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through our financial services segment , we provide products and services to approximately 5,600 financial institution clients . we operate primarily in the united states . small business services also has operations in canada and portions of europe . our product and service offerings are comprised of the following : checks – we remain one of the largest providers of checks in the united states , both in terms of revenue and the number of checks produced . checks account for the majority of the revenue in our financial services and direct checks segments and represented 40.7 % of our small business services segment 's revenue in 2014 . marketing solutions and other services – all three of our segments offer products and services that help small businesses and or financial institutions promote their businesses and acquire customers , as well as provide various other service offerings . our small business services segment offers services designed to fulfill the sales and marketing needs of small businesses , including web design , hosting and other web services ; search engine optimization ; marketing services , including email , mobile , social media and other self-service marketing solutions ; digital printing services ; and logo design . in addition , small business services offers products such as promotional products , postcards , brochures , retail packaging supplies , apparel , greeting cards and business cards , as well as service offerings , including fraud protection and security , and payroll services . financial services offers various customer acquisition programs , marketing communications services , rewards and loyalty programs , fraud protection and security services , financial institution profitability and risk management services , and a suite of financial technology solutions that integrates receivables , accelerates deposits and payments , and eliminates paper . our direct checks segment provides fraud protection and security services , as well as package insert programs under which companies ' marketing materials are included in our check packages . forms – our small business services segment is a leading provider of printed forms to small businesses , including deposit tickets , billing forms , work orders , job proposals , purchase orders , invoices and personnel forms . this segment also offers computer forms compatible with accounting software packages commonly used by small businesses . forms sold by our financial services and direct checks segments include deposit tickets and check registers . accessories and other products – small business services offers products designed to provide small business owners with the customized documents necessary to efficiently manage their business including envelopes , office supplies , stamps and labels . our financial services and direct checks segments offer checkbook covers and stamps . throughout the past several years , we have focused on opportunities to increase revenue and operating income , while maintaining strong operating margins . these opportunities have included new product and service offerings , brand awareness and positioning initiatives , investing in technology for our service offerings , enhancing our internet capabilities , improving customer segmentation , adding new small business customers , and reducing costs . in addition , we invested in various acquisitions that extend the range of products and services we offer to our customers , including marketing solutions and other services offerings . during 2015 , we will continue our focus in these areas , with an emphasis on profitable revenue growth , increasing revenue from our marketing solutions and other services offerings for small businesses and financial institutions , and assessing small to medium-sized acquisitions that complement our large customer bases , with a focus on marketing solutions and other services . earnings for 2014 , as compared to 2013 , benefited from price increases in all three segments and continuing initiatives to reduce our cost structure , primarily within our sales and marketing , fulfillment and information technology organizations . these increases in earnings were partially offset by volume reductions for our personal check businesses due primarily to the continuing decline in check usage , as well as increased investments in revenue growth opportunities , including product and service enhancements . our strategies a discussion of our business strategies can be found under the caption `` business segments '' appearing in item 1 of this report . cost reduction initiatives for several years we have been pursuing cost reduction and business simplification initiatives , including : reducing shared services infrastructure costs ; streamlining our call center and fulfillment activities ; eliminating system and work stream 24 redundancies ; and strengthening our ability to quickly develop new products and services and bring them to market . we have reduced stock-keeping units ( skus ) , standardized products and services and improved the sourcing of third-party goods and services . as a result of all of these efforts , we realized net cost savings of approximately $ 60 million during 2014 , as compared to our 2013 results of operations , generated primarily by our sales and marketing , fulfillment , and information technology organizations . approximately 70 % of these savings impacted selling , general and administrative ( sg & a ) expense , with the remaining 30 % affecting cost of revenue . we anticipate that we will realize additional net cost reductions of approximately $ 50 million in 2015 , as compared to our 2014 results of operations , which will be generated primarily by our sales , marketing and fulfillment organizations . approximately , 60 % of these savings are expected to impact sg & a expense , with the remaining 40 % affecting cost of revenue . outlook for 2015 we anticipate that consolidated revenue will be between $ 1.74 billion and $ 1.78 billion for 2015 , compared to $ 1.67 billion for 2014 . story_separator_special_tag according to the most recent federal reserve study released in december 2013 , debit card , credit card and ach payments all exceeded the number of checks written in 2012. approximately 21.0 billion checks were written in 2012 , accounting for approximately 17 % of all non-cash payment transactions . this is a reduction from the federal reserve study released in december 2010 when checks accounted for approximately 25 % of all non-cash payment transactions . the federal reserve estimates that checks written declined approximately 8.8 % percent per year between 2009 and 2012. although , we experienced a slightly lower decline in our check order volume than the federal reserve estimate , we expect that the number of checks written will continue to decline . however , we can not predict the rate at which this decline will continue in the long-term . in addition to the decline in check usage , the use of business forms is also under pressure . continual technological improvements provide small business customers with alternative means to enact and record business transactions . for example , because of the lower price and higher performance capabilities of personal computers , printers and mobile devices , small businesses now have alternate means to print many business forms . additionally , electronic transaction systems , off-the-shelf business software applications , web-based solutions and mobile applications have been designed to replace pre-printed business forms . it is difficult to predict the pace at which these alternative products and services will gain widespread acceptance . financial institution clients because check usage is declining , we have been encountering significant pricing pressure when negotiating contracts with financial institutions . financial institutions seek to maintain the profits they have historically generated from their check programs , despite the decline in check usage . our traditional financial institution relationships are typically formalized through check supply contracts averaging three to six years in duration ; however , nearly 20 % of financial services revenue for 2014 is contracted for seven years or greater . as we compete to retain and acquire new financial institution business , the resulting pricing pressure , combined with declining check usage in the marketplace , has negatively impacted our revenue and profit margins . we expect these trends to continue . as a result of global economic conditions in recent years , a number of financial institutions sought additional capital , merged with other financial institutions and , in some cases , failed . turmoil in the financial services industry affected and may continue to affect our results of operations in a number of ways . there could be a significant impact on our consolidated results of operations if we were to lose a significant amount of business and or we were unable to recover the value of unamortized contract acquisition costs or accounts receivable . as of december 31 , 2014 , unamortized contract acquisition costs totaled $ 74.1 million , while liabilities for contract acquisition costs not paid as of december 31 , 2014 were $ 46.6 million . further information regarding contract acquisition costs can be found under other financial position information . the inability to recover amounts paid to one or more of our larger financial institution clients could have a significant negative impact on our consolidated results of operations . the consolidation of financial institutions may also impact our results of operations . in the past we have occasionally acquired new clients as financial institutions that were not our clients consolidated with our clients . when two of our financial institution clients consolidate , the increase in general negotiating leverage possessed by the consolidated entity could result in a new contract which is not as favorable to us as those historically negotiated with the clients individually . however , we may also generate non-recurring conversion revenue when obsolete checks have to be replaced after one financial institution merges with or acquires another . conversely , we have also lost financial institution clients when they consolidated with financial institutions which were not our clients . if we were to lose a significant amount of business in this manner , it could have a significant negative impact on our consolidated results of operations . in such situations , we have typically collected contract termination payments and we may be able to do so in similar circumstances in the future . recent legislation has impacted our financial institution clients . the dodd-frank wall street reform and consumer protection act ( the `` act '' ) was enacted in 2010. the act implements changes that affect the oversight and supervision of financial institutions , creates a new agency responsible for implementing and enforcing compliance with consumer financial laws and introduces more stringent regulatory capital requirements for financial institutions . the full impact of the act and or any additional related regulatory changes remains unclear due to the slow pace at which formal rulemaking is being finalized . it is likely that the act has and will have a negative impact on the profitability of our financial institution clients as they incur costs to comply with the new regulations . because of these additional costs , financial institutions may put significant pricing pressure on their suppliers , including their check and service providers . the increase in cost and profit pressure may also lead to further consolidation of financial institutions . additionally , the act gave the consumer financial protection bureau ( cfpb ) the authority to pursue financial institutions engaged in unfair , deceptive or abusive practices . the cfpb 's rule-making and enforcement power may 26 also extend to financial institutions ' service providers . this has made some financial institutions wary of offering add-on services , such as fraud/identity protection or expedited check delivery , to their customers . it would have an adverse impact on our results of operations if we were unable to market such services to consumers or small businesses through our financial institution clients .
| consolidated results of operations consolidated revenue replace_table_token_5_th the increase in total revenue for 2014 , as compared to 2013 , was primarily due to growth in marketing solutions and other services revenue of $ 84 million , including incremental revenue of $ 57 million from businesses acquired during 2014 and 2013 , as well as price increases in all three segments and growth in our small business services distributor channel of approximately $ 24 million . these revenue increases were partially offset by lower order volume for our personal check businesses and contract renewal allowances within financial services . the increase in total revenue for 2013 , as compared to 2012 , was primarily due to price increases in all three segments and growth of $ 57 million in marketing solutions and other services revenue , including incremental revenue of $ 28 million from businesses acquired during 2013 and 2012 , as well as growth in our small business services distributor channel of approximately $ 30 million . these revenue increases were partially offset by lower order volume for our personal check businesses and contract renewal allowances within financial services . 28 service revenue represented 15.7 % of total revenue in 2014 , 13.6 % in 2013 and 11.2 % in 2012 . as such , the majority of our revenue is generated by product sales . we do not manage our business based on product versus service revenue . instead we analyze our products and services based on the following categories : replace_table_token_6_th the number of orders increased slightly in 2014 , as compared to 2013 , due primarily to growth in the small business services distributor channel and in marketing solutions and other services , including the impact of acquisitions , partially offset by the continuing decline in check and forms usage .
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when reviewing the discussion below , you should keep in mind the substantial risks and uncertainties that could impact our business . in particular , we encourage you to review the risks and uncertainties described in the section titled “ risk factors ” under part i , item 1a . in this annual report on form 10-k. these risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends . our fiscal year ends on march 31. overview we offer the market-leading software intelligence platform , purpose-built for multi-cloud environments . as enterprises embrace the cloud to effect their digital transformation , our all-in-one intelligence platform is designed to address the growing complexity faced by technology and digital business teams . our platform utilizes artificial intelligence at its core and continuous automation to provide answers , not just data , about the performance of applications , the underlying multi-cloud infrastructure and the experience of our customers ' users . we designed our software intelligence platform to allow our customers to modernize and automate it operations , develop and release high quality software faster , and improve user experiences for better business outcomes . as a result , as of march 31 , 2020 , our products are trusted by more than 2,700 customers in over 80 countries in diverse industries such as banking , insurance , retail , manufacturing , travel and software . since we began operations , we have been a leader within the application performance monitoring space . in 2014 , we leveraged the knowledge and experience of the same engineering team that founded dynatrace to develop a new platform , the dynatrace software intelligence platform , from the ground up with a dynamic , ai-powered infrastructure to handle web-scale applications across multi-cloud platforms . we market dynatrace ® through a combination of our global direct sales team and a network of partners , including resellers , system integrators , and managed service providers . we target the largest 15,000 global enterprise accounts , which generally have annual revenues in excess of $ 750 million . we generate revenue primarily by selling subscriptions , which we define as ( i ) software-as-a-service ( “ saas ” ) agreements , ( ii ) dynatrace ® term-based licenses , which are recognized ratably over the contract term , ( iii ) dynatrace ® perpetual licenses , which are recognized ratably over the term of the expected optional maintenance renewals , which is generally three years , and ( iv ) maintenance and support agreements . we deploy our platform as a saas solution , with the option of retaining the data in the cloud , or at the edge in customer-provisioned infrastructure , which we refer to as dynatrace ® managed . the dynatrace ® managed offering allows customers to maintain control of the environment where their data resides , whether in the cloud or on-premise , combining the simplicity of saas with the ability to adhere to their own data security and sovereignty requirements . our mission control center automatically upgrades all dynatrace ® instances and offers on-premise cluster customers auto-deployment options that suit their specific enterprise management processes . dynatrace ® is an all-in-one platform , which is typically purchased by our customers with the full-stack application performance module , or apm , and extended with our digital experience monitoring and or digital business analytics modules . customers also have the option to purchase the infrastructure monitoring module where the full-stack apm is not required , with the ability to upgrade to the full-stack apm when necessary . our dynatrace ® platform has been commercially available since 2016 and is now the primary offering we sell . dynatrace ® customers increased to 2,373 as of march 31 , 2020 from 1,364 as of march 31 , 2019 . 45 our classic products include appmon , classic real user monitoring , or rum , network application monitoring , or nam , and synthetic classic . as of april 2018 , these products are only available to customers who had previously purchased them . appmon , classic rum , and nam are deployed using customer-provisioned infrastructure , either on-premise or in the cloud , while synthetic classic is a saas-based application . coronavirus ( covid-19 ) impact in december 2019 , an outbreak of a novel strain of the coronavirus ( “ covid-19 ” ) was reported in china , in january 2020 the world health organization ( “ who ” ) declared the outbreak a public health emergency of international concern , and in march 2020 who declared the outbreak a global pandemic . the extent to which the covid-19 pandemic may impact our business going forward will depend on numerous evolving factors that we can not reliably predict , including the duration and scope of the pandemic ; governmental , business , and individuals ' actions in response to the pandemic ; and the impact on economic activity including the possibility of recession or financial market instability . these factors may adversely impact business spending on technology as well as customers ' ability to pay for our products and services on an ongoing basis . at this point , the extent to which the covid-19 pandemic may impact our financial condition or results of operations is uncertain . the economic consequences of the covid-19 pandemic have been challenging for certain customers and prospects . we have offered extended free trial periods in certain circumstances , changed how we spend on marketing and lead generation activities , and slowed down the pace at which we are hiring new employees . while the broader implications of the covid-19 pandemic on our results of operations and overall financial performance remain uncertain , the covid-19 pandemic and its adverse effects have become more prevalent in the locations where we , our customers and partners conduct business . story_separator_special_tag dynatrace ® arr : we define dynatrace ® annualized recurring revenue , or arr , as the daily revenue of all term-based dynatrace ® subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365. we exclude from our calculation of arr any revenues derived from month-to-month agreements and or product usage overage billings , where customers are billed in arrears based on product usage . classic arr : we define classic annualized recurring revenue as the daily revenue of all classic subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365. we exclude from our calculation of arr any revenues derived from month-to-month agreements and or product usage overage billings , where customers are billed in arrears based on product usage . classic arr was $ 45 million as of march 31 , 2020 . over the past year , classic arr has decreased by $ 76 million , or 63 % . the $ 76 million reduction in classic arr was offset by a $ 90 million in crease in dynatrace ® arr resulting from the conversion of classic products to dynatrace ® products , as well as upsell generated at the time of conversion of accounts that have undergone a conversion from our classic products to dynatrace ® products . we also believe that in future periods the reduction in classic arr from lost customers may exceed the increase in dynatrace ® arr resulting from the conversion to dynatrace ® products and upsell at the time of conversion . based on historical trends , we believe that substantially all of our classic arr as of march 31 , 2020 will convert to dynatrace ® arr over the next two quarters . total arr : we define total arr as the daily revenue of all subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365. we exclude from our calculation of total arr any revenues derived from month-to-month agreements and or product usage overage billings . total arr was $ 573 million as of march 31 , 2020 . over the past year , total arr has grown by $ 169 million , or 42 % . this growth was the result of a $ 57 million increase in arr from new customer additions , a $ 98 million increase in arr from the expansion of existing customers on the dynatrace ® platform , and an $ 14 million increase in arr as a result of expansion at the time of conversion from our classic customers , net of churn . dynatrace ® net expansion rate : we define the dynatrace ® net expansion rate as the dynatrace ® arr at the end of a reporting period for the cohort of dynatrace ® accounts as of one year prior to the date of calculation , divided by the dynatrace ® arr one year prior to the date of calculation for that same cohort . this calculation excludes the benefit of dynatrace ® arr resulting from the conversion of 47 classic products to the dynatrace ® platform , as well as any upsell generated at the time of conversion . dynatrace ® net expansion rate was 123 % as of march 31 , 2020 and has trended between 120 % and 140 % since june 30 , 2018. key components of results of operations revenue revenue includes subscriptions , licenses and services . subscription . our subscription revenue consists of ( i ) saas agreements , ( ii ) dynatrace ® term-based licenses which are recognized ratably over the contract term , ( iii ) dynatrace ® perpetual licenses that are recognized ratably over the term of the expected optional maintenance renewals , which is generally three years , and ( iv ) maintenance and support agreements . we typically invoice saas subscription fees and term licenses annually in advance and recognize subscription revenue ratably over the term of the applicable agreement , provided that all other revenue recognition criteria have been satisfied . fees for our dynatrace ® perpetual licenses are generally billed up front . see the section titled “ management 's discussion and analysis of financial condition and results of operations — critical accounting policies and estimates—revenue recognition ” included in part ii , item 7 of this annual report for more information . over time , we expect subscription revenue will increase as a percentage of total revenue as we continue to focus on increasing subscription revenue as a key strategic priority . license . license revenue reflects the revenues recognized from sales of perpetual and term-based licenses of our classic products that are sold primarily to existing customers . the license fee portion of perpetual license arrangements is recognized upfront assuming all revenue recognition criteria are satisfied . term license fees are also recognized up front . term licenses are generally billed annually in advance and perpetual licenses are billed up front . service . service revenue consists of revenue from helping our customers deploy our software in highly complex operational environments and train their personnel . we recognize the revenues associated with these professional services on a time and materials basis as we deliver the services or provide the training . we generally recognize the revenues associated with our services in the period the services are performed , provided that collection of the related receivable is reasonably assured . cost of revenue cost of subscription . cost of subscription revenue includes all direct costs to deliver and support our subscription products , including salaries , benefits , share-based compensation and related expenses such as employer taxes , allocated overhead for facilities , it , third-party hosting fees related to our cloud services , and amortization of internally developed capitalized software technology . we recognize these expenses as they are incurred . cost of service .
| summary of cash flows replace_table_token_20_th _ ( 1 ) net cash ( used in ) provided by operating activities includes cash payments for interest and tax as follows : 59 replace_table_token_21_th operating activities for the year ended march 31 , 2020 , cash used in operating activities was $ 142.5 million as a result of a net loss of $ 418.0 million , inclusive of a $ 255.8 million income tax payment related to the reorganization transactions , and adjusted by non-cash charges of $ 235.7 million and a change of $ 39.9 million in our operating assets and liabilities . the non-cash charges are primarily comprised of share-based compensation of $ 222.5 million and depreciation and amortization of $ 66.3 million , net of deferred income taxes of $ 59.3 million . the change in our net operating assets and liabilities was primarily the result of an increase in deferred revenue of $ 91.4 million due to higher subscription sales and timing of amounts billed to customers compared to revenue recognized during the same period which were partially offset by an increase in deferred commissions of $ 20.1 million due to commissions paid on new bookings . further contributing to the change was an increase in accounts payable and accrued expenses of $ 52.4 million driven by our growth and the timing of payments , an increase in accounts receivable of $ 44.0 million in line with higher sales and the timing of cash collections between the two periods , and an increase in prepaid expenses and other assets of $ 39.7 million related to an increase in income taxes refundable . for the year ended march 31 , 2019 , cash provided by operating activities was $ 147.1 million as a result of a net loss of $ 116.2 million , adjusted by non-cash charges of $ 115.9
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critical accounting policies and estimates the accounting and reporting policies followed by the corporation conform , in all material respects , to u.s. gaap . in preparing the consolidated financial statements , management has made estimates , judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and results of operations for the periods indicated . actual results could differ significantly from those estimates . the corporation 's accounting policies are fundamental to understanding this md & a . the most significant accounting policies followed by the corporation are presented in note 1 of the notes to consolidated financial statements . the corporation has identified its policies on the allowance for loan losses , other-than-temporary impairment of securities , income tax liabilities and goodwill and other identifiable intangible assets to be critical because management must make subjective and or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available . additional information on these policies can be found in note 1 of the notes to consolidated financial statements . allowance for loan losses and related provision the allowance for loan losses represents management 's estimate of probable loan losses inherent in the loan portfolio . determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . the loan portfolio also represents the largest asset type on the corporation 's consolidated statements of condition . the evaluation of the adequacy of the allowance for loan losses includes , among other factors , an analysis of historical loss rates by loan category applied to current loan totals . however , actual loan losses may be higher or lower than historical trends , which vary . actual losses on specified problem loans , which also are provided for in the evaluation , may vary from estimated loss percentages , which are established based upon a limited number of potential loss classifications . the allowance for loan losses is established through a provision for loan losses charged to expense . management believes that the current allowance for loan losses will be adequate to absorb loan losses on existing loans that may become uncollectible based on the evaluation of known and inherent risks in the loan portfolio . the evaluation takes into consideration such factors as changes in the nature and size of the portfolio , overall portfolio quality , and specific problem loans and current economic conditions which may affect the borrowers ' ability to pay . the evaluation also details historical losses by loan category and the resulting loan loss rates which are projected for current loan total amounts . loss estimates for specified problem loans are also detailed . all of the factors considered in the analysis of the adequacy of the allowance for loan losses may be subject to change . to the extent actual outcomes differ from management estimates , additional provisions for loan losses may be required that could materially adversely impact earnings in future periods . additional information can be found in note 1 of the notes to consolidated financial statements . 33 other-than-temporary impairment of securities securities are evaluated on at least a quarterly basis , and more frequently when market conditions warrant such an evaluation , to determine whether a decline in their value is other-than-temporary . fasb asc 320-10-65 , clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired . for debt securities , management must assess whether ( a ) it has the intent to sell the security and ( b ) it is more likely than not that it will be required to sell the security prior to its anticipated recovery . these steps are done before assessing whether the entity will recover the cost basis of the investment . previously , this assessment required management to assert that it had both the intent and the ability to hold a security for a period of time sufficient to allow for anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment . this change does not affect the need to forecast recovery of the value of the security through either cash flows or market price . in instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery , fasb asc 320-10-65 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement . the other-than-temporary impairment is separated into ( a ) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security ( the credit loss ) and ( b ) the amount of the total other-than-temporary impairment related to all other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized through earnings . the amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income . impairment charges on certain investment securities of approximately $ 652,000 were recognized in earnings during the year ended december 31 , 2013. of this amount , $ 628,000 related to a pooled trust preferred security ( or “ trup ” ) , and $ 24,000 related to principal losses on a variable rate private label collateralized mortgage obligation ( “ cmo ” ) . story_separator_special_tag compared to 2012 , for 2013 , as noted above average interest earning assets increased $ 108.8 million while net interest spread and margin decreased on a tax-equivalent basis by 5 basis points and 2 basis points , respectively . for 2013 , the corporation 's net interest margin decreased to 3.30 percent as compared to 3.32 percent for 2012. net interest margins reflected improvement in the fourth quarter of 2012 , as prior action on reducing the cost of funds coupled with offsetting compression primarily as result of a continued high liquidity pool carried during the periods took root and started to abate further compression .. total non-interest income declined as a percentage of total revenue , which is the sum of interest income and non-interest income , in 2013 largely due to a reduction in net securities gains ; $ 1.7 million in 2013 as compared to $ 2.0 million in net securities gains in 2012. for the twelve months ended december 31 , 2013 , total other income decreased $ 359,000 as compared with the twelve months ended december 31 , 2012 , from $ 7.2 million to $ 6.9 million . excluding net securities gains and losses and the bargain gain on acquisition of $ 899,000 in the respective periods , the corporation recorded total other income of $ 5.1 million and $ 4.3 million in the twelve months ended december 31 , 2013 and 2012 , respectively . for the twelve months ended december 31 , 2013 , total other expense increased $ 81,000 , or 0.03 percent , compared to the year ended december 31 , 2012. excluding a repurchase agreement termination fee and acquisition cost incurred in 2012 , the increase was $ 1.6 million and 6.6 percent . increases primarily included salaries and employee benefits of $ 894,000 , $ 531,000 in occupancy and equipment , $ 118,000 in marketing and advertising and $ 34,000 in professional and consulting , and $ 80,000 in all other expense . these increases were partially offset by decreases of $ 56,000 in fdic insurance expense , $ 16,000 in stationery and printing expense , and $ 13,000 in oreo expense . the corporation ' s efficiency ratio for the twelve months ended december 31 , 2013 was 46.9 percent as compared to 47.7 percent in 2012 . 35 our continued performance put the corporation at a competitive advantage while the competition for deposits in the corporation 's marketplace remained intense . the corporation expanded its client base and market share , as customers seek safety through high quality organizations to satisfy liquidity and safety and soundness , which became paramount in light of the protracted financial crisis . with that competitive advantage , the corporation continues to move forward with momentum in expanding our presence in key markets . with the acquisition of saddle river valley bank in 2012 and the opening of our englewood office , we are working to solidify and expand the service relationship with our new customers . we remain excited by the potential to create incremental shareholder value from our strategic growth . we believe that this type of sequential earnings performance demonstrates the corporation 's commitment to achieving meaningful growth in earnings performance , an essential component of providing consistent and favorable long-term returns to our shareholders . however , while we continue to see an improvement in balance sheet strength and core earnings performance , we still remain cautious about the credit stability of the broader markets . total assets at december 31 , 2013 were $ 1.673 billion , an increase of 2.7 percent from assets of $ 1.630 billion at december 31 , 2012. the increase in assets reflects the growth of $ 71.3 million in our loan portfolio as the corporation continued to expand its client base and loan production , deploying cash from increased deposit production into a more efficient earning asset mix . the growth in the earning asset portfolio was funded in part through deposit growth of $ 35.1 million , which also resulted in increases in loans net of the allowance for loan losses and loans available for sale of $ 71.2 million . the corporation has made a concerted effort to reduce non-core balances and , as mentioned in the preceding sentence , its un-invested cash position decreased by $ 23.4 million in 2013. additionally , there has been a concerted effort to reduce higher costing retail deposits . loan demand continued to expand in 2013. overall , the portfolio increased year over year by approximately $ 71.3 million or 8.0 percent from 2012. demand for both commercial loans and real estate loans prevailed throughout the year in the corporation 's market in new jersey , despite the economic climate at both the state and national levels . the corporation is encouraged by loan demand and positive momentum is expected to continue in growing that segment of earning assets in 2014. however , the corporation continues to remain concerned with the credit stability of the broader markets due to the weakened economic climate and continues to maintain a conservative credit culture . at december 31 , 2013 , the corporation had $ 202.3 million in overall undisbursed loan commitments , which includes largely unused commercial lines of credit , home equity lines of credit and available usage from active construction facilities . included in the overall undisbursed commitments are the corporation 's `` approved , accepted but unfunded '' pipeline , which includes approximately $ 35.7 million in commercial and commercial real estate loans and $ 2.3 million in residential mortgages expected to fund over the next 90 days . asset quality remains high and a primary focus of the corporation . even so , the stability of the economy and credit markets remains uncertain and as such , has had an impact on certain credits within our portfolio .
| results of operations net income for the year ended december 31 , 2013 was $ 19,925,000 as compared to $ 17,507,000 earned in 2012 and $ 13,926,000 earned in 2011 , an increase of 13.8 percent from 2012 to 2013. for 2013 , the basic and fully diluted earnings per common share was $ 1.21 per share as compared with $ 1.05 per share in 2012 and $ 0.80 per share in 2011. for the year ended december 31 , 2013 , the corporation 's return on average stockholders ' equity ( “ roe ” ) was 12.07 percent and its return on average assets ( “ roa ” ) was 1.22 percent . the corporation 's return on average tangible stockholders ' equity ( “ roate ” ) was 13.45 percent for 2013. the comparable ratios for the year ended december 31 , 2012 , were roe of 11.69 percent , roa of 1.14 percent , and roate of 13.18 percent . see the discussion and reconciliation of roate , which is a non-gaap financial measure , under item 6 of this annual report on form 10-k. earnings for 2013 benefitted from increases in net interest income and increases to non interest income , primarily service charge and fees on deposit accounts , annuity and insurance fees , loan related fees and bank owned life insurance . the increase in non-interest expenses was due to increases in salaries and benefits , occupancy expenses , marketing and advertising expenses and other expenses , primarily due to the operation of saddle river valley bank branches for a full year in 2013 , and the opening of the princeton and englewood branches . these increases were partially offset by reductions in fdic insurance , oreo expenses , stationery and printing expenses .
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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 . the effect on deferred tax assets and liabilities of a change in tax story_separator_special_tag this section is intended to help investors understand the financial performance of hv bancorp , inc. and its subsidiary through a discussion of the factors affecting our financial condition as of december 31 , 2020 and 2019 , and our results of operations for the year ended december 31 , 2020 , the six month transition period ended december 31 , 2019 and the year ended june 30 , 2019. this section should be read in conjunction with the audited consolidated financial statements and notes to the audited consolidated financial statements that appear beginning on page 61 of this annual report . overview hv bancorp , inc. provides financial services to individuals and businesses from our main office in huntingdon valley , pennsylvania , and from our three additional full-service banking offices located in plumsteadville , warrington and huntingdon valley , pennsylvania . we also operate a limited service branch in philadelphia , pennsylvania . our administrative offices and executive offices are located in doylestown , pennsylvania . our business banking office is located in philadelphia , pennsylvania . we have loan production and sales offices located in mount laurel , new jersey , doylestown , pennsylvania , huntingdon valley , pennsylvania and wilmington , delaware ; and a loan origination office in montgomeryville , pennsylvania . our primary market area includes montgomery , bucks and philadelphia counties in pennsylvania , burlington county in new jersey and new castle county in delaware . our principal business consists of attracting retail deposits from the general public in our market area and investing those deposits , together with funds generated from operations and borrowings , primarily in one- to four-family residential mortgage loans , commercial real estate loans ( including multi-family loans ) , home equity loans and lines of credit and , to a lesser extent , consumer loans and construction loans . we retain our loans in portfolio depending on market conditions , but we primarily sell our fixed-rate one- to four-family residential mortgage loans in the secondary market . we also invest in various investment securities . our revenue is derived principally from interest on loans and investments and loan sales . our primary sources of funds are deposits , federal reserve 's paycheck protection program liquidity facility ( “ ppplf ” ) , federal home loan bank advances and principal and interest payments on loans and securities . our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities . our results of operations also are affected by our provision for loan losses , non-interest income and non-interest expense . non-interest income currently consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market , fees for customer services , gain ( loss ) from derivative instruments and sales of securities . non-interest expense currently consists primarily of expenses related to salaries and employee benefits , occupancy , data processing related operations , professional fees and other expenses . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . business strategy i n march 2020 , the world health organization recognized the outbreak of covid-19 as a global pandemic . from the beginning of the covid-19 crisis , our focus has been and remains on navigating the complexities , impact and ongoing challenges of the pandemic . during march 2020 , management launched its previously developed business continuity plan in response to the covid-19 pandemic . initially , the company implemented drive-up service only , increased the use of virtual and distance communications with customers and employees , and mandated expansive work at home procedures for employees . by end of june 2020 , our employees began returning to their offices on a rotating basis and the branch lobby services have been reopened to accommodate customers ' needs . this gradual process was met with close adherence to health and safety-related requirements . we will continue to monitor governmental guidelines and follow mandates as set by authorities . the covid-19 pandemic has adversely affected economic activity globally , nationally and locally . it has caused substantial disruption in international and u.s. economies , markets , and employment . the full impact of covid-19 remains uncertain . despite these unprecedented health and economic challenges , the company remains acutely focused on the execution of our strategic plan that began in 2017 , with the conversion of a mutual to a stock bank . we intend to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our consumer and business customers . we believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace and our long-standing history of providing superior , relationship-based customer service . our core business strategies are to : continue to originate and sell certain residential real estate loans . residential mortgage lending has historically been a significant part of our business , and we recognize that originating one- to four-family residential real estate loans is essential to our status as a community-oriented bank . during the year ended december 31 , 2020 , we originated $ 618.1 million in one- to four-family residential real estate loans held for sale , selling $ 600.8 million 41 in one- to four-family residential real estate loans held for sale for gains on sale of $ 13.3 million . story_separator_special_tag the allowance is based on the bank 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , composition of the loan portfolio , current economic conditions and other relevant factors . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available . the allowance consists of specific , and general components . the specific component relates to loans that are classified as impaired . for loans that are classified as impaired , an allowance is established when the discounted cash flows ( or collateral value or observable market price ) of the impaired loan is lower than the carrying value of that loan . the general component covers pools of loans by loan class including commercial loans not considered impaired , as well as smaller balance homogeneous loans , such as residential mortgage , home equity , home equity lines of credit and consumer loans . these pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans , adjusted for qualitative factors . these qualitative risk factors include : lending policies and procedures , including underwriting standards and collection , charge-off , and recovery practices ; national , regional , and local economic and business conditions as well as the condition of various market segments , including the value of underlying collateral for collateral dependent loans ; nature and volume of the portfolio and terms of loans ; volume and severity of past due , classified and nonaccrual loans as well as and other loan modifications ; existence and effect of any concentrations of credit and changes in the level of such concentrations ; and effect of external factors , such as competition and legal and regulatory requirements . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation . in addition , the fdic and the pennsylvania department of banking and securities , as an integral part of their examination process , periodically review our allowance for loan losses . these agencies may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination . a large loss could deplete the allowance and require increased provisions to replenish the allowance , which would adversely affect earnings . see note 1 of the notes to the audited consolidated financial statements of the company included in this annual report . income taxes . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . 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 . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred income tax expense results from changes in deferred tax assets and liabilities between periods . deferred tax assets are reduced by a valuation allowance if , based on the weight of the evidence available , it is more likely than not that some portion or all of a deferred tax asset will not be realized . see also note 14– income taxes in the notes to the consolidated financial statements . 43 investment securities . securities are evaluated on a quarterly basis , and more frequently when market conditions warrant such an evaluation , to determine whether declines in their value are other-than-temporary . to determine whether a loss in value is other-than-temporary , management utilizes criteria such as reasons underlying the decline , the magnitude and duration of the decline and whether or not management intends to sell or expects that it is more likely than not it will be required to sell the security prior to an anticipated recovery of fair value . the term “ other-than-temporary ” is not intended to indicate that the decline is permanent , but indicates that the prospects for a near-term recovery of value is not necessarily favorable , or that there is lack of evidence to support a realizable value equal to or greater than the carrying value of the investment . once a decline in value for a debt security is determined to be other-than-temporary , the other-than-temporary impairment is separated into ( a ) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security ( the credit losses ) and ( b ) the amount of the total other-than-temporary impairment related to other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings . the amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income ( loss ) . fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . the fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value .
| general net income increased $ 4.8 million , or 471.1 % , to $ 5.8 million for the year ended december 31 , 2020 from $ 1.0 million for the year ended december 31 , 2019. the increase in net income for the year ended december 31 , 2020 was primarily due to increases in non-interest income of $ 10.2 million and increase in net interest income of $ 2.5 million partially offset an increases of $ 5.7 million in non-interest expense , $ 1.9 million in income tax expense and $ 298,000 in provision for loan losses as compared to the year ended december 31 , 2019. interest income total interest income increased $ 2.0 million , or 16.9 % , to $ 13.8 million for the year ended december 31 , 2020 from $ 11.8 million for the year ended december 31 , 2019. the increase was primarily the result of a $ 2.6 million increase in interest and fees on loans partially offset by a $ 373,000 decrease in interest on investment securities and a $ 249,000 decrease in interest-earning deposits with 48 banks . the average balance of our interest-earning assets increased by $ 96.3 million to $ 414.9 million for the year ended december 31 , 20 20 as compared to $ 3 18.6 million for the year ended december 31 , 201 9 . the increase was primarily a result of increases in the average balance of loans of $ 86.3 million and $ 24.2 million in interest on interest-earning deposits parti ally off-set by a decrease of $ 14.7 million in the average balance of investment securities . the average yield on our interest-earning assets de creased 39 basis points to 3 . 33 % for the year ended december 31 , 20 20 as compared to 3 .
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in addition , state and federal regulators periodically review the waterstone bank allowance for loan losses . such regulators have the authority to require waterstone bank to recognize additions to the allowance at the time of their examination . - 43 - income taxes . the company and its subsidiaries file consolidated federal , combined state income tax , and separate state income tax returns . the provision for income taxes is based upon income in the consolidated financial statements , rather than amounts reported on the income tax return . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as for net operating loss carry forwards . 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 . the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date . under generally accepted accounting principles , a valuation allowance is required to be recognized if it is `` more likely than not '' that a deferred tax asset will not be realized . the determination of the realizability of deferred tax assets is highly subjective and dependent upon judgment concerning management 's evaluation of both positive and negative evidence , the forecasts of future income , applicable tax planning strategies , and assessments of current and future economic and business conditions . examples of positive evidence may include the existence of taxes paid in available carry-back years as well as the probability that taxable income will be generated in future periods . examples of negative evidence may include cumulative losses in a current year and prior two years and general business and economic trends . positions taken in the company 's tax returns are subject to challenge by the taxing authorities upon examination . the benefit of uncertain tax positions are initially recognized in the financial statements only when it is more likely than not that the position will be sustained upon examination by the tax authorities . such tax positions are both initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon settlement with the tax authority , assuming full knowledge of the position and all relevant facts . interest and penalties on income tax uncertainties are classified within income tax expense in the income statement . fair value measurements . the company determines the fair value of its assets and liabilities in accordance with asc 820. asc 820 establishes a standard framework for measuring and disclosing fair value under generally accepted accounting principles . a number of valuation techniques are used to determine the fair value of assets and liabilities in the company 's financial statements . the valuation techniques include quoted market prices for investment securities , appraisals of real estate from independent licensed appraisers and other valuation techniques . fair value measurements for assets and liabilities where limited or no observable market data exists are based primarily upon estimates , and are often calculated based on the economic and competitive environment , the characteristics of the asset or liability and other factors . therefore , the valuation results can not be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability . additionally , there are inherent weaknesses in any calculation technique , and changes in the underlying assumptions used , including discount rates and estimates of future cash flows , could significantly affect the results of current or future values . significant changes in the aggregate fair value of assets and liabilities required to be measured at fair value or for impairment are recognized in the income statement under the framework established by generally accepted accounting principles . recent accounting pronouncements . refer to note 1 of our consolidated financial statements for a description of recent accounting pronouncements including the respective dates of adoption and effects on results of operations and financial condition . comparison of consolidated waterstone financial , inc. financial condition at december 31 , 2016 and at december 31 , 2015 total assets . total assets increased by $ 27.9 million , or 1.6 % , to $ 1.79 billion at december 31 , 2016 from $ 1.76 billion at december 31 , 2015. the increase in total assets primarily reflects an increase in loans and loans held for sale offset by a reduction in cash and cash equivalents and securities available for sale . funding needed for the loans receivable and loans held for sale was provided by a reduction of cash and cash equivalents and paydowns in securities available for sale . cash and cash equivalents . cash and cash equivalents decreased $ 53.3 million to $ 47.2 million at december 31 , 2016 from $ 100.5 million at december 31 , 2015. the decrease in cash and cash equivalents primarily reflects the increase in loans receivable and loans held for sale . in addition , cash was used to pay down borrowings , purchase bank owned life insurance , and repurchase shares since december 31 , 2015. securities available for sale . securities available for sale decreased by $ 42.9 million to $ 226.8 million at december 31 , 2016 from $ 269.7 million at december 31 , 2015. the decrease was due to paydowns in mortgage related securities and maturities of debt securities exceeding security purchases for the year . loans held for sale . story_separator_special_tag compensation , payroll taxes , and other employee benefits expense increased $ 730,000 to $ 17.2 million due to increases in health insurance costs and esop expense offset from the immediate vesting of 94,100 restricted share awards that amounted to $ 1.2 million in additional compensation expense in the prior year . other non-interest expenses increased from the prior year . occupancy , office furniture , and equipment remained consistent to the prior year . fdic insurance premiums and real estate owned expenses decreased from the prior year as a direct result of improved asset quality metrics . - 45 - comparison of mortgage banking segment operations for the years ended december 31 , 2016 and 2015 net income from our mortgage banking segment for the year ended december 31 , 2016 totaled $ 12.3 million compared to net income of $ 8.3 million for the year ended december 31 , 2015. we originated $ 2.38 billion in mortgage loans held for sale during the year ended december 31 , 2016 , which was an increase of $ 392.8 million , or 19.8 % , from the $ 1.99 billion originated during the year ended december 31 , 2015 , which was primarily responsible for an increase in total mortgage banking income of $ 21.8 million , or 21.9 % , to $ 121.1 million during the year ended december 31 , 2016 compared to $ 99.3 million during the year ended december 31 , 2015. the increase in loan production volume was driven by a 20.1 % increase in mortgage purchase products and a 27.4 % increase in refinance products . in addition , margins increased for the year ended december 31 , 2016 compared to december 31 , 2015. we sell loans on both a servicing-released and a servicing retained basis . waterstone mortgage corporation has contracted with a third party to service the loans for which we retain servicing . our overall margin can be affected by the mix of both loan type ( conventional loans versus governmental ) and loan purpose ( purchase versus refinance ) . conventional loans include loans that conform to fannie mae and freddie mac standards , whereas governmental loans are those loans guaranteed by the federal government , such as a federal housing authority or u.s. department of agriculture loan . loans originated for the purchase of a residential property , which generally yield a higher margin than loans originated for refinancing existing loans , comprised 82.9 % of total originations during the year ended december 31 , 2016 , compared to 83.7 % of total originations during the year ended december 31 , 2015. the mix of loan type trended slightly towards more conventional loans and less governmental loans comprising 65.1 % and 34.9 % of all loan originations , respectively , during the year ended december 31 , 2016 , compared 66.4 % and 33.6 % of all loan originations , respectively , during the year ended december 31 , 2015. during the year ended december 31 , 2016 , no mortgage servicing rights were sold . during the year ended december 31 , 2015 , mortgage servicing rights related to $ 580.2 million in loans receivable with a book value of $ 4.4 million were sold at a gain of $ 901,000. total compensation , payroll taxes and other employee benefits increased $ 12.6 million , or 19.1 % , to $ 78.3 million for the year ended december 31 , 2016 compared to $ 65.7 million for the year ended december 31 , 2015. the increase in compensation expense was primarily a result of the increase in mortgage banking income , given our commission-based loan officer compensation model . other noninterest expense increased $ 1.4 million to $ 17.5 million as fundings increased driving more volume-based expenses . comparison of consolidated waterstone financial , inc. results of operations for the years ended december 31 , 2016 and 2015 replace_table_token_20_th - 46 - average balance sheets , interest and yields/costs the following table set forth average balance sheets , annualized average yields and costs , and certain other information for the periods indicated . non-accrual loans were included in the computation of the average balances of loans receivable and held for sale . the yields set forth below include the effect of deferred fees , discounts and premiums that are amortized or accreted to interest income or expense . yields on interest-earning assets are computed on a fully tax-equivalent yield , where applicable . replace_table_token_21_th ( 1 ) includes net deferred loan fee amortization income of $ 720,000 , $ 573,000 and $ 627,000 for the years ended december 31 , 2016 , 2015 and 2014 , respectively . ( 2 ) average balance of available for sale securities is based on amortized historical cost . ( 3 ) interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 35 % for all periods presented . the yields on debt securities , federal funds sold and short-term investments before tax-equivalent adjustments were 1.76 % , 1.35 % , and 1.07 % for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . ( 4 ) net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities and is presented on a fully tax equivalent basis .. ( 5 ) net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities . ( 6 ) net interest margin represents net interest income divided by average total interest-earning assets . - 47 - rate/volume analysis the following table sets forth the effects of changing rates and volumes on our net interest income for the periods indicated . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) .
| overview the following discussion and analysis is presented to assist the reader in understanding and evaluating of the company 's financial condition and results of operations . it is intended to complement the consolidated financial statements , footnotes , and supplemental financial data appearing elsewhere in this form 10-k and should be read in conjunction therewith . the detailed discussion in the sections below focuses on the results of operations for the years ended december 31 , 2016 , 2015 , and 2014 and the financial condition as of december 31 , 2016 compared to the financial condition as of december 31 , 2015. as described in the notes to consolidated financial statements , we have two reportable segments : community banking and mortgage banking . the community banking segment provides consumer and business banking products and services to customers . consumer products include loan products , deposit products , and personal investment services . business banking products include loans for working capital , inventory and general corporate use , commercial real estate construction loans , and deposit accounts . the mortgage banking segment , which is conducted through waterstone mortgage corporation , consists of originating residential mortgage loans primarily for sale in the secondary market . our community banking segment generates the significant majority of our consolidated net interest income and requires the significant majority of our provision for loan losses . our mortgage banking segment generates the significant majority of our noninterest income and a majority of our noninterest expenses . we have provided below a discussion of the material results of operations for each segment on a separate basis for the years ended december 31 , 2016 , 2015 , and 2014 , which focuses on noninterest income and noninterest expenses . we have also provided a discussion of the consolidated operations of waterstone financial , which includes the consolidated operations of waterstone bank and waterstone mortgage corporation , for the same periods .
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the company valued the warrants at $ 886,000 , based on story_separator_special_tag in addition to historical information , the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements as defined under section 21e of the securities exchange act of 1934 , as amended , and is subject to the safe harbor created therein for forward-looking statements . such statements include , but are not limited to , statements concerning our anticipated operating results , research and development , clinical trials , regulatory proceedings , and financial resources , and can be identified by use of words such as , for example , anticipate , estimate , expect , project , intend , 24 plan , believe and would , should , could or may. all statements , other than statements of historical facts , included herein that address activities , events , or developments that the company expects or anticipates will or may occur in the future , are forward-looking statements , including statements regarding : plans and expectations regarding clinical trials ; plans and expectations regarding regulatory approvals ; our strategy and expectations for clinical development and commercialization of our products ; potential strategic partnerships ; expectations regarding the effectiveness of our products ; plans for research and development and related costs ; statements about accounting assumptions and estimates ; expectations regarding liquidity and the sufficiency of cash to fund operations through the first quarter of 2014 ; our commitments and contingencies ; and our market risk exposure . forward-looking statements are based on current expectations , estimates and projections about the industry and markets in which galectin therapeutics operates , and management 's beliefs and assumptions . these statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements . such risks and uncertainties are related to , without limitation , our early stage of development ; our dependence on outside capital ; uncertainties related to our technology and clinical trials , intellectual property protection , uncertainties of regulatory approval requirements for our products ; competition and stock price volatility in the biotechnology industry , limited trading volume for our stock , concentration of ownership of our stock , and other risks detailed herein and from time to time in our sec reports . the following discussion should be read in conjunction with the accompanying consolidated financial statements and notes thereto of galectin therapeutics appearing elsewhere herein . overview we are a development-stage company engaged in drug research and development to create new therapies for fibrotic disease and cancer . our drug candidates are based on our method of targeting galectin proteins , which are key mediators of biologic and pathologic functions . we use naturally occurring , readily-available plant materials as starting material in manufacturing processes to create proprietary complex carbohydrates with specific molecular weights and other pharmaceutical properties . these complex carbohydrate molecules are appropriately formulated into acceptable pharmaceutical formulations . using these unique carbohydrate-based candidate compounds that bind and inhibit galectin proteins , we are undertaking the focused pursuit of therapies for indications where galectins have a demonstrated role in the pathogenesis of a given disease . we focus on diseases with serious , life-threatening consequences to patients and those where current treatment options are limited . our strategy is to establish and implement clinical development programs that add value to our business in the shortest period of time possible and to seek strategic partners when a program becomes advanced and requires additional resources . we endeavor to leverage our scientific and product development expertise as well as established relationships with outside sources to achieve cost-effective and efficient development . these outside sources , amongst others , provide us with expertise in preclinical models , pharmaceutical development , toxicology , clinical development , pharmaceutical manufacturing , sophisticated physical and chemical characterization , and commercial development . we also have established a collaborative scientific discovery program with leading experts in carbohydrate chemistry and characterization . this discovery program is aimed at the targeted development of new molecules which bind galectin proteins and offer alternative options to larger market segments in our primary disease targets . we are pursuing a development pathway to clinical enhancement and commercialization for our lead compounds in liver fibrosis and fatty liver disease as well as in immune enhancement for cancer therapy . all of our proposed products are presently in development , including pre-clinical and clinical trials . 2012 common stock and warrant offering and reverse split on march 22 , 2012 , in anticipation of completing a public offering of securities , we effected a one-for-six reverse stock split of our common stock . all common share and per unit amounts in this report , including the financial statements , have been adjusted to reflect the reverse split . our common stock began trading on the 25 nasdaq capital market under the symbol galt on march 23 , 2012 , and the units and warrants that we sold in the offering began trading on that exchange under the symbols galtu and galtw , respectively , on march 28 , 2012. on march 28 , 2012 , we completed the public offering in which we issued 2,666,722 shares of common stock and related warrants exercisable until march 28 , 2017 , at $ 5.63 per share to purchase 1,333,361 shares of common stock for gross proceeds of $ 12.0 million ( net cash proceeds of 10.4 million ) . our drug development programs galectins are a class of proteins that are made by many cells in the body . as a group , these proteins are able to bind to sugar molecules that are part of other proteins in and on the cells of our body . galectin proteins act as a kind of glue , bringing together molecules that have sugars on them . story_separator_special_tag depending on the results of stage 1 , which is defined as a partial or complete response by recist criteria in at least one out of six patients , the study could continue enrollment to complete stage 2 ( 46 total patients ) , initiate a new phase ii trial based on positive results or be halted because of lack of efficacy . stage 1 of the trial is being funded by the cancer centre at the cliniques universitaires saint-luc and stage 2 may require funding from the company , beyond the provision of material , however , we have no commitment to fund stage 2 of the trial . we do not control this phase i/ii clinical trial in belgium which is being conducted under an ema-approved impd . we are the sponsor of an open ind application under the fda for gm-ct-01 ; no trials are currently being conducted in the u.s we previously attempted to gain regulatory approval of gm-ct-01 for use in combination with 5-fu ( 5-fluorouracil , an anti-cancer chemotherapy drug ) containing chemotherapy regiments for metastatic colorectal cancer in colombia . this approach had been recommended to the company by key oncology opinion leaders in colombia and by procaps s.a. ( procaps ) , a colombia-based pharmaceutical company . there has been no approval of gm-ct-01 in a major region such as the u.s. or europe and it was determined that approval from the regulatory authority in columbia ( invima ) would require additional clinical trial data . although the company worked with procaps to design a phase iii clinical trial , a satisfactory plan could not be agreed upon and we terminated the agreement with procaps ( as described below ) , effective september 29 , 2012 , and have no current plans to continue attempts to gain approval of gm-ct-01 in columbia . we had not taken into account projections for any potential revenues from this agreement in our financing plans . agreement with procaps s.a. on march 25 , 2010 , we granted procaps s.a. ( in the form of a definitive term sheet ) exclusive rights to market and sell gm-ct-01 to treat cancer in colombia , south america . procaps is an international , privately held pharmaceutical company based in barranquilla , colombia . in october 2010 , we received a payment of $ 200,000 and shipped gm-ct-01 to procaps to be used by procaps to undertake initial steps contemplated by the term sheet . we recorded the $ 200,000 payment from procaps as deferred revenue on the condensed consolidated balance sheet as of december 31 , 2011 , to be recognized when the remaining deliverables of the agreement were completed . on october 18 , 2011 , we entered into a collaboration , supply , marketing and distribution agreement ( the agreement ) with procaps . the agreement granted procaps first negotiation rights to enter into similar agreements in other central and south american countries . we were to be the sole manufacturer and supplier of 27 gm-ct-01 to procaps . the agreement obligated procaps to procure regulatory approvals necessary for the marketing and sale of gm-ct-01 naming us as the owner of such approvals to the extent permitted by law , or alternatively hold the approvals for our benefit . procaps was required to pay us a stated fee for each dose it purchases and royalties at an incremental rate determined by annual net sales of gm-ct-01 . we retained all intellectual property rights to gm-ct-01 and related products and procaps may not produce , modify , reverse engineer , or otherwise interfere with the gm-ct-01 compound . procaps may not manufacture or sell products that compete with gm-ct-01 during the term of the agreement and for five years thereafter . procaps had not obtained approval to sell gm-ct-01 in columbia as required by the agreement and , as they were in material breach of the agreement , we terminated the agreement , effective september 29 , 2012. with no further obligations under the agreement , we recognized the $ 200,000 payment as other income in the statements of operations during the year ended december 31 , 2012. results of operations from the years ended december 31 , 2012 and 2011 research and development expense replace_table_token_2_th we generally categorize research and development expenses as either direct external expenses , comprised of amounts paid to third party vendors for services , or all other research and development expenses , comprised of employee payroll and general overhead allocable to research and development . we consider a clinical program to have begun upon acceptance by the fda , or similar agency outside of the united states , to commence a clinical trial in humans , at which time we begin tracking expenditures by the product candidate . clinical program expenses comprise payments to vendors related to preparation for , and conduct of , all phases of the clinical trial , including costs for drug manufacture , patient dosing and monitoring , data collection and management , oversight of the trials and reports of results . pre-clinical expenses comprise all research and development amounts incurred before human trials begin , including payments to vendors for services related to product experiments and discovery , toxicology , pharmacology , metabolism and efficacy studies , as well as manufacturing process development for a drug candidate . we have two product candidates , gr-md-02 and gm-ct-01 . we filed for an ind for gr-md-02 in january 2013 and in february 2013 we entered into an agreement with cti to conduct a phase i clinical trial of gr-md-02 which we expect will begin enrolling patients in the second quarter of 2013. in march 2013 , the fda indicated we could proceed with a phase i human clinical trial of gr-md-02 . gm-ct-01 is in a phase i/ii clinical trial in europe at this time , which is being conducted in collaboration with the cancer centre at the cliniques universitaires saint-luc and the ludwig institute for cancer research in belgium .
| general and administrative expense replace_table_token_4_th general and administrative expenses consist primarily of salaries including stock based compensation , legal and accounting fees , insurance , investor relations , business development and other office related expenses . the primary reasons for the decrease for the year ended december 31 , 2012 as compared to the same period in 2011 is due to decreased legal expenses ( $ 119,000 ) and decreased investor relations and business development costs ( $ 299,000 ) as we decreased work related to the procaps agreement which we terminated in 2012 , offset by increased insurance and public company related costs ( $ 113,000 ) . additionally , in 2011 , when it became probable that we would be relisted on a national securities exchange we recognized a $ 1.0 million payment due to our former ceo , dr. platt . also , we settled litigation and recognized $ 162,000 of related expense in 2011. other income and expense during the year ended december 31 , 2012 , other income and expense consisted primarily of the $ 200,000 payment from procaps which was previously accounted for as deferred income and recognized upon the termination of the procaps agreement , as previously described . other income and expense for the year ended december 31 , 2011 included an expense of $ 524,000 , related to the change in fair value of warrant liabilities . the company had no warrant liabilities as of december 31 , 2012 or during the year then ended or as of december 31 , 2011 . 29 liquidity and capital resources as described above in the overview and elsewhere in this annual report on form 10-k , we are in the development stage and have not generated any revenues to date . since our inception on july 10 , 2000 , we have financed our operations from proceeds of public and private offerings of debt and equity .
| 1,805 |
in addition , we had canadian non-capital loss carryforwards of approximately $ 10,444 , which expire from 2018 to 2037. as of december 31 , 2017 , there were canadian capital loss carryforwards of $ 28 . a full valuation allowance has been recorded against the tax effected us and canadian loss carryforwards as we do not consider realization of such assets to meet the required 'more likely than not ' standard . section 382 of the internal revenue code could apply and limit our ability to utilize a portion of the u.s. nol carryforwards . no section 382 study has been completed ; therefore , the actual usage of u.s. nol carryforwards has not been determined . for financial reporting purposes , income/ ( loss ) from continuing operations before income taxes consists of the following components : replace_table_token_14_th a reconciliation of expected income tax on net income at statutory rates is as follows : replace_table_token_15_th we do not have any unrecognized income tax benefits . should we incur interest and penalties relating to tax uncertainties , such amounts would be classified as a component of the interest expense and operating expense , respectively . 68 rare element resources ltd. 262 notes to financial statements december 31 , 2017 ( all amounts stated in thousands of u.s. dollars except share and per share amounts ) rare element and its wholly owned subsidiary , rare element holdings ltd. , file income tax returns in the canadian federal jurisdiction and provincial jurisdictions , and its wholly owned subsidiary , rare element resources , inc. , files in the u.s. federal jurisdiction and various state jurisdictions . the years still open for audit are generally the current year plus the previous three . however , because we have nols carrying forward , certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax losses carried forward to open years . 8. commitments and contingencies potential environmental contingency our exploration and development activities are subject to various federal and state laws and regulations governing the protection of the environment . these laws and regulations are continually changing and generally have become more restrictive . the company conducts its operations to protect public health and the environment and believes that its operations are materially in compliance with all applicable laws and regulations . we have made , and expect to make in the future , expenditures to comply with such laws and regulations . the ultimate amount of reclamation and other future site-restoration costs to be incurred for existing mining interests is uncertain . 9. supplemental disclosure with respect to cash flows the company did not have any significant non-cash transactions during the years ended december 31 , 2017 or 2016 . 10. segment information the company operates in a single reportable operating segment , being the exploration of mineral properties . 11. reclamation obligation revision during the year ended december 31 , 2017 , we reduced our reclamation obligation by $ 225 based on a revision of our previous estimate . the wyoming department of environmental quality concurred that the completed reclamation work was in compliance with its standards and the estimated amount for the remainder of the reclamation activities was $ 132 . as we do not expect to incur any reclamation obligation activities which story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . see cautionary note regarding forward-looking statements. our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including , but not limited to , those set forth in item 1a . risk factors and elsewhere in this annual report . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in item 8 of this annual report . this management 's discussion and analysis ( this md & a ) has been prepared based on information known to management as of march 28 , 2018. this md & a is intended to help the reader understand the consolidated audited financial statements of the company . all currency amounts are expressed in thousands of u.s. dollars , except per share and common share amounts , unless otherwise noted . outlook during the first quarter of 2016 , we placed the bear lodge ree project under care-and-maintenance , and all permitting activities were suspended . the company continued the 2016 implemented cost-conservation measures throughout 2017. with the completion of the transaction with synchron on october 2 , 2017 ( discussed below ) , the company is considering an updated work plan to ( i ) confirm and enhance our proprietary technology for rare earth processing and separation through pilot plant testing , ( ii ) progress engineering work to optimize our mine plan , and ( iii ) determine the timing for the resumption of permitting efforts . the company will additionally continue with certain limited exploration-related reclamation activities in 2018 as required and appropriate . story_separator_special_tag financings , asset sales and or strategic alternatives , including joint ventures and the potential sale of all , or a portion of , the bear lodge ree project and or the sundance gold project . story_separator_special_tag pursuant to the ip rights agreement , synchron , and its affiliates , were granted certain rights to the company 's intellectual property relating to our patents-pending and related technical information . pursuant to and subject to the terms and conditions of the ip rights agreement , synchron , and its affiliates , were granted a perpetual non-exclusive license in the company 's rare earth intellectual property which , upon exercise of the option , will become exclusive to synchron and its affiliates , subject to all rights in the intellectual property retained by the company . the company made certain representations and warranties as to the current status of its intellectual property at the time of the license grant . in addition , pursuant to and subject to the terms and conditions of the ip rights agreement , synchron ( i ) will receive a royalty-free exclusive right to the company 's rare earth intellectual property if the option is exercised in full but ( ii ) will be required to pay a commercially reasonable royalty to the company for its intellectual property if synchron does not exercise the option prior to its expiration . off-balance sheet arrangements we have no off-balance sheet arrangements required to be disclosed in this annual report . contractual obligations as of december 31 , 2017 , we had no material contractual obligations required to be disclosed in this annual report . critical accounting estimates exploration and development costs exploration costs are expensed as incurred . when it is determined that a mining deposit can be economically and legally extracted or produced based on established proven and probable reserves under sec industry guide 7 , development costs related to such reserves and incurred after such determination will be considered for capitalization . the establishment of proven and probable reserves is based on results of feasibility studies . upon commencement of commercial production , capitalized costs will be amortized over their estimated useful lives or units of production , whichever is a more reliable measure . capitalized amounts relating to a property that is abandoned or otherwise considered uneconomic for the foreseeable future will be written off . 50 stock-based compensation we account for stock-based compensation under the provisions of financial accounting standards board ( fasb ) accounting standards certification ( asc ) 718 , compensation stock compensation. under the fair value recognition provisions , stock-based compensation expense is measured at the grant date for all stock-based awards granted to employees and directors . we account for stock-based compensation arrangements with non-employees in accordance with asc 718 and asc 505-15 , equity , which require that such equity instruments are recorded at their fair value on the on the grant date of such awards and marked to market at each reporting period until the grant vests . the fair value of all share-based compensation awards is calculated using the black-scholes option valuation model , and the amount is recorded as an expense with a corresponding increase in additional paid-in-capital . all stock-based compensation charges are amortized over the vesting period on a straight-line basis . reclamation obligations our mining and exploration activities are subject to various laws and regulations , including legal and contractual obligations to reclaim , remediate , or otherwise restore properties at the time the property is removed from service . reclamation obligations are recognized when incurred and recorded as liabilities at fair value . the reclamation obligation is based on when spending for an existing disturbance will occur . we reclaim the disturbance from our exploration programs on an ongoing basis and , therefore , the portion of our reclamation obligation corresponding to our exploration programs will be settled in the near term and is classified as a current liability . the remaining reclamation associated with environmental monitoring programs is classified as a long-term liability ; however , because we have not declared proven and probable reserves as defined by sec industry guide 7 , the timing of these reclamation activities is uncertain as the reclamation areas will be utilized once the project is operating . for exploration stage properties that do not qualify for asset capitalization , the costs associated with the obligation are charged to operations . for development and production stage properties , the costs are added to the capitalized costs of the property and amortized using the units-of-production method . we review , on a quarterly basis , unless otherwise deemed necessary , the reclamation obligation in connection with the bear lodge property . reclamation obligations are secured by surety bonds held for the benefit of the state of wyoming in amounts determined by applicable federal and state regulatory agencies . recent accounting pronouncements revenue recognition the fasb issued accounting standards update ( asu ) asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) . asu no . 2014-09 , as subsequently amended , supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and most industry-specific guidance throughout the industry topics of the codification . additionally , asu no . 2014-09 supersedes some cost guidance included in revenue recognition-construction-type and production-type contracts ( subtopic 605-35 ) . under asu no . 2014-09 , an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asu no . 2014-09 also requires additional disclosure about the nature , amount , timing , and uncertainty of revenue and cash flows arising from customer contracts . this includes significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . the new guidance is effective for interim and annual periods beginning after december 15 , 2017. as the company 's current polices are substantially compliant with asu no . 2014-09 , we do not expect a material
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 summary our consolidated net loss for the year ended december 31 , 2017 was $ 853 , or $ 0.01 per share , compared with our consolidated net loss of $ 3,426 , or $ 0.07 per share , for the same period in 2016. for the year ended december 31 , 2017 , the decrease in consolidated net loss was primarily the result of a decrease in corporate administration expenses of $ 1,423 , a decrease in impairment charges of $ 407 , a decrease in our reclamation obligation of $ 225 and the gain on the revaluation of the option liability of $ 209. exploration and evaluation exploration and evaluation costs were $ 138 for the year ended december 31 , 2017 and approximating $ 394 for the same period in 2016. during 2016 , we suspended the majority of permitting activities while continuing the work necessary to maintain our assets at the bear lodge ree project . 47 corporate administration corporate administration costs decreased to $ 1,183 for year ended december 31 , 2017 , compared with $ 2,606 for the same period in 2016 , a decrease of $ 1,423. during the year ended december 31 , 2016 , corporate administration costs included one-time expenses of $ 950 incurred in placing the bear lodge ree project on care-and-maintenance and severing all but one of our full-time employees . reclamation obligation revision during the year ended december 31 , 2017 , we reduced our reclamation obligation by $ 225 based on a revision of our previous estimate .
| 1,806 |
realized gains and losses from the sale of available for sale securities , if any , are determined on a specific identification basis . a decline in the fair value of any available for sale security below cost that is determined to be other than temporary will result in a write-down of its carrying amount to fair value . no such impairment charges were recorded for any period presented . all short-term investment securities have original maturities greater than 90 days . 43 the fair value , amortized cost and gross unrealized gains and losses of the securities are as follows : replace_table_token_14_th the contractual maturity dates of these securities are as follows : replace_table_token_15_th actual maturities are expected to differ from contractual dates as a result of sales or earlier issuer redemptions . note 4inventories inventories are stated at the lower of cost ( first-in , first-out ) or market and include material , labor and manufacturing overhead . the components of inventories are as follows : replace_table_token_16_th the balance of inventory at january 31 , 2014 includes $ 2,500,000 of inventory related to the acquisition of miltope . included within finished goods inventory is $ 767,000 and $ 812,000 of demonstration equipment at january 31 , 2014 and 2013 , respectively . 44 note 5accrued expenses accrued expenses consisted of the following : replace_table_token_17_th note 6line of credit on january 15 , 2014 , the company amended its agreement with wells fargo bank to increase the existing line of credit from $ 5,000,000 to $ 10,000,000 . borrowings under this line of credit bear interest at either a fluctuating 75 basis points below the base rate , as defined in the agreement , or at a fixed rate 150 basis points above libor . at january 31 , 2014 , there were no borrowings against this line and the entire line is currently available . note 7note receivable and revolving line of credit issued on january 30 , 2012 , we completed the sale of our label manufacturing operations in asheboro , north carolina to label line ltd. the net sales price of $ 1,000,000 was received in the form of a promissory note issued by label line ltd. and is fully secured by a first lien on various collateral , including the asheboro plant and plant assets . the note bears interest at the united states prime rate as of january 30 , 2013 plus 50 basis points ( 3.75 % at january 31 , 2014 ) and is payable in sixteen quarterly installments of principal and interest commencing on january 30 , 2013. the note receivable is disclosed at its present value on the accompanying consolidated balance sheets . as of january 31 , 2014 , $ 690,000 remains outstanding on this note . the terms of the asheboro sale also included an agreement for astro-med to provide label line ltd. with additional financing in form of a revolving line of credit in the amount of $ 600,000 , which is fully secured by a first lien on various collateral , including the asheboro plant and plant assets . this line of credit bears interest at a rate equal to the united states prime rate plus an additional margin of two percent of the outstanding credit balance ( 5.25 % at january 31 , 2014 ) . although the initial term was for a period of one-year from the date of the sale , the agreement has been extended through january 31 , 2015. as of january 31 , 2014 , $ 240,000 remains outstanding on this revolving line of credit . 45 note 8accumulated other comprehensive income the changes in the balance of accumulated other comprehensive income by component are as follows : replace_table_token_18_th the amounts presented above in other comprehensive income are net of taxes . note 9shareholders ' equity the number of story_separator_special_tag overview astro-med is a multi-national enterprise , that designs , develops , manufactures , distributes and services a broad range of products that acquire , store , analyze and present data in multiple formats . the company organizes its structure around a core set of competencies , including research and development , manufacturing , service , marketing and distribution . it markets and sells its products and services through the following two sales product groups : quicklabel systems product group ( quicklabel ) offers label printer hardware , labeling software , servicing contracts , and label and ink consumable products that digitally print color labels on a broad range of label and tag substrates . test and measurement product group ( t & m ) offers a suite of ruggedized printer products designed primarily for military and commercial aerospace applications to be used in the aerospace and defense industry to print weather maps , communications and other critical flight information . t & m also comprises a suite of telemetry recorder products sold to the aerospace and defense industries , as well as portable data acquisition recorders , which offer diagnostic and test functions to a wide range of manufacturers including automotive , energy , paper and steel fabrication . on january 22 , 2014 , astro-med completed the acquisition of the ruggedized printer product line from miltope corporation ( miltope ) , a company of vt systems , which is engaged in the design , development , manufacture and testing of ruggedized computers and computer peripheral equipment for military , industry and commercial applications . astro-med 's ruggedized printer product line is part of the test & measurement ( t & m ) product group and is reported as part of the t & m segment . the results of the miltope 's ruggedized printer product line operations since the acquisition date have been included in the consolidated financial statements of the company . story_separator_special_tag included in net cash flow used by financing activities for fiscal 2014 were dividends paid of $ 2,103,000. dividends paid in fiscal 2013 were $ 2,595,000. the company 's annual dividend per share was $ 0.28 in fiscal 2014 and $ 0.35 in fiscal 2013. the company has not repurchased any shares of its common stock in fiscal 2014 ; however , since the inception of the common stock buy back program in fiscal 1997 , the company has repurchased a total of 1,530,000 shares of its common stock . at january 31 , 2014 , the company 's board of directors has authorized the purchase of an additional 390,000 shares of the company 's common stock in the future . contractual obligations , commitments and contingencies astro-med is subject to contingencies , including legal proceedings and claims arising out of its businesses that cover a wide range of matters , such as : contract and employment claims ; workers compensation claims ; product liability claims ; warranty claims ; and claims related to modification , adjustment or replacement of component parts of units sold . while it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities , including lawsuits , we believe that the aggregate amount of such liabilities , if any , in excess of amounts provided or covered by insurance , will not have a material adverse effect on our consolidated financial position or results of operations . it is possible , however , that results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the company 's control . critical accounting policies and estimates astro-med 's discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . we periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our 19 interim and year-end reporting requirements . these judgments and estimates are based on the company 's historical experience , current trends and information available from other sources , as appropriate . if different conditions result from those assumptions used in our judgments , the results could be materially different from our estimates . we believe the following are our most critical accounting policies as they require significant judgments and estimates in the preparation of our financial statements : revenue recognition : our product sales are recognized when all of the following criteria have been met : persuasive evidence of an arrangement exists ; price to the buyer is fixed or determinable ; delivery has occurred and legal title and risk of loss have passed to the customer ; and collectability is reasonably assured . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . returns and customer credits are infrequent and are recorded as a reduction to sales . rights of return are not included in sales arrangements . revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied . when a sale arrangement involves training or installation , the deliverables in the arrangement are evaluated to determine whether they represent multiple element arrangements . this evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered . the total fee from the arrangement is allocated to each unit of accounting based on its relative fair value . fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately . we allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices . we determine the selling price for each deliverable based on a selling price hierarchy . the selling price for a deliverable is based on our vendor specific objective evidence ( vsoe ) if available , third-party evidence ( tpe ) if vsoe is not available , or estimated selling price ( esp ) if neither vsoe nor tpe is available . revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met . the amount of product revenue recognized is affected by our judgments as to whether an arrangement includes multiple elements . astro-med recognizes revenue for non-recurring engineering ( nre ) fees , as necessary , for product modification orders upon completion of agreed-upon milestones . revenue is deferred for any amounts received prior to completion of milestones . certain of our nre arrangements include formal customer acceptance provisions . in such cases , we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue . infrequently , the company receives requests from customers to hold product being purchased from us for the customers ' convenience . we recognize revenue for such bill and hold arrangements provided the transaction meets the following criteria : a valid business purpose for the arrangement exists ; risk of ownership of the purchased product has transferred to the buyer ; there is a fixed delivery date that is reasonable and consistent with the buyer 's business purpose ; the product is ready for shipment ; the payment terms are customary ; we have no continuing performance obligation in regards to the product ; and the product has been segregated from our inventories .
| results of operations the following table presents the net sales of each of the company 's segments , as well as the percentage of total sales and change from prior year . as previously noted , the company 's grass segment has been classified as a discontinued operation and therefore not presented in the table or discussion below . replace_table_token_3_th fiscal 2014 compared to fiscal 2013 astro-med 's sales in fiscal 2014 were $ 68,592,000 , a 12.0 % increase as compared to prior year sales of $ 61,224,000. domestic sales of $ 48,679,000 increased 9.1 % from the prior year sales of $ 44,613,000. international sales of $ 19,913,000 includes an favorable impact of $ 227,000 due to foreign exchange rates and reflects a 19.9 % increase as compared to the prior year . hardware sales in fiscal 2014 were $ 28,301,000 , a 12.4 % increase as compared to prior year 's sales of $ 25,169,000. both product segments achieved double-digit growth in the current year , with quicklabel 's hardware sales up 13.7 % and t & m 's hardware sales up 11.7 % . the primary drivers of this increase relate to increases in t & m 's ruggedized and tmx product lines and increases in sales from quicklabel 's new kiaro ! product line . the increase in the current year 's hardware sales was tempered by lower sales of quicklabel 's vivo ! and zeo ! product lines as well as a decline in sales of t & m 's dash recorder and data acquisition product lines . consumable sales in fiscal 2014 were $ 36,317,000 , representing an 11.6 % increase as compared to prior year sales of $ 32,540,000. the key driver of the overall increase in consumable sales for the current fiscal year was primarily traceable to the double-digit increase in both digital color printer supplies and label and tag product sales in the quicklabel segment .
| 1,807 |
other property and equipment other property and equipment includes computer software and equipment , buildings , vehicles , furniture and story_separator_special_tag apache corporation , a delaware corporation formed in 1954 , is an independent energy company that explores for , develops , and produces natural gas , crude oil , and natural gas liquids . apache currently has exploration and production interests in four geographic areas : the u.s. , canada , egypt , and the u.k. ( north sea ) . apache also has exploration interests in suriname that may , over time , result in a reportable discovery and development opportunity . during the second quarter of 2016 , apache changed its method of accounting for its oil and gas exploration and development activities from the full cost method to the successful efforts method of accounting . financial information for all periods has been recast to reflect retrospective application of the successful efforts method of accounting . see note 1—summary of significant accounting policies of the notes to consolidated financial statements under part iv , item 15 of this form 10-k. during 2015 , apache sold its australia lng business and oil and gas assets . during 2014 , apache sold its operations in argentina . results of operations and cash flows from operations for argentina and australia are reflected as discontinued operations in the company 's financial statements for all periods presented . certain historical information has been recast to reflect the results of operations for argentina and australia as discontinued operations . the following discussion should be read together with the consolidated financial statements and the notes to consolidated financial statements set forth in part iv , item 15 of this form 10-k , and the risk factors and related information set forth in part i , item 1a and part ii , item 7a of this form 10-k. overview of 2016 results the company took decisive action at the start of the significant decline in commodity prices that began in 2014 in order to preserve its financial position , improve its operational capabilities , and to position apache for a lower-for-longer commodity price environment . the cornerstone of its approach has been capital discipline and cost structure rationalization . we accomplished these objectives through a rigorous and more centralized process for capital allocations , more detailed , long-term planning , and relentless pursuit of cost reductions in our operations and overhead structure . apache remained focused on its mission to grow the company for the long-term benefit of its shareholders , allocating a significant portion of its reduced capital spending program to well completion optimization , strategic testing , and strategic acreage acquisitions as opposed to investing its entire capital budget on more near-term production growth . in september 2016 , after more than two years of extensive geological and geophysical work , methodical acreage accumulation , and strategic testing and delineation drilling , apache announced the discovery of a significant new resource play , “ alpine high. ” apache 's alpine high acreage lies in the southern portion of the delaware basin , primarily in reeves county , texas . the company has established an acreage position of over 320,000 contiguous net acres , which it acquired at an attractive average cost of approximately $ 1,300 per acre . since first announcing the alpine high last september , the company has made substantial progress further delineating the opportunity . the company has confirmed an extensive play fairway which spans 55 miles and a 5,000-foot vertical column encompassing five geologic formations , with multiple target zones spanning the hydrocarbon phase window from dry gas to wet gas to oil . we have recently identified an additional landing zone in the woodford formation , and confirmed production from the pennsylvanian . based on these results , apache now believes the drilling locations at alpine high will exceed the 2,000 to 3,000 previously announced . during 2017 , we expect to average 4 to 6 drilling rigs at alpine high . a second hydraulic fracturing crew was added at the start of the year to accelerate completions and data collection . using data collected from strategic testing and delineation drilling , the company is now beginning to optimize wells drilled in alpine high using customized targeting , larger fracs , and longer laterals . combined with multi-well pad drilling , the company believes these measures contribute to the optimized development of the area to maximize economic value . the field is expected to have low levels of water production which will also have a positive impact on long-term economics . we are currently installing the infrastructure , which will allow gas sales from the field around mid-year 2017. daily production of 522 mboe/d decreased only four percent from 2015 , despite investing a significant portion of curtailed capital spending on acreage , delineation wells , and infrastructure at alpine high rather than drilling development wells with a focus on maintaining production levels in the shorter-term . the company 's ability to maintain production levels is the result of several successful initiatives during the downturn : reduction of apache 's cost structure ; implementation of a more rigorous and integrated capital allocation and planning process ; upgrades to , and expansion of , drilling inventory ; and improvements in its capital efficiency , including reduction in service costs . lease operating expenses were 19 percent lower than 2015 and 33 percent lower than 2014. general and administrative expenses decreased 9 percent over the past two years . story_separator_special_tag the region averaged 170 net mboe/d and contributed $ 2.1 billion of revenues during 2016. the north sea region averaged 4 rigs during 2016 , drilling 14 gross wells , 11 net wells . during the year , the region averaged production of 68 mboe/d and contributed $ 970 million of revenues . apache was able to minimize production decline to 4 percent year over year despite a significant reduction in capital expenditures . apache continues to progress the development of its 2015 callater ( formerly k ) exploration discovery in the beryl area , with first production projected in the second half of 2017. the company continues appraisal activities on two additional 2015 exploration discoveries : the corona discovery , which logged 225 feet total vertical depth net pay in excellent reservoir-quality sandstone , and the seagull discovery , which confirmed 672 feet of net oil pay over a 1,092-foot column in triassic-age sands . for a more detailed discussion related to apache 's various geographic regions , please refer to the “ geographic area overviews ” section set forth in part i , item 1 and 2 of this form 10-k. acquisition and divestiture activity over apache 's 60-year history , it has repeatedly demonstrated its ability to capitalize quickly and decisively on changes in its industry and economic conditions . a key component of this strategy is to continuously review and optimize apache 's portfolio of assets in response to changes . most recently , apache has completed a series of divestitures designed to monetize nonstrategic assets and enhance apache 's portfolio in order to strategically allocate resources to more impactful development opportunities . these divestments comprised primarily capital intensive projects and assets that were not accretive to earnings in the near-term , and included all of apache 's operations in australia and argentina . these divestments include : australia operations on june 5 , 2015 , apache 's subsidiaries completed the sale of the company 's australian subsidiary apache energy limited to a consortium of private equity funds managed by macquarie capital group limited and brookfield asset management inc. for total proceeds of $ 1.9 billion . additionally , in october 2015 , apache 's subsidiaries completed the sale of its 49 percent interest in yara pilbara holdings pty ltd ( yphpl ) , to yara international for total proceeds of $ 391 million . the effective date of the transaction was january 1 , 2015. lng projects on april 2 , 2015 and april 10 , 2015 , apache subsidiaries completed the sale of its interest in the wheatstone lng and kitimat lng projects , respectively , along with accompanying upstream oil and gas reserves to woodside petroleum limited ( woodside ) for a total cash consideration of $ 3.7 billion . nonstrategic assets in the anadarko basin and in southern louisiana on december 31 , 2014 , apache completed the sale of certain anadarko basin and southern louisiana oil and gas assets for approximately $ 1.3 billion in two separate transactions . in the anadarko basin , apache sold approximately 115,000 net acres in wheeler county , texas , and western oklahoma . in southern louisiana , the company sold working interests in approximately 90,000 net acres . the effective date of both of these transactions was october 1 , 2014. certain gulf of mexico deepwater assets on june 30 , 2014 , apache completed the sale of non-operated interests in the lucius and heidelberg development projects and 11 primary term deepwater exploration blocks in the gulf of mexico for $ 1.4 billion . the effective date of the transaction was may 1 , 2014. nonstrategic canadian assets on april 30 , 2014 , apache completed the sale of primarily dry gas producing hydrocarbon assets in the deep basin area of western alberta and british columbia , canada , for $ 374 million . the assets comprise 328,400 net acres in the ojay , noel , and wapiti areas . apache retained 100 percent of its working interest in horizons below the cretaceous in the wapiti area , including rights to the liquids-rich montney and other deeper horizons . the effective date of the transaction was january 1 , 2014. argentina operations on march 12 , 2014 , apache 's subsidiaries completed the sale of all of the company 's operations in argentina to ypf sociedad anónima for $ 800 million ( subject to customary closing adjustments ) plus the assumption of $ 52 million of bank debt as of june 30 , 2013. for detailed information regarding apache 's acquisitions and divestitures , please refer to note 3—acquisitions and divestitures in the notes to consolidated financial statements set forth in part iv , item 15 of this form 10-k. 29 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > of our equivalent production , compared to 79 and 51 percent , respectively , in the prior year . lower realized prices reduced revenues $ 4.8 billion , while lower production volumes reduced revenues an additional $ 222 million . worldwide crude oil production from continuing operations decreased 12.6 mb/d . when excluding production from asset divestitures during 2015 and 2014 , crude oil production remained essentially flat as drilling and recompletion activity in our north american onshore regions offset natural decline in all regions . natural gas revenues 2016 vs. 2015 natural gas revenues for 2016 totaled $ 1.0 billion , a $ 209 million decrease from the 2015 total of $ 1.2 billion . a 4 percent decrease in average production reduced 2016 revenues by $ 38 million compared to 2015 , while 14 percent lower average realized prices decreased revenues by $ 171 million . average daily production in 2016 was 1,103 mmcf/d , with prices averaging $ 2.40 per mcf . natural gas accounted for 18 percent of our 2016 oil and gas production revenues and 35 percent of our worldwide production .
| results of operations oil and gas revenues apache 's oil and gas revenues by region are as follows : replace_table_token_10_th ( 1 ) amounts include revenue attributable to a noncontrolling interest in egypt . 30 production the following table presents production volumes by region : replace_table_token_11_th ( 1 ) gross oil , natural gas , and ngl production in egypt were as follows : replace_table_token_12_th ( 2 ) includes net production volumes per day attributable to a noncontrolling interest in egypt of : replace_table_token_13_th ( 3 ) the table shows production on a barrel of oil equivalent basis ( boe ) in which natural gas is converted to an equivalent barrel of oil based on a ratio of 6 mcf to 1 bbl . this ratio is not reflective of the price ratio between the two products . ( 4 ) average sales volumes from the north sea for 2016 were 66,872 boe/d . sales volumes may vary from production volumes as a result of the timing of liftings in the beryl field . 31 pricing the following table presents pricing information by region : replace_table_token_14_th crude oil prices a substantial portion of our crude oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of the company 's control . average realized crude oil prices for 2016 were down 14 percent compared to 2015 , a direct result of the sharply lower benchmark oil prices over the past year . crude oil prices realized in 2016 averaged $ 41.63 per barrel . continued volatility in the commodity price environment reinforces the importance of our asset portfolio . while the market price received for natural gas varies among geographic areas , crude oil tends to trade within a global market . price movements for all types and grades of crude oil generally move in the same direction .
| 1,808 |
new msa became the publicly traded holding company of old msa and its subsidiaries . new msa and its subsidiaries continue to conduct the business and operations that old msa and its subsidiaries conducted immediately prior to the reorganization . msa 's south african personal protective equipment distribution business and msa 's zambian operations had historically been part of the international reportable segment . in accordance with generally accepted accounting principles , these results are excluded from continuing operations and are presented as discontinued operations in all periods presented . please refer to note 19 assets held for sale and discontinued operations , which is included in part ii item 8 of this form 10-k , for further commentary on these discontinued operations . sales from msa 's general monitors companies were historically reported in the country from which product was shipped . effective january 1 , 2014 , the general monitors business has been fully integrated into msa . as such , sales made by general monitors companies are now allocated to each country based on the destination of the end-customer and other criteria based on the value added to the order . the 2013 and 2012 results presented below have been restated to reflect this change in allocation methodology . please refer to note 7 segment information , for further information . 20 business overview we are a global leader in the development , manufacture and supply of products that protect people 's health and safety . our safety products typically integrate any combination of electronics , mechanical systems and advanced materials to protect users against hazardous or life threatening situations . our comprehensive lines of safety products are used by workers around the world in a broad range of markets including the oil and gas , fire service , mining and construction industries , as well as the military . we are committed to providing our customers with service unmatched in the safety industry and , in the process , enhancing our ability to provide a growing line of safety solutions for customers in key global markets . we tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary across geographic regions . to best serve these customer preferences , we have organized our business into nine geographical operating segments that are aggregated into three reportable geographic segments : north america , europe and international . each segment includes a number of operating segments . in 2014 , 48 % , 28 % and 24 % of our net sales were made by our north american , european and international segments , respectively . north america . our largest manufacturing and research and development facilities are located in the united states . we serve our north american markets with sales and distribution functions in the u.s. , canada and mexico . europe . our european segment includes companies in most western european countries , and a number of eastern european countries along with locations in the middle east and russia . our largest european companies , based in germany and france , develop , manufacture and sell a wide variety of products . operations in other european segment countries focus primarily on sales and distribution in their respective home country markets . while some of these companies may perform limited production , most of their sales are of products that are manufactured in our plants in germany , france , the u.s. , ireland , sweden and china , or are purchased from third party vendors . international . our international segment includes companies in south america , africa and the asia pacific region , some of which are in developing regions of the world . principal international segment manufacturing operations are located in brazil and china . these companies manufacture products that are sold primarily in each company 's home country as well as regional markets . the other companies in the international segment focus primarily on sales and distribution in their respective home country markets . while some of these companies may perform limited production , most of their sales are of products that are manufactured in our plants in china , germany , france and the u.s. , or are purchased from third party vendors . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , we recorded charges of $ 8.5 million compared to charges of $ 5.3 million for the year ended december 31 , 2013. european segment charges of $ 4.8 million related primarily to severance from staff reductions in central and southern europe as well as reorganization costs in central europe . international segment charges of $ 3.7 million , primarily related to staff reductions in south africa , australia , and brazil and asset disposals in australia and south africa , as the company reduces its footprint and optimizes its cost structure in response to challenging economic conditions in certain markets . for the year ended december 31 , 2013 , we recorded charges of $ 5.3 million . european segment charges of $ 3.0 million related primarily to staff reductions in germany and the netherlands . international segment charges of $ 2.3 million were primarily related to staff reductions in australia and south africa . interest expense . interest expense for the year ended december 31 , 2014 was $ 9.9 million , a decrease of $ 0.8 million , or 7 % , from $ 10.7 million for the year ended december 31 , 2013. the decrease in interest expense reflects lower borrowing levels in the current year as well as a reduction in borrowing costs associated with our debt refinancing activities in the first half of 2014. currency exchange . currency exchange losses were $ 1.5 million during the year ended december 31 , 2014 , compared to losses of $ 5.5 million during the same period in 2013. in 2014 , currency exchange losses primarily relate to weakening of the russian ruble . story_separator_special_tag these increases were partially offset by a $ 7.6 million decrease in shipments of gas masks to military markets and other small decreases across a broad range of product lines . net sales for the european segment were $ 293.1 million for the year ended december 31 , 2013 , an increase of $ 2.7 million , or 1 % , from $ 290.4 million for the year ended december 31 , 2012 . local currency sales in europe decreased $ 2.7 million on lower shipments of non-core product business to military and fire markets . the favorable translation effects of a stronger euro in 2013 increased european segment sales , when stated in u.s. dollars , by $ 5.4 million . net sales of our international segment were $ 285.8 million for the year ended december 31 , 2013 , a decrease of $ 2.0 million , or 1 % , compared to $ 287.8 million for the year ended december 31 , 2012 . local currency sales in the international segment increased $ 14.3 million , or 5 % , as strength in the industrial markets was partially offset by weakness in the fire service and military markets . shipments of instruments , breathing apparatus , and fall protection , up $ 12.9 million , $ 5.7 million and $ 2.0 million , respectively , were partially offset by lower shipments of head , eye , and face protection and circuit breathing apparatus , down $ 3.1 million and $ 2.7 million , respectively , as well as smaller decreases across a series of non-core product lines . currency translation effects decreased international segment sales , when stated in u.s. dollars , by $ 16.3 million , primarily related to a weaker australian dollar and brazilian real . other ( loss ) income . other loss for the year ended december 31 , 2013 was $ 0.2 million . a $ 1.6 million land impairment loss in the north american segment was partially offset by interest income of $ 1.1 million and small gains from asset dispositions . the 2013 loss compares with income of $ 10.9 million for the year ended december 31 , 2012. in 2012 , we recognized gains totaling $ 8.4 million on property sales in our cranberry woods office park . in december 2012 , we sold the last available parcel in cranberry woods . other income for 2012 also included a $ 4.8 million gain on an escrow settlement related to our october 2010 acquisition of the general monitors group of companies . these improvements were partially offset by impairment losses on intangible assets and tooling related to our firefighter location project of $ 4.3 million and $ 0.5 million , respectively . gross profit . gross profit for the year ended december 31 , 2013 was $ 496.8 million , an increase of $ 7.3 million , or 1 % , from $ 489.5 million for the year ended december 31 , 2012 . the ratio of gross profit to sales was 44.7 % for 2013 compared to 44.1 % in 2012. the higher gross profit ratio in 2013 was primarily related to a more favorable proportion of core product sales , lower manufacturing costs including the effect of lifo liquidations , and improved pricing . selling , general and administrative expenses . selling , general and administrative expenses for the year ended december 31 , 2013 were $ 309.2 million , a decrease of $ 3.7 million , or 1 % , from $ 312.9 million for the year ended december 31 , 2012 . selling , general and administrative expenses were 27.8 % of sales in 2013 compared to 28.2 % of sales in 2012. local currency selling , general and administrative expenses decreased $ 0.9 million for the year ended december 31 , 2013. the decrease reflects reduced administrative expense in our international and european segments and lower legal expense associated with the product liability matters , partially offset by higher pension expense . currency translation effects decreased selling , general and administrative expenses for the year ended december 31 , 2013 , when stated in u.s. dollars , by $ 2.8 million . the decrease was primarily related to a weaker australian dollar , brazilian real and south african rand , partially offset by a stronger euro . research and development expenses . research and development expenses were $ 45.9 million for the year ended december 31 , 2013 , an increase of $ 5.0 million , or 12 % , from $ 40.9 million for the year ended december 31 , 2012 . the increase reflects our ongoing focus on developing innovative new core products , including the g1 scba and fas-trac iii industrial helmet suspension . restructuring and other charges . for the year ended december 31 , 2013 , we recorded charges of $ 5.3 million . european segment charges of $ 3.0 million related primarily to staff reductions in germany and the netherlands . international segment charges of $ 2.3 million were primarily related to staff reductions in australia and south africa . charges of $ 2.8 million for the year ended december 31 , 2012 were related to severance costs associated with staff reductions in our north american , european and international segments of $ 1.5 million , $ 1.1 million and $ 0.2 million , respectively . 24 interest expense . interest expense for the year ended december 31 , 2013 was $ 10.7 million , a decrease of $ 0.6 million , or 5 % , from $ 11.3 million for the year ended december 31 , 2012. the decrease in interest expense reflects lower borrowing levels in 2013. currency exchange . currency exchange losses were $ 5.5 million during the twelve months ended december 31 , 2013 , compared to losses of $ 3.2 million during the same period in 2012. currency exchange losses in both periods were mostly unrealized and relate primarily to the effect of the strengthening u.s. dollar on intercompany balances . income tax provision .
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 net sales from continuing operations . net sales for the year ended december 31 , 2014 were $ 1,133.9 million , an increase of $ 21.8 million , or 2 % , from $ 1,112.1 million for the year ended december 31 , 2013. for the year ended december 31 , 2014 , local currency core product sales increased by 4 % , comprising 74 % of our total business . by product group , fixed gas & flame detection instruments increased 10 % , portable gas detection instruments increased 9 % , fall protection increased 5 % , head protection increased 5 % , and breathing apparatus decreased 7 % , on a local currency basis . local currency non-core sales increased 5 % , primarily on higher helmet sales to fire and military markets in europe . the unfavorable translation effects of weaker foreign currencies decreased net sales , when stated in u.s. dollars , by $ 20.3 million . excluding the impact of weakening foreign currencies , net sales increased $ 42.1 million or 4 % . replace_table_token_8_th net sales in the north american segment were $ 547.7 million for the year ended december 31 , 2014 , an increase of $ 14.5 million , or 3 % , compared to $ 533.2 million for the year ended december 31 , 2013. leading growth were shipments of fgfd , head protection , and portable gas instruments , up $ 13.1 million , $ 8.1 million , and $ 6.4 million , respectively . these increases were partially offset by an $ 11.3 million decrease in shipments of breathing apparatus to the fire segment , reflecting delays in securing product approvals of the company 's g1 scba platform and other small decreases across a broad range of product lines . the company began shipping its g1 scba after receiving certification in late november , though these shipments were not overly material to results in 2014 .
| 1,809 |
our assets include interests in entities that own crude oil and refined products pipelines and terminals that serve as key infrastructure to ( i ) transport onshore and offshore crude oil production to gulf coast and midwest refining markets and ( ii ) deliver refined products from those markets to major demand centers . our assets also include interests in entities that own natural gas and refinery gas pipelines which transport offshore natural gas to market hubs and deliver refinery gas from refineries and plants to chemical sites along the gulf coast . for a description of our assets , please see part i , item 1 - business and properties of this report . 2017 developments include : increase in borrowing capacity . we had a net increase in our borrowing capacity of $ 1,420.0 million . on december 1 , 2017 , we entered into a five year revolving credit facility due december 2022 ( the “ five year revolver due december 2022 ” ) with shell treasury center ( west ) inc. ( “ stcw ” ) with a borrowing capacity of $ 1,000.0 million . on march 1 , 2017 , we entered into a five year fixed facility ( the “ five year fixed facility ” ) with stcw with a borrowing capacity of $ 600.0 million . in addition , on march 1 , 2017 , our 364-day revolving credit facility ( the “ 364-day revolver ” ) with stcw with a borrowing capacity of $ 180.0 million expired . debt repayment . in december 2017 , we used borrowings under the five year revolver due december 2022 and the five year fixed facility to repay $ 268.1 million of borrowings under the five year revolving credit facility due october 2019 ( the “ five year revolver due october 2019 ” ) . in september 2017 , we used net proceeds from sales of common units to third parties to repay $ 265.0 million of borrowings under our five year revolver due october 2019. december 2017 acquisition . on december 1 , 2017 , we completed the december 2017 acquisition , which included a 100 % interest in triton , 41.48 % of the issued and outstanding membership interest in locap , an additional 22.9 % interest in mars , an additional 22.0 % interest in odyssey , and an additional 10.0 % interest in explorer from splc and equilon enterprises llc d/b/a shell oil products us ( “ sopus ” ) for $ 825.0 million in cash . october 2017 acquisition . on october 17 , 2017 , we completed the october 2017 acquisition of a 50.0 % interest in permian basin from a third party for $ 49.9 million in consideration and initial capital contributions . equity offering . in september 2017 , we completed the sale of 5,170,000 common units in a registered public offering for proceeds of $ 135.1 million , and we issued 105,510 general partner units to our general partner for $ 2.8 million in order to maintain its 2 % general partner interest . atm program . in september 2017 , we completed the sale of 5,200,000 common units under this program for $ 139.8 million net proceeds , and we issued 106,122 general partner units to our general partner for $ 2.9 million in order to maintain its 2 % general partner interest . in june 2017 , we completed the sale of 94,925 common units under this program for $ 2.9 million net proceeds , and we issued 1,938 general partner units to our general partner for $ 0.1 million in order to maintain its 2 % general partner interest . may 2017 acquisition . on may 10 , 2017 , we completed the may 2017 acquisition , which included a 100 % interest in delta , na kika and the refinery gas pipeline . the acquisition of the refinery gas pipeline from shell chemical was our first acquisition from a shell entity outside of splc . 52 april 2017 divestiture . on april 28 , 2017 , zydeco divested a small segment of its pipeline system ( the “ april 2017 divestiture ” ) to sopus , a related party , as part of the motiva jv separation . we determined that the 5.5-mile pipeline segment that connects port neches to the port arthur refinery is not strategic to the overall zydeco pipeline system . we received $ 21.0 million in cash consideration for this sale , of which $ 19.4 million is attributable to the partnership . expiration of subordination period . on february 15 , 2017 , all of the subordinated units converted into common units following the payment of the cash distribution for the fourth quarter of 2016. each of our 67,475,068 outstanding subordinated units converted into one common unit . the converted units participate pro rata with the other common units in distributions of available cash . the conversion of the subordinated units does not impact the amount of cash distributions paid by us or the total number of outstanding units . the allocation of net income and cash distributions during the period were effected in accordance with terms of our partnership agreement . we generate revenue primarily by charging tariffs and fees for transporting crude oil , refinery gas and refined petroleum products through our pipelines and terminaling and storing crude oil and refined petroleum products at our terminals and storage facilities . we generally do not own any of the crude oil , refinery gas or refined petroleum products we handle , nor do we engage in the trading of these commodities . we therefore have limited direct exposure to risks associated with fluctuating commodity prices , although these risks indirectly influence our activities and results of operations over the long term . we generate a substantial portion of our revenue under long-term agreements by charging fees for the transportation and storage of crude oil and refined products , and for the transportation of refinery gas through our assets . story_separator_special_tag the results of our operations will be impacted by our ability to : maintain utilization of and rates charged for our pipelines and storage facilities ; utilize the remaining uncommitted capacity on , or add additional capacity to , our pipeline systems ; increase throughput volumes on our pipeline systems by making connections to existing or new third party pipelines or other facilities , primarily driven by the anticipated supply of , and demand for , crude oil and refined products ; and identify and execute organic expansion projects . operations and maintenance expenses our management seeks to maximize our profitability by effectively managing operations and maintenance expenses . these expenses are comprised primarily of labor expenses ( including contractor services ) , insurance costs ( including coverage for our consolidated assets and operated joint ventures ) , utility costs ( including electricity and fuel ) and repairs and maintenance expenses . utility costs fluctuate based on throughput volumes and the grades of crude oil and types of refined products we handle . management has performed a strategic evaluation of its insurance coverage and upon renewal of the contracts in the fourth quarter of 2017 , all of our insurance coverage is now provided by a wholly owned subsidiary of shell . this will result in both overall cost savings and improved coverage . our other operations and maintenance expenses generally remain stable across broad ranges of throughput and storage volumes , but can fluctuate from period to period depending on the mix of activities , particularly maintenance activities , performed during a period . at times , the fluctuation in operations and maintenance expenses may materially increase due to the performance of planned maintenance , such as turnaround work and asset integrity work , and unplanned maintenance , such as repair of damage caused by a natural disaster . adjusted ebitda and cash available for distribution adjusted ebitda and cash available for distribution have important limitations as analytical tools because they exclude some , but not all , items that affect net income and net cash provided by operating activities . you should not consider adjusted ebitda or cash available for distribution in isolation or as a substitute for analysis of our results as reported under gaap . additionally , because adjusted ebitda and cash available for distribution may be defined differently by other companies in 54 our industry , our definition of adjusted ebitda and cash available for distribution may not be comparable to similarly titled measures of other companies , thereby diminishing their utility . the gaap measures most directly comparable to adjusted ebitda and cash available for distribution are net income and net cash provided by operating activities . adjusted ebitda and cash available for distribution should not be considered as an alternative to gaap net income or net cash provided by operating activities . please refer to “ results of operations - reconciliation of non-gaap measures ” for the reconciliation of gaap measures net income and cash provided by operating activities to non-gaap measures adjusted ebitda and cash available for distribution . we define adjusted ebitda as net income before income taxes , net interest expense , gain or loss from dispositions of fixed assets , allowance oil reduction to net realizable value , and depreciation , amortization and accretion , plus cash distributed to us from equity investments for the applicable period , less income from equity investments . we define adjusted ebitda attributable to the partnership as adjusted ebitda less adjusted ebitda attributable to noncontrolling interests and adjusted ebitda attributable to parent . we define cash available for distribution as adjusted ebitda attributable to the partnership less maintenance capital expenditures attributable to the partnership , net interest paid , cash reserves and income taxes paid , plus net adjustments from volume deficiency payments attributable to the partnership and certain one-time payments received . cash available for distribution will not reflect changes in working capital balances . we believe that the presentation of these non-gaap supplemental financial measures provides useful information to management and investors in assessing our financial condition and results of operations . we present these financial measures because we believe replacing our proportionate share of our equity investments ' net income with the cash received from such equity investments more accurately reflects the cash flow from our business , which is meaningful to our investors . adjusted ebitda and cash available for distribution are non-gaap supplemental financial measures that management and external users of our consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : our operating performance as compared to other publicly traded partnerships in the midstream energy industry , without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders ; our ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . factors affecting our business and outlook we believe key factors that impact our business are the supply of , and demand for , crude oil , natural gas , refinery gas and refined products in the markets in which our business operates . we also believe that our customers ' requirements , competition and government regulation of crude oil , refined products , natural gas and refinery gas play an important role in how we manage our operations and implement our long-term strategies . in addition , acquisition opportunities , whether from shell or third parties , will also impact our business . these factors are discussed in more detail below . a substantial portion of our revenue is derived from long-term transportation service agreements with shippers , including ship-or-pay agreements and life-of-lease transportation agreements , some of which provide a guaranteed return , and storage service agreements with marketers , pipelines and refiners .
| results of operations replace_table_token_6_th ( 1 ) the financial information presented has been retrospectively adjusted for acquisitions of businesses under common control . ( 2 ) for a reconciliation of adjusted ebitda and cash available for distribution attributable to the partnership to their most comparable gaap measures , please read “ — reconciliation of non-gaap measures . ” 61 replace_table_token_7_th ( 1 ) pipeline throughput is defined as the volume of delivered barrels . ( 2 ) terminaling throughput is defined as the volume of delivered barrels and storage is defined as the volume of stored barrels . ( 3 ) based on reported revenues from transportation and allowance oil divided by delivered barrels over the same time period . actual tariffs charged are based on shipping points along the pipeline system , volume and length of contract . ( 4 ) based on reported revenues from transportation and storage divided by delivered and stored barrels over the same time period . actual rates are based on contract volume and length . ( 5 ) refinery gas pipeline and our refined products terminals are not included above as they generate revenue under transportation and terminaling service agreements , respectively , that provide for guaranteed minimum throughput . 62 reconciliation of non-gaap measures the following tables present a reconciliation of adjusted ebitda and cash available for distribution to net income and net cash provided by operating activities , the most directly comparable gaap financial measures , for each of the periods indicated . please read “ —adjusted ebitda and cash available for distribution ” for more information . replace_table_token_8_th ( 1 ) the financial information presented has been retrospectively adjusted for acquisitions of businesses under common control . ( 2 ) amount represents both paid and accrued interest attributable to the period . ( 3 ) effective april 1 , 2017 , the amount is inclusive of cash paid during the period , as well as accruals incurred for work performed during the period .
| 1,810 |
as a result , $ 175.0 million of term loan a was story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes appearing in part ii , item 8 of the annual report on form 10-k. overview the manitowoc company , inc. is a multi-industry , capital goods manufacturer in two principal markets : cranes and related products ( crane ) and foodservice equipment ( foodservice ) . crane is recognized as one of the world 's leading providers of lifting equipment for the global construction industry , including lattice-boom cranes , tower cranes , mobile telescopic cranes , and boom trucks . foodservice is one of the world ' s leading innovators and manufacturers of commercial foodservice equipment serving the ice , beverage , refrigeration , food preparation , and cooking needs of restaurants , convenience stores , hotels , healthcare , and institutional applications . on january 29 , 2015 , manitowoc announced that its board of directors has approved a plan to pursue a separation of the company 's crane and foodservice businesses into two independent , publicly-traded companies . the company currently anticipates effecting the separation through a tax-free spin-off of the foodservice business and expects the spin-off to be completed in the first quarter of 2016 ; however , there can be no assurance regarding the ultimate timing of the proposed transaction or that the transaction will be completed . subsequent to the separation , the historical results of our foodservice business will be presented as discontinued operations . during the first quarter of 2014 , the company sold its 50 % interest in manitowoc dong yue heavy machinery co. , ltd. ( “ manitowoc dong yue ” or the “ joint venture ” ) , which produces mobile and truck-mounted hydraulic cranes in china , to its joint venture partner , tai'an taishan heavy industry investment co. , ltd. , for a nominal amount . consequently , the joint venture has been classified as discontinued operations in the company 's financial statements . see note 4 , “ discontinued operations , ” for further details of this transaction . during the first quarter of 2013 , the company sold its warewashing equipment business , which operated under the brand name jackson , to hoshizaki usa holdings , inc. for approximately $ 39.2 million , including post-closing adjustments . net proceeds were used to reduce ratably the then-outstanding balances of term loans a and b. this business has been classified as discontinued operations in the company 's financial statements . the following discussion and analysis covers key drivers behind our results for 2012 through 2014 and is broken down into three major sections . first , we provide an overview of our results of operations for the years 2012 through 2014 on a consolidated basis and by business segment . next we discuss our market conditions , liquidity and capital resources , off-balance sheet arrangements , and obligations and commitments . finally , we provide a discussion of risk management techniques , contingent liability issues , critical accounting policies , impacts of future accounting changes , and cautionary statements . all dollar amounts , except per share amounts , are in millions of dollars throughout the tables included in this management 's discussion and analysis of financial conditions and results of operations unless otherwise indicated . 28 story_separator_special_tag result of the redemption of the 2018 notes and the company 's debt reduction efforts . see further detail at note 11 , “ debt. ” loss on debt extinguishment replace_table_token_16_th * measure not meaningful loss on debt extinguishment for the year ended december 31 , 2014 totaled $ 25.5 million , compared to $ 3.0 million in 2013 . the loss on debt extinguishment in 2014 consisted of $ 23.3 million related to the february 2014 redemption of the 2018 notes , of which $ 19.0 million related to the redemption premium and $ 4.3 million related to the write-off of deferred financing fees . a $ 2.0 million loss related to the write-off of deferred financing fees as a result of the senior credit facility refinancing , and $ 0.2 million loss related to the accelerated paydown of term loan b associated with our new senior credit facility . the loss on debt extinguishment in 2013 was attributable to the accelerated paydown of term loans a and b associated with our prior senior credit facility . other expense - net replace_table_token_17_th * measure not meaningful other expense , net for the year ended december 31 , 2014 was $ 5.5 million compared to $ 0.8 million for the prior year . other expense primarily consists of foreign exchanges losses . income taxes replace_table_token_18_th * measure not meaningful the effective tax rate for the year ended december 31 , 2014 was 5.1 % compared to 16.0 % for the year ended december 31 , 2013 . the 2014 effective rate was favorably impacted by an election with the internal revenue service to treat enodis holdings ltd , the company 's uk holding company , as a partnership for u.s. federal income tax purposes . as a result of this status change , the company realized a $ 25.6 million capital loss tax benefit . this transaction resulted in an effective tax rate benefit of 15.1 % . the 2014 and 2013 effective tax rates were also favorably impacted by income earned in jurisdictions where the statutory tax rates were less than 35 % . the company was under examination by the internal revenue service for the calendar years 2007 through 2011. the examination of the company 's 2007 through 2009 u.s. tax returns was closed during the third quarter of 2014 as the joint committee on taxation concurred with the previously reached tentative resolution of the appeals division , which was in the company 's favor . the 2010 and 2011 u.s. tax return examination was closed in the fourth quarter of 2014. the adjustments did not have a material impact on the financial statements . story_separator_special_tag foodservice segment restructuring expenses totaled $ 2.3 million for the year ended december 31 , 2012. these expenses primarily related to plant consolidation efforts in the americas region and workforce reductions in europe . see further detail at note 19 , “ restructuring. ” interest expense & amortization of deferred financing fees replace_table_token_26_th interest expense for the year ended december 31 , 2013 totaled $ 128.4 million versus $ 135.6 million for the year ended december 31 , 2012. the decrease in interest expense of $ 7.2 million for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 was due to debt reduction in 2013 and 2012. amortization expense for deferred financing fees was $ 7.0 million for the year ended december 31 , 2013 as compared to $ 8.2 million in 2012. the decrease in amortization expense for deferred financing fees of $ 1.2 million was attributable to the write-off of a portion of the deferred financing fees 33 associated with the debt reductions at the end of 2012 , partially offset by the amortization of new fees associated with the issuance of the senior notes due 2022. see further detail at note 11 , “ debt. ” loss on debt extinguishment replace_table_token_27_th * measure not meaningful loss on debt extinguishment for the year ended december 31 , 2013 totaled $ 3.0 million , compared to $ 6.3 million in 2012. the loss on debt extinguishment in 2013 was attributable to the accelerated paydown of term loans a and b associated with our prior senior credit facility . the loss on debt extinguishment in 2012 was attributable to accelerated paydown of term loans a and b associated with our senior credit facility and the redemption of our 7.125 % senior notes due 2013. other ( expense ) income - net replace_table_token_28_th * measure not meaningful other ( expense ) income , net for the year ended december 31 , 2013 was expense of $ 0.8 million versus income of $ 0.1 million for the prior year . income taxes replace_table_token_29_th * measure not meaningful the effective tax rate for the year ended december 31 , 2013 was 16.0 % compared to 25.9 % for the year ended december 31 , 2012. the effective tax rates in 2013 and 2012 were favorably impacted by the release of reserves of $ 9.4 million and $ 11.6 million , respectively resulting from favorable audit outcomes and other settlements . the 2013 and 2012 effective tax rates were also favorably impacted by income earned in jurisdictions where the statutory tax rates were less than 35 % . tax expense for the year ended december 31 , 2013 was favorably impacted by valuation allowance adjustments on deferred tax assets totaling $ 2.3 million compared to an unfavorable impact of $ 13.5 million in 2012. the company recorded valuation allowance adjustments related to 2013 earnings and income tax rate changes in jurisdictions with valuation allowances established in prior years . see further detail at note 13 , “ income taxes. ” loss from discontinued operations replace_table_token_30_th the results from discontinued operations were losses of $ 18.8 million and $ 16.3 million , net of income taxes , for the years ended december 31 , 2013 and 2012 , respectively . the loss from discontinued operations in both years relates primarily to the manitowoc dong yue business , which was classified as discontinued operations in the fourth quarter of 2013. see additional discussion at note 4 , “ discontinued operations. ” loss on sale of discontinued operations ( in millions ) 2013 2012 change loss on sale of discontinued operations $ 2.7 $ — n/a loss on sale of discontinued operations was $ 2.7 million for the year ended december 31 , 2013. the loss was primarily attributable to tax expense of $ 4.4 million on the sale of the jackson business in january 2013. see additional discussion at note 4 , “ discontinued operations. ” 34 net earnings ( loss ) attributable to noncontrolling interest replace_table_token_31_th * measure not meaningful for the year ended december 31 , 2013 , net earnings attributable to a noncontrolling interest of $ 25.8 million was recorded in relation to the minority partner 's portion of the full year income from our former chinese joint venture , manitowoc dong yue . this was primarily due to loan forgiveness resulting in income of $ 35.6 million by the joint venture partner shown as part of net earnings attributable to noncontrolling interest , net of income taxes , which effectively reduced net earnings attributable to manitowoc shareholders . see note 4 , “ discontinued operations , ” for further details on this transaction . there was a net loss of $ 9.1 million attributable to the minority partner in connection with manitowoc dong yue for 2012. sales and operating earnings by segment cranes and related products segment replace_table_token_32_th year ended december 31 , 2014 compared to 2013 crane segment net sales for the year ended december 31 , 2014 decreased to $ 2.3 billion versus $ 2.5 billion for the year ended december 31 , 2013 , primarily as a result of volume decreases which were most pronounced in the rough-terrain and boom truck categories , as well as the unfavorable impact of approximately $ 4.9 million from foreign currency volatility in relation to the u.s. dollar as compared with the year ended december 31 , 2013 . as of december 31 , 2014 , total crane segment backlog was $ 738.0 million , an increase from the december 31 , 2013 backlog of $ 574.0 million . for the year ended december 31 , 2014 , the crane segment reported operating earnings of $ 163.9 million compared to $ 218.8 million for the year ended december 31 , 2013 . operating earnings for the crane segment decreased primarily due to the volume decreases discussed above and unfavorable absorption as a result of lower production levels . these decreases in operating earnings were partially offset by manufacturing and purchasing cost savings .
| results of consolidated operations replace_table_token_10_th year ended december 31 , 2014 compared to 2013 net sales ( in millions ) 2014 2013 change net sales $ 3,886.5 $ 4,048.1 ( 4.0 ) % consolidated net sales decreased 4.0 % in 2014 to $ 3.9 billion from $ 4.0 billion in 2013 . the decrease in net sales was driven by the year-over-year decrease in the crane segment , partially offset by the modest year-over-year increase in the foodservice segment . crane segment sales decreased 8.0 % for the year ended december 31 , 2014 compared to 2013 . the overall decrease in the crane segment was primarily due to weaker demand in the americas region for rough terrain and boom truck cranes . foodservice segment sales increased 2.6 % for the year ended december 31 , 2014 compared to 2013 . foodservice segment sales increased in the americas region across both cold-side and hot-side brands from the prior year due to volume increases primarily driven by new product roll outs . consolidated net sales were unfavorably impacted by approximately $ 0.2 million from foreign currency volatility in relation to the u.s. dollar for the year ended december 31 , 2014 compared with the year ended december 31 , 2013 . further analysis of the changes in sales by segment is presented in the “ sales and operating earnings by segment ” section below . 29 gross profit replace_table_token_11_th gross profit for the year ended december 31 , 2014 decreased to $ 986.1 million compared to $ 1,021.8 million for the year ended december 31 , 2013 , a decrease of 3.5 % . the decrease in consolidated gross profit was attributable primarily to the decrease in crane segment gross profit due to the decrease in sales volume discussed above and unfavorable absorption given the lower sales volumes , partially offset by manufacturing cost reduction initiatives .
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the following is a tabular reconciliation of the total amounts of unrecognized tax benefits as of december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_19_th none of the unrecognized tax benefits would , if recognized , affect the effective tax rate because the company has recorded a valuation allowance to fully offset federal and state deferred tax assets . the company has no tax positions for which it is reasonably possible that the story_separator_special_tag financial condition and results of operations operating results for the year ended december 31 , 2018 , are not necessarily indicative of results that may occur in future fiscal years . some of the statements in this “ management 's discussion and analysis of financial condition and results of operations ” are forward-looking statements . these forward-looking statements are based on management 's beliefs and assumptions and on information currently available to our management and involve significant elements of subjective judgment and analysis . words such as “ expects , ” “ will , ” “ anticipates , ” “ targets , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” “ potential , ” “ should , ” “ could , ” variations of such words , and similar expressions are intended to identify forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed under the caption “ special note regarding forward looking statements ” and in “ risk factors ” and elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this annual report . overview scynexis , inc. is a biotechnology company committed to positively impacting the lives of patients suffering from difficult-to-treat and often life-threatening infections by delivering innovative therapies . we are developing our lead product candidate , ibrexafungerp , formally known as scy-078 , as the first representative of a novel oral and intravenous ( iv ) triterpenoid antifungal family in clinical development for the treatment of several serious fungal infections , including vulvovaginal candidiasis ( vvc ) , invasive candidiasis ( ic ) , invasive aspergillosis ( ia ) , and refractory invasive fungal infections ( rifi ) . in july 2018 , we announced that ibrexafungerp was the non-proprietary name for scy-078 selected by the world health organization 's international non-proprietary name group . ibrexafungerp is a structurally distinct glucan synthase inhibitor that has been shown to be effective in vitro and in vivo against a broad range of human fungi pathogens such as candida and aspergillus species , including multidrug-resistant strains , as well as pneumocystis species . candida and aspergillus species are the fungi responsible for approximately 85 % of all invasive fungal infections in the united states ( u.s. ) and europe . to date , we have characterized the antifungal activity , pharmacokinetics , and safety profile of oral and iv formulations of ibrexafungerp in multiple studies . the u.s. food and drug administration ( fda ) has granted qualified infectious disease product ( qidp ) and fast track designations for the formulations of ibrexafungerp for the indications of vvc , ic ( including candidemia ) , and ia , and has granted orphan drug designations for the ic and ia indications . these designations may provide us with additional market exclusivity and expedited regulatory paths . we continue to accelerate and expand our clinical programs , leveraging the versatility of the ibrexafungerp platform , including the potential for oral ibrexafungerp to be a suitable treatment for indications with significant unmet medical needs and considerable commercial opportunity . recognizing that it belongs to a new class of antifungals , the world health organization 's international non-proprietary name group selected the name “ ibrexafungerp ” for scy-078 in july 2018 , and the united states adopted names council ( usan council ) adopted “ ibrexafungerp ” as a usan in february 2019. ibrexafungerp development update in october 2018 , we announced the successful completion of an end-of-phase 2 meeting with the fda for our lead product candidate , ibrexafungerp , for patients with vvc . the fda has agreed with our proposed overall design of the phase 3 registration program to support approval of oral ibrexafungerp for the treatment of vvc and prevention of recurrent vvc . this successful meeting follows our previously announced positive results from our phase 2b , dose-finding study ( dove study ) , in which the lowest ibrexafungerp dose regimen of 600mg for one day ( given as two doses of 300mg 12 hours apart ) exhibited high clinical cure and mycological eradication rates , sustained clinical benefit compared to fluconazole and a favorable tolerability profile . we have initiated the phase 3 vvc registration program in acute vvc and we have begun enrolling patients . we plan to initiate the phase 3 clinical trial in recurrent vvc in the first half of 2019. in january 2019 , a milestone payment became due to merck as a result of the initiation of the vanish phase 3 vvc program and was paid in march 2019. the phase 3 vvc registration program for the treatment of vvc and the prevention of recurrent vvc will comprise three global , multi-center , randomized , double-blind , placebo-controlled trials designed to demonstrate superiority of oral ibrexafungerp vs. placebo . pending successful completion of these trials , we anticipate submitting an initial new drug application ( nda ) for oral ibrexafungerp for the treatment of vvc in the second half of 2020 and a supplemental nda for the prevention of recurrent vvc in 2021. based on promising pre-clinical data with combination use of ibrexafungerp with standard-of-care ( soc ) vs. aspergillus spp. , we initiated a phase 2 study ( scynergia study ) of oral ibrexafungerp in combination with voriconazole in patients with ia . story_separator_special_tag for the years ended december 31 , 2018 and 2017 , we recognized $ 1.6 million and $ 1.5 million , respectively , in interest expense associated with the loan agreement with solar . warrant liabilities fair value adjustment . for the years ended december 31 , 2018 and 2017 , we recognized a $ 11.9 million gain and a $ 2.7 million gain , respectively , in the fair value adjustment related to the warrant liabilities primarily due to the decrease in our stock price during the year . income tax benefit . for the year ended december 31 , 2018 , we recognized a $ 6.7 million income tax benefit associated with the sale of a portion of our nols . this sale was structured through the new jersey technology business tax certificate transfer ( nol ) program . liquidity and capital resources sources of liquidity as of december 31 , 2018 , we had cash and cash equivalents and short-term investments of approximately $ 44.2 million , compared to $ 43.9 million as of december 31 , 2017. the decrease in our cash and cash equivalents and short-term investments was primarily due to the continued development costs associated with our lead product candidate , ibrexafungerp , offset in large part by the funds raised in our march 2018 public offering of our common stock and warrants . we have incurred net losses since our inception , including the year ended december 31 , 2018. as of december 31 , 2018 , our accumulated deficit was $ 217.7 million . we anticipate that we will continue to incur losses for at least the next several years . we expect that our research and development expenses will continue to increase and we will continue to incur selling , general and administrative expenses to support our operations . as a result , we will need additional capital to fund our operations , which we may obtain through one or more of equity offerings , debt financings , or other non-dilutive third-party funding ( e.g. , grants , new jersey technology business tax certificate transfer ( nol ) program ) , strategic alliances and licensing or collaboration arrangements . we may offer shares of our common stock pursuant to our form s-3 shelf registration statement filed with the sec on august 31 , 2018 and declared effective on september 14 , 2018 , including the related at-market-facility entered into on august 31 , 2018 with cantor . for the year ended december 31 , 2018 , we received net proceeds of $ 1.4 million under our at-the-market facility . on march 7 , 2019 , we sold to puissance $ 16 million aggregate principal amount of our note . the holders of the note may convert their note at their option at any time prior to the close of business on the business day immediately preceding march 15 , 2025 into shares of our common stock . on or after march 15 , 2022 , we have the right , at our election to redeem all 40 or any portion of the note n ot previously converted given certain sale price conditions associated with our common stock . see note 14 to our financial statements for the year ended december 31 , 2018 , included in this annual report for further details . cash flows the following table sets forth the significant sources and uses of cash for the years ended december 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_2_th operating activities the $ 3.8 million increase in net cash used in operating activities for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 , was primarily due to increases in costs associated with ibrexafungerp development efforts . we expect that our research and development expenses will increase as we pursue our ibrexafungerp development efforts and we expect we will continue to incur selling , general and administrative expenses to support our operations . net cash used in operating activities of $ 28.3 million for the year ended december 31 , 2018 , primarily consisted of the $ 12.5 million net loss adjusted for non-cash charges that included the gain on change in fair value of the warrant liabilities of $ 11.9 million and stock-based compensation expense of $ 1.8 million , plus a net unfavorable change in operating assets and liabilities of $ 6.4 million . the net unfavorable change in operating assets and liabilities included a decrease in accounts payable and accrued expenses of $ 0.2 million and an increase in prepaid expenses , other assets , and deferred costs of $ 6.4 million . the $ 6.4 million increase in prepaid expenses , other assets , and deferred costs is primarily due to the recognition of a $ 6.7 million receivable recorded as of december 31 , 2018 , for the sale of a portion of our nols through the new jersey technology business tax certificate transfer ( nol ) program . net cash used in operating activities of $ 24.6 million for the year ended december 31 , 2017 , primarily consisted of the $ 25.1 million net loss adjusted for non-cash charges that included the gain on change in fair value of the warrant liability of $ 2.7 million and stock-based compensation expense of $ 1.7 million , plus a net favorable change in operating assets and liabilities of $ 1.0 million . the net favorable change in operating assets and liabilities included an increase in accounts payable and accrued expenses of $ 2.1 million and an increase in prepaid expenses , other assets , and deferred costs of $ 0.8 million . the increase in prepaid expenses , other assets , and deferred costs is primarily due to a $ 0.6 million increase in long term prepaid ibrexafungerp development services .
| components of operating results revenue revenue consists of the continued amortization of a non-refundable upfront payment received under our collaboration arrangement with r-pharm . the r-pharm arrangement and our revenue recognition policy is described within the `` critical accounting policies and significant judgments and estimates '' section below , as well as in note 2 to our audited financial statements for the year ended december 31 , 2018 , included in this form 10-k. research and development expense research and development expense consists of expenses incurred while performing research and development activities to discover , develop , or improve potential product candidates we seek to develop . this includes conducting preclinical studies and clinical trials , manufacturing and other development efforts , and activities related to regulatory filings for product candidates . we recognize research and development expenses as they are incurred . our research and development expense primarily consists of : costs related to executing preclinical studies and clinical trials , including related drug formulation , manufacturing and other development ; salaries and personnel-related costs , including benefits and any stock-based compensation for personnel performing research and development functions ; 38 fees paid to clini cal research organizations ( `` cros '' ) , vendors , consultants and other third parties who support our product candidate development and intellectual property protection ; other costs in seeking regulatory approval of our products ; and allocated overhead . ibrexafungerp was the only key research and development projects during the periods presented . we plan to increase our research and development expense for the foreseeable future as we continue our effort to develop ibrexafungerp , specifically for our phase 3 vvc registration program , and potentially to develop our other in-house product candidates or candidates we may acquire ; subject to the availability of additional funding . the successful development of product candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs required to complete the remaining development of any product candidates .
| 1,812 |
to the extent the company has a change of control or a spinoff , the warrants provide for a put for the warrants to the company at their black- scholes valuation . the value of the warrants amounted to $ 575,000 and was recoded as debt discount in the accompanying balance sheet . until the 3 year anniversary of the maturity date , the investor shall have the right ( but not the obligation ) to participate in 50 % of any subsequent equity or debt issuance . consummation of the transaction has been subject to certain conditions precedent , including the company agrees to procure an approval of this transaction at its annual shareholder meeting scheduled no later than 180 days after the closing date and agrees to procure voting agreements from principal shareholders prior to closing of the company . on december 23 , 2019 , the company entered into an exchange agreement with the institutional investor pursuant to which the investor exchanged $ 5.5 million principal amount of its august 19 , 2019 series a senior secured note for 5,775 shares of its series d preferred stock , which was authorized by the company 's board of directors on december 21 , 2019. during the year ended december 31 , 2020 , the company received $ 3,000,000 in connection with the investor note . also , during the year ended december 31 , 2020 , $ 3,200,000 principal amount of notes was converted into common stock . on november 20 , 2020 , the company and the investor entered into an exchange agreement ( the “ exchange agreement ” ) whereas the investor exchanged the balance of $ 2,131,050 of outstanding notes for the following : an aggregate cash payment of $ 744,972 , an aggregate of 1,850,000 shares of the company 's common stock , a warrant to purchase up to an aggregate of 575,000 shares of the company 's common stock for $ 1.00 per share , and nine shares of series e non-convertible preferred stock of the company . the series e preferred stock has not yet been issued . in addition , the company relinquished their note receivable of $ 1,480,000 owed from the investor . as a result of this transaction , the company recorded a loss of $ 1,810,712 . as of december 31 , 2019 , the principal amount of notes amounted to $ 5,602,750 , net of debt issuance costs of $ 1,386,443 . during april 2020 , the company entered into a promissory note with an approved lender in the principal amount of $ 399,300 . the note was approved under the provisions of the coronavirus , aid , relief and economic security act ( the “ cares act ” ) and the terms of the paycheck protection program of the u.s. small business administration 's 7 ( a ) loan program ( “ ppp loan ” ) . the company repaid the ppp loan in full during june 2020. note 7 – commitments and contingencies on january 3 , 2017 , the company executed a non-cancellable operating lease for its principal office with the lease commencing february 1 , 2017 for a five ( 5 ) year term . the company paid a security deposit of $ 29,297 . the lease required the company to pay its proportionate share of direct costs estimated to be 22.54 % of the total property , a fixed monthly direct cost of $ 6,201 for each month during the term of the lease , and monthly rental pursuant to the lease terms . the company entered into a lease for office space at 8669 research drive , in irvine , ca , which is to replace the current corporate headquarters . the lease commenced on december 1 , 2019 with no rent due until april 1 , 2020. from april 1 , 2020 through march 31 , 2025 , base rent will be due on the first of each month in the amount of $ 25,200 escalating annually on december 1 of each year to $ 29,480 beginning december 1 , 2023. the company paid an initial amount of $ 68,128 comprising the rent for april 2020 , a security deposit and the amount due for property taxes , insurance and association fees . f- 15 on august 30 , 2018 , the company entered into an agreement with a customer to pay a slotting allowance of $ 1,000,000 payable in three annual installments of $ 333,334 on march 1 , 2019 , $ 333,333 on march 1 , 2020 and $ 333,333 on march 1 , 2021. future minimum lease commitments of the company are as follows : replace_table_token_7_th the company recorded rent expense of $ 853,062 and $ 201,540 for the years ended december 31 , 2020 and 2019 , respectively . employment agreements with officers on january 3 , 2017 , the company entered into an employment agreement with its president and chief executive officer for a five-year term . the officer received a sign-on-bonus of $ 50,000 and was entitled to an annual base salary of $ 350,000 to increase by 10 % each year commencing on january 1 , 2018. the officer was also granted a stock option to purchase story_separator_special_tag prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report . story_separator_special_tag in our june 2 , 2020 public offering , we sold 19 million shares of our common stock and 20.7 million warrants from which it received gross proceeds of $ 19,017,000. as of december 30 , 2020 , the company 's principal sources of liquidity consisted of approximately $ 2.2 million of cash and future cash generated from operations . the company believes its current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for 12 months from the date of the issuance of the accompanying financial statements . the company continues to control its cash expenses as a percentage of expected revenue on an annual basis and thus may use its cash balances in the short term to invest in revenue growth . based on current internal projections , the company believes it has and or will generate sufficient cash for its operational needs , including any required debt payments , for at least one year from the date of issuance of the accompanying financial statements . management is focused on growing the company 's existing product offerings , as well as its customer base , to increase its revenues . the company can not give any assurances that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions . future business demands may lead to cash utilization at levels greater than recently experienced . the company may need to raise additional capital in the future . however , the company can not assure that it will be able to raise additional capital on acceptable terms , or at all . subject to the foregoing , management believes that the company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying financial statements . on december 7 , 2020 , we filed a shelf registration statement on form s-3 ( file no . 333-251185 ) ( the “ first form s-3 ” ) containing a base prospectus and a sales agreement prospectus covering the offering , issuance and sale by us of up to a maximum aggregate offering price of $ 11,074,247 of our common stock under an at the market offering agreement , dated december 7 , 2020 ( the “ atm agreement ” ) , with h.c. wainwright & co. , llc , as sales agent ( “ wainwright ” ) . the sec declared the first form s-3 effective under the securities act on december 15 , 2020. on january 19 , 2021 , we filed a prospectus supplement dated january 15 , 2021 ( the “ atm prospectus supplement ” ) to the first form s-3 to offer and sale additional shares of common stock having an aggregate value of $ 8,721,746 from time to time through wainwright acting as sales agent . a total of 18,616,338 shares of common stock having an aggregate sales price of $ 19,763,121 was sold through wainwright pursuant to the first form s-3 , with net proceeds to us of $ 19,107,915 . 29 on february 2 , 2021 , we filed a second registration statement on form s-3 ( file no . 333-252630 ) ( the “ second form s-3 ” ) containing a base prospectus and a sales agreement prospectus covering the offering , issuance and sale by us of up to a maximum aggregate offering price of $ 100,000,000 of our common stock that may be issued and sold under a second at the market offering agreement , dated february 1 , 2021 , with wainwright , as sales agent . the second form s-3 was declared effective by the sec on february 8 , 2021. from january 1 , 2021 through march 11 , 2021 , the company has raised approximately $ 21,882,000 through the sale of 16,319,271 shares of the company 's common stock in connection with the second atm agreement . in addition to the foregoing , subsequent to december 31 , 2020 , an aggregate of 5,384,540 of the company 's series c warrants have been exercised for approximately $ 5,300,000 in gross proceeds . cash flows net cash flows used in operating activities for the year ended december 31 , 2020 was $ 25,063,170 , attributable to a net loss of $ 17,348,622 , offset by depreciation expense of $ 626,652 , amortization of original issuance of debt discount and debt issuance cost and non-cash inducement cost for debt conversion of $ 820,877 , stock-based compensation expense of $ 425,264 , common stock issued for services of $ 572,400 , a loss on exchange transaction of $ 1,810,712 , amortization of capitalized contract costs of $ 213,350 , and net increase in operating assets of $ 16,670,570 , and net increase in liabilities of $ 4,486,767. the company offered cash discounts to its customers and factors to accelerate payments of accounts receivable . in addition , the company negotiated extended payment terms with its suppliers , vendors and related parties to conserve its cash . net cash flows used in operating activities for the year ended december 31 , 2019 was $ 10,229,337 , attributable to a net loss of $ 4,300,969 , offset by depreciation expense of $ 225,426 , amortization of original issuance of debt discount and debt issuance cost and non-cash inducement cost for debt conversion of $ 626,546 , change in the fair value of warrant derivative of $ ( 5,251,852 ) , stock-based compensation expense of $ 336,637 , and net increase in operating assets of $ 1,768,059 , and net decrease in liabilities of $ 97,066. the company offered cash discounts to its customers and factors to accelerate payments of accounts receivable . in addition , the company negotiated extended payment terms with its suppliers , vendors and related parties to conserve its cash . there was net cash
| results of operations the fiscal year ended december 31 , 2020 , compared to the fiscal year ended december 31 , 2019 revenues revenues , net of allowances , for the years ended december 31 , 2020 and 2019 were $ 39,433,617 and $ 19,090,071 , respectively , consisted of metal goods and soft goods sold to customers . revenues increased in 2020 over 2019 by $ 20,343,546 , or 106.6 % , primarily due to wide acceptance of our products in the tools industry and receipt of recurring sales orders for metal goods and soft goods from our existing customers and new customers , and introduction and sale of new soft goods products to our customers . cost of goods sold cost of goods sold for the years ended december 31 , 2020 and 2019 was $ 27,687,235 and $ 14,153,670 , respectively . cost of goods sold increased in 2020 over 2019 by $ 13,533,565 or 95.6 % , primarily due to the increase in materials cost of steel and plastics polyester to manufacture metal goods and soft goods and increase in labor cost in china . cost of goods sold as a percentage of revenues in 2020 was 70.2 % as compared to cost of goods sold as a percentage of revenues in 2019 of 74.1 % . we expect to reverse the trend and reduce our cost of goods sold as a percentage of revenue as we achieve operational efficiencies in production and work with automated state-of-the-art factories to manufacture our product lines . operating expenses operating expenses consist of selling , general and administrative expenses , litigation expense , and research and development costs . selling , general and administrative expenses ( the “ sg & a expenses ” ) for the years ended december 31 , 2020 and 2019 were $ 21,076,528 and $ 11,401,039 , respectively .
| 1,813 |
although we believe these securities will ultimately be collected in full , we believe that it is not likely that we will be able to monetize the securities in our story_separator_special_tag the following `` management 's discussion and analysis of financial condition and results of operations '' ( md & a ) , as well as disclosures included elsewhere in this form 10-k , include `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. this act provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results . all statements other than statements of historical fact we make in this form 10-k are forward-looking . in particular , the statements herein regarding future sales and operating results ; company and industry growth , contraction or trends ; growth or contraction of the markets in which the company participates ; international events , regulatory or legislative activity , or various economic factors ; product performance ; the generation , protection and acquisition of intellectual property , and litigation related to such intellectual property ; new product introductions ; development of new products , technologies and markets ; natural disasters ; the acquisition of or investment in other entities ; uses and investment of the company 's cash balance ; financing facilities and related debt , payment of principal and interest , and compliance with covenants and other terms ; the company 's capital structure ; and the construction and operation of facilities by the company ; and statements preceded by , followed by or that include the words `` intends '' , `` estimates '' , `` plans '' , `` believes '' , `` expects '' , `` anticipates '' , `` should '' , `` could '' or similar expressions , are forward-looking statements . forward-looking statements reflect our current expectations and are inherently uncertain . our actual results may differ significantly from our expectations . we assume no obligation to update this forward-looking information . the section entitled `` risk factors '' describes some , but not all , of the factors that could cause these differences . the following discussion and analysis should be read in conjunction with our historical financial statements and the notes to those financial statements which are included in item 8 of part ii of this form 10-k. overview cabot microelectronics corporation ( `` cabot microelectronics '' , `` the company '' , `` us '' , `` we '' , or `` our '' ) supplies high-performance polishing slurries and pads used in the manufacture of advanced integrated circuit ( ic ) devices within the semiconductor industry , in a process called chemical mechanical planarization ( cmp ) . cmp polishes surfaces at an atomic level , thereby enabling ic device manufacturers to produce smaller , faster and more complex ic devices with fewer defects . we operate predominantly in one industry segment – the development , manufacture and sale of cmp consumables . we develop , produce and sell cmp slurries for polishing many of the conducting and insulating materials used in ic devices , and also for polishing the disk substrates and magnetic heads used in hard disk drives . we also develop , manufacture and sell cmp polishing pads , which are used in conjunction with slurries in the cmp process . we also pursue other demanding surface modification applications through our engineered surface finishes ( esf ) business where we believe we can leverage our expertise in cmp consumables for the semiconductor industry to develop products for demanding polishing applications in other industries . our fiscal 2013 results reflected a strengthening of demand for our products during the second half of the fiscal year after the soft industry demand conditions we saw during the first half of the fiscal year , which was similar the demand pattern we experienced in fiscal 2012. the semiconductor industry saw continuation of the trend of a significant shift in demand from semiconductor devices for personal computers ( pcs ) to those for mobile internet devices ( mids ) , specifically , consumer products such as smart phones and tablets . in addition , over this same period , the semiconductor industry has experienced slower growth than in the past . given the increased importance of the consumer-based mid demand , the semiconductor industry appears to have demonstrated more seasonality around consumer-oriented `` back to school '' and `` holiday '' calendar periods in recent years . it also appears that as the semiconductor industry continues to consolidate , capital spending within the industry is becoming more concentrated among fewer and larger semiconductor manufacturers , which seems to be resulting in more rational addition of production capacity , and , in turn , less cyclicality within the industry . since we serve the entire semiconductor market , fluctuations in demand for our products have generally reflected overall industry activity . our results over the last two fiscal years have demonstrated these trends as we have experienced relatively slow growth with more seasonal swings in demand . there are many factors that make it difficult for us to predict future revenue trends for our business , including those discussed in part i , item 1a entitled `` risk factors '' in this form 10-k. 27 index revenue for fiscal 2013 was $ 433.1 million , which represented an increase of 1.3 % from $ 427.7 million reported for fiscal 2012. the increase in revenue from fiscal 2012 was driven by a higher-priced product mix , partially offset by foreign exchange rate changes , primarily due to the weakening of the japanese yen against the u.s. dollar . we experienced increased sales of our slurries for polishing aluminum and dielectrics . these increases were partially offset by decreased sales of our tungsten slurry , esf and polishing pads product lines . story_separator_special_tag as of september 30 , 2013 , our warranty reserve represented 0.3 % of the current quarter revenue . if we had increased our warranty reserve estimate to 1.3 % of the current quarter revenue , our cost of goods sold would have increased by $ 1.2 million . inventory valuation we value inventory at the lower of cost or market and write down the value of inventory for estimated obsolescence or if inventory is deemed unmarketable . an inventory reserve is maintained based upon a historical percentage of actual inventories written off applied against the inventory value at the end of the period , adjusted for known conditions and circumstances . we exercise judgment in estimating the amount of inventory that is obsolete . should actual product marketability and fitness for use be affected by conditions that are different from those projected by management , revisions to the estimated inventory reserve may be required . if we had increased our reserve for obsolete inventory at september 30 , 2013 by 10 % , our cost of goods sold would have increased by $ 0.2 million . valuation and classification of auction rate securities as of september 30 , 2013 , we owned two auction rate securities ( ars ) with an estimated fair value of $ 8.0 million ( $ 8.2 million par value ) which are classified as other long-term assets on our consolidated balance sheet . in general , ars investments are securities with long-term nominal maturities for which interest rates are reset through a dutch auction every seven to 35 days . historically , these periodic auctions provided a liquid market for these securities . beginning in 2008 , general uncertainties in the global credit markets reduced liquidity in the ars market , and this illiquidity continues . 29 index as discussed in notes 3 and 7 of the notes to the consolidated financial statements , we have recorded a temporary impairment of $ 0.2 million , net of tax , in the value of one of our ars in other comprehensive income . the calculation of fair value and the balance sheet classification for our ars requires critical judgments and estimates by management , including an appropriate discount rate and the probabilities that a security may be monetized through a future successful auction , of a refinancing of the underlying debt , of a default in payment by the issuer , and of payments not being made by the bond insurance carrier in the event of default by the issuer . an other-than-temporary impairment must be recorded when a credit loss exists ; that is when the present value of the expected cash flows from a debt security is less than the amortized cost basis of the security . we performed two discounted cash flow analyses , one using a discount rate based on a market index comprised of tax exempt variable rate demand obligations and one using a discount rate based on the libor swap curve , and we applied a risk factor to reflect current liquidity issues in the ars market . key inputs to our discounted cash flow model include projected cash flows from interest and principal payments and the weighted probabilities of improved liquidity or debt refinancing by the issuer . we also incorporate certain level 2 market indices into the discounted cash flow analysis , including published rates such as the libor rate , the libor swap curve and a municipal swap index published by the securities industry and financial markets association . we also considered the probability of default in payment by the issuer of the securities , the strength of the insurance backing and the probability of failure by the insurance carrier in the case of default by the issuer of the securities . in november 2011 , the municipality that issued our impaired ars filed for bankruptcy protection . we considered these developments , in light of the continued insurance backing , and have concluded the impairment we have maintained remains adequate and temporary . we do not intend to sell the securities at a loss and we believe we will not be required to sell the securities at a loss in the future . if auctions involving our ars continue to fail , if issuers of our ars are unable to refinance the underlying securities , if the issuing municipalities are unable to pay their debt obligations and the bond insurance fails , or if credit ratings decline or other adverse developments occur in the credit markets , we may not be able to monetize our securities in the near term and may be required to further adjust the carrying value of these instruments through an impairment charge that may be deemed other-than-temporary . impairment of long-lived assets and investments we assess the recoverability of the carrying value of long-lived assets , including finite lived intangible assets , whenever events or changes in circumstances indicate that the assets may be impaired . we must exercise judgment in assessing whether an event of impairment has occurred . for purposes of recognition and measurement of an impairment loss , long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . we must exercise judgment in this grouping . if the sum of the undiscounted future cash flows expected to result from the identified asset group is less than the carrying value of the asset group , an impairment provision may be required . the amount of the impairment to be recognized is calculated by subtracting the fair value of the asset group from the net book value of the asset group . determining future cash flows and estimating fair values require significant judgment and are highly susceptible to change from period to period because they require management to make assumptions about future sales and cost of sales generally over a long-term period .
| results of operations the following table sets forth , for the periods indicated , the percentage of revenue of certain line items included in our historical statements of income : replace_table_token_5_th the results of operations for the fiscal year ended september 30 , 2013 include certain adjustments to correct prior period amounts , which we have determined to be immaterial to the current period and the prior periods to which they relate . these adjustments included the correction of a foreign deferred tax asset recorded in the first quarter of fiscal 2013 and the correction of additional historical tax accounting recorded in the fourth quarter of fiscal 2013. the correction of the foreign tax asset related to the reversal of a $ 1.7 million deferred tax asset for cumulative net operating losses ( nols ) associated with our facility in south korea since its opening in 2011 , as these nols are expected to be consumed during periods a tax holiday is in effect . additional tax accounting corrections resulted in a reduction of income tax expense of $ 0.4 million and adjustments to the consolidated balance sheet including : an increase of $ 0.8 million in deferred tax assets ; an increase of $ 0.8 million in additional paid-in capital ; a decrease of $ 0.3 million in income taxes payable ; and a decrease of $ 0.1 million in deferred tax liabilities .
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this discussion and analysis contains forward-looking statements that reflect our plans , estimates , expectations , assumptions and beliefs and involve risks and uncertainties . our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those discussed in the section titled “ risk factors ” included under part i , item 1a and elsewhere in this annual report on form 10-k. see “ special note regarding forward-looking statements ” in this annual report on form 10-k. overview of our business we are a biopharmaceutical company focused on discovering and developing novel therapeutics based on scientific understanding of key biological pathways underlying liver and metabolic diseases , retinal diseases and cancer . these diseases represent a significant burden for patients and healthcare systems and , in some cases , are leading causes of morbidity and mortality . our strategy is to leverage a combination of interrogating human biology and engineering powerful biologics to discover and develop promising product candidates and seek to move them rapidly into proof-of-concept studies and late-stage development , with the goal of delivering impactful first-in-class or best-in-class treatments to underserved patients suffering from grievous diseases . since the commencement of our operations in 2008 , we have generated a robust portfolio of product candidates ranging from early discovery to late-stage development . we aspire to operate one of the most productive research and development engines in the biopharmaceutical industry . pipeline programs and operations updates our discovery engine supports our ability to advance multiple product candidates across our three key therapeutic areas . in 2020 and 2021 to date , we progressed the development of our leading product candidates , achieving important development milestones as described below : liver and metabolic diseases . o aldafermin . aldafermin is an engineered analog of human hormone fibroblast growth factor 19 , or fgf19 , that is administered through a once-daily subcutaneous injection . aldafermin is wholly-owned by us and is in phase 2b development for the treatment of patients with non-alcoholic steatohepatitis , or nash , with liver fibrosis stage 2 , 3 or 4 , or f2 , f3 or f4 . in 2020 and early 2021 , we : ▪ presented positive liver histology and biomarker data from the final cohort , cohort 4 , in our adaptive phase 2 clinical trial of aldafermin in patients with nash in february 2020. cohort 4 was a 24-week double ‑ blind , randomized , placebo-controlled phase 2 trial and the data from this cohort demonstrated statistically significant activity on the composite endpoint of both reversing fibrosis and resolving nash . in the study , aldafermin continued to demonstrate a favorable tolerability profile . the results observed in cohort 4 were consistent with data from the three previous cohorts . ▪ completed enrollment in the phase 2b alpine 2/3 clinical trial of aldafermin in patients with nash with f2 and f3 liver fibrosis in september 2020 . ▪ initiated the phase 2b alpine 4 clinical trial of aldafermin in patients with nash with f4 liver fibrosis and well-compensated cirrhosis in february 2020 . ▪ looking forward : we expect to report topline results from the alpine 2/3 trial in the second quarter of 2021. in the alpine 4 trial , we are continuing enrollment , with a goal of enrolling approximately 160 patients across 70 sites in the united states , europe , hong kong and australia . we are leveraging the results of cohort 4 of our phase 2 clinical trial , as well as guidance from the u.s. food and drug administration , or fda , to inform early phase 3 planning and design . we expect that the alpine 2/3 trial results will 109 provide further information to support our design of a pivotal clinical trial program to enable a potential biologics license application , or bla , submission . o mk-3655 ( formerly ngm313 ) . mk-3655 is an agonistic antibody discovered by us that selectively activates fibroblast growth factor receptor 1c-beta-klotho , or fgfr1c/klb , which regulates insulin sensitivity , blood glucose and liver fat and is administered every four weeks through a subcutaneous injection . mk-3655 is in phase 2b development for the treatment of nash and was optioned by merck sharp & dohme corp. , or merck , under our collaboration with merck described below . in 2020 , merck : ▪ initiated a worldwide phase 2b trial of mk-3655 in patients with nash with f2 or f3 liver fibrosis in the fourth quarter of 2020 and is currently enrolling patients in that trial . retinal diseases . o ngm621 . ngm621 is a humanized immunoglobulin 1 , or igg1 , monoclonal antibody administered via intravitreal , or ivt , injection . ngm621 was engineered to potently inhibit the activity of complement c3 with the treatment goal of reducing disease progression in patients with geographic atrophy , or ga. merck has a one-time option to license ngm621 upon completion of a proof-of-concept study in humans . in 2020 and early 2021 , we : ▪ completed a phase 1 clinical trial of ngm621 testing the safety and tolerability of single and multiple ivt injections in patients with ga and , at the american academy of ophthalmology 2020 virtual meeting in november 2020 , presented safety and pharmacokinetics , or pk , data from the phase 1 trial demonstrating that ngm621 was well tolerated , with no patients experiencing serious adverse events , or saes , drug-related adverse events , or aes , intraocular inflammation , endophthalmitis or choroidal neovascularization . no dose-related safety patterns or concerns were identified . ▪ in july 2020 , initiated the catalina phase 2 clinical trial of ngm621 in patients with ga to evaluate ngm621 's effects on disease progression when given every four weeks or every eight weeks . the catalina trial was designed to be a phase 3-supportive or -enabling clinical trial . oncology . o ngm120 . story_separator_special_tag for example , in 2020 , we suspended development activities related to multiple metabolic disease product candidates in order to concentrate our resources on aldafermin and certain other product candidates subject to our merck collaboration . most recently , in december 2020 , based on the overall clinical experience with both ngm386 ( a once-daily gdf15 agonist product candidate we suspended development of earlier in 2020 ) and ngm395 ( a long-acting gdf15 agonist product 111 candidate ) , we decided to suspend development of our gdf15 agonist program , including both ngm386 and ngm395 , after we complete an ongoing phase 1 clinical trial evaluating safety , tolerability and pk of ngm395 in obese but otherwise healthy adults . we remain interested in the potential applications of a gdf15 agonist , but we believe antagonizing the gdf15 receptor , gfral , with ngm120 in patients with cancer has a stronger near-term rationale for development . in mid-2020 , we also suspended development of ngm217 , an antibody binding an undisclosed target that is designed to restore pancreatic islet function and increase insulin production in patients with diabetes , after we completed a phase 1 clinical trial of ngm217 assessing its safety , tolerability and pk in adults with autoimmune diabetes . this clinical trial demonstrated that ngm217 was well tolerated ; however , we decided to suspend activities related to ngm217 to concentrate our resources on the development of other product candidates . merck collaboration update the original research phase of the collaboration agreement with merck was for five years . in march 2019 , merck exercised its option to extend the research phase of the collaboration through march 16 , 2022. under the terms of the collaboration , merck was required to notify us no later than march 17 , 2021 of its unilateral decision whether to exercise its option to extend the research phase of the collaboration for an additional two-year term through march 16 , 2024. in march 2021 , merck initiated discussions with us with respect to elements of the ongoing collaboration that might be optimized to better address the evolving interests and priorities of both ngm and merck during the remainder of the current research phase through march 16 , 2022 and during any extension of the current research phase and any tail period after the end of the research phase . in this regard , the parties are negotiating in good faith certain modifications to the terms of the collaboration . such modifications may include , among other things , focusing ngm 's research and development under the collaboration on therapeutic areas of particular interest to merck , while enabling ngm to conduct research and development outside of these therapeutic areas which would , if mutually agreed to , allow ngm to discover and develop product candidates on its own or with third parties in other areas of interest . in order to allow negotiations to proceed , the parties have agreed to extend the march 17 , 2021 deadline for merck to deliver its extension notification decision until june 30 , 2021. while we can not predict whether or when merck will elect to extend the research phase of the collaboration or on what terms , or whether or when we will reach agreement with merck on the terms of a modified collaboration generally , we expect that any modified collaboration would result in a level of annual research support from merck during any extension of the current research phase after march 16 , 2022 that is meaningfully lower than the annual research support merck provided during the initial five-year term and is providing during the current two-year extension of the research phase . in this regard , we expect that under the terms of a modified collaboration , merck will not provide research funding for certain of our product candidates . we also expect that if we are unable to reach agreement with merck on modified terms , merck will not elect to extend the research phase of the collaboration and will decide not to proceed with certain of our product candidates after the end of the research phase . in any event , we expect that our funding obligations with respect to the development of our current and potential future product candidates will substantially increase following march 16 , 2022 , the end of the current two-year extension of the research phase , regardless of whether we are able to reach agreement with merck on modified terms . financial highlights since inception , we have funded our operations primarily through : fees received from collaboration partners , primarily merck , which since inception through december 31 , 2020 includes reimbursement of research and development expenses of $ 400.6 million , upfront cash licensing fees of $ 123.0 million , primarily from merck , and a payment of $ 20.0 million from merck to license mk-3655 and related compounds ; proceeds from a private placement of convertible preferred stock prior to our initial public offering , or ipo , including approximately $ 106.0 million of our series e convertible preferred stock purchased by merck ; net proceeds from our ipo in 2019 of approximately $ 107.8 million , together with proceeds from the concurrent private placement of shares of common stock to merck of $ 65.9 million ; net proceeds of $ 21.9 million from sales of 809,700 shares of our common stock at an average price of $ 27.94 per share in december 2020 under an open market sale agreement sm , or the sales agreement , we entered into with jefferies llc , or jefferies , in june 2020 ; and 112 net proceeds of approximately $ 134.7 million from the sale of 5,324,074 shares of our common stock i n january 2021 upon completion of an underwritten public offering of our common stock , or the follow-on offering , which included the full exercise by the underwriters of their option to purchase additional shares .
| results of operations our results of operations were as follows ( in thousands ) : replace_table_token_5_th related party revenue from merck revenue decreased $ 16.2 million in the year ended december 31 , 2020 compared to the same period in 2019 primarily due to a decrease of $ 14.9 million related to the recognition of a portion of the initial upfront payment received from merck that was included within the transaction price and recognized over the initial five-year term of our collaboration agreement using the cost-based input model . the initial five-year term ended in the first quarter of 2020. revenue decreased $ 5.1 million in the year ended december 31 , 2019 compared to the same period in 2018 primarily due to license revenue of $ 20.0 million received in 2018 due to merck 's exercise of its option for mk-3655 , partially offset by an increase of $ 9.7 million in reimbursable costs related to research personnel and r & d activities and an increase of $ 5.2 million in revenue associated with the change in revenue recognition methodology under asc 606 , which was effective january 1 , 2019 . 117 research and development expenses our r & d expenses by program were as follows ( in thousands ) : replace_table_token_6_th ( 1 ) internal and unallocated r & d expenses consist primarily of research supplies and consulting fees , which we deploy across multiple r & d programs . r & d expenses increased $ 34.7 million in the year ended december 31 , 2020 compared to the same period in 2019 primarily due to a $ 31.0 million increase in external expenses driven by our manufacturing activities and ongoing clinical trials of aldafermin , ngm621 , ngm120 and ngm395 . the increase in r & d expenses in 2020 also included increases of $ 5.6 million in personnel-related expenses and $ 4.8 million in costs associated with pre-clinical ind-enabling studies for ngm707 and ngm438 .
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the company also uses the income approach , as described above , story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements , the information described under the caption “ risk factors ” in part i , item 1a of this report and our special note regarding forward-looking statements at the outset of this report . overview we are a developer , manufacturer and supplier of premium diagnostics products , medical imaging systems , surgical products and light-based aesthetic and medical treatment systems with an emphasis on women 's health . we operate in five segments : diagnostics , breast health , medical aesthetics , gyn surgical and skeletal health . we sell and service our products through a combination of direct sales and service personnel and a network of independent distributors and sales representatives . we offer a wide range of diagnostic products which are used primarily to aid in the diagnosis of human diseases , and through january 31 , 2017 , we offered products that screened donated human blood and plasma . our primary diagnostics products include our aptima family of molecular diagnostic assays , which run on our advanced instrumentation systems ( panther and tigris ) , our thinprep cytology system , and the rapid fetal fibronectin test . the aptima family of molecular diagnostic assays is used to detect , among other things , the infectious microorganisms that cause common sexually transmitted diseases , or stds , chlamydia and gonorrhea , certain high-risk strains of human papillomavirus , or hpv , and trichomonas vaginalis , the parasite that causes trichomoniasis . in addition , in 2017 and 2018 we introduced aptima quantitative viral load tests for hiv , hepatitis c and hepatitis b. the aptima portfolio also includes diagnostic tests for a range of acute respiratory ailments that are run on the panther fusion system , a field upgradeable instrument addition to panther . the thinprep system is primarily used in cytology applications , such as cervical cancer screening , and the rapid fetal fibronectin test assists physicians in assessing the risk of pre-term birth . our breast health products include a broad portfolio of solutions for breast cancer care for radiology , pathology and surgery . these solutions include breast imaging and analytics , such as our 2d and 3d mammography systems and reading workstations , minimally invasive breast biopsy guidance systems and devices , breast surgery and biopsy site markers and localization , specimen radiology , ultrasound and connectivity solutions . our most advanced breast imaging platforms , selenia dimensions and 3dimensions , utilizes a technology called tomosynthesis to produce 3d images that show multiple contiguous slice images of the breast , which we refer to as the genius 3d mammography exam , as well as conventional 2d full field digital mammography images . our clinical results for fda approval demonstrated that conventional 2d digital mammography with the addition of 3d tomosynthesis is superior to 2d digital mammography alone for both screening and diagnostics for women of all ages and breast densit ies . in addition , through our recent acquisitions of faxitron and focal we have expanded our product portfolio to include breast conserving surgery products . our medical aesthetics segment offers a portfolio of aesthetic treatment systems , including sculpsure , picosure and monalisa touch that enable plastic surgeons , dermatologists and other medical practitioners to perform non-invasive and minimally invasive procedures to remove hair , treat vascular and benign pigmented lesions , remove multi-colored tattoos , revitalize the skin , reduce fat through laser lipolysis , reduce cellulite , clear nails infected by toe fungus , ablate sweat glands and improve gynecologic health . this segment also markets tempsure , a radio frequency ( or `` rf '' ) energy sourced platform that offers both non-surgical and surgical aesthetic treatments and procedures . on november 20 , 2019 , we executed a definitive agreement to sell our medical aesthetics business for a sales price of $ 205 million in cash subject to certain closing adjustments . net of these adjustments , we expect net proceeds of approximately $ 138 million . we expect this disposition to be completed around the end of calendar year 2019. the definitive agreement contains representations and warranties and covenants customary for a transaction of this nature , and the completion of the sale is subject to customary closing conditions , including , among others , the expiration or termination of the applicable waiting period under the hart-scott-rodino antitrust improvements act of 1976 , as amended , and certain other competition and regulatory approvals . the definitive agreement also contains certain termination rights for us and the purchaser , including , among other events , ( i ) if the transaction has not been completed on or prior to march 18 , 2020 , ( ii ) following a breach by the other party that would cause a closing condition not to be satisfied and is not or can not be cured within 60 days ' notice of that breach or ( ii ) if there is any law , injunction or other judgment permanently prohibiting the transaction . we can not assure that we will be able to complete this transaction on a timely basis . our gyn surgical products include our novasure endometrial ablation system , or novasure , and our myosure hysteroscopic tissue removal system , or myosure , as well as our fluent fluid management system , or fluent . the novasure portfolio is comprised of the novasure classic and novasure advanced devices and involves a trans-cervical procedure for the treatment of abnormal uterine bleeding . the myosure suite of devices offers four options to provide incision-less removal of fibroids , polyps , and other pathology within the uterus . the fluent system is a fluid management system that provides liquid distention during diagnostic and operative hysteroscopic procedures . story_separator_special_tag faxitron on july 31 , 2018 , we completed the acquisition of faxitron bioptics , llc , or faxitron , for a purchase price of $ 89.5 million , which included hold-backs of $ 11.7 million that were payable up to one year from the date of acquisition , and contingent consideration which we estimated at $ 2.9 million as of the measurement date . the contingent consideration is payable upon meeting certain revenue growth metrics . in the fourth quarter of fiscal 2019 , we increased the contingent consideration liability by $ 1.7 million based on updated projections . in fiscal 2019 , we paid $ 6.5 million of the hold-back and have withheld the remaining $ 5.2 million under the indemnification provisions of the purchase agreement , which the former shareholders are disputing . faxitron , headquartered in tucson , arizona , develops , manufactures , and markets digital radiography systems . faxitron 's results of operations are reported in our breast health reportable segment from the date of acquisition . based on our valuation , we allocated $ 53.2 million of the purchase price to the value of intangible assets and $ 45.6 million to goodwill . focal therapeutics on october 1 , 2018 , we completed the acquisition of focal therapeutics , inc. , or focal , for a purchase price of $ 120.1 million , which included hold-backs of $ 14.0 million payable up to one year from the date of acquisition . in the second quarter of fiscal 2019 , $ 1.5 million of the hold-back was paid , and the remaining $ 12.5 million was paid on october 1 , 2019. focal , headquartered in california , manufactures and markets its biozorb marker , which is an implantable three-dimensional marker that helps clinicians overcome certain challenges in breast conserving surgery . based on our valuation , we allocated $ 97.2 million of the purchase price to the value of intangible assets and $ 31.1 million to goodwill . supersonic imagine on august 1 , 2019 , we acquired approximately 46 % of the outstanding shares of supersonic imagine s. a. , or ssi . ssi , headquartered in france , specializes in ultrasound imaging and designs , develops and markets an ultrasound platform used in the non-invasive care path for the characterization of breast , liver or prostate diseases . we have accounted for this investment as an equity method investment and as a result we recorded a loss of $ 3.3 million within other income , net , representing our proportionate share of ssi 's loss for the two months ended september 28 , 2019. in september 2019 , we launched a tender offer to acquire all of the remaining shares of ssi that we did not already own for a price of 1.50 per share in cash . effective november 21 , 2019 , we acquired an additional 7.6 million shares for $ 12.5 million . as a result , we own approximately 78 % of the outstanding shares and will launch a second tender offer with similar terms to acquire the remaining shares . we will perform purchase accounting in the first quarter of fiscal 2020 and expect to begin consolidating ssi 's results effective november 21 , 2019. blood screening business disposition in the first quarter of fiscal 2017 , we entered into a definitive agreement to sell our blood screening business to grifols for a sales price of $ 1.85 billion in cash , subject to adjustment based on the closing amount of inventory . the transaction closed on january 31 , 2017 and we received $ 1.865 billion . the sale resulted in a gain of $ 899.7 million recorded in the second quarter of fiscal 2017. as a result of this disposition and proceeds received , we recorded a tax obligation of $ 649.5 million , which was paid in fiscal 2017. upon the closing of the transaction , our existing collaboration agreement with grifols terminated , and a new collaboration agreement was executed as part of this transaction for us to provide certain research and development services to grifols . in addition , we agreed to provide transition services to grifols over a two to three year period depending on the nature of the respective service , including the manufacture of inventory , and we are in effect serving as a contract manufacturer of assays for grifols for a two to three year period from the disposal date . we also agreed to sell panther 39 instrumentation and certain supplies to grifols as part of a long term supply agreement . following the closing of this disposition , we no longer operate our blood screening business , except to the limited extent we have agreed to support grifols . under the long term supply agreement , transition services agreement to manufacture assays , and research and development services , we recognized revenues of $ 58.5 million and $ 55.4 million in fiscal 2019 and 2018 , respectively . for the disposed blood screening business , in fiscal 2017 , revenue was $ 96.5 million , gross profit was $ 64.8 million and operating income was $ 45.8 million . revenue , gross profit and operating income of the disposed business represents the financial impact of the business as it was operated prior to the date of disposition . the operating expenses include only those that were directly incurred and retained by the disposed business and are now incurred by grifols . see note 15 to our consolidated financial statements included herein . 40 results of operations the following table sets forth , for the periods indicated , the percentage of total revenues represented by items as shown in our consolidated statements of operations . all dollar amounts in tables are presented in millions . replace_table_token_3_th 41 fiscal year ended september 28 , 2019 compared to fiscal year ended september 29 , 2018 product revenues .
| segment results of operations diagnostics . replace_table_token_19_th diagnostics revenues decreased in fiscal 2018 compared to fiscal 2017 primarily due to the decrease in product revenues discussed above . the primary driver of the reduction in revenues was the divestiture of the blood screening business in the second quarter of fiscal 2017. operating income for this business segment decreased in fiscal 2018 compared to fiscal 2017 primarily due to fiscal 2017 including a one-time gain on the disposition of the blood screening business of $ 899.7 million in the second quarter of fiscal 2017 and a decrease in gross profit in fiscal 2018 primarily due to the blood screening divestiture . excluding the impact of the gain from this divestiture , operating income decreased $ 9.0 million in the current year compared to the prior year primarily due to the blood screening divestiture , partially offset by the improvements in sales of our aptima assays . gross margin was 47.1 % in the current year compared with 47.8 % in the prior year . the decrease in gross margin was primarily due to lower revenues as a result of the disposition of the higher-margin blood screening business and lower margins generated under the new supply and collaboration arrangement with grifols . this gross margin decrease was partially offset by the impact of the increase in aptima assay volumes , and lower amortization expense .
| 1,816 |
the company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1955. forward-looking statements , which are based on certain assumptions and describe future plans , strategies and expectations of the company , are identified by use of the words “ believe , ” ” expect , ” ” intend , ” ” anticipate , ” ” estimate , ” ” project , ” or similar expressions . actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties , including those described in item 1a . “ risk factors ” and other sections of the company 's annual report on form 10-k and the company 's other filings with the sec , and changes in interest rates , general economic conditions and those in the company 's market area , legislative/regulatory changes , monetary and fiscal policies of the u.s. government , including policies of the u.s. treasury and the federal reserve board , the quality or composition of the loan or investment portfolios and the valuation of the investment portfolio , the company 's success in raising capital , demand for loan products , deposit flows , competition , demand for financial services in the company 's market area and accounting principles , policies and guidelines . furthermore , forward-looking statements speak only as of the date they are made . except as required under the federal securities laws or the rules and regulations of the sec , we do not undertake any obligation to update or review any forward-looking information , whether as a result of new information , future events or otherwise . recent acquisition on september 8 , 2016 , the company completed its acquisition of first clover leaf . financial results for 2016 include the income and expenses of first clover leaf bank for the period september 9 through december 31 , 2016. at the date of the acquisition , the fair value of first clover leaf 's total assets was $ 669 million , including $ 438 million in loans . $ 537 million in deposits were also included . net income before taxes was positively impacted by $ 911,000 due to first clover leaf bank 's purchase accounting net accretion during 2016 , net of amortization expense of intangibles . during 2016 , the company incurred $ 1,340,000 of pre-tax acquisition expenses related to the acquisition of first clover leaf , comprised primarily of legal , investment banking , and consulting costs . for the years ended december 31 , 2016 , 2015 and 2014 overview this overview of management 's discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you . for a more complete understanding of trends , events , commitments , uncertainties , liquidity , capital resources , and critical accounting estimates , you should carefully read this entire document . these have an impact on the company 's financial condition and results of operations . net income was $ 21.8 million , $ 16.5 million , and $ 15.5 million and diluted earnings per share were $ 2.05 , $ 1.81 , and $ 1.85 for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the increase in net income in 2016 was primarily the result of an increase in net interest income due to growth in earning assets from the acquisitions and strong loan growth in our legacy markets . also , non-interest income increased with increased revenues from insurance , electronic services and deposit service charges . the following table shows the company 's annualized performance ratios for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_3_th total assets at december 31 , 2016 , 2015 and 2014 were $ 2.88 billion , $ 2.11 billion , and $ 1.61 billion , respectively . net loan balances increased to $ 1.81 billion at december 31 , 2016 , from $ 1.27 billion at december 31 , 2015 , from $ 1.05 billion at december 31 , 2014 . of the increase in 2016 , $ 439 million was due to loans acquired in the first clover leaf acquisition . in addition , $ 65 million or 12 % was due to increases in commercial real estate loans and $ 35.8 million or 6.6 % was due to increases in commercial and industrial loans . of the increase in 2015 , $ 152 million was due to loans acquired in onb branch purchase . in addition , $ 48.7 million or 22 % was due to increases in commercial and industrial loans and $ 20.7 million or 9.0 % was due to increases in loans secured by real estate . of the increase in 2014 , $ 19.8 million or 2.7 % was due to increases in loans secured by real estate and $ 55.4 million or 32.9 % was due to increases in commercial and industrial loans . total deposit balances increased to $ 2.33 billion at december 31 , 2016 from $ 1.73 billion at december 31 , 2015 and from $ 1.27 billion at december 31 , 2014 . the increase in 2016 was primarily the result of the acquisition of first clover leaf during the third quarter of 2016 that included $ 550 million in deposits . the increase in 2015 was primarily the result of the acquisition of the onb branches during third quarter of 2015 that included $ 454 million in deposits . 19 net interest margin , defined as net interest income divided by average interest-earning assets , was 3.28 % for 2016 , 3.27 % for 2015 and 3.43 % for 2014 . in 2016 , the ratio was modestly higher due to loan growth and the inclusion of first clover leaf for a full quarter . story_separator_special_tag in 2015 , the primary reason for the decrease in these ratios was completion of the acquisition of twelve onb branches which increased risk-weighted assets by approximately $ 227 million offset by completion of private placement capital raise completed during the second quarter of 2015 which resulted in an increase in common stockholder 's equity of approximately $ 29.3 million . the increase in these ratios during 2014 was primarily the result of an increase in retained earnings from current year net income and slightly lower preferred dividends due to the conversion of series b preferred stock . 20 the company 's liquidity position remains sufficient to fund operations and meet the requirements of borrowers , depositors , and creditors . the company maintains various sources of liquidity to fund its cash needs . see “ liquidity ” herein for a full listing of its sources and anticipated significant contractual obligations . the company enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers . these financial instruments include lines of credit , letters of credit and other commitments to extend credit . the total outstanding commitments at december 31 , 2016 , 2015 and 2014 were $ 485.1 million , $ 298.3 million , and $ 242.8 million , respectively . see note 17 – “ commitments and contingent liabilities ” herein for further information . critical accounting policies and use of significant estimates the company has established various accounting policies that govern the application of u.s. generally accepted accounting principles in the preparation of the company 's financial statements . the significant accounting policies of the company are described in the footnotes to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from these judgments and assumptions , which could have a material impact on the carrying values of assets and liabilities and the results of operations of the company . allowance for loan losses . the company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements . an estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates , expected cash flows and estimated collateral values . in assessing these factors , the company uses organizational history and experience with credit decisions and related outcomes . the allowance for loan losses represents the best estimate of losses inherent in the existing loan portfolio . the allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off , net of recoveries . the company evaluates the allowance for loan losses quarterly . if the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations , the allowance for loan losses is adjusted . the company estimates the appropriate level of allowance for loan losses by separately evaluating impaired and nonimpaired loans . a specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan . the methodology used to assign an allowance to a nonimpaired loan is more subjective . generally , the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics , adjusted for qualitative factors including the volume and severity of identified classified loans , changes in economic conditions , changes in credit policies or underwriting standards , and changes in the level of credit risk associated with specific industries and markets . because the economic and business climate in any given industry or market , and its impact on any given borrower , can change rapidly , the risk profile of the loan portfolio is continually assessed and adjusted when appropriate . notwithstanding these procedures , there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required . other real estate owned . other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired , establishing a new cost basis . the adjustment at the time of foreclosure is recorded through the allowance for loan losses . due to the subjective nature of establishing the fair value when the asset is acquired , the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate . if it is determined that fair value temporarily declines subsequent to foreclosure , a valuation allowance is recorded through noninterest expense . operating costs associated with the assets after acquisition are also recorded as noninterest expense . gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense . investment in debt and equity securities . the company classifies its investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with statement of financial accounting standards ( sfas ) no . 115 , “ accounting for certain investments in debt and equity securities , ” which was codified into asc 320. securities classified as held-to-maturity are recorded at cost or amortized cost . available-for-sale securities are carried at fair value . fair value calculations are based on quoted market prices when such prices are available .
| results of operations net interest income the largest source of operating revenue for the company is net interest income . net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities . the amount of interest income is dependent upon many factors , including the volume and mix of earning assets , the general level of interest rates and the dynamics of changes in interest rates . the cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds . 22 the company 's average balances , interest income and expense and rates earned or paid for major balance sheet categories are set forth in the following table ( dollars in thousands ) : year ended december 31 , 2016 year ended december 31 , 2015 year ended december 31 , 2014 average balance interest average rate average balance interest average rate average balance interest average rate assets interest-bearing deposits $ 38,359 $ 195 0.51 % $ 78,605 $ 199 0.25 % $ 32,379 $ 83 0.26 % federal funds sold 8,392 40 0.48 % 493 — 0.10 % 495 1 0.10 % certificates of deposit investments 28,777 295 1.02 % 5,118 44 0.86 % — — — % investment securities taxable 514,096 9,260 1.80 % 400,423 7,741 1.93 %
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on august 1 , 2018 , the company entered into an amended and restated collaborative research , development , and license agreement with dsm ( the “ collaboration agreement ” ) , which provides for ( i ) a worldwide exclusive license for all ophthalmic indications to dsm 's polyesteramide polymer technology , ( ii ) continuation of the collaborative research initiatives through the end of 2020 , including the transfer of dsm 's formulation technology to aerie during that time and ( iii ) access to a preclinical latanoprost implant . aerie paid $ 6.0 million to dsm upon execution of the collaboration agreement , with an additional $ 9.0 million payable to dsm through the end of 2020. as a result , $ 9.6 million related to the expanded collaboration agreement with dsm was expensed to research and development expense during the year ended december 31 , 2018 , which included story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this annual report on form 10-k. this management 's discussion and analysis contains forward-looking statements that involve risks and uncertainties . please see “ special note regarding forward-looking statements ” for additional factors relating to such statements , and see “ risk factors ” in part i , item 1a of this report for a discussion of certain risk factors applicable to our business , financial condition and results of operations . past operating results are not necessarily indicative of operating results in any future periods . we have applied the fast act modernization and simplification of regulation s-k , which limits the discussion to the two most recent fiscal years . refer to item 7. of our form 10-k issued on march 1 , 2019 for prior year discussion related to fiscal 2017. overview we are an ophthalmic pharmaceutical company focused on the discovery , development and commercialization of first-in-class therapies for the treatment of patients with open-angle glaucoma , dry eye , retinal diseases and potentially other diseases of the eye . our strategy is to successfully commercialize our fda-approved products , rhopressa ® and rocklatan ® , in the united states . we have a commercial team that is responsible for sales of rhopressa ® and rocklatan ® that includes approximately 100 sales representatives targeting eye-care professionals throughout the united states . our strategy also includes developing our business opportunities outside of the united states , including obtaining regulatory approval in europe and japan for rhopressa ® and rocklatan ® . in europe , rhokiinsa ® was granted a centralised marketing authorisation by the ec in november 2019 and the maa for roclanda ® was accepted by the ema in december 2019. to optimize the commercial opportunity , we may launch roclanda ® , if approved , before rhokiinsa ® in europe as the european market is oriented more toward fixed-dose combination products . the phase 3 registration trial for roclanda ® , named mercury 3 , commenced in europe during the third quarter of 2017 and we currently expect to read out topline 90-day efficacy data for the trial in the second half of 2020 , as discussed in “ — products ” below . the mercury 3 results are expected to be an important determinant as we evaluate the commercialization and profitability potential of rhokiinsa ® and roclanda ® in europe . in japan , we plan to pursue regulatory approval for rhopressa ® and rocklatan ® . with respect to the clinical progress of rhopressa ® in japan , we completed a phase 1 clinical trial , a successful pilot phase 2 clinical study in the united states on japanese and japanese-american subjects , as well as a successful phase 2 conducted in japan . topline results of the phase 2 trial indicated positive efficacy and tolerability in the patient set . clinical trials for rocklatan ® have not yet begun . we expect to move forward with plans for phase 3 initiation in japan , along with exploring collaboration with a potential partner in japan for rhopressa ® to advance our clinical development and ultimately commercialize rhopressa ® and rocklatan ® in japan , as discussed in “ — products ” below . we currently use contract manufacturers to produce commercial supplies of rhopressa ® and rocklatan ® for distribution in the united states . in the second quarter of 2019 , we completed the build-out of our own manufacturing plant in athlone , ireland , for further commercial production of rhopressa ® and rocklatan ® . in january 2020 , we received fda approval to produce rocklatan ® at the athlone plant for commercial distribution in the united states . this approval follows a successful pre-approval inspection of the plant and fda review of the pas , which added the athlone manufacturing plant as a drug product manufacturer for rocklatan ® . the manufacturing plant is expected to begin production of commercial supplies of rocklatan ® in the first quarter of 2020. we expect fda approval to produce rhopressa ® at our athlone plant by the end of 2020. we also anticipate the athlone manufacturing plant to have the capacity to produce rhokiinsa ® and , if approved , roclanda ® . we also seek to enhance our longer-term commercial potential by identifying and advancing additional product candidates through our internal discovery efforts , our entry into potential research collaborations or in-licensing arrangements or our acquisition of additional ophthalmic products or technologies or product candidates that complement our current product portfolio . as discussed in “ — product candidates ” below , some examples include our collaboration with dsm , whereby we have access to their bio-erodible polymer technology , our acquisition of assets from envisia , designed to advance our progress in developing potential future sustained-release product candidates to treat retinal diseases and our acquisition of avizorex , which expands our footprint in ophthalmology by developing therapeutics for the treatment of dry eye disease . story_separator_special_tag therefore , we believe that rocklatan ® competes with both pga and non-pga therapies for patients requiring maximal iop reduction , including those with higher iops and those who present with significant disease progression despite using currently available therapies . rocklatan ® in the united states we launched rocklatan ® in the united states in may 2019. rocklatan ® is now being sold to national and regional u.s. pharmaceutical distributors , and patients have access to rocklatan ® through pharmacies across the united states . rocklatan ® outside of the united states in europe , the clinical trials mercury 1 and mercury 2 represent the basis for european approval of roclanda ® . we also initiated a third phase 3 registration trial for roclanda ® , named mercury 3 , in europe during the third quarter of 2017. mercury 3 , a six-month efficacy and safety trial , is designed to compare roclanda ® to ganfort ® , a fixed-dose combination product marketed in europe consisting of bimatoprost ( a pga ) and timolol ( a beta blocker ) . if successful , mercury 3 is expected to improve our commercialization prospects in europe ; it is not required for regulatory approval . the mercury 3 results are expected to be an important determinant as we evaluate the commercialization and profitability potential of rhokiinsa ® and roclanda ® in europe . we currently expect to read out topline 90-day efficacy data for the trial in the second half of 2020 . in december 2019 , the maa for roclanda ® was accepted by the ema . an opinion from the chmp is expected in the fourth quarter of 2020 . since roclanda ® is a fixed-dose combination product that includes rhokiinsa ® , the maa submission for roclanda ® was predicated on the receipt of a centralised marketing authorisation for rhokiinsa ® , which the ec granted in november 2019. in japan , clinical trials for rocklatan ® have not yet begun . product candidates to complement our internal research through business development opportunities , we acquired from avizorex the clinical-stage dry eye product candidate avx-012 . furthermore , we have also acquired worldwide ophthalmic rights to a bio-erodible polymer technology from dsm and print ® implant manufacturing technology , which is a proprietary technology capable of creating precisely-engineered sustained-release products utilizing fully-scalable manufacturing processes , from envisia . using these technologies , we have created a sustained-release ophthalmology platform and are currently developing two sustained-release implants focused on retinal diseases , ar-1105 and ar-13503 sr , and in the future we believe this technology may be useful as we explore additional sustained-release applications . avx-012 ( trpm8 receptor ) in december 2019 , we acquired avizorex , a spanish ophthalmic pharmaceutical company , developing therapeutics for the treatment of dry eye disease . avizorex completed a phase 2a study in dry eye subjects in 2019 for its lead product candidate avx-012 . the active ingredient in avx-012 is a potent and selective agonist of the trpm8 ion channel , a cold sensor and osmolarity sensor that regulates ocular surface wetness and blink rate . by stimulating these processes in a physiological manner , trpm8 agonists have the potential to restore tear film stability and reduce discomfort in patients with dry eye . positive results from the phase 2a study support the therapeutic potential of avx-012 to treat signs and symptoms of dry eye . we are planning to initiate a larger phase 2b study in late 2020 . ar-1105 implant ( dexamethasone steroid ) in october 2017 , we acquired the rights to use print ® technology in ophthalmology and certain other assets from envisia . in addition , we acquired envisia 's intellectual property rights relating to a preclinical dexamethasone steroid implant using a biodegradable polymer-based drug delivery system that comprised of a blend of different plga polymers and print ® technology for the potential treatment of macular edema due to rvo and diabetic retinopathy , which we refer to as ar-1105 . we submitted the ind for ar-1105 in december 2018. in january 2019 , we announced that the fda reviewed the ind for ar-1105 and it is now in effect . we initiated a phase 2 clinical trial of ar-1105 in patients with macular edema due to rvo during march 2019 and completed enrollment in october 2019 . 78 ar-13503 sr implant ( rock and protein kinase inhibitor ) our owned clinical small molecule , ar-13503 , is a rock and protein kinase c inhibitor and is the active ingredient in our ar-13503 sustained-release implant . ar-13503 sr has potential for the treatment of dme , wet amd and other diseases of the retina . ar-13503 , which has the same active metabolite as rhopressa ® , has been shown to reduce lesion size in an in vivo preclinical model of wet amd at levels similar to the current market-leading wet amd anti-vegf product . when used in combination preclinically with the market-leading anti-vegf product , ar-13503 produced greater lesion size reduction than the anti-vegf product alone in a model of proliferative dr. pending additional studies , ar-13503 may have the potential to provide an entirely new mechanism and pathway to treat dme , wet amd and related diseases of the retina , potentially as an adjunctive therapy to current anti-vegf therapies . since ar-13503 is a small molecule with a short half-life when injected into the back of the eye , and the aforementioned diseases are located in the back of the eye , a delivery mechanism was needed to deliver the molecule to the back of the eye for a sustained delivery period . using our licensed technology from dsm , ar-13503 has been combined with a polyesteramide polymer to produce an injectable , thin fiber implant that is minute in size . preclinical experiments with the ar-13503 sr implant have demonstrated linear , sustained elution rates over several months and achievement of target retinal drug concentrations .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes the results of our operations for the years ended december 31 , 2019 and 2018 : replace_table_token_5_th * percentage not meaningful product revenues , net product revenues , net was $ 69.9 million and $ 24.2 million for the years ended december 31 , 2019 and 2018 , respectively . revenues recorded during the year ended december 31 , 2019 relate to sales of rhopressa ® and rocklatan ® , which we launched in the united states in late april 2018 and in early may 2019 , respectively . revenues recorded during the year ended december 31 , 2018 relate to the sales of rhopressa ® , which was our first product to receive regulatory approval . we did not generate any revenues prior to the second quarter of 2018. cost of goods sold cost of goods sold was $ 4.8 million for the year ended december 31 , 2019 . our gross margin percentage of 93.1 % was favorably impacted during the year ended december 31 , 2019 by product sales with certain materials produced prior to fda approval and therefore expensed in prior periods . if inventory sold during the year ended december 31 , 2019 was valued at cost , our gross margin for the period then ended would have been 92.1 % . further , our gross margin for the year ended december 31 , 2019 was unfavorably impacted by approximately 2.1 % primarily due to excess inventory write-off . selling , general and administrative expenses selling , general and administrative expenses increased by $ 17.8 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 .
| 1,818 |
the table below shows the future minimum payments under non-cancelable operating leases at december 31 , 2020 story_separator_special_tag company overview we are a growth-oriented renewable fuels technology and development company that is commercializing the next generation of renewable low-carbon liquid transportation fuels , such as sustainable aviation fuel and renewable isooctane ( which we refer to as “ renewable premium gasoline ” ) , with the potential to achieve a “ net zero ” greenhouse gas footprint and address global needs of reducing ghg emissions with sustainable alternatives to petroleum fuels . our technology transforms carbon from the atmosphere using photosynthetic energy , wind energy and biogas energy into liquid hydrocarbons with a low or potentially “ net-zero ” ghg footprint . as next generation renewable fuels , our hydrocarbon transportation fuels have the advantage of being “ drop-in ” substitutes for conventional fuels that are derived from crude oil , working seamlessly and without modification in existing fossil-fuel based engines , supply chains and storage infrastructure . in addition , with saf , the carbon footprint of air travel can be reduced , or in the long run , eliminated on a net carbon basis , without change to planes or fuel systems . in addition to the potential of net-zero carbon emissions across the whole fuel life-cycle , our renewable fuels eliminate other pollutants associated with the burning of traditional fossil fuels such as particulates and sulfur , while delivering superior performance . we believe that the world is substantially under-supplied with low-carbon , drop-in renewable fuels that can be immediately used in existing transportation engines and infrastructure , and we are uniquely positioned to grow in serving that demand . we use low-carbon , renewable resource-based raw materials as feedstocks . in the near-term , our feedstocks will primarily consist of non-food corn . as our technology is applied globally , feedstocks can consist of sugar cane , molasses or other cellulosic sugars derived from wood , agricultural residues and waste . our patented fermentation yeast biocatalyst produces isobutanol , a four-carbon alcohol , via the fermentation of renewable plant biomass carbohydrates . the resulting renewable isobutanol has a variety of direct applications but , more importantly to our fundamental strategy , serves as a building block to make renewable isooctane ( which we refer to as renewable premium gasoline ) and saf using simple and common chemical conversion processes . we also plan to reduce or eliminate fossil-based process energy inputs by replacing them with renewable energy such as wind-powered electricity and renewable natural gas . our technology represents a new generation of renewable fuel technology that overcomes the limitations of first-generation renewable fuels . net-zero projects in early 2021 , we announced the concept of “ net-zero projects ” for the production of energy dense liquid hydrocarbons using renewable energy and our proprietary technology . the concept of a net-zero project is to convert renewable energy ( photosynthetic , wind , renewable natural gas , biogas ) from a variety of sources into energy dense liquid hydrocarbons , that when burned in traditional engines , have the potential to achieve net-zero ghg emissions across the whole lifecycle of the liquid fuel : from the way carbon is captured from the atmosphere , processed to make liquid fuel products , and including the end use ( burning as a fuel for cars , planes , trucks , and ships ) . we announced that our project is currently planned to be constructed at lake preston , south dakota will be the first net-zero project ( the “ net-zero 1 project ” ) . we expect that the net-zero 1 project will have the capability to produce liquid hydrocarbons that when burned have a “ net-zero ” greenhouse gas footprint . we currently expect the net-zero 1 project to have a capacity of 45 mgpy of hydrocarbons ( for renewable premium gasoline and saf , based on current take-or-pay contracts ) , to produce more than 350,000,000 pounds per year of high protein feed products for use in the food chain , to produce enough renewable natural gas to be self-sufficient for the production process needs , and also to generate renewable electricity with a combined heat and power system . we also expect that the net-zero 1 project will utilize wind energy . based on current engineering work completed to date , the unleveraged capital cost for the net-zero 1 project is projected to be on the order of $ 650 million , including the hydrocarbon production and related renewable energy infrastructure which includes anaerobic digestion to produce biogas to run our plant and generate some electricity on-site . recent developments sas amendment . in february 2021 , we signed an amendment to our fuel sales agreement with scandinavian airlines system ( “ sas ” ) to supply 5 million gallons per year of saf beginning in 2024. lake preston site . on december 21 , 2020 , we announced that we optioned the right to purchase approximately 240 acres of land near lake preston , sd ( the “ lake preston site ” ) . the lake preston site is expected to be the location of the net-zero 1 project . we intend to make a decision on whether to purchase the lake preston site in the future as part of the citigroup led project financing process . senior secured debt . on december 31 , 2020 , we reported that all obligations under its 12 % convertible senior secured notes due 2020/2021 ( the “ 2020/21 notes ” ) had been fully paid and satisfied , and the 2020/21 notes and the related indenture have been terminated in accordance with its terms at maturity on december 31 , 2020. on july 10 , 2020 , the holders of the 2020/21 notes converted $ 2.0 million in aggregate outstanding principal amount of 2020/21 notes ( including the applicable make-whole payment ) into an aggregate of 4,169,426 shares of common stock . story_separator_special_tag selling , general and administrative expenses consist of personnel costs ( including stock-based compensation ) , consulting and service provider expenses ( including patent counsel-related costs ) , legal fees , marketing costs , insurance costs , occupancy-related costs , depreciation and amortization expenses on property , plant and equipment not used in our product development programs or recorded in cost of goods sold , travel and relocation expenses and hiring expenses . interest expense . our senior secured notes had a fixed interest rate of 12 % . as of december 31 , 2020 , the 2020/21 notes were repaid in full . 45 liquidity and capital resources since our inception in 2005 , we have devoted most of our cash resources to manufacturing ethanol , isobutanol and related products , research and development and selling , general and administrative activities related to the commercialization of isobutanol , as well as related products from renewable feedstocks . we have incurred losses since inception and expect to incur losses through at least 2022. we have financed our operations primarily with proceeds from multiple sales of equity and debt securities , borrowings under debt facilities and product sales . we have incurred consolidated net losses since inception and had a significant accumulated deficit as of december 31 , 2020. our cash and cash equivalents as of december 31 , 2020 totaled $ 78.3 million . as noted above , in january 2021 , we raised $ 321.7 million through a registered direct offering . we also raised $ 135.8 million during the period january 1 , 2021 to february 26 , 2021 through its at-the-market offering programs . our transition to profitability is dependent upon the successful development of the net-zero 1 project and the achievement of a level of revenues adequate to support our cost structure . we may never achieve profitability or generate positive cash flows , and unless and until we do , we may need to raise additional cash by issuing securities . there can be no assurance that we will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations . the following table sets forth the major sources and uses of cash for each of the periods set forth below ( in thousands ) : replace_table_token_1_th operating activities our primary uses of cash from operating activities are personnel related expenses and research and development-related expenses including costs incurred under development agreements , costs of licensing of technology , legal-related costs , expenses for production of isobutanol , ethanol and related products , logistics and further processing of isobutanol and ethanol at the luverne facility and for the operation of our south hampton facility . during the year ended december 31 , 2020 , net cash used for operating activities was $ 19.3 million compared to $ 20.8 million for the year ended december 31 , 2019. the $ 1.5 million decrease in operating cash flows was primarily due to reduced production at the luverne facility , as discussed below , offset by increased engineering and development costs for our rng project . during the first quarter of 2020 , we terminated our ethanol production at the luverne facility due to covid-19 and an unfavorable commodity environment , largely the result of greater corn costs as compared to national markets than the region has historically produced . we are currently maintaining the luverne facility until we arrange financing of its expansion for the production of hydrocarbons . during the year ended december 31 , 2019 , we used $ 20.8 million in cash for operating activities due to a net loss of $ 28.7 million , excluding the impact of $ 9.1 million in non-cash expenses and $ 1.2 million net cash increase associated with a decrease in working capital primarily a result of a decreases in both receivables and inventories . we currently plan to spend approximately $ 50 million - $ 60 million over the next 12 months for engineering and development costs related to our rng and net-zero 1 projects and other business initiatives . investing activities during the year ended december 31 , 2020 , we used $ 5.9 million in cash for investing activities , including $ 1.0 million related to capital expenditures at our luverne facility related to dry fractionation and hydrocarbon skid equipment and $ 4.5 million related to our rng project . we are installing equipment to fractionate distillers grains at the luverne facility totaling approximately $ 2.0 million as of december 31 , 2020. the cost of the fractionation machine and the thermal dryer have been funded with financing leases . no amounts are payable on this financing lease until the equipment is operational . the fractionation machine is expected to be operational in the first half of 2023. we are developing an rng project comprised of anaerobic digesters to be located at three dairy farms in northwest iowa , plus associated gas upgrading equipment , to supply our net zero 1 project with renewable thermal energy upon its startup in 2024. we expect to finance the rng project with approximately $ 69 million of private activity bonds during the first half of 2021. agri-energy is expected to have a purchase option on approximately 50 % of the rng project 's estimated annual 350,000 mmbtu of rng production . the rng project is expected to be operational in early 2022 , subject to securing adequate financing to complete the rng project . 46 we are also evaluating whether to install approximately $ 20.0 million of manufacturing equipment at our luverne facility that is intended to support the development of a 1 mgpy hydrocarbon production facility and to reduce the cost of producing isobutanol . if we decide to move forward with this project , the manufacturing equipment is expected to be operational in the first half of 2022. we anticipate equipment financing the hydrocarbon manufacturing equipment and funding the isobutanol production improvements with equity .
| results of operations the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements appearing in this report . this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under “ risk factors ” in part i , item 1a of this report , our actual results may differ materially from those anticipated in these forward-looking statements . this section of this report discusses year-to-year comparisons between 2020 and 2019 , as well as other discussions of 2020 and 2019 items . we have omitted discussion of the year ended december 31 , 2018 ( the earliest of the three years covered by our consolidated financial statements presented in this report ) as permitted by the sec 's recent amendments to regulation s-k. the complete management 's discussion and analysis of financial condition and results of operations for year-to-year comparisons between 2019 and 2018 and other discussions of 2018 items can be found within part ii , item 7 , to our annual report on form 10-k filed with the sec on march 17 , 2020 , which is available free of charge on the sec 's website at www.sec.gov and our corporate website at www.gevo.com . 43 comparison of the years ended december 31 , 2020 and 201 9 ( in thousands ) replace_table_token_0_th revenue .
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discussed under “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k. our company we are the only producer of potash in the united states and are one of two producers of langbeinite , which we market and sell as trio ® . our revenues are generated exclusively from the sale of potash and trio ® . we also produce salt and magnesium chloride from our potash mining processes , the sales of which are accounted for as by-product credits to our cost of sales . these by-product credits represented approximately 2 % to 3 % of total cost of goods sold in each of the last three years . we own three solution mining facilities and two conventional underground facilities that we utilize for producing potash . our solution mining production comes from our hb solar solution mine near carlsbad , new mexico , a solar solution mine near moab , utah and a solar evaporation shallow brine mine in wendover , utah . our conventional production comes from our underground west and east mines near carlsbad , new mexico . we also operate the north compaction facility near carlsbad , new mexico , which services the west and hb mines . trio ® production comes from underground conventional mining of a mixed ore body that contains both potash and langbeinite , which is mined and processed at the east facility near carlsbad , new mexico . we have additional opportunities to develop mineralized deposits of potash in new mexico as well as continue optimization our processing plants . these opportunities potentially include additional solution mining activities , additional recoveries of our langbeinite and acceleration of production from our reserves . significant business trends and activities our financial results have been impacted by several significant trends , which are described below . we expect that these trends will continue to drive our results of operations , cash flows , and financial position . potash demand . sales volumes were generally strong throughout 2014. this followed a period of market uncertainty in the second half of 2013 when our sales volumes were negatively impacted by increased concerns about global supply and demand levels . in 2014 , we took advantage of strong agricultural demand particularly for granular-sized potash . we also saw solid industrial demand primarily driven by continued strong activity in the oil and gas drilling markets . our ability to supply tons to our customers on a timely basis was a fundamental element to our success in 2014 as rail logistics , including rail car availability , were challenging . we expect logistics to remain an issue for the foreseeable future . we utilized our geographic location advantage and our warehouse system to effectively position product closer to our customers . the specific timing of when farmers apply potash remains highly weather dependent and varies across the numerous growing regions within the united states . we believe last year 's record crops depleted nutrients from the soil and , therefore , farmers need to replenish nutrients drawn from the soil . potash demand is significantly influenced by dealer storage volumes and the marketing programs of potash producers and retailers . the combination of these items results in variability in potash sales and shipments , thereby increasing volatility of sales volumes from quarter to quarter and season to season . potash prices . domestic pricing of our potash is influenced principally by the price established by our competitors . the interaction of global potash supply and demand , ocean , land and barge freight rates , and currency fluctuations also influence pricing . any of these factors could have a positive or negative impact on the price of our products . potash prices are a significant driver of profitability for our business . potash prices decreased significantly in late 2013 and early 2014 as increased concerns about global supply and demand levels created significant uncertainty in the market . in early 2014 , the canadian producers took actions to curtail production , and we saw strong farmer demand , which reduced producer inventory levels . north american potash inventory levels are now below five-year average inventory levels . challenging logistics hindered dealer efforts to obtain inventory on a timely basis during 2014. as a result of solid overall demand and these lower inventory levels , potash prices have increased steadily over the past few quarters . trio ® prices and demand . an imbalance between supply and demand , as well as dealers and farmer recognition of the added value of magnesium and sulfate and the benefits of a low-chloride specialty product , helped support trio ® pricing 34 despite lower potash prices in the past few years . demand for granular- and premium-sized trio ® continues to be strong in the domestic market . we have seen weaker demand and softer pricing for standard-sized trio ® in the export market . should we choose to manage our trio ® inventory levels by increasing our mix of export sales , we would likely see a lower net realized sales price for trio ® . major capital projects . our capital project investment decreased significantly in 2014 as compared to 2013 and 2012. over the last two years , we completed several major capital projects that are intended to increase production , decrease our per-ton operating costs and increase our overall marketing flexibility . we are now focused on optimizing and gaining the efficiencies from these projects . additional information about these capital projects is included below under the heading “ capital investments. ” selected operating and financial data the following tables present selected operations data for the periods noted . analysis of the details of this information is contained throughout this discussion . we present this table as a summary of information relating to key indicators of financial condition and operating performance that we believe are important . story_separator_special_tag we evaluate our deferred tax assets and liabilities each reporting period using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized . the estimated statutory income tax rates that are applied to our current and deferred income tax calculations are impacted most significantly 39 by the states in which we do business . changing business conditions for normal business transactions and operations as well as changes to state tax rate and apportionment laws potentially alter our apportionment of income among the states for income tax purposes . these changes in apportionment laws result in changes in the calculation of our current and deferred income taxes , including the valuation of our deferred tax assets and liabilities . the effects of any such changes are recorded in the period of the adjustment . these adjustments can increase or decrease the net deferred tax asset on the balance sheet and impact the corresponding deferred tax benefit or deferred tax expense on the income statement . as of december 31 , 2013 , our estimate of our blended state tax rate increased , resulting in an increase of the value of the deferred tax asset by net $ 0.9 million to reflect changes in business conditions in concert with changes in apportionment rules of the states in which we operate , and a decrease in the state tax rate for the state of new mexico . results of operations for the years ended december 31 , 2014 , and 2013 net sales net sales of potash increased $ 39.7 million , or 15 % , from $ 264.0 million for the year ended december 31 , 2013 , to $ 303.7 million for the year ended december 31 , 2014 . this increase was the result of a 32 % increase in sales volumes of potash partially offset by a decrease in the average net realized sales price of potash by $ 50 per ton , or 13 % , in the comparable period . our 2014 sales volumes increased over those realized in 2013 , due primarily to higher demand and the increased purchasing of potash as our customers had increased confidence in the price of potash in 2014. net sales of trio ® increased from $ 43.4 million for the year ended december 31 , 2013 , to $ 63.5 million for the year ended december 31 , 2014 , due to a 48 % increase in the volume of sales while the average net realized sales price of trio ® remained essentially flat . we continue to see strong demand for our trio ® product , particularly the granular-sized and premium-sized products ; however , the margin opportunity for standard-sized trio ® in the export market has decreased resulting in our increased focus on converting standard-sized product to premium-sized product for sale in the domestic market . cost of goods sold the following table presents our cost of goods sold for potash and trio ® for the subject periods : replace_table_token_15_th ( 1 ) depreciation and depletion expense for potash was $ 63.0 million and $ 35.6 million in 2014 and 2013 , respectively , which equates to $ 69 and $ 52 on a per-ton basis . ( 2 ) depreciation and depletion expense for trio ® was $ 10.7 million and $ 6.8 million in 2014 and 2013 , respectively , which equates to $ 59 and $ 55 on a per-ton basis . total cost of goods sold of potash , which includes royalties and depreciation , depletion and amortization , increased as we experienced higher sales volumes in 2014 compared to 2013. further , although our cash operating costs per ton for 2014 were essentially flat compared to 2013 , these costs were negatively impacted by lower production at our west facility and the costs associated with the start-up of our hb plant , offset by increased production at the hb plant and east facility . as noted above , we recorded lower-of-cost-or-market inventory adjustments during 2014 of $ 8.2 million , of which $ 4.0 million related to the start-up activities of our hb mine , and approximately $ 3.9 million primarily related to standard-sized inventory at our east facility . total cost of goods sold of trio ® increased as our sales volumes in 2014 were significantly higher than in 2013. further , production of langbeinite decreased compared with 2013 due to lower ore grade and production inefficiencies related to our efforts to convert standard-sized trio ® into premium-sized trio ® , as described previously . in total , our cost of goods sold increased $ 91.0 million , or 43 % , from $ 212.9 million in 2013 to $ 303.9 million in 2014 , as a result of more tons of potash sold in 2014 . as a percentage of sales , cost of goods sold increased as our per ton production costs increased resulting in higher per ton inventory values . the increases in production costs were the result of increases in labor costs , natural gas , electricity , maintenance and professional services during the year ended december 31 , 2014 . 40 on a comparative basis , and within our production costs , depreciation and depletion increased $ 18.5 million , or 33 % , during 2014 as a result of the significant capital investments being placed into service in the latter half of 2013 and the early part of 2014. going forward , on a year-over-year basis , we expect depreciation expense to remain relatively flat as the major capital projects have been completed and placed into service . we manage capital investments to maintain the productivity of our mines and to increase production and generate incremental returns on invested capital . selling and administrative expense selling and administrative expenses decreased $ 6.6 million , or 19 % , to $ 27.2 million in 2014 from $ 33.8 million in 2013 .
| results of operations operating highlights net income for 2014 was $ 9.8 million , or $ 0.13 per diluted share , and cash flows from operating activities were $ 127.5 million . potash the majority of our revenues and gross margin are derived from the production and sales of potash . potash sales as a percentage of our net sales , which we calculate as gross sales less freight costs , and gross margin were approximately as follows for the indicated periods . replace_table_token_11_th we sold 915,000 tons of potash in 2014 compared with 692,000 tons in 2013 . the increase in sales volume was driven by increased confidence in potash pricing from buyers and our agricultural customers ' demand for product in 2014 as compared to 2013. our ability to supply tons to our customers on a timely basis was a fundamental element of our success in 2014. we utilized our geographic advantage as well as our warehouse system to effectively position product closer to our customers . our average net realized sales price of potash was $ 332 per ton in 2014 , as compared to $ 382 per ton in 2013 , largely as a result of concerns that global productive capacity exceeds demand . however , as a result of strong demand and tight inventory levels , we experienced sequential increases in our potash average net realized sales price each of the last three quarters of 2014. the table below shows our potash sales mix for 2014 , 2013 , and 2012. replace_table_token_12_th our production volume of potash in 2014 increased to 859,000 tons , compared with 780,000 tons produced in 2013 . the production increase was due to new production from our hb mine as well as higher production from our east facility , partially offset by decreased production at our west and moab facilities .
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the actuarial present value of benefit obligations summarized below was based on the following assumption : replace_table_token_49_th the net periodic benefit costs were determined utilizing the following beginning-of-the-year assumptions : replace_table_token_50_th in determining the long-term expected return on plan assets , we consider our related investment guidelines , our expectations of long-term rates of return by asset category , our target asset allocation weighting and historical rates of return and volatility for equity and fixed income investments . the investment strategy for plan assets is to control and manage investment risk through diversification among asset classes , investment managers/funds and investment styles . the plans ' investment guidelines have been designed to meet the intended objective that plan assets earn at least nominal returns equal to or in excess of the plans story_separator_special_tag our fiscal year begins on july 1 and ends on june 30. unless otherwise noted , references to “ year ” pertain to our fiscal year ; for example , 2017 refers to fiscal 2017 , which is the period from july 1 , 2016 to june 30 , 2017 . the following discussion should be read in conjunction with the “ selected financial data ” in item 6 and our consolidated financial statements and the notes thereto in item 8 of this annual report on form 10-k. the forward-looking statements in this section and other parts of this report involve risks , uncertainties and other factors , including statements regarding our plans , objectives , goals , strategies , and financial performance . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption “ forward-looking statements ” and those set forth in item 1a of this annual report on form 10-k. overview business overview lancaster colony corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels . consistent with our current acquisition strategy , in november 2016 we acquired substantially all of the assets of angelic bakehouse , inc. ( “ angelic ” ) , a manufacturer and marketer of premium sprouted grain bakery products based near milwaukee , wisconsin . in march 2015 we acquired all of the issued and outstanding capital stock of flatout holdings , inc. ( “ flatout ” ) , a privately owned manufacturer and marketer of flatbread wraps and pizza crusts based in saline , michigan . these transactions are discussed in further detail in note 2 to the consolidated financial statements . part of our future growth may result from acquisitions . we continue to review potential acquisitions that we believe will complement our existing product lines , enhance our profitability and or offer good expansion opportunities in a manner that fits our overall strategic goals . currently our operations are organized into one reportable segment : “ specialty foods. ” our sales are predominately domestic . our business has the potential to achieve future growth in sales and profitability due to attributes such as : leading retail market positions in several product categories with a high-quality perception ; recognized innovation in retail products ; a broad customer base in both retail and foodservice accounts ; well-regarded culinary expertise among foodservice customers ; recognized leadership in foodservice product development ; experience in integrating complementary business acquisitions ; and historically strong cash flow generation that supports growth opportunities . our goal is to grow both retail and foodservice sales over time by : leveraging the strength of our retail brands to increase current product sales ; introducing new retail products and expanding distribution ; continuing to rely upon the strength of our reputation in foodservice product development and quality ; and pursuing acquisitions that meet our strategic criteria . in our retail channel , we utilize numerous branded products to support growth and maintain market competitiveness . we place great emphasis on our product innovation and development efforts to enhance growth by providing distinctive new products or extensions of our current product lines to meet the evolving needs and preferences of consumers . our foodservice sales primarily consist of products sold to restaurant chains , either directly or through distributors . over the long-term , we have experienced broad-based growth in our foodservice sales as we build on our strong reputation for product development and quality . we have made substantial capital investments to support our existing food operations and future growth opportunities . for example , in 2015 we completed a significant processing capacity expansion at our horse cave , kentucky dressing facility to help meet demand for our dressing products , and in 2018 we will be expanding processing and warehousing capacity at angelic to help meet anticipated growth of our sprouted grain bakery products . based on our current plans and expectations , we believe our capital expenditures for 2018 could total approximately $ 30 million . we anticipate we will be able to fund all of our capital needs in 2018 with cash generated from operations . 16 summary of 2017 results consolidated net sales reached a record $ 1,202 million during 2017 , increasing by 1 % as compared to prior-year net sales of $ 1,191 million , driven by higher retail net sales as partially offset by lower foodservice net sales . foodservice net sales were unfavorably impacted by deflationary pricing and our targeted business rationalization efforts . angelic was not material to our 2017 results . gross profit increased 6 % to $ 318.8 million from the prior-year total of $ 299.6 million . the increase resulted from overall lower raw-material costs , primarily for eggs in the first half of the fiscal year , and a more favorable sales mix , partially offset by higher retail trade spending and deflationary foodservice pricing . in 2017 , net income totaled $ 115.3 million , or $ 4.20 per diluted share , including the multiemployer pension after-tax charge of $ 11.5 million , or $ 0.42 per diluted share . story_separator_special_tag such an event could require a reduction in or curtailment of cash dividends or share repurchases , reduce or delay beneficial expansion or investment plans , or otherwise impact our ability to meet our obligations when due . we believe that cash provided by operating activities and our existing balances in cash and equivalents , in addition to that available under the facility , should be adequate to meet our cash requirements through 2018 . if we were to borrow outside of the facility under current market terms , our average interest rate may increase significantly and have an adverse effect on our results of operations . cash flows replace_table_token_7_th cash provided by operating activities remains the primary source of financing for our internal growth . cash provided by operating activities in 2017 totaled $ 144.4 million , an increase of 1 % as compared with the 2016 total of $ 142.6 million , which increased 7 % from the 2015 total of $ 132.8 million . the 2017 increase reflected lower working capital requirements , primarily in accounts payable and accrued liabilities , an increase in deferred tax liabilities related to property and increases in noncash charges for depreciation and amortization and the noncash change in acquisition-related contingent consideration . these changes were largely offset by lower net income in 2017 , which included the one-time multiemployer pension charge . the increase in amortization and the change in acquisition-related contingent consideration were the result of the november 2016 acquisition of angelic . the 2016 increase was due to an increase in net income and depreciation and amortization as partially offset by higher working capital requirements . in general , the increased levels of working capital requirements in 2016 reflected higher sales volumes and the impact of our flatout acquisition . additionally , the changes in other current assets and accounts payable and accrued liabilities from 2015 to 2016 reflected the timing of estimated tax payments and the favorable tax impact of the loss on sale of discontinued operations in prior years . the 2016 increase in depreciation and amortization reflected the amortization of intangibles relating to the flatout acquisition and the related depreciation on its acquired fixed assets , as well as additional depreciation on recent capital expenditures . cash used in investing activities totaled $ 60.6 million in 2017 as compared to $ 17.4 million in 2016 and $ 112.3 million in 2015 . the 2017 increase in cash used in investing activities primarily reflected the $ 35.2 million paid for the acquisition of angelic in november 2016 , as well as a higher level of capital expenditures in 2017 , with the largest amounts spent on packaging equipment to accommodate growth and build-out costs related to our corporate office relocation . the 2016 decrease in cash used in investing activities reflected the $ 92.2 million paid for the acquisition of flatout in march 2015 , as well as a planned lower level of capital expenditures in 2016. our 2015 capital expenditures included a processing capacity expansion project at our horse cave , kentucky dressing facility which was essentially complete at december 31 , 2014. capital expenditures totaled $ 27.0 million in 2017 , compared to $ 16.7 million in 2016 and $ 18.3 million in 2015 . based on our current plans and expectations , we believe our capital expenditures for 2018 could total approximately $ 30 million . financing activities used net cash totaling $ 58.7 million , $ 189.3 million and $ 49.8 million in 2017 , 2016 and 2015 , respectively . in general , cash used in financing activities reflects the payment of dividends . the regular dividend payout rate for 2017 was $ 2.15 per share , as compared to $ 1.96 per share in 2016 and $ 1.82 per share in 2015 . this past fiscal year marked the 54 th consecutive year in which our dividend rate was increased . a $ 5.00 per share special dividend was paid in december 2015 , which totaled $ 136.7 million . cash utilized for share repurchases totaled $ 0.9 million , $ 0.2 million and $ 0.6 million in 2017 , 2016 and 2015 , respectively . these share repurchases were for shares repurchased in satisfaction of tax withholding obligations arising from the vesting of restricted stock granted to employees . our board of directors approved a share repurchase authorization of 2,000,000 shares in november 2010. at june 30 , 2017 , 1,411,680 shares from this authorization remained authorized for future purchase . the future levels of share repurchases and declared dividends are subject to the periodic review of our board of directors and are generally determined after an assessment is made of various factors , such as anticipated earnings levels , cash flow requirements and general business conditions . our ongoing business activities continue to be subject to compliance with various laws , rules and regulations as may be issued and enforced by various federal , state and local agencies . with respect to environmental matters , costs are incurred pertaining to regulatory compliance and , upon occasion , remediation . such costs have not been , and are not anticipated to become , material . 20 we are contingently liable with respect to lawsuits , taxes and various other matters that routinely arise in the normal course of business . we do not have any related party transactions that materially affect our results of operations , cash flows or financial condition . off-balance sheet arrangements , contractual obligations and commitments we do not have off-balance sheet arrangements , financings , or other relationships with unconsolidated entities or other persons , also known as “ variable interest entities , ” that have or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity or capital expenditures . we have various contractual obligations that are appropriately recorded as liabilities in our consolidated financial statements .
| results of consolidated operations net sales and gross profit replace_table_token_4_th in november 2016 we acquired angelic and its results of operations have been included in our consolidated financial statements from the date of acquisition . such results were not material . in march 2015 we acquired flatout and its results of operations were included in our consolidated financial statements from the date of acquisition . 17 2017 to 2016 consolidated net sales for the year ended june 30 , 2017 increased 1 % to a new record of $ 1,202 million from the prior-year record total of $ 1,191 million . this growth was driven by higher retail net sales as partially offset by lower foodservice net sales . excluding angelic , our overall sales volume , as measured by pounds shipped , improved by 1 % . pricing had a net deflationary impact of nearly 1 % of net sales for 2017. retail net sales increased 4 % with angelic bakehouse ® sprouted grain bakery products , olive garden ® dressings , new york brand ® bakery frozen garlic bread products and sister schubert 's ® frozen dinner rolls among the most notable contributing product lines . higher trade promotion costs served to limit retail sales growth . foodservice net sales declined 2 % as influenced by our targeted customer rationalization efforts that began in the third quarter of 2016 and deflationary pricing , primarily from lower egg costs . as a percentage of total net sales , retail net sales increased slightly to 53 % from 52 % in 2016. our gross margin increased to 26.5 % in 2017 compared with 25.2 % in 2016 due to the influence of overall lower raw-material costs , primarily for eggs , but also for flour , honey and certain packaging materials . margins also benefited from a more favorable sales mix , partially offset by higher retail trade spending and deflationary pricing in the foodservice channel .
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we provide premium transportation logistics services to shippers and carriers that outsource their freight needs to us as an asset-light , third-party logistics provider . on september 2 , 2014 , we closed the acquisition of new breed and entered into the contract logistics business . our acquisition of new breed allows us to design , implement , operate and optimize mission-critical and requirement-intensive outsourced supply chains for some of the world 's leading organizations . through new breed 's supply chain technology and operational expertise , we solve complex supply chain problems and create and implement transformative solutions for our clients , while reducing their operating costs and inventory levels and improving their customer service . new breed provides supply chain solutions primarily to leading corporations that operate in five key industries—telecommunications , aerospace and defense , medical equipment , retail and industrials—that have demanding requirements for quality standards , real-time data visibility , customer service , handling of high-value products , high transaction volumes , large number of skus and or time-assured deliveries . as of december 31 , 2014 , we operated at 197 locations : 178 company-owned branches and 19 agent-owned offices . we offer our services through two segments . our transportation segment includes freight brokerage services in which we place shippers ' freight with qualified carriers , primarily trucking companies and rail carriers , expedited transportation services in which we facilitate urgent shipments via independent over-the-road contractors and air charter carriers , and freight forwarding services in which we arrange domestic and international shipments using ground , air and ocean transport through a network of agent-owned and company-owned locations . our logistics segment provides contract logistics services , including value-added warehousing and distribution , reverse logistics , transportation management , freight bill audit and payment , lean manufacturing support , aftermarket support and supply chain optimization for our clients . the differences in our operating and reportable segments from our last annual report are related to an internal management reorganization and acquisitions during the year ended december 31 , 2014. our previous freight brokerage , expedited transportation and freight forwarding reportable segments have been consolidated into the transportation operating and reportable segment while our acquisition of new breed ( previously the contract logistics reportable segment ) represents the logistics operating and reportable segment . for additional information refer to note 16—segment reporting and geographic information of the consolidated financial statements included within . in september 2011 , following the equity investment in the company led by jacobs private equity , llc , we began to implement a strategy to leverage our strengths—including management expertise , operational scale and capital resources—with the goals of significant growth and value creation . by executing our strategy , we have built leading positions in some of the fastest-growing sectors of transportation logistics . in north america , we are the third largest provider of freight brokerage services , which , driven by an outsourcing trend , is growing at two to three times the rate of gross domestic product ( “ gdp ” ) . our acquisitions of 3pd and optima in 2013 and acl in 2014 made us the largest provider of heavy goods last-mile delivery logistics in north america , a $ 13 billion sector which , driven by outsourcing by big-box retailers and e-commerce , is growing at five to six times the rate of gdp . in part due to our acquisition of nlm in december of 2013 , we now manage more expedited shipments than any other company in north america and have established a foothold in managed transportation . expediting is growing due to a trend toward just-in-time inventories in manufacturing . following the acquisition of pacer in march of 2014 , we are the third largest provider of intermodal services in north america and a leading provider of cross-border mexico intermodal services , a sector that , driven by the efficiencies of long-haul rail and the growth of near-shoring of manufacturing in mexico , is growing at three to five times the rate of gdp . due to the acquisition of new breed in september 2014 , we became a leading provider of highly engineered , technology-enabled contract logistics services for large manufacturers and service companies . we believe our broad service offering gives us a competitive advantage as many customers , particularly large shippers , focus their relationships on fewer , larger third-party logistics providers with deep capacity across a wide range of services . our strategy has three main components : acquisitions . we take a disciplined approach to acquisitions : we look for companies that are highly scalable and are a good strategic fit with our core competencies . when we acquire a company , we seek to integrate it with our operations by moving the acquired operations onto our technology platform that connects our broader organization . we gain more carriers , customers , lane histories and pricing histories with each acquisition , and some acquisitions add 26 complementary services . we use these resources company-wide to buy transportation more efficiently and to cross-sell a more complete supply chain solution to customers . in 2012 , we completed the acquisition of four non-asset , third-party logistics companies . we acquired another six companies in 2013 , including 3pd , the largest non-asset , third-party provider of last mile logistics for heavy goods in north america , and nlm , the largest provider of web-based expedited transportation management in north america . on march 31 , 2014 , we acquired pacer , the third largest provider of intermodal transportation services in north america . on july 28 , 2014 , we acquired last mile logistics company acl . we completed our acquisition of contract logistics company new breed on september 2 , 2014. we have an active pipeline of key targets , and we plan to continue acquiring quality companies that fit our strategy for growth . cold-starts . story_separator_special_tag as a result of these actions , the company accelerated the amortization of $ 3.3 million of indefinite-lived intangible assets related to the express-1 trade name based on the reduction in its remaining useful life . the full $ 3.3 million of accelerated amortization was recorded during the quarter ended june 30 , 2014 and represented the full value of the express-1 trade name intangible asset . the impact of rebranding the last mile business was a shortening of the useful life of the 3pd trade name definite-lived intangible asset . the last mile rebranding did not have a material impact on results for the year . restructuring on march 31 , 2014 , we initiated a facility rationalization and severance program to close facilities and reduce employment in order to improve efficiency and profitability in conjunction with our acquisition of pacer . the program includes facility exit activities and employment reduction initiatives . during the year ended december 31 , 2014 , we incurred $ 11.4 million of restructuring costs related to the program . for additional information refer to note 4—restructuring charges of the consolidated financial statements included within . amended revolving loan credit agreement on april 1 , 2014 , we and certain of our wholly-owned subsidiaries entered into a $ 415 million multicurrency secured revolving loan facility with a commitment termination date of october 17 , 2018. the principal amount of the commitments under the amended credit facility may be increased by an aggregate amount of up to $ 100 million , subject to certain terms and conditions specified in the amended credit agreement . the amended credit agreement replaces and supersedes in its entirety the $ 125 million multicurrency secured credit agreement that we entered into on october 18 , 2013. we can use the proceeds of the amended credit agreement for ongoing working capital needs and other general corporate purposes , including strategic acquisitions . at december 31 , 2014 , the company had no amount drawn under the amended credit agreement . on august 8 , 2014 , we amended our revolving loan facility to permit , among other things , the acquisition of new breed and the related transactions and the offering of the senior notes due 2019. for additional information refer to note 6—debt of the consolidated financial statements included within . convertible debt offering and conversions on september 26 , 2012 , we completed a registered underwritten public offering of 4.50 % convertible senior notes due october 1 , 2017 ( the “ convertible notes ” ) , in an aggregate principal amount of $ 125.0 million . on october 17 , 2012 , the underwriters exercised the overallotment option to purchase $ 18.8 million additional principal amount of the convertible notes . we received $ 138.5 million in net proceeds after underwriting discounts , commissions and expenses were paid . the convertible notes were allocated to long-term debt and equity in the amounts of $ 106.8 million and $ 31.7 million , respectively . these amounts are net of debt issuance costs of $ 4.1 million for debt and $ 1.2 million for equity . we are obligated to pay holders of the convertible notes interest semiannually in arrears on april 1 and october 1 of each year which began on april 1 , 2013. the convertible notes will mature on october 1 , 2017 unless earlier converted or repurchased . the conversion rate was initially 60.8467 shares of common stock per $ 1,000 principal amount of notes ( equivalent to an initial conversion price of approximately $ 16.43 per share of common stock ) and is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest . through december 31 , 2014 , we have entered into transactions pursuant to which we have issued an aggregate of 2,249,860 shares of our common stock to certain holders of the convertible notes in connection with the conversion of $ 37.0 million aggregate principal amount of the convertible notes . certain of these transactions included induced conversions pursuant to which we paid the holder a market-based premium in cash . the negotiated market-based premiums , in addition to the difference between the current fair value and the book value of the convertible notes , are reflected in interest expense . the number of shares of common stock issued in the foregoing transactions equals the number of shares of common stock presently issuable to holders of the convertible notes upon conversion under the original terms of the convertible notes . 28 common stock offerings on february 5 , 2014 , we closed a registered underwritten public offering of 15,000,000 shares of common stock , and on february 11 , 2014 we closed as part of the same public offering the sale of an additional 2,250,000 shares as a result of the full exercise of the underwriters ' overallotment option , in each case at a price of $ 25.00 per share ( together , the “ february 2014 offering ” ) . we received $ 413.2 million in net proceeds from the february 2014 offering after underwriting discounts and expenses . on august 13 , 2013 , we closed a registered underwritten public offering of 9,694,027 shares of common stock , and on august 16 , 2013 we closed as part of the same public offering the sale of an additional 1,454,104 shares as a result of the full exercise of the underwriters ' overallotment option , in each case at a price of $ 22.75 per share ( together , the “ august 2013 offering ” ) . we received $ 239.5 million in net proceeds from the august 2013 offering after underwriting discounts and expenses . on march 20 , 2012 , we closed a registered underwritten public offering of 9,200,000 shares of common stock ( the “ 2012 offering ” ) , including 1,200,000 shares issued and sold as a result of the full exercise of the underwriters ' overallotment option , at a price of $ 15.75 per share .
| consolidated results year ended december 31 , 2014 compared to year ended december 31 , 2013 our consolidated revenue for 2014 increased 235.6 % to $ 2,356.6 million from $ 702.3 million in 2013 . this increase was driven largely by the acquisitions of pacer , 3pd , new breed and nlm as well as the organic growth of our freight brokerage cold-start locations . total net revenue for 2014 increased 429.8 % to $ 654.8 million from $ 123.6 million in 2013 . net revenue margin was 27.8 % in 2014 as compared to 17.6 % in 2013 . the increase in net revenue margin primarily relates to the acquisitions of new breed , pacer , 3pd and nlm as well as organic improvement to net revenue margin at our freight brokerage locations . revenue associated with nlm is recorded on a net basis . total gross and net revenue attributable to new breed and nlm is recorded in net revenue . direct operating expense for 2014 was $ 273.2 million , or 11.6 % as a percentage of revenue , compared to $ 6.4 million , or 0.9 % as a percentage of revenue , for 2013 . direct operating expense , which includes the expense of certain intermodal , drayage and warehousing operations , increased due to the acquisitions of new breed , pacer and 3pd . prior to the acquisitions of new 30 breed , pacer and 3pd , we had no such operations . the direct operating expense for 2013 represented 3pd 's expense for the post-acquisition period only . sg & a expense increased by $ 253.0 million in 2014 compared to 2013 . as a percentage of revenue , sg & a expense decreased to 18.0 % in 2014 as compared to 24.1 % in 2013 . sg & a expense increased due to acquisitions ; increased sales force recruitment costs ; investments in information technology ; and costs associated with expanding new and existing freight brokerage offices .
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tax laws that could have a significant impact on the company . most of these provisions are effective for tax years beginning after december 31 , 2017 , and include , but are not limited to , ( 1 ) a reduction in the corporate tax rate from 34 % to 21 % , ( 2 ) limitations on the utilization of operating loss carryforwards , ( 3 ) limitations on the utilization of interest deductions , ( 4 ) requiring a one-time transition tax on undistributed earnings of foreign subsidiaries , ( 5 ) elimination of u.s. taxes on dividends received from foreign subsidiaries , ( 6 ) implementing a base erosion tax , and ( 7 ) implementing a new provision designed to tax currently in the u.s. global intangible low-taxed income ( `` gilti `` ) of foreign subsidiaries . u.s. gaap requires the impact of tax legislation to be recorded in the period of enactment . accordingly , the company 's deferred tax assets were reduced by approximately $ 21.5 million to reflect the lower tax rate that will apply going forward , however , there was no income tax expense given the existence of a full valuation allowance recorded against the deferred tax assets . none of the company 's foreign subsidiaries have undistributed earnings , so there is no impact associated with the one-time transition tax . going forward , a tax liability could exist under the new gilti provisions , but that will not apply until the foreign subsidiaries begin to generate income . the timing and amount of income to be generated by the foreign subsidiaries , and the impact of the new gilti provision is impossible to estimate at this time , and therefore , no impact has been recorded . 8. employee benefit plan cbli maintains an active defined contribution retirement plan for its employees , referred to herein as the benefit plan . all employees satisfying certain service requirements are eligible to participate in the benefit plan . the company makes matching cash contributions each payroll period , up to 4 % of employees ' salaries . the company 's expense relating to the benefit plan was $ 40,962 , and $ 48,334 for the years ended december 31 , 2017 , and 2016 , respectively . 9. commitments and contingencies the company has entered into various agreements with third parties and certain related parties in connection with the research and development activities of its existing product candidates as well as discovery efforts on potential new product candidates . these agreements include fixed obligations to sponsor research and development activities , make minimum royalty payments for licensed patents and pay additional amounts that may be required upon the achievement of scientific , regulatory and commercial milestones , including milestones such as the submission of an ind to the fda and the first commercial sale of the company 's products in various countries . as of december 31 , 2017 the company is uncertain as to whether any of these contingent events 64 will become realized . there were no milestone payments or royalties on net sales accrued for any of these agreements as of december 31 , 2017 and 2016 . from time-to-time , the company may have certain contingent liabilities that arise in the ordinary course of business . the company accrues for liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated . for all periods presented , the company was not a party to any pending material litigation or other material legal proceedings . the company has entered into agreements with substantially all of our employees who , if terminated by the company without cause as described in these agreements , would be entitled to severance pay . as of december 31 , 2017 , the company had unconditional purchase obligations totaling $ 405,920 for goods and services , substantially all of which the company anticipates to incur during 2018 . capital lease in december 2011 , the company entered into a capital lease for scientific equipment . the terms of the lease required an upfront payment and monthly payments once the lease term began in march 2012. principal and interest payments under the capital lease obligation were $ 0 , and $ 0 during the years ended december 31 , 2017 and 2016 , respectively . as of march 31 , 2016 , the equipment purchased pursuant to the capital lease was sold , which resulted in a one-time gain of $ 115,049 that was reported as other income in the company 's consolidated statement of operations for the year ended december 31 , 2016 . at the time of the sale , the accumulated depreciation for the equipment was $ 62,111 . operating leases the company leases laboratory facilities and office facilities at various locations with expiration dates ranging from 2018 to 2019 . the company recognizes rent expense on a straight-line basis over the term of the related operating leases . for the years ended december 31 , 2017 and 2016 , total rent expense related to the company 's operating leases was $ 401,455 and $ 388,355 , respectively . in addition , the company has subleased some of its facilities . as of december 31 , 2017 , future minimum payments under operating leases are as follows : replace_table_token_23_th item 9 : changes in and disagreements with accountants on accounting and financial disclosure none . item 9a : controls and story_separator_special_tag 40 overview we are an innovative biopharmaceutical company developing novel approaches to activate the immune system and address serious medical needs . story_separator_special_tag we use the black-scholes model to determine the fair value of certain common stock warrants on a recurring basis and classify such warrants in level 3. the black-scholes model utilizes inputs consisting of : ( i ) the closing price of our common stock ; ( ii ) the expected remaining life of the warrants ; ( iii ) the expected volatility using a weighted-average of historical volatilities of cbli and a group of comparable companies ; and ( iv ) the risk-free market rate . as of december 31 , 2017 , we held approximately $ 1.0 million in accrued expenses classified as level 3 securities for warrants to purchase common stock . income taxes determining the consolidated provision for income tax expense , deferred tax assets and liabilities and related valuation allowance , if any , involves judgment . on an on-going basis , we evaluate whether a valuation allowance is needed to reduce our deferred income tax assets to an amount that is more likely than not to be realized . the evaluation process includes assessing historical and current results in addition to future expected results . upon determining that we would be able to realize our deferred tax assets , an adjustment to the deferred tax valuation allowance would increase income in the period we make such determination . research and development expenses r & d costs are expensed as incurred . advance payments are deferred and expensed as performance occurs . r & d costs include the cost of our personnel consisting of salaries , incentive and stock-based compensation , out-of-pocket preclinical and clinical trial costs usually associated with cros , drug product manufacturing and formulation , and a pro-rata share of facilities expense and other overhead items . general and administrative expenses g & a functions include executive management , finance and administration , government affairs and regulations , corporate development , human resources , legal , and compliance . the specific costs include the cost of our personnel consisting of salaries , incentive and stock-based compensation , out-of-pocket costs usually associated with attorneys ( both corporate and intellectual property ) , bankers , accountants and other advisors , and a pro-rata share of facilities expense and other overhead items . other income and expenses other recurring income and expenses primarily consists of interest income on our investments , changes in the market value of our derivative financial instruments , gains and losses on disposal of fixed assets , and foreign currency transaction gains or losses . year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue revenue decreased from $ 3.5 million for the year ended december 31 , 2016 to $ 1.9 million for the year ended december 31 , 2017 , representing a decrease of $ 1.6 million , or 45 % , primarily due to the completion of our grants from the mpt at december 31 , 2016 , which resulted in a revenue reduction of $ 1.7 million . revenue from the dod under the jwmrp contract for continued preclinical development along with other drug manufacturing activities increased $ 0.1 million during 2017 and should continue to increase in 2018 as the in-progress contracted research activities to compare the historical drug formulation used in prior 42 preclinical and clinical studies versus the to-be-marketed drug product lots of entolimod submitted for approval under cbli 's application for pre-eua are expected to be completed . revenue from both the jwmrp contract and the prmrp grant is expected to increase as a result of the commencement of contracted tasks critical for the preparation of a bla of entolimod as a mrc . service revenue from incuron is expected to continue into 2018 in an amount similar to 2017. since these revenue sources are cost reimbursable in nature , variances in these activities , period to period , are directly aligned with variances in the underlying costs of service . differences in our revenue sources , by program , between the years are set forth in the following table : replace_table_token_1_th ( 1 ) the contracts received from russian government entities are denominated in russian rubles . the revenue above was calculated using average exchange rates for the periods presented . we anticipate our revenue over the next year will continue to be derived primarily from government grants and contracts and service contracts from incuron . the following table sets forth information regarding our currently active grant contracts as of december 31 , 2017 : replace_table_token_2_th ( 1 ) the contract values above are calculated based on the cumulative revenue recognized to date plus our backlog valued at the december 31 , 2017 exchange rate for russian ruble denominated values . research and development expenses r & d expenses decreased from $ 6.50 million for the year ended december 31 , 2016 to $ 5.05 million for the year ended december 31 , 2017 , representing a decrease of $ 1.45 million , or 22 % . variances in individual development programs are noted in the table below . significant reductions include the $ 1.4 million reduction of funds spent on entolimod for oncology indication due to the completion of a clinical study of the safety and tolerability of entolimod as a neo-adjuvant therapy in treatment-naive patients with primary colorectal cancer , the $ 0.46 million reduction in spending related to cblb612 due to the completion of a clinical study in patients with breast cancer receiving doxorubicin-cyclophosphamide chemotherapy , and the $ 0.25 million reduction in panacela product candidate spending due to the completion of the active recruitment stage of the ongoing clinical studies with mobilan . these reductions were partially offset by increased expenses on entolimod 's biodefense indication for continued preclinical development along with other drug manufacturing activities associated with our jwmrp contract and expenses associated with our regulatory efforts with the ema to prepare a pediatric investigational plan and other activities in support of filing
| general and administrative expenses g & a expenses decreased from $ 3.4 million for the year ended december 31 , 2016 to $ 2.5 million for the year ended december 31 , 2017 , representing a decrease of $ 0.9 million , or 26.0 % . these reductions consisted primarily of a reduction of $ 0.4 million in compensation expense due to fewer personnel , a reduction of $ 0.2 million in fees incurred in relation to the treasury stock repurchase in 2016 , and a reduction of $ 0.2 million in other operating expenses primarily related to the reduction in the idle facility reserve as a result of the passage of time and ability to sublet additional space at higher rates . other income and expenses other income and expense decreased from $ 3.8 million of other income for the year ended december 31 , 2016 to other expense of $ 4.2 million for the year ended december 31 , 2017 , representing an expense increase of $ 8.0 million or 213 % . this expense increase was primarily related to a $ 7.5 million variance related to our warrant liability , and a $ 0.4 million variance in our foreign currency exchange gains and losses . liquidity and capital resources we incurred net losses of $ 160.4 million from our inception through december 31 , 2017 . historically , we have not generated , and do not expect to generate revenue from sales of product candidates in the immediate future . since our founding in 2003 , we have funded our operations through a variety of means : from inception through december 31 , 2017 , we have raised $ 144.7 million of net equity capital , including amounts received from the exercise of options and warrants .
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we accrete the deemed liquidation upon the occurrence of any such event . on the effective date of our ipo , the redeemable convertible preferred stock automatically converted into common stock . warrants common stock warrants issued in connection with the issuance of redeemable convertible preferred stock ( see note 9 ) were classified as a component of stockholders ' equity because they are free standing financial instruments that are legally detachable and separately exercisable from the redeemable convertible preferred stock , are contingently exercisable , do not embody an obligation for us to repurchase its own shares , and permit the holders to receive a fixed number of common shares upon exercise . in addition , the common stock warrants require physical settlement and do not provide any guarantee of value or return . common stock warrants were initially recorded at their relative fair value and were not subsequently re-measured . common stock warrants were valued using black-scholes option pricing model . stock-based compensation we account for all stock-based compensation to employees and nonemployees based on their fair values on the date of grant . the fair value of stock-based awards to nonemployees is remeasured as the award vests . for employee stock-based awards with only service conditions story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the accompanying notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the risk factors section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biopharmaceutical company focused on improving the lives of patients who face challenges associated with their existing treatments for rare and serious chronic disease . employing our proprietary transient permeability enhancer , or tpe , technology platform , we seek to develop oral medications that are currently available only as injections . we are currently conducting an international phase 3 clinical trial mpowered of oral octreotide capsules , conditionally trade-named mycapssa and referred to herein as octreotide capsules , for the maintenance treatment of adult patients with acromegaly to support a potential submission of a marketing authorization application , or maa , to the european medicines agency , or ema . we believe octreotide capsules , if approved by regulatory authorities , may be the first somatostatin analog available for oral administration to patients with acromegaly . octreotide capsules , our sole tpe-based product candidate in clinical development , has been granted orphan designation in the united states and the european union for the treatment of acromegaly . we retain worldwide rights to develop and commercialize octreotide capsules with no royalty obligations to third parties . our new drug application , or nda , for octreotide capsules was filed in june 2015 and accepted for filing by the united states food and drug administration , or the fda or the agency , in august 2015. in april 2016 , the fda issued a complete response letter , or crl , which indicated that the review for our application was complete and that our nda was not ready for approval in its present form . in june 2016 , we participated in an end of review meeting with the fda to discuss the concerns the fda raised in the crl and have received the minutes of the meeting . in its crl , the fda advised us that it did not believe our nda had provided substantial evidence of efficacy to warrant approval , and advised us that we would need to conduct another clinical trial in order to overcome this deficiency . the fda expressed concerns regarding certain aspects of our single-arm , open-label phase 3 clinical trial and strongly recommended that we conduct a randomized , double-blind and controlled trial that enrolls patients from the united states and is of sufficiently long duration to ensure that control of disease activity is stable at the time point selected for the primary efficacy assessment . in addition , the fda advised that , during a site inspection , certain deficiencies were conveyed to the representative of one of our suppliers that would need to be resolved before approval . the fda did not note any safety concerns related to octreotide capsules in the crl , but subsequently indicated in the end of review meeting minutes that the size , duration , dropout rate and absence of a control group in our previous phase 3 trial were factors limiting an overall safety assessment . in the end of review meeting minutes , the fda reiterated its strong recommendation for a randomized , double-blind and controlled trial , and introduced the concept of a placebo control as a design element that could potentially address some of the fda 's concerns . we acknowledge the fda 's feedback contained in the crl and in the end of review meeting minutes , and we continue to evaluate various potential pathways forward , including the possibility of conducting a trial consistent with the fda 's recommendations , to potentially secure approval in the united states for octreotide capsules . the fda also stated that it considers pathways alternative to its recommendations to be less ideal and ultimately risky to our efforts to secure approval of our nda . the fda strongly recommended that we work with the fda to reach a common understanding of expectations prior to initiating and executing any alternative plans . story_separator_special_tag pursuant to the termination of the license agreement , we are not entitled to further payments from roche , roche has no remaining rights to octreotide capsules and we retain all rights to octreotide capsules and all related intellectual property . subsequent to the termination , we purchased from roche active pharmaceutical ingredient , or api , supplies to continue the development and manufacturing of octreotide capsules , together with roche 's proposed trade name , mycapssa for octreotide capsules , for an aggregate amount of $ 5.1 million , payable in three annual installments of $ 1.7 million beginning in 2016. we made the first $ 1.7 million payment in march 2016 and made the second $ 1.7 million payment in march 2017. other than these payments , we have no further financial or operational obligations to roche . financial overview revenue we currently do not have a product approved for commercial sale and , as a result , have yet to generate revenue from product sales . in light of the crl received from the fda and our subsequent end of review meeting , we do not expect to begin generating product revenue for some time , if at all . if we fail to identify and agree on a path forward for our nda with the fda , complete the development of octreotide capsules in a timely manner or at all , or obtain regulatory approval for octreotide capsules , our ability to generate product sales , and our consolidated results of operations and financial position , would be adversely affected . our revenue during 2014 was derived from a license agreement with roche , which included amounts recognized for research and development services provided and earned under the agreement . research and development research and development expenses consist of expenses incurred in performing research and development activities , including compensation and benefits for full-time research and development employees , an allocation of facilities expenses , overhead expenses , nonclinical pharmacology studies , manufacturing process-development and scale-up activities , clinical trial and related clinical manufacturing expenses , fees paid to contract research organizations , or cros , investigative sites , and other external expenses . in the early phases of development , our research and development costs included expanding our technology platform as well as early development of specific product candidates . the majority of our research and development expenses has been spent on the development of octreotide capsules , including the manufacturing validation , regulatory and clinical activities , and our tpe platform . we expense research and development costs as incurred . as a result of the august 2016 reduction in workforce , we eliminated our research and discovery functions and are currently not investing in those areas . we continue to invest in the clinical development of octreotide capsules . product candidates in late stages of development generally have higher development costs than those in earlier stages of development , primarily due to the increased size and duration of late-stage clinical trials . we expect to continue to conduct the international phase 3 clinical trial of octreotide capsules in acromegaly that we initiated in march 2016 to support potential regulatory approval in europe . the successful development of octreotide capsules is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of octreotide capsules or the period , if any , in which material net cash inflows from any product candidates may commence . clinical development timelines , the probability of success and development costs can differ materially from expectations . 92 for example , in both the crl and the end of review meeting , the fda strongly recommended that we conduct a randomized , double-blinded , controlled clinical trial of octreotide capsules that enrolls patients from the united states and is of sufficiently long duration to ensure that control of disease activity is stable at the time point selected for the primary efficacy assessment . if we were to conduct such a trial or other trials that the fda deems acceptable for resubmission of our nda , or if we experience significant delays in our ongoing phase 3 clinical trial to support the submission of our marketing authorization application , or maa , to the european medicines agency , or ema , we could be required to expend significant additional financial resources and time on the completion of clinical development . in light of our ongoing evaluation of potential u.s. development pathways for octreotide capsules and following the fda 's position that the mpowered clinical trial will not be sufficient to address the concerns in the crl , we modified certain elements of the mpowered trial in an effort to preserve patients , sites and other resources necessary to potentially conduct an additional phase 3 trial addressing the fda 's concerns and produce data packages that could be suitable for submission in both the united states and europe . these modifications could potentially delay the timing of our submission to the ema . as of march 31 , 2016 , we were contractually committed to purchasing approximately $ 16.9 million of commercial manufacturing supplies and services over the subsequent 15 months , of which approximately $ 7.4 million of supplies and services ordered were non-cancellable and delivered during the second quarter of 2016. following our receipt of the crl , we indefinitely suspended our commercial production commitments , which resulted in aggregate contractual financial penalties of approximately $ 4.5 million that were recorded in our consolidated statement of operations as restructuring charges , as further described below . the suspension notices released us from any remaining undelivered supply and service commitments described above . marketing , general and administrative marketing expenses consist of professional fees related to preparation for the potential commercialization of octreotide capsules , if approved , as well as salaries and related benefits for commercial employees .
| results of operations comparison for the years ended december 31 , 2016 and 2015 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percent increase or decrease : research and development 2016 2015 $ change percent change ( $ in thousands ) research and development $ 31,317 $ 18,991 $ 12,326 65 % during the year ended december 31 , 2016 , our total research and development expenses increased by $ 12.3 million , or 65 % , compared to the prior year , primarily due to approximately $ 7.4 million of api purchases during the year ended december 31 , 2016 , our ongoing phase 3 clinical trial of octreotide capsules for the treatment of acromegaly to support the planned submission of a maa to the ema , activities associated with the manufacturing process validation , and an increase in compensation-related expenses due to the hiring of research and development employees . marketing , general and administrative replace_table_token_5_th during the year ended december 31 , 2016 , our marketing expenses increased by $ 0.4 million to $ 7.7 million . this increase was primarily due to pre-commercial activities related to octreotide capsules and greater compensation-related expenses associated with our expanded u.s. marketing and sales leadership team hired in anticipation of our expected fda approval of octreotide capsules in april 2016 for commercialization in the u.s , which did not occur . during the year ended december 31 , 2016 , our general and administrative expenses increased by $ 5.0 million to $ 14.1 million . this increase was primarily due to greater compensation-related expenses associated with our expanded u.s. office as well as increased professional and consulting fees associated with being a public company .
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net loss per common share basic and diluted net loss per share of the company 's common stock has been computed by dividing net loss by the weighted average number of shares outstanding during the period . for years in which there is a net loss , options and warrants are anti-dilutive and therefore excluded from diluted loss per share 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 that target the endocannabinoid system in the fields of autoimmunity , fibrosis , and cancer . we are developing a diverse pipeline of drug candidates across several distinct programs , including small molecules as well as biologics , as well as evaluating potential external candidates complimentary to our existing programs . 51 our pipeline includes the following programs : 1. lenabasum , a novel , synthetic , oral , cb2 agonist designed to resolve chronic inflammation , limit fibrosis and support tissue repair . lenabasum is in clinical development for treatment of autoimmune diseases . we are currently evaluating lenabasum for safety and efficacy in a phase 3 study in dermatomyositis , as well as a phase 2 study in sle ” . 2. peripherally-restricted cb1 inverse agonists that are designed to normalize metabolic abnormalities or limit inflammation and fibrosis . we are currently evaluating these compounds in pre-clinical studies for the treatment of metabolic disorders and for fibrotic disorders . we are evaluating certain compounds as potential candidates for further clinical development . 3. novel cb2 agonists that are designed to limit cancer cell growth directly and reduce the fibrosis and immunosuppression in the tumor microenvironment that are associated with tumor growth , metastasis , and resistance to treatment with drugs such as checkpoint inhibitors . we are currently evaluating these compounds in pre-clinical studies for the treatment of cancer , in combination with other cancer therapies such as checkpoint inhibitors . we are evaluating certain compounds as potential candidates for further clinical development . lenabasum selectively binds to cb2 , which is preferentially expressed on activated immune cells , fibroblasts and other cell types , including muscle and bone cells . lenabasum reduces inflammation and limits fibrosis , without immunosuppression . lenabasum inhibits production of inflammatory cytokines and eicosanoids and stimulates the production of mediators ( specialized pro-resolving lipid mediators ) that resolve inflammation . it inhibits transformation of fibroblasts into myofibroblasts and production of fibrotic growth factors and collagen . these biologic effects have been demonstrated in cells , animal models , and humans . the u.s. food and drug administration , or fda , has granted lenabasum orphan drug designation as well as fast track status for systemic sclerosis and cystic fibrosis , and orphan drug designation for dermatomyositis . the european medicines authority , or ema , has granted lenabasum orphan drug designation for systemic sclerosis , cystic fibrosis , and dermatomyositis . in 2020 , we announced that lenabasum did not meet the primary endpoints in our resolve-1 phase 3 study of lenabasum for the treatment of systemic sclerosis or our phase 2b study of lenabasum for the treatment of cystic fibrosis . currently , no patients with systemic sclerosis or cystic fibrosis are being treated with lenabasum . we are preparing the data from our resolve-1 study for publication and will decide on the next steps in the development process for systemic sclerosis pending the outcome of our phase 3 study of lenabasum for the treatment of dermatomyositis ( the “ determine study ” ) . we are preparing the data from our phase 2b study of lenabasum for the treatment of cystic fibrosis for publication , but currently we do not have plans for additional clinical studies in cystic fibrosis . in december 2018 , we initiated the determine study , our phase 3 double-blind placebo-controlled multi-center international clinical study . the determine study is fully enrolled with 176 patients . in january , 2021 , we submitted a protocol amendment to the fda to shorten the duration of the determine study from 52 weeks to 28 weeks . subjects in the determine study 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 , which will be measured at week 28 , is the american college of rheumatology/european league against rheumatism 2016 total improvement score , which is a weighted composite measure of improvement from baseline in six endpoints , including 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 from baseline in the cutaneous dermatomyositis activity and severity index activity ( cdasi ) score is one of several secondary efficacy outcomes in the phase 3 study . last subject , last dose in the placebo-controlled part of the determine study has been completed in the first fiscal quarter of 2021 , with topline data expected in the second fiscal quarter of 2021. 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 . story_separator_special_tag critical accounting policies our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an ongoing basis , we evaluate our estimates and judgments for all assets and liabilities , including those related to stock-based compensation expense . we base our estimates and judgments on historical experience , current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances . this forms 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 . 53 we believe that full consideration has been given to all relevant circumstances that we may be subject to , and the consolidated financial statements accurately reflect our best estimate of the results of operations , financial position and cash flows for the periods presented . revenue recognition revenue from awards for the years ended december 31 , 2020 and 2019 was approximately $ 3,937,000 and $ 9,144,000 , respectively , and pertains only to the 2018 cff award . no revenue from licenses was recognized for the year ended december 31 , 2020. 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. we will assess any new agreements we enter into under gaap , 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 gaap , 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 contracts with customers , 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 , 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 three-year period expected to be completed in the first half of 2021. 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 . 54 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 or other of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . we recognized approximately $ 3,937,000 and $ 9,144,000 of revenue from awards in the years ended december 31 , 2020 and 2019 , respectively . amounts recognized in revenue from awards for the years ended december 31 , 2020 and 2019 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 , $ 6.25 million in the second quarter of 2018 , $ 5.0 million in
| results of operations comparison of year ended 2020 to 2019 revenue from awards and licenses . we have recognized approximately $ 3,937,000 and $ 36,144,000 of revenue from awards and licenses in the years ended december 31 , 2020 and 2019 , respectively . revenue from awards for the years ended december 31 , 2020 and 2019 was approximately $ 3,937,000 and $ 9,144,000 , respectively , recognized in accordance with asc 606 and pertains only to the 2018 cff award . we received an aggregate of $ 12,500,000 during the year ended december 31 , 2018 and an additional $ 5,000,000 during the year ended december 31 , 2019 , and $ 5,000,000 in the third quarter of 2020 upon our achievement of a milestone related to the progress of the phase 2b clinical trial , as set forth in the investment agreement . the $ 2,500,000 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 and we expect to receive the remainder before the end of the first half of 2021. 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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” rush truck centers primarily sell commercial vehicles manufactured by peterbilt , international , hino , ford , isuzu , mitsubishi fuso , ic bus or blue bird . through our strategically located network of rush truck centers , we provide one-stop service for the needs of our commercial vehicle customers , including retail sales of new and used commercial vehicles , aftermarket parts sales , service and repair facilities , financing , leasing and rental , and insurance products . we continue to work to position ourselves as a service solutions provider to the commercial vehicle industry by implementing our growth strategy to expand our portfolio of aftermarket services , broadening the diversity of our commercial vehicle product offerings and extending our network of service points across the united states . our commitment to provide innovative solutions to service our customers ' business needs continues to drive our strong parts , service and body shop ( collectively , “ aftermarket services ” ) revenues . our aftermarket services include a wide range of capabilities and products such as a fleet of mobile service units , mobile technicians who staff customers ' facilities , a proprietary line of commercial vehicle parts and accessories , diagnostic and analysis capabilities , factory-certified service for alternative fuel vehicles and assembly service for specialized bodies and equipment . as a result of our efforts to expand our aftermarket services , aftermarket services accounted for 62.6 % of our total gross profits in 2014 . 201 4 highlights the following are the more significant developments in the our business during the year ended december 31 , 2014 : ● our gross revenues totaled $ 4,727.4 million in 2014 , a 39.7 % increase from gross revenues of $ 3,384.7 million in 2013 . ● gross profit increased $ 184.0 million , or 32.2 % , in 2014 , compared to 2013. gross profit as a percentage of sales decreased to 16.0 % in 2014 from 16.9 % in 2013 . 25 ● our class 8 heavy-duty sales , which accounted for 7.1 % of the total u.s. market , increased 65.9 % over 2013 . ● our class 4-7 medium-duty sales , which accounted for 4.9 % of the total u.s. market , increased 17.5 % over 2013. light-duty truck sales decreased 12 % compared to 2013 . ● aftermarket service revenues were $ 1,315.7 million in 2014 , compared to $ 988.3 million in 2013 . ● selling , general and administrative expenses increased $ 123.3 million , or 27.4 % , in 2014 , compared to 2013. the increase is due primarily to the full year effect of acquisitions that occurred in the first quarter of 2014 and the third and fourth quarters of 2013 . ● we continued the implementation of our new business system in our dealerships and expect to complete the implementation during the second quarter of 2015 , nearly 15 months ahead of our previously estimated completion date . we also completed the following growth initiatives : ● on december 8 , 2014 , we acquired certain assets of north florida truck parts , inc. which included a commercial parts and service facility in lake city , florida . the lake city location is operating as a full-service rush truck center and offers commercial vehicles manufactured by peterbilt . ● on november 3 , 2014 , we acquired certain assets of house of trucks , inc. , which included used commercial vehicle facilities in willowbrook and wilmington , illinois . ● in september 2014 , we relocated our light- and medium-duty dealership in orlando , florida to a newly constructed facility . the new location features an expanded showroom and state-of-the-art service bays . ● on july 1 , 2014 , we acquired certain assets of truck parts depot , inc. which included a commercial parts and service facility in gainesville , georgia . the gainesville location is operating as a full-service rush truck center and offers commercial vehicles manufactured by international . ● on june 25 , 2014 , a joint venture was established to further expand our used commercial vehicle sales network . as a result , we own 50 % of cctts , which has multiple locations in california that sell used trucks . ● in may 2014 , we announced an agreement with 3m to pursue the design , manufacture and installation of a portfolio of cng fuel systems for use in class 6 through 8 vehicles . in 2015 , we plan to begin manufacturing cng fuel systems utilizing 3m 's cng tanks . ● on february 4 , 2014 , the company announced its board of directors had approved a stock repurchase program authorizing the company to repurchase , from time to time , up to an aggregate of $ 40.0 million of its shares of class a common stock and or class b common stock . repurchases were made at times and in amounts as the company deemed appropriate and were made through open market transactions , privately negotiated transactions and other lawful means . the manner , timing and amount of any repurchases were determined by the company based on an evaluation of market conditions , stock price and other factors . while the stock repurchase program did not obligate the company to acquire any particular amount or class of common stock , the company repurchased shares of its class b common stock . the company repurchased approximately $ 11.7 million of class b common stock during 2014 under the stock repurchase program . ● in january 2014 , we acquired certain assets of cit , inc. , which did business as chicago international trucks , mcgrenho l.l.c. , which did business as indy truck sales , and indiana mack leasing , llc ; and the membership interests of idealease of chicago , llc . story_separator_special_tag the analysis is based upon available information regarding expected future cash flows of each reporting unit discounted at rates consistent with the cost of capital specific to the reporting unit . this type of analysis contains uncertainties because it requires us to make assumptions and to apply judgment regarding our knowledge of our industry , information provided by industry analysts , and our current business strategy in light of present industry and economic conditions . if any of these assumptions change , or fail to materialize , the resulting decline in our estimated fair value could result in a material impairment charge to the goodwill associated with the reporting unit . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we used to test for impairment losses on goodwill . however , if actual results are not consistent with our estimates or assumptions , or certain events occur that might adversely affect the reported value of goodwill in the future , we may be exposed to an impairment charge that could be material . such events may include , but are not limited to , strategic decisions made in response to economic and competitive conditions or the impact of the current economic environment . goodwill was tested for impairment during the fourth quarter of 2014 and no impairment was required . the fair value of our reporting unit exceeded the carrying value of its net assets . as a result , we were not required to conduct the second step of the impairment test . we do not believe our reporting unit is at risk of failing step one of the impairment test . insurance accruals we are partially self-insured for a portion of the claims related to our property and casualty insurance programs , requiring it to make estimates regarding expected losses to be incurred . we engage a third-party administrator to assess any open claims and we adjust our accrual accordingly on a periodic basis . we are also partially self-insured for a portion of the claims related to our workers ' compensation and medical insurance programs . we use actuarial information provided from third-party administrators to calculate an accrual for claims incurred , but not reported , and for the remaining portion of claims that have been reported . changes in the frequency , severity , and development of existing claims could influence our reserve for claims and financial position , results of operations and cash flows . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to calculate our self-insured liabilities . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses or gains that could be material . a 10 % change in our estimate would have changed our reserve for these losses at december 31 , 2014 by $ 1.1 million . accounting for income taxes management judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part . deferred income 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 . when it is more likely than not that all or some portion of specific deferred income tax assets will not be realized , a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable . accordingly , the facts and financial circumstances impacting state deferred income tax assets are reviewed quarterly and management 's judgment is applied to determine the amount of valuation allowance required , if any , in any given period . 28 our income tax returns are periodically audited by tax authorities . these audits include questions regarding our tax filing positions , including the timing and amount of deductions . in evaluating the exposures associated with our various tax filing positions , we adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled , the statute of limitations expires for the relevant taxing authority to examine the tax position , or when more information becomes available . our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions . our effective income tax rate is also affected by changes in tax law , the level of earnings and the results of tax audits . although we believe that the judgments and estimates are reasonable , actual results could differ , and we may be exposed to losses or gains that could be material . an unfavorable tax settlement generally would require use of our cash and result in an increase in our effective income tax rate in the period of resolution . a favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution . our income tax expense includes the impact of reserve provisions and changes to reserves that it considers appropriate , as well as related interest . derivative instruments and hedging activities we utilize derivative financial instruments to manage our interest rate risk . the types of risks hedged are those relating to the variability of cash flows and changes in the fair value of our financial instruments caused by movements in interest rates . we assess hedge effectiveness at the inception and during the term of each hedge . derivatives are reported at fair value on the accompanying consolidated balance sheets . the effective portion of the gain or loss on our cash flow hedges are reported as a component of accumulated other comprehensive loss .
| results of operations the following discussion and analysis includes our historical results of operations for 2014 , 2013 and 2012. the following table sets forth for the years indicated certain financial data as a percentage of total revenues : replace_table_token_7_th the following table sets forth the unit sales and revenue for new heavy-duty , new medium-duty , new light-duty and used commercial vehicles and the absorption ratio for the years indicated ( revenue in millions ) : replace_table_token_8_th ( 1 ) includes sales of truck bodies , trailers and other new equipment 30 the following table sets forth for the periods indicated the percent of gross profit by revenue source : replace_table_token_9_th industry we operate in the commercial vehicle market . there has historically been a high correlation between new product sales in the commercial vehicle market and the rate of change in u.s. industrial production and the u.s. gross domestic product . heavy-duty truck market the u.s. retail heavy-duty truck market is affected by a number of factors relating to general economic conditions , including fuel prices , government regulation , interest rate fluctuations , economic recessions , other methods of transportation and customer business cycles . accordingly , unit sales of new commercial vehicles have historically been subject to substantial cyclical variation based on general economic conditions . according to data published by a.c.t . research , in recent years total u.s. retail sales of new class 8 trucks have ranged from a low of approximately 97,000 in 2009 to a high of approximately 291,000 in 2006. class 8 trucks are defined by the american automobile association as trucks with a minimum gross vehicle weight rating above 33,000 pounds . typically , class 8 trucks are assembled by manufacturers utilizing certain components that may be manufactured by other companies , including engines , transmissions , axles , wheels and other components .
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loans held for sale— the company originates fixed rate residential loans on a servicing released basis in the secondary market . loans closed but not yet settled with an investor , are carried in the company 's loans held for sale portfolio . these loans are fixed rate residential loans that have been originated in the company 's name and have closed . virtually all of these loans have commitments to be purchased by investors at a locked in price with the investors on the same day that the loan was locked in with the company 's customers . therefore , these loans present very little market risk for the company and are classified as level 2. the carrying amount of these loans approximates fair value . loans—the fair value of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities and story_separator_special_tag overview the company is headquartered in lexington , south carolina and the bank holding company for the bank . we operate from our main office in lexington , south carolina , and our 13 full-service offices located in lexington ( two ) , forest acres , irmo , cayce-west columbia , gilbert , chapin , northeast columbia , prosperity , newberry , camden , and aiken , south carolina and augusta , georgia . during the second quarter of 2006 , we completed our acquisition of dekalb bankshares , inc. , the holding company for the bank of camden . the merger added one office in kershaw county located in the midlands of south carolina . during the fourth quarter of 2004 , we completed our first acquisition when we merged with dutchfork bancshares , inc. , the holding company for newberry federal savings bank . the merger added three offices in newberry county . in 2007 , our college street office in newberry was consolidated with our wilson road office in newberry . on september 15 , 2008 , the company completed the acquisition of two financial planning and investment advisory firms , eah financial group and pooled resources , llc . in addition , the bank expanded its residential mortgage business unit with the acquisition of the assets of palmetto south , effective july 31 , 2011. palmetto south , which operates as a division of the bank , offers mortgage loan products for home purchase or refinance in the south carolina market area . on february 1 , 2014 we closed our merger with savannah river financial corporation ( savannah river ) , the holding company for savannah river banking company ( see recent developments below ) . this acquisition added two branches to our existing branch network , one located in aiken , sc and one located in augusta , ga. we engage in a general commercial and retail banking business characterized by personalized service and local decision making , emphasizing the banking needs of small to medium-sized businesses , professional concerns and individuals . the following discussion describes our results of operations for 2013 , as compared to 2012 and 2011 , and also analyzes our financial condition as of december 31 , 2013 , as compared to december 31 , 2012. like most community banks , we derive most of our income from interest we receive on our loans and investments . a primary source of funds for making these loans and investments is our deposits , on which we pay interest . consequently , one of the key measures of our success is our amount of net interest income , or the difference between the income on our interest-earning assets , such as loans and investments , and the expense on our interest-bearing liabilities , such as deposits . we have included a number of tables to assist in our description of these measures . for example , the “ average balances ” table shows the average balance during 2013 , 2012 and 2011 of each category of our assets and liabilities , as well as the yield we earned or the rate we paid with respect to each category . a review of this table shows that our loans typically provide higher interest yields than do other types of interest earning assets , which is why we intend to channel a substantial percentage of our earning assets into our loan portfolio . similarly , the “ rate/volume analysis ” table helps demonstrate the impact of changing interest rates and changing volume of assets and liabilities during the years shown . we also track the sensitivity of our various categories of assets and liabilities to changes in interest rates , and we have included a “ sensitivity analysis table ” to help explain this . finally , we have included a number of tables that provide detail about our investment securities , our loans , and our deposits and other borrowings . there are risks inherent in all loans , so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible . we establish and maintain this allowance by charging a provision for loan losses against our operating earnings . in the following section we have included a detailed discussion of this process , as well as several tables describing our allowance for loan losses and the allocation of this allowance among our various categories of loans . in addition to earning interest on our loans and investments , we earn income through fees and other expenses we charge to our customers . we describe the various components of this noninterest income , as well as our noninterest expense , in the following discussion . the discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements . we encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report . story_separator_special_tag we have established an asset/liability management committee ( “ alco ” ) to monitor and manage interest rate risk . the alco monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on our net interest income . the alco has established policy guidelines and strategies with respect to interest rate risk exposure and liquidity . a monitoring technique employed by us is the measurement of our interest sensitivity “ gap , ” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time . also , asset/liability modeling is performed to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income . interest rate sensitivity can be managed by repricing assets or liabilities , selling securities available-for-sale , replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability . managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates . neither the “ gap ” analysis or asset/liability modeling are precise indicators of our interest sensitivity position due to the many factors that affect net interest income including , the timing , magnitude and frequency of interest rate changes as well as changes in the volume and mix of earning assets and interest-bearing liabilities . the following table illustrates our interest rate sensitivity at december 31 , 2013. interest sensitivity analysis replace_table_token_6_th ( 1 ) loans classified as non-accrual as of december 31 , 2013 are not included in the balances . ( 2 ) securities based on amortized cost . we entered into a five year interest rate swap agreement on october 8 , 2008 that expired on october 8 , 2013. the swap agreement had a $ 10.0 million notional amount . we received a variable rate of interest on the notional amount based on a three month libor rate and pay a fixed rate interest of 3.66 % . the contract was entered into to protect us from the negative impact of rising interest rates . our exposure to credit risk was limited to the ability of the counterparty to make potential future payments required pursuant to the agreement . our exposure to market risk of loss was limited to the changes in the market value of the swap between reporting periods . at december 31 , 2012 , the fair value of the contract was a negative $ 338 thousand . the fair value adjustment during each reporting period is recognized in other income . for the years ended december 31 , 2013 , 2012 and 2011 , the adjustment reflected in earnings amounted to ( $ 2 ) thousand , $ ( 58 ) thousand and $ ( 166 ) thousand , respectively . the fair value of the contract was the present value , over the remaining term of the contract , of the difference between the estimated swap rate and the fixed rate of 3.66 % . through simulation modeling , we monitor the effect that an immediate and sustained change in interest rates of 100 basis points and 200 basis points up and down will have on net-interest income over the next 12 months . based on the many factors and assumptions used in simulating the effect of changes in interest rates , the following table estimates the hypothetical percentage change in net interest income at december 31 , 2013 and 2012 over the subsequent 12 months . at december 31 , 2013 , we are slightly asset sensitive . as a result , our modeling reflects improvement in our net interest income in a rising rate environment . in a declining rate environment , the model reflects a significant decline in net interest income . this primarily results from the current level of interest rates being paid on our interest bearing transaction accounts as well as money market accounts . the interest rates on these accounts are at a level where they can not be repriced in proportion to the change in interest rates . the increase and decrease of 100 and 200 basis points assume a simultaneous and parallel change in interest rates along the entire yield curve . net interest income sensitivity replace_table_token_7_th we also perform a valuation analysis projecting future cash flows from assets and liabilities to determine the present value of equity ( “ pve ” ) over a range of changes in market interest rates . the sensitivity of pve to changes in interest rates is a measure of the sensitivity of earnings over a longer time horizon . at december 31 , 2013 and 2012 , the pve exposure in a plus 200 basis point increase in market interest rates was estimated to be ( 3.31 ) % and 7.53 % , respectively . during 2013 and 2012 , the decline in the pve resulting from rising rates primarily a result of the increase in rates in the five to ten year part of the curve in 2013. this resulted in slowing down the level of prepayments on our mortgage backed securities portfolio and therefore , extending the expected life of this portfolio . provision and allowance for loan losses at december 31 , 2013 , the allowance for loan losses amounted to $ 4.2 million , or 1.21 % of loans ( excludes loans held for sale ) , as compared $ 4.6 million , or 1.39 % of loans , at december 31 , 2012. our provision for loan loss was $ 528 thousand for the year ended december 31 , 2013 , as compared to $ 496 thousand and $ 1.4 million for the years ended december 31 , 2012 and 2011 , respectively . the provision is made based on our assessment of general loan loss risk and asset quality .
| results of operations our net income available to common shareholders was $ 4.1 million , or $ 0.78 diluted earnings per common share , for the year ended december 31 , 2013 , as compared to net income available to common shareholders of $ 3.3 million , or $ 0.79 diluted earnings per common share , for the year ended december 31 , 2012. during 2013 , we continued to reduce our overall cost of funds by reducing funding from certificates of deposits . the decline in certificate of deposit balances was more than offset by a 16.3 % increase in transaction , money market and savings account balances . we were able to grow loans ( excluding loans held for sale ) by $ 15.5 million from december 31 , 2012 to december 31 , 2013 despite the continued slow economic environment . average loan balances increased during 2013 to $ 344.1 million compared to $ 331.6 million in 2012. net interest income increased $ 475 thousand from $ 17.6 million in 2012 to $ 18.0 million in 2013. the increase in net interest income is primarily due to the increase in average earning assets . the net interest margin , on a tax equivalent basis , during 2013 was 3.18 % as compared to 3.22 % during 2012. see below under “ net interest income ” and “ market risk and interest rate sensitivity ” for a further discussion about the effect of the change in net interest margin .
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net loss per share basic and diluted net loss per common share for the periods presented is computed by dividing net loss by the weighted-average number of common shares outstanding during the respective periods , without consideration of common stock equivalents as story_separator_special_tag financial condition and results of operations . you should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “ selected financial data ” and our financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed in the section entitled “ risk factors ” and in other parts of this annual report on form 10-k. please also see the section entitled “ special note regarding forward-looking statements. ” overview we are a clinical-stage , cancer-selective gene therapy company focused on developing first-in-class , broadly-applicable product candidates designed to activate a patient 's immune system against their own cancer . our cancer-selective gene therapy platform is built on retroviral replicating vectors , which are designed to selectively deliver therapeutic genes into the dna of cancer cells . our gene therapy approach is designed to fight cancer through immunotherapeutic mechanisms of action without the autoimmune toxicities commonly experienced with other immunotherapies . we are developing our lead product candidate , toca 511 ( vocimagene amiretrorepvec ) & toca fc ( extended-release flucytosine ) , initially for the treatment of recurrent high grade glioma , or hgg , a brain cancer with limited treatment options , low survival rates and , therefore , a significant unmet medical need . we are conducting a randomized , controlled phase 3 clinical trial of toca 511 & toca fc in patients with recurrent hgg ( toca 5 ) , which is designed to serve as a registrational trial . enrollment was completed for this clinical trial in september 2018. in february 2017 , the u.s. food and drug administration , or fda , granted toca 511 & toca fc breakthrough therapy designation for the treatment of patients with recurrent hgg and in june 2017 the european medicines agency , or ema , granted toca 511 priority medicines , or prime , designation for the treatment of patients with hgg . breakthrough therapy designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy . prime designation indicates that there is a potential to benefit patients with unmet medical needs based on early clinical data . we also have fast track designation ( which may lead to priority review of new products that treat serious diseases or conditions and demonstrate the potential to address an unmet medical need ) from the fda for toca 511 & toca fc for the treatment of recurrent hgg . we also received orphan-drug designation from the fda for the treatment of malignant glioma in addition to glioblastoma multiforme . orphan-drug designation is a designation for a product that treats a rare disease or condition and which , if the product receives the first fda approval for that disease or condition , may result in a period of regulatory exclusivity , subject to some exceptions . the committee for orphan medicinal products of the ema has designated both flucytosine and vocimagene amiretrorepvec as orphan medicinal products indicated for the treatment of glioma . the ema provides several benefits to drug developers for developing drugs for orphan diseases . in april 2018 , we entered into a license agreement , or license agreement , with beijing apollo venus biomedical technology limited and apollobio corp. , or collectively apollobio , which became effective in july 2018 , pursuant to which we granted to apollobio an exclusive license to develop and commercialize toca 511 & toca fc within the greater china region , including mainland china , hong kong , macao and taiwan , or the licensed territory . under the license agreement , we received an aggregate upfront payment of $ 16.0 million and we are eligible to receive up to a total of $ 111.0 million upon achievement of specified development and commercial milestones . in addition , we are also eligible for low double-digit tiered royalty payments based on annual net sales of licensed products in the licensed territory , subject to reduction under specified circumstances . in september 2018 , we earned a $ 2.0 million development milestone payment upon completion of the planned enrollment of 380 patients in the toca 5 clinical trial . we do not have any products approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through the private placement of our convertible preferred stock , from which we received net proceeds of $ 131.4 million and our initial public offering in april 2017 , from which we received net proceeds of $ 86.9 million and our public offering in december 2018 from which we received net proceeds of $ 28.0 million . we have also received $ 44.0 million in net proceeds from term loans , $ 15.7 million in net proceeds from upfront and milestone payments under our license and collaboration agreements , $ 10.9 million from the issuance of our convertible promissory notes payable , and $ 2.6 million from private and federal grants . since our inception in august 2007 , we have devoted substantially all of our efforts to developing our gene therapy platform and our lead product candidate , toca 511 & toca fc . we have never been profitable and have incurred significant operating losses in each year since our inception . story_separator_special_tag for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . the following table sets forth our research and development expense by project for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_5_th we expect our research and development expenses to increase for the foreseeable future as we scale up our clinical trial and manufacturing activities and seek regulatory approval of our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and related expenses for personnel , including non-cash stock-based compensation costs and travel expenses for our employees in executive , operational , finance and business development functions . other general and administrative expenses include facility-related costs , consulting fees , information technology , insurance , professional fees for accounting and legal services , expenses associated with obtaining and maintaining patents and costs associated with being a public company . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our expanding research and development and potential commercialization of our product candidates . we also anticipate continued increases in expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums and investor relations costs associated with being a public company . additionally , if we believe a regulatory approval of our lead product candidate appears likely , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations , especially as it relates to establishing a sales force and other expenses related to the sale and marketing of our product candidates . 61 interest income interest income consists primarily of interest income earned on cash , cash equivalents and marketable securities . interest expense interest expense consists primarily of stated interest and the amortization of related debt issuance costs incurred on the outstanding principal amount of our borrowings under our notes payable and convertible promissory notes payable . income tax expense income tax expense consists primarily of foreign income tax expense incurred related to our license agreement with apollobio . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements which we have prepared in accordance with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . while our significant accounting policies are described in more detail in the note 2 to our financial statements appearing at the end of this annual report on form 10-k , we believe the following accounting policies to be most critical for fully understanding and evaluating our financial condition and results of operations . revenue recognition revenue generally consists of license revenue with upfront payments and development milestones considered probable of achievement . revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those goods and services . this process involves identifying the contract with a customer , determining the performance obligations in the contract , determining the transaction price , allocating the contract price to the distinct performance obligations in the contract , and recognizing revenue when or as we satisfy the performance obligation ( s ) . at contract inception , we assess the goods and services promised within each contract and assess whether each promised good or service is distinct and determine that those are performance obligations . a performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract . we consider factors such as the research , manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace . we consider a performance obligation satisfied once we have transferred control of a good or service to the customer , meaning the customer has the ability to use and obtain the benefit of the good or service . we recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control . collaborative arrangements we enter into collaborative arrangements with partners that may include payment to us of one or more of the following : ( i ) license fees ; ( ii ) payments related to the achievement of developmental , regulatory , or commercial milestones ; and ( iii ) royalties on net sales of licensed products .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_6_th license revenue license revenue was $ 18.0 million for the year ended december 31 , 2018 as compared to $ 41,000 for the year ended december 31 , 2017 , an increase of $ 18.0 million . under the license agreement with apollobio , we recognized a $ 16.0 million upfront payment and a $ 2.0 million development milestone payment for the year ended december 31 , 2018. research and development expenses research and development expenses were $ 51.1 million for the year ended december 31 , 2018 , as compared to $ 29.1 million for the year ended december 31 , 2017. the increase of $ 22.0 million was primarily due to increases in manufacturing and clinical trial costs of $ 15.3 million to support our phase 3 clinical trial which completed enrollment in september 2018 and increased personnel costs , including non-cash stock based compensation of $ 3.0 million due to an increase in headcount . general and administrative expenses general and administrative expenses were $ 12.8 million for the year ended december 31 , 2018 , as compared to $ 8.6 million for the year ended december 31 , 2017. the increase of $ 4.3 million was primarily due to increased personnel costs , including non-cash stock based compensation , of $ 1.0 million , a $ 1.1 million non-income tax expense related to the apollobio license agreement and an increase in facility related expense due to our lab and office space lease which was signed in 2018 and increases in external service costs associated with the growth of our business and other costs associated with general business activities .
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no investments have been in an story_separator_special_tag the following information should be read in conjunction with the audited consolidated financial statements and notes thereto included in item 8 of this annual report on form 10-k. we also urge readers to review and consider our disclosures describing various factors that could affect our business , including the disclosures under the headings risk factors in this annual report on form 10-k. overview scm microsystems designs , develops and sells hardware , software and silicon solutions that enable people to conveniently and securely access digital content and services . we sell our secure digital access products into two market segments : pc security and digital media readers . our products are sold primarily to original equipment providers , or oems , who typically either bundle our products with their own solutions , or repackage our products for resale to their customers . our oem customers include : government contractors , systems integrators , large enterprises , computer manufacturers , as well as banks and other financial institutions for our smart card readers ; and computer and photo processing equipment manufacturers for our digital media readers . we sell and license our products through a direct sales and marketing organization , as well as through distributors , value added resellers and systems integrators worldwide . during 2007 and in early 2008 , we restructured and strengthened our management team with key executive hires and promotions . felix marx joined as chief executive officer in october 2007 ; sour chhor joined as executive vice president , strategy , marketing and engineering in february 2008 ; and manfred mueller was promoted to executive vice president , strategic sales and business development in march 2008. we believe our new executives and the new structure of our executive team strengthens our ability to anticipate and respond to market trends in our industry . during 2007 , we continued to operate our business based on the reduced expense levels we achieved in the fourth quarter of 2006. we had taken several actions during 2006 to lower operating expenses , including outsourcing our manufacturing , moving our corporate financial and compliance functions from the u.s. to germany , consolidating offices and reducing headcount . during 2006 , we also put in place product cost reduction programs that have resulted in ongoing product margin improvements from the fourth quarter of 2006 through 2007. as a result of our lower cost and expense structure , we narrowed operating and net losses during 2007 , and realized an operating and net profit in the fourth quarter of 2007. we have adopted a strategy to grow revenue that is based on introducing new pc security and digital media reader products to address new market opportunities . during 2006 , we experienced increased demand for our smart card readers , primarily from the government sector , where we began to provide readers for new and emerging programs such as e-passports and national id cards . during 2007 , demand remained stable at these higher levels in three of our four quarters , but order delays across our business caused our revenue to be below such levels in the second quarter of 2007. in both our pc security and digital media reader businesses , pricing pressure has continued over the last several quarters . in the third and fourth quarters of 2007 , we added sales resources in europe , japan , the u.s. and latin america to increase our ability to capture available business . 28 in our continuing operations , we may experience significant variations in demand for our products from quarter to quarter . this is particularly true for our pc security products , many of which are targeted at new smart card-based id programs run by various u.s. , european and asian governments . sales of our smart card readers and chips for government programs are impacted by testing and compliance schedules of government bodies as well as roll-out schedules for application deployments , both of which contribute to variability in demand from quarter to quarter . sales of our digital media reader products are less subject to this variability based on market or project demands ; however , we are dependent on a small number of customers in both of our primary product segments , which can result in fluctuations in sales levels from one period to another . in may 2006 , we completed the sale of our dtv solutions business to kudelski s.a. as a result , we have accounted for the dtv solutions business as discontinued operations , and the statements of operations and cash flows for all periods presented reflect the discontinuance of this business . ( see note 3 to our consolidated financial statements included in this annual report on form 10-k. ) critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( u.s. gaap ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to product returns , customer incentives , bad debts , inventories , asset impairment , deferred tax assets , accrued warranty reserves , restructuring costs , contingencies and litigation . management bases its estimates and judgments on historical experience and on various other factors 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 . story_separator_special_tag we continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives . although we believe that these estimates accurately reflect the costs of our restructuring and other plans , actual results may differ , thereby requiring us to record additional provisions or reverse a portion of such provisions . recent accounting pronouncements in september 2006 , the fasb issued sfas no . 157 , fair value measurements . sfas 157 defines fair value , establishes a framework for measuring fair value in accordance with generally accepted accounting principles , and expands disclosures about fair value measurements . the provisions of sfas 157 are effective for the fiscal year beginning january 1 , 2008. after evaluating the impact of the provisions of sfas 157 on our financial position , results of operations and cash flows , we do not expect a material impact from its adoption . in february 2007 , fasb issued sfas no . 159 , the fair value option for financial assets and financial liabilities . sfas no . 159 permits companies to choose to measure certain financial instruments and other items at fair value . the standard requires that unrealized gains and losses are reported in earnings for items measured using 30 the fair value option . sfas no . 159 is effective for us beginning in the first quarter of fiscal year 2008. after evaluating the impact of the provisions of sfas 159 on our financial position , results of operations and cash flows , we do not expect a material impact from its adoption . in december 2007 , fasb issued sfas no . 141 ( revised 2007 ) , business combinations . under sfas no . 141 ( r ) , an entity is required to recognize the assets acquired , liabilities assumed , contractual contingencies , and contingent consideration at their fair value on the acquisition date . it further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred , restructuring costs generally be expensed in periods subsequent to the acquisition date , and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense . in addition , acquired in-process research and development ( ipr & d ) is capitalized as an intangible asset and amortized over its estimated useful life . the adoption of sfas no . 141 ( r ) will change our accounting treatment for business combinations on a prospective basis beginning in the first quarter of fiscal year 2009. in december 2007 , the fasb issued sfas no . 160 , noncontrolling interests in consolidated financial statements an amendment of arb no . 51 . sfas no . 160 changes the accounting and reporting for minority interests , which will be recharacterized as non-controlling interests and classified as a component of equity . sfas no . 160 is effective for us on a prospective basis for business combinations with an acquisition date beginning in the first quarter of fiscal year 2009. as of december 31 , 2007 , we did not have any minority interests . story_separator_special_tag background : # ffffff '' > sales of our pc security products increased 36 % to $ 23.7 million in 2006 , compared with $ 17.4 million in 2005. in 2006 , higher revenue levels were primarily the result of higher sales of smart card readers in the united states for u.s. government security projects as well as growth in demand for our products in europe primarily related to e-passport projects . revenue from our digital media reader product line decreased 6 % from $ 10.5 million in 2005 to $ 9.9 million in 2006. the revenue decrease in 2006 was primarily due to a reduction in the price we were able to charge the primary customer for one of our digital media reader products , as the customer had decided they did not need the advanced functionality provided by components we previously had used in the readers . we therefore began to use simpler and less expensive components and thus the price of the product was lowered . gross profit the following table sets forth our gross profit and year-to-year change in gross profit by product segment for the fiscal years ended december 31 , 2007 , 2006 and 2005 : replace_table_token_6_th gross profit for 2007 was $ 12.7 million , or 42 % of revenue . during 2007 , gross profit was impacted by a favorable mix of products sold , better inventory management and product cost reductions , particularly in our pc security business . offsetting these positive factors were low sales levels of digital media reader products in the first half of the year and low sales levels of pc security products in the second quarter of 2007 as well as continued pricing pressure over the last several quarters . by product segment , gross profit for our pc security products was 43 % and gross profit for our digital media reader products was 36 % in 2007. gross profit for 2006 was $ 11.9 million , or 35 % of revenue . during 2006 , gross profit for our pc security products was impacted by increased pricing pressure , offset by the effect of a more favorable product mix as we 33 increased the number of contactless readers sold , particularly for e-passport applications . during the fourth quarter of 2006 , we experienced an increase in gross profit in our pc security business primarily due to better inventory management and cost reduction programs established earlier in the year . in our digital media reader business , gross profit was impacted by pricing pressure , as well as by an increasing proportion of lower margin products sold . gross profit for 2005 was $ 10.8 million , or 39 % of revenue . our 2005 gross profit was negatively impacted by inventory write-downs of approximately $ 1.3 million in our pc security segment , severance costs for manufacturing personnel in our singapore facility of $ 0.5
| results of operations the following table sets forth our statements of operations as a percentage of net revenue for the periods indicated : replace_table_token_4_th we sell our secure digital access products into two market segments : pc security and digital media readers . 31 for the pc security market , we offer smart card reader technology that enables authentication of individuals for applications such as electronic identification and drivers ' license , electronic healthcare cards , secure logical access to pcs and networks , and physical access to facilities . within the pc security segment , we also offer a line of smart card solutions under the chipdrive ® brand that include productivity applications such as time recording and attendance , physical access and password management for small and medium sized enterprises . for the digital media reader market , we offer digital media readers that are used to transfer digital content to and from various digital flash media . these readers are primarily used in digital photo kiosks . revenue the following table sets forth our annual revenues and year-to-year change in revenues by product segment for the fiscal years ended december 31 , 2007 , 2006 and 2005 : replace_table_token_5_th fiscal 2007 revenue compared with fiscal 2006 revenue revenue for the year ended december 31 , 2007 was $ 30.4 million , a decrease of 9 % from $ 33.6 million in 2006. this decrease was due primarily to a 39 % decline in sales of our digital media reader products , primarily due to the loss of a major customer at the beginning of 2007 , offset in part by a 3 % increase in sales of our pc security products . sales of our pcs security products accounted for 80 % of total revenue in 2007 and sales of digital media reader products accounted for 20 % of revenue .
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on june 25 , 2012 , the company acquired 100 % of the membership interests in 3d-id llc ( “ 3d-id ” ) , a limited liability company formed in florida in february 2011 and owned by the company 's founders . by acquiring 3d-id , the company gained the rights to a portfolio of patented technology in the field of three-dimensional facial recognition and imaging including 3d facial recognition products for access control , law enforcement and travel and immigration . 3d-id was an early stage company engaged in the design , research and development , integration , analysis , modeling , system networking , sales and support of intelligent surveillance , three-dimensional facial recognition and three-dimensional imaging devices and systems primarily for identification and access control in the security industries . since the company 's acquisition of 3d-id was a transaction between entities under common control in accordance with accounting standards codification ( “ asc ” ) 805 , “ business combinations ” , nxt-id recognized the net assets of 3d-id at their carrying amounts in the accounts of nxt-id on the date that 3d-id was organized , february 14 , 2011 . 20 we are an emerging growth technology company that is focused on products , solutions , and services for security on mobile devices . our core technologies consist of those that support digital payments , biometric identification , encryption , sensors , and miniaturization . we have three distinct lines of business that we are currently pursuing , which are in various stages of development : mobile commerce ( `` m-commerce '' ) , primarily through the application of secure digital payment technologies ; biometric access control applications , and department of defense contracting . our initial efforts have primarily focused on the development of our secure products for the growing m-commerce market , most immediately , a secure mobile electronic smart wallet , the wocket® . the wocket® is a smart wallet , the next evolution in smart devices following the smartphone and smartwatch , designed to protect your identity and replace all the cards in your wallet , with no smart phone required . the wocket® works almost everywhere credit cards are accepted . we are also developing a smartcard that functions in a similar manner to the wocket® and have a distribution agreement with an international direct selling company to distribute that product . our biometric access control applications and defense contracting opportunities are still in their emerging growths . we believe that our mobilebio® products will provide distinct advantages within m-commerce market by improving mobile security . currently most mobile devices continue to be protected simply by pin numbers . this security methodology is easily duplicated on another device , and can easily be spoofed or hacked . our security paradigm is dynamic pairing codes ( `` dpc '' ) . dpc is a new , proprietary method , to secure users , devices , accounts , locations and servers over any communication media by sharing key identifiers , including biometric-enabled identifiers , between end-points by passing dynamic pairing codes ( random numbers ) between end-points to establish sessions and or transactions without exposing identifiers or keys . the recent high-level breaches of personal credit card data raises serious concerns among consumers about the safety of their money . these consumers are also resistant to letting technology companies learn even more about their personal purchasing habits . our plan also anticipates that we will use our core biometric facial and voice recognition algorithms to develop security applications ( both cloud based and locally hosted ) that can be used for companies ( for industrial uses , such as enterprise computer networks ) as well as individuals ( for consumer uses , such as smart phones , tablets or personal computers ) , law enforcement , the defense industry , and the u.s. department of defense . we are an emerging growth entity and have incurred net losses since our inception . in order to execute our long-term strategic plan to develop and commercialize our core products we will need to raise additional funds through public or private equity offerings , debt financings , or other means . we can give no assurance that the cash raised subsequent to december 31 , 2015 or any additional funds raised will be sufficient to execute our business plan . these conditions raise substantial doubt about our ability to continue as a going concern . we can give no assurance that additional funds will be available on reasonable terms , or available at all , or that it will generate sufficient revenue to alleviate these conditions . we commenced shipping of the wocket® at the end of the second quarter of 2015 , primarily to tech savvy consumers . the implementation of the emv chip point of sale ( “ pos ” ) terminals in the united states has limited the number of pos systems that the wocket® works at , so we have postponed the full launch of the product in the united states until we are able to implement near field communication ( “ nfc ” ) technology on the wocket® as well as our dynamic magnetic stripe technology . nfc is a similar technology to applepay and googlepay and works at many emv enabled pos terminals . we are also pursuing the sale of the wocket® in certain overseas markets that have not implemented chip cards and where the wocket® works extremely well . we intend to relaunch wocket® in the united states once nfc is operational . current wocket inventory is hardware enabled for this purpose and we are finalizing the software arrangements with banks and major payment companies to implement this technology . we anticipate relaunching the wocket® in the united states with nfc capability in the third quarter of 2016 and will accelerate efforts to export the product to suitable overseas markets 21 story_separator_special_tag always ; margin-top : 6pt ; margin-bottom : 12pt '' > liquidity and capital resources we are an emerging growth company and have generated losses from operations since inception . story_separator_special_tag pursuant to the january purchase agreement , the company 's founders who are members of management ( the “ founders ” ) agreed to cancel a corresponding number of shares to those shares issued in the january offering and place in escrow a corresponding number of shares to be cancelled for each january warrant share issued . as a result , the founders retired 138,463 and 276,924 shares of common stock in december 2013 and january 2014 , respectively . the january warrants are exercisable for a period of five ( 5 ) years from the original issue date . on the date of issuance , the january warrants were recognized as derivative liabilities as they did not have fixed settlement provisions because their exercise prices could be lowered if the company was to issue securities at a lower price in the future . as a result , the company recorded $ 3,450,976 as derivative liability warrants on the consolidated balance sheet on january 13 , 2014. on february 21 , 2014 , the company amended the terms of the 1,391,539 january warrants as compensation to the placement agent to eliminate the anti-dilution provision and to lower the exercise price of the january warrants from $ 3.25 to $ 3.00. as a result of the january warrants ' modifications , the company re-measured the january warrants liability on the modification date and recorded an unrealized gain on derivative liabilities of $ 448,072 and reclassified the aggregate re-measured value of the january warrants of $ 4,514,772 to additional paid-in capital . see note 6 below . on various dates , during the twelve months ended december 31 , 2014 , the company received gross proceeds of $ 1,500,000 in connection with the exercise of 500,000 january warrants into 500,000 shares of common stock at an exercise price of $ 3.00 per share , net of fees of $ 30,000 paid upon the exercise of the january warrants per the terms of the placement agent 's agreement . upon exercise of the january warrants , the company 's founders cancelled a certain number of shares of common stock in accordance with the january purchase agreement . on september 10 , 2014 , the exercise price of the january warrants was amended to $ 2.00. effective march 5 , 2015 , the january purchasers holding a majority of the securities offered in the january 2014 offering waived a provision that required certain stockholders of the company to surrender shares of common stock proportional to the number of january warrants exercised . to date , these stockholders have retired 697,054 shares of common stock which will remain in treasury . on april 23 , 2015 , the company entered into a waiver and termination of certain rights agreement ( the “ waiver agreement ” ) whereby the majority january purchasers agreed to terminate certain provisions in the january purchase agreement for an aggregate of 250,000 shares of common stock . the fair value of the 250,000 shares of common stock issued on april 23 , 2015 was $ 655,000 and was recorded as inducement expense by the company . june 2014 private placement from june 12 , 2014 to june 17 , 2014 , the company conducted a private offering with a group of accredited investors ( the “ june purchasers ” ) who had previously participated in the january offering . pursuant to a securities purchase agreement with the june purchasers , the company issued to the june purchasers warrants ( the “ june warrants ” ) to purchase an aggregate of 400,000 shares ( the “ june shares ” ) of the company 's common stock at an exercise price of $ 3.00 per share . on september 10 , 2014 , the exercise price of the june warrants was amended to $ 2.00. the june warrants are exercisable for a period of five ( 5 ) years from the original issue date . the exercise price for the june warrants are subject to adjustment upon certain events , such as stock splits , combinations , dividends , distributions , reclassifications , mergers or other corporate change and dilutive issuances . on february 23 , 2016 , the exercise price of the june warrants was amended to $ 0.50 . 24 in connection with the issuance of the june warrants , the company entered into a registration rights agreement with the june purchasers pursuant to which the company agreed to register the june shares on a form s-1 registration statement ( the “ june registration statement ” ) to be filed with the securities and exchange commission ( the “ sec ” ) ninety ( 90 ) days following the completion of an underwritten public offering ( the “ june filing date ” ) and to cause the june registration statement to be declared effective under the securities act within ninety ( 90 ) days following the june filing date ( the “ june required effective date ” ) . the june registration statement was not filed by the june filing date or declared effective by the june required effective date of december 15 , 2014. under the original terms of the arrangement , the company was required to pay partial liquidated damages to each june purchaser in the amount equal to two percent ( 2 % ) for the purchase price paid for the june warrants then owned by such june purchaser for each 30-day period for which the company is non-compliant . on january 30 , 2015 , the company received signed documentation from the june purchasers waiving their right to liquidated damages and terminating the registration rights agreement .
| results of operations year ended december 31 , 2015 , compared with the year ended december 31 , 2014 . revenue . our revenues for the year ended december 31 , 2015 were $ 616,854 and we had no revenues for the year ended december 31 , 2014. our revenues for the year ended december 31 , 2015 are related to shipments of the wocket® to our early access pre-order customers as well as new customer orders placed in 2015. in addition , the revenues for the year ended december 31 , 2 015 included resale sales of the wocket® to wholesale customers who resell the wocket® through their respective distribution channels . the aggregate dollar amount of these resale sales was $ 167,466. the selling price per unit as it relates to wholesale sales was considerably lower than our direct selling price to our individual customers which negatively impacted our gross profit margin . the sales prices to wholesale customers were significantly discounted in order to accelerate product awareness and adoption of the wocket® . cost of revenue . our cost of revenue includes our direct product cost to both our individual customers as well as our wholesale customers . during 2015 , our gross margin on sales to our wholesale customers was considerably lower than the gross margin resulting from sales to our individual customers as discussed above . our cost of revenue also includes a write off of excess and obsolete inventory of $ 343,216 resulting from our transition to version 2 of the wocket® which now includes nfc technology . we also recorded an unfavorable book-to-physical inventory adjustment of $ 131,209 as well as scrap adjustments of $ 375,699 relating primarily to low early stage production yield . in addition , we recorded a lower of cost or market adjustment of $ 149,000 in anticipation of our future sales to wholesale customers .
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marketable securities at december 31 , 2016 consist of the following : marketable securities amortized cost unrealized gains unrealized losses fair value current : corporate debt $ 31,405,836 $ 24 $ ( 51,690 ) $ 31,354,170 marketable securities at december 31 , 2015 consisted of the following : marketable securities amortized cost unrealized gains unrealized losses fair value current : corporate debt $ 22,979,245 $ 199 $ ( 30,572 ) $ 22,948,872 at december 31 , 2016 and december 31 , 2015 , the company held only current investments . investments classified as current have maturities of less than one year . investments that would be classified as non-current are those that have maturities of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the risk factors section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biotechnology company focused on discovering and developing therapeutic protein and antibody products for the treatment of life-threatening infectious diseases , including those caused by drug-resistant pathogens , particularly those treated in hospital settings . drug-resistant infections account for two million illnesses in the united states and 700,000 deaths worldwide each year . we intend to address drug-resistant infections using product candidates from our lysin and monoclonal antibody platforms that target conserved regions of either bacteria or viruses . lysins are enzymes derived from naturally occurring bacteriophage , which are viruses that infect bacteria . when recombinantly produced and then applied to bacteria , lysins cleave a key component of the target bacteria 's peptidoglycan cell wall , which results in rapid bacterial cell death . lysins kill bacteria faster than conventional antibiotics , which typically require bacterial cell division 62 and metabolism in order to kill or stop the growth of bacteria . we believe that the properties of our lysins will make them suitable for targeting antibiotic-resistant organisms , such as staphylococcus aureus ( staph aureus ) which causes serious infections such as bacteremia , endocarditis , pneumonia and osteomyelitis . in addition , our lysins have demonstrated the ability to clear biofilms in animal models , and we believe they may be useful for the treatment of biofilm-related infections in prosthetic joints , indwelling devices and catheters . beyond our lysin programs , we are exploring therapies using monoclonal antibodies ( mabs ) designed to bind to viral targets . our approach to antibody therapy employs a combination of multiple mabs to either achieve greater efficacy or provide broader coverage across pathogenic strains . we have not generated any revenues and , to date , have funded our operations primarily through our ipo , our follow-on public offering , and the private placements of convertible preferred stock and convertible debt to our investors . in august 2014 , we completed our ipo , raising net proceeds of $ 35.0 million after underwriting discounts , commissions and offering expenses payable by us , through the issuance and sale of our units , which consisted of one share of common stock , one class a warrant to purchase one share of common stock at an exercise price of $ 4.80 per share and one class b warrant to purchase one-half share of common stock at an exercise price of $ 4.00 per full share ( units ) . as of november 2 , 2015 , the date of expiration of the class b warrants , holders of the class b warrants had exercised 4,812,328 class b warrants , resulting in the issuance of 2,406,164 shares of the company 's common stock and the receipt by the company of approximately $ 9.6 million in gross proceeds . the class a warrants expired on february 1 , 2017. as none of the class a warrants were exercised prior to expiration , the class a warrants have been terminated and are no longer exercisable . in june 2015 , we completed a private placement of securities to institutional investors whereby the investors received an aggregate of 4,728,128 shares of our common stock and warrants to purchase an additional 2,364,066 shares of common stock at an exercise price of $ 8.00 per share , generating net proceeds of $ 18.3 million . in july 2016 , we sold 14,000,000 shares of our common stock and warrants to purchase an additional 14,000,000 shares of our common stock at a exercise price of $ 3.00 per share in an underwritten follow-on offering , generating net proceeds of approximately $ 32.0 million after underwriting discounts , commissions and offering expenses payable by us . we have never been profitable and our net losses were $ 28.5 million , $ 25.1 million and $ 30.1 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , particularly as we advance our product candidates through preclinical activities and clinical trials to seek regulatory approval and , if approved , commercialize such product candidates . additionally , we expect to incur additional costs associated with operating as a public company . accordingly , we will need additional financing to support our continuing operations . story_separator_special_tag the following table summarizes our research and development expenses by category for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_4_th the following table summarizes our research and development expenses by program for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_5_th we anticipate that our research and development expenses will increase substantially in connection with the commencement of clinical trials for our product candidates . however , the successful development of future product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our research and development activities ; clinical trial results ; the terms and timing of regulatory approvals ; our ability to market , commercialize and achieve market acceptance for our product candidates in the future ; and the expense , filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights . 65 a change in the outcome of any of these variables with respect to the development of cf-301 , cf-404 or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of cf-301 , cf-404 or any such product candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of cf-301 or if we experience significant delays in enrollment in any clinical trials of cf-301 , we could be required to expend significant additional financial resources and time on the completion of the clinical development of cf-301 . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including non-cash share-based compensation expense , in our executive , finance , legal , human resource and business development functions . other general and administrative expenses include facility costs , insurance expenses and professional fees for legal , consulting and accounting services . we anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount , expanded infrastructure , increased legal , compliance , accounting and investor and public relations expenses associated with being a public company and increased insurance premiums , among other factors . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . interest expense interest expense consists primarily of cash and non-cash interest costs , including the accretion of the carrying value of our convertible notes due 2015 to face value and the estimated value of equity linked securities issued in conjunction with the issuance of these notes , related to our outstanding debt . we capitalize costs incurred in connection with the issuance of debt . we amortize these costs over the life of our debt agreements as interest expense in our statement of operations . upon the closing of our ipo , we accelerated the amortization of the remaining balances of debt issuance costs and debt discount to interest expense and recognized the cost of the beneficial conversion feature of our convertible notes due 2015 as an additional component of interest expense . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates on our limited historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . 66 fair value of warrant liability in accordance with financial accounting standards board accounting standards codification topic 820 , fair value measurements and disclosures ( asc 820 ) , we classify and account for our warrant liability as a level 3 financial instrument . the valuation of a level 3 financial instrument requires inputs that reflect our own assumptions that are both significant to the fair value measurement and unobservable . we calculate the fair value estimate of our warrant liability on a recurring basis at each measurement date , based on relevant market information . we use the black-scholes option pricing model to estimate the fair value of our warrant liability using various assumptions that require management to apply judgment and make estimates , including : the expected term of the warrant , which we estimate to be the remaining contractual life ; the expected volatility of the underlying common stock , which we estimate based on the historical volatility of a representative peer group of publicly traded biopharmaceutical companies with similarities to us , including stage of drug development , area of therapeutic focus , number of employees and market capitalization ; the risk-free interest rate , which we based on the yield curve of u.s. treasury securities with periods commensurate with the expected term ; and the expected dividend yield , which we estimate to be zero based on the fact that we have never paid
| results of operations comparison of years ended december 31 , 2016 and 2015 the following table summarizes our results of operations for the years ended december 31 , 2016 and 2015 : replace_table_token_6_th 68 research and development expenses research and development expense was $ 22.1 million for the year ended december 31 , 2016 , compared with $ 15.0 million for the year ended december 31 , 2015 , an increase of $ 7.1 million . this increase was primarily attributable to a $ 5.6 million increase in expenditures on our product candidates as we concluded our phase 1 clinical study and prepared for a phase 2 clinical trial of cf-301 and continued to progress cf-404 through ind related manufacturing activities . the increase was also due to a $ 1.5 million increase in expenses related to our research headcount , including salaries , benefits and laboratory costs in support of the discovery and study of additional product candidates . general and administrative expenses general and administrative expense was $ 11.4 million for the year ended december 31 , 2016 , compared with $ 10.0 million for the year ended december 31 , 2015 , an increase of $ 1.4 million . this increase was primarily attributable to increased severance costs of $ 1.4 million , including $ 0.5 million of non-cash share-based compensation expense , and a $ 0.2 million increase in accounting and filing costs related to our sec filings . these increases were partially offset by a $ 0.2 million decrease in our board of directors fees and expenses . other income ( expense ) other income was $ 5.0 million for the year ended december 31 , 2016 compared with other expense of $ 0.1 million for the year ended december 31 , 2015 , an increase of $ 5.0 million .
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the company compares the fair value of each of its reporting units to their respective carrying values , including related goodwill . we also compare our book value and the estimates of fair value of the reporting units to our market capitalization as of and at dates near the annual testing date . management uses this comparison as additional evidence of the fair value of the company , as our market capitalization may be suppressed by other factors such as the control premium associated with a controlling shareholder , our leverage or general expectations regarding future operating results and cash flows . in situations where the implied value of the company under the income or market approach are significantly different than our market capitalization we re-evaluate and adjust , if necessary , the assumptions underlying our income and market approach models . our estimate of the fair values of these business units , and the related goodwill , could change over time based on a variety of factors , including the aggregate market value of the company 's common stock , actual operating performance of the underlying businesses or the impact of future events on the cost of capital and the related discount rates used . the change in the carrying amount of goodwill for the years ended december 31 , 2014 and 2013 is as follows : replace_table_token_27_th intangible assets other than goodwill primarily consist of trade names , customer relationships , patents , and technology assets established in connection with acquisitions . these intangible assets , other than certain trade names , are amortized over their estimated useful lives . the company performs an annual impairment assessment for the indefinite lived trade names which had a carrying value of $ 11,256 and $ 2,509 at december 31 , 2014 and 2013 , respectively . in performing this assessment the company uses an income approach , based primarily on level 3 inputs , to estimate the fair value of the trade name . the company records an impairment charge if the carrying value of the trade name exceeds the estimated fair value at the date of assessment . intangible assets at december 31 , 2014 and 2013 consisted of the following : replace_table_token_28_th intangible amortization expense was $ 6,466 , $ 2,769 and $ 2,188 in 2014 , 2013 and 2012 , respectively . estimated annual story_separator_special_tag executive overview the company conducts its business activities in two distinct segments : the material handling segment and the distribution segment . the lawn and garden business is classified as discontinued operations and all historical information has been adjusted to reflect the discontinued operations presentation . the company designs , manufactures , and markets a variety of plastic and rubber products . these products range from plastic reusable material handling containers and small parts storage bins to plastic and rubber oem parts , tire repair materials , custom plastic and rubber products , consumer fuel containers , military water containers as well as ammunition packaging and shipping containers . our distribution segment is engaged in the distribution of tools , equipment and supplies used for tire , wheel and under vehicle service on passenger , heavy truck and off-road vehicles , as well as the manufacturing of tire repair and retreading products . results of operations : 2014 versus 2013 net sales : replace_table_token_7_th net sales for 2014 were $ 623.6 million , an increase of $ 38.9 million or 7 % compared to the prior year . net sales increased $ 39.4 million due to the inclusion of scepter corporation group ( `` scepter '' ) acquired july 2 , 2014. the increase in net sales also included $ 12.7 million of improved pricing to mitigate higher resin prices during the year . the increase in net sales was partially offset by lower sales volumes of $ 6.8 million and unfavorable foreign currency translation of $ 6.4 million . net sales in the material handling segment increased $ 51.5 million or 14 % in 2014 compared to 2013 . the increase in net sales was mainly attributable to the inclusion of $ 39.4 million of net sales from the date of acquisition of scepter that was completed july 2 , 2014. also contributing to the increase in net sales was improved pricing of $ 12.6 million to offset raw material costs , and higher volume of $ 5.9 million , driven by strong sales in the industrial , marine and recreational vehicle end markets . the increase in net sales was partially offset by unfavorable foreign currency translation of $ 6.4 million . net sales in the distribution segment decreased $ 12.6 million in 2014 compared to 2013 . the decrease in net sales was attributable to a decline in custom sales and the result of the closure of our canadian branches in the first quarter of 2014. cost of sales & gross profit : replace_table_token_8_th gross profit declined $ 8.3 million in 2014 compared to 2013 despite an increase in sales . gross profit margin as a percentage of sales decreased to 25.9 % for 2014 compared to 29.0 % in the prior year . a weakened demand for our material handling segment 's agricultural and food processing products , along with a challenging brazilian economy , lowered profitability versus the prior year . higher raw material costs during the year compared to the prior year also negatively impacted gross profit . raw material costs , primarily plastic resins , polypropylene and polyethylene , were on average , approximately 9 % higher in 2014 as compared to the prior year . also contributing to the reduction in gross margin was a $ 2.3 million inventory fair value adjustment resulting from our acquisition of scepter and approximately $ 1.0 million of restructuring and other unusual charges in 2014 , as compared to $ 0.2 million in 2013 . story_separator_special_tag the business is included in the material handling segment . in july 2012 , the company acquired 100 % of the stock of novel , a brazil-based designer and manufacturer of reusable plastic crates and containers used for closed-loop shipping and storage . novel also produces a diverse range of plastic industrial safety products . the total purchase price was approximately $ 30.9 million , which includes a cash payment of $ 3.4 million , net of $ 0.6 million of cash acquired , assumed debt of approximately $ 26.0 million and contingent consideration of $ 0.9 million based on an earnout . the contingent consideration , which is recorded in other liabilities in the consolidated statements of financial position is dependent upon the results of novel exceeding predefined earnings before interest , taxes , depreciation and amortization over the next four years . the business is included in the material handling segment . financial condition & liquidity and capital resources cash provided by operating activities from continuing operations was $ 51.7 million for the year ended december 31 , 2014 compared to $ 74.9 million in 2013. the decrease of $ 23.2 million was attributable to decreased earnings , higher working capital and higher non-cash charges in 2014 compared to the prior year . net income from continuing operations was $ 9.0 million in 2014 compared to $ 26.4 million in 2013. non-cash charges including depreciation and amortization were $ 31.8 million in 2014 compared to non-cash charges of $ 23.2 million in 2013. cash provided by working capital was $ 12.2 million in 2014 compared to cash provided of $ 27.0 million in 2013. in 2014 , cash provided by inventories was approximately $ 2.4 million compared to $ 3.0 million in 2013. in 2014 , the source of funds for accounts receivable was $ 2.7 million compared to the use of $ 2.0 million in 2013. in addition , as a result of timing of payments and extending vendor terms on accounts payable , positive cash flow was realized in both 2014 and 2013. capital expenditures were $ 24.2 million in 2014 compared to $ 20.7 million in 2013. capital spending in 2014 was higher than the preceding year as investments were made for new manufacturing focused on growth and productivity improvements in addition to higher spending due to scepter . in 2014 , the company paid approximately $ 156.6 million in connection with the acquisition of scepter which is included in the material handling segment . in 2013 , the company purchased an equity interest in a non-consolidated subsidiary , included in the distribution segment , for approximately $ 0.6 million . in 2012 , the company paid a combined total of $ 18.5 million in connection with the acquisitions of novel and jamco . the company received approximately $ 0.6 million and $ 3.1 million in cash proceeds from the sale of certain property , plant & equipment in 2014 and 2012 , respectively . during 2014 , the company used cash of $ 54.9 million to purchase 2,742,506 shares of its own stock under a share repurchase plan compared to $ 8.1 million to purchase 530,983 shares of its own stock in 2013. in addition , the company used cash to pay dividends of $ 15.7 million and $ 9.1 million for the years 2014 and 2013 , respectively . lower dividend payments in 2013 resulted from the accelerated fourth quarter dividend payment made in december 2012 to reduce the tax impact for our shareholders in 2013. on december 13 , 2013 , the company entered into a fourth amended and restated loan agreement ( the “ loan agreement ” ) . the agreement provided for a $ 200 million senior revolving credit facility expiring on december 13 , 2018 , which replaced the existing $ 180 million facility . in addition , on may 30 , 2014 , the company entered into a first amendment to the fourth amended and restated loan agreement ( the `` loan amendment '' ) . the loan amendment increased the senior revolving credit facility from $ 200 million to $ 300 million through december 2018 and provided for an additional subsidiary of the company as a borrower and another subsidiary of the company as a guarantor of the credit facility . on july 2 , 2014 , the company borrowed approximately $ 135.3 million under the loan agreement to fund the acquisition of scepter . amounts borrowed under the agreement are secured by pledges of stock of certain of our foreign and domestic subsidiaries . borrowings under the loan agreement bear interest at the libor rate , prime rate , federal funds effective rate , the canadian deposit offered rate , or the eurocurrency reference rate depending on the type of loan requested by the company , in each case plus the applicable margin as set forth in the loan agreement . on october 22 , 2013 , the company entered into a note purchase agreement for the private placement of senior unsecured notes totaling $ 100 million with a group of investors . the series of four notes range in face value from $ 11 million to $ 40 million , with interest rates ranging from 4.67 % to 5.45 % , payable semiannually , and expiring between 2021 and 2026 . at december 31 , 2013 , the company had $ 11 million of its 5.25 % senior unsecured notes due january 15 , 2024 outstanding under the note purchase 27 agreement . remaining proceeds of $ 89 million under the note purchase agreement were subsequently received in january 2014. at december 31 , 2014 , $ 100 million was outstanding . total debt outstanding at december 31 , 2014 was $ 236.4 million , net of deferred financing costs , compared with $ 44.3 million at december 31 , 2013 . the increase in debt outstanding year-over-year is mainly due to cash proceeds of
| results of operations : 2013 versus 2012 net sales : replace_table_token_12_th net sales for 2013 were $ 584.7 million , an increase of $ 39.1 million or 7 % compared to the prior year . net sales increased $ 33.1 million due to the acquisition sales of plasticos novel do nordeste s. a . ( `` novel '' ) and jamco products inc. ( `` jamco '' ) which were acquired in 2012 , along with $ 4.6 million of improved pricing and approximately $ 5.1 million in higher sales volumes . the increase in net sales was partially offset by unfavorable foreign currency translation of $ 3.7 million . net sales in the material handling segment increased $ 43.1 million or 13 % in 2013 compared to 2012. the net increase in sales was mainly attributable to the inclusion of $ 33.1 million of net sales from the acquisition of novel and jamco which were completed in the second half of 2012. also contributing to the increase in net sales was improved pricing of approximately $ 4.5 million and higher volume of approximately $ 9.0 million , driven by sales in the agricultural , distribution , recreational vehicle and marine markets . the increase in net sales noted above was partially offset by unfavorable currency translation of $ 3.5 million . net sales in the distribution segment decreased $ 4.1 million in 2013 compared to 2012. the decrease in net sales was attributable to $ 3.9 million in lower sales volume , primarily in equipment and from new product introductions . in addition , unfavorable currency translation of $ 0.2 million negatively impacted net sales year over year . cost of sales & gross profit : replace_table_token_13_th gross profit increased due to higher sales in 2013 versus 2012. gross profit margin decreased slightly to 29.0 % for 2013 compared to 30.0 % in the prior year , as productivity improvements in 2013 were offset by higher raw material costs compared to the prior year .
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the effect on both basic and diluted earnings per share for 2018 was $ 0.33 per share , which assumes the gain story_separator_special_tag the following discussion and analysis should be read in conjunction with financial statements and supplementary data under part ii , item 8 in this form 10-k. the following discussion includes forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed below and elsewhere in this form 10-k , particularly in risk factor s under part i , item 1a in this form 10-k. overview we are an independent oil and natural gas producer , active in the exploration , development and acquisition of oil and natural gas properties in the gulf of mexico . we have grown through acquisitions , exploration and development and currently hold working interests in 51 offshore producing fields in federal and state waters . we currently have under lease approximately 815,000 gross acres ( 550,000 net acres ) spanning across the ocs off the coasts of louisiana , texas , mississippi and alabama , with approximately 595,000 gross acres on the conventional shelf and approximately 220,000 gross acres in the deepwater . a majority of our daily production is derived from wells we operate . we currently own interests in 146 offshore structures , 104 of which are located in fields that we operate . we currently own interest in 240 productive wells , 177 of which we operate . our interest in fields , leases , structures and equipment are primarily owned by w & t offshore , inc. and our wholly-owned subsidiary , w & t energy vi , llc , a delaware limited liability company and through our proportionately consolidated interest in monza , as described in more detail in financial statements and supplementary data – note 4 – joint venture drilling program under part ii , item 8 in this form 10-k. in recent years , we have operated or participated in wells near the outer edge of the ocs and in the deepwater of the gulf of mexico . to the extent we expand our deepwater operations , our operating and aro costs may increase , especially as we find and produce more crude oil rather than natural gas . our offshore operations are exposed to potential damage from hurricanes and we normally obtain insurance to reduce , but not totally mitigate , our financial exposure risk . see liquidity and capital resources – insurance coverage under this item 7 in this form 10-k for additional information . we are subject to a number of regulations from federal and state governmental entities , which are described under part , i , item 1 , regulations in this form 10-k. our company and others like us , are exposed to a number of risks by operating in the oil and gas industry in the gulf of mexico , which are described in item 1a , risk factors , in this form 10-k. in managing our business , we are focused on optimizing production and increasing reserves in a profitable and prudent manner , while managing cash flows to meet our obligations and investment needs . our cash flows are materially impacted by the prices of commodities we produce ( crude oil and natural gas , and the ngls extracted from the natural gas ) . in addition , the prices of goods and services used in our business can vary and impact our cash flows . during 2019 , average realized commodity prices decreased from those we experienced during 2018 but were higher from those we experienced during 2017. our margins in 2019 decreased from 2018 primarily due to lower average realized commodity prices . we measure margins using adjusted ebitda as a percent of revenue , which is a not a financial measurement under gaap . we have historically increased our reserves and production through acquisitions , our drilling programs , and other projects that optimize production on existing wells . our production increased 11.3 % in 2019 from the prior year and we added 73.4 mmboe of proved reserves in 2019 , almost doubling our proved reserves and replacing our production by six times . the 87 % net increase in proved reserves year-over-year is primarily due to our acquisition of the mobile bay properties ( discussed below ) , as well as successful drilling , favorable technical revisions driven by improved well performance , recompletion , and workover efforts . partially offsetting these increases were decreases in proved reserves from lower commodity prices and production . during 2019 , we drilled and completed six additional wells which all began producing during 2019. in august 2019 , we acquired the mobile bay properties with the purchase of exxon 's interests in and operatorship of oil and gas producing properties in the eastern region of the gulf of mexico offshore alabama and related onshore and offshore facilities and pipelines . after taking into account customary closing adjustments and an effective date of january 1 , 2019 , cash consideration was $ 169.8 million , of which substantially all was paid by us at closing . we also assumed the related aro and certain other obligations associated with these assets . the acquisition was funded from cash on hand and borrowings of $ 150.0 million under the credit agreement , which were previously undrawn . as of december 31 , 2019 , the mobile bay properties had approximately 76.6 mmboe of net proved reserves , of which 99 % were proved developed producing reserves consisting primarily of natural gas and ngls with 20 % of the proved net reserves from liquids on a mmboe basis , based on sec pricing methodology . for the fourth quarter of 2019 , the average production of the mobile bay properties was approximately 18,500 net boe per day . story_separator_special_tag some of our expenditures incurred during 2019 impacted our production for 2019 , but most of the impact is expected to occur in 2020 and beyond . in addition , we spent $ 11.4 million in 2019 and $ 28.6 million in 2018 for aro and plan to spend in the range of $ 15.0 million to $ 25.0 million in 2020 for aro . our financial condition , cash flow and results of operations are significantly affected by the volume of our oil , ngls and natural gas production and the prices that we receive for such production . our production volumes for 2019 were comprised of approximately 45 % oil and condensate , 9 % ngls and 46 % natural gas , determined using the energy-equivalent ratio of six mcf of natural gas to one barrel of crude oil , condensate or ngls . the energy-equivalent ratio does not assume price equivalency , and the energy-equivalent prices per mcfe for crude oil , ngls and natural gas may differ significantly . for 2019 , our combined total production of oil , ngls and natural gas was 11.3 % above 2018 , primarily due to the acquisition of the mobile bay properties and increases at our mahogany field . 52 our realized sales prices received for our crude oil , ngls and natural gas production are affected by not only domestic production activities and political issues , but more importantly , international events , including both geopolitical and economic events . during 2019 , crude oil , ngls and natural gas average realized prices were below 2018 realized prices , decreasing 8.7 % , 38.0 % and 17.4 % , respectively . our operating costs in 2019 include the expense of operating our wells , platforms and other infrastructure primarily in the gulf of mexico . these operating costs are comprised of several components , including direct or base lease operating costs , facility repairs and maintenance , workover costs , insurance premiums , and gathering and transportation costs . during 2019 , our lease operating expenses increased 20.2 % compared to 2018 on an absolute basis . the increase was primarily due to incurring operating costs associated with the mobile bay properties acquisition and a full year of operating costs for the heidelberg field acquisition consummated during 2018. our operating costs depend in part on the type of commodity produced , the level of workover activity and the geographical location of the properties . workover costs can vary significantly from year to year depending on the level of activity ( either required or desired ) and type of equipment used . in those instances where a drilling rig is required as opposed to some other type of intervention vessel or equipment , the costs tend to be higher and require more time . selected issues and data points related to crude oil , ngls and natural gas markets are described below . as reported by the u.s. energy information administration ( “ eia ” ) in their short-term energy outlook issued in february 2020 ( “ steo ” ) , worldwide production of petroleum and other liquids was estimated to have no increase in 2019 over the prior year , which was lower than the year-over-year production growth experienced from the last two years of 3.1 % for 2018 and 0.5 % for 2017. the flat growth was due primarily to increases in the u.s. being offset by decreases at opec , who has recently announced production cuts . consumption for 2019 increased 0.7 % over 2018 with china having the largest increase year-over-year . eia 's forecasts for production , consumption , crude oil prices and natural gas prices for 2020 were revised downward in february 2020 from the forecast provided in january 2020 to reflect the effects of the coronavirus and the warmer-than-normal january temperatures across the northern hemisphere . the eia forecasts worldwide production of petroleum and other liquids year-over-year increases for 2020 and 2021 to be 1.3 % and 1.0 % , respectively . the expected increase is due primarily to increases in production in the u.s. and partially offset by decreases for opec . consumption for 2020 and 2021 is estimated to increase year-over-year by 1.0 % and 1.5 % , respectively , with china accounting for the largest category increase . according to eia , u.s. crude oil production ( excluding other petroleum liquids ) increased 11.7 % in 2019 over 2018 , and is expected to increase year-over-year in 2020 and 2021 by 7.8 % and 2.7 % , respectively . for the u.s. , net imports of crude oil in the u.s. fell by 33.4 % in 2019 compared to 2018 and are expected to increase by 1.0 % in 2020 from 2019. eia estimates that the u.s. has exported more crude oil and petroleum products than it has imported since september 2019. geopolitical events could greatly affect the prices for crude oil , natural gas and other petroleum products . while these events are difficult to predict , countries like venezuela , nigeria , libya , and many middle east countries have had , and could continue to have , disruptions due to political and economic factors outside of production issues , with an example being the attacks on saudi arabia 's oil infrastructure in september 2019. venezuela 's production in 2019 decreased and is expected to continue to fall . nigeria and libya 's production increased during 2019. the two primary benchmarks for our average realized crude oil sales prices are the prices for wti and brent crude oil . as reported by the eia , wti crude oil prices averaged $ 56.98 per barrel for 2019 , down from $ 65.23 barrel for 2018 ( 12.6 % decrease ) . brent crude oil prices averaged $ 64.28 per barrel for 2019 , down from $ 71.34 per barrel for 2018 ( 9.9 % decrease ) .
| results of operations year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues . total revenues decreased $ 45.8 million , or 7.9 % , to $ 534.9 million in 2019 as compared to $ 580.7 million in 2018. oil revenues decreased $ 39.0 million , or 8.9 % , ngls revenues decreased $ 14.8 million , or 39.7 % , natural gas revenues increased $ 6.7 million , or 6.7 % , and other revenues increased $ 1.2 million . the oil revenue decrease was attributable to an 8.7 % per barrel decrease in the average realized sales price to $ 59.89 per barrel in 2019 from $ 65.62 per barrel in 2018 and a 0.2 % decrease in sales volumes . the ngls revenue decrease was attributable to a 38.0 % decrease in the average realized sales price to $ 17.60 per barrel in 2019 from $ 28.40 per barrel in 2018 and a decrease of 2.8 % in sales volumes . the increase in natural gas revenue was attributable to a 29.1 % increase in sales volumes , partially offset by a 17.4 % decrease in the average realized natural gas sales price to $ 2.57 per mcf in 2019 from $ 3.11 per mcf in 2018. overall , prices decreased 17.5 % on a per boe basis and production increased 11.3 % on a per boe per day basis . the largest production increases for 2019 compared to 2018 were from our newly acquired interest in the mobile bay properties and at mahogany . partially offsetting were production decreases primarily due to natural production declines and production deferrals .
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net income for 2018 was $ 137.3 million , or $ 1.75 diluted income per share ( `` eps '' ) , compared with net loss of $ ( 9.2 ) million , or $ ( 0.13 ) diluted eps for 2017 . adjusted net income ( non-gaap measure * ) for 2018 was $ 151.5 million , or $ 1.93 adjusted eps ( non-gaap measure * ) , compared with $ 76.0 million , or $ 1.02 adjusted eps for 2017 . adjusted ebitdap ( non-gaap measure * ) for 2018 was $ 304.9 million compared with $ 222.9 million for 2017 . segment performance before environmental remediation provision adjustments , retirement benefits , net , and unusual items ( non-gaap measure * ) was $ 236.2 million for 2018 , compared with $ 202.9 million for 2017 . cash provided by operating activities in 2018 totaled $ 252.7 million compared with $ 212.8 million in 2017 . free cash flow ( non-gaap measure * ) in 2018 totaled $ 209.5 million compared with $ 183.4 million in 2017 . effective january 1 , 2018 , we adopted the new revenue recognition guidance . consistent with the standard , net assets increased by $ 37.6 million and $ 578.0 million of net sales were recognized in the cumulative effect at january 1 , 2018 , with a corresponding reduction to backlog . total backlog as of december 31 , 2018 , was $ 4.1 billion compared with $ 4.6 billion as of december 31 , 2017 . _ * we provide non-gaap measures as a supplement to financial results presented in accordance with gaap . a reconciliation of the non-gaap measures to the most directly comparable gaap measures is presented later in the management 's discussion and analysis under the heading `` operating segment information '' and `` use of non-gaap financial measures . '' in may 2014 , the financial accounting standards board ( `` fasb '' ) amended the existing accounting standards for revenue recognition . the amendments are based on the principle that revenue should be recognized to depict 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 . we adopted the guidance effective january 1 , 2018 , using the modified retrospective method , with the cumulative effect recognized as of january 1 , 2018. all applicable amounts and disclosures for 2018 reflect the impact of adoption . as we elected to use the modified retrospective method , prior periods presented have not been restated to reflect the impact of adoption . reclassifications have been made where noted for conforming presentation only ( see notes 1 ( p ) and 14 in the consolidated financial statements in item 8 of this report ) . our business outlook is affected by both increasing complexity in the global security environment and continuing worldwide economic pressures . a significant component of our strategy in this environment is to focus on delivering excellent performance to our customers , driving improvements and efficiencies across our operations , and creating value through the enhancement and expansion of our business . some of the significant challenges we face are as follows : dependence upon u.s. government programs and contracts , future reductions or changes in u.s. government spending in our markets , successful implementation of our cost reduction plans , environmental matters , capital structure , underfunded retirement benefit plans , and information technology and cyber security . major customers the principal end user customers of our products and technology are primarily agencies of the u.s. government . since a majority of our sales are , directly or indirectly , to the u.s. government , funding for the purchase of our products and services generally follows trends in u.s. aerospace and defense spending . however , individual u.s. government agencies , which include the military services , nasa , the missile defense agency , and the prime contractors that serve these agencies , exercise independent purchasing power within `` budget top-line '' limits . therefore , sales to the u.s. government are not regarded as sales to one customer , but rather each contracting agency is viewed as a separate customer . 18 the following table summarizes net sales to the u.s. government and its agencies , including net sales to significant customers disclosed below : replace_table_token_5_th the following table summarizes net sales by principal end user in 2018 : replace_table_token_6_th the following table summarizes the percentages of net sales for significant programs , all of which are included in the u.s. government sales and are comprised of multiple contracts : replace_table_token_7_th the following table summarizes customers that represented more than 10 % of net sales , each of which involves sales of several product lines and programs : replace_table_token_8_th industry update information concerning our industry appears in part i , item 1. business under the caption `` industry overview . '' competitive improvement program during 2015 , we initiated phase i of our cip comprised of activities and initiatives aimed at reducing costs in order for us to continue to compete successfully . phase i is comprised of three major components : ( i ) facilities optimization and footprint reduction ; ( ii ) product affordability ; and ( iii ) reduced administrative and overhead costs . on april 6 , 2017 , the board of directors approved phase ii of our previously announced cip . pursuant to phase ii , we expanded cip and further consolidated our sacramento , california , and gainesville , virginia sites , while centralizing and expanding our existing presence in huntsville , alabama . when fully implemented , we anticipate that the cip will result in annual costs that are $ 230 million below levels anticipated prior to cip . we currently estimate that we will incur restructuring and related costs of the phase i and ii programs of approximately $ 210.0 million ( including approximately $ 60.5 million of capital expenditures ) . story_separator_special_tag the registered rescission offer expired on june 30 , 2017 , and settlement payments of $ 3.5 million under the offer were completed in the third quarter of 2017. we recorded $ 1.0 million of costs related to the acquisition of coleman aerospace from l3 technologies , inc. 2016 activity : on july 18 , 2016 , we redeemed $ 460.0 million principal amount of our 7.125 % second-priority senior secured notes ( `` 7 1 / 8 % notes '' ) , representing all of the outstanding 7 1 / 8 % notes , at a redemption price equal to 105.344 % of the principal amount , plus accrued and unpaid interest . we incurred a pre-tax charge of $ 34.1 million in 2016 associated with the extinguishment of the 7 1 / 8 % notes . the $ 34.1 million pre-tax charge was the result of the $ 24.6 million paid in excess of the par value and $ 9.5 million associated with the write-off of unamortized deferred financing costs . we retired $ 13.0 million principal amount of our delayed draw term loan resulting in a loss of $ 0.3 million . we recorded a charge of $ 0.1 million associated with an amendment to the senior credit facility . 22 interest income : replace_table_token_15_th * primary reason for change . the increase in interest income was primarily due to higher average cash balances and interest rates for both period comparisons . interest expense : replace_table_token_16_th * primary reason for change . the increase in interest expense was primarily due to a higher variable interest rate on our senior credit facility partially offset by a lower principal balance on the senior credit facility . the senior credit facility variable interest rate was 4.52 % as of december 31 , 2018 , compared with 3.82 % as of december 31 , 2017 . * * primary reason for change . the decrease in interest expense was primarily due to the retirement of the principal amount of our delayed draw term loan in the first quarter of 2016 , the redemption of the 7 1 / 8 % notes in the third quarter of 2016 , and the conversion of 4 1 / 16 % convertible subordinated debentures to common shares . the decrease was partially offset by interest expense on the debt incurred on the senior credit facility at a variable interest rate of 3.82 % as of december 31 , 2017 , and the issuance of the 2¼ % notes in december 2016 at an effective interest rate of 5.8 % . income tax provision : replace_table_token_17_th in 2018 , our effective tax rate was 27.2 % . our effective tax rate differed from the 21 % statutory federal income tax rate primarily due to an increase from state income taxes and unfavorable adjustments to uncertain tax positions partially offset by r & d credits . in 2017 , our effective tax rate was 110.6 % . our effective tax rate differed from the 35.0 % statutory federal income tax rate primarily due to the change in the federal statutory tax rate from 35 % to 21 % under tax cuts and jobs act ( `` tax act '' ) . the one time reduction to deferred tax assets due to the tax act was $ 64.6 million or a 74.4 % increase to the effective tax rate . before applying the effects of the tax act , the effective tax rate was 36.2 % . this rate differs from the 35 % federal income tax rate due to an increase from state income taxes partially offset by r & d credits and favorable adjustments to uncertain tax positions . in 2016 , the income tax provision recorded differs from the expected tax that would be calculated by applying the federal statutory rate to our income before income taxes primarily due to the impacts from state income taxes , and certain expenditures which are permanently not deductible for tax purposes , partially offset by the impact of r & d credits . we recorded an initial estimate of our current tax payable of $ 127.7 million during the first quarter ended march 31 , 2018 , based on our best estimate of the impact of the adoption of new revenue recognition guidance and the enactment of certain provisions of tax reform under the tax act , both effective on january 1 , 2018. subsequently , guidance was issued by federal taxing authorities providing clarification on provisions within the tax act . this new clarification allows us to spread the impact of adoption of the new revenue recognition guidance over a four-year period , reducing the single-year impact in 2018. the current tax payable of $ 19.8 million as of december 31 , 2018 , reflects this reduction as well as other refinements to the estimated impacts from both the new revenue recognition guidance and the tax act . as of december 31 , 2018 , the liability for uncertain income tax positions was $ 5.9 million . due to the uncertainty regarding the timing of potential future cash flows associated with these liabilities , we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid . 23 r etirement benefit expense : replace_table_token_18_th * primary reason for change . the decrease in retirement benefits expense was primarily due to better than expected investment returns on our pension plan assets and lower interest costs on the benefit obligation . we estimate that our retirement benefits expense will be approximately $ 26 million in 2019. see `` critical accounting policies - retirement benefit plans '' for more information about our accounting practices with respect to retirement benefits . operating segment information : we evaluate our operating segments based on several factors , of which the primary financial measure is segment performance . segment performance represents net sales less applicable costs , expenses and provisions for unusual items relating to the segment .
| results of operations : net sales : replace_table_token_9_th * primary reason for change . net sales were impacted by the adoption of new revenue recognition guidance effective january 1 , 2018 , using the modified retrospective method . the primary impact of the new guidance was a change in the timing of revenue recognition on certain long-term contracts . under this new guidance , we discontinued the use of the unit-of-delivery method on certain customer contracts and re-measured the performance obligations using the cost-to-cost method . net sales in 2018 would have been $ 1,910.0 million under the previous revenue recognition guidance which is $ 32.8 million higher than net sales reported in 2017 , resulting from an increase of $ 126.0 million in defense programs primarily driven by increased deliveries on the standard missile and pac-3 programs . the increase in net sales was partially offset by a decrease of $ 94.6 million in space programs primarily driven by cost growth and performance issues on the commercial crew development program and lower deliveries on the atlas v program as this program winds down . the atlas v program contributed sales of $ 42.6 million under the new revenue recognition guidance in 2018 , and sales of $ 89.1 million under the previous revenue recognition guidance in 2018 . * * primary reason for change . the increase in net sales was primarily due to an increase of $ 158.0 million in space programs primarily driven by the following ( i ) the rs-25 program development and integration effort in support of the sls development program ; ( ii ) increased development effort and volume on the commercial crew development program ; and ( iii ) increased deliveries on the atlas v program .
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the fair value of our assets and liabilities of discontinued operations is determined using discounted cash flows and significant unobservable inputs unless there is an offer to purchase such assets and liabilities , which would be the basis for determining fair value . the fair value of our goodwill is determined using discounted projected operating results and cash flows , which involve significant unobservable inputs . see also the “ redeemable noncontrolling interests ” section of this note . noncontrolling interests in consolidated affiliates— the consolidated financial statements include all assets , liabilities , revenues , and expenses of less-than-100 % -owned affiliates we control . accordingly , we story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the accompanying consolidated financial statements and related notes . this md & a is designed to provide the reader with information that will assist 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 . see “ cautionary statement regarding forward-looking statements ” on page ii of this report for a description of important factors that could cause actual results to differ from expected results . see also item 1a , risk factors . 30 executive overview our business we are the nation 's largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and discharged , revenues , and number of hospitals . while our national network of inpatient hospitals stretches across 28 states and puerto rico , our inpatient hospitals are concentrated in the eastern half of the united states and texas . as of december 31 , 2013 , we operated 103 inpatient rehabilitation hospitals ( including two hospitals that operate as joint ventures which we account for using the equity method of accounting ) , 20 outpatient rehabilitation satellite clinics ( operated by our hospitals ) , and 25 licensed , hospital-based home health agencies . in addition to healthsouth hospitals , we manage three inpatient rehabilitation units through management contracts . for additional information about our business , see item 1 , business . 2013 overview our 2013 strategy focused on the following priorities : continuing to provide high-quality , cost-effective care to patients in our existing markets ; achieving organic growth at our existing hospitals ; continuing to expand our services to more patients who require inpatient rehabilitative services by constructing and opportunistically acquiring new hospitals in new markets ; and considering additional shareholder value-enhancing strategies such as repurchases of our common and preferred stock and common stock dividends , recognizing that some of these actions may increase our leverage ratio . during 2013 , discharge growth of 5.0 % coupled with a 0.9 % increase in net patient revenue per discharge generated 5.9 % growth in net patient revenue from our hospitals compared to 2012. discharge growth was comprised of 2.5 % growth from new stores and a 2.5 % increase in same-store discharges . our quality and outcome measures , as reported through the uniform data system for medical rehabilitation ( the “ uds ” ) , remained well above the average for hospitals included in the uds database , and they did so while we continued to increase our market share throughout 2013. not only did our hospitals treat more patients and enhance outcomes , they did so in a highly cost-effective manner . as evidenced by the decrease in our total operating expenses as a percentage of net operating revenues , we also achieved incremental efficiencies in our cost structure . see the “ results of operations ” section of this item . likewise , our growth efforts continued to yield positive results in 2013. specifically , we : acquired walton rehabilitation hospital , a 58-bed inpatient rehabilitation hospital in augusta , georgia , in april 2013 ; began accepting patients at our newly built , 40-bed inpatient rehabilitation hospital in littleton , colorado in may 2013 ; began accepting patients at our newly built , 34-bed inpatient rehabilitation hospital in stuart , florida in june 2013. this hospital is a joint venture with martin health system ; completed the relocation of healthsouth rehabilitation hospital of western massachusetts in ludlow , massachusetts to a newly built , 53-bed inpatient rehabilitation hospital , which replaced a leased facility ; added 68 beds to existing hospitals ; and 31 continued development of the following de novo hospitals : replace_table_token_10_th * a certificate of need has been awarded , but it is currently under appeal . in 2013 , we followed through on our announced intention to implement additional shareholder value-enhancing strategies . namely , we : completed a tender offer for our common stock in march 2013. as a result of the tender offer , we repurchased approximately 9.1 million shares at a price of $ 25.50 per share for a total cost of $ 234.1 million , including fees and expenses relating to the tender offer ; initiated a quarterly cash dividend of $ 0.18 per share on our common stock . the first quarterly dividend was declared in july 2013 and paid in october 2013 ; and received authorization from our board of directors in october 2013 for the repurchase of up to an additional $ 200 million of our common stock . story_separator_special_tag we have invested in our core business and created an infrastructure that enables us to provide high-quality care on a cost-effective basis . our balance sheet remains strong . our leverage ratio is within our target range , we have ample availability under our revolving credit facility , and we continue to generate strong cash flows from operations . importantly , we have flexibility with how we choose to invest our cash and return value to shareholders , including bed additions , de novos , acquisitions of other inpatient rehabilitation hospitals , purchases of leased properties , repurchases of our common and preferred stock , common stock dividends , and repayment of long-term debt . specifically , on february 14 , 2014 , our board of directors approved an increase in our existing common stock repurchase authorization from $ 200 million to $ 250 million . see the “ liquidity and capital resources - authorizations for returning capital to stakeholders ” section of this item . for these and other reasons , we believe we will be able to adapt to changes in reimbursement and sustain our business model . we also believe we will be in a position to take action should an attractive acquisition or consolidation opportunity arise . key challenges healthcare , including the inpatient rehabilitation sector , has always been a highly regulated industry . currently , the industry is facing many well-publicized regulatory and reimbursement challenges . the industry is also facing uncertainty associated with the efforts , primarily arising from initiatives included in the 2010 healthcare reform laws ( as defined in item 1 , business , “ regulatory and reimbursement challenges ” ) to identify and implement workable coordinated care delivery models . successful healthcare providers are those who provide high-quality , cost-effective care and have the ability to adjust to changes in the regulatory and operating environments . we believe we have the necessary capabilities — scale , infrastructure , balance sheet , and management — to adapt to and succeed in a highly regulated industry , and we have a proven track record of doing so . 33 as we continue to execute our business plan , the following are some of the challenges we face : operating in a highly regulated industry . we are required to comply with extensive and complex laws and regulations at the federal , state , and local government levels . these rules and regulations have affected , or could in the future affect , our business activities by having an impact on the reimbursement we receive for services provided or the costs of compliance , mandating new documentation standards , requiring licensure or certification of our hospitals , regulating our relationships with physicians and other referral sources , regulating the use of our properties , and limiting our ability to enter new markets or add new beds to existing hospitals . ensuring continuous compliance with these laws and regulations is an operating requirement for all healthcare providers . as discussed in item 1 , business , “ sources of revenues , ” the united states centers for medicare and medicaid services ( “ cms ” ) has developed and instituted various medicare audit programs under which cms contracts with private companies to conduct claims and medical record audits . one type of audit contractor , the recovery audit contractors ( “ racs ” ) , began post-payment audit processes in late 2009 for providers in general . in connection with cms approved and announced rac audits related to inpatient rehabilitation facilities ( “ irfs ” ) , we received requests in 2013 to review certain patient files for discharges occurring from 2010 to 2013. to date , the medicare payments that are subject to these audit requests represent less than 1 % of our medicare patient discharges during those years , and not all of these patient file requests have resulted in payment denial determinations by the racs . while we make provisions for these claims based on our historical experience and success rates in the claim adjudication process , we can not provide assurance as to our future success in the resolution of these and future disputes , nor can we predict or estimate the scope or number of denials that ultimately may be reviewed . during 2013 , we reduced our net operating revenues by approximately $ 8 million for post-payment claims that are part of this review process . unlike the pre-payment denials of certain diagnosis codes by medicare administrative contractors ( “ macs ” ) that have been part of our operations for several years , we have not had any experience with racs in the context of post-payment reviews of this nature . along with our significant efforts through training and education to ensure compliance with coding and medical necessity coverage rules , we also have a formal process for complying with rac audits , and we are cooperating fully with the racs during this process . however , due to additional delays announced by cms in the related adjudication process , which is the same process we follow for appealing denials of certain diagnosis codes by macs , we believe the resolution of any claims that are subsequently denied as a result of these rac audits could take in excess of two years . we have invested , and will continue to invest , substantial time , effort , and expense in implementing and maintaining internal controls and procedures designed to ensure regulatory compliance , and we are committed to continued adherence to these guidelines . more specifically , because medicare comprises a significant portion of our net operating revenues , it is important for us to remain compliant with the laws and regulations governing the medicare program and related matters including anti-kickback and anti-fraud requirements . if we were unable to remain compliant with these regulations , our financial position , results of operations , and cash flows could be materially , adversely impacted .
| results of operations payor mix during 2013 , 2012 , and 2011 , we derived consolidated net operating revenues from the following payor sources : replace_table_token_11_th 36 our payor mix is weighted heavily towards medicare . our hospitals receive medicare reimbursements under irf-pps . under irf-pps , our hospitals receive fixed payment amounts per discharge based on certain rehabilitation impairment categories established by the united states department of health and human services . under irf-pps , our hospitals retain the difference , if any , between the fixed payment from medicare and their operating costs . thus , our hospitals benefit from being cost-effective providers . for additional information regarding medicare reimbursement , see the “ sources of revenues ” section of item 1 , business . managed medicare revenues , included in the “ managed care and other discount plans ” category in the above table , represented approximately 8 % , 8 % , and 7 % of our total revenues during the years ended december 31 , 2013 , 2012 , and 2011 , respectively . during 2009 , we experienced an increase in managed medicare and private fee-for-service plans . as part of the balanced budget act of 1997 , congress created a program of private , managed healthcare coverage for medicare beneficiaries . this program has been referred to as medicare part c , or “ medicare advantage. ” the program offers beneficiaries a range of medicare coverage options by providing a choice between the traditional fee-for-service program ( under medicare parts a and b ) or enrollment in a health maintenance organization ( “ hmo ” ) , preferred provider organization ( “ ppo ” ) , point-of-service plan , provider sponsor organization , or an insurance plan operated in conjunction with a medical savings account . prior to 2010 , private fee-for-service plans were not required to build provider networks , did not have the same quality reporting requirements to cms as other plans , and were reimbursed by medicare at a higher rate .
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costs in excess of this ceiling are charged to proved properties impairment expense . 29 unevaluated oil and gas properties . unevaluated oil and gas properties consist principally of our cost of acquiring and evaluating undeveloped leases , net of an allowance for impairment and transfers to depletable oil and gas properties . when leases are developed , expire or are abandoned , the related costs are transferred from unevaluated oil and gas properties to oil and gas properties subject to amortization . additionally , we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments , and prospective discounted future economic benefit attributable to the leases . unevaluated oil and gas properties not subject to amortization include the following at december 31 , 2017 and 2016 : replace_table_token_10_th the carrying value of unevaluated oil and gas prospects includes $ 2,309,341 and $ 2,284,187 expended for properties in south america at december 31 , 2017 and 2016 , respectively . we are maintaining our interest in these properties . stock-based compensation . we use the black-scholes option-pricing model , which requires the input of highly subjective assumptions . these assumptions include estimating the volatility of our common stock price over the expected life of the options , dividend yield , an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements . changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently , the related amount recognized on the statements of operations . story_separator_special_tag series b preferred and series b warrants ( $ 909,600 ) , and bridge loan notes and bridge loan warrants ( $ 570,000 ) , partially offset by the payment of dividends on the series a and series b preferred stock ( $ 140,420 ) and repayment of bridge loan notes ( $ 600,000 ) , while funds were used during 2016 for the purchase of treasury stock . long-term liabilities . at december 31 , 2017 , we had long-term liabilities of $ 84,903 as compared to $ 27,444 at december 31 , 2016. long-term liabilities , as of december 31 , 2017 , consisted of a reserve for plugging costs of $ 35,658 and deferred rent of $ 49,245. capital and exploration expenditures . during 2017 , we invested $ 4,512,353 for the acquisition and development of oil and gas properties , consisting of ( 1 ) cost of acquisition of u.s. properties $ 1,043,977 , principally attributable to acreage acquired in reeves county , texas , ( 2 ) cost of drilling and hydraulic fracturing of , and construction of gas sales lines to , our johnson state # 1h well and o'brien # 3h well , totaling in the aggregate $ 3,443,222 , and ( 3 ) preparation and evaluation costs in colombia of $ 25,154. of the amount invested , we capitalized $ 25,154 to oil and gas properties not subject to amortization and $ 4,487,199 to oil and gas properties subject to amortization . planned capital and exploration spending . our principal capital and exploration expenditures during 2018 are expected to relate to drilling additional wells on our reeves county acreage and possibly opportunistic acquisitions of additional acreage in the permian basin . we plan to drill additional wells on our reeves county acreage during 2018. the actual timing and number of wells drilled during 2018 will be principally controlled by founders oil & gas , operator of the reeves county acreage , based on a number of factors , including but not limited to availability of financing , performance of existing wells on the acreage , energy prices and industry condition and outlook , costs of drilling and completion services and equipment and other factors beyond our control or that of founders . as our allocable share of well costs will vary depending on the timing and number of wells drilled as well as our working interest in each such well , we have not as yet established a drilling budget for 2018. with the completion of sales lines and other infrastructure serving our reeves county acreage and experience gained from drilling our initial wells , we anticipate that costs to drill and bring future wells onto production will decrease , and delays in bringing production on line will be minimized or eliminated , as compared to our experience in bringing our initial wells onto production . 32 financing requirements . our cash holdings , together with revenues from our initial reeves county wells , are expected to be adequate to support operations during 2018 but are not adequate to fund our share of drilling and completion costs on any wells that may be drilled in reeves county in 2018. in order to fund our estimated drilling and completion of wells on our reeves county acreage , or costs of any acquisitions or other operations we may participate in , during 2018 , and beyond , we expect that we will be required to raise additional capital . while we may , among other efforts , pursue additional sales of shares in our atm offering , private sales of equity and debt securities and may realize additional funding from exercise of outstanding warrants , we presently have no commitments to provide additional funding , through the exercise of warrants or otherwise , and there can be no assurance that we can secure the necessary capital to fund our share of drilling , acquisition or other costs on acceptable terms or at all . if , for any reason , we are unable to fund our share of drilling and completion costs and fail to satisfy commitments relative to our interest in our reeves county , or other , acreage , we may be subject to penalties or to the possible loss of some of our rights and interests in prospects with respect to which story_separator_special_tag costs in excess of this ceiling are charged to proved properties impairment expense . 29 unevaluated oil and gas properties . unevaluated oil and gas properties consist principally of our cost of acquiring and evaluating undeveloped leases , net of an allowance for impairment and transfers to depletable oil and gas properties . when leases are developed , expire or are abandoned , the related costs are transferred from unevaluated oil and gas properties to oil and gas properties subject to amortization . additionally , we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments , and prospective discounted future economic benefit attributable to the leases . unevaluated oil and gas properties not subject to amortization include the following at december 31 , 2017 and 2016 : replace_table_token_10_th the carrying value of unevaluated oil and gas prospects includes $ 2,309,341 and $ 2,284,187 expended for properties in south america at december 31 , 2017 and 2016 , respectively . we are maintaining our interest in these properties . stock-based compensation . we use the black-scholes option-pricing model , which requires the input of highly subjective assumptions . these assumptions include estimating the volatility of our common stock price over the expected life of the options , dividend yield , an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements . changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently , the related amount recognized on the statements of operations . story_separator_special_tag series b preferred and series b warrants ( $ 909,600 ) , and bridge loan notes and bridge loan warrants ( $ 570,000 ) , partially offset by the payment of dividends on the series a and series b preferred stock ( $ 140,420 ) and repayment of bridge loan notes ( $ 600,000 ) , while funds were used during 2016 for the purchase of treasury stock . long-term liabilities . at december 31 , 2017 , we had long-term liabilities of $ 84,903 as compared to $ 27,444 at december 31 , 2016. long-term liabilities , as of december 31 , 2017 , consisted of a reserve for plugging costs of $ 35,658 and deferred rent of $ 49,245. capital and exploration expenditures . during 2017 , we invested $ 4,512,353 for the acquisition and development of oil and gas properties , consisting of ( 1 ) cost of acquisition of u.s. properties $ 1,043,977 , principally attributable to acreage acquired in reeves county , texas , ( 2 ) cost of drilling and hydraulic fracturing of , and construction of gas sales lines to , our johnson state # 1h well and o'brien # 3h well , totaling in the aggregate $ 3,443,222 , and ( 3 ) preparation and evaluation costs in colombia of $ 25,154. of the amount invested , we capitalized $ 25,154 to oil and gas properties not subject to amortization and $ 4,487,199 to oil and gas properties subject to amortization . planned capital and exploration spending . our principal capital and exploration expenditures during 2018 are expected to relate to drilling additional wells on our reeves county acreage and possibly opportunistic acquisitions of additional acreage in the permian basin . we plan to drill additional wells on our reeves county acreage during 2018. the actual timing and number of wells drilled during 2018 will be principally controlled by founders oil & gas , operator of the reeves county acreage , based on a number of factors , including but not limited to availability of financing , performance of existing wells on the acreage , energy prices and industry condition and outlook , costs of drilling and completion services and equipment and other factors beyond our control or that of founders . as our allocable share of well costs will vary depending on the timing and number of wells drilled as well as our working interest in each such well , we have not as yet established a drilling budget for 2018. with the completion of sales lines and other infrastructure serving our reeves county acreage and experience gained from drilling our initial wells , we anticipate that costs to drill and bring future wells onto production will decrease , and delays in bringing production on line will be minimized or eliminated , as compared to our experience in bringing our initial wells onto production . 32 financing requirements . our cash holdings , together with revenues from our initial reeves county wells , are expected to be adequate to support operations during 2018 but are not adequate to fund our share of drilling and completion costs on any wells that may be drilled in reeves county in 2018. in order to fund our estimated drilling and completion of wells on our reeves county acreage , or costs of any acquisitions or other operations we may participate in , during 2018 , and beyond , we expect that we will be required to raise additional capital . while we may , among other efforts , pursue additional sales of shares in our atm offering , private sales of equity and debt securities and may realize additional funding from exercise of outstanding warrants , we presently have no commitments to provide additional funding , through the exercise of warrants or otherwise , and there can be no assurance that we can secure the necessary capital to fund our share of drilling , acquisition or other costs on acceptable terms or at all . if , for any reason , we are unable to fund our share of drilling and completion costs and fail to satisfy commitments relative to our interest in our reeves county , or other , acreage , we may be subject to penalties or to the possible loss of some of our rights and interests in prospects with respect to which
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 oil and gas revenues . total oil and gas revenues increased 280 % , to $ 630,392 in 2017 from $ 165,910 in 2016. the increase in revenues was attributable to a combination of higher production and an increase in average prices realized from oil and gas sales . the following table sets forth the gross and net producing wells , net oil and gas production volumes and average hydrocarbon sales prices for 2017 and 2016 : replace_table_token_11_th the increase in wells and production reflects the commencement of production from our johnson # 1h and o'brien # 3h wells . both wells accounted for nominal oil sales during well testing in the third quarter of 2017 and commenced commercial oil and gas sales in mid-fourth quarter of 2017. the increase in production attributable to the two new reeves county wells was supplemented by resumption of production from a well that had previously been offline and was partially offset by natural decline of other wells . 30 the change in average sales prices realized reflects fluctuations in global commodity prices . realized prices stabilized and began increasing beginning in late 2016 and continuing through 2017 following sharp declines in oil and gas prices which began in late 2014 and continued through mid-2016 . oil and gas sales revenues for 2017 and 2016 by region were as follows : replace_table_token_12_th lease operating expenses . lease operating expenses , excluding joint venture expenses relating to our colombian operations discussed below , increased 123 % to $ 216,429 in 2017 from $ 97,203 in 2016. the increase in lease operating expenses was attributable to the commencement of production from our first two reeves county wells , the resumption of production from a well that had been offline and increased salt water disposal fees .
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the measures resulted in the closure of its fleet of 53 old navy stores in japan , the closure of select international stores , primarily for banana republic in europe , and the creation of a more efficient global brand structure . including the old navy closures in japan , the company closed 67 stores in total related to these measures in fiscal 2016 . 51 in connection story_separator_special_tag overview we are a global retailer offering apparel , accessories , and personal care products for men , women , and children under the gap , banana republic , old navy , athleta , and intermix brands . we have company-operated stores in the united states , canada , the united kingdom , france , ireland , japan , italy , china , hong kong , taiwan , and beginning in october 2015 , mexico . we have franchise agreements with unaffiliated franchisees to operate gap , banana republic , and old navy stores throughout asia , australia , europe , latin america , the middle east , and africa . under these agreements , third parties operate , or will operate , stores that sell apparel and related products under our brand names . our products are also available to customers online through company-owned websites and through the use of third parties that provide logistics and fulfillment services . in addition to operating in the specialty , outlet , online , and franchise channels , we also use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers . our omni-channel services , including order-in-store , reserve-in-store , find-in-store , and ship-from-store , as well as enhanced mobile experiences , are tailored uniquely across our portfolio of brands . most of the products sold under our brand names are designed by us and manufactured by independent sources . we also sell products that are designed and manufactured by branded third parties , primarily at our intermix brand . we identify our operating segments according to how our business activities are managed and evaluated . as of january 28 , 2017 , our operating segments included gap global , old navy global , banana republic global , athleta , and intermix . we have determined that each of our operating segments share similar economic and other qualitative characteristics , and therefore the results of our operating segments are aggregated into one reportable segment . in may 2016 , we announced measures to better align talent and financial resources against our most important priorities to position the company for improved business performance and long-term success . our aim is to capture additional market share in our home market , north america , where we have our largest structural advantages , and to focus on international regions with the greatest potential . as part of this effort , we closed the entire fleet of 53 old navy stores in japan during fiscal 2016. japan remains an important market for the company 's portfolio , with a continued strong presence of more than 200 gap and banana republic stores . including the old navy closures in japan , the company closed 67 stores in total related to these measures in fiscal 2016 . we also created a more efficient operating model , enabling us to more fully leverage our scale . for example , we centralized or consolidated several brand and corporate functions , allowing us to simplify the organization and operate more efficiently . the company estimates that its actions will result in annualized pre-tax savings of about $ 275 million . in connection with the decision to close stores and streamline the company 's operations , the company incurred $ 197 million in restructuring costs during fiscal 2016 on a pre-tax basis . the charges primarily include lease termination fees , employee-related costs , and store asset impairment . certain of these costs incurred in foreign subsidiaries did not result in a tax benefit . 18 on august 29 , 2016 , a fire occurred in one of the buildings at a company-owned distribution center campus in fishkill , new york . following the fire , the company immediately activated contingency plans to help mitigate the overall impact to the business . in october 2016 , the company completed construction of a temporary fulfillment site at the fishkill campus , which was in place to process orders by peak holiday season , and plans to rebuild a permanent building are currently underway . for fiscal 2016 , the company incurred fire-related costs which included $ 86 million in inventory at cost , $ 12 million in property , plant , and equipment at net book value , and $ 35 million in other fire-related costs . in january of fiscal 2016 , the company agreed upon a partial settlement of $ 159 million related to the inventory and recorded a gain of $ 73 million , representing the excess over the loss on inventory . based on the provisions of the company 's insurance policies , the company has determined that recovery of certain remaining fire-related costs incurred during fiscal 2016 is probable , and an insurance receivable , net of advance insurance proceeds received , has been recorded as of january 28 , 2017 to offset the fire-related costs . the company expects to continue to record additional costs and recoveries until the insurance claim is fully settled . fiscal 2015 results were impacted by a series of strategic actions to position gap brand for improved business performance in the future , including rightsizing the gap brand store fleet primarily in north america , streamlining the brand 's headquarter workforce , and developing a clear , on-brand product aesthetic framework to strengthen the gap brand to compete more successfully on the global stage . during fiscal 2015 , the company completed the closure of about 150 gap global specialty stores related to the strategic actions . story_separator_special_tag operating expenses decreased $ 10 million , but increased 1.0 percent as a percentage of net sales , in fiscal 2015 compared with fiscal 2014 primarily due to the following : a favorable foreign exchange translation impact of about $ 85 million , calculated as if operating expenses for fiscal 2014 were translated at exchange rates applicable during fiscal 2015 ; and a decrease in bonus and marketing expense ; partially offset by costs related to the strategic actions of $ 98 million ; and the gain on sale of a building of $ 39 million recognized in fiscal 2014. interest expense replace_table_token_9_th interest expense for fiscal 2016 and 2014 primarily includes interest on overall borrowings and obligations mainly related to our $ 1.25 billion long-term debt . interest expense for fiscal 2015 includes $ 74 million of interest on overall borrowings and obligations mainly related to our $ 1.25 billion long-term debt , offset by a reversal of $ 15 million of interest expense primarily resulting from a favorable foreign tax ruling and actions of foreign tax authorities related to transfer pricing matters in fiscal 2015. income taxes replace_table_token_10_th 23 the increase in the effective tax rate for fiscal 2016 compared with fiscal 2015 was primarily due to the impact of restructuring costs incurred in certain foreign subsidiaries for which the company was not able to recognize any tax benefit and the impact of a non-deductible goodwill impairment charge related to intermix . the increase was partially offset by the recognition of certain foreign tax benefits associated with a legal structure realignment . the increase in the effective tax rate for fiscal 2015 compared with fiscal 2014 was primarily due to the recognition of foreign tax credits upon a distribution of certain foreign earnings that occurred during the third quarter of fiscal 2014 , partially offset by the impact of the indefinite reinvestment of certain fiscal 2015 foreign earnings , which will be used to fund our international businesses and their growth . liquidity and capital resources our largest source of cash flows is cash collections from the sale of our merchandise . our primary uses of cash include merchandise inventory purchases , occupancy costs , personnel-related expenses , purchases of property and equipment , and payment of taxes . in addition , we may have dividend payments , debt repayments , and share repurchases . we consider the following to be measures of our liquidity and capital resources : replace_table_token_11_th as of january 28 , 2017 , the majority of our cash and cash equivalents was held in the united states and is generally accessible without any limitations . in october 2015 , the company entered into a $ 400 million unsecured term loan ( the `` term loan '' ) , which was fully repaid in january 2017. in january 2014 , the company entered into a 15 billion japanese yen , four -year , unsecured term loan ( `` japan term loan '' ) due january 2018 . a final repayment of 7.5 billion japanese yen ( $ 65 million as of january 28 , 2017 ) is payable on january 15 , 2018 and is classified as current maturities of debt in the consolidated balance sheet . we believe that current cash balances and cash flows from our operations will be sufficient to support our business operations , including growth initiatives , planned capital expenditures , and repayment of debt , for the next 12 months and beyond . we are also able to supplement near-term liquidity , if necessary , with our $ 500 million revolving credit facility or other available market instruments . cash flows from operating activities net cash provided by operating activities during fiscal 2016 increased $ 125 million compared with fiscal 2015 , primarily due to the following : net income a decrease of $ 244 million in net income . non-cash items an increase of $ 246 million related to non-cash and other items primarily due to the lower gain reclassified into income related to our derivative financial instruments in fiscal 2016 compared with fiscal 2015 , a goodwill impairment charge related to intermix of $ 71 million during fiscal 2016 , and an increase of $ 53 million related to store asset impairment ; partially offset by a decrease of $ 155 million related to deferred income taxes driven by fluctuations in book versus tax temporary differences for bonus accruals , depreciation , and share-based compensation . 24 changes in operating assets and liabilities an increase of $ 193 million related to accounts payable primarily due to the timing of merchandise and lease payments ; an increase of $ 117 million related to accrued expenses and other current liabilities primarily due to bonus accruals ; and an increase of $ 52 million related to merchandise inventory primarily due to the volume and timing of receipts ; partially offset by a decrease of $ 79 million related to other current assets and other long-term assets in part due to the insurance claim receivable from the fire of the company-owned distribution center in fishkill , new york on august 29 , 2016. net cash provided by operating activities during fiscal 2015 decreased $ 535 million compared with fiscal 2014 , primarily due to the following : net income a decrease of $ 342 million in net income . changes in operating assets and liabilities a decrease of $ 107 million related to other current assets and other long-term assets primarily due to the change in timing of payments received related to our credit card programs , which resulted in increased cash inflow in fiscal 2014 ; and a decrease of $ 150 million related to lease incentives and other long-term liabilities primarily due to the receipt of an upfront payment in fiscal 2014 related to the amendment of our credit card program agreement with synchrony , which is being amortized into income over the term of the contract ; partially offset by an increase of $ 63 million related to income taxes payable , net of prepaid and other
| results of operations net sales see item 8 , financial statements and supplementary data , note 17 of notes to consolidated financial statements for net sales by brand and region . comparable sales the percentage change in comp sales by global brand and for total company , as compared with the preceding year , is as follows : replace_table_token_4_th comp sales include the results of company-operated stores and sales through online channels in those countries where we have existing comparable store sales . the calculation of the gap , inc. comp sales includes the results of athleta and intermix but excludes the results of our franchise business . a store is included in the comp sales calculations when it has been open and operated by the company for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . a store is considered non-comparable ( “ non-comp ” ) when it has been open and operated by the company for less than one year or has changed its selling square footage by 15 percent or more within the past year . a store is considered “ closed ” if it is temporarily closed for three or more full consecutive days or it is permanently closed . when a temporarily closed store reopens , the store will be placed in the comp/non-comp status it was in prior to its closure .
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” the discussion and analysis below has been organized as follows : executive summary , including a description of the business and significant events that are important to understanding the results of operations and financial condition ; results of operations , including an explanation of significant differences between the periods in the specific line items of the statements of operations ; financial condition addressing the company 's liquidity position , sources and uses of cash , capital resources and requirements , commitments , and off-balance sheet arrangements ; and critical accounting policies which are most important to both the portrayal of the company 's financial condition and results of operations . executive summary introduction and overview oyster point pharma , inc. is a clinical stage biopharmaceutical company focused on the discovery , development and commercialization of first-in-class pharmaceutical therapies to treat ocular surface diseases . the company 's lead product candidate oc-01 ( varenicline ) nasal spray , a highly selective nicotinic acetylcholine receptor ( nachr ) agonist , is being developed as a nasal spray to treat the signs and symptoms of dry eye disease . based on oc-01 ( varenicline ) nasal spray 's clinical trial results and its novel mechanism of action , the company believes oc-01 ( varenicline ) nasal spray , if approved by the fda , has the potential to become the new standard of care and redefine how dry eye disease is treated for millions of patients . the company has no products approved for sale and has not generated revenue since its inception in 2015. the company expects to finance its operations through private and public equity or debt financing , collaborative or other arrangements with corporate sources or through other sources of financing . since its formation in june 2015 , the company has devoted substantially all of its resources to developing its product candidates . the company has incurred significant operating losses to date . the company 's net losses were $ 70.5 million and $ 45.7 million for the year ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , the company had an accumulated deficit of $ 154.8 million . the company expects that its operating expenses will increase as it advances its product candidates through preclinical and clinical development , seeks regulatory approval , and prepares for and , if approved , proceeds to commercialization ; acquires , discovers , validates and develops additional product candidates ; obtains , maintains , protects and enforces its intellectual property portfolio ; and hires additional personnel . in addition , the company has incurred and will continue to incur additional costs associated with operating as a public company . the company plans to continue to use third party service providers , including cros and cmos , to carry out its preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of its product candidates . 74 recent events submission of the nda for oc-01 ( varenicline ) nasal spray to fda on december 17 , 2020 , the company submitted a 505 ( b ) ( 2 ) nda to the fda for oc-01 ( varenicline ) nasal spray for the treatment of signs and symptoms of dry eye disease . the mystic , onset-1 and onset-2 clinical trials showed statistically significant improvements in schirmer 's score ( an objective , reproducible , and quantifiable measure of natural tear film production ) , as compared to control , which was the primary endpoint in all studies . key secondary endpoints in onset-1 and onset-2 included change from baseline in symptoms as assessed by eye dryness score . in both of these pivotal studies , there was statistically or nominally statistically significant improvement in symptom scores at day 28 , and in onset-2 as early as day 14 , as compared to control . all doses studied in the clinical trial program were well-tolerated with no serious drug related adverse events . submission of the phase 2 clinical trial protocol for neurotrophic keratopathy ( nk ) to the fda on november 30 , 2020 , the company submitted to the fda a protocol to initiate a clinical study in adult patients with nk , a degenerative disease characterized by decreased corneal sensitivity and poor corneal healing . the submission was made to the company 's ind application for oc-01 ( varenicline ) nasal spray in dry eye disease . nk is the second of a number of important potential indications the company is evaluating for oc-01 ( varenicline ) nasal spray , illustrating the company 's commitment to treating unmet needs related to ocular surface diseases . enrollment of the first patient in the olympia phase 2 study in nk is planned for the first half of 2021. entry into $ 100 million at-the-market sales agreement ( atm ) with cowen and company , llc on november 5 , 2020 , the company entered into an at-the-market sales agreement ( or atm ) with cowen and company , llc , pursuant to which the company may offer and sell shares of the company 's common stock having an aggregate offering price of up to $ 100 million . the atm was entered into by the company concurrently with a registration statement on form s-3 . under the registration statement , the company may offer and sell , in one or more offerings , up to an aggregate of $ 300 million of any combination of securities registered thereunder , consisting of shares of common and preferred stock , debt securities and warrants . the impact of the sars-cov-2 virus pandemic in march 2020 , the world health organization declared the sars-cov-2 virus outbreak to be a pandemic . story_separator_special_tag predicting the timing or cost to complete the company 's clinical programs or validation of its commercial manufacturing and supply processes is difficult and delays may occur because of many factors , including factors outside of the company 's control . for example , if the fda or other regulatory authorities were to require the company to conduct clinical trials beyond those that it currently anticipates , the company could be required to expend significant additional financial resources and time on the completion of clinical development . furthermore , the company is unable to predict when or if its product candidates will receive regulatory approval with any certainty . 76 selling , general and administrative expenses selling , general and administrative expenses consist primarily of the following : certain payroll-related expenses , including salaries , bonuses , employee benefits and stock-based compensation expense ( payroll-related expense ) ; professional fees for legal , consulting , accounting and tax services , as well as insurance expense ; commercial planning expenses , marketing and promotional expense ; rent , office equipment , and utilities ; information technology costs ; and and other general operating expenses not otherwise classified as research and development expenses . the company anticipates that its selling , general and administrative expenses will increase as a result of increased personnel costs , commercial planning expenses , expanded infrastructure and higher consulting , legal and accounting services costs associated with complying with the applicable stock exchange and sec requirements , investor relations costs and director and officer insurance premiums associated with being a public company . other income , net other income , net consists primarily of interest income earned on money market funds , which are included in cash and cash equivalents on the company 's balance sheets . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > the costs associated with being a public company . a change in the outcome of any of these or other variables with respect to the development of any of the company 's product candidates could significantly change the costs and timing associated with the development of that product candidate . furthermore , the company 's operating plans may change in the future , and it will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans . if additional funds are raised by issuing equity securities , the company 's stockholders may experience dilution . any future debt financing into which the company might enter may impose upon it additional covenants that restrict the company 's operations , including limitations on its ability to incur liens or additional debt , pay dividends , repurchase its common stock , make certain investments or engage in certain merger , consolidation or asset sale transactions . any debt financing or additional equity that it raises may contain terms that are not favorable to the company or its stockholders . adequate funding may not be available to the company on acceptable terms or at all , and any uncertainty and volatility in capital markets caused by the sars-cov-2 virus pandemic may negatively impact the availability and cost of capital . the company 's failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies . if the company is unable to raise additional funds when needed , it may be required to delay , reduce , or terminate some or all of its development programs and clinical trials or may also be required to sell or license to others rights to its p roduct candidates in certain territories or indications that it would prefer to develop and commercialize itself . if the company is required to enter into collaborations and other arrangements to supplement its funds , it may have to give up certain rights that limit its ability to develop and commercialize the product candidates or may have other terms that are not favorable to the company or its stockholders , which could materially affect its business and financial condition . see the section of this annual report on form 10-k titled “ risk factors ” for additional risks associated with the company 's substantial capital requirements . cash flow discussion the following table sets forth the primary sources and uses of cash , cash equivalents , and restricted cash for each of the periods presented below : 79 replace_table_token_3_th cash flows used in operating activities net cash used in operating activities increased by $ 17.6 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , due to higher net loss adjusted for non-cash items , partially offset by an increase in working capital of $ 3.2 million driven primarily by the timing of payments to the company 's service providers . the company 's higher net loss was driven by the continued development of the company 's product candidates , as well as costs incurred in connection with the nda submission for oc-01 ( varenicline ) nasal spray in december 2020. cash flows used in investing activities net cash used in investing activities increased by $ 0.5 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , primarily related to payments for equipment to be used in the manufacturing of oc-01 ( varenicline ) nasal spray . cash flows provided by financing activities net cash provided by financing activities decreased by $ 62.4 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes the company 's results of operations for the periods indicated ( in thousands , except percentages ) : replace_table_token_2_th research and development expenses research and development expenses increased by $ 6.2 million during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 . the company 's clinical , preclinical expense was $ 1.3 million lower in 2020 primarily due to the completion of the onset-2 phase 3 clinical trial in may 2020. the company incurred higher cmc expense in the amount of $ 6.3 million primarily due to the continued advancement of oc-01 ( varenicline ) nasal spray , as well as higher employee headcount , which resulted in an increase in payroll-related expenses . other research and development expense increased by $ 1.1 million . the increase was due to higher costs primarily related to data management and regulatory costs in connection with the advancement of the oc-01 ( varenicline ) nasal spray and nda submission in the amount of $ 3.2 million , as well as a $ 2.9 million fee paid to the fda in connection with the nda submission in december of 2020. this increase was partially offset by the $ 5 million license payment to pfizer in 2019 , as further described in note 9 , commitments and contingencies . 77 selling , general and administrative expenses selling , general and administrative expenses increased by $ 17.5 million during the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase was primarily driven by additional payroll-related expenses of $ 9.0 million due to an increase in headcount , higher other general and administrative expenses of $ 5.5 million due to expansion of the company 's organization , as well as additional costs incurred by the company due to operating as a publicly traded company .
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within our consumer media segment , revenue is derived from the software licensing of our video compression and enhancement , or codec , technologies , including primarily from our prior-generation codec realmedia variable bitrate , or rmvb , as well as our newer codec technology , realmedia high definition , or rmhd . we also generate revenue from the sale of our pc-based realplayer products , including realplayer plus and related products . these products and services are delivered directly to consumers and through partners , such as oems and mobile device manufacturers . our mobile services business generates revenue primarily from the sale of subscription services , which include our intercarrier messaging service and ringback tones , as well as through software licenses for the integration of our realtimes platform and certain system implementations . we generate a significant portion of our revenue from sales within our mobile services business to a few mobile carriers . our mobile services segment also includes our computer vision platform , safr , which includes facial recognition technology that leverages artificial intelligence-based machine learning . our games business generates revenue primarily through the development , publishing , and distribution of casual games under the gamehouse and zylom brands . games are offered via mobile devices , digital downloads , and subscription play . we derive revenue from player purchases of in-game virtual goods within our free-to-play games and from advertising on games sites . in addition , we derive revenue from the sale of individual games and subscription offerings . realnetworks allocates to its consumer media , mobile services , and games reportable segments certain corporate expenses which are directly attributable to supporting these businesses , including , but not limited to , a portion of finance , it , legal , human resources and headquarters facilities . remaining expenses , which are not directly attributable to supporting these businesses , are reported as corporate items . these corporate items also can include restructuring charges and stock compensation expense . as described in note 4 , acquisitions and dispositions , realnetworks acquired an additional 42 % interest in rhapsody international , inc. ( doing business as napster ) on january 18 , 2019 bringing our ownership of napster 's outstanding stock to 84 % , thus giving us a majority voting interest . for fiscal periods following the closing of the acquisition , we consolidated napster 's financial results into our financial statements , where napster was reported as a separate segment . realnetworks entered into a support agreement dated august 25 , 2020 by and among its 84 % -owned subsidiary , napster , and melodyvr group plc , referred to as melodyvr , an english public limited company . the support agreement was executed in connection with an agreement and plan of merger , or merger agreement , by and among napster , melodyvr , and a wholly owned subsidiary of melodyvr that effectuated the merger . the merger agreement called for the merger of melodyvr 's merger sub 19 with and into napster , with napster surviving and becoming a wholly owned subsidiary of melodyvr . other than as securityholder representative , realnetworks is not a party to the merger agreement . the transaction closed on december 30 , 2020 at which time melodyvr assumed napster 's assets and liabilities , primarily relating to music licensing . melodyvr paid consideration of approximately $ 26 million to certain holders of debt and equity of napster , comprised of $ 12 million in cash , shares of melodyvr , and a $ 3 million 18-month indemnity escrow . the shares of melodyvr that realnetworks received may not be sold or transferred , except in limited circumstances , for a period of one year . certain proceeds from the transaction were used to fully repay the advance to napster on the revolving line of credit , as discussed in note 9. debt , pay napster 's transaction expenses , and pay amounts to certain of napster 's common stockholders . the final value to realnetworks from the transaction is subject to the eventual payout of the indemnity escrow . effective on the execution of the agreement and plan of merger on august 25 , 2020 , napster was treated as discontinued operations for accounting and disclosure purposes . as such , napster 's operating results for the years ended december 31 , 2020 and 2019 and financial condition as of december 31 , 2019 have been recast to conform to this presentation . upon the close of the transaction , a gain on sale of approximately $ 1.9 million was recognized in discontinued operations . covid-19 in march 2020 , the world health organization declared the outbreak of the novel coronavirus that causes covid-19 to be a global pandemic . as the virus spread throughout the u.s. and the world , authorities implemented numerous measures to contain the virus , including travel bans and restrictions , quarantines , shelter-in-place orders , business limitations , and shutdowns . in addition to the pandemic 's widespread impact on public health and global society , reactions to the pandemic as well as measures taken to contain the virus have caused significant turmoil to the global economy and financial markets . moreover , similar to other companies , we have taken steps to support the health and well-being of our employees , customers , partners and communities , which include working remotely and learning to operate our business in a fundamentally different way . as the pandemic and containment measures generally evolved throughout 2020 , we have had to reevaluate our operating plans , resulting in some significant pivots for our growth initiatives . moreover , as we continue to operate our business as efficiently as possible , we have taken steps to more aggressively reduce costs and reallocate resources . story_separator_special_tag the fluctuation in other income ( expense ) , net primarily relates to foreign exchange gains and losses . income taxes during the years ended december 31 , 2020 and 2019 , we recognized income tax expense from continuing operations of $ 0.1 million and $ 0.7 million , respectively , related to u.s. and foreign income taxes . in general , the amount of tax expense or benefit allocated to continuing operations is determined without regard to the tax effects of other categories of income or loss , such as discontinued operations . however , an exception to the general rule is provided in topic 740 when there is a pre-tax loss from continuing operations and there are items charged or credited to other 24 categories , including discontinued operations , in the current year . pursuant to topic 740 , the gain from discontinued operations was considered in determining the $ 0.1 million tax expense allocated to the loss from continuing operations . the income tax expense from continuing operations for the year ended december 31 , 2020 and 2019 was largely the result of foreign withholding taxes and income taxes in foreign jurisdictions . we assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors , including the current economic climate , our expectations of future taxable income , our ability to project such income , and the appreciation of our investments and other assets . we maintain a partial valuation allowance of $ 128.3 million for our deferred tax assets due to uncertainty regarding their realization as of december 31 , 2020. the net decrease in the valuation allowance since december 31 , 2019 of $ 32.5 million was the result of a decrease in current year deferred tax assets , mainly related to the disposition of napster , for which the company maintained a valuation allowance . we generate income in a number of foreign jurisdictions , some of which have higher tax rates and some of which have lower tax rates relative to the u.s. federal statutory rate . changes to the blend of income between jurisdictions with higher or lower effective tax rates than the u.s. federal statutory rate could affect our effective tax rate . for the year ended december 31 , 2020 , decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the u.s. federal statutory rate were offset by increases in tax expense from income generated in foreign jurisdictions having comparable , or higher tax rates in comparison to the u.s. federal statutory rate . as of december 31 , 2020 and 2019 , realnetworks had $ 0.7 million and $ 5.0 million in uncertain tax positions , respectively . the decrease in uncertain tax positions is primarily the result of the napster disposition , for which unrecognized tax positions were removed relating to federal research and development tax credit carryforward risks , as well as transfer pricing risks in certain foreign jurisdictions . the remaining unrecognized tax benefits are due to federal research and development tax credit carryforward risks . as of december 31 , 2020 , there are no unrecognized tax benefits remaining that would affect our effective tax rate if recognized , as the offset would increase the valuation allowance . we do not anticipate that the total amount of unrecognized tax benefits will significantly change within the next twelve months . we file numerous consolidated and separate income tax returns in the u.s. including federal , state and local , as well as foreign jurisdictions . with few exceptions , we are no longer subject to u.s. federal income tax examinations for tax years before 2013 or state , local , or foreign income tax examinations for years before 1993. we are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993. liquidity and capital resources the following summarizes working capital , cash and cash equivalents , and restricted cash ( in thousands ) : replace_table_token_7_th the 2020 improvement in working capital from december 31 , 2019 was primary due to the investment in melodyvr received as proceeds on the sale of napster , partially offset by the reclassification of the contingent consideration liability from other long-term liabilities to current liabilities . cash and cash equivalents increased $ 15.5 million from december 31 , 2019 due to $ 10.0 million in cash proceeds from the first quarter 2020 issuance of series b preferred stock , cash proceeds received from the sale of napster during the fourth quarter of 2020 , as described in note 4. acquisitions and dispositions , proceeds of $ 2.9 million from the ppp promissory note , and issuance of safe notes of $ 2.1 million . these increases were partially offset by cash used in operations . the decrease in restricted cash equivalents is due to a reduction in the restricted amounts required by our amended loan agreement of $ 2.0 million and the release of restricted funds held for the corporate headquarters lease , which have been satisfied with a letter of credit . see note 9. debt for additional information on amendments to our revolving line of credit . the following summarizes cash flow activity from continuing operations ( in thousands ) : replace_table_token_8_th cash used in operating activities consisted of net loss from continuing operations adjusted for certain non-cash items such as depreciation and amortization , stock-based compensation , gain on equity and other investments , fair value adjustments to the 25 contingent consideration liability , loss on impairment of operating lease assets and the effect of changes in certain operating assets and liabilities . cash used in operating activities was $ 13.2 million lower in the year ended december 31 , 2020 as compared to 2019. cash used in operations was lower primarily due to our lower operating loss recorded for year 2020 compared to the prior year .
| financial results as of december 31 , 2020 , we had $ 23.9 million in unrestricted cash and cash equivalents compared to $ 8.5 million as of december 31 , 2019. the 2020 increase in cash and cash equivalents from december 31 , 2019 was primarily due to $ 10.0 million in cash proceeds from the first quarter 2020 issuance of series b preferred stock and proceeds from a promissory note issued in the second quarter of 2020 pursuant to the payment protection program ( ppp ) of the cares act , with realnetworks receiving $ 2.9 million . a subsidiary of realnetworks , scener , also received $ 2.1 million in the third quarter of 2020 , in return for issuing safe notes , as described in note 5. fair value measurements . during the fourth quarter of 2020 , we received cash proceeds from the sale of napster as described in note 4. acquisitions and dispositions . the increase was partially offset by funds used in our operations , which totaled $ 8.1 million . the following discussion reflects realnetworks ' results from continuing operations . consolidated results of operations were as follows ( dollars in thousands ) : replace_table_token_0_th 2020 compared with 2019 20 in 2020 , our consolidated revenue increased by $ 2.3 million , or 3 % . the increase in revenue was primarily due to increases in our games segment of $ 3.1 million , which was partially offset by decreases of $ 0.6 million in consumer media revenue and $ 0.3 million in mobile services revenue . see below for further information regarding fluctuations by segment . gross margin increased to 76 % from 74 % due to the combination of higher revenues and cost reduction efforts .
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when compared to the proxy peer groups set forth above , the research indicated that our compensation for each of the benchmarked named executive officers was generally story_separator_special_tag this annual report on form 10-k , including this management 's discussion and analysis of financial condition and results of operations , contains forward-looking statements regarding future events and our future results that are subject to the safe harbors within the meaning of the private securities litigation reform act of 1995 , and created under the securities act of 1933 , as amended , and the securities exchange act of 1934 , as amended . all statements other than statements of historical facts are statements that could be deemed forward-looking statements . certain statements in this report may contain words such as “ anticipates , ” “ expects , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” “ may , ” “ could , ” “ would ” and other similar language and are considered forward-looking statements or information under applicable securities laws . in addition , any information or statements that refer to expectations , beliefs , plans , projections , objectives , performance or other characterizations of future events or circumstances , including any underlying assumptions , are forward-looking , and based on our current expectations , estimates , forecasts and projections about the operating environment , economies and markets in which we operate . such forward-looking information or statements are subject to important assumptions , risks and uncertainties that are difficult to predict , and the actual outcome may be materially different . our assumptions , although considered reasonable by us at the date of this report , may prove to be inaccurate and consequently our actual results could differ materially from the expectations set out herein . you should not rely too heavily on the forward-looking statements contained in this annual report on form 10-k , because these forward-looking statements are relevant only as of the date they were made . we undertake no obligation to revise or publicly release the results of any revisions to these forward-looking information or statements . you should carefully review part i , item 1a “ risk factors ” and other documents we file from time to time with the securities and exchange commission and other applicable securities regulators . a number of factors may materially affect our business , financial condition , operating results and prospects . these factors include but are not limited to those set forth in part i , item 1a “ risk factors ” and elsewhere in this report . any one of these factors , and other factors that we are unaware of , or currently deem immaterial , may cause our actual results to differ materially from recent results or from our anticipated future results . the following md & a is intended to help readers understand our results of operations and financial condition , and is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes to consolidated financial statements ( the notes ) under part ii , item 8 of this form 10-k. all dollar and percentage comparisons made herein under the sections titled “ fiscal 2012 compared to fiscal 2011 ” refer to the twelve months ended june 30 , 2012 ( fiscal 2012 ) compared with the twelve months ended june 30 , 2011 ( fiscal 2011 ) . all dollar and percentage comparisons made herein under the sections titled “ fiscal 2011 compared to fiscal 2010 ” refer to fiscal 2011 compared with the twelve months ended june 30 , 2010 ( fiscal 2010 ) . where we say “ we ” , “ us ” , “ our ” , “ opentext ” or “ the company ” , we mean open text corporation or open text corporation and its subsidiaries , as applicable . executive overview we are an independent company providing a comprehensive suite of information management software products that help people in organizations work , interact , and innovate in a secure , engaging , and productive way . we build software that allows companies to organize and manage their content , operate more efficiently and effectively , increase engagement with customers , collaborate with business partners , and address regulatory and business requirements associated with information management . our products incorporate social and mobile experiences and are delivered for on premise implementation as well as through cloud and managed hosted services . our initial public offering was on the nasdaq in 1996 and we were subsequently listed on the toronto stock exchange in 1998. we are a multinational company and currently employ approximately 4,500 people worldwide . we recently acquired easylink services international corporation ( easylink ) , which is discussed in more detail below . with the acquisition of easylink we acquired an additional 539 employees . fiscal 2012 highlights : fiscal 2012 was overall a successful year for us . the followings are highlights of our operating results : total revenue for the year was $ 1.2 billion , up 16.9 % over fiscal 2011. license revenue was $ 293.7 million , up 9.1 % over fiscal 2011. gaap-based eps , diluted , was $ 2.13 compared to $ 2.11 in fiscal 2011 . story_separator_special_tag we base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from those estimates . the accounting policies that reflect our more significant estimates , judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : ( i ) revenue recognition , ( ii ) goodwill , ( iii ) acquired intangibles , ( iv ) restructuring charges , ( v ) business combinations , ( vi ) foreign currency translation , and ( vii ) income taxes . for detailed discussions please see note 2 `` significant accounting policies '' to our consolidated financial statements . results of operations the following tables provide a detailed analysis of our results of operations and financial condition . for each of the periods indicated below , we present our revenues by product , revenues by major geography , cost of revenues by product , total gross margin , total operating margin , gross margin by product , and their corresponding percentage of total revenue . in addition , we provide non-gaap measures for the periods discussed in order to provide additional information to investors that we believe will be useful as this presentation is in line with how our management assesses our company 's performance . see `` use of non-gaap financial measures '' below for a reconciliation of non-gaap-based measures to gaap-based measures . story_separator_special_tag style= '' line-height:120 % ; padding-top:5px ; text-align : left ; font-size:10pt ; '' > total operating expenses increased by $ 35.4 million , primarily due to acquisitions . special charges decreased by $ 26.4 million primarily due to less restructuring charges incurred under the fiscal 2011 restructuring plan than the fiscal 2010 restructuring plan . the fiscal 2011 restructuring plan was a less substantial restructuring plan primarily because the fiscal 2011 acquisitions were smaller in scale than the fiscal 2010 acquisitions . research and development expenses consist primarily of personnel expenses , contracted research and development expenses , and facility costs . research and development assists with organic growth , improves product stability and functionality , and as such we dedicate extensive efforts to update and upgrade our product offering . the primary driver is typically budgeted software upgrades and software development . replace_table_token_12_th 30 fiscal 2012 compared to fiscal 2011 : research and development expenses increased by $ 23.1 million , primarily due to an increase in payroll and payroll-related benefits of $ 17.9 million . these increases were driven largely by the additional headcount we acquired as a result of acquisitions . facility costs increased correspondingly , partially as a result of the increase in the number of employees engaged in research and development activities , and also due to increased operational spending . share based compensation expense increased as a result of an increase in long-term incentive plan ( ltip ) expenses that were recorded . overall , our research and development expenses , as a percentage of total revenues , remained stable at approximately 14 % . fiscal 2011 compared to fiscal 2010 : research and development expenses increased by $ 16.6 million , primarily due to an increase in payroll and payroll-related benefits of $ 13.4 million . these increases were driven largely by the additional headcount we incurred as a result of acquisitions . share based compensation expense increased as a result of an increase in ltip expenses that were recorded . overall , research and development expenses , as a percentage of total revenues , remained stable at approximately 14 % . sales and marketing expenses consist primarily of personnel expenses and costs associated with advertising and trade shows . replace_table_token_13_th fiscal 2012 compared to fiscal 2011 : sales and marketing expenses increased by $ 42.2 million , primarily due to an increase in payroll and payroll-related benefits of $ 33.6 million . these increases were driven largely by the additional headcount we incurred as a result of acquisitions and as a result of increased hiring we did as we continue to expand and grow our business globally . travel and communication expenses increased commensurate with the increased scale of operations year over year . share based compensation expense increased as a result of an increase in ltip expenses that were recorded . overall , our sales and marketing expenses , as a percentage of total revenues , have remained relatively stable at approximately 22 % . fiscal 2011 compared to fiscal 2010 : sales and marketing expenses increased by $ 34.1 million primarily due to an increase in payroll and payroll-related benefits of $ 18.4 million , and travel and communication expenses of $ 4.9 million . share based compensation expense increased as a result of an increase in ltip expenses that were recorded . the remainder of the difference was principally due to sales events and changes in other miscellaneous sales and marketing-related expenses . overall , our sales and marketing expenses , as a percentage of total revenues , have remained relatively stable at approximately 22 % . general and administrative expenses consist primarily of personnel expenses , related overhead , audit fees , other professional fees , consulting expenses and public company costs . 31 replace_table_token_14_th fiscal 2012 compared to fiscal 2011 : general and administrative expenses increased by $ 10.4 million primarily due to an increase in payroll and payroll-related benefits of $ 6.9 million , and due to an increase in share based compensation expense of $ 1.9 million on account of the ltip plans . overall , our general and administrative expenses , as a percentage of total revenues , have remained stable at 8.0 % . fiscal 2011 compared to fiscal 2010 : general and administrative expenses increased by $ 3.4 million primarily related to facilities and it costs .
| summary of results of operations replace_table_token_6_th 25 replace_table_token_7_th * americas primarily consists of countries in north america and latin america . * * emea primarily consists of countries in europe and the united arab emirates . revenues , cost of revenues and gross margin by product type 1 ) license revenues : license revenues consists of fees earned from the licensing of software products to customers . our license revenues are impacted by the strength of general economic and industry conditions , the competitive strength of our software products , and our acquisitions . cost of license revenues consists primarily of royalties payable to third parties . 26 replace_table_token_8_th fiscal 2012 compared to fiscal 2011 : license revenues increased by $ 24.5 million , which is geographically attributable to an increase in americas of $ 5.7 million , an increase in emea of $ 10.1 million and an increase in asia pacific of $ 8.7 million . overall in fiscal 2012 we experienced an increase in the number of deals greater than $ 1 million along with an increase in the proportion of revenues that came from our partner program . additionally , license revenue was favourably influenced by the impact of acquisitions . cost of license revenues decreased slightly by $ 0.3 million . the decrease in costs was primarily due to lower third party technology costs . overall gross margin on cost of license revenues remained relatively stable . fiscal 2011 compared to fiscal 2010 : license revenues increased by $ 31.1 million , which was geographically attributable to an increase in americas of $ 23.1 million , an increase in emea of $ 4.4 million and an increase in asia pacific of $ 3.6 million . overall , license revenue was favourably influenced by the impact of acquisitions . cost of license revenues increased by $ 1.4 million .
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factors that might cause such a difference include , but are not limited to : ( 1 ) the success , impact , and timing of the implementation of peoples ' business strategies , including the successful integration of recently completed acquisitions and the expansion of consumer lending activity ; ( 2 ) peoples ' ability to integrate the nb & t acquisition and any future acquisitions may be unsuccessful , or may be more difficult , time-consuming or costly than expected ; ( 3 ) peoples may issue equity securities in connection with future acquisitions , which could cause ownership and economic dilution to peoples ' current shareholders ; ( 4 ) local , regional , national and international economic conditions and the impact they may have on peoples , its customers and its counterparties , and peoples ' assessment of the impact , which may be different than anticipated ; ( 5 ) competitive pressures among financial institutions or from non-financial institutions may increase significantly , including product and pricing pressures , third-party relationships and revenues , and peoples ' ability to attract , develop and retain qualified professionals ; ( 6 ) changes in the interest rate environment due to economic conditions and or the fiscal policies of the u.s. government and federal reserve board , which may adversely impact interest rates , interest margins and interest rate sensitivity ; ( 7 ) changes in prepayment speeds , loan originations , levels of non-performing assets , delinquent loans and charge-offs , which may be less favorable than expected and adversely impact the amount of interest income generated ; ( 8 ) adverse changes in economic conditions and or activities , including , but not limited to , continued economic uncertainty in the u.s. , the european union , asia , and other areas , which could decrease sales volumes and increase loan delinquencies and defaults ; ( 9 ) legislative or regulatory changes or actions , promulgated and to be promulgated thereunder by the state of ohio , the federal deposit insurance corporation , the occ , the federal reserve board and the cfpb , which may subject peoples , its subsidiaries , or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses , including in particular the rules and regulations promulgated and to be promulgated under the dodd-frank act ; ( 10 ) deterioration in the credit quality of peoples ' loan portfolio , which may adversely impact the provision for loan losses ; ( 11 ) changes in accounting standards , policies , estimates or procedures which may adversely affect peoples ' reported financial condition or results of operations ; ( 12 ) peoples ' assumptions and estimates used in applying critical accounting policies , which may prove unreliable , inaccurate or not predictive of actual results ; ( 13 ) adverse changes in the conditions and trends in the financial markets , including political developments , which may adversely affect the fair value of securities within peoples ' investment portfolio , the interest rate sensitivity of peoples ' consolidated balance sheet , and the income generated by peoples ' trust and investment activities ; ( 14 ) peoples ' ability to receive dividends from its subsidiaries ; ( 15 ) peoples ' ability to maintain required capital levels and adequate sources of funding and liquidity ; ( 16 ) the impact of new minimum capital thresholds established as a part of the implementation of basel iii ; 28 ( 17 ) the impact of larger or similar sized financial institutions encountering problems , which may adversely affect the banking industry and or peoples ' business generation and retention , funding and liquidity ; ( 18 ) the costs and effects of regulatory and legal developments , including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations ; ( 19 ) peoples ' ability to secure confidential information through the use of computer systems and telecommunications networks , including those of peoples ' third-party vendors and other service providers , may prove inadequate , which could adversely affect customer confidence in peoples and or result in peoples incurring a financial loss ; ( 20 ) the overall adequacy of peoples ' risk management program ; ( 21 ) the impact on peoples ' businesses , as well as on the risks described above , of various domestic or international military or terrorist activities or conflicts ; and ( 22 ) other risk factors relating to the banking industry or peoples as detailed from time to time in peoples ' reports filed with the sec , including those risk factors included in the disclosures under the heading `` item 1a . risk factors '' of this form 10-k. all forward-looking statements speak only as of the filing date of this form 10-k and are expressly qualified in their entirety by the cautionary statements . although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management 's knowledge of peoples ' business and operations , it is possible that actual results may differ materially from these projections . additionally , peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this form 10-k or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements . copies of documents filed with the sec are available free of charge at the sec 's website at www.sec.gov and or from peoples ' website – www.peoplesbancorp.com under the `` investor relations '' section . the following discussion and analysis of peoples ' consolidated financial statements is presented to provide insight into management 's assessment of the financial results and condition for the periods presented . story_separator_special_tag ◦ in 2015 , peoples incurred an aggregate of $ 11.3 million of acquisition-related expenses , compared to $ 5.1 million in 2014 and $ 1.5 million in 2013 , which were primarily severance costs , fees for legal services and other professional services , deconversion costs and write-offs associated with assets acquired . ◦ during 2013 , peoples took steps to reduce its investment in bank-owned life insurance ( `` boli '' ) contracts and redeploy the funds in order to enhance long-term shareholder return . peoples received proceeds of $ 43.1 million during 2013 as a result of the liquidation of boli contracts , while the remaining cash surrender value of approximately $ 6.6 million was recorded as a receivable at december 31 , 2013. peoples received the remaining cash surrender value in the first quarter of 2014 , in accordance with the terms of the boli contracts ( collectively , the `` boli surrender '' ) . the boli surrender caused peoples to incur a $ 2.2 million federal income tax liability in 2013 for the gain associated with the boli contracts surrendered . ◦ peoples periodically has taken actions to reduce interest rate exposure within the investment portfolio and the entire balance sheet , which have included the sale of low-yielding investment securities and repayment of high-cost borrowings . these actions included the sale of $ 68.8 million of investment securities , primarily low or volatile yielding residential mortgage-backed securities , during the first quarter of 2013. some of the proceeds from these investment sales were reinvested in securities during the first quarter with the remaining reinvested early in the second quarter of 2013 . ◦ as described in note 11 of the notes to the consolidated financial statements , peoples incurred settlement charges of $ 459,000 during 2015 due to the aggregate amount of lump-sum distributions to participants in peoples ' defined benefit pension plan exceeding the threshold for recognizing such charges during the period . settlement charges of $ 1.4 million and $ 270,000 were recognized during 2014 and 2013 , respectively . ◦ on september 17 , 2012 , peoples introduced its new brand as part of a company-wide brand revitalization . the brand is peoples ' promise , which is a guarantee of satisfaction and quality . peoples incurred costs throughout 2013 associated with the brand revitalization , including marketing due to advertisements , and depreciation expense for new assets related to the $ 5 million branch renovation project . in 2014 , peoples acquired midwest , ohio heritage and 30 north akron and in 2015 acquired nb & t and has continued the consistent company-wide brand revitalization in the newly-acquired facilities . ◦ peoples ' net interest income and net interest margin are impacted by changes in market interest rates based upon actions taken by the federal reserve board either directly or through its open market committee . these actions include changing the target federal funds rate ( the interest rate at which banks lend money to each other ) , discount rate ( the interest rate charged to banks for money borrowed from the federal reserve bank ) and longer-term market interest rates ( primarily u.s. treasury securities ) . longer-term market interest rates also are affected by the demand for u.s. treasury securities . the resulting changes in the yield curve slope have a direct impact on reinvestment rates for peoples ' earning assets . ◦ in december 2015 , the federal reserve board raised short-term rates , including the federal funds rate and the discount rate , 0.25 % , to a range of 0.25 % to 0.50 % for the federal funds rate and 1.00 % for the discount rate . the federal reserve board had previously maintained its target federal funds rate at a historically low level of 0 % to 0.25 % since december 2008 and had maintained the discount rate at 0.75 % since december 2010. the federal reserve board has indicated the possibility that these short-term rates could again be raised in 2016 . ◦ the federal reserve ended its program of quantitative easing in the fourth quarter of 2014. much speculation occurred throughout 2015 as to when the federal reserve would begin to raise short-term interest rates . the yield on the 10-year treasury note began the year with a significant rally , falling from 2.17 % to 1.64 % during the month of january . the yield peaked half way through 2015 at 2.49 % . it fell below 2 % again in october and traded in a range between 2.13 % and 2.34 % during the last two months of the year . overall , the treasury yield curve steepened throughout the year with the 30-year bond yield ending 2015 roughly 25 basis points higher than at the beginning of the year . the impact of these transactions , where material , is discussed in the applicable sections of this management 's discussion and analysis of financial condition and results of operations . critical accounting policies the accounting and reporting policies of peoples conform to us gaap and to general practices within the financial services industry . a summary of significant accounting policies is contained in note 1 of the notes to the consolidated financial statements . while all of these policies are important to understanding the consolidated financial statements , certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates and assumptions are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates or assumptions . management has identified the accounting policies described below as those that , due to the judgments , estimates and assumptions inherent in the policies , are critical to an understanding of peoples ' consolidated financial statements and management 's discussion and analysis of financial condition and results of operations .
| executive summary net income for the year ended december 31 , 2015 was $ 10.9 million , compared to $ 16.7 million in 2014 and $ 17.6 million in 2013 , representing earnings per diluted common share of $ 0.61 , $ 1.35 and $ 1.63 , respectively . the decrease in earnings during 2015 was primarily driven by provision for loan losses of $ 14.1 million coupled with $ 11.3 million of acquisition-related costs . the decrease in 2014 from 2013 was primarily driven by acquisition-related costs of $ 5.1 million and pension settlement charges of $ 1.4 million . earnings in 2013 were impacted by additional operating costs associated with various strategic investments to grow revenue and a lower recovery of loan losses . in 2015 , peoples had a provision for loan losses of $ 14.1 million related primarily to the charge-off of one large commercial loan relationship coupled with loan growth and downward trends in criticized loans . peoples recorded net charge-offs of $ 15.2 million for 2015 , compared to net recoveries of $ 0.5 million and $ 3.7 million , respectively , for 2014 and 2013 , respectively . the provision for or recovery of loan losses represented amounts needed , in management 's opinion , to maintain the appropriate level of the allowance for loan losses .
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the fair value is based on the market price of the company 's stock on the date story_separator_special_tag the following commentary should be read in conjunction with the consolidated financial statements and accompanying notes . within the tables presented throughout this discussion , certain columns may not add due to the use of rounded numbers for disclosure purposes . percentages and earnings per share amounts presented are calculated from the underlying amounts . references to years throughout this discussion relate to our fiscal years , which end on september 30. company overview description of the company and business segments becton , dickinson and company ( “ bd ” ) is a global medical technology company engaged in the development , manufacture and sale of a broad range of medical supplies , devices , laboratory equipment and diagnostic products used by healthcare institutions , life science researchers , clinical laboratories , the pharmaceutical industry and the general public . the company 's organizational structure is based upon two principal business segments , bd medical ( “ medical ” ) and bd life sciences ( “ life sciences ” ) . bd 's products are manufactured and sold worldwide . our products are marketed in the united states and internationally through independent distribution channels and directly to end-users by bd and independent sales representatives . we organize our operations outside the united states as follows : europe ; ema ( which includes the commonwealth of independent states , the middle east and africa ) ; greater asia ( which includes japan and asia pacific ) ; latin america ( which includes mexico , central america , the caribbean , and south america ) ; and canada . we continue to pursue growth opportunities in emerging markets , which include the following geographic regions : eastern europe , the middle east , africa , latin america and certain countries within asia pacific . we are primarily focused on certain countries whose healthcare systems are expanding , in particular , china and india . strategic objectives bd remains focused on delivering sustainable growth and shareholder value , while making appropriate investments for the future . bd management operates the business consistent with the following core strategies : to increase revenue growth by focusing on our core products , services and solutions that deliver greater benefits to patients , healthcare workers and researchers ; to continue investment in research and development for platform extensions and innovative new products ; to make investments in growing our operations in emerging markets ; to improve operating effectiveness and balance sheet productivity ; to drive an efficient capital structure and strong shareholder returns . our strategy focuses on four specific areas within healthcare and life sciences : enabling safer , simpler and more effective parenteral drug delivery ; improving clinical outcomes through new , more accurate and faster diagnostics ; providing tools and technologies to the research community that facilitate the understanding of the cell , cellular diagnostics and cell therapy ; enhancing disease management in diabetes , women 's health and cancer , and infection control . 15 we continue to strive to improve the efficiency of our capital structure and follow these guiding principles : to maintain an investment grade rating ; to ensure access to the debt market for strategic opportunities ; to optimize the cost of capital based on market conditions . in assessing the outcomes of these strategies as well as bd 's financial condition and operating performance , management generally reviews quarterly forecast data , monthly actual results , segment sales and other similar information . we also consider trends related to certain key financial data , including gross profit margin , selling and administrative expense , investment in research and development , return on invested capital , and cash flows . acquisition of carefusion on march 17 , 2015 , bd acquired a 100 % interest in carefusion corporation ( `` carefusion '' ) . carefusion 's operating results were included in bd 's consolidated results of operations beginning on april 1 , 2015 and as such , the consolidated results of operations for the first six months of fiscal year 2015 referenced in the commentary provided further below did not include carefusion 's results . carefusion operates as part of our medical segment . story_separator_special_tag write-down of carefusion 's deferred revenue balance , as previously discussed . these unfavorable impacts on gross margin in 2015 were partially offset primarily by lower manufacturing costs resulting from continuous improvement projects . selling and administrative expense in 2016 as a percentage of medical revenues primarily reflected the suspension of the medical device excise tax imposed under the u.s. patient protection affordable care act . selling and administrative expense as a percentage of revenues in 2015 primarily reflected the inclusion of carefusion 's spending , as well as depreciation of fixed assets acquired in the carefusion acquisition , in the second half of 2015 results . research and development expenses in 2016 increased $ 172 million , or 63 % from 2015 , which reflected the inclusion of carefusion spending for a full fiscal year , as well as increased investment in new products and platforms . research and development expenses in 2015 increased $ 85 million , or 46 % from 2014 , primarily due to the inclusion of carefusion 's costs in the second half of 2015 results . life sciences segment the following is a summary of life sciences revenues by organizational unit : replace_table_token_7_th the life sciences segment 's 2016 revenue growth was driven by the preanalytical systems unit 's u.s. and international sales of safety-engineered products . segment revenue growth in 2016 also reflected the diagnostic systems unit 's sales of automated platforms , including bd kiestra , bd max tm , and bd bactec tm blood culture systems as well as surepath tm reagents . story_separator_special_tag on this redefined basis , emerging market revenues were $ 1.9 billion , $ 1.8 billion and $ 1.7 billion in 2016 , 2015 and 2014 , respectively . unfavorable foreign currency translation impacted emerging market revenues in 2016 and 2015 by an estimated $ 156 million and $ 142 million , respectively . emerging market revenue growth in 2016 reflected the inclusion of carefusion 's sales for the full fiscal year , as well as growth in china and latin america , partially offset by declines in the middle east and africa . emerging market revenues in 2015 primarily reflected the inclusion of carefusion 's revenues in the second half of 2015 . specified items reflected in the financial results for 2016 , 2015 and 2014 were the following specified items : replace_table_token_10_th ( a ) represents financing , transaction , integration and restructuring costs substantially associated with the carefusion acquisition and portfolio rationalization . the financing costs were recorded in interest expense . the transaction , integration and restructuring costs were recorded in acquisitions and other restructurings . for further discussion of these charges , refer to notes 1 , 7 , 8 , 9 , 10 and 11 to the consolidated financial statements contained in item 8. financial statements and supplementary data . ( b ) primarily represents non-cash amortization expense associated with acquisition-related identifiable intangible assets . bd 's amortization expense is primarily recorded in cost of products sold . amortization and depreciation expense relating to assets acquired in the carefusion transaction was $ 492 million in 2016 compared with $ 284 million in 2015 . the adjustments in 2016 also included a net decrease in the fair value of certain contingent consideration liabilities of $ 25 million . the adjustments in 2015 included a fair value step-up adjustment of $ 293 million recorded relative to carefusion 's inventory on the acquisition date and a pre-tax acquisition-date accounting gain of $ 9 million on a previously held investment . ( c ) represents charges incurred in 2014 by the medical and life sciences segments of $ 6 million and $ 20 million , respectively , in connection with the segments ' terminations of certain development programs . ( d ) the amount in 2015 represents a charge for plaintiff attorneys ' fees , recorded in selling and administrative expense associated with the antitrust and false advertising lawsuit retractable technologies , inc. filed against bd , partially offset by an adjustment to reduce a liability for employee termination costs recorded relative to workforce reduction actions taken in the fourth quarter of fiscal year 2014. the amount in 2014 primarily represented the $ 36 million charge recorded relative to workforce reduction actions . for further discussion of these charges , refer to notes 5 and 8 to the consolidated financial statements contained in item 8. financial statements and supplementary data . 20 gross profit margin the comparison of gross profit margins in 2016 and 2015 and the comparison of gross profit margins in 2015 and 2014 reflected the following impacts : replace_table_token_11_th gross profit margin in 2016 benefited from a favorable comparison to 2015 , which reflected the fair value step-up adjustment recorded relative to carefusion 's inventory on the acquisition date , as previously discussed , partially offset by the recognition in 2016 of a full year of amortization relating to carefusion 's intangible assets . the operating performance impacts in 2016 and 2015 primarily reflected lower manufacturing costs resulting from continuous operations improvement projects which improved the efficiency of our operations . operating expenses operating expenses in 2016 , 2015 and 2014 were as follows : replace_table_token_12_th selling and administrative selling and administrative expense as a percentage of revenues in 2016 reflected synergies resulting from the carefusion acquisition , as well as favorable foreign currency translation and a suspension of the medical device excise tax , as previously discussed . selling and administrative expense as a percentage of revenues in 2016 was unfavorably impacted by higher selling expenses relating to product launches and higher shipping expenses . selling and administrative expense as a percentage of revenues in 2015 reflected favorable foreign currency translation , partially offset by the impacts of increased spending relating to the expansion of our business in emerging markets , a charge relating to the rti litigation matter , as previously discussed , as well as depreciation of fixed assets acquired in the carefusion acquisition . research and development research and development expense in 2016 reflected the inclusion of carefusion 's research and development expenses in the company 's results for the full fiscal year 2016 and increased investment in high growth opportunities . research and development expense in 2015 reflected the inclusion of carefusion 's research and development expenses in the results for the second half of fiscal year 2015 . research and development expense as a percentage of revenues in 2015 was lower in comparison to 2014 , which included a workforce reduction charge , asset write-offs and program termination charges as well as ongoing investment in new products and platforms within the medical segment . acquisitions and other restructurings costs relating to acquisitions and other restructurings represented transaction , integration and restructuring costs substantially associated with the carefusion acquisition and portfolio rationalization . the transaction and integration costs specifically included advisory , legal , and other costs substantially incurred in connection with the carefusion acquisition . restructuring costs in 2016 included a $ 214 million charge recorded to impair capitalized internal-use software assets held for sale as a result of the information technology function transformation efforts . for further disclosures regarding the costs relating 21 to acquisitions and other restructurings , refer to notes 1 , 7 , 8 , 9 , 10 and 11 to the consolidated financial statements contained in item 8. financial statements and supplementary data .
| summary of financial results worldwide revenues in 2016 of $ 12.483 billion increased 21.4 % from the prior year , compared with an increase of 21.7 % in 2015 . revenue growth in 2016 largely reflected the impact from the inclusion of carefusion 's sales in the company 's results for a full fiscal year in 2016 as compared with only half the fiscal year in 2015 , as discussed above . revenues in 2016 also reflected volume growth of approximately 4.2 % , which included an unfavorable impact from the termination of a distribution agreement in the respiratory solutions unit . revenue growth in 2016 additionally reflected an unfavorable foreign currency translation impact of approximately 3.1 % and a relatively immaterial favorable impact from price . revenue growth in 2015 reflected a 24.1 % impact from the inclusion of carefusion 's sales in the company 's results from april 1 , 2015 , as discussed above , as well as volume growth of 5.1 % and unfavorable foreign currency translation of 7.5 % . volume growth in 2016 reflected the following : medical segment volume growth was driven by the medication and procedural solutions unit 's international sales of safety-engineered products , the diabetes care unit 's sales of pen needles and the pharmaceutical systems unit 's sales of self-injection systems . fiscal year 2016 revenues in the respiratory solutions unit were unfavorably impacted by the termination of a distribution contract , as noted above . life sciences segment volume growth was driven by the preanalytical systems unit 's global sales of safety-engineered products , the diagnostic systems unit 's sales of automated platforms and the biosciences unit 's u.s. sales of research instrument and reagent sales . the biosciences unit 's international fiscal year 2016 revenues were unfavorably impacted by pressure on sales of hiv-related clinical products in africa . u.s. medical segment volume growth in 2016 primarily reflected the sales of infusion disposables and self-injection systems .
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words such as “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” `` will , '' “ intend , ” “ may , ” “ plan , ” “ seek ” and similar terms and phrases , or the negative thereof , may be used to identify forward-looking statements . the forward-looking statements contained in this report are based on management 's good-faith belief and reasonable judgment based on current information . the forward-looking statements are qualified by important factors , risks and uncertainties , many of which are beyond our control , which could cause our actual results to differ materially from those in the forward-looking statements , including those described above in item 1a risk factors and subsequent reports filed with or furnished to the sec . any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein . we undertake no obligation to publicly update any forward-looking statement , whether as a result of new information , future developments or otherwise , except as may be required by any applicable laws or regulations . business overview we are an insurance holding company that markets and services our product offerings through specialty commercial and specialty personal insurance business lines . our growth has been significant since our founding in 2009. currently , we are authorized to write insurance as an excess and surplus lines carrier in 45 states , including the district of columbia . we are licensed to write insurance in 42 states , including the district of columbia , as an admitted carrier and we offer our insurance products in all 50 states . our revenues are primarily derived from premiums earned from our insurance operations . we also generate other revenues through investment income and other income which mainly consists of : installment fees and policy issuance fees generally related to the policies we write and commission income from sia 's 50 % owned agency ( the `` affiliate '' ) . the affiliate places small commercial risks mainly for alarm and security guard markets . our expenses consist primarily of losses and loss adjustment expenses , agents ' commissions , and other underwriting and administrative expenses . we organize our operations in two insurance businesses : commercial insurance lines and personal insurance lines . through our commercial insurance lines , we offer coverage for both commercial property and commercial liability . we also offer coverage for commercial automobiles and workers ' compensation . our insurance policies are sold to targeted small and mid-sized businesses on a single or multiple-coverage basis . through our personal insurance lines , we offer homeowners insurance and dwelling fire insurance products to individuals in several states . our specialty homeowners insurance line is primarily comprised of either wind-exposed homeowners insurance providing hurricane and wind coverage to underserved homeowners in texas , hawaii and florida or low-value dwelling insurance tailored for owners of lower valued homes , which we offer in illinois , indiana , louisiana and texas . due to certain florida-based industry events , we have deemphasized our florida homeowners business and other wind-exposed business in texas and hawaii . we plan to continue to shift focus to low-value dwelling lines of business in order to bring personal lines premium levels back up and to maintain a strategic balance of commercial and personal lines of business . 34 critical accounting policies and estimates general we identified the accounting estimates below as critical to the understanding of our financial position and results of operations . critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and which require us to exercise significant judgment . we use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our consolidated financial statements . these judgments and estimates affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of material contingent assets and liabilities . actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements . we evaluate our estimates regularly using information that we believe to be relevant . see the consolidated financial statements note 1 – summary of significant accounting policies , for further details . loss and loss adjustment expense reserves our recorded loss and loss adjustment expenses ( `` lae '' ) reserves represent management 's best estimate of unpaid loss and lae at each balance sheet date , based on information , facts and circumstances known at such time . our loss and lae reserves reflect our estimates at the balance sheet date of : case reserves , which are unpaid loss and lae amounts that have been reported ; and incurred but not reported ( `` ibnr '' ) reserves , which are ( 1 ) unpaid loss and lae amounts that have been incurred but not yet reported ; and ( 2 ) the expected development on case reserves . we do not discount the loss and lae reserves for the time value of money . case reserves are initially set by our claims personnel . when a claim is reported to us , our claims department completes a case‑basis valuation and establishes a case reserve for the estimated amount of the probable ultimate losses and lae associated with that claim . our claims department updates their case‑basis valuations upon receipt of additional information and reduces case reserves as claims are paid . story_separator_special_tag as a result , an integral component of our loss and lae reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses and lae . accordingly , the ultimate liability may vary significantly from the current estimate . the effects of change in the estimated loss and lae reserves are included in the results of operations in the period in which the estimate is revised . our reserves consist entirely of reserves for property and liability losses , consistent with the coverages provided for in the insurance policies directly written or assumed by us under reinsurance contracts . occasionally , several years may elapse 36 between the occurrence of an insured loss , the reporting of the loss to us and our payment of the loss . the level of ibnr reserves in relation to total reserves depends upon the characteristics of the specific line of business , particularly related to the speed with which claims are reported and outstanding claims are paid . lines of business for which claims are reported slowly will have a higher percentage of ibnr reserves than lines of business that report and settle claims more quickly . the following table shows the ratio of ibnr reserves to total reserves net of reinsurance recoverables as of december 31 , 2018 ( dollars in thousands ) : replace_table_token_8_th although we believe that our reserve estimates are reasonable , it is possible that our actual loss and lae experience may not conform to our assumptions and may , in fact , vary significantly from our assumptions . accordingly , the ultimate settlement of losses and the related lae may vary significantly from the estimates included in our financial statements . we continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us . such adjustments are included in current operations . our loss and lae reserves do not represent an exact measurement of liability , but are estimates . the most significant assumptions affecting our ibnr reserve estimates are the loss development factors applied to paid losses and case reserves to develop ibnr by line of business and accident year . although historical loss development provides us with an indication of future loss development , it typically varies from year to year . thus , for each accident year within each line of business we select one loss development factor out of a range of historical factors . we generated a sensitivity analysis of our net reserves which represents reasonably likely levels of variability in our selected loss development factors . we believe the most meaningful approach to the sensitivity analysis is to vary the loss development factors that drive the ultimate loss and lae estimates . we applied this approach on an accident year basis , reflecting the reasonably likely differences in variability by level of maturity of the underlying loss experience for each accident year . generally , the most recent accident years are characterized by more unreported losses and less information available for settling claims , and have more inherent uncertainty than the reserve estimates for more mature accident years . therefore , we used variability factors of plus or minus 10 % for the most recent accident year , 5 % for the preceding accident year , and 2.5 % for the second preceding accident year . there is minimal expected variability for accident years at four or more years ' maturity . 37 the following table displays ultimate net loss and lae and net loss and lae reserves by accident year for the year ended december 31 , 2018 . we applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and lae reserve change and the impact on 2018 reported pre-tax income and on net income and shareholders ' equity at december 31 , 2018 . we believe it is not appropriate to sum the illustrated amounts as it is not reasonably likely that each accident year 's reserve estimate assumptions will vary simultaneously in the same direction to the full extent of the sensitivity factor . we also believe that such changes to our reserve balance would not have a material impact on our operating results , financial position , or liquidity . the net income and shareholders ' equity amounts include an income tax rate assumption of 21 % . the dollar amounts in the table are in thousands . replace_table_token_9_th investment valuation and impairment we carry debt securities classified as available‑for‑sale at fair value , and unrealized gains and losses on such securities , net of any deferred taxes , are reported as a separate component of accumulated other comprehensive income . our equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value and any changes in fair value are recognized in net income . we carry other equity investments that do not have a readily determinable fair value . these equity investments are recorded at cost , less impairment and adjusted for observable price changes under the measurement alternative provided under gaap . we review these investments for impairment during each reporting period . we do not have any securities classified as trading or held‑to‑maturity . we evaluate our available‑for‑sale investments regularly to determine whether there have been declines in value that are other‑than‑temporary . our outside investment managers assist us in this evaluation . when we determine that a security has experienced an other‑than‑temporary impairment , the impairment loss is recognized as a realized investment loss . we consider a number of factors in assessing whether an impairment is other‑than‑temporary , including ( 1 ) the amount and percentage that current fair value is below cost or amortized cost , ( 2 ) the length of time that the fair value has been below cost or amortized cost and ( 3 ) recent corporate developments or other factors that may impact an issuer 's near term prospects .
| underwriting results we measure the performance of our consolidated results , in part , based on our underwriting gain or loss . the following table provides the underwriting gain or loss for the years ended december 31 , 2018 and 2017 ( dollars in thousands ) : underwriting gain ( loss ) replace_table_token_16_th investment income net investment income increased by $ 608,000 , or 22.3 % , to $ 3.3 million for the year ended december 31 , 2018 , as compared to 2.7 million for the year ended december 31 , 2017 . this increase was mainly due to an increase in interest rates and average invested assets during 2018. average invested assets as of december 31 , 2018 , were $ 148.9 million as compared to $ 143.1 million at december 31 , 2017 , an increase of $ 5.8 million , or 4.1 % . as of december 31 , 2018 , the average invested asset balance was comprised of 86.3 % debt securities , 6.9 % equity securities and 6.8 % short-term investments , compared to the december 31 , 2017 mix of 87.3 % debt securities , 5.0 % equity securities and 7.9 % short term investments . the portfolio 's average quality was aa at december 31 , 2018 and 2017 . the portfolio produced a tax-equivalent book yield of 2.8 % and 2.5 % for the years ended december 31 , 2018 and 2017 , respectively . the duration-to-worst average of the debt securities portfolio was 3.1 years and 3.2 years at december 31 , 2018 and 2017 , respectively . other gains ( losses ) there were no other gains in 2018. in 2017 , we recognized a $ 750,000 gain on the sale of the renewal rights of a portion of the low-value dwelling book of business to another insurer . interest expense interest expense was $ 2.6 million and $ 1.4 million for the years ended december 31 , 2018 and 2017 , respectively .
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we provide certain operational and financial data on a silver equivalent basis , converting gold to silver at a historical 60:1 ratio of silver ounces to gold ounces , zinc is converted at a historical 0.06:1 ratio of silver ounces to zinc pounds and lead is converted at a historical 0.05:1 ratio of silver ounces to lead pounds , unless otherwise noted . we also provide realized silver equivalent data determined by average spot gold , silver , zinc and lead prices during the relevant period . overview we are primarily a gold and silver producer with five operating mines located in the united states , canada and mexico and several exploration projects in north america . 2018 highlights higher gold and silver grades contributed to increased gold and silver production and lower costs applicable to sales per ounce at palmarejo . palmarejo 's higher grade la nacion deposit , located between the independencia and guadalupe underground mines , is expected to commence production in the second half of 2019. rochester gold and silver production increased in 2018 driven by higher gold grades and the timing of recoveries . rochester commenced construction of crushing system upgrades which includes the addition of a high-pressure grinding roll , or hpgr , that are expected to increase the timing and overall recovery of silver from heap leach activities , while lowering operating costs . construction will be completed in the second quarter of 2019 with improved recoveries positively impacting production in the second half of 2019. kensington production declined and costs applicable to sales per gold ounce increased in the year primarily driven by lower throughput and recoveries . the higher grade jualin mine reached commercial production in december and will supplement existing ore sources at kensington in 2019 and is expected to contribute to increased production and lower costs applicable to sales per gold ounce in 2019. wharf gold production decreased and costs applicable to sales per gold ounce increased in 2018 as a result of unplanned weather-related downtime in the third quarter , the timing of leach pad recoveries and lower gold grades . increased tons placed in 2018 are expected to increase production levels in 2019. silvertip achieved commercial production in september 2018 , however , lower than expected production levels , grades and recovery rates as well as reduced plant availability contributed to unfavorable operating results at silvertip and resulted in $ 26.7 million write-down of metal inventory . progress towards a 1,100 ton per day ( 1,000 metric tonne per day ) continues as the company is focused on improvements in four key areas : mill projects targeting higher availability , maintenance procedures and systems , supply chain and procurement and employee training and development . recovery rates continued to improve throughout the fourth quarter and are expected to trend higher as mill consistency improves and the flotation circuit is optimized . in october 2018 , the company acquired all of the issued and outstanding securities of northern empire not owned by the company , for total consideration valued at approximately $ 73.6 million based on the issuance of approximately 12.1 million shares of coeur common stock . northern empire 's principal asset is the sterling gold project located in nevada . in november 2018 , coeur rochester , inc. acquired lincoln hill and related assets . approximately 4.3 million coeur shares were issued to alio gold shareholders upon closing of the acquisition , representing total consideration of approximately $ 19.0 million . 35 selected financial and operating results replace_table_token_18_th ( 1 ) see “ non-gaap financial performance measures. ” ( 2 ) reported production and financial results include operations through february 28 , 2018 . ( 3 ) prior to september 2018 commercial production date the silvertip mine produced 0.2 million ounces of silver , 2.6 million pounds of zinc , and 1.8 million pounds of lead which are excluded from production numbers presented , unless otherwise noted . ( 4 ) prior to december 2018 commercial production date the jualin deposit at the kensington mine produced 8,208 ounces of gold which are excluded from the production numbers presented , unless otherwise noted . 36 consolidated financial results year ended december 31 , 2018 compared to year ended december 31 , 2017 revenue revenue decreased by $ 83.7 million as a result of fewer gold ( 15 % ) and silver ( 3 % ) ounces sold and an 8 % decrease in average realized silver prices , partially offset by an increase in average realized gold prices ( 1 % ) and sales from silvertip , which commenced commercial production in september 2018. the company sold 12.4 million silver ounces , 350,508 gold ounces , 4.4 million zinc pounds and 2.6 million lead pounds compared to 12.7 million silver ounces and 410,604 gold ounces in the prior year . gold contributed 68 % of sales , silver contributed 31 % , zinc contributed 1 % and lead contributed less than 1 % , compared to 70 % of sales from gold and 30 % from silver . costs applicable to sales costs applicable to sales remained comparable despite lower silver equivalent ounces sold due to a $ 26.7 million write-down of inventory at silvertip , higher costs applicable to sales per gold ounce at wharf and kensington , partially offset by lower costs applicable to sales per silver ounce at palmarejo . for a complete discussion of costs applicable to sales , see results of operations below . amortization amortization decreased $ 18.1 million , or 12 % , due to fewer silver equivalent ounces sold at all operating sites . expenses general and administrative expenses decreased $ 2.3 million , or 7 % , primarily due to lower compensation costs . story_separator_special_tag million , or $ 0.26 per share , compared to net income of $ 10.9 million , or $ 0.06 per share . the decrease in net income from continuing operations was impacted by lower operating margin per consolidated silver equivalent ounce that includes a write-down of $ 26.7 million at silvertip of metal inventory as a result of lower than expected production levels , grades and recovery rates as well as reduced process plant availability and unfavorable changes in average realized silver prices , a write-down of $ 18.6 million on the consideration received from the manquiri divestiture , a receivable write-down of $ 6.5 million related to the rmc bankruptcy , a write-down of $ 3.4 million of property , plant and equipment at rochester and higher interest expense . net income ( loss ) from discontinued operations in respect of san bartolomé 's operating results , income increased $ 12.8 million , due to a $ 1.5 million gain on the sale of san bartolomé in 2018 , partially offset by lower production and higher unit costs . year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue revenue was higher resulting from a reduction of gold inventories carried over from 2016 that were sold in the first quarter of 2017 and a decrease in average realized silver and gold prices of 1 % and 2 % , respectively . the company sold 12.7 million silver ounces and 410,604 gold ounces , compared to sales of 8.9 million silver ounces and 338,131 gold ounces . gold contributed 70 % of sales and silver contributed 30 % compared to 73 % of sales from gold and 27 % from silver . costs applicable to sales costs applicable to sales increased due to higher silver and gold ounces sold and higher costs applicable to sales per gold ounce . for a complete discussion of costs applicable to sales , see results of operations below . amortization amortization increased $ 30.0 million or 26 % , primarily due to higher silver and gold ounces produced at palmarejo . expenses general and administrative expenses increased $ 4.3 million or 15 % due to higher compensation , severance and professional service costs . exploration increased $ 17.4 million as a result of the company 's expansion of near-mine drilling at palmarejo , kensington and rochester , and regional exploration focused on projects in nevada and mexico . pre-development , reclamation , and other expenses increased $ 4.5 million or 31 % , due to additional work at la preciosa and silvertip acquisition costs . other income and expenses in 2017 , the company incurred a $ 9.3 million loss in connection with the repurchase of the 7.875 % senior notes due 2021 ( the “ 2021 senior notes ” ) concurrent with the completed offering of the 5.875 % senior notes due 2024 ( the “ 2024 senior notes ” ) compared to losses of $ 21.4 million on extinguishment of debt in 2016. fair value adjustments , net , were a loss of $ 0.9 million compared to a loss of $ 11.6 million due to diminishing effects related to the palmarejo gold production royalty which was terminated in the third quarter of 2016 and the rochester royalty obligation which was terminated in the second quarter of 2017 . 39 interest expense ( net of capitalized interest of $ 1.9 million ) decreased to $ 16.4 million from $ 36.9 million , primarily due to lower average debt levels and the lower 2024 senior notes interest rate . other , net was a gain of $ 26.6 million , primarily due to a $ 21.1 million gain on the sale of the joaquin project in argentina and a $ 2.3 million gain on the repurchase of the rochester royalty obligation . income and mining taxes the company 's income and mining tax ( expense ) benefit consisted of : replace_table_token_21_th income and mining tax expense of approximately $ 29.0 million results in an effective tax rate of 73 % for 2017. this compares to income tax benefit of $ 33.2 million or effective tax rate of 308 % for 2016. the company 's effective tax rate is impacted by multiple factors as illustrated above . the comparability of the company 's income and mining tax ( expense ) benefit for the reported periods was primarily impacted by ( i ) variations in our income before income taxes ; ( ii ) geographic distribution of that income ; ( iii ) foreign exchange rates ; ( iv ) mining taxes ; ( v ) the non-recognition of tax assets ( vi ) the impact of specific transactions and ( vii ) the 2016 completion of a legal entity reorganization to integrate recent acquisitions . therefore , the effective tax rate will fluctuate , sometimes significantly , year to year . the following table summarizes the components of the company 's income ( loss ) before tax and income and mining tax ( expense ) benefit : replace_table_token_22_th a valuation allowance is provided for deferred tax assets for which it is more likely than not that the related benefits will not be realized . the company analyzes its deferred tax assets and if it is determined that the company will not realize all or a portion of its deferred tax assets , it will record or increase a valuation allowance . conversely , if it is determined that the company will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided , all or a portion of the related valuation allowance will be reduced . there are a number of risk factors that could impact the company 's ability to realize its deferred tax assets .
| results of continuing operations the company produced 12.8 million ounces of silver , 359,520 ounces of gold , 4.2 million pounds of zinc and 2.1 million pounds of lead in the year ended december 31 , 2018 , compared to 12.1 million ounces of silver and 383,086 ounces of gold in the year ended december 31 , 2017 . silver production increased 5 % , due to higher grade at palmarejo , timing of recoveries at rochester and commencement of commercial production at silvertip . gold production decreased 6 % as a result of lower mill throughput at kensington and unplanned weather related downtime in the third quarter and timing of leach pad recoveries at wharf , partially offset by the timing of recoveries at rochester . the company produced 12.1 million ounces of silver and 383,086 ounces of gold in the year ended december 31 , 2017 , compared to 9.4 million ounces of silver and 358,170 ounces of gold in the year ended december 31 , 2016. silver production increased 30 % due to higher grade and mill throughput at palmarejo . gold production increased 7 % due to higher grade and mill throughput at palmarejo , partially offset by lower grades at kensington and wharf . costs applicable to sales were $ 9.89 per average spot silver equivalent ounce ( $ 11.46 per silver equivalent ounce ) and $ 982 per gold equivalent ounce in the year ended december 31 , 2018 compared to $ 9.66 per average spot silver equivalent ounce ( $ 10.70 per silver equivalent ounce ) and $ 822 per gold equivalent ounce in the year ended december 31 , 2017 . costs applicable to sales per silver equivalent ounce increased 7 % as a result of a higher initial unit costs at silvertip . costs applicable to sales per gold equivalent ounce increased 19 % in the year ended december 31 , 2018 due to higher unit costs at kensington and wharf .
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the actual results of the future events described in such forward-looking statements in this form 10-k could differ materially from those stated in such forward-looking statements . among the factors that could cause actual results to differ materially are : adverse economic conditions , industry competition and other competitive factors , adverse weather conditions such as high water , low water , tropical storms , hurricanes , tsunamis , fog and ice , tornados , marine accidents , lock delays , fuel costs , interest rates , construction of new equipment by competitors , government and environmental laws and regulations , and the timing , magnitude and number of acquisitions made by the company . for a more detailed discussion of factors that could cause actual results to differ from those presented in forward-looking statements , see item 1a-risk factors . forward-looking statements are based on currently available information and the company assumes no obligation to update any such statements . for purposes of management 's discussion , all net earnings per share attributable to kirby common stockholders are “ diluted earnings per share. ” the weighted average number of common shares outstanding applicable to diluted earnings per share for 2019 , 2018 and 2017 were 59,909,000 , 59,689,000 and 55,361,000 , respectively . the increase in the weighted average number of common shares for 2019 compared with 2018 primarily reflects the issuance of restricted stock and restricted stock units ( “ rsus ” ) and the exercise of stock options . the increase in the weighted average number of common shares for 2018 compared with 2017 primarily reflects the issuance of 5,696,259 shares of common stock associated with the acquisition of s & s on september 13 , 2017 and the issuance of restricted stock and rsus and the exercise of stock options . overview the company is the nation 's largest domestic tank barge operator , transporting bulk liquid products throughout the mississippi river system , on the gulf intracoastal waterway , coastwise along all three united states coasts , and in alaska and hawaii . the company transports petrochemicals , black oil , refined petroleum products and agricultural chemicals by tank barge . as of december 31 , 2019 , the company operated a fleet of 1,053 inland tank barges with 23.4 million barrels of capacity , and operated an average of 299 inland towboats during 2019. the company 's coastal fleet consisted of 49 tank barges with 4.7 million barrels of capacity and 47 coastal tugboats . the company also owns and operates four offshore dry-bulk cargo barges , four offshore tugboats and one docking tugboat transporting dry-bulk commodities in united states coastal trade . through its distribution and services segment , the company provides after-market service and parts for engines , transmissions , reduction gears , and related equipment used in oilfield services , marine , power generation , on-highway , and other industrial applications . the company also rents equipment including generators , industrial compressors , railcar movers , and high capacity lift trucks for use in a variety of industrial markets , and manufactures and remanufactures oilfield service equipment , including pressure pumping units , for land-based oilfield service customers . for 2019 , net earnings attributable to kirby were $ 142,347,000 , or $ 2.37 per share , on revenues of $ 2,838,399,000 , compared with 2018 net earnings attributable to kirby of $ 78,452,000 , or $ 1.31 per share , on revenues of $ 2,970,697,000. the 2019 fourth quarter included $ 35,525,000 before taxes , $ 27,978,000 after taxes , or $ 0.47 per share , non-cash inventory write-downs and $ 4,757,000 before taxes , $ 3,747,000 after taxes , or $ 0.06 per share , severance and early retirement expense . the 2018 year reflected the integration of targa resources corp. 's ( “ targa ” ) pressure barge fleet , acquired on may 10 , 2018 , and the integration of higman , acquired on february 14 , 2018. the 2018 fourth quarter included $ 85,108,000 before taxes , $ 67,235,000 after taxes , or $ 1.12 per share , non-cash impairment of long-lived assets and lease cancellation costs and $ 2,702,000 before taxes , $ 2,135,000 after taxes , or $ 0.04 per share , non-cash impairment of goodwill . the 2018 second quarter included a one-time non-deductible expense of $ 18,057,000 , or $ 0.30 per share , related to the retirement of joseph h. pyne as executive chairman of the board of directors , effective april 30 , 2018. the 2018 first quarter included $ 3,261,000 before taxes , or $ 0.04 per share , of one-time transaction costs associated with the higman acquisition , as well as $ 2,912,000 before taxes , or $ 0.04 per share , of severance and retirement expenses , primarily related to cost reduction initiatives in the coastal marine transportation market and the integration of higman . 36 marine transportation for 2019 , 56 % of the company 's revenues were generated by its marine transportation segment . the segment 's customers include many of the major petrochemical and refining companies that operate in the united states . products transported include intermediate materials used to produce many of the end products used widely by businesses and consumers — plastics , fiber , paints , detergents , oil additives and paper , among others , as well as residual fuel oil , ship bunkers , asphalt , gasoline , diesel fuel , heating oil , crude oil , natural gas condensate and agricultural chemicals . consequently , the company 's marine transportation business is directly affected by the volumes produced by the company 's petroleum , petrochemical and refining customer base . story_separator_special_tag rates on coastal term contracts renewed in the 2019 fourth quarter increased in the 5 % to 15 % average range compared with term contracts renewed in the 2018 fourth quarter . spot contract rates in both the 2019 first and second quarters increased in the 10 % to 15 % average range compared to the 2018 first and second quarters . in the 2019 third quarter , spot contract rates increased approximately 20 % compared to the 2018 third quarter . in the 2019 fourth quarter , spot contract rates increased approximately 10 % compared to the 2018 fourth quarter . the 2019 marine transportation operating margin was 13.6 % compared with 9.9 % for 2018. distribution and services during 2019 , the distribution and services segment generated 44 % of the company 's revenues , of which 75 % was generated from service and parts and 25 % from manufacturing . the results of the distribution and services segment are largely influenced by the economic cycles of the oilfield service and oil and gas operator and producer markets , marine , power generation , on-highway and other industrial markets . distribution and services revenues for 2019 decreased 16 % when compared to 2018 and operating income decreased 48 % when compared with 2018. the decrease was primarily attributable to reduced activity in the oilfield as a result of oil price volatility in late 2018 and early 2019 , an oversupply of pressure pumping equipment in north america , and reduced spending and enhanced cash flow discipline for the company 's major oilfield customers . during the first half of 2019 , although oilfield activity levels and new orders for the company 's oilfield related products and services declined as compared to the same period in 2018 , the segment benefited from a significant backlog of manufacturing orders for new and remanufactured pressure pumping equipment received in the 2018 third and fourth quarters . most of these orders were completed in the 2019 first and second quarters as oilfield activity levels further declined for many of the company 's customers . as a result , customer demand and incremental orders for new and remanufactured pressure pumping equipment declined significantly for the duration of 2019 , and sales of new and overhauled transmissions and related parts and service were minimal during the 2019 third and fourth quarters . for 2019 , the oil and gas market represented approximately 53 % of distribution and services revenues . the commercial and industrial market , which contributed 47 % of distribution and services revenues for 2019 , saw increased service levels and new engine sales in the marine repair business for much of the year , although activity levels in the inland market declined during the 2019 third quarter as many customers reduced maintenance activities following months of river flooding conditions and during the summer harvest season . the commercial and industrial market also experienced increased demand for power generation equipment compared to 2018 , including the sale and installation of significant back-up power systems for major data centers in the 2019 first and second quarters . activity levels for the company 's specialty rental units , back-up power systems , and refrigeration equipment seasonally increased in anticipation of and as a result of summer storms and warm weather conditions in the 2019 second and third quarters . demand in the nuclear power generation market was stable compared to 2018. the distribution and services operating margin for 2019 was 5.4 % compared with 8.7 % for 2018. cash flow and capital expenditures the company continued to generate favorable operating cash flow during 2019 with net cash provided by operating activities of $ 511,813,000 compared with $ 346,999,000 of net cash provided by operating activities for 2018 , a 47 % increase . the improvement was driven by increased revenues and operating income in the marine transportation segment driven by the higman acquisition in february 2018 , the targa acquisition in may 2018 , the cgbm acquisition in december 2018 , and the cenac acquisition in march 2019 , as well as improved coastal barge utilization and improved inland and coastal pricing . the improvement was also due to a net increase in cash flows from the change in operating assets and liabilities of $ 153,953,000 , primarily due to a decrease in inventories reflecting reduced business activity levels in the distribution and services segment in 2019 compared to an increase in 2018. the inventory decrease in 2019 was primarily due to reduced business activity levels in the oil and gas market as compared to higher inventory levels in 2018 required to support higher business activity levels . in addition , during 2019 and 2018 , the company generated cash of $ 57,657,000 and $ 53,392,000 , respectively , from proceeds from the disposition of assets , and $ 5,743,000 and $ 13,264,000 , respectively , from proceeds from the exercise of stock options . 38 for 2019 , cash generated and borrowings under the company 's revolving credit facility were used for capital expenditures of $ 248,164,000 , including $ 22,008,000 for inland towboat construction , $ 18,433,000 for progress payments on three 5000 horsepower coastal atb tugboats , $ 2,294,000 for final costs on a 155,000 barrel coastal atb under construction purchased from another operator that was delivered to the company in the 2018 fourth quarter , and $ 205,429,000 primarily for upgrading existing marine equipment and marine transportation and distribution and services facilities . the company also used $ 262,491,000 for acquisitions of businesses and marine equipment . the company 's debt-to-capitalization ratio decreased to 28.9 % at december 31 , 2019 from 30.5 % at december 31 , 2018 , primarily due to the increase in total equity from net earnings attributable to kirby for 2019 of $ 142,347,000 , the exercise of stock options , the amortization of unearned equity compensation , and reduced borrowings .
| results of operations the company reported 2019 net earnings attributable to kirby of $ 142,347,000 , or $ 2.37 per share , on revenues of $ 2,838,399,000 , compared with 2018 net earnings attributable to kirby of $ 78,452,000 , or $ 1.31 per share , on revenues of $ 2,970,697,000 , and 2017 net earnings attributable to kirby of $ 313,187,000 , or $ 5.62 per share , on revenues of $ 2,214,418,000. marine transportation revenues for 2019 were $ 1,587,082,000 , or 56 % of total revenues , compared with $ 1,483,143,000 , or 50 % of total revenues for 2018 , and $ 1,324,106,000 , or 60 % of total revenues for 2017. distribution and services revenues for 2019 were $ 1,251,317,000 , or 44 % of total revenues , compared with $ 1,487,554,000 , or 50 % of total revenues for 2018 , and $ 890,312,000 , or 40 % of total revenues for 2017. the 2019 fourth quarter included $ 35,525,000 before taxes , $ 27,978,000 after taxes , or $ 0.47 per share , non-cash inventory write-downs and $ 4,757,000 before taxes , $ 3,747,000 after taxes , or $ 0.06 per share , severance and early retirement expense . 43 the 2018 fourth quarter included $ 85,108,000 before taxes , $ 67,235,000 after taxes , or $ 1.12 per share , non-cash impairment of long-lived assets and lease cancellation costs and $ 2,702,000 before taxes , $ 2,135,000 after taxes , or $ 0.04 per share , non-cash impairment of goodwill .
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since 2010 , mr. aiello has been a private investor and owner of real estate properties . jody kane has been a director since may 2014. mr. kane has been a managing partner at diamond bridge capital from february 2009 through the date of this report and from 2005-2009 , mr. kane was an analyst at sidoti & company llc . mr. kane graduated from troy university , with a b.s . in finance in 2001 . 22 involvement in certain legal proceedings to our knowledge , during the past ten years , none of our directors , executive officers , promoters , control persons , or nominees other than michael salaman ( see biographical information of michael salaman above regarding the chapter 11 bankruptcy protection filed by skinny nutritional corp. in 2013 ) has : ● been convicted in a criminal proceeding or been subject to a pending criminal proceeding ( excluding traffic violations and other minor offenses ) ; ● had any bankruptcy petition filed by or against the business or property of the person , or of any partnership , corporation or business association of which he was a general partner or executive officer , either at the time of the bankruptcy filing or within two years prior to that time ; ● been subject to any order , judgment , or decree , not subsequently reversed , suspended or vacated , of any court of competent jurisdiction or federal or state authority , permanently or temporarily enjoining , barring , suspending or otherwise limiting , his involvement in any type of business , securities , futures , commodities , investment , banking , savings and loan , or insurance activities , or to be associated with persons engaged in any such activity ; ● been found by a court of competent jurisdiction in a civil action or by the sec or the commodity futures trading commission to have violated a federal or state securities or commodities law , and the judgment has not been reversed , suspended , or vacated ; ● been the subject of , or a party to , any federal or state judicial or administrative order , judgment , decree , or finding , not subsequently reversed , suspended or vacated ( not including any settlement of a civil proceeding among private litigants ) , relating to an alleged violation of any federal or state securities or commodities law or regulation , any law or regulation respecting financial institutions or insurance companies including , but not limited to , a temporary or permanent injunction , order of disgorgement or restitution , civil money penalty or temporary or permanent cease-and-desist order , or removal or prohibition order , or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity ; or ● been the subject of , or a party to , any sanction or order , not subsequently reversed , suspended or vacated , of any self-regulatory organization ( as defined in section 3 ( a ) ( 26 ) of the exchange act ) , any registered entity ( as defined in section 1 ( a ) ( 29 ) of the commodity exchange act ) , or any equivalent exchange , association , entity or organization that has disciplinary authority over its members or persons associated with a member . board committees the company does not currently maintain a board of directors that is composed of a majority of “ independent ” directors . the company does not expect to initially appoint an audit committee , nominating committee and or compensation committee , or to adopt charters relative to each such committees . code of business conduct and ethics we have not adopted a code of business conduct and ethics . we have adopted an insider trading policy which sets forth the procedure regarding trading by insiders in securities of the company . limitation of directors liability and indemnification the colorado business corporations act authorizes corporations to limit or eliminate , subject to certain conditions , the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties . 23 we do not have director 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 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 report , particularly those under `` risk factors . '' dollars in tabular format are presented in thousands , except per share data , or otherwise indicated . overview growgeneration 's mission is to become one of the largest retail hydroponic and organic specialty gardening retail outlets in the industry . today , growgeneration owns and operates a chain of twelve ( 12 ) retail hydroponic/gardening stores , with ten ( 10 ) located in the state of colorado , one ( 1 ) in the state of california and one ( 1 ) in the state of nevada . our plan is to open and operate hydroponic/gardening stores throughout the united states . our stores sell thousands of products , such as organic nutrients and soils , advanced lighting technology , state of the art hydroponic and aquaponic equipment , and other products needed to grow indoors and outdoors . story_separator_special_tag on september 27 , 2016 , the company entered into a commercial lease to rent certain premises located in castle rock , colorado , to be effective from october 1 , 2016 to september 30 , 2019. the lease requires monthly payments of $ 1,775 through september 30 , 2017 ; $ 1,980 through september 30 , 2018 and $ 2,138 through september 30 , 2019. this eleventh store of the company began operations on october 1 , 2016. on october 6 , 2016 , the company closed on the 2106 private placement , pursuant to which it sold 1,000,000 units to 8 accredited investors at a price of $ .70 per unit , with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $ .70 per share . the warrants have a five year life for gross proceeds of $ 700,000. effective as of october 19 , 2016 , the company has been approved to start trading its common stock on the otcqb marketplace under the ticker symbol of “ grwg ” . the lease of the company store in las vegas , nevada commenced on november 15 , 2016 and continues through february 28 , 2022 and requires monthly payments of $ 6,776 through february 28 , 2018 , with annual increases of 4 % for the balance of the term of the lease . on january 30 , 2017 , the company entered into a commercial lease to rent certain premises located in trinidad , colorado , to be effective from march 1 , 2017 to february 28 , 2022. this 7,383 square feet premises is used by the company to open a new store to replace and consolidate its existing 3,000 square feet store in trinidad as part of the company 's expansion plan . on february 1 , 2017 , the company entered into a commercial lease to rent certain 12,837 square feet premises located in denver , colorado , to be effective from february 1 , 2017 to february 1 , 2022. the premises is used by the company to open a new store and as the company 's principal offices . 17 on february 1 , 2017 , the company 's wholly-owned subsidiary , growgeneration california corp. ( “ growgeneration california ” ) entered into an asset purchase agreement ( “ asset purchase agreement ” ) with an individual to purchase certain assets from the seller in connection with a retail hydroponic and garden supply business located in santa rosa , ca . the assets subject to the sale under the asset purchase agreement included inventories , fixed assets , tangible personal property , intangible personal property , receivables and a custom list . in addition to the cash consideration for the purchase of such assets , growgeneration california also agreed to make certain cash payments and 25,000 shares of common stock of the company to the seller contingent on the achievement of revenue goals by the business in 2017 , 2018 and 2019. the closing of the asset purchase took place on february 8 , 2017. in connection with the purchase of the assets , growgeneration california also entered into a commercial lease , effective from march 1 , 2017 to february 28 , 2022 , to rent the premises where the former business was located . in connection therewith , we closed our existing store in santa rosa and consolidated those operations with the growgeneration california operations opened at the new location . on march 10 , 2017 , the company closed a private placement of a total of 825,000 units of the company 's securities to 4 accredited investors . each unit consists of ( i ) one share of the company 's common stock and ( ii ) one 5 year warrant to purchase one share of common stock at an exercise price of $ 2.75 per share . the company raised an aggregate of $ 1,650,000 gross proceeds in the offering . story_separator_special_tag times new roman , serif ; margin : 0 ; text-align : justify '' > in january 2016 , the fasb issued asu 2016-01 , recognition and measurement of financial assets and financial liabilities . the amendments in this update revise the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value . the amendments are effective for annual reporting periods after december 15 , 2017 , including interim periods within those fiscal years . early adoption is permitted . the company is currently evaluating the potential impact of the adoption of this standard . in april 2015 , the fasb issued asu 2015-03 , interest- imputation of interest ( subtopic 835-30 ) . this guidance is to simplify the presentation of debt issuance costs by recognizing a debt liability in the balance sheet as a direct deduction from that debt liability consistent with the presentation of a debt discount . the amendments in this update are effective for financial statements issued for fiscal years beginning after december 15 , 2015 , and interim periods within those fiscal years . the company has adopted this standard and the adoption did not have a material impact on the company 's financial position . in august 2014 , the fasb issued 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 , which is intended to define management 's responsibility to evaluate whether there is substantial doubt about an organization 's ability to continue as a going concern within one year after the date that the financial statements are issued ( or within one year after the date that the financial statements are available to be issued when applicable ) and to provide related footnote disclosures
| results of operations the following table sets forth information from our statements of operations for the years ended december 31 , 2016 and 2015 : replace_table_token_2_th revenue net revenue for the year ended december 31 , 2016 increased $ 4,525,325 to $ 7,980,471 , as compared to $ 3,455,146 for the year ended december 31 , 2015. the increase was due to revenue from the retail stores that we acquired and opened during that period and the growth from our existing stores . cost of goods sold cost of sales for the year ended december 31 , 2016 increased by $ 3,424,358 to $ 5,776,194 , as compared to $ 2,351,836 for the year ended december 31 , 2015. the increase was due to an increase in the company 's revenue . gross profit was $ 2,204,277 for the year ended december 31 , 2016 , as compared to $ 1,103,310 for the year ended december 31 , 2015. the increase of $ 1,100,967 was due to an increase in the company 's revenue . 18 general and administrative expenses general and administrative expenses for the year ended december 31 , 2016 increased by $ 1,012,340 to $ 2,630,270 , as compared to $ 1,617,930 for the year ended december 31 , 2015. the increase was mainly due to increased payroll expenses , rent expense , professional fees , broker commissions , travel expense and non-cash expenses .
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2016-13 , financial instruments-credit losses ( “ asu 2016-13 ” ) and subsequent amendments have been issued since then . the standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income . the company will recognize an allowance for credit losses on available-for-sale securities rather than deductions in amortized cost . the standard is effective for fiscal years and interim periods beginning after december 15 , 2019. early adoption is permitted for all periods beginning after december 15 , 2018. the adoption of this standard is not expected to have a significant impact on the company 's financial statements . in february 2018 , the fasb issued asu 2018-02 , income statement – reporting comprehensive income : reclassification of certain tax effects from accumulated other comprehensive income ( “ asu 2018-02 ” ) . the provisions in asu 2018-02 allow for a reclassification from accumulated other comprehensive income to retained earnings to eliminate the stranded tax effects resulting from the change in federal corporate income tax rate in the tax cuts and jobs act enacted in december 2017. the company is required to adopt asu 2018-02 on january 1 , 2019. early adoption is permitted , including adoption in any interim period for which financial statements have not yet been issued . the adoption of asu 2018-02 is not expected to have a significant impact on the company 's financial position or results of operations . in august 2018 , the fasb issued asu 2018-15 , intangibles – goodwill and other – internal-use software ( “ asu 2018-15 ” ) , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software . this guidance will be effective for interim and annual reporting periods beginning after december 15 , 2019 , and early adoption is permitted . the company is currently evaluating the impacts that adoption of this asu will have on its financial statements . note 3 . revenue , deferred revenue , contract balances and performance obligations 66 castlight health , inc. notes to consolidated financial statements the company sells to customers based in the united states through direct sales and indirect channels . indirect channel revenue represented approximately 12 % of the company 's total revenue for the year ended december 31 , 2018 . deferred revenue as of december 31 , 2018 and december 31 , 2017 was $ 21.2 million and $ 30.4 million , respectively . contract assets as of december 31 , 2018 and december 31 , 2017 were $ 1.0 million and $ 1.2 million , respectively . $ 28.1 million and $ 26.4 million of revenue was recognized during the year ended december 31 , 2018 and 2017 , respectively , that was included in the deferred revenue balances at the beginning of the respective periods . the company recorded favorable cumulative catch-up adjustments to revenue arising from changes in estimates of transaction price of $ 1.1 million during the year ended december 31 , 2018 . the aggregate balance of remaining performance obligations from non-cancelable contracts with customers as of december 31 , 2018 was $ 156.8 million . the company expects to recognize approximately 70 % of this balance over the next 12 months , with the remaining balance recognized thereafter . remaining performance obligations are defined as deferred revenue and amounts yet to be billed for the non-cancelable portion of contracts . note 4 . deferred costs changes in the balance of total deferred commissions and total deferred professional service costs for the year ended december 31 , 2018 are as follows ( in thousands ) : replace_table_token_23_th ( 1 ) prior-period information has been adjusted for the adoption of asc 606. see note 2 – summary of significant accounting policies for a summary of adjustments . these costs are reviewed for impairment periodically . impairment charges , included in expense recognized above , were $ 1.9 million for the year ended december 31 , 2018 . no impairment charges were recorded for the year ended december 31 , 2017 . note 5 . business combinations on april 3 , 2017 , the company completed its acquisition of jiff . jiff provided an enterprise health benefits platform that served as a central hub for employee wellbeing and employee benefit programs and its acquisition by the company formed the basis for wellbeing navigator . the acquisition enabled the company to develop a product offering that provides the full spectrum of wellbeing , healthcare decision support and an engagement hub all in one complete package . the company acquired jiff for approximately 27,000,000 shares and options . at the closing on april 3 , 2017 , venrock , a holder of more than 5 % of the company 's capital stock , acquired a total of 3,965,979 shares of the company 's class b common stock in exchange for its shares of jiff capital stock . venrock will also receive its pro rata share of any additional contingent consideration further described below . bryan roberts , the chairman of the company 's board of directors , is a partner at venrock . accordingly , this was a related party transaction . the company 's board appointed a special committee ( comprised solely of disinterested directors ) to which it delegated the full and exclusive power , authority and discretion of the castlight board to evaluate , assess , and approve the jiff transaction on its behalf , including retaining a financial advisor for an opinion on the fairness of the financial conditions of the transaction . the transaction was approved solely by the special committee which concluded that the transaction terms were fair to castlight , and the transaction was in the best interests of castlight and its stockholders . 67 castlight health story_separator_special_tag 2016-13 , financial instruments-credit losses ( “ asu 2016-13 ” ) and subsequent amendments have been issued since then . the standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income . the company will recognize an allowance for credit losses on available-for-sale securities rather than deductions in amortized cost . the standard is effective for fiscal years and interim periods beginning after december 15 , 2019. early adoption is permitted for all periods beginning after december 15 , 2018. the adoption of this standard is not expected to have a significant impact on the company 's financial statements . in february 2018 , the fasb issued asu 2018-02 , income statement – reporting comprehensive income : reclassification of certain tax effects from accumulated other comprehensive income ( “ asu 2018-02 ” ) . the provisions in asu 2018-02 allow for a reclassification from accumulated other comprehensive income to retained earnings to eliminate the stranded tax effects resulting from the change in federal corporate income tax rate in the tax cuts and jobs act enacted in december 2017. the company is required to adopt asu 2018-02 on january 1 , 2019. early adoption is permitted , including adoption in any interim period for which financial statements have not yet been issued . the adoption of asu 2018-02 is not expected to have a significant impact on the company 's financial position or results of operations . in august 2018 , the fasb issued asu 2018-15 , intangibles – goodwill and other – internal-use software ( “ asu 2018-15 ” ) , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software . this guidance will be effective for interim and annual reporting periods beginning after december 15 , 2019 , and early adoption is permitted . the company is currently evaluating the impacts that adoption of this asu will have on its financial statements . note 3 . revenue , deferred revenue , contract balances and performance obligations 66 castlight health , inc. notes to consolidated financial statements the company sells to customers based in the united states through direct sales and indirect channels . indirect channel revenue represented approximately 12 % of the company 's total revenue for the year ended december 31 , 2018 . deferred revenue as of december 31 , 2018 and december 31 , 2017 was $ 21.2 million and $ 30.4 million , respectively . contract assets as of december 31 , 2018 and december 31 , 2017 were $ 1.0 million and $ 1.2 million , respectively . $ 28.1 million and $ 26.4 million of revenue was recognized during the year ended december 31 , 2018 and 2017 , respectively , that was included in the deferred revenue balances at the beginning of the respective periods . the company recorded favorable cumulative catch-up adjustments to revenue arising from changes in estimates of transaction price of $ 1.1 million during the year ended december 31 , 2018 . the aggregate balance of remaining performance obligations from non-cancelable contracts with customers as of december 31 , 2018 was $ 156.8 million . the company expects to recognize approximately 70 % of this balance over the next 12 months , with the remaining balance recognized thereafter . remaining performance obligations are defined as deferred revenue and amounts yet to be billed for the non-cancelable portion of contracts . note 4 . deferred costs changes in the balance of total deferred commissions and total deferred professional service costs for the year ended december 31 , 2018 are as follows ( in thousands ) : replace_table_token_23_th ( 1 ) prior-period information has been adjusted for the adoption of asc 606. see note 2 – summary of significant accounting policies for a summary of adjustments . these costs are reviewed for impairment periodically . impairment charges , included in expense recognized above , were $ 1.9 million for the year ended december 31 , 2018 . no impairment charges were recorded for the year ended december 31 , 2017 . note 5 . business combinations on april 3 , 2017 , the company completed its acquisition of jiff . jiff provided an enterprise health benefits platform that served as a central hub for employee wellbeing and employee benefit programs and its acquisition by the company formed the basis for wellbeing navigator . the acquisition enabled the company to develop a product offering that provides the full spectrum of wellbeing , healthcare decision support and an engagement hub all in one complete package . the company acquired jiff for approximately 27,000,000 shares and options . at the closing on april 3 , 2017 , venrock , a holder of more than 5 % of the company 's capital stock , acquired a total of 3,965,979 shares of the company 's class b common stock in exchange for its shares of jiff capital stock . venrock will also receive its pro rata share of any additional contingent consideration further described below . bryan roberts , the chairman of the company 's board of directors , is a partner at venrock . accordingly , this was a related party transaction . the company 's board appointed a special committee ( comprised solely of disinterested directors ) to which it delegated the full and exclusive power , authority and discretion of the castlight board to evaluate , assess , and approve the jiff transaction on its behalf , including retaining a financial advisor for an opinion on the fairness of the financial conditions of the transaction . the transaction was approved solely by the special committee which concluded that the transaction terms were fair to castlight , and the transaction was in the best interests of castlight and its stockholders . 67 castlight health
| and results of operations deferred commissions deferred commissions are the incremental costs that are incurred to obtain contracts with customers and consist primarily of sales commissions paid to our sales force and channel partners . the commissions for initial contracts are deferred and amortized on a straight-line basis over a period of benefit that we determined typically to be five years . we determined the period of benefit by taking into consideration the expected life of its subscription contracts , the expected life of the technology underlying its subscription services and other factors . the commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period . the deferred commission amounts are recoverable through our future revenues . amortization of deferred commissions is included in sales and marketing expense in the accompanying consolidated statements of operations . all costs deferred are reviewed for impairment periodically . deferred professional service costs deferred professional services costs are the direct costs incurred to fulfill subscription contracts that occur prior to the launch of our subscription services . professional service costs , which primarily consist of employee related expenses attributable to launch activities , are deferred and then amortized on a straight-line basis over a period of benefit that we determined typically to be five years for the same reasons as described in the deferred commissions disclosure above . deferred professional service costs are recoverable through future revenues . amortization of deferred professional service costs is included in cost of professional services and other revenue in the accompanying consolidated statements of operations . all costs deferred are reviewed for impairment periodically .
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statements that contain words like `` expects , '' `` anticipates , '' `` may , '' `` will , '' `` targets , '' `` projects , '' `` intends , '' `` plans , '' `` believes , '' `` seeks , '' `` estimates , '' or variations of such words and similar expressions are also forward-looking statements . readers are cautioned that these forward-looking statements are only predictions and are subject to risks and uncertainties related to , among other things , our ability to execute on our business plan , china 's control of currency exchanges , the decline in the pas market , ongoing litigation and other items discussed in `` part i , item 1a-risk factors '' of this form 10-k. therefore , actual results may differ materially and adversely from those expressed in any forward-looking statements . we do not guarantee future results , and actual results , developments and business decisions may differ from those contemplated by the forward-looking statements . we undertake no obligation to update these forward-looking statements to reflect events or circumstances occurring after the date of this form 10-k. overview we design , manufacture and sell ip-based telecommunications infrastructure products including our primary product suite of internet protocol tv ( `` iptv '' ) , next generation network ( `` ngn '' ) and broadband solutions along with the ongoing services relating to the installation , operation and maintenance of these products . in addition , we also sell handsets that are designed and manufactured primarily for the china market . our products are sold primarily to telecommunications service providers or operators . we sell an extensive range of products that are designed to enable voice , data and video services for our operator customers and consumers around the world . over the past few years , we have expanded our focus to build a global presence and currently sell our products in several established and emerging growth markets in asia , latin america and europe . we intend to continue to enhance our manufacturing capabilities and improve our internal supply chain and inventory management processes to ensure timely deliveries of quality products . we also intend to continue to implement and enhance our administrative infrastructure to assist our globalization . we differentiate ourselves with products designed to reduce network complexity , integrate high performance capabilities and allow a simple transition to next generation networks . we design our products to facilitate cost-effective and efficient deployment , maintenance and upgrades . because our products are ip-based , our customers can more easily integrate our products with other industry standard hardware and software . additionally , we believe we can introduce new features and enhancements that can be cost-effectively added to our customers ' existing networks . ip-based devices can be changed or upgraded in modules , saving our customers the expense of replacing their entire system installation . our strategic priorities are summarized as follows : focus primarily on providing a suite of ip-based solutions including our main product suite comprised of iptv , ngn and broadband products and related services . maintain our leadership position in china and india while growing our presence in the key developing economies across asia , latin america and europe . 51 leverage our strong reputation with telecom carriers and our ability to solve complex network problems . use our favorable reputation and carrier relationships in china to provide handsets to the china market . maintain and improve our financial model by strengthening our balance sheet , reducing operating expense levels and increasing bookings . in december 2008 , we announced an initiative to transition certain key functions , including finance , to china in order to eliminate functional duplication and reduce operating expenses . our ability to successfully implement this change in 2009 is a critical part of our plan to achieve profitability and maintain liquidity . we may encounter difficulties in implementing this significant change in a short time period . if we are not successful , we may not achieve the expected benefits despite having expended significant capital and human effort . sale of non-core assets on july 1 , 2008 , we sold utstarcom personal communications llc , a wholly-owned subsidiary of the company ( `` pcd '' ) , to an entity controlled by aig global investment group and certain other investors for a total sale consideration of approximately $ 237.7 million . pursuant to the terms of the divestiture agreement , we may be entitled to receive up to an additional $ 50 million earnout payment in 2011 based on the achievement of certain earnings levels of the divested business , personal communications devices llc ( `` pcd llc '' ) through december 31 , 2010. we recorded a net gain of $ 3.8 million from the divestiture during 2008. additionally , on july 31 , 2008 , we completed the divestiture of our mobile solutions business unit ( `` msbu '' ) to a global private equity firm . during the third quarter of 2008 , we recorded a net gain on divestiture of msbu of $ 3.9 million . restructuring programs on october 2 , 2007 , our board of directors approved a restructuring plan ( the `` 2007 plan '' ) to reduce operating costs , which included a worldwide reduction in force of approximately 12 % of the company 's headcount , or approximately 800 employees . the workforce reduction was primarily in the united states and china . we incurred a restructuring charge in connection with the 2007 plan of approximately $ 14.5 million in the fourth quarter of 2007 , comprised largely of cash payments associated with one-time severance benefits . we completed the workforce reduction during the first quarter of 2008. on december 16 , 2008 , our board of directors approved a restructuring plan ( the `` 2008 plan '' ) designed to reduce operating costs . story_separator_special_tag these factors along with the interconnectivity and interdependency of international economies have created a global downturn in economic activity which is sufficiently without precedent that the governments of many leading nations have taken actions designed to counter the worst effects and severity of current economic conditions . our business is sensitive to changes in general economic conditions , and we believe our 2008 results do not reflect all of the potential impacts the global economic downturn could have on our sales , operations and liquidity . in part this is because substantially all of the revenues and related cost of net sales recognized in 2008 in the broadband infrastructure , multimedia communication , and service segments result from long-term contracts , entered into before the global economic downturn , in which performance occurs over several years . additionally , some of the revenues recognized in 2008 in these segments results from equipment delivered and or services performed in earlier years because generally accepted accounting principles often require deferral of revenue recognition related to these complex contracts from the period in which equipment is delivered and installed until later periods when all obligations pursuant to the related contract are satisfied and all criteria for revenue recognition are met including receipt of the customer 's final acceptance of equipment and installation services . we are unable to predict how long the economic downturn will last . a continuing economic downturn may adversely impact our business in a number of ways , such as : reduced demand for our products and services . in a period of economic uncertainty customers may adopt a strategy of deferring purchases to upgrade existing or deploy new systems until later periods when the recoverability of their investment becomes more assured . in addition , customers who must finance their capital expenditures by issuance of debt or equity securities may find the securities markets unavailable to them . increased pricing pressure and lower margins . our competitors include a number of global enterprises with relatively greater size in terms of revenues , working capital , financial resources and number of employees , and our customers are telecommunication service providers who typically are owned , controlled , or sponsored by governments . if the size of our potential markets contract due to the global economic downturn , competition for available contracts may become more intense which could require us to offer or accept pricing , payment , or local content terms which are less favorable to remain competitive . in some cases we might be unwilling or unable to compete for business where competitive pressures make a potential opportunity unprofitable to us . greater difficulty in collecting accounts receivable . many of our telecommunication carrier customers are either owned or controlled by governments ; any changes in such governments ' policies concerning the authorization or funding of payments for capital expenditures could lengthen our cash collection cycle and thereby cause our liquidity to deteriorate . additionally , while the vast majority of our net sales are to such large , well capitalized telecommunication 54 carriers , some sales are made to distributors or other customers whose financial resources may be more subject to rapid decline , which could expose us to losing sales , delaying revenue recognition or accepting greater collection risks due to credit quality issues . additional restructuring and asset impairment charges . if we are unable to generate the level of new contract bookings , revenues , and cash flow contemplated by our financial plan , management will be forced to take further action to focus our business activities and align our cost structure with anticipated revenues . these actions , if necessary , could result in additional restructuring charges and or asset impairment charges being recognized in 2009 and beyond . story_separator_special_tag changed the reporting segments on which we measure performance and allocates resources . effective october 1 , 2007 , the new reporting segments were as follows : multimedia communications ; broadband infrastructure ; handsets ; services ; personal communications division ( pcd ) ; and 57 other , which includes our mobile solutions business unit ( msbu ) and custom solutions business unit ( csbu ) . our multimedia communications segment is responsible for the development and management of internet protocol television ( `` iptv '' ) and related technologies plus our core next generation network ( `` ngn '' ) software . our personal access system ( `` pas '' ) infrastructure and wireless systems teams are also a part of this segment . our broadband infrastructure segment is responsible for software and hardware products that enable end users to access high-speed , cost effective wireline data , voice and media communication . our handsets segment designs , builds and sells consumer handset devices that allow customers to access wireless services . the handsets segment included all handset revenues within china , including all pas handsets . following the disposition of pcd in july 2008 , the handsets segment also includes our korea based handset operations , whose principal activity is supplying handsets to pcd llc . we support the growth and operation of the installed base of our system solutions through our professional services business , utstarcom services . our globally-deployed experts assist our customers with activities ranging from network planning , circuit-to-packet network migration planning , systems integration , program management , operations management and support , and knowledge transfer . on july 1 , 2008 , we sold our personal communications division . see note 3 of notes to our consolidated financial statements included under part ii , item 8 of this annual report on form 10-k. prior to july 1 , 2008 , pcd sold and supported handsets other than pas handsets , mainly in the united states . included in our other segment are msbu and csbu . on july 31 , 2008 , we sold msbu which was responsible for the development , sales and service of our wireless ipcdma/ipgsm product line .
| fourth quarter 2008 operating results net sales replace_table_token_6_th replace_table_token_7_th three months ended december 31 , 2008 and 2007 net sales decreased by $ 565.2 million , or 70 % , to $ 241.1 million during the three months ended december 31 , 2008 compared to the same period in 2007. the decrease was primarily due to pcd being sold in july 2008. for the three months ended december 31 , 2007 , pcd represented $ 559.7 million of net sales . the disposal of msbu had an immaterial impact on net sales . net sales excluding pcd and msbu decreased by $ 6.0 million during the three months ended december 31 , 2008 compared to the same period in 2007. net sales of our handsets segment increased by $ 78.9 million , or 182 % , mainly due to $ 91.7 million sales to pcd llc during the fourth quarter of 2008. the increased sales to pcd llc more than offset the decline in sales of pas handsets in china . the sales of pas handsets in china was $ 26.9 million and $ 40.4 million , respectively for the fourth quarter of 2008 and 2007. multimedia communication segment net sales decreased by $ 40.1 million , or 33 % , for the three months ended december 31 , 2008 compared to the same period in 2007 , mainly due 55 to decline in pas infrastructure sales which continue to experience weakening demand , partially offset by higher rollingstream and set top box ( `` stb '' ) sales . broadband infrastructure segment net sales decreased by $ 33.2 million , or 64 % primarily due to lower cpe and msan sales . service segment net sales increased by $ 1.8 million or 12 % primarily due to higher international sales . other segment net sales decreased by $ 13.0 million or 83 % due to lower ip messaging revenue and overall decline of csbu revenue .
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the company 's general partnership or member interests in the funds , management and administrative fees received for the years ended december 31 , 2009 and 2008 are as follows : replace_table_token_13_th 8 notes to balance sheets ( continued ) note 3 - off balance sheet risks and uncertainties the company serves as the general partner , managing member , sponsor and or commodity pool operator , as applicable for the funds . the funds participate , directly or indirectly , in the speculative trading of equities , commodity futures , mutual funds and securities which may be subject to margin requirements . the funds are limited partnerships , limited liability companies or companies and each limited partner , member or shareholder , as applicable bears only the risk of its investment in the fund . however , the company as general partner , sponsor and or managing member , additionally bears the risk for any legal actions taken against a fund , margin calls or liabilities in excess of the fund 's assets . the company 's policy is to continuously monitor the exposure to the funds through the use of a variety of financial position and credit exposure reporting and control procedures . in addition , the company has a policy of reviewing the credit standing of each clearing broker or counterparty with which the funds conduct business . included in receivables at december 31 , 2009 and 2008 are $ 528,578 and $ 234,927 , respectively , due from winton futures fund , l.p. ( us ) . these amounts represent approximately 42 % and 51 % of total receivables at december 31 , 2009 and 2008 , respectively . the company 's revenues are dependent upon maintaining the level of assets in the respective funds . note 4 - shareholder 's equity transactions during the years ended december 31 , 2009 and 2008 , the company made distributions of $ 2,690,814 and $ 2,375,036 , respectively , to its parent . note 5 - note payable on october 13 , 2008 , the company borrowed $ 1,500,000 from an unrelated individual . the note bore interest at 10 % per annum and was due on october 13 , 2011. the original note was amended on december 14 , 2009 to reset the amount borrowed to $ 1,500,000 and extend the maturity to december 14 , 2012 with all other terms remaining the same . the note is payable in monthly installments of principal and interest of $ 48,400 and is secured by all of the assets of the company , including all fees , commissions or other amounts due to the company whether presently existing or created in the future . in addition , the note is guaranteed by the company 's president . future maturities of the note payable are as follows : replace_table_token_14_th 9 notes to balance sheets ( continued ) note 6 - fair value measurements the company 's assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with asc 820. see note 1 for a discussion of the company 's policies . the following tables present information about the company 's assets measured at fair value as of december 31 , 2009 and 2008 : quoted prices in significant significant active markets other observable unobservable for identical assets inputs inputs balance as of ( level 1 ) ( level 2 ) ( level 3 ) december , 31 , 2009 assets investments in investment funds , at fair value $ - $ - $ 10,437 $ 10,437 quoted prices in significant significant active markets other observable unobservable for identical assets inputs inputs balance as of ( level 1 ) ( level 2 ) ( level 3 ) december , 31 , 2008 assets investments in investment funds , at fair value $ - $ - $ 10,260 $ 10,260 the following table presents additional information about level 3 assets measured at fair value . both observable and unobservable inputs may be used to determine the fair value of positions that the company has classified within the level 3 category . as a result , the unrealized gains and losses for assets within the level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs . 10 note 6 - fair value measurements ( concluded ) changes in level 3 assets measured at fair value for the years ended december 31 , 2009 and 2008 : replace_table_token_15_th note 7 - subsequent events the company has performed an evaluation of subsequent events through march 20 , 2010 which is the date the financial statements were available to be issued . the evaluation did not result in any subsequent events that required disclosures and or adjustments . 11 story_separator_special_tag reference is made to “ item 8. financial statements and supplementary data. ” the information contained therein is essential to , and should be read in conjunction with , the following analysis . 9 ( a ) liquidity the partnership 's assets are generally held as cash or cash equivalents , which are used to margin the partnership 's futures positions and are sold to pay redemptions and expenses as needed . other than any potential market-imposed limitations on liquidity , the partnership 's assets are highly liquid and are expected to remain so . market-imposed limitations , when they occur , can be due to limited open interest in certain futures markets or to daily price fluctuation limits , which are inherent in the partnership 's futures trading . a portion of the partnership 's assets not used for margin and held with the custodian are invested in liquid , high quality securities . through december 31 , 2009 the partnership experienced no meaningful periods of illiquidity in any of the markets traded by the advisor on behalf of the partnership . ( b ) capital resources the partnership raises additional story_separator_special_tag the company 's general partnership or member interests in the funds , management and administrative fees received for the years ended december 31 , 2009 and 2008 are as follows : replace_table_token_13_th 8 notes to balance sheets ( continued ) note 3 - off balance sheet risks and uncertainties the company serves as the general partner , managing member , sponsor and or commodity pool operator , as applicable for the funds . the funds participate , directly or indirectly , in the speculative trading of equities , commodity futures , mutual funds and securities which may be subject to margin requirements . the funds are limited partnerships , limited liability companies or companies and each limited partner , member or shareholder , as applicable bears only the risk of its investment in the fund . however , the company as general partner , sponsor and or managing member , additionally bears the risk for any legal actions taken against a fund , margin calls or liabilities in excess of the fund 's assets . the company 's policy is to continuously monitor the exposure to the funds through the use of a variety of financial position and credit exposure reporting and control procedures . in addition , the company has a policy of reviewing the credit standing of each clearing broker or counterparty with which the funds conduct business . included in receivables at december 31 , 2009 and 2008 are $ 528,578 and $ 234,927 , respectively , due from winton futures fund , l.p. ( us ) . these amounts represent approximately 42 % and 51 % of total receivables at december 31 , 2009 and 2008 , respectively . the company 's revenues are dependent upon maintaining the level of assets in the respective funds . note 4 - shareholder 's equity transactions during the years ended december 31 , 2009 and 2008 , the company made distributions of $ 2,690,814 and $ 2,375,036 , respectively , to its parent . note 5 - note payable on october 13 , 2008 , the company borrowed $ 1,500,000 from an unrelated individual . the note bore interest at 10 % per annum and was due on october 13 , 2011. the original note was amended on december 14 , 2009 to reset the amount borrowed to $ 1,500,000 and extend the maturity to december 14 , 2012 with all other terms remaining the same . the note is payable in monthly installments of principal and interest of $ 48,400 and is secured by all of the assets of the company , including all fees , commissions or other amounts due to the company whether presently existing or created in the future . in addition , the note is guaranteed by the company 's president . future maturities of the note payable are as follows : replace_table_token_14_th 9 notes to balance sheets ( continued ) note 6 - fair value measurements the company 's assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with asc 820. see note 1 for a discussion of the company 's policies . the following tables present information about the company 's assets measured at fair value as of december 31 , 2009 and 2008 : quoted prices in significant significant active markets other observable unobservable for identical assets inputs inputs balance as of ( level 1 ) ( level 2 ) ( level 3 ) december , 31 , 2009 assets investments in investment funds , at fair value $ - $ - $ 10,437 $ 10,437 quoted prices in significant significant active markets other observable unobservable for identical assets inputs inputs balance as of ( level 1 ) ( level 2 ) ( level 3 ) december , 31 , 2008 assets investments in investment funds , at fair value $ - $ - $ 10,260 $ 10,260 the following table presents additional information about level 3 assets measured at fair value . both observable and unobservable inputs may be used to determine the fair value of positions that the company has classified within the level 3 category . as a result , the unrealized gains and losses for assets within the level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs . 10 note 6 - fair value measurements ( concluded ) changes in level 3 assets measured at fair value for the years ended december 31 , 2009 and 2008 : replace_table_token_15_th note 7 - subsequent events the company has performed an evaluation of subsequent events through march 20 , 2010 which is the date the financial statements were available to be issued . the evaluation did not result in any subsequent events that required disclosures and or adjustments . 11 story_separator_special_tag reference is made to “ item 8. financial statements and supplementary data. ” the information contained therein is essential to , and should be read in conjunction with , the following analysis . 9 ( a ) liquidity the partnership 's assets are generally held as cash or cash equivalents , which are used to margin the partnership 's futures positions and are sold to pay redemptions and expenses as needed . other than any potential market-imposed limitations on liquidity , the partnership 's assets are highly liquid and are expected to remain so . market-imposed limitations , when they occur , can be due to limited open interest in certain futures markets or to daily price fluctuation limits , which are inherent in the partnership 's futures trading . a portion of the partnership 's assets not used for margin and held with the custodian are invested in liquid , high quality securities . through december 31 , 2009 the partnership experienced no meaningful periods of illiquidity in any of the markets traded by the advisor on behalf of the partnership . ( b ) capital resources the partnership raises additional
| performance summary the partnership 's success depends primarily upon qim 's ability to recognize and capitalize on market trends in the sectors of the global commodity futures markets in which it trades . the partnership intends to produce long-term capital appreciation through growth , and not current income . the past performance of the partnership is not necessarily indicative of future results . 2009 the partnership commenced operations on october 7 , 2009. during the fourth quarter of 2009 , the partnership achieved net realized and unrealized losses of $ 895,208 from its trading of commodity futures contracts including brokerage commissions of $ 65,454. the partnership accrued total expenses of $ 137,232 , including $ 43,291 in management fees paid to the general partner , and $ 83,792 in service and professional fees . the partnership earned $ 16,661 in interest income during 2009. an analysis of the profits and losses generated from the partnership 's commodity futures trading activities for the fourth quarter of 2009 is set forth below . fourth quarter 2009 . the partnership struggled through the end of october as major stock index futures sold off at month-end on the decline of equity markets . after a very strong run on the long side of the equity markets , the partnership initiated short positions during the month , but the equity markets did not start heading south until the partnership was once again bullish . gold futures climbed to an all-time high and crude oil prices rose as the 10 u.s. dollar weakened . the partnership rebounded at the start of november as holdover equity positions , which had contributed to the prior month 's drawdown , rallied during the first week . at month-end , with the partnership long , the yen hit a 14-year high versus the u.s. dollar . the metals and agricultural sectors also provided meaningful boosts to the partnership .
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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 “ liquidity and capital resources ” 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 cabinet enclosures . 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 50 % 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 , u.s.a. ; emea , which includes europe , the middle east and africa , with our segment headquarters in zug , 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 . 23 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 and motive power products . net sales classifications by product line are as follows : reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems , uninterruptible power systems , or “ ups ” applications for computer and computer-controlled systems , and other specialty power applications , including medical and security systems , premium starting , lighting and ignition applications , in switchgear , electrical control systems used in electric utilities , large-scale energy storage , energy pipelines , in commercial aircraft , satellites , military aircraft , submarines , ships and tactical vehicles . reserve power products also include thermally managed cabinets and enclosures for electronic equipment and batteries . story_separator_special_tag we recently initiated an operational excellence program , referred to as enersys operating system or eos , to increase the focus on cost saving programs , as well as to improve targeted business processes , using lean tools and techniques . we began this effort in january 2017 and will gradually roll out the tools and techniques globally over a period of years . eos is a major initiative towards our efforts to improve our operating margins by a minimum of 200 basis points by the end of fiscal 2021 . 25 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 . 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 . we then calculate the present value of the respective cash flows for each reporting unit to arrive at the fair value using the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair value estimated using the market approach . finally , we compare the estimated fair value of each reporting unit to its respective carrying value in order to determine if the goodwill assigned to each reporting unit is potentially impaired . in january 2017 , the financial accounting standards board ( “ fasb ” ) issued asu 2017-04 , “ intangibles-goodwill and other ( topic 350 ) : simplifying the accounting for goodwill impairment ” , which eliminated step 2 from the goodwill impairment test . if the fair value of the reporting unit exceeds its carrying value , goodwill is not impaired and no further testing is required . if the fair value of the reporting unit is less than the carrying value , an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit 's fair value ; however , the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit . this update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after december 15 , 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. consistent with our accounting policy of carrying out the annual goodwill impairment test on the first day of the fourth quarter of a fiscal year , we conducted the annual test on january 2 , 2017 and were able to early adopt asu 2017-04. for more details , see note 5 to the consolidated financial statements . 26 significant assumptions used include management 's estimates of future growth rates , the amount and timing of future operating cash flows , capital expenditures , discount rates as well as market and industry conditions and relevant comparable company multiples for the market approach .
| overview our sales in fiscal 2016 were $ 2.3 billion , an 8 % decrease from prior year 's sales . this was the result of a 7 % decrease due to foreign currency translation impact and a 2 % decrease in organic volume , partially offset by a 1 % increase from acquisitions . gross margin percentage in fiscal 2016 increased by 80 basis points to 26.4 % compared to fiscal 2015 , mainly due to lower commodity costs and favorable product mix combined with the benefits of restructuring programs in emea , despite a small decline in organic volume and an increase in warranty costs . 36 a discussion of specific fiscal 2016 versus fiscal 2015 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 decreased by $ 46.4 million or 3.5 % in fiscal 2016 , as compared to fiscal 2015 , primarily due a decrease in currency translation impact and organic volume of approximately 2 % , each . the emea segment 's revenue decreased by $ 161.4 million or 17.0 % in fiscal 2016 , as compared to fiscal 2015 , primarily due to a decrease in currency translation impact and organic volume of approximately 12 % and 6 % , respectively , partially offset by a 1 % increase in pricing . the asia segment 's revenue increased by $ 18.5 million or 7.9 % in fiscal 2016 , as compared to fiscal 2015 , primarily due to an increase from acquisitions and organic volume of approximately 13 % and 6 % , respectively , partially offset by a 10 % decrease in currency translation impact and a 1 % decrease due to pricing .
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overview we were incorporated in california in 1992 under the name omnicell technologies , inc. and reincorporated in delaware in 2001 as omnicell , inc. we are a leading provider of automated solutions for medication and supply management in healthcare . our automation and analytics solutions are designed to enable healthcare facilities to acquire , manage , dispense and administer medications and medical-surgical supplies and are intended to enhance patient safety , reduce medication errors , reduce operating costs , improve workflow and increase operational efficiency . approximately 2,700 hospitals utilize one or more of our products , of which more than 1,700 hospitals in the united states have installed our automated hardware/software solutions for controlling , dispensing , acquiring , verifying , tracking and analyzing medications and medical and surgical supplies . approximately 6,000 institutional and retail pharmacies utilize our medication adherence packaging solutions . we sell our medication control systems together with related consumables and services , and medical and surgical supply control systems and generate the majority of our revenue in the united states . however , we expect our revenue from our international operations to increase in future periods as we continue to grow our international business . our sales force is organized by geographic region in the united states and canada , and for a portion of our products in the united kingdom and germany . we also sell through distributors in asia , australia , europe , the middle east and south america . we have not sold in the past , and have no future plans to sell our products either directly or indirectly to customers located in countries that are identified as state sponsors of terrorism by the u.s. department of state , and are subject to economic sanctions and export controls . in may 2012 , we completed our acquisition of medpak holdings , inc. ( `` medpak '' ) . medpak is the parent company of mts medication technologies , inc. ( `` mts '' ) , a worldwide provider of medication adherence packaging systems . this acquisition aligns us with the long-term trends of the healthcare market to manage the health of patients across the continuum of care giving us the ability to serve both the acute and non-acute markets . omnicell and mts bring capabilities to each other that strengthen the product lines and expand the medication management coverage of both companies . please refer to note 2 , `` business acquisition '' to the notes to consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding the transaction . in connection with this acquisition , we realigned our management reporting structure to identify those dispensing systems and other related business transactions that are sold into long-term care pharmacies and facilities . accordingly , the operations of this portion of our activities are now being reflected as a part of the non-acute care segment for the year ended december 31 , 2012 . please refer to note 17 , `` segments '' to the notes to consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding the results for both the acute care and non-acute care segments . in the third quarter of 2012 , we entered into an agreement with our distributor in the united kingdom to purchase 15 % of its outstanding equity for approximately $ 0.9 million in cash to accelerate the adoption of medication and supply automation in the united kingdom . in connection with the investment , we have the right , under certain circumstances , to appoint a member to this company 's board of directors as well as certain other voting rights . as a result of these and other factors , we are accounting for this investment using the equity method . our proportionate equity share of the income of this distributor recognized in our financial statements for the year ended december 31 , 2012 was immaterial . we are working to develop relationships with major providers of hospital information management systems with the goal of enhancing the interoperability of our products with their systems . we believe that enhanced interoperability will help reduce implementation costs , time , and maintenance for shared clients , while providing new clinical workflows designed to enhance efficiency and patient safety . our revenue increased by 27.9 % to $ 314.0 million in the twelve month period ended december 31 , 2012 from $ 245.5 million for the year ended december 31 , 2011 . of the $ 68.5 million increase in revenues from 2011 to 2012 , $ 61.8 million was attributable to an increase in product revenues for 2012 as compared with 2011 , reflecting increased completed installations of 35 our new automation products , increases in lease renewals from existing customers , and revenue derived from our acquisition of mts , during the second quarter of 2012 , which comprises the predominant portion of our non-acute care segment . service revenues increased by $ 6.7 million in 2012 as compared with 2011 , primarily due to growth in the installed customer base . for the year ended december 31 , 2012 , our acute care segment contributed $ 197.4 million and $ 62.8 million in product and service revenue , respectively . this compares to product and service revenue of $ 185.9 million and $ 59.7 million for the acute care segment in 2011. for the year ended december 31 , 2012 , the non-acute care segment contributed $ 50.3 million and $ 3.6 million in product and service revenue , respectively . non-acute care revenues were not significant for the year ended december 31 , 2011 and , accordingly , have been included in the acute care segment for that period . story_separator_special_tag our gross profit increased 25.6 % for the year ended december 31 , 2012 , as compared to the year ended december 31 , 2011 , with gross profit as a percentage of revenue decreasing by 1.0 % to 54.3 % . the increase in gross profits was attributable to our non-acute care segment activities since the acquisition of mts in the second quarter of 2012. the decrease in margins were primarily attributable to lower margins associated with our non-acute care segment , primarily a reflection of lower margins on the mts product lines . we expect revenues to increase significantly in 2013 due to a full year of contribution from the acquired mts entity . we do not anticipate any major fluctuations in our gross margins beyond normal fluctuations caused by changes in product mix . revenues and gross margins may be adversely affected , however , as a result of unforeseen market price reductions and additional costs to expand our business . net income increased to $ 16.2 million in 2012 compared to $ 10.4 million in 2011 due to an increase in gross profit of $ 34.8 million , partially offset by a $ 23.9 million increase in operating expenses primarily due to an increase in selling , general and administrative expenses of $ 22.2 million and an increase in research and development activities of $ 1.7 million . these increases were primarily driven by the acquisition of mts . with the acquisition of mts , we have organized our business into two operating business segments : acute care , which primarily includes products and services sold to hospital customers , and non-acute care , which primarily includes products and services sold to customers outside of hospital settings . the acute care segment is organized around the design , manufacturing , selling and servicing of medication and supply dispensing systems . the non-acute care segment includes primarily the manufacturing and selling of consumable medication blister cards , packaging equipment and ancillary products and services , but also includes medication dispensing systems sold to non-acute care pharmacies and facilities . we report segment information based on the management approach . the management approach designates the internal reporting used by the chief operating decision maker ( the `` codm '' ) , for making decisions and assessing performance as the source of our operating segments . the codm is our chief executive officer . the codm allocates resources to and assesses the performance of each operating segment , using information about its revenues , gross profit and income ( loss ) from operations . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we regularly review our estimates and assumptions , which are based on historical experience and various other factors that are believed to be reasonable under the circumstances , 37 the results of which form the basis for making judgments about the carrying values of certain assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates and assumptions . we believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition . we earn revenues from sales of our medication control systems , together with related consumables and services , and medical/surgical supply control systems with related services , which are sold in our principal market , which is the healthcare industry . revenues related to consumable products are reported net of discounts provided to our customers . our customer arrangements typically include one or more of the following deliverables : products —software-enabled equipment that manages and regulates the storage and dispensing of pharmaceuticals , consumable blister cards and packaging equipment and other medical supplies . software —additional software applications that enable incremental functionality of our equipment . installation —installation of equipment as integrated systems at customers ' sites . post-installation technical support —phone support , on-site service , parts and access to unspecified software upgrades and enhancements , if and when available . professional services —other customer services , such as training and consulting . we recognize revenue when the earnings process is complete , based upon our evaluation of whether the following four criteria have been met : persuasive evidence of an arrangement exists . we use signed customer contracts and signed customer purchase orders as evidence of an arrangement for leases and sales . for service engagements , we use a signed services agreement and a statement of work to evidence an arrangement . delivery has occurred . equipment and embedded software product delivery is deemed to occur upon successful installation and receipt of a signed and dated customer confirmation of installation letter , providing evidence that we have delivered what a customer ordered . in instances of a customer self-installation , product delivery is deemed to have occurred upon receipt of a signed and dated customer confirmation letter . if a sale does not require installation , we recognize revenue on delivery of products to the customer , including transfer of title and risk of loss , assuming all other revenue criteria are met . we recognize revenue from sales of products to distributors upon delivery , assuming all other revenue criteria are met since we do not allow for rights of return or refund . for the sale of consumable blister cards , we recognize revenue when title and risk of loss of the products shipped have transferred to the customer , which usually occurs upon shipment from our facilities .
| results of operations 41 replace_table_token_8_th product revenues , cost of product revenues and gross profit the table below shows our product revenues , cost of product revenues and gross profit for the years ended december 31 , 2012 , 2011 and 2010 and the percentage change between those years : replace_table_token_9_th 2012 compared to 2011 product revenues increased $ 61.8 million , or 33.2 % , in 2012 as compared to 2011. our ability to grow revenue is dependent on our ability to continue to obtain orders from customers , the volume of installations we are able to complete , our 42 ability to meet customer needs and provide a quality installation experience and our flexibility in manpower allocations among customers to complete installations on a timely basis . the timing of our acute care product revenues is primarily dependent on when our customers ' schedules allow for installations . the overall increase in product revenues was driven by the increased installations of our new automation products , including customer product upgrades using our g4 platform and revenue derived from mts subsequent to its acquisition by omnicell during the second quarter of 2012.we anticipate that our revenues will continue to increase in 2013 as we fulfill our existing backlog of orders and as we experience higher customer product upgrades to the g4 platform in addition to having a full year of non-acute care revenues from the acquisition of mts . cost of product revenues increased by $ 32.8 million , or 41.2 % , in 2012 as compared to 2011. this increase was primarily a result of non-acute care product costs of $ 30.6 million , which included $ 1.7 million of acquisition-related charges primarily associated with the step-up to the estimated fair value of inventory acquired from mts and consumed in the normal manufacturing cycle of our business .
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the company has built a balanced portfolio of properties with a significant base of current production and reserves coupled with low-risk development drilling opportunities and meaningful upside from newer operating areas . the company produced an average 227 mmcfe per day during the fourth quarter of 2018 and as of december 31 , 2018 had proved reserves of 1,345 mmcfe ( 81 % natural gas ) with a pv-10 of $ 1.1 billion . pv-10 value is a non-gaap measure , see the section titled “ oil and natural gas reserves ” of this form 10-k for a reconciliation of this non-gaap measure to the standardized measure of discounted future net cash flows , the most directly comparable gaap measure . being a committed and long-term operator in south texas , the company possesses a significant understanding of the reservoir characteristics , geology , landowners and competitive landscape in the region . the company leverages this in-depth knowledge to continue to assemble high quality drilling inventory while continuously enhancing its operations to maximize returns on capital invested . operational results the company continues to optimize completion techniques in order to enhance well performance across its portfolio . the following table and discussion highlights the company 's drilling and completion schedule for 2018 : replace_table_token_14_th ( 1 ) other includes non-core properties . during the fourth quarter 2018 , the company brought 12 net wells online . for the full year , the company drilled 33 net wells and completed 32 net wells . the number of wells completed is above the company 's prior guidance of 25-27 net wells . the company drilled in all areas of its portfolio during 2018 and more recently has increased its investment in liquids opportunities . in the webb county gas area , which includes fasken , the company brought 13 net wells online in 2018. the company focused on developing its high return lower eagle ford wells and strategically appraising and delineating its upper eagle ford locations . the fasken development demonstrates the company 's shift to selectively employing high intensity slickwater fracs across its portfolio . for the second half of 2018 , the company averaged a completion intensity of approximately 2,700 pounds of proppant per lateral foot and 59 barrels of fluid per lateral foot , an increase of 71 % and 161 % , respectively , from the first half of the year . the company continues to value fasken 's consistent performance , low operating expense and upside potential . in the la salle condensate area , which includes artesia , the company brought five net wells online in 2018. due to operational improvements and service price reductions , the company realized an 18 % reduction in total well cost per foot from a two-well pad that was brought online in the third quarter and a three-well pad that was brought online in the fourth quarter . all five wells were completed similarly and averaged approximately 2,400 pounds of proppant per lateral foot and 64 barrels of slickwater fluid 33 per lateral foot . based on these results , the company plans to accelerate the development of the la salle condensate area in 2019 , which it believes will increase its oil and natural gas liquids production . in the southern eagle ford gas fairway , which includes oro grande , uno mas and south awp , the company carried forward its successful delineation and appraisal across its 60,000 gross acre position . the company continues to realize operational efficiencies with its nmc 6h well costing 30 % less and being drilled 35 % faster than the average of its nmc 1h through nmc 5h wells . in addition , the company continued to add to its position through leasing and acreage trades . the company swapped 2,300 net isolated acres for 4,300 net acres contiguous to its southern eagle ford gas area . in total , this acreage trade added 35 gross drilling locations . additionally , the acreage the company traded away was stranded and would have required a significant amount of midstream capital investment in order to develop . in the mcmullen oil area , which includes north awp and where the company had not been active for several years , the team set a company record by drilling an 11,400 foot lateral in the fourth quarter with a second well on this pad also exceeding 11,000 feet . during 2018 , the company decreased its drilling cost per lateral foot on a recent three-well pad by 27 % compared to a three-well pad drilled in 2014. these developments have affected both the cost and the speed of drilling , with the team setting a spud to total depth company record of 6.8 days on the smr 21h , a 31 % reduction from the prior company record . in 2018 , the company conducted numerous initiatives to reduce capital expenditures , including moving to offline production cementing , using significant amounts of regional sand and the more widespread utilization of simultaneous-operations . offline production cementing , which allows drilling rigs to reduce walking time in-between wells , saved roughly one-half day per well on multi-well pads . in 2018 , the company pumped over 200 million pounds of regional sand , over 30 % of the total sand pumped for the year , and aims to increase this percentage in 2019 due to its compelling value proposition . the company 's use of simultaneous-operations , including flowback and drill out activities , helped decrease the time to bring a well online by two days on average . these shortened cycle times , combined with our artificial intelligence guided rate-transient analysis , allow the company to turn wells online faster and manage them better during the critical initial flowback period . 2018 cost reduction initiatives : the company continues to focus on cost reduction measures and took additional actions in 2018 to reduce operating and overhead costs . story_separator_special_tag 37 the following table provides additional information regarding our oil and gas sales , by commodity type , for the years ended december 31 , 2018 and 2017 : replace_table_token_17_th for the years ended december 31 , 2018 and 2017 we recorded net ( losses ) gains of $ ( 9.8 ) million and $ 17.9 million , respectively , related to our derivative activities . the change was driven primarily by changes in commodity pricing . this activity is recorded in “ net gain ( loss ) on commodity derivatives ” on the accompanying consolidated statements of operations . 38 costs and expenses the following table provides additional information regarding our expenses for the years ended december 31 , 2018 and 2017 : replace_table_token_18_th 2018 - our costs and expenses during 2018 versus 2017 were as follows : general and administrative expenses , net . these expenses were $ 22.6 million and $ 30.0 million for the years ended december 31 , 2018 and 2017 , respectively . cost reductions were primarily related to lower salaries and burdens and decreases in other expenses as a result of our cost reduction initiatives . included in general and administrative expenses is $ 6.0 million and $ 6.8 million in share based compensation for the years ended december 31 , 2018 and 2017 , respectively . depreciation , depletion and amortization ( “ dd & a ” ) . these expenses on a per mcfe basis were $ 1.01 and $ 0.84 for the years ended december 31 , 2018 and 2017 , respectively . the increase in the rate per unit is primarily due to a higher depletable base relative to reserves . the higher depletion expense is due to a higher production and a higher per unit rate . lease operating cost . these expenses were $ 17.6 million and $ 21.9 million for the years ended december 31 , 2018 and 2017 , respectively . the decrease was primarily due to divestitures of assets and a concentrated effort by the company to reduce overall operating costs . transportation and gas processing . these expenses all related to natural gas and ngl sales . these expenses on a per mcfe basis were $ 0.35 and $ 0.34 for the years ended december 31 , 2018 and 2017 , respectively . severance and other taxes . these expenses on a per mcfe basis were $ 0.17 and $ 0.15 for the years ended december 31 , 2018 and 2017 , respectively . severance and other taxes , as a percentage of oil and gas sales , were approximately 4.4 % and 4.2 % for the years ended december 31 , 2018 and 2017 , respectively . interest . our gross interest cost was $ 28.6 million and $ 15.9 million for the years ended december 31 , 2018 and 2017 , respectively , of which $ 0.9 million and $ 0.8 million was capitalized , respectively . the increase in gross interest from 2017 was primarily due to increased borrowings on our credit facility . income taxes . the company has significant deferred tax assets in excess of deferred tax liabilities . because of uncertainty about the realization of any future tax benefits , the company carries a full valuation allowance against its net deferred asset balance . tax expense that would have been recognized at the statutory rate for 2018 was predominately offset by a reduction in the valuation allowance carried forward from 2017 . 39 non-gaap financial measures adjusted ebitda we present adjusted ebitda attributable to common stockholders ( “ adjusted ebitda ” ) in addition to our reported net income ( loss ) in accordance with u.s. gaap . adjusted ebitda is a non-gaap financial measure that is used as a supplemental financial measure by our management and by external users of our financial statements , such as investors , commercial banks and others , to assess our operating performance as compared to that of other companies in our industry , without regard to financing methods , capital structure or historical costs basis . it is also used to assess our ability to incur and service debt and fund capital expenditures . we define adjusted ebitda as net income ( loss ) : plus/ ( less ) : depreciation , depletion , amortization ; accretion of asset retirement obligations ; interest expense ; impairment of oil and natural gas properties ; net losses ( gains ) on commodity derivative contracts ; amounts collected ( paid ) for commodity derivative contracts held to settlement ; income tax expense or ( benefit ) ; and share-based compensation expense . our adjusted ebitda should not be considered an alternative to net income ( loss ) , operating income ( loss ) , cash flows provided by ( used in ) operating activities or any other measure of financial performance or liquidity presented in accordance with u.s. gaap . our adjusted ebitda may not be comparable to similarly titled measures of other companies because all companies may not calculate adjusted ebitda in the same manner . the following tables present reconciliations of our net income ( loss ) ( the most directly comparable financial measure calculated in accordance with u.s. gaap ) to adjusted ebitda for the periods indicated ( in thousands ) : year ended december 31 , 2018 year ended december 31 , 2017 net income ( loss ) $ 74,615 $ 71,971 plus : depreciation , depletion and amortization 68,035 46,933 accretion of asset retirement obligations 419 2,322 interest expense 27,666 15,070 derivative ( gain ) /loss 9,777 ( 17,913 ) derivative cash settlements collected/ ( paid ) ( 1 ) ( 19,060 ) ( 1,545 ) income tax expense/ ( benefit ) 928 ( 1,954 ) share-based compensation expense 5,980 6,849 adjusted ebitda $ 168,360 $ 121,733 ( 1 ) this includes accruals for settled contracts covering commodity deliveries during the period where the actual cash settlements occur outside of the period . 40 critical accounting policies and new accounting pronouncements property and equipment .
| financial results revenues and net income ( loss ) : the company 's oil and gas revenues were $ 257.3 million and $ 195.9 million for the years ended december 31 , 2018 and 2017 , respectively . revenues were higher due to overall higher commodity pricing as well as overall higher production . the company had net income of $ 74.6 million and $ 72.0 million for the years ended december 31 , 2018 and 2017 , respectively , due to higher production and commodity pricing partially offset by increased operating expenses and a loss on commodity derivative contracts . capital expenditures : the company 's capital expenditures on an accrual basis were $ 308.3 million and $ 203.3 million for the years ended december 31 , 2018 and 2017 , respectively . the expenditures for the year ended december 31 , 2018 , were primarily driven by continued legacy development and southern eagle ford gas window delineation , while expenditures for the year ended december 31 , 2017 were primarily driven by development activity in our southern eagle ford fields . these expenditures were funded by cash flows and borrowings under our credit facility . working capital : the company had a working capital deficit of $ 39.7 million at december 31 , 2018 and a deficit of $ 32.9 million at december 31 , 2017 . the working capital computation does not include available liquidity through the company 's credit facility . cash flows : for the year ended december 31 , 2018 , the company generated cash from operating activities of $ 121.6 million , of which $ 23.7 million was attributable to changes in working capital . cash used for property additions was $ 266.5 million . this excluded $ 45.3 million attributable to a net increase of capital related payables and accrued costs .
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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 only global company that offers an interactive “ make your own stuffed animal ” retail 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 . as of january 3 , 2015 , we operated 324 company-owned stores and had 71 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 sites , buildabear.com and buildabear.co.uk . we operate in three segments that share the same infrastructure , including management , systems , merchandising and marketing , and generate revenues as follows : retail – company-owned retail stores located in the united states , canada , puerto rico , the united kingdom and ireland , and two web stores ; international franchising – other international stores operated under franchise agreements ; and commercial – transactions with other business partners , mainly comprised of wholesale product sales and licensing our intellectual property , including entertainment properties , for third-party use . selected financial data attributable to each segment for fiscal 2014 , 2013 and 2012 , are set forth in note 16 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 “ — stores ” subsections of this overview , along with the “ risk factors ” and “ results of operations ” . we believe that we have an appealing retail store concept that , for north american stores open for the entire year , averaged $ 1.2 million in fiscal 2014 , $ 1.1 million in fiscal 2013 , and $ 1.0 million in fiscal 2012 in net retail sales per store . consolidated store contribution consists of store location net retail sales less cost of product , marketing and store related expenses . non-store general and administrative expenses are excluded as are our web stores , locations not open for the full fiscal year and deferred revenue adjustments . see “ — non-gaap financial measures ” for a reconciliation of store contribution to net income ( loss ) . store contribution as a percent of store location net retail sales was 16.3 % for fiscal 2014 , 12.1 % for fiscal 2013 and 8.6 % for fiscal 2012. consolidated net income ( loss ) as a percentage of total revenues was 3.7 % for fiscal 2014 , ( 0.6 ) % for fiscal 2013 , ( 12.9 ) % for fiscal 2012. we believe that our 2014 improvement is a result of the successful and consistent implementation of our key strategies of optimizing real estate , resetting the consumer value equation and rationalizing our expense structure . for the fiscal year , we improved north american sales per square foot to $ 409 , expanded consolidated retail gross margin by 450 basis points and reduced the number of unprofitable stores in north america to less than 2 % . our 2013 performance demonstrated progress on our turnaround plan and our objective to achieve sustainable , long-term profitability as we hired a new chief executive , executed a significant real estate strategy and implemented stringent cost controls throughout the organization . in 2012 , our results were negatively impacted by the declining sales in the uk . in north america , the 2012 results reflected the early results of turnaround efforts , increased costs for marketing , store remodels and openings and store closings . 18 our 2015 plan builds on the progress we made in 2014 and 2013 in implementing our key strategies , with a combination of continuous improvement of these initiatives and strategic expansion into additive opportunities . we plan to continue to improve our real estate model through selective new high-potential openings , a systematic refresh of our store base and strategic international expansion . we plan to continue to drive core consumer business and strategically expand our business with consumers over 12 years old . we expect to do this more profitably as we continue to improve the value engineering of products and implementing new systems that facilitate sales growth and increase efficiency . additionally , we intend to develop more proprietary products along with re-launching an out-bound licensing program . we ended fiscal 2014 with no borrowings under our bank loan agreement and with $ 65.4 million in cash and cash equivalents after investing $ 10.9 million in capital projects . throughout the year , we spent $ 3.4 million repurchasing shares of our common stock . following is a description and discussion of the major components of our statement of operations : revenues net retail sales : net retail sales are revenues from retail sales ( including our web store and other non-store locations ) , are net of discounts , exclude sales tax , include shipping and handling costs billed to customers , and are recognized at the time of sale . revenues from gift cards are recognized at the time of redemption . our guests use cash , checks , gift cards and third party credit cards to make purchases . we classify stores as new , non-comparable and comparable stores . stores enter the comparable store calculation in their thirteenth full month of operation . our web store and temporary and seasonal locations are not included in our comparable store calculations . story_separator_special_tag revenue from wholesale product sales includes revenue from merchandise sold at stores operated by third parties under licensing agreements . 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 historically entered into a number of licensing arrangements whereby third parties manufacture merchandise carrying the build-a-bear trademark and sell it to other retailers . 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 , store supplies and preopening expenses as well as central office general and administrative expenses , including costs for management payroll , benefits , stock-based compensation , normal store closings , travel , information systems , accounting , insurance , legal and public relations . these expenses also include depreciation of central office assets as well as the amortization of intellectual property and other assets . certain store expenses such as store payroll and credit card fees historically have increased or decreased proportionately with net retail sales . 21 stores company-owned stores : the number of build-a-bear workshop stores in the united states , canada , puerto rico , the united kingdom and ireland for the last three fiscal years can be summarized as follows : replace_table_token_5_th replace_table_token_6_th replace_table_token_7_th during 2015 , we expect to open stores in high potential destinations such as tourist locations , outlet malls and shop-in-shops . in the second half of 2015 , we also expect to begin to systematically refresh our store base with a new design developed to improve productivity and our brand look . we plan to update stores primarily in conjunction with natural lease events including new store openings , relocations and lease required remodels . we also expect to close select stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans . 22 non-traditional store locations : as of january 3 , 2015 , we had one location each in a ballpark , a zoo and in times square in new york city . additionally , we had eight locations located within other retailers ' stores . five of these shop-in-shop locations along with the times square location closed in the first week of fiscal 2015 as planned due to the seasonal nature of the locations . we also operate temporary stores , which generally have lease terms of six to eighteen months and are excluded from our traditional store count . these locations are intended to capitalize on short-term opportunities in specific locations . as of january 3 , 2015 , we operated nine temporary stores . international franchise locations : our first franchisee location was opened in november 2003. all franchised stores have similar signage , store layout and merchandise characteristics as our company-owned stores . as of january 3 , 2015 , we had 12 master franchise agreements , which typically grant franchise rights for a particular country or group of countries , covering an aggregate of 17 countries . the number of traditional international , franchised stores opened and closed for the periods presented below are summarized as follows : replace_table_token_8_th the distribution of stores among these countries is as follows : replace_table_token_9_th ( 1 ) germany agreement includes austria and switzerland ( 2 ) gulf states agreement includes kuwait , bahrain , qatar , oman and the united arab emirates in the ordinary course of business , we anticipate signing additional master franchise agreements in the future and terminating other such agreements . we believe there is a market potential for approximately 300 international stores outside of the united states , canada , the united kingdom and ireland . in 2015 , we expect to begin to leverage the strength in our company-owned stores to expand our international presence with new and existing franchisees as well as company-owned stores . 23 story_separator_special_tag compared to $ 3,000 of expense for fiscal 2012. provision for income taxes . income tax benefit was $ 6,000 in fiscal 2013 compared to expense of $ 0.9 million in fiscal 2012. the effective rate was 0.3 % in 2013 and ( 1.8 ) % in 2012. the fluctuation in the effective rate was primarily attributable to benefits resulting from the favorable resolution of tax matters , the expiration of statutes in various jurisdictions , and favorable adjustments from the filing of amended tax returns non-gaap financial measures we use the term “ store contribution ” throughout this annual report on form 10-k. store contribution consists of income before income tax expense , interest , general and administrative expense , excluding income from franchise and commercial activities and contribution from our web store , locations not open for the full fiscal year and deferred revenue adjustments . this term , as we define it , may not be comparable to similarly titled measures used by other companies and is not a measure of performance presented in accordance with u.s. generally accepted accounting principles ( gaap ) . in 2014 , management made the decision to refine our definition of store contribution to more accurately present store-level profitability by including all retail locations open for the full year and including depreciation and amortization of store specific assets .
| results of operations 2014 overview our 2014 performance demonstrated successful and consistent implementation of key strategies toward our objective to achieve sustained profitability . our accomplishments included : ● increased consolidated comparable store sales of 1.6 % , on top of a 5.1 % increase in 2013 ; ● improved north american store productivity to $ 409 per square foot , a 7 % increase , on top of a 9 % increase in 2013 ; and ● expanded retail gross margin of 450 basis points on top of a 220 point expansion in 2013. in fiscal 2015 , we expect to continue to build on these successes to reach more people , in more places , with more products and do it more profitably through continued improvement of ongoing initiatives and strategic expansion into additive areas including expanding internationally , leveraging e-commerce to target consumers over 12 years old and re-launching an out-bound licensing program . the following table sets forth , for the periods indicated , selected statement of operations 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 $ 176.8 million , $ 153.5 million and $ 145.7 million in 2014 , 2013 and 2012 , respectively . retail gross margin percentage represents retail gross margin divided by net retail sales . 24 fiscal year ended january 3 , 2015 ( 53 weeks ) compared to fiscal year ended december 28 , 201 3 ( 52 weeks ) total revenues .
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to effect the spin-off , on november 3 , 2015 , archrock distributed , on a pro rata basis , all of our shares of common stock to its stockholders of record as of october 27 , 2015 ( the “ record date ” ) . story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements , the notes thereto , and the other financial information appearing elsewhere in this report . the following discussion includes forward-looking statements that involve certain risks and uncertainties . see part i ( “ disclosure regarding forward-looking statements ” ) and part i , item 1a ( “ risk factors ” ) in this report . overview we are a market leader in the provision of compression , production and processing products and services that support the production and transportation of oil and natural gas throughout the world . we provide these products and services to a global customer base consisting of companies engaged in all aspects of the oil and natural gas industry , including large integrated oil and natural gas companies , national oil and natural gas companies , independent oil and natural gas producers and oil and natural gas processors , gatherers and pipeline operators . we operate in four primary business lines : contract operations , aftermarket services , oil and gas product sales and belleli epc product sales . in our contract operations business line , we have operations outside of the united states of america ( “ u.s. ” ) where we own and operate natural gas compression equipment and crude oil and natural gas production and processing equipment on behalf of our customers . in our aftermarket services business line , we primarily have operations outside of the u.s. where we provide operations , maintenance , overhaul and reconfiguration services to customers who own their own compression , production , processing , treating and related equipment . in our oil and gas product sales business line , we manufacture natural gas compression packages and oil and natural gas production and processing equipment for sale to our customers throughout the world and for use in our contract operations business line . in our belleli epc product sales business line that we are exiting , we have historically provided engineering , procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants . as of december 31 , 2016 , we had five significant contracts in this business remaining and currently expect to have substantially exited this business by the first half of 2018. we also offer our customers , on either a contract operations basis or a sale basis , the engineering , design , project management , procurement and construction services necessary to incorporate our products into production , processing and compression facilities , which we refer to as integrated projects . as discussed in note 22 to the financial statements , we changed our reporting segments in the third quarter of 2016 to split our previously disclosed product sales segment into the following two new reportable segments : “ oil and gas product sales ” and “ belleli epc product sales. ” the contract operations and aftermarket services segments were not impacted by this change . the change in our reportable segments is reflected in this management 's discussion and analysis of financial condition and results of operations . spin-off on november 3 , 2015 , archrock , inc. ( named exterran holdings , inc. prior to november 3 , 2015 ) ( “ archrock ” ) completed the spin-off ( the “ spin-off ” ) of its international contract operations , international aftermarket services ( the international contract operations and international aftermarket services businesses combined are referred to as the “ international services businesses ” and include such activities conducted outside of the u.s. ) and global fabrication businesses into an independent , publicly traded company ( “ exterran corporation , ” “ our , ” “ we ” or “ us ” ) . to effect the spin-off , on november 3 , 2015 , archrock distributed , on a pro rata basis , all of our shares of common stock to its stockholders of record as of october 27 , 2015 ( the “ record date ” ) . archrock shareholders received one share of exterran corporation common stock for every two shares of archrock common stock held at the close of business on the record date . pursuant to the separation and distribution agreement with archrock and certain of our and archrock 's respective affiliates , on november 3 , 2015 , we transferred cash of $ 532.6 million to archrock . following the completion of the spin-off , we and archrock became and continue to be independent , publicly traded companies with separate boards of directors and management . 31 basis of presentation the accompanying financial statements in part iv , item 15 , have been prepared in accordance with gaap . all financial information presented for periods after the spin-off represents our consolidated results of operations , financial position and cash flows ( referred to as the “ consolidated financial statements ” ) and all financial information for periods prior to the spin-off represents our combined results of operations , financial position and cash flows ( referred to as the “ combined financial statements ” ) . story_separator_special_tag 33 industry conditions and trends our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration , development and production of oil and natural gas reserves . spending by oil and natural gas exploration and production companies is dependent upon these companies ' forecasts regarding the expected future supply , demand and pricing of oil and natural gas products as well as their estimates of risk-adjusted costs to find , develop and produce reserves . although we believe our contract operations business , and to a lesser extent our oil and gas product sales business , is typically less impacted by commodity prices than certain other energy products and service providers , changes in oil and natural gas exploration and production spending normally result in changes in demand for our products and services . natural gas consumption in the u.s. for the twelve months ended november 30 , 2016 decreased by approximately 0.6 % compared to the twelve months ended november 30 , 2015 . the u.s. energy information administration ( “ eia ” ) forecasts that total u.s. natural gas consumption will increase by 0.4 % in 2017 compared to 2016 . as reported by the bp energy outlook 2017 edition ( “ bp energy outlook 2017 ” ) , north american natural gas consumption and worldwide natural gas consumption is expected to grow annually by an average of approximately 1.4 % and 1.9 % , respectively , per year between 2015 and 2035 . natural gas marketed production in the u.s. for the twelve months ended november 30 , 2016 decreased by approximately 1.2 % compared to the twelve months ended november 30 , 2015 . the eia forecasts that total u.s. natural gas marketed production will increase by 2 % in 2017 compared to 2016 . in addition , according to the bp energy outlook 2017 , north american natural gas production and worldwide natural gas production is expected to grow annually by an average of approximately 2.4 % and 1.8 % , respectively , per year between 2015 and 2035 . global oil and u.s. natural gas prices declined significantly from the third quarter of 2014 through the middle of 2016 , which led to declines in u.s. and worldwide capital spending for drilling activity in 2015. given recent improvements in late 2016 to the market environment , we anticipate industry spending to increase in the u.s. with flat to slight declines in international spending in 2017. our performance trends and outlook our revenue , earnings and financial position are affected by , among other things , market conditions that impact demand and pricing for natural gas compression and oil and natural gas production and processing and our customers ' decisions among using our products and services , using our competitors ' products and services or owning and operating the equipment themselves . due to a significant decrease in oil and natural gas prices since the third quarter of 2014 , overall market activity in north america remained at depressed levels for the majority of 2016. low commodity prices in 2015 and the majority of 2016 have led to reduced drilling of oil and gas wells in north america . oil and natural gas prices in north america improved late in 2016 over the lows experienced in the earlier part of the year , however , we believe higher commodity prices for a sustained period are necessary to encourage meaningful increases in customer spending . the henry hub spot price for natural gas was $ 3.71 per mmbtu at december 31 , 2016 , which was approximately 63 % and 18 % higher than prices at december 2015 and 2014 , respectively , and the u.s. natural gas liquid composite price was approximately $ 5.45 per mmbtu for the month of november 2016 , which was approximately 29 % higher and 3 % lower than prices for the months of december 2015 and 2014 , respectively . in addition , the west texas intermediate crude oil spot price as of december 31 , 2016 was approximately 45 % and 1 % higher than prices at december 31 , 2015 and 2014 , respectively . during periods of lower oil or natural gas prices , our customers typically decrease their capital expenditures , which generally results in lower activity levels . as a result of the low oil and natural gas price environment in north america during 2015 and the majority of 2016 , our customers sought to reduce their capital and operating expenditure requirements , and as a result , the demand and pricing for the equipment we manufacture in north america was adversely impacted . third party booking activity levels for our manufactured oil and gas products in north america during the year ended december 31 , 2016 were $ 343.7 million , which represents a decline of approximately 12 % and 68 % compared to the years ended december 31 , 2015 and 2014 , respectively , and our north america oil and gas product sales backlog as of december 31 , 2016 was $ 237.7 million , which represents an increase of approximately 6 % and a decline of approximately 56 % compared to december 31 , 2015 and 2014 , respectively . we believe these booking levels reflect both our customers ' reduced activity levels in response to the decline in commodity prices and caution on the part of our customers as they sought to reduce costs . similarly , in international markets , lower oil and natural gas prices have had a negative impact on the amount of capital investment by our customers in new projects . our customers sought to reduce their capital and operating expenditure requirements due to lower oil and natural gas prices . as a result , the demand and pricing for our products and services in international markets was adversely impacted . 34 industry forecasts indicate a sharp rise in u.s. shale fields spending is expected for 2017 with continued underinvestment in international markets .
| operating highlights the following tables summarize our total available horsepower , total operating horsepower , average operating horsepower , horsepower utilization percentages and product sales backlog ( in thousands , except percentages ) : replace_table_token_6_th replace_table_token_7_th ( 1 ) our product sales backlog consists of unfilled orders based on signed contracts and does not include potential product sales pursuant to letters of intent received from customers . as belleli cpe is no longer a part of our continuing operations , belleli cpe 's product sales backlog has been excluded from all periods presented . ( 2 ) we expect that approximately $ 14.0 million of our oil and gas product sales backlog as of december 31 , 2016 will be recognized after december 31 , 2017 . ( 3 ) prior to change in our reporting segments , our belleli epc product sales backlog was previously included in our production and processing equipment product sales backlog . during the first quarter of 2016 , we ceased the booking of new orders for our belleli epc business . changes in our belleli epc backlog since march 31 , 2016 reflect revenue recognized and change orders booked on existing contracts . we expect that approximately $ 4.3 million of our belleli epc product sales backlog as of december 31 , 2016 will be recognized after december 31 , 2017 .
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recent developments on february 8 , 2012 , halcón resources , llc , a newly-formed company led by floyd c. wilson , former chairman and chief executive officer of petrohawk energy corporation , recapitalized us with a $ 550.0 million investment structured as the purchase of $ 275.0 million in new common stock , a $ 275.0 million five-year 8 % convertible note and warrants for the purchase of an additional 36,666,666 million shares of our common stock at an exercise price of $ 4.50 per share . at closing , floyd c. wilson was appointed as our chairman , president and chief executive officer , and our name was changed to halcón resources corporation . mark mize was also appointed as our executive vice president , chief financial officer , treasurer and was designated as our principal accounting officer , and the composition of our board was altered to consist of 10 new individuals . information as to our recent recapitalization is set forth under note n to the consolidated financial statements . in connection with the closing of the halcón transaction , we entered into a senior revolving credit agreement ( the credit agreement ) with jpmorgan chase bank , n.a. , as administrative agent , and the other lenders named therein on february 8 , 2012. the credit agreement provides for a $ 500.0 million facility with an initial borrowing base of $ 225.0 million . amounts borrowed under the credit agreement will initially mature on february 8 , 2017. the borrowing base will be redetermined semi-annually , with the company and the lenders each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations . the borrowing base takes into account our oil and natural gas properties , proved reserves , total indebtedness , and other relevant factors consistent with customary oil and gas lending criteria . the borrowing base is subject to a reduction equal to the product of 0.25 multiplied by the stated principal amount ( without regard to any initial issue discount ) of any notes or other long-term debt securities that we may issue . following the recapitalization , our primary focus is to expand our leasehold position in areas we have determined are prospective for oil or liquids-rich resource plays . we have identified several target resource plays for potential leasehold acquisition , including the utica shale/point pleasant formations in ohio and pennsylvania , the mississippian lime formation in northern oklahoma and southern kansas , the wilcox formation in southwest louisiana and the woodbine/eagle ford formation in east texas . in addition to our ongoing lease acquisition efforts in our targeted resource plays , we have identified several new exploratory areas we believe are prospective for oil and liquids-rich hydrocarbons . on march 5 , 2012 , we sold in a private placement to certain institutional accredited investors 4,444.4511 shares of 8 % automatically convertible preferred stock , par value $ 0.0001 per share , each share of which will convert into 10,000 shares of our common stock ( or a proportionate number of shares of common stock with respect to any fractional shares of preferred stock ) , subject to certain adjustments , for approximately $ 400.0 million , or $ 9.00 per share of common stock , before offering expenses . the convertible preferred stock will convert into common stock automatically on the 20th calendar day after we mail a definitive information statement to holders of our common stock notifying them that our majority stockholder has consented to the issuance of common stock upon conversion of the convertible preferred stock . no dividend will be paid on the convertible preferred stock if it converts into common stock on or before may 31 , 2012. as a result of the recapitalization and the sale of the convertible preferred stock , we have substantial liquidity available to support our anticipated 2012 capital expenditures . 42 on december 8 , 2010 , we completed the sale to milagro producing , llc , a privately owned company located in houston , texas , of all of our oil and natural gas properties and related assets located in the boonsville and newark east fields of jack and wise counties , texas . the effective date of the sale was october 1 , 2010. the sale properties included all of our bend conglomerate shallow gas properties and all of our north texas barnett shale properties , including both producing properties and undeveloped leasehold . we received net cash proceeds at closing of $ 42.3 million subject to customary post-closing adjustments . as of december 31 , 2010 , net proceeds including post-closing adjustments were $ 41.0 million . proved reserves from these properties accounted for approximately 26.4 billion cubic feet equivalent ( bcfe ) of natural gas , natural gas liquids and oil , or an estimated 13 % of our year-end 2009 proved reserves of 204 bcfe . information as to our recent divestitures is set forth under note b to the consolidated financial statements . oil and natural gas prices have historically been volatile . in 2011 , our average realized prices ( before the impact of derivative financial instruments ) for oil and natural gas were $ 93.86 per bbl and $ 4.01 per mcf , respectively , compared to 2010 average realized prices of $ 76.95 per bbl and $ 4.21 per mcf , respectively . a significant decline in annual average prices for oil and natural gas began during the last half of 2008 and continued into the first quarter of 2009. it is difficult to predict the frequency , duration or outcome of crude oil and natural gas price movements or the long-term impact on drilling and operating costs and the impacts , whether favorable or unfavorable , to our results of operations and liquidity . we continue to monitor operations and planned capital budget expenditures as the economics of many projects may diminish as a result of prolonged price declines . story_separator_special_tag 33-8995 : revises a number of definitions relating to proved oil and natural gas reserves to make them consistent with the petroleum resource management system , which includes certain non-traditional resources in proved reserves ; permits the use of new technologies for determining proved oil and natural gas reserves ; requires the use of average prices for the trailing twelve-month period in the estimation of oil and natural gas reserve quantities and , for companies using the full cost method of accounting , in computing the ceiling limitation , in place of a single day price as of the end of the fiscal year ; permits the disclosure in filings with the sec of probable and possible reserves and reserves sensitivity to changes in prices ; requires additional disclosures ( outside of the financial statements ) regarding the status of undeveloped reserves and changes in status of these from period to period ; and requires a discussion of the internal controls in place to assure objectivity in the reserve estimation process and disclosure of the technical qualifications of the technical person having primary responsibility for preparing the reserve estimates . 44 our independent petroleum engineers applied the procedures specified in sec release no . 33-8995 in preparing the estimate of our proved reserves as of december 31 , 2010 and 2011 , as reflected in this report . topic 410 of the codification addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and amends statement of financial accounting standards no . 19 , now topic 932 of the codification . topic 410 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made , and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset . we determine our asset retirement obligation on our oil and natural gas properties by calculating the present value of the estimated cash flows related to the liability . as set forth in topic 740 of the codification , deferred income taxes are recognized at each period end for the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts based on tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income . we routinely assess the realizability of our deferred tax assets . we consider future taxable income in making such assessments . if we conclude that it is more likely than not that some portion or all of the deferred tax assets will not be realized under accounting standards , it is reduced by a valuation allowance . however , despite our attempt to make an accurate estimate , the ultimate utilization of our deferred tax assets is highly dependent upon our actual production and the realization of taxable income in future periods . we account for our derivative arrangements as set forth in topic 815 of the codification . topic 815 requires the accounting recognition of all derivative instruments on the balance sheet as either assets or liabilities measured at fair value . we may or may not elect to designate a derivative instrument as a hedge against changes in the fair value of an asset or a liability ( a fair value hedge ) or against exposure to variability in expected future cash flows ( a cash flow hedge ) . the accounting treatment for the changes in fair value of a derivative instrument is dependent upon whether or not a derivative instrument is a cash flow hedge or a fair value hedge , and upon whether or not the derivative is designated by us as a hedge . changes in fair value of a derivative designated as a cash flow hedge are recognized , to the extent the hedge is effective , in other comprehensive income until the hedged item is recognized in earnings . changes in the fair value of a derivative instrument designated as a fair value hedge , to the extent the hedge is effective , have no effect on the statement of operations due to the fact that changes in fair value of the derivative offsets changes in the fair value of the hedged item . where hedge accounting is not elected or if a derivative instrument does not qualify as either a fair value hedge or a cash flow hedge , changes in the fair value are recognized in earnings . we have not elected to designate our derivative instruments as hedges as required by topic 815 in order to receive hedge accounting treatment . accordingly , all gains and losses on the derivative instrument have been recorded in earnings . during june 2008 , the fasb issued authoritative guidance on whether instruments granted in share-based payment transactions are participating securities prior to vesting and , therefore , need to be included in computing basic earnings per share . the guidance was effective for fiscal years beginning after december 15 , 2008 , and interim periods within those years . additionally , all prior period earnings per share must be adjusted retrospectively . as our restricted stock awards granted under our long-term incentive plan qualify as participating securities , we adopted the guidance during 2009 , which resulted in an increase in our basic and diluted weighted average shares outstanding . we account for share-based payments under authoritative guidance , as set forth in topic 718 of the codification . topic 718 requires all share-based payments to employees , including grants of employee stock options , to be recognized in the financial statements based on their fair values . we account for uncertain tax positions under the guidance set forth in topic 740 of the codification . this topic prescribes guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return .
| results of operations year ended december 31 , 2011 compared to the year ended december 31 , 2010 the following tables summarize our oil and natural gas production volumes , average sale prices and comparisons for the years ended december 31 , 2011 and 2010 : replace_table_token_20_th replace_table_token_21_th in december 2010 , we sold assets located in texas and oklahoma for net proceeds including post-closing adjustments of $ 48.8 million . the following table provides pro forma results for the year ended december 31 , 2010 excluding those sold properties to assist our description of results of operations : replace_table_token_22_th 47 oil and natural gas sales decreased $ 7.5 million , or 7 % , to $ 103.5 million for the year ended december 31 , 2011 , as compared to $ 111.0 million for the year ended december 31 , 2010. excluding asset sales , oil and natural gas sales increased $ 3.5 million for the year ended december 31 , 2011 , as compared to the year ended december 31 , 2010. this increase was driven by commodity price increases on a per boe basis of 34 % for the year ended december 31 , 2011 as compared to 2010 partially offset by decreased production . production volumes decreased 30 % overall during the year ended december 31 , 2011 , as compared to the year ended december 31 , 2010. excluding the activities related to the asset divestitures , our production volume decreased 16 % as compared to the same period last year primarily due to a shut-in of one well as a result of a major workover in louisiana and natural production declines . production from our texas fields decreased by 217 mboe in the current year , excluding asset sales , due to decline in well performance in our south texas gas properties . drilling activity included 45 gross ( 42.8 net ) development wells in our texas fields .
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the director plan was amended on march 7 , 2013 , to ( i ) prohibit the repricing of stock options or other equity awards without the consent of the company 's shareholders , and ( ii ) prohibit the company from buying out underwater stock options . the director plan , as amended , provides for the issuance of stock options and other equity-based securities of up to 975,000 shares to non-employee members of the company 's board of directors . through december 31 , 2016 , 325,810 options have been granted and 149,453 options are outstanding . for the year ended december 31 , 2016 , 4,764 shares of common stock were issued and 131,554 shares remained available to be issued under the director plan . f- 19 the following is a summary of stock option activity under all plans : replace_table_token_29_th during the years ended december 31 , 2016 , 2015 and 2014 , the total intrinsic value of all options exercised ( i.e . , the difference between the market price and the price paid by the employees to exercise the options ) was approximately $ 0.7 million , $ 1.3 million , and $ 3.4 million , respectively , and the total amount of consideration received from the exercise of these options was approximately $ 695,000 , $ 394,000 , and $ 709,000 , respectively . at its discretion , the company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes . during the year ended december 31 , 2016 , 6,514 shares ( 6,514 for options and zero for taxes ) were surrendered at an average market price of $ 25.50 . during the year ended december 31 , 2015 , 1,632 shares ( 1,632 for options and zero for taxes ) were surrendered at an average market price of $ 21.97 . during the year ended december 31 , 2014 , 32,164 shares story_separator_special_tag overview ufp technologies is an innovative designer and custom converter of foams , plastics , composites and natural fiber materials , providing solutions to customers primarily within the medical , automotive , consumer , electronics , industrial and aerospace and defense markets . the company consists of a single operating and reportable segment . the company grew sales by 5.2 % for its fiscal year ended december 31 , 2016 , largely due to sales increases to the medical and consumer markets . however , gross margins continued to be impacted by manufacturing inefficiencies related to the company 's plant consolidations and need to requalify parts with many if its medical customers . the company anticipates that these inefficiencies will diminish during 2017. also , the company recently secured contracts on both the vendor and customer fronts that should strengthen its position to grow . the company 's current strategy includes further organic growth and growth through strategic acquisitions . 17 story_separator_special_tag style= '' font-size : 10pt ; margin : 0pt 0 '' > income taxes the company recorded income tax expense as a percentage of income before income tax expense , of 35.3 % for each of the years ended december 31 , 2016 and 2015. the company has deferred tax assets on its books associated with net operating losses generated in previous years . the company has considered both positive and negative available evidence in its determination that the deferred tax assets are more likely than not to be realized , and has not recorded a tax valuation allowance at december 31 , 2016. the company will continue to assess whether the deferred tax assets will be realizable and , when appropriate , will record a valuation allowance against these assets . the amount of the net deferred tax asset considered realizable , however , could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced . 2015 compared to 2014 sales net sales decreased 0.3 % to $ 138.9 million for the year ended december 31 , 2015 , from net sales of $ 139.3 million in 2014 , primarily due to decreases in sales to customers in the electronics , industrial and aerospace and defense markets of approximately 16.5 % , 16.5 % and 13.2 % , respectively , primarily offset by an increase in sales to customers in the medical market of approximately 14.6 % . the decline in sales to customers in the electronics market was largely due to the loss of a packaging contract by one of the company 's distributor customers . the decline in sales to customers in the aerospace and defense market was primarily due to a large , one-time order from a single customer in this market in 2014. the decline in sales to customers in the industrial market is comprised of reductions in sales to many smaller accounts . the increase in sales to customers in the medical market reflects the company 's strategy of focusing resources in the area as well as the overall growth of our customers ' products . gross profit gross profit as a percentage of sales ( “ gross margin ” ) increased to 27.0 % for the year ended december 31 , 2015 , from 26.5 % in 2014. as a percentage of sales , material and direct labor costs collectively increased approximately 0.2 % , while overhead decreased approximately 0.7 % . the increase in material and direct labor costs was primarily the result of a slight increase in overall labor costs . story_separator_special_tag the amount of the net deferred tax asset considered realizable , however , could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced . 21 liquidity and capital resources the company generally funds its operating expenses , capital requirements , and growth plan through internally generated cash and bank credit facilities . cash flows net cash provided by operations for the year ended december 31 , 2016 was approximately $ 9.4 million and was primarily a result of net income generated of approximately $ 8.0 million , depreciation and amortization of approximately $ 5.6 million , share-based compensation of approximately $ 1.0 million , an increase in deferred taxes of approximately $ 0.6 million , an increase in other liabilities of $ 0.2 million and a decrease in refundable income taxes of approximately $ 0.2 million . these cash inflows and adjustments to income were partially offset by an increase in accounts receivable of approximately $ 3.8 million due to an increase in sales during the fourth quarter of 2016 over the same period for 2015 of approximately $ 2.6 million and an increase in payment terms to a large customer , an increase in prepaid expenses of approximately $ 1.4 million due primarily to prepayments on equipment purchases and a decrease in accounts payable and accrued expenses of approximately $ 1.0 million due to the timing of vendor payments in the ordinary course of business . net cash used in investing activities during the year ended december 31 , 2016 was approximately $ 7.3 million of which approximately $ 2.6 million was the result of renovations to our corporate headquarters and manufacturing facility in newburyport , massachusetts , and approximately $ 4.7 million was the result of other additions of technology , manufacturing machinery , and equipment across the company . net cash used in financing activities was approximately $ 0.6 million for the year ended december 31 , 2016 , representing cash used to service term debt of approximately $ 1.0 million and to pay statutory withholding for stock options exercised and restricted stock units vested of approximately $ 0.2 million , partially offset by excess tax benefits on share-based compensation of approximately $ 0.1 million , and net proceeds received upon stock option exercises of approximately $ 0.5 million . outstanding and available debt the company maintains an unsecured $ 40 million revolving credit facility with bank of america , n.a . the credit facility calls for interest of libor plus a margin that ranges from 1.0 % to 1.5 % or , at the discretion of the company , the bank 's prime rate less a margin that ranges from 0.25 % to zero . in both cases the applicable margin is dependent upon company performance . under the credit facility , the company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to ebitda financial covenant . the company 's $ 40 million credit facility matures on november 30 , 2018. as of december 31 , 2016 , the company had no borrowings outstanding under the credit facility . included in the credit facility were approximately $ 0.4 million in standby letters of credit drawable as a financial guarantee on worker 's compensation insurance policies . as of december 31 , 2016 , the company was in compliance with all covenants under the credit facility . in 2012 , the company financed the purchase of two molded fiber machines through five-year term loans that mature in september 2017. the annual interest rate is fixed at 1.83 % and the loans are secured by the related molded fiber machines . as of december 31 , 2016 , the outstanding balance of the term loan facility was approximately $ 856,000 . 22 future liquidity the company requires cash to pay its operating expenses , purchase capital equipment , and to service its contractual obligations . the company 's principal sources of funds are its operations and its revolving credit facility . the company generated cash of approximately $ 9.4 million in operations during the year ended december 31 , 2016 ; however , the company can not guarantee that its operations will generate cash in future periods . the company 's longer-term liquidity is contingent upon future operating performance . throughout fiscal 2017 , the company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants . the company plans to further expand its newburyport , massachusetts manufacturing plant . the company may consider additional acquisitions of companies , technologies , or products that are complementary to its business . the company believes that its existing resources , including its revolving credit facility , together with cash expected to be generated from operations and funds expected to be available to it through any necessary equipment financings and additional bank borrowings , will be sufficient to fund its cash flow requirements , including capital asset acquisitions , through the next twelve months . stock repurchase program the company accounts for treasury stock under the cost method , using the first-in , first out flow assumption , and includes treasury stock as a component of stockholders ' equity . on june 16 , 2015 , the company announced that its board of directors authorized the repurchase of up to $ 10.0 million of the company 's outstanding common stock . under the program , the company is authorized to repurchase shares through rule 10b5-1 plans , open market purchases , privately negotiated transactions , block purchases or otherwise in accordance with applicable federal securities laws , including rule 10b-18 of the securities exchange act of 1934. the stock repurchase program will end upon the earlier of the date on which the plan is terminated by the board or when all authorized repurchases are completed .
| results of operations the following table sets forth , for the years indicated , the percentage of revenues represented by the items as shown in the company 's consolidated statements of income : replace_table_token_4_th 2016 compared to 2015 sales net sales increased 5.2 % to $ 146.1 million for the year ended december 31 , 2016 , from net sales of $ 138.9 million in 2015 , primarily due to increases in sales to customers in the medical and consumer markets of approximately 12.6 % and 24.0 % , respectively , partially offset by decreases in sales to customers in the aerospace and defense and electronics markets of approximately 20.2 % and 12.4 % , respectively . the increase in sales to customers in the medical market was largely due to a new five-year contract with one of the company 's larger customers in this market as well as an overall increase in demand from other medical customers . the increase in sales to customers in the consumer market was largely due to increased demand for molded fiber protective packaging for consumer products . the reduction in sales to customers in the aerospace and defense market was largely due to continued cuts in government spending . the decrease in sales to customers in the electronics market in 2016 was primarily due to a temporary spike in demand for packaging at one of our larger customers in 2015. the company recently secured contracts on both the vendor and customer fronts that should strengthen its position to grow . gross profit gross profit as a percentage of sales ( “ gross margin ” ) decreased to 23.7 % for the year ended december 31 , 2016 , from 27.0 % in 2015. as a percentage of sales , material and direct labor costs collectively increased approximately 2.6 % , while overhead increased approximately 0.4 % .
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words such as `` estimate '' , `` target '' , `` project '' , `` plan '' , `` believe '' , `` expect '' , `` anticipate '' , `` intend '' , and similar expressions may identify such forward-looking statements . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking statement made by or on our behalf include , without limitation : declining physical mail volumes mailers ' utilization of alternative means of communication or competitors ' products access to capital at a reasonable cost to continue to fund various discretionary priorities , including business investments , pension contributions and dividend payments timely development and acceptance of new products and services successful entry into new markets success in gaining product approval in new markets where regulatory approval is required changes in postal or banking regulations interrupted use of key information systems third-party suppliers ' ability to provide product components , assemblies or inventories our success at managing the relationships with our outsource providers , including the costs of outsourcing functions and operations not central to our business changes in privacy laws intellectual property infringement claims regulatory approvals and satisfaction of other conditions to consummate and integrate any acquisitions negative developments in economic conditions , including adverse impacts on customer demand our success at managing customer credit risk significant changes in pension , health care and retiree medical costs changes in interest rates , foreign currency fluctuations or credit ratings income tax adjustments or other regulatory levies for prior audit years and changes in tax laws , rulings or regulations impact on mail volume resulting from concerns over the use of the mail for transmitting harmful biological agents changes in international or national political conditions , including any terrorist attacks acts of nature the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements contained in this report . certain amounts and discussions below have been changed to reflect the reclassification of our international mailing services ( ims ) operations , previously included in our mail services segment , as a discontinued operation . all table amounts are presented in millions of dollars , unless otherwise stated . table amounts may not sum to the total due to rounding . overview revenue for 2012 decreased 4 % to $ 4,904 million compared to $ 5,123 million in 2011 as worldwide economic conditions , pricing pressures , declining mail volumes and constrained public sector spending in europe all contributed to the decline . worldwide economic conditions continue to impact equipment sales , which declined 5 % compared to last year . declining equipment sales in prior periods also impacts financing revenue , which declined 10 % in 2012 compared to 2011. rentals and supplies revenue both declined 8 % due to a decline in mail volumes and our installed meter base . software revenue declined 3 % mainly due to an overall economic uncertainty in our global markets , particularly in our european and asia pacific markets . net income from continuing operations and earnings per diluted share for 2012 were $ 436 million and $ 2.16 , respectively , compared to $ 401 million and $ 1.98 , respectively , in 2011. the improvement in 2012 was primarily due to lower restructuring charges and goodwill impairment charges partially offset by higher tax expense due to tax benefits recognized from tax settlements in 2011. as a result of the continuing under-performance of our ims operations , and to enable us to better focus on higher growth cross-border ecommerce parcel opportunities , we began exploring strategic alternatives to exit the ims operations related to the international delivery 11 of mail and catalogs . during the year , we recorded goodwill and asset impairment charges of $ 35 million to write down the net assets of ims to their estimated fair value less costs to sell . these charges and the operating results of ims for all periods presented have been classified as discontinued operations . for the year , cash flow from operations declined to $ 660 million compared to $ 949 million in 2011 . lower cash flow in 2012 was primarily due to higher tax payments and a lower cash impact from net collections of finance and accounts receivables . also in 2012 , we received $ 106 million from the sale of leveraged lease assets and $ 340 million from the issuance of new debt , while uses of cash included $ 550 million to redeem maturing debt , $ 319 million to pay dividends and $ 177 million to fund capital investments . at december 31 , 2012 , cash and cash equivalents and short-term investments were $ 950 million . outlook worldwide economic conditions continue to create a challenging business environment causing many of our clients to remain cautious about spending and therefore impact the performance of our business segments . our growth initiatives continue to focus on leveraging our expertise in physical communications with our expanding capabilities in digital and hybrid communications and developing products , software , services and solutions that help our clients grow their businesses by more effectively communicating with their customers . we expect to make continued investments in these growth initiatives during the first half of 2013 , which are expected to lead to greater revenue and margin contribution in the second half of 2013. we expect revenue growth in certain of our enterprise business solutions segments in 2013 from our ecommerce , print outsourcing and software solutions . we expect our mix of business will continue to shift to more enterprise related products and solutions and that these new revenue streams will have lower margins than our traditional mailing business . story_separator_special_tag the following tables show revenue and ebit by business segment for 2012 , 2011 and 2010 . the ims business , now reported as a discontinued operation , was previously included in our mail services segment . segment ebit , a non-gaap measure , is determined by deducting from segment revenue the related costs and expenses attributable to the segment . segment ebit excludes interest , taxes , general corporate expenses not allocated to a particular business segment , restructuring charges , asset impairments and goodwill charges , which are recognized on a consolidated basis . management uses segment ebit to measure profitability and performance at the segment level . segment ebit may not be indicative of our overall consolidated performance and therefore , should be read in conjunction with our consolidated results of operations . refer to note 16 to the consolidated financial statements for a reconciliation of segment ebit to income from continuing operations before income taxes . replace_table_token_5_th replace_table_token_6_th small & medium business solutions small & medium business solutions revenue decreased 7 % to $ 2,495 million in 2012 compared to $ 2,669 million in 2011 . ebit decreased 7 % to $ 768 million compared to $ 827 million in 2011 . small and medium business solutions revenue in 2011 decreased 4 % compared to $ 2,775 million in 2010 and ebit decreased 1 % compared to $ 834 million in 2010 . within the small & medium business solutions group : north america mailing north america mailing revenue decreased 7 % to $ 1,819 million in 2012 compared to 2011 . equipment sales declined 6 % due to continued uncertain economic conditions and declining mail volumes . financing revenue was 9 % lower than last year due to the declining equipment sales in prior periods . rentals revenue declined 7 % primarily due to fewer meters in service and supplies revenue declined 11 % due to lower mail volumes , a declining installed meter base and lower ink and toner sales . ebit decreased 5 % to $ 689 million in 2012 compared to $ 728 million in 2011 primarily due to the decline in revenue ; however , ebit margin was slightly improved over last year due in part to prior strategic initiatives , productivity improvements and lower credit losses . 16 north america mailing revenue in 2011 decreased 7 % to $ 1,961 million compared to $ 2,101 million in 2010 . foreign currency translation had a less than 1 % favorable impact on revenue . excluding the effects of foreign currency , equipment sales declined 7 % as increased concerns about economic conditions resulted in customers delaying purchases of new equipment and extending leases of existing equipment . lease extensions are profitable transactions but generate less revenue in the current period than new equipment sales . the lagging effects of lower equipment sales in prior periods , fewer meter placements and declining mail volumes contributed to declines in financing revenue ( 11 % ) , rental revenue ( 6 % ) , supplies revenue ( 8 % ) and service revenue ( 4 % ) . ebit decreased 4 % to $ 728 million in 2011 compared to $ 755 million in 2010 primarily due to lower revenues ; however , ebit margin improved as a result of continued productivity improvements and lower credit losses . international mailing international mailing revenue decreased 4 % to $ 676 million in 2012 compared to $ 707 million in 2011 ; however , excluding the effects of foreign currency translation , revenue was flat compared to last year . excluding the effects of foreign currency , equipment sales increased 3 % due to higher sales in the nordics and france , partially offset by lower sales in the u.k. equipment sales in france increased due to the launch of the connect+ tm mailing system in 2012 and a change in mix from rentals to equipment sales . the decline in the u.k. was due to overall economic condition . rental revenue declined 6 % primarily due to the change in mix from rentals to equipment sales in france and lower rentals in the u.k. ebit decreased 20 % to $ 79 million compared to $ 99 million in 2011 primarily due to an increase in the mix of lower margin product sales , including the equipment sales in the nordics . foreign currency translation unfavorably impacted ebit by 5 % . international mailing revenue increased 5 % in 2011 to $ 707 million compared to $ 675 million in 2010 , but included a favorable impact of 6 % from foreign currency translation . excluding the effects of foreign currency , the underlying decrease was primarily due to lower equipment sales in the u.k. , germany , asia pacific and latin america due to increased concerns about economic conditions throughout the regions . ebit increased 25 % to $ 99 million in 2011 compared to $ 79 million in 2010 primarily due to continued productivity improvements . foreign currency translation favorably impacted ebit by 5 % . enterprise business solutions enterprise business solutions revenue decreased 2 % in 2012 to $ 2,409 million compared to $ 2,454 million in 2011 . ebit decreased 10 % in 2012 to $ 248 million compared to $ 276 million in 2011 . enterprise business solutions revenue in 2011 decreased 1 % to $ 2,454 million compared to $ 2,485 million in 2010 and ebit decreased 9 % to $ 276 million compared to $ 304 million in 2010 . within the enterprise business solutions group : production mail production mail revenue decreased 6 % in 2012 to $ 512 million compared to $ 544 million in 2011 primarily due to global economic uncertainty that existed throughout the year . foreign currency translation had an unfavorable impact on revenue of 2 % .
| results of operations revenue by source and the related cost of revenue are shown in the following tables : replace_table_token_3_th 12 replace_table_token_4_th equipment sales equipment sales revenue decreased 5 % to $ 938 million in 2012 compared to 2011 as worldwide economic conditions continue to impact customer purchasing behavior . foreign currency translation had an unfavorable impact on revenue of 2 % . cost of equipment sales as a percentage of revenue increased to 48.9 % compared to 45.6 % in the prior year primarily due to a higher mix of lower margin product sales , pricing pressure on competitive placements and a decline in the number of lease extensions relative to prior year . in 2011 , equipment sales revenue decreased 4 % to $ 986 million compared to 2010 , including a positive impact of 2 % from foreign currency translation . equipment sales were adversely impacted as many customers delayed capital investment commitments and extended leases of existing equipment . cost of equipment sales as a percentage of revenue improved to 45.6 % compared with 45.9 % in the prior year due to the mix of higher margin product sales and lease extensions . supplies supplies revenue decreased 8 % to $ 284 million in 2012 compared to 2011 primarily due to reduced mail volumes , fewer installed meters worldwide and lower ink and toner sales . foreign currency translation had a 2 % unfavorable impact on revenue . cost of supplies as a percentage of revenue was 30.9 % compared to 31.6 % in the prior year primarily due to a favorable mix of higher margin core supplies sales . supplies revenue in 2011 decreased 3 % to $ 308 million compared to 2010 due to reduced mail volumes and fewer installed meters worldwide . foreign currency translation had a 2 % favorable impact .
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64 bankfinancial corporation notes to consolidated financial statements ( table amounts in thousands , except share and per share data ) note 4 – loans receivable loans receivable are as follows : replace_table_token_36_th loan origination/risk management . the company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk . the company reviews and approves these policies and procedures on a periodic basis . a reporting system supplements the story_separator_special_tag the discussion and analysis that follows focuses on the factors affecting our consolidated financial condition at december 31 , 2013 and 2012 , and our consolidated results of operations for the three years ended december 31 , 2013 . our consolidated financial statements , the related notes and the discussion of our critical accounting policies appearing elsewhere in this annual report should be read in conjunction with this discussion and analysis . overview of 2013 total loans increased in 2013 due to increased marketing and deployment of new loan and lease products . consistent with our practices in previous years , we actively managed our loan portfolio to exit certain multifamily , commercial real estate and commercial loan relationships based on their risk rating . we managed our deposit portfolio to retain higher value core deposit relationships and reduce our cost of funds to the lowest practicable levels . we ended 2013 with our highest-ever core deposit ratio at 78.0 % of total deposits and our lowest-ever cost of funds . we continued to reduce our core noninterest expense in 2013 , focusing principally on efficiencies related to staffing , facilities and our ongoing initiatives to utilize technology-based transaction processing and customer information delivery capabilities . we executed our plan to achieve a material reduction in nonperforming assets and future nonperforming asset expenses during 2013. our ratio of non-performing assets to total assets was 1.70 % at december 31 , 2013 . absent currently unforeseen developments , we expect to achieve our goal of restoring our asset quality to its long-term historical levels by the end of 2014. outlook for 2014 the combined effect of low market interest rates and yields and competitive forces in the chicago metropolitan area will maintain pressure on asset yields throughout 2014. continued deployment of excess liquidity through loan growth within our targeted asset classes should enable us to continue to expand our net interest margin gradually in 2014. as we expect the present economic environment in the chicago metropolitan area to continue for a considerable period of time , we will continue to accelerate the evolution of our loan portfolio towards a configuration that permits better growth rates in multiple , independent segments with comparable risk-adjusted yields . we expect to release new deposit-related products to improve non-interest income during the course of 2014 ; in addition , we may also be successful in increasing revenues related to trust , non-deposit wealth management , and commercial property and casualty sales due to new product capabilities and increased dedicated sales capacity . core non-interest expense is expected to continue to decline despite increases in advertising and marketing expenses related to loan and deposit growth initiatives . through these actions , we hope to further improve our core operating earnings in 2014 to a level consistent with peer institutions in our market . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2012 , and our average interest-bearing liabilities decreased $ 32.9 million to $ 1.130 billion for the year ended december 31 , 2013 , from $ 1.163 billion for 2012 . comparison of year 2012 to 2011 . net interest income decreased by $ 6.5 million , or 10.4 % , to $ 56.3 million for the year ended december 31 , 2012 , from $ 62.8 million for the year ended december 31 , 2011 . our net interest rate spread decreased 23 basis points to 3.86 % for the year ended december 31 , 2012 , compared to 4.09 % for 2011 . our net interest margin decreased by 27 basis points to 3.93 % december 31 , 2012 from 4.20 % for 2011 . our average interest-earning assets decreased $ 63.5 million to $ 1.433 billion for the year ended december 31 , 2012 , from $ 1.496 billion for 2011 , and our average interest-bearing liabilities decreased $ 56.4 million to $ 1.163 billion for the year ended december 31 , 2012 , from $ 1.219 billion for 2011 . rate/volume analysis the following table presents the dollar amount of changes in interest income 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 changes attributable to changes in volume ( i.e. , changes in average balances multiplied by the prior-period average rate ) , and 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 that can not be segregated have been allocated proportionately to the change due to volume and the change due to rate . replace_table_token_5_th 27 provision for loan losses we establish provisions for loan losses , which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable incurred credit losses in the loan portfolio . in determining the level of the allowance for loan losses , we consider past and current loss experience , evaluations of real estate collateral , current economic conditions , volume and type of lending , adverse situations that may affect a borrower 's ability to repay a loan and the levels of nonperforming and other classified loans . the amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or events change . story_separator_special_tag the decrease was primarily due to the recording of a $ 23.9 million goodwill impairment expense in 2011 , increased nonperforming asset management and oreo operations expenses , and expenses recorded in connection with acquisitions . noninterest expense for 2012 included $ 12.7 million of nonperforming asset management and oreo expenses , compared to $ 10.8 million for 2011 . oreo expenses for the year ended december 31 , 2012 included a $ 5.6 million valuation adjustment to oreo properties compared to a $ 4.0 million valuation adjustment in 2011 . the increase in valuation adjustments was due in part to a revision of our disposition strategy for certain income-producing oreo properties from an ordinary-liquidation pricing model to an aggressive pricing model designed to stimulate market demand . acquisition expenses reflected a $ 1.4 million expense relating to the acquisition of downers grove national bank , including $ 518,000 for data processing contracts and operational expenses and $ 675,000 contract and severance payments , and a $ 396,000 expense relating to our chicago area multi-family loan purchase from citibank . income taxes comparison of year 2013 to 2012 . for the years ended december 31 , 2013 and 2012 , we recorded no income tax expense or benefit due to the full valuation allowance we established for deferred tax assets . 29 comparison of year 2012 to 2011 . for the year ended december 31 , 2012 we recorded no income tax expense or benefit due to the full valuation allowance we established for deferred tax assets . the recognition of the $ 12.4 million income tax expense for the year ended december 31 , 2011 resulted from a non-cash charge of $ 22.6 million for the establishment of a full valuation allowance for our deferred tax assets . comparison of financial condition at december 31 , 2013 and december 31 , 2012 total assets decreased $ 27.6 million , or 1.9 % , to $ 1.454 billion at december 31 , 2013 , from $ 1.481 billion at december 31 , 2012 . the decrease in total assets was primarily due to a decrease in cash and cash equivalents , other real estate owned , and fdic prepaid insurance , which was partially offset by increases in loans receivable and securities . net loans increased $ 67.6 million to $ 1.098 billion at december 31 , 2013 , from $ 1.030 billion at december 31 , 2012 . net cash and cash equivalents decreased by $ 114.8 million to $ 161.0 million at december 31 , 2013 , from $ 275.8 million at december 31 , 2012 . in december 2012 , we designated certain owner-occupied and investor-owned one-to-four family residential loans with a carrying value of $ 7.5 million as “ held for sale ” in preparation for a bulk sale . the bulk sale of these one-to-four family residential loans was completed in february 2013. our loan portfolio consists primarily of investment and business loans ( multi-family , nonresidential real estate , commercial , construction and land loans , and commercial leases ) , which together made up 81.7 % of gross loans at december 31 , 2013 . net loans receivable increased $ 67.6 million , or 6.6 % , to $ 1.098 billion at december 31 , 2013 . multi-family mortgage loans increased by $ 44.0 million , or 12.5 % ; commercial loans decreased by $ 7.1 million , or 11.6 % ; nonresidential real estate loans decreased $ 1.1 million , or 0.4 % ; construction and land loans decreased $ 2.0 million , or 23.2 % . one-to-four family residential mortgage loans decreased $ 17.2 million , or 7.9 % . commercial leases increased by $ 47.3 million , or 33.9 % . our allowance for loan losses decreased by $ 3.9 million , or 21.5 % , to $ 14.2 million at december 31 , 2013 , from $ 18.0 million at december 31 , 2012 . the decrease reflected the combined impact of a $ 687,000 recovery of loan losses and $ 3.2 million in net charge-offs . net charge-offs for 2012 included a $ 10.8 million charge-off relating to compliance with the occ 's regulatory transition guidance concerning the elimination of special valuation allowances . securities increased $ 33.1 million , or 42.5 % , to $ 110.9 million at december 31 , 2013 , from $ 77.8 million at december 31 , 2012 , due primarily to the purchase of $ 74.2 million of securities partially offset by the receipt of principal repayments of $ 13.5 million on residential mortgage-backed and collateralized mortgage obligations . during 2013 and 2012 , we also invested in fdic insured certificates of deposit issued by other insured depository institutions . deposits decreased $ 29.6 million , or 2.3 % , to $ 1.253 billion at december 31 , 2013 , from $ 1.282 billion at december 31 , 2012 , due to a decrease in certificates of deposits . core deposits ( savings , money market , noninterest-bearing demand and now accounts ) increased as a percentage of total deposits , representing 78.0 % of total deposits at december 31 , 2013 , compared to 76.2 % of total deposits at december 31 , 2012 . certificates of deposit decreased $ 29.6 million , or 9.7 % , to $ 275.6 million at december 31 , 2013 from $ 305.3 million at december 31 , 2012 . the decrease was primarily due to a lessening of our competitive pricing position in anticipation of additional excess liquidity resulting from loan payments and bulk sales of loans . total stockholders ' equity was $ 175.6 million at december 31 , 2013 , compared to $ 172.9 million at december 31 , 2012 . the increase in total stockholders ' equity was primarily due to $ 3.3 million of net income that we recorded for the year ended december 31 , 2013 , which was partially offset by the $ 844,000 in dividends that were paid to our stockholders .
| results of operation net income comparison of year 2013 to 2012 . we recorded net income of $ 3.3 million for the year ended december 31 , 2013 , compared to a net loss of $ 27.1 million for 2012 . the net loss for 2012 was primarily due to a $ 31.5 million provision for loan losses and $ 12.7 million of expense for nonperforming asset management and operations of other real estate owned . the $ 31.5 million provision for loan losses in 2012 included a $ 11.5 million charge relating to the consummation of two bulk loan sales and a $ 5.9 million charge relating to the transfer of loans to the held for sale portfolio in preparation for a bulk sale . our earnings per share of common stock was $ 0.16 for the year ended december 31 , 2013 per share , compared to loss per share of common stock of $ 1.36 for the year ended december 31 , 2012 . comparison of year 2012 to 2011 . we recorded a net loss of $ 27.1 million for the year ended december 31 , 2012 , compared to a net loss of $ 48.7 million for 2011 . the net loss for 2012 was primarily due to a $ 31.5 million provision for loan losses and $ 12.7 million of expense for nonperforming asset management and operations of other real estate owned . the $ 31.5 million provision for loan losses included a $ 11.5 million charge relating to the consummation of two bulk loan sales and a $ 5.9 million charge relating to the transfer of loans to the held for sale portfolio in preparation for a bulk sale .
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all debt principal story_separator_special_tag the following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and the notes to those statements 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 discussed below . factors that could cause or contribute to such differences include , but are not limited to and those discussed in the section titled “ risk factors ” included elsewhere in this annual report . 32 executive overview for the fiscal year ended june 30 , 2012 , we reported revenue of $ 1,020.3 million representing 25 % revenue growth over the prior year . constant-currency revenue growth was also 25 % for this period . constant-currency organic revenue growth , which excludes the impact of acquisitions , was 20 % for the fiscal year ended june 30 , 2012. the year included solid operational results , with our highest ever new customer additions , increased revenue from existing customers , continued geographic expansion , and healthy growth across our businesses including two acquisitions that we expect will contribute to our long-term growth strategy . despite our revenue growth and significant share repurchase activity , diluted earnings per share ( `` eps '' ) for the year ended june 30 , 2012 declined 38 % from the same prior year period to $ 1.13 . this was due to investments we made in support of our long-term growth strategy . these investments include increased cost levels in our organic business as well as the acquisitions of albumprinter holding b.v. ( “ albumprinter ” ) , a leading provider of photo books and other photo products to consumers in europe , and webs , inc. ( “ webs ” ) , a leading provider of do-it-yourself websites , facebook pages and mobile presence solutions for small businesses . over the last 16 years , we have grown to become a leader in the large and fragmented market for small business marketing solutions . we have built significant competitive advantages via our marketing approach , proprietary technology , and manufacturing expertise . we have driven strong growth and developed substantial scale advantage by executing on our core strengths in mass customization technologies and by introducing an unmatched breadth of small business marketing products . we believe we are now well positioned to capitalize on our past success in order to capture more of the large market opportunity we see ahead of us . to do so , we have adopted an investment approach designed to support our ability to scale faster and drive significant long-term shareholder returns . on july 28 , 2011 , we introduced new five-year organic revenue and eps targets , along with an evolved financial and investment strategy to achieve our goals . we believe that by making disciplined but significant investments in fiscal 2012 and 2013 , we will be able to sustain high revenue growth rates over the five-year period , and position ourselves to deliver longer-term earnings per share growth at higher rates than we would have been able to achieve at a smaller investment scale . our long-term goal is to be the leading online provider of micro business marketing solutions for businesses or organizations with fewer than 10 employees . additionally , we plan to continue to focus on key market adjacencies where we believe we can drive additional long-term growth by employing our unique business model and customer value proposition . these adjacencies include digital marketing services , new geographic markets , personalized products for home and family usage , and up-market customers . the strategy for growth in our core micro business marketing opportunity is to make investments and drive success in the following areas : customer value proposition . we believe our customers currently spend only a small portion of their annual budget for marketing products and services with us . by shifting our success metrics from transactionally focused profit measures to longer-term customer satisfaction and economic measures , we believe we can deliver improvements to our customer experience and value proposition that will significantly increase customer loyalty and lifetime value . examples of these programs include improving the customer experience on our site , such as ease of use , less cross selling before customers reach the checkout , and expanded customer service . lifetime value based marketing . we have traditionally acquired customers by targeting micro businesses who are already shopping online through marketing channels such as search marketing , email marketing , and other online advertising . we believe a significant portion of micro businesses in our core markets do not currently use online providers of marketing services . by investing more deeply into existing marketing channels , as well as opening up new channels such as television broadcast and direct mail , we believe we can drive continued new customer growth and reach offline audiences that are not currently looking to online partners for marketing needs . world class manufacturing . we believe our manufacturing processes are best-in-class when it comes to the printing industry . but when compared to the best manufacturing companies in the world , we believe there is significant opportunity to drive further efficiencies and competitive advantages . by focusing 33 additional top engineering talent on key process approaches , we believe we can make a step-function improvement in product quality and reliability , and significantly lower unit manufacturing costs . our strategy to drive longer-term growth by addressing market adjacencies is to develop our business in the following areas : digital marketing services . we estimate that less than 50 % of micro businesses have a website today , but digital marketing services , including websites , email marketing , online search marketing and social media marketing , are a fast-growing part of the small business marketing space . story_separator_special_tag this reserve is dependent upon customer return practices and will vary during the year due to volume or specific reserve requirements . sales returns have not historically been significant to our net revenue and have been within our estimates . advertising expense . we rely heavily on our advertising and marketing efforts in order to promote our products and services to generate revenue growth . advertising costs , including production related items , are expensed when the costs are incurred . at each balance sheet date we make estimates of advertising spend that has not yet been invoiced . the accuracy of those estimates depends on sufficient data from our global marketing partners and generally involves a high volume of transactions . we perform extensive analysis on our historical estimates relative to actual performance ; however , based on the volume and significance of our marketing spend in any period , these estimates require judgment to accurately recognize the appropriate expense during the period . as of june 30 , 2012 , we had $ 21.4 million recorded as an accrued liability for advertising costs . share-based compensation . we measure share-based compensation costs at fair value , including estimated forfeitures , and recognize the expense over the period that the recipient is required to provide service in exchange for the award , which generally is the vesting period . we use the black-scholes option pricing model to measure the fair value of most of our share options and use a lattice model to measure the fair value of share options with a market condition . the fair value of restricted share units ( `` rsus '' ) and restricted share awards ( `` rsas '' ) is determined based on the number of shares granted and the quoted price of our ordinary shares on the date of the grant . the black-scholes model requires significant estimates related to the award 's expected life and future share price volatility of the underlying equity security . the lattice model considers market condition attributes in its valuation assessment and simulates various sources of uncertainty in order to determine an average value based on the range of resultant outcomes . the lattice model requires estimation of inputs such as future share price volatility and a forfeiture rate assessment . in determining the amount of expense to be recorded , we also estimate forfeiture rates for all awards based on historical experience to reflect the probability that employees will complete the required service period . employee retention patterns could vary in the future and result in a change to our estimated forfeiture rate which would directly impact share-based compensation expense . as a measure of sensitivity , a 100 basis point change in our forfeiture rate estimate would have resulted in an immaterial impact on our statement of operations . for awards with a performance condition vesting feature , when achievement of the performance condition is deemed probable , we recognize compensation cost on a graded-vesting basis over the awards ' expected vesting periods . management continually monitors the probability of vesting that is impacted by the achievement of certain business targets and milestones . independent factors such as market acceptance , technological feasibility or economic market volatility could impact the achievement of such awards and contribute to variability in management 's estimate and the recognition of the underlying share-based compensation expense . as the recognition of the compensation expense is reliant upon management 's estimate of the achievement of the award , if the probability increases during any given period , the compensation cost associated with that award would be accelerated in order to match the estimated outcome . these changes in estimate could result in periods of high expense fluctuation . income taxes . as part of the process of preparing our consolidated financial statements , we estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our current tax 35 expense , including assessing the risks associated with tax audits , together with assessing temporary and permanent differences resulting from differing treatment of items for tax and financial reporting purposes . we recognize deferred tax assets and liabilities for the temporary differences using the enacted tax rates and laws that will be in effect when we expect temporary differences to reverse . we assess the ability to realize our deferred tax assets based upon the weight of available evidence both positive and negative . to the extent we believe that it is more likely than not that some portion or all of the deferred tax assets will not be realized , we establish a valuation allowance . our estimates can vary due to the profitability mix of jurisdictions , foreign exchange movements , changes in tax law , regulations or accounting principles , as well as certain discrete items . in the event that actual results differ from our estimates or we adjust our estimates in the future , we may need to increase or decrease income tax expense , which could have a material impact on our financial position and results of operations . we establish reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . these reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit , new tax legislation , or the change of an estimate based on new information . to the extent that the final outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made . interest and , if applicable , penalties related to unrecognized tax benefits are recorded in the provision for income taxes . software and website development costs .
| results of operations the following table presents our historical operating results for the periods indicated as a percentage of revenue : replace_table_token_7_th in thousands replace_table_token_8_th revenue we generate revenue primarily from the sale and shipping of customized manufactured products , and the provision of digital services , website design and hosting , email marketing services as well as a small percentage from order referral fees and other third-party offerings . we seek to increase our revenue by increasing the number of customers who purchase from us ( “ unique active customers ” ) , as well as the amount our customers spend on our offerings ( “ average bookings per unique active customer ” ) . we use the combination of unique active customers and average bookings per unique active customer to describe our revenue performance as this approach is aligned with the way we manage our business and our efforts to increase our revenue . we believe that metrics relating to our unique active customers and average bookings per unique active customer offer shareholders a useful means of assessing our execution against our strategy . because changes in one of these metrics may be offset by changes in the other metric , no single factor is determinative of our revenue and profitability trends , and we assess them together to understand their overall impact on revenue and profitability . a number of factors influence our ability to drive increases in these metrics : unique active customers . the unique active customer count is the number of individual customers who purchased from us in a given period , with no regard to the frequency of purchase . for example , if a single customer makes two distinct purchases within a twelve-month period , that customer is tallied only once in the unique active customer count . we determine the uniqueness of a customer by looking at certain customer data .
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at december 31 , 2011 , the company had $ 157,000 in debt obligations . the average outstanding borrowings for 2011 were $ 465,000. as of december 31 , 2011 , the amount available to borrow under the company 's various lines-of-credit was approximately $ 8.4 million . the company 's credit agreement , as amended , is used for borrowing needs that may occur in the united states and europe . the credit agreement provides revolving credit up to $ 4 million and 3 million . borrowings under the revolver incur interest of libor plus 1.5 % . overnight borrowings incur interest at prime plus 0.50 % . the unused portion of the revolver is charged a commitment fee of .375 % per annum . the credit agreement contains certain financial covenants related to maximum leverage , minimum fixed charge coverage and minimum tangible net worth of the company . the credit agreement expires on october 26 , 2013. effective july 1 , 2011 , the company obtained a credit line facility in china providing credit of approximately $ 700,000 ( rmb 4,500,000 ) to provide financing availability for working capital needs for the company 's subsidiaries in china . there is approximately $ 550,000 ( rmb 3,500,000 ) available under the facility at december 31 , 2011. the company has bank overdraft facilities with foreign banks in europe . the facilities had no outstanding balance as of december 31 , 2011. the amount available under the overdraft facilities was approximately $ 700,000 ( 300,000 and 2,100,000 sek ) . as part of the company 's quarterly cash dividend program , the board of directors declared a dividend and increased the amount from $ 0.02 to $ 0.025 per share payable on march 12 , 2012 to shareholders of record on march 2 , 2012. the measurement period for the earnout related to the östergrens acquisition ended december 31 , 2011 and the amount owed to the sellers of östergrens has been finalized . the company will pay the remaining contingent consideration related to the östergrens acquisition of approximately 9,052,000 sek ( $ 1,313,000 measured in u.s. dollars as of december 31 , 2011 ) in the first quarter of 2012 from cash on hand . the company 's working capital , capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under the company 's credit facilities . price levels and the impact of inflation the effect of inflation on the company 's costs of production has been minimized through production efficiencies , lower costs of materials and surcharges passed on to customers . the company anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates . as the company 's manufacturing activities mainly utilize semi-skilled labor , which is relatively plentiful in the areas surrounding the company 's production facilities , the company does not anticipate substantial inflation-related increases in the wages of the majority of its employees . 14 recent accounting pronouncements pronouncements implemented in january 2010 , the fasb issued accounting standards update ( `` asu '' ) 2010-06 , `` improving disclosures about fair value measurements . '' asu 2010-06 requires the separate disclosure of significant transfers into and out of the level 1 and level 2 categories ; requires fair value measurement disclosures for each class of assets and liabilities ; and requires disclosures about valuation techniques and inputs used in level 2 and level 3 fair value measurements . these disclosure requirements became effective at the beginning of 2010. in addition , effective in fiscal years beginning after december 15 , 2010 , asu 2010-06 also requires level 3 disclosures of activity on a gross rather than a net basis . the company 's adoption of asu no . 2010-06 had no material impact on our consolidated financial condition or results of operations . in december 2010 , the fasb issued asu 2010-28 , `` when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts . '' asu 2010-28 modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts . for those reporting units , step 2 of the goodwill impairment test is required if it is more likely than not that a goodwill impairment exists , after considering whether there are any adverse qualitative factors indicating that an impairment may exist . asu 2010-28 is effective prospectively for fiscal years and interim periods beginning after december 15 , 2011. the company 's adoption of asu no . 2010-28 had no impact on our consolidated financial condition or results of operations . in september 2011 , the fasb issued asu no . 2011-08 , `` intangiblesgoodwill and other ( asc 350 ) : testing goodwill for impairment , '' which specifies that an entity has the option 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 . an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount . asu no . 2011-08 is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. the company 's adoption of asu no . 2011-08 had no impact on our consolidated financial condition and results of operations . pronouncements not yet implemented in june 2011 , the fasb issued asu no . 2011-05 , `` comprehensive income ( asc 220 ) : presentation of comprehensive income , '' which specifies that an entity has the option to present story_separator_special_tag at december 31 , 2011 , the company had $ 157,000 in debt obligations . the average outstanding borrowings for 2011 were $ 465,000. as of december 31 , 2011 , the amount available to borrow under the company 's various lines-of-credit was approximately $ 8.4 million . the company 's credit agreement , as amended , is used for borrowing needs that may occur in the united states and europe . the credit agreement provides revolving credit up to $ 4 million and 3 million . borrowings under the revolver incur interest of libor plus 1.5 % . overnight borrowings incur interest at prime plus 0.50 % . the unused portion of the revolver is charged a commitment fee of .375 % per annum . the credit agreement contains certain financial covenants related to maximum leverage , minimum fixed charge coverage and minimum tangible net worth of the company . the credit agreement expires on october 26 , 2013. effective july 1 , 2011 , the company obtained a credit line facility in china providing credit of approximately $ 700,000 ( rmb 4,500,000 ) to provide financing availability for working capital needs for the company 's subsidiaries in china . there is approximately $ 550,000 ( rmb 3,500,000 ) available under the facility at december 31 , 2011. the company has bank overdraft facilities with foreign banks in europe . the facilities had no outstanding balance as of december 31 , 2011. the amount available under the overdraft facilities was approximately $ 700,000 ( 300,000 and 2,100,000 sek ) . as part of the company 's quarterly cash dividend program , the board of directors declared a dividend and increased the amount from $ 0.02 to $ 0.025 per share payable on march 12 , 2012 to shareholders of record on march 2 , 2012. the measurement period for the earnout related to the östergrens acquisition ended december 31 , 2011 and the amount owed to the sellers of östergrens has been finalized . the company will pay the remaining contingent consideration related to the östergrens acquisition of approximately 9,052,000 sek ( $ 1,313,000 measured in u.s. dollars as of december 31 , 2011 ) in the first quarter of 2012 from cash on hand . the company 's working capital , capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under the company 's credit facilities . price levels and the impact of inflation the effect of inflation on the company 's costs of production has been minimized through production efficiencies , lower costs of materials and surcharges passed on to customers . the company anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates . as the company 's manufacturing activities mainly utilize semi-skilled labor , which is relatively plentiful in the areas surrounding the company 's production facilities , the company does not anticipate substantial inflation-related increases in the wages of the majority of its employees . 14 recent accounting pronouncements pronouncements implemented in january 2010 , the fasb issued accounting standards update ( `` asu '' ) 2010-06 , `` improving disclosures about fair value measurements . '' asu 2010-06 requires the separate disclosure of significant transfers into and out of the level 1 and level 2 categories ; requires fair value measurement disclosures for each class of assets and liabilities ; and requires disclosures about valuation techniques and inputs used in level 2 and level 3 fair value measurements . these disclosure requirements became effective at the beginning of 2010. in addition , effective in fiscal years beginning after december 15 , 2010 , asu 2010-06 also requires level 3 disclosures of activity on a gross rather than a net basis . the company 's adoption of asu no . 2010-06 had no material impact on our consolidated financial condition or results of operations . in december 2010 , the fasb issued asu 2010-28 , `` when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts . '' asu 2010-28 modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts . for those reporting units , step 2 of the goodwill impairment test is required if it is more likely than not that a goodwill impairment exists , after considering whether there are any adverse qualitative factors indicating that an impairment may exist . asu 2010-28 is effective prospectively for fiscal years and interim periods beginning after december 15 , 2011. the company 's adoption of asu no . 2010-28 had no impact on our consolidated financial condition or results of operations . in september 2011 , the fasb issued asu no . 2011-08 , `` intangiblesgoodwill and other ( asc 350 ) : testing goodwill for impairment , '' which specifies that an entity has the option 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 . an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount . asu no . 2011-08 is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. the company 's adoption of asu no . 2011-08 had no impact on our consolidated financial condition and results of operations . pronouncements not yet implemented in june 2011 , the fasb issued asu no . 2011-05 , `` comprehensive income ( asc 220 ) : presentation of comprehensive income , '' which specifies that an entity has the option to present
| operating results year 2011 compared to 2010 replace_table_token_4_th net income : the company achieved record net income for the year ended december 31 , 2011 of $ 6,967,000 or $ .81 per diluted share compared to a previous record of $ 3,585,000 or $ 0.45 per diluted share for 2010. the 2011 results include a $ 1.1 million adjustment to the earnout that was part of the östergrens acquisition in 2010. excluding the earnout adjustment of $ 1.1 million , the company achieved a 64 % increase in net income , or $ 0.68 per diluted share . this year 's results include the results from östergrens , which was acquired in december 2010 and am canada which was acquired on june 3 , 2010. ebitda and adjusted ebitda : ebitda was $ 11,774,000 and $ 6,984,000 for 2011 and 2010 , respectively . adjusted ebitda was $ 11,376,000 for 2011 compared to $ 7,776,000 for 2010. ebitda and adjusted ebitda , are non-gaap measurements . ebitda consists of income before interest expense , provision for income taxes , depreciation and amortization . adjusted ebitda is before stock compensation expense , as well as other nonrecurring items , such as adjustments to the earnout related to the östergrens acquisition , acquisition transaction costs , inefficiencies from the relocation of the encoder operations , and net insurance recoveries . see information included in `` non-gaap measures '' below for a reconciliation of net income to ebitda and adjusted ebitda . revenues : revenues were $ 110,941,000 in 2011 compared to $ 80,591,000 in 2010. of this 38 % increase , revenues from existing businesses increased 11 % and incremental revenues achieved by the two companies acquired in 2010 contributed 27 % of the increase . the 38 % increase in sales from last year was the result of an increase in sales in virtually all of our major industry sectors except aerospace and defense which was flat for the year .
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installment fee income is classified as finance charges on the consolidated statement of operations and is recognized as the fee is invoiced . relationship with third party insurers through december 31 , 2005 , our standard commercial p & c business unit marketed policies on behalf of clarendon national insurance company ( “ clarendon ” ) , a third-party insurer . through december 31 , 2008 , all business of our e & s commercial business unit was produced under a fronting agreement with member companies of the republic group ( “ republic ” ) story_separator_special_tag the following discussion should be read together with our consolidated financial statements and the notes thereto . this discussion contains forward-looking statements . please see “ risks associated with forward-looking statements in this form 10-k ” for a discussion of some of the uncertainties , risks and assumptions associated with these statements . overview hallmark is an insurance holding company which , through its subsidiaries , engages in the sale of property/casualty insurance products to businesses and individuals . our business involves marketing , distributing , underwriting and servicing our insurance products , as well as providing other insurance related services . we pursue our business activities primarily through subsidiaries whose operations are organized into business units and are supported by our insurance carrier subsidiaries . our insurance activities are organized by business units into the following reportable segments : · standard commercial segment . the standard commercial segment includes the standard lines commercial property/casualty and occupational accident insurance products and services handled by our standard commercial p & c business unit and the workers compensation insurance products handled by our workers compensation business unit . our standard commercial p & c business unit is comprised of our american hallmark insurance services and ecm subsidiaries . our workers compensation business unit is comprised of our tbic holdings , tbic and tbicrm subsidiaries . · specialty commercial segment . our specialty commercial segment includes the excess and surplus lines commercial property/casualty insurance products and services handled by our e & s commercial business unit and the general aviation , satellite launch , commercial umbrella and excess liability and medical professional liability insurance products and services handled by our hallmark select business unit , as well as certain specialty programs which are managed at the parent level . our e & s commercial business unit is comprised of our hsu , paac and tgasri subsidiaries . our hallmark select business unit is comprised of our aerospace insurance managers , asri , acmg , hxs and hds subsidiaries . · personal segment . the personal segment includes the non-standard personal automobile , low value dwelling/homeowners , renters and manufactured homes , insurance products and services handled by our personal lines business unit that is comprised of american hallmark general agency , inc. and hallmark claims services , inc. , both of which do business as hallmark insurance company . 40 the retained premium produced by these reportable segments is supported by our american hallmark insurance company of texas , hallmark specialty insurance company , hallmark insurance company , hallmark national insurance company and texas builders insurance company insurance subsidiaries . in addition , control and management of hallmark county mutual is maintained through our wholly owned subsidiary , cyr insurance management company ( “ cyr ” ) . cyr has as its primary asset a management agreement with hcm which provides for cyr to have management and control of hcm . hcm is used to front certain lines of business in our specialty commercial and personal segments in texas . hcm does not retain any business . ahic , hic , hsic and hnic have entered into a pooling arrangement pursuant to which ahic retains 30 % of the net premiums written by any of them , hic retains 27 % of the net premiums written by any of them , hsic retains 30 % of the net premiums written by any of them and hnic retains 13 % of the net premiums written by any of them . neither hcm nor tbic is a party to the intercompany pooling arrangement . critical accounting estimates and judgments the significant accounting policies requiring our estimates and judgments are discussed below . such estimates and judgments are based on historical experience , changes in laws and regulations , observance of industry trends and information received from third parties . while the estimates and judgments associated with the application of these accounting policies may be affected by different assumptions or conditions , we believe the estimates and judgments associated with the reported consolidated financial statement amounts are appropriate in the circumstances . for additional discussion of our accounting policies , see note 1 to the audited consolidated financial statements included in this report . impairment of investments . we complete a detailed analysis each quarter to assess whether any decline in the fair value of any investment below cost is deemed other-than-temporary . all securities with an unrealized loss are reviewed . we recognize an impairment loss when an investment 's value declines below cost , adjusted for accretion , amortization and previous other-than-temporary impairments and it is determined that the decline is other-than-temporary . debt investments : we assess whether we intend to sell , or it is more likely than not that we will be required to sell , a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses . for fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell , we separate the amount of the impairment into the amount that is credit related ( credit loss component ) and the amount due to all other factors . the credit loss component is recognized in earnings and is the difference between the investment 's amortized cost basis and the present value of its expected future cash flows . story_separator_special_tag a premium deficiency exists if the sum of expected claim costs and claim adjustment expenses , unamortized acquisition costs , and maintenance costs exceeds related unearned premiums and expected investment income on those unearned premiums , as computed on a product line basis . we routinely evaluate the realizability of deferred policy acquisition costs . at december 31 , 2014 and 2013 , there was no premium deficiency related to deferred policy acquisition costs . goodwill . goodwill is tested for impairment at the reporting unit level ( operating segment or one level below an operating segment ) on an annual basis ( october 1 ) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . for purposes of evaluating goodwill for impairment , we have determined that our reporting units are the same as our business units except for the hallmark select business unit for which reporting units are at the component level ( “ one level below ” ) . our consolidated balance sheet as of december 31 , 2014 includes goodwill of acquired businesses of $ 44.7 million that is assigned to our business units as follows : standard commercial p & c business unit - $ 2.1 million ; e & s commercial business unit - $ 19.8 million ; hallmark select business unit- $ 17.4 million ( comprised of $ 7.7 million for the excess & umbrella component and $ 9.7 million for the general aviation and satellite component ) ; and personal lines business unit - $ 5.4 million . this amount has been recorded as a result of prior business acquisitions accounted for under the acquisition method of accounting . under asc 350 , “ intangibles- goodwill and other , ” goodwill is tested for impairment annually . we completed our last annual test for impairment on the first day of the fourth quarter of 2014 and determined that there was no impairment . 42 a significant amount of judgment is required in performing goodwill impairment tests . such tests include estimating the fair value of our reporting units . as required by asc 350 , we compare the estimated fair value of each reporting unit with its carrying amount , including goodwill . under asc 350 , fair value refers to the amount for which the entire reporting unit may be bought or sold . the determination of fair value was based on an income approach utilizing discounted cash flows . the valuation methodology utilized is subject to key judgments and assumptions . estimates of fair value are inherently uncertain and represent management 's reasonable expectation regarding future developments . these estimates and the judgments and assumptions upon which the estimates are based will , in all likelihood , differ in some respects from actual future results . declines in estimated fair value could result in goodwill impairments in future periods which could materially adversely affect our results of operations or financial position . the income approach to determining fair value computed the projections of the cash flows that the reporting unit is expected to generate converted into a present value equivalent through discounting . significant assumptions in the income approach model include income projections , discount rates and terminal growth values . the income projections reflect an improved premium rate environment across most of our lines of business that continued throughout 2014. the income projections also include loss and lae assumptions which reflect recent historical claim trends and the movement towards a more favorable pricing environment . the income projections also include assumptions for expense growth and investment yields which are based on business plans for each of our business units . the discount rate was based on a risk free rate plus a beta adjusted equity risk premium and specific company risk premium . the assumptions were based on historical experience , expectations of future performance , expected market conditions and other factors requiring judgment and estimates . while we believe the assumptions used in these models were reasonable , the inherent uncertainty in predicting future performance and market conditions may change over time and influence the outcome of future testing . the fair values of each of our business units were in excess of their respective carrying values , including goodwill , as a result of our annual test for impairment during the fourth quarter 2014. however , a 7 % decline in the fair value of our standard commercial p & c business unit , a 13 % decline in the fair value of our e & s commercial business unit , a 28 % decline in the fair value of our personal lines business unit , a 52 % decline in the fair value of our excess & umbrella component or a 12 % decline in the fair value of our general aviation and satellite component would have caused the carrying value of the respective reporting unit to be in excess of its fair value , resulting in the need to perform the second step of impairment testing prescribed by asc 350 , which could have resulted in an impairment to our goodwill . the market capitalization of hallmark 's common stock has been below book value during 2014. we consider our market capitalization in assessing the reasonableness of the fair values estimated for our business units in connection with our goodwill impairment testing . we believe the current financial market conditions , as well as the limited daily trading volume of hallmark shares has resulted in a decrease in our market capitalization that is not representative of a long-term decrease in value . the valuation analysis discussed above supports our view that goodwill was not impaired at october 1 , 2014. through december 31 , 2014 , there were no indicators of impairment . while we believe the estimates and assumptions used in determining the fair value of our business units were reasonable , actual results could vary materially .
| results of operations comparison of years ended december 31 , 2014 and december 31 , 2013 management overview . during fiscal 2014 , our total revenues were $ 337.4 million , representing an approximately 13 % decrease over the $ 389.4 million in total revenues for fiscal 2013. the decrease in revenue was primarily attributable to lower net earned premiums in our personal segment due to a new quota share reinsurance contract entered into during the fourth quarter of 2013 on our non-standard automobile risk produced in certain states . further contributing to the decrease in revenue were significant realized gains recognized in our investment portfolio for the year ended december 31 , 2013 , lower net investment income and adverse profit share commission revenue adjustments in our standard commercial segment for the year ended december 31 , 2014. the decrease in revenue for the year ended december 31 , 2014 was offset by decreased loss and lae of $ 51.3 million as compared to the same period of 2013. during the twelve months ended december 31 , 2014 we recorded $ 5.2 million of favorable prior year loss development . during the twelve months ended december 31 , 2013 we recorded $ 10.0 million of unfavorable prior year loss development .
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this summary is qualified in its entirety by reference to the ltip , which has been filed as an exhibit to a form 8-k we filed on may 11 , 2017. the purpose of the ltip is to provide a means to attract and retain individuals who are essential to our growth and profitability and to encourage them to devote their best efforts to advancing our business by affording such individuals a means to acquire ownership and , consistent with stock price performance accumulate capital as a retentive force . also , our objectives for participants is to have them build up and retain ownership of our equity story_separator_special_tag results of operations the following discussion and analysis is intended to help the reader understand our business , financial condition , results of operations , liquidity and capital resources and should be read together with “ item 6. selected financial data ” and “ item 8. financial statements and supplementary data ” and related notes included elsewhere in this annual report . this discussion contains forward-looking statements that are based on the views and beliefs of our management , as well as assumptions and estimates made by our management . such views , beliefs , assumptions and estimates may , and often do , vary from actual results and the differences can be material . actual results could differ materially from such forward-looking statements as a result of various factors , including those that may not be in the control of our management . we do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law . for further information on items that could impact our future operating performance or financial condition , please read the sections entitled “ risk factors ” and “ forward-looking statements ” elsewhere in this annual report . overview we are a delaware limited partnership formed in 2015 to own and acquire mineral and royalty interests in oil and natural gas properties throughout the united states . effective as of september 24 , 2018 , we have elected to be taxed as a corporation for united states federal income tax purposes . as an owner of mineral and royalty interests , we are entitled to a portion of the revenues received from the production of oil , natural gas and associated ngls from the acreage underlying our interests , net of post-production expenses and taxes . we are not obligated to fund drilling and completion costs , lease operating expenses or plugging and abandonment costs at the end of a well 's productive life . our primary business objective is to provide increasing cash distributions to unitholders resulting from acquisitions from third parties , our sponsors and the contributing parties and from organic growth through the continued development by working interest owners of the properties in which we own an interest . as of december 31 , 2020 , we owned mineral and royalty interests in approximately 9.1 million gross acres and overriding royalty interests in approximately 4.6 million gross acres , with approximately 60 % of our aggregate acres located in the permian basin , mid-continent and bakken/williston basin . as of december 31 , 2020 , over 98 % of the acreage subject to our mineral and royalty interests was leased to working interest owners , including 100 % of our overriding royalty interests , and substantially all of those leases were held by production . our mineral and royalty interests are located in 28 states and in every major onshore basin across the continental united states and include ownership in over 97,000 gross wells , including over 41,000 wells in the permian basin . recent developments 2020 equity offering in january 2020 , we completed an underwritten public offering of 5,000,000 common units for net proceeds of approximately $ 73.6 million ( the “ 2020 equity offering ” ) . we used the net proceeds from the 2020 equity offering to purchase opco common units . the operating company in turn used the net proceeds to repay approximately $ 70.0 million of the outstanding borrowings under our secured revolving credit facility . in connection with the 2020 equity offering , certain selling unitholders sold 750,000 common units pursuant to the exercise of the underwriters ' option to purchase additional common units . we did not receive any proceeds from the sale of the common units by the selling unitholders . 2020 partial redemption of preferred units on february 12 , 2020 , we completed the redemption of 55,000 series a preferred units , representing 50 % of the then-outstanding series a preferred units . the series a preferred units were redeemed at a price of $ 1,110.72 per series a preferred unit for an aggregate redemption price of $ 61.1 million . acquisitions on april 17 , 2020 , we completed the springbok acquisition . the aggregate consideration for the springbok acquisition consisted of ( i ) approximately $ 95.0 million in cash , ( ii ) the issuance of 2,224,358 common units and ( iii ) the 81 issuance of 2,497,134 opco common units and an equal number of class b units . at the time of the springbok acquisition , the acreage acquired had over 90 operators on 2,160 net royalty acres across core areas of the delaware basin , dj basin , haynesville , stack , eagle ford and other leading basins . joint venture in connection with the joint venture ( the “ joint venture ” ) with springbok skr capital company , llc and rivercrest capital partners , lp , we paid capital contributions of $ 2.2 million during the year ended december 31 , 2020. interest rate swaps on january 27 , 2021 , we entered into an interest rate swap with citibank , n.a . story_separator_special_tag we also received notifications of well shut-ins and curtailment in the second quarter of 2020 from additional operators and the production attributable to such properties on a boe/d basis ( 6:1 ) accounted for less than one percent of our total production for the second quarter of 2020. we did not receive any additional notifications of well shut-ins or curtailments in the second half of 2020. while we currently do not expect we will receive additional notices , we can not predict whether additional shut-ins and curtailments of production from our operators will occur if depressed oil and natural gas prices , reductions in global demand and storage capacity issues continue or worsen . we expect that as the supply and demand imbalance resulting from the covid-19 outbreak and the opec announcements mentioned above continues , and as oil storage facilities reach capacity and or purchasers of crude products cancel previous orders , more of our operators may adjust or reduce their drilling activities , which could have an adverse effect on our business , cash flows , liquidity , financial condition and results of operations in the first quarter of 2021. the ultimate impacts of covid-19 and the volatility in the oil and natural gas markets on our business , cash flows , liquidity , financial condition and results of operations will depend on future developments , including , among others , the ultimate severity of the virus , the consequences of governmental and other measures designed to prevent the spread of the virus , the development , availability and administration of effective treatments and vaccines , the duration of the pandemic , actions taken by members of opec and other foreign , oil-exporting countries , governmental authorities and other third parties , workforce availability , and the timing and extent of any return to normal economic and operating conditions . for additional discussion regarding the risks associated with the covid-19 pandemic , see item 1a “ risk factors ” in this report . commodity prices and demand oil and natural gas prices have been historically volatile and may continue to be volatile in the future . as noted above , the supply and demand imbalance resulting from the covid-19 outbreak and various opec announcements have created increased volatility in oil and natural gas prices . the table below demonstrates such volatility for the periods presented as reported by the eia . replace_table_token_12_th 83 on february 19 , 2021 , the wti posted price for crude oil was $ 59.12 per bbl and the henry hub spot market price of natural gas was $ 4.96 per mmbtu . the following table , as reported by the eia , sets forth the average prices for oil and natural gas . replace_table_token_13_th rig count drilling on our acreage is dependent upon the exploration and production companies that lease our acreage . as such , we monitor rig counts in an effort to identify existing and future leasing and drilling activity on our acreage . the baker hughes united states rotary rig count was 332 active land rigs at december 31 , 2020 , a 57 % decrease from 781 active land rigs at december 31 , 2019. the 781 active rig count at december 31 , 2019 decreased 26 % from 1,056 active land rigs at december 31 , 2018. according to the baker hughes united states rotary rig count , rig activity in the 28 states in which we own mineral and royalty interests decreased 57 % from 773 active land rigs at december 31 , 2019 to 330 active land rigs at december 31 , 2020. the 773 active land rig count at december 31 , 2019 decreased 26 % from 1,049 active land rigs at december 31 , 2018. the decrease in rig count in 2020 is primarily related to the covid-19 outbreak and international supply and demand imbalances . see business environment — covid-19 pandemic and impact on global demand for oil and natural gas for further discussion . the following table summarizes the number of active rigs operating on our acreage by united states basins and producing regions for the periods indicated . replace_table_token_14_th sources of our revenue our revenues are derived from royalty payments we receive from our operators based on the sale of oil , natural gas and ngl production , as well as the sale of ngls that are extracted from natural gas during processing . our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices . 84 the following table presents the breakdown of our operating income for the following periods : replace_table_token_15_th in order to reduce the impact of fluctuations in oil and natural gas prices on our revenues , we entered into commodity derivative agreements with frost bank beginning january 1 , 2018. our commodity derivative agreements with frost bank extend through december 2022 and establish , in advance , a price for the sale of a portion of the oil , natural gas and ngls produced from our mineral and royalty interests . for further discussion on our commodity derivative agreements , see “ note 4—derivatives. ” reserves and pricing the tables below identify our proved reserves at december 31 , 2020 , 2019 and 2018 , in each case based on the reserve report prepared by ryder scott . the prices used to estimate proved reserves for the respective periods were held constant throughout the life of the properties and have been adjusted for quality , transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the wellhead .
| results of operations the table below summarizes our revenue and expenses and production data for the periods indicated . replace_table_token_18_th 88 comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 and the year ended december 31 , 2019 to the year ended december 31 , 2018 oil , natural gas and ngl revenues for the year ended december 31 , 2020 , our oil , natural gas and ngl revenues were $ 92.6 million , a decrease of $ 14.9 million from $ 107.5 million for the year ended december 31 , 2019. the significant decrease in oil , natural gas and ngl revenues was directly related to the decrease in the average prices we received for oil , natural gas and ngl production for the year ended december 31 , 2020 as discussed below . this decrease was partially offset by an increase in production associated with various acquisitions throughout the 2019 and 2020 periods . our revenues for the year ended december 31 , 2019 increased by $ 41.8 million , from $ 65.7 million for the year ended december 31 , 2018. the increase in revenues was primarily attributable to the revenues associated with the haymaker acquisition and the phillips acquisition , which represented approximately $ 20.2 million and $ 16.3 million , respectively , of the overall increase in oil , natural gas and ngl revenues , and , to a lesser extent , the revenues associated with the dropdown , which contributed $ 11.1 million to the overall increase . partially offsetting the increase in oil , natural gas and ngl revenues , was a decrease in the average prices we received for oil and ngl production . our revenues are a function of oil , natural gas , and ngl production volumes sold and average prices received for those volumes .
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item 14 principal accounting fees and services information required by this item is set forth in the company 's 2014 proxy statement in the section entitled audit and non-audit fees , story_separator_special_tag general the company designs and markets quality and innovative footwear for men , women and children under a portfolio of well-recognized brand names , including : florsheim , nunn bush , stacy adams , bogs , rafters , and umi. inventory is purchased from third-party overseas manufacturers . the majority of foreign-sourced purchases are denominated in u.s. dollars . the company has two reportable segments , north american wholesale operations ( wholesale ) and north american retail operations ( retail ) . in the wholesale segment , the company 's products are sold to leading footwear , department and specialty stores , primarily in the united states and canada . the company also has licensing agreements with third parties who sell its branded apparel , accessories and specialty footwear in the united states , as well as its footwear in mexico and certain markets overseas . licensing revenues are included in the company 's wholesale segment . the company 's retail segment consisted of 17 company-owned retail stores and an internet business in the united states as of december 31 , 2013. sales in retail outlets are made directly to consumers by company employees . the company 's other operations include the company 's wholesale and retail businesses in australia , south africa and asia pacific ( collectively , florsheim australia ) and europe . the majority of the company 's operations are in the united states , and its results are primarily affected by the economic conditions and the retail environment in the united states . this discussion summarizes the significant factors affecting the consolidated operating results , financial position and liquidity of the company for the three-year period ended december 31 , 2013. this discussion should be read in conjunction with item 8 , financial statements and supplementary data below . executive overview sales and earnings highlights consolidated net sales for 2013 were $ 300.3 million , up 2 % over last year 's net sales of $ 293.5 million . earnings from operations were $ 27.8 million this year , down 7 % from $ 29.8 million in 2012. consolidated net earnings attributable to weyco group , inc. were $ 17.6 million in 2013 , down 7 % as compared to $ 19.0 million last year . diluted earnings per share for the year ended december 31 , 2013 , were $ 1.62 per share , compared to $ 1.73 per share in 2012. earnings for 2012 included approximately $ 3.5 million ( $ 2.1 million after tax , or $ 0.19 per diluted share ) of income resulting from reductions in the contingent consideration liability that resulted from the 2011 acquisition of the combs company ( bogs ) . see note 11 of the notes to consolidated financial statements . the majority of the increase in consolidated net sales for 2013 came from the company 's wholesale segment . wholesale net sales increased $ 7.8 million this year , compared to 2012. this increase was due to higher sales volumes of the nunn bush , bogs and florsheim brands . excluding the $ 3.5 million bogs liability adjustment made in the prior year , consolidated earnings from operations would have been up approximately $ 1.5 million , or 6 % for the year . this increase was driven by higher operating earnings in the company 's wholesale and retail segments , partially offset by lower operating earnings from the company 's other businesses . story_separator_special_tag primarily due to the benefit of the closing underperforming stores and increases at both retail stores and the u.s. internet business . the company reviews its long-lived assets for impairment in accordance with accounting standards codification ( asc ) 360 , property plant and equipment ( asc 360 ) . see note 2 in the notes to consolidated financial statements for further information . in 2012 and 2011 , impairment charges of $ 93,000 and $ 165,000 , respectively , were recognized within selling and administrative expenses to write down the fixed assets of certain retail locations that were deemed unprofitable . those locations have closed or are slated to close when their respective lease terms expire . no impairment charge was recognized in 2013. in 2013 , six retail locations closed and in 2012 , seven locations closed . in general , earnings from operations for the retail segment have improved as fixed assets have been written down and underperforming stores have closed . in 2014 , the company does not expect to close any more domestic retail locations . other the company 's other businesses include its wholesale and retail operations in australia , south africa , asia pacific and europe . in 2013 , net sales of the company 's other businesses were $ 51.4 million , compared with $ 51.2 million in 2012. florsheim europe 's wholesale business was up for the year , but was offset by lower net sales at florsheim australia . florsheim australia 's net sales were down $ 730,000 , or 2 % , for the year . in local currency , florsheim australia 's net sales were up 6 % for the year , due to higher sales volumes in its retail businesses , partially offset by lower sales volumes in its wholesale businesses . the decrease in u.s. dollars was caused by the weakening of the australian dollar relative to the u.s. dollar in 2013. earnings from operations of these businesses were $ 4.0 million in 2013 , down 33 % as compared to $ 5.9 million last year . this decrease was primarily due to a $ 2.0 million decline in the operating earnings of florsheim australia 's wholesale businesses , resulting from lower sales volumes and increased infrastructure costs to accommodate the bogs expansion in australia . story_separator_special_tag net sales of the company 's other businesses were $ 51 million in 2013 , compared to $ 47 million in 2011. the majority of the increase was at florsheim australia , 17 whose wholesale and retail net sales both increased 12 % , or $ 4.7 million collectively . earnings from operations in the company 's other businesses were flat . other income and expense and taxes the majority of the company 's interest income is from its investments in marketable securities . interest income was approximately $ 1.5 million in 2013 , $ 1.8 million in 2012 and $ 2.2 million in 2011. the decrease over the three year period was primarily due to lower average investment balances . interest expense was approximately $ 384,000 in 2013 , $ 561,000 in 2012 and $ 611,000 in 2011. the decrease in 2013 was primarily due to a lower average debt balance in 2013 compared with 2012. other ( expense ) and income was approximately ( $ 653,000 ) in 2013 , ( $ 144,000 ) in 2012 and $ 216,000 in 2011. the decrease in 2013 was primarily due to the recognition of a $ 200,000 other-than-temporary impairment loss on one of the company 's municipal bond investments , and a $ 140,000 increase in foreign exchange transaction losses . the foreign exchange transaction losses were primarily due to the revaluation of intercompany loans with florsheim australia . the effective tax rate for 2013 was 35.2 % compared with 34.1 % in 2012 and 34.3 % in 2011. the increase in 2013 was primarily due to higher effective tax rates at the company 's foreign locations . liquidity & capital resources the company 's primary sources of liquidity are its cash and short-term marketable securities , which aggregated $ 21.2 million at december 31 , 2013 and $ 25.3 million at december 31 , 2012 , and its revolving line of credit . in 2013 , the company generated $ 29.8 million in cash from operating activities , compared with $ 18.0 million and $ 17.1 million in 2012 and 2011 , respectively . fluctuations in net cash from operating activities have mainly resulted from changes in net earnings and operating assets and liabilities , and most significantly the year-end inventory and accounts receivable balances . the company 's capital expenditures were $ 2.7 million , $ 9.5 million and $ 8.2 million in 2013 , 2012 and 2011 , respectively . in addition , in 2013 the company purchased a 50 % interest in a building in montreal , canada for $ 3.2 million . in 2012 , capital expenditures included a project to connect a neighboring building , acquired in 2011 , to the company 's existing office and distribution center in glendale , wisconsin . the company expects capital expenditures to be approximately $ 2 million to $ 3 million in 2014. the company paid cash dividends of $ 4.1 million , $ 11.1 million and $ 7.2 million in 2013 , 2012 and 2011 , respectively . on december 31 , 2012 , the company paid two quarterly cash dividends , each for $ 0.17 per share , which typically would have been paid in the first half of 2013. both dividends were accelerated into 2012 in anticipation of potential tax law changes effective january 1 , 2013. the company resumed its regular quarterly dividend payment schedule in the second quarter of 2013. the company continues to repurchase its common stock under its share repurchase program when the company believes market conditions are favorable . in 2013 , the company repurchased 195,050 shares for a total cost of $ 4.6 million . in 2012 , the company repurchased 285,422 shares for a total cost of $ 6.6 million . in 2011 , the company repurchased 175,606 shares for a total cost of $ 4.0 million through its share repurchase program and 400,319 shares at a total cost of $ 9.0 million in a private transaction . at december 31 , 2013 , the remaining total shares available to purchase under the program was approximately 628,000 shares . at december 31 , 2013 , the company had a $ 60 million unsecured revolving line of credit with a bank expiring november 5 , 2014. the line of credit bears interest at libor plus 0.75 % . at december 31 , 2013 , outstanding borrowings were $ 12 million at an interest rate of approximately 0.9 % . the highest balance during the year was $ 45 million . at december 31 , 2012 , outstanding borrowings were $ 45 million at an interest rate of approximately 1.2 % . 18 in 2011 , the company used cash of approximately $ 30.8 million for its bogs acquisition including $ 3.8 million to repay the debt assumed in the transaction . the company borrowed a net of $ 32 million in 2011 under its revolving line of credit to fund the bogs acquisition and related capital expenditures and inventory purchases . in connection with the bogs acquisition , the company held back $ 2.0 million of the purchase price to be used to help satisfy any claims of indemnification . this holdback amount was paid in full to the former shareholders of bogs in 2012. the company also had two contingent payments due to the former shareholders of bogs . the company made the first contingent consideration payment of approximately $ 1,270,000 in the first quarter of 2013. the second contingent consideration payment is due in march 2016. for additional information , see note 11 in the notes to consolidated financial statements . as of december 31 , 2013 , $ 3.3 million of cash and cash equivalents was held by the company 's foreign subsidiaries . if these funds are needed for operations in the u.s. , the company would be required to accrue and pay u.s. taxes to repatriate these funds .
| financial position highlights at december 31 , 2013 , cash and marketable securities totaled $ 46.2 million and outstanding debt totaled $ 12.0 million . at december 31 , 2012 , cash and marketable securities totaled $ 61.5 million and outstanding debt totaled $ 45.0 million . the company 's main sources of cash in 2013 were from operations , the maturities of marketable securities , and proceeds from stock options exercised . the company 's main uses of cash in 2013 were for the payment of dividends , common stock repurchases , payments on the revolving line of credit and a payment to the former shareholders of bogs . the company also paid approximately $ 3.2 million for a 50 % interest in a building in montreal , canada on may 1 , 2013 and had $ 2.7 million of capital expenditures . 12 recent acquisitions bogs on march 2 , 2011 , the company acquired 100 % of the outstanding shares of the combs company ( bogs ) from its former shareholders for $ 29.3 million in cash plus assumed debt of approximately $ 3.8 million and two contingent payments which are dependent on bogs achieving certain performance measures . in accordance with the purchase agreement , $ 2.0 million of the cash portion of the purchase price was held back to be used to help satisfy any claims of indemnification by the company . the holdback was paid in full to the former shareholders of bogs in 2012. the acquisition of bogs was funded with available cash and short-term borrowings under the company 's borrowing facility . at the acquisition date , the company 's estimate of the fair value of the two contingent payments was approximately $ 9.8 million in aggregate .
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as of december 31 , 2018 , the company had 17 aircraft and 5 engines under operating lease in its fleet . the net present value of future lease payments for the aforementioned leases range between $ 550 million and $ 650 million . the company also has operating leases related to terminal operations and office space , which are not included in the range provided , because the majority of these leases have variable payments and are not expected to be included in the operating lease liability at adoption . management does not believe that the impact of adopting asc 842 will be significant to the consolidated statement of operations and consolidated statements of cash flows . story_separator_special_tag overview the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand the company and its operations . this discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . we have based these forward-looking statements on our current expectations and projections of future events . however , our actual results could differ materially from those discussed herein as a result of the risks that we face , including but not limited to those risks stated in the `` risk factors '' section of this report . see `` cautionary note regarding forward-looking statements '' above . in addition , the following discussion should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this report . year in review 2018 story_separator_special_tag total operating expense increased $ 311.9 million or 14.1 % to $ 2.5 billion as compared to the same period in 2017. the largest components of our operating expenses are wages and benefits provided to our 27 employees and aircraft fuel ( including taxes and delivery ) . increases ( decreases ) in operating expenses are detailed below . replace_table_token_7_th aircraft fuel the price and availability of aircraft fuel is volatile due to global economic and geopolitical factors that we can neither control nor accurately predict . the increases in aircraft fuel expense are illustrated in the following table : replace_table_token_8_th the increase in fuel expense from 2017 to 2018 is due to an increase in average fuel price per gallon and increased fuel consumption driven by capacity growth . we believe economic fuel expense is the best measure of the effect of fuel prices on our business as it most closely approximates the net cash outflow associated with the purchase of fuel for our operations and is consistent with how management manages our business and assesses our operating performance . we define economic fuel expense as gaap fuel expense plus ( gains ) /losses realized through actual cash ( receipts ) /payments received from or paid to hedge counterparties for fuel hedge derivative contracts settled in the period inclusive of costs related to hedging premiums . economic fuel expense is calculated as follows : replace_table_token_9_th 28 see item 7a , quantitative and qualitative disclosures about market risk , for additional discussion of our jet fuel costs and related derivative program . wages and benefits wages and benefits expense increased by $ 51.7 million , or 8.2 % , in 2018 , as compared to 2017 , primarily driven by increased overall headcount ( up 8.8 % in 2018 ) . the higher wages and benefits expenses also reflected an increase in cost incurred for training to prepare for the induction of our a321neo fleet which entered service during 2018. maintenance materials and repairs maintenance materials and repairs increased $ 20.2 million , or 9.2 % , in 2018 , as compared to 2017. on a per asm basis , maintenance , materials , and repairs expense increased 2.9 % as compared to the prior year , primarily due to an increase in the number of airframe and engine maintenance events , higher cost of materials for aging aircraft , and an increase in rates on our power by hour contract . aircraft and passenger servicing aircraft and passenger servicing expenses increased $ 12.9 million , or 8.9 % , in 2018 , as compared to 2017 , resulting from higher food and beverage expenses attributed to increased passenger counts ( up 2.9 % in 2018 ) and an increase in ground handling services reflective of increased operations in domestic and international markets . depreciation and amortization depreciation and amortization increased $ 26.6 million , or 23.5 % , in 2018 , as compared to 2017 primarily due to additions of new aircraft , aircraft improvements and increases in information technology infrastructure and development projects . purchased services purchased services expense increased by $ 20.9 million , or 18.8 % , in 2018 , as compared to 2017 . the increase was primarily attributed to an increase in third party expenses including , outsourced web and it fees and services associated with our increased cargo operations . contract terminations expense during the year ended december 31 , 2018 , we terminated two contracts which incurred a total of $ 35.3 million in expense . the transactions are described below : in january 2018 , we entered into a transaction with a lessor to early terminate three boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three boeing 767-300 aircraft , including two pratt & whitney 4060 engines for each aircraft . these aircraft were previously accounted for as operating leases . in order to exit the lease and purchase the aircraft , we agreed to pay a total of $ 67.1 million ( net of all deposits ) of which a portion was expensed immediately and recognized as a contract termination fee . the expensed amount represents the total purchase price amount over fair value of the aircraft purchased as of the date of the transaction . story_separator_special_tag this increase resulted in an overall increase of $ 5.4 million in food and beverage costs and $ 5.6 million in ground handling costs . purchased services purchased services expense increased by $ 14.6 million , or 15.2 % , in 2017 , as compared to 2016 , due to an increase of $ 8.6 million in various third party expenses including : outsourced web and it fees and outsourced labor resources associated with the maintenance hangar project . special items special items expense decreased by $ 85.7 million , or 78.5 % , in 2017 , as compared to 2016. see note 11 to the consolidated financial statements for further discussion surrounding both 2017 and 2016 special items . other expenses other expenses increased by $ 17.0 million , or 13.4 % , in 2017 , as compared to 2016 , due to an increase of $ 3.8 million in hotel and personnel related expenses for our crew members ( e.g . meals and entertainment ) , as well as a $ 4.1 million increase in other supplies expenses . other components of our other expense line item include , but are not limited to , communication costs , professional and technical fees , insurance costs , legal fees , and other miscellaneous expenses . nonoperating expense , net net nonoperating expense increased by $ 36.9 million in 2017 , as compared to 2016 , due to a $ 35.2 million loss on plan termination and a $ 10.4 million partial settlement and curtailment loss , which were recorded in other nonoperating special items in 2017. these expenses were partially offset by an $ 11.7 million fluctuation in fuel hedge gains during the same period . in 2016 , the hawaiian airlines , inc. pension plan for salaried employees ( the salaried plan ) was consolidated into the hawaiian airlines , inc. pension plan for employees represented by the international association of machinists ( iam ) , which established the hawaiian airlines , inc. salaried & iam merged pension plan ( the merged plan ) . at that time , the net liabilities of the salaried plan were transferred to the merged plan . in august 2017 , we completed the termination of the merged plan by transferring the assets and liabilities to a third-party insurance company . the merged plan was fully funded and we recognized a one-time other nonoperating special item expense of $ 35.2 million as an other nonoperating special item in our consolidated statement of operations . in 2017 , we recognized a one-time other nonoperating special item expense of $ 10.4 million related to the settlement of a portion of our pilots ' other post-retirement medical plan liability , pursuant to which the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots and to replace the benefit with a health retirement account ( hra ) managed by alpa . this transaction represented a curtailment and partial settlement of the pilots ' other post-retirement benefit plan . in august 2017 , we made a one-time cash payment of approximately $ 101.9 million to fund the hra and settle the post-65 post-retirement medical plan obligation . the cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants . income tax expense our effective tax rate was 15.4 % percent for 2017 , compared with 38.0 % for 2016. the decrease in rate was driven by a $ 83.0 million reduction in provision for income taxes related to the tax act enacted in december 31 , 2017 , which resulted in re-measurement of our deferred tax assets and liabilities at the new federal corporate tax rate of 21.0 % . liquidity and capital resources our primary sources of liquidity are : 32 our existing cash and cash equivalents and short-term investments of $ 500.8 million , and our expected cash from operations ; our 21 unencumbered aircraft in our aircraft fleet as of december 31 , 2018 , that could be financed , if necessary ; and our $ 235.0 million revolving credit facility with no outstanding borrowing . information about this facility can be found in note 8 to the consolidated financial statements . at december 31 , 2018 , we had $ 709.8 million of debt and capital lease obligations , including $ 101.1 million classified as a current liability in the consolidated balance sheets . as of december 31 , 2018 , our current liabilities exceeded our current assets by approximately $ 301.0 million . however , approximately $ 603.7 million of our current liabilities are related to our advanced ticket sales and frequent flyer deferred revenue , both of which largely represent revenue to be recognized for travel within the next 12 months and not actual cash outlays . the deficit in working capital does not have an adverse impact to our cash flows , liquidity , or operations . cash flows net cash provided by operating activities was $ 508.5 million , $ 331.1 million , and $ 437.0 million in 2018 , 2017 , and 2016 , respectively . operating cash flows are primarily derived from providing air transportation to customers . the vast majority of tickets are purchased in advance of when travel is provided , and in some cases , several months before the anticipated travel date . operating cash outflows are related to the recurring expenses of the airline operations . the operating cash flows for 2018 , 2017 , and 2016 were impacted primarily by our results of operations , adjusted for non-cash items as well as changes in the air traffic liability , accounts receivables and other asset and liabilities , net . net cash provided by operating activities is primarily used to finance capital expenditures , including pre-delivery payments for future aircraft deliveries , repayment of debt and capital lease obligations , fund stock repurchases , pay dividends , and provide working capital .
| financial highlights operating income of $ 314 million compared to $ 464 million in the prior-year period . pre-tax income of $ 301 million compared to $ 391 million in the prior-year period . gaap net income of $ 233 million or $ 4.62 per diluted share compared to $ 331 million or $ 6.19 per diluted share in the prior year period . adjusted net income of $ 275 million or $ 5.44 per diluted share compared to $ 289 million or $ 5.41 per share in the prior year period . unrestricted cash and cash equivalents and short-term investments of $ 501 million compared to $ 460 million in the prior year period . see `` non-gaap financial measures '' below for our reconciliation of non-gaap measures . outlook looking ahead , capacity increases in north america and parts of our international network are expected to increase in the first half of 2019. we expect our capacity to grow between 1.5 % to 3.0 % in the first quarter of 2019 as compared to the first quarter of 2018. for the first quarter of 2019 , we expect the aforementioned increases in capacity will result in operating revenue per available seat mile to decrease between 3.0 % to 6.0 % as compared to the first quarter of 2018. we also expect that our operating costs per available seat mile will decrease by 3.8 % to 7.1 % during the first quarter of 2019 , while our operating costs per available seat mile excluding fuel will increase by 1.0 % to 4.0 % . for 2019 , we expect the corporate federal tax rate will result in an all-in book tax rate for us of 25 % to 27 % . 25 selected consolidated statistical data below are the operating statistics we use to measure our operating performance .
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in addition , if a phase ii clinical trial involving the company 's isoflavone technology were to achieve a statistically significant result ( p=0.05 or less ) or a first patient were enrolled in a phase iii clinical trial using the company 's isoflavone technology , then any share of the series a preferred stock not already converted may thereafter have been converted into 1,609 shares 50 of common stock . on november 19 , 2012 , novogen provided the company written notice of conversion with respect to all of the 1,000 shares of series a preferred stock held by novogen . in accordance with the terms of the preferred shares , on november 20 , 2012 , the company issued to novogen 804,500 shares of common stock . in december 2012 , novogen completed a capital reduction and in specie distribution to the novogen shareholders of substantially all of the shares of the company 's common stock that it owned . holders of the series a convertible preferred stock were not entitled to receive any dividend or other similar distributions , except in the event that the company 's board of directors or any duly authorized committee thereof would have declared and authorized a special dividend or distribution on any shares of series a convertible preferred stock . additionally , holders of the series a convertible preferred stock were not entitled to vote any shares of the series a convertible preferred stock . the holders of the series a convertible preferred stock did not have any rights of pre-emption , except as the company may otherwise have agreed in writing . series b preferred stock the 742 shares of series b preferred stock , all of which were redeemed and cancelled in march 2011 in accordance with the terms described below , entitled holders to receive dividends in the amount of 10 % per annum , payable in additional shares of series b story_separator_special_tag the following discussion and analysis should be read in conjunction with item 8. financial statements and supplementary data included below in this annual report on form 10-k. operating results are not necessarily indicative of results that may occur in future periods . this discussion and analysis contains forward-looking statements that involve a number of risks , uncertainties and assumptions . actual results may differ materially from those anticipated in the forward-looking statements as a result of many factors including , but not limited to , those set forth under cautionary statement about forward-looking statements and risk factors in item 1a . included above in this annual report on form 10-k. all forward-looking statements included in this annual report are based on the information available to us as of the time we file this annual report , and except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . overview and recent developments our business purpose is the development of drugs for the treatment of cancer . we are principally focused on the clinical development of our lead drug candidate , pracinostat , as well as the advancement of our isoflavone-based drug candidates , me-344 and me-143 . we acquired pracinostat in august 2012 from s * bio , a privately held biotechnology company , in exchange for 195,756 shares of common stock , valued at $ 500,000 , and the assumption of specified liabilities . the agreement with s * bio also provides for potential success-based clinical , regulatory and sales milestone payments of up to $ 75.2 million , as well as low single-digit contingent earn-out payments based on net sales . our clinical development pipeline also includes two isoflavone-based drug candidates , me-344 and me-143 . we acquired me-344 and me-143 in may 2011 from novogen and novogen research pty limited , a wholly-owned subsidiary of novogen , in exchange for 1,000 shares of our series a convertible preferred stock , which were subsequently converted into 804,500 shares of common stock in november 2012 , and the assumption of specified potential liabilities related to these assets . we have incurred net losses of $ 96.3 million since our inception in december 2000 through june 30 , 2013 , and may incur substantial net losses in the future as we advance our research and development programs . we have not generated any revenues from operations since inception and we expect to incur operating losses and generate negative cash flows from operations for the foreseeable future . we may need additional financing to fund our operations in the future , including the continued development of our lead drug candidates . clinical developments in june 2013 we initiated a blinded , placebo-controlled phase ii clinical trial of pracinostat in combination with vidaza in patients with previously untreated intermediate-2 or high-risk mds , the first in a series of phase ii studies we have planned for pracinostat . the multicenter trial is expected to enroll 100 patients with a one-to-one randomization . completion of enrollment is anticipated by june 2014 with topline data expected in december 2014. the primary endpoint of the study is complete remission ( cr ) . secondary endpoints include overall response rate ( cr+cri+pr ) , hematologic improvement , duration of response , progression-free survival , rate of leukemic transformation , overall survival and safety . in addition , we are preparing for two open label phase ii trials of pracinostat : one in combination with vidaza in elderly patients with aml who are not 26 suited for induction therapy , expected to initiate in the fall of 2013 , and the other in combination with vidaza or dacogen ® ( decitabine ) in patients with hypomethylating agent refractory mds soon thereafter . in april 2012 we initiated a first-in-human , dose-escalation study of intravenous me-344 in patients with solid refractory tumors . the dose-escalation trial is evaluating the safety and tolerability of me-344 . story_separator_special_tag securities subscription agreements novogen in september 2011 , we entered into a securities subscription agreement with novogen , pursuant to which we sold to novogen 222,222 shares of our common stock , at a purchase price of $ 9.00 per share , for proceeds of $ 2,000,000. the offering closed on september 29 , 2011. in december 2011 , we entered into a securities subscription agreement with novogen , pursuant to which we sold to novogen 323,625 shares of our common stock , at a purchase price of $ 6.18 per share , for proceeds of $ 2,000,000. the offering closed on december 29 , 2011. at market issuance sales agreement during february and march 2011 , we issued 9,200 shares of common stock resulting in net cash proceeds of $ 45,000 , pursuant to an at market issuance sales agreement with mcnicoll , lewis & vlak llc ( mlv ) . additionally , during march 2011 , as part of a contemplated series of transactions with ironridge global biopharma , a division of ironridge global iv , ltd. , a british virgin islands business company ( ironridge ) , we ( i ) issued 107,391 shares of common stock to ironridge for a fully secured interest-bearing note receivable of $ 1,001,700 , ( ii ) issued 742 shares of series b preferred stock to ironridge for net cash proceeds of $ 665,000 , and ( iii ) redeemed the 742 shares of series b preferred stock and cancelled the note receivable pursuant to a stock purchase agreement with ironridge . may 2011 private placement on may 16 , 2011 , we entered into an amended and restated securities purchase agreement ( the amended securities purchase agreement ) with certain accredited investors pursuant to which we agreed to issue and sell to the investors certain shares of our common stock , and warrants to purchase additional shares of common stock . pursuant to the amended securities purchase agreement , in may 2011 we issued to the investors : ( i ) 139,203 shares ( the initial shares ) of common stock , at a purchase price of $ 8.00 per share ; ( ii ) series a warrants ( the series a warrants ) which initially represented the right to purchase up to 104,402 shares of common stock , up to a maximum of 375,094 shares ; and ( iii ) series b warrants ( the series b 28 warrants ) which initially represented the right to purchase up to 360,922 shares of common stock . in addition , we agreed to issue certain additional shares of common stock ( the adjustment shares ) to the extent the price of the common stock is below $ 8.00 per share , but greater than or equal to $ 4.50 per share , on certain dates ( adjustment dates ) during the period ended june 26 , 2012 , including as a result of a subsequent offering by us of our securities at a price below the purchase price of the initial shares . the number of adjustment shares issuable was initially limited to 108,207 , subject to proportionate increases to the extent the series b warrants have been exercised prior to the applicable adjustment date , up to a maximum of 388,764 shares . if the trading price of our common stock were to be below $ 4.50 per share on any adjustment date , we agreed , in addition to issuing the applicable number of adjustment shares , to refund to the investors an amount per share of common stock received by the investors in the transaction equal to the difference between $ 4.50 and the price of the common stock on such adjustment date . the transactions contemplated by the amended securities purchase agreement are referred to as the may 2011 private placement . upon the closing of the may 2011 private placement , the company also issued warrants to the placement agent for the purchase of up to 35,008 shares of common stock , which warrants were exercisable on the same terms as the series a warrants . on december 29 , 2011 , the company issued an aggregate of 111,212 adjustment shares to the investors in accordance with the calculation of the applicable price , based on the trading price of the company 's common stock , with respect to the first adjustment date . additionally , on december 29 , 2011 , the company issued an aggregate of 40,950 adjustment shares to the investors in connection with the private placement of common stock to novogen that closed on december 29 , 2011. terms of series a and series b warrants the series a warrants became exercisable on the six month anniversary of the may 18 , 2011 closing of the may 2011 private placement . the series a warrants will expire on the fifth anniversary of the date on which the series a warrants first became exercisable . prior to the amendment of the warrant terms in september 2011 in conjunction with the supplemental agreement , as defined and described below , the series a warrants were initially exercisable at an exercise price of $ 9.42 per share , subject to adjustment as provided in the series a warrant agreements . under the terms of the warrant agreements , the number of shares of common stock issuable upon exercise of the series a warrants would be increased by an amount equal to 75 % of the number of shares of common stock issued upon each exercise of the series b warrants .
| results of operations we are providing the following summary of our research and development expenses and general and administrative expenses to supplement the more detailed discussions below . the dollar values in the following tables are in thousands . replace_table_token_2_th 31 comparison of years ended june 30 , 2013 and 2012 research and development : research and development expenses consist primarily of clinical trial costs ( including payments to contract research organizations , or cros ) , pre-clinical study costs , cost to manufacture our drug candidates for non-clinical and clinical studies , and salaries and other personnel costs . research and development expenses increased $ 1,169,000 to $ 6,084,000 for the year ended june 30 , 2013 compared to $ 4,915,000 for the year ended june 30 , 2012. the increase was primarily due to costs associated with drug manufacturing and preparations for phase ii clinical trials for pracinostat and costs associated with a phase i clinical trial for me-344 . additionally , salaries and benefits costs , including share-based compensation , increased due to hiring of additional employees and issuance of additional stock options to research and development personnel . we expect research and development expenses to increase during the fiscal year ending june 30 , 2014 related primarily to our planned phase ii clinical trials for pracinostat .
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because the company does not intend to sell the remaining security and it is not more-likely-than-not that the company will be required to sell this securities before recovery of its amortized cost basis , which may be maturity , the company does not consider the remainder of the investment in this security to be other-than-temporarily impaired at december 31 , 2013 . however , future downgrades or additional deferrals and defaults in the security could result in additional otti and consequently , have a material impact on future earnings . on july 22 , 2013 , the company sold its holdings in pretsl i and pretsl ii and the net proceeds exceeded the aggregate book value of the securities by approximately $ 1.4 million . on july 3 , 2012 , the company 's holding in pretsl vi was redeemed in full and the payment received exceeded the aggregate book of the security by approximately $ story_separator_special_tag the following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the company and its subsidiaries years ended december 31 , 2013 , 2012 and 2011 . this discussion and analysis should be read in conjunction with the consolidated financial statements , related notes and selected financial data appearing elsewhere in this report . forward-looking statements this report may contain certain forward-looking statements , such as discussions of the company 's pricing and fee trends , credit quality and outlook , liquidity , new business results , expansion plans , anticipated expenses and planned schedules . the company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1955. forward-looking statements , which are based on certain assumptions and describe future plans , strategies and expectations of the company , are identified by use of the words “ believe , ” ” expect , ” ” intend , ” ” anticipate , ” ” estimate , ” ” project , ” or similar expressions . actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties , including those described in item 1a . “ risk factors ” and other sections of the company 's annual report on form 10-k and the company 's other filings with the sec , and changes in interest rates , general economic conditions and those in the company 's market area , legislative/regulatory changes , monetary and fiscal policies of the u.s. government , including policies of the u.s. treasury and the federal reserve board , the quality or composition of the loan or investment portfolios and the valuation of the investment portfolio , the company 's success in raising capital , demand for loan products , deposit flows , competition , demand for financial services in the company 's market area and accounting principles , policies and guidelines . furthermore , forward-looking statements speak only as of the date they are made . except as required under the federal securities laws or the rules and regulations of the sec , we do not undertake any obligation to update or review any forward-looking information , whether as a result of new information , future events or otherwise . for the years ended december 31 , 2013 , 2012 and 2011 overview this overview of management 's discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you . for a more complete understanding of trends , events , commitments , uncertainties , liquidity , capital resources , and critical accounting estimates , you should carefully read this entire document . these have an impact on the company 's financial condition and results of operations . net income was $ 14.72 million , 14.02 million , and $ 11.37 million and diluted earnings per share were $ 1.73 , $ 1.62 , and $ 1.29 for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the increases in net income and earnings per share in 2013 was primarily the result of an increase in net interest income due to growth in loan balances and sustained low funding costs , the provision for loan losses was reduced given lower non-performing assets and net charge-offs and non-interest income increased as a result of more gains recognized on the sale of securities and greater trust and brokerage revenues.the following table shows the company 's annualized performance ratios for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_3_th total assets at december 31 , 2013 , 2012 and 2011 were $ 1.61 billion , $ 1.58 billion , and $ 1.50 billion , respectively . net loan balances increased to $ 970 million at december 31 , 2013 , from $ 899 million at december 31 , 2012 , from $ 849 million at december 31 , 2011. of the increase in 2013 , $ 61.4 million or 86 % was due to increases in loans secured by real estate . of the increase in 2012 , $ 46.9 million or 93 % was due to increases in loans secured by real estate . total deposit balances increased to $ 1.29 billion at december 31 , 2013 from $ 1.27 billion at december 31 , 2012 and from $ 1.17 billion at december 31 , 2011. the increase in 2013 was due to increases in interest-bearing deposits offset by declines in savings account balances and non-interest bearing deposits . the increase in 2012 was due to increases in non-interest bearing and savings account balances offset by higher rate cds that matured and were not replaced . story_separator_special_tag the decline in these ratios during 2013 was primarily due to a decrease in retained earning resulting from a greater amount of preferred dividends paid following the issuance of additional series c preferred stock in 2012. the increase in 2012 was primarily the result of an increase in retained earnings due to the company 's net income and the issuance of $ 8,250,000 of series c preferred stock . ( see “ preferred stock ” in note 1 to consolidated financial statements for more detailed information . ) the company 's liquidity position remains sufficient to fund operations and meet the requirements of borrowers , depositors , and creditors . the company maintains various sources of liquidity to fund its cash needs . see “ liquidity ” herein for a full listing of its sources and anticipated significant contractual obligations . the company enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers . these financial instruments include lines of credit , letters of credit and other commitments to extend credit . the total outstanding commitments at december 31 , 2013 , 2012 and 2011 were $ 244.2 million , $ 234.9 million , and $ 228.6 million , respectively . see note 17 – “ commitments and contingent liabilities ” herein for further information . 21 critical accounting policies and use of significant estimates the company has established various accounting policies that govern the application of u.s. generally accepted accounting principles in the preparation of the company 's financial statements . the significant accounting policies of the company are described in the footnotes to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from these judgments and assumptions , which could have a material impact on the carrying values of assets and liabilities and the results of operations of the company . allowance for loan losses . the company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements . an estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates , expected cash flows and estimated collateral values . in assessing these factors , the company use organizational history and experience with credit decisions and related outcomes . the allowance for loan losses represents the best estimate of losses inherent in the existing loan portfolio . the allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off , net of recoveries . the company evaluates the allowance for loan losses quarterly . if the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations , the allowance for loan losses is adjusted . the company estimates the appropriate level of allowance for loan losses by separately evaluating impaired and nonimpaired loans . a specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan . the methodology used to assign an allowance to a nonimpaired loan is more subjective . generally , the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics , adjusted for qualitative factors including the volume and severity of identified classified loans , changes in economic conditions , changes in credit policies or underwriting standards , and changes in the level of credit risk associated with specific industries and markets . because the economic and business climate in any given industry or market , and its impact on any given borrower , can change rapidly , the risk profile of the loan portfolio is continually assessed and adjusted when appropriate . notwithstanding these procedures , there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required . other real estate owned . other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired , establishing a new cost basis . the adjustment at the time of foreclosure is recorded through the allowance for loan losses . due to the subjective nature of establishing the fair value when the asset is acquired , the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate . if it is determined that fair value temporarily declines subsequent to foreclosure , a valuation allowance is recorded through noninterest expense . operating costs associated with the assets after acquisition are also recorded as noninterest expense . gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense . investment in debt and equity securities . the company classifies its investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with statement of financial accounting standards ( sfas ) no . 115 , “ accounting for certain investments in debt and equity securities , ” which was codified into asc 320. securities classified as held-to-maturity are recorded at cost or amortized cost . available-for-sale securities are carried at fair value . fair value calculations are based on quoted market prices when such prices are available .
| results of operations net interest income the largest source of operating revenue for the company is net interest income . net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities . the amount of interest income is dependent upon many factors , including the volume and mix of earning assets , the general level of interest rates and the dynamics of changes in interest rates . the cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds . 23 the company 's average balances , interest income and expense and rates earned or paid for major balance sheet categories are set forth in the following table ( dollars in thousands ) : year ended december 31 , 2013 year ended december 31 , 2012 year ended december 31 , 2011 average balance interest average rate average balance interest average rate average balance interest average rate assets interest-bearing deposits $ 13,633 $ 33 0.24 % $ 16,559 $ 40 0.24 % $ 83,877 $ 213 0.25 % federal funds sold 6,923 6 0.09 % 41,484 37 0.09 % 78,227 69 0.09 % certificates of deposit investments 2,554 14 0.55 % 10,714 57 0.53 % 11,651 78 0.67 % investment securities taxable 466,031 9,153 1.96 % 458,158 9,970
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stock-based compensation expense total stock-based compensation expense included in our consolidated statements of operations is presented in the following table : replace_table_token_48_th the stock-based compensation expense included in selling , general , and administrative expense for fiscal 2018 includes approximately $ 1.4 million of additional one -time expense for acceleration of stock compensation under the ceo separation agreement executed with our former ceo during the first quarter of fiscal 2018 . 53 stock options and espp the fair values of each option award on the date of grant and of the shares expected to be issued under the employee stock purchase plan were estimated using the black-scholes story_separator_special_tag overview lattice semiconductor corporation and its subsidiaries ( “ lattice , ” the “ company , ” “ we , ” “ us , ” or “ our ” ) develop technologies that we monetize through differentiated programmable logic semiconductor products , system solutions , design services , and licenses . lattice is the low power programmable leader . we solve customer problems across the network , from the edge to the cloud , in the growing communications , computing , industrial , automotive , and consumer markets . our technology , long-standing relationships , and commitment to world-class support lets our customers quickly and easily unleash their innovation to create a smart , secure , and connected world . lattice has focused its strategy on delivering programmable logic products and related solutions based on low power , small size , and ease of use . we also serve our customers with ip licensing and various other services . our product development activities include new proprietary products , advanced packaging , existing product enhancements , software development tools , soft ip , and system solutions for high-growth applications such as edge artificial intelligence , 5g infrastructure , platform security , and factory automation . this discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in item 8 . `` financial statements and supplementary data '' of this report . discussions of results for prior periods ( fiscal 2019 compared to fiscal 2018 ) are incorporated by reference from our annual report on form 10-k for the year ended december 28 , 2019 . impact of the covid-19 pandemic on our business the covid-19 pandemic has caused , and is expected to continue to cause , the global slowdown of economic activity ( including the decrease in demand for goods and services ) , and significant volatility in and disruption to financial markets . because the severity , magnitude and duration of the covid-19 pandemic and its economic consequences are uncertain , rapidly changing , and difficult to predict , the pandemic 's impact on our operations and financial performance , as well as its impact on our ability to successfully execute our business strategy and initiatives , remains uncertain . we continue to take actions to safeguard the health and well-being of our employees and our business . we implemented social distancing policies at our locations around the world including working from home and eliminating virtually all travel . furthermore , we continue to manage our cash position and liquidity needs in light of the rapidly changing environment , and we have additional resources available under our current credit agreement , if needed . as a result of the accelerated debt payments we made during the second quarter of fiscal 2020 to reduce our future interest rate expense , we do not have any required debt payments until june 30 , 2021. as covid-19 has spread globally and been declared a pandemic , the full extent of this outbreak , the related governmental , business and travel restrictions in order to contain this virus are continuing to evolve globally . we anticipate that these actions and the global health crisis caused by the covid-19 pandemic will negatively impact business activity across the globe . we expect our demand to be impacted in q1 and potentially beyond q1 given the global reach and economic impact of the virus . for example , governmental actions or policies or other initiatives to contain the virus , could lead to reductions in our end customers ' demand under which we would expect to lose revenue . we have previously seen and could again see delays or disruptions in our supply chain due to governmental restrictions . if our suppliers experience similar impacts , we may have difficulty sourcing materials necessary to fulfill customer production requirements and transporting completed products to our end customers . we will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees , customers , partners , suppliers , and stakeholders , or as required by federal , state , or local authorities . it is not clear what the potential effects of any such alterations or modifications may have on our business , including the effects on our customers , employees , and prospects , or on our financial results . the full extent of the impact of the covid-19 pandemic on our business , results of operations and financial position is currently uncertain and will depend on many factors that are not within our control , including , but not limited to : the duration and scope of the pandemic; governmental , business and individuals ' actions that have been and continue to be taken in response to the pandemic; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the covid-19 pandemic subsides . see the section entitled “ risk factors ” in item 1a of part i of this report for further information about related risks and uncertainties . story_separator_special_tag or international tax laws and other factors . these changes , if any , may require material adjustments to the related deferred tax assets or accrued income tax liabilities and an accompanying reduction or increase in income tax expense which may result in a corresponding increase or decrease in net income in the period when such determinations are made . 25 story_separator_special_tag disproportionate impact on gross margin . operating expenses research and development expense the composition of our research and development expense , including as a percentage of revenue , is presented in the following table : replace_table_token_9_th research and development expense includes costs for compensation and benefits , stock compensation , engineering wafers , depreciation , licenses , and outside engineering services . these expenditures are for the design of new products , ip cores , processes , packaging , and software solutions . the increase in research and development expense for fiscal 2020 compared to fiscal 2019 was due primarily to increased expenses for stock compensation and increased headcount to support the expansion of our programmable logic product portfolio and acceleration of our new product introduction cadence . we believe that a continued commitment to research and development is essential to maintaining product leadership and providing innovative new product offerings and , therefore , we expect to continue to increase our investment in research and development , particularly with expanded investment in the development of software solutions . 28 selling , general , and administrative expense the composition of our selling , general , and administrative expense , including as a percentage of revenue , is presented in the following table : replace_table_token_10_th selling , general , and administrative expense includes costs for compensation and benefits related to selling , general , and administrative employees , commissions , depreciation , professional and outside services , trade show , and travel expenses . the increase in selling , general , and administrative expense for fiscal 2020 compared to fiscal 2019 was due primarily to increased expenses for stock compensation and salaries , partially offset by reduced commissions resulting from our restructuring under the q2 2019 sales plan , as discussed in `` note 7 - restructuring `` to our consolidated financial statements in part ii , item 8 of this report . amortization of acquired intangible assets the composition of our amortization of acquired intangible assets , including as a percentage of revenue , is presented in the following table : replace_table_token_11_th the decrease in amortization of acquired intangible assets for fiscal 2020 compared to fiscal 2019 was due to the end of the amortization period for the majority of our acquired intangible assets during the first quarter of fiscal 2020. restructuring charges the composition of our restructuring charges , including as a percentage of revenue , is presented in the following table : replace_table_token_12_th restructuring charges are comprised of expenses resulting from reductions in our worldwide workforce , consolidation of our facilities , removal of fixed assets from service , and cancellation of software contracts and engineering tools . details of our restructuring plans and expenses incurred under them are discussed in `` note 7 - restructuring `` to our consolidated financial statements in part ii , item 8 of this report . the decrease in restructuring charges in fiscal 2020 compared to fiscal 2019 was driven was driven by lower charges in the current year for facility closures implemented under an earlier restructuring plan adopted in june 2017 , and by lower charges in the current year for severance under the q1 2020 plan compared to charges in the prior year period resulting from contract cancellations under the q2 2019 sales plan . 29 impairment of acquired intangible assets the composition of our impairment of acquired intangible assets , including as a percentage of revenue , is presented in the following table : replace_table_token_13_th we had no impairments of acquired intangible assets in fiscal 2020 or 2019. acquisition related charges the composition of our acquisition related charges , including as a percentage of revenue , is presented in the following table : replace_table_token_14_th acquisition related charges include legal and professional fees directly related to acquisitions . we incurred no acquisition related charges in fiscal 2020 or 2019. interest expense the composition of our interest expense , including as a percentage of revenue , is presented in the following table : replace_table_token_15_th interest expense is primarily related to our long-term debt , which is further discussed under the credit arrangements heading in the liquidity and capital resources section , below . this interest expense is comprised of contractual interest and amortization of original issue discount and debt issuance costs based on the effective interest method . the decrease in interest expense for fiscal 2020 compared to fiscal 2019 was largely driven by the significant reduction in the effective interest rate on our long-term debt , coupled with the reduction in the principal balance of our long-term debt due to the additional principal payments made in the current and previous periods . other expense , net the composition of our other expense , net , including as a percentage of revenue , is presented in the following table : replace_table_token_16_th for fiscal 2020 compared to fiscal 2019 , other expense , net decreased primarily due to the non-recurrence of the $ 2.2 million loss on refinancing charge taken to write off the remaining unamortized balance of debt costs and original issue discount related to the long-term debt refinanced during the prior year . 30 income taxes the composition of our income tax expense is presented in the following table : replace_table_token_17_th our income tax expense is composed primarily of foreign income and withholding taxes , partially offset by benefits resulting from the release of uncertain tax positions ( `` utp '' ) due to statute of limitation expirations that occurred in the respective periods . the decrease in expense in fiscal 2020 as compared to fiscal 2019 is primarily due to the release of uncertain tax positions due to statute of limitations expirations .
| results of operations key elements of our consolidated statements of operations , including as a percentage of revenue , are presented in the following table : replace_table_token_3_th * the year ended january 2 , 2021 was a 53-week year as compared to the other years presented , which were based on our standard 52-week year revenue replace_table_token_4_th revenue increased $ 4.0 million , or 1 % , in fiscal 2020 compared to fiscal 2019 , primarily driven by increased demand for products used in computing solutions , 5g wireless infrastructure , and industrial applications , offset by broad market weakness and decreases in ip revenue . revenue by end market we sell our products globally to a broad base of customers in three primary end markets groups : communications and computing , industrial and automotive , and consumer . we also provide intellectual property licensing and services to these end markets . within these end markets , there are multiple segment drivers , including : communications and computing : 5g infrastructure deployments , client computing platforms , and cloud and enterprise servers , industrial and automotive : industrial iot , factory automation , and automotive electronics , consumer : smart home , and prosumer . we also generate revenue from the licensing of our ip , the collection of certain royalties , patent sales , the revenue related to our participation in consortia and standard-setting activities , and services . while these activities may be associated with multiple markets , licensing and services revenue is reported as a separate end market as it has characteristics that differ from other categories , most notably a higher gross margin . the end market data below is derived from data provided to us by our customers . with a diverse base of customers who may manufacture end products spanning multiple end markets , the assignment of revenue to a specific end market requires the use of judgment .
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stock-based compensation expense for awards granted to non-employees is adjusted as the award vests to reflect the current fair value of such awards , and is recognized using an accelerated attribution 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 accompanying notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the risk factors section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a late-stage biopharmaceutical company focused on improving the lives of patients suffering from orphan diseases by developing and commercializing novel oral forms of therapies that are available today only by injection . using our proprietary transient permeability enhancer , or tpe , technology platform , we seek to develop oral therapies that eliminate the significant limitations and burdens generally associated with existing injectable therapies . we have completed a multinational phase 3 clinical trial of our most advanced tpe platform-based product candidate , octreotide capsules , for the treatment of acromegaly . we believe octreotide capsules , if approved by regulatory authorities , will be the first somatostatin analog available for oral administration . our octreotide capsules have been granted orphan designation in the united states and the european union for the treatment of acromegaly . we submitted a new drug application , or nda , to the u.s. food and drug administration , or fda , on june 15 , 2015 , seeking approval for the marketing and sale of octreotide capsules for the maintenance therapy of adult patients with acromegaly . on august 14 , 2015 , we received notice from the fda that our nda was accepted for filing to permit a substantive review . the fda has granted a standard review for the nda and has set a target review date under the prescription drug user fee act , or pdufa , of april 15 , 2016. assuming the fda reviews and responds to our nda in accordance with the goals and policies agreed to by the fda under the prescription drug user fee act , or pdufa , we anticipate a regulatory decision on marketing approval in april 2016. in light of our clinical data and feedback from patients and healthcare providers , we believe that octreotide capsules , if approved , could become a new standard of care in acromegaly . we retain worldwide rights to develop and commercialize octreotide capsules with no royalty obligations to third parties . we intend to commercialize octreotide capsules ourselves in the united states , and we plan to explore collaboration opportunities for commercializing octreotide capsules in europe and the rest of the world . our goal is to become a leading patient-focused biopharmaceutical company by developing and commercializing octreotide capsules for acromegaly and other orphan indications , and leveraging our tpe platform to develop and commercialize novel oral products for other debilitating diseases currently treated by injectable therapies . we were incorporated in 2001 and commenced active operations in the same year . our operations to date have been limited to organizing and staffing our company , business planning , raising capital , developing our tpe technology , identifying potential drug candidates , undertaking nonclinical studies and , beginning in 2010 , conducting clinical trials and preparing for regulatory submissions . to date , we have financed our operations primarily through private placements , funding received from a licensing agreement , a loan agreement and our initial public offering . we have no products approved for sale and all of our revenue has been related to one license agreement , which has been terminated . since our inception and through december 31 , 2015 , we have raised an aggregate of $ 366.2 million to fund our operations , of which $ 86.3 million was through our license agreement with f. hoffmann-la roche ltd. and hoffmann-la roche inc. , collectively roche , $ 106.5 million from issuing shares of common stock in our ipo , $ 161.4 million was from the issuance of private securities and $ 12.0 million was from borrowings under a loan agreement . in 2013 , using proceeds from the roche license agreement , as described in more detail below , we repaid all outstanding borrowings under our loan agreement and paid an aggregate of $ 55.0 million in cash as partial consideration for the redemption of certain shares of our redeemable preferred stock . as of december 31 , 2015 , our consolidated cash , cash equivalents and marketable securities were $ 148.8 million , of which $ 1.0 million was held by chiasma ( israel ) ltd. , our wholly owned israeli subsidiary . 90 since inception , we have incurred significant operating losses . our net loss was $ 35.9 million for the year ended december 31 , 2015 , and $ 2.0 million for the year ended december 31 , 2014. as of december 31 , 2015 , we had an accumulated deficit of $ 117.4 million . we expect to continue to incur significant expenses and operating losses for at least the next several years as we continue to incur substantial expenses related to preparing for and proceeding with the commercial launch of octreotide capsules , if approved , additional clinical development of octreotide capsules and the development of additional product candidates . we expect to incur increasing operating losses over the next several years . story_separator_special_tag research and development research and development expenses consist of expenses incurred in performing research and development activities , including compensation and benefits for full-time research and development employees , an allocation of facilities expenses , overhead expenses , nonclinical pharmacology and toxicology studies , manufacturing process-development and scale-up activities , clinical trial and related clinical manufacturing expenses , fees paid to contract research organizations , or cros , investigative sites , and other external expenses . in the early phases of development , our research and development costs include expanding our technology platform as well as early development of specific product candidates . our research and development costs consist of compensation expenses for our full-time research and development employees as well as outside service and material related expenses . as we expand the clinical development of octreotide capsules and additional products , we expect the amount of research and development spending to continue to grow . the majority of our research and development expenses are being spent on the development of octreotide capsules , including manufacturing validation , regulatory and clinical activities , and our tpe platform and our early stage programs . we expense research and development costs as incurred . conducting a significant amount of research and development is central to our business model . product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of late-stage clinical trials . we plan to increase our research and development expenses for the foreseeable future as we seek to obtain regulatory approval for octreotide capsules outside the united states and to expand the indications for octreotide capsules , and to further advance our nonclinical and earlier stage research and development projects into clinical stages . the successful development of octreotide capsules and other product candidates we may develop is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of octreotide 92 capsules , or any of our nonclinical programs or the period , if any , in which material net cash inflows from these product candidates may commence . clinical development timelines , the probability of success and development costs can differ materially from expectations . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . we anticipate that our research and development expenses will increase in 2016 as we purchase active pharmaceutical ingredient prior to our pdufa date , continue to focus on our further nonclinical development on a second product candidate and our phase 3 trial in europe . marketing , general and administrative marketing expenses consist of professional fees related to preparation for the eventual commercialization of octreotide capsules , if approved , as well as salaries and related benefits for commercial employees . as we accelerate our preparation for commercialization and , if it is approved , start to market octreotide capsules and as we explore new collaborations to develop and commercialize octreotide capsules and other products , we anticipate that these expenses will materially increase . general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , business development , commercialization and support functions . other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses , travel expenses for our general and administrative personnel and professional fees for auditing , tax , and corporate and intellectual property legal services . we anticipate that our general and administrative expenses will increase in future periods , reflecting an expanding infrastructure and increased professional fees associated with being a public company and potentially as a commercial-stage company . other expenses , net other expenses consists mainly of interest incurred on our long-term obligations , net of interest income earned on our investments . provision for income taxes we are subject to federal and state income taxes for earnings generated in the united states , and foreign taxes on earnings of our wholly-owned israeli subsidiary . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states and foreign subsidiary permanent items , discrete items , and unrecognized tax benefits . we file u.s. federal , various u.s. state and israeli income tax returns . the associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate . in the united states and israel , the 2011 and subsequent tax years remain subject to examination by the applicable taxing authorities as of december 31 , 2015. however , u.s. nol carryforward attributes that were generated prior to 2011 may still be adjusted upon examination by federal , state or local tax authorities if they either have been or will be used in a future period . 93 story_separator_special_tag during the year ended december 31 , 2014 , our total research and development expenses decreased by $ 14.9 million , or 56 % , compared to the prior year , primarily due to the completion of our phase 3 clinical trial of octreotide capsules in acromegaly , offset by the accrual and expense of $ 4.4 million for our purchase of api and other supplies related to octreotide capsules in connection with the termination of our license agreement with roche .
| results of operations comparison for the years ended december 31 , 2015 and 2014 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percent increase or decrease : revenue 2015 2014 $ change percent change ( $ in thousands ) revenue from license agreement $ $ 13,166 $ ( 13,166 ) * * not a meaningful percentage revenues during the year ended december 31 , 2014 were generated solely from our license agreement with roche and were recognized on a proportional performance basis . during the year ended december 31 , 2014 , we recognized $ 13.2 million . during the year ended december 31 , 2014 , our license agreement with roche was terminated and the amounts recognized in 2014 represent the final amount earned under the license agreement . research and development 2015 2014 $ change percent change ( $ in thousands ) research and development $ 18,991 $ 11,527 $ 7,464 65 % during the year ended december 31 , 2015 , our total research and development expenses increased by $ 7.5 million , or 65 % , compared to the prior year , primarily due to expenses related to the filing of an nda for octreotide capsules in acromegaly in the united states , activities associated with the manufacturing process validation , recently initiated phase 3 clinical trial of octreotide capsules for the treatment of acromegaly in europe and an increase in salaries and related expenses due to the hiring of research and development employees . marketing , general and administrative replace_table_token_5_th * not a meaningful percentage for the year ended december 31 , 2015 , our marketing expenses increased by $ 7.3 million compared to the prior year related to the initiation of pre-commercial activities related to octreotide capsules .
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you should read `` item 1a . risk factors '' for a discussion of important factors that could cause our actual results to differ materially from our expectations . our fiscal year ends on june 30 , and references to a specific fiscal year are the twelve months ended june 30 of such year ( for example , `` fiscal 2011 '' refers to the year ended june 30 , 2011 ) . business overview we are a leading global provider of mission-critical process optimization software solutions , which are designed to manage and optimize plant and process design , operational performance , and supply chain planning . our aspenone software and related services have been developed specifically for companies in the process industries . customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity , reducing operating costs , enhancing capital efficiency , and decreasing working capital requirements . we have more than 1,500 customers globally . our customers include manufacturers in process industries such as energy , chemicals , pharmaceuticals , consumer packaged goods , power , metals and mining , pulp and paper , and biofuels , as well as engineering and construction firms that help design and build process manufacturing plants . as of june 30 , 2011 , our installed base included 19 of the 20 largest petroleum companies , all of the 20 largest chemical companies , and 15 of the 20 largest pharmaceutical companies . customers outside the united states accounted for a majority of our total revenue in each of fiscal 2011 , 2010 and 2009 , and no single customer represented 10 % or more of our total revenue in fiscal 2011 , 2010 or 2009. transition to the aspenone subscription offering in fiscal 2010 , we began offering our aspenone software under a subscription-based licensing model , under which a customer can access all products within a licensed suite ( aspenone engineering or aspenone manufacturing and supply chain ) . during the license term , a customer is entitled to receive post contract support , which we refer to as sms , as well as any software products and upgrades introduced into the licensed suite . revenue is recognized over the term of a license agreement on a subscription , or `` daily ratable , '' basis . we typically issue invoices annually , and we record each invoiced payment as deferred revenue and then recognize revenue from that payment due date over the applicable period . we also continue to offer our customers the ability to license specifically defined sets of aspenone products , referred to as point products , which in july 2009 we began licensing with sms included for the term of the arrangement . revenue is recognized on these arrangements over the contract term , as payments become due . prior to fiscal 2010 , we offered term or perpetual licenses to specific aspenone products or specifically defined sets of aspenone products , which we refer to as point products . the majority of our license revenue was recognized under an `` upfront revenue model , '' in which the net present value of the aggregate license fees was recognized as revenue upon shipment of the point products . we typically invoiced customers annually and recorded the net present value of uninvoiced payments as installments receivable . customers typically received one year of sms bundled with their license agreements and then could elect to renew sms annually . revenue from sms was recognized ratably over the period which the sms was delivered . 35 our aspenone subscription offering has not changed the method or timing of our customer billing or cash collections and our net cash provided by operating activities increased in each of fiscal 2011 and 2010. the principal accounting implications of the change in our licensing model are as follows : the majority of our license revenue is no longer recognized on an upfront basis . as the result of the transition to our aspenone subscription offering , our license revenue for fiscal 2011 and 2010 was significantly less than the level achieved in the fiscal years preceding our licensing model change . we expect that our revenue will continue to increase as customers renew their previous upfront licensing arrangements under our subscription-based licensing model . we do not expect to recognize levels of revenue comparable to prior fiscal years until a significant majority of our existing license agreements have been renewed under our subscription-based licensing model . because the timing of our incurrence of operating costs has not changed , the lower levels of revenue expected over the next few years may result in operating losses . the amount of our installments receivable will continue to decrease , as license agreements executed under our upfront revenue model reach the end of their terms . uninvoiced payments are not recorded on our consolidated balance sheet under the subscription-based licensing model . the amount of our deferred revenue will continue to increase over time , as installments for license transactions executed under our aspenone subscription offering are deferred and recognized on a subscription basis . for additional information about the recognition of revenue under the upfront revenue model and our subscription offering , see `` revenue . '' because of the accounting implications of our aspenone subscription offering , we believe that , for the next several years , a number of performance indicators based on u.s. generally accepted accounting principles , or gaap , will be of reduced value in assessing our performance , growth and financial condition . accordingly , we are focusing on a number of other business metrics , including those described under `` key business metrics . '' future impact of enhanced sms offering in july 2011 , we released an enhanced sms offering to provide more value to our customers . as part of this offering , customers receive 24x7 support , faster response times and dedicated technical advocates . story_separator_special_tag under our upfront revenue model , we typically were able to demonstrate that the license fees were fixed or determinable for all arrangements , including those for term licenses containing extended payment terms , and we had an established history of collecting under the terms of these agreements without providing concessions to customers . a portion of the license fees generally was recorded as deferred revenue due to the inclusion of an undelivered element , sms , and the amount of revenue allocated to sms was based on the vsoe of fair value for sms using the residual method . the net present value of the residual license fees typically was recognized upon delivery of the software . license revenue recognized under the upfront revenue model upon the delivery of the licensed software ( both term and perpetual license agreements ) was reported as software revenue in the consolidated statements of operations . fiscal 2010 and beyond in july 2009 , we began offering our aspenone subscription offering , which provides customers with access to all products within the aspenone suite ( s ) they license . during the term of a license agreement , a customer is entitled to receive sms as well as any software products and upgrades that may be introduced into the licensed suite . for purposes of recognizing revenue , the license fees under these agreements are not fixed or determinable , because the agreements provide rights to future unspecified software products for no additional fee and therefore the economics of the arrangements are not comparable to our historical transactions with customers under the upfront revenue model . as a result , the amount of revenue recognized is limited to the amount of customer payments currently due , which generally results in license revenue being recognized over the term of the agreement on a subscription basis , beginning when the first payment is due , which typically is 30 days after execution of the agreement . for arrangements sold under the aspenone subscription offering , the license and sms components of the arrangement can not be separated . as a result , all of the related revenue is reported as subscription revenue in the consolidated statements of operations . we also offer our customers the ability to license point products . in july 2009 we began licensing point products on a term basis with sms included for the full license term . under these arrangements , license revenue can not be recognized under the upfront revenue model , as the aggregate fees are not considered fixed or determinable because the agreements include sms for the full term of the license and therefore the economics of the arrangements are not comparable to our historical transactions with customers under the upfront revenue model . license revenue for these arrangements generally is recognized as payments become due over the term of the agreement . throughout fiscal 2010 and 2011 , revenue from point product licenses with sms included for the license term was reported as software revenue in the consolidated statements of operations . the revenue related to the sms component of point product licenses is reported in services and other revenue in the consolidated statements of operations . beginning in july 2011 , the revenue associated with point product arrangements bundled with enhanced sms is recognized on a `` daily ratable '' basis , consistent with the revenue recognition of fees 38 on our aspenone subscription offering arrangements . in fiscal 2012 and beyond , the ratable revenue from both aspenone subscription arrangements and point product arrangements with enhanced sms included for the term of the agreement will be presented in the consolidated statements of operations as `` subscription and software revenue . '' we generally do not intend to enter into new or renewal term contracts that will qualify for revenue recognition upfront , upon delivery of the licensed software . we may , however , do so on a limited basis , as follows : the incremental revenue associated with amendments to existing term license agreements that was recognized under the upfront revenue model will continue to be accounted for on an upfront basis , provided all other revenue recognition requirements have been met . we anticipate that occasionally a customer may wish to license point products on a perpetual basis . if we agree to enter into a perpetual license agreement , the customer will not be entitled to receive software products that may be introduced and will receive sms for only one year , subject to annual renewal at the election of the customer . accordingly , we expect that the license fees for perpetual license agreements typically will continue to be recognized upon delivery of the software products using the residual method . we do not anticipate that any of the foregoing arrangements will generate a significant portion of our revenue in the future . sms prior to fiscal 2010 , sms was typically included with the license agreement for the initial year of the license term and then could be renewed , typically on an annual basis , at the election of the customer . the fair value of sms was deferred and subsequently recognized over the term of the sms arrangement as services and other revenue in the consolidated statements of operations . since july 2009 , license agreements executed under our aspenone subscription and point product offerings include sms for the full term of the arrangement . for arrangements sold under the aspenone subscription offering , the license and sms components of the arrangement can not be separated . as a result , all of the related revenue is reported as subscription revenue in the consolidated statements of operations . throughout fiscal 2011 and 2010 , the sms component of point product licenses is reported in services and other revenue in the consolidated statements of operations . standalone renewal sms on perpetual arrangements is reported as services and other revenue in the consolidated statements of operations .
| results of operations comparison of fiscal 2011 to fiscal 2010 the following table sets forth the results of operations , percentage of net revenue and the period-over-period percentage change in certain financial data for fiscal 2011 and 2010 : replace_table_token_9_th * not meaningful . ( 1 ) our income tax provision provided a net $ 54.0 million benefit in fiscal 2011 , due to the reversal of a significant portion of our u.s. valuation allowance in the fourth quarter of fiscal 2011. see note 10 to our consolidated financial statements , `` income taxes , '' for further information . revenue total revenue increased by $ 31.8 million compared to the prior year . the increase was due to higher subscription and software revenue of $ 49.7 million , partially offset by lower services and other revenue of $ 17.9 million . 48 subscription revenue year ended june 30 , period-to-period change 2011 2010 $ % ( dollars in thousands ) subscription revenue $ 58,459 $ 11,071 $ 47,388 * as a percent of revenue 29.5 % 6.7 % * not meaningful . the increase in subscription revenue for fiscal 2011 is a result of a larger base of aspenone subscription bookings from previous periods being recognized as revenue on a subscription basis in the current year . the modest amount of subscription revenue for the prior year was a result of subscription arrangements not being offered prior to fiscal 2010. we expect subscription revenue to continue to increase as customers renew existing contracts under our aspenone subscription offering and subscription contracts become a more significant portion of our term license portfolio .
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19 overview nature of our business denny 's corporation ( denny 's ) is one of america 's largest franchised full-service restaurant chains based on the number of restaurants . denny 's , through its wholly-owned subsidiary , denny 's , inc. , owns and operates the denny 's brand . at december 26 , 2018 , the denny 's brand consisted of 1,709 franchised , licensed and company operated restaurants . of this amount , 1,536 of our restaurants were franchised or licensed , representing 90 % of the total restaurants , and 173 were company operated . our revenues are derived primarily from two sales channels , which we operate as one segment : company restaurants and franchised and licensed restaurants . the primary sources of revenues are the sale of food and beverages at our company restaurants and the collection of royalties , advertising and fee income from restaurants operated by our franchisees under the denny 's name . sales and customer traffic at both company and franchised restaurants are affected by the success of our marketing campaigns , new product introductions , product quality enhancements , customer service and menu pricing , as well as external factors including competition , economic conditions affecting consumer spending and changes in guests ' tastes and preferences . sales at company restaurants and royalty , advertising and fee income from franchised restaurants are also impacted by the opening of new restaurants , the closing of existing restaurants , the sale of company restaurants to franchisees and the acquisition of restaurants from franchisees . costs of company restaurant sales are exposed to volatility in two main areas : payroll and benefit costs and product costs . 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 . additionally , changes in guest counts and investments in store-level labor impact payroll and benefit costs as a percentage of sales . 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 . in an inflationary commodity environment , our ability to lock in prices on certain key commodities is imperative to controlling food costs . in addition , our continued success with menu management helps us offer menu items that provide a compelling value to our customers while maintaining attractive product costs and profitability . over the next several quarters , the company intends to migrate from a 90 % franchised business model to one that is between 95 % and 97 % franchised . the anticipated sale of between 90 and 125 company operated restaurants with attached development commitments will create an opportunity for development-focused franchisees to expand their businesses , while also attracting and welcoming new , well-capitalized franchisees . in addition to stimulating domestic restaurant development , this transition will yield a smaller portfolio of higher volume company operated restaurants in more desirable trade areas . the smaller number of company restaurants will require lower maintenance-related capital expenditures and general and administrative support costs . further , reduced exposure to volatility in costs of company restaurant sales and greater stability in royalties and fees from restaurants operated by our franchisees are expected to enhance our quality of earnings . 2018 summary of operations during 2018 , we achieved domestic system-wide same-stores sales growth of 0.8 % , comprised of a 1.8 % increase at company restaurants and a 0.6 % increase at domestic franchised restaurants , marking the eighth consecutive year of positive system-wide same-store sales . a total of 203 remodels were completed during 2018 , comprised of 193 at franchised restaurants and ten at company restaurants . these remodels were in our heritage image , which we launched in late 2013. this updated look reflects a more contemporary diner feel to further reinforce our america 's diner positioning . by the end of 2019 , we expect approximately 90 % of the system will have been remodeled to the most current image . our current franchise agreement includes a royalty rate of up to 4.5 % . approximately 50 % of our franchised restaurants were operating under this agreement as of december 26 , 2018 , and we expect approximately 60 % to be operating under this agreement by the end of 2019. we anticipate that existing franchisees will elect to migrate to the new fee structure over the next decade as incentives under previous franchise agreements expire . due to the long-term migration of existing franchisees , we will not see the full benefit of the higher royalty rate for some time . for 2018 , our average domestic royalty rate was approximately 4.17 % , compared to 4.14 % for 2017 and 4.11 % for 2016 . 20 growing the brand over the last five years our growth initiatives have led to 202 new restaurant openings . during 2018 , we opened 30 restaurants including nine international franchised locations with three in canada , two in the philippines and one each in honduras , mexico , puerto rico and the united kingdom . our goal is to increase net restaurant growth through both domestic and international avenues . domestic growth will focus on markets in which we have modest penetration . development agreements related to the sale of 90 to 125 of our company operated restaurants and recently announced enhanced development agreements in canada and the philippines are expected to stimulate domestic and international growth over the next several years . balancing the use of cash we are focused on balancing the use of cash between reinvesting in our base of company restaurants , growing and strengthening the brand and returning cash to shareholders . story_separator_special_tag royalty income , which is included as a component of franchise and license revenue , has increased from $ 98.4 million in 2016 to $ 101.6 million in 2018 , primarily as a result of the increase in same-store sales and a higher average royalty rate . occupancy revenues , included as a component of franchise and license revenue , result from leasing or subleasing restaurants to franchisees . when restaurants are sold and leased or subleased to franchisees , the occupancy costs related to these restaurants move from costs of company restaurant sales to costs of franchise and license revenue to match the related occupancy revenue . however , as a result of the upcoming adoption of asu 2016-02 , “ leases ( topic 842 ) , ” in fiscal 2019 , we expect that there could be additional impacts to comparability as a result of restaurants being sold to franchisees as we migrate to a more franchised business model . additionally , as leases or subleases with franchisees expire , franchise occupancy revenue and costs could decrease if franchisees enter into direct leases with landlords . occupancy revenue has decreased from $ 38.5 million in 2016 to $ 32.0 million in 2018 , primarily as a result of lease expirations . at the end of 2018 , we had 243 franchised restaurants that are leased or subleased from denny 's , compared to 294 at the end of 2016. during 2014 , our board of directors approved the termination and liquidation of the advantica pension plan ( the “ pension plan ” ) . during 2016 , we completed the liquidation of the pension plan . accordingly , we made a final contribution of $ 9.5 million to the pension plan and recognized a pre-tax settlement loss of $ 24.3 million , reflecting the recognition of unamortized actuarial losses that were recorded in accumulated other comprehensive income . 22 statements of income replace_table_token_8_th ( a ) costs of company restaurant sales percentages are as a percentage of company restaurant sales . costs of franchise and license revenue percentages are as a percentage of franchise and license revenue . all other percentages are as a percentage of total operating revenue . ( b ) equivalent units are calculated as the weighted average number of units outstanding during a defined time period . ( c ) same-store sales include sales from restaurants that were open the same period in the prior year . ( d ) prior year amounts have not been restated for 2018 comparable restaurants . 23 unit activity replace_table_token_9_th company restaurant operations company same-store sales increase d 1.8 % in 2018 and 1.0 % in 2017 compared with the respective prior year . company restaurant sales for 2018 increased $ 21.6 million , or 5.5 % , primarily resulting from an eight equivalent unit increase in company restaurants and the increase in same-store sales . company restaurant sales for 2017 increased $ 23.0 million , or 6.3 % , primarily resulting from the increase in same-store sales and an eight equivalent unit increase in company restaurants . total costs of company restaurant sales as a percentage of company restaurant sales were 84.7 % in 2018 , 83.2 % in 2017 and 82.2 % in 2016 . product costs were 24.4 % in 2018 , 25.1 % in 2017 and 24.6 % in 2016 . the decrease for 2018 was primarily due to leverage gained from increased pricing and lower commodity costs . the increase for 2017 was primarily due to higher commodity costs . payroll and benefits were 39.9 % in 2018 , 39.2 % in 2017 and 38.9 % in 2016 . the increase in 2018 was primarily due to a 0.4 percentage point increase in labor costs due to minimum wage rate increases and a 0.3 percentage point increase in incentive compensation . the increase in 2017 was primarily due to a 0.8 percentage point increase in labor costs , partially offset by a 0.2 percentage point decrease in incentive compensation and a 0.2 percentage point decrease in workers ' compensation costs . occupancy costs were 5.6 % in 2018 , 5.3 % in 2017 and 5.3 % in 2016 . the 2018 increase is primarily related to a 0.3 percentage point increase in general liability costs , as 2018 included unfavorable claims development of $ 0.8 million and 2017 included favorable claims development of $ 0.4 million . other operating expenses were comprised of the following amounts and percentages of company restaurant sales : replace_table_token_10_th 24 the increase in other direct costs for 2018 primarily resulted from higher third party delivery fees of $ 2.9 million related to increased delivery sales . 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_11_th royalties increase d by $ 0.9 million , or 0.9 % , in 2018 primarily resulting from a higher average royalty rate as compared to 2017 and an increase in domestic same-store sales of 0.6 % , partially offset by equivalent unit decreases in franchised and licensed restaurants . royalties increased by $ 2.2 million , or 2.3 % , in 2017 primarily resulting from a 1.1 % increase in domestic same-store sales and a higher average royalty rate as compared to 2016. equivalent units remained flat for 2017 as compared to 2016. the higher average royalty rates for both periods resulted as certain restaurants transitioned to a higher rate structure . the average domestic royalty rate was 4.17 % , 4.14 % and 4.11 % for 2018 , 2017 and 2016 , respectively . the 2018 increases in advertising revenue and initial and other fees primarily resulted from the implementation of topic 606 related to revenue recognition . advertising revenue and costs are now required to be presented on a gross basis , instead of a net basis as previously presented .
| summary of cash flows our primary sources of liquidity and capital resources are cash generated from operations and borrowings under our credit facility ( as described below ) . principal uses of cash are operating expenses , capital expenditures 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_17_th net cash flows provided by operating activities were $ 73.7 million for the year ended december 26 , 2018 compared to $ 78.3 million for the year ended december 27 , 2017 . the decrease in cash flows provided by operating activities was primarily due to the timing of receiving credit card receivables . net cash flows provided by operating activities were $ 78.3 million for the year ended december 27 , 2017 compared to $ 71.2 million for the year ended december 28 , 2016. the increase in cash flows provided by operating activities was primarily due to the funding of our pension liability during 2016 , partially offset by increased interest and tax payments during 2017. we believe that our estimated cash flows from operations for 2019 , 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 $ 32.0 million for the year ended december 26 , 2018 . these cash flows are primarily comprised of capital expenditures of $ 22.0 million and acquisitions of restaurants and real estate of $ 10.4 million . cash flows for acquisitions include $ 8.1 million for the reacquisition of six franchised restaurants , $ 1.8 million for real estate and $ 0.5 million related to a prior year acquisition .
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as of december 31 , 201 7 , the spread between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $ 3,105,000 — this amount does not represent our maximum exposure to loss for all environmental remediation obligations as it excludes those sites for which a range of loss can not be reasonably estimated at this time . accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers . our safety , health and environmental affairs management committee routinely reviews cost estimates and key assumptions in response to new information , such as the kinds and quantities of hazardous substances , available technologies and changes to the parties participating in the remediation efforts . h owever , a number of factors , including adverse agency rulings and encountering unanticipated conditions as remediation efforts progress , may cause actual results to differ materially from accrued costs . for additional information about environmental compliance costs see note 8. claims and litigation including self-insurance we are involved with claims and litigation , including items covered under our self-insurance program . we are self-insured for losses related to workers ' compensation up to $ 2,000,000 per occurrence and automotive and general/product liability up to $ 3,000,000 per occurrence . we have excess story_separator_special_tag executive summary financial summary for 201 7 ( compared to 201 6 ) § total revenues in creased $ 297.6 million , or 8 % , to $ 3,890.3 m illion § gross profit de creased $ 0.3 million to $ 1,000 . 6 million § aggregates segment sales in creased $ 134.3 million , or 5 % , to $ 3,096.1 million § a ggregates segment freight-adjusted revenues in creased $ 98.5 million , or 4 % , to $ 2,392.7 million § s hipments in creased 1 % , or 1.8 million tons , to 183.2 million tons § f reight-adjusted sales price in creased 3 % , or $ 0.41 per ton § s egment gross profit de creased $ 13.1 million , or 2 % , to $ 860.0 million § s egment gross profit margin was 27 . 8 % , compared to 29.5 % § asphalt , concrete and calcium segment gross profit in creased $ 12.8 million , or 10 % , to $ 140.5 million , collectively § s elling , a dministrative and g eneral ( sag ) expenses increased 3 % to $ 323.9 million and decreased 0 . 45 percentage points ( 45 basis points ) as a percentage of total revenues § operating earnings de creased $ 32.5 million , or 5 % , to $ 647.1 million § earnings from continuing operations were $ 593.4 million , or $ 4.40 per diluted share , compared to $ 422.4 million , or $ 3.11 per diluted sha re § discrete items in 201 7 include : § $ 297.0 million of net tax benefits ( including $ 268.2 m illion related to t he tax cuts and jobs act ( tcja ) and a $ 28.8 million partial release of a net operating loss ( nol ) carryforward valuation allowance ) § pretax interest charges of $ 1 53.1 million rel ated to the july and december debt purchase s ( $ 148.0 million ) and carried interest on the march debt issuance ( $ 5.1 million ) § pretax gain s of $ 10.5 million for the sale of real estate and businesses § pretax charges of $ 4.3 million for property donation § pretax charge s of $ 18.1 million for divested operation s § pretax charges of $ 6.7 million for one-time employee bonuses § pretax charges of $ 3.1 million associated with business development , net of an asset purchase agreement termination fee § pretax charge s of $ 1.9 million for restructuring § discrete items in 201 6 include : § $ 11.3 million of tax benefit s § pretax gain s of $ 16.2 million on the sale of real esta te § pretax gain s of $ 11.0 million for business interruption claim s § p retax charge s of $ 16.9 million for divested operations § p retax loss es of $ 10.5 million from asset impairm ent § net earnings were $ 601.2 million , a n in crease of $ 181.7 million , or 43 % § adjusted ebitda was $ 981.9 million , a n in crease of $ 15.9 million , or 2 % § r eturn e d c apital to shareholders vi a d ividends ( $ 132.3 million versus $ 106.3 million ) an d s hare repurchases ( $ 60.3 million versus $ 161.5 million ) 2017 results were negatively impacted by unusually harsh weather : severe flooding in california during the fi rst quarter ; extreme rainfall in core southeastern markets ( alabama , florida , georgia , louisiana and mississippi ) during the second quar ter ; and hurricanes ( harvey and irma ) /tropical storm ( nate ) conditions across our florida , georgia , gulf coast , north carolina , south carolina and coastal texas markets during the third quarter ; and their lingering effects on costs into the fourth quarter . part i i 28 we closed the acquisition of aggregates usa on december 29 , 2017 for $ 616 million ( net of $ 287 million immediately disposed and including $ 6 million of liabilities assumed ) . this transaction complements and expands our service offerings in georgia , south carolina and florida with 3 granite quarries and 16 rail distribution yards . the integration is proceeding as planned . a lthough full synergy capture will require at least 18 to 24 months , we still expect this acquisition to be accretive to 2018 e arnings ( $ 50 million of ebitda ) . for the full year , capital expenditures were $ 4 64.2 million . story_separator_special_tag however , we have better visibility than we did one year ago . we expect pricing to improve throughout the year , partly in response to rising diesel costs and other inflationary trends . with a return to approximately 5 % same-store shipment growth , we anticipate a return to the incremental flow-through rates achieved earlier in the recovery cycle . part i i 30 competitive advantag es z oning and permitting regulations have made it increasingly difficult to expand existing quarries or to develop new quarries . such regulations , while curtailing expansion , also increase the value of our reserve s. t he competitive advantages of our aggregates focused business strategy include : s trategically located coast-to-coast assets § l argest aggregates supplier in the u.s . with diversified regional exposure § re serves are primarily located in high-growth markets that require large amounts of aggregates to mee t local demand § c omplementary asphalt and concrete businesses in select markets b etter sales and service § empowered local leadership teams with intimate knowledge of local markets , leveraged with the strength and knowledge o f t he largest aggregates supplier in the u.s. § e xtensive and advantaged logistics network ( as shown on map on page 8 ) § be nefits of scale in operations , procurement and administrative support po sitioned to capitalize on market recove ry § 79 % of u.s. population growth from 20 18 to 20 28 is projected to occur in vulcan served states § c urrently operating at well below full capacity an d e xtremely well positioned to further leverage fixed costs to sales as we move forward § e ff ective post-mining land management to generate significant additional value our commitments we crush rocks for a living , but at its core , this is a relationship business . we are deeply committed to our customers and our people , and deeply embedded in our communities . o ver our more than six decades as a public company , we have built a strong , resilient and vital business on this foundation of doing things the right way . our commitment to customers — we have the capabilities to fulfill our customers ' needs on large , complex jobs with unmatched performance and service and we aim to be the supplier of choice for smaller contractors . with all of our customers , we strive to maintain and improve our relationships , to provide outstanding value and service for a fair price by being a solution provider rather than simply an aggregates provider . our commitment to our employees — we work hard to ensure our employees ' safety and health , in a positive environment where each person can thrive . we are completely focused on the things that we can control , and it is here that our people continue to make all the difference : increasing unit profitability , delivering incremental earnings and improving our world-class aggregates franchise every day . our commitment to our communities — our people contribute to the cities , towns and neighborhoods where they live and work , in big ways and in small ; from disaster relief to the support of education and a wide variety of other social causes and programs . at vulcan , this means a great deal more than just financial support . our people throughout the united states , and in mexico , are generously volunteering their time , talent and energy to improve the world around them . our commitment to the environment — we take a long-term approach that bears in mind the demands of the present and the needs of the future . as we continue to build on our legacy , we do so with a clear view of our responsibility to future generations . our commitment to our shareholders — we work hard every day to generate returns that exceed market averages . we are good stewards , with responsible operating and capital project expenditures , to achieve a healthy return on our shareholders ' investment in us . we will continue to strive to be the market leader , winning on margin performance , consistent strength of execution and pricing performance ; earning a superior return on the very significant capital invested in our business . part i i 31 reconciliation of non-gaap financial measures gross profit margin excluding freight and delivery revenues is not a generally accepted accounting principle ( gaap ) measure . we present this metric as it is consistent with the basis by which we review our operating results . likewise , we believe that this presentation is consistent with our competitors and consistent with the basis by which investors analyze our operating results considering that freight and delivery services represent pass-through activities . reconciliation of this metric to its nearest gaap measure is presented below : gross profit margin in accordance with gaap replace_table_token_9_th gross profit margin excluding freight and delivery revenues replace_table_token_10_th 1 includes freight to remote distribution sites . same-store we have provided certain information on a same-store basis . when discussing our financial results in comparison to prior periods , we may exclude the operating results of recently acquired/divested businesses that do not have comparable results in the periods being discussed . these recently acquired/divested businesses are disclosed in note 19 “ acquisitions and divestitures ” in item 8 “ financial statements and supplementary data. ” this approach allows us to evaluate the performance of our operations on a comparable basis . we believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our operations are performing period over period without the effects of acquisition and divestiture activity . our same-store information may not be comparable to similar measures used by other entities . part i i 32 aggregates segment gross profit margin as a percentage of freight-adjusted revenues is not a gaap measure .
| result ing in gross excess tax benefits of $ 28.0 million classified as operating cash flows rather than financing cash flows . part i i 47 debt certain debt measures as of december 31 are outlined below : replace_table_token_19_th 1 includes borrowing under our line of credit for which we have the intent and ability to extend repayment beyond twelve months , as follows : december 31 , 201 7 — $ 2 50.0 million and december 31 , 201 6 — $ 235.0 million . the december 31 , 2017 long-term debt also includes a $ 350.0 million unsecured term loan due 2018 which was subsequently refinanced in february 2018 . 2 reflects the margin above libor for libor-based borrowings ; we also paid upfront fees that are amortized to interest expense and pay fees for unused borrowing capacity and standby letters of credit . line of credit covenants , b orrowings , cost ranges and other details are described in note 6 “ debt ” in item 8 “ financial statements and supplementary data. ” as of december 31 , 2017 , we were in compliance with the line of credit covenants and the credit margin for the london interbank offered rate ( libor ) borrowings was 1.25 % , the credit margin for base rate borrowings was 0.25 % , and the commitment fee for the unused portion was 0.15 % . a s of december 31 , 201 7 , o ur available borrowing capacity under the line of credit was $ 456.8 million . utilization of the borrowing capacity was as follows : § $ 250.0 million was borrowed § $ 43.2 million was used to provide support for outstanding standby letters of credit term debt all of our $ 2,631.5 million of term debt is unsecured .
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total company sales volume was down from 2,959 thousand tons during the year ended december 31 , 2017 , to 2,927 thousand tons during the year ended december 31 , 2018 , driven by general softening of demand for coated papers , partially offset by an increase in packaging papers volume from the restart of previously shuttered no . 3 paper machine at our androscoggin mill . in 2017 , net sales decreased $ 180 million , or 7 % as total sales volume decreased 6 % and price per ton decreased 1 % compared to 2016 . the decreases in volume and pricing were driven by general softening of demand for coated papers and our capacity reductions at our androscoggin mill . our gross margin , excluding depreciation and amortization expenses , was 13 % in 2018 compared to 9 % in 2017 . 2018 developments upgrade/restart paper machine at androscoggin mill on february 15 , 2018 , we announced plans to upgrade the shuttered no . 3 paper machine and pulp line at our androscoggin mill in jay , maine , enabling this equipment to restart for the manufacture of packaging papers . the restart was completed in the third quarter of 2018. this project created approximately 120 full-time jobs at our androscoggin mill and increased the aggregate annual paper production capacity by approximately 200,000 tons . the total capital cost of the project was $ 18 million , $ 4 million of which came from a maine technology asset fund 2.0 challenge grant administered by the maine technology institute . funds from the grant were received in full in 2018 as certain milestones in the project were reached . settlement agreement on march 20 , 2018 , we entered into a settlement agreement , or “ the settlement agreement , ” with canadian producers of supercalendered papers , port hawkesbury paper limited partnership and certain related entities , collectively , “ port hawkesbury ” and irving paper limited , or “ irving ” . in accordance with the terms of the settlement agreement , we filed with the u.s. department of commerce , or “ commerce , ” a written request for a “ no interest ” changed circumstances review by commerce of the final countervailing duty order , or the “ cvd order , ” issued by commerce on december 10 , 2015 , imposing tariffs on supercalendered papers imported into the united states from canada since august 3 , 2015. we refer to this request as the “ changed circumstances request ” . we included in our changed circumstances request , among other things , a request that commerce revoke the cvd order retroactively to august 3 , 2015 , which , if granted , would result in refunds to canadian producers of supercalendered papers of all countervailing duties collected on supercalendered papers imported into the united states from such producers under the cvd order . on july 5 , 2018 , commerce granted our request and revoked the countervailing duties retroactively to august 3 , 2015 , the date the tariffs were originally imposed , which will result in a refund to canadian producers of supercalendered papers of the countervailing duties previously collected on supercalendered papers imported into the united states from such producers . pursuant to the settlement agreement , irving and port hawkesbury agreed to pay us a percentage , totaling up to $ 42 million , of the duties refunded to such parties over time . during the year ended december 31 , 2018 , we received $ 42 million in settlement payments which are included in other ( income ) expense on our consolidated statements of operations . 24 sale of wickliffe mill on august 16 , 2018 , verso paper entered into a purchase agreement with global win wickliffe llc , pursuant to which verso paper agreed to sell one of verso 's subsidiaries , verso wickliffe llc ( “ verso wickliffe ” ) for a purchase price of $ 16 million in cash . verso wickliffe owned substantially all of the assets that comprised the wickliffe mill and related operations . we previously announced our decision to permanently close the wickliffe mill in april 2016. the sale closed on september 5 , 2018 , and resulted in a gain of $ 9 million , included in other operating ( income ) expense on our consolidated statements of operations for the year ended december 31 , 2018. selected factors affecting operating results net sales our sales , which we report net of rebates , allowances and discounts , are a function of the number of tons of paper that we sell and the price at which we sell our paper . paper prices historically have been a function of macro-economic factors which influence supply and demand . price has historically been substantially more variable than volume and can change significantly over relatively short time periods . we are primarily focused on serving the following end-user categories : specialty converters , containerboard converters , general commercial print , catalogs and magazine publishers . coated papers demand is primarily driven by advertising and print media usage . to offset the decline in demand for graphic papers , we are constantly looking at new product development and production improvements to reposition our assets into more stable markets with increased focus on specialty papers , packaging papers and pulp . many of our customers provide us with forecasts of their paper needs , which allows us to plan our production runs in advance , optimizing production over our integrated mill system and thereby reducing costs and increasing overall efficiency . generally , our sales agreements do not extend beyond the calendar year , and they typically provide for quarterly or semiannual price adjustments based on market price movements . we reach our end-users through several channels , including merchants , brokers , printers and direct sales to end-users . we sell our products to approximately 300 customers which comprise approximately 1,600 end-user accounts . story_separator_special_tag accounting standards whose application may have a significant effect on the reported results of operations and financial position , and that can require judgments by management that affect their application , include the following : asc topic 450 , contingencies , asc topic 360 , property , plant and equipment , asc topic 350 , intangibles – goodwill and other and asc topic 715 , compensation – retirement benefits . 26 impairment of long-lived assets long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable , as measured by comparing their net book value to the estimated undiscounted future cash flows generated by their use . management believes that the accounting estimates associated with determining fair value as part of an impairment analysis are critical accounting estimates because estimates and assumptions are made about our future performance and cash flows . the estimated fair value is generally determined on the basis of discounted future cash flows . we also consider a market-based approach and a combination of both . while management uses the best information available to estimate future performance and cash flows , future adjustments to management 's projections may be necessary if economic conditions differ substantially from the assumptions used in making the estimates . on april 5 , 2016 , we announced that we would permanently close our paper mill located in wickliffe , kentucky , which had been idle since november 2015. the decision to close the mill resulted in restructuring charges of $ 160 million for the year ended december 31 , 2016. the associated property , plant and equipment were written down to salvage value resulting in a non-cash restructuring charge of $ 127 million during the first quarter of 2016. in the third quarter of 2016 , we concluded that actual operating results were lower than those projected in the plan . such circumstance constituted a triggering event requiring management to conduct a step 1 impairment test . based on the results of the step 1 impairment test , we concluded that the undiscounted estimated future cash flows associated with our remaining long-lived assets exceeded their carrying value and no impairment was recorded . in the fourth quarter of 2016 , based on our plans to temporarily idle the no . 3 paper machine at our androscoggin mill , we determined a reduction in the useful life of the machine was necessary and accordingly recognized $ 43 million of accelerated depreciation during the fourth quarter of 2016 and an additional $ 6 million of accelerated depreciation during the first quarter of 2017 , which is included in depreciation and amortization in our consolidated statements of operations . as a result of the acceleration of depreciation , no impairment charge was required to be recorded with the temporary idling of the no . 3 paper machine and associated equipment at our androscoggin mill ( see note 14 to our consolidated financial statements included elsewhere in this report ) . intangible assets are comprised of customer relationships with a useful life of 10 years and trademarks with a useful life of five years . during 2017 and 2018 , there were no indicators requiring evaluation of impairment for these definite-lived intangible assets . pension we offer various pension and retirement benefits to certain employees . as of december 31 , 2015 , all of our defined benefit pension plans were frozen to new entrants . the calculation of the obligations and related expenses under the plan requires the use of actuarial valuation methods and assumptions , including the expected long-term rate of return on plan assets , discount rates , increases in future medical cost and mortality rates . the table below shows assumptions used by us for the periods shown : replace_table_token_5_th after consultation with our actuaries , we determine these actuarial assumptions on december 31 of each year to calculate liability information as of that date and pension expense for the following year . the expected long-term rate of return on plan 27 assets is based on projected rates of return for current and planned asset classes in the plan 's investment portfolio . the discount rate is generally based on the yield of high-quality corporate fixed-income investments . actuarial valuations and assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used . the following table highlights the sensitivity of our pension obligations and 2019 net periodic pension ( income ) expense to changes in these assumptions , assuming all other assumptions remain constant . replace_table_token_6_th contingent liabilities a liability is contingent if the outcome or amount is not presently known , but may become known in the future as a result of the occurrence of some uncertain future event . we estimate our contingent liabilities based on management 's estimates about the probability of outcomes and their ability to estimate the range of exposure . accounting standards require that a liability be recorded if management determines that it is probable that a loss has occurred and the loss can be reasonably estimated . in addition , it must be probable that the loss will be confirmed by some future event . as part of the estimation process , management is required to make assumptions about matters that are by their nature highly uncertain . the assessment of contingent liabilities , including legal contingencies , asset retirement obligations and environmental costs and obligations , involves the use of critical estimates , assumptions and judgments . management 's estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures . however , there can be no assurance that future events will not differ from management 's assessments .
| results of operations the following table sets forth the historical results of operations of verso for the periods presented . the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this annual report . replace_table_token_7_th 2018 compared to 2017 net sales . net sales for the year ended december 31 , 2018 increased by $ 221 million or 9 % compared to the prior year . this increase in sales is primarily attributable to an increase in specialty papers sales volume , increased price across all product lines and favorable product mix , partially offset by lower volume in graphic papers and external pulp sales due to internal pulp needs . total company sales volume was down from 2,959 thousand tons during the year ended december 31 , 2017 , to 2,927 thousand tons during the year ended december 31 , 2018 , driven by general softening of demand for coated papers , partially offset by an increase in packaging papers volume from the restart of previously shuttered no . 3 paper machine at our androscoggin mill . operating income . operating income was $ 152 million in 2018 , an increase of $ 173 million when compared to an operating loss of $ 21 million in 2017. our 2018 results were positively impacted by : favorable average net selling price and product mix ( $ 233 million ) . lower operating expenses ( $ 4 million ) driven by decreased downtime . lower depreciation and amortization expense ( $ 4 million ) attributable to capacity reductions at our androscoggin mill , in which $ 6 million of accelerated depreciation was recognized in the first quarter of 2017 in connection with the temporary idling of the no . 3 paper machine .
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loss severity given default is also generated from the historical performance of the portfolio over the immediately preceding four quarters . estimates of default probability also incorporate updated ltv ratios , at the loan level story_separator_special_tag the following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of bankunited , inc. and its subsidiaries ( the `` company '' , `` we '' , `` us '' and `` our '' ) and should be read in conjunction with the consolidated financial statements , accompanying footnotes and supplemental financial data included herein . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections entitled `` forward-looking statements '' and `` risk factors . '' we assume no obligation to update any of these forward-looking statements . overview story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001504008/000150400815000008/ # s197e1697040ba5e24008cda0655b68f7 '' style= '' font-family : inherit ; font-size:8pt ; '' > the company 's and the bank 's capital ratios exceed all regulatory `` well capitalized '' guidelines . the charts below present the company 's and the bank 's regulatory capital ratios compared to regulatory guidelines as of december 31 , 2014 and 2013 : bankunited , inc : bankunited , n.a . : opportunities and challenges management has identified significant opportunities for our company , including : economic recovery continued across our market areas in 2014. florida unemployment declined to 5.6 % in december 2014 from 6.3 % in december 2013. similarly , unemployment in new york declined to 5.8 % from 7.0 % and 32 nationally to 5.6 % from 6.7 % over the same period . our capital position , market presence and experienced lending and deposit gathering teams position us well for continued organic growth in florida and the tri-state market , both of which we believe to be attractive banking markets . we also expect continued growth from our national lending platforms . we continue to evaluate potential strategic acquisitions of financial institutions and complementary businesses . the potential to further optimize our deposit mix in conjunction with the growth of our core commercial business . we have also identified significant challenges confronting the industry and our company : the sustained low interest rate environment and competitive market conditions are likely to continue to put pressure on our net interest margin , particularly as higher yielding covered assets are liquidated or mature and are replaced with assets originated or purchased at current market rates of interest . uncertainty about fiscal and monetary policy may impact the business and economic environment in our primary market areas . uncertainty about the full impact of new regulation may present challenges in the execution of our business strategy and the management of non-interest expense . for additional discussion , see `` item 1. business—regulation and supervision . '' critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) and follow general practices within the banking industry . application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances . these assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent , objective sources . we evaluate our estimates on an ongoing basis . use of alternative assumptions may have resulted in significantly different estimates . actual results may differ from these estimates . accounting policies are an integral part of our financial statements . a thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position . we believe that the critical accounting policies and estimates discussed below involve a heightened level of management judgment due to the complexity , subjectivity and sensitivity involved in their application . note 1 to the consolidated financial statements contains a further discussion of our significant accounting policies . allowance for loan and lease losses the alll represents management 's estimate of probable loan losses inherent in the company 's loan portfolio . determining the amount of the alll is considered a critical accounting estimate because of its complexity and because it requires significant judgment and estimation . estimates that are particularly susceptible to change that may have a material impact on the amount of the alll include : the amount and timing of expected future cash flows from aci loans and impaired loans ; the value of underlying collateral , which impacts loss severity and certain cash flow assumptions ; the selection of proxy data used to calculate loss factors ; our evaluation of loss emergence and historical loss experience periods ; our evaluation of the risk profile of various loan portfolio segments , including internal risk ratings ; and our selection and evaluation of qualitative factors . note 1 to the consolidated financial statements describes the methodology used to determine the alll . accounting for acquired loans and the fdic indemnification asset a significant portion of the covered loans are aci loans . the accounting for aci loans requires the company to estimate the timing and amount of cash flows to be collected from these loans and to continually update estimates of the cash flows 33 expected to be collected over the lives of the loans . similarly , the accounting for the fdic indemnification asset requires the company to estimate the timing and amount of cash flows to be received from the fdic in reimbursement for losses and expenses related to the covered loans ; these estimates are directly related to estimates of cash flows to be received from the covered loans . story_separator_special_tag the more significant ways in which our financial statements have been impacted are summarized below and discussed in more detail throughout this `` management 's discussion and analysis of financial condition and results of operations '' : under the acquisition method of accounting , all of the assets acquired and liabilities assumed in the fsb acquisition were initially recorded on the consolidated balance sheet at their estimated fair values as of may 21 , 2009. these estimated fair values differed materially from the carrying amounts of many of the assets acquired and liabilities assumed as reflected in the financial statements of the failed bank immediately prior to the fsb acquisition . in particular , the carrying amount of investment securities , loans , the fdic indemnification asset , goodwill , net deferred tax assets , deposit liabilities , and fhlb advances were materially impacted by these adjustments . the reported amounts of the assets identified above continue to be affected by the adjustments ; interest income and the net interest margin reflect the impact of accretion of the fair value adjustments made to the carrying amounts of interest earning assets and , to a lesser extent , interest expense reflects the impact of amortization of the fair value adjustments made to the carrying amounts of interest bearing liabilities in conjunction with the fsb acquisition ; the estimated fair value at which the acquired loans were initially recorded by the company was significantly less than the upb of the loans . no alll was recorded with respect to acquired loans at the fsb acquisition date . the write-down of loans to fair value in conjunction with the application of acquisition accounting and credit protection provided by the loss sharing agreements reduce the impact of the provision for loan losses related to the acquired loans on the results of operations ; acquired investment securities were recorded at their estimated fair values at the fsb acquisition date , significantly reducing the potential for other-than-temporary impairment charges in periods subsequent to the fsb acquisition for the acquired securities ; an indemnification asset related to the loss sharing agreements with the fdic was recorded in conjunction with the fsb acquisition . the loss sharing agreements afford the company significant protection against future credit losses related to covered assets , including up to 90 days of past due interest , as well as reimbursement of certain expenses ; non-interest expense includes the effect of amortization or accretion of the indemnification asset ; non-interest income includes gains and losses associated with the resolution of covered assets and the related effect of indemnification under the terms of the loss sharing agreements . the impact of gains or losses related to transactions in covered loans and oreo is significantly mitigated by fdic indemnification ; and aci loans that are contractually delinquent may not be reflected as non-accrual loans or non-performing assets due to the accounting treatment accorded such loans under accounting standards codification ( `` asc '' ) section 310-30 , `` loans and debt securities acquired with deteriorated credit quality . '' these factors may impact the comparability of our financial performance to that of other financial institutions . 35 results of operations net interest income net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings . net interest income is impacted by the relative mix of interest earning assets and interest bearing liabilities , the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources , movements in market interest rates , levels of non-performing assets and pricing pressure from competitors . the mix of interest earning assets is influenced by loan demand , market and competitive conditions in our primary lending markets and by management 's continual assessment of the rate of return and relative risk associated with various classes of earning assets . the mix of interest bearing liabilities is influenced by management 's assessment of the need for lower cost funding sources weighed against relationships with customers and growth requirements and is impacted by competition for deposits in the company 's markets and the availability and pricing of other sources of funds . net interest income is also impacted by the accounting for aci loans and to a declining extent , the accretion of fair value adjustments recorded in conjunction with the fsb acquisition . aci loans were initially recorded at fair value , measured based on the present value of expected cash flows . the excess of expected cash flows over carrying value , known as accretable yield , is recognized as interest income over the lives of the underlying loans . the positive impact of accretion related to aci loans on the net interest margin and the interest rate spread is expected to continue to decline as aci loans comprise a declining percentage of total loans . the proportion of total loans represented by aci loans is declining as the aci loans are resolved and new loans are added to the portfolio . aci loans represented 8.0 % , 14.4 % , and 29.1 % of total loans , net of premiums , discounts and deferred fees and costs , at december 31 , 2014 , 2013 and 2012 , respectively . as this trend continues , we expect our net interest margin and interest rate spread to decrease . consideration received earlier than expected or in excess of expected cash flows may result in a pool of aci residential loans becoming fully amortized and its carrying value reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in the pool . once the carrying value of a pool is reduced to zero , any future proceeds from the remaining loans , representing further realization of accretable yield , are recognized as interest income upon receipt . the carrying value of one pool has been reduced to zero .
| performance highlights in evaluating our financial performance , we consider the level of and trends in net interest income , the net interest margin , levels and composition of non-interest income and non-interest expense , performance ratios such as the return on average assets and return on average equity and asset quality ratios , particularly for the non-covered portfolio , including the ratio of non-performing loans to total loans , non-performing assets to total assets , and portfolio delinquency and charge-off trends . we consider growth in the loan portfolio by region and product type , deposit growth , trends in funding mix and cost of funds . we analyze these ratios and trends against our own historical performance , our budgeted performance and the financial condition and performance of comparable financial institutions . performance highlights include : net income for the year ended december 31 , 2014 was $ 204.2 million or $ 1.95 per diluted share , compared to $ 208.9 million or $ 2.01 per diluted share for the year ended december 31 , 2013 . earnings for 2014 generated a return on average stockholders ' equity of 10.13 % and a return on average assets of 1.21 % . net interest income for 2014 was $ 677.1 million , an increase of $ 30.9 million over the prior year . the net interest margin , calculated on a tax-equivalent basis , decreased to 4.61 % for 2014 from 5.73 % for 2013 . the primary driver of the decline in the net interest margin was the continued shift in the composition of the loan portfolio away from higher yielding covered loans into new loans originated at lower current market rates of interest .
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our reinsurance balances recoverable on paid and unpaid losses are presented net of a provision for uncollectible amounts , reflecting the amount deemed not collectible due to credit quality , collection problems due to the 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 the related notes included elsewhere in this annual report . some of the information contained in this discussion and analysis or included elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks , uncertainties and assumptions . our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors , including those discussed under `` cautionary statement regarding forward-looking statements '' , `` item 1a . risk factors '' and elsewhere in this annual report . for a comparison of our results of operations for the fiscal years ended december 31 , 2018 and 2017 , see part ii , item 7. management 's discussion and analysis of financial condition and results of operations of our annual report on form 10-k for the fiscal year ended december 31 , 2018 , filed with the sec on march 1 , 2019. replace_table_token_4_th business overview we are a multi-faceted insurance group that offers innovative capital release solutions and specialty underwriting capabilities through our network of group companies in bermuda , the united states , the united kingdom , continental europe , australia , and other international locations . our core focus is acquiring and managing insurance and reinsurance companies and portfolios of insurance and reinsurance business in run-off . since the formation of our bermuda-based holding company in 2001 , we have completed or announced over 100 acquisitions or portfolio transfers . the substantial majority of our acquisitions have been in the non-life run-off business , which generally includes property and casualty , workers ' compensation , asbestos and environmental , construction defect , marine , aviation and transit , and other closed business . while our core focus remains acquiring and managing non-life run-off business , we expanded our business to include active underwriting through our acquisitions of atrium and starstone in 2013 and 2014 , respectively . we partnered with trident in the atrium and starstone acquisitions , with enstar owning a 59.0 % interest , trident owning a 39.3 % interest , and dowling owning a 1.7 % interest . we also expanded our portfolio of run-off businesses in 2013 to include closed life and annuities , primarily through our acquisition of pavonia , which we sold in 2017 and which had made up the majority of our life and annuities business . we also manage our investment portfolio with the goal of achieving superior risk-adjusted returns , while growing profitability and generating long-term growth in shareholder value . our businesses strategies are discussed in `` item 1. business - company overview '' , `` - business strategy '' , `` -strategic growth '' and `` - recent acquisitions and significant new business . '' 50 key pe rformance indicator our primary corporate objective is growing our book value per share , and w e believe that long-term growth in fully diluted book value per share is the most appropriate measure of our financial performance . we create growth in our book value through the execution of the strategies discussed in `` item 1. business - business strategy . '' during 2019 , our book value per share on a fully diluted basis increased by 26.9 % to $ 197.93 per share . the growth of our fully diluted book value per share since becoming a public company is shown in the table below . the table below summarizes the calculation of our fully diluted book value per ordinary share as of december 31 , 2019 and 2018 : replace_table_token_5_th ( 1 ) there are warrants outstanding to acquire 175,901 series c non-voting ordinary shares for an exercise price of $ 115.00 per share , subject to certain adjustments ( the `` warrants '' ) . the warrants were issued in april 2011 and expire in april 2021. the warrant holder may , at its election , satisfy the exercise price of the warrants on a cashless basis by surrender of shares otherwise issuable upon exercise of the warrants in accordance with a formula set forth in the warrants . 51 non-gaap financial measure in addition to presenting net earnings ( losses ) attributable to enstar group limited ordinary shareholders and diluted earnings ( losses ) per ordinary share determined in accordance with u.s. gaap , we believe that presenting non-gaap operating income ( loss ) attributable to enstar group limited ordinary shareholders and non-gaap diluted operating income ( loss ) per ordinary share provides investors with valuable measures of our performance . non-gaap operating income ( loss ) attributable to enstar group limited ordinary shareholders is calculated by the addition or subtraction of certain items from within our consolidated statements of earnings to or from net earnings ( loss ) attributable to enstar group limited ordinary shareholders , the most directly comparable gaap financial measure , as illustrated in the table below , for the years ending december 31 , 2019 and 2018 : 2019 2018 ( in thousands of u.s. dollars , except per share data ) net earnings ( loss ) attributable to enstar group limited ordinary shareholders $ 902,175 $ ( 162,354 ) adjustments : net realized and unrealized ( gains ) losses on fixed maturity investments and funds held - directly managed ( 1 ) ( 534,730 ) 243,093 change in fair value of insurance contracts for which we have elected the fair value option 117,181 6,664 tax effects of adjustments ( 2 ) 51,102 ( 16,588 ) adjustments attributable to noncontrolling interest ( 3 ) 17,689 ( 9,166 ) non-gaap operating income attributable to enstar group limited ordinary shareholders ( 4 ) $ 553,417 $ 61,649 diluted net earnings story_separator_special_tag in 2019 , we also completed a part vii transfer in the u.k. , delivering legal finality to rsa for its employers ' liability portfolio , and in oklahoma , we are pursuing an insurance business transfer under the newly enacted insurance business transfer act with respect to an intra-group transaction . as this legislation becomes more widely used in the u.s. , we expect it will offer us additional opportunities and flexibility in how we structure u.s. transactions . we have signed two transactions with axa xl and munich re , representing approximately $ 0.4 billion of assets and liabilities , that are expected to close in the first half of 2020. our strong operating platforms in all of the major insurance markets are well positioned to take on additional business opportunities . we recently completed our 100th acquisition , demonstrating our ability to successfully execute upon transactions . we are market-leading in acquiring companies in run-off , entering into reinsurance transactions through loss portfolio transfers , adverse development covers , reinsurance-to-close , or insurance business transfers . our business operates in the insurance , reinsurance and investments markets . as with others in our industry , we are subject to economic factors such as interest rates , foreign exchange rates , underwriting events , regulation , tax policy changes , political risks and other market risks that can impact our strategy and operations . economic conditions have recently been characterized by historically low interest rates , international trade tensions , signs of slowing global growth , significant catastrophe events , coronavirus , and other political and economic uncertainties . however , our business continued to perform well in 2019. we experienced favorable investment conditions during 2019 , and we expect that investment results will continue to be a key driver of our consolidated results going forward . however , we can not be assured that the recent positive market conditions will continue into the future . we also anticipate that our consolidated earnings will be impacted by volatility in the investment markets . our fixed income portfolio is prudently invested to earn us a reasonable return , whilst ensuring that funds will be available to pay our obligations when they become due . while it is possible that fixed income yields will improve over time , we anticipate that interest rates will remain low in the near-term which may adversely impact reinvestment yields . our other investments , including equities , hedge funds and other non-fixed income investments carry higher expected returns , have a longer investment time horizon , and diversify against our fixed income portfolio . our enterprise risk management framework enables us to hold sufficient capital for possible risk events and ensures our business strategies can be deployed through market cycles to deliver attractive returns for our capital providers . while non-life run-off is our predominant business activity , we also allocate our capital to our active underwriting businesses and to strategic investments as described below . atrium has been a consistent top-quartile performing lloyd 's business and is currently seeing market opportunities that are resulting in an increase to premiums written . starstone , with the strong support from its shareholders , has undertaken a significant re-positioning of its underwriting portfolio , resulting in lower premiums written in 2019. starstone 's focus is to achieve consistent underwriting profitability from its core lines of business . we believe starstone is better positioned for the future and we expect that starstone will seek to write more premiums through selective growth opportunities . our significant strategic investments include enhanzed re , monument re , amtrust , amongst others , more fully described in note 21 - `` related party transactions '' in the notes to our consolidated financial statements included within item 8 of this annual report on form 10-k. 54 consolidated results of operations - for the years ended december 31 , 2019 and 2018 the following table sets forth our consolidated statements of earnings for the years ended december 31 , 2019 and 2018 . for a discussion of the critical accounting policies that affect the results of operations , see `` critical accounting policies '' below . replace_table_token_6_th highlights consolidated results of operations for 2019 : consolidated net earnings of $ 902.2 million and basic and diluted earnings per share of $ 42.00 and $ 41.43 , respectively ; non-gaap operating income of $ 553.4 million and diluted non-gaap operating income per ordinary share of $ 25.42 . for a reconciliation of non-gaap operating income to net earnings ( loss ) calculated in accordance with gaap and diluted non-gaap operating income per ordinary share to diluted net earnings ( loss ) per ordinary share calculated in accordance with gaap , see `` non-gaap financial measure '' above ; net earnings from non-life run-off segment of $ 1,059.8 million ; combined ratio of 90.6 % for our atrium segment , with net premiums earned of $ 164.1 million . combined ratio of 103.4 % for starstone 's core business lines , and 111.9 % for starstone group after intragroup reinsurance cessions . net investment income of $ 321.3 million and net realized and unrealized gains of $ 1,031.4 million . 55 consolidated financial condition as of december 31 , 2019 : total cash and investments of $ 14,263.0 million ; total reinsurance balances recoverable on paid and unpaid losses of $ 2,379.9 million ; total a ssets of $ 19,363.3 million ; total gross and net reserves for losses and lae of $ 10,429.2 million and $ 8,047.1 million , respectively . in our non-life run-off operations during 2019 , gross and net reserves acquired and assumed were $ 2,109.1 million and $ 1,587.0 million , respectively ; total capital under management of $ 6,486.3 million , including common equity of $ 4,332.2 million , preferred equity of $ 510.0 million , noncontrolling interests of $ 453.0 million , and debt of $ 1,191.2 million ; and diluted book value per ordinary share of $ 197.93 , an annual increase of 26.9 % .
| overall results net losses for the starstone segment decreased to $ 100.7 million in 2019 , compared to net losses of $ 158.6 million in 2018 . the combined ratio decreased to 127.6 % in 2019 , compared to 135.1 % in 2018 . whilst this was an improvement from 2018 , the unfavorable results in 2019 were attributable to losses from exited lines of business as well as reserve strengthening in the u.s. casualty line of business , and prior year adverse development on our u.s. healthcare , excess casualty , marine , aviation and construction lines of business in 2019 . the decrease in net premiums written was due to our strategy to exit certain lines of business and to focus on core lines . the improvement in the underwriting performance was primarily due to the repositioning actions to improve underwriting profitability in core lines and reduced exposure in exited lines of business . the increase of 2.9 percentage points in the acquisition cost ratio was partially driven by the elimination of the ceding commission earned on the cession to kaylare , following our acquisition of kaylare in may 2018. the decrease of 6.9 percentage points in the operating expense ratio was a result of net premiums earned increasing and operating expenses decreasing . net losses for the starstone group reduced to $ 6.7 million in 2019 , compared to net losses of $ 71.3 million in 2018 , a change of $ 64.6 million . the 2019 result was primarily driven by an underwriting loss of $ 84.5 million that was primarily due to losses from exited lines of business as well as reserve strengthening in u.s. casualty line of business , offset by $ 47.3 million of net investment income and $ 43.8 million of net realized and unrealized gains .
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the funds contributed by bsp were used to develop certain of our oil and natural gas properties . the bsp jv holds net profits interests ( npi ) in existing and future cash flow from certain of our properties and the proceeds from the npi are used by the bsp jv to ( 1 ) pay quarterly minimum distributions to bsp , ( 2 ) make additional distributions to bsp until the predetermined threshold is achieved , and ( 3 ) pay for development costs within the project area , upon mutual agreement between members . our consolidated results reflect the full operations of the bsp jv , with bsp 's share of net income reported in net income attributable to noncontrolling interests on our consolidated statements of operations . the following table summarizes the cumulative investment through december 31 , 2019 by our development joint venture partners , before transaction costs : cumulative investment through december 31 , 2019 ( in millions ) alpine $ 134 royale 8 mira 138 bsp 200 total capital $ 480 49 midstream jv ares jv in february 2018 , we entered into a midstream joint venture with ecr corporate holdings l.p. ( ecr ) , a portfolio company of ares management l.p. ( ares ) . this joint venture ( ares jv ) holds the elk hills power plant ( a 550-megawatt natural gas fired power plant ) and a 200 mmcf/d cryogenic gas processing plant . we hold 50 % of the class a common interest and 95.25 % of the class c common interest in the ares jv . ecr holds 50 % of the class a common interest , 100 % of the class b preferred interest and 4.75 % of the class c common interest . we received $ 750 million in proceeds upon entering into the ares jv , before $ 3 million of transaction costs . the class a common and class b preferred interests held by ecr are reported as redeemable noncontrolling interests in mezzanine equity due to an embedded optional redemption feature . the class c common interest held by ecr is reported in equity on our consolidated balance sheets . the ares jv is required to make monthly distributions to the class b holder . the class b preferred interest has a deferred payment feature whereby a portion of the monthly distributions may be deferred for the first three years to the fourth and fifth year . the deferred amounts accrue an additional return . distributions to the class b preferred interest holders are reported as a reduction to mezzanine equity on our consolidated balance sheets . monthly , the ares jv is required to distribute its excess cash flow over its working capital requirements to the class c common interests on a pro-rata basis . we can cause the ares jv to redeem ecr 's class a and class b interests , in whole , but not in part , at any time by paying $ 750 million for the class b interest and $ 60 million for the class a interest , plus any previously accrued but unpaid preferred distributions and a make-whole payment if the redemption happens prior to five years from inception . we have the option to extend the redemption period for up to an additional two and one-half years , in which case the interests can be redeemed for $ 750 million for the class b interest and $ 80 million for the class a interest , plus any previously accrued but unpaid preferred distributions and a make-whole payment if the redemption happens prior to seven and one-half years from inception . if we do not exercise a redemption at the end of the seven and one-half year period , ecr can either sell its class a and class b interests or cause the sale or lease of the ares jv assets . our consolidated statements of operations reflect the full operations of our ares jv , with ecr 's share of net income reported in net income attributable to noncontrolling interests . additionally , in the first quarter of 2018 , an ares-led investor group purchased approximately 2.3 million shares of our common stock in a private placement for an aggregate purchase price of $ 50 million . exploration jvs since 2016 , we have entered into multiple exploration joint ventures that have allowed us to successfully explore multiple , diverse conventional exploration prospects with industry-leading success with minimal internally funded capital . in 2019 , we drilled three exploration prospects with our partners under these agreements . we entered into additional exploration joint ventures in 2019 that generally provided for our partners to invest in seismic and or drilling activity across our assets on a promoted basis . 50 acquisitions and divestitures acquisitions in april 2018 , we acquired from chevron u.s.a. , inc. ( chevron ) its share of the remaining working , surface and mineral interests in the approximately 47,000-acre elk hills unit ( the elk hills transaction ) for approximately $ 518 million , including $ 7 million of liabilities assumed relating to asset retirement obligations . we accounted for the elk hills transaction as a business combination and allocated $ 435 million to proved properties , $ 77 million to other property , plant and equipment and $ 6 million to materials and supplies . the consideration paid consisted of $ 460 million in cash and 2.85 million shares of crc common stock issued at the close of the transaction ( valued at $ 51 million ) . story_separator_special_tag we paid approximately $ 1 million to california for alternative minimum taxes in 2019. we did not make any united states federal and state income tax payments in 2018 or 2017. we do not expect to make any significant income tax payments in the foreseeable future , although this estimate could change . for additional information on tax-related items , see information set forth in part ii , item 8 – financial statements and supplementary data , note 10 income taxes . 52 balance sheet analysis balance sheet components and changes in these components as of december 31 , 2019 and 2018 , are discussed below : replace_table_token_20_th cash at december 31 , 2019 and 2018 included $ 3 million and $ 2 million , respectively , that is restricted under one of our joint venture agreements . see liquidity and capital resources for our cash flow analysis . the decrease in trade receivables was largely driven by lower natural gas trading activity in december 2019 as compared with december 2018 , as well as a decline in production and natural gas and ngl realized prices in the fourth quarter of 2019 compared to the fourth quarter of 2018. these decreases were partially offset by higher realized oil prices in december 2019 compared to december 2018. the decrease in other current assets , net primarily reflected a decrease in the fair value of the current portion of our derivative assets , which primarily resulted from a lower percentage of our oil production hedged between comparative periods . the decrease in property , plant and equipment , net primarily resulted from depreciation , depletion and amortization ( dd & a ) and the lost hills divestiture , partially offset by capital investments and increases in our asset retirement obligations ( aro ) resulting from idle well regulations enacted in the first quarter of 2019. the increase in other assets was primarily due to recording a long-term operating lease asset as a result of accounting rules adopted on january 1 , 2019 and prepaid power plant major maintenance , partially offset by a decrease in the fair value of long-term derivative assets . current maturities of long-term debt reflected $ 100 million for our 5 % senior notes due in january 2020 , which were repaid in full upon maturity . the decrease in accounts payable at december 31 , 2019 compared to december 31 , 2018 reflected the decrease in capital investments and gas-trading activities , which were lower in the fourth quarter of 2019 compared to the fourth quarter of 2018. the increase in accrued liabilities reflected the current portion of our operating lease liability resulting from the adoption of new lease accounting rules , the timing of payments due to our joint venture partners , severance costs related to our october 2019 organizational restructure and increased obligation to purchase greenhouse gas allowances . 53 long-term debt decreased due to repurchases of our second lien notes , reclassification of $ 100 million of our senior notes to current maturities of long-term debt , pay down of the 2014 revolving credit facility from the proceeds of the lost hills divestiture and positive cash flow . the decrease in deferred gain and issuance costs , net was largely the result of repurchases of our second lien notes and amortization . other long-term liabilities reflected the increase in aro primarily due to idle well regulations enacted in the first quarter of 2019 , long-term operating lease liabilities due to the adoption of new lease accounting rules and postretirement benefits primarily resulting from the october 2019 organizational restructure . the annual incremental cash expenditures for aro resulting from the idle well regulations and postretirement benefits resulting from the october 2019 organizational restructure are not expected to be material in the foreseeable future . mezzanine equity reflected the carrying amount of the class a common and class b preferred interests held by ecr in our midstream jv . equity attributable to common stock decreased as a result of a decrease in net income between periods and an increase in the income allocated to ecr for a full 12 months in 2019 as compared to nine months in the prior year . equity attributable to noncontrolling interests includes the class c interest in the midstream joint venture held by ecr and bsp 's preferred interest in the bsp jv . the decrease in 2019 primarily related to distributions to the noncontrolling interest holders . statement of operations analysis results of oil and natural gas operations the following represents key operating data for our oil and natural gas operations , excluding corporate items , on a per boe basis for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_21_th ( a ) as described in items 1 and 2 – business and properties – operations – production , price and cost history , the reporting of our psc-type contracts creates a difference between reported production costs , which are for the full field , and reported volumes , which are only our net share , inflating the per barrel production costs . these amounts represent our production costs after adjusting for this difference . ( b ) field general and administrative expenses increased in 2019 compared to 2018 , primarily due to the elk hills transaction that occurred in april 2018 since certain costs are no longer recovered from our former working interest partner . our 2019 costs include 12 months without such cost recovery compared to nine months without cost recovery in 2018. field general and administrative expenses also increased in 2018 compared to 2017 primarily due to the elk hills transaction , with 2018 costs including nine months without cost recovery compared to 12 months of cost recovery in 2017 . 54 story_separator_special_tag analysis of financial condition and results of operations , statement of operations analysis in our 2018 form 10-k for our analysis of the changes in our consolidated statements
| consolidated results of operations the following represents key operating data for consolidated operations for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_22_th ( a ) we adopted the revenue recognition standard on january 1 , 2018 that required certain sales-related costs to be reported as expense as opposed to being netted against revenue . the adoption of this standard did not affect net income . results for reporting periods beginning january 1 , 2018 are presented under the new accounting standard while prior periods are not adjusted and continue to be reported under accounting standards in effect for the applicable period . ( b ) new accounting rules related to the presentation of net periodic benefit costs for pension and postretirement benefits in the consolidated statements of operations were adopted on january 1 , 2018. for the year ended december 31 , 2017 , certain pension benefit costs of $ 10 million were reclassified from general and administrative expenses to other non-operating expenses to conform with the new rules . ( c ) adjusted net income ( loss ) and adjusted ebitdax are non-gaap measures . see the non-gaap financial measures section below for a reconciliations to their nearest gaap measures . year ended december 31 , 2019 vs. 2018 oil and natural gas sales – oil and natural gas sales , excluding the impact of settled hedges , decreased 12 % , or $ 320 million , in 2019 compared to 2018 , due to changes in realized prices and production as reflected in the following table : replace_table_token_23_th note : see production and prices for average benchmark and realized prices , realizations and production . the effect of settled hedges is not included in the table above .
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we help companies acquire customers more efficiently , increase customer value , reduce fraud and credit losses , lower operating expenses and enter new markets more profitably . most leading banks and credit card issuers rely on our solutions , as do many insurers , retailers , healthcare organizations , pharmaceutical companies and government agencies . we also serve consumers through online services that enable people to purchase and understand their fico ® scores , the standard measure in the united states of credit risk , empowering them to manage their financial health . a significant portion of our revenues are derived from the sale of products and services within the banking ( including consumer credit ) and insurance industries , and during the years ended september 30 , 2011 , 2010 and 2009 , 78 % , 76 % and 75 % , respectively , of our revenues were derived from within these industries . a significant portion of our remaining revenues are derived from the healthcare and retail industries . our clients utilize our products and services to facilitate a variety of business processes , including customer marketing and acquisition , account origination , credit and underwriting risk management , fraud loss prevention and control , and client account and policyholder management . a significant portion of our revenues are derived from transactional or unit-based software license fees , annual license fees under long-term software license arrangements , transactional fees derived under scoring , network service or internal hosted software arrangements , and annual software maintenance fees . the recurrence of these revenues is , to a significant degree , dependent upon our clients ' continued usage of our products and services in their business activities . the more significant activities underlying the use of our products in these areas include : credit and debit card usage or active account levels ; lending acquisition , origination and customer management activity ; and customer acquisition , cross selling and retention programs . approximately 73 % , 75 % and 76 % of our revenues during fiscal 2011 , 2010 and 2009 , respectively , were derived from arrangements with transactional or unit-based pricing . we also derive revenues from other sources which generally do not recur and include , but are not limited to , perpetual or time-based licenses with upfront payment terms and non-recurring consulting service arrangements . our revenues derived from clients outside the united states have generally grown , and may in the future grow more rapidly than our revenues from domestic clients . international revenues totaled $ 230.0 million , $ 209.6 million and $ 199.8 million in fiscal 2011 , 2010 and 2009 , respectively , representing 37 % , 35 % and 32 % of total consolidated revenues in each of these years . we expect that the percentage of our revenues derived from international clients will increase in the future , subject to the impact of foreign currency fluctuations . general economic conditions stabilized in fiscal 2011 from which we realized overall growth in our revenues of 2 % to $ 619.7 million . however , high levels of unemployment and financial market uncertainty continue to impact our customers in the united states and the pace of global recovery . consumer and small business lending activity , which is one of the drivers of demand for our services , has stabilized in most markets around the world but in most cases is not yet showing strong growth . we expect growth in consumer lending to continue to lag the general economic recovery . in an effort to respond to these market conditions , we have continued to focus on activities related to our ongoing reengineering initiative . as part of this initiative , we continue to manage our expenses to maintain solid earnings and cash flows and grow revenues through strategic resource allocation . key components of the initiative include ongoing rationalization of our business portfolio , simplifying management hierarchy , eliminating low-priority positions , investing in high-priority positions , consolidating facilities and managing fixed and variable costs . in fiscal 2009 , we completed additional actions under our reengineering initiative that was initiated in fiscal 2008. these actions were aimed at reducing costs through headcount reductions and facility consolidations . with respect to the headcount reductions , we identified and eliminated 255 positions throughout the company . also in 31 connection with the initiative , we sold our liquidcredit ® service for telecom ( lct ) and roamex ® product line assets , and we fully exited our cortronics neural research product line , fast panel diagnostics product line and advertising services group . during fiscal 2011 , we incurred net charges totaling $ 12.4 million . the charges included $ 8.2 million for severance costs associated with the reduction of 177 positions throughout the company . we also recognized charges of $ 4.2 million associated with vacating excess leased space in minnesota , georgia and illinois . costs for vacating excess leased space represent future cash lease payments , net of estimated sublease income , which will be paid out over the next seven years . for 2012 , the operating environment will continue to present challenges for the marketing and growth of our products and services . however , we do expect to derive growth through modest improvements in the credit economy and from the momentum we achieved as a result of our performance in the latter part of 2011. bookings management uses bookings as an indicator of our business performance . bookings represent contracts signed in the current reporting period that will generate current and future revenue streams . we consider contract terms , knowledge of the marketplace and experience with our customers , among other factors , when determining the estimated value of contract bookings . bookings calculations have varying degrees of certainty depending on the revenue type and individual contract terms . our revenue types are transactional and maintenance , professional services and license . story_separator_special_tag story_separator_special_tag roman '' > ® as a result of the completion of several large installations in the prior year . tools segment revenues decreased $ 2.0 million in fiscal 2010 from fiscal 2009 primarily due to a decrease of license and professional services sales related to our fico ® blaze advisor ® product , which was negatively impacted by the current business environment . professional services revenue declined due to the completion of several large installations in prior periods and fewer implementation services due to a reduction in fico ® blaze advisor ® license sales . these decreases were partially offset by an increase in revenues from our fico ® model builder and fico ® decision optimizer products . 36 operating expenses and other income ( expense ) the following tables set forth certain summary information related to our consolidated statements of income for the fiscal years indicated . replace_table_token_11_th 37 replace_table_token_12_th cost of revenues cost of revenues consists primarily of employee salaries and benefits for personnel directly involved in developing , installing and supporting revenue products ; travel costs ; overhead costs ; costs of computer service bureaus ; internal network hosting costs ; amounts payable to credit reporting agencies for scores ; software costs ; and expenses related to our consumer score services through myfico.com . cost of revenues as a percentage of revenues was 30 % in fiscal 2011 , consistent with fiscal 2010. the fiscal year 2011 over 2010 increase of $ 5.5 million in cost of revenues resulted from a $ 13.3 million increase in personnel and labor costs , partially offset by a $ 4.2 million decrease in third party software and data cost , a $ 3.0 million decrease in facilities and infrastructure costs , and a $ 0.6 million decrease in other expenses . the increase in personnel and other labor-related costs was attributable to an increase in salary and related benefit costs as a result of increased consulting services activities , and an increase in incentive cost . the decrease in third party software and data costs was attributable to decreased sales that require data acquisition . the decrease in facilities and infrastructure costs was attributable primarily to a decline in allocated costs resulting from overhead reductions and exiting certain facilities . cost of revenues as a percentage of revenues was 30 % in fiscal 2010 , as compared to 33 % in fiscal 2009. the decrease of $ 25.5 million in cost of revenues resulted from a $ 12.2 million decrease in personnel and other labor-related costs , an $ 11.8 million decrease in facilities and infrastructure costs and a $ 1.5 million decrease in other costs . the decrease in personnel and other labor-related costs was attributable primarily to a decline in salary and related benefit costs resulting from staff reductions and from the decline in consulting services activities . the decrease in facilities and infrastructure costs was attributable primarily to a decline in allocated costs resulting from overhead reductions and exiting certain facilities . in fiscal 2012 , we expect that cost of revenues as a percentage of revenues will be consistent with those incurred during fiscal 2011 . 38 research and development research and development expenses include the personnel and related overhead costs incurred in the development of new products and services , including the research of mathematical and statistical models and the development of new versions of our products . research and development as a percentage of revenues was 10 % in fiscal 2011 , as compared to 12 % in fiscal 2010. the decrease of $ 11.5 million in research and development expenditures was attributable primarily to a $ 8.7 million decrease in personnel and related costs , a $ 2.1 million decrease in facilities and infrastructure costs , and a $ 0.7 million decrease in other expenses . the decrease in personnel and related costs was due to decreased salary and related benefit costs , partially offset by a higher incentive cost for fiscal 2011. the decrease in facilities and infrastructure costs was attributable primarily to a decline in allocated costs resulting from overhead reductions and exiting certain facilities . research and development as a percentage of revenues was 12 % in fiscal 2010 , consistent with fiscal 2009. research and development expenditures for fiscal 2010 were consistent with expenditures for fiscal 2009. in fiscal 2012 , we expect that research and development expenditures as a percentage of revenues will be consistent with those incurred during fiscal 2011 as we continue to invest in our decision management solutions . selling , general and administrative selling , general and administrative expenses consist principally of employee salaries and benefits , travel , overhead , advertising and other promotional expenses , corporate facilities expenses , legal expenses , business development expenses and the cost of operating computer systems . selling , general and administrative expenses as a percentage of revenues was 36 % in fiscal 2011 , as compared to 37 % in fiscal 2010. the fiscal 2011 over 2010 decrease of $ 1.6 million in selling , general and administrative expenses was attributable to a $ 5.5 million decrease in marketing expenses and a $ 2.4 million decrease in facilities and infrastructure costs , partially offset by a $ 4.8 million increase in personnel and related costs and a $ 1.5 million increase in other costs . the decrease in marketing expenses was due to a reduction in marketing programs in areas that were not producing the anticipated sales results . the decrease in facilities and infrastructure costs was attributable primarily to a decline in allocated costs resulting from overhead reductions and exiting certain facilities . the increase in personnel and related cost was due to increased salary , commission and incentive expenses .
| results of operations continuing operations revenues the following tables set forth certain summary information on a segment basis related to our revenues for the fiscal years indicated . replace_table_token_6_th replace_table_token_7_th applications replace_table_token_8_th applications segment revenues increased $ 15.8 million in fiscal 2011 from fiscal 2010 due to an $ 18.2 million increase in our fraud solutions and a $ 6.0 million increase in our originations solutions . these increases were partially offset by a $ 4.8 million decrease in our customer management solutions , and a $ 3.6 million decrease from our other applications solutions . 34 the increase in fraud solutions was attributable to higher volumes associated with transactional-based agreements , increased software sales of fico ® falcon ® fraud manager and fico ® insurance fraud manager , and increased services related to these software sales . the increase in originations solutions was attributable to an increase in professional services , and sales of a new product , fico ® originations manager , partially offset by a decrease in volumes associated with transactional-based agreements on existing products . the decrease in customer management solutions was attributable to a decline in license revenue and a decline in professional services . applications segment revenues decreased $ 15.9 million in fiscal 2010 from fiscal 2009 due to a $ 14.5 million decrease in revenues from our originations solutions , a $ 10.6 million decrease in our customer management solutions and a $ 2.6 million decrease from our other applications solutions . these decreases were partially offset by an $ 11.8 million increase in revenues from our marketing solutions .
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valvoline 's premium branded product offerings enhance its high-quality reputation and provide customers with solutions that address a wide variety of needs . in the united states and canada , valvoline 's products and services are sold to retailers with over 55,000 retail outlets , to installer customers with approximately 15,000 locations , and through 1,462 franchised and company-owned stores . valvoline also has a strong international presence with products sold in more than 140 countries . valvoline serves its customer base through its sales force and technical support organization , allowing valvoline to leverage its technology portfolio and customer relationships globally , while meeting customer demands locally . this combination of scale and strong local presence is critical to the company 's success . valvoline 's fiscal year ends on september 30 of each year and valvoline has three reportable segments : quick lubes , core north america , and international , with certain corporate and non-operational items included in unallocated and other to reconcile to consolidated results . refer to item 1 included in part i of this annual report on form 10-k for a description of valvoline 's reportable segments . recent developments the outbreak of covid-19 was concentrated in china in late january 2020 and spread quickly , resulting in the world health organization declaring a global pandemic on march 11 , 2020. covid-19 has created significant volatility in the global economy and led to reduced economic activity . there have been extraordinary actions taken by international , federal , state , and local public health and governmental authorities to contain and combat the spread of covid-19 in most regions throughout the world , including restricting non-essential travel , quarantines , “ stay-at-home ” orders , and similar mandates for many individuals to substantially restrict daily activities and for many businesses to modify or cease normal operations to minimize personal interaction and contact . while certain regions began to relax restrictions beginning in march , a resurgence in cases has led to reinstated limitations across the globe . the duration and extent of restrictions that will remain in place currently remains unclear . the covid-19 pandemic led to significant economic disruption which impacted valvoline 's business and results during the fiscal year ended september 30 , 2020. management can not reasonably quantify the financial impacts on full year results ; however , believes that the pandemic resulted in an overall immaterial unfavorable impact to earnings . the most substantial negative effects were estimated to have occurred during the third fiscal quarter of 33 2020 when restrictions were the most severe and miles driven and volumes significantly declined . the company also experienced certain benefits in its costs , some of which is believed to have been prolonged due to or as a result of the pandemic and coupled with the recovery in miles driven , which remain behind prior year trends , is estimated to have minimized the severity of the impact on fiscal 2020 results . while the company can not predict the duration or the scale of the covid-19 pandemic or the effect it may continue to have on valvoline 's business , results of operations , or liquidity , it is important to share the impact to-date , how the company 's response is progressing and how valvoline 's results and financial condition could be impacted going forward . retail and manufacturing operations as automotive maintenance has generally been deemed essential business during the pandemic , valvoline has substantially maintained its operations and continued to serve its customers to help engines run and keep vehicles reliably on the road . valvoline 's wholly-owned lubricant blending and packaging plants and quick lubes retail service center stores have substantially remained open and operational during the pandemic . over 98 % of valvoline 's system-wide service center stores have remained open during the pandemic to-date . the company remains committed to operating safely and keeping as many of its stores open as possible for the communities they serve . short-term incremental pay and benefit programs , including additional paid sick leave and increased pay rates for hourly and salaried store employees were introduced in quick lubes to recognize team members who continued to service customers throughout pandemic . in response to the abrupt decline in miles driven due to covid-19 restrictions and the resulting significant volume and sales declines in the second half of march and continuing through late april , valvoline responded quickly by flexing store labor at company-owned retail service center stores and adjusting shifts across its lubricant blending and packaging plants and throughout its distribution networks . in china , construction on the lubricants plant resumed after a temporary suspension and was recently completed . remote work arrangements valvoline took global actions designed to help further prevent the spread of covid-19 , including implementing work-from-home arrangements . beginning march 18 , 2020 , employees , other than those in valvoline 's retail service center stores , production and distribution facilities , began working remotely in nearly all locations globally , except china where work-from-home protocols were implemented earlier and substantially ended in march . these remote work arrangements remain in place and have been designed to allow for continued operation of certain business-critical functions , including financial reporting systems and internal control , which have incorporated remote work arrangements using appropriate digital tools . valvoline is continually monitoring the global covid-19 situation and following the white house guidelines supported by covid-19 trend data to make decisions regarding the reopening of corporate offices . valvoline has developed a set of criteria and guidelines that will be used in returning to the office to ensure the safety and well- being of the company 's employees , including social distancing , enhanced cleaning procedures and availability of personal protective equipment . all return-to-office decisions will be made based on the covid-19 trends in the countries , states and locations where the company 's offices are located . story_separator_special_tag fiscal 2020 overview the following were the significant events for fiscal 2020 , each of which is discussed more fully in this annual report on form 10-k : the durability of the valvoline business model was reflected in the company 's rapid improvement from the significant headwinds during depths of the covid-19 pandemic , leading to strong year-over-year growth in profitability . for the full year , net income increased $ 109 million to $ 317 million , while diluted earnings per share of $ 1.69 increased $ 0.59 versus the prior year . quick lubes sales grew 7 % to $ 883 million in fiscal 2020 with system-wide same-store sales growth of 2.3 % year-over-year , the 14th consecutive year of same-store sales growth . system-wide same-store sales in the fourth fiscal quarter grew 8.3 % , returning to pre-covid-19 growth rates . this growth was driven by average ticket and transaction growth attributable to favorable premium mix , increased revenue from non-oil change services , new customer acquisition and strong in-store execution of the company 's safety-focused , stay-in-your-car service model . the quick lubes system added 77 net new stores in fiscal 2020 , including 36 newly-built company-owned service center stores . core north america operating income increased by 33 % from the prior year and was driven by favorable channel and product mix , lower raw material costs and benefits from the cost savings program that began in fiscal 2019. improved unit margins combined with expense reductions implemented during the early stages of the covid-19 pandemic offset lower volume from the installer customer channel . international sales and volume decreased due to impacts from covid-19 across all regions , particularly in latin america . volume in unconsolidated joint ventures also declined due to pandemic impacts , particularly in india , which was partially offset by growth in the china joint venture . the company completed two issuances of senior unsecured notes during the year ended september 30 , 2020 with $ 600 million issued in february 2020 and $ 400 million issued in may 2020. net proceeds from the two issuances , as well as cash and cash equivalents , were used to redeem $ 375 million of senior unsecured notes due in 2024 and pay an early redemption premium of $ 15 million , to prepay $ 100 million of its term loan , and repay $ 450 million under its senior secured revolving credit facility . during fiscal 2020 , valvoline returned $ 144 million of capital to shareholders through dividends and share repurchases . results for fiscal 2019 compared to fiscal 2018 for comparisons of valvoline 's consolidated and segment results of operations and consolidated cash flows for the fiscal years ended september 30 , 2019 to september 30 , 2018 , refer item 7 of part ii of the annual report on form 10-k for the fiscal year ended september 30 , 2019 , filed with the sec on november 22 , 2019. use of non-gaap measures to aid in the understanding of valvoline 's ongoing business performance , certain items within this document are presented on an adjusted , non-gaap basis . these non-gaap measures are not defined within u.s. gaap and do not purport to be alternatives to net income/loss or cash flows from operating activities as measures of operating performance or cash flows . the following are the non-gaap measures management has included and how management defines them : ebitda , which management defines as net income/loss , plus income tax expense/benefit , net interest and other financing expenses , and depreciation and amortization ; adjusted ebitda , which management defines as ebitda adjusted for key items , as further described below , and net pension and other postretirement plan expense/income ; and 36 free cash flow , which management defines as operating cash flows less capital expenditures and certain other adjustments as applicable . these measures are not prepared in accordance with u.s. gaap and management believes the use of non-gaap measures assists investors in understanding the ongoing operating performance of valvoline 's business by presenting comparable financial results between periods . the non-gaap information provided is used by valvoline 's management and may not be comparable to similar measures disclosed by other companies , because of differing methods used by other companies in calculating ebitda , adjusted ebitda and free cash flow . ebitda , adjusted ebitda , and free cash flow provide a supplemental presentation of valvoline 's operating performance . for a reconciliation of non-gaap measures , refer to the “ results of operations ” and “ financial position , liquidity and capital resources ” sections below . due to depreciable assets associated with the nature of the company 's operations and interest costs related to valvoline 's capital structure , management believes ebitda is an important supplemental measure to evaluate the company 's operating results between periods on a comparable basis . management also believes adjusted ebitda provides investors with a meaningful supplemental presentation of valvoline 's operating performance . adjusted ebitda excludes the impact of the following : key items - key items consist of income or expenses associated with certain unusual , infrequent or non-operational income or expenses not directly attributable to the underlying business , which management believes impacts the comparability of operational results between periods . key items may consist of adjustments related to : the impairment of an equity investment ; legacy businesses , including the separation from ashland and associated impacts of related indemnities ; significant acquisitions or divestitures ; restructuring-related matters ; and other matters that are non-operational or unusual in nature . key items are considered by management to be outside the comparable operational performance of the business and are also often related to legacy matters or market-driven events that are not directly related to the underlying business and do not have an immediate , corresponding impact on the company 's ongoing performance .
| results of operations consolidated review the following table summarizes the results of the company 's operations for the years ended september 30 : replace_table_token_7_th sales the following table provides a reconciliation of the changes in sales from fiscal 2019 to 2020 : ( in millions ) 2020 change mix and price $ 66 volume ( 104 ) currency exchange ( 11 ) acquisitions 12 change in sales $ ( 37 ) total sales were down 2 % year-over-year and lubricant volumes decreased 6 % from the prior year , primarily driven by the significant impacts of covid-19 restrictions , particularly in the third quarter . declines in core north america and international were partially offset by increases in quick lubes with unit growth and full year system-wide same-store sales increases of 2.3 % . the decline in core north america volumes from covid-19 was partially offset by improved channel and product mix , while international volumes were down across most regions due to covid-19 impacts . the changes to reportable segment sales and the drivers thereof are discussed in further detail in “ reportable segment review ” below . gross profit the following table provides a reconciliation of the changes in gross profit from fiscal 2019 to 2020 : ( in millions ) 2020 change volume and mix $ ( 14 ) price and cost 69 currency exchange ( 3 ) acquisitions 1 change in gross profit $ 53 despite lower volumes , gross profit increased compared to the prior year driven by the benefit of mix improvements in quick lubes and core north america , and lower costs , which included a favorable raw material cost environment , benefits from the cost savings program that began in fiscal 2019 , and the favorable impact from the resumed operations at the company 's second largest domestic blending facility that was temporarily shut down in the prior year due to a nearby third-party fire .
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59 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 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 , litigation strategy , product candidate research and development , 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 expanding area of flexible 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 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 purchase price of 20,310,000 euros ( ~ $ 26,400,000 ) . as a result of the novozymes acquisition , we doubled the size of our bioprocessing business . 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 through 2013 of their product orencia ® . on april 7 , 2008 , we entered into a settlement agreement with bristol in connection with a patent infringement lawsuit we filed against bristol . under the terms of the agreement , bristol was obligated to pay us royalties on its u.s. net sales of orencia ® for any clinical indication at a rate of 1.8 % for the first $ 500,000,000 of annual sales , 2.0 % for the next $ 500,000,000 of annual sales and 4 % of annual sales in excess of $ 1 billion . under the terms of the agreement , we will not receive any future royalties on bristol 's sales of orencia ® made after december 31 , 2013. we expect that the loss of these royalty payments will materially and adversely affect our revenue and operating results . 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 24 biotechnology company in respect of these programs . as part of our strategic decision in 2012 to focus our efforts on our core bioprocessing business , we reduced our efforts on our clinical development programs and increased our efforts to find collaboration partners to pursue the development and , if successful , the commercialization of these drug programs . the current status of our therapeutic drug development portfolio is : on december 28 , 2012 , we out-licensed our spinal muscular atrophy program , or sma program , led by rg3039 , a small molecule drug candidate in clinical development for sma , to pfizer inc. , or pfizer . pursuant to the license agreement , pfizer will assume the majority of the costs associated with completing the required clinical trials for this program as well as obtaining u.s. food and drug administration ( fda ) approval of the respective new drug application ( nda ) . under the license agreement , we are obligated to conduct additional activities in support of this program , which include completing the second cohort of the initial phase i trial for rg3039 and supporting the transition of the program to pfizer . story_separator_special_tag 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 ) . 26 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 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 . we applied a mark-up on the internal full-time equivalent personnel costs consistent with that of contract research organizations . the estimated selling price of the completion of the second cohort of the clinical trial was approximately $ 275,000 resulting in consideration allocation of approximately $ 35,000. this estimated selling price is based on the estimated , remaining costs to complete this cohort . since the costs are pursuant to an arrangement negotiated with a third-party clinical site , we believe that the external cost estimate included in the agreement represents the best estimate of selling price for this unit of accounting . the estimated selling price of the clinical trial material was approximately $ 105,000 resulting in consideration allocation of approximately $ 13,000. the estimated selling price is based upon the cost of procuring such material from the contract manufacturing organization that made the material . since these costs were incurred pursuant to an arrangement negotiated with a third-party contract manufacturing organization , we believes that the costs included in the agreement represents the best estimate of selling price for this unit of accounting . we believe that a change in the key assumptions used to determine best estimate of selling price for each of the deliverables would not have a significant effect on the allocation of arrangement consideration . 27 we recognized the revenues related to the transfer of clinical trial material in 2013 , upon transfer of title and risk of loss 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 . fiscal 2013 refers to the twelve month period from january 1 , 2013 through december 31 , 2013 . 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. 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 2013 , 2012 , and 2011 were comprised of the following : replace_table_token_4_th 31 the majority of our bioprocessing products are sold to customers who incorporate our products into their proprietary antibody purification processes for monoclonal antibodies . these customers then sell their products directly to the pharmaceutical industry . sales of our bioprocessing products can therefore be 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 2013 , bioprocessing product sales increased by $ 5,648,000 or 14 % as compared to fiscal 2012 due largely to increased volume in our growth factor , affinity ligand and opus products offset by slightly lower pricing in some of our more mature products . 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 various bioprocessing products at different price points .
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> basis of presentation : this section provides a discussion of the basis on which our consolidated financial statements were prepared . > results of operations : this section provides an analysis of our results of operations for each of the three years ended december 31 , 2018 , 2017 and 2016 . > liquidity and capital resources : this section provides a discussion of our financial condition and an analysis of our cash flows for each of the three years ended december 31 , 2018 , 2017 and 2016. this section also provides a discussion of our contractual obligations , other purchase commitments and customer credit risk that existed at december 31 , 2018 , 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 and estimates : 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 . 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 , entry door systems , security products and outdoor performance materials used in decking , railing and fencing products . for the year ended december 31 , 2018 , net sales based on country of destination were : replace_table_token_8_th we believe the company has certain competitive advantages including market-leading brands , a diversified mix of customer channels , lean and flexible supply chains , a decentralized business model and a strong capital structure as well as a tradition of strong innovation and customer service . we are focused on outperforming our markets in growth , profitability and returns in order to drive increased shareholder value . we believe the company 's track record reflects the long-term attractiveness and potential of our categories and our leading brands . as consumer demand and the housing market continue to grow , we expect the benefits of operating leverage and strategic spending to support increased manufacturing capacity and long-term growth initiatives will help us to continue to achieve profitable organic growth . 18 we believe our most attractive opportunities are to invest in profitable organic growth initiatives . we also believe that as the market grows , we have the potential to generate additional growth from leveraging our cash flows and balance sheet strength by pursuing accretive strategic acquisitions , non-controlling equity investments , and joint ventures , and by returning cash to shareholders through a combination of dividends and repurchases under our share repurchase program as explained in further detail under liquidity and capital resources below . the u.s. market for our home products consists of spending on both new home construction and repair and remodel activities within existing homes , with the substantial majority of the markets we serve consisting of repair and remodel spending . continued growth in the u.s. market for our home products will largely depend on consumer confidence , employment , home prices , stable mortgage rates and credit availability . we may be impacted by fluctuations in raw materials , tariffs , transportation costs , foreign exchange rates and promotional activity among our competitors . we strive to offset the potential unfavorable impact of these items with productivity improvements and price increases . during the three years ended december 31 , 2018 , our net sales grew at a compounded annual rate of 6.2 % as we benefited from an improving u.s. home products market , acquisitions , and growth in international markets . operating income grew at a compounded annual rate of 7.4 % with consolidated operating margins improving from 10 % in 2015 to 11 % in 2018. growth in operating income was primarily due to higher sales volume , changes to our portfolio of businesses , control and leverage of our operating expenses and the benefits of productivity programs . during 2018 , the u.s. home products market grew due to increases in new home construction and repair and remodel activities . we believe new housing construction experienced approximately 5 % growth in 2018 compared to 2017 and spending for home repair and remodeling increased approximately 4 % . in 2018 , net sales grew 4 % due to price increases to help mitigate cumulative raw material cost increases , the acquisitions in our plumbing and doors & security segments , higher sales volume primarily resulting from u.s. home products market growth , and the effect of favorable foreign exchange . in 2018 , operating income decreased 12.8 % due to unfavorable mix , asset impairment charges , higher employee-related costs and restructuring charges . during 2017 , the u.s. home products market grew due to increases in new home construction and repair and remodel activities . we believe new housing construction experienced approximately 7 % growth in 2017 compared to 2016 and spending for home repair and remodeling increased by approximately 5 % . in 2017 , net sales grew 6 % and operating income increased 9 % due to higher sales volume primarily resulting from u.s. home products market growth , the acquisitions in our plumbing segments , price increases to help mitigate cumulative raw material cost increases , the effect of favorable foreign exchange and productivity improvements . during the fourth quarter of 2018 , our plumbing segment entered into strategic partnerships with several companies who incorporate emerging technology into plumbing-related products , and at the same time acquired non-controlling equity interests in two of our partners . this includes an investment in flo technologies , inc. in september 2018 , we issued $ 600 million of unsecured senior notes ( 2018 senior notes ) in a registered public offering . the 2018 senior notes are due in 2023 with a coupon rate of 4 % . story_separator_special_tag the financial results of both of the acquisitions were included in the company 's consolidated balance sheets as of december 31 , 2017 and in the company 's consolidated statements of income and statements of cash flow beginning in october 2017 and july 2017 , respectively . the results of operations are included in the plumbing segment . in september 2016 , we acquired rohl and in a related transaction , we acquired tcl manufacturing ltd. , which gave us ownership of perrin & rowe and in may 2016 , we acquired riobel . the financial results of rohl and riobel were included in the company 's consolidated balance sheets as of december 31 , 2016 and in the company 's consolidated statements of income and statements of cash flow beginning in september 2016 and may 2016 , respectively . the results of operations are included in the plumbing segment . story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px '' > higher net sales , including the benefit from acquisitions in our plumbing segment and productivity improvements . interest expense interest expense increased $ 25.1 million to $ 74.5 million due to higher average borrowings to finance share repurchases and acquisitions and higher average interest rates . other income , net other income , net , was $ 16.3 million in the twelve months ended december 31 , 2018 , compared to $ 1.7 million in the twelve months ended december 31 , 2017. the increase in other income , net , is primarily due to hedge gains associated with our september 2018 debt issuance , favorable foreign currency adjustments and various tax credits within our plumbing business partially offset by lower defined benefit plan income in 2018 ( $ 3.0 million decrease ) . in addition , 2017 reflects a $ 7.0 million impairment charge related to a cost method investment . income taxes the effective income tax rates for 2018 and 2017 were 27.4 % and 25.1 % , respectively . the 2018 effective income tax rate was favorably impacted by the corporate tax rate reduction from 35 % to 21 % under the tax cuts and jobs act of 2017 ( the tax act ) . the 2018 effective income tax rate was unfavorably impacted by the repeal of the domestic production activity ( internal revenue code section 199 ) deduction , a valuation allowance increase ( $ 3 million ) , an adjustment to the provisional net benefit recorded in 2017 under the tax act ( $ 5.5 million ) , state and local taxes , unfavorable tax rates in foreign jurisdictions ( $ 3.5 million ) , and increases in uncertain tax positions ( $ 4.1 million ) . the 2017 effective income tax rate was favorably impacted by the tax act . the effective income tax rate for 2017 was favorably impacted by a tax benefit related to share-based compensation ( $ 23.9 million ) , the tax benefit attributable to the domestic production activity ( internal revenue code section 199 ) deduction ( $ 10.9 million ) and favorable tax rates in foreign jurisdictions ( $ 8.3 million ) , partially offset by state and local taxes and increases to uncertain tax positions ( $ 11.6 million ) . the tax act made significant changes to the u.s. internal revenue code including a reduction in the corporate tax rate from 35 % to 21 % for tax years beginning after december 31 , 2017 , generally providing for an exemption from federal income tax for dividends received from foreign subsidiaries , and imposing a one-time transition tax on the deemed repatriation of cumulative foreign earnings and profits as of december 31 , 2017. on december 22 , 2017 , staff accounting bulletin no . 118 ( sab 118 ) was issued , which deals with the application of u.s. gaap to situations where a registrant does not have the necessary information available , prepared or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax act . in accordance with sab 118 , we calculated our best estimate of the impact of the tax act on our 2017 effective income tax rate . as a result , the company recorded a provisional net benefit of $ 25.7 million in the fourth quarter of 2017 , the period in which the tax act was enacted . this provisional amount included an estimated reduction in the company 's net deferred tax liabilities of $ 62.4 million resulting from the decrease in the federal income tax rate ; an estimated deemed repatriation tax liability of $ 28.5 million ; and an estimated net increase to our provision for taxes on foreign earnings not considered permanently reinvested of $ 8.2 million . during the fourth quarter of 2018 , the company completed its analysis in conjunction with the sab 118 measurement period ending on december 22 , 2018. the total tax provision impact for the year ended december 31 , 2018 was an unfavorable adjustment of $ 5.5 million related primarily to certain deferred tax assets and liabilities . income from continuing operations net income from continuing operations was $ 390.0 million in 2018 compared to $ 475.3 million in 2017. the decrease of $ 85.3 million was primarily due to lower operating income . 24 loss from discontinued operations the loss from discontinued operations was $ 0.2 million and $ 2.6 million in 2018 and 2017 , respectively and is related to the prior sale of the waterloo tool storage and simonton window businesses . results by segment cabinets net sales decreased $ 48.5 million , or 2.0 % , predominantly due to the impact of exiting a customer relationship and unfavorable mix . these factors were partially offset by the benefit from new product introductions and price increases to help mitigate cumulative raw material cost increases .
| results of operations the following discussion of both consolidated results of operations and segment results of operations refers to the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , and the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the discussion of consolidated results of operations should be read in conjunction with the discussion of segment results of operations and our financial statements and notes thereto included in this annual report on form 10-k. unless otherwise noted , all discussion of results of operations are for continuing operations . years ended december 31 , 2018 , 2017 and 2016 replace_table_token_9_th ( a ) we revised our previously reported results in 2017 and 2016 to reflect our adoption of asu 2017-07 , presentation of net periodic pension and postretirement costs , and to reflect our new doors & security segment resulting from the reorganization we announced in july 2018. certain items had a significant impact on our results in 2018 , 2017 and 2016. these included the acquisitions of fiberon , victoria + albert , shaws , riobel , rohl and perrin & rowe , restructuring and other charges , asset impairment charges and the impact of changes in foreign currency exchange rates .
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as part of the goodwill impairment analysis , current accounting standards give us the option to first perform a qualitative assessment to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . if it is determined that it is more likely than not that the fair value of a reporting unit is greater than its story_separator_special_tag management 's discussion and analysis of financial condition and results of operations contains “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act that are based on management 's current expectations , estimates and projections about our business operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors , including the known material factors set forth in “ part i , item 1a . risk factors. ” 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. due to the spin-off of our accommodations business on may 30 , 2014 , and the sale of our tubular services business on september 6 , 2013 , both of which are reported as discontinued operations , our management believes that income from continuing operations is more representative of the company 's current business environment and focus . the terms “ earnings ” and “ loss ” as used in this “ management 's discussion and analysis of financial condition and results of operations ” refer to income ( loss ) from continuing operations . spin-off of accommodations business on may 30 , 2014 , we completed the spin-off of our accommodations business into a stand-alone , publicly traded corporation ( civeo corporation , or civeo ) through a tax-free distribution of the accommodations business to the company 's shareholders . results of operations for civeo have been classified as discontinued operations in all periods presented in this annual report on form 10-k. for additional information , see note 2 to the consolidated financial statements included in this annual report on form 10-k. m acroeconomic environment with the completion of the spin-off , we are now a technology-focused , pure-play energy services company . we provide a broad range of products and services to the oil and gas industry through our offshore products and well site services 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 oil and natural gas . our customers ' capital spending programs are generally based on 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 expected commodity prices , principally related to crude oil and natural gas . in the past few years , crude oil prices have been volatile due to global economic uncertainties as well as inadequate regional well site transportation constraints . although this price volatility moderated in 2013 and for the first several months of 2014 , crude oil prices began to decrease in the beginning of the fourth quarter of 2014 and continued to drop precipitously throughout the remainder of the year . the material decrease in crude oil prices in the fourth quarter of 2014 can primarily be attributed to significant production growth in the u.s. shale plays , strengthening of the u.s. dollar , the organization of petroleum exporting companies ' ( opec 's ) hesitancy to cut production in the near-term and modestly lower global oil demand . during 2014 , u.s. crude oil production grew to its highest level since 1986 reaching 9.1 million barrels per day of production . compounding the supply issue were negative demand factors including moderating demand in china , a slowdown in emerging market economies , automobile efficiencies and fuel switching . these factors caused a global supply and demand imbalance resulting in materially lower crude oil prices in the fourth quarter of 2014. the average price of west texas intermediate ( wti ) crude oil decreased from an average price of $ 98 per barrel in the fourth quarter of 2013 to $ 53 per barrel at the end of 2014. the average price of intercontinental exchange brent ( brent ) crude decreased from an average price of $ 109 per barrel in the fourth quarter of 2013 to $ 55 per barrel at the end of 2014. as of february 20 , 2015 , wti crude traded at approximately $ 50 per barrel while brent crude traded at approximately $ 60 per barrel , both prices being near six year lows . the price for wti influences our customers ' spending in u.s. shale play developments , such as the bakken , niobrara , permian and eagle ford basins and a number of companies have recently announced reductions in capital spending , including in these plays . spending in these regions will influence the overall drilling and completion activity in the area and , therefore , the activity of our well site services segment . the price for brent crude will influence our customers ' spending related to offshore drilling and development and , thus , will influence the activity of our offshore products segment . - 39 - given the historical volatility of crude prices , there remains a risk that prices could deteriorate further due to increased domestic crude oil production , slowing growth rates in various global regions and or the potential for ongoing supply/demand imbalances . story_separator_special_tag - 42 - we funded all of these acquisitions with cash on hand and or amounts available under our credit facilities . see note 11 to the consolidated financial statements included in this annual report on form 10-k for additional information on our senior secured bank facilities . consolidated results of operations ( in millions ) replace_table_token_9_th year ended december 31 , 2014 compared to year ended december 31 , 2013 we reported net income from continuing operations attributable to the company for the year ended december 31 , 2014 of $ 127.2 million , or $ 2.35 per diluted share , including a loss on extinguishment of debt of $ 100.4 million , or $ 1.21 per diluted share after-tax , and $ 11.2 million , or $ 0.14 per diluted share after-tax , of transaction costs included in “ other operating expense ” and sg & a expenses primarily related to the spin-off . these results compare to net income from continuing operations attributable to the company of $ 129.0 million , or $ 2.31 per diluted share , reported for the year ended december 31 , 2013 , including $ 5.7 million , or $ 0.07 per diluted share after-tax , of transaction costs included in “ other operating ( income ) expense ” primarily related to the spin-off , a pre-tax loss on the extinguishment of debt of $ 6.2 million , or $ 0.07 per diluted share after-tax , and a charge of $ 3.0 million , or $ 0.04 per diluted share , from an increase in contingent acquisition consideration in our completion services business . excluding these debt extinguishment and transaction costs , net income from continuing operations increased $ 63.0 million , or $ 1.25 per diluted share , year-over-year . revenues . consolidated revenues increased $ 190.5 million , or 12 % , in 2014 compared to 2013. our well site services segment revenues increased $ 111.5 million , or 15 % , in 2014 compared to 2013 due to increases in both completion services and drilling services revenues . our completion services revenues increased $ 80.9 million , or 14 % , in 2014 compared to 2013 , primarily due to a 5 % increase in the number of service tickets completed and a 9 % increase in our revenue per completion services job as a result of increased service intensity in the active shale basins and the gulf of mexico . our drilling services revenues increased $ 30.6 million , or 18 % , in 2014 compared to 2013 primarily as a result of increased utilization of our drilling rigs from an average of 75 % during 2013 to an average of 87 % in 2014. however , utilization declined beginning in the fourth quarter of 2014 due to lower crude oil prices and , on february 20 , 2015 , the utilization of our drilling rigs had decreased to 50 % . - 43 - our offshore products segment revenues increased $ 79.0 million , or 9 % , in 2014 compared to 2013. this increase was primarily the result of increased deepwater production facility and subsea product sales , greater elastomer consumable downhole product sales , contributions from the acquisition of qcs , which was acquired in december 2013 , and an increase in demand for our services worldwide . cost of sales and service . our consolidated cost of sales increased $ 92.7 million , or 8 % , in 2014 compared to 2013 as a result of increased cost of sales at our wellsite services and offshore products segments of $ 71.8 million , or 15 % , and $ 20.9 million , or 3 % , respectively . with cost of sales and service increasing at a slower rate than our revenues , consolidated gross margin as a percentage of revenues increased from 32 % in 2013 to 34 % in 2014 primarily due to higher margins realized in our offshore products segment in 2014. our well site services segment cost of sales increased $ 71.8 million , or 15 % , in 2014 compared to 2013 as a result of a $ 49.9 million , or 14 % , increase in completion services cost of sales and a $ 21.9 million , or 18 % , increase in drilling services cost of sales . these increases in cost of sales are directly correlated to the revenue increases in these businesses . in our well site services segment , completion services and drilling services gross margins as a percentage of revenues were 39 % and 30 % , respectively , in both 2014 and 2013. our offshore products segment cost of sales increased $ 20.9 million , or 3 % , in 2014 compared to 2013 and gross margin as a percentage of revenues increased from 27 % to 31 % primarily due to increased margins realized on our elastomer consumable sales , deepwater production facility and subsea pipeline product sales , as well as improved cost absorption and utilization associated with increased revenue . selling , general and administrative expenses . selling , general and administrative ( sg & a ) expense increased $ 18.5 million , or 12 % , in 2014 compared to 2013. the increase was largely due to increased employee-related costs primarily associated with a 5 % increase in total headcount , a portion of which was added in offshore products in connection with the qcs acquisition in december 2013 , coupled with increased bad debt expense . depreciation and amortization . depreciation and amortization expense increased $ 15.5 million , or 14 % , in 2014 compared to 2013 primarily due to capital expenditures made during the previous twelve months across all segments of our company along with increased depreciation and amortization expense related to the qcs acquisition . operating income .
| overview demand for our offshore products segment is tied primarily to the long-term outlook for commodity prices . demand for our well site services segment responds to shorter-term movements in oil and natural gas prices and , specifically , changes in north american drilling and completion activity . other factors that can affect our business and financial results include the general global economic environment and regulatory changes in the u.s. , and international markets . our offshore products segment provides 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 drilling market . sales of our offshore products and services depend primarily upon capital spending for offshore production systems and subsea pipelines , repairs and upgrades of existing offshore drilling rigs and construction of new offshore drilling rigs and vessels . in this segment , we are particularly influenced by global deepwater drilling and production spending , which are driven largely by our customers ' longer-term outlook for crude oil and natural gas prices . these deepwater projects are considered to be less susceptible to short-term fluctuations in the price of crude oil and natural gas although it is possible that the recent decline in crude oil prices may cause exploration and production companies to reevaluate their future capital expenditures in regards to these deepwater projects . in our well site services business segment , we predominantly provide completion services and , to a lesser extent , land drilling services . our completion services business provides 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 throughout north america .
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this defect was isolated , the vendor is supplying corrected story_separator_special_tag the following discussion should be read in conjunction with the other sections of this report , including the consolidated financial statements and related notes to the consolidated financial statements in item 8 , “ other financial statement details , ” of this annual report on form 10-k. business overview we operate in three reportable business segments of the heating , ventilation , air conditioning and refrigeration ( “ hvacr ” ) industry . our reportable segments are residential heating & cooling , commercial heating & cooling , and refrigeration . for more detailed information regarding our reportable segments , see note 3 in the notes to the consolidated financial statements . we sell our products and services through a combination of direct sales , distributors and company-owned stores . the demand for our products and services is seasonal and significantly impacted by the weather . warmer than normal summer temperatures generate demand for replacement air conditioning and refrigeration products and services , and colder than normal winter temperatures have a similar effect on heating products and services . conversely , cooler than normal summers and warmer than normal winters depress the demand for hvacr products and services . in addition to weather , demand for our products and services is influenced by national and regional economic and demographic factors , such as interest rates , the availability of financing , regional population and employment trends , new construction , general economic conditions and consumer spending habits and confidence . a substantial portion of the sales in each of our business segments is attributable to replacement business , with the balance comprised of new construction business . the principal elements of cost of goods sold are components , raw materials , factory overhead , labor , estimated costs of warranty expense and freight and distribution costs . the principal raw materials used in our manufacturing processes are steel , copper and aluminum . in recent years , pricing volatility for these commodities and related components has impacted us and the hvacr industry in general . we seek to mitigate the impact of commodity price volatility through a combination of pricing actions , vendor contracts , improved production efficiency and cost reduction initiatives . we also partially mitigate volatility in the prices of these commodities by entering into futures contracts and fixed forward contracts . marshalltown tornado on july 19 , 2018 , our manufacturing facility in marshalltown , iowa was damaged by a tornado . insurance covered the repair or replacement of our assets that suffered damage or loss and , in 2018 and 2019 , we worked closely with our insurance carriers and claims adjusters to ascertain the amount of insurance recoveries due to us as a result of the damage and loss we suffered . our insurance policies also provided business interruption coverage , including lost profits , and reimbursement for other expenses and costs that were incurred relating to the damages and losses suffered . for the year ended december 31 , 2019 , we incurred expenses of $ 64 million related to damages caused by the tornado , which included site clean-up and demolition , factory inefficiencies , freight to move product to other warehouses , professional fees , and sales and marketing promotional costs . in december 2019 , we reached a final settlement with our insurance carriers for the losses we suffered from the tornado . the settlement allowed for total cumulative insurance recoveries of $ 367.5 million , of which $ 243 million was received for the year ended december 31 , 2019. we allocated the first $ 64 million of insurance recoveries received in 2019 to cover our expenses , we allocated $ 80 million for capital expenditures related to rebuilding costs , and the remaining $ 99 million of insurance recoveries represents amounts for lost profits . these amounts are included in gain from insurance recoveries , net of losses incurred in the consolidated statements of operations . see note 5 in the notes to the consolidated financial statements for additional information . financial highlights net sales decreased $ 77 million , or 2.0 % , to $ 3,807 million in 2019 from $ 3,884 million in 2018. sales growth in our residential heating & cooling and commercial heating & cooling segments was offset by a sales decline in our refrigeration segment due to the sale of our australia , asia , and south america businesses in 2018 , and the sale of our kysor warren business in the first quarter of 2019 . 16 operating income in 2019 was $ 657 million compared to $ 510 million in 2018. the increase was primarily due to increased sales in our residential heating & cooling and commercial heating & cooling segments , sourcing and engineering-led cost reductions , and a larger gain from insurance proceeds received related to the marshalltown tornado . net income in 2019 increased to $ 409 million from $ 359 million in 2018. diluted earnings per share from continuing operations were $ 10.38 per share in 2019 compared to $ 8.77 per share in 2018. we generated $ 396 million of cash flow from operating activities in 2019 compared to $ 496 million in 2018. the decrease was primarily due to an increase in working capital . in 2019 , we returned $ 111 million to shareholders through dividend payments and we used $ 400 million to purchase 1.5 million shares of stock under our share repurchase plans . we also received $ 44 million in net proceeds from the sale of our kysor warren business . story_separator_special_tag foreign currency exchange losses increased in 2018 primarily due to weakening in foreign exchange rates in our primary markets . the special legal contingency charges decreased primarily due to lower legal costs associated with outstanding legal settlements . the asbestos-related litigation relates to known and estimated future asbestos matters . the environmental liabilities relate to estimated remediation costs for contamination at some of our facilities . refer to note 5 in the notes to the consolidated financial statements for more information on litigation , including the asbestos-related litigation , and the environmental liabilities . restructuring charges restructuring charges were $ 3.0 million in 2018 compared to $ 3.2 million in 2017. the charges in 2018 and 2017 were primarily for projects to realign resources and enhance manufacturing and distribution capabilities . for more information on our restructuring activities , see note 8 in the notes to the consolidated financial statements . goodwill we performed a qualitative impairment analysis and noted no indicators of goodwill impairment for the year ended december 31 , 2018. in 2018 , we wrote off $ 11.5 million of goodwill as a part of the completed sales of our australia , asia and south america businesses ( discussed further in note 7 of the notes to the consolidated financial statements ) . also , we did not record any 21 goodwill impairments in 2017. refer to note 10 in the notes to the consolidated financial statements for more information on goodwill . asset impairment we did not have any impairments of assets related to continuing operations in 2018 or 2017. pension settlement we did not have significant pension buyout activity in 2018 or 2017. refer to note 11 in the notes to the consolidated financial statements for more information on pensions and employee benefit plans . income from equity method investments investments over which we do not exercise control but have significant influence are accounted for using the equity method of accounting . income from equity method investments was $ 12 million in 2018 compared to $ 18 million in 2017. the decrease is because the joint ventures have experienced increased costs related to commodities and components and have not passed these increased costs on through price increases . interest expense , net net interest expense of $ 38 million in 2018 increased from $ 31 million in 2017 primarily due to an increase in our average borrowings and rising interest rates . income taxes the income tax provision was $ 108 million in 2018 compared to $ 157 million in 2017 , and the effective tax rate was 23 % in 2018 compared to 34 % in 2017. the 2018 effective tax rate differs from the statutory rate of 21 % primarily due to state and foreign taxes . the 2017 effective tax rate was negatively impacted by changes in u.s. tax legislation that reduced the value of our deferred tax assets by $ 31.8 million , partially offset by the benefit from the impact of excess tax benefits related to stock-based compensation of $ 23.6 million . refer to note 13 in the notes to the consolidated financial statements for more information on the impact of recent changes in tax legislation . loss from discontinued operations the $ 1 million of pre-tax income incurred in 2018 and $ 2 million of pre-tax losses in 2017 primarily relate to changes in retained product liabilities and general liabilities for the service experts business sold in 2013 and the hearth business sold in 2012. year ended december 31 , 2018 compared to year ended december 31 , 2017 - results by segment residential heating & cooling the following table presents our residential heating & cooling segment 's net sales and profit for 2018 and 2017 ( dollars in millions ) : replace_table_token_9_th residential heating & cooling net sales increased 4 % in 2018 compared to 2017. sales volume increased 2 % and price and mix combined increased 2 % . segment profit in 2018 increased $ 26 million due to $ 52 million of combined price and mix , $ 27 million of insurance proceeds for the third quarter 2018 lost profits from the marshalltown tornado , $ 14 million from higher sales volume , $ 12 million from 22 sourcing and engineering-led cost reductions , and $ 5 million of higher factory productivity . partially offsetting these increases is $ 35 million of higher commodity costs , $ 32 million of higher freight and distribution expenses , $ 9 million of higher other product costs , $ 4 million from lower equity method income , $ 3 million from unfavorable foreign exchange rates , and $ 1 million from higher sg & a . commercial heating & cooling the following table presents our commercial heating & cooling segment 's net sales and profit for 2018 and 2017 ( dollars in millions ) : replace_table_token_10_th commercial heating & cooling net sales increased 10 % in 2018 compared to 2017. sales volume increased 7 % and price and mix combined increased 3 % . segment profit in 2018 increased $ 8 million compared to 2017 due to $ 19 million from higher sales volume , $ 11 million of combined price and mix , and $ 5 million from sourcing and engineering-led cost reductions . partially offsetting these increases is $ 9 million of higher commodity costs , $ 9 million of higher other product costs , $ 5 million of higher freight and distribution expense , $ 2 million of lower factory productivity , and $ 2 million of higher sg & a expense . refrigeration the following table presents our refrigeration segment 's net sales and profit for 2018 and 2017 ( dollars in millions ) : replace_table_token_11_th net sales decreased 14 % in 2018 compared to 2017. the loss of sales from the divested australia , asia and south america businesses contributed 13 % , price and mix combined was 1 % lower and sales volume was 1 % lower .
| results of operations the following table provides a summary of our financial results , including information presented as a percentage of net sales ( dollars in millions ) : replace_table_token_3_th year ended december 31 , 2019 compared to year ended december 31 , 2018 - consolidated results net sales net sales decreased 2.0 % in 2019 compared to 2018 , driven by a 5 % decline related to the divestitures of our australia , asia , south america , and kysor warren businesses , partially offset by 1 % volume growth and 2 % from favorable price and mix combined . the increase in volume was primarily due to market growth in our residential heating & cooling and commercial heating & cooling segments , and the favorable price and mix combined was attributable to all three of our business segments . 17 gross profit gross profit margins for 2019 decreased 20 basis points ( “ bps ” ) to 28.4 % compared to 28.6 % in 2018. we saw margin decreases of 30 bps from higher commodity costs , 80 bps from higher freight and distribution costs , 70 bps from lower factory productivity , and 50 bps from other product costs . these decreases were offset by increases of 100 bps from favorable price and mix , 50 bps from sourcing and engineering-led cost reductions , and 60 bps from our divested australia , asia , south america , and kysor warren businesses which collectively had lower margins . selling , general and administrative expenses sg & a expenses decreased by $ 22 million in 2019 compared to 2018. as a percentage of net sales , sg & a expenses decreased 30 bps from 15.7 % to 15.4 % in the same periods . sg & a decreased primarily due to the sale of our divested australia , asia , south america , and kysor warren businesses .
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you should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and business environment , all of which are difficult to predict and many of which are beyond our control . these statements often include words such as “ may , ” “ will , ” “ should , ” “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ plan , ” “ estimate ” or similar expressions . these statements are based on 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 . 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 . they involve known and unknown risks , uncertainties and assumptions . although we believe that these forward-looking statements are based on reasonable assumptions , 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 in the forward-looking statements . these factors include but are not limited to : our dependence on a limited number of clients in a limited number of industries ; worldwide political , economic or business conditions ; negative public reaction in the u.s. or elsewhere to offshore outsourcing ; fluctuations in our earnings ; our ability to attract and retain clients including in a timely manner ; our ability to successfully consummate or integrate strategic acquisitions ; our ability to accurately estimate and or manage the costs and or timing of winding down businesses ; restrictions on immigration ; our ability to hire and retain enough sufficiently trained employees to support our operations ; our ability to grow our business or effectively manage growth and international operations ; any changes in the senior management team ; increasing competition in our industry ; telecommunications or technology disruptions ; our ability to withstand the loss of a significant customer ; our ability to realize the entire book value of goodwill and other intangible assets from acquisitions ; regulatory , legislative and judicial developments , including changes to or the withdrawal of governmental fiscal incentives ; changes in tax laws or decisions regarding repatriation of funds held abroad ; ability to service debt or obtain additional financing on favorable terms ; legal liability arising out of customer contracts ; technological innovation ; political or economic instability in the geographies in which we operate ; cyber security incidents , data breaches , or other unauthorized disclosure of sensitive or confidential client and customer data ; and adverse outcome of our disputes with the indian tax authorities . these and other factors are more fully discussed elsewhere in this annual report on form 10-k. these and other risks could cause actual results to differ materially from those implied by forward-looking statements in this annual report on form 10-k. the forward-looking statements made by us in this annual report on form 10-k , or elsewhere , speak only as of the date on which they were made . new risks and uncertainties come up from time to time , and it is impossible for us to predict those events or how they may affect us . we have no obligation to update any forward-looking statements in this annual report on form 10-k after the date of this annual report on form 10-k , except as required by federal securities laws . 34 executive overview we are a leading operations management and analytics company that helps our clients build and grow sustainable businesses . by orchestrating our domain expertise , data , analytics and digital technology , we look deeper to design and manage agile , customer-centric operating models to improve global operations , drive profitability , enhance customer satisfaction , increase data-driven insights , and manage risk and compliance . we serve customers in multiple industries , including insurance , healthcare , banking and financial services , utilities , travel , transportation and logistics , media and retail , among others . we operate in the business process management ( “ bpm ” ) industry and we provide operations management and analytics services . as described below , effective january 1 , 2020 , we realigned our operating and reportable segments , but the presentation in this annual report , including the discussion in the next two paragraphs , refers to the structure in place prior to such realignment . our eight operating segments are strategic business units that align our products and services with how we manage our business , approach our key markets and interact with our clients . five of those operating segments provide bpm or “ operations management ” services , which we organize into industry-focused operating segments ( insurance , healthcare , travel , transportation and logistics , banking and financial services , and utilities ) and one of the operating segments is a “ capability ” segment ( finance and accounting ) that provides services to clients in our industry-focused segments as well as clients across other industries . in each of these six operating segments we provide operations management services , which typically involve transfer to the company of business operations of a client , after which we administer and manage those operations for our client on an ongoing basis . our remaining two operating segments are consulting , which provides industry-specific digital transformational services related to operations management services , and our analytics operating segment , which provides services that focus on driving improved business outcomes for clients by generating data-driven insights across all parts of their business . story_separator_special_tag we believe that the trend toward multi-vendor relationships will continue . a multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor , which can result in significantly reduced gross margins from the provision of services to such client for each vendor . to the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors , our gross margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition . our existing agreements with original terms of three or more years provide us with a relatively predictable revenue base for a substantial portion of our operations management business , however , we have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients . similarly , new license sales and implementation projects for our technology service platforms and other software- 36 based services have a long selling cycle , however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base . analytics : our analytics services focus on driving improved business outcomes for our customers by generating data-driven insights across all parts of our customers ' business . we also provide care optimization and reimbursement optimization services , for our clients through our healthcare analytics solutions and services . we also offer integrated solutions to help our clients in cost containment by leveraging technology platforms , customizable and configurable analytics and expertise in healthcare reimbursements to help clients enhance their claim payment accuracy . our teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecycle management , risk underwriting and pricing , operational effectiveness , credit and operational risk monitoring and governance , regulatory reporting , payment integrity and care management and data management . we actively cross-sell and , where appropriate , integrate our analytics services with other operations management services as part of a comprehensive offering set for our clients . we anticipate that revenues from our analytics services will grow as we expand our service offerings and client base , both organically and through acquisitions . expenses cost of revenues our cost of revenues primarily consists of : employee costs , which include salary , bonus and other compensation expenses ; recruitment and training costs ; employee insurance ; transport ; rewards and recognition for certain employees ; and non-cash stock compensation expense ; and costs relating to our facilities and communications network , which include telecommunication and it costs ; facilities and customer management support ; operational expenses for our operations centers ; rent expenses ; and travel and other billable costs to our clients ; and costs relating to our direct mail operations and other digital solutions . the most significant components of our cost of revenues are salaries and benefits ( including stock based compensation ) , recruitment , training , transport , meals , rewards and recognition and employee insurance . salary levels , employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues . salary increases for most of our operations personnel are generally awarded each year effective april 1. accordingly , employee costs are generally lower in the first quarter of each year compared to the rest of the year . we make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements . although we generally have been able to reallocate our employees as client demand has fluctuated , a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees , which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount . a significant increase in the turnover rate among our employees , particularly among the highly skilled workforce needed to execute certain services , would increase our recruiting and training costs and decrease our operating efficiency , productivity and profit margins . in addition , cost of revenues also includes non-cash amortization of stock compensation expense relating to our issuance of equity awards to employees directly involved in providing services to our clients . we expect our cost of revenues to continue to increase as we continue to add professionals in our operating centers globally to service additional business and as wages continue to increase globally . in particular , we expect training costs to continue to increase as we continue to add staff to service new clients and provide existing staff with additional skill sets . there is significant competition for professionals with skills necessary to perform the services we offer to our clients . as our existing competitors continue to grow , and as new competitors enter the market , we expect competition for skilled professionals in each of these areas to continue to increase , with corresponding increases in our cost of revenues to reflect increased compensation levels for such professionals . however , a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which partially offset such increase in cost of revenues . see item 1a- “ risk factors-employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin. ” we generally experience a higher cost of revenues as a percentage of revenues during the initial 12 months to 18 months in a long-term bpm contract due to upfront investments in infrastructure , resource hiring and training during migration . the cost of revenues as a percentage of revenues improve as we scale up , achieve operational efficiencies and complete the migration .
| results of operations the following table summarizes our results of operations for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_1_th ( 1 ) exclusive of depreciation and amortization expense . 46 year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues . the following table summarizes our revenues by reportable segments for the year ended december 31 , 2019 and 2018 : replace_table_token_2_th revenues for the year ended december 31 , 2019 were $ 991.3 million , up $ 108.2 million , or 12.3 % , compared to the year ended december 31 , 2018. revenue growth in insurance of $ 36.1 million was primarily driven by expansion of business from our existing clients and new wins aggregating to $ 38.6 million . this was partially offset by $ 2.5 million mainly attributable to the depreciation of the australian dollar , indian rupee , u.k. pound sterling and south african zar against the u.s. dollar during the year ended december 31 , 2019 compared to the year ended december 31 , 2018. insurance revenues were 29.7 % and 29.2 % of our total revenues in 2019 and 2018 , respectively . revenue growth in healthcare of $ 6.2 million was primarily driven by expansion of business from our existing clients and new wins aggregating to $ 11.4 million , partially offset by lower revenues from our health integrated business of $ 5.2 million . healthcare revenues were 9.1 % and 9.6 % of our total revenues during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , respectively .
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share repurchases on february 11 , 2016 , cbiz 's board of directors authorized the purchase of up to 5.0 million shares of cbiz common stock . the company 's share repurchase program may be suspended or discontinued at any time and expires on april 1 , 2017. the shares may be purchased in open market , privately negotiated transactions or rule 10b5-1 trading plan purchases in accordance with the sec rules . the company 's management will determine the timing and amount of the transactions based on its evaluation of market conditions and other factors . cbiz believes that repurchasing shares of its common stock under the share repurchase program is a prudent use of the company 's financial resources , and that investing in its shares is an attractive use of capital and an efficient means to provide value to cbiz shareholders . the company repurchased 3.8 million shares of cbiz common stock at a total cost of approximately $ 35.2 million during the year ended december 31 , 2015 compared to 3.2 million shares of cbiz common stock at a total cost of approximately $ 26.6 million during the same period in 2014 . 24 subsequent to december 31 , 2015 up to the date of this filing , cbiz repurchased approximately 0.6 million shares at a total cost of approximately $ 6.1 million under a rule 10b5-1 trading plan , which allows cbiz to repurchase shares below a predetermined price per share . acquisitions and divestitures for the year ended december 31 , 2015 , cbiz completed three acquisitions and purchased six client lists . model , located in trevose , pennsylvania , effective march 1 , 2015. model provides employee benefit consulting services to mid-sized companies in the philadelphia and southern new jersey markets . annualized revenue attributable to model is estimated to be approximately $ 4.2 million . operating results attributable to model are reported in the employee services practice group . prg , located in woodstock , georgia , effective october 1 , 2015. prg provides pension administration solutions including defined benefit administration , data warehousing , benefit communication , compensation statement and human capital services to clients ranging in size from 500 to over 60,000 participants . annualized revenue attributable to prg is estimated to be approximately $ 4.8 million . operating results attributable to prg are reported in the employees services practice group . cottonwood , located in overland park , kansas , effective december 1 , 2015. cottonwood provides pension plan consulting , actuarial and investment services for institutional pension plans , retirement funds , endowment funds and foundations . annualized revenue attributable to cottonwood is estimated to be $ 3.1 million . operating results attributable to cottonwood are reported in the employees services practice group . during the year ended december 31 , 2015 , cbiz also purchased six client lists , all of which are reported in the employee services practice group . amendments to credit agreement on april 10 , 2015 , cbiz entered into an amendment to the credit agreement that governs the credit facility , dated july 28 , 2014 , by and among the company and bank of america , n.a. , as administrative agent and bank , and other participating banks , to remove certain events from the definition of change of control . this amendment had no impact on the terms of the credit facility ( other than as described above ) , the accompanying consolidated balance sheets , consolidated statements of comprehensive income and consolidated statements of cash flows . for further discussion regarding debt and financing arrangements , see note 8 to the accompanying consolidated financial statements . on october 16 , 2015 , cbiz entered into a second amendment to the credit agreement that governs the credit facility , dated as of july 28 , 2014 , by and among the company and bank of america , n.a. , as administrative agent and bank , and other participating banks , to incorporate swap obligations in the agreement . this amendment had no impact on the terms of the credit facility ( other than as described above ) , the accompanying consolidated balance sheets , consolidated statements of comprehensive income and consolidated statements of cash flows . results of operations continuing operations cbiz provides professional business services that help clients manage their finances and employees . cbiz delivers its integrated services through the following three practice groups : financial services , employee services and national practices . a description of these groups ' operating results and factors affecting their businesses is provided below . same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures . for example , for a business acquired on july 1 , 2015 , revenue for the period january 1 , 2016 25 through june 30 , 2016 would be reported as revenue from acquired businesses ; same-unit revenue would include revenue for the periods july 1 through december 31 of both years . divested operations represent operations that did not meet the criteria for treatment as discontinued operations . those businesses that have met the requirements to be treated as a discontinued operation are eliminated from continuing operations for all periods presented below . revenue the following table summarizes total revenue for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_6_th a detailed discussion of revenue by practice group is included under operating practice groups. operating expenses the following table presents our operating expenses for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_7_th 2015 compared to 2014 operating expenses increased $ 24.1 million , or 3.8 % during the year ended december 31 , 2015 compared to the same period in 2014 and was primarily due to an increase in expenses related to personnel costs and adjustments to the fair value of investments held in relation to the deferred compensation plan . the increase in personnel costs by the individual practice groups is discussed in further detail under operating practice groups. personnel costs increased $ 20.2 story_separator_special_tag benefits and expenses related to the company 's deferred compensation plan are directly offset by other ( expense ) income , net and have no impact on income from continuing operations before income tax expense. 2014 compared to 2013 the decrease in g & a expenses for the year ended december 31 , 2014 compared to the same period in 2013 was primarily the result of lower legal fees incurred in 2014 compared to 2013. g & a expenses for the years ended december 31 , 2014 and 2013 include expenses of $ 0.5 million and $ 0.8 million , respectively , related to the company 's deferred compensation plan . excluding these items , g & a expenses would have been $ 33.7 million and $ 33.6 million , or 4.7 % and 5.0 % of revenue for the years ended december 31 , 2014 and 2013 , respectively . benefits and expenses related to the company 's deferred compensation plan are directly offset by other ( expense ) income , net and have no impact on income from continuing operations before income tax expense. 28 other ( expense ) income the following tables present our other ( expense ) income for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_10_th ( 1 ) other income , net includes net losses and gains associated with the value of investments held in a rabbi trust related to the deferred compensation plan . the adjustments to the investments held in a rabbi trust related to the deferred compensation plan do not impact cbiz 's other expense , net as they are offset by a corresponding increase or decrease to compensation expense , which is recorded as operating and g & a expenses in the accompanying consolidated statements of comprehensive income . a net loss of $ 0.7 million and net gains of $ 3.7 million and $ 8.2 million are included in the years ended december 31 , 2015 , 2014 and 2013 , respectively . interest expense the decrease in interest expense was due to : the maturation of the 2010 notes during the fourth quarter of 2015 at an interest rate of 7.50 % with $ 71.8 million cash from the credit facility at a weighted average interest rate of 2.02 % . also contributing to the decrease was the early retirement of the 2010 notes during the second quarter of 2015 and nine months ended september 30 , 2014 at an interest rate of 7.50 % with funds available under the credit facility at a weighted average interest rate of 2.14 % ( second quarter of 2015 ) and 2.55 % ( nine months ended september 30 , 2014 ) . debt and financing arrangements are further discussed in note 8 to the accompanying consolidated financial statements . gain on sale of operations , net the gain on sale of operations , net of $ 1.3 million for the year ended december 31 , 2014 was primarily attributable to the sale of the miami office under the financial services practice group . other income , net 2015 adjustments to the fair value of the company 's contingent purchase price liability related to prior acquisitions resulted in other income of $ 2.9 million for the year ended december 31 , 2015. during the year ended december 31 , 2015 , the company recorded other income of $ 1.6 million related to benefit incentives associated with an office relocation . no such other income was recorded during the year ended december 31 , 2014 and 2013. also included in other income , net for the year ended december 31 , 2015 is a non-operating charge of $ 0.8 million from the early retirement of the 2010 notes in the second quarter of 2015 . 29 2014 adjustments to the fair value of the company 's contingent purchase price liability related to prior acquisitions resulted in other income of $ 4.0 million during the year ended december 31 , 2014. also included in other income , net for the year ended december 31 , 2014 is a non-operating charge of $ 1.5 million from the early retirement of the 2010 notes in 2014 . 2013 adjustments to the fair value of the company 's contingent purchase price liability related to prior acquisitions resulted in other expense of $ 0.9 million during the year ended december 31 , 2013. income tax expense the following tables present our income tax expense for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_11_th cbiz recorded income tax expense from continuing operations of $ 22.8 million , $ 20.2 million and $ 16.6 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the effective tax rate for the years ended december 31 , 2015 , 2014 and 2013 was 39.5 % , 39.9 % and 39.5 % , respectively . for further discussion regarding income tax expense , see note 7 to the accompanying consolidated financial statements . earnings per share and non-gaap earnings per share the following table is a reconciliation of income from continuing operations to non-gaap earnings from operations and diluted earnings per share from continuing operations to non-gaap earnings per share for the years ended december 31 , 2015 , 2014 and 2013. non-gaap earnings and per share data reconciliation of income from continuing operations to non-gaap earnings from continuing operations replace_table_token_12_th 30 earnings per share from continuing operations were $ 0.66 , $ 0.59 and $ 0.52 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . non-gaap earnings per share were $ 1.14 , $ 1.07 and $ 1.08 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the company believes non-gaap earnings and non-gaap earnings per diluted share illustrate the impact of certain non-cash charges and credits to income from continuing operations and are a useful performance measure for the company , its analysts and its stockholders .
| executive summary revenue revenue for the year ended december 31 , 2015 increased $ 30.9 million , or 4.3 % , to $ 750.4 million from $ 719.5 million for the same period in 2014. the increase in revenue was attributable to an increase in same-unit revenue of $ 17.5 million , or 2.5 % , and newly acquired operations , net of divestitures , of $ 13.4 million , or 1.8 % . income from continuing operations income from continuing operations increased $ 4.6 million , or 15.1 % , to $ 35.0 million for the year ended december 31 , 2015 compared to $ 30.4 million for the year ended december 31 , 2014. refer to results of operations continuing operations for a detailed discussion of the components of income from continuing operations . earnings per diluted share from continuing operations earnings per diluted share from continuing operations were $ 0.66 , $ 0.59 and $ 0.52 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the fully diluted weighted average share count was 52.7 million shares , 51.5 million shares and 49.1 million shares at december 31 , 2015 , 2014 and 2013. the $ 48.4 million outstanding principal amount of the 2010 notes matured on october 1 , 2015. no shares of cbiz common stock were issued in conjunction with the maturation of the 2010 notes . for further discussion regarding the 2010 notes , refer below under 2010 notes in this management 's discussion and analysis of financial condition results of operations and note 8 to the accompanying consolidated financial statements .
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other than for sales of our oraquick® in-home hiv test to the retail trade and under the terms of a long-term contract with a genomics customer , we generally do not grant product return rights to our customers except for warranty returns . historically , returns arising from warranty issues have been infrequent and immaterial . accordingly , we story_separator_special_tag statements below regarding future events or performance are “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. our actual results could be quite different from those expressed or implied by the forward-looking statements . factors that could affect results are discussed more fully under the item 1a , entitled “ risk factors , ” and elsewhere in this annual report . although forward-looking statements help to provide complete information about us , readers should keep in mind that forward-looking statements may not be reliable . readers are cautioned not to place undue reliance on the forward-looking statements . we undertake no duty to update any forward-looking statements made herein after the date of this annual report . the following discussion should be read in conjunction with the consolidated financial statements contained herein and the notes thereto , along with the section entitled “ critical accounting policies and estimates , ” set forth below . overview and business segments our business consists of two segments : our “ osur ” business consists of the development , manufacture , marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary technologies , other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types . our molecular products and services or “ dnag ” business consists of the manufacture and sale of kits that are used to collect , stabilize , transport and store biological samples of genetic material for molecular testing . our collection kits are also used for the collection of first-void urine for liquid biopsy in the prostate and bladder cancer markets ; and in the sexually transmitted infection screening market . in addition , our dnag business provides microbiome laboratory and bioinformatics services . the dnag segment also includes genomic and microbiome laboratory testing and analytical services . our osur diagnostic products include tests for diseases including hiv and hepatitis c that are performed on a rapid basis at the point of care and tests that are processed in a laboratory . these products are sold in the united states and internationally to various clinical laboratories , hospitals , clinics , and other public health organizations , distributors , government agencies , physicians ' offices , and commercial and industrial entities . our hiv product is also sold in a consumer-friendly format in the otc and public health markets in the u.s. and as a self-test to individuals in a number of other countries . we also previously manufactured and sold medical devices used for the removal of benign skin lesions by cryosurgery or freezing . these cryosurgical products were sold in both professional and otc markets in north america , europe , central and south america , and australia . we sold the assets associated with our cryosurgical systems business to a third party in august 2019. our dnag or molecular products and services systems business is operated by our subsidiaries , dnag , corebiome , novosanis and diversigen . dnag 's specimen collection devices provide all-in-one systems for the collection , stabilization , transportation and storage of nucleic acids from human saliva and other biological sample types for genetic and microbiome applications . our products are used for academic research and commercial applications , including ancestry , disease risk management , lifestyle and animal testing . included in the disease risk management area are pharmacogenomics testing , hereditary disease screening , prenatal or cancer screening , population health initiatives and other molecular testing in dna or rna for the diagnosis of acute disease . corebiome and diversigen provide the laboratory testing and bioinformatics services . novosanis ' colli-pee collection device is designed for the volumetric collection of first-void urine for use in research , screening and diagnostics for the liquid biopsy and sexually transmitted infection markets . we also sell research use only sample collection products into the microbiome market and we offer our customers a suite of genomics and microbiome services , which range from package customization and study design optimization to extraction , analysis and reporting services . we serve customers worldwide in the research , healthcare , pharmaceutical and agricultural communities . recent developments business acquisitions in early january 2019 , we acquired two privately-held , early-stage companies , corebiome and novosanis , in order to add differentiated products and services to the molecular collection systems segment of our business . corebiome , a spin-off from the university of minnesota , is based in st. paul , minnesota and provides microbiome laboratory and analytical services that can accelerate research and discovery for customers in the pharmaceutical , agricultural and academic research communities . corebiome was co-founded in 2016 by dr. dan knights , a globally-recognized expert in microbiome informatics who has developed leading methods for analyzing microbiome data , along with dr. daryl gohl and dr. kenny beckman , domain experts in genomics methods and clinical lab operations . 49 novosanis is a belgian company that was founded in 2013 as a spin-off from the university of antwerp , belgium . novosanis is an early commercial stage producer and distributor of urine sample collection devices targeting the liquid biopsy and sexually transmitted infection screening markets . novosanis ' primary product is colli-pee , an easy to use device designed for the standardized collection of first-void urine which can be used in the privacy of the user 's home or in a clinic . product validation and clinical trials are also under way with various sexually transmitted infection test manufacturers . in november 2019 , we acquired another microbiome laboratory services provider , diversigen . story_separator_special_tag general and administrative expenses decreased 26 % to $ 22.5 million in 2019 from $ 30.3 million in 2018 largely due to $ 9.6 million of transition costs associated with executive management changes in 2018 that did not reoccur in 2019 , partially offset by higher professional fees associated with our business development activities . 53 osur 's operating income for 2019 also included a $ 10.2 million pre-tax gain on the sale of our cryosurgical systems business . i n august 2019 , we sold all rights and title to the assets necessary to operate this line of business to cryoconcepts for $ 12.0 million . the $ 10.2 million gain includes the $ 12.0 million proceeds received net of the fair value of the assets sold , which consisted of inventory and fully-depreciated fixed assets , the legal fees associated with the transaction , and a value attributed to the transition services which are being provided by osur employees to cryoconcepts for a limited time after closing as agreed to under a transition services agreement . all of the above contributed to osur 's operating income of $ 154,000 for 2019 , which included non-cash charges of $ 3.0 million for depreciation and amortization and $ 3.3 million for stock-based compensation . dnag segment dnag 's gross profit percentage was 68 % in 2019 compared to 69 % in 2018. this decrease was attributable to the decline in other revenues which contribute 100 % to the gross profit percentage and a less favorable product mix as a result of higher sales of lower gross profit products and services . research and development expenses increased 114 % to $ 7.5 million in 2019 from $ 3.5 million in 2018 due to the inclusion of research and development expense incurred by the newly acquired subsidiaries , higher staffing costs , and higher lab supply and consulting costs in support of bioinformatics and new product initiatives . sales and marketing expenses increased 28 % to $ 13.7 million in 2019 compared to $ 10.7 million in 2018 largely due to an increase in our reserve for uncollectible accounts largely associated with a receivable from a large chinese genomics customer , and the inclusion of expenses generated by the newly acquired subsidiaries , partially offset by lower staffing costs . general and administrative expenses increased 60 % to $ 12.8 million in 2019 compared to $ 8.0 million in 2018 , due the inclusion of expenses generated by the company 's newly acquired subsidiaries and increased staffing , legal and consulting costs . all of the above contributed to dnag 's operating income of $ 18.5 million for 2019 , which included non-cash charges of $ 4.3 million for depreciation and amortization and $ 777,000 for stock-based compensation . consolidated income taxes we continue to believe the full valuation allowance established in 2008 against osur 's total u.s. deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed . for the year ended december 31 , 2019 , we recorded a federal tax benefit of $ 832,000 and state income tax expense of $ 892,000 compared to $ 155,000 of state tax expense recorded in the year ended december 31 , 2018. foreign income tax expense of $ 4.6 million and $ 11.2 million was recorded in 2019 and 2018 , respectively . the decrease in income tax expense was largely a result of the decrease in income before taxes generated by dnag and the results generated by novosanis . year ended december 31 , 2018 compared to december 31 , 2017 consolidated net revenues the table below shows a breakdown of total net revenues ( dollars in thousands ) generated by each of our business segments . replace_table_token_9_th consolidated net product revenues increased 2 % to $ 165.4 million in 2018 from $ 162.0 million in 2017. higher sales of our molecular collection systems products and higher international sales of our oraquick ® hiv self-test were partially offset by lower sales of our 54 oraquick ® hcv products , lower domestic sales of our oraquick ® hiv products and lower sales of our cryosurgical products . in 2018 w e recorded $ 9.7 million in royalty income under a litigation settlement agreement . we also recognized $ 5.0 million as other revenues in connection with funding from barda related to our ebola and zika products and $ 1.7 million of cost reimbursement under our charitable support agreement with the gates foundation . other revenues in 2017 included $ 4.4 million of barda funding and $ 689,000 of cost reimbursement . consolidated net revenues from products sold to customers outside of the united states were $ 44.9 million and $ 45.6 million , or 25 % and 27 % of total net revenues , during the years ended december 31 , 2018 and 2017 , respectively . because the majority of our international sales are denominated in u.s. dollars , the impact of fluctuating foreign currency exchange rates was not material to our total consolidated net revenues . net revenues by segment osur segment the table below shows the amount of total net revenues ( dollars in thousands ) generated by our osur segment . replace_table_token_10_th infectious disease testing market sales to the infectious disease testing market decreased 9 % to $ 56.1 million in 2018 from $ 62.0 million in 2017. this decrease resulted from lower domestic and international sales of our oraquick ® hcv product and lower domestic sales of our oraquick ® hiv product , partially offset by higher international sales of our oraquick ® hiv self-test .
| results of operations year ended december 31 , 2019 compared to december 31 , 2018 consolidated net revenues the table below shows a breakdown of total net revenues ( dollars in thousands ) generated by each of our business segments . replace_table_token_5_th consolidated net product and service revenues decreased 10 % to $ 148.1 million in 2019 from $ 165.4 million in 2018. lower sales of our genomics and cryosurgical systems products were partially offset by higher microbiome product and service revenues and by higher oraquick ® hiv and hcv product revenues . other revenues in 2019 consisted of $ 5.1 million in royalty income and $ 1.4 million associated with funded research and development , grants , and reimbursement of certain costs under our charitable support agreement with the gates foundation . other revenues in 2018 consisted of royalty income of $ 9.7 million and $ 6.6 million of other revenue associated with funded research and development and cost reimbursement from the gates foundation . consolidated net revenues from products sold to customers outside of the united states were $ 47.3 million and $ 44.9 million , or 31 % and 25 % of total net revenues , during the years ended december 31 , 2019 and 2018 , respectively . because the majority of our international sales are denominated in u.s. dollars , the impact of fluctuating foreign currency exchange rates was not material to our total consolidated net revenues . net revenues by segment osur segment the table below shows the amount of total net revenues ( dollars in thousands ) generated by our osur segment .
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the creditors of the consolidated vies do not have recourse to our general credit . in addition to the story_separator_special_tag executive overview aimco and the aimco operating partnership are focused on the ownership , management , redevelopment and limited development of quality apartment communities located in the largest coastal and job growth markets in the united states . our business and strategic areas of focus are described in more detail within the business overview in item 1. execution of our goals within our strategic areas of focus drove good results for aimco in 2015 , summarized below . in property operations , across our diversified conventional same store portfolio , new and renewal rent growth was 4.9 % in 2015 , higher than in 2014 by 50 basis points . in redevelopment , strong consumer demand for our redeveloped apartment homes drove : the lease up of ocean house on prospect in la jolla , one quarter earlier than expected ; absorption above seasonal expectations at park towne place and the sterling in philadelphia ; and second generation rent increases averaging 13 % for our occupancy-stabilized redevelopments at lincoln place , pacific bay vistas and preserve at marin . in portfolio management , fourth quarter 2015 average revenue per apartment home was up 10 % from fourth quarter 2014 , reaching $ 1,840 , a record high for aimco . on the balance sheet , at december 31 , 2015 , we had approximately $ 675 million of cash and restricted cash on-hand and credit available on our revolving credit facility . leverage , as measured by the ratio of debt plus preferred equity to adjusted ebitda ( defined under the non-gaap performance and liquidity measures heading ) , was down year-over-year by 11 % . further information about the accomplishments in each of these strategic areas of focus is included in the sections that follow . property operations we own and operate a diversified portfolio of conventional apartment communities . at december 31 , 2015 , our conventional portfolio included 140 apartment communities with 40,464 apartment homes in which we held an average ownership of approximately 98 % . we also operate a portfolio of affordable apartment communities , which consists of apartments with rents that are generally paid , in whole or part , by a government agency . at december 31 , 2015 , our affordable portfolio consisted of 56 apartment communities with 8,685 apartment homes in which we held an average ownership of approximately 95 % . our conventional and affordable portfolios comprise our reportable segments and generated 90 % and 10 % , respectively , of our proportionate property net operating income ( defined below under the results of operations – real estate operations heading ) during the year ended december 31 , 2015 . for the year ended december 31 , 2015 , our conventional portfolio provided 67 % operating margins and 60 % free cash flow margins . free cash flow and average revenue per effective apartment home are both defined under the non-gaap performance and liquidity measures heading . redevelopment and development during the year ended december 31 , 2015 , we invested approximately $ 118 million in redevelopment projects , enhancing seven communities with a total of more than 2,500 apartment homes . during the year , we completed construction on our multi-year redevelopments at lincoln place , located in venice , california , and preserve at marin , located in marin county , california . we also completed construction at 2900 on first , in seattle , washington , and ocean house on prospect , located in la jolla , california . during the year , we also continued the phased redevelopment of two center city philadelphia , pennsylvania communities , park towne place and the sterling . at park towne place , 2015 saw the near completion of the redevelopment of one of the four towers that comprise the community , as well as the town center . at the end of january 2016 , we had leased 83 % of the completed apartment homes in this tower , with rents above underwriting , and we have now completed construction of the remaining apartment homes in this tower . based on these successful results , we approved a plan during 2015 to redevelop a second tower at park towne place with 245 apartment homes . we began de-leasing this tower during the fourth quarter and construction is underway . we anticipate construction completion for the second tower in the fourth quarter of 2016. by the end of january 2016 , we had signed leases for 55 % of the 12,560 square feet of commercial space in the community , at rents above underwriting . at the sterling , during 2015 , we completed renovation of the common areas and retail space , at a cost consistent with underwriting . based on the success of the lease-up pace and pricing of the apartment homes that have been completed , in the fourth quarter 2015 , we approved a plan to expand the phased redevelopment of the sterling with another five floors containing 20 130 apartment homes . by the end of january 2016 , 62 % of the 409 apartment homes approved for redevelopment were complete , at a cost consistent with underwriting , and we had leased 97 % of the completed apartment homes , with rents above underwriting . we had also signed leases for 84 % of the 19,845 square feet of retail space at rents above underwriting . during 2015 , we also invested a total of $ 116 million in development , about $ 100 million of which was in our one canal property in boston . we expect completion of construction for one canal in april 2016 and we are pre-leasing now . we also invested $ 16 million in the completion of vivo , a community we acquired in cambridge mid-year while under construction . story_separator_special_tag the pro-forma ratios presented for the trailing twelve months ended december 31 , 2014 , have been adjusted to reflect the following : a ) repayment of $ 112.3 million of outstanding borrowings under our credit agreement at december 31 , 2014 ; b ) repayment of $ 102.2 million of property debt ; c ) redemption of $ 27.0 million of aimco 's cra preferred stock ; and d ) investment of the remaining proceeds from the common offering . refer to note 9 to the consolidated financial statements in item 8 for additional information regarding this stock offering . we expect future leverage reduction from both earnings growth , especially as apartment communities now being redeveloped or developed are completed and leased , and from regularly scheduled property debt amortization repaid from operating cash flows . as of december 31 , 2015 , we had an unencumbered pool that included 25 consolidated apartment communities and had an estimated fair value of approximately $ 1.8 billion . two credit rating agencies rate our creditworthiness , using different methodologies and ratios for assessing our credit . in 2015 , both of these agencies upgraded our credit rating and outlook to bbb- ( stable ) , an investment grade rating . in addition to lowering the cost of borrowings under our line of credit , an improvement to an investment grade rating may lower the cost of any future preferred equity issuance , provide additional flexibility for sources of capital , and provide other intangible benefits . although some of the ratios they use are similar to those we use to measure our leverage , there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies . while an investment grade rating provides for ready access to the issuance of corporate debt , we do not anticipate doing so . at december 31 , 2015 , we had $ 675 million of cash and restricted cash on hand and credit available on our senior secured credit agreement . culture our culture is the key to our success . our emphasis on a collaborative , respectful , and performance-oriented culture is what enables the continuing transformation of the aimco business . in 2015 , aimco was recognized by the denver post as a top work place for the third consecutive year . key financial indicators key financial indicators that we use in managing our business and in evaluating our financial condition and operating performance include : economic income , net asset value and adjusted funds from operations . in addition to these indicators , we also use pro forma funds from operations ; free cash flow , free cash flow internal rate of return , free cash flow capitalization rate , net operating income , or noi , capitalization rate , same store property operating results , proportionate property net operating income , average revenue per effective apartment home , financial coverage ratios , and leverage as shown on our balance sheet to evaluate our operating performance and financial condition . most of these financial indicators are non-gaap financial measures , which are defined , further described and , for certain of the measures , reconciled to comparable gaap-based measures , under the non-gaap performance and liquidity measures heading . 22 story_separator_special_tag months , but that have not yet met the criteria to be classified as held for sale . as of december 31 , 2015 , as defined by our segment performance metrics , our conventional portfolio consisted of the following : 107 conventional same store apartment communities with 33,149 apartment homes ; nine conventional redevelopment and development apartment communities with 3,301 apartment homes ; eight conventional acquisition apartment communities with 1,391 apartment homes ; and 11 other conventional apartment communities with 2,385 apartment homes . from december 31 , 2014 , to december 31 , 2015 , on a net basis , our conventional same store portfolio increased by four apartment communities and decreased by 3,571 apartment homes . this change consisted of : two apartment communities with 83 apartment homes that were reclassified from our conventional acquisition portfolio after being owned by aimco for both periods ; one apartment community with 488 apartment homes that was reclassified from our other conventional portfolio upon maintaining stabilized occupancy following increased vacancy associated with the termination of corporate housing leases ; and eight new york apartment communities with 230 apartment homes that were reclassified from our other conventional portfolio upon determination that the prospective rental rates for these communities are expected to be more comparable to market rental rate growth in that market , independent of government regulation . these increases were offset by the removal of six apartment communities with 3,150 apartment homes that were sold during the period and one apartment community with 1,222 apartment homes that is expected to be sold within 12 months , but does not yet meet the criteria to be classified as held for sale in accordance with gaap . our conventional portfolio results for the years ended december 31 , 2015 and 2014 , as presented below , are based on the apartment community populations as of december 31 , 2015 . replace_table_token_7_th for the year ended december 31 , 2015 , as compared to 2014 , our conventional segment 's proportionate property net operating income increased $ 50.4 million , or 10.4 % . for the year ended december 31 , 2015 , as compared to 2014 , conventional same store proportionate property net operating income increased by $ 23.6 million , or 5.6 % . this increase was primarily attributable to a $ 27.7 million , or 4.5 % , increase in rental 24 and other property revenues due to higher average revenues ( approximately $ 75 per effective home ) , comprised of increases in rental rates , utility reimbursements and other fees including parking .
| results of operations because our operating results depend primarily on income from our apartment communities , the supply of and demand for apartments influences our operating results . additionally , the level of expenses required to operate and maintain our apartment communities and the pace and price at which we redevelop , acquire and dispose of our apartment communities affect our operating results . the following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying consolidated financial statements in item 8. overview 2015 compared to 2014 net income attributable to aimco and net income attributable to the aimco operating partnership decreased by $ 60.5 million and $ 64.3 million , respectively , during the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 . the decrease in income was principally due to a decrease in gains on dispositions , partially offset by the effect of various other items further discussed below . 2014 compared to 2013 net income attributable to aimco and net income attributable to the aimco operating partnership increased by $ 102.0 million and $ 106.2 million , respectively , during the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 . the increase in income was principally due to an increase in gains on dispositions and a decrease in interest expense . the following paragraphs discuss these and other items affecting the results of operations of aimco and the aimco operating partnership in more detail . property operations as described under the preceding executive overview heading , our owned real estate portfolio consists primarily of conventional apartment communities , and we also operate a portfolio of affordable apartment communities . our conventional and affordable real estate operations comprise our reportable segments .
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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 . 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 of this form 10-k under the heading “ risk factors , ” which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in part ii , item 8 of this annual report on form 10-k. the company assumes no obligation to revise or update any forward-looking statements for any reason , except as required by law . this section of this annual report on form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. overview we conduct operations as an insurance holding company emphasizing ordinary life insurance and endowment products in niche markets where we believe we can achieve competitive advantages . as an insurance provider , we collect premiums on an ongoing basis to pay future benefits to our policy and contract holders . our core operations include issuing : whole life insurance ; endowments ; final expense ; and limited liability property policies . the company derives its revenues principally from : ( 1 ) premiums earned for insurance coverages provided to insureds ; ( 2 ) net investment income ; and ( 3 ) net realized capital gains and losses . profitability of our insurance operations depends heavily upon the company 's underwriting discipline , as we seek to manage exposure to loss through : favorable risk selection and diversification ; management of claims ; use of reinsurance ; sizing of our in force block ; careful monitoring of our mortality and morbidity experience ; and management of our expense ratio , which we accomplish through economies of scale and management of acquisition costs and other underwriting expenses . pricing adequacy depends on a number of factors , including the ability to obtain regulatory approval for rate changes if applicable , proper evaluation of underwriting risks , the ability to project future losses based on historical loss experience adjusted for known trends , the company 's response to competitors , and expectations about regulatory and legal developments and expense levels . the company seeks to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin . the company has the ability to adjust dividend scales and interest crediting rates at its discretion based on economic and other factors . the profitability december 31 , 2019 | 10-k 28 citizens , inc. of fixed annuities , riders and other `` spread-based '' product features depends largely on the company 's ability to earn target spreads between earned investment rates on assets and interest credited to policyholders . the investment return , or yield , on invested assets is an important element of the company 's earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits are paid . most of the company 's invested assets have been held in fixed maturity available-for-sale securities , primarily in asset classes of corporate bonds , municipal bonds , and government obligation bonds . the interest rate environment has a significant impact on the determination of insurance contract liabilities , our investment rates and yields , and our asset/liability management . the primary investment objective for the company is to maximize economic value , consistent with acceptable risk parameters , including the management of credit risk and interest rate sensitivity of invested assets , while generating sufficient after-tax income to meet policyholder and corporate obligations . the company maintains a prudent investment strategy that may vary based on a variety of factors including business needs , regulatory requirements and tax considerations . we have previously reported that a portion of the life insurance policies issued by our subsidiary insurance companies failed to qualify for the favorable u.s. federal income tax treatment afforded by sections 7702 and 72 ( s ) of the internal revenue code ( `` irc '' ) of 1986. further , we have determined that the structure of our policies sold to non-u.s. persons , which were novated to cica ltd. effective july 1 , 2018 , may have inadvertently generated u.s. source income over time , which caused tax withholding and information reporting requirements for the company under chapters 3 and 4 of the irc . we have incurred significant costs in the evaluation process of this issue as we have engaged legal , tax and actuarial consultants to assist us in this review and remediation . in december 2019 , the company submitted corrected withholding tax returns to the irs in order to establish the tax liability amount for failing to withhold tax and report the u.s. source income generated by the novated policies . story_separator_special_tag consolidated results of operations a discussion of consolidated results is presented below , followed by a discussion of segment operations and financial results by segment . december 31 , 2019 | 10-k 31 citizens , inc. revenues insurance revenues are primarily generated from premium revenues and investment income . in addition , realized gains and losses on investment holdings can significantly impact revenues from year to year . replace_table_token_3_th premium income . premium income derived from life , accident and health , and property insurance sales decreased 1.9 % during 2019 compared to 2018 and decreased 5.0 % during 2018 compared to 2017 . the decrease in 2019 was driven primarily by a decline in renewal premiums in our life insurance segment and was partially offset by an increase in first year premiums in that segment . the decrease in 2018 was primarily due to a decline in first year and renewal premiums in our life insurance segment . see details on the distribution of premiums below and further discussion within segment operations . replace_table_token_4_th endowment sales represent a significant portion of new business sales internationally with the 20-year endowment and endowment to age 65 representing our top products . in addition , most of our life insurance policies contain a policy loan provision , which allows the policyholder to use cash value within a policy to pay premiums . the policy loan asset balance increased 1.5 % in 2019 and 9.6 % in 2018 and remains in line with historical levels when compared to policy benefit liabilities . net investment income . net investment income increased 9.8 % to $ 59.5 million in 2019 compared to $ 54.2 million in 2018 , despite a decline in overall market yields . the annualized yield increased by nineteen basis points in 2019 compared to 2018 . we have been successful in achieving higher yields while maintaining a prudent risk profile for our portfolio in 2019 despite facing an increasingly challenging investment environment . during the fourth quarter of 2018 , we repositioned our portfolio into more diversified holdings and maturities as part of our investment management strategy to improve our portfolio credit quality . in doing so , we increased our purchases of investment grade securities while reducing our municipal holdings . while these purchases improved the overall credit rating of our portfolio , these securities generally have lower yields . in addition , net investment income and the annualized yield on our portfolio were lower during 2018 due to the need to maintain sufficient cash balances to fund our bermuda novation as previously noted . december 31 , 2019 | 10-k 32 citizens , inc. net investment income performance is summarized as follows . replace_table_token_5_th we have traditionally invested in fixed maturity securities with a large percentage held in callable issues . in the latter part of 2018 , we began a process of repositioning our portfolio into more diversified holdings and maturities as part of our investment management strategy . the sustained low interest rate environment of the past several years has required that we manage a challenging balance of continuing to invest in quality issuers , while attempting to increase our portfolio yield . as part of the ongoing process of managing our portfolio and optimizing performance , we are continuing to identify and consider new asset classes . investment income from fixed maturity securities accounted for approximately 87.8 % of total investment income for the year ended december 31 , 2019 as compared to 87.0 % for 2018 . replace_table_token_6_th investment income from fixed maturity securities increased 9.6 % in 2019 and 2.0 % in 2018 . we continue to adjust our investment management strategy to increase our investment yields while maintaining a prudent risk profile . in addition , the increase in the policy loans asset balance , which represents policyholders utilizing their accumulated policy cash value to pay for premiums , contributed to the increase in investment income for 2019 . december 31 , 2019 | 10-k 33 citizens , inc. realized gains ( losses ) on investments . realized investment gains and losses are as follows : replace_table_token_7_th in 2019 , we recognized a gain of $ 1.9 million related to the redemption of two fixed maturity securities . we also recorded a realized gain of $ 5.5 million relating to the sale of our former corporate headquarters . in addition , we recorded realized gains of $ 1.0 million during 2019 related to fair value changes in our equity securities owned at december 31 , 2019 . finally , an impairment loss of $ 3.1 million was recorded in connection with classifying our citizens academy training facility located near austin , texas as real estate held for sale . in 2018 , realized gains of $ 1.8 million and realized losses of $ 0.8 million were recorded related to our fixed maturity and equity portfolios , respectively , along with investment losses recorded from otti of $ 0.8 million relating to fixed maturity securities that we did not intend to hold until recovery in value . benefits and expenses replace_table_token_8_th december 31 , 2019 | 10-k 34 citizens , inc. claims and surrenders . as noted in the table below , claims and surrenders increased 17.3 % from $ 91.1 million in 2018 to $ 106.8 million in 2019 . replace_table_token_9_th death claims increased 11.1 % in 2019 and declined 0.8 % in 2018 . the increase in 2019 was driven primarily by higher average paid death benefit amounts . the company monitors death claims based upon expectations , and we reinsure for losses in excess of a threshold level . these values may routinely fluctuate from year to year . policy surrenders increased 19.7 % in 2019 and 10.7 % in 2018 . surrenders represented less than 1.0 % of total direct ordinary whole life insurance in force of $ 4.7 billion as of december 31 , 2019 . the increase in surrender expense is primarily related to our international business .
| current financial highlights our total assets grew 8.0 % , or $ 129 million , from 2018 to 2019 and totaled $ 1.7 billion as of december 31 , 2019 . total stockholders ' equity increased 38.4 % from $ 187.7 million at december 31 , 2018 , to $ 259.8 million at december 31 , 2019 primarily due to a change in net unrealized gains on available-for-sale securities after taxes of $ 71.8 million in 2019 as market interest rates decreased from 2018 levels . insurance premiums declined 1.9 % in 2019 compared to 2018 , totaling $ 184.3 million and $ 187.9 million , respectively . the decline was driven by fewer renewal premiums in our life insurance segment , partially offset by an increase in first year premiums in that segment as we realized growth in 2019 following investment in our sales and marketing activities and increased sales of higher average premium policies . first year premiums in our life insurance segment increased 2.1 % in 2019 compared december 31 , 2019 | 10-k 29 citizens , inc. to 2018 . insurance premiums declined 6.3 % in 2018 compared to 2017 , driven by fewer renewal and first year premiums in our life insurance segment . net investment income increased 9.8 % in 2019 compared to 2018 , totaling $ 59.5 million and $ 54.2 million , respectively . the increase was driven by a growing asset base derived from cash flows from our insurance operations , improvements in cash management , and a strategic focus on achieving greater yields while maintaining a prudent risk profile for our investment portfolio . the average yield on the consolidated investment portfolio was an annualized rate of 4.36 % for 2019 compared to 4.17 % for 2018 .
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we provide management services for the hotels and three hotels owned by affiliates of james f. wirth , the trust 's chairman and chief executive officer . we also provide trademark and licensing services to the hotels , three hotels owned by affiliates of mr. wirth and one unrelated hotel property . our results are significantly affected by occupancy and room rates at the hotels , our ability to manage costs , and changes in the number of available suites caused by acquisition and disposition activities . results are also significantly impacted by overall economic conditions and conditions in the travel industry . unfavorable changes in these factors could negatively impact hotel room demand and pricing , which would reduce our profit margins on rented suites . additionally , our ability to manage costs could be adversely impacted by significant increases in operating expenses , resulting in lower operating margins . management expects greater demand and steady supply to continue . however , either a further increase in supply or a further decline in demand could result in increased competition , which could have an adverse effect on the revenue of the hotels in their respective markets . weak economic conditions , both generally and specifically in the travel industry , had a negative impact on our operations in fiscal years 2015 and 2014. we anticipate moderate improvement in these conditions during fiscal year 2016. we expect moderate improvements in the overall economic conditions to result in improved business and leisure travel and relatively steady room rates . we expect the major challenge for fiscal year 2016 to be the continuation of strong competition for corporate leisure group and government business in the markets in which we operate , which may affect our ability to increase room rates while maintaining market share . we believe that we have positioned the hotels to remain competitive through selective refurbishment , by carrying a relatively large number of two-room suites at each location and by maintaining a robust guest internet access system . to combat the weak economic conditions during fiscal years 2015 and 2014 , we have significantly expanded ibc hotels , a wholly owned subsidiary of innsuites hospitality trust , which provides services to approximately 6,300 properties . during the fiscal year ended january 31 , 2014 , ibc hotels formed a marketing alliance with the independent lodging industry association ( “ ilia ” ) . we believe this new hotel network provides independent hotel owners a competitive advantage against traditional franchised brands in their markets . the network provides a booking system and loyalty program . ibc hotels charges a 10 % booking fee , which we believe , increases the independent hotel profits . competitors of ibc hotels can charge anywhere from a 30 % to 50 % booking fee . inndependent inncentives , ibc 's loyalty program , allows hoteliers to benefit from guests who frequently stay at ibc independent hotels . general the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this form 10-k. at january 31 , 2015 , we owned through our sole general partner 's interest in the partnership a 72.11 % interest in the tucson , arizona hotel , direct 50.82 % interest in the albuquerque , new mexico hotel , and a 73.61 % direct interest in the yuma , arizona hotel . additionally , at january 31 , 2015 , we , together with the partnership , owned a 51.01 % interest in another hotel located in tucson , arizona and a 51.71 % interest in a hotel located in ontario , california . at january 31 , 2014 , we owned through our sole general partner 's interest in the partnership , a 72.04 % interest in the tucson , arizona hotel , direct 50.85 % interest in the albuquerque , new mexico hotel , and a 99.90 % direct interest in the yuma , arizona hotel . additionally , at january 31 , 2014 , we together with the partnership owned a 51.00 % interest in another hotel located in tucson , arizona and a 61.60 % interest in a hotel located in ontario , california . we purchased 9,903 and 0 partnership class a units during the years ended january 31 , 2015 and 2014 , respectively . 8 our expenses consist primarily of property taxes , insurance , corporate overhead , interest on mortgage debt , professional fees , depreciation of the hotels and hotel operating expenses . hotel operating expenses consist primarily of payroll , guest and maintenance supplies , marketing and utilities expenses . under the terms of its partnership agreement , the partnership is required to reimburse us for all such expenses . accordingly , management believes that a review of the historical performance of the operations of the hotels , particularly with respect to occupancy , which is calculated as rooms sold divided by total rooms available , average daily rate ( “ adr ” ) , calculated as total room revenue divided by number of rooms sold , and revenue per available room ( “ revpar ” ) , calculated as total room revenue divided by number of rooms available , is appropriate for understanding revenue from the hotels . in fiscal year 2015 , occupancy decreased 2.49 % to 63.16 % from 65.65 % in the prior fiscal year . story_separator_special_tag ibc development segment total expenses which comprised primarily of general and administrative and sales and marketing of approximately $ 346,000 for the twelve months ended january 31 , 2015 reflects an increase of approximately $ 316,000 compared to total expenses of approximately $ 30,000 for the twelve months ended january 31 , 2014. sales and marketing expense increased approximately $ 284,000 , from approximately $ 30,000 for the twelve months ended january 31 , 2014 to approximately $ 314,000 for the twelve months ended january 31 , 2015. during the fiscal year ending january 31 , 2015 , we expanded our sales and marketing efforts by creating several marketing alliances and focused our resources on the development of technology to meet the independent guest and hotelier needs . specifically , we expanded our hotel booking engine capabilities , website and hotel guest rewards program . net loss : we had a consolidated net loss before income taxes of approximately $ 2,042,000 for the twelve months ended january 31 , 2015 , compared to approximately $ 804,000 in the prior year . after deducting income tax provision of approximately $ 199,000 and the net loss attributable to non-controlling interest of approximately $ 137,000 , we had a net loss attributable to controlling interests of approximately $ 2,104,000 for fiscal year 2015 , which represented approximately $ 1,082,000 in additional loss attributable to controlling interests , as compared to the fiscal year 2014. basic and diluted net loss per share was $ ( 0.25 ) and $ ( 0.12 ) for the twelve months ended january 31 , 2015 and 2014 , respectively . liquidity and capital resources overview – hotel operations & corporate overhead and ibc development segments our principal source of cash to meet our cash requirements , including distributions to our shareholders , is our share of the partnership 's cash flow , quarterly distributions from the albuquerque , new mexico and yuma , arizona properties and more recently , sales of non-controlling interest in certain of our hotels . the partnership 's principal source of revenue is hotel operations for the one hotel property it owns and quarterly distributions from the tucson , arizona and ontario , california properties . our liquidity , including our ability to make distributions to our shareholders , will depend upon our ability , and the partnership 's ability , to generate sufficient cash flow from hotel operations and to service our debt . hotel operations are significantly affected by occupancy and room rates at the hotels . we anticipate occupancy and adr will be improved in the coming year ; capital improvements are expected to be similar from the prior year . as of january 31 , 2015 , the trust had $ 125,000 drawn on its bank line of credit . our credit line matures on june 23 , 2015 and we are currently in discussions with the bank and anticipate a renewal of at least an additional year on this line of credit . as of april 24 , 2015 , the outstanding balance on the line of credit was $ 0. with the expected continued availability of the $ 600,000 bank line of credit which management expects to timely renew , the availability of the $ 1,000,000 related party demand/revolving line of credit/promissory note , and the refinance or extension of one of our mortgage note payables that was due on april 28 , 2015 , which management expects to occur , management believes that it will have enough cash on hand to meet all of our financial obligations as they become due for at least the next year . management is actively discussing with the bank an extension of the line of credit . in addition , our management is analyzing other strategic options available to us , including the refinancing of another property or raising additional funds through additional non-controlling interest sales ; however , such transactions may not be available on terms that are favorable to the trust . 12 there can be no assurance that we will be successful in obtaining extensions , refinancing debt or raising additional or replacement funds , or that these funds may be available on terms that are favorable to us . if we are unable to raise additional or replacement funds , we may be required to sell certain of our assets to meet our liquidity needs , which may not be on terms that are favorable . we anticipate a moderate improvement in the weak overall economic situation that negatively affected results in fiscal year 2015 , which could result in higher revenues and operating margins in 2016. we expect the major challenge for fiscal year 2016 to be the continuation of strong competition for corporate leisure group and government business in the markets in which we operate , which may affect our ability to increase room rates while maintaining market share . net cash provided by operating activities totaled approximately $ 600,000 and $ 720,000 for the years ended january 31 , 2015 and 2014 , respectively . the decrease in net cash provided by operating activities was due to the consolidated net loss and adjustments to reconcile net loss to net cash provided by operating activities . consolidated net loss was approximately $ 2,241,000 and $ 841,000 for the years ended january 31 , 2015 and 2014 , respectively . explanation of the differences in consolidated net loss for the years ended january 31 , 2015 and 2014 are explained above in the results of operations of the trust .
| overview a summary of total trust operating results for the fiscal years ended january 31 , 2015 and 2014 is as follows : replace_table_token_5_th our overall results in fiscal year 2015 were negatively affected by a slight decrease in revenues and an increase in operating expenses which included our growing ibc hotels division and our inability to control our income tax expenses . a summary of operating results by segment for the fiscal years ended january 31 , 2015 and 2014 is as follows : replace_table_token_6_th replace_table_token_7_th revenue : hotel operations & corporate overhead segment for the twelve months ended january 31 , 2015 , we had total revenue of approximately $ 14,653,000 compared to approximately $ 14,884,000 for the twelve months ended january 31 , 2014 , a decrease of approximately $ 231,000. with continued pressure on the economy , especially in the yuma , arizona and ontario , california markets , we realized a 1.9 % decrease in room revenues during fiscal year 2015 as room revenues were approximately $ 13,186,000 for fiscal year 2014 as compared to approximately $ 13,442,000 during fiscal year 2014. food and beverage revenue was approximately $ 954,000 for fiscal year 2015 as compared to approximately $ 992,000 during fiscal year 2014 , a decrease of approximately $ 38,000. during fiscal year 2016 , we expect improvements in occupancy , modest improvements in rates and steady food and beverage revenues . we also realized a 43 % increase in management and trademark fee revenues during fiscal year 2015 as management and trademark revenues were approximately $ 278,000 during fiscal year 2015 as compared to approximately $ 195,000 during fiscal year 2014. management and trademark fee revenues increased during fiscal year 2015 as a result of increased revenues in the three hotels owned by mr. wirth .
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the story_separator_special_tag forward-looking statements this annual report on form 10-k may contain certain statements that we believe are , or may be considered to be , forward-looking statements , within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these forward-looking statements generally can be identified by use of statements that include phrases such as believe , expect , anticipate , intend , plan , foresee , may , will , likely , estimates , potential , continue or other similar words or phrases . similarly , statements that describe our objectives , plans or goals also are forward-looking statements . all of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement . the principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include , but are not limited to , dependence on attracting and retaining qualified and experienced consultants , maintaining our brand name and professional reputation , potential legal liability and regulatory developments , portability of client relationships , global and local political or economic developments in or affecting countries where we have operations , currency fluctuations in our international operations , risks related to growth , restrictions imposed by off-limits agreements , competition , reliance on information processing systems , cyber security vulnerabilities , limited protection of our intellectual property , our ability to enhance and develop new technology , our ability to successfully recover from a disaster or business continuity problems , employment liability risk , an impairment in the carrying value of goodwill and other intangible assets , deferred tax assets that we may not be able to use , our ability to develop new products and services , changes in our accounting estimates and assumptions , alignment of our cost structure , risks related to the integration of recently acquired businesses and the matters disclosed under the heading risk factors in the 25 company 's exchange act reports , including item 1a included in this annual report . readers are urged to consider these factors carefully in evaluating the forward-looking statements . the forward-looking statements included in this annual report on form 10-k are made only as of the date of this annual report on form 10-k and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances . the following presentation of management 's discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this annual report on form 10-k. executive summary korn/ferry international ( referred to herein as the company , korn/ferry , or in the first person notations we , our , and us ) is a premier global provider of talent management solutions that helps clients design strategies to assist clients in building and attracting their talent . we are the premier provider of executive recruitment , leadership and talent consulting and talent acquisition solutions with the broadest global presence in the recruitment industry . our services include executive recruitment , consulting and solutions services through leadership & talent consulting ( ltc ) and recruitment for non-executive professionals and recruitment process outsourcing ( rpo ) through futurestep . approximately 75 % of the executive recruitment searches we performed in fiscal 2013 were for board level , chief executive and other senior executive and general management positions . our 5,228 clients in fiscal 2013 included many of the world 's largest and most prestigious public and private companies , including approximately 42 % of the fortune 500 , middle market and emerging growth companies , as well as government and nonprofit organizations . we have built strong client loyalty , with 81 % of assignments performed during fiscal 2013 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years . in an effort to maintain our long-term strategy of being the leading provider of talent management solutions , our strategic focus for fiscal 2014 centers upon enhancing the integration of our multi-service strategy . we plan to continue to address areas of increasing client demand including ltc and rpo . we further plan to explore new products and services , continue to pursue a disciplined acquisition strategy , enhance our technology and processes and aggressively leverage our brand through thought leadership and intellectual capital projects as a means of delivering world-class service to our clients . during fiscal 2013 , nearly 88 % of our top 50 clients utilized at least two of our service lines . during fiscal 2013 , we completed the acquisitions of minneapolis-based pdi ninth house ( pdi ) , a leading , globally-recognized provider of leadership assessment and development solutions and global novations , llc , ( global novations ) a leading provider of diversity and inclusion and leadership development solutions ( see note 12 acquisitions for additional information regarding acquisitions completed during fiscal 2013 ) . as a result of the uncertainties and challenges that continue to face the global economy and financial markets , we implemented a restructuring plan in fiscal 2013 in order to align our cost structure with anticipated revenue levels . the company also implemented a restructuring plan focused on the integration synergies associated with the current year acquisitions . in fiscal 2013 , the company recorded restructuring charges of $ 22.8 million of which $ 16.3 million were for severance costs and $ 6.5 million in facility costs due to the consolidation and elimination of office space around the world . as previously announced , beginning in the first quarter of fiscal 2013 , the company disaggregated its previously reported business segment , executive recruitment , into two business segments , executive recruitment and ltc . story_separator_special_tag management is required to establish policies and procedures to ensure that revenue is recorded over the performance period for valid engagements and related costs are matched against such revenue . we provide professional services related to executive recruitment activities and recruitment for non-executive professionals , on a retained basis , recruitment process outsourcing and leadership & talent consulting services . for executive recruitment activities and recruitment for non-executive professionals we generally recognize revenue in three monthly installments commencing the month of client acceptance as this is the period over which the recruitment services are performed . fees earned in excess of the initial contract amount are recognized upon completion of the engagement , which reflect the difference between the final actual compensation of the placed executive and the estimate used for purposes of the previous billings . since the fees are generally not contingent upon placement of a candidate , our assumptions primarily relate to establishing the period over which such service is performed . these assumptions determine the timing of revenue recognition and profitability for the reported period . if these assumptions do not accurately reflect the period over which revenue is earned , revenue and profit could differ . any services that are provided on a contingent basis are recognized once the contingency is fulfilled . in addition to recruitment for non-executive professionals , futurestep provides recruitment process outsourcing services and fee revenue is recognized as services are rendered . fee revenue from ltc services is recognized as services are rendered for consulting engagements and other time based services , measured by total hours incurred to the total estimated hours at completion . it is possible that updated estimates for the consulting engagement may vary from initial estimates with such updates being recognized in the period of determination . ltc revenue is also derived from the sale of solution services , which includes revenue from licenses and the sale of products . revenue from licenses is recognized using a straight-line method over the term of the contract ( generally 12 months ) , which begins upon execution and is invoiced in the same month . products sold by the company mainly consist of books covering a variety of topics including performance management , team effectiveness , and coaching and development . the company recognizes revenue for its products when the product has been sold . furthermore , a provision for doubtful accounts on recognized revenue is established with a charge to general and administrative expenses based on historical loss experience , assessment of the collectability of specific accounts , as well as expectations of future collections based upon trends and the type of work for which services are rendered . annual performance related bonuses . each quarter , management records its best estimate of its annual performance related bonuses , which requires management to , among other things , project annual consultant ( employees who originate business ) productivity ( as measured by engagement fees billed and collected by executive search consultants and revenue for ltc and futurestep consultants ) , company performance including profitability , competitive forces and future economic conditions impact our results . at the end of each fiscal year , annual performance related bonuses take into account final individual consultant productivity , company results including profitability , the achievement of strategic objectives and the results of individual performance appraisals , and the current economic landscape . management takes these factors into consideration , and any changes in the estimate are reported in current operations . because annual performance-based bonuses are communicated and paid only after the company reports its full fiscal year results , actual performance-based bonus payments may differ from the prior year 's estimate . such changes in the bonus estimates historically have been immaterial and are recorded in current operations in the period in which they are determined . deferred compensation . estimating deferred compensation requires assumptions regarding the timing and probability of payments of benefits to participants and the discount rate . changes in these assumptions would significantly impact the liability and related cost on our consolidated balance sheet and statement of income . management engages an independent actuary to periodically review these assumptions in order to ensure that they reflect the population and economics of our deferred compensation plans in all material respects and to assist us in estimating our deferred compensation liability and the related cost . the actuarial assumptions we use may differ from actual results due to changing market conditions or changes in the participant population . these differences could have a significant impact on our deferred compensation liability and the related cost . carrying values . valuations are required under u.s. generally accepted accounting principles ( gaap ) to determine the carrying value of various assets . our most significant assets for which management is required to prepare valuations are carrying value of receivables , marketable securities , goodwill , intangible assets , fair value of contingent consideration , and recoverability of deferred income taxes . management must identify 28 whether events have occurred that may impact the carrying value of these assets and make assumptions regarding future events , such as cash flows and profitability . differences between the assumptions used to prepare these valuations and actual results could materially impact the carrying amount of these assets and our operating results . of the assets mentioned above , goodwill is the largest asset requiring a valuation . fair value of goodwill for purposes of the goodwill impairment test is determined utilizing a discounted cash flow analysis based on forecast cash flows ( including estimated underlying revenue and operating income growth rates ) discounted using an estimated weighted-average cost of capital for market participants . a market approach , utilizing observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction ( to the extent available ) , is used to corroborate the discounted cash flow analysis performed at each reporting unit .
| results of operations the following table summarizes the results of our operations as a percentage of fee revenue : replace_table_token_7_th 29 the following tables summarize the results of our operations by business segment : replace_table_token_8_th replace_table_token_9_th ( 1 ) margin calculated as a percentage of fee revenue by business segment . 30 replace_table_token_10_th replace_table_token_11_th 31 replace_table_token_12_th fiscal 2013 compared to fiscal 2012 fee revenue fee revenue . fee revenue increased $ 22.3 million , or 3 % , to $ 812.8 million in fiscal 2013 compared to $ 790.5 million in fiscal 2012. the acquisitions of pdi and global novations , collectively referred to as current year acquisitions , contributed $ 45.6 million in fee revenue in ltc . excluding fee revenue from the current year acquisitions , fee revenue was $ 767.2 million during fiscal 2013 , a decrease of $ 23.3 million , or 3 % , compared to fiscal 2012. the decrease in fee revenue was attributable to a 4 % decrease in the weighted-average fees billed per engagement during fiscal 2013 as compared to fiscal 2012 , offset by a 2 % increase in the number of engagements billed during the same period . weighted-average fees billed is impacted by the mix of engagements by segment and fluctuating foreign currencies . exchange rates unfavorably impacted fee revenues by $ 15.1 million in fiscal 2013. executive recruitment .
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as of december 31 , 2018 and 2017 , the company had $ 3.2 billion and $ 2.7 billion , respectively , of long‑term debt obligations primarily related to the acquisition of aircraft and certain spare engines . the average effective interest rate on the debt related to those long-term debt obligations at december 31 , 2018 and 2017 , was approximately 4.2 % and 3.9 % , respectively . during the year ended december 31 , 2018 , the company used $ 43.5 million in cash to story_separator_special_tag the following discussion and analysis presents factors that had a material effect on our results of operations during the years ended december 31 , 2018 , 2017 and 2016. also discussed is our financial position as of december 31 , 2018 and 2017. you should read this discussion in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this report or incorporated herein by reference . this discussion and analysis contains forward‑looking statements . please refer to the sections of this report entitled “ cautionary statement concerning forward‑looking statements ” and “ item 1a . risk factors ” for discussion of some of the uncertainties , risks and assumptions associated with these statements . overview we have the largest regional airline operation in the united states . as of december 31 , 2018 , we offered scheduled passenger and air freight service with approximately 2,770 total daily departures to destinations in the united states , canada , mexico and the caribbean . as of december 31 , 2018 , we had 596 aircraft available for scheduled service consisting of the following ( which included 100 erj145s and 16 crj200s that expressjet operated for united and 10 canadair crj700s that expressjet operated for american ) : replace_table_token_9_th * as of december 31 , 2018 , these aircraft have been removed from service and are in the process of being returned under the applicable leasing arrangement or are aircraft transitioning between code-share agreements with our major airline partners . our business model is based on providing scheduled regional airline service under code-share agreements ( commercial agreements between airlines that , among other things , allow one airline to use another airline 's flight designator codes on its flights ) with our major airline partners . our success is principally centered on our ability to meet the needs of our major airline partners through providing a reliable and safe operation at attractive economics . over the last several years , our business has evolved as we have added 39 new e175 aircraft and five new crj900 aircraft to our fleet since december 31 , 2017 , and removed 12 erj145 aircraft , 20 crj700 aircraft and 16 crj900 aircraft that were operating under less profitable or unprofitable flying agreements . we anticipate our fleet will continue to evolve , as we are scheduled to add 12 new e175 and 15 new crj900 aircraft to existing fixed-fee agreements by the end of 2021. we anticipate these new aircraft will be replacing older crj900 and crj700 aircraft currently operating under fixed-fee agreements . our primary objective in the fleet changes is to improve our profitability by adding new aircraft to fixed-fee agreements at improved economics , including the e175 aircraft , while removing aircraft that were operating under less profitable or unprofitable arrangements . as of december 31 , 2018 , expressjet operated 100 erj145 aircraft and 16 crj200 aircraft under fixed-fee agreements with united and 10 crj700 aircraft under a fixed-fee agreement with american . on january 22 , 2019 , we completed the sale of expressjet . in conjunction with the sale of expressjet , we retained ownership of the 16 crj200 aircraft and the 10 crj700 aircraft operated by expressjet as of december 31 , 2018. expressjet retained operation of the 100 erj145 aircraft that expressjet leased from united . we agreed to lease the 16 crj200 aircraft to expressjet for up to a five-year period . we are pursuing alternative uses of the 10 crj700 aircraft , including but not limited to , using the aircraft under fixed-fee agreements or leasing the aircraft or related engines to third parties . 28 for the year ended december 31 , 2018 , approximately 48.6 % of our aircraft in scheduled service were operated for united , approximately 33.4 % were operated for delta , approximately 12.6 % were operated for american and approximately 5.4 % were operated for alaska . historically , multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed‑fee arrangements and our prorate flying arrangements . for the year ended december 31 , 2018 , contract flying revenue and prorate revenue represented approximately 84.3 % and 15.7 % , respectively , of our total f lying agreements revenue . on contract routes , the major airline partner controls scheduling , ticketing , pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours ( measured from takeoff to landing , including taxi time ) , flight departures and other operating measures . our financial and operating results for the years ended december 31 , 2016 , 2017 and 2018 , and our financial position as of december 31 , 2017 and 2018 contained in this report , include the financial results and position of expressjet for those respective periods . story_separator_special_tag in the event contracted rates are not finalized at a quarterly or annual financial statement date , we record that period 's revenues based on the lower of the prior period 's approved rates or our estimate of rates that will be implemented upon completion of negotiations . also , in the event we have a reimbursement dispute with a major airline partner at a quarterly or annual financial statement date , we evaluate the dispute under established revenue recognition criteria and , provided the revenue recognition criteria have been met , we recognize revenue for that period based on our estimate of the resolution of the dispute . accordingly , we are required to exercise judgment and use assumptions in the application of our revenue recognition policy . maintenance for the majority of our engines , we have an agreement with a third‑party vendor to provide long‑term engine maintenance covering scheduled and unscheduled engine repairs , including engine overhauls , operating under our fixed‑rate engine contracts ( a “ power-by-the-hour agreement ” ) . under the terms of the power-by-the-hour agreement , 30 we are obligated to pay a set dollar amount per engine hour flown on a monthly basis and the vendor assumes the obligation to repair the engines at no additional cost to us , subject to certain specified exclusions . thus , under the power-by-the-hour agreement , we expense the engine maintenance costs as flight hours are incurred on the engines and using the contractual rate set forth in the agreement . for engines not covered under a power-by-the-hour-agreement we use the direct‑expense method of accounting for our regional jet aircraft engine overhaul costs . under this method , the maintenance liability is not recorded until the maintenance services are performed . aircraft leases as of december 31 , 2018 , our fleet of aircraft in scheduled service included 245 aircraft under lease ( including 108 aircraft leased by expressjet ) . in order to determine the proper classification of our leased aircraft as either operating leases or capital leases , we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments . these estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease . all of our aircraft leases have been classified as operating leases , which results in rental payments being charged to expense over the terms of the related leases . under some of our fixed-fee arrangements , our major airline partners may acquire aircraft from third-parties and lease the aircraft to us for a de minimis amount , and in such cases , no related lease revenue or lease expense is recognized . under the majority of our operating leases , we are required to meet half-time lease return conditions with the aircraft , which presumes at least 50 percent of the eligible flight time for certain components since the last overhaul remains when the aircraft is returned to the lessor . a liability for probable lease return costs is recorded after the aircraft has completed its last maintenance cycle prior to being returned . additionally , operating leases are not reflected in our consolidated balance sheet and accordingly , neither a lease asset nor an obligation for future lease payments is reflected in our consolidated balance sheets . see “ recent accounting pronouncements ” set forth below for a discussion of a new accounting standard that is likely to have an impact on our aircraft lease accounting beginning in 2019. long‑lived assets as of december 31 , 2018 , we had approximately $ 5.0 billion of property and equipment and related assets net of accumulated depreciation . in accounting for these long‑lived , we make estimates about the expected useful lives of the assets , the expected residual values of certain of these assets , and the potential for impairment based on the fair value of the assets and the cash flows they generate . factors indicating potential impairment include , but are not limited to , significant decreases in the market value of the long‑lived assets , a significant change in the condition of the long‑lived assets and operating cash flow losses associated with the use of the long‑lived assets . when considering whether or not impairment of long‑lived assets exists , we group similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group . asset groupings are done at the fleet type or contract level . we did not have any impairment charges during the year ended december 31 , 2018 . 31 stock‑based compensation expense restricted stock units ( “ rsus ” ) are awarded to eligible employees and entitle the grantee to receive shares of common stock at the end of the vest period . performance share units ( “ psus ” ) are awarded to certain employees to receive shares of common stock if specific performance targets are achieved . at the end of each performance period , the number of shares awarded can range from 0 % to 200 % of the original 2018 and 2017 grant amounts for performance share units and can range from 0 % to 150 % of the original 2016 grant amount for performance shares , depending on the performance against the pre-established targets . the fair value of the rsus and psus are based on the stock price as of the date of grant and “ cliff vest ” after three years . we are required to use judgment and estimates in determining compensation expense for the psus based on projected performance compared to the pre-established targets over the measurement period for unvested psu awards .
| results of operations 2018 compared to 2017 operational statistics . the following table sets forth our major operational statistics and the associated percentages of change for the periods identified below . the decrease in block hours , departures and passengers carried during the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , was primarily due to the timing of our fleet transition during 2018. although our total number of aircraft in service did not significantly change from december 31 , 2017 to december 31 , 2018 , the majority of the aircraft removed from service were removed during the first half of 2018 while the majority of the aircraft added into service were added during the second half of 2018 . 32 replace_table_token_11_th operating revenues the following table summarizes our operating revenue for the periods indicated ( dollar amounts in thousands ) : replace_table_token_12_th flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners . airport customer service and other revenues primarily consist of revenue earned from providing airport counter , gate and ramp services . changes in our flying agreements revenue are summarized below ( dollar amounts in thousands ) .
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the 2019 notes bear interest at the rate of 2.875 % per annum , and the company is required to make semi-annual interest payments on the outstanding principal balance of the 2019 notes on june 15 and december 15 of each year , beginning december 15 , 2012. the 2019 notes mature on june 15 , 2019. interest expense recognized on the 2019 notes for the fiscal years ended june 30 , 2015 , 2014 and 2013 was approximately $ 22.1 million , $ 21.4 million and $ 20.7 million , respectively , and included the contractual coupon interest , the accretion of the debt discount and amortization of the debt issuance costs . during the fiscal years ended june 30 , 2015 and 2014 , the company made $ 10.6 million in interest payments on our 2019 notes . revolving credit facility the company maintains a $ 650 million revolving credit facility . borrowings under the revolving credit facility bear interest at a floating rate of libor plus a margin of 1.25 % to story_separator_special_tag overview royal gold , inc. ( `` royal gold '' , the `` company '' , `` we '' , `` us '' , or `` our '' ) , together with its subsidiaries , is engaged in the business of acquiring and managing precious metals royalties , metal streams , and similar interests . royalties are non-operating interests in mining projects that provide the right to revenue or metals produced from the project after deducting specified costs , if any . a metal stream is a purchase agreement that provides , in exchange for an upfront deposit payment , the right to purchase all or a portion of one or more metals produced from a mine , at a price determined for the life of the transaction by the purchase agreement . we seek to acquire existing royalty and stream interests or to finance projects that are in production or in the development stage in exchange for royalty or stream interests . in the ordinary course of business , we engage in a continual review of opportunities to acquire existing royalty and stream interests , establishing new streams on operating mines , to create new royalty and stream interests through the financing of mine development or exploration , or to acquire companies that hold royalty and stream interests . we currently , and generally at any time , have acquisition opportunities in various stages of active review , including , for example , our engagement of consultants and advisors to analyze particular opportunities , analysis of technical , 42 financial and other confidential information , submission of indications of interest , participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes . as of june 30 , 2015 , the company owned stream interests on one producing property and two development stage properties and owned royalty interests on 36 producing properties , 22 development stage properties and 135 exploration stage properties , of which the company considers 47 to be evaluation stage projects . the company uses `` evaluation stage '' to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves . except for one joint venture property ( as discussed below ) , we do not conduct mining operations on the properties in which we hold royalty and streaming interests , and we are not required to contribute to capital costs , exploration costs , environmental costs or other operating costs on those properties . during the fiscal year ended june 30 , 2015 , we focused on the management of our existing royalty and streaming interests and the acquisition of additional royalty and streaming interests . our financial results are primarily tied to the price of gold and , to a lesser extent , the price of silver , copper and nickel , together with the amounts of production from our producing stage royalty and stream interests . the price of gold , silver , copper , nickel and other metals has fluctuated widely in recent years and most recently has experienced declines from highs experienced in the first half of our fiscal year 2013. the marketability and the price of metals are influenced by numerous factors beyond the control of the company and significant declines in the price of gold , silver , copper or nickel could have a material and adverse effect on the company 's results of operations and financial condition . for the fiscal years ended june 30 , 2015 , 2014 and 2013 , gold , silver , copper and nickel price averages and percentage of revenue by metal were as follows : replace_table_token_20_th operators ' production estimates by royalty and stream interest for calendar 2015 we received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2015. the following table shows such production estimates for our principal producing properties for calendar 2015 as well as the actual production reported to us by the various operators through june 30 , 2015. the estimates and production reports are prepared by the operators of the mining properties . we do not participate in the preparation or calculation of the operators ' estimates or production reports and have not independently assessed or verified the accuracy of such information . please refer to part i , item 2 , properties , of this report for further discussion on any updates at our principal producing and development properties . 43 operators ' estimated and actual production by royalty and stream interest for calendar 2015 principal producing properties replace_table_token_21_th ( 1 ) production estimates received from our operators are for calendar 2015. there can be no assurance that production estimates received from our operators will be achieved . please refer to our cautionary language regarding forward-looking statements following this md & a , as well as the risk factors identified in part i , item 1a , of this report for information regarding factors that could affect actual results . story_separator_special_tag we evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold , silver , copper , nickel and other metals , and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future , thus affecting the future recoverability of our royalty interests . impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value , which is generally calculated using estimated future discounted cash flows . estimates of gold , silver , copper , nickel and other metal prices , operators ' estimates of proven and probable reserves related to our royalty or streaming properties , and operators ' estimates of operating and capital costs are subject to certain risks and uncertainties which may affect the recoverability of our investment in these royalty and stream interests in mineral properties . it is possible that changes could occur to these estimates , which could adversely affect the net cash flows expected to be generated from these royalty and stream interests . refer to note 4 of the notes to consolidated financial statements for discussion and the results of our impairment assessments for the fiscal years ended june 30 , 2015 and 2014. revenue revenue is recognized pursuant to guidance in asc 605 and based upon amounts contractually due pursuant to the underlying royalty or streaming agreement . specifically , revenue is recognized in 46 accordance with the terms of the underlying royalty or stream agreements subject to ( i ) the pervasive evidence of the existence of the arrangements ; ( ii ) the risks and rewards having been transferred ; ( iii ) the royalty or stream being fixed or determinable ; and ( iv ) the collectability being reasonably assured . for our streaming agreements , we sell most of the delivered gold within three weeks of receipt and recognize revenue when the metal received is sold . gold sales gold received under our metal streaming agreements is sold primarily in the spot market or using average rate gold forward contracts . for our gold sold in the spot market , the sales price is fixed at the delivery date based on the gold spot price , while the sales price for our gold sold in average rate gold forward contracts is determined by the average gold price under the term of the contract , typically 15 consecutive trading days shortly after the receipt and purchase of the gold . revenue from gold sales is recognized on the date of the settlement , which is also the date that title to the gold passes to the purchaser . cost of sales cost of sales is specific to our stream agreements and is the result of the company 's purchases of gold for a cash payment of a set contractual price , or the prevailing market price of gold when purchased . exploration costs exploration costs are specific to our joint venture for exploration and advancement of the tetlin gold project , as discussed further in item 1 , business , fiscal 2015 business developments and note 3 of our notes to consolidated financial statements . exploration costs associated with the tetlin gold project are expensed when incurred . income taxes the company accounts for income taxes in accordance with the guidance of asc 740. the company 's annual tax rate is based on income , statutory tax rates in effect and tax planning opportunities available to us in the various jurisdictions in which the company operates . significant judgment is required in determining the annual tax expense , current tax assets and liabilities , deferred tax assets and liabilities , and our future taxable income , both as a whole and in various tax jurisdictions , for purposes of assessing our ability to realize future benefit from our deferred tax assets . actual income taxes could vary from these estimates due to future changes in income tax law , significant changes in the jurisdictions in which we operate or unpredicted results from the final determination of each year 's liability by taxing authorities . the company 's deferred income taxes reflect the impact of temporary differences between the reported amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations . in evaluating the realizability of the deferred tax assets , management considers both positive and negative evidence that may exist , such as earnings history , reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies in each tax jurisdiction . a valuation allowance may be established to reduce our deferred tax assets to the amount that is considered more likely than not to be realized through the generation of future taxable income and other tax planning strategies . the company has asserted the indefinite reinvestment of certain foreign subsidiary earnings as determined by management 's judgment about and intentions concerning the future operations of the company . as a result , the company does not record a u.s. deferred tax liability for the excess of the book basis over the tax basis of its investments in foreign corporations to the extent that the basis 47 difference results from earnings that meet the indefinite reversal criteria . refer to note 11 for further discussion on our assertion . the company 's operations may involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions . the final taxes paid are dependent upon many factors , including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal , state , and international tax audits .
| results of operations fiscal year ended june 30 , 2015 , compared with fiscal year ended june 30 , 2014 for the fiscal year ended june 30 , 2015 , we recorded net income available to royal gold common stockholders of $ 52.0 million , or $ 0.80 per basic share and diluted share , compared to net income available to royal gold common stockholders of $ 62.6 million , or $ 0.96 per basic share and diluted share , for the fiscal year ended june 30 , 2014. the decrease in our earnings per share was primarily attributable to impairment charges of approximately $ 31.3 million ( including a royalty receivable write down of $ 3.0 million ) on certain non-principal royalty interests during our quarter ended december 31 , 2014 , as discussed further below . this decrease was partially offset by an increase in our revenue and a decrease in our income tax expense , which are also discussed below . the effect of the earlier impairment charges on our fiscal year ended june 30 , 2015 , earnings per share was $ 0.37 per basic share , after taxes . 50 for the fiscal year ended june 30 , 2015 , we recognized total revenue of $ 278.0 million , at an average gold price of $ 1,224 per ounce , an average silver price of $ 17.36 per ounce , an average nickel price of $ 7.02 per pound and an average copper price of $ 2.89 per pound , compared to total revenue of $ 237.2 million , at an average gold price of $ 1,296 per ounce , an average silver price of $ 20.57 per ounce , an average nickel price of $ 6.89 per pound and an average copper price of $ 3.18 per pound , for the fiscal year ended june 30 , 2014. revenue and the corresponding production , attributable to our royalty and stream interests , for the fiscal year ended june 30 , 2015 compared to the fiscal year ended
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the compensation committee acts pursuant to a written charter , a copy of which can be found on our website at http : //biolifesolutions.com/biopreservation-media/2012cc.pdf . the nominating and corporate governance committee is responsible for reviewing suggestions of candidates for director made by directors and others , identifying individuals qualified to become board members , and recommending to the board the director nominees for the next annual meeting of shareholders , recommending to the board director nominees for each committee of the board , recommending to the board the corporate governance principles applicable to the company , and overseeing the annual evaluation of the board and management . pursuant to the nominating and corporate governance committee charter , there is no difference in the manner in which a nominee recommended by a stockholder or otherwise is evaluated . the nominating and corporate governance committee 's primary purpose is to evaluate candidates for membership on our board and make recommendations to our board regarding candidates ; make recommendations with respect to the composition of our board and its committees ; review and make recommendations regarding the functioning of our board as an entity ; recommend corporate governance principles applicable to biolife ; manage periodic review , discussion and evaluation of the performance of our board , its committees and its members ; assess the independence of our directors ; review the board memberships of other entities held by members of the board and review and approve such memberships for our executive officers . also , the nominating and corporate governance committee assists our board in reviewing and assessing succession planning for our executive officers . the nominating and corporate governance committee has the authority to obtain independent advice and assistance from internal or external legal , accounting and other advisors , at biolife 's expense . the members of our nominating and corporate governance committee story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited financial statements and notes thereto that appear elsewhere in this report . this discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties . actual results may differ materially from those discussed in these forward-looking statements due to a number of factors , including those set forth in the section entitled “ risk factors ” and elsewhere in this report . the statements contained in this annual report on form 10-k , including statements under this section titled “ management 's discussion and analysis of financial condition and results of operations , ” include 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 , including , without limitation , statements regarding our management 's expectations , hopes , beliefs , intentions or strategies regarding the future . the words “ believe , ” “ may , ” “ will , ” “ estimate , ” “ continue , ” “ anticipate , ” “ intend , ” “ expect , ” “ plan ” and similar expressions may identify forward-looking statements , but the absence of these words does not mean that a statement is not forward-looking . the forward-looking statements contained in this annual report on form 10-k is based on our current expectations and beliefs concerning future developments and their potential effects on us . there can be no assurance that future developments affecting us will be those that we anticipated . these forward-looking statements involve a number of risks , uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements . these risks and uncertainties include those factors described in greater detail in item 1a of part i , “ risk factors ” . should one or more of these risks or uncertainties materialize , or should any of our assumptions prove incorrect , actual results may vary in material respects from those anticipated in these forward-looking statements . we undertake no obligation to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise , except as may be required under applicable securities laws . overview management 's discussion and analysis provides additional insight into the company and is provided as a supplement to , and should be read in conjunction with , our audited financial statements and accompanying footnotes thereto . our proprietary hypothermosol ® , cryostor ® , and generic bloodstor ® biopreservation media products are marketed to cell therapy companies , pharmaceutical companies , cord blood banks , hair transplant surgeons , and suppliers of cells to the toxicology testing and diagnostic markets . all of our products are serum-free and protein-free , fully defined , and are manufactured under current good manufacturing practices using united states pharmacopeia ( “ usp ” ) or the highest available grade components . our products are formulated to reduce preservation-induced , delayed-onset cell damage and death . this platform enabling technology provides academic and clinical researchers significant extension in biologic source material shelf life and also improved post-preservation cell , tissue , and organ viability and function . the discoveries made by our scientists and consultants relate to how cells , tissues , and organs respond to the stress of hypothermic storage , cryopreservation , and the thawing process , and enabled the formulation of truly innovative biopreservation media products that protect biologic material from preservation related cellular injury , much of which is not apparent immediately post-thaw . our enabling technology provides significant improvement in post-preservation viability and function of biologic material . this yield improvement can reduce research , development , and commercialization costs of new cell and tissue based clinical therapies . story_separator_special_tag critical accounting policies and significant judgments and estimates management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of financial statements requires that we 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 reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate estimates , including , but not limited to those related to accounts receivable allowances , determination of fair value of share-based compensation , contingencies , income taxes , and expense accruals . we base our estimates on historical experience and on other factors that we believes are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . 15 share-based compensation we account for share-based compensation by estimating the fair value of share-based compensation using the black-scholes option pricing model on the date of grant . we utilize assumptions related to stock price volatility , stock option term and forfeiture rates that are based upon both historical factors as well as management 's judgment . non-cash compensation expense is recognized on a straight-line basis over the applicable requisite service period of one to four years , based on the fair value of such share-based awards on the grant date . income taxes we follow the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and on the expected future tax benefits to be derived from net operating loss carryforwards measured using current tax rates . a valuation allowance is established if it is more likely than not that some portion or all of the deferred tax assets will not be realized . we have not recorded any liabilities for uncertain tax positions or any related interest and penalties . our tax returns are open to audit for the years ending december 31 , 2009 to 2011. story_separator_special_tag div align= '' justify '' style= '' text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > liquidity at december 31 , 2011 , we had cash and cash equivalents of $ 16,864 compared to cash and cash equivalents of $ 3,211 at december 31 , 2010. at december 31 , 2011 , we had working capital of $ 581,159 , compared to working capital of $ 474,271 at december 31 , 2010. we have been unable to generate sufficient income from operations in order to meet our operating needs and have an accumulated deficit of approximately $ 54 million at december 31 , 2011. this raises substantial doubt about our ability to continue as a going concern . net cash used in operating activities during the year ended december 31 , 2011 , net cash used in operating activities was $ 989,917 compared to net cash used by operating activities of $ 1,252,526 for the year ended december 31 , 2010. cash used in operating activities relates primarily to funding net losses and changes in operating assets and liabilities , offset by non-cash compensation related to stock options and depreciation . 18 net cash used in investing activities net cash used in investing activities totaled $ 91,430 during the year ended december 31 , 2011 , and $ 28,414 during the year ended december 31 , 2010. cash used in investing activities was due to purchase of property and equipment . net cash provided by financing activities net cash provided by financing activities totaled $ 1,095,000 for the year ended december 31 , 2011 and $ 1,145,000 for the year ended december 31 , 2010 and resulted from funding from the secured multi-draw term loan facility agreements ( the “ facility agreements ” ) with two shareholders , thomas girschweiler , a director and stockholder of the company , and walter villiger , an affiliate of the company ( the “ investors ” ) . on august 10 , 2011 , each facility agreement was increased by $ 500,000 to $ 5,250,000 ( an aggregate of $ 10,500,000 ) . off-balance sheet arrangements as of december 31 , 2011 , we did not have any off-balance sheet financing arrangements . contractual obligations in july 2007 , we signed a four-year lease , commencing august 1 , 2007 , for 4,366 square feet of office and laboratory space in bothell , wa at an initial rental rate of $ 6,367 per month . we are also responsible for paying our proportionate share of property taxes and other operating expenses as defined in the lease . in november 2008 , we signed an amended five-year lease to gain 5,798 square feet of additional clean room space for manufacturing in a facility adjacent to our corporate office facility leased in bothell , wa at an initial rental rate of $ 14,495 per month . included in this amendment is the exercise of the renewal option for our current office and laboratory space to make the lease for such space coterminous with the new facility five-year lease period . in march of 2012 , we signed an amended lease agreement which expanded the premises leased by the company from the landlord to approximately 21,000 rentable square feet . the term of the lease was extended for nine ( 9 ) years commencing on july 1 , 2012 and expiring on june 30 , 2021. the amendment includes two ( 2 ) options to extend the term of the lease
| results of operations summary of 2011 achievements ● revenue and customer base continued to grow with shipments of cryostor® , hypothermosol® , and bloodstor® , to dozens of new and most existing customers in strategic direct markets of regenerative medicine , biobanking , and drug discovery . our estimated direct and indirect customer base now totals more than 400 . ● revenue from distributors grew more than 150 % over 2010 and was 20 % of total revenue . ● the company executed a significant confidential multi-year contract manufacturing services agreement to perform aseptic media formulation , fill , and finish of several biopreservation solutions for a new multinational customer . comparison of annual results of operations percentage comparisons have been omitted within the following table where they are not considered meaningful . revenue and gross margin replace_table_token_2_th 16 product sales and cost of sales . our products are sold through both direct and indirect channels . product sales in 2011 increased compared to 2010 primarily due to significantly higher sales to our network of distributors in 2011 and increased sales to our contract manufacturing partners . sales to our direct customers increased 19 % in 2011 compared to 2010. sales to distributors in 2011 increased 159 % over sales to distributors in 2010. in addition , product sales increased due to sales to direct customers at higher selling prices in 2011 compared to 2010 for our family of products . cost of product sales consists of raw materials , labor and overhead expenses . cost of sales in 2011 increased compared to 2010 due to increased product sales . gross margin as a percentage of revenue increased in 2011 compared to 2010 , primarily due to increased utilization of our manufacturing facility . increased utilization resulted in lower overhead costs per unit manufactured being included in cost of sales .
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the notes are guaranteed by the certain subsidiaries of the company . the notes , which rank pari passu with the company 's obligations under the credit facilities , were issued to the prudential insurance company of america and certain of its affiliates ( collectively , “ prudential ” ) pursuant to a note purchase and guarantee agreement dated as of april 17 , 2013 ( the “ note purchase and guarantee agreement ” ) between the company and prudential . the net proceeds from the issuance of the notes were used to repay then-outstanding borrowings under the revolving credit facility . the notes must be repaid in two equal installments , the first $ 50,000 of which is due april 17 , 2018 and the second $ 50,000 of which is due at maturity on april 17 , 2023. moreover , the company may prepay the notes in amounts not less than $ 1,000 at 100 % of the story_separator_special_tag the following discussion should be read in conjunction with information included in item 8 of this report . unless otherwise indicated , the terms “ company ” , “ chefs ' warehouse ” , “ we ” , “ us ” , and “ our ” refer to the chefs ' warehouse , inc. and its subsidiaries . all dollar amounts are in thousands except per share amounts . overview and recent developments overview we are a premier distributor of specialty foods in eight of the leading culinary markets in the united states . we offer more than 34,000 skus , ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins . we serve more than 26,000 customer locations , primarily located in our 15 geographic markets across the united states and canada , and the majority of our customers are independent restaurants and fine dining establishments . as a result of our acquisition of allen brothers , we also sell certain of our center-of-the-plate products directly to consumers . we believe several key differentiating factors of our business model have enabled us to execute our strategy consistently and profitably across our expanding customer base . these factors consist of a portfolio of distinctive and hard-to-find specialty food products , an extensive selection of center-of-the-plate proteins , a highly trained and motivated sales force , strong sourcing capabilities , a fully integrated warehouse management system , a highly sophisticated distribution and logistics platform and a focused , seasoned management team . in recent years , our sales to existing and new customers have increased through the continued growth in demand for specialty food products and center-of-the-plate products in general ; increased market share driven by our large percentage of sophisticated and experienced sales professionals , our high-quality customer service and our extensive breadth and depth of product offerings , including , as a result of our acquisitions of michael 's in august 2012 , allen brothers in december 2013 and del monte in april 2015 , meat , seafood and other center-of-the-plate products , and , as a result of our acquisition of qzina in may 2013 , gourmet chocolate , pastries and dessert ; the acquisition of other specialty food and center-of-the-plate distributors ; the expansion of our existing distribution centers ; our entry into new distribution centers , including the construction of a new distribution center in chicago ; and the import and sale of our proprietary brands . through these efforts , we believe that we have been able to expand our customer base , enhance and diversify our product selections , broaden our geographic penetration and increase our market share . we believe that as a result of these efforts , we have increased sales from $ 400,632 in fiscal 2011 to $ 1,058,996 in fiscal 2015. recent acquisitions on april 6 , 2015 , we acquired substantially all the equity interests of del monte capitol meat co. and substantially all the assets of certain of its affiliated companies ( collectively , “ del monte ” ) for an initial purchase price of approximately $ 185,332 , including the initial net working capital adjustment . founded in 1926 , del monte supplies high quality , usda inspected beef , pork , lamb , veal , poultry and seafood products to northern california . the funding of the acquisition consisted of the following : · $ 123,893 in cash , which was funded with cash-on-hand , borrowings under the revolving credit facility portion of our senior secured credit facilities and the issuance of $ 25,000 of additional senior secured notes that bear interest at 5.80 % per annum due on october 17 , 2020 ; · approximately 1.1 million shares of our common stock ( valued at $ 22.17 per share ) ; and · $ 36,750 in convertible subordinated notes issued to certain entities affiliated with del monte with a six-year maturity bearing interest at 2.50 % with a conversion price of $ 29.70 per share . in addition , we have agreed to pay additional contingent consideration of up to $ 24,500 upon the successful achievement of adjusted ebitda targets for the del monte entities and improvements in certain operating metrics for our existing protein business and the business of any protein companies subsequently acquired by the company over the six years following the closing . the final amount of the purchase price for del monte is subject to certain customary post-closing adjustments and finalization of our purchase accounting adjustments . on october 24 , 2014 , we acquired substantially all the assets of euro gourmet inc. ( “ euro gourmet ” ) , a wholesale specialty distributor based in beltsville , maryland . founded in 1999 , euro gourmet was a supplier of imported and domestic products . euro gourmet supplied more than 3,000 products to some of the finest restaurants , bakeries , patisseries , chocolatiers , hotels and cruise lines along the mid-atlantic united states . the total purchase price for euro gourmet was approximately $ 2,063 at closing and was funded with cash from operations . story_separator_special_tag we believe that the consolidation trends in the foodservice distribution industry will continue to present acquisition opportunities for us , which may allow us to grow our business at a faster pace than we would otherwise be able to grow the business organically . performance indicators in addition to evaluating our income from operations , our management team analyzes our performance based on net sales growth , gross profit and gross profit margin . · net sales growth . our net sales growth is driven principally by changes in volume and , to a lesser degree , changes in price related to the impact of inflation in commodity prices and product mix . in particular , product cost inflation and deflation impacts our results of operations and , depending on the amount of inflation or deflation , such impact may be material . for example , inflation may increase the dollar value of our sales , and deflation may cause the dollar value of our sales to fall despite our unit sales remaining constant or growing . · gross profit and gross profit margin . our gross profit and gross profit as a percentage of net sales , or gross profit margin , are driven principally by changes in volume and fluctuations in food and commodity prices and our ability to pass on any price increases to our customers in an inflationary environment and maintain or increase gross profit margin when our costs decline . our gross profit margin is also a function of the product mix of our net sales in any period . given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins . this mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered , impact of product mix from acquisitions , as well as the continued growth in item penetration on higher velocity items such as dairy products . key financial definitions · net sales . net sales consist primarily of sales of specialty products , center-of-the-plate proteins and other food products to independently-owned restaurants and other high-end foodservice customers , which we report net of certain group discounts and customer sales incentives . net sales also include sales by our allen brothers subsidiary that are direct to consumers . · cost of sales . cost of sales include the net purchase price paid for products sold , plus the cost of transportation necessary to bring the product to our distribution facilities . our cost of sales may not be comparable to other similar companies within our industry that include all costs related to their distribution network in their costs of sales rather than as operating expenses . · operating expenses . our operating expenses include warehousing , processing and distribution expenses ( which include salaries and wages , employee benefits , facility and distribution fleet rental costs and other expenses related to warehousing , processing and delivery ) and selling , general and administrative expenses ( which include selling , insurance , administrative , wage and benefit expenses and share-based compensation expense ) . · interest expense . interest expense consists primarily of interest on our outstanding indebtedness and , as applicable , the write off of deferred financing fees . critical accounting policies the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the sec has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult , complex or subjective judgments or estimates . based on this definition , we believe our critical accounting policies include the following : ( i ) determining our allowance for doubtful accounts , ( ii ) inventory valuation , with regard to determining our reserve for excess and obsolete inventory , ( iii ) valuing goodwill and intangible assets , ( iv ) vendor rebates and other promotional incentives , ( v ) self-insurance reserves , and ( vi ) accounting for income taxes and ( vii ) contingent earn-out liabilities . for all financial statement periods presented , there have been no material modifications to the application of these critical accounting policies . 36 allowance for doubtful accounts we analyze customer creditworthiness , accounts receivable balances , payment history , payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts . in instances where a reserve has been recorded for a particular customer , future sales to the customer are either conducted using cash-on-delivery terms or the account is closely monitored so that agreed-upon payments are received prior to orders being released . a failure to pay results in held or cancelled orders . we also estimate receivables that will ultimately be uncollectible based upon historical write-off experience . our estimate could require change based on changing circumstances , including changes in the economy or in the particular circumstances of individual customers . accordingly , we may be required to increase or decrease our allowance . our accounts receivable balance was $ 124,139 and $ 96,896 , net of the allowance for doubtful accounts of $ 5,803 and $ 4,675 , as of december 25 , 2015 and december 26 , 2014 , respectively . inventory valuation we maintain reserves for slow-moving and obsolete inventories . these reserves are primarily based upon inventory age plus specifically identified inventory items and overall economic conditions . a sudden and unexpected change in consumer preferences or change in overall economic conditions could result in a significant change in the reserve balance and could require a corresponding charge to earnings .
| results of operations the following table presents , for the periods indicated , certain income and expense items expressed as a percentage of sales : replace_table_token_6_th fiscal year ended december 25 , 2015 compared to fiscal year ended december 26 , 2014 net sales net sales for the fifty-two weeks ended december 25 , 2015 increased approximately 26.6 % to $ 1,058,996 from $ 836,625 for the fifty-two weeks ended december 26 , 2014. the increase in net sales was primarily the result of the acquisition of del monte , as well as organic sales growth . acquisitions contributed approximately $ 174,679 , or 20.9 % , to net sales growth for the year . organic growth contributed the remaining approximately $ 47,692 , or 5.7 % , of total net sales growth . internally calculated inflation was approximately 3.0 % for the year ended december 25 , 2015 , driven largely by certain protein and chocolate categories offset in part by deflation in the cheese , dairy and seafood categories . internally calculated inflation for fiscal 2014 was approximately 5.9 % . gross profit gross profit increased approximately 30.8 % to $ 269,534 for the fifty-two weeks ended december 25 , 2015 from $ 206,052 for the fifty-two weeks ended december 26 , 2014 primarily due to increased sales volumes . gross profit margin increased approximately 82 basis points to 25.4 % in fiscal 2015 from 24.6 % in the year earlier period . this increase in gross profit margin was due primarily to increased profit margins in our core specialty business and improved operating performance in our allen brothers subsidiary , which experienced significant cost pressure in 2014. operating expenses total operating expenses increased by approximately 32.4 % to $ 229,134 for the fifty-two weeks ended december 25 , 2015 from $ 173,042 for the fifty-two weeks ended december 26 , 2014 primarily due to increased sales volumes .
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story_separator_special_tag executive summary the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to provide the readers of our financial statements with a narrative discussion about our business . the md & a is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes . we are reporting a $ 55,302 increase in net sales and a $ 9,050 increase in operating income for fiscal 2013 from fiscal 2012. our net income increased to $ 22,328 , or $ 0.81 per diluted share , an increase of $ 5,347 or 31.5 % compared to fiscal year 2012. our financial position as of june 30 , 2013 , remains strong , as we had cash , cash equivalents and short-term investments of $ 35,375 , working capital of $ 128,393 and shareholders ' equity of $ 194,640. our business is separated into three principal segments : human health , pharmaceutical ingredients and performance chemicals . products that fall within the human health segment include finished dosage form generic drugs and nutraceutical products . in december 2010 , we acquired certain assets of rising pharmaceuticals , inc. ( “ rising ” ) , a new jersey based company that markets and distributes generic prescription and over the counter pharmaceutical products to leading wholesalers , chain drug stores , distributors , mass market merchandisers and others under its own label , throughout the united states .this is a natural extension of our successful business model which provides customers and suppliers additional opportunities to penetrate the end user segment of the pharmaceutical market . with the rising brand label , we have been able to expand our direct involvement in the pharmaceutical space through greater global awareness of our capabilities in the marketing of pharmaceutical intermediates , active ingredients and the ultimate end-products , finished dosage form generics . aceto supplies the raw materials used in the production of nutritional and packaged dietary supplements , including vitamins , amino acids , iron compounds and biochemicals used in pharmaceutical and nutritional preparations . after we identified a change in the attitudes of europeans towards nutritional products , we globalized this business , creating an operating company headquartered in germany , aceto health ingredients gmbh . this globally structured business then became the model for all of our business segments , providing international reach and perspective for our customers . 20 the pharmaceutical ingredients segment has two product groups : active pharmaceutical ingredients ( apis ) and pharmaceutical intermediates . as the use of generic drugs has grown significantly over the years , we believe aceto 's presence in this market also increased , both domestically and internationally . we supply apis to many of the major generic drug companies , who we believe view aceto as a valued partner in their effort to develop and market generic drugs . the process of introducing a new api from pipeline to market spans a number of years and begins with aceto partnering with a generic pharmaceutical manufacturer and jointly selecting an api , several years before the expiration of a composition of matter patent , for future generisizing . we then identify the appropriate supplier , and concurrently utilizing our global technical network , ensure they meet the highest standards of quality to comply with regulations . the generic pharmaceutical company will submit the abbreviated new drug application ( anda ) for u.s. food and drug administration ( fda ) approval or european-equivalent approval . the introduction of the api to market occurs after all the development testing has been completed and the anda or european-equivalent is approved and the patent expires or is deemed invalid . aceto has a robust pipeline of apis poised to reach commercial levels , both in the united states and europe . aceto has long been a supplier of pharmaceutical intermediates , the complex chemical compounds that are the building blocks used in producing apis . these are the critical components of all drugs , whether they are already on the market or currently undergoing clinical trials . faced with significant economic pressures as well as ever-increasing regulatory barriers , the innovative drug companies look to aceto as a source for high quality intermediates . utilizing our global sourcing , regulatory support and quality assurance network , aceto works with the large , global pharmaceutical companies , sourcing lower cost , quality pharmaceutical intermediates that will meet the same high level standards adhered to by their current commercial products . the performance chemicals segment includes specialty chemicals and agricultural protection products . aceto is a major supplier to many different industrial segments that require outstanding performance from chemical raw materials and additives . we provide chemicals which make plastics , surface coatings , textiles , fuels and lubricants to perform to their designed capabilities . these additive specialty products include antioxidants , photo initiators , catalysts , curatives , brighteners and adhesion promoters . aceto is at the forefront as a supplier of chemicals to ecofriendly technologies . for example , we supply ultraviolet photo initiators which allow inks and coatings to be cured by ultraviolet light instead of solvents , as well as curing agents and optical brighteners for powder ( non-solvent ) coatings . these growing technologies are critical in protecting and enhancing the world 's ecology . we provide specialty chemicals for the food , beverage and fragrance industries . aceto 's raw materials are also used in sophisticated technology products , such as high-end electronic parts ( circuit boards and computer chips ) and binders for specialized rocket fuels . aceto is also a leader in the supply of diazos and couplers to the paper and film industries . specific end uses for these products include microfilm , blueprints and photo tooling of printed circuit boards . we also provide organic intermediates and colorants . the color producing industry manufactures a wide assortment of products and aceto is the supplier of choice to these producers of “ color. story_separator_special_tag inventories inventories , which consist principally of finished goods , are stated at the lower of cost ( first-in first-out method ) or market . we write down our inventories for estimated excess and obsolete goods by an amount equal to the difference between the carrying cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions . a significant sudden increase in demand for our products could result in a short-term increase in the cost of inventory purchases , while a significant decrease in demand could result in an increase in the excess inventory quantities on-hand . additionally , we may overestimate or underestimate the demand for our products which would result in our understating or overstating , respectively , the write-down required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand could have a significant impact on the value of our inventory and reported operating results . goodwill and other indefinite-lived intangible assets goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets . other indefinite-lived intangible assets principally consist of trademarks . goodwill and other indefinite-lived intangible assets are not amortized . in accordance with gaap , we test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis . to determine the fair value of these intangible assets , we use many assumptions and estimates that directly impact the results of the testing . in making these assumptions and estimates , we use industry-accepted valuation models and appropriate market participant assumptions that are reviewed and approved by various levels of management . if our estimates or our related assumptions change in the future , we may be required to record impairment charges for these assets . long-lived assets in accordance with gaap , long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . identifiable intangible assets principally consist of customer relationships , product rights and related intangibles , epa registrations and related data , patent license , and technology-based intangibles . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . recoverability of assets held for sale is measured by comparing the carrying amount of the assets to their estimated fair value . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . environmental and other contingencies we establish accrued liabilities for environmental matters and other contingencies when it is probable that a liability has been incurred and the amount of the liability can reasonably be estimated . if the contingency is resolved for an amount greater or less than the accrual , or our share of the contingency increases or decreases , or other assumptions relevant to the development of the estimate were to change , we would recognize an additional expense or benefit in income in the period that the determination was made . 23 taxes we account for income taxes in accordance with gaap . gaap establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise 's activities during the current and preceding years . it requires an asset-and-liability approach to financial accounting and reporting of income taxes . as of june 30 , 2013 , we had current net deferred tax assets of $ 701 and non-current net deferred tax assets of $ 8,049. these net deferred tax assets have been recorded based on our projecting that we will have sufficient future earnings to realize these assets , and the net deferred tax assets have been provided for at currently enacted income tax rates . if we determine that we will not be able to realize a deferred tax asset , an adjustment to the deferred tax asset could result in a reduction of net income at that time . deferred taxes have not been provided for on the majority of undistributed earnings of foreign subsidiaries since substantially all of these earnings are expected to be permanently reinvested in our foreign operations . a deferred tax liability is recognized when we expect that we will recover those undistributed earnings in a taxable manner , such as through receipt of dividends or sale of the investments . the company intends to permanently reinvest any undistributed earnings and has no plan for further repatriation . determination of the amount of the unrecognized u.s. income tax liability on undistributed earnings is not practical because of the complexities of the hypothetical calculation . in addition , unrecognized foreign tax credit carryforwards would be available to reduce a portion of such u.s. tax liability . stock-based compensation in accordance with gaap , we are required to record the fair value of stock-based compensation awards as an expense . in order to determine the fair value of stock options on the date of grant , the company uses the black-scholes option-pricing model , including an estimate of forfeiture rates . inherent in this model are assumptions related to expected stock-price volatility , risk-free interest rate , expected life and dividend yield . the company uses an expected stock-price volatility assumption that is a combination of both historical volatility , calculated based on the daily closing prices of its common stock over a period equal to the expected life of the option and implied volatility , utilizing market data of actively traded options on aceto 's common stock , which are obtained from public data sources .
| results of operations fiscal year ended june 30 , 2013 compared to fiscal year ended june 30 , 2012 replace_table_token_5_th 25 net sales net sales increased $ 55,302 , or 12.4 % , to $ 499,690 for the year ended june 30 , 2013 , compared with $ 444,388 for the prior year . we reported sales increases in all three of our business segments . human health net sales for the human health segment increased by $ 24,418 for the year ended june 30 , 2013 , to $ 129,667 , which represents a 23.2 % increase over net sales of $ 105,249 for the prior year , largely driven by an increase in sales of rising products of $ 27,284 due to new generic product launches at rising . this increase is partially offset by a reduction in domestic sales of $ 4,281 of nutritional products due to lower orders of existing products . pharmaceutical ingredients net sales for the pharmaceutical ingredients segment increased by $ 21,854 for the year ended june 30 , 2013 , to $ 184,852 , which represents a 13.4 % increase over net sales of $ 162,998 for the prior year . overall , the domestic pharmaceutical ingredients group had an increase of $ 8,346 , when compared to the prior period . the primary reason for the increase is due to the volume of large reorders for existing apis sold by our united states and german operations , as well as a launch of a new product , sold domestically . in addition , sales of intermediates , which represent key components used in the manufacture of certain drug products , have risen both in the united states and abroad by approximately $ 5,233 over the prior year . performance chemicals net sales for the performance chemicals segment increased to $ 185,171 for the year ended june 30 , 2013 , an increase of $ 9,030 or 5.1 % , from net sales of $ 176,141 for the prior year .
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pen is the result of a business combination ( the “ combination ” ) , that closed at the end of august , 2014 ( and disclosed elsewhere in this annual report ) . overview pen 's business is the marketing and sale of products enabled by nanotechnology . we develop and sell products based on our strong portfolio of intellectual property . our current products are a portfolio of nano-layer coatings , nano-based cleaners , printable inks and pastes , gas detectors and thermal management materials . pen applies knowledge derived from our ongoing nanotechnology research and development to control and manipulate materials at the molecular level to solve everyday problems for customers in the optical , transportation , military , sports , and safety industries . our primary commercial products center on our customized eye care glass cleaning and de-fogging products , precision mold release treatments , stay-clean surface treatments for ceramic surfaces , and scuff-resistant treatments for commercial dinnerware . these products are marketed globally . we are also engaged in research and development under contract with the government and others with the goal of developing new and improved products using our proprietary technology , and also sell printable inks and pastes , gas detectors , and thermal management materials . 19 our principal operating segments coincide with the types of products to be sold . the products from which revenues are derived are consistent with the reporting structure of the company 's internal organization . the company 's two reportable segments for the year ended december 31 , 2015 and for the 2014 period were ( i ) the product segment and ( ii ) the research and development segment . product segment revenue is based on the successful development of products and technologies using proprietary intellectual property and the sale of liquid products , and wet and dry towelettes , based on these technologies . our goal continues to be to create segment leading brands through sales of high quality consumer products , and by developing and producing customized formulas for sale to strategic , industrial partners to be incorporated into their customer 's products . whenever feasible , we seek to be actively involved in the manufacture of formulas in order to produce reliable , consistent quality for the products that we and our commercial partners bring to the marketplace . our main products are : ● packaged products for retail sale to consumers for eyeglass and sunglass lens cleaning and conditioning , ● packaged products for retail sale to consumers for anti-fog and conditioning of masks and goggles , ● packaged products for sale to the military for safety anti-fogging and conditioning of lenses , masks , head gear and other applications such as head 's up displays , ● liquids for sale to industrial customers who resell to those who need porcelain coatings for restaurant dinnerware , and ● liquids for sale to suppliers to local governments and agencies for coatings for porcelain and other applications in mass transportation . in addition , we have developed a series of formulations used in the manufacture of precision casting and decorative architectural glass products which provides a barrier to soiling , helping keep decorative art-glass clean longer and making it easier to clean . separate from our historical business , we are also focused on creating products enabled by nanotechnology that tackle and solve big , global problems in growing markets . we have three primary areas of new product focus : 1. health ; 2. safety ; and 3. sustainability . the first new product is expected to be part of a family of cleaning products that clean and fortify surfaces at the nanoscale-level . this fortifier and protector can clean and protect many surfaces , both natural and man-made . after application , the product continues to fortify and protect , creating a healthy surface research and development segment this segment focuses its efforts on research and development of proof of concepts and prototypes for proposed pen products and on performing research and development services to government and private entities . we are developing technologies that generally fall under one of three technology platforms . these platforms are : 20 ● nanosensor technology ; ● nanoelectronics ; and ● submicron particle formulations for health and safety products . our research and development efforts are currently focused in these and emerging areas . recent developments pen is focused on the development of new products using the strong intellectual property portfolio acquired in the combination . the product segment will continue to grow its product sales and develop its product offerings . the research and development segment is working on product prototypes for new product offerings and is also continues to perform research and development for a fee from government and private customers . currently , our research and development segment includes research and development activities of our newly formed subsidiary , pen technology , llc . effective january 26 , 2016 we effected a 180 to 1 reverse split of our outstanding common stock . at the same time we reduced the number of our authorized shares of common stock to a total of 10,000,000 shares comprised of 7,200,000 shares of class a common stock , 2,500,000 shares of class b common stock , and 300,000 shares of class z common stock and set a par value of $ 0.0001 per share of all classes of our common stock upon the effectiveness of the reverse stock split . all share and per share data in this report have been retroactively restated to reflect the effect of the reverse split and authorized shares . story_separator_special_tag serif '' > ● in december 2015 and december 2014 , we assessed our long-lived assets for any impairment and concluded that there were indicators of impairment as of december 31 , 2015 and 2014. we recorded an impairment charge of $ 188,051 and $ 1,933,144 for the years ended december 31 , 2015 and 2014 , respectively , related to our intangible assets . story_separator_special_tag net cash provided by financing activities was $ 850,115 for the year ended december 31 , 2015 as compared to net cash used in financing activities $ 1,575 for the year ended december 31 , 2014. during the year ended december 31 , 2015 , we received net proceeds from the bank line of credit of $ 515,404 and received net proceeds from notes payable of $ 334,711. during the year ended december 31 , 2014 , we received net proceeds from the bank line of credit of $ 573,425 and repaid a bank loan of $ 575,000. future liquidity and capital needs . our principal future uses of cash are for working capital requirements , including research and development and marketing expenses , legal and other fees incurred in connection with our patents and technologies , capital expenditures and reduction of accrued liabilities . these uses will depend on numerous factors including our sales and other revenues , the extent of our research and development activities and our ability to control costs . we have historically financed our working capital needs primarily through internally generated funds , and bank loans . we collect cash from our customers based on our sales to them and their respective payment terms . we expect to require additional funds through public or private debt or equity financings to be able to increase marketing for our products and to fully execute our business plan . if we are unable to raise the capital we need , we may need to reduce the scope of our business in order to continue our operations . revolving credit note in april 2014 , our subsidiary , nanofilm entered into a $ 1,500,000 revolving credit line agreement ( the “ revolving note ” ) with mackinac commercial credit , llc . ( the “ lender ” ) . the unpaid principal balance of this revolving note is payable on demand , is secured by all of nanofilm 's assets , and bears interest computed at a rate of interest ( the “ effective rate ” ) which is equal to 7.0 % above the libor rate , as defined , payable monthly . nanofilm will pay a late charge of 5.0 % of any monthly payment not received by lender within 10 calendar days after the due date . the company , at any time or from time to time upon three business days ' written notice to lender , prepay the revolving note in full . if borrower prepays the revolving note in full and terminates the revolving note aft , or if lender terminates the revolving note after default , then , in addition to all other amounts due to lender and or paid by the company , the company must pay a termination premium equal to 2.0 % of the maximum loan amount . without the lender 's consent , so long as the obligation remains outstanding , in addition to other covenants as defined in the revolving note , nanofilm shall not a ) merge or consolidate with any other company , except for the combination and shall not suffer a change of control ; b ) make an capital expenditures , as defined , materially affecting the business ; c ) declare of pay cash dividends upon any of its stock , or distribute any of its property , make any loans , make investments , redeem , retire or acquire any of its stock , d ) become liable for the indebtedness of anyone else , as defined , and e ) incur indebtedness , other than trade payables . at december 31 , 2015 , we had $ 1,288,748 in borrowings outstanding under the revolving note with $ 211,252 available for borrowing under such note . the weighted average interest rate during the 2015 and 2014 period was approximately 7.3 % and 6.8 % , respectively . 25 equipment financing on february 10 , 2015 , nanofilm entered into a $ 373,000 promissory note ( the “ equipment note ” ) with keybank , n.a . ( the “ bank ” ) . the unpaid principal balance of this equipment note is payable in 60 equal monthly installments payments of principal and interest through june 10 , 2020. the equipment note is secured by certain equipment , as defined in the equipment note , and bears interest computed at a rate of interest of 4.35 % per annum based on a year of 360 days . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we continually evaluate our estimates , including those related to income taxes , and the valuation of equity transactions . we base our estimates on historical experience and on various other assumptions that we 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 . any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues , expenses , assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the unaudited consolidated financial statements . impairment of long-lived assets in accordance with asc topic 360 , we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable , or at least annually .
| results of operations the following comparative analysis on results of operations was based primarily on the comparative consolidated financial statements , footnotes and related information for the periods identified below and should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this report . the results discussed below are for the years ended december 31 , 2015 and 2014. for the 2014 period , substantially all of our results of operations relate to our product segment since the results of operations related to our research and development segment are only included in our results of operations for the period from august 27 , 2014 , ( the effective date of the merger ) to december 31 . 2014. the acquired research and development segment has a history of net losses and negative cash flow from operations . since the combination , we have made efforts to cut costs and have subleased excess space in order to reduce net losses and cash used in operations . we continue to monitor costs and to reduce costs in order to achieve positive or break-even cash flow from operations in this segment . comparison of results of operations for the year ended december 31 , 2015 and 2014 revenues : for the years ended december 31 , 2015 and 2014 , revenues consisted of the following : replace_table_token_2_th for the year ended december 31 , 2015 , sales from the product segment decreased by $ 1,257,420 or 13.7 % as compared to the year ended december 31 , 2014 and was primarily attributable to lower sales of anti-fog products . in 2013 , we experienced delays in the production of anti-fog cloths which resulted in heavier than normal sales in the first half of 2014 .
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discussion of the performance of all of our groups is more fully explained in the segment analysis that follows . income taxes the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2012 was $ 15.9 million , or an effective rate of 25.3 % , compared to $ 14.9 million , or an effective rate of 28.2 % for the year ended june 30 , 2011 , and $ 12.5 million , or an effective rate of 29.2 % for the year ended june 30 , 2010. changes in the effective tax rates from period to period may be significant as they depend on many factors including , but not limited to , the amount of the company 's income or loss , the mix of income earned in the us versus outside the us , the effective tax rate in each of the countries in which we earn income , and any one time tax issues which occur during the period . in 2013 , we expect to return to a more normal tax rate in the range of 29.0 % to 30.0 % based on an anticipated increase in us-based taxable income within our overall business mix . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2012 was impacted by the following items : ( i ) ) a benefit of $ 1.3 million from the reversal of income tax contingency reserves that were determined to be no longer needed due to the lapsing of the statute of limitations and re-measurement of existing tax contingency reserves based on recently completed tax examinations , ( ii ) a benefit of $ 0.4 million related to a decrease in the statutory tax rate in the united kingdom on prior period deferred tax liabilities recorded during the first quarter , and ( iii ) a benefit of $ 4.5 million due to the mix of income earned in jurisdictions with beneficial tax rates . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2011 was impacted by the following items : ( i ) a benefit of $ 0.3 million from the reversal of income tax contingency reserves that were determined to be no longer needed due to the expiration of applicable limitation statutes , ( ii ) a benefit of $ 0.2 million related primarily to the retroactive extension of the r & d credit recorded during the second quarter , and ( iii ) a benefit totaling $ 0.3 million as part of the deferred tax provision related to a change in the estimated state rate used to calculate the deferred balances . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2010 was impacted by a benefit of $ 1.1 million from the reversal of a deferred tax asset valuation allowance . this allowance was primarily related to foreign loss carry forwards whose recovery was assessed as more likely than not based on events occurring during the year ended june 30 , 2010. capital expenditures in general , our capital expenditures over the longer term are expected to be approximately equivalent to our annual depreciation costs . in 2012 , capital expenditures of $ 8.6 million began shifting back to our historical trend as we made strategic investments which supported productivity improvements , geographic expansion , and development of new product offerings . in 2011 , capital expenditures of $ 7.0 million were below our annual depreciation of $ 10.9 million , as we chose to focus our spending on acquisitions in lieu of capital expenditures . backlog backlog at june 30 , 2012 increased $ 16.0 million from $ 103.7 million to $ 119.7 million when compared to fiscal 2011 , a 15.4 % increase . backlog was approximately flat for the hydraulics products group , with our other segments all showing double-digit increases year-over-year . the food service equipment and engraving groups were the strongest drivers , with increases of 19 % and 23.5 % , respectively . segment analysis ( in thousands ) food service equipment replace_table_token_7_th net sales for the year ended june 30 , 2012 increased $ 23.3 million , or 6.4 % , from the same period one year earlier . this includes a minor negative effect of foreign exchange rates of $ 0.1 million in sales . the refrigerated solutions ( walk-in coolers and freezers and refrigerated cabinets ) and cooking solutions groups grew approximately 6.3 % and 4.1 % year over year , respectively , while the other food service equipment businesses grew net sales by 9.1 % . the refrigeration business continues to see strong sales across the board to our quick-service restaurant chain customers , and we are seeing continued traction in the dollar store segment where we are growing market share and the customer base . from a product standpoint , we continue to see double-digit growth in our value line products and rack refrigeration systems . sales in cooking solutions were driven by us business at bki , whereas aai was negatively impacted by lower sales to major quick service chains and lower sales to uk retail accounts due to the macroeconomic conditions impacting that market . our equity investment and distribution agreement with giorik spa , an italian manufacturer of combi ovens , was well received at the two spring trade shows , and we are working with our customer base in both the us and uk to complete required customer testing and evaluation . we expect to see the benefits of this strategic alliance in the second half of 2013. income from operations for fiscal 2012 increased $ 1.7 million , or 4.5 % , when compared to the same period one year earlier . this includes the minor negative effect of foreign exchange rates of $ 0.1 million . the group 's return on sales decreased from 10.4 % to 10.2 % in the prior year . story_separator_special_tag net sales in 2011 increased $ 2.3 million or 4.0 % , when compared to 2010. the increase is a result of the acquisition of metal spinners group , which increased sales 9.0 % . negative organic growth of 5.1 % occurred as increases in the aviation and defense segments at spincraft were more than offset by declines in the energy and aerospace markets . for the fiscal year ending june 30 , 2011 , income from operations decreased $ 1.2 million , or 8.9 % , when compared to 2010. this decrease was driven by the energy and aerospace sales volume reductions at spincraft and the effect of $ 0.8 million of purchase accounting and other acquisition-related costs from the metal spinners acquisition . electronics products replace_table_token_10_th electronics products sales increased $ 1.6 million , or 3.4 % in 2012 when compared to the prior year . sales growth was negatively impacted during the first three quarters of 2012 as we experienced soft demand for reed switches , particularly in the asia pacific region , and soft demand from a number of larger oem accounts for sensors and magnetic products . however , sales strengthened significantly in the fourth quarter as we benefited from a number of new products and customer project launches within the automotive , appliance , medical , and hvac sensor and magnetic markets and strengthening demand for reed switches . this pipeline of new programs remains robust and is expected to contribute to solid top line growth in 2013. additionally , 2013 will see the impact of the meder acquisition , which will add complementary geographic regions , products , markets , and sales . income from operations in 2012 increased $ 1.2 million , or 15.4 % , compared to 2011. the year over year improvement was the result of the sales increase as well as the impact of various material and labor cost savings particularly within the north american businesses . the higher sales level and the various cost reduction initiatives drove operating income margin from 16.2 % in 2011 to 18.1 % for 2012. while the purchase accounting from meder will negatively impact the first quarter , we expect the acquisition to be accretive to the year in the range of $ 0.08 to $ 0.12 per diluted share . sales for the group increased $ 9.4 million , or 25.3 % , in 2011 when compared to 2010. this increase is due to improved market conditions in our end user markets and market share gains resulting from our top line organic growth initiatives . we moved into new regions , products , and markets by adding new internal and third-party sales representatives in the united states , europe and asia . we remain in a unique position relative to our competition , as we are able to provide engineering expertise on a global basis combined with the low cost manufacturing from our facilities located in mexico and china . our north american-based competition typically can not offer the same low cost manufacturing position and competitors located in china can not provide the same level of new product and application engineering capability . income from operations during 2011 increased $ 3.5 million , or 85.3 % compared to 2010 as improved pricing and productivity improvements allowed us to continue to leverage volume at our low-cost facilities in mexico and china . hydraulics products replace_table_token_11_th net sales in 2012 for the hydraulics products group increased $ 7.0 million , or 30.5 % when compared to 2011. conditions in the north american dump trailer market continue to improve . diversification into other markets has been a major contributor to the growth , as demonstrated by market share gains at several north american refuse market oems . the manufacturing facility in tianjin , china has also been a factor in our top line growth , as this facility is now producing both rod and telescopic cylinders for global customers . the ability to offer our engineering expertise on a global basis combined with manufacturing locations in the united states and a low cost operation in china has allowed us to penetrate markets where we previously could not be competitive . expansion of business geographically into areas such as southeast asia , australia , central america and south america is contributing to the increase outside of our historical focus on the north american market . we are currently adding capacity to our china facility in anticipation of continued growth from these markets . income from operations for 2012 increased $ 2.0 million or 80.7 % when compared to 2011. this increase in annual income from operations can be attributed to leveraging the top line growth , cost containment and process and productivity improvements . sales for the group in 2011 were $ 22.9 million , an increase of $ 6.3 million , or 38.1 % , compared to 2010 sales of $ 16.6 million . business in the domestic dump truck and dump trailer markets began to improve due to increases in coal mining , requirements for aggregate , and the replacement of aging equipment by municipalities . our diversification efforts in the chinese domestic market , the move into alternative markets such as oil & gas and refuse vehicles , as well as sales into southeast asia , australia , central america and south america , also contributed to the increase . income from operations in 2011 was $ 2.4 million , an increase of $ 1.5 million , or 153.0 % , from 2010 income from operations of $ 1.0 million . the increase in sales during the period had a dramatic positive impact on income due to the impact of cost reduction initiatives taken in 2009. corporate , restructuring and other replace_table_token_12_th corporate expenses in 2012 increased $ 2.5 million , or 11.9 % as compared to 2011 , driven primarily by increased management bonus and stock compensation expense related to exceeding performance targets for the year . corporate expenses in 2011 increased $ 0.8 million , or 4.1 % as compared to 2010.
| overview we are a leading manufacturer of a variety of products and services for diverse commercial and industrial market segments . we have five reportable segments : food service equipment group , engraving group , engineering technologies group , electronics products group , and the hydraulics products group . our ongoing focused diversity strategy is to deliver superior returns and greater shareholder value through the identification of and investment in businesses that provide value-added and technology-driven customer solutions . as part of this ongoing strategy , in december 2011 , the company decided to divest its air distribution products ( adp ) business unit , which was previously reported as a stand-alone segment . we determined that as a more commodity-like product , adp was not well aligned with our strategic objectives . on march 30 , 2012 , we completed the sale of adp to a private equity buyer for consideration of $ 13.1 million in cash and a $ 3.0 million secured note in anticipation of using the proceeds from the sale to further implement our focused diversity strategy . subsequent to year-end , we executed on this plan by acquiring meder electronic group ( meder ) , an investment which will substantially broaden our global footprint , product line offerings , and end-user markets in the electronics products segment . since the beginning of the 2008 macroeconomic recession , we have reduced our cost structure through company-wide and targeted headcount reductions , low cost manufacturing initiatives , plant consolidations , procurement savings , and improved productivity in all aspects of our operations . also , in light of commodity inflation that a number of our business units have experienced , we have initiated a number of price increases in the marketplace in order to at least partially offset these cost increases and improve profitability . these efforts have allowed the company to significantly improve margins since 2008 and improve profitability despite sales only recently returning to above their pre-recession peak .
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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 we were incorporated on july 13 , 2011 as a maryland corporation that elected to be taxed as a reit beginning with our taxable year ended december 31 , 2013. we completed our initial public offering on june 30 , 2014 , and , on june 2 , 2015 we listed our common stock on the nyse under the symbol `` gnl . '' we invest in commercial properties , with an emphasis on sale-leaseback transactions involving single tenant net-leased commercial properties . substantially all of our business is conducted through the op . our properties are managed and leased to third parties by the property manager . pursuant to the advisory agreement , we have retained the advisor to manage our affairs on a day-to-day basis . the advisor and the property manager are under common control with ar global , and these related parties receive compensation and fees for various services provided to us . as of december 31 , 2018 , we owned 342 properties consisting of 27.5 million rentable square feet , which were 99.2 % leased with a weighted-average remaining lease term of 8.3 years . based on the percentage of annualized rental income on a straight-line basis as of december 31 , 2018 , 55.7 % of our properties are located in the u.s and 44.3 % are located in europe . we may also originate or acquire first mortgage loans , mezzanine loans , preferred equity or securitized loans secured by real estate . as of december 31 , 2018 , we did not own any first mortgage loans , mezzanine loans , preferred equity or securitized loans . following the termination of the former service provider , effective as of march 17 , 2018 , the advisor , together with its service providers , assumed full management responsibility of our european real estate portfolio . prior to the termination of the former service provider , the former service provider provided , subject to the advisor 's oversight and pursuant to the service provider agreement , certain real estate related services , as well as sourcing and structuring of investment opportunities , performance of due diligence , and arranging debt financing and equity investment syndicates , solely with respect to investments in europe . since the termination of the former service provider , the advisor has built a european-focused management team and engaged third-party service providers to assume certain duties previously performed by the former service provider . see item 3. legal proceedings for additional information . during the year ended december 31 , 2018 , we acquired 23 properties and sold two properties ( see note 4 — real estate investments , net to our consolidated financial statements included in this annual report on form 10-k for further discussion ) . merger transaction on august 8 , 2016 , we entered into the merger agreement with global ii . on december 22 , 2016 , pursuant to the merger agreement , global ii merged with and into the merger sub , at which time the separate existence of global ii ceased and we became the parent of the merger sub . in addition , pursuant to the merger agreement , global ii op , merged with our op , with our op being the surviving entity . we and global ii each were sponsored , directly or indirectly , by an affiliate of ar global which , through its affiliates , provide or provided asset management services to us and global ii pursuant to advisory agreements . see note 3 — merger transaction to our consolidated financial statements in this annual report on form 10-k. significant accounting estimates and accounting policies set forth below is a summary of the significant accounting estimates and accounting policies that management believes are important to the preparation of our financial statements . certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations , and require the application of significant judgment by our management . as a result , these estimates are subject to a degree of uncertainty . these significant accounting estimates and accounting policies include : revenue recognition our revenues , which are derived primarily from rental income , include rents that each tenant pays in accordance with the terms of each lease agreement and are reported on a straight-line basis over the initial term of the lease . since many of our leases provide for rental increases at specified intervals , straight-line basis accounting requires us to record a receivable and include in revenues unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease . for each new lease after acquisition , the commencement date is the date the tenant takes possession of the space . for a lease modification , the commencement date is the date the lease modification is executed . we defer the revenue related to lease payments received from tenants in advance of their due dates . when we acquire a property , the acquisition date for purposes of this calculation is the commencement date . 46 as of december 31 , 2018 and 2017 , cumulative straight-line rents receivable in our audited consolidated balance sheets were $ 47.2 million and $ 42.7 million , respectively . for the years ended december 31 , 2018 and 2017 , our rental revenue included impacts of unbilled rental revenue of $ 6.3 million and $ 10.5 million , respectively , to adjust contractual rent to straight-line rent . story_separator_special_tag 47 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 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 . factors considered in the 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 contract rates during the expected lease-up period , which typically ranges from 12 to 18 months . we also estimate costs to execute similar leases including leasing commissions , legal and other related expenses . above-market and below-market lease values for acquired properties are initially recorded based on the present value ( using a discount rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to each in-place lease , and ( ii ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases . the capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining terms of the respective leases , and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases . if a tenant with a below market rent renewal does not renew , any remaining unamortized amount will be taken into income at that time . the aggregate value of intangible assets related to customer relationship , as applicable , is measured based on our evaluation of the specific characteristics of each tenant 's lease and our overall relationship with the tenant . characteristics considered by us in determining these values include the nature and extent of its existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality and expectations of lease renewals , among other factors . the value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases , but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building . if a tenant terminates its lease , the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense . in making estimates of fair values for purposes of allocating purchase price , we utilize a number of sources , including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data . we also consider information obtained about each property as a result of our pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed . as more fully discussed in note 3 — merger transaction to our consolidated financial statements included in this annual report on form 10-k , the merger was accounted for under the acquisition method for business combinations with us as the accounting acquirer . depreciation and amortization 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 . capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases . capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods . capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases . capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods . the value of in-place leases , exclusive of the value of above-market and below-market in-place leases , is amortized to expense over the remaining periods of the respective leases . assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages . 48 impairment of long lived assets when circumstances indicate the carrying value of a property may not be recoverable , we review the asset for impairment . this review 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 , as well as the effects of leasing demand , competition and other factors .
| summary of significant accounting policies — recently issued accounting pronouncements to our consolidated financial statements included in this annual report on form 10-k. 49 recently issued accounting pronouncements see note 2 — summary of significant accounting policies — recently issued accounting pronouncements to our consolidated financial statements included in this annual report on form 10-k for further discussion . results of operations comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 during 2018 , we acquired 23 properties by purchase ( net 21 after two dispositions ) , bringing our total portfolio of properties to 342 as of december 31 , 2018 . the net impact of the acquisitions drove our operating results for the year ended december 31 , 2018 , which were also impacted by increases during the year ended december 31 , 2018 of 3.6 % in the average exchange rate for gbp to usd and of 4.5 % in the average exchange rate for euro to usd , when compared to the same period last year and other factors as discussed in more detail below . rental income rental income was $ 265.3 million and $ 242.5 million for the years ended december 31 , 2018 and 2017 , respectively . our rental income increased primarily as a result of incremental income from our net acquisition of 21 properties during the year ended december 31 , 2018 and income of $ 3.0 million relating to a lease termination fee from the sale of the veolia water property . prior to the sale , we agreed to terminate the lease with the existing tenant and , as a result , received the termination fee in accordance with the terms of the lease .
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2016 , honeywell international inc. ( “ honeywell ” ) completed the separation of advansix . the separation was completed by honeywell distributing ( the `` distribution '' ) all of the then outstanding shares of common stock of advansix on october 1 , 2016 ( the “ distribution date ” ) through a dividend in kind of advansix common stock , par value $ 0.01 per share , to holders of honeywell common stock as of the close of business on the record date of september 16 , 2016 who held their shares through the distribution date ( the “ spin-off ” ) . story_separator_special_tag response to covid-19 for both public health and safety as well as community well-being . the company takes its obligation seriously to produce materials that support the broader population , all while maintaining a prioritized focus on the health and safety of its employees and the communities in which it operates , and assuring the continuity of its business operations . as a global provider of products that are key inputs for our customers ' processes serving a variety of end-markets , a pandemic presents obstacles that can adversely affect our supply chain effectiveness and efficiencies , our manufacturing operations and customer demand for our products and , ultimately , our financial results . we believe we are positioned to respond to and mitigate the potential impacts of the rapidly evolving market dynamics . for a description of risks in relation to the covid-19 pandemic , see `` risks relating to our business '' under `` risk factors '' in item 1a . in the first quarter of 2020 , the company began executing its business continuity plans with dedicated teams chartered to proactively implement measures to mitigate covid-19 impacts while continuing to operate all of its manufacturing facilities to meet customer demand . in response to covid-19 , the company took many actions to protect its employees , customers , suppliers , shareholders and surrounding communities including , but not limited to : ( i ) 100 % thermal screening process at all manufacturing facilities and restrictions on non-essential visitors ; ( ii ) telecommuting across all sites , where possible ; ( iii ) prohibiting all non-essential domestic and international business travel ; ( iv ) establishing social distancing while limiting the number of employees in control rooms , labs and in-person meetings ; and ( v ) maintaining policies and practices consistent with cdc and government guidelines including upgraded personal protective equipment , face coverings at all facilities , and exposure management protocols . our telecommuting policies have been designed to allow for continued operation of non-production business-critical functions , including financial reporting systems and internal controls . the company has protocols in place at all sites , including on-site medical personnel at manufacturing facilities to actively monitor employees and contractors who report symptoms of or exposure to covid-19 . in addition , the company has trained a contingent workforce to operate the plants as part of its business continuity planning . the company continued its execution of these measures at all sites through the fourth quarter of 2020 and into 2021. we believe our competitive strengths are serving us well during this time including our vertically integrated asset base and global low-cost advantage as well as driving disciplined cost and cash management across the organization with further reductions of capital expenditures and discretionary spending . during the fourth quarter of 2020 , the company continued to support safe and stable operations while serving its customers by adjusting output to changes in mix and demand . from an industry perspective , building and construction demand has improved , particularly in residential applications , however , commercial construction remains soft . auto demand has also been improving with the u.s. and europe experiencing a slower recovery , while china and other asia markets saw a faster rebound . export demand for textiles out of asia has been soft , which has had an impact on nylon supply and demand conditions . the nylon product line has seen an improvement in demand domestically as end markets improved from a challenging first half of 2020. ammonium sulfate and acetone demand have not been significantly impacted by covid-19 to date . ammonium sulfate has experienced steady demand through the peak second quarter domestic planting season and into the new season fill , while the north american acetone industry supply and demand balance has continued to be favorable following the affirmative final anti-dumping duties and robust demand for isopropyl alcohol ( ipa ) , used for hand sanitizer and other disinfectants , and methyl methacrylate ( mma ) , used for acrylic screens , and other solvents . as a result of covid-19 , demand reduction for transportation fuels and resultant inventory builds have reduced refinery utilization rates , which the company continues to monitor as it relates to potential impacts on its supply chain and availability of key raw materials . the company 's consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented . the company considered the impact of covid-19 on the assumptions and estimates used and determined that there was a material impact on the company 's second quarter 2020 results of operations . in particular , the company experienced lower demand , particularly in nylon , caprolactam and phenol , resulting in a reduction of plant utilization rates and a decrease in overall sales volume ( approximately 19 % ) in the second quarter of 2020 compared to the prior year period , primarily related to global markets and the economic impact of covid-19 . during the third quarter of 2020 , the company experienced an improvement in demand to approximately pre-covid-19 levels . during the fourth quarter of 2020 , the company experienced greater demand than in the third quarter whereby demand and volume exceeded pre-covid-19 levels overall as compared to 2019. story_separator_special_tag repurchases may be made , from time to time , on the open market , including through the use of trading plans intended to qualify under rule 10b5-1 of the exchange act of 1934 , as amended ( the `` exchange act '' ) . the size and timing of these repurchases will depend on pricing , market and economic conditions , legal and contractual requirements and other factors . the share repurchase program has no expiration date and may be modified , suspended or discontinued at any time . 30 on march 13 , 2018 , a federal search warrant was executed at the company 's hopewell , virginia manufacturing facility . on the same date , the company was separately served with a grand jury subpoena issued by the u.s. district court for the eastern district of virginia , which requested documents related to the hopewell facility 's air emissions and its compliance with the terms of a previously disclosed 2013 consent decree with the federal government and the commonwealth of virginia . the company was notified during the first quarter of 2019 that the u.s. attorney 's office for the eastern district of virginia had closed its investigation and no further action by the company was required . on may 13 , 2019 , the company announced that the united states government notified the company that the balance of the criminal investigation concluded with no further action required . operational events on june 24 , 2019 , the company announced that it was assessing the potential business impact of the fire that occurred at philadelphia energy solutions ' ( “ pes ” ) refinery in philadelphia , pennsylvania . pes was one of multiple suppliers to the company of cumene , a feedstock material used to produce phenol , acetone and other chemical intermediates . the pes disruption did not have a material impact on second quarter 2019 financial results . the company incurred an approximately $ 10 million unfavorable impact to pre-tax income in the second half of 2019 , including incremental raw material and logistics costs as well as a modest unfavorable impact from fixed cost absorption . as the pes refinery remains shutdown , the company submitted a business interruption insurance claim and has realigned its supply chain to ensure the continuity of cumene supply . the company had an approximately $ 11 million unfavorable impact to pre-tax income in 2020 , associated with its realigned supply chain , which was comparable to full-year impact in 2019. on march 11 , 2019 , the company announced that it declared force majeure on its phenol product line as a result of shortages and delivery delays of its key raw material , cumene . the company 's cumene deliveries were reduced due to weather-related logistics disruptions in the gulf coast area and supplier operational constraints . as a result of this force majeure event , phenol production at the company 's frankford , pennsylvania facility and caprolactam production at its hopewell , virginia facility were reduced . the company incurred an approximately $ 6.9 million unfavorable impact to pre-tax income in the first quarter of 2019 , including the unfavorable impact of fixed cost absorption and incremental logistics costs . in addition , the company incurred an approximately $ 1.4 million unfavorable impact to pre-tax income in the first quarter of 2019 and an approximately $ 2.3 million unfavorable impact to pre-tax income in the second quarter of 2019 due to lost sales . the company is no longer on force majeure with phenol customers . on january 17 , 2018 , the company announced that it had experienced a temporary production issue at its hopewell , virginia facility related to the severe winter weather ( `` first quarter 2018 weather event '' ) . as a result of this unplanned interruption , caprolactam and resin production had been reduced at the hopewell and chesterfield , virginia facilities . the company incurred a $ 20 million unfavorable impact to pre-tax income in the first quarter of 2018 including the impact of fixed cost absorption , maintenance expense and incremental raw material costs . in addition , the company incurred an approximately $ 10 million unfavorable impact to pre-tax income in the first quarter of 2018 due to lost sales . the company submitted a business interruption insurance claim related to the first quarter 2018 weather event and recorded a benefit of $ 2.9 million to cost of goods sold in the fourth quarter of 2018 and $ 6.6 million and $ 2.3 million to cost of goods sold in the first and second quarters of 2019 , respectively . the business interruption claim was closed in the second quarter of 2019 with a total recorded benefit of approximately $ 12 million . consolidated results of operations for the years ended december 31 , 2020 , 2019 and 2018 ( dollars in thousands ) sales replace_table_token_4_th the change in sales is attributable to the following : replace_table_token_5_th 2020 compared with 2019 sales decreased in 2020 compared to 2019 by $ 139.5 million ( approximately 11 % ) due primarily to lower sales prices ( approximately 11 % ) driven primarily by ( i ) lower prices of raw materials ( approximately 7 % ) , following a net decrease in the cost of benzene and propylene ( inputs to cumene which is a key feedstock material for our products ) and ( ii ) lower market-based pricing ( approximately 5 % ) in nylon , ammonium sulfate and caprolactam product lines partially offset by increases in chemical intermediates , specifically 31 acetone . volume showed a slight increase ( approximately 1 % ) due primarily to favorable mix and sales timing related to the ammonium sulfate product line , partially offset by decreases in caprolactam and chemical intermediates related to global markets and the economic impact of covid-19 .
| business overview 27 we produce and sell caprolactam as a commodity product and produce and sell our nylon 6 resin as both a commoditized and differentiated resin product . our results of operations are primarily driven by production volume and the spread between the sales prices of our products and the costs of the underlying raw materials built into market-based and value-based pricing models . the global prices for nylon resin typically track a spread over the price of caprolactam , which in turn tracks as a spread over benzene because the key feedstock materials for caprolactam , phenol or cyclohexane , are derived from benzene . this price spread has historically experienced cyclicality as a result of global changes in supply and demand . generally , nylon 6 resin prices track the cyclicality of caprolactam prices , although prices set above the spread are achievable when nylon resin manufacturers , like advansix , formulate and produce differentiated nylon resin products . our differentiated nylon 6 products are typically valued at a higher level than commodity resin products . we believe that nylon 6 end-market growth will continue to generally track global gdp over the long-term . applications such as engineered plastics and packaging have potential to grow at faster rates given certain macrotrends . additionally , one of our strategies is to continue developing higher-value , differentiated nylon 6 products , such as our co-polymer offerings , in current and new customer applications . we also manufacture , market and sell a number of chemical intermediate products that are derived from the chemical processes within our integrated supply chain . most significant is acetone , which is used by our customers in the production of adhesives , paints , coatings and solvents . prices for acetone are influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs .
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there were no issuances in 2017. replace_table_token_19_th upon payment of the cash distribution for the fourth quarter of 2014 , the financial requirements for the conversion of all 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 eqm reported net income of $ 571.9 million in 2017 compared with $ 538.0 million in 2016 . the increase primarily resulted from higher revenues from both gathering and transmission , which were driven mainly by affiliate and third party production development in the marcellus shale , and lower income taxes , partly offset by an increase in operating expenses , higher net interest expense and lower other income . 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 , 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 declared a cash distribution to its unitholders of $ 1.025 per unit on january 18 , 2018 , which was 5 % higher than the third quarter 2017 distribution of $ 0.98 per unit and 21 % higher than the fourth quarter 2016 distribution of $ 0.85 per unit . total distributions related to 2017 were $ 3.83 per unit compared to $ 3.19 per unit total distributions related to 2016 , a 20 % 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 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 . 48 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 10.5 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily driven by decreased afudc - equity of $ 14.3 million associated with the ovc project placed in-service in the fourth quarter of 2016 and distributions from ees of $ 8.3 million which were recorded as other income in 2016 prior to the conversion to a note receivable , partly offset by higher equity income related to eqm 's portion of the mvp joint venture 's afudc on the mvp . other income increased by $ 29.2 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily driven by increased afudc - equity of $ 13.1 million mainly attributable to increased spending on the ovc project , distributions from ees of $ 8.3 million that were recorded as other income in 2016 and higher equity income related to eqm 's portion of the mvp joint venture 's afudc on the mvp . net interest expense increased by $ 19.4 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily driven by higher interest incurred on eqm 's long-term debt issued in november 2016 of $ 17.4 million , lower capitalized interest and afudc - debt of $ 5.3 million associated with decreased spending on capital projects and increased interest on eqm 's credit facility borrowings , partly offset by increased interest income recorded on distributions from ees of $ 5.1 million . 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 . 51 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 . non-gaap financial measures adjusted ebitda and distributable cash flow are non-gaap supplemental financial measures that management and external users of eqm 's consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , use to assess : eqm 's operating performance as compared to other publicly traded partnerships in the midstream energy industry without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of eqm 's assets to generate sufficient cash flow to make distributions to eqm 's unitholders ; eqm 's ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . eqm believes that adjusted ebitda and distributable cash flow provide useful information to investors in assessing its financial condition and results of operations . story_separator_special_tag adjusted ebitda increased by $ 116.9 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 and $ 123.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , in each case , primarily as a result of higher operating income on increased revenues driven by production development in the marcellus shale and the acquisitions for each period , which resulted in ebitda subsequent to the transaction being reflected in adjusted ebitda , including the elimination of the avc lease payment . for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , distributions from ees also contributed to the increase . net cash provided by operating activities , the gaap financial measure most directly comparable to distributable cash flow , increased by $ 112.6 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 and $ 48.2 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 as discussed in `` capital resources and liquidity . '' distributable cash flow increased by $ 91.5 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 and $ 116.8 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , in each case , mainly attributable to the increase in adjusted ebitda . for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , the increase in adjusted ebitda was partly offset by increased net interest expense excluding interest income on the preferred interest and ongoing maintenance capital expenditures net of reimbursements . 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 its 54 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 acquire additional midstream assets from eqt or pursue asset acquisitions from third parties . should eqt choose to sell midstream assets , 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 : 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 , 2017. the 42 inch diameter mvp has a targeted capacity of 2.0 bcf per day and is estimated to span 300 miles extending from eqm 's existing transmission and storage system in wetzel county , west virginia to pittsylvania county , virginia , providing access to the growing southeast demand markets . as currently designed , the mvp is estimated to cost a total of approximately $ 3.5 billion , excluding afudc , with eqm funding its proportionate share through capital contributions made to the joint venture . in 2018 , eqm expects to provide capital contributions of $ 1.0 billion to $ 1.2 billion to the mvp joint venture . the mvp joint venture has secured a total of 2.0 bcf per day of firm capacity commitments at 20-year terms , including a 1.29 bcf per day firm capacity commitment by eqt , and is currently in negotiation with additional shippers who have expressed interest in the mvp project . on october 13 , 2017 , the ferc issued the certificate of public convenience and necessity for the project . in early 2018 , the mvp joint venture received limited notice to proceed with certain construction activities from the ferc . the mvp joint venture plans to commence construction in the first quarter of 2018. the pipeline is targeted to be placed in-service during the fourth quarter of 2018. affiliate wellhead gathering expansion . in 2018 , eqm estimates capital expenditures of approximately $ 300 million on gathering expansion projects , primarily driven by affiliate wellhead and header projects in pennsylvania and west virginia , including commencing preliminary construction activities on the hammerhead project , a 1.2 bcf per day gathering header pipeline connecting pennsylvania and west virginia production to the mvp . transmission expansion . in 2018 , eqm estimates capital expenditures of approximately $ 100 million for other transmission expansion projects , primarily attributable to the equitrans expansion project . the equitrans expansion project is designed to provide north-to-south capacity on the mainline equitrans system for deliveries to the mvp . see further discussion of capital expenditures in the `` capital requirements '' section below . rice transaction . on november 13 , 2017 , eqt closed its previously announced transaction to acquire rice . as part of the transaction , eqt acquired certain midstream assets previously owned by rice . eqt announced that it intends to sell these midstream assets to eqm through one or more drop-down transactions . in addition to the potential drop-down opportunities , eqm expects to benefit from increased organic growth opportunities due to the combination of the eqt and rice acreage positions . however , eqt is under no obligation to make such opportunities available to eqm . committee to address sum-of-the-parts discount .
| 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 , 2017 compared to year ended december 31 , 2016 gathering revenues increased by $ 57.0 million driven by third party and affiliate production development in the marcellus shale . eqm increased firm reservation fee revenues in 2017 compared to 2016 as a result of third parties and affiliates contracting for additional firm gathering capacity , which increased firm gathering capacity by approximately 475 mmcf per day following the completion of the range resources header pipeline project and various affiliate wellhead gathering expansion projects . the decrease in usage fees under firm contracts was due to lower affiliate volumes in excess of firm contracted capacity . the decrease in usage fees under interruptible contracts was primarily due to the additional contracts for firm capacity . operating expenses increased by $ 12.5 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . operating and maintenance expense increased primarily as a result of higher personnel costs and increased property taxes . selling , general and administrative expenses decreased primarily due to lower corporate allocations from eqt as a result of eqt 's shift in focus during 2017 from midstream drop-down transactions to upstream asset and corporate acquisition projects partly offset by increased miscellaneous administrative costs . depreciation and amortization expense increased $ 8.4 million due to additional assets placed in-service including those associated with the range resources header pipeline project and various affiliate wellhead gathering expansion projects .
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the transaction was accounted for under the purchase method of accounting and , accordingly , the operating results of cao story_separator_special_tag general you should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly in `` risk factors . '' overview liveperson was incorporated in the state of delaware in november 1995 and the liveperson service was introduced in november 1998. we are a leading provider of mobile and online messaging technologies that power digital communication between brands and consumers . liveengage , the company 's enterprise-class , cloud-based platform , enables businesses to create a meaningful connection with consumers by offering messaging as a preferred channel of communication . messaging diminishes the need to rely on outdated email systems or call a 1-800 number . brands leverage liveengage 's sophisticated intelligence engine and suite of text and mobile messaging , real-time chat messaging , content delivery , and cobrowsing offerings to proactively engage with consumers through m-dot sites , mobile apps , the desktop , social media and third-party consumer messaging platforms . more than 18,000 businesses , including adobe , bankers trust , citibank , hsbc , ibm , orbitz , pnc , the home depot , and walt disney employ our technology to keep pace with rising customer service expectations and to align with preferences for digital communication channels . we are organized into two operating segments : business and consumer . the business segment enables brands to leverage liveengage 's sophisticated intelligence engine . the consumer segment facilitates online transactions between independent service providers ( “ experts ” ) and individual consumers ( “ users ” ) seeking information and knowledge for a fee via mobile and online messaging . in order to sustain growth in these segments , our strategy is to expand our position as the leading provider of online and mobile messaging solutions that facilitate meaningful connection and expert advice . to accomplish this , we are focused on the following current initiatives : expanding business with existing customers and adding new customers . we segmented our sales organization to increase productivity . our account executives are solely focused on adding new customers , while our account managers are tasked with retaining and expanding existing customers.we also anticipate leveraging our liveengage platform to increase adoption of real-time , campaign-based messaging across our customer 's online properties and to expand with brands offline , by shifting onto our mobile messaging platform a portion of calls made to 1-800 numbers . introducing new products and capabilities . we are investing in product marketing , mobile resources , research and development , and executive personnel to support our efforts to build and launch new products and capabilities , to support existing customer deployments , and to further penetrate our total addressable market . these investments are initially focused in the areas of online and mobile consumer engagement , enhanced data and reporting and chat transcript text analysis . over time , we expect to develop and launch additional capabilities that leverage our existing market position as a leader in mobile and online messaging . leverage partners to enhance our offering . in addition to developing our own applications , we continue to cultivate a partner eco-system capable of offering additional applications and services to our customers . for example , in 2015 we integrated liveengage with one of the leading consumer messaging platforms . in addition , we have opened up access to our platform and our products with application programming interfaces ( apis ) that allow third parties to develop on top of our platform . customers and partners can utilize these apis to build our capabilities into their own applications and to enhance our applications with their services . maintaining market leadership in technology and security expertise . as described above , we are devoting significant resources to creating new products and enabling technologies designed to accelerate innovation and delivery of new products and technologies to our customer base . we evaluate emerging technologies and industry standards and continually update our technology in order to retain our leadership position in each market we serve . we monitor legal and technological developments in the area of information security and confidentiality to ensure our policies and procedures meet or exceed the demands of the world 's largest and most demanding corporations . we believe that these efforts will allow us to effectively anticipate changing customer and consumer requirements in our rapidly evolving industry . expanding our international presence . we continue to invest in sales and support personnel in the united kingdom , asia-pacific , latin america and western europe , particularly france and germany . we are also working with sales and support partners in the asia-pacific region . we continue to improve our e-commerce capabilities , and the multi-language and translation capabilities within our hosted solutions to further support international expansion . 36 continuing to build brand recognition . as a pioneer of brand-to-consumer digital messaging , liveperson enjoys strong brand recognition and credibility . our focus on creating meaningful connections among employees , with our customers , and between brands and their consumers , is a key component of our culture and our market strategy . we strategically target decision makers and influencers within key vertical markets , leveraging customer successes to generate increased awareness and demand for brand-to-consumer messaging . increasing the value of our service to our customers . we regularly add both new products and services , and new features and functionality to our existing services to further enhance value to our customers . story_separator_special_tag costs and expenses our cost of revenue consists of : compensation costs relating to employees who provide customer support and implementation services to our customers ; outside labor provider costs ; compensation costs relating to our network support staff ; depreciation of certain hardware and software ; allocated occupancy costs and related overhead ; the cost of supporting our infrastructure , including expenses related to server leases , infrastructure support costs and internet connectivity ; the credit card fees and related payment processing costs associated with the consumer and smb services ; and amortization of certain intangibles . our sales and marketing expenses consist of compensation and related expenses for sales personnel and marketing personnel , online marketing , allocated occupancy costs and related overhead , advertising , sales commissions , public relations , promotional materials , travel expenses and trade show exhibit expenses . our general and administrative expenses consist primarily of compensation and related expenses for executive , accounting , legal , information technology and human resources personnel , allocated occupancy costs and related overhead , professional fees , provision for doubtful accounts and other general corporate expenses . our product development expenses consist primarily of compensation and related expenses for product development personnel , allocated occupancy costs and related overhead , outsourced labor and expenses for testing new versions of our software . product development expenses are charged to operations as incurred . during 2015 , we decreased our allowance for doubtful accounts by approximately $ 0.1 million to approximately $ 1.2 million , principally due to an increase in write-offs compared to 2014. during 2014 , we increased our allowance for doubtful accounts by $ 0.1 million to approximately $ 1.3 million , principally due to an increase in the proportion of receivables due an increase in sales . a large proportion of receivables are due from larger corporate customers that typically have longer payment cycles . we base our allowance for doubtful accounts on specifically identified credit risks of customers , historical trends and other information that we believe to be reasonable . we adjust our allowance for doubtful accounts when accounts previously reserved have been collected . non-cash compensation expense the net non-cash compensation amounts for the years ended december 31 , 2015 , 2014 and 2013 consist of ( amounts in thousands ) : replace_table_token_8_th 38 story_separator_special_tag in 2014 , from $ 40.1 million in 2013 . this increase in expense is primarily attributable to an increase in primary and backup server facilities and allocated overhead related to costs of supporting our server and network infrastructure of approximately $ 5.9 million , an increase in total compensation and related costs for additional and existing customer service and network operations personnel in the amount of approximately $ 2.1 million , and an increase in amortization of purchased intangibles of approximately $ 1.7 million as a result of the acquisitions we completed in 2014. this increase in cost of revenue was driven primarily by increased investment in enhancing our business continuity capabilities at our hosting facilities . additionally , data collection and storage costs have increased in support of expanded scope and quality of the analytical reporting to our customers cost of revenue - consumer cost of revenue consists of compensation costs relating to employees who provide customer service to experts and users , compensation costs relating to our network support staff , the cost of supporting our server and network infrastructure , credit card and transaction processing fees and related costs , and allocated occupancy costs and related overhead . replace_table_token_11_th cost of revenue remained relatively flat for the years ended december 31 , 2015 , 2014 , and 2013 . 40 sales and marketing - business our sales and marketing expenses consist of compensation and related expenses for sales and marketing personnel , as well as advertising , public relations , trade show exhibit expenses and allocated occupancy costs and related overhead . year ended december 31 , year ended december 31 , 2015 2014 % change 2014 2013 % change ( $ in thousands ) ( $ in thousands ) sales and marketing - business $ 87,975 $ 77,118 14 % $ 77,118 $ 57,011 35 % percentage of total revenue 37 % 37 % 37 % 32 % headcount ( at period end ) 324 355 ( 9 ) % 355 259 ( 1 ) 37 % ( 1 ) does not include additional employees acquired as a result of the acquisition of cao ! in 2014. sales and marketing expenses increased by 14 % to $ 88.0 million in 2015 , from $ 77.1 million in 2014 . this increase is primarily attributable to an increase in compensation and related costs for additional and existing sales and marketing personnel of approximately $ 5.8 million , an increase in allocated occupancy costs and related overhead in the amount of approximately $ 3.3 million , and an increase in advertising , public relations and trade show exhibit expenses of approximately $ 0.6 million . the increase relates to our continued investment in our marketing and sales capabilities . the increase in expense as compared to our revenue growth is primarily related to the investment in our global sales team , global expansion and continuing advertising of the liveengage 2.0 product . the increase also relates to our continued efforts to enhance our brand recognition and increase sales lead activity . sales and marketing expenses increased by 35 % to $ 77.1 million in 2014 , from $ 57.0 million in 2013 . this increase is primarily attributable to an increase in compensation and related costs for additional and existing sales and marketing personnel of approximately $ 18.4 million , an increase in advertising , public relations and trade show exhibit expenses of approximately $ 1.0 million , and an increase in allocated occupancy costs and related overhead in the amount of approximately $ 0.8 million . the increase relates to our continued investment in our marketing and sales capabilities .
| results of operations the company is organized into two operating segments : business and consumer . the business segment facilitates real-time online interactions — chat , voice , messaging , and content delivery , across multiple channels and screens for global corporations of all sizes . the consumer segment facilitates online transactions between experts and users seeking information and knowledge for a fee via real-time chat . the following tables set forth our results of operations for the periods presented and as a percentage of our revenues for those periods . the period-to-period comparison of financial results is not necessarily indicative of future results . replace_table_token_9_th revenue replace_table_token_10_th our business revenue growth has traditionally been driven by a mix of revenue from new customers as well as expansion from existing customers . business revenue increased by 16 % to $ 223.8 million for the year ended december 31 , 2015 , from $ 193.3 million for the year ended december 31 , 2014 . this increase is primarily attributable to revenue from new customers of approximately $ 33.7 million , revenue that is variable based on interactions and usage in the amount of $ 5.4 million and revenue from professional services of approximately $ 2.6 million ; offset in part by a decrease in revenue from existing customers in the amount of approximately $ 11.2 million , net of cancellations . business revenue increased by 19 % to $ 193.3 million for the year ended december 31 , 2014 , from $ 162.7 million for the year ended december 31 , 2013 . this increase is primarily attributable to revenue from existing customers who increased their services in the amount of approximately $ 11.5 million , net of cancellations ; revenue from professional services of approximately $ 5.9 million ; and revenue from new customers in the amount of approximately $ 13.2 million .
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