolio . we had average earning assets of approximately $ 20.6 billion during the year ended december 31 , 2019 ( 2018 : $ 18.1 billion ; 2017 : $ 17.0 billion ) . average earning assets increased during the year ended december 31 , 2019 compared to 2018 primarily because we invested and leveraged $ 508.9 million in net proceeds from 2019 common stock issuances and $ 168.5 million in proceeds from commercial loan repayments since the beginning of 2018 into newly issued 30 year fixed-rate agency rmbs and agency cmbs securities . average earning assets increased during the year ended december 31 , 2018 compared to 2017 primarily due to a change in asset mix .
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the average number of dish tv subscribers is calculated for the period by adding the average number of dish tv subscribers for each month and dividing by the number of months in the period . the average number of dish tv subscribers for each month is calculated by adding the beginning and ending dish tv subscribers for the month and dividing by two . 49 dish tv sac . subscriber acquisition cost measures are commonly used by those evaluating traditional companies in the pay-tv industry . we are not aware of any uniform standards for calculating the “ average subscriber acquisition costs per new dish tv subscriber activation , ” or dish tv sac , and we believe presentations of pay-tv sac may not be calculated consistently by different companies in the same or similar businesses . our dish tv sac is calculated using all of costs of acquiring dish tv subscribers ( e.g. , subsidized equipment , advertising , installation , commissions and direct sales , etc . ) which are included in “ selling , general and administrative expenses , ” plus capitalized payments made under certain sales incentive programs and the value of equipment capitalized under our lease program for new dish tv subscribers , divided by gross new dish tv subscriber activations . we include all new dish tv subscribers in our calculation , including dish tv subscribers added with little or no subscriber acquisition costs . although we no longer have a separate line item for subscriber acquisition costs on our consolidated statements of operations and comprehensive income ( loss ) , our methodology for calculating dish tv sac is unchanged from prior periods . wireless subscribers . we include prepaid and postpaid customers obtained through direct sales , independent third-party retailers and other independent third-party distribution relationships in our wireless subscriber count . wireless average monthly revenue per subscriber ( “ wireless arpu ” ) . we are not aware of any uniform standards for calculating arpu and believe presentations of arpu may not be calculated consistently by other companies in the same or similar businesses . we calculate average monthly revenue per wireless subscriber , or wireless arpu , by dividing average monthly retail wireless business unit “ service revenue ” for the period by our average number of wireless subscribers for the period . the average number of wireless subscribers is calculated for the period by adding the average number of wireless subscribers for each month and dividing by the number of months in the period . the average number of wireless subscribers for each month is calculated by adding the beginning and ending wireless subscribers for the month and dividing by two . wireless average monthly subscriber churn rate ( “ wireless churn rate ” ) . we are not aware of any uniform standards for calculating subscriber churn rate and believe presentations of subscriber churn rates may not be calculated consistently by different companies in the same or similar businesses . we calculate our “ wireless churn rate ” for any period by dividing the number of wireless subscribers who terminated service during the period by the average number of wireless subscribers for the same period , and further dividing by the number of months in the period . the average number of wireless subscribers is calculated for the period by adding the average number of wireless subscribers for each month and dividing by the number of months in the period . the average number of wireless subscribers for each month is calculated by adding the beginning and ending wireless subscribers for the month and dividing by two . free cash flow . we define free cash flow as “ net cash flows from operating activities ” less “ purchases of property and equipment ” and “ capitalized interest related to fcc authorizations , ” as shown on our consolidated statements of cash flows . 50 results of operations – segments business segments we currently operate two primary business segments : ( 1 ) our pay-tv segment ; and ( 2 ) our wireless segment . our wireless segment consists of two business units , the retail wireless business unit and 5g network deployment business unit . revenue and operating income ( loss ) by segment are shown in the table below : year ended december 31 , 2020 compared to the year ended december 31 , 2019 . replace_table_token_1_th * percentage is not meaningful . total revenue . our consolidated revenue totaled $ 15.493 billion for the year ended december 31 , 2020 , an increase of $ 2.686 billion or 21.0 % compared to the same period in 2019. the increase primarily resulted from the completion of the boost mobile acquisition . total operating income ( loss ) . our consolidated operating income totaled $ 2.583 billion for the year ended december 31 , 2020 , an increase of $ 704 million or 37.5 % compared to the same period in 2019. the change primarily resulted from an increase in the operating income from our pay-tv segment and our retail wireless business unit , partially offset by an increase in operating losses associated with our 5g network deployment business unit , principally related to an “ impairment of long-lived assets ” of $ 356 million in the first quarter of 2020 . 51 pay-tv segment we offer pay-tv services under the dish ® brand and the sling ® brand ( collectively “ pay-tv ” services ) . as of december 31 , 2020 , we had 11.290 million pay-tv subscribers in the united states , including 8.816 million dish tv subscribers and 2.474 million sling tv subscribers . we market our sling tv services to consumers who do not subscribe to traditional satellite and cable pay-tv services , as well as to current and story_separator_special_tag the average number of dish tv subscribers is calculated for the period by adding the average number of dish tv subscribers for each month and dividing by the number of months in the period . the average number of dish tv subscribers for each month is calculated by adding the beginning and ending dish tv subscribers for the month and dividing by two . 49 dish tv sac . subscriber acquisition cost measures are commonly used by those evaluating traditional companies in the pay-tv industry . we are not aware of any uniform standards for calculating the “ average subscriber acquisition costs per new dish tv subscriber activation , ” or dish tv sac , and we believe presentations of pay-tv sac may not be calculated consistently by different companies in the same or similar businesses . our dish tv sac is calculated using all of costs of acquiring dish tv subscribers ( e.g. , subsidized equipment , advertising , installation , commissions and direct sales , etc . ) which are included in “ selling , general and administrative expenses , ” plus capitalized payments made under certain sales incentive programs and the value of equipment capitalized under our lease program for new dish tv subscribers , divided by gross new dish tv subscriber activations . we include all new dish tv subscribers in our calculation , including dish tv subscribers added with little or no subscriber acquisition costs . although we no longer have a separate line item for subscriber acquisition costs on our consolidated statements of operations and comprehensive income ( loss ) , our methodology for calculating dish tv sac is unchanged from prior periods . wireless subscribers . we include prepaid and postpaid customers obtained through direct sales , independent third-party retailers and other independent third-party distribution relationships in our wireless subscriber count . wireless average monthly revenue per subscriber ( “ wireless arpu ” ) . we are not aware of any uniform standards for calculating arpu and believe presentations of arpu may not be calculated consistently by other companies in the same or similar businesses . we calculate average monthly revenue per wireless subscriber , or wireless arpu , by dividing average monthly retail wireless business unit “ service revenue ” for the period by our average number of wireless subscribers for the period . the average number of wireless subscribers is calculated for the period by adding the average number of wireless subscribers for each month and dividing by the number of months in the period . the average number of wireless subscribers for each month is calculated by adding the beginning and ending wireless subscribers for the month and dividing by two . wireless average monthly subscriber churn rate ( “ wireless churn rate ” ) . we are not aware of any uniform standards for calculating subscriber churn rate and believe presentations of subscriber churn rates may not be calculated consistently by different companies in the same or similar businesses . we calculate our “ wireless churn rate ” for any period by dividing the number of wireless subscribers who terminated service during the period by the average number of wireless subscribers for the same period , and further dividing by the number of months in the period . the average number of wireless subscribers is calculated for the period by adding the average number of wireless subscribers for each month and dividing by the number of months in the period . the average number of wireless subscribers for each month is calculated by adding the beginning and ending wireless subscribers for the month and dividing by two . free cash flow . we define free cash flow as “ net cash flows from operating activities ” less “ purchases of property and equipment ” and “ capitalized interest related to fcc authorizations , ” as shown on our consolidated statements of cash flows . 50 results of operations – segments business segments we currently operate two primary business segments : ( 1 ) our pay-tv segment ; and ( 2 ) our wireless segment . our wireless segment consists of two business units , the retail wireless business unit and 5g network deployment business unit . revenue and operating income ( loss ) by segment are shown in the table below : year ended december 31 , 2020 compared to the year ended december 31 , 2019 . replace_table_token_1_th * percentage is not meaningful . total revenue . our consolidated revenue totaled $ 15.493 billion for the year ended december 31 , 2020 , an increase of $ 2.686 billion or 21.0 % compared to the same period in 2019. the increase primarily resulted from the completion of the boost mobile acquisition . total operating income ( loss ) . our consolidated operating income totaled $ 2.583 billion for the year ended december 31 , 2020 , an increase of $ 704 million or 37.5 % compared to the same period in 2019. the change primarily resulted from an increase in the operating income from our pay-tv segment and our retail wireless business unit , partially offset by an increase in operating losses associated with our 5g network deployment business unit , principally related to an “ impairment of long-lived assets ” of $ 356 million in the first quarter of 2020 . 51 pay-tv segment we offer pay-tv services under the dish ® brand and the sling ® brand ( collectively “ pay-tv ” services ) . as of december 31 , 2020 , we had 11.290 million pay-tv subscribers in the united states , including 8.816 million dish tv subscribers and 2.474 million sling tv subscribers . we market our sling tv services to consumers who do not subscribe to traditional satellite and cable pay-tv services , as well as to current and
| other consolidated results year ended december 31 , 2020 compared to the year ended december 31 , 2019 . replace_table_token_6_th * percentage is not meaningful . interest income . “ interest income ” totaled $ 23 million during the year ended december 31 , 2020 , a decrease of $ 54 million or 70.6 % compared to the same period in 2019. this decrease primarily resulted from lower percentage returns earned on our cash and marketable investment securities , partially offset by higher average cash and marketable investment securities balances during the year ended december 31 , 2020 . other , net . “ other , net ” expense totaled $ 20 million during the year ended december 31 , 2020 , a decrease of $ 32 million compared to the same period in 2019. this change primarily resulted from a $ 22 million decrease in the fair value of our option to purchase certain of t-mobile 's 800 mhz spectrum licenses under the spectrum purchase agreement . see note 7 in the notes to our consolidated financial statements in this annual report on form 10-k for further information . income tax ( provision ) benefit , net . our income tax provision was $ 698 million during the year ended december 31 , 2020 , an increase of $ 247 million compared to the same period in 2019. the increase in the provision was primarily related to an increase in “ income ( loss ) before income taxes ” and an increase in our effective tax rate due to changes in the state apportionment applied to our deferred taxes as a result of the boost mobile acquisition , partially offset by a benefit recognized for the carryback of net operating losses under the cares act .
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the company 's leases generally contain multiple renewal options for periods ranging from five to ten years and require story_separator_special_tag throughout this section , the big 5 sporting goods corporation ( we , our , us ) fiscal years ended december 30 , 2012 , january 1 , 2012 and january 2 , 2011 are referred to as fiscal 2012 , 2011 and 2010 , respectively . the following discussion and analysis of our financial condition and results of operations for fiscal 2012 , 2011 and 2010 includes information with respect to our plans and strategies for our business and should be read in conjunction with the consolidated financial statements and related notes , the risk factors and the cautionary statement regarding forward-looking information included elsewhere in this annual report on form 10-k. our fiscal year ends on the sunday nearest december 31. fiscal 2012 , 2011 and 2010 each included 52 weeks . overview we are a leading sporting goods retailer in the western united states , operating 414 stores in 12 states under the name big 5 sporting goods at december 30 , 2012. we provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet . our product mix includes athletic shoes , apparel and accessories , as well as a broad selection of outdoor and athletic equipment for team sports , fitness , camping , hunting , fishing , tennis , golf , snowboarding and roller sports . we believe that over our 58-year history we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise . our stores carry a wide range of products at competitive prices from well-known brand name manufacturers , including adidas , coleman , easton , new balance , nike , reebok , spalding , under armour and wilson . we also offer brand name merchandise produced exclusively for us , private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise . we reinforce our value reputation through weekly print advertising in major and local newspapers , direct mailers and digital marketing designed to generate customer traffic , drive net sales and build brand awareness . we also maintain social media sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers . throughout our history , we have emphasized controlled growth . in fiscal 2012 , we opened 14 new stores , three of which were relocations , and closed six stores , two of which were relocations . in fiscal 2011 , we opened 13 new stores , two of which were relocations , and closed three stores as part of relocations that began in fiscal 2010. for fiscal 2013 , we expect to open approximately 15 to 20 new stores , including three relocations , and to close approximately three relocated stores . the following table summarizes our store count for the periods presented : replace_table_token_8_th ( 1 ) stores that are relocated are classified as new stores . sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales calculations . 25 story_separator_special_tag increases in digital marketing programs and other advertising to support sales . administrative expense for fiscal 2012 included a pre-tax charge of $ 1.2 million related to store closing costs , and a pre-tax non-cash impairment charge of $ 0.2 million related to certain underperforming stores . administrative expense for fiscal 2011 included a pre-tax non-cash impairment charge of $ 2.1 million related to certain underperforming stores . these charges are further discussed in notes 4 and 5 to the consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. interest expense . interest expense decreased by $ 0.4 million , or 14.0 % , to $ 2.2 million in fiscal 2012 from $ 2.6 million in fiscal 2011. the decrease in interest expense reflects the combined impact of a decrease in average interest rates of 30 basis points , to 2.2 % in fiscal 2012 from 2.5 % in fiscal 2011 , due mainly to lower applicable margins under our amended credit agreement , as well as a decrease in average debt levels of $ 1.3 million to $ 66.2 million in fiscal 2012 from $ 67.5 million in fiscal 2011. income taxes . the provision for income taxes was $ 8.9 million for fiscal 2012 compared with $ 4.9 million for fiscal 2011. this increase was primarily due to higher pre-tax income and a higher effective tax rate in fiscal 2012. our effective tax rate was 37.3 % for fiscal 2012 compared with 29.7 % for fiscal 2011. our higher effective tax rate for fiscal 2012 compared to the prior year primarily reflects the expiration of previously enacted legislation that resulted in the loss of certain tax credits in fiscal 2012 that were previously available in fiscal 2011 , combined with higher pre-tax income in fiscal 2012. fiscal 2011 compared to fiscal 2010 net sales . net sales increased by $ 5.3 million , or 0.6 % , to $ 902.1 million for fiscal 2011 from $ 896.8 million for fiscal 2010. the change in net sales was primarily attributable to the following : added sales from new stores reflected the opening of 28 new stores since january 3 , 2010. the revenue from new store sales was partially offset by a reduction in same store and closed store sales . same store sales decreased 1.2 % for fiscal 2011 versus fiscal 2010. same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period . story_separator_special_tag for fiscal 2012 , we increased inventory purchases in the months leading up to christmas , resulting in a higher accounts payable balance at year-end compared to fiscal 2011. additionally , improved net sales and net income in fiscal 2012 compared with fiscal 2011 contributed to higher operating cash flows which allowed us to significantly pay down debt balances year over year . for fiscal 2011 , we strategically increased merchandise inventory levels to add certain new products to stimulate sales and also purchased inventory earlier in the year to mitigate the impact of product cost inflation and potential delivery delays . reduced inventory purchases in the fourth quarter of fiscal 2011 resulted in lower accounts payable as a percentage of inventory . also , weaker than anticipated sales during fiscal 2011 , particularly in the fourth quarter , resulted in higher inventory levels and reduced operating cash flows for the year , contributing to higher debt balances year over year . for fiscal 2010 , we purchased larger quantities of inventory primarily in anticipation of improving business conditions and as a result of increased availability of certain products . the higher inventory levels combined with lower than anticipated sales in the fourth quarter of fiscal 2010 resulted in reduced operating cash flows for the year as compared to the prior year . operating activities . net cash provided by operating activities for fiscal 2012 , 2011 and 2010 was $ 39.6 million , $ 2.2 million and $ 29.9 million , respectively . the increase in cash provided by operating activities for fiscal 2012 compared to fiscal 2011 primarily reflected higher accounts payable year over year due mainly to the timing of inventory purchases . inventory purchases were higher in the fourth quarter of fiscal 2012 compared to the fourth quarter of fiscal 2011 , which resulted in a higher accounts payable balance at the end of fiscal 2012. also contributing to the improved operating cash flow in fiscal 2012 over the prior year was a smaller increase in inventory , higher net income and increased accrued expenses related primarily to employee benefit-related accruals and a liability for store closings . the decrease in cash provided by operating activities for fiscal 2011 compared to fiscal 2010 primarily reflected higher funding of merchandise inventory along with the timing of inventory purchases and payments , as well as lower net income and accrued expenses , primarily for legal settlements . investing activities . net cash used in investing activities for fiscal 2012 , 2011 and 2010 was $ 12.7 million , $ 12.0 million and $ 15.6 million , respectively . in fiscal 2012 and 2011 , we received proceeds of $ 0.3 million and 30 $ 0.5 million , respectively , as part of a local utility rebate program related to the implementation of a green energy system at our distribution center , and in fiscal 2011 we received proceeds of $ 0.5 million from the sale of owned real property . our capital spending is primarily for new store openings , store-related remodeling , distribution center and corporate headquarters ' costs and computer hardware and software purchases . capital expenditures by category for each of the last three fiscal years are as follows : replace_table_token_11_th our capital expenditures included 14 new stores in fiscal 2012 ; 13 new stores in fiscal 2011 ; and 15 new stores in fiscal 2010. capital expenditures in fiscal 2012 , 2011 and 2010 also included amounts related to our computer system replacement program as well as enhanced security measures to support our infrastructure . financing activities . net cash used in financing activities for fiscal 2012 and 2010 was $ 24.2 million and $ 14.4 million , respectively , and net cash provided by financing activities for fiscal 2011 was $ 9.1 million . for fiscal 2012 , we used cash provided from operating activities to pay down borrowings from our revolving credit facility , pay dividends , make capital lease payments and purchase treasury stock . for fiscal 2011 , cash provided by financing activities primarily reflected increased borrowings under our revolving credit facility , partially offset by dividend payments and capital lease payments . borrowings under our revolving credit facility for fiscal 2011 were largely used to fund merchandise inventory purchases . for fiscal 2010 , we used cash provided from operating activities to pay down borrowings from our revolving credit facility , pay dividends and make capital lease payments . as of december 30 , 2012 , we had revolving credit borrowings of $ 47.5 million and letter of credit commitments of $ 4.3 million outstanding . these balances compare to borrowings of $ 63.5 million and letter of credit commitments of $ 3.7 million outstanding as of january 1 , 2012. our revolving credit facility balances have historically increased from the end of the first quarter to the end of the second quarter and from the end of the third quarter to the week of thanksgiving . the historical increases in our revolving credit facility balances reflect the build-up of inventory in anticipation of our summer and winter selling seasons . revolving credit facility balances typically fall from the week of thanksgiving to the end of the fourth quarter , reflecting inventory sales during the holiday and winter selling season . quarterly dividend payments of $ 0.05 per share of outstanding common stock , for an annual rate of $ 0.20 per share , were paid in fiscal 2010. quarterly cash dividends of $ 0.075 per share of outstanding common stock , for an annual rate of $ 0.30 per share , were paid in fiscal 2011 and 2012. in the first quarter of fiscal 2013 , our board of directors declared a quarterly cash dividend of $ 0.10 per share of outstanding common stock , for an annual rate of $ 0.40 per share , which will be paid on march 22 , 2013 to stockholders of record as of march 8 , 2013. periodically , we repurchase our common stock in the open market pursuant to programs approved
| executive summary our improved operating results for fiscal 2012 compared to fiscal 2011 were mainly attributable to our higher sales levels , including an increase in same store sales . we believe our higher sales largely reflect favorable customer response to changes in our merchandise offering and new marketing initiatives . we also believe our operating results for fiscal 2012 , 2011 and 2010 continue to reflect challenging macroeconomic conditions in our markets resulting primarily from the lingering effects of the economic recession . net sales for fiscal 2012 increased 4.3 % to $ 940.5 million compared to fiscal 2011. the increase in net sales was primarily attributable to added revenue from new stores combined with increased same store sales of 2.5 % . net income for fiscal 2012 increased 27.8 % to $ 14.9 million , or $ 0.69 per diluted share , compared to $ 11.7 million , or $ 0.53 per diluted share , for fiscal 2011. the increase was driven primarily by higher net sales , partially offset by the impact of lower merchandise margins , higher selling and administrative expense and higher income tax expense . gross profit for fiscal 2012 represented 32.2 % of net sales , compared with 32.3 % in the prior year . merchandise margins were 24 basis points lower than last year , partially offset by reduced store occupancy expense as a percentage of net sales . selling and administrative expense for fiscal 2012 increased 1.6 % to $ 276.8 million , or 29.4 % of net sales , compared to $ 272.4 million , or 30.2 % of net sales , for fiscal 2011. the increase was primarily attributable to higher store-related expense , excluding occupancy , as a result of new store openings and increased employee benefit costs .
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a contract 's transaction price is allocated to each separate performance obligation based upon the standalone selling price and is recognized as revenue , when , or as , the performance obligation is satisfied . the majority of the company 's contracts have a single performance obligation because the promise to transfer individual services is not separately identifiable from other promises in the contracts , and therefore , is not distinct . the majority of the company 's revenue arrangements are service contracts that are completed within a year or less . there are a few contracts that range in duration between 1 and 3 years . substantially all of the company 's performance obligations , and associated revenue , are transferred to the customer over time . most of the company 's contracts can be terminated by the customer without cause . in the event of termination , the company 's contracts provide that the customer pay the company for services rendered through the termination date . the company generally receives compensation based on a predetermined invoicing schedule relating to specific milestones for that contract . in addition , in certain instances a customer contract may include forms of variable consideration such as performance increases or other provisions that can increase or decrease the transaction price . this variable consideration is generally awarded upon achievement of certain performance metrics . for the purposes of revenue recognition , variable consideration is assessed on a contract-by-contract basis and the amount to be recorded is estimated based on the assessment of the company 's anticipated performance and consideration of all information that is reasonably available . variable consideration is recognized as revenue if and when it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved in the future . amendments to contracts are common . the company evaluates each amendment which meets the criteria of a contract modification under asc 606. each modification is further evaluated to determine whether the contract modification should be accounted for as a separate contract or as a continuation of the original agreement . the company accounts for amendments as a separate contract as they meet the criteria under asc 606-10-25-12. other tos revenue represents services provided to the pharmaceutical and biotechnology companies . the company does not consider these services part of their core product offerings . the following table represents disaggregated revenue for the twelve months ended april 30 , 2020 and 2019 : replace_table_token_10_th f-16 champions oncology notes to consolidated financial statements ( continued ) contract balances contract assets include unbilled amounts typically resulting from revenue recognized in excess of the amounts billed to the customer for which the right to payment is subject to factors other than the passage of time . these amounts may not exceed their net realizable value . contract assets are classified as current . contract liabilities consist of customer payments received in advance story_separator_special_tag results of operations you should read the following discussion and analysis together with our consolidated financial statements and the related notes included elsewhere in this annual report . this discussion contains forward-looking statements that are based on our current expectations , estimates , and projections about our business and operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under item 1a – “ risk factors ” and elsewhere in this annual report . overview and recent developments 15 we are engaged in the development and sale of advanced technology solutions and products to personalize the development and use of oncology drugs . utilizing our tumorgraft technology platform , we provide select services to pharmaceutical and biotechnology companies seeking personalized approaches to drug development . by performing studies to predict the efficacy of oncology drugs , our platform facilitates drug discovery with lower costs and increased speed of drug development as well as increased adoption of existing drugs . our platform provides a novel approach to simulating the results of human clinical trials used in developing oncology drugs . we believe it costs more than $ 100,000 per patient in oncology clinical trials and the typical cost for each phase of development per year increases from approximately $ 3 million in the pre-clinical setting to approximately $ 150 million in phase iii clinical trials . simulating trials before executing them provides benefits to both pharmaceutical companies and patients . pharmaceutical companies can lower the risk of spending resources on drugs that do not show significant anti-cancer activities and increase the chance that the clinical development path they pursue will be focused on an appropriate patient population and a successful combination with other drugs . we plan to continue our efforts to expand our tumorgraft technology platform in order to expand our tos program . we have previously disclosed that our pos program would not be the focus of our growth moving forward and this plan remains unchanged . 16 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; text-indent:12px ; font-size:10pt ; '' > cash flows from financing activities net cash provided by financing activities was $ 4.4 million and $ 1.2 million for the years ended april 30 , 2020 and 2019 , respectively . the increase in cash flows provided in fiscal year 2020 was due to exercises of stock options and warrants . 18 critical accounting policies the following discussion of critical accounting policies identifies the accounting policies 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 . story_separator_special_tag goodwill goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination . the company evaluates the carrying value of goodwill annually in connection with the annual budgeting and forecast process and also between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which goodwill was allocated to below its carrying amount . such circumstances could include , but are not limited to : ( 1 ) a significant adverse change in legal factors , market conditions , or in business climate , ( 2 ) unanticipated competition , or ( 3 ) an adverse action or assessment by a regulator . when evaluating goodwill for impairment , we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit 's carrying amount exceeds its fair value , referred to as a “ step zero ” approach . subsequently ( if necessary after step zero ) , an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying value . under fasb 's asu 2014-02 , topic 350 , `` intangibles—goodwill and other '' goodwill impairment is measured as the excess of the carrying amount of the reporting unit over its fair value . the impairment evaluation test involves comparing the current fair value of each business unit to its carrying value , including goodwill . fair value is typically estimated using a discounted cash flow analysis , which requires the company to estimate the future cash flows anticipated to be generated by the business unit being tested for impairment as well as to select a risk-adjusted discount rate to measure the present value of the anticipated cash flows . when determining future cash flow estimates , the company considers historical results adjusted to reflect current and anticipated operating conditions . the company estimates cash flows for the business unit over a discrete period ( typically four or five years ) and the terminal period ( considering expected long term growth rates and trends ) . estimating future cash flows requires significant judgment by management in such areas as future economic conditions , industry-specific conditions , product pricing , and necessary capital expenditures . the use of different assumptions or estimates for future cash flows or significant changes in risk-adjusted discount rates due to changes in market conditions could produce substantially different estimates of the fair value of the business unit . we have one reportable segment . the company evaluated its tos and pos business operations ( or business units ) and determined that the pos operations no longer qualified as a separate reportable segment primarily due to its revenue representing approximately 2.5 % of total revenue . the company assesses goodwill by business unit , which are also reporting units . judgments regarding the existence of impairment indicators are based on legal factors , market conditions and operational performance of the acquired businesses . future events , including but not limited to continued declines in economic activity , loss of contracts or a significant number of customers , or a rapid increase in costs or capital expenditures , could cause us to conclude that impairment indicators exist and that goodwill is impaired . as a result of its annual assessment , which included an estimation of the future cash flows of the pos operations as described above , the company determined that , under a discounted cash flow model , the fair value of the pos business/reporting unit was below its carrying amount as of april 30 , 2020. the company recognized goodwill impairment for the quarter and year ended april 30 , 2020 of $ 335,000 . as of april 30 , 2020 and 2019 , goodwill was $ 335,000 and $ 670,000 , respectively . accounting for income taxes we use the asset and liability method to account for income taxes . significant management judgment is required in determining the provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets . in preparing the consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . this process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items , such as deferred revenue , depreciation on property , plant and equipment , goodwill and losses for tax and accounting purposes . these differences result in deferred tax assets , which include tax loss carry-forwards , and liabilities , which are included within the consolidated balance sheet . we then assess the likelihood that deferred tax assets will be recovered from future taxable income , and to the extent that recovery is not likely or there is insufficient operating history , a 20 valuation allowance is established . to the extent a valuation allowance is established or increased in a period , we include an expense within the tax provision of the consolidated statements of operations . as of april 30 , 2020 and 2019 , we have established a full valuation allowance for all deferred tax assets . as of april 30 , 2020 and 2019 , we recognized a liability for uncertain tax positions on the balance sheet relative to foreign operations in the amount of $ 178,000 and $ 151,000 , respectively . we do not anticipate any significant unrecognized tax benefits will be recorded during the next 12 months . any interest or penalties related to unrecognized tax benefits is recognized in income tax expense .
| results of operations the following table summarizes our operating results for the periods presented below ( dollars in thousands ) : replace_table_token_3_th oncology services revenue oncology services revenue for the years ended april 30 , 2020 and 2019 were $ 32.1 million and $ 27.1 million , respectively , an increase of $ 5.1 million , or 18.7 % . the increase in revenue is due to increased sales , both in number and size of studies , an increase in demand for our services , the growth of the platform , and expansion of our product line . additionally , customers are seeking more complex study designs and end point analysis testing , leading to larger contracts , which contributed to revenue growth . cost of oncology services cost of oncology services were $ 16.9 million and $ 14.3 million for the years ended april 30 , 2020 and 2019 , respectively , an increase of $ 2.6 million or 18.3 % . for the years ended april 30 , 2020 and 2019 , gross margins were 47.4 % and 47.3 % , respectively . the increase in cost of oncology services was mainly due to an increase in compensation , supply , and outsourced lab service expenses . with the exception of outsourced lab services , the overall expense increase is generally in line with the expected contribution based on the growth in revenue , study volume , and expansion into new services . gross margin varies based on timing differences between expense and revenue recognition and was impacted by the increase in costs ahead of revenue related to the increase in number of studies performed . additionally , the cost of outsourced lab services magnifies this effect .
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the following items impacted the comparability of the company 's results for the years ended december 31 , 2011 and 2010 : restructuring , integration , and other charges of $ 37.8 million ( $ 28.1 million net of related taxes ) in 2011 and $ 33.5 million ( $ 24.6 million net of related taxes ) in 2010 ; a charge of $ 5.9 million ( $ 3.6 million net of related taxes ) related to the settlement of a legal matter in 2011 ; a gain on bargain purchase of $ 1.1 million ( $ .7 million net of related taxes ) in 2011 ; a loss on prepayment of debt of $ .9 million ( $ .5 million net of related taxes ) in 2011 and $ 1.6 million ( $ 1.0 million net of related taxes ) in 2010 ; a net reduction in the provision for income taxes of $ 28.9 million principally due to a reversal of a valuation allowance on certain international deferred tax assets in 2011 ; and a net reduction of the provision for income taxes of $ 9.4 million and a reduction in interest expense of $ 3.8 million ( $ 2.3 million net of related taxes ) primarily related to the settlement of certain income tax matters in 2010 covering multiple years . 23 excluding the above-mentioned items , the increase in net income attributable to shareholders for 2011 was primarily the result of the sales increases in both the global components business segment and the global ecs business segment and increased gross profit margins . this was offset , in part , by increased selling , general and administrative expenses primarily attributable to acquisitions and the increase in sales , increased interest expense due to higher average debt outstanding primarily to fund acquisitions , and increased depreciation and amortization expense due primarily to increased acquisition activity . substantially all of the company 's sales are made on an order-by-order basis , rather than through long-term sales contracts . as such , the nature of the company 's business does not provide for the visibility of material forward-looking information from its customers and suppliers beyond a few months . sales following is an analysis of net sales ( in millions ) by reportable segment for the years ended december 31 : replace_table_token_5_th consolidated sales for 2011 increased by $ 2.65 billion , or 14.1 % , compared with the year-earlier period . the increase in 2011 was driven by an increase in global components business segment sales of $ 1.69 billion , or 12.8 % , and an increase in global ecs business segment sales of $ 960.1 million , or 17.2 % , compared with the year-earlier period . the translation of the company 's international financial statements into u.s. dollars resulted in an increase in consolidated sales of $ 486.1 million in 2011 , compared with the year-earlier period , due to a weaker u.s. dollar . excluding the impact of foreign currency and pro forma for acquisitions , the company 's consolidated sales increased by 2.0 % in 2011 . the growth in the global components business segment for 2011 was primarily driven by increased demand for the company 's products in the emea region and the americas region , as well as the impact of acquisitions . pro forma for acquisitions , the sales increase for 2011 in emea and the americas was 15.5 % and 3.0 % , respectively , offset by a sales decrease in the asia pacific region of 10.0 % . the decline in sales in asia pacific was primarily due to weakness in low-end mobile handset components offset , in part , by increased demand in the vertical markets led by lighting and transportation . excluding the impact of foreign currency and pro forma for acquisitions , the company 's global components business segment sales remained flat in 2011 , compared with the year-earlier period . in the global ecs business segment , the sales for 2011 increased due to higher demand for products in both north america and emea . the increase in sales for 2011 was due to growth in storage , software , services , industry standard servers , and proprietary servers . excluding the impact of foreign currency and pro forma for acquisitions , the company 's global ecs business segment sales increased by 6.9 % for 2011 . following is an analysis of net sales ( in millions ) by reportable segment for the years ended december 31 : replace_table_token_6_th consolidated sales for 2010 increased by $ 4.06 billion , or 27.7 % , compared with the year-earlier period . the increase was driven by an increase in global components business segment sales of $ 3.42 billion , or 35.0 % , and an increase in global ecs business segment sales of $ 643.5 million , or 13.0 % . the translation of the company 's international financial statements into u.s. dollars resulted in a reduction in consolidated sales of $ 127.1 million for 2010 , compared with the year-earlier period , due to a stronger u.s. dollar . excluding the impact of foreign currency and pro forma for acquisitions , the company 's consolidated sales increased by 24.7 % in 2010 . in the global components business segment , sales for 2010 increased primarily as a result of strengthening in the world 's economies and to average lead times for components extending beyond traditional levels during part of 2010 . average lead times exiting 2010 were near normal levels . the growth in the global components business segment for 2010 was primarily driven by the sales increase in emea of 42.9 % , the sales increase in the americas of 34.2 % , the sales increase in the asia pacific region of 18.4 % , and , to a 24 lesser extent , the impact of acquisitions . story_separator_special_tag included in the restructuring , integration , and other charges for 2011 is a restructuring charge of $ 23.8 million related to initiatives taken by the company to improve operating efficiencies , primarily due to the integration of recently acquired businesses . also included in the restructuring , integration , and other charges for 2011 is a credit of $ .7 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 14.7 million . the restructuring charge of $ 23.8 million in 2011 primarily includes personnel costs of $ 17.5 million and facilities costs of $ 5.4 million . the personnel costs are related to the elimination of approximately 280 positions within the global components business segment and approximately 240 positions within the global ecs business segment . the facilities costs are related to exit activities for 18 vacated facilities in the americas and emea due to the company 's continued efforts to streamline its operations and reduce real estate costs . these initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . 2010 charges in 2010 , the company recorded restructuring , integration , and other charges of $ 33.5 million ( $ 24.6 million net of related taxes or $ .21 per share on both a basic and diluted basis ) . included in the restructuring , integration , and other charges for 2010 is a restructuring charge of $ 21.6 million related to initiatives taken by the company to improve operating efficiencies . also included in the restructuring , integration , and other charges for 2010 is a credit of $ .6 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 12.4 million . the restructuring charge of $ 21.6 million in 2010 primarily includes personnel costs of $ 14.7 million and facilities costs of $ 2.3 million . the personnel costs are related to the elimination of approximately 180 positions within the global ecs business segment and approximately 100 positions within the global components business segment . the facilities costs are related to exit activities for 7 vacated facilities in the americas and emea due to the company 's continued efforts to streamline its operations and reduce real estate costs . these initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . 2009 charges in 2009 , the company recorded restructuring , integration , and other charges of $ 105.5 million ( $ 75.7 million net of related taxes or $ .63 per share on both a basic and diluted basis ) . included in the restructuring , integration , and other charges for 2009 is a restructuring charge of $ 100.3 million related to initiatives taken by the company to improve operating efficiencies . also included in the restructuring , integration , and other charges for 2009 are charges of $ 1.4 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 3.9 million . the restructuring charge of $ 100.3 million in 2009 primarily includes personnel costs of $ 90.9 million and facilities costs of $ 8.0 million . the personnel costs are related to the elimination of approximately 1,605 positions within the global components business segment and approximately 320 positions within the global ecs business segment . the facilities costs are related to exit activities for 28 vacated facilities worldwide due to the company 's continued efforts to streamline its operations and reduce real estate costs . these initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . as of december 31 , 2011 , the company does not anticipate there will be any material adjustments relating to the aforementioned restructuring plans . refer to note 9 , `` restructuring , integration , and other charges , '' of the notes to the consolidated financial statements for further discussion of the company 's restructuring and integration activities . settlement of legal matter during 2011 , the company recorded a charge of $ 5.9 million ( $ 3.6 million net of related taxes or $ .03 per share on both a basic and diluted basis ) in connection with the settlement of a legal matter , inclusive of related legal costs . this matter related to a customer dispute that originated in 1997. the company had successfully defended itself in a trial , but the verdict was subsequently overturned , in part , by an appellate court and remanded for a new trial . the company ultimately decided to settle this matter to avoid further legal expense and the burden on management 's time that such a trial would entail . 26 operating income the company recorded operating income of $ 908.8 million , or 4.2 % of sales , in 2011 compared with operating income of $ 750.8 million , or 4.0 % of sales , in 2010 . included in operating income for 2011 and 2010 were the previously discussed restructuring , integration , and other charges of $ 37.8 million and $ 33.5 million , respectively . also included in operating income for 2011 was the previously discussed charge of $ 5.9 million related to the settlement of a legal matter . the company recorded operating income of $ 750.8 million , or 4.0 % of sales , in 2010 compared with operating income of $ 272.8 million , or 1.9 % of sales , in 2009 . included in operating income for 2010 and 2009 were the previously discussed restructuring , integration , and other charges of $ 33.5 million and $ 105.5 million , respectively . gain on bargain purchase during 2011 , the company acquired nu horizons for less than the fair value of its net assets due to nu horizons ' stock trading below its book value for an extended period of time prior to the announcement of the acquisition .
| overview the company is a global provider of products , services , and solutions to industrial and commercial users of electronic components and enterprise computing solutions . the company provides one of the broadest product offerings in the electronic components and enterprise computing solutions distribution industries and a wide range of value-added services to help customers reduce time to market , introduce innovative products through demand creation opportunities , lower their total cost of ownership , and enhance their overall competitiveness . the company has two business segments , the global components business segment and the global ecs business segment . the company distributes electronic components to oems and cms through its global components business segment and provides enterprise computing solutions to vars through its global ecs business segment . for 2011 , approximately 69 % of the company 's sales were from the global components business segment , and approximately 31 % of the company 's sales were from the global ecs business segment . the company 's financial objectives are to grow sales faster than the market , increase the markets served , grow profits faster than sales , and increase return on invested capital . to achieve its objectives , the company seeks to capture significant opportunities to grow across products , markets , and geographies . to supplement its organic growth strategy , the company continually evaluates strategic acquisitions to broaden its product offerings , increase its market penetration , and or expand its geographic reach . cash flow needed to fund this growth is primarily expected to be generated through continuous corporate-wide initiatives to improve profitability and increase effective asset utilization . on march 1 , 2011 , the company acquired all of the assets and operations of richardson rfpd for a purchase price of $ 236.0 million . on january 3 , 2011 , the company acquired nu horizons for a purchase price of $ 161.1 million , which included cash acquired of $ 18.1 million and $ 26.4 million of debt paid at closing .
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we were not a party to the line of credit , which was full recourse against mr. solensky . as a result of discussions with the nyse american in connection with our application to list our common shares , we restructured and replaced the line of credit . accordingly , on october 17 , 2017 , we entered into a loan agreement , or the working capital loan agreement , with equidebt pursuant to which equidebt agreed to provide us with a five-year $ 5,000,000 unsecured working capital line of credit , or the working capital line of credit . amounts borrowed under the working capital line of credit bear interest at a rate of 14 % per annum payable at maturity . all amounts borrowed under the line of credit become due and payable on october 17 , 2022. upon the occurrence of an event of default ( defined in the working capital loan agreement to include our failure to make payments under the working capital line of credit or our other indebtedness when due , the occurrence of certain insolvency events relating to us , equidebt has the right to declare all amounts outstanding under the working capital line of credit immediately due and payable . the working capital line of credit is unsecured ; however mr. solensky has personally guaranteed our obligations under the working capital line of credit . in connection with the establishment of the working capital line of credit , the line of credit provided by equidebt to mr. solensky was cancelled without further liability or obligation of either story_separator_special_tag and results of operation management 's discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of the company . the management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended december 31 , 2018. in addition to historical information , this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , which are intended to be covered by the safe harbors created thereby . see “ cautionary note regarding forward-looking statements ” in this annual report on form 10-k. our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors , including those set forth under the “ part i – item 1a risk factors ” section and elsewhere in this annual report on form 10-k , as well as , in other reports and documents we file with the securities and exchange commission from time to time . except as required by law , we undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this annual report on form 10-k. overview we are a development stage veterinary diagnostic and pharmaceutical company creating products for companion animals ( canine , feline , and equine ) by focusing on the unmet needs of clinical veterinarians . we believe that we have identified and are developing diagnostics and therapeutics that have the potential to significantly improve the diagnosis and treatment of various diseases affecting companion animals . we believe that there are significant unmet medical needs for pets , and that the pet diagnostic and therapeutic segments of the animal health industry are likely to grow substantially as new diagnostic tools and treatments are identified , developed , and marketed specifically for companion animals . together with our strategic partners , we are developing a bulk acoustic wave sensor-based veterinary point-of-care diagnostic platform for diagnosis and treatment management of disorders such as thyroid and adrenal abnormalities , a raman spectroscopy-based point-of-care diagnostic platform for the detection of pathogens , and liquid biopsy assays for the detection of cancer and related consumables . the regulatory pathway to obtain pre-market regulatory approval of companion animal diagnostics is significantly shorter than for similar diagnostic products intended for human use . in certain cases , pre-market regulatory approval may be unnecessary , depending on the intended use of the diagnostic . we also have identified a number of drugs that have proven safe and effective in humans that we are developing for use in canines and felines . we believe this development approach enables us to reduce the risks associated with obtaining regulatory approval for unproven product candidates and shortens the development timeline necessary to bring our product candidates to market . we have four drug product candidates in early development and have identified several other potential product candidates for further investigation . in addition , we are investigating the development of alternative drug delivery technologies for our drug product candidates . many of the human-approved therapeutics used in companion animals are only available in pill or injectable form . however , it can be difficult to give a companion animal an injection or to assure that the animal has swallowed a pill . as a result , we believe that compliance with treatment regimens is a significant problem for veterinarians and pet owners . the challenges associated with medicating pets are unique , and we believe that developing product candidates that can be easily taken by the pet or easily administered by pet owners will help increase compliance . we are a development-stage company with no products approved for marketing and sale , and we have not generated any revenue . we have incurred significant net losses since our inception . we incurred net losses of $ 16,647,687 and $ 8,065,072 for the years ended december 31 , 2018 and december 31 , 2017 , respectively . story_separator_special_tag - 37 - while our significant accounting policies are more fully described in note 3 of the notes to our consolidated financial statements appearing elsewhere in this document , we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements . jobs act the jumpstart our business startups act , or the jobs act , contains provisions that , among other things , reduce certain reporting requirements for an “ emerging growth company. ” we have irrevocably elected not to avail ourselves of the jobs act provision that an emerging growth company may delay adopting new or revised accounting standards until such times as those standards apply to private companies . in addition , we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , if as an “ emerging growth company ” we choose to rely on such exemptions , we may not be required to , among other things , ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , and ( ii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) . these exemptions will apply until december 31 , 2022 or until we no longer meet the requirements of being an “ emerging growth company , ” whichever is earlier . use of estimates the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the year . actual results could differ from those estimates . areas where significant judgment is involved in making estimates are : the fair values of financial assets and liabilities ; the determination of fair value of stock-based compensation ; the useful lives and recoverability of property and equipment ; deferred income taxes and forecasting future cash flows for assessing the going concern assumption . research and development costs research and development expenses comprise costs incurred in performing research and development activities , including salaries and benefits , safety and efficacy studies and contract manufacturing costs , contract research costs , patent procurement costs , materials and supplies and occupancy costs . research and development activities include internal and external activities associated with research and development studies of current product candidates and advancing product candidates towards a goal of obtaining regulatory approval to manufacture and market the product candidate . research and development costs related to continued research and development programs are expensed as incurred in accordance with asc topic 730. translation of foreign currencies the functional currency , as determined by management , is u.s. dollars , which is also our reporting currency . transactions denominated in currencies other than u.s. dollars and the monetary value of assets and liabilities are translated at the period end exchange rates . revenue and expenses are translated at rates of exchange prevailing on the transaction dates . all of the exchange gains or losses resulting from these other transactions are recognized in the consolidated statements of operations and comprehensive loss . stock-based compensation we measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by us can not be reliably estimated . - 38 - we calculate stock-based compensation using the fair value method , under which the fair value of the options at the grant date is calculated using the black-scholes option pricing model , and subsequently expensed over the vesting period of the option . the provisions of our stock-based compensation plans do not require us to settle any options by transferring cash or other assets , and therefore we classify the awards as equity . stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest . we estimate forfeitures at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . volatility is determined based on volatilities of comparable companies when the company does not have its own trading history . the expected term , which represents the period of time that options granted are expected to be outstanding , is estimated based on an average of the term of the options . the risk-free rate assumed in valuing the options is based on the canadian treasury yield curve in effect at the time of grant for the expected term of the option . the expected dividend yield percentage at the date of grant is nil as we are not expected to pay dividends in the foreseeable future . loss per share basic loss per share , or eps , is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding . diluted eps reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options , restricted stock awards , warrants and convertible securities . in certain circumstances , the conversion of options , warrants and convertible securities are excluded from diluted eps if the effect of such inclusion would be anti-dilutive . the dilutive effect of stock options is determined using the treasury stock method .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 our results of operations for the year ended december 31 , 2018 and december 31 , 2017 are as follows : replace_table_token_1_th - 39 - revenue we did not generate any revenue during the years ended december 31 , 2018 and december 31 , 2017. research and development research and development expense for the year ended december 31 , 2018 was $ 10,317,153 compared to $ 2,751,326 for the year ended december 31 , 2017 , an increase of $ 7,565,827 or 275 % . the increase was primarily due to the licensing fees of $ 5,413,158 paid pursuant to a development and supply agreement with qorvo biotechnologies , llc as part of our development of zm-024 , and licensing fees of $ 1,738,513 paid pursuant to our development , commercialization and exclusive distribution agreement with seraph biosciences , inc. as part of our development of zm-020 . in 2017 we paid licensing fees of $ 480,131 pursuant to our license and supply agreement with celsee , inc. as part of our development of zm-017 . research and development expenses also increased in 2018 as a result of a higher level of third-party expenses relating to the development of our product candidate developments and the addition of full-time employees . as a result , year over year license fees increased $ 6,671,540 , contracted outsourced activities increased $ 923,084 , and salaries increased $ 72,219 , while consulting expenses decreased $ 111,375. we expect that our r & d expenditures in 2019 will be significantly higher than in 2018 , due to work related to verification and validation of zm-024 , zm-020 and zm-017 , the initiation of pilot and pivotal studies related to our four inads , as well as additional diagnostic developments and technologies .
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the asu is effective for public companies for fiscal years beginning after december 15 , 2017 , and interim periods within those fiscal years . early adoption is permitted , including interim periods within those fiscal years . an entity that elects early adoption must adopt all of the amendments in the same period . the guidance requires application using a retrospective transition method . the company is currently evaluating the effects , if any , that the adoption of this guidance will have on the company 's statements of cash flows . in march 2016 , the fasb issued asu no . 2016-09 , compensation - stock compensation ( topic 718 ) : improvements to employee share-based payment accounting . this asu identifies areas for simplification involving several aspects of accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur , as well as certain classifications on the statement of cash flows . this asu will be effective for fiscal years beginning after december 15 , 2016 , and interim periods within those annual periods . the company is currently evaluating the impact that the adoption of this standard will have on its financial statements . early adoption is permitted . in february 2016 , the fasb issued asu 2016-02-leases with fundamental changes to how entities account for leases . lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases ( other than leases that meet the definition of a short-term lease ) . the liability will be equal to the present value of lease payments . the asset will be based on the liability , subject to adjustment , such as for initial direct costs . additional disclosures for leases will also be required . the standard is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2018. early adoption is permitted . the new standard must be adopted using a modified retrospective transition , and provides for certain practical expedients . the company is currently assessing the potential impact of this standard on its financial statements . in january 2016 , the fasb issued asu 2016-01 financial instruments-overall , which address certain aspects of recognition , measurement , presentation , and disclosure of financial instruments . the amendments in this update are effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . earlier application is permitted under specific circumstances . the company is currently assessing the potential impact of this standard on its financial statements . in november 2015 , the fasb issued asu 2015-17 , income taxes ( topic 740 ) : balance sheet classification of deferred taxes ( “ asu no . 2015-17 ” ) . the guidance eliminates the requirement to present deferred tax assets and liabilities as current and noncurrent amounts in a classified balance sheet . the new standard requires deferred tax assets and liabilities to be classified as noncurrent . the amendments in this update are effective for financial statements issued for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods . earlier application is permitted for all entities as of the beginning of an interim or annual reporting period and may be applied either prospectively or retrospectively to all periods presented . the company is currently evaluating the effects , if any , that the adoption of this guidance will have on its financial statements . in august 2014 , the fasb issued asu no . 2014-15 , “ disclosure of uncertainties about an entity 's ability to continue as a going concern ” that requires management to evaluate whether there are conditions and events that raise substantial doubt about the company 's ability to continue as a going concern within one year after the financial statements are issued on both an interim and annual basis . management is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the company 's ability to continue as a going concern . asu 2014-15 becomes effective for annual periods ending after december 15 , 2016 and for interim reporting periods thereafter . the company adopted this asu and it did not have a material impact on the company 's disclosures in the footnotes to its financial statements . f- 14 lion biotechnologies , inc. notes to financial statements in may 2014 , the fasb issued asu 2014-09 , “ revenue from contracts with customers , ” which supersedes the revenue recognition requirements in topic 605 , “ revenue recognition ” 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 in exchange for those goods or services . in august 2015 , the fasb issued asu 2015-14 , which defers by one year the effective date of asu 2014-09. accordingly , this guidance is effective for interim and annual periods beginning after december 15 , 2017 with early adoption permitted for interim and annual periods beginning after december 15 , 2016. in march 2016 , the fasb issued asu 2016-08 “ principal versus agent considerations ( reporting revenue gross versus net ) , ” which finalizes its amendments to the guidance in the new revenue standard on assessing whether an story_separator_special_tag the following discussion and analysis of our results of operations andfinancial condition should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this report . story_separator_special_tag the outstanding shares of series a convertible preferred stock are currently convertible into 847,000 shares of our common stock , and the outstanding shares of series b convertible preferred stock are currently convertible into 7,946,673 shares of our common stock . the shares of series a convertible preferred stock and series b convertible preferred stock do not have voting rights or accrue dividends . our major sources of funding have been proceeds from various public and private offerings of our common stock , option and warrant exercises , and interest income . we are currently engaged in the development of therapeutics to fight cancer . we do not have any commercial products and have not yet generated any revenues from our biopharmaceutical business . we currently do not anticipate that we will generate any revenues during 2017 from the sale or licensing of any products . as shown in the accompanying financial statements , we have incurred a net loss of $ 52.9 million for the year ended december 31 , 2016 and used $ 32.7 million of cash in our operating activities during the year ended december 31 , 2016. as of december 31 , 2016 , we had $ 166.5 million of cash and cash equivalents and short-term investments on hand , stockholders ' equity of $ 166.9 million and had working capital of $ 164.5 million . we expect to further increase our research and development activities , which will increase the amount of cash we will use during 2017. specifically , we expect increased spending on clinical trials , research and development activities , higher payroll expenses as we increase our professional and scientific staff and continued and expansion of manufacturing activities . however , based on the funds we have available ; we believe that we have sufficient capital to fund our anticipated operating expenses for at least 12 months from the date of filing this annual report . cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_11_th net cash used in operating activities of $ 32.7 million for the year ended december 31 , 2016 resulted primarily from our net loss of $ 52.9 million , adjusted by $ 18.9 million for stock-based compensation expense , a $ 2.8 million an increase prepaids due to timing of certain upfront payments associated with our research agreements , and a $ 3.4 million increase in accrued liabilities primarily due to increases in activities by the company . net cash used in operating activities of $ 18.4 million for the year ended december 31 , 2015 resulted primarily from our net loss of $ 27.7 million , adjusted by $ 8.5 million for stock-based compensation expense . net cash used in operating activities of $ 8.6 million for the year ended december 31 , 2014 resulted primarily from our net loss of $ 12.0 million , adjusted by $ 3.8 million for stock-based compensation expense . net cash provided by investing activities of $ 8.9 million for the year ended december 31 , 2016 consisted primarily of $ 1.5 million used for the purchase of property and equipment , and $ 110.2 million used for purchases of short-term investments , offset by $ 120.7 million of proceeds from the maturities of short-term investments . net cash used in investing activities of $ 71.2 million for the year ended december 31 , 2015 consisted primarily of $ 1.1 million used for the purchase of property and equipment , and $ 140.7 million used for purchases of short-term investments , offset by $ 70.6 million of proceeds from the maturities of short-term investments . net cash used in investing activities of $ 1.6 million for the year ended december 31 , 2014 was solely used for the purchase of property and equipment . 43 net cash provided by financing activities of $ 96.9 million for the year ended december 31 , 2016 consisted primarily of net proceeds of $ 95.7 million from the issuance of shares in a private offering at $ 4.75 per share after deducting expenses of the offering , $ 1.2 million of proceeds exercise of warrants , $ 0.6 million from the exercise of options offset by $ 0.6 million in connection with tax payments made by the company in connection with vested restricted stock awards . net cash provided by financing activities of $ 78.3 million for the year ended december 31 , 2015 consisted primarily of net proceeds of $ 68.3 million from the issuance of shares in a private offering at $ 8.00 per share after deducting expenses of the offering , $ 9.7 million of proceeds exercise of warrants and $ 0.3 million from the exercise of options . net cash provided by financing activities of $ 35.5 million for the year ended december 31 , 2014 consisted primarily of net proceeds of $ 32.2 million from the issuance of shares in a private offering at $ 5.75 per share after deducting expenses of the offering , and $ 3.2 million of proceeds exercise of warrants . significant accounting policies and recent accounting standards see note 2 of the financial statements for a discussion of our significant accounting policies , including the discussion of recent accounting standards . contractual obligations we acquire assets still in development and enter into research and development arrangements with third parties that often require milestone and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success of the asset in development . milestone payments may be required , contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product ( e.g. , approval of the product for marketing by a regulatory agency ) . if required by the arrangement , we may have to make royalty payments based upon a percentage of the sales of the pharmaceutical product in the event that regulatory approval for marketing
| overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient 's own immune system to eradicate cancer cells . our lead program is an adoptive cell therapy utilizing tumor-infiltrating lymphocytes ( til ) , which are t cells derived from patients ' tumors , for the treatment of metastatic melanoma . we have an on-going phase 2 clinical trial of our lead product candidate , ln-144 , til for the treatment of metastatic melanoma . this single-arm study is enrolling patients with melanoma whose disease has progressed following treatment with at least one systemic therapy . the trial opened for enrollment during the second half of 2015 and is being conducted at eight sites . the purpose of the study is to evaluate the safety , and efficacy of our autologous til infusion ( ln-144 ) . the trial 's primary endpoints are characterized by the safety of ln-144 . secondary outcome measures efficacy of ln-144 which include objective response and complete response rates . additional secondary or exploratory endpoints may be considered as well . updates from this phase 2 trial is planned to be released in 2017. during 2015 , we received orphan drug designation for ln-144 in the united states to treat metastatic melanoma . this designation provides seven years of market exclusivity in the united states , subject to certain limited exceptions . in september 2016 , we entered into an exclusive and co-exclusive license agreement polybiocept ab for the exclusive right and license to polybiocept 's intellectual property to develop , manufacture , market and genetically engineer til produced by expansion , selection and enrichment using a cytokine cocktail .
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f-9 addus homecare corporation and subsidiaries notes to consolidated financial statements ( amounts and shares in thousands , story_separator_special_tag you should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements about our business and operations . our actual results may differ materially from those we currently anticipate as a result of the factors we describe under risk factors and elsewhere in this annual report on form 10-k. overview we are a comprehensive provider of home and community based services , which are primarily social in nature and are provided in the home , focused on the dual eligible population . our services include personal care and assistance with activities of daily living , and adult day care . our consumers are individuals with special needs who are at risk of hospitalization or institutionalization , such as the elderly , chronically ill and disabled . our payor clients include federal , state and local governmental agencies , commercial insurers and private individuals . we provide services through over 121 locations across 21 states to over 26,000 consumers . effective march 1 , 2013 , we sold substantially all of the assets used in our home health business in arkansas , nevada and south carolina , and 90 % of the home health business in california and illinois , to the purchasers for a cash purchase price of approximately $ 20 million . we retained a 10 % ownership interest in the home health business in california and illinois . the assets sold included 19 home health agencies and two hospice agencies in five states . on december 30 , 2013 we sold one home health agency in pennsylvania for $ 0.2 million . in november 2012 , we ceased operations in a home health agency located in idaho and abandoned efforts to sell this location in december 2013. through our former home health agencies , we previously provided physical , occupational and speech therapy , as well as skilled nursing services , to pediatric , adult infirm and elderly patients . the results of the home health business sold or held for sale are reflected as discontinued operations for all periods presented herein . continuing operations include the results of operations previously included in our home & community segment and three agencies previously included in our home health segment . following the sale of the home health business , we manage and internally report our business in one segment . we believe the sale of the home health business substantially positions us for future growth . the sale allows us to focus both management and financial resources to address changes in the home and community based services industry and to address the needs of managed care organizations as they become responsible for the state sponsored programs . we have improved our financial performance by lowering our administrative costs and concentrating our efforts on the business that is growing and providing all of our profitability and disposing of the business that was unprofitable . we have improved our overall financial position by eliminating our debt and adding substantial amounts in cash reserves to our balance sheet . a summary of our results for 2013 , 2012 and 2011 are provided in the table below : replace_table_token_10_th the home and community based services we provide are primarily social in nature and include assistance with bathing , grooming , dressing , personal hygiene and medication reminders , and other activities of daily living . we provide these services on a long-term , continuous basis , with an average duration of approximately 17 38 months per consumer . our adult day centers provide a comprehensive program of skilled and support services and designated medical services for adults in a community-based group setting . services provided by our adult day centers include social activities , transportation services to and from the centers , the provision of meals and snacks , personal care and therapeutic activities such as exercise and cognitive interaction . we utilize a coordinated care model that is designed to enhance consumer outcomes and satisfaction as well as lower the cost of acute care treatment and reduce service duplication . through our coordinated care model , we utilize our home care aides to observe and report changes in the condition of our consumers for the purpose of early intervention in the disease process , thereby preventing or reducing the cost of medical services by avoiding emergency room visits , and or reducing the need of hospitalization . these changes in condition are evaluated by appropriately trained managers and referred to appropriate medical personnel including the primary care physicians and managed care plans for treatment and follow-up . we will coordinate the services provided by our team with those of selected health care agencies . we believe this approach to the provision of care to our consumers and the integration of our services into the broader healthcare industry is particularly attractive to managed care providers and others who are ultimately responsible for the healthcare needs of our consumers and over time will increase our business with them . our ability to grow our net service revenues is closely correlated with the number of consumers to whom we provide our services . our continued growth depends on our ability to maintain our existing payor client relationships , establish relationships with new payors , enter into new contracts and increase our referral sources . our continued growth is also dependent upon the authorization by state agencies of new consumers to receive our services . we believe there are several market opportunities for growth . the u.s. population of persons aged 65 and older is growing , and the u.s. census bureau estimates that this population will more than double by 2050. additionally , we believe the overwhelming majority of individuals in need of care generally prefer to receive care in their homes or community-based settings . story_separator_special_tag net service revenues from continuing operations are principally provided based on authorized hours , determined by the relevant agency , at an hourly rate , which is either contractual or fixed by legislation , and recognized as net service revenues at the time services are rendered . cost of service revenues we incur direct care wages , payroll taxes and benefit-related costs from continuing operations in connection with providing our services . we also provide workers ' compensation and general liability coverage for these employees . employees are also reimbursed for their travel time and related travel costs . general and administrative expenses our general and administrative expenses from continuing operations consist of expenses incurred in connection with our activities and as part of our central administrative functions . our general and administrative expenses from continuing operations consist principally of supervisory personnel , care coordination and office administration costs . these expenses include wages , payroll taxes and benefit-related costs ; facility rent ; operating costs such as utilities , postage , telephone and office expenses ; and bad debt expense . we have initiated efforts to centralize administrative tasks currently conducted at the branch locations . the costs related to these initiatives are included in the general and administrative expenses from continuing operations . other centralized expenses from continuing operations include administrative departments of accounting , information systems , human resources , billing and collections and contract administration , as well as national program coordination efforts for marketing and private duty . these expenses primarily consist of compensation , including stock-based compensation , payroll taxes , and related benefits ; legal , accounting and other professional fees ; rents and related facility costs ; and other operating costs such as software application costs , software implementation costs , travel , general insurance and bank account maintenance fees . depreciation and amortization expenses we amortize our intangible assets with finite lives , consisting of customer and referral relationships , trade names , trademarks and non-compete agreements , principally on accelerated methods based upon their estimated useful lives . depreciable assets consist principally of furniture and equipment , network administration and telephone equipment , and operating system software . depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or , if less and if applicable , their lease terms . interest income legislation enacted in illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income is 41 recognized when received and reported in the statement of operations caption , interest income . while we may be owed additional prompt payment interest , the amount and timing of receipt of such payments remains uncertain and we have determined that we will continue to recognize prompt payment interest income when received . the state amended its prompt payment interest terms , effective july 1 , 2011 , which changed the measurement period for outstanding invoices from a 60-day to a 90-day outstanding period . we believe this change in terms will reduce future amounts paid for prompt payment interest . interest expense interest expense from continuing operations consists of interest costs on our credit facility and other debt instruments . income tax expense all of our income from continuing operations is from domestic sources . we incur state and local taxes in states in which we operate . the differences from the federal statutory rate of 35 % are principally due to state taxes and the use of federal employment tax credits . discontinued operations discontinued operations consists of the results of operations , net of tax for our home health business that was sold effective march 1 , 2013 and the results of operations for an agency in pennsylvania that was sold on december 30 , 2013 and an agency in idaho that was closed in november 2012 . 42 story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001468328/000119312514102602/ # toc '' > gross profit , expressed as a percentage of net service revenues , decreased to 26.2 % for 2012 , from 26.7 % in 2011. this decrease as a percent of revenue of 0.5 % is primarily due to an increase in workers ' compensation costs as a result of an increase in average claim costs during 2012 , partially offset by an increase in the average billed hours per census per month while leveraging the fixed wage cost for field staff . general and administrative expenses , expressed as a percentage of net service revenues decreased to 19.0 % for 2012 , from 19.9 % in 2011. general and administrative expenses increased to $ 46.4 million in 2012 as compared to $ 45.9 million in 2011. in 2012 , we had cost increases in administrative wages , telecom and technology related costs , an increase in management bonuses , an increase in corporate infrastructure and consulting expenses for business development initiatives which were partially offset by a decrease in bad debt expense due to improved collections and a decrease in legal related expenses . depreciation and amortization , expressed as a percentage of net service revenues , decreased to 1.0 % for 2012 , from 1.4 % in 2011. amortization of intangibles , which are principally amortized using accelerated methods , totaled $ 1.7 million and $ 2.2 million for 2012 and 2011 , respectively . interest income legislation enacted in illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income is recognized when received and reported in the income statement caption , interest income .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 the following table sets forth , for the periods indicated , our consolidated results of operations . replace_table_token_13_th * percentage information not meaningful net service revenues from state , local and other governmental programs accounted for 94.1 % and 94.9 % of net service revenues for 2013 and 2012 , respectively . private duty and , to a lesser extent , commercial payors accounted for the remainder of net service revenues . net service revenues increased $ 21.6 million , or 8.9 % , to $ 265.9 million for 2013 compared to $ 244.3 million for the same period in 2012. the increase was primarily due to a 6.8 % increase in average census and a related 8.6 % increase in billable hours . gross profit , expressed as a percentage of net service revenues , decreased to 25.5 % for 2013 , from 26.2 % in 2012. this decrease as a percent of revenue of 0.7 % is primarily due to increased wage costs for homecare aides . general and administrative expenses , expressed as a percentage of net service revenues decreased to 18.8 % for 2013 , from 19.0 % in 2012. general and administrative expenses increased to $ 50.1 million in 2013 as compared to $ 46.4 million in 2012. in 2013 , we had cost increases in administrative wages , an increase legal and 43 consulting expenses for acquisitions and business development initiatives , increased telecom and technology related costs , an increase in management bonuses and an increase in bad debts . depreciation and amortization , expressed as a percentage of net service revenues , decreased to 0.8 % for 2013 , from 1.0 % in 2012. amortization of intangibles , which are principally amortized using accelerated methods , totaled $ 1.3 million and $ 1.7 million for 2013 and 2012 , respectively .
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the company does not believe that the measurement period adjustments had a material impact on its consolidated statements of operations , balance sheets or cash flows in any periods reported . in fiscal year 2020 , the company incurred total acquisition related costs of $ 5.3 million which were recorded in selling , general and administrative expense in the consolidated statements of operations . story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included in this annual report on form 10-k. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties , including those discussed under part i , item 1a , “ risk factors. ” these risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements . overview we are a leading supplier of infrastructure semiconductor solutions , spanning the data center core to network edge . we are a fabless semiconductor supplier of high-performance standard and semi-custom products with core strengths in developing and scaling complex system-on-a-chip architectures integrating analog , mixed-signal and digital signal processing functionality . leveraging leading intellectual property and deep system-level expertise as well as highly innovative security firmware , our solutions are empowering the data economy and enabling communications across 5g , cloud , automotive , industrial and artificial intelligence applications . net revenue in fiscal 2021 was $ 3.0 billion and was 10 % higher than net revenue of $ 2.7 billion in fiscal 2020. the increase was primarily due to a 22 % increase in sales of our networking products , a 1 % increase in sales of our storage products , partially offset by a 27 % decrease in sales of our other products . in response to growth in demand from customers for our products , our operations team is continuing to ramp production with our global supply chain partners . however , we have begun to experience a number of industry-wide supply constraints affecting the type of high complexity products we provide for data infrastructure . these supply challenges are currently limiting our ability to fully satisfy the increase in demand for some of our products . we continue to monitor the impact of covid-19 on our business . while many of our offices around the world remain open to enable critical on-site business functions in accordance with local government guidelines , the majority of our employees continue to work from home . during fiscal 2021 , some of our customers have reported adverse impacts on demand for their products due to covid-19 . we have seen a reduction in demand for products from customers in the enterprise networking , and enterprise server and storage end markets . we expect covid-19 to continue to impact our business and for a further discussion of the uncertainties and business risks associated with the covid-19 pandemic , see part i , item 1a , “ risk factors , ” including but not limited to the risk detailed under the caption “ we face risks related to covid-19 pandemic which could significantly disrupt our manufacturing , research and development , operations , sales and financial results . ” we expect that the u.s. government 's export restrictions on certain chinese customers will continue to impact our revenue in fiscal year 2022. moreover , concerns that u.s. companies may not be reliable suppliers as a result of these and other actions has caused , and may in the future cause , some of our customers in china to amass large inventories of our products well in advance of need or cause some of our customers to replace our products in favor of products from other suppliers . customers in china may also choose to develop indigenous solutions , as replacements for products that are subject to u.s. export controls . in addition , there may be indirect impacts to our business that we can not easily quantify such as the fact that some of our other customers ' products which use our solutions may also be impacted by export restrictions . our fiscal year is the 52- or 53-week period ending on the saturday closest to january 31. accordingly , every fifth or sixth fiscal year will have a 53-week period . the additional week in a 53-week year is added to the fourth quarter , making such quarter consist of 14 weeks . fiscal 2020 had a 52-week period . fiscal 2021 is a 52-week period . pending business combination . on october 29 , 2020 , we entered into a merger agreement ( the “ merger agreement ” ) with inphi corporation ( “ inphi ” ) , whereby we will acquire inphi with cash and stock consideration . under the terms of the agreement , we will pay inphi 's stockholders $ 66 per share in cash and 2.323 common shares for each inphi share , which represented purchase consideration of approximately $ 10 billion . the merger consideration will be financed by new debt financing and issuance of our common shares . the transaction is expected to close in the second half of calendar 2021 , pending approval by inphi 's and our shareholders , as well as regulatory approval and satisfaction of other customary closing conditions . as a result of the transaction , the parent company will be domiciled in the united states upon closing of the transaction . inphi is a global leader in high-speed data movement enabled by optical interconnects . their product portfolio includes laser drivers , tia ( trans-impedance amplifiers ) , pam ( pulse amplitude modulation ) and coherent dsps ( digital signal processors ) and data center interconnects . we and inphi both have growing positions in carrier and datacenter , and inphi 's high-speed electro-optics platform is highly complementary to our storage , networking , compute , and security portfolio . story_separator_special_tag for risks related to our sales cycle , see part i , item 1a , “ risk factors , ” including but not limited to the risk detailed under the caption , “ we are subject to order and shipment uncertainties . if we are unable to accurately predict customer demand , we may hold excess or obsolete inventory , which would reduce our gross margin . conversely , we may have insufficient inventory , which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships. ” 41 critical accounting policies and estimates the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates , judgments and assumptions 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 revenue recognition , income taxes , goodwill and other intangible assets , and business combinations . we base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances when these carrying values are not readily available from other sources . actual results could differ from these estimates , and such differences could affect the results of operations reported in future periods . in the current macroeconomic environment affected by covid-19 , our estimates could require increased judgment and carry a higher degree of variability and volatility . we continue to monitor and assess our estimates in light of developments , and as events continue to evolve and additional information becomes available , our estimates may change materially in future periods . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . for further information on our significant accounting policies , see “ note 2 - significant accounting policies ” in the notes to consolidated financial statements . revenue recognition . we recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . under the revenue recognition standard , we apply the following five step approach : ( 1 ) identify the contract with a customer , ( 2 ) identify the performance obligations in the contract , ( 3 ) determine the transaction price , ( 4 ) allocate the transaction price to the performance obligations in the contract , and ( 5 ) recognize revenue when a performance obligation is satisfied . we enter into contracts that may include various combinations of products and services that are capable of being distinct and accounted for as separate performance obligations . to date , the majority of the revenue has been generated by sales associated with storage and networking products . revenue from services has been insignificant . performance obligations associated with product sales transactions are generally satisfied when control passes to customers upon shipment . accordingly , product revenue is recognized at a point in time when control of the asset is transferred to the customer . we recognize revenue when we satisfy a performance obligation by transferring control of a product to a customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . for product revenue , the performance obligation is deemed to be the delivery of the product and therefore , the revenue is generally recognized upon shipment to customers , net of accruals for estimated sales returns and rebates . these estimates are based on historical returns , analysis of credit memo data and other known factors . actual returns could differ from these estimates . we account for rebates by recording reductions to revenue for rebates in the same period that the related revenue is recorded . the amount of these reductions is based upon the terms agreed to with the customer . some of our sales are made to distributors under agreements allowing for price protection , price discounts and limited rights of stock rotation on products unsold by the distributors . control passes to the distributor upon shipment , and terms and payment by our distributors is not contingent on resale of the product . product revenue on sales made to distributors with price protection and stock rotation rights is recognized upon shipment to distributors , with an accrual for the variable consideration aspect of sales to distributors , estimated based on historical experience , including estimates for price discounts , price protection , rebates , and stock rotation programs . actual variable consideration could differ from these estimates . a portion of our net revenue is derived from sales through third-party logistics providers who maintain warehouses in close proximity to our customer 's facilities . revenue from sales through these third-party logistics providers is not recognized until the product is pulled from stock by the customer . our products are generally subject to warranty , which provides for the estimated future costs of replacement upon shipment of the product . our products carry a standard one-year warranty , with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements . the warranty accrual is estimated primarily based on historical claims compared to historical revenues and assumes that we will have to replace products subject to a claim . from time to time , we become aware of specific warranty situations , and we record specific accruals to cover these exposures . warranty expenses were not material for the periods presented . 42 inventories . we value our inventory at the lower of cost or net realizable value , cost being determined under the first-in , first-out method .
| results of operations years ended january 30 , 2021 and february 1 , 2020 the following table sets forth information derived from our consolidated statements of operations expressed as a percentage of net revenue : replace_table_token_4_th net revenue year ended january 30 , 2021 february 1 , 2020 % change in 2021 ( in thousands , except percentage ) net revenue $ 2,968,900 $ 2,699,161 10.0 % our net revenue for fiscal 2021 increased by $ 269.7 million compared to net revenue for fiscal 2020. this increase was primarily due to a 22 % increase in sales of our networking products and a 1 % increase in sales of our storage products , partially offset by a 27 % decrease in sales of our other products . average selling prices increased 30 % compared to fiscal 2020 , and unit shipments were 20 % lower compared to fiscal 2020 , for an overall increase in net revenue of 10 % . this was primarily driven by our recent portfolio changes , including the acquisition of avera asic business , which increased our average selling prices , and the divestiture of the wi-fi connectivity business , which decreased our unit shipments . 45 cost of goods sold and gross profit replace_table_token_5_th the cost of goods sold as a percentage of net revenue was higher for fiscal 2021 primarily due to increased costs from higher amortization of acquired intangible assets related to the aquantia and avera acquisitions , partially offset by decreased costs from amortization of inventory fair value adjustment associated with the acquisitions .
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in addition , vesting of all of mr. maimon 's options and restricted shares will be accelerated in full upon a corporate transaction or a change in control , as those terms are defined in our 2006 stock incentive plan , as amended . the employment agreement is terminable by either party on 60 days ' written notice for any reason and we may terminate the agreement for cause without notice . mr. maimon is entitled to be insured by protalix ltd. under a manager 's policy in lieu of severance , company contributions towards vocational studies , annual recreational allowances , a company car , a company laptop and a company phone . mr. maimon is entitled to 29 working days of vacation . yaron naos . mr. naos ' current monthly base salary is nis 65,550 and he is entitled to an annual discretionary bonus for performance subject to the sole discretion of our compensation committee . the monthly salary is subject to cost of living adjustments from time to time as may be required by law . in addition , vesting of all of mr. naos ' options and restricted shares will be accelerated in full upon a corporate transaction or a change in control , as those terms are defined in 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 , particularly with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read “ risk factors ” in item 1a of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . story_separator_special_tag on june 18 , 2013 , we entered into the brazil agreement with fiocruz , an arm of the brazilian moh , for taliglucerase alfa . fiocruz 's purchases of alfataliglicerase to date have been significantly below certain agreed upon purchase milestones and , accordingly , we have the right to terminate the brazil agreement . notwithstanding our termination right , we are , at this time , continuing to supply alfataliglicerase to fiocruz under the brazil agreement , and patients continue to be treated with alfataliglicerase in brazil . we are discussing with fiocruz potential actions that fiocruz may take to comply with its purchase obligations and , based on such discussions , we will determine what we believe to be the course of action that is in our best interest . we are developing an innovative product pipeline using our procellex protein expression system . our product pipeline currently includes , among other candidates : ( 1 ) pegunigalsidase alfa , or prx-102 , a therapeutic protein candidate for the treatment of fabry disease , a rare , genetic lysosomal disorder in humans , currently in an ongoing phase iii clinical trial . ( 2 ) alidornase alfa , or prx-110 , a proprietary plant cell recombinant human deoxyribonuclease 1 under development for the treatment of cystic fibrosis , or cf , to be administered by inhalation . we recently completed a phase iia efficacy and safety study of alidornase alfa for the treatment of cf . ( 3 ) oprx-106 , our oral antitnf product candidate which is being developed as an orally-delivered anti-inflammatory treatment using plant cells as a natural capsule for the expressed protein . we released final data generated in our phase ii clinical trial of oprx-106 for the treatment of ulcerative colitis in march 2018 . additional data was released in june 2018 . 62 we have licensed the rights to commercialize taliglucerase alfa worldwide ( other than brazil ) to pfizer , and the rights to commercialize pegunigalsidase alfa worldwide to chiesi . otherwise , we hold the worldwide commercialization rights to our other proprietary development candidates . in addition , we continuously evaluate potential strategic marketing partnerships as well as collaboration programs with biotechnology and pharmaceutical companies and academic research institutes . critical accounting policies our significant accounting policies are more fully described in note 1 to our consolidated financial statements appearing at the end of this annual report on form 10-k. we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations is based on our financial statements , which we prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . functional currency the currency of the primary economic environment in which our operations are conducted is the u.s. dollar . all of our revenues are derived in dollars . in addition , most of our expenses and capital expenditures are incurred in dollars , and the major source of our financing has been provided in dollars . revenues our primary sources of revenues include our sales of taliglucerase alfa in brazil and of drug substance to pfizer under our amended pfizer agreement . story_separator_special_tag the current focus of our product development efforts are on pegunigalsidase alfa . our future research and development expenses for pegunigalsidase alfa and the other product candidates will depend on the clinical success of each product candidate , as well as ongoing assessments of each product candidate 's commercial potential . in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . see “ risk factors—if we are unable to develop and commercialize our product candidates , our business will be adversely affected ” and “ —we may not obtain the necessary u.s. , ema or other worldwide regulatory approvals to commercialize our drug candidates in a timely manner , if at all , which would have a material adverse effect on our business , results of operations and financial condition. ” 64 we expect our research and development expenses to continue to be our primary expense in the future as we continue the advancement of our clinical trials and preclinical product development programs for our product candidates , particularly with respect to the development of pegunigalsidase alfa . the lengthy process of completing clinical trials and seeking regulatory approvals for our product candidates requires expenditure of substantial resources . any failure or delay in completing clinical trials , or in obtaining regulatory approvals , could cause a delay in generating product revenue and cause our research and development expense to increase and , in turn , have a material adverse effect on our operations . due to the factors set forth above , we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects . see “ risk factors—clinical trials are very expensive , time-consuming and difficult to design and implement and may result in unforeseen costs which may have a material adverse effect on our business , results of operations and financial condition. ” share-based compensation the discussion below regarding share-based compensation relates to our share-based compensation . in accordance with the guidance , we record the benefit of any grant to a non-employee and remeasure the benefit in any future vesting period for the unvested portion of the grants , as applicable . in addition , we use the straight-line accounting method for recording the benefit of the entire grant , unlike the graded method we use to record grants made to employees . we measure share-based compensation cost for all share-based awards at the fair value on the grant date and recognition of share-based compensation over the service period for awards that we expect will vest . the fair value of stock options is determined based on the number of shares granted and the price of our ordinary shares , and calculated based on the black-scholes valuation model . we recognize such value as expense over the service period , net of estimated forfeitures , using the accelerated method . the guidance requires companies to estimate the expected term of the option rather than simply using the contractual term of an option . because of lack of data on past option exercises by employees , the expected term of the options could not be based on historic exercise patterns . accordingly , we adopted the simplified method , according to which companies may calculate the expected term as the average between the vesting date and the expiration date , assuming the option was granted as a “ plain vanilla ” option . in performing the valuation , we assumed an expected 0 % dividend yield in the previous years and in the next years . we do not have a dividend policy and given the lack of profitability , dividends are not expected in the foreseeable future , if at all . the guidance stipulates a number of factors that should be considered when estimating the expected volatility , including the implied volatility of traded options , historical volatility and the period that the shares of the company are being publicly traded . the risk-free interest rate used in the valuation of the options is based on the implied yield of u.s. federal reserve zero–coupon government bonds . the remaining term of the bonds used for each valuation was equal to the expected term of the grant . this methodology has been applied to all grants valued by us . the guidance requires the use of a risk–free interest rate based on the implied yield currently available on zero–coupon government issues of the country in whose currency the exercise price is expressed , with a remaining term equal to the expected life of the option being valued . this requirement has been applied for all grants valued as part of this report . convertible notes all outstanding convertible notes are accounted for using the guidance set forth in the financial accounting standards board , or fasb , accounting standards codification ( asc ) 815 requiring that we determine whether the embedded conversion option must be separated and accounted for separately . asc 470-20 regarding debt with conversion and other options requires the issuer of a convertible debt instrument that may be settled in cash upon conversion to separately account for the liability ( debt ) and equity ( conversion option ) components of the instrument in a manner that reflects the issuer 's nonconvertible debt borrowing rate . we accounted for the 4.5 % convertible notes , which we refer to as the 2018 notes , as liability , on an aggregated basis , in their entirety . our 2021 notes were accounted for partially as liability and equity components of the instrument and partially as a debt host contract with an embedded derivative resulting from the conversion feature . during the year ended december 31 , 2017 , the embedded derivative was reclassified to additional paid in capital .
| overview we are a biopharmaceutical company focused on the development and commercialization of recombinant therapeutic proteins based on our proprietary procellex ® protein expression system . we developed our first commercial drug product , elelyso ® , using our procellex system and we are now focused on utilizing the system to develop a pipeline of proprietary , clinically superior versions of recombinant therapeutic proteins that primarily target large , established pharmaceutical markets and that in most cases rely upon known biological mechanisms of action . with our experience to date , we believe procellex will enable us to develop additional proprietary recombinant proteins that are therapeutically superior to existing recombinant proteins currently marketed for the same indications , including applying the unique properties of our procellex system for the oral delivery of therapeutic proteins . on october 19 , 2017 , protalix ltd. , our wholly-owned subsidiary , and chiesi entered into the chiesi ex-us agreement pursuant to which chiesi was granted an exclusive license for all markets outside of the united states to commercialize pegunigalsidase alfa . pegunigalsidase alfa is our chemically modified version of the recombinant protein alpha-galactosidase-a protein that is currently being evaluated in phase iii clinical trials for the treatment of fabry disease . under the terms and conditions of the chiesi ex-us agreement , protalix ltd. retained the right to commercialize pegunigalsidase alfa in the united states . under the chiesi ex-us agreement , chiesi made an upfront payment to protalix ltd. of $ 25.0 million in connection with the execution of the agreement and protalix ltd. is entitled to additional payments of up to $ 25.0 million in development costs , capped at $ 10.0 million per year . protalix ltd. is also eligible to receive an additional up to $ 320.0 million , in the aggregate , in regulatory and commercial milestone payments .
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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 . story_separator_special_tag the trial was to assess the safety of eteplirsen at these doses over the 26-week duration of the trial . secondary trial objectives included assessment of plasma pharmacokinetics , urinary elimination and exploratory endpoints evaluating biological activity and clinical performance . this trial was conducted by investigators in the united kingdom at -51- the university college london institute of child health / great ormond street hospital in london and at the royal victoria infirmary in newcastle-upon-tyne . in avi study 28 , ( i ) eteplirsen induced exon 51 skipping in all cohorts and new dystrophin protein expression in cohort 3 ; ( ii ) eteplirsen was well tolerated in all participants with no drug-related serious adverse events or severe adverse events observed , except that one participant exhibited deteriorating cardiac function , which was considered probably disease related ; ( iii ) adverse events were mostly mild or moderate in intensity , not dose-related , and none were considered probably or definitely related to eteplirsen ; and ( iv ) there was no detectable immune response to newly made dystrophin . based on the avi 28 study results , we initiated a phase iib trial for eteplirsen in august 2011 , avi 4658-us-201 ( study 201 ) , at nationwide children 's hospital in columbus , ohio and we announced the results from this study in april 2012. this was a randomized , double-blind , placebo-controlled study to assess the efficacy , safety , tolerability and pharmacokinetics of eteplirsen administered intravenously in two different doses over 24 weeks for the treatment of ambulant boys with dmd . exploratory clinical measures of ambulation , muscle function and strength were also captured and evaluated during the course of the trial . study 201 included 12 participants and muscle biopsies of all participants were performed prior to initiation of treatment . the 12 participants with a genotypically-confirmed appropriate genetic mutation were randomized into one of three treatment groups with four participants in each group . the first treatment group received a weekly intravenous administration of eteplirsen at a dose of 50.0 mg/kg . the second treatment group received a weekly intravenous administration of eteplirsen at a dose of 30.0 mg/kg . the third and final treatment group received a weekly administration of placebo . participants receiving the 50.0 mg/kg dose received a second biopsy at 12 weeks after initiation of treatment , and participants receiving the 30.0 mg/kg dose received a second biopsy at 24 weeks after initiation of treatment . the results from study 201 determined that treatment with eteplirsen met the primary efficacy endpoint in the study . eteplirsen administered once weekly at 30mg/kg over 24 weeks resulted in a statistically significant ( p < 0.002 ) increase in the measurement taken of novel dystrophin ( 22.5 % dystrophin-positive fibers as a percentage of normal ) compared to no increase in the placebo group . in the study , a shorter duration of eteplirsen treatment , 12 weeks , did not show a significant increase in the measurement taken of novel dystrophin ( 0.79 % dystrophin-positive fibers as a percentage of normal ; p-value ns ) , despite administration of the drug at a higher dose ( 50mg/kg once weekly ) . no significant improvements in clinical outcomes in the treated groups were observed compared to placebo . all participants in study 201 were enrolled in an open-label extension study 4658-us-202 ( study 202 ) , following the completion of study 201 and all participants , including those from the placebo group in study 201 , are receiving either 30.0 mg/kg or 50.0 mg/kg for the duration of study 202. the purpose of study 202 is to evaluate the ongoing safety , efficacy and tolerability of eteplirsen . the primary efficacy endpoint was the change from baseline at week 48 in the percentage of dystrophin-positive fibers in muscle biopsy tissue as measured by immunohistochemistry . the primary clinical outcome measure was the change from baseline to week 48 on the six-minute walk test ( 6mwt ) . study 202 is now in a long-term extension phase in which patients continue to be followed for safety and clinical outcomes approximately every 12 weeks through week 108 ( which includes the original 28 weeks of study 201 ) . in july 2012 , we announced interim results from study 202 which indicated that treatment with eteplirsen over 36 weeks achieved a significant clinical benefit on the primary clinical outcome measure , the 6mwt , over a placebo/delayed treatment cohort . eteplirsen administered once weekly at 50mg/kg over 36 weeks resulted in a 69.4 meter benefit compared to patients who received placebo for 24 weeks followed by 12 weeks of treatment with eteplirsen . in the predefined prospective analysis of the study 's intent-to-treat ( itt ) population on the primary clinical outcome measure , the change in 6mwt distance from baseline , eteplirsen-treated patients who received 50mg/kg of the drug weekly demonstrated a decline of 8.7 meters in distance walked from baseline ( mean=396.0 meters ) , while patients who received placebo/delayed-eteplirsen treatment for 36 weeks showed a decline of 78.0 meters from baseline ( mean=394.5 meters ) , for a statistically significant treatment benefit of 69.4 meters over 36 weeks ( p < 0.019 ) . there was no statistically significant difference in the 6mwt between the cohort of patients who received 30mg/kg weekly of eteplirsen and the placebo/delayed treatment cohort . story_separator_special_tag as previously reported at 62 weeks , one patient had a transient elevation of urine protein on a laboratory urine dipstick test , which resolved and resulted in no clinical symptoms . the patient continued treatment without interruption and remained free of proteinuria through week 74. across both the eteplirsen-treated and placebo/delayed-treatment cohorts , there was evidence of continued stabilization on clinical laboratory tests , echocardiogram , pulmonary function tests and muscle strength through 74 weeks of participating in study 202. in june 2013 , we announced that after 84 weeks , patients in the 30 mg/kg and 50 mg/kg dose cohorts in the mitt population ( n=6 ) showed a statistically significant treatment benefit of 46.4 meters ( p < 0.045 ) when compared to the placebo/delayed-treatment cohort ( n=4 ) . the eteplirsen-treated patients in the mitt population demonstrated less than a 6 percent decline ( 20.5 meters ) from baseline in walking ability . the placebo/delayed-treatment cohort also demonstrated stabilization in walking ability from week 36 through 84 , the period from which meaningful levels of dystrophin were likely produced , with an increase of 3.3 meters over this timeframe . these analyses were based on the maximum 6mwt score when the test was performed on two consecutive days . through 84 weeks , eteplirsen was well tolerated and there were no clinically significant treatment-related adverse events , no serious adverse events , hospitalizations or discontinuations . one boy in the placebo/delayed-treatment cohort was not able to perform the 6mwt at the week 84 clinic visit due to a physical injury unrelated to treatment , and therefore had no 6mwt data captured at the week 84 time point . the boy has recovered from the injury , continues to be ambulatory and is expected to be evaluated on the 6mwt at future clinic visits . across all patients in the eteplirsen and placebo/delayed-treatment cohorts , there was evidence of continued stabilization on clinical laboratory tests , echocardiograms , pulmonary function tests and measures of muscle strength through 84 weeks of participating in study 202. in september 2013 , we announced that after 96 weeks , patients in the 30 mg/kg and 50 mg/kg eteplirsen cohorts in the mitt population ( n=6 ) experienced less than 17.5 meters , or 5 percent decline from baseline in walking ability . a statistically significant treatment benefit of 70.8 meters ( p < 0.001 ) was observed for the mitt population compared with the placebo/delayed-treatment cohort ( n=4 ) . the placebo/delayed-treatment cohort also demonstrated stabilization in walking ability from week 36 through 96 , the period from which meaningful levels of dystrophin were likely produced , with a decline of 18.5 meters over this timeframe . these analyses were based on the maximum 6mwt score when the test was performed on two consecutive days . as previously reported , a boy in the placebo/delayed-treatment cohort was not able to perform the 6mwt at the week 84 clinic visit due to a broken ankle assessed by the investigator as a treatment-unrelated adverse event . although this boy received rehabilitation and was able to perform the 6mwt , his walking ability at the time of the test had not returned to the level observed prior to the injury , and this lower 6mwt distance contributed to the overall decline in the placebo/delayed-treatment cohort . the decline in walking distance observed in this cohort from week 36 improves from a decline of 18.5 meters to a decline of 4.7 meters when this patient 's 96-week test score is excluded from the analysis . through 96 weeks , eteplirsen was well tolerated and there were no reported clinically significant treatment-related adverse events , no treatment-related serious adverse events , hospitalizations or discontinuations . across patients in the eteplirsen and placebo/delayed-treatment cohorts , -54- there is evidence of continued stabilization on clinical laboratory tests , echocardiograms , pulmonary function tests and measures of muscle strength through 84 weeks of participating in study 202. in january 2014 , we announced that at 120 weeks , patients in the 30 mg/kg and 50 mg/kg eteplirsen cohorts who were able to perform the 6mwt ( mitt population ; n=6 ) experienced a decline of 13.9 meters , or less than 5 percent , from baseline in walking ability . a statistically significant treatment benefit of 64.9 meters ( p < 0.006 ) was observed for the mitt population compared with the placebo/delayed-treatment cohort ( n=4 ) . the placebo/delayed-treatment cohort also demonstrated stabilization in walking ability for more than 1.5 years , from week 36 through 120 , the period from which meaningful levels of dystrophin were likely produced , with a decline of 9.5 meters over this timeframe . these analyses were based on the maximum 6mwt score when the test was performed on two consecutive days . in addition , in february 2014 , we announced that results through more than two years of treatment showed stable pulmonary function in the itt study population ( n=12 ) . through 120 weeks , eteplirsen was well tolerated and there were no reported clinically significant treatment-related adverse events and no treatment-related serious adverse events . in addition , there were no treatment-related hospitalizations or discontinuations . in july 2014 , we announced that at 144 weeks , patients in the 30 mg/kg and 50 mg/kg eteplirsen cohorts who were able to perform the 6mwt ( mitt population ; n=6 ) experienced a decline of 33.2 meters , or about 8.5 percent , from baseline in walking ability . a statistically significant treatment benefit of 75.1 meters ( p < 0.004 ) was observed for the mitt population compared with the placebo/delayed-treatment cohort ( n=4 ) , which initiated treatment at week 25 following 24 weeks of placebo . after experiencing a substantial decline of 68.4 meters from baseline to week 36 , the placebo/delayed-treatment cohort demonstrated a decline of 39.0 meters in walking ability from week 36 through week 144 , the period from which meaningful levels of dystrophin were likely produced .
| overview we are a biopharmaceutical company focused on the discovery and development of unique rna-targeted therapeutics for the treatment of rare , infectious and other diseases . applying our proprietary , highly-differentiated and innovative platform technologies , we are able to target a broad range of diseases and disorders through distinct rna-targeted mechanisms of action . we are primarily focused on rapidly advancing the development of our potentially disease-modifying duchenne muscular dystrophy ( dmd ) drug candidates , including our lead dmd product candidate , eteplirsen , designed to skip exon 51. we are also developing therapeutics using our technology for the treatment of drug resistant bacteria and infectious , rare and other human diseases . our rna-targeted technologies work at the most fundamental level of biology and potentially could have a meaningful impact across a broad range of human diseases and disorders . our lead program focuses on the development of disease-modifying therapeutic candidates for dmd , a rare genetic muscle-wasting disease caused by the absence of dystrophin , a protein necessary for muscle function . currently , there are no approved disease-modifying therapies for dmd in the u.s. eteplirsen is our lead therapeutic candidate for dmd . if we are successful in our development efforts , eteplirsen will address a severe but unmet medical need . we are in the process of conducting or starting several studies for product candidates designed to skip exons 45 , 51 and 53 in the u.s. and in europe .
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accordingly , the carrying value of the assets was reduced to fair value , calculated as the net present value of estimated future cash flows for each asset group , and asset impairment charges of $ 0.3 million were recorded in the second quarter of fiscal 2010. as we had determined at this time that we would be closing the related stores , these charges are included in selling , general and administrative expenses as a story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from the results discussed in the forward-looking statements . factors that might cause such a difference include , but are not limited to , those discussed in “ risk factors ” and elsewhere in this annual report on form 10-k. the following section is qualified in its entirety by the more detailed information , including our financial statements and the notes thereto , which appears elsewhere in this annual report on form 10-k. overview we are the leading , and only international , company providing a “ make your own stuffed animal ” interactive entertainment experience under the build-a-bear workshop brand , in which our guests stuff , fluff , dress , accessorize and name their own teddy bears and other stuffed animals . our concept , which we developed for mall-based retailing , capitalizes on what we believe is the relatively untapped demand for experience-based shopping as well as the widespread appeal of stuffed animals . the build-a-bear workshop experience appeals to a broad range of age groups and demographics , including children , teens , their parents and grandparents . as of december 31 , 2011 , we operated 288 stores in the united states , canada and puerto rico , 56 stores in the united kingdom and two stores in ireland , and had 79 franchised stores operating in international locations under the build-a-bear workshop brand . in addition to our stores , we sell our products on our e-commerce web site , buildabear.com and market our products and build our brand through our “ virtual world ” web site , bearville.com , which complements our interactive shopping experience and positively enhances our core brand value . we also operate non-traditional store locations in major league baseball ballparks , six temporary locations , one location in a zoo , one location in a science center and an airport . we operate in three segments that share the same infrastructure , including management , systems , merchandising and marketing , and generate revenues as follows : company-owned retail stores located in the united states , canada , puerto rico , the united kingdom and ireland , a webstore and seasonal , event-based locations ; transactions with other business partners , mainly comprised of licensing our intellectual property , including entertainment properties , for third-party use and wholesale product sales ; and international stores operated under franchise agreements . selected financial data attributable to each segment for fiscal 2011 , 2010 and 2009 , are set forth in note 19 to our consolidated financial statements included elsewhere in this annual report on form 10-k. for a discussion of the key trends and uncertainties that have affected our revenues , income and liquidity , see the “ — revenues , ” “ — costs and expenses ” and “ — expansion and growth potential ” subsections of this overview . we believe that we have developed an appealing retail store concept that , for north american stores open for the entire year , averaged $ 1.0 million in fiscal 2011 , fiscal 2010 and fiscal 2009 in net retail sales per store . for a discussion of the changes in comparable store sales in fiscal years 2011 , 2010 and 2009 , see “ — revenues ” below . store contribution , which consists of income ( loss ) before income tax expense ( benefit ) ; interest ; store depreciation , amortization and impairment ; store preopening expense ; store closing expense ; losses from investment in affiliate and general and administrative expense , excluding franchise fees , income from commercial activities and contribution from our webstore , temporary and seasonal event-based locations , as a percentage of net retail sales , excluding revenue from our webstore , temporary and seasonal and event-based locations , was 15.2 % for fiscal 2011 , 15.3 % for fiscal 2010 and 12.4 % for fiscal 2009. total company net loss as a percentage of total revenues was 4.3 % for fiscal 2011 and 3.2 % for fiscal 2009. total company net income as a percentage of total revenues was 0.0 % for fiscal 2010. see “ — non-gaap financial measures ” for a reconciliation of store contribution to net ( loss ) income . the net loss in 2011 was primarily attributable to the decrease in comparable store sales and the recording of a valuation allowance on the company 's us deferred tax assets . net income increased in 2010 due to stable store sales trends , continued cost reductions , improvements in margin and leverage of fixed costs . additionally , certain non-cash charges included in 2009 did not recur , or were significantly lower in 2010. net income declined in 2009 due primarily to the decrease in comparable store sales and the impact of certain non-cash charges . in 2009 , merchandise margin improvement was more than offset by fixed occupancy cost deleverage due primarily to the decrease in comparable store sales . in 2011 , our results reflect stablizing economic trends and modest mall traffic increases but continuing low levels of consumer confidence . in 2011 , our store contribution percentage was essentially flat with 2010 , as declining sales were offset by lower store expenses , specifically payroll and supplies . story_separator_special_tag the following table details net retail sales per gross square foot by age of store for the periods presented : replace_table_token_5_th ( 1 ) net retail sales per gross square foot represents net retail sales from north american stores open throughout the entire period divided by the total gross square footage of such stores . calculated on an annual basis only . ( 2 ) excludes our webstore , temporary and seasonal and event-based locations . the percentage increase ( or decrease ) in comparable store sales for the periods presented below is as follows : replace_table_token_6_th ( 1 ) comparable store sales percentage changes are based on net retail sales and stores are considered comparable beginning in their thirteenth full month of operation . ( 2 ) excludes our webstore , temporary and seasonal and event-based locations . fiscal 2011 consolidated comparable store sales decreased by 2.1 % , including a 0.2 % decrease in europe and a 2.5 % decrease in north america ( full year comparable store sales are compared to the 52 week period ended jan. 1 , 2011 ) . we believe the overall decline in consolidated comparable store sales for the full year was attributed primarily to the following factors : · through the third quarter , we had experienced a 0.9 % decrease in consolidated comparable store sale . growth in third quarter sales , which resulted from improved merchandise assortments and successful promotional events , only partially offset comparable stores sales declines in the first half of the year , which were primarily driven by a decline in transactions and negative consumer sentiment and spending in the uk . · further sales declines in the fourth quarter , attributable to underperforming licensed movie product , resulted in a decline for the full year . fiscal 2010 consolidated comparable store sales decreased by 2.0 % , including a 5.5 % decrease in europe and a 1.2 % decrease in north america ( full year comparable store sales are compared to the 52 week period ended jan. 2 , 2010 ) . we believe the decline in consolidated comparable store sales was attributed primarily to the following factors : · the continuing impact of the economic recession and resulting pullback in consumer spending impacted our comparable store sales particularly in europe . while these factors impact many retailers we believe that they impact our comparable store sales particularly given the discretionary nature of our products and our experience . · we believe that our product selection and improved integration of product marketing and store operations positively impacted our north american comparable store sales trend in 2010 . 26 commercial revenue : commercial revenue , includes the company 's transactions with other businesses , mainly through wholesale and licensing transactions . revenue from licensing activities is generally based on a percentage of sales made by licensees to third parties and is recognized at the time the product is shipped by the licensee or at the point of sale . we have entered into a number of licensing arrangements whereby third parties manufacture and sell to other retailers merchandise carrying the build-a-bear workshop trademark . revenue from wholesale product sales includes revenue from merchandise sold at stores operated by third parties under licensing agreements like landry 's restaurants . in 2010 , it also includes two transactions totaling $ 6.4 million with no associated gross margin . franchise fees : we receive an initial , one-time franchise fee for each master franchise agreement which is amortized to revenue over the life of the respective franchise agreements , which extend for periods up to 25 years . master franchise rights are typically granted to a franchisee for an entire country or countries . continuing franchise fees are based on a percentage of sales made by the franchisees ' stores and are recognized as revenue at the time of those sales . as of december 31 , 2011 , we had 79 stores , including 19 opened and three closed in fiscal 2011 , operating under franchise arrangements in the following countries : replace_table_token_7_th ( 1 ) gulf states agreement includes kuwait , bahrain , qatar , oman and the united arab emirates . costs and expenses cost of merchandise sold and retail gross margin : cost of merchandise sold includes the cost of the merchandise , including royalties paid to licensors of third party branded merchandise ; store occupancy cost , including store depreciation and store asset impairment charges ; cost of warehousing and distribution ; packaging ; stuffing ; damages and shortages ; and shipping and handling costs incurred in shipment to customers . retail gross margin is defined as net retail sales less the cost of retail merchandise sold , which excludes cost of wholesale merchandise sold . selling , general and administrative expense : these expenses include store payroll and benefits , advertising , credit card fees , and store supplies , as well as central office general and administrative expenses , including costs for virtual world maintenance , management payroll , benefits , stock-based compensation , travel , information systems , accounting , insurance , normal store closings , legal and public relations . these expenses also include depreciation and amortization of central office leasehold improvements , furniture , fixtures and equipment as well as the amortization of intellectual property costs . in 2009 , we achieved $ 22 million in savings in selling , general and administrative expenses including marketing , central office payroll and outside services . we were able to maintain these savings in 2010 and 2011. we anticipate an additional $ 9 million in savings in 2012 , which we expect to offset expected product cost increases . other store expenses such as credit card fees and supplies historically have increased or decreased proportionately with net retail sales . we have share-based compensation plans covering the majority of our management groups and our board of directors . we account for share-based payments utilizing the fair value recognition provisions of accounting standards codification ( asc ) section 718 – stock compensation .
| results of operations the following table sets forth , for the periods indicated , selected statement of operation data expressed as a percentage of total revenues , except where otherwise indicated . percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding : replace_table_token_10_th ( 1 ) cost of merchandise sold is expressed as a percentage of net retail sales and commercial revenue . ( 2 ) retail gross margin represents net retail sales less cost of retail merchandise sold , which excludes cost of wholesale merchandise sold . retail gross margin was $ 154.5 million , $ 155.1 million and $ 142.6 million in 2011 , 2010 and 2009 , respectively . retail gross margin percentage represents retail gross margin divided by net retail sales . 29 fiscal year ended december 31 , 2011 ( 52 weeks ) compared to fiscal year ended january 1 , 2011 ( 52 weeks ) total revenues . net retail sales were $ 387.0 million for fiscal 2011 , compared to $ 387.2 million for fiscal 2010 , a decrease of $ 0.2 million . comparable store sales decreased $ 7.6 million in fiscal 2011 , or 2.1 % and sales from non-comparable locations , comprised primarily of relocated and remodeled locations , decreased $ 3.6 million . partially offsetting these decreases are increases of $ 4.4 million from sales in new stores , $ 1.0 million in e-commerce sales and of $ 2.7 million in sales from non-store locations which includes temporary locations . other changes , adding $ 2.9 million to net retail sales , resulted from the impact of foreign currency exchange rates , changes in deferred revenue estimate , offset by redemptions throughout the year , and other revenue .
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we recognize compensation cost on a straight-line basis over the awards ' vesting periods . 75 houghton mifflin harcourt company notes to consolidated financial statements ( in thousands of dollars , except share and per story_separator_special_tag the following discussion and analysis is intended to facilitate an understanding of our results of operations and financial condition and should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this annual report . the following discussion and analysis of our financial condition and results of operations contains forward-looking statements about our business , operations and industry that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations and intentions . actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements due to a number of factors , including those set forth under risk factors and elsewhere in this annual report . see risk factors and special note regarding forward-looking statements. overview we are a leading global provider of education solutions , delivering content , technology , services and media to over 50 million students in over 150 countries worldwide . we deliver our offerings to both educational institutions and consumers around the world . in the united states , we are the leading provider of k-12 educational content by market share . furthermore , since 1832 , we have published trade and reference materials , including adult and children 's fiction and non-fiction books that have won industry awards such as the pulitzer prize , newbery and caldecott medals and national book award , all of which are generally known . we believe our long-standing reputation and well-known brands enable us to capitalize on consumer and digital trends in the education market through our existing and developing channels . corporate history houghton mifflin harcourt company was incorporated as a delaware corporation on march 5 , 2010 , and was established as the holding company of the current operating group . the company changed its name from hmh holdings ( delaware ) , inc. on october 22 , 2013. houghton mifflin harcourt was formed in december 2007 with the acquisition of harcourt education group , then the second-largest k-12 u.s. publisher , by houghton mifflin group . houghton mifflin group was previously formed in december 2006 by the acquisition of houghton mifflin publishers inc. by riverdeep group plc . we are headquartered in boston , massachusetts . key aspects and trends of our operations business segments we are organized along two business segments : education and trade publishing . our education segment is our largest segment and represented approximately 88 % , 88 % and 90 % of our total net sales for the years ended december 31 , 2013 , 2012 and 2011 , respectively . our trade publishing segment represented approximately 12 % , 12 % and 10 % of our total net sales for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the corporate and other category represents certain general overhead costs not fully allocated to the business segments , such as legal , accounting , treasury , human resources and executive functions . net sales we derive revenue primarily from the sale of print and digital textbooks and instructional materials , trade books , reference materials , multimedia instructional programs , license fees for book rights , content , software and services , test scoring , consulting and training . we primarily sell to customers in the united states . our net sales are driven primarily as a function of volume and , to a certain extent , changes in price . our net sales consist of our billings for products and services less revenue that will be deferred until future recognition , usually due to future deliverable products or functions and a provision for product returns . basal programs , which represent the most significant portion of our education segment net sales , cover curriculum standards in a particular k-12 academic subject and include a comprehensive offering of teacher and 31 student materials required to conduct the class throughout the school year . products and services in basal programs include print and digital offerings for students and a variety of supporting materials such as teacher 's editions , formative assessments , whole group instruction materials , practice aids , educational games and services . the process through which materials and curricula are selected and procured for classroom use varies throughout the united states . twenty states , known as adoption states , approve and procure new basal programs usually every five to seven years on a state-wide basis , before individual schools or school districts are permitted to schedule the purchase of materials . in all remaining states , known as open states or open territories , each individual school or school district can procure materials at any time , though usually according to a five to nine year cycle . the student population in adoption states represents over 50 % of the u.s. elementary and secondary school-age population . many adoption states provide categorical funding for instructional materials , which means that state funds can not be used for any other purpose . a significant portion of our education segment net sales is dependent upon our ability to maintain residual sales , which are subsequent sales after the year of the original adoption , and our ability to continue to generate new business . in addition , our market is affected by changes in state curriculum standards , which drive instruction , assessment and accountability in each state . changes in state curriculum standards require that instructional materials be revised or replaced to align to the new standards , which historically has driven demand for basal programs . we also derive our education segment net sales from the sale of summative , formative or in-classroom and diagnostic assessments to districts and schools in all 50 states . story_separator_special_tag furthermore , backlist titles can experience resurgence in sales when made into films . over the past several years , a number of our backlist titles such as the hobbit , the lord of the rings , life of pi , extremely loud and incredibly close and the time traveler 's wife have benefited in popularity due to movie releases and have subsequently resulted in increased trade sales . the second part of the hobbit trilogy was released in december 2013 and the third part is scheduled to be released in july 2014. we employ several pricing models to serve various customer segments , including institutions , consumers , other government agencies ( e.g . , penal institutions , community centers , etc . ) and other third parties . in addition to traditional pricing models where a customer receives a product in return for a payment at the time of product receipt , we currently use the following pricing models : pay-up-front : customer makes a fixed payment at time of purchase and we provide a specific product/service in return ; pre-pay subscription : customer makes a one-time payment at time of purchase , but receives a stream of goods/services over a defined time horizon ; for example , we currently provide customers the option to purchase a multi-year subscription to textbooks where for a one-time charge , a new copy of the textbook is delivered to the customer each year for a defined time period . pre-pay subscriptions to online textbooks are another example where the customer receives access to an online book for a specific period of time ; and pay-as-you-go subscription : similar to the pre-pay subscription , except that the customer makes periodic payments in a pre-described manner . cost of sales , excluding pre-publication and publishing rights cost of sales , excluding pre-publication and publishing rights , include expenses directly attributable to the production of our products and services , including the non-capitalizable costs associated with our content operations department . the expenses within cost of sales include variable costs such as paper , printing and binding costs of our print materials , royalty expenses paid to our authors , gratis costs or products provided at no charge as part of the sales transaction , and inventory obsolescence . also included in cost of sales are labor costs related to professional services and the non-capitalized costs associated with our content operations department . we also include amortization expense associated with our software platforms . certain products such as trade books and those products associated with our renowned authors carry higher royalty costs ; conversely , digital offerings usually have a lower cost of sales due to lower costs associated with their production . also , sales to adoption states usually contain higher gratis expense . a change in the sales mix of these products can impact consolidated profitability . as a percentage of net sales , cost of sales , excluding pre-publication amortization and publishing rights amortization , has remained relatively constant over the past several years , which is due to the largely variable nature of these costs . however , we expect cost of sales , excluding pre-publication and publishing rights , and our gross margins to be favorably impacted by increased digital sales as a percentage of overall net sales , which do not have any paper , printing and binding costs and are not impacted by inventory obsolescence . pre-publication amortization and publishing rights amortization a publishing right is an acquired right which allows us to publish and republish existing and future works as well as create new works based on previously published materials . as part of our march 9 , 2010 restructuring , we recorded an intangible asset for publishing rights and amortize such asset on an accelerated basis over the useful lives of the various copyrights involved . see note 1 to our consolidated financial statements included elsewhere in this annual report . our publishing rights amortization is expected to decline from the 2013 amount of $ 139.6 million , to approximately $ 105.6 million , $ 81.0 million and $ 61.4 million in 2014 , 2015 and 2016 , respectively . 34 we capitalize the art , prepress , manuscript and other costs incurred in the creation of the master copy of a book or other media , known as the pre-publication costs . pre-publication costs are primarily amortized from the year of sale over five years using the sum-of-the-years-digits method , which is an accelerated method for calculating an asset 's amortization . under this method , the amortization expense recorded for a pre-publication cost asset is approximately 33 % ( year 1 ) , 27 % ( year 2 ) , 20 % ( year 3 ) , 13 % ( year 4 ) and 7 % ( year 5 ) . we utilize this policy for all pre-publication costs , except with respect to our trade publishing consumer books , for which we generally expense such costs as incurred , and our assessment products , for which we use the straight-line amortization method . the amortization methods and periods chosen best reflect the pattern of expected sales generated from individual titles or programs . we periodically evaluate the remaining lives and recoverability of capitalized pre-publication costs , which are often dependent upon program acceptance by state adoption authorities . selling and administrative expenses our selling and administrative expenses include the salaries , benefits and related costs of employees engaged in sales and marketing , fulfillment and administrative functions . also included within selling and administrative costs are variable costs such as commission expense , outbound transportation costs , sampling and depository fees , which are fees paid to state mandated depositories which fulfill centralized ordering and warehousing functions for specific states . additionally , significant fixed and discretionary costs include facilities , telecommunications , professional fees , promotions and advertising . we have reduced our selling and administrative expenses from 2011 , largely through workforce reductions , facility closures and cost containment and efficiency measures .
| segment operating results results of operationscomparing years ended december 31 , 2013 and 2012 and 2011 education replace_table_token_8_th nm = not meaningful our education segment net sales for the year ended december 31 , 2013 increased $ 79.3 million , or 7.0 % , from $ 1,128.6 million for the same period in 2012 , to $ 1,207.9 million . the increase was largely driven by $ 34.0 million of increased adoptions sales , primarily in florida and tennessee , due to new adoptions that did not exist in the prior year , together with $ 12.0 million of increased sales in the open territory market driven by a large sale to the new york city school district of our go math ! product . also benefitting sales for the year ended december 31 , 2013 was an incremental $ 37.0 million of sales of intervention and professional development products a long with $ 12.0 million of higher international , professional services and assessment sales . additionally , we were able to increase sales in the private , parochial and charter school channel through an agreement with a reseller . the private , parochial and charter school channel incremental sales along with the sale of consumable backlist products sold to both other resellers and directly to customers resulted in an increase of $ 16.0 million in 2013 as compared to 2012. we expect our 2014 sales in the private parochial and charter school channel to be significantly lower from 2013 levels . however , we believe the increase in the adoption market will entirely offset the decrease in the private , parochial , and charter school channel .
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overview we are a fully integrated biopharmaceutical company that discovers , invents , develops , manufactures , and commercializes medicines for the treatment of serious medical conditions . we commercialize medicines for eye diseases , high ldl cholesterol , and a rare inflammatory condition and have product candidates in development in other areas of high unmet medical need , including oncology , ra , asthma , atopic dermatitis , pain , and infectious diseases . as described in part i , item 1 . `` business - general , '' and `` business - marketed products , '' we currently have three marketed products : eylea ( aflibercept ) injection , praluent ( alirocumab ) injection , and arcalyst ( rilonacept ) injection for subcutaneous use . we also have 13 product candidates in clinical development , all of which were discovered in our research laboratories . these consist of a trap-based clinical program and 12 fully human monoclonal antibody product candidates , as summarized in part i , item 1 . `` business - general . '' the planning , execution , and results of our clinical programs are significant factors that can affect our operating and financial results . in our clinical programs , key events in 2015 and 2016 to date were , and plans for the remainder of 2016 are , as follows : trap-based clinical program : 2015 and 2016 events to date 2016 plans eylea bayer healthcare received regulatory approval for eylea in certain countries for the treatment of patients with wet amd , macular edema secondary to crvo , and dme , and continued to pursue regulatory applications for marketing approval in additional countries bayer healthcare to file for additional regulatory approvals outside the united states for various indications regulatory agency decisions on applications outside the united states for various indications european commission and japanese mhlw approved eylea for the treatment of macular edema secondary to brvo initiate phase 3 study for the treatment of diabetic retinopathy in patients without dme fda approved eylea for the treatment of diabetic retinopathy in patients with dme initiated phase 3 trial for nvg in japan european commission approved eylea for the treatment of mcnv 60 antibody-based clinical programs : 2015 and 2016 events to date 2016 plans praluent ( pcsk9 antibody ) bla accepted for priority review in the united states report additional results from phase 3 odyssey trials regulatory application accepted for review by the ema file for additional regulatory approvals outside the united states reported positive results from odyssey choice i and choice ii trials regulatory agency and reimbursement authority decisions on applications outside the united states odyssey long term 18-month trial results published in the new england journal of medicine prespecified early-stopping interim analyses by idmc of odyssey outcomes trial reported positive results from odyssey japan trial submit supplemental bla for monthly dosing regimen fda approved praluent for the treatment of adults with heterozygous familial hypercholesterolemia or clinical ascvd , who require additional lowering of ldl cholesterol european commission granted marketing authorization for praluent for the treatment of ldl cholesterol in certain adult patients with hypercholesterolemia completed patient enrollment in phase 3 odyssey outcomes trial sarilumab ( il-6r antibody ) initiated and completed patient enrollment in phase 3 saril-ra-monarch study ( head-to-head monotherapy study against adalimumab ) continue patient enrollment in phase 3 saril-ra program report results from phase 3 saril-ra-monarch trial initiated several studies in japan regulatory agency decision on application for u.s. approval reported positive results from saril-ra-target , saril-ra-easy , and saril-ra-ascertain trials file for regulatory approvals outside the united states completed patient enrollment in saril-niu-saturn phase 2 study in non-infectious uveitis and reported top-line results bla accepted for review in the united states dupilumab ( il-4r antibody ) initiated phase 2 study in eoe continue patient enrollment in various phase 2 and phase 3 studies initiated and completed enrollment for phase 2 study in atopic dermatitis in pediatric patients complete patient enrollment in phase 2 eoe and phase 3 asthma studies initiated phase 3 study in asthma report results from phase 3 atopic dermatitis pivotal trials presented positive pivotal phase 2b data in asthma at the american thoracic society 2015 international conference complete rolling bla submission for atopic dermatitis in the united states completed patient enrollment in phase 3 atopic dermatitis pivotal trials initiate efficacy and safety studies in pediatric patients in both atopic dermatitis and asthma fda granted breakthrough therapy designation to dupilumab in atopic dermatitis uk mhra granted pim designation to dupilumab in atopic dermatitis 61 antibody-based clinical programs ( continued ) : 2015 and 2016 events to date 2016 plans regn2222 ( rsv-f antibody ) completed phase 1 study continue patient enrollment in phase 3 nursery pre-term study initiated phase 3 nursery pre-term study received fast track designation from the fda for the prevention of serious lower respiratory tract disease caused by rsv fasinumab ( ngf antibody ) initiated sixteen-week phase 2b/3 study in osteoarthritis report results from phase 2b/3 study in osteoarthritis completed patient enrollment in a phase 2b/3 study in osteoarthritis initiate longer duration phase 3 trial evinacumab ( angptl-3 antibody ) initiated phase 2 study complete patient enrollment in phase 1 and phase 2 studies partial clinical hold lifted by the fda regn1033 ( gdf8 antibody ) phase 2 proof-of-concept study in elderly men and women with sarcopenia met its primary endpoint , while secondary , functional endpoints were mixed . story_separator_special_tag the terms of these agreements typically include that consideration be provided to us in the form of non-refundable up-front payments , research progress ( milestone ) payments , payments for development and commercialization activities , and sharing of profits or losses arising from the commercialization of products . in arrangements involving multiple deliverables , we must determine whether each deliverable qualifies as a separate unit of accounting , whether the deliverables have value to the collaborator on a standalone basis , and how the consideration should be allocated to each separate unit of accounting based on the relative selling price of each deliverable . payments which are based on achieving a specific substantive performance milestone , involving a degree of risk , are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable , provided there is no future service obligation associated with that milestone . in determining whether a payment is deemed to be a substantive performance milestone , we take into consideration ( i ) the enhancement in value to the related development product candidate , ( ii ) our performance and the relative level of effort required to achieve the milestone , ( iii ) whether the milestone relates solely to past performance , and ( iv ) whether the milestone payment is considered reasonable relative to all of the deliverables and payment terms . payments for achieving milestones which are not considered substantive are deferred and recognized over the related performance period . in connection with non-refundable licensing payments , our performance period estimates are principally based on projections of the scope , progress , and results of our research and development activities . due to the variability in the scope of activities and length of time necessary to develop a drug product , changes to development plans as programs progress , and uncertainty in the ultimate requirements to obtain governmental approval for commercialization , revisions to performance period estimates are likely to occur periodically , and could result in material changes to the amount of revenue recognized each year in the future . in addition , our estimated performance periods may change if development programs encounter delays , or we and our collaborators decide to expand or contract our clinical plans for a drug candidate in various disease indications . when we are entitled to reimbursement of all or a portion of the research and development expenses that we incur under a collaboration , we record those reimbursable amounts as collaboration revenue proportionately as we recognize our expenses . if the collaboration is a cost-sharing arrangement in which both we and our collaborator perform development work and share costs , we also recognize , as additional research and development expense in the period when our collaborator incurs development expenses , the portion of the collaborator 's development expenses that we are obligated to reimburse . under our collaboration agreements , product sales and cost of sales for products which are currently approved are recorded by our collaborators . we share in any profits or losses arising from the commercialization of such products . our collaborator provides us with our estimated share of the profits or losses from commercialization of such products for the most recent fiscal quarter . our collaborators ' estimates of profits or losses for such quarter are reconciled to actual profits or losses in the subsequent fiscal quarter , and our share of the profit or loss is adjusted accordingly , as necessary . 64 clinical trial expenses clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors . we outsource a substantial portion of our clinical trial activities , utilizing external entities such as cros , independent clinical investigators , and other third-party service providers to assist us with the execution of our clinical studies . for each clinical trial that we conduct , certain clinical trial costs are expensed immediately , while others are expensed over time based on the expected total number of patients in the trial , the rate at which patients enter the trial , and or the period over which clinical investigators or cros are expected to provide services . clinical activities which relate principally to clinical sites and other administrative functions to manage our clinical trials are performed primarily by cros . cros typically perform most of the start-up activities for our trials , including document preparation , site identification , screening and preparation , pre-study visits , training , and program management . on a budgeted basis , these start-up costs are typically 10 % to 20 % of the total contract value . on an actual basis , this percentage range can be significantly wider , as many of our contracts with cros are either expanded or reduced in scope compared to the original budget , while start-up costs for the particular trial may not change materially . these start-up costs usually occur within a few months after the contract has been executed and are event driven in nature . the remaining activities and related costs , such as patient monitoring and administration , generally occur ratably throughout the life of the individual contract or study . in the event of early termination of a clinical trial , we accrue and recognize expenses in an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial and or penalties . for clinical study sites , where payments are made periodically on a per-patient basis to the institutions performing the clinical study , we accrue expenses on an estimated cost-per-patient basis , based on subject enrollment and activity in each quarter .
| results of operations the results of operations discussion below reflects certain revisions to previously-issued financial statements . see note 1 of the notes to consolidated financial statements for a description of such revisions . years ended december 31 , 2015 and 2014 net income net income in 2015 and 2014 consists of the following : replace_table_token_5_th revenues revenues in 2015 and 2014 consist of the following : replace_table_token_6_th net product sales net product sales consist of u.s. sales of eylea and arcalyst . we received marketing approval from the fda for eylea for the treatment of wet amd in 2011 , macular edema following crvo in 2012 , dme in july 2014 , macular edema following brvo in october 2014 , and diabetic retinopathy in patients with dme in march 2015. in 2015 , eylea net product sales increased to $ 2,676.0 million from $ 1,736.4 million in 2014 due to higher sales volume . in 2015 and 2014 , we also recognized arcalyst net product sales of $ 13.5 million and $ 14.4 million , respectively . sanofi collaboration revenue the collaboration revenue we earned from sanofi , as detailed below , primarily consisted of reimbursement for research and development and commercialization expenses that we incurred , partly offset by sharing of losses in connection with commercialization of antibodies , under the companies ' antibody collaboration . 67 replace_table_token_7_th in 2015 , sanofi 's reimbursement of our antibody research and development expenses consisted of $ 145.0 million under our antibody discovery agreement and $ 590.4 million under our license and collaboration agreement , compared to $ 160.0 million and $ 387.8 million , respectively , in 2014 . under the amended antibody discovery agreement , sanofi agreed to fund our antibody discovery activities up to $ 145.0 million in 2015 and up to $ 160.0 million in 2014. the higher reimbursement of development costs in 2015 compared to 2014 was primarily due to increased development activities for dupilumab .
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the company believes its focus on these strategic products and markets will help to mitigate the impact of the current recessionary environment . in the aggregate , these products declined 6 % on a same-store sales basis in the current quarter compared to the prior year quarter . growth in medical was offset by slight declines in bulk and specialty gas and by more significant slowing in carbon dioxide and safety products . the company estimates same-store sales growth based on a comparison of current period sales to prior period sales , adjusted for acquisitions and divestitures . the pro forma adjustments consist of adding acquired sales to , or subtracting sales of divested operations from , sales reported in the prior period . the table below reflects actual sales and does not include the pro forma adjustments used in calculating the same-store sales metric . the intercompany eliminations represent sales from the all other operations business segment to the distribution business segment . replace_table_token_4_th the distribution business segment 's principal products include industrial , medical and specialty gases , and process chemicals ; cylinder and equipment rental ; and hardgoods . industrial , medical and specialty gases are distributed in cylinders and bulk containers . equipment rental fees are generally charged on cylinders , cryogenic liquid containers , bulk and micro-bulk tanks , tube trailers and welding equipment . hardgoods consist of welding consumables and equipment , safety products , construction supplies , and maintenance , repair and operating ( mro ) supplies . distribution business segment sales declined 10 % compared to the prior year quarter with incremental sales of 2 % contributed by current and prior year acquisitions partially offsetting a decline in same-store sales of 12 % . the distribution same-store sales results reflect gas and rent same-store sales decline of 6 % and a hardgoods same-store sales decline of 20 % . the same-store sales decline reflects volume declines in both gases and hardgoods , partially offset by results of pricing actions executed during the second fiscal quarter and prior year . both gas and rent and hardgoods volumes were negatively impacted by the slowdown in sales activity related to customers ' extended plant shutdowns and inventory reductions . 22 distribution gas and rent same-store sales declined 6 % reflecting volume declines of 10 % partially offset by a positive 4 % pricing impact . sales of strategic gas products sold through the distribution business segment in the current quarter declined 1 % . among strategic products , bulk gas sales were down 2 % due to the impact of production slowdowns in the metal fabrication and steel segments , and reduced activity by oil field supply customers . medical gases were up 2 % as hospital , specialty clinics and nursing homes segments continue to grow , while the homecare segment was more of a challenge . specialty gases were down 1 % as plant shutdowns caused general softening in demand . sales of core industrial gases , which experienced the sharpest volume declines , were down 13 % for the quarter . revenues from the company 's rental welder business were flat for the quarter with acquisition growth of 16 % , offset by a 16 % decline in same-store sales . distribution hardgoods same-store sales declined 20 % with volumes down 23 % , slightly offset by pricing gains . the most significant volume declines were in equipment and welding consumables . safety product sales declined 14 % in the quarter , attributed to extended plant shutdowns during the quarter and inventory reductions . our radnor ® private label line was down 9 % for the quarter , driven by the overall drop in hardgoods volumes . the all other operations business segment consists of six business units . the primary products manufactured and distributed are carbon dioxide , dry ice , nitrous oxide , ammonia and refrigerant gases . the all other operations business segment sales increased 8 % compared to the prior year quarter with a 17 % decline in same-store sales offset by acquisitions . overall , price contributed 3 % , while volume declined by 20 % , driven largely by the delay in normal pre-season buying patterns for refrigerants . gross profits ( excluding depreciation ) gross profits ( excluding depreciation ) do not reflect deductions related to depreciation expense and distribution costs . as disclosed in note 1 to the company 's consolidated financial statements under item 8 , financial statement and supplementary data , the company reflects distribution costs as an element of selling , distribution and administrative expenses and recognizes depreciation on all its property , plant and equipment in the consolidated statement of earnings line item , depreciation. other companies may report certain or all of these costs as elements of their cost of products sold and , as such , the company 's gross profits ( excluding depreciation ) discussed below may not be comparable to those of other businesses . consolidated gross profits ( excluding depreciation ) decreased 3 % principally due to a same-store sales decline offset somewhat by acquisition growth . the consolidated gross profit margin ( excluding depreciation ) in the current quarter increased 310 basis points to 54.9 % compared to 51.8 % in the prior year quarter . the increase in the gross profit margin ( excluding depreciation ) was primarily driven by margin expansion in the distribution business segment resulting from a favorable product mix shift toward gases , which have a higher gross margin than hardgoods , and price increases . replace_table_token_5_th 23 the distribution business segment 's gross profits ( excluding depreciation ) decreased 4 % compared to the prior year quarter . the distribution business segment 's gross profit margin ( excluding depreciation ) was 55.7 % versus 52.4 % in the prior year quarter , an increase of 330 basis points . story_separator_special_tag replace_table_token_7_th distribution business segment sales increased 6 % compared to the prior year driven by sales contributed by both current and prior year acquisitions of $ 234 million ( 6 % ) and flat same-store sales growth . flat same-store sales reflects growth in gas and rent same-store sales of $ 66 million ( 3 % ) , offset by lower hardgoods sales of $ 70 million ( -4 % ) . same-store sales growth from gas and rent reflect strong strategic product growth which mitigated same-store sales declines in the company 's industrial gas and welding hardgoods business . the same-store sales declines in the company 's industrial gas and welding hardgoods business reflects the impact of the economic downturn on manufacturing and the steep decline in demand for equipment and welding consumables experienced in the second half of the fiscal year . 25 the distribution business segment 's gas and rent same-store sales growth of 3 % reflects both price increases of 4 % and a decline in volume of 1 % . sales of strategic gas products sold through the distribution business segment increased 8 % driven by bulk , medical , and specialty gas sales gains . bulk gas sales were up 10 % reflecting both price and volume increases . volume growth benefited from new production capabilities and the company 's ability to engineer solutions for customer applications , leading to an increase in new bulk accounts during the year . medical gas sales grew 7 % attributable to continued success with the hospital , physician , and dental care markets . these markets continue to perform well and have good future growth prospects . strong specialty gas sales growth of 8 % was driven by demand from key customers in bio-tech , life sciences , research , and environmental monitoring markets . sales of core industrial gases were down 1 % . revenues from the company 's rental welder business contributed growth of 21 % with acquisition growth of 22 % , offset by a 1 % decline in same-store sales . the decline in hardgoods same-store sales of 4 % reflects a combination of price gains and volume declines , with pricing adding about 3 % , offset by a 7 % volume decline . the company 's successful radnor ® private label brand of products generated sales growth of 21 % in the current year , reaching a total of $ 192 million . sales of safety products increased 1 % resulting from the success of the telemarketing operations ( telesales ) and effective cross-selling of safety products to new and existing customers helping to mitigate the significant decline in fourth quarter sales related to the economic downturn . fiscal 2009 sales of the all other operations business segment increased $ 114 million ( 33 % ) compared to the prior year resulting from acquisitions and same-store sales growth . acquisitions contributed 23 % to the segment 's sales growth , which was primarily driven by $ 55 million in sales contributed by refron , now a part of airgas refrigerants , which was acquired on july 31 , 2008. same-store sales growth of 10 % was driven by sales gains of anhydrous ammonia , and carbon dioxide products . gross profits ( excluding depreciation ) gross profits ( excluding depreciation ) increased 10 % principally from acquisitions and gas and rent sales growth . the consolidated gross margin ( excluding depreciation ) in the current year increased 100 basis points to 53 % compared to 52 % in the prior year , with the increase driven primarily by a favorable shift in product mix towards higher-margin gas and rent as well as the impact of pricing . replace_table_token_8_th the distribution business segment 's gross profits ( excluding depreciation ) increased 10 % compared to the prior year . the distribution business segment 's gross profit margin ( excluding depreciation ) was 53.7 % versus 52.0 % in the prior year . the 170 basis point increase in the gross profit margin ( excluding depreciation ) reflected the favorable shift in product mix toward gas and rent as well as the impact of price increases . gas and rent as a percentage of the distribution business segment 's sales was 57.2 % in the current year as compared to 55.5 % in the prior year . the all other operations business segment 's gross profits ( excluding depreciation ) increased 18 % primarily from strong growth of anhydrous ammonia , refrigerant , and carbon dioxide products . the segment 's gross margin decreased 560 basis points to 43.6 % versus 49.2 % in the prior year driven by additional refrigerants , which have lower gross profit margins ( excluding depreciation ) than the other businesses in the all other operations business segment . 26 operating expenses as a percentage of net sales , sd & a expense increased 40 basis points to 35.8 % compared to 35.4 % in the prior year reflecting the impact of the deteriorating business climate in the second half of fiscal 2009. sd & a expenses increased $ 137 million ( 10 % ) primarily from operating costs of acquired businesses . acquisitions contributed estimated incremental sd & a expenses of approximately $ 105 million in the current year . the increase in sd & a expense attributable to factors other than acquisitions was approximately $ 32 million , or an increase of 2 % , primarily due to salaries and wages and distribution-related expenses primarily related to the higher sales levels in the first half of fiscal 2009. depreciation expense of $ 198 million increased $ 22 million ( 13 % ) compared to the prior year . acquired businesses added approximately $ 10 million to depreciation expense .
| overview airgas , inc. and its subsidiaries ( airgas or the company ) had net sales for the fiscal year ended march 31 , 2009 ( fiscal 2009 or current year ) of $ 4.3 billion compared to $ 4.0 billion for the fiscal year ended march 31 , 2008 ( fiscal 2008 or prior year ) . the fiscal 2009 net sales reflect a weak sales environment in the fiscal fourth quarter ended march 31 , 2009. fourth quarter sales were $ 1.0 billion compared to $ 1.1 billion in the prior year , a decline of 9 % . total same-store sales in the fourth quarter declined 13 % , with hardgoods sales down 20 % and gas and rent down 8 % . acquisitions contributed 4 % sales growth in the quarter . due to the current year 's weak fourth quarter sales environment , management has provided a separate discussion on fourth quarter fiscal 2009 versus fourth quarter fiscal 2008 below . for fiscal 2009 , net sales increased by 8 % driven by the impact of current and prior year acquisitions and same-store sales growth . acquisitions accounted for 7 % of the overall sales growth . same-store sales growth contributed 1 % to the increase in total sales , driven by a 4 % increase in pricing , offset by a 3 % decrease in sales volumes . price increases were designed to offset rising product , operating and distribution costs . lower sales volumes reflect the effects of the slowing economy and the decreased demand experienced in the second half of the fiscal year across all customer and geographic segments . the company 's strategic products and related growth initiatives mitigated the impact of the economic slow down . operating leverage and the benefit of acquisition synergies resulted in a 30 basis point expansion in the operating income margin to 12.1 % in fiscal 2009 compared to 11.8 % in the prior year .
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” you should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this annual report on form 10‑k . we provide a broad range of products and services to the oil and gas industry through our well site services , downhole technologies and offshore/manufactured products business segments . demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry , particularly our customers ' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves . our customers ' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices , economic growth , commodity demand and estimates of resource production . as a result , demand for our products and services is largely sensitive to future expectations with respect to crude oil and natural gas prices . our consolidated results of operations for 2018 include contributions from the geodynamics and falcon acquisitions completed in the first quarter of 2018 and reflect the impact of current industry trends and customer spending activities which are directed toward growth in the u.s. shale play regions with a general slowing of investments in deepwater markets globally since the start of a prolonged industry downturn in 2014. recent developments in addition to capital spending , we have invested in acquisitions of businesses complementary to our growth strategy . our acquisition strategy has allowed us to leverage our existing and acquired products and services into new geographic locations and has expanded the breadth of our technology and product offerings while allowing us to leverage our cost structure . we have made strategic and complementary acquisitions in each of our business segments in recent years . on december 12 , 2017 we entered into an agreement to acquire geodynamics , inc. ( `` geodynamics '' ) , which provides oil and gas perforation systems and downhole tools in support of completion , intervention , wireline and well abandonment operations . on january 12 , 2018 , we closed the acquisition of geodynamics for total consideration of approximately $ 615 million ( the `` geodynamics acquisition '' ) , consisting of ( i ) $ 295 million in cash ( net of cash acquired ) , ( ii ) approximately 8.66 million shares of our common stock and ( iii ) an unsecured $ 25 million promissory note . in connection with the geodynamics acquisition , we completed several financing transactions to extend the maturity of our debt while providing us with the flexibility to repay outstanding borrowings under our revolving credit facility with anticipated future cash flows from operations . on january 30 , 2018 , we sold $ 200.0 million aggregate principal amount of our 1.50 % convertible senior notes due february 2023 ( the `` notes '' ) through a private placement to qualified institutional buyers . we received net proceeds from the offering of the notes of approximately $ 194 million , after deducting issuance costs . we used the net proceeds from the sale of the notes to repay a portion of the borrowings outstanding under our revolving credit facility ( the `` revolving credit facility '' ) , substantially all of which were drawn to fund the cash portion of the purchase price paid for geodynamics . concurrently with the notes offering , we amended our revolving credit facility ( the `` amended revolving credit facility '' ) , to extend the maturity date to january 30 , 2022 , permit the issuance of the notes and provide for up to $ 350 million in borrowing capacity . on february 28 , 2018 , we acquired falcon flowback services , llc ( `` falcon '' ) , a full service provider of flowback and well testing services for the separation and recovery of fluids , solid debris and proppant used during hydraulic fracturing operations . falcon provides additional scale and diversity to our completion services business in key shale plays in the united states . the acquisition price was $ 84.2 million ( net of cash acquired ) , subject to customary post-closing purchase price adjustments . the falcon acquisition was funded with borrowings under our amended revolving credit facility . see note 5 , `` business acquisitions '' and note 7 , `` long-term debt '' to the consolidated financial statements included in this annual report on form 10-k for further discussion of these recent developments . - 33 - macroeconomic environment the macroeconomic environment for the energy sector has been volatile in recent years . significant downward crude oil price volatility began early in the fourth quarter of 2014 and continued on a downward trend into 2016. in response to weak crude oil prices , the organization of petroleum exporting countries ( `` opec '' ) , along with russia , agreed to reduce crude oil production in late 2016 in an effort to re-balance crude oil supply and demand in the market . crude oil prices began to improve in the second half of 2017 , which carried into 2018. during 2018 , crude oil prices rose to their highest levels since the downturn began in late 2014 , improving our customers ' cash flow and potentially driving them to invest additional capital to increase their production . additionally , advancements in technologies and improved operating efficiencies have allowed the u.s. exploration and production industry to lower the breakeven price of oil and gas production . the u.s. energy information administration ( `` eia '' ) estimates that u.s. crude oil production averaged 10.9 million barrels per day in 2018 , up approximately 17 % from the 2017 average , reaching its highest level and experiencing the largest volume growth on record . story_separator_special_tag - 35 - overview our well site services segment provides completion services and , to a lesser extent , land drilling services in the united states ( including the gulf of mexico ) , canada and the rest of the world . u.s. drilling and completion activity and , in turn , our well site services results , are sensitive to near-term fluctuations in commodity prices , particularly wti crude oil prices , given the short-term , call-out nature of its operations . within this segment , our completion services business ( which includes the falcon operations we acquired in february 2018 ) supplies equipment and service personnel utilized in the completion and initial production of new and recompleted wells . activity for the completion services business is dependent primarily upon the level and complexity of drilling , completion , and workover activity in the areas of operations mentioned above . well intensity and complexity has increased with the continuing transition to multi-well pads , the drilling of longer lateral wells and increased downhole pressures , along with the increased number of frac stages completed in horizontal wells . similarly , demand for our drilling services operations is driven by activity in our primary land drilling markets of the permian basin in west texas , where we drill oil wells , and the u.s. rocky mountain area , where we drill both liquids-rich and natural gas wells . our downhole technologies segment is comprised of the geodynamics business we acquired in january 2018. geodynamics was founded in 2004 as a researcher , developer and manufacturer of consumable engineered products used in completion applications . this segment provides oil and gas perforation systems , downhole tools and services in support of completion , intervention , wireline and well abandonment operations . this segment designs , manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies . product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools . this expertise has led to the optimization of perforation hole size , depth , and quality of tunnels , which are key factors for maximizing the effectiveness of hydraulic fracturing . additional offerings include proprietary toe valve and frac plug products , which are focused on zonal isolation for hydraulic fracturing of horizontal wells , and a broad range of consumable products , such as setting tools and bridge plugs , that are used in completion , intervention and decommissioning applications . demand drivers for the downhole technologies segment include continued trends toward longer lateral lengths , increased frac stages and more perforation clusters to target increased unconventional well productivity . demand for our well site services and downhole technologies segments ' businesses is correlated to changes in the total number of wells drilled in north america , total footage drilled , the number of drilled wells that are completed and , to a lesser degree , changes in the drilling rig count . the following table sets forth a summary of the average north american drilling rig count , as measured by baker hughes , for the periods indicated . replace_table_token_6_th over recent years , our industry experienced increased customer spending in crude oil and liquids-rich exploration and development in the north american shale plays utilizing horizontal drilling and completion techniques . as of december 31 , 2018 , oil-directed drilling accounted for 82 % of the total u.s. rig count – with the balance largely natural gas related . the average north american rig count in 2018 increased 141 rigs , or 13 % , from the level reported in 2017 , in response to the increase in crude oil prices during the first nine months of 2018. exacerbating the steep declines in drilling activity experienced in 2015 and 2016 , many of our exploration and production customers deferred well completions . these deferred completions are referred to in the industry as drilled but uncompleted wells ( or `` ducs '' ) . given our well site services and downhole technologies segments ' exposure to the level of completion activity , an increase in the number of ducs will have a short-term negative impact on our results of operations relative to the rig count trends but over the longer-term should have a positive impact on the segments ' results as the wells are completed . our offshore/manufactured products segment provides technology-driven , highly-engineered products and services for offshore oil and natural gas production systems and facilities , as well as certain products and services to the offshore and land-based drilling and completion markets . approximately 60 % of offshore/manufactured products sales in 2016 were driven by our customers ' capital spending for offshore production systems and subsea pipelines , repairs and , to a lesser extent , upgrades of existing offshore drilling - 36 - rigs and construction of new offshore drilling rigs and vessels ( referred to herein as `` project-driven products '' ) . during 2018 , these activities only represent approximately 31 % of the segment 's revenue . this segment is particularly influenced by global deepwater drilling and production spending , which are driven largely by our customers ' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices . deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans . such projects are generally undertaken by larger exploration , field development and production companies ( primarily international oil companies ( `` iocs '' ) and state-run national oil companies ( `` nocs '' ) ) using relatively conservative crude oil and natural gas pricing assumptions . given the longer lead times associated with field development , we believe some of these deepwater projects , once approved for development , are therefore less susceptible to short-term fluctuations in the price of crude oil and natural gas .
| consolidated results of operations we manage and measure our business performance in three operating segments : well site services , downhole technologies and offshore/manufactured products . selected financial information by business segment for the years ended december 31 , 2018 , 2017 and 2016 is summarized as follows ( dollars in thousands ) : replace_table_token_8_th replace_table_token_9_th ( 1 ) operating margin is defined as operating income ( loss ) divided by revenues . - 38 - year ended december 31 , 2018 compared to year ended december 31 , 2017 net loss for the year ended december 31 , 2018 was $ 19.1 million , or $ ( 0.33 ) per diluted share , which included $ 8.4 million ( $ 6.6 million after-tax , or $ 0.11 per diluted share ) of charges related to legal fees incurred for patent defense and $ 3.0 million in reserves ( $ 2.4 million after-tax , or $ 0.04 per diluted share ) for prior years ' fair labor standards act ( `` flsa '' ) claim settlements , $ 3.3 million ( $ 2.6 million after-tax , or $ 0.04 per diluted share ) of transaction-related expenses and $ 1.6 million ( $ 1.3 million after-tax , or $ 0.02 per diluted share ) of severance and other downsizing changes . additionally , during the year ended december 31 , 2018 the company recognized a $ 5.8 million ( $ 0.10 per diluted share ) income tax benefit related to a change in its december 2017 provisional estimates with respect to u.s. tax reform legislation .
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unit amounts used in the computation of basic and diluted net income per unit were as follows : replace_table_token_27_th 13. members ' equity accumulated other comprehensive loss the following table presents changes in accumulated other comprehensive loss by component : replace_table_token_28_th ( a ) these amounts are components of net periodic pension cost ( income ) , and prior to the employee transfer on march 1 , 2016 , nustar energy reimbursed us for these employee costs . ( b ) represents the balance of accumulated other comprehensive loss related to the unrecognized components of net periodic benefit cost ( income ) , net of income taxes of $ 2.4 million , that was transferred to nustar services co in connection with the employee transfer as described in notes 5 and 14 . 57 nustar gp holdings , llc notes to consolidated financial statements – ( continued ) cash distributions our limited liability company agreement requires that , within 50 days after the end of each quarter , we distribute all of our available cash to the holders of record of our units on the applicable record date . available cash is defined generally as all cash on hand at the end of any calendar quarter , less the amount of cash reserves necessary or appropriate , as determined in good faith by our board of directors . the following table summarizes our cash distributions applicable to the period in which the distributions were earned : replace_table_token_29_th the following table summarizes information related to our quarterly cash distributions : replace_table_token_30_th ( a ) the distribution was announced on january 27 , 2017 . rights agreement on july 19 , 2006 , we entered into a rights agreement , as amended ( the rights agreement ) , under which one preferred unit purchase right ( a right ) was attached to each of our outstanding units . the rights became exercisable under specified circumstances , including if any person or group ( an acquiring person ) became the beneficial owner of 15 % or more of our outstanding units , subject to specified exceptions . the rights agreement and the rights expired on june 30 , 2016 . 14. employee benefit plans pension and other postretirement benefits on march 1 , 2016 and in conjunction with the employee transfer , we transferred to nustar services co $ 32.7 million in benefit obligations associated with pension and other postretirement benefit plans . as a result of the employee transfer , our consolidated balance sheet as of december 31 , 2016 no longer reflects these liabilities , which were primarily reported in “ long-term liabilities ” on our consolidated balance sheet as of december 31 , 2015. additionally , we transferred an accumulated other comprehensive income balance related to the unrecognized components of net periodic benefit cost ( income ) of $ 4.2 million . prior to the employee transfer , nustar energy reimbursed nustar gp , llc for expenses incurred under these plans . effective march 1 , 2016 , nustar services co pays employee costs directly and assumed sponsorship and responsibility for the employee related benefit plans discussed below . as such , the information in the tables and discussion below is for the years ended december 31 , 2015 and 2014 , as applicable . thrift plans the nustar thrift plan ( the thrift plan ) is a qualified defined contribution plan that became effective june 26 , 2006. participation in the thrift plan is voluntary and is open to eligible employees upon their date of hire . thrift plan participants can contribute from 1 % up to 30 % of their total annual compensation to the thrift plan in the form of pre-tax and or after tax employee contributions . nustar gp , llc made matching contributions in an amount equal to 100 % of each participant 's employee contributions up to a maximum of 6 % of the participant 's total annual compensation . our matching contributions to the thrift plan for the story_separator_special_tag the following review of our results of operations and financial condition should be read in conjunction with “ cautionary statement regarding forward-looking information , ” items 1. , 1a . and 2 . “ business , risk factors and properties , ” and item 8 . “ financial statements and supplementary data , ” included in this report . overview nustar gp holdings , llc ( nustar gp holdings ) ( nyse : nsh ) is a publicly traded delaware limited liability company . unless otherwise indicated , the terms “ nustar gp holdings , ” “ nsh , ” “ we , ” “ our ” and “ us ” are used in this report to refer to nustar gp holdings , llc , to one or more of our consolidated subsidiaries or to all of them taken as a whole . our management 's discussion and analysis of financial condition and results of operations is presented in seven sections : overview story_separator_special_tag common units in 2016. the gains represent the increase in the value of our proportionate share of nustar energy 's capital . for the year ended december 31 , 2015 , we recognized other expense of $ 2.3 million , due to losses of $ 2.3 million on the sale of nustar energy l.p. common limited partner units in connection with unit-based compensation plans we sponsored prior to the employee transfer . story_separator_special_tag we expect to fund our cash requirements primarily with the quarterly cash distributions we receive from nustar energy and , if necessary , borrowings under our revolving credit facility . cash distributions from nustar energy nustar energy distributes all of its available cash to its common limited partners and general partner within 45 days following the end of each quarter based on the partnership interests outstanding as of a record date that is set after the end of each quarter . available cash is generally defined as cash receipts less cash disbursements ( including distributions to holders of nustar energy 's preferred units , as defined and further discussed under the investment in nustar energy section below ) and cash reserves established by us , in our sole discretion . the following table reflects the cash distributions earned for the periods shown with respect to our ownership interests in nustar energy and our incentive distribution rights : replace_table_token_10_th cash flows for the years ended december 31 , 2016 , 2015 and 2014 for the years ended december 31 , 2016 , 2015 and 2014 , cash distributions received from nustar energy were used primarily to fund distributions to our unitholders . credit facility borrowings under our revolving credit facility are used to fund capital contributions to nustar energy to maintain our 2 % general partner interest when nustar energy issues additional common units and to meet other liquidity and capital resource requirements . our revolving credit facility dated june 28 , 2013 , as most recently amended on june 16 , 2016 , will mature on june 27 , 2017 and has a borrowing capacity of up to $ 50.0 million , of which up to $ 10.0 million may be available for letters of credit . our obligations under our revolving credit facility are guaranteed by riverwalk holdings , llc ( riverwalk ) , our wholly owned subsidiary . riverwalk pledged 2,107,918 nustar energy common units that it owns to secure its guarantee . as of december 31 , 2016 , we had outstanding borrowings of $ 30.0 million and availability of $ 20.0 million for borrowings under our revolving credit facility . interest on our revolving credit facility is based upon , at our option , either an alternative base rate or a libor-based rate . our management believes that we are in compliance with the covenants of the revolving credit facility as of december 31 , 2016 . we are in discussions with the lenders to renew or replace our revolving credit facility . please refer to note 10 of the notes to consolidated financial statements in item 8 . “ financial statements and supplementary data ” for a detailed discussion on our revolving credit facility . 36 investment in nustar energy preferred unit offering . in the fourth quarter of 2016 , nustar energy issued 9,060,000 of its 8.50 % series a fixed-to-floating rate cumulative redeemable perpetual preferred units ( the preferred units ) representing limited partner interests at a price of $ 25.00 per unit . nustar energy used the net proceeds of $ 218.4 million from this issuance for general partnership purposes , including the funding of capital expenditures and to repay outstanding borrowings under its revolving credit agreement . the preferred units rank senior to all of nustar energy 's other classes of equity securities , including our general partner and common limited partner interests , with respect to distribution rights and rights upon liquidation . distributions on the preferred units are payable out of any legally available funds , accrue and are cumulative from the date of original issuance of the preferred units and are payable quarterly . the holders of the preferred units are entitled to receive quarterly distributions at an initial distribution rate of 8.50 % per annum of the $ 25.00 liquidation preference per unit ( equal to $ 2.125 per unit per annum ) . on and after december 15 , 2021 , distributions on the preferred units accumulate at a percentage of the $ 25.00 liquidation preference equal to an annual floating rate of the three-month libor plus a spread of 6.766 % . common unit offering . in 2016 , nustar energy issued 595,050 common units representing limited partner interests at an average price of $ 47.39 per unit . nustar energy received net proceeds of $ 28.3 million , which includes our contribution of $ 0.6 million in order to maintain our 2.0 % general partner interest . this issuance resulted in a gain of $ 2.1 million for the year ended december 31 , 2016 , which is included in “ other income ( expense ) , net ” on our consolidated statements of comprehensive income , and represents the increase in the value of our proportionate share of nustar energy 's capital . other issuances of common units . in 2016 , we recorded a gain of $ 0.3 million as a result of nustar energy 's issuance of common units in association with its unit-based compensation awards . the gain is included in “ other income ( expense ) , net ” on our consolidated statements of comprehensive income , and represents the increase in the value of our proportionate share of nustar energy 's capital . cash distributions to unitholders our limited liability company agreement requires that , within 50 days after the end of each quarter , we distribute all of our available cash to the holders of record of our units on the applicable record date .
| results of operations trends and outlook liquidity and capital resources related party transactions critical accounting policies new accounting pronouncements our only cash generating assets are our ownership interests in nustar energy l.p. ( nustar energy ) , a publicly traded delaware limited partnership ( nyse : ns ) . as of december 31 , 2016 , we have an approximate 15 % ownership in nustar energy , consisting of the following : the general partner interest ; 100 % of the incentive distribution rights issued by nustar energy , which entitle us to receive increasing percentages of the cash distributed by nustar energy , currently at the maximum percentage of 23 % ; and 10,214,626 common units of nustar energy . we account for our ownership interest in nustar energy using the equity method . therefore , our financial results reflect a portion of nustar energy 's net income based on our ownership interest . we have no separate operating activities apart from those conducted by nustar energy and therefore generate no revenues from operations . nustar energy is engaged in the transportation of petroleum products and anhydrous ammonia , the terminalling and storage of petroleum products and the marketing of petroleum products . nustar energy has terminal and storage facilities in the united states , canada , mexico , the netherlands , including st. eustatius in the caribbean , and the united kingdom . nustar energy 's partnership agreement requires that it distribute all available cash to its common limited partners and general partner each quarter , and this term is defined in its partnership agreement generally as cash on hand at the end of the quarter , plus certain permitted borrowings made subsequent to the end of the quarter , less cash reserves determined by nustar energy 's board of directors .
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at december 31 , 2018 , 208,555 shares have been issued under the 2011 incentive plan , 1,614,558 shares are subject to currently outstanding options , deferred stock awards , and unvested restricted stock units , and 676,887 shares remained available for future issuance under the 2011 incentive plan . stock option plan for directors shares of common stock are reserved for issuance to non-employee directors under options granted by the company prior to 2011 under its stock option plan for non-employee directors ( the “ director plan ” ) . under the director plan nonqualified stock options to acquire 3,000 shares of common stock were automatically granted to each non-employee director concurrent with annual meetings of shareholders in 2010 and earlier years and vested immediately . the exercise price of options granted was the fair market value of the common stock on the date of the respective shareholder meetings . options granted under the director plan expire 10 years from date of grant . no options have been granted under the director plan since 2011 when the company amended the director plan to prohibit future option grants . as of december 31 , 2018 , there were 36,000 shares subject to outstanding options under the director plan . stock options outstanding the following table summarizes changes in the number of outstanding stock options under the director plan , stock plan and the 2011 incentive plan during the two years ended december 31 , 2018. replace_table_token_28_th 44 the fair value of awards issued under the company 's stock option plan is estimated at grant date using the black-scholes option-pricing model . the following table displays the assumptions used in the model . replace_table_token_29_th total unrecognized compensation expense was $ 164,000 as of december 31 , 2018 , which is expected to be recognized over the next 1.9 years . the aggregate intrinsic value of all outstanding options , exercisable options , and options expected to vest ( the amount by which the market price of the stock on the last day of the period exceeded the market price of the stock on the date of grant ) was $ 0 based on the company 's stock price at december 31 , 2018. the intrinsic value of options exercised during the year was $ 0 in 2018 and 2017. there were no stock options exercised in 2018 and 2017. the following table summarizes the status of stock options outstanding at december 31 , 2018 : replace_table_token_30_th the company receives an income tax benefit related to the gains received by officers and key employees who make disqualifying dispositions of stock received on exercise of qualified incentive stock options and on non-qualified options . the amount of tax benefit received by the company was $ 0 in both 2018 and 2017. the tax benefit amounts have been credited to additional paid-in capital . deferred stock outstanding the following table summarizes the changes in the number of deferred stock shares under the stock plan and 2011 incentive plan over the period from december 31 , 2016 to december 31 , 2018 : replace_table_token_31_th 45 the grant date fair value is calculated based on the company 's closing stock price as of the grant date . as of december 31 , 2018 , the total unrecognized compensation expense related to the deferred stock shares was $ 2,000 and is expected to be recognized over a weighted-average period of 0.2 years . restricted stock units outstanding the following table summarizes the changes in the number of restricted stock units under the 2011 incentive plan over the period december 31 , 2016 to december 31 , 2018 : replace_table_token_32_th the grant date fair value is calculated based on the company 's closing stock price as of the grant date . as of december 31 , 2018 , the total unrecognized compensation expense related to the restricted stock units was $ 0 . compensation expense share-based compensation expense is recognized based on the fair value of awards granted over the vesting period of the award . share-based compensation expense recognized for 2018 and 2017 was $ 191,000 and $ 417,000 before income taxes and $ 151,000 and $ 271,000 after income taxes , respectively . share-based compensation expense is recorded as a part of selling , general and administrative expenses . employee stock purchase plan under the company 's employee stock purchase plan ( “ espp ” ) , employees are able to acquire shares of common stock at 85 % of the price at the end of each current quarterly plan term . the most recent term ended december 31 , 2018. the espp is considered compensatory under current rules . at december 31 , 2018 , after giving effect to the shares issued as of that date , 23,591 shares remain available for purchase under the espp . employee stock ownership plan ( esop ) all eligible employees of the company participate in the esop after completing one year of service . contributions are allocated to each participant based on compensation and vest 20 % after two years of service and incrementally thereafter , with full vesting after six story_separator_special_tag overview communications systems , inc. provides physical connectivity infrastructure products and services for global deployments of broadband networks through the following business units : transition networks with over 30 years of growth and expertise in hardware and software development , transition networks offers customers the ability to affordably integrate the benefits of fiber optics into any data network , in any application , and in any environment . story_separator_special_tag for a detailed discussion of a number of these risk factors , please see item 1a above . critical accounting policies inventory valuation : we value inventories at the lower of cost or net realizable value . reserves for excess and obsolescence are estimated and recorded to reduce the carrying value to estimated net realizable value . the amount of the reserve is determined based on historical usage , projected sales information , plans for discontinued products and other factors . though management considers these reserves adequate and proper , changes in sales volumes due to unexpected economic or competitive conditions are among the factors that could materially affect the adequacy of this reserve . income taxes : in the preparation of the company 's consolidated financial statements , management calculates income taxes . this includes estimating the company 's current tax liability as well as assessing temporary differences resulting from different treatment of items for tax and book accounting purposes . these differences result in deferred tax assets and liabilities , which are recorded on the balance sheet . these assets and liabilities are analyzed regularly and management assesses the likelihood it will realize these deferred assets from future taxable income . we determine the valuation allowance for deferred income tax benefits based upon the expectation of whether the benefits are more likely than not to be realized . the company records interest and penalties related to income taxes as income tax expense in the consolidated statements of income . revenue recognition : the company recognizes revenue when a customer obtains control of promised goods or services . the amount of revenue recognized reflects the consideration that the company expects to receive in exchange for these goods or services . in the suttle , transition networks and net2edge segments , revenue is recognized upon delivery of the company 's connectivity infrastructure and data transmission products . to determine when revenue should be recognized , it is important to determine when the transfer of control has occurred . the company has determined that control transfers for these products upon shipment or delivery to the customer , in accordance with the agreed upon shipping terms . as such , the timing of revenue recognition occurs at a specific point in time . the company has determined that the following performance obligations identified in its jdl technologies , inc. business unit are transferred over time : managed services and professional services ( time and materials ( “ t & m ” ) and fixed price ) . jdl 's managed services performance obligation is a bundled solution , a series of distinct services that are substantially the same and that have the same pattern of transfer to the customer and are recognized evenly over the term of the contract . t & m professional services arrangements are measured over time with an input method based on hours expended towards satisfying this performance obligation . fixed price professional service arrangements under a relatively longer-term service will also be measured over time with an input method based on hours expended . 22 the company has also identified the following performance obligations within its jdl technologies business unit that are recognized at a point in time which include resale of third-party hardware and software , installation , arranging for another party to transfer services to the customer , and certain professional services . the resale of third-party hardware and software is recognized at a point in time , when the goods are shipped or delivered to the customer 's location , in accordance with the shipping terms . installation services are recognized at a point in time when the services are completed . the service the company provides to arrange for another party to transfer services to the customer is satisfied at a point in time as the company has transferred control upon the service first being made available to the customer by the third party vendor , which are required to be presented on a net basis . depending on the nature of the service , certain professional services transfer control at a point in time . the company evaluates these circumstances on a case by case basis to determine if revenue should be recognized over time or at a point in time . results of operations 2018 compared to 2017 consolidated sales were $ 65,763,000 in 2018 , a 20 % decrease from sales of $ 82,323,000 in 2017. net loss in 2018 was $ 6,792,000 , or ( $ 0.75 ) per share compared to net loss of $ 11,826,000 or ( $ 1.32 ) per share in 2017. story_separator_special_tag measures . suttle incurred $ 244,000 and $ 528,000 in research and development expenses in 2018 and 2017 , respectively . suttle incurred $ 364,000 in restructuring expense related to organization changes in 2018 as compared to $ 2,285,000 in 2017 related to the planned closure of its costa rica facility . suttle had an operating loss of $ 5,072,000 in 2018 compared to an operating loss of $ 9,765,000 in 2017 . 24 jdl technologies , inc. results sales by jdl technologies decreased 54 % to $ 5,134,000 in 2018 compared to $ 11,210,000 in 2017. the following table summarizes jdl 's revenues by customer group in 2018 and 2017 : replace_table_token_6_th revenues from the education sector decreased $ 5,509,000 or 68 % in 2018 due to a decrease in the number of network related projects completed during the year and a delay in the approval of the federal funding for the 2017-2018 funding cycle , which were ultimately resolved in the fourth quarter of 2018. federal and local funding for public school district investments in it infrastructure and services varies substantiallyfrom year to year , and jdl technologies expects to continue to experience notable swings in quarterly and annual revenues as a result .
| transition networks results transition networks develops , markets , and sells active networking hardware devices . characteristics of this business include a rapid pace of change in technologies and alternative solutions to our products . transition networks derives the majority of its revenues from customer network upgrade projects , which tend not to recur . the core markets for these products are enterprise , service providers , government , and industrial users . roughly 85 % of transition networks revenue comes from north america , but we continue to see opportunity for long-term growth outside of north america and we continue to invest resources in sales , marketing , and infrastructure to grow that business . transition networks sales decreased 5 % to $ 36,470,000 in 2018 compared to $ 38,541,000 in 2017. transition networks organizes its sales force by vertical markets and segments its customers geographically . sales by customer groups in 2018 and 2017 were : replace_table_token_2_th the following table summarizes transition networks ' 2018 and 2017 sales by product group : replace_table_token_3_th sales in north america decreased 1 % or $ 202,000 in 2018 compared to 2017 due to decreased activity with a major carrier customer , partially offset by strong demand in the federal government sector . international sales decreased $ 1,869,000 , or 26 % , due to weakness related to slower adoption of new products . in row , some of our customers are now being serviced by our uk-based net2edge business unit , which accounted for some of the decline . sales of media converters decreased 7 % or $ 1,444,000 due to decreased activity at a major carrier customer . sales of ethernet switches and adapters increased 11 % or $ 995,000 due to strong activity in the federal government sector . all other products decreased 20 % or $ 1,622,000 , due to slower spending from major carrier customers .
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its home nursing service operations story_separator_special_tag results of operations the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to assist the reader in understanding our consolidated financial statements , the changes in certain key items in those financial statements from year-to-year and the primary factors that accounted for those changes , as well as how certain accounting principles affect our consolidated financial statements . the discussion also provides information about the financial results of the segments of our business to provide a better understanding of how those segments and their results affect our financial condition and results of operations as a whole . this discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , and the information discussed in item 1a — risk factors . “ safe harbor ” statement under the private securities litigation reform act of 1995 this report contains statements not purely historical and which may be considered forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , including statements regarding our expectations , hopes , beliefs , intentions or strategies regarding the future . these forward looking statements may include , but are not limited to : our expectations regarding financial condition or results of operations in future periods ; our future sources of , and needs for , liquidity and capital resources ; our expectations regarding economic and business conditions ; our expectations regarding potential legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs ; our expectations regarding the size and growth of the market for our products and services ; our business strategies and our ability to grow our business ; the implementation or interpretation of current or future regulations and legislation , particularly governmental oversight of our business ; our ability to maintain contracts and relationships with our customers ; sales and marketing efforts ; status of material contractual arrangements , including the negotiation or re-negotiation of such arrangements ; our ability to maintain supplies and services , which could be impacted by force majeure events such as war , strike , riot , crime , or `` acts of god '' such as hurricanes , flooding , blizzards or earthquakes ; future capital expenditures ; our high level of indebtedness ; our ability to make principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility and other debt agreements ; our ability to hire and retain key employees ; our ability to successfully execute our succession plans ; our ability to execute our acquisition and growth strategy ; our ability to successfully integrate businesses we acquire ; and other risks and uncertainties described from time to time in our filings with the sec . investors are cautioned that any such forward-looking statements are not guarantees of future performance , involve risks and uncertainties and that actual results may differ materially from those possible results discussed in the forward-looking statements as a result of various factors . this report contains information regarding important factors that could cause such differences . these factors include , among other things : risks associated with increased government regulation related to the health care and insurance industries in general , and more specifically , home health providers , pharmacy benefit management and home infusion providers ; our expectation regarding the interim and ultimate outcome of commercial disputes , including litigation ; unfavorable economic and market conditions ; disruptions in supplies and services resulting from force majeure events such as war , strike , riot , crime , or `` acts of god '' such as hurricanes , flooding , blizzards or earthquakes ; reductions in federal and state reimbursement for our products and services ; delays or suspensions of federal and state payments for services provided ; efforts to reduce healthcare costs and alter health care financing ; 37 effects of the patient protection and affordable care act , or ppaca , and the health care and education reconciliation act of 2010 , which amended ppaca , and the related accountable care organizations ; existence of complex laws and regulations relating to our business ; achieving financial covenants under our credit facility ; availability of financing sources ; declines and other changes in revenue due to the expiration of short-term contracts ; network lock-outs and decisions to in-source by health insurers including lockouts with respect to acquired entities ; unforeseen contract terminations ; difficulties in the implementation and conversion of our new pharmacy systems ; difficulties integrating businesses we acquire ; increases or other changes in the company 's acquisition cost for its products ; increased competition from competitors having greater financial , technical , reimbursement , marketing and other resources could have the effect of reducing prices and margins ; the level of our indebtedness may limit our ability to execute our business strategy and increase the risk of default under our debt obligations , introduction of new drugs can cause prescribers to adopt therapies for existing patients that are less profitable to us ; and changes in industry pricing benchmarks could have the effect of reducing prices and margins . you should not place undue reliance on such forward-looking statements as they speak only as of the date they are made . except as required by law , we assume no obligation to publicly update or revise any forward-looking statement even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized . business overview we are a national provider of home infusion and other home healthcare services that partners with patients , physicians , hospitals , healthcare payors and pharmaceutical manufacturers to provide clinical management solutions and the delivery of cost-effective access to prescription medications and home healthcare services . story_separator_special_tag we deployed the proceeds of the pharmacy services asset sale seeking business acquisition opportunities described below . we also paid off the line of credit balance following the sale and negotiated improved terms for its ongoing use . on july 31 , 2012 , we acquired infuscience , inc. ( “ infuscience ” ) for a cash payment of $ 38.3 million . the purchase price could increase to $ 41.4 million based on the results of operations during the 24 month period following the closing . infuscience acquires , develops and operates businesses providing alternate site infusion pharmacy services . the acquisition has added five infusion centers located in eagan , minnesota ; omaha , nebraska ; chantilly , virginia ; charleston , south carolina ; and savannah , georgia . subsequent to december 31 , 2012 , we acquired of all of the issued and outstanding equity of homechoice partners , inc. , a delaware corporation ( “ homechoice ” ) pursuant to that stock purchase agreement dated december 12 , 2012 ( the “ purchase agreement ” ) by and among the company , homechoice , davita healthcare partners inc. , a delaware corporation and majority stockholder of homechoice , and the other stockholders of homechoice . the purchase price was $ 70 million , subject to adjustment based in part on the net working capital of homechoice at closing ( the “ purchase price ” ) . the purchase price may also be increased in an amount up to $ 20 million if homechoice reaches certain performance milestones in the two years following the closing . the company funded the acquisition with a combination of cash on hand and its revolving credit facility . homechoice is a provider of alternate-site infusion pharmacy services . headquartered in norfolk , va , homechoice services approximately 15,000 patients annually and has fourteen infusion pharmacy locations in pennsylvania , washington , dc , maryland , virginia , north carolina , south carolina , georgia , missouri , and alabama . the transaction became effective on february 1 , 2013. other strategic options that we may consider in addition to further potential acquisitions include redeeming all or a portion of the unsecured notes and reinvesting certain proceeds in the infusion services and home health services operating segments , subject to the terms of our revolving credit facility and the indenture governing our the senior unsecured notes . the pharmacy services asset sale discussed above caused us to perform a further strategic assessment of our business and operations in order to align our corporate structure with our remaining business operations . as a result of the reassessment and subsequent realignment , we have focused on expanding revenue opportunities and lowering corporate overhead as well as 39 redeploying our resources strategically . these actions have resulted in write-downs of certain long−lived assets , employee severance , retention bonus payments and accelerated recognition of expense associated with certain of our contractual obligations . the impact of these efforts included a reduction in salaries , benefits , rent and other facility costs . the redeployment of resources following the asset sale has better positioned us for growth in our strategic areas of operation ; however , the impact of these actions on our future consolidated financial statements can not be estimated . regulatory matters update approximately 33 % of revenue for the year ended december 31 , 2012 was derived directly from medicare , state medicaid programs or other government payors . we also provide services to beneficiaries of medicare , medicaid and other government-sponsored healthcare programs through managed care entities . medicare part d , for example , is administered through managed care entities . in the normal course of business , the company and our customers are subject to legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs . state medicaid programs in 2011 and 2012 , increased medicaid spending , combined with slow state revenue growth , led many states to institute measures aimed at controlling spending growth . spending cuts have taken many forms including reducing eligibility and benefits , eliminating certain types of services , and provider reimbursement reductions . in addition , some states are moving beneficiaries to managed care programs in an effort to reduce costs . no single state medicaid program represents greater than 4 % of our consolidated revenue for the year ended december 31 , 2012 and no individual state medicaid reimbursement reduction to us as a provider is expected to have a material effect on our consolidated financial statements . we are continually assessing the impact of the state medicaid reimbursement cuts as states propose , finalize and implement various cost-saving measures . we incurred a 4.25 % reimbursement cut in 2011 from tenncare , the state of tennessee medicaid program , for certain home health services , and incurred a second 4.25 % tenncare rate cut in the home health services segment effective january 1 , 2012. in may 2012 , the second rate cut was adjusted to 2.50 % , which was retroactively effective beginning on january 1 , 2012. these reimbursement rate cuts decreased revenue by approximately $ 3.0 million . given the reimbursement pressures , we continue to improve operational efficiencies and reduce costs to mitigate the impact on results of operations where possible . in some cases , reimbursement rate reductions may result in negative operating results , and we would likely exit some or all services where rate reductions result in unacceptable returns to our shareholders . medicare federal efforts to reduce medicare spending are expected to continue in 2013. congress first passed the patient protection and affordable care act ( `` ppaca '' ) , and the health care and education reconciliation act of 2010 , which amended ppaca .
| results of operations the following discussion is based on the consolidated financial statements of the company . it compares our annual results of operations with the prior year results of operations . year ended december 31 , 2012 vs. december 31 , 2011 replace_table_token_5_th revenue . revenue for the year ended december 31 , 2012 was $ 662.6 million compared to revenue of $ 554.5 million for the year ended december 31 , 2011. infusion services segment revenue for the year ended december 31 , 2012 was $ 481.6 million , compared to revenue of $ 374.3 million for the same period in 2011 , an increase of $ 107.3 million , or 28.6 % . product revenue increased $ 105.9 million , or 29.0 % . infusion service revenue increased $ 1.3 million , or 15.1 % . home health services segment revenue for the year ended december 31 , 2012 was $ 69.2 million compared to revenue of $ 69.6 million for the same period in 2011 , a decrease of $ 0.4 million , or 0.6 % . this reduction is primarily due to the decline in medicare reimbursement rates . pbm services segment revenue for the year ended december 31 , 2012 was $ 111.9 million compared to revenue of $ 110.6 million for the same period in 2011 , an increase of $ 1.3 million , or 1.2 % . this increase is due primarily to an increase in discount card programs sales . cost of revenue and gross profit . cost of revenue for the year ended december 31 , 2012 was $ 437.7 million compared to $ 339.1 million for the same period in 2011. gross profit for the year ended december 31 , 2012 was $ 225.0 million compared to $ 215.4 million for the same period in 2011 , an increase of $ 9.6 million , or 4.5 % .
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asu 2014-09 permits the use of either the retrospective or cumulative effect transition methods . the company has not yet selected a transition method nor has it determined the potential effect that asu 2014-09 will have on its consolidated financial statements and related disclosures . in august 2014 , the fasb issued asu no . 2014-15 ( asu 2014-15 ) , presentation of financial statements-going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern . asu 2014-15 requires management to evaluate , at each annual and interim reporting period , whether there are conditions or events that raise substantial doubt about the entity 's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures . asu 2014-15 is effective for annual and interim reporting periods ending after december 15 , 2016 , with early adoption permitted . the company is currently evaluating the impact of its pending adoption of asu 2014-15 on its consolidated financial statements and related disclosures . 59 note 2 : consolidated balance sheets and statements of operations and comprehensive loss components replace_table_token_22_th intangible assets , net : identifiable intangible assets relating to business combinations and the patent license were ( dollar amounts in thousands ) : replace_table_token_23_th replace_table_token_24_th amortization expense has been included in research and development expense in the consolidated statements of operations and comprehensive loss . the estimated aggregate amortization expense to be 60 recognized in future years is approximately $ 0.3 million for 2015 and $ 0.1 million annually for 2016 through 2018. replace_table_token_25_th as of december 31 , 2014 and 2013 , the amounts in long-term liabilities primarily included deferred rent . other income , net : replace_table_token_26_th note 3 : fair value of financial instruments the estimated fair values of financial instruments outstanding were ( in thousands ) : replace_table_token_27_th 61 replace_table_token_28_th the estimated fair values of available-for-sale securities with unrealized losses were ( in thousands ) : replace_table_token_29_th replace_table_token_30_th as of december 31 , 2014 and 2013 , all of the available-for-sale securities with unrealized losses had been in a loss position for less than 12 months . 62 cost and fair value of investments based on two maturity groups were ( in thousands ) : replace_table_token_31_th replace_table_token_32_th the following table represents the company 's fair value hierarchy for its financial assets ( cash equivalents and investments ) as of december 31 , 2014 and 2013 ( in thousands ) : replace_table_token_33_th replace_table_token_34_th there were no transfers in or out of level 1 and level 2 securities during the years ended december 31 , 2014 and 2013. note 4 : patent sale and license in december 2011 , the company entered into a patent purchase agreement for story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and notes included in this report . overview our strategy and primary business objective is to become a fabless semiconductor company focused on the development and sale of integrated circuits , or ics , for the high-speed networking , communications , storage and computing markets . our solutions deliver time-to-market , performance , power , area and economic benefits for system original equipment manufacturers , or oems . we have developed two families of ics under the bandwidth engine® and linespeed product names . bandwidth engine ics combine our proprietary 1t-sram® high-density embedded memory , integrated macro functions and high-speed serial interface , or serdes , i/o , with our intelligent access technology and a highly efficient interface protocol . the linespeed ic product line , which was announced in march 2013 , is comprised of non-memory , high-speed serdes i/o devices with gearbox and retimer functionality , which convert lanes of data received on line cards or by optical modules into different configurations and or ensure signal integrity . certain serdes products have been developed under a strategic development and marketing agreement with credo semiconductor ltd. , or credo , to whom we have paid a total of $ 4.5 million for the development of these new products . the initial gross profits earned by us from the sale of credo developed products will be primarily applied to reimbursing us for these development payments . once $ 4.2 million of this amount has been reimbursed , all gross profits from the sale of the credo-developed products worldwide will be shared equally by credo and us . historically , our primary business was the design , development , marketing , sale and support of differentiated intellectual property , or ip , including embedded memory and high-speed parallel and serdes i/o used in advanced systems-on-chips , or socs . currently , we are focused on developing differentiated ip-rich ic products and are dedicating all our research and development , marketing and sales budget to these ic products . our future success and ability to achieve and maintain profitability will be dependent on the marketing and sales of our ic products into networking , communications and other markets requiring high-bandwidth memory access . we are currently supporting existing design-win customers and actively pursuing additional design wins for the use of our ics in networking and communication equipment . to date , none of our design win customers have commenced full production of systems using our ics . we have established initial pricing of our ic products ordered to date , but longer-term volume prices will be subject to negotiations with our customers and may vary substantially from these initial prices . critical accounting policies and use of estimates our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . story_separator_special_tag if our estimates and assumptions change in the future , it could result in a material write-down of long-lived assets . we amortize our finite-lived intangible assets , such as developed technology and patent license , on a straight-line basis over their estimated useful lives of three to seven years . we recognize an impairment charge as the difference between the net book value of such assets and the fair value of the assets on the measurement date . goodwill we review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable . we first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step impairment test . if the qualitative assessment warrants further analysis , we compare the fair value of the reporting unit to its carrying value . the fair value of the reporting unit is determined using the market approach . if the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit , goodwill is not impaired , and no further testing is performed . if the carrying value of the reporting unit 's goodwill exceeds its implied fair value , then we must record an impairment charge equal to the difference . we have determined that we have a single reporting unit for purposes of performing the goodwill impairment test . we use the market approach to assess impairment in the second step of the analysis . we performed the annual impairment test in september 2014 , and the test did not indicate impairment of goodwill . as of december 31 , 2014 , we did not identify any factors to indicate there was an impairment of our goodwill and determined that no additional impairment analysis was required . deferred tax valuation allowance when we prepare our consolidated financial statements , we estimate our income tax liability for each of the various jurisdictions where we conduct business . this requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting purposes . these differences result in deferred tax assets , which we show on our consolidated balance sheet under the category of other current assets . the net deferred tax 32 assets are reduced by a valuation allowance if , based upon weighted available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . we must make significant judgments to determine our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . stock-based compensation we recognize stock-based compensation for equity awards on a straight-line basis over the requisite service period , usually the vesting period , based on the grant-date fair value . we estimate the value of employee stock options on the date of grant using the black-scholes model . the determination of fair value of share-based payment awards on the date of grant using an option- pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables . these variables include , but are not limited to , the expected stock price volatility over the term of the awards , and actual and projected employee stock option exercise behaviors . the expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior . the expected volatility is based on the historical volatility of our stock price . story_separator_special_tag i/o technology for approximately $ 4.3 million . as part of the agreement , we provided certain technology transfer support services , and 15 employees of our india subsidiary accepted employment with the purchaser . in 2012 , we received approximately $ 3.4 million in cash , less transaction costs , from this agreement , and received the final payment of $ 0.6 million in 2013. other income , net . replace_table_token_12_th other income , net primarily consisted of interest income on our investments , which was $ 0.2 million for each of the years ended december 31 , 2014 , 2013 and 2012 , partially offset by other non-operating items . 35 income tax provision . replace_table_token_13_th our income tax provisions were primarily attributable to taxes on earnings of our foreign subsidiaries and branches . as of december 31 , 2014 , we had net operating loss carryforwards of approximately $ 133 million for u.s. federal income tax purposes and approximately $ 98 million for state income tax purposes that are available to reduce future income tax liabilities to the extent permitted under federal and state income tax laws . these net operating loss carryforwards expire from 2015 to 2034. in 2015 , we anticipate that our effective income tax rate will continue to be less than the federal statutory tax rate because of expected losses . as of december 31 , 2014 and 2013 , we had net deferred tax assets of approximately $ 67 million and $ 55 million , respectively . because of uncertainties regarding the realization of these deferred tax assets , we had recorded a full valuation allowance as of december 31 , 2014 and 2013. liquidity and capital resources as of december 31 , 2014 , we had cash , cash equivalents and investments totaling $ 25.8 million compared with a combined balance of $ 50.5 million at december 31 , 2013. on march 4 , 2015 , we sold 14,375,000 shares of common stock in an equity offering made under our shelf registration statement and raised approximately$ 21.3 million , net of transaction expenses .
| results of operations net revenue . replace_table_token_5_th product revenue increased in 2014 and 2013 due to increased volume of shipments for our ics , mainly bandwidth engine , as we have more customers . in 2014 , we realized $ 0.3 million of revenue recognition from the reversal of sales return reserves recorded in prior periods following the completion of system-level tests in the field by customers , which reduced our expected risk of returns . we expect product revenue to increase in 2015 as our existing customers commence full production of their systems that utilize our ics for which we have design wins . furthermore , we expect to expand our customer base . replace_table_token_6_th royalty and other revenue is primarily comprised of revenue generated from licensing agreements . the sequential decreases were primarily due to a decrease in shipment volumes by licensees whose products incorporate our licensed ip and a decrease in revenue recognized from residual licensing agreements entered into in 2011 and prior years . we expect royalty and other revenue to decline in 2015 , as we expect a decline in shipments of units incorporating our technology by licensees , as their products approach their end of life . 33 cost of net revenue and gross profit . replace_table_token_7_th replace_table_token_8_th in 2014 and 2013 , cost of net revenue was primarily comprised of direct and indirect costs related to the sale of ic products . in 2012 , cost of net revenues primarily consisted of personnel and related overhead allocation costs for engineers assigned to revenue-generating licensing arrangements . cost of net revenue increased in 2014 and 2013 , primarily due to the increase in product material and testing costs related to our ic shipments . we expect that the cost of net revenue will increase in the future in absolute dollars , because we anticipate an increase in sales of our ic products .
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fiscal 2014 ends december 31 , 2014 and will include 53 weeks of operations . our revenues are derived primarily from two sources : the sale of food and beverages at our company restaurants and the collection of royalties and fees from restaurants operated by our franchisees under the denny 's name . sales and customer traffic at both company operated and franchised restaurants are affected by the success of our marketing campaigns , new product introductions , customer service and menu pricing , as well as external factors including competition , economic conditions affecting consumer spending and changes in guest tastes and preferences . sales at company restaurants and royalty income from franchised restaurants are also impacted by the opening of new restaurants , the closing of existing restaurants and the sale of company restaurants to franchisees . our operating costs are exposed to volatility in two main areas : product costs and payroll and benefit costs . many of the products sold in our restaurants are affected by commodity pricing and are , therefore , subject to price volatility . this volatility is caused by factors that are fundamentally outside of our control and are often unpredictable . in general , we purchase food products based on market prices or we set firm prices in purchase agreements with our vendors . our ability to lock in prices on certain key commodities is imperative to control food costs in an environment in which many commodity prices are on the rise . in addition , our continued success with menu management helps us to offer menu items that provide a compelling value to our customers while maintaining consistent product costs and appropriate profitability . the volatility of payroll and benefit costs results primarily from changes in wage rates and increases in labor related expenses , such as medical benefit costs and workers ' compensation costs . a number of our employees are paid the minimum wage . accordingly , substantial increases in the minimum wage increase our labor costs . additionally , changes in guest counts and investments in store-level labor impact payroll and benefit costs as a percentage of sales . impacts of refranchising during 2012 , we completed our fgi program , a strategic initiative to increase franchise restaurant development through the sale of certain geographic clusters of company restaurants to both current and new franchisees . a total of 380 company restaurants were sold under our fgi program , which began in early 2007. while we now consider the fgi program to be complete , we may , from time to time , continue to sell restaurants to franchisees where geographically and economically beneficial to the company . conversely , we may , from time to time , reacquire restaurants from franchisees if similar benefits exist . additionally , we currently have active development agreements for 272 new domestic restaurants , 170 of which have opened . the majority of the remaining restaurants in the development agreement pipeline are expected to open over the next five years . while the majority of the restaurants to be opened under these agreements are on schedule , from time to time some of our franchisees ' ability to grow and meet their development commitments is hampered by the economy and the difficult lending environment . as a result of the development efforts described above , over the past seven years we have transitioned from a restaurant portfolio mix of 66 % franchised and 34 % company operated to a restaurant portfolio mix of 90 % franchised and 10 % company operated at december 25 , 2013. now that we have achieved our mix target , we expect that our percentage of company operated restaurants will gradually decrease , as the majority of our future unit growth will be through franchised restaurants . 20 specifically , our focus on refranchising has impacted our financial performance as follows : company restaurant sales have decreased from $ 411.6 million in 2011 to $ 328.3 million in 2013 , primarily as a result of the sale of restaurants to franchisees . the decline in company restaurant revenues is partially offset by increased royalty income derived from the growth in the franchised restaurant base resulting from both traditional development and the conversion of restaurants . as a result , royalty income , which is included as a component of franchise and license revenue , has increased from $ 79.2 million in 2011 to $ 85.5 million in 2013 . the resulting net reduction in total revenue related to our fgi program is generally recovered by the benefits of a lower cost structure related to franchise and license revenues , a decrease in depreciation and amortization ( from $ 28.0 million in 2011 to $ 21.5 million in 2013 ) due to the sale of restaurant related assets to franchisees and lower ongoing capital expenditure requirements and a reduction in interest expense ( from $ 20.0 million in 2011 to $ 10.3 million in 2013 ) resulting from the use of proceeds to reduce debt . see `` debt and refinancing and reductions '' below . initial franchise fees , included as a component of franchise and license revenue , are generally recognized in the period in which a restaurant is sold to a franchisee or when a new unit is opened . these initial fees are completely dependent on the number of restaurants sold to or opened by franchisees during a particular period and , as a result , can cause fluctuations in our total franchise and license revenue from year to year . occupancy revenues , also included as a component of franchise and license revenue , result from leasing or subleasing restaurants to franchisees . as a result of our fgi program , occupancy revenues have increased from $ 44.5 million in 2011 to $ 47.1 million in 2013 . story_separator_special_tag general and administrative expenses are comprised of the following : replace_table_token_13_th the $ 3.5 million decrease in general and administrative expenses is primarily the result of reductions in incentive compensation of $ 2.2 million , professional fees of $ 1.2 million and other general and administrative expense of $ 1.8 million . these reductions were partially offset by an increase in share-based compensation of $ 1.4 million . 24 depreciation and amortization is comprised of the following : replace_table_token_14_th the overall decrease in depreciation and amortization expense is due primarily to the sale of company restaurants to franchisees during fiscal 2012. operating ( gains ) , losses and other charges , net are comprised of the following : replace_table_token_15_th during the years ended december 25 , 2013 and december 26 , 2012 , we recognized gains of $ 0.1 million and $ 7.1 million , respectively , primarily resulting from the sale of restaurant operations to franchisees and the sale of real estate . impairment charges of $ 5.7 million for the year ended december 25 , 2013 resulted primarily from the $ 4.8 million impairment of an underperforming restaurant and the $ 0.8 million impairment of two restaurants and real estate identified as assets held for sale . impairment charges of $ 3.7 million for the year ended december 26 , 2012 resulted primarily from the impairment of seven restaurants identified as held for sale and the impairment of an underperforming restaurant . restructuring charges and exit costs were comprised of the following : replace_table_token_16_th severance and other restructuring charges for the year ended december 26 , 2012 includes charges related to the departure of the company 's former chief operating officer . operating income was $ 47.5 million for the year ended december 25 , 2013 and $ 56.4 million for the year ended december 26 , 2012 . 25 interest expense , net is comprised of the following : replace_table_token_17_th the decrease in interest expense resulted from a decrease in interest rates related to the 2013 refinancing of our credit facility , as well as debt reductions during 2012 and 2013. other nonoperating expense , net was $ 1.1 million for the year ended december 25 , 2013 compared with $ 7.9 million for the year ended december 26 , 2012 . the expense for the 2013 period consisted primarily of $ 1.2 million in expenses and write-offs of deferred financing costs incurred related to our 2013 debt refinancing and $ 1.0 million of write-offs related to lease terminations and amendments , partially offset by $ 1.1 million of gains on deferred compensation plan investments . the expense for the 2012 period consisted primarily of expenses and write-offs of deferred financing costs and original issue discount incurred related to our 2012 debt refinancing . the provision for income taxes was $ 11.5 million for the year ended december 25 , 2013 compared with $ 12.8 million for the year ended december 26 , 2012 . for the 2013 period , the difference in the overall effective rate from the u.s. statutory rate was due to state and foreign taxes , employment tax credits and discrete tax items . the passage of the american tax payer relief act of 2012 resulted in deferred tax benefits of $ 0.3 million related to work opportunity credits generated in 2012 , which were allowed retroactively . in addition , state job tax credits of $ 0.8 million were claimed during the 2013 period resulting from the prior year 's hiring activity . a valuation allowance of $ 0.2 million was recorded against certain state jobs tax credits during the 2013 period related to changes in california law enacted during the period . for the 2012 period , the difference in the overall effective tax rate from the u.s. statutory rate was due to discrete tax items , including a $ 1.7 million out-of-period adjustment related to the reversal of a portion of the income tax benefit recorded in fourth quarter of 2011. we do not believe the out-of-period adjustment was material to any prior or current year financial statements or on earnings trends . in addition , a $ 1.6 million tax benefit was recorded in 2012 relating to additional state credits generated during 2012 from prior years ' activity . net income was $ 24.6 million for the year ended december 25 , 2013 compared with $ 22.3 million for the year ended december 26 , 2012 . 26 2012 compared with 2011 unit activity replace_table_token_18_th company restaurant operations during the year ended december 26 , 2012 , we realized a 0.2 % increase in same-store sales . company restaurant sales decreased $ 57.9 million , or 14.1 % , primarily resulting from a 41 equivalent unit decrease in company restaurants . the decrease in equivalent units reflects the impact of our refranchising program that was completed at the end of 2012. total costs of company restaurant sales as a percentage of company restaurant sales decreased to 85.4 % from 86.9 % . product costs increased to 25.0 % from 24.7 % primarily due to the impact of increased commodity costs . payroll and benefits costs decreased to 39.9 % from 40.7 % primarily due to improved labor efficiency . occupancy costs decreased slightly to 6.6 % from 6.7 % . other operating expenses were comprised of the following amounts and percentages of company restaurant sales : replace_table_token_19_th utilities decreased 0.3 percentage points primarily due to lower natural gas rates in 2012. other direct costs decreased 0.5 percentage points primarily as a result of higher new store opening expenses in the prior period . 27 franchise operations franchise and license revenue and costs of franchise and license revenue were comprised of the following amounts and percentages of franchise and license revenue for the periods indicated : replace_table_token_20_th royalties increased by $ 4.6 million , or 5.7 % , primarily resulting from a 54 equivalent unit increase in franchised and licensed restaurants and a 1.7 % increase in domestic same-store sales as compared with the prior year .
| summary of cash flows our primary sources of liquidity and capital resources are cash generated from operations and borrowings under our credit facility . principal uses of cash are operating expenses , capital expenditures , debt repayments and the repurchase of shares of our common stock . the following table presents a summary of our sources and uses of cash and cash equivalents for the periods indicated : replace_table_token_26_th 30 we believe that our estimated cash flows from operations for 2014 , combined with our capacity for additional borrowings under our credit facility , will enable us to meet our anticipated cash requirements and fund capital expenditures over the next twelve months . net cash flows used in investing activities were $ 16.5 million for the year ended december 25 , 2013 . these cash flows include capital expenditures of $ 16.8 million , acquisition of restaurants and real estate of $ 4.0 million and issuances of notes receivable of $ 2.0 million , partially offset by collections of notes receivable of $ 4.8 million and $ 1.6 million in proceeds from asset sales . our principal capital requirements have been largely associated with the following : replace_table_token_27_th the decrease in new construction is primarily the result of the construction of a restaurant located in las vegas during the prior year . capital expenditures for fiscal 2014 are expected to be approximately $ 20-22 million , including approximately 40 remodels completed at company restaurants . cash flows used in financing activities were $ 51.2 million for the year ended december 25 , 2013 , which included a net debt reduction of $ 21.5 million , stock repurchases of $ 25.0 million and debt refinancing costs of $ 1.7 million . our working capital deficit was $ 20.3 million at december 25 , 2013 compared with $ 27.2 million at december 26 , 2012 .
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cash equivalents are stated at cost , which approximates fair value . cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements were $ 0.3 million and $ 0.5 million as of december 31 , 2020 and 2019 , respectively , and are included within cash and cash equivalents within the consolidated balance sheets . allowance for doubtful accounts accounts receivable , net of the allowance for doubtful accounts , represents the company 's estimate of story_separator_special_tag this item 7 . `` management 's discussion and analysis of financial condition and results of operations '' and other parts of this form 10-k contain forward-looking statements , within the meaning of the private securities litigation reform act of 1995 , that involve risks and uncertainties . forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact , including statements regarding the anticipated further impact of the covid-19 pandemic on our operations and financial condition . forward-looking statements can also be identified by words such as `` future , '' `` anticipates , '' `` believes , '' `` estimates , '' `` expects , '' `` intends , '' `` plans , '' `` predicts , '' `` will , '' `` would , '' `` could , '' `` can , '' `` may , '' and similar terms . forward-looking statements are not guarantees of future performance , and the company 's actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a . `` risk factors '' of this form 10-k , which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part iv , item 15 . `` exhibits and financial statement schedules '' of this form 10-k. each of the terms the `` we '' and `` our '' as used herein refers collectively to sp plus corporation and its wholly-owned subsidiaries , unless otherwise stated . the company assumes no obligation to revise or update any forward-looking statements for any reason , except as required by law . explanatory note on november 30 , 2018 , we completed the acquisition of bags . our consolidated results of operations for the year ended december 31 , 2018 includes the results of operations for the period of november 30 , 2018 through december 31 , 2018. see note 3. acquisition , which is included in part iv , item 15 . `` exhibits and financial statement schedules '' for further discussion of the acquisition of bags . general overview in evaluating our financial condition and operating performance , our primary focus is on our gross profit and total general and administrative expenses . revenue from lease type contracts includes all gross customer collections derived from our lease type contracts ( net of local parking taxes ) , whereas revenue from management type contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services . gross customer collections at facilities under management type contracts , therefore , are not included in our revenue . accordingly , while a change in the proportion of our operating agreements that are structured as lease type contracts may cause significant fluctuations in reported revenue and cost of services , those changes will not artificially affect our gross profit . for example , as of december 31 , 2020 , 85 % of our commercial business was operating under management type contracts . only 54 % of total revenue ( excluding reimbursed management type contract revenue ) for the year ended december 31 , 2020 , however , was from management type contracts . under those contracts , the revenue collected from customers belongs to our clients . we believe that sophisticated clients ( which also include property owners ) recognize the potential for parking services , parking management , ground transportation services , baggage handling services , technology-driven mobility solutions and other ancillary services to be a profit generator and or a service differentiator to their customers . by outsourcing these services , they are able to capture additional profit and improve customer experiences by leveraging the unique operational skills and controls that an experienced services company can offer . our ability to consistently deliver a uniformly high level of services to our clients , including the use of various technological enhancements , allows us to maximize the profit and or customer experience to our clients and improves our ability to win contracts and retain existing clients . our focus on customer service and satisfaction is a key driver of our high retention rate , which was approximately 87 % and 93 % for the years ended december 31 , 2020 and 2019 , respectively , for the commercial segment . commercial segment facilities in order to mitigate some of the effects from the covid-19 pandemic ( “ covid-19 ” ) , we converted many of our lease locations to management locations during the year ended december 31 , 2020. in addition , we were able to exit many less profitable contracts , which were for both lease and management locations . the following table reflects our commercial facilities ( by contractual type ) operated at the end of the years indicated : replace_table_token_2_th revenue we recognize services revenue from our contracts as the related services are provided . substantially all of our revenue comes from the following two sources : lease type contracts . consists of all revenue received at lease type locations , including gross receipts ( net of local taxes ) , consulting and real estate development fees , gains on sales of contracts and payments for exercising termination rights . revenue from lease type contracts includes a reduction for service concessions . management type contracts . story_separator_special_tag in addition , certain aviation contracts were terminated during august 2020. the termination of these contracts and the ongoing impacts of covid-19 on our expected future operating cash flows triggered us to complete a quantitative goodwill impairment analysis for our aviation reporting unit as of august 31 , 2020. based on the quantitative analysis , we determined that estimated carrying values exceeded implied fair value for the aviation reporting unit and goodwill was impaired , and therefore an impairment charge was recognized during the year ended december 31 , 2020. as of october 1 , 2020 ( our annual goodwill impairment test date ) , we performed a qualitative assessment of goodwill , since projections used in the august 31 , 2020 impairment test have not materially changed and we concluded no further impairment testing was required . see note 11. goodwill in the notes to the consolidated financial statements for further discussion . other intangibles assets , net other intangible assets represent assets with finite lives that are amortized over their estimated useful lives and reviewed for impairment when circumstances change that would indicate the carrying value may not be recoverable . intangible assets are amortized on a straight-line basis over their estimated useful lives . we evaluate the remaining useful life of the other intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to their remaining useful lives . assumptions and estimates about future values and remaining useful lives of our intangible assets are complex and subjective . they can be affected by a variety of factors , including external factors such as industry and economic trends , and internal factors , such as changes in our business strategy and internal forecasts . although management believes the historical assumptions and estimates are reasonable and appropriate , different assumptions and estimates could materially impact reported financial results . as a result of the termination of certain contracts within the aviation reporting unit and the ongoing impact of covid-19 on our expected future operating cash flows , we determined certain impairment testing triggers had occurred related to our intangible assets during the year ended december 31 , 2020. accordingly , we analyzed undiscounted cash flows for certain intangible assets and determined that estimated net carrying values exceeded undiscounted future cash flows , resulting in certain intangible assets being impaired , resulting in impairment charges being recognized during the year ended december 31 , 2020. see note 10. other intangible assets , net in the notes to the consolidated financial statements for further discussion . 21 for both goodwill and intangible assets , future events may indicate differences from our judgments and estimates which could , in turn , result in impairment charges . future events that may result in impairment charges include extended unfavorable economic impacts of covid-19 , increases in interest rates , which would impact discount rates , or other factors which could decrease revenues and profitability of existing locations and changes in the cost structure of existing facilities . long-lived assets we evaluate long-lived assets , primarily including right-of-use ( “ rou ” ) assets , leasehold improvements , equipment and construction in progress for impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable . we group assets at the lowest level for which cash flows are separately identified in order to measure impairment . events or circumstances that would result in an impairment review include a significant change in the use of an asset , the planned sale or disposal of an asset , or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset group . recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset group . if it is determined to be impaired , the impairment is measured by the amount by which the carrying value of the asset exceeds its fair value . as a result of the impact of covid-19 on our expected future operating cash flows , we determined certain impairment triggers had occurred for certain rou assets associated with certain asset groups , resulting in impairment charges being recognized during the year ended december 31 , 2020. see note 2. leases in the notes to the consolidated financial statements for further discussion . assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity . any future changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in additional impairment charges . future events that may result in impairment charges include extended unfavorable economic impacts of covid-19 , or other factors which could decrease revenues and profitability of existing locations and changes in the cost structure of existing facilities . segments an operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses , and about which separate financial information is regularly evaluated by our chief operating decision maker ( “ codm ” ) , in deciding how to allocate resources . our codm is our chief executive officer . the operating segments are reported to our codm as commercial and aviation . commercial encompasses our services in healthcare facilities , municipalities , including meter revenue collection and enforcement services , government facilities , hotels , commercial real estate , residential communities , retail , colleges and universities , as well as ancillary services such as shuttle and ground transportation services , valet services , taxi and livery dispatch services and event planning , including shuttle and transportation services . aviation encompasses our services in aviation ( e.g .
| analysis of results of operations 2020 compared to 2019 existing business represents business that has been operating for at least one year and operating for the entire period in the comparative period being presented . other business comprises of expired business , conversions and new/acquired business . as a result of covid-19 , we have executed on a strategy to successfully convert certain lease type contracts to management type contracts which should provide a higher gross profit over the contract term . in addition , for those locations that have remained leases , we have worked with landlords to either receive rent concessions or change lease terms to be more favorable to us . expired business relates to contracts that have expired but where we were operating the business in the comparative period presented . existing business in the other segment represents amounts not specifically attributable to commercial or aviation and certain unallocated items . consolidated results for the for the years ended december 31 , 2020 and 2019 , respectively , included the following notable items : replace_table_token_3_th 22 ( 1 ) excludes reimbursed management type contract revenue ( 2 ) excludes reimbursed management type contract expense and lease impairment services revenue decreased by $ 385.9 million , or 41.3 % , attributable to the following : services revenue for lease type contracts decreased $ 219.5 million , or 53.7 % , primarily driven by a decrease of $ 133.4 million from existing business , $ 43.0 million from locations that converted to management type contracts during the periods presented , $ 41.2 million from expired business , and $ 1.9 million from new/acquired business . existing business revenue decreased $ 133.4 million , or 47.2 % , primarily due to a decrease in transient revenue as a result of covid-19 .
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