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our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements because of various factors , including those described in the sections titled `` cautionary note regarding forward-looking statements , '' `` risk factors '' and elsewhere in this form 10-k. overview of business we are a global provider of highly engineered tubular services , tubular fabrication and specialty well construction and well intervention solutions to the oil and gas industry and have been in business for over 75 years . we provide our services to leading exploration and production companies in both offshore and onshore environments , with a focus on complex and technically demanding wells . we conduct our business through four operating segments : international services . we currently provide our services in approximately 60 countries on six continents . our customers in these international markets are primarily large exploration and production companies , including integrated oil and gas companies and national oil and gas companies . u.s. services . we service customers in the offshore areas of the u.s. gulf of mexico . in addition , we have a presence in the active onshore oil and gas drilling regions in the u.s. , including the permian basin , eagle ford shale , haynesville shale , marcellus shale , dj basin and utica shale . tubular sales . we design , manufacture and distribute large od pipe , connectors and casing attachments and sell large od pipe originally manufactured by various pipe mills . we also provide specialized fabrication and welding services in support of offshore projects , including drilling and production risers , flowlines and pipeline end terminations , as well as long-length tubulars ( up to 300 feet in length ) for use as caissons or pilings . this segment also designs and manufactures proprietary equipment for use in our international and u.s. services segments . blackhawk . we provide well construction and well intervention rental equipment , services and products , in addition to cementing tool expertise , in the u.s. and mexican gulf of mexico , onshore u.s. and other select international locations . how we generate our revenue the majority of our services revenues are derived primarily from personnel rates for our specially trained employees who perform tubular and other well construction services for our customers ; and rental rates for the suite of products and equipment that our employees use to perform these services . in addition , our customers typically reimburse us for transportation costs that we incur in connection with transporting our products and equipment from our staging areas to the customers ' job sites . in contrast , our tubular sales revenues are derived from sales of certain products , including large od pipe connectors and large od pipe manufactured by third parties , directly to external customers . 34 the acquisition of blackhawk resulted in a new segment for us . our blackhawk revenues are derived from well construction and well intervention rental equipment , services and products . these revenues have historically been split evenly between sold and rented products or equipment with certain rented products having a service element for personnel overseeing the operation of the equipment . outlook we expect to see improvement in the oil field services industry in 2017 as global capital spending on oil and natural gas exploration and production is likely to increase modestly in response to higher commodity prices . however , much of the anticipated increase in spending will likely be associated with onshore projects that contribute lower revenue and margins to the company than offshore projects . material increases in activity in the deep and ultra-deep offshore markets are not expected until further improvement in oil and natural gas prices are seen and , in some basins , may continue to deteriorate . we have made efforts to reduce the impact of the lower activity levels by reducing costs , but additional actions may be necessary if we continue to see decreased investment in global offshore projects . our offshore businesses , both in the u.s. and internationally , continue to see delays and cancellations as customers reduce spending or elect to reallocate financial resources to other onshore projects . these delays or cancellations have been more prevalent in the deep and ultra-deep water markets where our services are most profitable . in areas where new projects are being sanctioned , we have seen increased competition and awarded tenders often are secured at prices below historical levels . our efforts to grow market share in the underrepresented offshore shelf market are expected to support revenues , but are unlikely to fully offset declines in the deep and ultra-deep water . our onshore operations are expected to see sequential improvement , particularly in the u.s. onshore market , as drilling activity has risen meaningfully in recent months . the increase in demand for our services combined with a leaner cost structure is expected to result in higher revenues and improved profitability for this business in the coming year . the tubular sales business is driven by specialized needs of our customers and the timing of projects , specifically in the gulf of mexico . due to steep declines in activity in the gulf of mexico and low visibility on forthcoming orders for these services , we anticipate that revenues associated with this segment will trend lower until additional projects are sanctioned and commence operations . the blackhawk product and service lines face similar challenges in the offshore market as our tubular services business . blackhawk revenues are primarily generated offshore in the u.s. gulf of mexico and are at risk if activity levels were to decrease further . however , we will benefit from a full year of operations from blackhawk in 2017 , which will likely help drive our total revenues sequentially higher . overall , our market outlook is mixed as the onshore begins to lead the recovery , but the offshore market lags as prices remain below economic break-even levels for many projects . story_separator_special_tag the increases were partially offset by decreased stock-based compensation expense of $ 12.2 million as the six months ended june 30 , 2014 included an out-of-period adjustment of $ 7.5 million , which corrected the amortization of expense related to retirement-eligible employees ( see note 1 in the notes to consolidated financial statements for additional detail ) in addition to lower other taxes of $ 4.0 million . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2015 increased by $ 18.9 million , or 21.0 % , to $ 109.0 million from $ 90.0 million for the year ended december 31 , 2014 . the increase was primarily attributable to our timco acquisition of $ 8.3 million as well as a higher depreciable base resulting from property and equipment additions . severance and other charges . severance and other charges for the year ended december 31 , 2015 were $ 35.5 million as a result of the transition of a key executive to a non-executive member of the supervisory board , workforce reductions , base rationalization and lease termination fees , which affected the following segments : international services ( $ 1.5 million ) , u.s. services ( $ 32.8 million ) and tubular sales ( $ 1.2 million ) . foreign currency loss . foreign currency loss for the year ended december 31 , 2015 decreased by $ 10.7 million to $ 6.4 million from $ 17.0 million for the year ended december 31 , 2014 . the decrease was primarily due to foreign currency losses in venezuela of $ 13.0 million in 2014 and other changes caused by non-local currency working capital specifically in norway , brazil , the united kingdom and the eurozone . income tax expense . income tax expense for the year ended december 31 , 2015 decreased by $ 38.1 million , or 50.5 % , to $ 37.3 million from $ 75.4 million for the year ended december 31 , 2014 as a result of a decrease in taxable income . we are subject to many u.s. and foreign tax jurisdictions and many tax agreements and treaties among the various taxing authorities . our operations in these jurisdictions are taxed on various bases such as income before taxes , deemed profits ( which is generally determined using a percentage of revenues rather than profits ) , and withholding taxes based on revenues ; consequently , the relationship between our pre-tax income from operations and our income tax provision varies from period to period . 39 operating segment results the following table presents revenues and adjusted ebitda by segment ( in thousands ) : replace_table_token_7_th ( 1 ) adjusted ebitda is a supplemental non-gaap financial measure that is used by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . ( for a reconciliation of our adjusted ebitda , see `` —adjusted ebitda and adjusted ebitda margin . '' year ended december 31 , 2016 compared to year ended december 31 , 2015 international services revenue for the international services segment decreased by $ 205.6 million , or 46.4 % , compared to 2015 , primarily due to depressed oil and gas prices , which challenged the economics of current development projects and caused the termination of ongoing drilling campaigns and the delay in the commencement of new projects , as well as cancellations or deferred work scopes . adjusted ebitda for the international services segment decreased by $ 149.2 million , or 81.8 % , compared to 2015 , primarily due to the $ 205.6 million decrease in revenue and $ 11.3 million of bad debt expense related to the collectability of receivables in venezuela ( see `` customer credit risk '' in part ii , item 7a ) and nigeria , which were partially offset by lower expenses due to reduced activity and cost-cutting measures . u.s. services revenue for the u.s. services segment decreased by $ 179.9 million , or 51.1 % , compared to 2015 primarily due to depressed oil and gas prices . onshore services revenue decreased by $ 51.3 million as a result of lower activity from declining rig counts and pricing discounts . the offshore business saw a decrease in revenue of $ 125.9 million as a result of overall lower activity from weaknesses seen in the gulf of mexico due to rig cancellations and delays , coupled with downward pricing pressures . adjusted ebitda for the u.s. services segment decreased by $ 107.0 million , or 112.0 % , compared to 2015 primarily due to higher pricing concessions and lower activity of $ 94.6 million and higher corporate and other costs of $ 12.4 million primarily due to increased professional fees , which were attributable to ongoing global corporate initiatives . 40 tubular sales revenue for the tubular sales segment decreased by $ 135.0 million , or 55.8 % , compared to 2015 , primarily as a result of lower international demand and decreased deep water fabrication revenue . adjusted ebitda for the tubular sales segment decreased by $ 39.3 million , or 95.8 % , compared to 2015 , as it was negatively impacted by fixed costs associated with the manufacturing division and decreased revenues . blackhawk the blackhawk segment is comprised solely of our acquisition on november 1 , 2016. revenues and adjusted ebitda for the segment were $ 10.0 million and $ 1.0 million , respectively , for the year ended december 31 , 2016 . see note 3 - acquisitions in the notes to consolidated financial statements for additional information on our blackhawk acquisition .
| consolidated results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues . revenues from external customers , excluding intersegment sales , for the year ended december 31 , 2016 decreased by $ 487.1 million , or 50.0 % , to $ 487.5 million from $ 974.6 million for the year ended december 31 , 2015 . the decrease was primarily attributable to lower revenues in the majority of our segments due to declining activity as depressed oil and gas prices resulted in reduced rig count , downward pricing pressures , rig cancellations and delays as well as deferred work scopes in the international and u.s. services regions while revenues for tubular sales decreased 37 due to lower international demand and decreased deep water fabrication revenue . the decreased revenues were partially offset by revenues in our blackhawk segment of $ 10.0 million resulting from our acquisition in november 2016. see note 3 - acquisitions in the notes to consolidated financial statements for additional information on our blackhawk acquisition . revenues for our segments are discussed separately below under the heading `` operating segment results . '' cost of revenues , exclusive of depreciation and amortization . cost of revenues for the year ended december 31 , 2016 decreased by $ 158.0 million , or 37.8 % , to $ 260.4 million from $ 418.4 million for the year ended december 31 , 2015 . the decrease was due to lower activity volumes , offset by cost actions taken throughout 2016. we also incurred additional costs of $ 8.9 million related to our blackhawk acquisition in november 2016. general and administrative expenses . general and administrative ( `` g & a '' ) expenses for the year ended december 31 , 2016 decreased by $ 41.9 million , or 15.5 % , to $ 228.8 million from $ 270.7 million for the year ended december 31 , 2015 .
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functional currencies and foreign currency transaction gains and losses the functional currency for most of our foreign subsidiaries is the applicable local currency , although we have several subsidiaries with functional currencies that differ story_separator_special_tag the following management 's discussion and analysis of our financial condition and results of operations should be read in conjunction with “ business ” under item 1 , “ selected financial data ” under item 6 , and our consolidated financial statements and the related notes thereto included under item 8 of this report . this discussion contains a number of forward-looking statements , all of which are based on our current expectations and all of which could be affected by uncertainties and risks . our actual results may differ materially from the results contemplated in these forward-looking statements as a result of many factors including , but not limited to , those described in “ risk factors ” under item 1a of this report . overview our business verint is a global leader in actionable intelligence solutions . in a world of massive information growth , our solutions empower organizations with crucial , actionable insights and enable decision makers to anticipate , respond , and take action . today , over 10,000 organizations in more than 180 countries , including over 85 percent of the fortune 100 , use verint 's actionable intelligence solutions , deployed in the cloud and on premises , to make more informed , timely , and effective decisions . our actionable intelligence leadership is powered by innovative , enterprise-class software built with artificial intelligence , analytics , automation , and deep domain expertise established by working closely with some of the most sophisticated and forward-thinking organizations in the world . we believe we have one of the industry 's strongest r & d teams focused on actionable intelligence consisting of 1,900 professionals . our innovative solutions are backed-up by a strong ip portfolio with close to 1,000 patents and patent applications worldwide across data capture , artificial intelligence , unstructured data analytics , predictive analytics and automation . verint 's actionable intelligence strategy is focused on two use cases and the company has two operating segments : customer engagement solutions and cyber intelligence solutions . for the years ended january 31 , 2019 , 2018 , and 2017 , our customer engagement segment represented approximately 65 % , 65 % , and 66 % of our total revenue , respectively , while for those same years , our cyber intelligence segment represented approximately 35 % , 35 % , and 34 % of our total revenue , respectively . key trends and factors that may impact our performance we see the following trends and factors which may impact our performance : customer engagement reducing complexity and enhancing agility . many organizations have complex environments that were assembled over many years , with multiple legacy systems from many different vendors deployed in silos across the enterprise . to reduce complexity and simplify operations , these organizations are looking for new solutions that are open and flexible and make it easier to address evolving requirements , while protecting their legacy investments . organizations are also seeking open platforms that address their customer engagement needs across many enterprise functions , 33 including the contact center , back-office and branch operations , self-service , e-commerce , customer experience , marketing , it , and compliance . modernizing customer engagement it architectures . many organizations are looking to modernize their legacy customer engagement operations by transitioning to the cloud , adopting modern architectures that facilitate the orchestration of disparate systems and the sharing of data across enterprise functions . organizations which are at different stages of migrating to the cloud and other modernization initiatives are also looking for vendors that can help them evolve customer engagement at their own pace with minimal disruption to their operations . automating customer engagement operations . many organizations are seeking solutions that incorporate machine learning and analytics to reduce manual work and increase workforce efficiency through automation . they also seek to empower their customers with self-service backed by ai-powered bots and human/bot collaboration , to elevate the customer experience in a fast , personalized way . cyber intelligence security threats becoming increasingly pervasive and complex . governments , critical infrastructure providers , and enterprises face many types of security threats from criminal and terrorist organizations and foreign governments . some of these security threats come from well-organized and well-funded organizations that utilize new and increasingly sophisticated methods . as a result , security and intelligence organizations find it more difficult and complicated to detect , investigate and neutralize threats . many of these organizations are seeking to deploy more advanced data mining solutions that can help them capture and analyze data from multiple sources to effectively and efficiently address the challenge of increased sophistication and complexity . shortage of security analysts increasing the need for automation . security organizations are using data mining solutions to help conduct investigations and generate actionable insights . typically , data mining solutions require security organizations to employ intelligence analysts and data scientists to operate them . however , there is a shortage of such qualified personnel globally leading to elongated investigations and increased risk that security threats go undetected or are not addressed . to overcome this challenge , many security organizations are seeking advanced data mining solutions that automate functions historically performed manually to improve the quality and speed of investigations and intelligence production . these organizations are also increasingly seeking artificial intelligence and other advanced data analysis tools to gain intelligence faster with fewer analysts and data scientists . need for predictive intelligence as a force multiplier . predictive intelligence is generated by correlating massive amounts of data from a wide range of disparate sources to uncover previously unknown connections , identify suspicious behaviors using advanced analytics , and predict future events . predictive intelligence is a force multiplier , enabling security organizations to allocate resources more effectively to prioritize various operational tasks based on actionable intelligence . story_separator_special_tag we incorporate revisions to hour and cost estimates when the causal facts become known . we measure our estimate of completion on fixed-price contracts , which in turn determines the amount of revenue we recognize , based primarily on actual hours incurred to date and our estimate of remaining hours necessary to complete the contract . our products are generally not sold with a right of return and credits and incentives granted have been minimal in both amount and frequency . shipping and handling activities that are billed to customers and occur after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of revenue . historically , these expenses have not been material . accounting for business combinations we allocate the purchase price of acquired companies to the tangible and intangible assets acquired , including in-process research and development assets , and liabilities assumed , based upon their estimated fair values at the acquisition date . these fair values are typically estimated with assistance from independent valuation specialists . the purchase price allocation process 35 requires us to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets , contractual support obligations assumed , contingent consideration arrangements , and pre-acquisition contingencies . although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to : future expected cash flows from software license sales , support agreements , consulting contracts , other customer contracts , and acquired developed technologies ; expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed ; the acquired company 's brand and competitive position , as well as assumptions about the period of time the acquired brand will continue to be used in the combined company 's product portfolio ; cost of capital and discount rates ; and estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize . in connection with the purchase price allocations for applicable acquisitions , we estimate the fair value of the contractual support obligations we are assuming from the acquired business . the estimated fair value of the support obligations is determined utilizing a cost build-up approach , which determines fair value by estimating the costs related to fulfilling the obligations plus a reasonable profit margin . the estimated costs to fulfill the support obligations are based on the historical direct costs related to providing the support services . the sum of these costs and operating profit represents an approximation of the amount that we would be required to pay a third party to assume the support obligations . impairment of goodwill and other intangible assets we test goodwill for impairment at the reporting unit level , which can be an operating segment or one level below an operating segment , on an annual basis as of november 1 , or more frequently if changes in facts and circumstances indicate that impairment in the value of goodwill may exist . as of january 31 , 2019 , our reporting units are customer engagement , cyber intelligence ( excluding situational intelligence solutions ) , and situational intelligence , which is a component of our cyber intelligence operating segment . in testing for goodwill impairment , we may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we elect to bypass a qualitative assessment , or if our qualitative assessment indicates that goodwill impairment is more likely than not , we perform quantitative impairment testing . for quantitative impairment testing performed prior to february 1 , 2018 , we performed a two-step test by first comparing the carrying value of the reporting unit to its fair value . if the carrying value exceeded the fair value , a second step was performed to compute the goodwill impairment . effective with our february 1 , 2018 adoption of asu no . 2017-04 , intangibles-goodwill and other ( topic 350 ) - simplifying the test for goodwill impairment , if our quantitative testing determines that the carrying value of a reporting unit exceeds its fair value , goodwill impairment is recognized in an amount equal to that excess , limited to the total goodwill allocated to that reporting unit , eliminating the need for the second step . for reporting units where we decide to perform a qualitative assessment , we assess and make judgments regarding a variety of factors which potentially impact the fair value of a reporting unit , including general economic conditions , industry and market-specific conditions , customer behavior , cost factors , our financial performance and trends , our strategies and business plans , capital requirements , management and personnel issues , and our stock price , among others . we then consider the totality of these and other factors , placing more weight on the events and circumstances that are judged to most affect a reporting unit 's fair value or the carrying amount of its net assets , to reach a qualitative conclusion regarding whether it is more likely than not that the fair value of a reporting unit exceeds its carrying amount .
| overview of operating results 38 the following table sets forth a summary of certain key financial information for the years ended january 31 , 2019 , 2018 , and 2017 : replace_table_token_4_th year ended january 31 , 2019 compared to year ended january 31 , 2018 . our revenue increased approximately $ 94.5 million , or 8 % , from $ 1,135.2 million in the year ended january 31 , 2018 to $ 1,229.7 million in the year ended january 31 , 2019 . the increase consisted of a $ 55.0 million increase in product revenue and a $ 39.5 million increase in service and support revenue . in our customer engagement segment , revenue increased approximately $ 56.2 million , or 8 % , from $ 740.1 million in the year ended january 31 , 2018 to $ 796.3 million in the year ended january 31 , 2019 . the increase consisted of a $ 37.5 million increase in product revenue and an $ 18.7 million increase in service and support revenue . in our cyber intelligence segment , revenue increased approximately $ 38.3 million , or 10 % , from $ 395.2 million in the year ended january 31 , 2018 to $ 433.5 million in the year ended january 31 , 2019 . the increase consisted of a $ 20.8 million increase in service and support revenue and $ 17.5 million increase in product revenue . for additional details on our revenue by segment , see “ —revenue by operating segment ” . revenue in the americas , emea , and apac represented approximately 54 % , 26 % , and 20 % of our total revenue , respectively , in the year ended january 31 , 2019 , compared to approximately 53 % , 31 % , and 16 % , respectively , in the year ended january 31 , 2018 . further details of changes in revenue are provided below .
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at the conclusion of the process , management provided the audit committee with a report on the effectiveness of the company 's internal control over financial reporting . the audit committee also reviewed the report of management contained in the company 's annual report on form 10-k filed story_separator_special_tag executive summary veeco instruments inc. ( together with its consolidated subsidiaries , `` veeco '' , the `` company '' , `` we '' , `` us '' , and `` our '' , unless the context indicates otherwise ) creates process equipment that enables technologies for a cleaner and more productive world . we design , manufacture and market equipment primarily sold to make leds and hard-disk drives , as well as for concentrator photovoltaics , power semiconductors , wireless components , and micro-electromechanical systems ( `` mems '' ) . veeco develops highly differentiated , `` best-in-class '' process equipment for critical performance steps . our products feature leading technology , low cost-of-ownership and high throughput . core competencies in advanced thin film technologies , over 200 patents , and decades of specialized process know-how helps us to stay at the forefront of these demanding industries . veeco 's led & solar segment designs and manufactures metal organic chemical vapor deposition ( `` mocvd '' ) and molecular beam epitaxy ( `` mbe '' ) systems and components sold to manufacturers of leds , wireless components , power semiconductors , and concentrator photovoltaics , as well as to r & d applications . veeco 's data storage segment designs and manufactures systems used to create thin film magnetic heads ( `` tfmh '' s ) that read and write data on hard disk drives . these include ion beam etch , ion beam deposition , diamond-like carbon , physical vapor deposition , chemical vapor deposition , and slicing , dicing and lapping systems . while our systems are primarily sold to hard drive customers , they also have applications in optical coatings , mems and magnetic sensors , and extreme ultraviolet ( `` euv '' ) lithography . as of september 30 , 2013 , veeco 's approximately 780 employees support our customers through product and process development , training , manufacturing , and sales and service sites in the u.s. , south korea , taiwan , china , singapore , japan , europe and other locations . veeco instruments inc. was organized as a delaware corporation in 1989. summary of results for 2012 selected financial highlights include : revenue decreased 47.3 % to $ 516.0 million in 2012 from $ 979.1 million in 2011. led & solar revenues decreased 56.1 % to $ 363.2 million from $ 827.8 million in 2011. data storage revenues increased 1.0 % to $ 152.8 million from $ 151.3 million in 2011 ; orders were down 52.1 % , to $ 391.9 million in 2012 , compared to $ 817.9 million in 2011 ; our gross margin decreased , to 41.7 % , in 2012 compared to 48.4 % for 2011. gross margins in led & solar decreased from 48.0 % in 2011 to 40.9 % . data storage gross margins also decreased from 50.7 % to 43.7 % . our selling , general and administrative expenses decreased to $ 73.1 million , from $ 95.1 million in 2011. selling , general and administrative expenses were 14.2 % of net sales in 2012 , compared with 9.7 % in 2011 ; our research and development expenses decreased to $ 95.2 million from $ 96.6 million in 2011. research and development expenses were 18.4 % of net sales in 2012 , compared with 9.9 % in 2011 ; net income from continuing operations in 2012 was $ 26.5 million compared to $ 190.5 million in 2011 ; diluted net income from continuing operations per share was $ 0.68 compared to $ 4.63 in 2011 . 34 business highlights of 2012 veeco 's 2012 revenues of $ 516.0 million were the lowest level since 2009 , primarily due to the equipment overcapacity situation in the led industry . all of veeco 's end markets were negatively impacted by the weak global economy and our customers ' hesitancy to add manufacturing capacity . a bright spot for the company in 2012 was the growth of our services business from $ 97 million to $ 123 million , a 27 % increase . one of veeco 's top goals for 2012 was to grow our services business in both the led & solar and data storage segments , as we see this as a way to not only grow revenues but to also improve customer satisfaction . other key accomplishments for the company in 2012 included : we maintained or gained market share in all of our core technologies ; we penetrated new markets ( such as mems , power electronics , and oled ) and shipped tools to new customers in all key regions ; we delivered on our target for shipments , met our annual guidance of more than $ 500 million in revenue and generated approximately $ 87 million in cash , cash equivalents and short-term investments ; we effectively managed operations and moved quickly in response to changing business conditions . outlook through the first nine months of 2013 , we have not seen any clear signs that customer overcapacity in our mocvd business and weak end market demand in our data storage segment will improve in the near term . our customers continue to guard spending tightly and limit capacity expansions . the led industry is still in an equipment digestion period and near term visibility remains limited . with few mocvd deals available , we have also experienced increased pricing pressure . in our data storage segment , our hard drive customers are experiencing weak end market demand which has resulted in excess manufacturing capacity , therefore they are only making select technology purchases . story_separator_special_tag discontinued operations replace_table_token_17_th * not meaningful discontinued operations represent the results of the operations of our disposed metrology segment , which was sold to bruker on october 7 , 2010 , and our cigs solar systems business , which was discontinued on september 27 , 2011 , reported as discontinued operations . the 2012 results included a $ 1.4 million gain ( $ 1.1 million net of taxes ) on the sale of the assets of discontinued segment held for sale and a $ 5.4 million gain ( $ 4.1 million net of taxes ) associated with the closing of the china assets with bruker . the 2011 results reflect an operational loss before taxes of $ 1.6 million related to the metrology segment and an operational loss before taxes of $ 90.3 million related to the cigs solar systems business . 40 years ended december 31 , 2011 and 2010 the following table shows our consolidated statements of income , percentages of sales and comparisons between 2011 and 2010 ( dollars in thousands ) : replace_table_token_18_th * not meaningful 41 net sales and orders net sales of $ 979.1 million for the year ended december 31 , 2011 , were up 5.2 % compared to 2010. the following is an analysis of sales and orders by segment and by region ( dollars in thousands ) : replace_table_token_19_th ( 1 ) less than 1 % , of sales included within the united states caption above has been derived from other regions within the americas . by segment , led & solar sales increased 4.1 % in 2011 primarily due to increases in shipments of our newest systems as compared to 2010 ( 3.9 % increase in mocvd reactor shipments from 2010 ) as a result of the high demand which slowed by the beginning of the second half 2011 for led applications . data storage sales also increased 11.8 % , primarily as a result of an increase in capital spending by data storage customers for capacity and technology buys . led & solar sales represented 84.5 % of total sales for the year ended december 31 , 2011 , down from 85.5 % in the prior year . data storage sales accounted for 15.5 % of net sales , up from 14.5 % in the prior year . by region , net sales increased by 10.0 % in asia pacific , primarily due to mocvd sales to led customers . in addition , sales in the americas increased 8.6 % and sales in emea decreased 37.4 % . we believe that there will continue to be year-to-year variations in the geographic distribution of sales . orders in 2011 decreased 27.1 % compared to 2010 , primarily attributable to a 32.8 % decrease in led & solar orders that were principally driven by a mid-year deterioration due to oversupply in the led market , slowing orders dramatically in the third and fourth quarters after hitting a peak in the second quarter of 2011. data storage orders increased 9.0 % from the continued increase in our customers ' capital spending for capacity and technology buys . our book-to-bill ratio for 2011 , which is calculated by dividing orders received in a given time period by revenue recognized in the same time period , was 0.84 to 1 compared to 1.20 to 1 in 2010. our backlog as of december 31 , 2011 was $ 332.9 million , compared to $ 535.4 million as of december 31 , 2010. during the year ended december 31 , 2011 , we experienced a net backlog adjustment of approximately $ 41.4 million . the adjustment consisted of $ 38.1 million of order cancellations and $ 3.3 million related to other order adjustments . during the year ended december 31 , 2011 , we had a positive adjustment related to foreign currency translation of $ 0.1 million . for certain sales arrangements we require a deposit for a portion of the sales price before shipment . as of december 31 , 2011 and 2010 we had deposits of $ 57.1 million and $ 129.2 million , respectively . 42 gross profit replace_table_token_20_th gross profit was $ 474.3 million or 48.4 % for 2011 compared to $ 449.5 million or 48.3 % in 2010. led & solar gross margins decreased to 48.0 % from 48.3 % in the prior year , primarily due to higher overhead costs , service support spending and a $ 0.8 million inventory write-off , which was included in cost of sales , partially offset by increases in volume , favorable product mix and lower average material costs . data storage gross margins increased to 50.7 % from 48.4 % in the prior year due to increased sales volume and a favorable product mix , partially offset by higher overhead costs and service support spending . operating expenses replace_table_token_21_th selling , general and administrative expenses increased by $ 7.9 million or 9.0 % , from the prior year primarily to support the increased level of business in our led & solar segment . selling , general and administrative expenses were 9.7 % of net sales in 2011 , compared with 9.4 % of net sales in the prior year . replace_table_token_22_th research and development expense increased $ 39.6 million or 69.6 % from the prior year , primarily due to continued product development in areas of high-growth for end market opportunities in our led & solar segment . as a percentage of net sales , research and development expense increased to 9.9 % from 6.1 % in the prior year . replace_table_token_23_th 43 amortization expense increased $ 1.0 million from the prior year , primarily resulting from the increase in intangible assets as a result of our acquisition of a privately held company that occurred during the second quarter of 2011. replace_table_token_24_th * not meaningful restructuring expense of $ 1.3 million for the year ended december 31 , 2011 , consisted of personnel severance costs associated with the company-wide reduction of approximately 65 employees in our workforce .
| results of operations out of period adjustment as a result of our accounting review we identified errors in the consolidated financial statements related to prior periods . the errors were primarily attributable to the misapplication of u.s. gaap for recognizing revenue and related costs under multiple element arrangements and accounting for warranties . we assessed the materiality of these errors , both quantitatively and qualitatively , and concluded that these errors were not material , individually or in the aggregate , to our consolidated financial statements in this or any other prior periods . during the course of our review , we identified 35 net cumulative errors which overstated cumulative net income from continuing operations through december 31 , 2011 by $ 0.6 million . as a result , in 2012 we recorded adjustments to correct all prior periods resulting in a decrease in income from continuing operations of $ 0.6 million . years ended december 31 , 2012 and 2011 the following table shows our consolidated statements of income , percentages of sales and comparisons between 2012 and 2011 ( dollars in thousands ) : replace_table_token_7_th * not meaningful 36 net sales and orders net sales of $ 516.0 million for the year ended december 31 , 2012 , were down 47.3 % compared to 2011. the following is an analysis of sales and orders by segment and by region ( dollars in thousands ) : replace_table_token_8_th ( 1 ) less than 1 % , of sales included within the united states caption above has been derived from other regions within the americas . by segment , led & solar sales decreased 56.1 % in 2012 primarily due to a 62.0 % decrease in mocvd reactor shipments from the prior year as a result of industry overcapacity following over two years of strong customer investments .
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the monies held in the trust account ( whether or not such waiver is enforceable ) nor will it apply to any claims under the company 's indemnity of the underwriters of the public offering against certain liabilities , including liabilities under the securities act . sponsor loans on february 14 , 2019 , the sponsors agreed to loan the company up to an aggregate of $ 300,000 by the issuance of unsecured promissory notes to cover expenses related to the public offering . these loans of $ 83,470 were repaid in full on may 14 , 2019. in addition , the sponsors will not be prohibited from loaning the company funds in order to finance transaction costs in connection with the business combination . up to $ 1,500,000 of these loans may be convertible into warrants of the post-business combination entity at a price of $ 1.50 per warrant at the option of the lender . the warrants would be identical to the sponsor warrants . the terms of such loans have not been determined and no written agreements exist with respect to such loans . see note 4 for the terms of the warrants . 62 landcadia holdings ii , inc. notes to financial statements 6. loss per common share a reconciliation of the numerators and denominators for the basic and diluted per common share amounts is as follows : replace_table_token_6_th all shares of class b common stock are assumed to convert to shares of class a common stock on a one-for-one basis . further , an aggregate of 497,750 shares of class a common stock subject to possible redemption have been excluded from the calculation of earnings per share for the years december 31 , 2018 and 2017 . 63 landcadia holdings ii , inc. notes to financial statements 7. income taxes a reconciliation of the income tax expense ( benefit ) is as follows : year ended december 31 , 2019 2018 2017 current income taxes $ 664,486 $ - $ - deferred income taxes - - - total expense ( benefit ) $ 664,486 $ - $ - change in valuation allowance - - - income tax expense ( benefit ) $ 664,486 $ - $ - the company 's deferred tax assets are as follows : year ended december 31 , 2019 2018 deferred tax asset : net operating loss carryforward $ - $ - total deferred tax asset $ - $ - valuation allowance - - deferred tax asset , net of current allowance $ - $ - a reconciliation of the federal income tax rate to the company 's effective tax rate is as follows : replace_table_token_7_th 64 landcadia holdings ii , inc. notes to financial statements 8. selected quarterly financial data ( unaudited ) quarterly financial data is as follows : replace_table_token_8_th 2018 1st quarter 2nd quarter 3rd quarter 4th quarter general and administrative expenses $ - $ - $ - $ - net income ( loss ) $ - $ - $ - $ - basic and diluted earnings ( loss ) available to common shares $ - $ - $ - $ - 2017 1st quarter 2nd quarter 3rd quarter 4th quarter general and administrative expenses $ - $ - $ - $ - net income ( loss ) $ - $ - $ - $ - basic and diluted earnings ( loss ) available to common shares $ - $ - $ - $ - 65 schedule ii valuation of qualifying accounts description balance at beginning of period charges ( credits ) to expense charges ( credits ) to other accounts write-offs balance at end of period deferred tax valuation allowance : december 31 , 2019 $ - $ - $ - $ - $ - december 31 , 2018 $ - $ - $ - $ - $ - december 31 , 2017 $ - $ - $ - $ - $ - item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . evaluation of disclosure controls and procedures disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the securities exchange act of 1934 , as amended ( the `` exchange act `` ) , is recorded , processed , summarized and reported within the time periods specified story_separator_special_tag overview we are a blank check company incorporated as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we consummated our initial public offering on may 9 , 2019 and are currently in the process of locating suitable targets for our business combination . we intend to use the cash proceeds from our public offering and private placement of warrants as well as additional issuances , if any , of our capital stock , debt or a combination of cash , stock and debt to complete the business combination . we expect to incur significant costs in the pursuit of our acquisition plans . there can be no assurance that our plans to raise capital or to complete our initial business combination will be successful . liquidity and capital resources on may 9 , 2019 we consummated a $ 316,250,000 public offering consisting of 31,625,000 units at a price of $ 10.00 per unit . each unit consists of one share of the company 's class a common stock , $ 0.0001 par value and one-third of one redeemable public warrant . simultaneously , with the closing of the public offering , we consummated a $ 8,825,000 private placement of an aggregate of 5,883,333 sponsor warrants at a price of $ 1.50 per warrant . upon closing of the public offering and private placement on may 9 , 2019 , $ 316,250,000 in story_separator_special_tag the monies held in the trust account ( whether or not such waiver is enforceable ) nor will it apply to any claims under the company 's indemnity of the underwriters of the public offering against certain liabilities , including liabilities under the securities act . sponsor loans on february 14 , 2019 , the sponsors agreed to loan the company up to an aggregate of $ 300,000 by the issuance of unsecured promissory notes to cover expenses related to the public offering . these loans of $ 83,470 were repaid in full on may 14 , 2019. in addition , the sponsors will not be prohibited from loaning the company funds in order to finance transaction costs in connection with the business combination . up to $ 1,500,000 of these loans may be convertible into warrants of the post-business combination entity at a price of $ 1.50 per warrant at the option of the lender . the warrants would be identical to the sponsor warrants . the terms of such loans have not been determined and no written agreements exist with respect to such loans . see note 4 for the terms of the warrants . 62 landcadia holdings ii , inc. notes to financial statements 6. loss per common share a reconciliation of the numerators and denominators for the basic and diluted per common share amounts is as follows : replace_table_token_6_th all shares of class b common stock are assumed to convert to shares of class a common stock on a one-for-one basis . further , an aggregate of 497,750 shares of class a common stock subject to possible redemption have been excluded from the calculation of earnings per share for the years december 31 , 2018 and 2017 . 63 landcadia holdings ii , inc. notes to financial statements 7. income taxes a reconciliation of the income tax expense ( benefit ) is as follows : year ended december 31 , 2019 2018 2017 current income taxes $ 664,486 $ - $ - deferred income taxes - - - total expense ( benefit ) $ 664,486 $ - $ - change in valuation allowance - - - income tax expense ( benefit ) $ 664,486 $ - $ - the company 's deferred tax assets are as follows : year ended december 31 , 2019 2018 deferred tax asset : net operating loss carryforward $ - $ - total deferred tax asset $ - $ - valuation allowance - - deferred tax asset , net of current allowance $ - $ - a reconciliation of the federal income tax rate to the company 's effective tax rate is as follows : replace_table_token_7_th 64 landcadia holdings ii , inc. notes to financial statements 8. selected quarterly financial data ( unaudited ) quarterly financial data is as follows : replace_table_token_8_th 2018 1st quarter 2nd quarter 3rd quarter 4th quarter general and administrative expenses $ - $ - $ - $ - net income ( loss ) $ - $ - $ - $ - basic and diluted earnings ( loss ) available to common shares $ - $ - $ - $ - 2017 1st quarter 2nd quarter 3rd quarter 4th quarter general and administrative expenses $ - $ - $ - $ - net income ( loss ) $ - $ - $ - $ - basic and diluted earnings ( loss ) available to common shares $ - $ - $ - $ - 65 schedule ii valuation of qualifying accounts description balance at beginning of period charges ( credits ) to expense charges ( credits ) to other accounts write-offs balance at end of period deferred tax valuation allowance : december 31 , 2019 $ - $ - $ - $ - $ - december 31 , 2018 $ - $ - $ - $ - $ - december 31 , 2017 $ - $ - $ - $ - $ - item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . evaluation of disclosure controls and procedures disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the securities exchange act of 1934 , as amended ( the `` exchange act `` ) , is recorded , processed , summarized and reported within the time periods specified story_separator_special_tag overview we are a blank check company incorporated as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we consummated our initial public offering on may 9 , 2019 and are currently in the process of locating suitable targets for our business combination . we intend to use the cash proceeds from our public offering and private placement of warrants as well as additional issuances , if any , of our capital stock , debt or a combination of cash , stock and debt to complete the business combination . we expect to incur significant costs in the pursuit of our acquisition plans . there can be no assurance that our plans to raise capital or to complete our initial business combination will be successful . liquidity and capital resources on may 9 , 2019 we consummated a $ 316,250,000 public offering consisting of 31,625,000 units at a price of $ 10.00 per unit . each unit consists of one share of the company 's class a common stock , $ 0.0001 par value and one-third of one redeemable public warrant . simultaneously , with the closing of the public offering , we consummated a $ 8,825,000 private placement of an aggregate of 5,883,333 sponsor warrants at a price of $ 1.50 per warrant . upon closing of the public offering and private placement on may 9 , 2019 , $ 316,250,000 in
| results of operations we have neither engaged in any significant business operations nor generated any revenues to date . all activities to date relate to the company 's formation and its initial public offering and search for a suitable business combination . we generate non-operating income in the form of interest income on cash , cash equivalents , and marketable securities held in the trust account . we expect to incur increased expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses as we locate a suitable business combination . for the years ended december 31 , 2019 , 2018 , and 2017 , we had a net income of $ 2,499,733 , $ 0 and $ 0 , respectively . the income for the year ended december 31 , 2019 relates to $ 3,651,511 in pre-tax earnings on the trust account assets offset by $ 377,292 of general and administrative costs and $ 110,000 of management fees for administrative services . off-balance sheet arrangements we did not have any off-balance sheet arrangements as of december 31 , 2019. contractual obligations as of december 31 , 2019 , we did not have any long-term debt , capital , purchase or operating lease obligations or other long-term liabilities . we have recorded deferred underwriting commissions payable upon the completion of the business combination . we entered into an administrative services agreement in which the company pays fei for office space , secretarial and administrative services provided to members of the company 's management team , in an amount not to exceed $ 10,000 per month . critical accounting policies the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes .
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the tax benefits recognized in the consolidated financial statements from such positions are then measured based story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with part ii , item 6 , “ selected financial data ” and our consolidated financial statements included elsewhere in this annual report on form 10-k. in addition to historical data , this discussion contains forward-looking statements about our business , operations and financial performance based on current expectations that involve risks , uncertainties and assumptions . our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including but not limited to those discussed in “ special note regarding forward-looking statements ” and item i , part 1a , “ risk factors ” included elsewhere in this annual report on form 10-k. information pertaining to fiscal year 2017 was included in the company 's annual report on form 10-k for the year ended december 31 , 2018 under part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations , ” which was filed with the sec on march 4 , 2019. overview leaf group is a diversified consumer internet company that builds enduring , digital-first brands that reach passionate audiences in large and growing lifestyle categories , including fitness and wellness and art and design . our business is comprised of two segments : marketplaces and media . marketplaces through our marketplaces segment , we operate leading art and design marketplaces where large communities of artists and designers can market and sell their original art and designs printed on a wide variety of products . our made-to-order marketplaces , consisting of society6.com ( “ society6 ” ) and our wholesale channel , deny designs ( collectively “ society6 group ” ) , provide artists and designers with an online commerce platform to feature and sell their original art and designs on an array of consumer products primarily in the home décor category . saatchi art , inclusive of saatchiart.com ( “ saatchi art ” ) and its art fair event brand , the other art fair ( collectively , “ saatchi art group ” ) , is a leading online art gallery where a global community of artists exhibit and sell their original artwork directly to consumers through a curated online gallery or in-person at art fairs hosted in the united kingdom , australia , and the united states . saatchi art 's online art gallery features a wide selection of original paintings , drawings , sculptures and photography . our marketplaces segment primarily generates revenue from the sale of products and services through our art and design marketplaces . society6 group revenue is generated from the sale of made-to-order products . saatchi art group primarily generates revenue through commissions on the final sale price of original works of art and from various sources relating to the hosting of in-person art fairs , including commissions from the sale of original art , fees paid by artists for stands and through sponsorship opportunities with third-party brands and advertisers . media our media segment brands educate and entertain consumers across a wide variety of life topics , including the popular “ fitness and wellness ” and “ home and design ” verticals . in the “ fitness and wellness ” vertical , our leading brands include well+good and livestrong.com , which aim to inspire people to lead healthier lives . in the “ home and design ” vertical , hunker is our leading brand inspiring people to improve the space around them . these brands are the leaders in our catalog of over 60 other brands focused on specific categories or interests that we either own and operate or host and operate for our partners . our brands each develop a distinct voice and create content that connects with their consumers across a wide variety of platforms , devices and formats . in order to improve our engagement with consumers , we continually redesign and update our websites ; refine our content library ; evaluate and adjust ad unit density ; and develop new ways of integrating the messages from our advertising partners . our revenues are driven by growing the number of consumers and increasing the number of visits through improving the user and content experience , fostering genuine connections between our audience and their brands and providing engaging advertising or sponsorship opportunities to our partners . 36 follow-on public offering of common stock on february 12 , 2018 , we completed an underwritten registered public offering of 3,373,332 shares of our common stock , which included full exercise of the underwriter 's option to purchase additional shares of common stock , at a public offering price of $ 7.50 per share . we received aggregate net proceeds from the offering of $ 23.4 million , after deducting the underwriting discounts and commissions and offering expenses . the net proceeds from the offering were used for working capital and general corporate purposes . acquisition of only in your state on february 1 , 2019 , pursuant to an asset purchase agreement , we acquired substantially all of the assets of only in your state , llc ( “ only in your state ” ) , including its website that focuses on local attractions and local tourism for total consideration of $ 2.0 million in cash , of which $ 0.1 million was held back to secure post-closing indemnification obligations . we evaluated the acquisition of only in your state under asu 2017-01 , business combinations : clarifying the definition of a business . based on the results of the analysis performed , we determined that substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets . as a result , we concluded that the acquisition of only in your state represents an asset acquisition and does not represent a business combination to be accounted for under asc 805. story_separator_special_tag 38 basis of presentation revenue our revenue is primarily derived from products and services sold through our art and design marketplaces and from sales of advertising . revenues are recognized when control of the promised goods or services is transferred to our customers , in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services . our contracts with customers may include multiple performance obligations . for such arrangements , we allocate the transaction price to each performance obligation based on the estimated standalone selling price of the promised good or service . we allocate any arrangement fee or other incentive or promotional offers to each of the elements based on their relative selling prices . our revenue is principally derived from the following products and services : product revenue marketplaces we recognize product revenue from sales of products when we transfer control of promised goods to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods . in determining the amount of consideration we expect to be entitled to , we take into account sales allowances , estimated returns based on historical experience and any incentive offers provided to customers to encourage purchases , including percentage discounts off current purchases , free shipping and other promotional offers . because we are the principal in a transaction and obtain control of the goods before they are transferred to the customer , we record product revenue at the gross amount . value-added taxes ( “ vat ” ) , sales tax and other taxes are not included in product revenue because we are a pass-through conduit for collecting and remitting any such taxes . media we generate media product revenue from products sold on our online media properties . service revenue marketplaces we generate marketplaces service revenue from commissions we receive from facilitating the sale of original art by artists to customers through saatchi art . we also generate marketplaces service revenue from various sources relating to saatchi art 's the other art fair , including commissions from the sale of original art , fees paid by artists for stands at fairs and through sponsorship opportunities with third-party brands and advertisers . we recognize fair related service revenue upon completion of each fair . we recognize service revenue arising from the sale of original art net of amounts paid to the artist because we are not the principal in the transaction and we do not obtain control over the original art . revenue is recognized when we transfer control of the promised service , which is after the original art has been delivered and the return period has expired . we provide incentive offers to saatchi art customers to encourage purchases , including percentage discounts off current purchases , free shipping and other promotional offers . vat , sales tax and other taxes are not included in marketplaces service revenue because we are a pass-through conduit for collecting and remitting any such taxes . media advertising revenue . we generate media service revenue primarily from advertisements displayed on our online media properties and on certain webpages of our partners ' media properties that are hosted by our content services . articles , videos and other forms of content generate advertising revenue from a diverse mix of advertising methods including display advertisements , where revenue is dependent upon the number of advertising impressions delivered ; 39 performance-based cost-per-click advertising , in which an advertiser pays only when a visitor clicks on an advertisement ; sponsored content ; or advertising links . performance obligations pursuant to our advertising revenue arrangements typically include a minimum number of impressions or the satisfaction of other performance criteria . revenue from performance-based arrangements is recognized as the related performance criteria are met . we assess whether performance criteria have been met based on a reconciliation of the performance criteria . the reconciliation of the performance criteria generally includes a comparison of third-party performance data to the contractual performance obligation and to internal or partner performance data in circumstances where that data is available . where we enter into revenue-sharing arrangements with our partners , such as those relating to our advertiser network , we report revenue on a gross or net basis depending on whether we are considered the principal in the transaction . in addition , we consider which party controls the service , including which party is primarily responsible for fulfilling the promise to provide the service . we also consider which party has the latitude to establish the sales prices to advertisers . when we are considered the principal , we report the underlying revenue on a gross basis in our consolidated statements of operations , and record these revenue-sharing payments to our partners in service costs . content sales and licensing revenue . we generate revenue from the sale or license of media content , including the creation and distribution of content for third-party brands and publishers . revenue from the sale or perpetual license of media content is recognized when the control of content is transferred or when the right to use is transferred and the contractual performance obligations have been fulfilled . revenue from the non-perpetual license of media content is recognized over the period of the license as the right to access content is delivered or when other related performance criteria are fulfilled . in circumstances where we distribute our content on third-party properties and the customer acts as the principal , we recognize revenue on a net basis . product costs product costs consist of product manufacturing costs , including both in-house and contracted third-party manufacturing costs , artist payments , personnel costs and credit card and other transaction processing fees .
| segment results marketplaces operating expenses and operating contribution marketplaces operating expenses for the year ended december 31 , 2019 decreased by $ 3.3 million , or 3 % , to $ 91.8 million , as compared to $ 95.1 million in the same period in 2018. the decrease was primarily due to decreases in marketplace revenue , with decreases of $ 4.0 million in cost of services , $ 1.2 million in marketing , and $ 0.3 million in professional fees , partially offset by increases of $ 1.3 million in personnel and related costs and $ 0.9 million in consulting cost . marketplaces operating contribution was a loss of $ 2.2 million for the year ended december 31 , 2019 , as compared to a loss of $ 1.1 million in the same period in 2018. media operating expenses and operating contribution media operating expenses for the year ended december 31 , 2019 increased by $ 5.9 million , or 17 % , to $ 40.6 million , as compared to $ 34.7 million in the same period in 2018. the increase was a result of increases of $ 2.5 million in personnel and related costs , $ 2.8 million in content development and renovation , $ 0.9 million in professional and consulting fees , $ 0.8 million in rent and maintenance , and $ 0.5 million in cost of sales , primarily attributable to the acquisition of well+good in june 2018. such increased costs were partially offset by a decrease in marketing spend of $ 1.8 million .
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58 this new reporting standard is effective for interim and annual periods beginning after december 15 , 2011 , however , the fasb recently decided to defer the effective date for the part of this new guidance that story_separator_special_tag as used herein , the terms “ ebix , ” “ the company , ” “ we , ” “ our ” and “ us ” refer to ebix , inc. , a delaware corporation , and its consolidated subsidiaries as a combined entity . the information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document . the discussion below contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements involve risks and uncertainties including , but not limited to : demand and acceptance of services offered by us , our ability to achieve and maintain acceptable cost levels , pricing levels and actions by competitors , regulatory matters , general economic conditions , and changing business strategies . forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations , including , but not limited to our performance in future periods , our ability to generate working capital from operations , the adequacy of our insurance coverage , and the results of litigation or investigations . our forward-looking statements can be identified by the use of terminology such as “ anticipates , ” “ expects , ” “ intends , ” “ believes , ” “ will ” or the negative thereof or variations thereon or comparable terminology . except as required by law , we undertake no obligation to publicly update or revise any forward-looking statement , whether as a result of new information , future events or otherwise . overview ebix , inc. is a leading international supplier of on-demand software and e-commerce solutions to the insurance industry . ebix provides various application software products for the insurance industry ranging from carrier systems , agency systems and exchanges to custom software development for all entities involved in the insurance industry . approximately 78 % of the company 's revenues are recurring . rather than license our products in perpetuity , we typically either license them for a few years with ongoing support revenues , or license them on a limited term basis using a subscription hosting or asp model . our goal is to be the leading powerhouse of back-end insurance transactions in the world . during 2012 , combined subscription-based and transaction-based revenues increased by $ 15.3 million to $ 155.5 million , while as a percentage of the company 's total revenues declined to 78 % in 2012 , as compared to 83 % in the year 2011. subscription based revenues increased by $ 9.4 million to $ 119.9 million , while as a percentage of the company 's total revenues declined to 60 % 2012 , as compared to 65 % in the year 2011. the company 's technology vision is to focus on convergence of all insurance processes in a manner such that data can seamlessly flow from entity to entity once a data entry has been made . our customers include many of the top insurance and financial sector companies in the world . the insurance industry has undergone significant consolidation over the past several years driven by the need for , and benefits from , economies of scale in providing insurance in a competitive environment . the insurance markets have continuously increased their demands for cutting edge solutions to reduce paper based processes and improve efficiency both at the back-end side and at the consumer end side of their insurance transaction processing . such consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed . management believes the world-wide insurance industry will continue to experience significant change and the need for increased efficiencies through online exchanges and streamlined processes . the changes in the insurance industry are likely to create new opportunities for the company . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of revenue growth , operating income , operating margin , income from continuing operations , diluted earnings per share , and cash provided by operating activities . we monitor these indicators , in conjunction with our corporate governance practices , to ensure that our business is efficiently managed and that effective controls are maintained . the key performance indicators for the twelve months ended december 31 , 2012 , 2011 , and 2010 were as follows : replace_table_token_6_th 21 story_separator_special_tag any existing products sold to new customers acquired through the acquisition customer base , has also been assigned to the acquired section of our business . 2011 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued . this is typically done for efficiency and or competitive reasons . the specific components of our revenue and the changes experienced during the past year are discussed further below . exchange division revenues increased $ 29.0 million or 22 % due to the increased number of new exchange clients , and cross selling of services to existing clients . broker systems division revenue increased $ 606 thousand or 3 % due to growth realized related to services delivered by on-demand back-end systems , designed for use by insurance brokers . bpo division revenues increased by $ 1.2 million or 8 % due primarily to services provided to curepet . story_separator_special_tag the primary factor contributing to the tax expense increase is that in the year 2011 the company released the remaining valuation allowances held against deferred tax assets associated with tax net operating losses carry forwards obtained from earlier business acquisitions . as a result of the release of the valuation allowances in 2011 the company recognized a tax benefit of $ 4.7 million ( net of $ 1.9 million income tax expense pertaining to charges associated with windfall gains realized from tax deductions in connection with exercised stock options and vested restricted stock grants . the company 's tax provision for the year of 2012 reflects an effective tax rate of 9.6 % , which is essentially consistent with the 9.5 % effective tax rate for the year 2011. facilitating our relatively low consolidated world-wide effective tax rate is the advantages the company realizes from conducting activities in certain foreign low tax jurisdictions . the pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the company had operations for the year ending december 31 , 2012 are as follows : replace_table_token_9_th 25 twelve months ended december 31 , 2011 and 2010 operating revenue the company derives its revenues primarily from professional and support services , which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our asp platforms , revenue generated from software development projects and associated fees for consulting , implementation , training , and project management provided to customers using our systems , and business process outsourcing revenue . ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2011 and 2010. replace_table_token_10_th during the twelve months ended december 31 , 2011 our total revenue increased $ 36.8 million or 28 % , to $ 169.0 million compared to $ 132.2 million in 2010. the increase in revenues is primarily the result of revenue from the acquisition of adam since february 2011 , revenue from business acquisitions made during 2010 , and continued growth achieved in our exchange channel . $ 23.1 million of adam 's operating revenues recognized since february 7 , 2011 are included in the company 's revenues reported in its consolidated statement of income for the year ended december 31 , 2011. the company continues to immediately and efficiently leverage product cross-selling opportunities across all channels , as facilitated by our operating philosophy and business acquisition strategy . with respect to business acquisitions completed during the fiscal years 2011 and 2010 on a pro forma basis combined revenues increased 2.8 % for the year 2011 versus full year 2010 , whereas there was a 27.8 % increase in reported revenues for the same comparative periods . the 2.8 % increase in pro forma revenues is associated with a 0.7 % decrease in full year 2011 versus 2010 revenues pertaining to the businesses acquired during the years 2010 and 2011 ( i.e . adam , healthconnect , mcn , trades monitor , connective technologies , usix , and e-trek ) , offset by a 3.5 % increase in revenues associated with ebix 's legacy operations preceding these business acquisitions . the cause for the difference between the 27.8 % increase in reported 2011 revenue versus 2010 revenue , as compared to the 2.8 % increase in 2011 pro forma versus 2010 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during years 2010 and 2011 with the company 's pre-existing operations . also partially effecting reported revenues was the impact from fluctuations in the exchange rates of the foreign currencies in the countries in which we conduct operations . during each of the years 2011 , 2010 , and 2009 the change in foreign currency exchange rates increased/ ( decreased ) reported consolidated operating revenues by $ 4.2 million , $ 4.6 million , and $ ( 1.9 ) million , respectfully . the above referenced pro forma analysis is based on the following premises : legacy business refers to all existing businesses as of january 1 , 2010 2011 pro forma does not contain annualized revenue of the acquired entities after the acquisition date , and instead contains their actual revenues for the months prior to their acquisition date . revenue billed to existing clients from cross selling of acquired products has been assigned to the non-legacy section of our business . any existing legacy products sold to new customers acquired through the acquisition customer base , has also been assigned to the non-legacy bucket . 2010 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date as also revenues from some customers whose contracts had to be discontinued . this is typically been done for efficiency and or competitive reasons . the specific components of our revenue and the changes experienced during the past year are discussed further below . exchange division revenues increased $ 36.4 million or 39 % due to the increased number of new exchange clients , cross-selling of services to existing clients . bpo division revenues decreased slightly by $ 642 thousand or 4 % with the company 's performance in this product channel being partially affected by the downturn in the construction and housing industry which accounts for almost a third of the insurance certificates created . 26 broker systems division revenue increased $ 4.2 million or 30 % due to growth realized related to services delivered by on-demand back-end systems , designed for use by insurance brokers . carrier systems division revenue decreased $ 3.2 million or 37 % due to the lack of demand by large insurance carriers for perpetually licensed back-end systems . the company is developing and launching new on-demand products and services for prospective clients in this market that are designed to facilitate a subscription-based recurring model .
| results of operations replace_table_token_7_th twelve months ended december 31 , 2012 and 2011 operating revenue the company derives its revenues primarily from professional and support services , which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our asp platforms , revenue generated from software development projects and associated fees for consulting , implementation , training , and project management provided to customers using our systems , and business process outsourcing revenue . ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2012 and 2011 . replace_table_token_8_th during the twelve months ended december 31 , 2012 our total revenue increased $ 30.4 million or 18 % , to $ 199.4 million compared to $ 169.0 million in 2011 . the increase in revenues is a summation of revenue from business acquisitions completed during 2012 and 2011 and the continued growth achieved in our exchange channel , partially offset in the aggregate by a reduction in bpo revenues which were affected by the downturn in the construction industry , and a reduction in health revenues due to uncertainty associated with the health reform movement . in regards to business acquisitions , the company continues to immediately and efficiently leverage product cross-selling opportunities across all channels , as facilitated by our operating philosophy and business acquisition strategy . with respect to business acquisitions completed during the fiscal years 2012 and 2011 on a pro forma basis , as disclosed in the table in note 4 “ pro forma financial information ” to the enclosed consolidated financial statements , combined revenues increased 1.3 % for the year 2012 versus full year 2011 , whereas there was a 18.0 % increase in reported revenues for the same comparative periods .
| 2,005 |
factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include , but are not limited to : our inability to successfully grow our business and implement our strategic plan , including an inability to generate revenues to offset the increased personnel and other costs related to the strategic plan ; the impact of anticipated higher operating expenses in 2020 and beyond ; our inability to successfully integrate wealth management firm acquisitions ; our inability to manage our growth ; our inability to successfully integrate our expanded employee base ; an unexpected decline in the economy , in particular in our new jersey and new york market areas ; declines in our net interest margin caused by the interest rate environment and or our highly competitive market ; declines in value in our investment portfolio ; higher than expected increases in loan and lease losses or in the level of nonperforming loans ; changes in interest rates ; decline in real estate values within our market areas ; legislative and regulatory actions ( including the impact of the dodd-frank wall street reform and consumer protection act , basel iii and related regulations ) that may result in increased compliance costs ; successful cyberattacks against our it infrastructure and that of our it , customers and third party providers ; higher than expected fdic insurance premiums ; adverse weather conditions ; our inability to successfully generate new business in new geographic markets ; our inability to execute upon new business initiatives ; a lack of liquidity to fund our various cash obligations ; reduction in our lower-cost funding sources ; our inability to adapt to technological changes ; claims and litigation pertaining to fiduciary responsibility , environmental laws and other matters ; our inability to retain key employees ; a reduction in demand for loans and deposits in our market areas ; adverse changes in securities markets ; changes in accounting policies and practices ; effects related to a prolonged shutdown of the federal government which could impact sba and other government lending programs ; and other unexpected material adverse changes in our operations or earnings . except as may be required by applicable law or regulation , the company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company 's expectations . although we believe that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance or achievements . 23 overview : the following discussion and analysis is intended to provide information about the finan cial condition and results of operations of the company and its subsidiaries on a consolidated basis and should be read in conjunction with the consolidated financial statements and the related notes and supplemental financial information appearing elsewhe re in this report . refer to management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k filed with the sec on march 14 , 2019 for a discussion and analysis of the more significant factors that affected periods prior to 2018. for the year ended december 31 , 2019 , the company recorded net income of $ 47.43 million , and diluted earnings per share of $ 2.44 compared to $ 44.17 million and $ 2.31 , respectively , for 2018 , reflecting increases of $ 3.26 million , or 7 percent , and $ 0.13 per share , or 6 percent , respectively . during 2019 , the company continued to focus on executing its strategic plan – known as “ expanding our reach ” – which focuses on the client experience and organic growth across all lines of business . the strategic plan called for expansion of the company 's wealth management business , organically and through wealth business acquisitions , and also expansion of the company 's commercial and industrial ( “ c & i ” ) lending platform , through the use of private bankers , who lead with deposit gathering and wealth management discussions . the following are select highlights for 2019 : at december 31 , 2019 , the market value of assets under management and or administration at peapack private was $ 7.5 billion , reflecting an increase of 29 percent from $ 5.8 billion at december 31 , 2018. fee income from peapack private totaled $ 38.4 million for 2019 , growing from $ 33.2 million for 2018. loans at december 31 , 2019 totaled $ 4.39 billion . this reflected net growth of $ 466.2 million , or 12 percent , from $ 3.93 billion at december 31 , 2018. total c & i loans ( including equipment finance ) at december 31 , 2019 totaled $ 1.76 billion . this reflected net growth of $ 364.7 million , or 26 percent , from $ 1.40 billion at december 31 , 2018. total “ customer ” deposits ( defined as deposits excluding brokered cds and brokered “ overnight ” interest-bearing demand deposits ) at december 31 , 2019 were $ 4.03 billion , reflecting an increase of $ 370.6 million , or 10 percent , when compared to $ 3.66 billion at december 31 , 2018. asset quality metrics continued to be strong at december 31 , 2019. nonperforming assets at december 31 , 2019 were $ 28.9 million , or 0.56 percent of total assets . total loans past due 30 through 89 days and still accruing were $ 1.9 million or 0.04 percent of total loans at december 31 , 2019. the company 's and bank 's capital ratios at december 31 , 2019 remain well above regulatory well capitalized standards . critical accounting policies and estimates : management 's discussion and analysis of financial condition and results of operations is based upon the company 's consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . story_separator_special_tag federal funds sold and interest-earning deposits are an additional part of the company 's liquidity and interest rate risk management strategies . the combined average balance of these investments during 2019 was $ 223.7 million compared to $ 103.2 million in 2018. loans : the loan portfolio represents the largest portion of the company 's interest-earning assets and is the primary source of interest and fee income . loans are primarily originated in new jersey and the boroughs of new york city and , to a lesser extent , pennsylvania and delaware . as of december 31 , 2019 , 40 percent of the total loan portfolio was concentrated in c & i loans ( including equipment financing ) , 28 percent in multifamily loans and 17 percent in commercial mortgages . total loans were $ 4.39 billion and $ 3.93 billion at december 31 , 2019 and 2018 , respectively , an increase of $ 466.2 million , or 12 percent , over the previous year . during 2019 , commercial mortgages increased $ 59.1 million due to a continued focus on this type of business . commercial loans , which includes equipment financing , totaled $ 1.76 billion at december 31 , 2019 , increasing $ 359.4 million , or 26 percent , from 2018. the increase in this portfolio was attributed to : the addition of seasoned bankers including an equipment finance team in 2017 ; a continued focus on client service and value-added aspects of the lending process ; and a continued focus on markets outside of the immediate branch service area , including markets around the teaneck and princeton , new jersey private banking offices . multifamily mortgage loans were $ 1.21 billion at december 31 , 2019 , an increase of $ 74.2 million or 7 percent when compared to 2018 , through increased origination levels 2019. in late 2015 , the company began providing loans that are partially guaranteed by the small business administration ( “ sba ” ) , for the purposes of providing working capital and or , financing the purchase of equipment , inventory or commercial real estate and that could be used for start-up businesses . all sba loans are underwritten and documented as prescribed by the sba . the company generally sells the guaranteed portion of the sba loans in the secondary market , with the non-guaranteed portion held in the loan portfolio . during 2019 , the bank sold $ 22.2 million of the guaranteed portion of sba loans into the secondary market . as of december 31 , 2019 , the balance of the non-guaranteed portion of sba loans held on our balance sheet totaled $ 18.8 million . 33 the following table presents an analysis of outstanding loans by loan type , excluding multifamily loans held fo r sale , net of unamortized discounts and deferred loan origination costs , at the dates presented : replace_table_token_13_th the following table presents the contractual repayments of the loan portfolio , by loan type , at december 31 , 2019 : replace_table_token_14_th the following table presents the loans , by loan type , that have a predetermined interest rate and an adjustable interest rate due after one year at december 31 , 2019 : replace_table_token_15_th the company has not made nor invested in subprime loans or “ alt-a ” type mortgages . at december 31 , 2019 , there were no commitments to lend additional funds to borrowers whose loans were classified as nonperforming . consistent with the company 's balance sheet management strategy , the company sold approximately $ 131.3 million of performing multifamily mortgages in 2018. the geographic breakdown of the multifamily portfolio , net of participated multifamily loans , at december 31 , 2019 is as follows : replace_table_token_16_th 34 a further breakdown of the multifamily portfolio by county within each respective state is as follows : replace_table_token_17_th principal types of owner occupied commercial real estate properties ( by call report code ) , included in commercial mortgage loans on the balance sheet , at december 31 , 2019 are : replace_table_token_18_th principal types of non-owner occupied commercial real estate properties ( by call report code ) , at december 31 , 2019 are as follows . these loans are included in commercial mortgage loans and commercial loans on the company 's balance sheet . replace_table_token_19_th at december 31 , 2019 and 2018 , the bank had a concentration in commercial real estate loans as defined by applicable regulatory guidance . the following table presents such concentration levels at december 31 , 2019 and 2018 : replace_table_token_20_th 35 the bank believes it addresses the key elements in the risk management framework laid out by its regulators for the effective management of cre concentration risks . goodwill : at december 31 , 2019 , goodwill totaled $ 30.2 million , an increase of $ 5.8 million from $ 24.4 million at december 31 , 2018. the increase in goodwill was due to the acquisition of point view in september 2019. the bank intends to continue to grow its wealth management business through acquisition , as well as organically . deposits : at december 31 , 2019 and 2018 , the company reported total deposits of $ 4.24 billion and $ 3.90 billion , an increase of $ 348.2 million , or 9 percent , year over year . the company 's strategy is to fund a majority of its loan growth with core deposits , which is an important factor in the generation of net interest income . the company 's average deposits for 2019 increased $ 370.7 million , or 10 percent , over 2018 average levels to $ 4.01 billion . on average , the company saw the largest dollar growth in interest-bearing checking , money market accounts and retail certificates of deposit balances . the company has successfully focused on : growth in deposits associated with its private banking activities , including lending activities ; and business and personal core deposit generation , particularly checking and certificates of deposit .
| earnings summary : the following table presents certain key aspects of our performance for the years ended december 31 , 2019 , 2018 and 2017. replace_table_token_5_th 2019 compared to 2018 the company recorded net income of $ 47.43 million and diluted earnings per share of $ 2.44 for the year ended december 31 , 2019 compared to net income of $ 44.17 million and diluted earnings per share of $ 2.31 for the year ended december 31 , 2018. these results produced a return on average assets of 0.99 percent and 1.02 percent in 2019 and 2018 , respectively , and a return on average shareholders ' equity of 9.70 percent and 10.13 percent in 2019 and 2018 , respectively . the increase in net income for 2019 was due to higher net interest income , wealth management income , and income from capital markets activities ( loan level back-to-back swap activities , sba lending and sale program and mortgage banking income ) , partially offset by increased operating expenses and income tax expense when compared to 2018. income from capital markets activities are not linear each period , as some periods will be higher than others . wealth management acquisitions in 2018 and 2019 contributed to higher wealth management income and higher operating expenses in 2019 . 26 higher operating expenses were also due to costs associated with the implementation of the strategic plan , descr ibed in the “ overview ” section above . net interest income and net interest margin a major source of the company 's operating income is net interest income , which is the difference between interest and dividends earned on interest-earning assets and fees earned on loans , and interest paid on interest-bearing liabilities . interest-earning assets include loans , investment securities , interest-earning deposits and federal funds sold . interest-bearing liabilities include interest-bearing checking , savings and time deposits , federal home loan bank advances , subordinated debt and other borrowings .
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our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this form 10-k. the statements that are not historical constitute `` forward-looking statements '' . said forward-looking statements involve risks and uncertainties that may cause the actual results , performance or achievements of the company to be materially different from any future results , performance or achievements , express or implied by such forward-looking statements . these forward-looking statements are identified by their use of such terms and phrases as `` expects '' , `` intends '' , `` goals '' , `` estimates '' , `` projects '' , `` plans '' , `` anticipates '' , `` should '' , `` future '' , `` believes '' , and `` scheduled '' . the variables which may cause differences include , but are not limited to , the following : general economic and business conditions ; competition ; success of operating initiatives ; operating costs ; advertising and promotional efforts ; the existence or absence of adverse publicity ; changes in business strategy or development plans ; the ability to retain management ; availability , terms and deployment of capital ; business abilities and judgment of personnel ; availability of qualified personnel ; labor and employment benefit costs ; availability and costs of raw materials and supplies ; and changes in , or failure to comply with various government regulations . although the company believes that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate ; therefore , there can be no assurance that the forward-looking statements included in this form 10-k will prove to be accurate . 25 in light of the significant uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by the company or any person that the objectives and expectations of the company will be achieved . losses from operations ; accumulated deficit ; negative net worth and going concern . historically , the company has not generated sufficient revenues from operations to self-fund its capital and operating requirements . following the equity raise closed in early 2012 and subsequent reductions of debt coupled with the continued improvement in the company 's operations , management believes the company has sufficient resources and that it is generating significant revenues that it expects will provide the company with the ability to self-fund its capital and operating requirements . if that is not possible , the company will seek additional working capital from funding that will primarily include equity and debt placements . overview cui global , inc. is dedicated to maximizing shareholder value through the acquisition , development and commercialization of innovative companies and technologies . from its gaspt2 platform targeting the energy sector , to its subsidiary cui , inc. 's industry leading digital power platform targeting the networking and telecom industries , cui global has built a diversified portfolio of industry leading technologies that touch many markets . in may 2008 , cui global formed a wholly owned subsidiary that acquired the assets of cui , inc. , a technology company dedicated to the development , commercialization , and distribution of new , innovative electro-mechanical products . over the past 20 years , cui has become a recognized name in electronic components worldwide in the areas of power , interconnect , motion control , and sound . in that time , the company has been able to leverage many long-standing relationships in asia to create a flexible , responsive business model that ultimately benefits cui customers . today , its industry leading technology platforms which include novum advanced power , solus power topology and amt capacitive encoders are quickly positioning cui , inc. as a global leader in the fields of power electronics and motion control . through the acquisition of cui , inc. the company obtained 352,589 common shares representing an 11.54 % interest in test products international , inc. , a provider of handheld test and measurement equipment . effective july 1 , 2009 , cui global acquired cui japan ( formerly comex instruments ltd. ) and 49 % of comex electronics ltd. both companies are japanese based . cui japan test and measurement systems and electronic components and comex instruments is a dsp provider of digital to analog and analog to digital test and measurement systems for oem research and development . effective july 1 , 2011 , cui global entered into an agreement to convey the 49 % ownership of comex electronics to the owners of the 51 % , for $ 617,975 in the form of a five year note receivable bearing interest at 4 % per annum . as such , the operations of comex electronics are reported as discontinued operations for the current and comparable periods . the company recognized a gain on divestment of comex electronics of $ 603,034. cui global will continue to maintain its 100 % ownership of cui japan . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that have a significant impact on the results the company will report in the company 's financial statements . some of the company 's accounting policies require the company to make difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . actual results may differ from these estimates under different assumptions or conditions . 26 asset impairment the company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . in performing the review for recoverability , the company estimates the future cash flows expected to result from the use of the asset and its eventual disposition . story_separator_special_tag 28 during 2011 and 2010 , cui global had proceeds from notes receivable of $ 63,506 and $ 60,376 , respectively . also during 2011 and 2010 , the company received proceeds of $ 425,000 and $ 0 , respectively , from the sale of technology rights . financing activities during 2011 , $ 50,000 of proceeds were received from the exercise of warrants and options . during 2010 , $ 3,450,218 of proceeds were received from sales of common stock and the exercise of warrants and options , $ 66,667 of proceeds were received from the conversion of debt to non-controlling interest . included in these transactions were the following items , discussed in greater detail at note 9. stockholders ' equity : in february 2011 , two former employees exercised options for 269 shares of common stock . in april 2011 , a director exercised a warrant for 23,333 shares of common stock . in may 2011 , an owner of 10 % of the voting rights attached to outstanding shares exercised a warrant for 133,333 shares of common stock . also in may 2011 , an investor exercised a warrant for 10,000 shares of common stock . in may 2010 an owner of 10 % of the voting rights attached to outstanding shares received 374,032 shares of common stock at a per share price of $ 3.168 through conversion of a $ 1,000,000 promissory note plus accrued interest of $ 184,932. in august 2010 , the company received $ 2,000,000 in equity investment for which the company issued 631,314 shares of common stock at $ 3.168 per share . the $ 2,000,000 received was used to pay down the $ 6,000,000 bank loan with commerce bank , bringing the net loan balance to $ 4,000,000. the 631,314 shares of common stock were issued as follows : 284,091 to an investor , 126,263 to a director , 126,263 to a director and 94,697 to a former officer . a former officer of the company received a 10,000 share warrant which was exercised august 17 , 2010 , a former director , received a 10,000 share warrant which was exercised december 16 , 2010 , and a director received a 13,333 share warrant which was exercised august 18 , 2010. in october 2010 , a limited liability company promissory note owner converted $ 100,000 of the note to 22,222 shares of common stock at $ 4.50 per share . a former company officer received 3,704 shares in this transaction . in october 2010 , 33,333 shares of common stock were issued to a director at $ 6.00 per share in consideration for a cash payment of $ 200,000. in december 2010 , 14,167 shares of common stock were issued to a limited liability company at $ 6.00 per share in consideration for a cash payment of $ 85,000. a former officer of the company is a part owner in the limited liability company . cui global may raise the capital needed to fund the further development and marketing of its products as well as payment of its debt obligations . financing activities – related party activity in july 2011 , a cui global officer provided a short term convertible loan of $ 35,000 to the company which accrues interest at 6 % per annum , convertible at $ 5.10 per common share . there was no beneficial conversion on the convertible note as the conversion price was equal to the fair value on the date of grant . 29 effective september 1 , 2010 , the company and the related party holder , ied , inc. , of the $ 14,000,000 promissory note utilized in the acquisition of cui , inc. , agreed to reduce the note principal by $ 1,588,063 and accrued interest by $ 724,729 and to restructure the interest rate and payment terms . the forgiveness of debt and accrued interest of $ 2,312,792 as recognized as a contribution of additional paid in capital . with this amendment , the company agreed to pay $ 1,200,000 of the principal balance during the fourth quarter of 2010 and an additional $ 487,208 of the principal balance during the first quarter of 2011. the new terms set the interest rate at 6 % per annum with monthly interest payments and a may 15 , 2018 balloon payment . please see note 10. related party transactions and note 6. notes payable , convertible notes payable and convertible notes payable , related parties for further discussion of this transaction . in may 2009 , cui global and the related party debt holder of the $ 17,500,000 convertible promissory note , ied , inc. , agreed to amend the convertible promissory note related to the acquisition of cui , inc. by reducing the conversion rate from $ 7.50 to $ 2.10 per share to reflect the stock price for the ten day trailing average preceding april 24 , 2009 , the date of the agreement . the agreement specifically retained the total maximum convertible shares at 2,333,333 as stated in the original note . this amendment effectively reduced the note principal from $ 17,500,000 to $ 4,900,000. the company recognized additional paid in capital contribution related to this 2009 extinguishment of debt of $ 11,808,513. on april 1 , 2010 , the company settled the $ 4,900,000 convertible promissory note and $ 850,500 in accrued interest on this note for a one-time payment of $ 50,000 and the conversion of $ 70,000 of the principal into 33,333 shares of the company 's common stock at the stated conversion rate of $ 2.10 per share . the company recognized additional paid in capital contribution from the 2010 extinguishment of debt of $ 5,630,500. please see note 10. related party transactions and note 6. notes payable , convertible notes payable and convertible notes payable , related parties for further discussion of this transaction .
| results of operations the accompanying financial statements reflect the operations of the company for the fiscal years ended december 31 , 2011 and 2010. revenue during the year ended 2011 , revenue was $ 38,938,326 and $ 37,575,157 for the same period during 2010. the revenue for the year ended december 31 , 2011 is comprised of $ 38,366,403 from cui products , $ 511,295 from cui japan products and $ 60,628 from freight . the revenue for the year ended december 31 , 2010 is comprised of $ 37,309,998 from cui products , $ 192,011 from cui japan products , $ 72,378 for freight and $ 770 from redialert products . during 2011 , 55 % of revenues were derived from six customers at 41 % , 4 % , 3 % , 3 % , 2 % and 2 % . during 2010 , 53 % of revenues were derived from five customers : 43 % , 3 % , 3 % , 2 % and 2 % . the company 's major product lines in 2011 and 2010 were external power , internal power and industrial controls . cost of revenue the cost of revenue for the year ended december 31 , 2011 and 2010 was $ 24,133,073 and $ 22,727,210 , respectively . the significant increase during 2011 compared to the prior year is primarily the result of the overall growth in sales and increases in costs associated with manufacturing our products . as a percentage of sales , the cost of revenue remained relatively consistent at 62 % for 2011 compared with 60 % in 2010 . 31 selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses includes such items as wages , consulting , general office expenses , business promotion expenses and costs of being a public company including legal and accounting fees , insurance and investor relations .
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38 report of independent registered public accounting firm board of directors and stockholders misonix , inc. and subsidiaries we have audited the accompanying consolidated balance sheets of misonix , inc. and subsidiaries ( the `` company `` ) as of june 30 , 2012 and 2011 , and the related consolidated statements of operations , stockholders ' equity and cash flows for the years then ended . our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under item 15 ( a ) ( 2 ) . these financial statements and financial statement schedule are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform an audit of its internal control over financial reporting . our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , the consolidated financial statements referred to above present fairly , in all material respects , the financial position of misonix , inc. and subsidiaries as of june 30 , 2012 and 2011 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the united states of america . also in our opinion , the related financial statement schedule , when considered in relation to the basic consolidated financial statements taken as a whole , presents fairly , in all material respects , the information set forth therein . grant thornton llp new york , new york september 20 , 2012 f- 1 misonix , inc. and subsidiaries consolidated balance sheets replace_table_token_19_th see accompanying notes to consolidated financial statements . f- 2 misonix , inc. and subsidiaries consolidated statements of operations replace_table_token_20_th see accompanying notes to consolidated financial statements . f- 3 misonix , inc. and subsidiaries consolidated statements of stockholders ' equity for the years ended june 30 , 2012 and 2011 replace_table_token_21_th see accompanying notes to consolidated financial statements . f- 4 misonix , inc. and subsidiaries consolidated statements of cash flows replace_table_token_22_th see accompanying notes to consolidated financial statements . f- 5 misonix , inc. and subsidiaries notes to consolidated financial statements for the two years ended june 30 , 2012 and june 30 , 2011 1. basis of presentation , organization and business and summary of significant accounting policies basis of presentation the consolidated financial statements of misonix , inc. ( `` misonix `` or the `` company `` ) include the accounts of misonix and its 100 % owned subsidiaries , fibra-sonics ( ny ) inc. ( “ f-s ” ) and hearing innovations , inc. ( `` hearing innovations `` ) . all significant intercompany balances and transactions have been eliminated . organization and business misonix is a surgical device company that designs , manufactures and markets innovative therapeutic ultrasonic products worldwide for spine surgery , cranial maxillo – facial surgery , neurosurgery , wound debridement , cosmetic surgery , laparoscopic surgery and other surgical applications . in fiscal 2012 and 2011 , approximately 41 % and 33 % , respectively , of the company 's net sales were to foreign markets . sales by the company in other major industrial countries are made primarily through distributors . hearing innovations is located in farmingdale , new york and is a development company with patented hisonic ultrasonic technology for the treatment of profound deafness and tinnitus . replace_table_token_23_th discontinued operations replace_table_token_24_th current assets of discontinued operations are comprised of accounts receivable of $ 208,282 and inventories of $ 648,813 at june 30 , 2011. long-term assets of discontinued operations are comprised entirely of property , plant and equipment at june 30 , 2011. current liabilities of discontinued operations are comprised entirely of accounts payable and accrued expenses at june 30 , 2011. f- 6 misonix , inc. and subsidiaries notes to consolidated financial statements for the two years ended june 30 , 2012 and june 30 , 2011 laboratory and forensic safety products business on october 19 , 2011 , misonix sold its laboratory and forensic safety products business , which comprised substantially all of the laboratory and scientific products segment , to mystaire , inc. ( “ mystaire ” ) for $ 1.5 million in cash plus a potential additional payment of up to an aggregate $ 500,000 based upon 30 % of net sales in excess of $ 2.0 million for each of the three years following the closing ( the “ earn-out ” ) . story_separator_special_tag 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 . the company believes that the following are our more critical estimates and assumptions used in the preparation of our consolidated financial statements : accounts receivable and allowance for doubtful accounts : accounts receivable , principally trade , are generally due within 30 to 90 days and are stated at amounts due from customers , net of an allowance for doubtful accounts . the company performs ongoing credit evaluations and adjusts credit limits based upon payment history and the customer 's current credit worthiness , as determined by a review of their current credit information . the company continuously monitors aging reports , collections and payments from customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . while such credit losses have historically been within expectations and the provisions established , the company can not guarantee the same credit loss rates will be experienced in the future . the company writes off accounts receivable when they become uncollectible . inventories : inventories , consisting of purchased materials , direct labor and manufacturing overhead , are stated at the lower of cost ( determined by the first-in , first-out method ) or market . at each balance sheet date , we evaluate ending inventories for excess quantities and obsolescence . our evaluation includes an analysis of historical sales by product , projections of future demand by product , the risk of technological or competitive obsolescence for our products , general market conditions , and the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which we do not have excess quantities in inventory . to the extent that we determine there are excess or obsolete quantities , we record valuation reserves against all or a portion of the value of the related products to adjust their carrying value to estimated net realizable value . if future demand or market conditions are different from our projections , or if we are unable to rework excess or obsolete quantities into other products , we may change the recorded amount of inventory valuation reserves through a charge or reduction in cost of product revenues in the period the revision is made . long lived assets : property , plant and equipment are recorded at cost . minor replacements and maintenance and repair expenses are charged to expense as incurred . depreciation of property and equipment is provided using the straight-line method over estimated useful lives ranging from 3 to 5 years . leasehold improvements are amortized over the life of the lease or the useful life of the related asset , whichever is shorter . inventory items included in property , plant and equipment are depreciated using the straight line method over estimated useful lives of 3 to 5 years . we evaluate long-lived assets , including property , plant and equipment and intangible assets other than goodwill , for impairment whenever events or changes in circumstances indicate that the carrying amounts of specific assets or group of assets may not be recoverable . when an evaluation is required , we estimate the future undiscounted cash flows associated with the specific asset or group of assets . if the cost of the asset or group of assets can not be recovered by these undiscounted cash flows , an impairment charge would be recorded . our estimates of future cash flows are based on our experience and internal business plans . our internal business plans require judgments regarding future economic conditions , product demand and pricing . although we believe our estimates are appropriate , significant differences in the actual performance of an asset or group of assets may materially affect our evaluation of the recoverability of the asset values currently recorded . 22 revenue recognition : the company records revenue upon shipment for products shipped f.o.b . shipping point . products shipped f.o.b . destination points are recorded as revenue when received at the point of destination . shipments under agreements with distributors are not subject to return and payment for these shipments is not contingent on sales by the distributor . accordingly , the company recognizes revenue on shipments to distributors in the same manner as with other customers . fees from exclusive license agreements are recognized ratably over the terms of the respective agreements . service contract and royalty income are recognized when earned . goodwill : goodwill is not amortized . we review goodwill for impairment annually and whenever events or changes indicate that the carrying value of an asset may not be recoverable . these events or circumstances could include a significant change in the business climate , legal factors , operating performance indicators , competition , or sale or disposition of significant assets or products . application of these impairment tests requires significant judgments , including estimation of cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for our business , the useful life over which cash flows will occur and determination of our weighted-average cost of capital . changes in the projected cash flows and discount rate estimates and assumptions underlying the valuation of goodwill could materially affect the determination of fair value at acquisition or during subsequent periods when tested for impairment . the company completed its annual goodwill impairment tests for fiscal 2012 and 2011 in the respective fourth quarter . no impairment of goodwill was deemed to exist . income taxes : deferred tax
| results of operations : the following discussion and analysis provides information which the company 's management believes is relevant to an assessment and understanding of the company 's results of operations and financial condition . this discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein . unless otherwise specified , this discussion relates solely to the company 's continuing operations . all of the company 's sales to date have been derived from the sale of medical device products , which include manufacture and distribution of ultrasonic medical device products , and laboratory and scientific products , which include ductless fume enclosures for filtration of gaseous emissions in laboratory and forensic markets . see “ item 1. business – discontinued operations – laboratory and forensic safety products business. ” fiscal years ended june 30 , 2012 and 2011 : net sales : net sales increased $ 3,304,971 to $ 15,678,000 in fiscal 2012 , from $ 12,373,029 in fiscal 2011. the increase in sales is primarily due to higher bonescalpel revenue of $ 2,276,928 , higher sonastar revenue of $ 1,787,434 , higher lysonix revenue of $ 473,960 , higher service revenue of $ 329,402 and higher sonicone revenue of $ 191,602 , partially offset by lower autosonix revenue of $ 1,875,276. set forth below are tables showing the company 's net sales by ( i ) product category and ( ii ) geographic region for the years ended june 30 , 2012 and june 30 , 2011 : replace_table_token_5_th replace_table_token_6_th 18 net sales for the three months ended june 30 , 2012 were $ 5,300,520 , an increase of $ 1,535,086 as compared to $ 3,765,434 for the three months ended june 30 , 2011. the sales increase is due to higher bonescalpel revenue of $ 746,820 , higher sonastar revenue of $ 303,936 , higher sonicone revenue of $ 243,966 and higher lysonix revenue of $ 222,650. set forth below are tables showing the company 's net sales
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the estimated current portion , totaling $ 5.7 million and $ 2.0 million at june 30 , 2017 and 2016 , respectively , is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets . the corresponding current portion of deferred compensation plan liabilities is included in other current liabilities in the accompanying consolidated balance sheets at june 30 , 2017 and 2016 . the non-current portion of the deferred compensation plan assets , totaling $ 41.5 million and $ 40.0 million at june 30 , 2017 and 2016 , respectively , is included in long-term assets in the accompanying consolidated balance sheets . the corresponding story_separator_special_tag the following discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this annual report . this discussion 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 . in addition , the following discussion includes certain forward-looking statements . for a discussion of important factors , including the continuing development of our business and other factors which could cause actual results to differ materially from the results referred to in the forward-looking statements , see `` item 1a . risk factors '' and `` cautionary note regarding forward-looking statements '' contained in this annual report . business overview our business premier , inc. ( `` premier '' , the `` company '' , `` we '' , or `` our '' ) is a leading healthcare performance improvement company , uniting an alliance of approximately 3,900 u.s. hospitals and health systems and approximately 150,000 other providers and organizations 47 to transform healthcare . we partner with hospitals , health systems , physicians and other healthcare providers with the common goal of improving and innovating in the clinical , financial and operational areas of their businesses to meet the demands of a rapidly evolving healthcare industry . we deliver value through a comprehensive technology-enabled platform that offers critical supply chain services , clinical , financial , operational and population health software-as-a-service ( `` saas '' ) informatics products , advisory services and performance improvement collaborative programs . as of june 30 , 2017 , we were controlled by 169 u.s. hospitals , health systems and other healthcare organizations , that represented 1,425 owned , leased and managed acute care facilities and other non-acute care organizations , through their ownership of class b common stock . as of june 30 , 2017 , the class a common stock and class b common stock represented approximately 37 % and 63 % , respectively , of our combined class a and class b common stock ( collectively , the `` common stock '' ) . all of our class b common stock was held beneficially by our member owners and all of our class a common stock was held by public investors , which may include member owners that have received shares of our class a common stock in connection with previous quarterly exchanges pursuant to the exchange agreement . we generated net revenue , net income and adjusted ebitda ( a financial measure not determined in accordance with generally accepted accounting principles ( `` non-gaap '' ) ) as follows ( in thousands ) : replace_table_token_7_th see “ our use of non-gaap financial measures ” and “ results of operations ” below for a discussion of our use of non-gaap adjusted ebitda and a reconciliation of net income to adjusted ebitda , respectively . our business segments our business model and solutions are designed to provide our members access to scale efficiencies , spread the cost of their development , provide actionable intelligence derived from anonymized data in our data warehouse provided by our members , mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare . we deliver our integrated platform of solutions that address the areas of total cost management , quality and safety improvement and population health management through two business segments : supply chain services and performance services . our supply chain services segment includes one of the largest healthcare group purchasing organization programs ( `` gpo '' ) in the united states , serving acute , non-acute , non-healthcare and alternate sites , and includes integrated pharmacy and direct sourcing activities . supply chain services net revenue grew from $ 829.4 million for the year ended june 30 , 2016 to $ 1,101.3 million for the year ended june 30 , 2017 , representing net revenue growth of 33 % , and accounted for 76 % of our overall net revenue . supply chain services net revenue grew from $ 738.3 million for the year ended june 30 , 2015 to $ 829.4 million for the year ended june 30 , 2016 , representing net revenue growth of 12 % , and accounted for 71 % of our overall net revenue . we generate revenue in our supply chain services segment from administrative fees received from suppliers based on the total dollar volume of supplies purchased by our members and through product sales in connection with our integrated pharmacy and direct sourcing activities . our performance services segment includes one of the largest informatics and advisory services businesses in the united states focused on healthcare providers . performance services net revenue grew from $ 333.2 million for the year ended june 30 , 2016 to $ 353.4 million for the year ended june 30 , 2017 , representing revenue growth of 6 % , and accounted for 24 % of our overall net revenue . story_separator_special_tag we utilized available funds on hand to complete the acquisition ( see note 3 - business acquisitions ) . 49 acquisition of aperek on august 29 , 2014 , we completed the acquisition of aperek , a saas-based supply chain solutions company focused on purchasing workflow and analytics , for $ 47.4 million . we utilized available funds on hand to complete the acquisition ( see note 3 - business acquisitions ) . market and industry trends and outlook we expect that certain trends and economic or industry-wide factors will continue to affect our business , both in the short-term and long-term . we have based our expectations described below on assumptions made by us and on information currently available to us . to the extent our underlying assumptions about , or interpretation of , available information prove to be incorrect our actual results may vary materially from our expected results . see `` cautionary note regarding forward-looking statements '' and `` risk factors . '' trends in the u.s. healthcare market affect our revenues in the supply chain services and performance services segments . the trends we see affecting our current healthcare business include the impact of the implementation of current or future healthcare legislation , particularly the uncertainty regarding the status of the aca , its repeal , replacement or other modification , the enactment of new regulatory and reporting requirements , expansion of insurance coverage , intense cost pressure , payment reform , provider consolidation , shift in care to the alternate site market and increased data availability and transparency . to meet the demands of this environment , there will be increased focus on scale and cost containment and healthcare providers will need to measure and report on and bear financial risk for outcomes . we believe these trends will result in increased demand for our supply chain services and performance services solutions in the areas of cost management , quality and safety , and population health management . critical accounting policies and estimates below is a discussion of our critical accounting policies and estimates . these and other significant accounting policies are set forth under note 2 - significant accounting policies in the accompanying financial statements . business combinations we account for acquisitions using the acquisition method . all of the assets acquired , liabilities assumed , contractual contingencies and contingent consideration are recognized at their fair value on the acquisition date . any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill . acquisition-related costs are recorded as expenses in the consolidated financial statements . several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed . for intangible assets , we typically use the income method . this method starts with a forecast of all of the expected future net cash flows for each asset . these cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams . some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows , the discount rate selected to measure the risks inherent in the future cash flows and the assessment of the asset 's life cycle and the competitive trends impacting the asset , including consideration of any technical , legal , regulatory or economic barriers to entry . determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives . goodwill goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses . goodwill is not amortized . the company performs its annual goodwill impairment testing on the first day of the last fiscal quarter of its fiscal year unless impairment indicators are present which could require an interim impairment test . under accounting rules , the company may elect to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred . this qualitative assessment requires an evaluation of any excess of fair value over the carrying value for a reporting unit and significant judgment regarding potential changes in valuation inputs , including a review of the company 's most recent long-range projections , analysis of operating results versus the prior year , changes in market values , changes in discount rates and changes in terminal growth rate assumptions . if it is determined that an impairment is more likely than not to exist , then we are required to perform a quantitative assessment to determine whether or not goodwill is impaired and to measure the amount of goodwill impairment , if any . 50 goodwill impairment is determined using a two-step process . the first step involves a comparison of the estimated fair value of each of our reporting units to its carrying amount , including goodwill . in performing the first step , we determine the fair value of a reporting unit using a discounted cash flow analysis that is corroborated by a market-based approach . determining fair value requires the exercise of significant judgment , including judgment about appropriate discount rates , perpetual growth rates and the amount and timing of expected future cash flows . the cash flows employed in the discounted cash flow analyses are based on the most recent budget and long-term forecast . the discount rates used in the discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units . if the estimated fair value of a reporting unit exceeds its carrying amount , goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary .
| segment results supply chain services the following table summarizes our results of operations and non-gaap adjusted ebitda in the supply chain services segment for the years ended june 30 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_14_th net revenue supply chain services segment net revenue increased $ 271.9 million , or 33 % , to $ 1.1 billion from the year ended june 30 , 2016 to 2017 , and increased $ 91.1 million , or 12 % , to 829.4 million from the year ended june 30 , 2015 to 2016 . net administrative fees revenue in our supply chain services segment increased $ 59.1 million , or 12 % , to $ 557.5 million from the year ended june 30 , 2016 to 2017 . the increase in net administrative fees revenue was primarily driven by contributions from innovatix and essensa , which were acquired on december 2 , 2016. additionally , further contract penetration of existing members and , to a lesser degree , the ongoing positive impact of conversion of new members to our contract portfolio contributed to the increase . net administrative fees revenue in our supply chain services segment increased $ 41.4 million , or 9 % , to $ 498.4 million from the year ended june 30 , 2015 to 2016 primarily attributable to further contract penetration of existing members . product revenue in our supply chain services segment increased $ 207.5 million , or 64 % , to $ 534.1 million from the year ended june 30 , 2016 to 2017 . the increase was primarily driven by revenues from our acro pharmaceuticals acquisition and increased sales of direct sourcing products , partially offset by decreases in certain drug sales , including hepatitis c pharmaceuticals .
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in connection with the assumed loan , the company incurred and capitalized $ 0.8 million in deferred financing costs . in addition , the company was required to set aside amounts in reserve and cash collateral accounts . as of december 31 , 2011 , $ 2.0 million of restricted cash was included in prepaid expenses and other current assets , and the remaining $ 3.0 million of restricted cash was included in other long term assets . in december 2012 , the company repaid the remaining balance of the assumed loan of $ 37.7 million and entered into a new $ 50.0 million loan collateralized by the land , buildings and tenant improvements comprising the company 's corporate headquarters . the new loan has a 7 year term and maturity date of december 2019. the loan bears interest at one month libor plus a margin of 1.50 % , and allows for prepayment without penalty . the company story_separator_special_tag the information contained in this section should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this form 10-k under the captions “ risk factors , ” “ selected financial data , ” and “ business. ” overview we are a leading developer , marketer and distributor of branded performance apparel , footwear and accessories . the brand 's moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products . our products are sold worldwide and worn by athletes at all levels , from youth to professional , on playing fields around the globe , as well as by consumers with active lifestyles . our net revenues grew to $ 1,834.9 million in 2012 from $ 725.2 million in 2008 . we believe that our growth in net revenues has been driven by a growing interest in performance products and the strength of the under armour brand in the marketplace . we plan to continue to increase our net revenues over the long term by increased sales of our apparel , footwear and accessories , expansion of our wholesale distribution sales channel , growth in our direct to consumer sales channel and expansion in international markets . our direct to consumer sales channel includes our factory house and specialty stores and 21 websites . new offerings for 2012 include our new ua studio line , the armour bra , coldblack ® technology , under armour scent control technology and ua spine footwear . a large majority of our products are sold in north america ; however , we believe our products appeal to athletes and consumers with active lifestyles around the globe . internationally , our products are offered primarily in austria , germany , panama , spain and the united kingdom . a third party licensee sells our products in japan and distributors sell our products in other foreign countries . we hold a minority investment in our licensee in japan . our operating segments are geographic and include north america ; latin america ; europe , the middle east and africa ( “ emea ” ) ; and asia . due to the insignificance of the emea , latin america and asia operating segments , they have been combined into other foreign countries for disclosure purposes . we believe there is an increasing recognition of the health benefits of an active lifestyle . we believe this trend provides us with an expanding consumer base for our products . we also believe there is a continuing shift in consumer demand from traditional non-performance products to performance products , which are intended to provide better performance by wicking perspiration away from the skin , helping to regulate body temperature and enhancing comfort . we believe that these shifts in consumer preferences and lifestyles are not unique to the united states , but are occurring in a number of markets globally , thereby increasing our opportunities to introduce our performance products to new consumers . although we believe these trends will facilitate our growth , we also face potential challenges that could limit our ability to take advantage of these opportunities , including , among others , the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers . in addition , we may not be able to effectively manage our growth and a more complex business . we may not consistently be able to anticipate consumer preferences and develop new and innovative products that meet changing preferences in a timely manner . furthermore , our industry is very competitive , and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability . we also rely on third-party suppliers and manufacturers outside the u.s. to provide fabrics and to produce our products , and disruptions to our supply chain could harm our business . for a more complete discussion of the risks facing our business , refer to the “ risk factors ” section included in item 1a . general net revenues comprise both net sales and license revenues . net sales comprise sales from our primary product categories , which are apparel , footwear and accessories . our license revenues consist of fees paid to us by our licensees in exchange for the use of our trademarks on core products of socks , team uniforms , baby and kids ' apparel , eyewear , inflatable footballs and basketballs , as well as the distribution of our products in japan . beginning in 2011 , net sales includes the sales and related cost of goods sold of internally developed hats and bags . prior to 2011 , hats and bags were sold by a licensee . story_separator_special_tag we do not expect the negative sales mix impact from factory house stores to continue as we progress through 2013 ; and approximate 25 basis point decrease driven by higher inbound freight , partially due to supply chain challenges , required to meet customer demand . we expect this year over year negative impact will continue through the first half of 2013. the above decreases were partially offset by the below increase : approximate 20 basis point increase driven primarily by lower north american apparel product input costs , partially offset by higher north american accessories and footwear input costs . we expect the north american apparel product input cost margin favorability will continue through the first half of 2013. selling , general and administrative expenses increase d $ 120.5 million to $ 670.6 million in 2012 from $ 550.1 million in 2011 . as a percentage of net revenues , selling , general and administrative expenses decrease d to 36.5 % in 2012 from 37.3 % in 2011 . these changes were primarily attributable to the following : marketing costs increased $ 37.5 million to $ 205.4 million in 2012 from $ 167.9 million in 2011 primarily due to increased marketing campaigns for key apparel and footwear launches in 2012 and sponsorship of collegiate and professional teams and athletes , including tottenham hotspur football club . as a percentage of net revenues , marketing costs decreased slightly to 11.2 % in 2012 from 11.4 % in 2011 . 24 selling costs increased $ 37.2 million to $ 176.0 million in 2012 from $ 138.8 million in 2011 . this increase was primarily due to higher personnel and other costs incurred primarily for the continued expansion of our direct to consumer distribution channel . as a percentage of net revenues , selling costs increased slightly to 9.6 % in 2012 from 9.4 % in 2011 . product innovation and supply chain costs increased $ 29.4 million to $ 158.5 million in 2012 from $ 129.1 million in 2011 primarily due to higher distribution facilities operating and personnel costs to support our growth in net revenues and higher personnel costs for the design and sourcing of our expanding apparel , footwear and accessory lines . as a percentage of net revenues , product innovation and supply chain costs decreased slightly to 8.6 % in 2012 from 8.8 % in 2011 . corporate services costs increased $ 16.4 million to $ 130.7 million in 2012 from $ 114.3 million in 2011 . this increase was primarily attributable to higher corporate personnel cost and information technology initiatives necessary to support our growth . as a percentage of net revenues , corporate services costs decreased to 7.1 % in 2012 from 7.7 % in 2011 primarily due to decreased corporate personnel costs as a percentage of net revenues in 2012. income from operations increase d $ 45.9 million , or 28.2 % , to $ 208.7 million in 2012 from $ 162.8 million in 2011 . income from operations as a percentage of net revenues increase d to 11.4 % in 2012 from 11.1 % in 2011 . this increase was a result of the items discussed above . interest expense , net increase d $ 1.4 million to $ 5.2 million in 2012 from $ 3.8 million in 2011 . this increase was primarily due to a full year of interest on the debt related to the acquisition of our corporate headquarters in 2012 as compared to 2011. other expense , net decreased $ 2.0 million to $ 0.1 million in 2012 from $ 2.1 million in 2011 . this decrease was due to lower net losses in 2012 on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our foreign currency derivative financial instruments as compared to 2011 . provision for income taxes increase d $ 14.8 million to $ 74.7 million in 2012 from $ 59.9 million in 2011 . our effective tax rate was 36.7 % in 2012 compared to 38.2 % in 2011 , primarily due to state tax credits received in 2012. year ended december 31 , 2011 compared to year ended december 31 , 2010 net revenues increased $ 408.8 million , or 38.4 % , to $ 1,472.7 million in 2011 from $ 1,063.9 million in 2010. net revenues by product category are summarized below : replace_table_token_9_th net sales increased $ 411.5 million , or 40.2 % , to $ 1,436.1 million in 2011 from $ 1,024.6 million in 2010 as noted in the table above . the increase in net sales primarily reflects : $ 152.7 million , or 62.2 % , increase in direct to consumer sales , which include 26 additional factory house stores , or a 48 % increase , since december 31 , 2010 , along with the launch of our updated e-commerce website ; unit growth driven by increased distribution and new offerings in multiple product categories , most significantly in our training ( including fleece and our new charged cotton ® product ) , graphics ( primarily including tech-tees ) , baselayer , running , hunting and golf apparel categories , along with running and basketball shoes ; and $ 88.5 million , or 201.7 % , increase in wholesale accessories sales primarily due to bringing hats and bags sales in-house effective january 2011 . 25 license revenues decreased $ 2.8 million , or 7.1 % , to $ 36.6 million for the year ended december 31 , 2011 from $ 39.4 million during the same period in 2010. this decrease in license revenues was a result of a $ 9.7 million reduction in license revenues related to hats and bags , partially offset by increased sales by our licensees due to increased distribution and continued unit volume growth .
| segment results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 net revenues by geographic region are summarized below : replace_table_token_10_th net revenues in our north american operating segment increase d $ 343.4 million to $ 1,726.7 million in 2012 from $ 1,383.3 million in 2011 primarily due to the items discussed above in the consolidated results of operations . net revenues in other foreign countries increase d by $ 18.9 million to $ 108.2 million in 2012 from $ 89.3 million in 2011 primarily due to unit sales growth to distributors in our latin american operating segment and in our emea operating segment , as well as increased license revenues from our japanese licensee . operating income by geographic region is summarized below : replace_table_token_11_th operating income in our north american operating segment increased $ 46.6 million to $ 197.2 million in 2012 from $ 150.6 million in 2011 primarily due to the items discussed above in the consolidated results of operations . operating income in other foreign countries decreased by $ 0.7 million to $ 11.5 million in 2012 from $ 12.2 million in 2011 primarily due to higher costs associated with our continued investment to support our international expansion in our emea operating segment , partially offset by unit sales growth and increased license revenues from our japanese licensee as discussed above . year ended december 31 , 2011 compared to year ended december 31 , 2010 net revenues by geographic region are summarized below : replace_table_token_12_th net revenues in our north american operating segment increased $ 385.5 million to $ 1,383.3 million in 2011 from $ 997.8 million in 2010 primarily due to the items discussed above in the consolidated results of operations .
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in addition , the company has included non-gaap financial measures and ratios , which management uses to operate the business , which it believes provide useful supplemental information to both management and readers of this report in making period-to-period comparisons in measuring the financial performance and financial condition of the company . these measures do not have a standardized meaning prescribed by gaap and should not be construed as an alternative to other titled measures determined in accordance with gaap . the non-gaap measures included are “ organic revenue growth ” or “ organic revenue decline ” and “ adjusted ebitda. ” organic revenue growth or organic revenue decline refer to the positive or negative results , respectively , of subtracting both the foreign exchange and acquisition ( disposition ) components from total revenue growth . the acquisition ( disposition ) component is calculated by aggregating the prior period revenue for any acquired businesses , less the prior period revenue of any businesses that were disposed of in the current period . the organic revenue growth ( decline ) component reflects the constant currency impact ( a ) of the change in revenue of the partner firms which the company has held throughout each of the comparable periods presented and ( b ) “ non-gaap acquisitions ( dispositions ) , net. ” non-gaap acquisitions ( dispositions ) , net 20 consists of ( i ) for acquisitions during the current year , the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and ( ii ) for acquisitions during the previous year , the revenue effect from such acquisitions as if they had been owned during that entire year or same period as the current reportable period , taking into account their respective pre-acquisition revenues for the applicable periods and ( iii ) for dispositions , the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year . the company believes that isolating the impact of acquisition activity and foreign currency impacts is an important and informative component to understand the overall change in the company 's consolidated revenue . the change in the consolidated revenue that remains after these adjustments illustrates the underlying financial performance of the company 's businesses . specifically , it represents the impact of the company 's management oversight , investments and resources dedicated to supporting the businesses ' growth strategy and operations . in addition , it reflects the network benefit of inclusion in the broader portfolio of firms that includes , but is not limited to , cross-selling and sharing of best practices . this approach isolates changes in performance of the business that take place under the company 's stewardship , whether favorable or unfavorable , and thereby reflects the potential benefits and risks associated with owning and managing a talent-driven services business . accordingly , during the first twelve months of ownership by the company , the organic growth measure may credit the company with growth from an acquired business that is dependent on work performed prior to the acquisition date , and may include the impact of prior work in progress , existing contracts and backlog of the acquired businesses . it is the presumption of the company that positive developments that may have taken place at an acquired business during the period preceding the acquisition will continue to result in value creation in the post-acquisition period . while the company believes that the methodology used in the calculation of organic revenue change is entirely consistent with our closest u.s. competitors , the calculations may not be comparable to similarly titled measures presented by other publicly traded companies in other industries . additional information regarding the company 's acquisition activity as it relates to potential revenue growth is provided in this item 7 “ management 's discussion and analysis of financial condition and results of operations ” under “ certain factors affecting our business. ” adjusted ebitda is defined as net income ( loss ) attributable to mdc partners inc. common shareholders plus or minus adjustments to operating income ( loss ) plus depreciation and amortization , stock-based compensation , deferred acquisition consideration adjustments , distributions from non-consolidated affiliates , and other items , net . distributions from non-consolidated affiliates includes ( i ) cash received for profit distributions from non-consolidated affiliates , and ( ii ) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings ( losses ) . other items include items such as impairment charges , fees associated with the combination of mdc with the stagwell entities , severance expense and other restructuring expenses , including costs for leases that will either be terminated or sublet in connection with the centralization of our new york real estate portfolio . direct costs represent billable or non-billable internal and third-party expenses that are directly tied to providing services to our clients where we are principal in the arrangement . direct costs exclude staff costs , which are presented separately . all amounts are in dollars unless otherwise stated . amounts reported in millions herein are computed based on the amounts in thousands . as a result , the sum of the components , and related calculations , reported in millions may not equal the total amounts due to rounding . the percentage changes included in the tables herein item 7 that are not considered meaningful are presented as “ nm ” . recent developments on december 21 , 2020 , mdc and stagwell media lp , a delaware limited partnership ( “ stagwell ” ) , announced that they entered into a definitive transaction agreement ( the “ transaction agreement ” ) providing for the combination of mdc with the subsidiaries of stagwell that own and operate a portfolio of marketing services companies ( the “ stagwell entities ” ) . story_separator_special_tag we implemented freezes on hiring , staff reductions , furloughs , salary reductions , benefit reductions and a significant reduction in discretionary spending . in addition to expense reductions , we tightened capital expenditures where possible to preserve our cash flow . the effects of the covid-19 pandemic negatively impacted our results of operations , financial position and cash flows in 2020. while it is difficult to predict the continued impact of the pandemic , we anticipate that its negative impact on our revenue will continue through the first half of 2021. if the impact of the pandemic is prolonged beyond our expectation , the company believes it is well positioned through the actions taken in 2020 to successfully work through the effects of covid-19 in 2021. mdc conducts its business through its network of partner firms , which provide marketing and business solutions that realize the potential of combining data and creativity . mdc 's strategy is to build , grow and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment . mdc 's differentiation lies in its best-in-class creative roots and proven entrepreneurial leaders , which together with innovations in technology and data , bring transformational marketing , activation , communications and strategic consulting services to clients . mdc leverages its range of services in an integrated manner , offering strategic , creative and innovative solutions that are technologically forward and media-agnostic . the company 's work is designed to challenge the industry status quo , realize outsized returns on investment , and drive transformative growth and business performance for its clients and stakeholders . mdc manages its business by monitoring several financial and non-financial performance indicators . the key indicators that we focus on are revenues , operating expenses , capital expenditures and non-gaap measures described above . revenue growth is analyzed by reviewing a mix of measurements , including ( i ) growth by major geographic location , ( ii ) growth by client industry vertical , ( iii ) growth from existing clients and the addition of new clients , ( iv ) growth by primary discipline , ( v ) growth from currency changes , and ( vi ) growth from acquisitions . in addition to monitoring the foregoing financial indicators , the company assesses and monitors several non-financial performance indicators relating to the business performance of our partner firms . these indicators may include a partner firm 's recent new client win/loss record ; the depth and scope of a 22 pipeline of potential new client account activity ; the overall quality of the services provided to clients ; and the relative strength of the partner firm 's next generation team that is in place as part of a potential succession plan to succeed the current senior executive team . effective in 2020 , the company reorganized its management structure resulting in the aggregation of certain partner firms into integrated groups ( “ networks ” ) . mark penn , chief executive officer and chairman of the company , appointed key agency executives , that report directly into him , to lead each network . in connection with the reorganization , we reassessed our reportable segments to align our external reporting with how we operate the networks under our new organizational structure . prior periods presented have been recast to reflect the change in reportable segments . see notes 1 and 20 of the notes to the consolidated financial statements included herein for a description of each of our reportable segments , the all other category , as well as information regarding a change in reportable segments between the first and second quarter of 2020. the three reportable segments that result from our assessment are as follows : “ integrated networks - group a , ” “ integrated networks - group b ” and the “ media & data network. ” in addition , the company combines and discloses operating segments that do not meet the aggregation criteria as “ all other. ” the company also reports corporate expenses , as further detailed below , as “ corporate. ” all segments follow the same basis of presentation and accounting policies as those described in note 2 of the notes to the consolidated financial statements included herein . in addition , mdc reports its corporate office expenses incurred in connection with the strategic resources provided to the partner firms , as well as certain other centrally managed expenses that are not fully allocated to the operating segments as corporate , including interest expense and public company overhead costs . corporate provides client and business development support to the partner firms as well as certain strategic resources , including accounting , administrative , financial , real estate , human resource and legal functions . significant factors affecting our business and results of operations . in addition to the impact of the covid-19 pandemic discussed above , the most significant factors include national , regional and local economic conditions , our clients ' profitability , mergers and acquisitions of our clients , changes in top management of our clients and our ability to retain and attract key employees . new business wins and client losses occur due to a variety of factors . the two most significant factors are ( i ) our clients ' desire to change marketing communication firms , and ( ii ) the creative product that our partner firms offer . a client may choose to change marketing communication firms for a number of reasons , such as a change in top management and the new management wants to retain an agency that it may have previously worked with . in addition , if the client is merged or acquired by another company , the marketing communication firm is often changed . another factor in a client changing firms is the agency 's campaign or work failing to meet the client 's expected financial or other measures . acquisitions and dispositions .
| consolidated results of operations revenues revenue was $ 1.20 billion for the twelve months ended december 31 , 2020 compared to revenue of $ 1.42 billion for the twelve months ended december 31 , 2019 representing a decrease of $ 216.8 million , or 15.3 % . the components of the fluctuations in revenues for the twelve months ended december 31 , 2020 compared to the twelve months ended december 31 , 2019 were as follows : replace_table_token_6_th the negative foreign exchange impact of $ 1.0 million , or 0.1 % , was attributable to the fluctuation of the u.s. dollar against the canadian dollar , swedish króna , euro and british pound . the company utilizes non-gaap metrics called organic revenue growth ( decline ) and non-gaap acquisitions ( dispositions ) , net , as defined above . for the twelve months ended december 31 , 2020 , organic revenue decreased by $ 197.5 million or 13.9 % . the decline in revenue from existing partner firms was primarily attributable to reduced spending by clients in connection with the covid-19 pandemic . the change in revenue was primarily driven by a decline in categories including food and beverage , communications , technology , transportation , financials and automotive , partially offset by growth in healthcare .
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bad daddy 's food and packaging costs were $ 23,006,000 ( 28.8 % of restaurant sales ) in fiscal 2019 , up from $ 20,048,000 ( 29.7 % of restaurant sales ) in fiscal 2018. this increase is due to a greater number of operating weeks resulting from restaurants opened during fiscal 2018 and 2019. the decrease as a percent of sales is due to lower input costs , primarily ground beef and bacon , coupled with menu price increases and various purchasing initiatives during the year . 22 good times food and packaging costs were $ 9,465,000 ( 31.5 % of restaurant sales ) in fiscal 2019 , down from $ 10,208,000 ( 32.8 % of restaurant sales ) in fiscal 2018. compared to fiscal 2018 the cost index on our weighted basket of goods remained relatively flat during fiscal 2019. good times uses all-natural beef and did not see the same decline in costs as bad daddy 's . payroll and other employee benefit costs : for fiscal 2019 , payroll and other employee benefit costs increased $ 5,568,000 from $ 35,653,000 ( 36.2 % of restaurant sales ) in fiscal 2018 to $ 41,221,000 ( 37.5 % of restaurant sales ) . bad daddy 's payroll and other employee benefit costs were $ 30,224,000 ( 37.9 % of restaurant sales ) for fiscal 2019 , up from $ 24,861,000 ( 36.9 % of restaurant sales ) in fiscal 2018. the $ 5,363,000 increase was primarily attributable to the four new restaurants opened in fiscal 2019 and a full year of operations for restaurants opened in the prior fiscal year . the increase of 1.0 % in payroll and other employee benefit costs as a percentage of restaurant sales was mainly due to increased wages for both front of the house and back of house employees . colorado has a higher statutory minimum wage for tipped employees as compared to the other states in which we operate . we estimate that the colorado minimum wage for tipped employees results in higher total labor costs in our colorado restaurants of approximately 6.0 % of restaurant sales compared to our restaurants in jurisdictions subject only to federal minimum wage legislation . good times payroll and other employee benefit costs were $ 10,997,000 ( 36.6 % of restaurant sales ) in fiscal 2019 , up from $ 10,792,000 ( 34.7 % of restaurant sales ) in fiscal 2018. payroll and other employee benefits decreased approximately $ 281,000 in fiscal 2019 due to two company-owned restaurants that were closed in january and april of 2018. this was offset by a $ 486,000 increase in payroll and other employee benefit expenses primarily due to an increase in the average wage paid to our employees , which increased approximately 11 % in fiscal 2019 compared to fiscal 2018. the 11 % increase is attributable to a very competitive labor market in colorado and state mandated increases in the minimum wage rate . occupancy costs : occupancy costs include rent , real and personal property taxes , common area maintenance expenses , licenses and insurance expense . for fiscal 2019 , occupancy costs increased $ 1,094,000 from $ 7,261,000 ( 7.4 % of restaurant sales ) in fiscal 2018 to $ 8,355,000 ( 7.6 % of restaurant sales ) . bad daddy 's occupancy costs were $ 5,413,000 ( 6.8 % of restaurant sales ) for fiscal 2019 , up from $ 4,348,000 ( 6.4 % of restaurant sales ) in fiscal 2018. the $ 1,065,000 increase was primarily attributable to the four new restaurants opened in fiscal 2019 and a full year of operations for restaurants opened in the prior fiscal year . good times occupancy costs were $ 2,942,000 ( 9.8 % of restaurant sales ) in fiscal 2019 , up from $ 2,913,000 ( 9.4 % of restaurant sales ) in fiscal 2018. occupancy costs decreased approximately $ 57,000 in fiscal 2019 due to two company-owned restaurants that were closed in january and april of 2018. the decrease was offset by an $ 86,000 increase in occupancy costs primarily attributable to increases in property tax and common area costs . other operating costs : for fiscal 2019 , other operating costs increased $ 2,187,000 from $ 9,283,000 ( 9.4 % of restaurant sales ) in fiscal 2018 to $ 11,470,000 ( 10.4 % of restaurant sales ) . bad daddy 's other operating costs were $ 8,894,000 ( 11.2 % of restaurant sales ) for fiscal 2019 , up from $ 6,719,000 ( 10.0 % of restaurant sales ) in fiscal 2018. the $ 2,175,000 increase was primarily attributable to the four new restaurants opened in fiscal 2019 and a full year of operations for restaurants opened in the prior fiscal year , as well as a $ 635,000 increase in customer delivery fees in fiscal 2019 compared to fiscal 2018. good times other operating costs were $ 2,576,000 ( 8.6 % of restaurant sales ) in fiscal 2019 , up from $ 2,564,000 ( 8.2 % of restaurant sales ) in fiscal 2018. the increase in other operating costs is primarily a result of a $ 65,000 increase in customer delivery fees offset by a decrease of $ 34,000 due to two company-owned restaurants that were closed in january and april of 2018. new store preopening costs : for fiscal 2019 , we incurred $ 1,774,000 of preopening costs compared to $ 2,784,000 in fiscal 2018. all of the preopening costs are related to the four newly developed bad daddy 's restaurants that were opened in fiscal 2019 plus certain preopening costs that were expensed in fiscal 2019 for restaurants that have or will open early in the following year . preopening costs typically occur over a period of approximately five months , although the exact timing varies by location . we typically spend approximately $ 275,000 to $ 350,000 per location . depreciation and amortization costs : depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquired franchise rights and leasehold interests . story_separator_special_tag this restaurant , a good times restaurant in aurora , colorado , was closed on april 22 , 2018. we recorded a non-cash charge of $ 72,000 related to the impairment of this restaurant in fiscal 2018. no additional loss from disposal of assets is expected to be associated with this property . prior to its closure , on april 6 , 2018 , the company entered into a sublease of this property , the terms of which will provide sublease income substantially equal to the lease costs over the approximate 5 remaining years of the lease . 24 based upon the analysis we performed at september 24 , 2019 , we identified five restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets . two of these restaurants are good times restaurants in the greater denver metropolitan area . we recorded a non-cash charge of $ 481,000 , related to the impairment of these restaurants in the fiscal quarter ending september 24 , 2019. in july of 2019 , the company entered into a sublease agreement for one of these two restaurants whereby the company , upon lease commencement subject to due diligence provisions , will receive sublease income substantially equal to its cash lease costs associated with this location . we will continue to operate the restaurant until the commencement of the sublease , which is expected to be in mid fiscal 2020. three of these restaurants are bad daddy 's restaurants , two in the denver/front-range communities of colorado and greenville , south carolina . we recorded non-cash charges of $ 2,379,000 related to the impairment of these restaurants during the fiscal quarter ending september 24 , 2019. income ( loss ) from operations : loss from operations was $ 3,495,000 in fiscal 2019 compared to income from operations of $ 372,000 in fiscal 2018. the change from fiscal 2018 to fiscal 2019 was primarily attributable to the increase in net revenues offset by an increase in asset impairment costs and other matters discussed in the `` restaurant operating costs '' , “ new store preopening costs ” , `` general and administrative costs '' , “ advertising costs ” , “ franchise costs ” , and “ gain on restaurant asset disposals ” sections above . net loss : the net loss was $ 4,248,000 for fiscal 2019 compared to a net loss of $ 17,000 in fiscal 2018. the change from fiscal 2018 to fiscal 2019 was primarily attributable to the matters discussed in the `` net revenues '' , `` food and packaging costs '' , “ payroll and other employee benefits costs , ” `` general and administrative costs '' and `` asset impairment charges `` sections above , and by an increase in net interest expense of $ 365,000 compared to the same prior year period . income attributable to non-controlling interests : for fiscal 2019 , the income attributable to non-controlling interests was $ 889,000 compared to $ 1,017,000 in fiscal 2018. the non-controlling interest represents the limited partner 's share of income in the good times and bad daddy 's joint-venture restaurants . $ 508,000 of the current year income is attributable to the bad daddy 's joint-venture restaurants , compared to $ 635,000 in the prior year . $ 381,000 of the current year income is attributable to the good times joint-venture restaurants , compared to $ 382,000 in the prior year . on february 6 , 2019 , the company concurrently entered into and closed on a membership interest purchase agreement with rgwp , llc ( the “ rgwp repurchase ” ) , pursuant to which the company agreed to acquire all of the remaining membership interests of three entities to which the company is already a party to and already owned a controlling interest : bad daddy 's burger bar of seaboard llc , bad daddy 's burger bar of cary , llc , and bdbb of olive park nc , llc . the purchase price was approximately $ 3.0 million . these entities own and operate three bad daddy 's burger bar restaurants in the greater raleigh , nc market . the purchase agreement contains various representations , warranties , and covenants of the seller that are customary in transactions of this nature . the rgwp repurchase resulted in a $ 788,000 reduction in non-controlling interests , an increase to non-compete agreements of $ 50,000 and a $ 2,171,000 reduction in additional paid in capital . adjusted ebitda ebitda is defined as net income ( loss ) before interest , income taxes and depreciation and amortization . adjusted ebitda is defined as ebitda , adjusted for non-cash stock-based compensation expense , preopening expense , non-recurring acquisition costs , u.s. generally accepted accounting principles ( “ gaap ” ) rent in excess of cash rent , non-cash disposal of assets and non-cash asset impairment charges . adjusted ebitda is intended as a supplemental measure of our performance that is not required by or presented in accordance with gaap . we believe that ebitda and adjusted ebitda provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results . our management uses ebitda and adjusted ebitda ( i ) as a factor in evaluating management 's performance when determining incentive compensation and ( ii ) to evaluate the effectiveness of our business strategies . we believe that the use of ebitda and adjusted ebitda provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company 's financial measures with other restaurants , which may present similar non-gaap financial measures to investors . in addition , you should be aware when evaluating ebitda and adjusted ebitda that in the future we may incur expenses similar to those excluded when calculating these measures . our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items .
| results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. overview we operate as two reportable business segments : good times burgers and frozen custard restaurants ( “ good times ” ) and bad daddy 's burger bar restaurants ( “ bad daddy 's ” ) . all of our good times restaurants compete in the quick service drive-through dining industry while our bad daddy 's restaurants compete in the full-service upscale casual dining industry . we believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results . refer to note 9 , segment reporting , in the notes to our consolidated financial statements for more information . the company 's fiscal year ends on the last tuesday of september each year . most of our fiscal years have 52 weeks , however we experience a 53 rd week every five or six years . our discussion for fiscal years 2019 and 2018 , which ended on september 24 , 2019 and september 25 , 2018 , respectively , covers a period of 52 full calendar weeks in fiscal 2019 and fiscal 2018. the following tables present information about our reportable segments for the respective periods , all dollar values are represented in thousands : replace_table_token_3_th ( 1 ) includes direct and allocated corporate general and administrative costs . restaurant operating costs are expressed as a percentage of restaurant sales 21 bad daddy 's restaurants : we currently operate thirty-eight company-owned and joint-venture bad daddy 's restaurants including two restaurants opened subsequent to the fiscal year-end . we also license one restaurant in north carolina and have a franchise restaurant in south carolina .
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the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america ( u.s. gaap ) requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes including various claims and contingencies related to lawsuits , taxes , environmental and other matters arising during the normal course of business . we apply our best judgment , our knowledge of existing facts and circumstances and actions that we may undertake in the future in determining the estimates that affect our consolidated financial statements . we evaluate our estimates on an ongoing basis using our historical experience , as well as other factors we believe appropriate under the circumstances , such as current economic conditions , and adjust or revise our estimates as circumstances change . as future events and their effects can not be determined with precision , actual results may differ from these estimates . ball corporation and its subsidiaries are referred to collectively as “ ball corporation , ” “ ball , ” “ the company , ” “ we ” or “ our ” in the following discussion and analysis . overview business overview and industry trends ball corporation is one of the world 's leading aluminum packaging suppliers . our packaging products are produced for a variety of end uses , are manufactured in facilities around the world and are competitive with other substrates , such as plastics and glass . in the aluminum packaging industry , sales and earnings can be increased by reducing costs , increasing prices , developing new products , expanding volumes and making strategic acquisitions . we also provide aerospace and other technologies and services to governmental and commercial customers , including national defense hardware , antenna and video tactical solutions , civil and operational space hardware and system engineering services . we sell our aluminum packaging products mainly to large , multinational beverage , personal care and household products companies with which we have developed long-term relationships . this is evidenced by our high customer retention and our large number of long-term supply contracts . while we have a diversified customer base , we sell a significant portion of our packaging products to major companies and brands , as well as to numerous regional customers . the overall global aluminum beverage and aerosol container industries are growing and are expected to continue to grow in the medium to long term . the primary customers for the products and services provided by our aerospace segment are u.s. government agencies or their prime contractors . we purchase our raw materials from relatively few suppliers . we also have exposure to inflation , in particular the rising costs of raw materials , as well as other direct cost inputs . we mitigate our exposure to the changes in the costs of aluminum through the inclusion of provisions in contracts covering the majority of our volumes to pass through aluminum price changes , as well as through the use of derivative instruments . the pass-through provisions generally result in proportional increases or decreases in sales and costs with a greatly reduced impact , if any , on net earnings . because of our customer and supplier concentration , our business , financial condition and results of operations could be adversely affected by the loss , insolvency or bankruptcy of a major customer or supplier or a change in a supply agreement with a major customer or supplier , although our contract provisions generally mitigate the risk of customer loss , and our long-term relationships represent a known , stable customer base . the majority of the aerospace business involves work under contracts , generally from one to five years in duration , as a prime contractor or subcontractor for various u.s. government agencies . intense competition and long operating cycles are key characteristics of the company 's aerospace and defense industry where it is common for work on major programs to be shared among a number of companies . a company competing to be a prime contractor may , upon ultimate award of the contract to a competitor , become a subcontractor for the ultimate prime contracting company . 22 corporate strategy our drive for 10 vision encompasses five strategic levers that are key to growing our business and achieving long-term success . since launching drive for 10 in 2011 , we have made progress on each of the levers as follows : ● maximizing value in our existing businesses by improving efficiencies in our beverage container and end facilities in north america , south america and europe , and expanding specialty container production across our global plant network to meet current demand ; leveraging plant floor systems in our beverage facilities to reduce costs and manage contractual provisions across our diverse customer base ; successfully acquiring and integrating a large global aluminum beverage business while also divesting underperforming steel food and steel aerosol packaging assets in north and south america and four beverage packaging facilities in china ; and in the remaining aluminum aerosol business , installing new extruded aluminum aerosol lines in our european , mexican and indian facilities while also implementing cost-out and value-in initiatives across all of our businesses ; ● expanding further into new products and capabilities through commercializing our new lightweight , infinitely recyclable aluminum cup and providing next-generation extruded aluminum aerosol packaging that utilizes proprietary technology to significantly lightweight the can ; and successfully introducing new specialty beverage cans and aluminum bottle-shaping technology ; ● aligning ourselves with the right customers and markets by investing capital to meet continued growth for specialty beverage containers throughout our global network , which represent approximately 43 percent of our global beverage packaging mix ; aligning with spiked seltzer and craft brewers , sparkling and still water fillers , wine producers and other new beverage producers who continue to use aluminum beverage containers to grow their business ; ● broadening our geographic reach story_separator_special_tag further details of taxes on income and the impacts of the u.s. tax reform are included in note 16 to the consolidated financial statements within item 8 of this annual report . story_separator_special_tag will be sufficient to meet our ongoing operating requirements , scheduled principal and interest payments on debt , dividend payments and anticipated capital expenditures . the following table summarizes our cash flows : replace_table_token_10_th ( a ) amounts in 2017 have been retrospectively adjusted to reflect the adoption of new accounting guidance for the preparation of the statement of cash flows that was effective january 1 , 2018. see notes 2 and 7 to the consolidated financial statements within item 8 of this annual report on form 10-k for further details . cash flows provided by operations were lower in 2019 compared to 2018 , primarily due to higher pension contributions , partially offset by higher earnings . the impact of changes in working capital on operating cash flows for 2019 was a $ 236 million inflow . excluding the impact of the sale of the u.s. steel food and steel aerosol packaging business in 2018 and the sale of the china beverage packaging and argentina steel aerosol businesses in 2019 , our working capital movements reflect a decrease of days sales outstanding from 42 days in 2018 to 39 days in 2019 and an increase in days payable outstanding from 112 days in 2018 to 121 days in 2019 . we have entered into several regional committed and uncommitted accounts receivable factoring programs with various financial institutions for certain of our accounts receivable . programs accounted for as true sales of the receivables , without recourse to ball , had combined limits of approximately $ 1.4 billion and $ 1.2 billion at december 31 , 2019 , and december 31 , 2018 , respectively . a total of $ 230 million and $ 178 million were available for sale under these programs at december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , approximately $ 921 million of our cash was held outside of the u.s. in the event that we would need to utilize any of the cash held outside of the u.s. for purposes within the u.s. , there are no material legal or other economic restrictions regarding the repatriation of cash from any of the countries outside the u.s. where we have cash . the company believes its u.s. operating cash flows , cash on hand , as well as availability under its long-term , revolving credit facilities , uncommitted short-term credit facilities and committed and uncommitted accounts receivable factoring programs will be sufficient to meet the cash requirements of the u.s. portion of our ongoing operations , scheduled principal and interest payments on u.s. debt , dividend payments , capital expenditures and other u.s. cash requirements . if foreign funds would be needed for our u.s. cash requirements and we are unable to provide the funds through intercompany financing arrangements , we would be required to repatriate funds from foreign locations where the company has previously asserted indefinite reinvestment of funds outside the u.s. based on its indefinite reinvestment assertion , the company has not provided deferred taxes on earnings in certain non-u.s. subsidiaries because such earnings are intended to be indefinitely reinvested in its international operations . it is not practical to estimate the additional taxes that may become payable if these earnings were remitted to the u.s. 28 share repurchases the company 's share repurchases , net of issuances , totaled $ 945 million in 2019 and $ 711 million in 2018. the repurchases were completed using cash on hand , cash provided by operating activities , proceeds from the sale of businesses and available borrowings . debt facilities and refinancing given our cash flow projections and unused credit facilities that are available until march 2024 , our liquidity is strong and is expected to meet our ongoing cash and debt service requirements . total interest-bearing debt was $ 7.8 billion at december 31 , 2019 , compared to $ 6.7 billion at december 31 , 2018 . in november 2019 , ball issued 1.3 billion in aggregate principal amount of 1.50 % and 0.875 % euro-denominated senior notes for general corporate purposes . in january 2020 , ball redeemed the outstanding euro-denominated 3.50 % senior notes due in 2020 in the amount of 400 million and the outstanding 4.375 % senior notes due in 2020 in the amount of $ 1 billion . in march , 2019 , the company refinanced its existing credit facilities with a u.s. dollar term loan facility , a u.s. dollar revolving facility and a multi-currency revolving facility that mature in march 2024. the revolving facilities provide the company with up to the u.s. dollar equivalent of $ 1.75 billion . in march 2018 , ball issued $ 750 million of 4.875 % senior notes and used the proceeds to repay $ 315 million of its term a loan , as well as outstanding multi-currency revolver and short-term credit facility borrowings . at december 31 , 2019 , taking into account outstanding letters of credit , approximately $ 1.7 billion was available under the company 's long-term , multi-currency committed revolving credit facilities , which are available until march 2024. in addition to these facilities , the company had $ 1 billion of short-term uncommitted credit facilities available at december 31 , 2019 , of which $ 26 million was outstanding and due on demand . while ongoing financial and economic conditions in certain areas may raise concerns about credit risk with counterparties to derivative transactions , the company mitigates its exposure by allocating the risk among various counterparties and limiting exposure to any one party . we also monitor the credit ratings of our suppliers , customers , lenders and counterparties on a regular basis .
| results of business segments segment results ball 's operations are organized and reviewed by management along its product lines and geographical areas , and its operating results are presented in the four reportable segments discussed below . beverage packaging , north and central america replace_table_token_6_th ( a ) further details of these items are included in note 6 to the consolidated financial statements within item 8 of this annual report . ( b ) catch-up depreciation and amortization of $ 6 million related to the six months ended december 31 , 2016 , was recorded during 2017 , as a result of the finalization of fixed asset and intangible asset valuations and useful lives for the rexam acquisition . segment sales in 2019 were $ 132 million higher compared to 2018. the increase in 2019 was primarily due to higher volumes of $ 192 million and improved customer sales mix , partially offset by the pass through of lower aluminum prices . we can not predict the impact on sales that will result from future changes in aluminum input prices . comparable operating earnings in 2019 were $ 4 million higher compared to 2018 primarily due to higher sales volumes and improved customer sales mix , partially offset by unfavorable u.s. aluminum scrap rates , increased start-up costs and operational inefficiencies . 25 beverage packaging , south america replace_table_token_7_th ( a ) further details of these items are included in note 6 to the consolidated financial statements within item 8 of this annual report . ( b ) catch-up depreciation and amortization of $ 14 million related to the six months ended december 31 , 2016 , was recorded during 2017 , as a result of the finalization of fixed asset and intangible asset valuations and useful lives for the rexam acquisition .
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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 its strategically located network of rush truck centers , the company provides one-stop service for the needs of its 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 . the company continues to work to position itself as a service solutions provider to the commercial vehicle industry by implementing our growth strategy to expand its portfolio of aftermarket services , broadening the diversity of our commercial vehicle product offerings and extending our network of service points across the united states . the company 's commitment to provide innovative solutions to service its customers ' business needs continues to drive its strong parts , service and body shop revenues . the company 's aftermarket capabilities include a wide range of services 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 , new diagnostic and analysis capabilities , factory certified service for alternative fuel vehicles and assembly service for specialized bodies and equipment . as a result of the company 's efforts to expand aftermarket capabilities , aftermarket operations now account for more than 64.4 % of the company 's total gross profits . 26 2013 highlights the following are the more significant developments in the company 's business during the year ended december 31 , 2013 : ● the company 's gross revenues totaled $ 3,384.7 million in 2013 , a 9.5 % increase from gross revenues of $ 3,090.6 million in 2012 . ● gross profit increased $ 71.2 million , or 14.2 % , in 2013 , compared to 2012. gross profit as a percentage of sales increased to 16.9 % in 2013 from 16.2 % in 2012 . ● the company 's class 4-7 medium-duty sales , which accounted for 4.7 % of the total u.s. market , increased 18 % over 2012. light-duty truck sales increased 43 % , up 594 units over 2012 . ● parts , service and body shop sales revenue was $ 988.3 million in 2013 , compared to $ 817.3 million in 2012 . ● selling , general and administrative expenses increased $ 88.6 million , or 24.5 % , in 2013 , compared to 2012. the increase is due primarily to the full year effect of the ohio acquisition that occurred in december 2012 , the four significant acquisitions that occurred in the second and third quarters of 2013 , the retirement and transition agreement with the company 's former chairman , w. marvin rush , and the addition of resources and technology to support the company 's growth . ● the company accelerated the implementation of its new business system to complete the implementation during the first quarter of 2015 , nearly 18 months ahead of its previously estimated completion date . the company also completed the following growth initiatives : ● in april 2013 , the company relocated its full service dealership in ardmore , oklahoma to a newly constructed facility . this move doubled the company 's service capacity in this market and expanded its natural gas and mobile service capabilities . ● in may 2013 , the company acquired certain assets of piedmont international trucks , llc and now operates commercial truck dealerships in statesville , hickory and asheville , north carolina . the acquisition included international and idealease franchises . these locations are operating as rush truck centers and offer commercial vehicles manufactured by international in addition to parts , service , body shop , truck rental and leasing , financing and insurance capabilities . ● in july 2013 , the company acquired certain assets of midwest truck sales and now operates from locations in st. louis and st. peters , missouri and olathe , kansas . the missouri dealerships offer truck sales , parts and service for international trucks and the kansas location provides truck sales , parts and service capabilities for hino and isuzu trucks and parts and service support for mitsubishi fuso trucks . in july 2013 , the company also acquired certain assets of the larson group , inc. and now operates ford and mitsubishi fuso truck franchises at the rush truck center in cincinnati , ohio . ● in september 2013 , the company acquired certain assets of transauthority and now operates full service international dealerships in richmond and suffolk , virginia and parts and service locations in fredericksburg and chester , virginia . the richmond and norfolk locations include idealease franchises . ● in october 2013 , the company acquired certain assets of prairie international trucks and now operates international commercial truck dealerships in champaign , decatur , bloomington , quincy and springfield , illinois ; a collision center in champaign , illinois and idealease commercial lease and rental operations at the dealerships in champaign , decatur , quincy and springfield , illinois . ● in december 2013 , the company opened a newly constructed full service peterbilt dealership and paclease commercial vehicle leasing and rental operation in corpus christi , texas . ● on february 12 , 2013 , the company announced that its board of directors approved a stock repurchase program authorizing the company to repurchase , from time to time , up to an aggregate of $ 40.0 million shares of class a common stock and or class b common stock . this stock repurchase program was replaced with a new program effective february 4 , 2014. as of december 31 , 2013 , the company has purchased approximately $ 12.9 million of its class b common stock under this repurchase program . 27 recent events ● in january 2014 , the company acquired certain assets of cit , inc. , which did business as chicago international trucks , mcgrenho l.l.c. story_separator_special_tag in the second step of the analysis , the implied fair value of the goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities . if the implied fair value of goodwill is less than the carrying value of the reporting unit 's goodwill , the difference is recognized as an impairment loss . the company determines the fair value of its reporting unit using the discounted cash flow method . the discounted cash flow method uses various assumptions and estimates regarding revenue growth rates , future gross margins , future selling , general and administrative expenses and an estimated weighted average cost of capital . 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 the company to make assumptions and to apply judgment regarding its knowledge of its industry , information provided by industry analysts , and its 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 its estimated fair value could result in a material impairment charge to the goodwill associated with the reporting unit . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions it 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 , the company 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 2013 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 . the company does not believe its reporting unit is at risk of failing step one of the impairment test . 29 insurance accruals the company is partially self-insured for a portion of the claims related to its property and casualty insurance programs , requiring it to make estimates regarding expected losses to be incurred . the company engages a third-party administrator to assess any open claims and the company adjusts its accrual accordingly on an annual basis . the company is also partially self-insured for a portion of the claims related to its workers ' compensation and medical insurance programs . the company uses 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 the company 's reserve for claims and financial position , results of operations and cash flows . the company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it used to calculate its self-insured liabilities . however , if actual results are not consistent with our estimates or assumptions , the company may be exposed to losses or gains that could be material . a 10 % change in the company 's estimate would have changed its reserve for these losses at december 31 , 2013 by $ 1.0 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 . the company 's 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 the company 's various tax filing positions , the company adjusts its 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 . the company 's liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with its various filing positions . the company 's effective income tax rate is also affected by changes in tax law , the level of earnings and the results of tax audits . although the company believes that the judgments and estimates are reasonable , actual results could differ , and the company may be exposed to losses or gains that could be material . an unfavorable tax settlement generally would require use of the company 's cash and result in an increase in its effective income tax rate in the period of resolution .
| results of operations the following discussion and analysis includes the company 's historical results of operations for 2013 , 2012 and 2011. the following table sets forth for the years indicated certain financial data as a percentage of total revenues : replace_table_token_8_th 31 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_9_th ( 1 ) includes sales of truck bodies , trailers and other new equipment . the following table sets forth for the periods indicated the percent of gross profit by revenue source : replace_table_token_10_th industry we currently 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 . 32 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 .
| 2,014 |
the total amount of cash used to make these acquisitions , including amounts paid in 2011 , was approximately $ 120.8 million , including approximately $ 2.4 million of acquisition costs . these expenditures were reduced by approximately $ 16.5 million of cash acquired as well as a divestiture of a business acquired with portec which resulted in proceeds of approximately $ 10.2 million . while our acquisitions caused our cash and cash equivalents balances to decrease , the following items helped to maintain our financial position : · we generated $ 59.5 million of cash from operating activities , which includes the previously mentioned acquisition costs . · we kept investments in our plants and facilities consistent with prior year levels . · we repaid $ 23.4 million of total debt , including the pay-off of our term loan . as of december 31 , 2010 , we had approximately $ 74.8 million in cash and cash equivalents and a revolving credit facility with approximately $ 60.2 million of availability while carrying only $ 4.8 million in total debt . 2010 developments acquisitions portec rail products , inc. on december 15 , 2010 , we closed our cash offer , originally announced on february 16 , 2010 and amended on august 30 , 2010 , for all the issued and outstanding shares of portec common stock at a purchase price of $ 11.80 per share , or approximately $ 113.3 million , including amounts paid in january 2011. on december 27 , 2010 , we completed the merger of portec into a wholly-owned subsidiary . the acquisition of portec will help us become a strategic provider of products and services “ below the wheel ” for the class i , transit , shortline and regional railroad and contractors in north america , as well as to railways , governmental agencies , passenger car manufacturers and rail contractors globally . it will broaden our offerings by adding portec 's friction management and wayside detection products and services . this acquisition will also assist our international expansion of existing products as portec currently has a strong presence in canada and the united kingdom through wholly-owned subsidiaries , and has continued to improve its presence in europe , brazil , southeast asia , china and australia . portec will be reported through our rail products segment . since the acquisition date , portec contributed $ 4.8 million in net sales , $ 0.6 million in gross profit and a net loss of $ ( 0.2 ) million for the period ended december 31 , 2010. we do not believe the results generated from the two week period from the acquisition date through december 31 , 2010 are indicative of portec 's quarterly or annual results of operations . interlocking deck systems international llc on march 23 , 2010 , we purchased certain assets from idsi . the purchase price was $ 6.9 million and it was allocated to certain equipment , raw material inventory , other assets , proprietary software , intangibles , and goodwill related to idsi 's steel bridge decking business . we paid $ 5.1 million in cash on the closing date and issued a note for the remaining purchase price , which is payable on the first and second anniversary of the closing in amounts of $ 1.0 million on each anniversary . no liabilities were assumed in this acquisition . 22 recent developments in december 2010 , the uprr opted not to extend the supply agreement and lease renewal for the grand island , ne plant . production for the remaining orders was completed during the first quarter of 2011. we believe the dismantling of the facility according to the terms of the supply agreement and the winding down of operations will be completed in the third quarter of 2011. sales to the uprr from this facility approximated $ 20.4 million , $ 11.5 million and $ 12.8 million for the years ended december 31 , 2010 , 2009 and 2008 , respectively . we do not believe that the closure of this facility will have a significant , adverse impact on our results of operations or our liquidity . general l.b . foster company is a leading manufacturer , fabricator and distributor of products and services for the rail , construction , energy and utility markets . the company is comprised of three business segments : rail products , construction products and tubular products . the company makes certain filings with the securities and exchange commission ( sec ) , including its annual report on form 10-k , quarterly reports on form 10-q , current reports on form 8-k , and all amendments and exhibits to those reports , available free of charge through its website , www.lbfoster.com , as soon as reasonably practicable after they are filed with the sec . these filings are also available through the sec at the sec 's public reference room at 100 f street n.e . washington , d.c. 20549 or by calling 1-800-sec-0330 . also , these filings are available on the internet at www.sec.gov . the company 's press releases are also available on its website . rail products the rail products segment is composed of several manufacturing and distribution businesses that provide a variety of products for railroads , transit authorities , industrial companies and mining applications throughout north america and the united kingdom . rail products has sales offices throughout the united states , canada and the united kingdom and frequently bids on rail projects where it can offer products manufactured by the company or sourced from numerous suppliers . these products may be provided as a package to rail lines , transit authorities and construction contractors which reduces the customer 's procurement efforts and provides value added , just in time delivery . the rail products segment designs and manufactures bonded insulated rail joints , cuts and drills rail and manufactures concrete cross ties and turnout ties . the company has concrete tie manufacturing facilities in spokane , wa and tucson , az . story_separator_special_tag there were no goodwill impairments recorded during the three years ended december 31 , 2010. asset impairment – the company is required to test for asset impairment whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable . the company applies the guidance in fasb asc 360-10-35 , and related guidance , in order to determine whether or not an asset is impaired . this guidance indicates that if the sum of the future expected cash flows associated with an asset , undiscounted and without interest charges , is less than the carrying value , an asset impairment must be recognized in the financial statements . the amount of the impairment is the difference between the fair value of the asset and the carrying value of the asset . the company believes that the accounting estimate related to asset impairment is a “ critical accounting estimate ” as it is highly susceptible to change from period to period and because it requires management to make assumptions about the existence of impairment indicators and cash flows over future years . these assumptions impact the amount of an impairment , which would have an impact on the income statement . there were no asset impairments recorded during the three years ended december 31 , 2010. allowance for bad debts – the company 's operating segments encounter risks associated with the collection of accounts receivable . as such , the company records a monthly provision for accounts receivable that are deemed uncollectible . in order to calculate the appropriate monthly provision , the company reviews its accounts receivable aging and calculates an allowance through application of historic reserve factors to overdue receivables . this calculation is supplemented by specific account reviews performed by the company 's credit department . as necessary , the application of the company 's allowance rates to specific customers is reviewed and adjusted to more accurately reflect the credit risk inherent within that customer relationship . the reserve is reviewed on a monthly basis . an account receivable is written off against the allowance when management determines it is uncollectible . the company believes that the accounting estimate related to the allowance for bad debts is a “ critical accounting estimate ” because the underlying assumptions used for the allowance can change from period to period and the allowance could potentially cause a material impact to the income statement . specific customer circumstances and general economic conditions may vary significantly from management 's assumptions and may impact expected earnings . at december 31 , 2010 and 2009 , the company maintained an allowance for bad debts of $ 1.6 million and $ 1.1 million , respectively . product liability – the company maintains a current liability for the repair or replacement of defective products . for certain manufactured products , an accrual is made on a monthly basis as a percentage of cost of sales . for long-term construction projects , a liability is established when the claim is known and quantifiable . the product liability accrual is periodically adjusted based on the identification or resolution of known individual product liability claims . the company believes that this is a “ critical accounting estimate ” because the underlying assumptions used to calculate the liability can change from period to period . at december 31 , 2010 and 2009 , the product liability was $ 4.4 million and $ 3.4 million , respectively . for additional information regarding the company 's product liability , refer to part ii , item 8 , footnote 22 “ commitments and contingent liabilities. ” 25 slow-moving inventory – slow-moving inventory is reviewed and adjusted routinely , taking into account numerous factors such as quantities-on-hand versus turnover , product knowledge , and physical inventory observations . this review is performed on a specific product basis and effectively establishes a new cost for the underlying product . the company believes this is a “ critical accounting estimate ” because the underlying assumptions can change from period to period and could have a material impact on the income statement . revenue recognition – the company 's revenues are composed of product sales and products and services provided under long-term contracts . for product sales , the company recognizes revenue upon transfer of title to the customer . title generally passes to the customer upon shipment . in limited cases , title does not transfer and revenue is not recognized until the customer has received the products at its physical location . shipping and handling costs are included in cost of goods sold . revenues for products under long-term contracts are generally recognized using the percentage-of-completion method based upon the proportion of actual costs incurred to estimated total costs . for certain products , the percentage of completion is based upon actual labor costs to estimated total labor costs . revenues recognized using percentage of completion were less than 10 % of the company 's consolidated revenues for the year ended december 31 , 2010. with the addition of portec , the contribution of revenues recognized using percentage of completion is expected to continue to decline in future periods . pension plans – the calculation of the company 's net periodic benefit cost ( pension expense ) and benefit obligation ( pension liability ) associated with its defined benefit pension plans ( pension plans ) requires the use of a number of assumptions that the company deems to be “ critical accounting estimates ” . changes in these assumptions can result in a different pension expense and liability amounts , and future actual experience can differ significantly from the assumptions . the company believes that the two most critical assumptions are the expected long-term rate of return on plan assets and the assumed discount rate . the expected long-term rate of return reflects the average rate of earnings expected on funds invested or to be invested in the pension plans to provide for the benefits included in the pension liability .
| quarterly results of operations replace_table_token_9_th fourth quarter 2010 compared to fourth quarter 2009 – company analysis net income for the fourth quarter of 2010 was $ 0.60 per diluted share , compared to $ 0.38 per diluted share for the fourth quarter of 2009. we account for a portion of our inventory under the lifo method . while the lifo reserve requirements had positive impacts for the current period , the credit to gross profit resulting from this lifo adjustment was significantly lower than in 2009 . 29 having a positive impact in the 2010 fourth quarter was the recognition , in accordance with applicable acquisition accounting guidance , of the $ 1.4 million pre-tax gain associated with the remeasurement of our holding of portec equity securities prior to the acquisition . additionally , we recorded our share of the income from our equity investment in our jv , which is reported as “ equity in gains of nonconsolidated investments. ” there were two primary drivers of increased selling and administration expenses in the fourth quarter of 2010 , acquisition costs and incentive compensation . we recognized $ 1.2 million in acquisition costs in the fourth quarter of 2010 related to our acquisition of portec . additionally , results-driven compensation costs increased approximately $ 2.0 million over the prior year period . finally , portec contributed $ 0.9 million in selling and administrative expenses since the acquisition date . the increased effective income tax rate for the fourth quarter of 2010 to 41.2 % from 40.7 % in the prior year quarter resulted primarily from nondeductible acquisition costs . results of operations – segment analysis rail products replace_table_token_10_th fourth quarter 2010 compared to fourth quarter 2009 improved 2010 quarterly sales were reported across all of the divisions within our rail products segment , generally from improved volumes , over the prior year quarter .
| 2,015 |
the animal health business serves animal health practitioners , providers and producers through the distribution of pharmaceuticals , vaccines , supplies and equipment and by the development , sale and distribution of veterinary practice management software and related solutions and services . the animal health business served approximately 100,000 customers in over 100 countries and had net sales of approximately of $ 3.8 billion for the fiscal year ended december 29 , 2018. segments the animal health business conducts its business through two reportable segments : ( i ) supply chain and ( ii ) technology and value-added services . for the fiscal year ended december 29 , 2018 , the animal health business ' supply chain segment and its technology and value-added services segment made up approximately 97 % and 3 % , respectively , of its net sales . the supply chain segment includes the distribution of pharmaceuticals , nutrition products , consumable products , diagnostic tests , small and large equipment , laboratory products and surgical products , among others . the technology and value-added services segment consists of technology services , which include practice management software systems and computer hardware for animal health customers as well as software support , data driven applications , training and education , client communication services and value-added services . trends and key factors affecting the performance and financial conditions of the animal health business the animal health business is now an independent , publicly traded company in connection with the separation and merger with vets first choice . by separating from henry schein , the animal health business is now responsible for the costs and governance associated with being an independent , publicly traded company , including costs related to corporate governance , investor and public relations and public reporting . terms with key suppliers . each year , suppliers in the veterinary channel engage in negotiations with the animal health business regarding pricing terms , including performance rebates and other growth incentives . the results of these negotiations can have a material impact on the financial performance of the animal health business on an annual basis . veterinary visits and pet owner willingness to spend . the health of the business of in-office veterinary care is a critical determinant in the financial performance of the animal health business , both with respect to the number of visits by pet owners as well as their desire and ability to spend on preventative and therapeutic treatments and procedures . because we market our companion animal prescription products through the veterinarian channel , both in-office and through our online platform , any decrease in reliance on and visits to veterinarians by companion animal owners could reduce our market share for such products and have a material adverse effect on our business , financial condition , results of operations and cash flows . 37 seasonality the animal health business ' quarterly sales and operating results have varied from period to period in the past , and will likely continue to do so in the future . in the companion animal market , sales of parasite protection products have historically tended to be stronger during the second and third fiscal quarters , primarily due to an increase in vector-borne diseases during those quarters . buying patterns can also be affected by manufacturers ' and distributors ' marketing programs or price increase announcements , which can cause veterinarians to purchase large animal health products earlier than when those products are needed . this kind of early purchasing may reduce the animal health business ' sales in the quarters these purchases would have otherwise been made . the sales of large animal products can also vary due to changes in commodity prices and weather patterns ( for example , droughts or seasons of higher precipitation that determine how long cattle will graze ) , which may also affect period-to-period financial results . the animal health business expects its historical seasonality trends to continue in the foreseeable future . working capital the animal health business ' principal capital requirements include the funding of working capital needs , funding of strategic investments and purchases of fixed assets . the animal health business requires substantial working capital , which is susceptible to fluctuations during the year as a result of levels of accounts receivables , inventory purchase patterns and seasonal demands . inventory purchase activity is a function of sales activity , special inventory forward buy-in opportunities and the animal health business ' desired level of inventory . plans of restructuring on november 6 , 2014 , henry schein announced a company-wide initiative to rationalize operations and provide expense efficiencies . this initiative planned for the elimination of certain workforce positions and the closing of certain facilities . in conjunction with this initiative , the animal health business eliminated approximately 180 positions and recorded restructuring costs of $ 8.3 million and $ 7.3 million associated with these actions in the fiscal year ended december 26 , 2015 and the fiscal year ended december 31 , 2016 , respectively . the costs associated with this restructuring are included in a separate line item , restructuring costs within the animal health business ' combined statements of operations . as of december 31 , 2016 , these restructuring activities were complete and no additional restructuring charges were incurred in the fiscal year ended december 30 , 2017. on july 9 , 2018 , henry schein announced a company-wide initiative to further rationalize operations and provide expense efficiencies . in conjunction with this initiative , the animal health business eliminated 142 positions and recorded restructuring costs of $ 8.5 million during the fiscal year ended december 29 , 2018. the costs associated with this restructuring are included in a separate line item , restructuring costs within the animal health business ' combined statements of operations . gross profit as a result of different practices of categorizing costs associated with distribution networks throughout the animal health industry , the gross margins of the supply chain segment may not necessarily be comparable to its competitors . story_separator_special_tag other , net was $ 3.1 million for the year ended december 29 , 2018 , an increase of $ 2.2 million from the year ended december 30 , 2017. the change was primarily due to investment proceeds , the impact of foreign currency exchange rates and losses from fixed asset disposals in year ended december 30 , 2017. income taxes for the year ended december 29 , 2018 , the effective tax rate was 25.9 % compared to 34.6 % for the prior year period . in 2018 , the effective tax rate was primarily impacted by an increase in the estimate of transition tax 42 associated with the tax act , the impact of gilti and state and foreign income taxes , partially offset by noncontrolling interests in our partnership investments and the impact of windfall tax benefits from share-based payment . in 2017 , the effective tax rate was primarily impacted by the tax act and the adoption of asu 2016-09 , accounting for stock compensation . net income net income was $ 107.4 million for the year ended december 29 , 2018 , compared to $ 92.0 million for the year ended december 30 , 2017 , an increase of $ 15.4 million or 16.7 % . net income attributable to the animal health business net income attributable to the animal health business was $ 100.9 million for the year ended december 29 , 2018 , compared to $ 64.4 million for the year ended december 30 , 2017 , an increase of $ 36.5 million or 56.7 % . year ended december 30 , 2017 compared to year ended december 31 , 2016 the fiscal year ended december 30 , 2017 consisted of 52 weeks as compared to the fiscal year ended december 31 , 2016 , which consisted of 53 weeks . net sales net sales for the fiscal years ended december 30 , 2017 and december 31 , 2016 were as follows : replace_table_token_9_th net sales were $ 3,579.8 million for the year ended december 30 , 2017 , compared to $ 3,353.2 million for the year ended december 31 , 2016 , an increase of $ 226.6 million , or 6.8 % . the change was driven primarily by an increase of $ 206.6 million in organic growth and $ 63.3 million of growth from acquisitions , partially offset by a $ 43.3 million decrease due to the impact from the extra week in 2016. net sales for the supply chain segment were $ 3,479.3 million for the year ended december 30 , 2017 , compared to $ 3,254.5 million for the year ended december 31 , 2016 , an increase of $ 224.9 million , or 6.9 % . the change was driven primarily by an increase of $ 208.6 million in organic growth and $ 61.9 million of growth from acquisitions , partially offset by a $ 45.6 million decrease due to the impact from the extra week in 2016. the growth in internally generated supply chain revenue was positively affected by year-over-year changes to certain supplier agreements where the animal health business acted as a principal in 2017 versus acting as an agent in the prior year . when excluding the effects of this change , organic growth increased by $ 195.2 million . net sales for the technology and value-added services segment were $ 100.5 million for the year ended december 30 , 2017 , compared to $ 98.7 million for the year ended december 31 , 2016 , an increase of $ 1.8 million , or 1.8 % . the change was driven primarily by a $ 2.2 million increase in net sales denominated in local currencies ( including a $ 2.7 million increase in organic growth , partially offset by a $ 0.5 million decrease due to the impact from the extra week in 2016 ) partially offset by a decrease of $ 0.4 million related to foreign currency exchange . no single customer accounted for more than 10 % of the animal health business ' net sales in the fiscal years ended december 30 , 2017 or december 31 , 2016 . 43 gross profit gross profit and gross margins for the fiscal years ended december 30 , 2017 and december 31 , 2016 were as follows : replace_table_token_10_th gross profit was $ 652.0 million for the year ended december 30 , 2017 , compared to $ 619.9 million for the year ended december 31 , 2016 , an increase of $ 32.1 million , or 5.2 % . gross margin was 18.2 % for the year ended december 30 , 2017 , compared to 18.5 % for the year ended december 31 , 2016 , a decrease of 30 basis points . gross profit for the supply chain segment was $ 591.2 million for the year ended december 30 , 2017 , compared to $ 563.6 million for the year ended december 31 , 2016 , an increase of $ 27.6 million , or 4.9 % . the change was due to a $ 15.8 million increase from organic growth and a $ 23.1 million increase related to acquisitions partially offset by an $ 11.3 million decline in gross profit due to the decrease in the gross margin rates . gross margin for the supply chain segment was 17.0 % for the year ended december 30 , 2017 , compared to 17.3 % for the year ended december 31 , 2016. gross profit for the technology and value-added services segment was $ 60.8 million for the year ended december 30 , 2017 , compared to $ 56.3 million for the year ended december 31 , 2016 , an increase of $ 4.5 million , or 7.9 % . the change was due to $ 1.0 million attributable to organic growth and $ 3.5 million attributable to the increase in gross margin rates .
| results of operations the following tables summarize the significant components of the animal health business ' operating results for the years ended december 29 , 2018 , december 30 , 2017 and december 31 , 2016 : replace_table_token_4_th year ended december 29 , 2018 compared to year ended december 30 , 2017 net sales net sales for the fiscal years ended december 29 , 2018 and december 30 , 2017 were as follows : replace_table_token_5_th net sales were $ 3,778.0 million for the year ended december 29 , 2018 , compared to $ 3,579.8 million for the year ended december 30 , 2017 , an increase of $ 198.2 million , or 5.5 % . the change was due to growth in net sales denominated in local currencies of $ 152.8 million ( which includes a $ 63.3 million increase in organic growth and $ 89.5 million of growth from acquisitions ) as well as an increase of $ 45.4 million related to foreign currency exchange . net sales for the supply chain segment were $ 3,677.2 million for the year ended december 29 , 2018 , compared to $ 3,479.3 million for the year ended december 30 , 2017 , an increase of $ 197.9 million , or 5.7 % . the change was due to growth in net sales denominated in local currencies of $ 152.7 million ( which includes a $ 66.1 million increase in organic growth and $ 86.6 million of growth from acquisitions ) as well as an increase of $ 45.2 million related to foreign currency exchange . the growth in net sales denominated in local currencies in supply chain revenue was negatively affected by year over year changes to certain supplier agreements where the animal health business acted as an agent in 2018 versus acting as a principal in the prior year . when excluding the effects of this change , organic growth increased by $ 182.3 million .
| 2,016 |
these statements relate to , among other things , our strategy ; the design of and enrollment in our phase 2b pronto clinical trial for neod001 ; the possible clinical benefit of neod001 ; the possible clinical benefit of prx002 ; research and development ( `` r & d '' ) and general and administrative ( `` g & a '' ) expenses in 2016 ; and the sufficiency of our cash and cash equivalents . forward-looking statements may include words such as “ aim , ” “ anticipate , ” “ assume , ” “ believe , ” “ contemplate , ” “ continue , ” “ could , ” “ due , ” “ estimate , ” “ expect , ” “ goal , ” “ intend , ” “ may , ” “ objective ” “ plan , ” “ predict , ” “ potential , ” “ positioned , ” “ seek , ” “ should , ” “ target , ” “ will , ” “ would , ” and other similar expressions that are predictions of or indicate future events and future trends , or the negative of these terms or other comparable terminology . forward-looking statements are subject to risks and uncertainties , and actual events or results may differ materially . factors that could cause our actual results to differ materially include , but are not limited to , the risks and uncertainties listed below as well as those discussed under “ risk factors ” in this form 10-k. our ability to obtain additional financing in future offerings ; our operating losses ; our ability to successfully complete research and development of our drug candidates ; our ability to develop , manufacture and commercialize products ; our collaboration with roche pursuant to the license agreement ; our ability to protect our patents and other intellectual property ; our ability to hire and retain key employees ; tax treatment of our separation from elan and subsequent distribution of our ordinary shares ; our ability to maintain financial flexibility and sufficient cash , cash equivalents , and investments and other assets capable of being monetized to meet our liquidity requirements ; potential disruptions in the u.s. and global capital and credit markets ; government regulation of our industry ; the volatility of our ordinary share price ; business disruptions ; and the other risks and uncertainties described in the “ risk factors ” section of this form 10-k. we undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report . this discussion should be read in conjunction with the consolidated financial statements and notes presented in item 8 of this form 10-k. overview prothena corporation plc is a global biotechnology company seeking to fundamentally change the course of progressive diseases , with its late-stage clinical pipeline of novel therapeutic antibodies . fueled by its deep scientific understanding built over decades of research in protein misfolding and cell adhesion – the root causes of many serious or currently untreatable amyloid inflammatory diseases – prothena has advanced several drug candidates into clinical trials while pursuing discovery of additional novel therapies . our clinical pipeline of antibody-based product candidates target a number of potential indications including al amyloidosis ( neod001 ) , parkinson 's disease and other related synucleinopathies ( prx002 ) and inflammatory diseases including psoriasis ( prx003 ) . we are a public limited company formed under the laws of ireland . we separated from elan corporation , plc ( `` elan '' ) , on december 20 , 2012. after the separation from elan , and the related distribution of the company 's ordinary shares to elan 's shareholders , our ordinary shares began trading on the nasdaq global market under the symbol “ prta ” on december 21 , 2012 and currently trade on the the nasdaq global select market . 43 recent developments neod001 for al amyloidosis in october 2015 , we announced plans to initiate pronto , a phase 2b registration-directed global , multi-center , randomized , double-blind , placebo-controlled clinical trial for neod001 in previously treated patients with al amyloidosis and with persistent cardiac dysfunction . the pronto trial is designed to enroll approximately 100 patients with a primary diagnosis of al amyloidosis and persistent cardiac dysfunction despite previous treatment with off-label , plasma cell directed therapy . patients will be randomized on a 1:1 basis to receive 24 mg/kg of neod001 or placebo via intravenous infusion every 28 days . the primary endpoint is cardiac best response as assessed by nt-probnp measured over 12 months . secondary endpoints include evaluations of short form 36 , six-minute walk test , and renal response as assessed by proteinuria . prothena designed the study with 80 % power to detect an absolute difference of 26.5 % in nt-probnp best response rate between the treatment and placebo groups with a two-sided alpha of 0.05. in october , we also announced the completion of enrollment for the expansion cohort of the phase 1/2 study of neod001 to treat patients with al amyloidosis and persistent organ dysfunction . based on strong interest from patients and physicians , enrollment in this trial was increased to 42 from the originally planned 25. in december 2015 , we presented preclinical data demonstrating the binding and clearance properties of neod001 and the related murine form of the antibody in various organs of patients with al amyloidosis . the data was featured in a poster session at the 57 th annual american society for hematology meeting . at the same meeting , we also presented a poster highlighting quality of life measures in patients with al amyloidosis . prx002 for parkinson 's disease and other related synucleinopathies in january 2016 , prothena added an additional dose level cohort to the ongoing phase 1 multiple ascending dose trial of prx002 in patients with parkinson 's disease . story_separator_special_tag payments or full reimbursements resulting from our r & d efforts for those arrangements where such efforts are considered as deliverables are recognized as the services are performed and are presented on a gross basis so long as there is persuasive evidence of an arrangement , the fee is fixed or determinable , and collection of the related receivable is reasonably assured . however , such funding is recognized as a reduction of r & d expense when we engage in a r & d project jointly with another entity , with both entities participating in project activities and sharing costs and potential benefits of the project . accordingly , reimbursement of r & d expenses pursuant to the cost-sharing provisions of our agreements with roche is recognized as a reduction to r & d expense . milestone revenue we account for milestones under asu no . 2010-17 , `` milestone method of revenue recognition '' . under the milestone method , contingent consideration received from the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved . a milestone is defined as an event ( i ) that can only be achieved based in whole or in part on either the entity 's performance or on the occurrence of a specific outcome resulting from the entity 's performance , ( ii ) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved , and ( iii ) that would result in additional payments being due to the entity . at the inception of an agreement that includes milestone payments , we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone . this evaluation includes an assessment of whether ( a ) the consideration is commensurate with either ( 1 ) the entity 's performance to achieve the milestone , or ( 2 ) the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from the entity 's performance to achieve the milestone , ( b ) the consideration relates solely to past performance , and ( c ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . we evaluate factors such as the scientific , regulatory , commercial and other risks that must be overcome to achieve the respective milestone , the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment . the conclusion as to whether milestone payments are substantive involves management judgment regarding the factors noted above . 45 we generally classify each of our milestones into one of three categories : ( i ) clinical milestones , ( ii ) regulatory and development milestones , and ( iii ) commercial milestones . clinical milestones are typically achieved when a product candidate advances or completes a defined phase of clinical research . for example , a milestone payment may be due to us upon the initiation of a clinical trial for a new indication . regulatory and development milestones are typically achieved upon acceptance of the submission for marketing approval of a product candidate or upon approval to market the product candidate by the fda or other regulatory authorities . for example , a milestone payment may be due to us upon filing of a biologics license application ( `` bla '' ) with the fda . commercial milestones are typically achieved when an approved pharmaceutical product reaches certain defined levels of net royalty sales by the licensee of a specified amount within a specified period . commercial milestone payments and milestone payments that are not deemed to be substantive will be accounted for as a contingent revenue payment with revenue recognized when all contingencies are lifted , which is expected to be upon achievement of the milestone , assuming all revenue recognition criteria are met . profit share revenue for agreements , with profit sharing arrangements , we will record our share of the pre-tax commercial profit as collaboration revenue when the profit sharing can be reasonably estimated and collectability is reasonably assured . if profit sharing estimates are materially different from actual results it could impact the amount of revenue recognized in future periods . if the profit share can not be reasonably estimated or collectability of the profit share amount is not reasonably assured , our portion of the profit share it could impact the amount of revenue recognized in future periods . royalty revenue we will recognize revenue from royalties based on licensees ' sales of our products or products using its technologies . royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured . if we can no longer estimate royalty revenue or our estimates are materially different from actual results it could impact the amount of revenue recognized in future periods . research and development we expense r & d costs as incurred . r & d expenses include , but are not limited to , salary and benefits , share-based compensation , clinical trial activities , drug development and manufacturing prior to fda approval and third-party service fees , including clinical research organizations and investigative sites . we recognize costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations , or information provided to us by our vendors on their actual costs incurred . the objective of our accrual policy is to match the recording of the expenses in our consolidated financial statements to the actual services we have received and efforts we have expended .
| results of operations comparison of years ended december 31 , 2015 , 2014and 2013 revenue replace_table_token_3_th nm = not meaningful total revenue was $ 1.6 million , $ 50.9 million and $ 0.7 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . collaboration revenue includes reimbursements under our license agreement with roche , which became effective january 2014 . the portion of the amounts recognized as collaboration revenue for the milestone and the development reimbursements were based on the relative selling price method in applying multiple element accounting . see note 7 to the consolidated financial statements “ roche license agreement ” for more information . collaboration revenue for the year ended december 31 , 2015 consisted of the following amounts from roche under the license agreement : reimbursement for development costs of $ 5.1 million ( of which $ 0.2 million was recognized as collaboration license revenue ) and reimbursement for research services of $ 1.4 million . conversely , collaboration revenue for the year ended december 31 , 2014 consisted of the following amounts : a one-time , non-refundable , non-creditable upfront payment of $ 30.0 million ( which was recognized as collaboration license revenue ) , a clinical milestone payment from roche of $ 15.0 million ( of which $ 13.3 million was recognized as collaboration revenue ) , reimbursement for development costs of $ 6.0 million ( of which $ 5.3 million was recognized as collaboration license revenue ) and reimbursement for research services of $ 1.7 million . related-party revenue for the years ended december 31 , 2014 and 2013 was comprised of fees earned from the provision of research and development services to elan . total related-party revenue decreased by $ 142,000 , or 21 % , during the year ended december 31 , 2014 , compared to the corresponding periods of the prior year .
| 2,017 |
as of september 30 , 2013 , there were no series preferred g convertible shares issued and outstanding . dividends during the year ended september 30 , 2013 , citadel declared and paid dividends totaling $ 325,000 on the shares of series a preferred convertible stock as compared to $ 160,000 for year ended september 30 , 2012. the ceo , gary deroos , is the sole owner of the outstanding preferred shares of the company . common stock the company is authorized to issue 1,100,000,000 shares of common stock , par value $ 0.00001 per share . during fiscal year ended september 2013 , the company had 35,856,413 shares of its common stock issued and outstanding ; it issued 6,000 for services , and 7,431,000 for an unconsummated purchase of us gold bonds and 28,400,000 to retire preferred shares . note 6 - other material contracts on october 24 , 2012 , citadel entered into an agreement with art to go , inc. , a new york corporation for the purchase of certain for fine art , artwork , and sports memorabilia . the consideration for the purchase was the issuance of 2,800,000 shares of series c preferred convertible stock . citadel increased the consideration to 4,000,000 series c preferred convertible stock . f-11 note 7 fair value of financial instruments asc 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . when determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value , the company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability , such as inherent risk , transfer restrictions , and risk of nonperformance . asc 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . asc 825-10 establishes three levels of inputs that may be used to measure fair value : level 1 - quoted prices in active markets for identical assets or liabilities . level 2 - observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities ; quoted prices in markets with insufficient volume or infrequent transactions ( less active markets ) ; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or level 3 - unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . in certain cases , the inputs used to measure fair value may fall into different levels of the fair value hierarchy . in such cases , for disclosure purposes , the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement . the debt derivative , comprised of our bifurcated convertible debt features on our convertible notes , is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the company 's common stock and are classified within level 3 of the valuation hierarchy . the company purchased a collection of art work and memorabilia from art to go , inc. in october 2012 , the collection was originally valued by sports and entertainment marketing group using level 1 quoted prices . the value of the asset they assigned was $ 10,389,068 . the company noted that some of the value was not based upon any active market for identical assets , and had a second independent appraisal completed using level 2 guidelines . the valuation was completed by doty scott enterprises , inc. for purposes of this report , including any opinions required by the company , we utilized fair value defined by the international financial reporting standards ( ifrs ) and statements of financial accounting standards ( sfas ) guidelines ( international valuation standards council ( ivsc ) 2012 exposure draft on fair value measurement ed/2012 and financial accounting standards board ( fasb ) in fasb asc 820 fair value measurements and disclosures . this organization brought the value of the collection down to $ 2,972,000 , based upon observable inputs of retail price to wholesale price and in consideration that the purchase price was satisfied by the issue of preferred equities . note 8 subsequent events between november 13 , 2013 and january 17 , 2014 , the company issued 7,027,500 shares of restricted stock for consulting services to various entities in regard to obtaining a stand by letter of credit ( sbloc ) , which was ultimately completed on december 15 , 2013 when the company entered into the agreement noted below . on december 15 , 2013 , the company entered into an agreement with interglobal management , llc ( igi ) and spartacus partners corporation ( spartacus ) to place 4,000,000 restricted shares at a price $ 2.50 per share ( $ 10,000,000 ) with spartacus , to be held in escrow in return for an interest in a stand by letter of credit ( sbloc ) of with a total value of $ 180,000,000 . on december 23 , 2013 , the company entered into a subscription agreement with spartacus partners corporation ( spartacus ) by which spartacus agrees to purchase $ 125,000,000 of the company 's common stock over a twelve month period . f-12 story_separator_special_tag story_separator_special_tag margin-bottom:8.35pt '' > story_separator_special_tag as of september 30 , 2013 , there were no series preferred g convertible shares issued and outstanding . dividends during the year ended september 30 , 2013 , citadel declared and paid dividends totaling $ 325,000 on the shares of series a preferred convertible stock as compared to $ 160,000 for year ended september 30 , 2012. the ceo , gary deroos , is the sole owner of the outstanding preferred shares of the company . common stock the company is authorized to issue 1,100,000,000 shares of common stock , par value $ 0.00001 per share . during fiscal year ended september 2013 , the company had 35,856,413 shares of its common stock issued and outstanding ; it issued 6,000 for services , and 7,431,000 for an unconsummated purchase of us gold bonds and 28,400,000 to retire preferred shares . note 6 - other material contracts on october 24 , 2012 , citadel entered into an agreement with art to go , inc. , a new york corporation for the purchase of certain for fine art , artwork , and sports memorabilia . the consideration for the purchase was the issuance of 2,800,000 shares of series c preferred convertible stock . citadel increased the consideration to 4,000,000 series c preferred convertible stock . f-11 note 7 fair value of financial instruments asc 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . when determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value , the company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability , such as inherent risk , transfer restrictions , and risk of nonperformance . asc 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . asc 825-10 establishes three levels of inputs that may be used to measure fair value : level 1 - quoted prices in active markets for identical assets or liabilities . level 2 - observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities ; quoted prices in markets with insufficient volume or infrequent transactions ( less active markets ) ; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or level 3 - unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . in certain cases , the inputs used to measure fair value may fall into different levels of the fair value hierarchy . in such cases , for disclosure purposes , the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement . the debt derivative , comprised of our bifurcated convertible debt features on our convertible notes , is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the company 's common stock and are classified within level 3 of the valuation hierarchy . the company purchased a collection of art work and memorabilia from art to go , inc. in october 2012 , the collection was originally valued by sports and entertainment marketing group using level 1 quoted prices . the value of the asset they assigned was $ 10,389,068 . the company noted that some of the value was not based upon any active market for identical assets , and had a second independent appraisal completed using level 2 guidelines . the valuation was completed by doty scott enterprises , inc. for purposes of this report , including any opinions required by the company , we utilized fair value defined by the international financial reporting standards ( ifrs ) and statements of financial accounting standards ( sfas ) guidelines ( international valuation standards council ( ivsc ) 2012 exposure draft on fair value measurement ed/2012 and financial accounting standards board ( fasb ) in fasb asc 820 fair value measurements and disclosures . this organization brought the value of the collection down to $ 2,972,000 , based upon observable inputs of retail price to wholesale price and in consideration that the purchase price was satisfied by the issue of preferred equities . note 8 subsequent events between november 13 , 2013 and january 17 , 2014 , the company issued 7,027,500 shares of restricted stock for consulting services to various entities in regard to obtaining a stand by letter of credit ( sbloc ) , which was ultimately completed on december 15 , 2013 when the company entered into the agreement noted below . on december 15 , 2013 , the company entered into an agreement with interglobal management , llc ( igi ) and spartacus partners corporation ( spartacus ) to place 4,000,000 restricted shares at a price $ 2.50 per share ( $ 10,000,000 ) with spartacus , to be held in escrow in return for an interest in a stand by letter of credit ( sbloc ) of with a total value of $ 180,000,000 . on december 23 , 2013 , the company entered into a subscription agreement with spartacus partners corporation ( spartacus ) by which spartacus agrees to purchase $ 125,000,000 of the company 's common stock over a twelve month period . f-12 story_separator_special_tag story_separator_special_tag margin-bottom:8.35pt '' >
| results of operation 12 month period ended september 30 , 2013 compared to 12 month period ended september 30 , 2012 our net loss of $ 15,022,326 for the 12 month period ended september 30 , 2013 , including a loss from operations of $ 266,261 compared to net loss of $ 1,894,240 during the twelve month period ended september 30 , 2013 , of which all was an operating loss . during the twelve months periods ended september 30 , 2013 and 2012 , we generated $ 419,414 net revenues from continuing operations as compared to $ 493,442 , a reduction of 15 % primarily due to a continued soft economy . during the twelve month period ended september 30 , 2013 , we incurred operating expenses of $ 685,674 compared to $ 2,387,642 incurred during the twelve month period ended september 30 , 2012 , a decrease of $ 1,701,968 , these expenses incurred during the twelve month period ended september 30 , 2013 primarily consisted of the following : $ 598,091 in fees for professional service , including but limited to , attorneys ' fees ; fees associated with transfer agent activity and accounting and consulting services . the balance of our operating expenses $ 87,583 were for general and administrative charges . the reduction in operating expense as compared to year ended september 30 , 2012 came principally from the reduction in the use of consultants $ 525,302 for year ending september 30 , 2013 as compared to $ 2,054,850 at year end 2012. additional income was incurred during the twelve month period ended september 30 , 2013 of $ 106,499 , as compared to none in year ended september 30 , 2012. other income during the twelve month period ended september 30 , 2013 consisted of : ( i ) gain on extinguishment of debt $ 85,269 , ( ii ) gain of $ 21,230 on the sale of tradable stock held in other corporations .
| 2,018 |
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 . as of december 31 , 2011 , the company also had licensing agreements with third parties who sell its branded apparel , accessories and specialty footwear in the united states , as well as its footwear in canada , mexico and certain markets overseas . licensing revenues are included in the company 's wholesale segment . the company 's retail segment consisted of 30 company-owned retail stores in the united states and an internet business as of december 31 , 2011. 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 , 2011. 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 in 2011 were $ 271 million , up 18 % compared with $ 229 million in 2010. earnings from operations were $ 23.2 million in 2011 , up 24 % compared with $ 18.8 million in 2010. net earnings attributable to weyco group , inc. in 2011 were $ 15.3 million , up 12 % compared with $ 13.7 million in 2010. diluted earnings were $ 1.37 per share for 2011 and $ 1.19 per share in 2010. wholesale net sales were up $ 33 million in 2011 , primarily due to the acquisition of bogs which contributed net sales of $ 28 million and licensing revenues of $ 1.2 million in 2011. despite the increased sales volume , wholesale operating earnings were flat compared with 2010. this was the result of slightly lower gross margins due to continuing cost pressures from the company 's third-party overseas factories , as well as nonrecurring acquisition and transition costs and other increased selling and administrative costs this year . retail sales were up approximately $ 2.2 million in 2011 , and retail operating earnings increased $ 1.9 million , due primarily to an improvement in same store performance and the closing of five underperforming stores in 2011. net sales and operating earnings of the company 's other businesses were up $ 6.6 million and $ 2.5 million , respectively , in 2011 compared with 2010 , mainly due to increased retail sales volumes and gross margins at florsheim australia . story_separator_special_tag margin-top : 0pt ; margin-right : 0pt ; margin-left : 0pt ; margin-bottom : 0pt '' > earnings from operations in the north american retail segment increased $ 1.9 million in 2011 compared to 2010. the increase was primarily due to higher sales volumes in the company 's internet business and across the majority of the retail locations and improvement in same store performance as well as the closing of five underperforming stores during 2011. gross earnings as a percent of net sales in the retail segment were flat at 64 % in 2011 and 2010. retail selling and administrative expenses were down approximately $ 497,000 in 2011 compared with 2010. as a percent of net retail sales , retail selling and administrative expenses were 58 % in 2011 compared with 66 % in 2010. 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 2011 , 2010 and 2009 , impairment charges of $ 165,000 , $ 310,000 and $ 1.1 million , respectively , were recognized within selling and administrative expenses to write down the fixed assets of certain retail locations that were deemed unprofitable . these locations are slated to close when their respective lease terms expire . in 2011 , five retail locations closed and in 2010 , one location closed . in general , earnings from operations for the retail segment have improved as fixed assets have been written down and underperforming stores have closed . to date in 2012 , three additional retail locations have closed and the company expects to close three more locations before the end of the year . other the company 's other businesses include its wholesale and retail operations in australia , south africa , asia pacific and europe . in 2011 , net sales of the company 's other operations were $ 47 million , compared with $ 41 million in 2010. the majority of the increase was at florsheim australia , whose net sales increased $ 6.5 million , or 20 % . in local currency , florsheim australia 's sales increased 7 % , and the weaker u.s. dollar in 2011 relative to the australian dollar caused the rest of the sales increase . earnings from operations in the company 's other businesses in 2011 were up $ 2.5 million , due mainly to florsheim australia 's increased retail sales and gross earnings as a percent of sales . the improvement in gross earnings is due to the strengthening of the australian dollar relative to the u.s. dollar , as florsheim australia 's purchases of inventory are denominated in u.s. dollars . other income and expense and taxes the majority of the company 's interest income is from its investments in marketable securities . story_separator_special_tag interest income for 2010 was up $ 440,000 compared with 2009 , principally due to a higher average investment balance in 2010 compared with 2009 . 17 other income and expense , net for 2010 was $ 345,000 of income compared with $ 1.4 million of income in 2009. included in the company 's other income and expense in 2010 and 2009 were foreign currency transaction gains on intercompany loans denominated in u.s. dollars between the company 's u.s. business and florsheim australia . in 2010 , there were foreign currency transaction gains of $ 370,000 compared with $ 1.3 million of gains in 2009. the effective tax rate for 2010 was 33.7 % compared with 34.7 % in 2009. the decrease in 2010 was primarily due to lower effective rates at certain of the company 's foreign businesses . liquidity & capital resources the company 's primary source of liquidity is its cash and short-term marketable securities , which aggregated $ 15.1 million at december 31 , 2011 and $ 12.1 million at december 31 , 2010 , and its revolving line of credit . in 2011 , the company generated $ 17.1 million in cash from operating activities , compared with $ 98,000 and $ 37.9 million in 2010 and 2009 , respectively . fluctuations in net cash from operating activities have resulted mainly from changes in net earnings and operating assets and liabilities , and most significantly the year-end inventory and accounts receivable balances . the company 's inventory levels at december 31 , 2011 were higher in comparison with december 31 , 2010 primarily due to the addition of bogs inventory . year-end inventory balances fluctuate as the company carefully manages its inventory levels as inventory requirements and projections change . in 2011 , the company used cash of approximately $ 30.8 million for its acquisition of bogs including $ 3.8 million to repay the debt assumed in the transaction . the company borrowed a net of $ 32 million during 2011 under its revolving line of credit to fund the bogs acquisition and related capital expenditures and inventory purchases . in 2010 , the company used cash of approximately $ 2.6 million for its acquisition of umi . in 2009 , the company used $ 9.3 million for its acquisition of florsheim australia . the company 's capital expenditures were $ 8.2 million , $ 1.5 million and $ 1.3 million in 2011 , 2010 and 2009 , respectively . capital expenditures in 2011 included the purchase of a one story distribution center for $ 3.8 million . this property is adjacent to the company 's office and distribution center located in glendale , wisconsin . the company plans to connect these two properties and expand operations into the extended space during 2012. capital expenditures in 2012 are expected to be $ 6 million to $ 8 million , and include estimated construction costs related to connecting the two buildings . the company 's board of directors has continued to increase dividends per share each year , and the company paid cash dividends of $ 7.2 million , $ 7.0 million and $ 6.6 million in 2011 , 2010 and 2009 , respectively . the company continues to repurchase its common stock under its share repurchase program when the company believes market conditions are favorable . 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 for a total cost of $ 9.0 million in a private transaction . in 2010 , the company repurchased 101,192 shares for a total cost of $ 2.3 million . in 2009 , the company repurchased 117,837 shares for a total cost of $ 2.6 million . at december 31 , 2011 , the total shares available to purchase under the program was approximately 1.1 million shares . at december 31 , 2011 , the company had a $ 50 million unsecured revolving line of credit with a bank expiring april 30 , 2012. the line of credit allows for up to $ 50 million in borrowings at a rate of libor plus a specified margin ( libor loans ) . alternatively , the company could issue up to $ 25 million in non-rated commercial paper ( commercial paper ) at market interest rates with any additional borrowings under libor loans . effective july 22 , 2011 , the line of credit was amended to reduce the interest rate on libor loans from libor plus 175 basis points to libor plus 75 basis points . at december 31 , 2011 , outstanding borrowings were $ 37 million in libor loans at an interest rate of 1.0 % . at december 31 , 2010 , outstanding borrowings were $ 5 million of commercial paper at 18 an average interest rate of 1.4 % . the company 's line of credit includes a financial covenant that specifies a minimum level of net worth . as of december 31 , 2011 , the company was in compliance with the covenant . as part of the bogs acquisition , the company recorded its fair value estimate of the contingent payments of $ 9.8 million within other long-term liabilities on the consolidated balance sheets . this fair value estimate was based on a probability-weighted model . the company remeasured its estimate of the fair value of the contingent payments to $ 9.7 million as of december 31 , 2011. the change in fair value was recognized in earnings . for additional information , see note 11 in the notes to consolidated financial statements . the company will continue to evaluate the best uses for its available liquidity , including continued stock repurchases and additional acquisitions .
| financial position highlights at december 31 , 2011 , the company 's cash and marketable securities totaled $ 62 million and there were $ 37 million of borrowings under its revolving line of credit . at december 31 , 2010 , the company 's cash and marketable securities totaled $ 70 million and there were $ 5 million of borrowings under its revolving line of credit . during 2011 , the company used cash primarily to fund the bogs acquisition and related capital expenditures and inventory purchases . 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 contingent payments after two and five years , which are dependent on bogs achieving certain performance measures . in accordance with the 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 , and any amounts not used therefore will be paid to the sellers 18 months from the date of acquisition . at the acquisition date , the company made an estimate of the fair value of the two contingent payments of approximately $ 9.8 million in aggregate . at december 31 , 2011 , the company remeasured its estimate of the fair value of the contingent payments to $ 9.7 million . the change in fair value was recognized in earnings . the operating results of bogs have been consolidated into the company 's wholesale segment since the date of acquisition . the company incurred transaction costs of approximately $ 220,000 in 2011. these costs are included in wholesale selling and administrative expenses . see note 3 in the notes to consolidated financial statements .
| 2,019 |
while our national network of inpatient hospitals stretches across 27 states and puerto rico , our inpatient hospitals are concentrated in the eastern half of the united states and texas . as of december 31 , 2012 , we operated 100 inpatient rehabilitation hospitals ( including 2 hospitals that operate as joint ventures which we account for using the equity method of accounting ) , 24 outpatient rehabilitation satellite clinics ( operated by our hospitals ) , and 25 licensed , hospital-based home health agencies . in addition to healthsouth hospitals , we manage 3 inpatient rehabilitation units through management contracts . our core business is providing inpatient rehabilitative services . our inpatient rehabilitation hospitals offer specialized rehabilitative care across a wide array of diagnoses and deliver comprehensive , high-quality , cost-effective patient care services . the majority of patients we serve experience significant physical and cognitive disabilities due to medical conditions , such as neurological disorders , strokes , hip fractures , head injuries , and spinal cord injuries , that are generally nondiscretionary in nature and require rehabilitative healthcare services in an inpatient setting . our teams of highly skilled nurses and physical , occupational , and speech therapists utilize proven technology and clinical protocols with the objective of returning patients to home and work . patient care is provided by nursing and therapy staff as directed by physician orders while case managers monitor each patient 's progress and provide documentation and oversight of patient status , achievement of goals , discharge planning , and functional outcomes . our hospitals provide a comprehensive interdisciplinary clinical approach to treatment that leads to a higher level of care and superior outcomes . 2012 overview our 2012 strategy focused on the following priorities : continuing to provide high-quality , cost-effective care to patients in our existing markets while seeking incremental efficiencies in our cost structure ; achieving organic growth at our existing hospitals ; 27 continuing to expand our services to more patients who require inpatient rehabilitative services by constructing and opportunistically acquiring new hospitals in new markets ; and continuing to enhance our liquidity and strengthen our balance sheet . during 2012 , discharge growth of 4.6 % coupled with a 3.0 % increase in net patient revenue per discharge generated 7.8 % growth in net patient revenue from our hospitals compared to 2011. discharge growth was comprised of 1.7 % growth from new stores and a 2.9 % 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 2012. 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 . our growth efforts also continued to yield positive results in 2012. specifically , we : continued development of the following de novo hospitals : replace_table_token_10_th * we have been awarded a certificate of need from the state authority , the award of which is under appeal . acquired 12 inpatient rehabilitation beds in andalusia , alabama from a subsidiary of lifepoint hospitals in order to add beds at our existing hospital in dothan , alabama ; acquired the 34-bed inpatient rehabilitation unit of christus santa rosa hospital - medical center . the operations of this unit have been relocated to and consolidated with our existing hospital in san antonio , texas ; entered into a letter of intent to acquire walton rehabilitation hospital , a 58-bed inpatient rehabilitation hospital in augusta , georgia . this transaction is expected to close in the first quarter of 2013 ; broke ground on a replacement hospital for healthsouth rehabilitation hospital of western massachusetts which is currently leased . we expect to relocate operations from the currently leased hospital to the new facility in december 2013 ; began accepting patients at our newly built , 40-bed inpatient rehabilitation hospital in ocala , florida in december ; and added 95 beds to existing hospitals . we also continued to enhance our liquidity and strengthen our balance sheet in 2012. we improved our overall debt profile in august 2012 by amending our credit agreement to increase the capacity , reduce the interest rate spread , and extend the maturity date of our revolving credit facility . then , in september 2012 , we completed a registered public offering of $ 275 million aggregate principal amount of 5.75 % senior notes due 2024 at a public offering price of 100 % of the principal amount , the proceeds of which were used to repay amounts outstanding under our revolving credit facility and redeem 10 % of the outstanding principal amount of our existing 7.25 % senior notes due 2018 and our existing 7.75 % senior notes due 2022. as a result of these transactions and our continued strong cash flows from operations , our liquidity increased from approximately $ 376 million as of december 31 , 2011 to approximately $ 693 million as of december 31 , 2012 . in addition , we repurchased 46,645 shares of our convertible perpetual preferred stock for $ 46.5 million . we also purchased , in conjunction with our joint venture partner , the land and building previously subject to an operating lease associated with our joint venture hospital in 28 fayetteville , arkansas . see the “ liquidity and capital resources ” section of this item and note 8 , long-term debt , to the accompanying consolidated financial statements . business outlook we believe our business outlook remains reasonably positive primarily for two reasons . first , demographic trends , such as population aging , will positively affect long-term demand for healthcare services . story_separator_special_tag we believe we have the necessary capabilities — scale , infrastructure , and management — to adapt to and succeed in a highly regulated industry , and we have a proven track record of doing so . as we continue to execute our business plan , the following are some of the challenges we face : reduced medicare reimbursement . our challenges related to reduced medicare reimbursement are discussed in item 1 , business , “ regulatory and reimbursement challenges , ” and item 1a , risk factors . we currently estimate sequestration will result in a net decrease in our net operating revenues of approximately $ 28 million in 2013. additionally , concerns held by federal policymakers about the federal deficit and national debt levels could result in enactment of further federal spending reductions , further entitlement reform legislation affecting the medicare program , or both . we can not predict what alternative or additional deficit reduction initiatives or medicare payment reductions , if any , will ultimately be enacted into law , or the timing or effect any such initiatives or reductions will have on us . if enacted , such initiatives or reductions would likely be challenging for all providers , would likely have the effect of limiting medicare beneficiaries ' access to healthcare services , and could have an adverse impact on our financial position , results of operations , and cash flows . however , we believe our efficient cost structure and substantial owned real estate coupled with the steps we have taken to reduce our debt and corresponding debt service obligations should allow us to absorb , adjust to , or mitigate any potential initiative or payment reductions more easily than most other inpatient rehabilitation providers . changes to our operating environment resulting from healthcare reform . our challenges related to healthcare reform are discussed in item 1 , business , “ regulatory and reimbursement challenges , ” and “ sources of revenue — medicare reimbursement , ” and item 1a , risk factors . many provisions within the 2010 healthcare reform laws ( as defined in item 1 , business , “ regulatory and reimbursement challenges ” ) have impacted , or could in the future impact , our business . most notably for us are the reductions in our annual market basket updates . in addition , the 2010 healthcare reform laws require the market basket update to be reduced further by a productivity adjustment on an annual basis . the reductions to our market basket update in effect for fiscal year 2013 and our estimates of the reductions for fiscal year 2014 are presented in the table below . the amounts presented exclude the automatic 2 % reduction to our rates due to sequestration : replace_table_token_11_th * uses the 2013 rule ( as discussed and defined below ) for fiscal year 2013 and management 's estimates for fiscal year 2014. on july 25 , 2012 , the united states centers for medicare and medicaid services ( “ cms ” ) released its notice of final rulemaking for fiscal year 2013 ( the “ 2013 rule ” ) for irfs under the prospective payment system ( “ irf-pps ” ) . as shown in the above table , the 2013 rule is effective for medicare discharges between october 1 , 2012 and september 30 , 2013 and includes certain reductions to our market basket update . it also includes other pricing changes that impact our hospital-by-hospital base rate for medicare reimbursement . based on our analysis which utilizes , among other things , the acuity of our patients over the 12-month period prior to the rule 's release , and which incorporates other adjustments included in the 2013 rule and the productivity adjustment discussed above , we believe the 2013 rule will result in a net increase to our medicare payment rates of approximately 2.1 % effective october 1 , 2012 , before applying the effect of sequestration . given the complexity and the number of changes in the 2010 healthcare reform laws , we can not predict their ultimate impact . we will continue to evaluate these laws , and , based on our track record , we believe we can adapt to these regulatory changes . further , we have engaged , and will continue to engage , actively in discussions with 30 key legislators and regulators to attempt to ensure any healthcare laws or regulations adopted or amended promote our goal of high-quality , cost-effective care . maintaining strong volume growth . as discussed above , the majority of patients we serve experience significant physical and cognitive disabilities due to medical conditions , such as neurological disorders , strokes , hip fractures , head injuries , and spinal cord injuries , that are generally nondiscretionary in nature and which require rehabilitative healthcare services in an inpatient setting . in addition , because most of our patients are persons 65 and older , our patients generally have insurance coverage through medicare . however , we do treat some patients with medical conditions that are discretionary in nature . during periods of economic uncertainty , patients may choose to forgo discretionary procedures . we believe this is one of the factors creating weakness in the number of patients admitted to and discharged from acute care hospitals . because approximately 94 % of our patients are referred to us by acute care hospitals , if these patients continue to forgo procedures and acute care providers report soft volumes , it may be more challenging for us to maintain our recent volume growth rates . recruiting and retaining high-quality personnel . our operations are dependent on the efforts , abilities , and experience of our medical personnel , such as physical therapists , occupational therapists , speech pathologists , nurses , and other healthcare professionals . in some markets , the lack of availability of medical personnel is an operating issue facing all healthcare providers .
| summary of significant accounting policies , to the accompanying consolidated financial statements . during the third quarter of 2012 , we negotiated with our partner to amend the joint venture agreement related to st. vincent rehabilitation hospital which resulted in a change in accounting for this hospital from the equity method of accounting to a consolidated entity . the amendment revised certain participatory rights held by our joint venture partner resulting in healthsouth gaining control of this entity from an accounting perspective . see note 7 , investments in and advances to nonconsolidated affiliates , to the accompanying consolidated financial statements . payor mix during 2012 , 2011 , and 2010 , we derived consolidated net operating revenues from the following payor sources : replace_table_token_12_th 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 high-quality , low-cost providers . for additional information regarding medicare reimbursement , see the “ sources of revenues ” section of item 1 , business . during 2009 , we experienced an increase in managed medicare and private fee-for-service plans that are included in the “ managed care and other discount plans ” category in the above table . 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.
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the company generally uses commercial paper borrowings for general corporate story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand our results of operations and financial condition for the three years ended december 31 , 2012 . the md & a should be read in conjunction with our consolidated financial statements and notes included in item 8 of this form 10-k. 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 elsewhere in this form 10-k , particularly in item 1a . “ risk factors ” and in the “ special note regarding forward-looking statements ” preceding part i of this form 10-k. overview and outlook dover is a diversified global manufacturer focusing on innovative equipment and components , specialty systems , and support services provided through its four major operating segments : communication technologies , energy , engineered systems , and printing & identification . the company 's entrepreneurial business model encourages , promotes , and fosters deep customer engagement which has led to dover 's well-established and valued reputation for providing superior customer service and industry-leading product innovation . overall , 2012 concluded as a solid performance year , with strong revenue , earnings , and cash flow growth , despite the backdrop of a low-growth macro-economic environment . our consolidated revenue increased $ 735 million or 10 % to $ 8.1 billion , inclusive of acquisitions , and our gross profit increased by $ 262 million or 9 % to $ 3.1 billion . the 2012 results were led by our strong positions in the energy , handset , refrigeration and food equipment , and other industrial markets . in our energy segment , expanding production activity and strong downstream investments in distribution and retail fueling are among the trends that drove solid results during the year . the strong production and downstream performance was partially offset by the softening north american rig count , which caused our year-over-year drilling end market comparisons to decline as the year progressed . in all , the segment had solid performance , characterized by continuing growth and strong margins . we expect this trend to continue in 2013. within our communication technologies segment , several oem 's launched new products in the handset market during the second quarter and our microelectronic mechanical ( `` mems '' ) microphone activity was very strong once the new oem product launches commenced . however , our 2012 performance at sound solutions was weaker than anticipated . the sound solutions business continued to work through operational challenges which led to lower volumes than anticipated for the year ; however , they did experience sequential growth and margin improvement in the fourth quarter , relative to the earlier quarters , and we expect their performance to continue to improve in 2013. overall , we expect the handset market to be strong in 2013 , supported by numerous new product releases , coupled with the increased use of multiple microphones per handset . our aerospace/defense and medical technology markets were solid during the year , while our telecom market continued to be weak . within our engineered systems segment , the refrigeration and food equipment markets were solid , as were most of our u.s. industrial end markets . the results of our fluid solutions platform continued to reflect good performance from our first quarter maag pump systems acquisition , which helped to mitigate the impact of a weakened market in europe . we expect 2013 to be another solid year for engineered systems , as we leverage our recent acquisitions and continue our geographic expansion within our fluid solutions platform . we anticipate customer wins , an active remodel market , expanded product offerings and recent acquisitions to drive 2013 growth within our refrigeration & industrial platform . in our printing & identification segment , solid organic growth in our fast moving consumer goods market more than offset uneven demand in our industrial markets , which was impacted by weak europe and slowing china markets . we anticipate the release of several new products in the first half of the year , traction of added sales and service resources in key regional markets , along with stable fast moving consumer goods and industrial markets to contribute to our 2013 growth . margin performance in the segment steadily improved over the course of 2012 , driven by productivity and restructuring activities . we expect incremental benefit from these activities to carry over into 2013 , enabling continued reinvestment in our product identification growth space . 24 in addition to our solid financial results , we continued to execute on our corporate strategy . during 2012 , we continued to focus on our five key growth spaces of communication components , energy , fluids , refrigeration and food equipment , and product identification . we invested $ 1.2 billion on seven acquisitions that expanded our markets , enhanced our product offerings and broadened our customer base . in advancing our strategy of focusing on our higher margin growth spaces , we have reclassified to discontinued operations two non-core businesses serving the electronic assembly and test markets . we expect to divest these businesses in 2013. although solid performers , these businesses serve highly volatile end-markets , and their sale should improve the consistency of our future results and enable management to focus on our key growth spaces . in 2012 , we generated $ 964 million in free cash flow , which enabled us to continue to invest in higher growth economies and innovation , and to continue our long tradition of raising our annual dividend , now standing at 57 consecutive years . lastly , in november of 2012 , we announced and began to execute on a $ 1 billion share repurchase program , to continue to drive long-term shareholder value . story_separator_special_tag continuing operations was primarily the result of higher revenues and the lower effective tax rate relative to 2010. discontinued operations we did not dispose of any businesses in 2012. however , in the fourth quarter , we announced our intent to divest everett charles technologies ( including the multitest business , collectively `` ect '' ) and dek international ( `` dek '' ) , two non-core businesses serving the electronic assembly and test markets . the results of operations and cash flows of these businesses have been reclassified to discontinued operations for all periods presented herein . in the fourth quarter of 2012 , we recognized a goodwill impairment charge of $ 63.8 million ( $ 51.9 million , net of tax ) in connection with the intended divestiture of ect . as a result , in 2012 , we generated a net after-tax loss from discontinued operations of $ 22.0 million , or a loss of $ 0.12 eps , reflecting $ 30.0 million of net earnings from the operations of these businesses along with minor adjustments to other discontinued assets and liabilities , which were more than offset by the fourth quarter goodwill impairment charge . we sold three businesses in the third and fourth quarters of 2011 , and the operations of these businesses were reclassified to discontinued operations in 2011. our net earnings from discontinued operations for 2011 totaled $ 122.1 million , or $ 0.65 eps , and includes net earnings of $ 100.7 million from the operations of the businesses sold in 2011 and held for sale in 2012 , coupled with tax benefits of $ 18.0 million and adjustments to other discontinued assets and liabilities . net earnings from discontinued operations also includes a $ 4.7 million loss on the 2011 sale of the three businesses , inclusive of goodwill impairment . for 2010 , our net earnings from discontinued operations totaled $ 80.6 million , or $ 0.43 eps , and includes net earnings of $ 80.7 million from the operations of the businesses sold in 2011 and held for sale in 2012 , coupled with adjustments to other discontinued assets and liabilities , offset in part by a net loss of $ 14.2 million relating to the sale of a business that had been reflected as a discontinued operation in a previous year . refer to note 3 to the consolidated financial statements in item 8 of this form 10-k for additional information on disposed and discontinued operations . 28 restructuring activities 2012 restructuring activities during the year , we initiated restructuring actions relating to ongoing cost reduction efforts , including targeted facility consolidations and headcount reductions at certain businesses . as a result , in 2012 , we incurred restructuring charges totaling $ 19.4 million related to these programs , as follows : the communication technologies segment incurred restructuring charges of $ 5.5 million , primarily relating to a facility consolidation and related headcount reductions within its operations that serve the telecom infrastructure market to better reflect the current market dynamics , along with headcount reductions undertaken to facilitate management changes and optimize the cost structure of its businesses serving the consumer electronics market . the energy segment incurred restructuring charges of $ 0.7 million , primarily representing costs for the integration of recent acquisitions and minor headcount reductions . the engineered systems segment incurred restructuring charges of $ 7.5 million , mainly relating to facility consolidations and other headcount reduction programs undertaken to optimize its cost structure . the printing & identification segment incurred restructuring charges of $ 5.7 million , principally relating to rationalization of global headcount within its marking and coding businesses to better align its footprint with present market conditions . we expect to incur restructuring charges of approximately $ 20 to $ 30 million in 2013 in connection with the above-mentioned projects , as well as certain other programs to be initiated during the year to rationalize headcount and optimize operations in a few select businesses . we anticipate that a significant portion of the 2013 charges will be incurred in the first quarter , with much of the benefit of the 2012 and 2013 programs being realized over the remainder of 2013 and into 2014. we also expect to fund the remainder of the 2012 programs currently underway , as well those commenced in 2013 , over the next 12 to 18 months . in light of the economic uncertainty in certain of our end markets and our continued focus on improving our operating efficiency , it is possible that additional programs may be implemented throughout the remainder of 2013 . 2011 and 2010 restructuring activities restructuring initiatives in 2011 and 2010 were limited to a few targeted facility consolidations . we incurred restructuring charges of $ 5.6 million and $ 5.9 million , respectively , relating to such activities . see note 8 to the consolidated financial statements in item 8 of this form 10-k for additional details regarding our recent restructuring activities . 29 segment results of operations this summary that follows provides a discussion of the results of operations of each of our four reportable operating segments ( communication technologies , energy , engineered systems , and printing & identification ) . each of these segments is comprised of various product and service offerings that serve multiple end markets . see note 16 to the consolidated financial statements in item 8 of this form 10-k for a reconciliation of segment revenue , earnings , and operating margin to our consolidated revenue , earnings from continuing operations , and operating margin . segment ebitda and segment ebitda margin , which are presented in the segment discussion that follows , are non-gaap measures and do not purport to be alternatives to operating income as a measure of operating performance .
| consolidated results of operations as discussed in note 3 to the consolidated financial statements in item 8 of this form 10-k , in the fourth quarter of 2012 , we reclassified certain businesses in the printing & identification segment to discontinued operations based on our decision to divest these businesses . the results of operations of these businesses have been removed from the results of continuing operations and are presented within results of discontinued operations for all periods presented . replace_table_token_6_th revenue our 2012 consolidated revenue increased 10 % to $ 8.1 billion , reflecting organic growth of 5 % , growth from acquisitions of 6 % and an unfavorable impact from currency translation of 1 % . all four of our segments generated 2012 organic revenue growth , with the majority attributed to volume increases driven by strength in the energy , handset , refrigeration and food equipment , and many of the other industrial markets served by our engineered systems segment . approximately 3 % of our growth was generated by new products , particularly in our communication technologies segment , and geographic market expansion in our energy segment . pricing had a negligible impact to 2012 revenue , as price increases implemented to offset higher commodity costs , were partly offset by lower strategic pricing initiatives . revenues generated outside of the u.s. increased by 9 % compared with 2011 , with growth in canada and asia offsetting weakness in europe . over 80 % of the 2012 revenue growth from acquisitions was generated by sound solutions , maag pump systems , and production control services , three of our more significant recent acquisitions made in the second half of 2011 and first half of 2012. our 2011 consolidated revenue increased $ 1.3 billion or 21 % compared with 2010 , reflecting organic growth of 12 % , growth from acquisitions of 7 % and a favorable impact from currency translation of 2 % .
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we provide value to our customers by supplying proprietary data that , combined with our analytic methods , creates embedded decision support solutions . we are the largest aggregator and provider of data pertaining to u.s. property and casualty , or p & c , insurance risks . we offer solutions for detecting fraud in the u.s. p & c insurance , financial and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to supply chain to health insurance . our customers use our solutions to make better risk decisions with greater efficiency and discipline . we refer to these products and services as solutions due to the integration among our products and the flexibility that enables our customers to purchase components or the comprehensive package of products . these solutions take various forms , including data , statistical models or tailored analytics , all designed to allow our clients to make more logical decisions . we believe our solutions for analyzing risk positively impact our customers ' revenues and help them better manage their costs . on may 23 , 2008 , in contemplation of our ipo , insurance service office , inc. , or iso , formed verisk analytics , inc. , or verisk , a delaware corporation , to be the holding company for our business . verisk was initially formed as a wholly-owned subsidiary of iso . on october 6 , 2009 in connection with our ipo , we effected a reorganization whereby iso became a wholly-owned subsidiary of verisk . on october 1 , 2010 , we completed a follow-on public offering . we did not receive any proceeds from the sale of common stock in the offering . the primary purpose of the offering was to manage and organize the sale by class b insurance company shareholders while providing incremental public float . concurrently with the closing of the offering , we repurchased shares of common stock , for an aggregate purchase price of $ 192.5 million , directly from selling shareholders owning class b common stock . we converted all class b shares to class a shares in 2011 and currently have no outstanding class b shares . 32 we organize our business in two segments : risk assessment and decision analytics . our risk assessment segment provides statistical , actuarial and underwriting data for the u.s. p & c insurance industry . our risk assessment segment revenues represented approximately 37.8 % and 42.3 % of our revenues for the years ended december 31 , 2012 and 2011 , respectively . effective december 31 , 2012 , we combined the statistical agency and data services and actuarial services into industry-standard insurance programs within our risk assessment segment . our decision analytics segment provides solutions our customers use to analyze the processes of the verisk risk analysis framework : prediction of loss , detection and prevention of fraud , and quantification of loss . effective december 31 , 2011 , we realigned the revenue categories within our decision analytics segment , including fraud identification and detection solutions , loss prediction solutions and loss quantification solutions , into four vertical market-related groupings of insurance , mortgage and financial services , healthcare , and specialized markets . we believe that this enhances financial reporting transparency and helps investors better understand the themes within the decision analytics segment . our decision analytics segment revenues represented approximately 62.2 % and 57.7 % of our revenues for the years ended december 31 , 2012 and 2011 , respectively . executive summary key performance metrics we believe our business 's ability to generate recurring revenue and positive cash flow is the key indicator of the successful execution of our business strategy . we use year over year revenue growth and ebitda margin as metrics to measure our performance . ebitda and ebitda margin are non-gaap financial measures ( see note 3. within item 6. selected financial data section of management 's discussion and analysis of financial condition and results of operations ) . revenue growth . we use year over year revenue growth as a key performance metric . we assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers , sales to new customers , sales of new or expanded solutions to existing and new customers and strategic acquisitions of new businesses . ebitda margin . we use ebitda margin as a metric to assess segment performance and scalability of our business . we assess ebitda margin based on our ability to increase revenues while controlling expense growth . revenues we earn revenues through subscriptions , long-term agreements and on a transactional basis . subscriptions for our solutions are generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period , which is usually for one year and automatically renewed each year . as a result , the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments . examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language , our claims fraud database or our actuarial services throughout the subscription period . in general , we experience minimal revenue seasonality within the business . our long-term agreements are generally for periods of three to five years . we recognize revenue from subscriptions ratably over the term of the subscription and most long-term agreements are recognized ratably over the term of the agreement . certain of our solutions are also paid for by our customers on a transactional basis . for example , we have solutions that allow our customers to access fraud detection tools in the context of an individual mortgage application or loan , obtain property-specific rating and underwriting information to price a policy on a commercial building , or compare a p & c insurance , medical or workers ' compensation claim with information in our databases . story_separator_special_tag and as the government seeks to control fraud , waste , and abuse , efforts to contain costs will likely become more prevalent . although such changes have the potential to disrupt the healthcare marketplace , we believe the requirements for reform could increase demand for our analytic solutions in the areas of population management , quality measurement , medicare advantage revenue intelligence and optimization , risk adjustment , and detection of prepayment fraud and abuse . trends in the u.s. financial market can affect a portion of our revenues in the decision analytics segment . the volume of applications for new mortgages or refinancing of existing mortgages can affect a portion of our mortgage-related revenues . based on estimates by the mortgage bankers association as of january 15 , 2013 , we expect mortgage origination activity ( new originations and refinancing ) to decrease in 2013. that could have a negative effect on our revenues . however , regulatory and economic conditions could also affect our revenues . the current regulatory environment has created a flight to quality among residential lenders in the united states . that could create increased demand for our solutions that help customers focus on improved underwriting quality of mortgage loans . conversely , a continued reduction of loan inventories related to foreclosures and early payment defaults may have an adverse effect on activities related to the analysis and curing of those loans . in the payments industry , continued growth in debit and credit card usage could positively impact our financial services ' solutions revenue . description of acquisitions we acquired nine businesses since january 1 , 2010. as a result of these acquisitions , our consolidated results of operations may not be comparable between periods . on december 20 , 2012 , we acquired the net assets of insurance risk management solutions , or irms . irms provided integrated property risk assessment technology underlying one of our gis ( geographic information system ) underwriting solutions . at the end of 2012 , this long-term contract ( since 1992 ) with irms was expiring and precipitated a change in our business relationship . instead of continuing forward with a new services agreement , we acquired the technology and service assets of irms as this will enable us to better manage , enhance and continue to use the solutions as part of our risk assessment segment . this acquisition had minimal revenue and operating expense impact for the year ending december 31 , 2012 , given the timing of the acquisition . see note 9 to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase allocation . on august 31 , 2012 , we acquired argus information & advisory services , llc , or argus , a provider of information , competitive benchmarking , scoring solutions , analytics , and customized services to financial institutions and regulators in north america , latin america , and europe . argus leverages its comprehensive payment data sets and provides proprietary solutions to a client base that includes credit and debit card issuers , retail 35 banks and other consumer financial services providers , payment processors , insurance companies , and other industry stakeholders . within our decision analytics segment , this acquisition enhances our position as a provider of data , analytics , and decision-support solutions to financial institutions globally . see note 9 to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase allocation . on july 2 , 2012 , we acquired the net assets of aspect loss prevention , llc , or alp , a provider of loss prevention and analytic solutions to the retail , entertainment , and food industries . within our decision analytics segment , this acquisition further advances our position as a provider of data , crime analytics , and decision-support solutions . see note 9 to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase allocation . on march 30 , 2012 , we acquired 100 % of the stock of mediconnect global , inc. , or mediconnect , a service provider of medical record retrieval , digitization , coding , extraction , and analysis . within our decision analytics segment , mediconnect further supports our objective to be the leading provider of data , analytics , and decision-support solutions to the healthcare and property casualty industries . see note 9 to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase allocation . on june 17 , 2011 , we acquired the net assets of health risk partners , llc , or hrp , a provider of solutions to optimize revenue , improve compliance and improve quality of care for medicare advantage health plans . within our decision analytics segment , this acquisition further advances our position as a major provider of data , analytics , and decision-support solutions to the healthcare industry . on april 27 , 2011 , we acquired 100 % of the common stock of bloodhound technologies , inc. or bloodhound , a provider of real-time pre-adjudication medical claims editing . within our decision analytics segment , bloodhound addresses the need of healthcare payers to control fraud and waste in a real-time claims-processing environment , and these capabilities align with our existing fraud identification tools . on december 16 , 2010 , we acquired 100 % of the common stock of 3e company , or 3e , a global source for a comprehensive suite of environmental health and safety compliance solutions . within our decision analytics segment , we believe that 3e 's platform is consistent with our historical expertise in regulatory and compliance matters . on december 14 , 2010 , we acquired 100 % of the common stock of crowe paradis services corporation , or cp , a leading provider of claims analysis and compliance solutions to the property/casualty insurance industry .
| consolidated results of operations revenues revenues were $ 1,331.8 million for the year ended december 31 , 2011 compared to $ 1,138.3 million for the year ended december 31 , 2010 , an increase of $ 193.5 million or 17.0 % . in 2011 and in 2010 , we acquired five companies , hrp , bloodhound , cp , 3e , and sa , collectively referred to as recent acquisitions , which we define as acquisitions not owned for a significant portion of both the current period and or prior period and would therefore impact the comparability of the financial results . recent acquisitions were within our decision analytics segment and provided an increase of $ 106.9 million in revenues for the year ended december 31 , 2011. excluding recent acquisitions , revenues increased $ 86.6 million , which included an increase in our risk assessment segment of $ 21.2 million and an increase in our decision analytics segment of $ 65.4 million . refer to the results of operations by segment within this section for further information regarding our revenues . cost of revenues cost of revenues was $ 533.7 million for the year ended december 31 , 2011 compared to $ 463.5 million for the year ended december 31 , 2010 , an increase of $ 70.2 million or 15.2 % . recent acquisitions caused an increase of $ 46.6 million in cost for the year ended december 31 , 2011. excluding the impact of our recent acquisitions , our cost of revenues increased $ 23.6 million or 5.1 % . the increase was primarily due to increases in salaries and employee benefits cost of $ 16.6 million . other increases include leased software expenses of $ 3.4 million , travel and travel related costs of $ 1.3 million , office maintenance expense of $ 0.4 million and other operating costs of $ 4.1 million .
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our business is conducted and reported in three segments , namely , bromine , crude salt and chemical products . through our wholly-owned subsidiary , schc , we produce and trade bromine and crude salt . we are one of the largest producers of bromine in china , as measured by production output . elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture . bromine also is used to form intermediary chemical compounds such as t.m.b . bromine is commonly used in brominated flame retardants , fumigants , water purification compounds , dyes , medicines and disinfectants . crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical , food & beverage , and other industries . through our wholly-owned subsidiary , syci , we manufacture and sell chemical products used in oil and gas field exploration , oil and gas distribution , oil field drilling , wastewater processing , papermaking chemical agents and inorganic chemicals . on december 12 , 2006 , we acquired , through a share exchange , upper class group limited , a british virgin islands holding corporation which then owned all of the outstanding shares of schc . under accounting principles generally accepted in the united states , the share exchange is considered to be a capital transaction in substance , rather than a business combination . that is , the share exchange is equivalent to the issuance of stock by upper class for the net assets of our company , accompanied by a recapitalization , and is accounted for as a change in capital structure . accordingly , the accounting for the share exchange was identical to that resulting from a reverse acquisition , except no goodwill was recorded . under reverse takeover accounting , the post reverse acquisition comparative historical financial statements of the legal acquirer , our company , are those of the legal acquiree , upper class group limited , which is considered to be the accounting acquirer . share and per share amounts reflected in this report have been retroactively adjusted to reflect the merger . on february 5 , 2007 , we , acting through schc , acquired syci . since the ownership of gulf resources , inc. and syci was then substantially the same , the transaction was accounted for as a transaction between entities under common control , whereby we recognized the assets and liabilities of syci at their carrying amounts . share and per share amounts stated in this report have been retroactively adjusted to reflect the merger . on august 31 , 2008 , syci completed the construction of a new chemical production line . it passed the examination by shouguang city administration of work safety and local fire department . this new production line focuses on producing environmental friendly additive products , solid lubricant and polyether lubricant , for use in oil and gas exploration . the line has an annual production capacity of 5,000 tons . formal production of this chemical production line started on september 15 , 2008. on october 12 , 2009 we completed a 1-for-4 reverse stock split of our common stock , such that for each four shares outstanding prior to the stock split there was one share outstanding after the reverse stock split . all shares of common stock referenced in this report have been adjusted to reflect the stock split figures . on october 27 , 2009 our shares began trading on the nasdaq global select market under the ticker symbol “ gfre ” and on june 30 , 2011 we changed our ticker symbol to “ gure ” to better reflection of our corporate name . as a result of our acquisitions of schc and syci , our historical financial statements and the information presented below reflects the accounts of schc and syci . the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report . 36 story_separator_special_tag `` > replace_table_token_15_th net revenue from our chemical products segment decreased from $ 41,212,494 for the fiscal year 2011 to $ 34,224,249 for the same period in 2012 , a decrease of approximately 17 % . the decrease was mainly attributable to the drop in demand for our oil and gas exploration additives and paper manufacturing additives . our oil and gas exploration chemicals are the most popular products within the chemical products segment , which contributed $ 18,721,374 ( or 55 % ) and $ 26,234,497 ( or 64 % ) of the segment revenue for the fiscal year 2012 and 2011 , respectively , with a decrease of $ 7,513,124 , or 29 % . net revenue from our paper manufacturing additives decreased from $ 4,762,221 for the fiscal year 2011 to $ 3,317,077 for the same period in 2012 , a decrease of approximately 30 % . we believe that as result of the recent macro-economic tightening policy imposed by the prc government to slow down the economy , the overall demand for chemical products was reduced , which resulted in a decrease in our volume of both oil and gas exploration additives and paper manufacturing additives sold , which decreased by 32 % and 22 % , respectively , for the fiscal year 2012 as compared with the same period in 2011. also , in june 2011 we stopped the production of our wastewater treatment chemical additives due to the profit margin lower than estimated by the management . however , the effect of the decrease in net revenue from our chemical products segment was partially offset by the increase in the average selling price of our pesticides manufacturing additives products due to the strong demand for such products . story_separator_special_tag the table below represents the major production cost component of bromine per ton for respective periods : replace_table_token_18_th 40 our production cost of bromine per tonne was $ 2,393 for the fiscal year 2012 , an increase of 12 % ( or $ 255 ) over the same period in 2011 , which was attributable mainly to the component of depreciation and amortization of manufacturing plant and machinery . the significant percentage increase in depreciation and amortization per tonne by 95 % was due to ( i ) the enhancement projects since june 2011 to our extraction wells and transmission channels and ducts , together with the change in the estimated useful life of certain protective shell and transmission channels and ducts from 8 years to 5 years in june 2011 , which accelerated the depreciation and amortization of the plant and machinery ; ( ii ) the lower volume of bromine produced as a result of the decrease in demand , which increased the per tonne share of depreciation and amortization of the plant and machinery ; and ( iii ) the second phase enhancement projects in second quarter of 2012 to our extraction wells and transmission channels and ducts , together with the construction of new factory no . 4 in november 2011 and acquisition of factory no . 10 in december 2011 , which increased the depreciation and amortization of the plant and machinery . the cost of raw materials consumed per tonne decreased by 13 % in fiscal year 2012 as compared to fiscal year 2011 , which was mainly attributable to the decrease in the purchase price of raw materials due to the macro-economic tightening policy imposed by the prc government . since january 2011 , included in our other production cost was a price adjustment fund , a levy charged by the prc government , of rmb200 ( approximately $ 32 ) per tonne . 41 crude salt segment for the fiscal year 2012 , the cost of net revenue for our crude salt segment was $ 7,174,436 , representing an increase of $ 2,398,153 , or 50 % , over the same period in 2011. the increase in cost was mainly due to the increase in the number of crude salt fields and enhancement projects performed in late june 2011 , acquisition of factory no . 10 in december 2011 and the second phase enhancement projects which commenced in june 2012 and were completed in august 2012 , which in turn increased the depreciation and amortization of manufacturing plant and machinery . the significant costs were depreciation and amortization of $ 4,850,334 ( or 68 % ) , resource tax calculated based on the crude salt sold of $ 941,873 ( or 13 % ) and electricity of $ 490,472 ( or 7 % ) for the fiscal year 2012. the significant costs were depreciation and amortization of $ 2,546,780 ( or 53 % ) , resource tax calculated based on the crude salt sold of $ 935,333 ( or 20 % ) and electricity of $ 501,005 ( or 10 % ) for the fiscal year 2011. the table below represents the major production cost component of crude salt per ton for respective periods : replace_table_token_19_th our production cost of crude salt per tonne was $ 24.1 for the fiscal year 2012 , an increase of 80 % ( or $ 10.7 ) as compared to the same period in 2011 , which was attributable mainly to the component of depreciation and amortization of manufacturing plant and machinery . the significant percentage increase in depreciation and amortization per tonne by 128 % was due to ( i ) the enhancement projects performed since june 2011 to our crude salt fields , extraction wells and transmission channels and ducts , together with the change in the estimated useful life of certain protective shell and transmission channels and ducts from 8 years to 5 years in late june 2011 , which accelerated the depreciation and amortization of the plant and machinery ( ii ) the second phase enhancement project to our extraction wells and transmission channels and ducts which commenced in june 2012 and completed in august 2012 , together with the acquisition of factory no . 10 in december 2011 , which increased the depreciation and amortization of the plant and machinery ; and ( iii ) the lower volume of crude salt produced , which increased the per tonne share of depreciation and amortization of the plant and machinery . since the second quarter of 2011 , included in our other production cost was a price adjustment fund , a levy charged by prc government since january 2011 , of rmb3 ( approximately $ 0.48 ) per tonne . other production costs represented mainly salaries and welfare of labor worked in the crude salt fields . chemical products segment for the fiscal year 2012 , the cost of net revenue for our chemical products segment was $ 24,470,724 , representing a decrease of $ 3,822,444 or 13.5 % over the same period in 2011. the rate of decrease for the cost of net revenue for our chemical products segment was similar to that of net revenue . the significant costs were cost of raw material and finished goods consumed of $ 20,484,425 ( or 84 % ) and $ 24,731,108 ( or 87 % ) and depreciation and amortization of manufacturing plant and machinery of $ 2,605,262 ( or 11 % ) and $ 2,325,050 ( or 8 % ) for each of the fiscal years 2012 and 2011 , respectively .
| results of operations year ended december 31 , 2012 as compared to year ended december 31 , 2011 replace_table_token_11_th net revenue net revenue for the fiscal year 2012 , was $ 101,700,882 , representing a decrease of $ 63,279,571 or 38 % over the same period in 2011. this decrease was primarily attributable to the reduction of overall demand for all of our segment products , specifically , ( i ) revenue from the bromine segment decreased from $ 107,849,304 for the fiscal year 2011 to $ 56,332,785 for the same period in 2012 , a decrease of approximately 48 % ; ( ii ) revenue from the crude salt segment decreased from $ 15,918,655 for the fiscal year 2011 to $ 11,143,848 for the same period in 2012 , a decrease of approximately 30 % ; and ( iii ) revenue from the chemical products segment decreased from $ 41,212,494 for the fiscal year 2011 to $ 34,224,249 for the same period in 2012 , a decrease of approximately 17 % . replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th 37 bromine segment the decrease in net revenue from our bromine segment was mainly due to the decrease in both the sales volume and selling price of bromine . the sales volume of bromine decreased from 26,418 tonnes for the fiscal year 2011 to 17,467 tonnes for the same period in 2012 , a decrease of 34 % , despite the increase in the number of our bromine production plants in recent years , which maintained our production capacity . as mentioned hereinbefore , the major reason for the decrease in the sales volume of bromine was mainly attributable to the drop in overall demand for bromine as a result of the recent macro-economic tightening policy imposed by the prc government beginning in the second half of 2011 to slow down the economy , which has affected our customers ' industries .
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5. prepaid expenses and other current assets prepaid expenses and other current assets consist of the following at october 31 : replace_table_token_25_th 79 limoneira company notes to consolidated financial statements ( continued ) 6. property , plant and equipment property , plant and equipment consist of the following at october 31 : replace_table_token_26_th depreciation expense was $ 2,380,000 , $ 2,118,000 and $ 2,195,000 for fiscal years 2013 , 2012 and 2011 , respectively . 7. real estate development real estate development assets are comprised primarily of land and land development costs and consist of the following at october 31 : replace_table_token_27_th east areas 1 and 2 in fiscal year 2005 , the company began capitalizing the costs of two real estate development projects east of santa paula , california , for the development of 550 acres of land into residential units , commercial buildings and civic facilities . during fiscal years story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with “ selected financial data ” and our consolidated financial statements and notes thereto that appear elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including , but not limited to , those presented under “ risk factors ” included in item 1a and elsewhere in this annual report . overview limoneira company was incorporated in delaware in 1990 as the successor to several businesses with operations in california since 1893. we are an agribusiness and real estate development company founded and based in santa paula , california , committed to responsibly using and managing our approximately 10,600 acres of land , water resources and other assets to maximize long-term stockholder value . our current operations consist of fruit production , sales and marketing , real estate development and capital investment activities . we are one of california 's oldest citrus growers . according to sunkist , we are one of the largest growers of lemons in the united states and , according to the california avocado commission , one of the largest growers of avocados in the united states . in addition to growing lemons and avocados , we grow oranges and a variety of other specialty citrus and other crops . we have agricultural plantings throughout ventura and tulare counties in california , and yuma arizona , which plantings consist of approximately 3,900 acres of lemons , 1,200 acres of avocados , 1,500 acres of oranges and 800 acres of specialty citrus and other crops . we also operate our own packinghouse in santa paula , california , where we process and pack lemons that we grow , as well as lemons grown by others . our water resources include water rights , usage rights and pumping rights to the water in aquifers under , and canals that run through , the land we own . water for our farming operations is sourced from the existing water resources associated with our land , which includes rights to water in the adjudicated santa paula basin ( aquifer ) and the un-adjudicated fillmore , santa barbara and paso robles basins ( aquifers ) . we use ground water and water from local water districts in tulare county , which is in the san joaquin valley . we also use ground water in arizona from the colorado river through the yuma mesa irrigation and drainage district . for more than 100 years , we have been making strategic investments in california agribusiness and real estate development . we currently have five active real estate development projects in california . these projects include multi-family housing and single-family homes comprised of approximately 200 completed units and another approximately 1,700 units in various stages of development . we have three business segments : agribusiness , rental operations and real estate development . our agribusiness segment currently generates the majority of our revenue from its farming and lemon packing and sales operations ; our rental operations segment generates revenue from our housing , organic recycling and commercial and leased land operations ; and our real estate development segment primarily generates revenues from the sale of real estate development projects . from a general view , we see the company as a land and farming company that generates annual cash flows to support its progress into diversified real estate development activities . as real estate developments are monetized , our agriculture business will then be able to expand more rapidly into new regions and markets . 34 recent developments in february , 2013 , our east area 1 real estate development project was annexed into the city of santa paula . the annexation enables us to proceed with our master planned community project consisting of up to 1,500 residential units , 210,000 square feet of commercial space and 350,000 square feet of light industrial space . annexation into the city of santa paula was required in order to re-zone the land for residential , commercial and light industrial development . we have begun tract mapping the area for development and will be applying for infrastructure building permits . our goal is to break ground on the project and begin selling homes in the next 12 to 18 months , subject to general business , market and economic conditions . in may 2013 , the ventura local area formation commission unanimously approved the annexation of our east area 2 real estate development project into the city of santa paula . the annexation was recorded during august 2013. during february 2013 , we completed the sale of 2,070,000 shares of common stock , at a price of $ 18.50 per share , to institutional and other investors in a registered offering under our shelf registration statement . the offering represented 16 % of our outstanding common stock on an after-issued basis . story_separator_special_tag the buyer will issue a note receivable for each property at the close of the 90-day escrow period for the combined amount of $ 7,800,000. the notes are due on the earlier of the approval of the properties ' tract maps by the city of santa maria or october 24 , 2014. we will collect 5 % interest on the notes . upon full payment of the notes receivable , the company expects to receive $ 8,100,000 net cash in addition to interest earned on the notes . we continue to own our centennial property in santa maria . in december 2013 we entered into a construction contract that includes design and construction services for the expansion of our lemon packing facilities . the project is expected to increase the efficiency our packing facilities . the contract is subject to a guaranteed maximum price of approximately $ 9,300,000 , which may be revised based on design modifications and finalization of construction costs . the project is expected to commence in march 2014 and be substantially complete in the spring of 2015. for the year ended october 31 , 2013 , we declared dividends to our common shareholders totaling $ 0.15 per share in the aggregate amount of $ 1,944,000. on december 17 , 2013 , we declared a $ 0.0375 per share dividend to be paid on january 15 , 2014 in the aggregate amount of $ 526,000 to common shareholders of record on december 30 , 2013 . 36 results of operations the following table shows the results of operations for : replace_table_token_6_th non-gaap financial measures due to significant depreciable assets associated with the nature of our operations and interest costs associated with our capital structure , management believes that earnings before interest , income taxes , depreciation and amortization ( “ ebitda ” ) and adjusted ebitda , which excludes impairments on real estate development assets when applicable , is an important measure to evaluate our results of operations between periods on a more comparable basis . such measurements are not prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and should not be construed as an alternative to reported results determined in accordance with gaap . the non-gaap information provided is unique to us and may not be consistent with methodologies used by other companies . ebitda and adjusted ebitda are summarized and reconciled to net income which management considers to be the most directly comparable financial measure calculated and presented in accordance with gaap as follows : replace_table_token_7_th 37 fiscal year 2013 compared to fiscal year 2012 revenues total revenue for fiscal year 2013 was $ 84.9 million compared to $ 65.8 million for fiscal year 2012. the 29 % increase of $ 19.1 million was primarily the result of increased agribusiness revenues , as detailed below : replace_table_token_8_th · lemons : the increase in fiscal year 2013 was primarily the result of increased volume of fresh lemons sold at higher prices . during fiscal years 2013 and 2012 , fresh lemon sales were $ 51.5 million and $ 39.4 million , respectively , on 3.1 million and 2.4 million cartons of lemons sold at average per carton prices of $ 16.61 and $ 16.42 , respectively . the higher average per carton price in fiscal year 2013 compared to fiscal year 2012 was primarily due to more favorable overall market conditions . additionally , lemon by-products and other lemon sales were $ 6.6 million in fiscal year 2013 compared to $ 4.8 million in fiscal year 2012 . · avocados : the increase in fiscal year 2013 was primarily due to increased production partially offset by lower prices . the california avocado crop typically experiences alternating years of high and low production due to plant physiology . during fiscal years 2013 and 2012 , 15.0 million and 12.0 million pounds of avocados were sold at average per pound prices of $ 0.78 and $ 0.79 , respectively . lower prices in fiscal year 2013 were due to an increased supply in the marketplace . additionally , fiscal year 2012 revenue included a $ 0.1 million avocado crop insurance claim settlement . · navel and valencia oranges : the increase in fiscal year 2013 was primarily due to increased volume from the sheldon ranch , partially offset by lower prices . in accordance with the terms of the sheldon ranch leases , we did not share in the citrus crop revenue in fiscal year 2012. during fiscal years 2013 and 2012 , orange sales were $ 5.5 million and $ 4.1 million , respectively , on 581,000 and 423,000 field boxes of oranges sold at average per field box prices of $ 9.51 and $ 9.69 , respectively . · specialty citrus and other crops : the increase in fiscal year 2013 was primarily due to an increase in specialty citrus and other crop revenue from the sheldon ranch . in accordance with the terms of the sheldon ranch leases , we did not share in the specialty citrus crop revenue in fiscal year 2012. specialty citrus revenue was $ 0.2 million from the sheldon ranch in fiscal year 2013 compared to zero in fiscal year 2012. additionally , other crop revenue from the sheldon ranch was $ 0.5 million higher in fiscal year 2013 primarily due to increased olive production compared to fiscal year 2012. rental operations revenue was $ 4.3 million in fiscal year 2013 compared to $ 4.0 million in fiscal year 2012. real estate development revenue was $ 0.6 million in fiscal year 2013 compared to $ 0.3 million in fiscal year 2012. the increase in fiscal year 2013 revenue compared to fiscal year 2012 is primarily due to alfalfa production on our windfall farms development property .
| segment results of operations we evaluate the performance of our agribusiness , rental operations and real estate development segments separately to monitor the different factors affecting financial results . each segment is subject to review and evaluations related to current market conditions , market opportunities and available resources . the following table shows each segment 's results of operations for : replace_table_token_12_th 43 fiscal year 2013 compared to fiscal year 2012 the following analysis should be read in conjunction with the previous section “ results of operations. ” agribusiness for fiscal year 2013 our agribusiness segment revenue was $ 80.0 million compared to $ 61.6 million for fiscal year 2012. the 30 % increase of $ 18.4 million primarily reflected higher lemon and avocado revenues for fiscal year 2013 compared to fiscal year 2012. the increase in agribusiness revenue primarily consists of the following : · lemon revenue for fiscal year 2013 was $ 14.0 million higher than fiscal year 2012 . · avocado revenue for fiscal year 2013 was $ 2.1 million higher than fiscal year 2012 . · navel and valencia orange revenue in fiscal year 2013 was $ 1.5 million higher than in fiscal year 2012 . · specialty citrus and other crop revenue for fiscal year 2013 was $ 0.8 million higher than fiscal year 2012. costs associated with our agribusiness segment include packing costs , harvest costs , growing costs , costs related to the lemons we procure from third-party growers and depreciation expense . for fiscal year 2013 , our agribusiness costs and expenses were $ 63.6 million compared to $ 47.3 million for fiscal year 2012. the 34 % increase of $ 16.3 million primarily consists of the following : · packing costs for fiscal year 2013 were $ 4.7 million higher than fiscal year 2012 . · harvest costs for fiscal year 2013 were $ 2.4 million higher than fiscal year 2012 .
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we provide technology platforms for analog , mixed-signal , power , high voltage , non-volatile memory , and radio frequency applications . we have a proven record with more than 40 years of operating history , a portfolio of approximately 2,950 registered patents and pending applications and extensive engineering and manufacturing process expertise . our business is comprised of two operating segments : foundry services group and standard products group . our foundry services group provides specialty analog and mixed-signal foundry services mainly for fabless and idm semiconductor companies that primarily serve communications , iot , consumer , industrial and automotive applications . our standard products group includes our display solutions and power solutions business lines . our display solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays , and mobile , automotive applications and home appliances . our power solutions products include discrete and integrated circuit solutions for power management in communications , consumer and industrial applications . our wide variety of analog and mixed-signal semiconductor products and manufacturing services combined with our mature technology platform allow us to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands . our design center and substantial manufacturing operations in korea place us at the core of the global electronics device supply chain . we believe this enables us to quickly and efficiently respond to our customers ' needs and allows us to better serve and capture additional demand from existing and new customers . to maintain and increase our profitability , we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce . we must understand our customers ' needs as well as the likely end market trends and demand in the markets they serve . we must balance the likely manufacturing utilization demand of our product businesses and foundry business to optimize our capacity utilization . we must also invest in relevant research and development activities and manufacturing capacity and purchase necessary materials on a timely basis to meet our customers ' demand while maintaining our target margins and cash flow . 42 the semiconductor markets in which we participate are highly competitive . the prices of our products tend to decrease regularly over their useful lives , and such price decreases can be significant as new generations of products are introduced by us or our competitors . we strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products . in addition , we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence . demand for our products and services is driven by overall demand for communications , iot , consumer , industrial and automotive products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers . in order to mitigate the impact of market volatility on our business , we are diversifying our portfolio of products , customers , and target applications . we also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services . while we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history , existing manufacturing capacity and our worldwide customer base , if we are not effective in competing in these markets our operating results may be adversely affected . within our foundry services group , net sales are driven by customers ' decisions on which manufacturing services provider to use for a particular product . most of our foundry services group customers are fabless , while some are idm customers . a customer will often have more than one supplier of manufacturing services . in any given period , our net sales depend heavily upon the end-market demand for the goods in which the products we manufacture for customers are used , the inventory levels maintained by our customers and in some cases , allocation of demand for manufacturing services among selected qualified suppliers . within our standard products group , net sales are driven by design wins in which we are selected by an electronics original equipment manufacturer ( oem ) or other potential customer to supply its demand for a particular product . a customer will often have more than one supplier designed in to multi-source components for a particular product line . once we have design wins and the products enter into mass production , we often specify the pricing of a particular product for a set period of time , with periodic discussions and renegotiations of pricing with our customers . in any given period , our net sales depend heavily upon the end-market demand for the goods in which our products are used , the inventory levels maintained by our customers and in some cases , allocation of demand for components for a particular product among selected qualified suppliers . in contrast to completely fabless semiconductor companies , our internal manufacturing capacity provides us with greater control over manufacturing costs and the ability to implement process and production improvements for our internally manufactured products , which can favorably impact gross profit margins . our internal manufacturing capacity also allows for better control over delivery schedules , improved consistency over product quality and reliability and improved ability to protect intellectual property from misappropriation on these products . however , having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results in lower gross profit margins , particularly during downturns in the semiconductor industry . our products and services require investments in capital equipment . story_separator_special_tag this portion of our transferred non-oled display business has technical and business characteristics more closely aligned with our foundry services business than with our standard products business , which resided within our display solutions business line primarily as a result of a long standing customer relationship established many years ago . we recast comparative segment financial information to conform to this current period change . foundry services group : our foundry services group provides specialty analog and mixed-signal foundry services to fabless semiconductor companies and idms that serve communications , iot , consumer , industrial and automotive applications . we manufacture wafers based on our customers ' product designs . we do not market these products directly to end customers but rather supply manufactured wafers and products to our customers to market to their end customers . we offer approximately 500 process flows to our foundry services customers . we also often partner with key customers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop unique manufacturing expertise . our foundry services target customers who require differentiated , specialty analog and mixed-signal process technologies such as high voltage complementary metal-oxide-semiconductor ( cmos ) , non-volatile memory or bipolar-cmos-dmos ( bcd ) . these customers typically serve the consumer , computing , communication , industrial , automotive and iot applications . for the years ended december 31 , 2019 and 2018 , our foundry services group business represented 38.8 % and 43.3 % of our net sales and its gross profit was $ 64.0 million and $ 82.6 million , respectively . for the year ended december 31 , 2017 , our foundry services group business represented , on an adjusted basis after recasting , 51.6 % of our net sales and its gross profit was $ 101.8 million , as adjusted for the segment change described above . standard products group : our standard products group includes our display solutions and power solutions business lines . our display solutions products include source , gate drivers , timing controllers , and one-chip integrated solutions that cover a wide range of panel displays used in ultra high definition ( uhd ) , high definition ( hd ) , light emitting diode ( led ) , 3d and oled televisions public displays , notebooks , mobile communications , entertainment devices and automotive applications . our display solutions products support the industry 's most advanced display technologies , such as oleds , and low temperature polysilicons ( ltps ) , as well as high-volume display technologies such as thin film transistors ( tft ) . since 2007 , we have designed and manufactured oled display driver ic products . our current portfolio of oled solutions address a wide range of resolutions ranging from hd to wide quad high definition ( wqhd ) for applications including smartphones , tvs , and other mobile devices . we believe we have a unique intellectual property portfolio and mixed-signal design and manufacturing expertise in the oled industry . our power solutions business line produces power management semiconductor products including discrete and integrated circuit solutions for power management in high-volume consumer applications . these products include metal oxide semiconductor field effect transistors ( mosfets ) , insulated-gate bipolar transistors ( igbts ) , ac-dc converters , dc-dc converters , led drivers , switching regulators and linear regulators for a range of devices , including televisions , smartphones , mobile phones , desktop pcs , notebooks , tablet pcs , other consumer electronics , and industrial applications such as power 45 suppliers , led lighting , motor control and home appliances . for the years ended december 31 , 2019 and 2018 , our standard products group , which includes our display solutions and power solutions business lines , represented 61.2 % and 56.7 % of our net sales and its gross profit was $ 116.3 million and $ 115.5 million , respectively . for the year ended december 31 , 2017 , our standard products group business represented , on an adjusted basis after recasting , 48.4 % of our net sales and its gross profit was $ 85.9 million , as adjusted for the segment change described above . explanation and reconciliation of non-us gaap measures adjusted ebitda and adjusted net income we use the terms adjusted ebitda and adjusted net income throughout this report . adjusted ebitda , as we define it , is a non-us gaap measure . we define adjusted ebitda for the periods indicated as ebitda ( as defined below ) , adjusted to exclude ( i ) restructuring and other charges ( gains ) , net , ( ii ) early termination charges , ( iii ) equity-based compensation expense , ( iv ) foreign currency loss ( gain ) , net , ( v ) derivative valuation loss ( gain ) , net , ( vi ) restatement related expenses ( gain ) , ( vii ) secondary offering expense , ( viii ) loss on early extinguishment of long-term borrowings , net and ( ix ) others . ebitda for the periods indicated is defined as net income ( loss ) before interest expense , net , income tax expense , and depreciation and amortization . see the footnotes to the table below for further information regarding these items .
| results by segment replace_table_token_12_th 61 replace_table_token_13_th net sales net sales were $ 750.9 million for the year ended december 31 , 2018 , a $ 71.2 million , or 10.5 % , increase compared to $ 679.7 million for the year ended december 31 , 2017. this increase was primarily attributable to an increase in revenue from our standard products group , which was offset in part by a decrease in revenue from our foundry services group . foundry services group . net sales from our foundry services group segment were $ 325.3 million for the year ended december 31 , 2018 , a $ 25.1 million , or 7.2 % , decrease compared to net sales of $ 350.4 million for the year ended december 31 , 2017. the decrease was primarily attributable to a decrease in demand of low margin product sales from a global power management ic foundry customer and a decrease in demand from a customer serving the low- to mid-range mobile phone market . this decrease was offset in part by an increase in sales of certain battery charger related products from a global power management ic foundry customer . standard products group . net sales from our standard products group segment were $ 425.4 million for the year ended december 31 , 2018 , a $ 96.3 million , or 29.3 % , increase compared to $ 329.1 million for the year ended december 31 , 2017. this increase was primarily attributable to an increase in revenue related to an improvement in mobile oled display driver ics due to the introduction of new oled smartphones by chinese manufacturers and higher demand for premium power products such as high-end mosfets and igbts primarily for tv and industrial applications . this increase was offset in part by a strategic reduction of our lower margin lcd business . all other .
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risk factors beginning on page 23 of this annual report on form 10-k. you should carefully review all of these factors , as well as the comprehensive discussion of forward-looking statements on page 1 of this annual report on form 10-k. business overview we are a clinical-stage specialty pharmaceutical company that is focused on developing and commercializing products for treating diseases and disorders of the eye . egp-437 , our first product in clinical trials , incorporates a reformulated topically active corticosteroid , dexamethasone phosphate , that is delivered into the ocular tissues through our proprietary innovative drug delivery system , the eyegate® ii delivery system . in addition , we are developing products using cross-linked thiolated carboxymethyl hyaluronic acid ( cmha-s ) , a modified form of the natural polymer hyaluronic acid , which is a gel that possesses unique physical and chemical properties such as hydrating and healing properties when applied to the ocular surface . the ability of cmha-s to adhere longer to the ocular surface , resist degradation and protect the ocular surface makes it well-suited for treating various ocular surface injuries . our proprietary technology , the eyegate® ii delivery system , utilizes transscleral iontophoresis to deliver optimal therapeutic levels of drug directly into the targeted ocular tissue . it offers a potential alternative to current delivery modalities such as eye drops and ocular injections . based on technology originating at the bascom palmer eye institute at the university of miami , the eyegate® ii delivery system has been used in over 2,400 clinical treatments to-date , including more than 1,500 treatments delivering our lead therapeutic candidate , egp-437 . the system utilizes a low-level electrical current to deliver a specified amount of drug for each treatment . the process involves applying an electrical current to an ionizable substance one capable of carrying an electric charge to increase its mobility across a biological membrane and , through electrorepulsion , drive a like-charged drug substance into the ocular tissue . using our eyegate® ii delivery system , treatments can be administered by a wider group of eye care practitioners including ophthalmologists and optometrists . in-office preparation is simple and efficient , and can be completed by nursing or other office staff . we are developing the eyegate® ii delivery system and egp-437 combination product ( together , the egp-437 product ) for the treatment of various inflammatory conditions of the eye , including anterior uveitis , a debilitating form of intraocular inflammation of the anterior portion of the uvea , such as the iris and or ciliary body , post-cataract surgery inflammation and pain , and macular edema , an abnormal thickening of the macula associated with the accumulation of excess fluids in the retina . based on guidance provided by the fda , we expect that if the ongoing confirmatory phase 3 trial of the egp-437 product for the treatment of anterior uveitis meets non-inferiority criteria , data from this trial along with data from our previously completed phase 3 trial in anterior uveitis will be sufficient to support a nda filing . our acquisition of jade in march 2016 ( the jade acquisition ) strengthens our market position as an integrated ocular company through the addition of a robust preclinical pipeline that complements our ongoing efforts to develop novel treatments for diseases and disorders of the eye . the jade acquisition also expands our development focus , and creates a diversified portfolio of ocular assets consisting of egp-437 and our iontophoretic delivery technology , complemented by a cmha-s-based product pipeline . our expanded product pipeline now includes both preclinical and clinical assets that collectively address large market opportunities affecting a wide range of patients suffering from eyesight-threatening diseases and disorders . 53 the cmha-s platform is based on hyaluronic acid ( ha ) , a naturally occurring polymer that is important in many physiological processes , including wound healing , tissue homeostasis , and joint lubrication . to create hydrogels , the ha is modified to create cmha-s that is then cross-linked together through the thiol groups . some products employ disulfide cross-linking while others utilize a polyethylene glycol diacrylate , or pegda , cross-linker . cross-linking slows degradation of the ha backbone and provides a matrix for incorporating therapeutic agents . variations in the number of thiols per molecule , the molecular weight of the polymer , the concentration of the polymer , the type of cross-linking , and incorporation of active ingredients , provides a highly versatile platform that can be tailored to a specific application . cmha-s can be formulated as gels or films . our first cmha-s-based product candidate , the eyegate ocular bandage gel ( obg ) , is a topically-applied eye drop formulation that has recently completed its first-in-man clinical trial . we have recently released positive top-line results in the first quarter of 2017 from this initial pilot trial evaluating the ability of eyegate obg to accelerate ocular surface re-epithelialization following photorefractive keratectomy ( prk ) . the eyegate obg eye drop creates a thin , durable and protective coating to the damaged surface of the eye , serving to facilitate and accelerate corneal re-epithelization . the eyegate obg is intended for the management of corneal epithelial defects , and to accelerate re-epithelization of the ocular surface following surgery , injection , and other traumatic and non-traumatic conditions . pilot preclinical studies suggest that the specific cmha-s chemical modification comprising the eyegate obg creates a favorable set of attributes , including prolonged retention time on the ocular surface , and a smooth continuous clear barrier without blur that can minimize mechanical lid friction , reduce repeat injury , and mechanically protect the ocular surface , allowing accelerated corneal re-epithelization . the gel is presently available commercially as a veterinary device indicated for use in the management of superficial corneal ulcers . story_separator_special_tag we were formed in delaware on december 26 , 2004. we were originally incorporated in 1998 under the name of optis france s.a. in paris , france . at that time , the name of the french corporation was changed to eyegate pharma s.a.s . and became a subsidiary of eyegate pharmaceuticals , inc. jade was formed in delaware on december 31 , 2012. eyegate pharma s.a.s . and jade are wholly-owned subsidiaries of eyegate pharmaceuticals , inc. financial overview research and development expenses we expense all research and development expenses as they are incurred . research and development expenses primarily include : non-clinical development , preclinical research , and clinical trial and regulatory-related costs ; expenses incurred under agreements with sites and consultants that conduct our clinical trials ; expenses related to generating , filing , and maintaining intellectual property ; and employee-related expenses , including salaries , bonuses , benefits , travel and stock-based compensation expense . substantially all of our research and development expenses to date have been incurred in connection with our egp-437 combination product . we expect our research and development expenses to increase for the foreseeable future as we advance egp-437 and eyegate obg through clinical development , including the conduct of our planned clinical trials . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we are unable to estimate with any certainty the costs we will incur in the continued development of our egp-437 combination product and eyegate obg . clinical development timelines , the probability of success and development costs can differ materially from expectations . 55 we may never succeed in achieving marketing approval for our product candidate . the costs of clinical trials may vary significantly over the life of a project owing to , but not limited to , the following : per patient trial costs ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the number of patients that participate in the trials ; the number of doses that patients receive ; the cost of comparative agents used in trials ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; and the efficacy and safety profile of the product candidate . we do not expect our product candidates to be commercially available , if at all , for the next several years . general and administrative expenses general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation . our general and administrative expenses consisted primarily of payroll expenses for our full-time employees . other general and administrative expenses include professional fees for auditing , tax , patent costs and legal services . we expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly-traded company and maintaining compliance with exchange listing and sec requirements . these increases will likely include higher consulting costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and fees associated with investor relations . total other income ( expense ) total other income ( expense ) consists primarily of interest income we earn on interest-bearing accounts , and interest expense incurred on our outstanding debt including non-cash interest resulting from the accretion of original issue discount on certain of our outstanding notes . 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 accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the expenses during the reporting periods . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . 56 accrued research and development expenses as part of the process of preparing financial statements , we are required to estimate and accrue research and development expenses . this process involves the following : communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development expenses that we accrue include : fees paid to contract research organizations and investigative sites in connection with clinical studies ; fees paid to contract manufacturing organizations in connection with non-clinical development , preclinical research , and the production of clinical study materials ; and professional service fees for consulting and related services .
| results of operations comparison of years ended december 31 , 2016 and 2015 the following table summarizes the results of our operations for the years ended december 31 , 2016 and 2015 : replace_table_token_6_th collaboration revenue . collaboration revenue was $ 0.669 million for the year ended december 31 , 2016 , compared to $ 0 million for the year ended december 31 , 2015 , reflecting the jade acquisition and the accompanying collaboration revenue we now generate from the u.s. government grants . research and development expenses . research and development expenses were $ 8.423 million for the year ended december 31 , 2016 compared to $ 2.717 million for the year ended december 31 , 2015. the increase of $ 5.705 million in costs was primarily due to an increase in clinical and other activity , which we were able to undertake after our august 2015 follow-on offering and is also related to the initiation of our phase 3 clinical trial for the treatment of anterior uveitis , the phase 1b/2a trial for post-cataract surgery inflammation and pain , the development of and clinical trial for the eyegate obg , as well as research expenses attributable to the company 's egp-437-based and cmha-s-based product pipelines . general and administrative expenses . general and administrative expenses were $ 5.594 million for the year ended december 31 , 2016 , compared to $ 3.960 million for the year ended december 31 , 2015. the increase of $ 1.633 million was primarily due to increases in payroll , office and other expenses as company operations have expanded with the initiation in clinical activity related to the egp-437 phase 3 trials for the treatment of anterior uveitis , the phase 1b/2a trial for post-cataract surgery inflammation and pain , and the clinical trial for the eyegate obg , as well as the expansion of operations following the jade acquisition . other income ( expense ) , net .
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accounting principles generally accepted in the united states of america , or gaap , and with regulation s-x promulgated under the securities exchange act of 1934 , as amended . this discussion and analysis should be read in conjunction with these consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in part i , item 1a . risk factors of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . story_separator_special_tag mll-r ; continue our phase 1/2 clinical trial of epz-6438 , subject to our opt-in right ; initiate our planned phase 2 clinical trial of epz-6438 in patients with synovial sarcoma , subject to our opt-in right ; continue the research and development of our other product candidates ; seek to discover and develop additional product candidates ; seek regulatory approvals for our product candidates that successfully complete clinical trials ; establish a sales , marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , quality control and scientific personnel ; and add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts . 78 collaborations the key terms of our primary collaborations are as follows : celgene in april 2012 , we entered into a collaboration and license agreement with celgene to discover , develop and commercialize , in all countries other than the united states , small molecule hmt inhibitors targeting dot1l , including epz-5676 , and any other hmt targets from our product platform for patients with genetically defined cancers , excluding targets covered by our two other existing therapeutic collaborations , which we refer to as the available targets . agreement structure under the terms of the agreement , we received a $ 65.0 million upfront payment and $ 25.0 million from the sale of our series c preferred stock to an affiliate of celgene , of which $ 3.0 million was considered a premium and included as collaboration arrangement consideration for a total upfront payment of $ 68.0 million . in addition , we earned a $ 25.0 million clinical development milestone payment and recorded $ 1.9 million of global development co-funding during the year ended december 31 , 2013. we are also eligible to earn up to $ 35.0 million in additional clinical development milestone payments and up to $ 100.0 million in regulatory milestone payments related to dot1l as well as up to $ 65.0 million in payments , including a combination of clinical development milestone payments and an option exercise fee , and up to $ 100.0 million in regulatory milestone payments for each available target as to which celgene exercises its option during an initial option period ending in july 2015. celgene has the right to extend the option period until july 2016 by making a significant option extension payment . as to dot1l and each available target as to which celgene may exercise its option , we retain all product rights in the united states and are eligible to receive royalties for each target at defined percentages ranging from the mid-single digits to the mid-teens on net product sales outside of the united states , subject to reductions in specified circumstances . due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with pharmaceutical development , we may not receive any milestone or royalty payments from celgene . the next potential milestone payment that we might be entitled to receive under this agreement is $ 35.0 million for the initiation of a pivotal clinical trial , as defined in the agreement , for our dot1l inhibitor . we are obligated to conduct and solely fund research and development costs of the phase 1 clinical trials for epz-5676 and through the effectiveness of the first investigational new drug application for an hmt inhibitor directed to each available target selected by celgene , after which celgene and we will equally co-fund global development and each party will solely fund territory-specific development costs for its territory . collaboration revenue through december 31 , 2013 , in addition to amounts allocated to celgene 's purchase of shares of our series c preferred stock , we recorded a total of $ 94.9 million in cash and accounts receivable under the celgene agreement , including a $ 3.0 million implied premium on celgene 's purchase of our series c preferred stock . of this amount , we recognized $ 37.8 million and $ 23.9 million of collaboration revenue in the consolidated statements of operations and comprehensive loss during the years ended december 31 , 2013 and 2012 , respectively , and $ 1.9 million of global development co-funding as a reduction to research and development expense during the year ended december 31 , 2013. as of december 31 , 2013 , we had deferred revenue of $ 31.3 million related to this agreement . eisai in april 2011 , we entered into a collaboration and license agreement with eisai under which we granted eisai an exclusive worldwide license to our small molecule hmt inhibitors directed to ezh2 , including epz-6438 , while retaining an opt-in right to co-develop , co-commercialize and share profits 79 with eisai as to licensed products in the united states . story_separator_special_tag we did not recognize any collaboration revenue in the year ended december 31 , 2011 under this agreement . as of december 31 , 2013 , we had deferred revenue of $ 13.9 million related to this agreement . companion diagnostic collaborations . in collaboration with established diagnostic companies , we are developing companion diagnostics to identify patients who have the specific genetically defined cancer targeted by our product candidate . in december 2012 , eisai and we entered into an agreement with roche molecular systems , inc. , or roche , to develop and to commercialize a companion diagnostic for use with our epz-6438 product candidate . the development costs under the agreement with roche will be the responsibility of eisai until such time as we may exercise our opt-in right under the collaboration with eisai . if we exercise our opt-in right under the eisai agreement , the costs under the roche agreement will be shared by us and eisai as determined under the profit share and co-commercialization components of the eisai collaboration agreement . in february 2013 , we entered into an agreement with abbott under which we agreed to fund abbott 's development of a companion diagnostic to identify patients with the mll-r genetic alteration targeted by epz-5676 . under the terms of the agreement , we paid abbott an upfront payment of $ 0.9 million upon the execution of the agreement , are obligated to make aggregate milestone-based development payments of up to $ 6.0 million and are obligated to reimburse abbott specified costs expected to be incurred in connection with abbott conducting clinical trials to obtain the necessary regulatory approvals for the companion diagnostic which are not to exceed $ 0.9 million unless any excess costs are agreed to in advance . 81 results of operations for the years ended december 31 , 2013 , 2012 and 2011 collaboration revenue the following is a comparison of collaboration revenue for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_4_th our revenue consists of collaboration revenue , including amounts recognized from deferred revenue related to upfront payments for licenses or options to obtain licenses in the future , research and development services revenue earned and milestone payments earned under collaboration and license agreements with our collaboration partners . 2013 compared to 2012 during the year ended december 31 , 2013 , collaboration revenue consisted of $ 24.3 million recognized from deferred revenue related to upfront payments for licenses , $ 35.0 million in milestone revenue and $ 9.2 million in research and development funding . this revenue compares to $ 30.2 million recognized from deferred revenue related to upfront payments for licenses , $ 8.0 million in milestone revenue and $ 7.0 million in research and development funding recognized in the year ended december 31 , 2012 , collectively representing a $ 23.3 million , or 51 % , increase in collaboration revenue in 2013 compared to 2012. collaboration revenue recognized from deferred revenue related to upfront payments for licenses in the year ended december 31 , 2013 comprised $ 12.8 million under our celgene agreement , $ 1.6 million under our eisai agreement and $ 9.9 million under our gsk agreement , as compared to $ 23.9 million under our celgene agreement , $ 1.6 million under our eisai agreement and $ 4.6 million under our gsk agreement in 2012. milestone revenue in the year ended december 31 , 2013 represents a $ 25.0 million clinical development milestone achieved under our celgene agreement , a $ 6.0 million clinical development milestone achieved under our eisai agreement and a $ 4.0 million preclinical research and development milestone achieved under our gsk agreement as compared to a $ 4.0 million preclinical research and development milestone achieved under our eisai agreement and $ 4.0 million in preclinical research and development milestones achieved under our gsk agreement in the year ended december 31 , 2012. collaboration revenue recognized for research and development services in the year ended december 31 , 2013 comprised $ 6.7 million under our eisai agreement and $ 2.5 million under our gsk agreement , as compared to $ 5.9 million under our eisai agreement and $ 1.1 million under our gsk agreement in 2012 . 2012 compared to 2011 the $ 38.3 million increase in collaboration revenue in 2012 compared to 2011 was primarily due to the recognition of $ 23.9 million of revenue in connection with our collaboration with celgene , which was entered into in april 2012 , the recognition of $ 9.7 million of revenue in 2012 in connection with our collaboration with gsk , as compared to none during 2011 , and an increase in revenue recognized from our collaboration with eisai from $ 6.6 million in 2011 to $ 11.5 million in 2012. collaboration revenue recognized under the celgene agreement during 2012 reflects amounts earned related to : the delivery of the dot1l license and the provision of related research services , both prior to and subsequent to ind effectiveness for epz-5676 in july 2012 ; and the provision of research services related to other potential dot1l product candidates . collaboration revenue recognized under the eisai agreement reflects amounts earned related to the ezh2 license and research services , including $ 4.0 million that we received upon the achievement of a substantive milestone related to the selection of a development candidate in 2012 . 82 collaboration revenue recognized under the gsk agreement during 2012 reflects amounts earned for research services related to all three hmt targets licensed by gsk as of july 2012 , the end of the target selection term under this agreement , as well as $ 4.0 million related to preclinical research and development milestones that were achieved in 2012 after the end of the selection term . prior to the end of the selection term , we did not recognize any collaboration revenue under this agreement , as none of the delivered elements were deemed to have standalone value apart from the undelivered elements of the arrangement .
| overview we are a clinical stage biopharmaceutical company that discovers , develops and plans to commercialize innovative personalized therapeutics for patients with genetically defined cancers . we have built a proprietary product platform that we use to create small molecule inhibitors of a 96-member class of enzymes known as histone methyltransferases , or hmts . genetic alterations can result in changes to the activity of hmts , making them oncogenic . our therapeutic strategy is to inhibit oncogenic hmts to treat the underlying causes of the associated genetically defined cancers . we are a leader in the translation of the science of epigenetics into first-in-class personalized therapeutics for patients with genetically defined cancers and currently have two hmt inhibitors in clinical development for the treatment of patients with genetically defined cancers . we believe we are the first company to conduct a clinical trial of an hmt inhibitor . we are conducting a phase 1 clinical trial of our most advanced product candidate , epz-5676 , an inhibitor targeting the dot1l hmt , being developed for the treatment of acute leukemias with genetic alterations of the mll gene , referred to as mll-r and mll-ptd . we are also conducting a phase 1/2 clinical trial of our second most advanced product candidate , epz-6438 , an inhibitor targeting the ezh2 hmt , being developed for the treatment of a genetically defined subtype of non-hodgkin lymphoma and solid tumors including ini1-deficient tumors such as synovial sarcoma and malignant rhabdoid tumors , or mrt .
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zulily , llc ( “ zulily ” ) is an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched every day , and is a reportable segment . our “ corporate and other ” category includes our consolidated subsidiary cornerstone brands , inc. ( “ cornerstone ” ) , along with various cost and equity method investments . see discussion below for the entities that were included in corporate and other in prior periods . prior to the transactions ( described and defined below ) , the company utilized tracking stocks in its capital structure . a tracking stock is a type of common stock that the issuing company intends to reflect or `` track '' the economic performance of a particular business or `` group , '' rather than the economic performance of the company as a whole . qurate retail had two tracking stocks—qvc group common stock and liberty ventures common stock , which were intended to track and reflect the economic performance of qurate retail 's businesses , assets and liabilities attributed to the qvc group and the ventures group , respectively . the qvc group was comprised of the company 's wholly-owned subsidiaries qvc , zulily , hsn and cornerstone among other assets and liabilities . the ventures group was comprised of businesses not included in the qvc group including evite , inc. ( “ evite ” ) and our interests in liberty broadband corporation ( “ liberty broadband ” ) , lendingtree , inc. ( “ lendingtree ” ) , investments in charter communications , inc. ( “ charter ” ) and ilg , inc. ( “ ilg ” ) , among other assets and liabilities ( which were all included in the corporate and other category ) . the company 's results are attributed to the qvc group and the ventures group through march 9 , 2018. on march 9 , 2018 , qurate retail completed the transactions contemplated by the agreement and plan of reorganization ( as amended , the “ reorganization agreement , ” and the transactions contemplated thereby , the “ transactions ” ) among general communication , inc. ( “ gci ” ) , an alaska corporation , and liberty interactive llc , a delaware limited liability company and a direct wholly-owned subsidiary of qurate retail ( “ li llc ” ) . pursuant to the reorganization agreement , gci amended and restated its articles of incorporation ( which resulted in gci being renamed gci liberty , inc. ( “ gci liberty ” ) ) and effected a reclassification and auto conversion of its common stock . after market close on march 8 , 2018 , qurate retail 's board of directors approved the reattribution of certain assets and liabilities from qurate retail 's ventures group to its qvc group , which was effective immediately . the reattributed assets and liabilities included cash , qurate retail 's interest in ilg , certain green energy investments , li llc 's exchangeable debentures , and certain tax benefits . following these events , qurate retail acquired gci liberty through a reorganization in which certain qurate retail interests , assets and liabilities attributed to the ventures group were contributed ( the “ contribution ” ) to gci liberty in exchange for a controlling interest in gci liberty . qurate retail and li llc contributed to gci liberty their entire equity interest in liberty broadband , charter , and lendingtree , the evite operating business and other assets and liabilities attributed to qurate retail 's venture group ( following the reattribution ) , in exchange for ( a ) the issuance to li llc of a number of shares of gci liberty class a common stock and a number of shares of gci liberty class b common stock ii-3 equal to the number of outstanding shares of series a liberty ventures common stock and series b liberty ventures common stock on march 9 , 2018 , respectively , ( b ) cash and ( c ) the assumption of certain liabilities by gci liberty . following the contribution , qurate retail effected a tax-free separation of its controlling interest in the combined company ( the “ gci liberty split-off ” ) , gci liberty , to the holders of liberty ventures common stock in full redemption of all outstanding shares of such stock , in which each outstanding share of series a liberty ventures common stock was redeemed for one share of gci liberty class a common stock and each outstanding share of series b liberty ventures common stock was redeemed for one share of gci liberty class b common stock . simultaneous with the closing of the transactions , qvc group common stock became the only outstanding common stock of qurate retail , and thus qvc group common stock ceased to function as a tracking stock . on april 9 , 2018 , liberty interactive corporation was renamed qurate retail , inc. on may 23 , 2018 , qurate retail amended its charter to eliminate the tracking stock capitalization structure and reclassify each share of qvc group common stock into one share of the corresponding series of new common stock of qurate retail . throughout this annual report , we refer to our series a and series b common stock as “ qurate retail common stock ” and “ qvc group common stock. ” in july 2018 , the internal revenue service ( “ irs ” ) completed its review of the gci liberty split-off and informed qurate retail that it agreed with the nontaxable characterization of the transactions . qurate retail received an issue resolution agreement from the irs documenting this conclusion . on october 17 , 2018 , qurate retail announced a series of initiatives designed to better position its hsn and qvc u.s. businesses ( “ qrg initiatives ” ) . story_separator_special_tag even after the covid-19 pandemic subsides , the u.s. economy and other major global economies may experience a recession , and we anticipate our businesses and operations could be materially adversely affected by a prolonged recession in the u.s. and other major markets . disposals as a result of the gci liberty split-off , qurate retail viewed lendingtree , evite and liberty broadband as separate components and evaluated them separately for discontinued operations presentation . based on a quantitative analysis , the split-off of qurate retail 's interest in liberty broadband had a major effect on qurate retail 's operations . accordingly , qurate retail 's interest in liberty broadband is presented as a discontinued operation . the disposition of evite and lendingtree as part of the gci liberty split-off did not have a major effect on qurate retail 's historical results nor is it expected to have a major effect on qurate retail 's future operations . accordingly , evite and lendingtree are not presented as discontinued operations . strategies and challenges televised shopping businesses . the goal of qvc is to extend its leadership in video commerce , e-commerce , mobile commerce and social commerce by continuing to create the world 's most engaging shopping experiences , combining the best of retail , media , and social , highly differentiated from traditional brick-and-mortar stores or transactional e-commerce . qvc provides customers with curated collections of unique products , made personal and relevant by the power of storytelling . qvc curates experiences , conversations and communities for millions of highly discerning shoppers , and also curates large audiences , across its many platforms , for its thousands of brand partners . qvc intends to employ several strategies to achieve these objectives . among these strategies are to ( i ) curate special products at compelling values ; ( ii ) extend video reach and relevance ; ( iii ) reimagine daily digital discovery ; ( iv ) expand and engage its passionate community ; and ( v ) deliver joyful customer service . in addition , qvc is exploring opportunities to evolve the international operating model to pursue growth opportunities in a more leveraged way across markets . future net revenue growth will primarily depend on sales growth from e-commerce , mobile platforms and applications via streaming video , additions of new customers from households already receiving qvc 's broadcast programming , and increased spending from existing customers . future net revenue may also be affected by ( i ) the willingness of cable television and direct-to-home satellite system operators to continue carrying qvc 's programming ii-5 services ; ( ii ) qvc 's ability to maintain favorable channel positioning , which may become more difficult due to governmental action or from distributors converting analog customers to digital ; ( iii ) changes in television viewing habits because of personal video recorders , video-on-demand and internet video services ; ( iv ) qvc 's ability to source new and compelling products ; and ( v ) general economic conditions . in july 2020 , qvc implemented a planned workforce reduction with the goal of making the organizational structure streamlined and more efficient . as part of the workforce reduction , qvc has decided to eliminate live hours on qvc2 in the u.s. and other secondary channels within the international segment . the current economic uncertainty in various regions of the world in which our subsidiaries and affiliates operate could adversely affect demand for their products and services since a substantial portion of their revenue is derived from discretionary spending by individuals , which typically falls during times of economic instability . global financial markets have recently experienced disruptions , including increased volatility and diminished liquidity and credit availability . if economic and financial market conditions in the united states ( “ u.s. ” ) or other key markets , including japan and europe , continue to be uncertain or deteriorate , customers may respond by suspending , delaying , or reducing their discretionary spending . a suspension , delay or reduction in discretionary spending could adversely affect revenue . accordingly , our businesses ' ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments decline . such weak economic conditions may also inhibit qvc 's expansion into new european and other markets . the company is currently unable to predict the extent of any of these potential adverse effects . the brexit process and negotiations have created political and economic uncertainty , particularly in the u.k. and the e.u. , and this uncertainty may last for years . on june 23 , 2016 , the u.k. held a referendum in which voters approved , on an advisory basis , an exit from the e.u . the u.k. formally left the e.u . on january 31 , 2020. this has resulted in a transition period that ran until december 31 , 2020. on january 1 , 2021 , the u.k. left the e.u . customs union and single market , as well as all e.u . policies and international agreements . on december 24 , 2020 , the european commission reached a trade agreement with the u.k. on the terms of its future cooperation with the e.u . ( the “ trade agreement ” ) . the trade agreement offers u.k. and e.u . companies preferential access to each other 's markets , ensuring imported goods that satisfy applicable point of origin rules ( that is , that u.k. or e.u . goods are wholly produced or significantly worked in the u.k. or e.u. , as applicable ) will be free of tariffs and quotas ; however , economic relations between the u.k. and the e.u . will now be on more restrictive terms than existed previously .
| operating results replace_table_token_3_th revenue . our consolidated revenue increased 5.3 % and decreased 4.3 % for the years ended december 31 , 2020 and 2019 , respectively , as compared to the corresponding prior year periods . ii-7 qvc international , qxh and zulily revenue increased $ 258 million , $ 228 million , and $ 65 million , respectively , during the year ended december 31 , 2020 , as compared to the same period in the prior year . see `` results of operations - businesses `` below for a more complete discussion of the results of operations of qvc and zulily . corporate and other revenue increased $ 169 million for the year ended december 31 , 2020 , as compared to the corresponding period in the prior year due to an increase in cornerstone revenue of $ 169 million as a result of strong customer response in the home category due to increased demand for home furnishings , interior décor and outdoor living items . qxh , zulily and qvc international revenue decreased $ 267 million , $ 246 million and $ 29 million during the year ended december 31 , 2019 compared to the same period in the prior year . see `` results of operations - businesses `` below for a more complete discussion of the results of operations of qvc and zulily . corporate and other revenue decreased $ 72 million for the year ended december 31 , 2019 , as compared to the corresponding prior year period due to a decrease in cornerstone revenue of $ 70 million due to the shutdown of one of the home brands in cornerstone 's portfolio during the fourth quarter of 2018. operating income ( loss ) . our consolidated operating income increased $ 1,388 million and decreased $ 1,140 million for the years ended december 31 , 2020 and 2019 , respectively , as compared to the corresponding prior year periods .
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a company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . a company 's internal control over financial reporting includes those policies and procedures that ( 1 ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of the assets of the company ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company ; and ( 3 ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use , or disposition of the company 's assets that could have a material effect on the financial statements . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . in our opinion , titan pharmaceuticals , inc. maintained , in all material respects , effective internal control over financial reporting as of december 31 , 2016 , based on the coso criteria . we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) , the balance sheets of titan pharmaceuticals , inc. as of december 31 , 2016 and 2015 , the related statements of operations and comprehensive income ( loss ) , stockholders ' equity , and cash flows for each of the three years in the period ended december 31 , 2016 , and our report dated march 16 , 2017 expressed an unqualified opinion thereon . oum & co. llp san francisco , california march 16 , 2017 f- 3 titan pharmaceuticals , inc. balance sheets replace_table_token_12_th see accompanying notes to financial statements . f- 4 titan pharmaceuticals , inc. statements of operations and comprehensive income ( loss ) replace_table_token_13_th see accompanying notes to financial statements . f- 5 titan pharmaceuticals , inc statements of stockholders ' equity ( in thousands ) replace_table_token_14_th see accompanying notes to financial statements . f- 6 titan pharmaceuticals , inc. statements of cash flows story_separator_special_tag forward-looking statements statements in the following discussion and throughout this report that are not historical in nature are “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act . you can identify forward-looking statements by the use of words such as “ expect , ” “ anticipate , ” “ estimate , ” “ may , ” “ will , ” “ should , ” “ intend , ” “ believe , ” and similar expressions . although we believe the expectations reflected in these forward-looking statements are reasonable , such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct . actual results could differ from those described in this report because of numerous factors , many of which are beyond our control . these factors include , without limitation , those described under item 1a “ risk factors. ” we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes . please see “ note regarding forward-looking statements ” at the beginning of this annual report on form 10-k. the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this annual report on form 10-k. overview we are a pharmaceutical company developing proprietary therapeutics for the treatment of serious medical disorders . our product development programs utilize our proprietary long-term drug delivery platform , proneura , and focus primarily on innovative treatments for select chronic diseases for which steady state delivery of a drug provides an efficacy and or safety benefit . probuphine® , our first product candidate based on the proneura platform , was approved by the fda on may 26 , 2016 for the maintenance treatment of opioid dependence in patients who are stable on low to moderate doses of daily sublingual buprenorphine treatment . we have licensed development and commercialization rights of probuphine for the u.s. and canadian markets to braeburn and pursuant to the license agreement as amended to date , we received a $ 15 million milestone payment upon fda approval of the probuphine nda , and are entitled to receive royalties on net sales of probuphine ranging in percentage from the mid-teens to the low twenties based on a tiered structure . the agreement also provides for up to an additional $ 165 million in sales milestones and $ 35 million in regulatory milestones on probuphine . additionally , in certain circumstances the agreement entitles us to a low single digit royalty , up to an aggregate of $ 50 million , on net sales by braeburn , if any , of other future competing products in the addiction market , e.g . a monthly depot injection . braeburn commenced commercialization activities in support of probuphine product launch immediately following fda approval starting with implementation at the end of may 2016 of the rems directed training program for qualified health care providers . story_separator_special_tag government grants , which support our research efforts in specific projects , generally provide for reimbursement of approved costs as defined in the notices of grants . grant revenue is recognized when associated project costs are incurred . collaborative arrangements typically consist of non-refundable and or exclusive technology access fees , cost reimbursements for specific research and development spending , and various milestone and future product royalty payments . if the delivered technology does not have stand-alone value , the amount of revenue allocable to the delivered technology is deferred . non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received , and are deferred if we have continuing performance obligations and have no evidence of fair value of those obligations . cost reimbursements for research and development spending are recognized when the related costs are incurred and when collections are reasonably expected . payments received related to substantive , performance-based “ at-risk ” milestones are recognized as revenue upon achievement of the clinical success or regulatory event specified in the underlying contracts , which represent the culmination of the earnings process . amounts received in advance are recorded as deferred revenue until the technology is transferred , costs are incurred , or a milestone is reached . 36 share-based payments we recognize compensation expense for all share-based awards made to employees and directors . the fair value of share-based awards is estimated at the grant date based on the fair value of the award and is recognized as expense , net of estimated pre-vesting forfeitures , ratably over the vesting period of the award . we use the black-scholes option pricing model to estimate the fair value method of our awards . calculating stock-based compensation expense requires the input of highly subjective assumptions , including the expected term of the share-based awards , stock price volatility , and pre-vesting forfeitures . we estimate the expected term of stock options granted for the years ended december 31 , 2016 and 2015 based on the historical experience of similar awards , giving consideration to the contractual terms of the share-based awards , vesting schedules and the expectations of future employee behavior . we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock . the assumptions used in calculating the fair value of stock-based awards represent our best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . in addition , we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest . we estimate the pre-vesting forfeiture rate based on historical experience . if our actual forfeiture rate is materially different from our estimate , our stock-based compensation expense could be significantly different from what we have recorded in the current period . income taxes we make certain estimates and judgments in determining income tax expense for financial statement purposes . these estimates and judgments occur in the calculation of certain tax assets and liabilities , which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes . as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . we assess the likelihood that we will be able to recover our deferred tax assets . we consider all available evidence , both positive and negative , expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if it is not more likely than not that we will recover our deferred tax assets , we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . clinical trial accruals we also record accruals for estimated ongoing clinical trial costs . clinical trial costs represent costs incurred by cros and clinical sites . these costs are recorded as a component of research and development expenses . under our agreements , progress payments are typically made to investigators , clinical sites and cros . we analyze the progress of the clinical trials , including levels of patient enrollment , invoices received and contracted costs when evaluating the adequacy of accrued liabilities . significant judgments and estimates must be made and used in determining the accrued balance in any accounting period . actual results could differ from those estimates under different assumptions . revisions are charged to expense in the period in which the facts that give rise to the revision become known . the actual clinical trial costs for the probuphine studies conducted in the past three years have not differed materially from the estimated projection of expenses . 37 warrants issued in connection with equity financing we generally account for warrants issued in connection with equity financings as a component of equity , unless there is a deemed possibility that we may have to settle warrants in cash . for warrants issued with deemed possibility of cash settlement , we record the fair value of the issued warrants as a liability at each reporting period and record changes in the estimated fair value as a non-cash gain or loss in the statements of operations and comprehensive income ( loss ) . liquidity and capital resources replace_table_token_3_th we have funded our operations since inception primarily through the sale of our securities and the
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 license revenues were approximately $ 15.1 million and $ 1.7 million for the years ended december 31 , 2016 and 2015 , respectively . license revenues for the year ended december 31 , 2016 reflect approximately $ 65,000 from the recognition of royalties earned on net sales of probuphine and approximately $ 15.0 million from the recognition of the milestone payment earned upon fda approval of our probuphine nda in may 2016. license revenues for the year ended december 31 , 2015 reflect the amortization of the upfront license fee received from braeburn in december 2012. research and development expenses for 2016 were approximately $ 6.1 million compared to approximately $ 4.7 million in 2015 , an increase of approximately $ 1.4 million , or 30 % . the increase in research and development costs was primarily associated with increases in external research and development expenses related to the support of our proneura product development programs , employee related expenses and other research and development expenses . these increases were partially offset by the reimbursement by our development partner , braeburn , of approximately $ 1.1 million of expenses related to probuphine . external research and development expenses include direct expenses such as cro charges , investigator and review board fees , patient expense reimbursements , expenses for nda preparation and contract manufacturing expenses . during 2016 , external research and development expenses relating to our product development programs were approximately $ 3.5 million compared to approximately $ 1.5 million in 2015. other research and development expenses include internal operating costs such as clinical research and development personnel-related expenses , clinical trials related travel expenses , and allocation of facility and corporate costs .
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vf is diversified across brands , product categories , channels of distribution , geographies and consumer demographics . we own a broad portfolio of brands in the outerwear , footwear , denim , backpack , luggage , accessory and apparel categories . our products are marketed to consumers shopping in specialty stores , department stores , national chains , mass merchants and our own direct-to-consumer operations , which includes vf-operated stores , concession retail stores and e-commerce sites . vf is organized by groupings of businesses called “ coalitions ” . the three coalitions are outdoor & action sports , jeanswear and imagewear . these coalitions are our reportable segments for financial reporting purposes . basis of presentation the nautica ® brand business , the licensing business ( which comprised the licensed sports group and jansport ® brand collegiate businesses ) , and the contemporary brands coalition have been reported as discontinued operations in our consolidated statements of income , and the related assets and liabilities have been presented as held-for-sale in the consolidated balance sheets , through their dates of disposal . these changes have been applied to all periods presented . unless otherwise noted , amounts , percentages and discussion for all periods included below reflect the results of operations and financial condition from vf 's continuing operations . refer to note c to vf 's consolidated financial statements for additional information on discontinued operations . vf operates and reports using a 52/53 week fiscal year ending on the saturday closest to december 31 of each year . all references to “ 2017 ” , “ 2016 ” and “ 2015 ” relate to the 52-week fiscal years ended december 30 , 2017 , december 31 , 2016 and january 2 , 2016 , respectively . during the first quarter of 2017 , the company approved a change in fiscal year end to the saturday closest to march 31 from the saturday closest to december 31. accordingly , vf will report a transition quarter that runs from december 31 , 2017 through march 31 , 2018. the company 's next fiscal year will run from april 1 , 2018 through march 30 , 2019 ( “ fiscal 2019 ” ) . all per share amounts are presented on a diluted basis . all percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers . references to 2017 foreign currency amounts below reflect the changes in foreign exchange rates from 2016 and their impact on both translating foreign currencies into u.s. dollars and on transactions denominated in a foreign currency . references to 2016 foreign currency amounts below reflect the changes in foreign exchange rates from 2015 and their impact on both translating foreign currencies into u.s. dollars and on transactions denominated in a foreign currency . vf 's most significant foreign currency exposure relates to business conducted in euro-based countries . however , vf conducts business in other developed and emerging markets around the world with exposure to foreign currencies other than the euro . highlights of 2017 2017 marked the beginning of vf 's renewed strategic journey , as we focused our efforts and investments on the evolution of vf and our brands to become more consumer and retail centric . our focus and investment in support of our strategies drove accelerated growth and value creation across key pillars of our portfolio in 2017. the choices and capabilities embedded in our strategic growth plan have enabled our strong portfolio of diverse global brands to connect more deeply with consumers , and the results in 2017 reflect initial success in the execution of our plan as vf 's core growth engines - international , direct-to-consumer , outdoor & action sports and our workwear platform - continued to show strength . we are still in the early phases of this strategic journey , and while the consumer landscape is rapidly changing and the global retail environment around the world is dynamic , we believe the choices and capabilities embedded in our strategic growth plan will enable our strong portfolio of diverse global brands to connect more deeply with consumers and fuel growth into the future . we continued reshaping our portfolio in 2017 to align with our financial aspirations , as we closed on the acquisition of williamson-dickie mfg . co. ( `` williamson-dickie '' ) in the fourth quarter of 2017 , and announced the acquisition of icebreaker holdings , ltd. , which we expect to close in the first quarter of fiscal 2019. further , we completed the sale of the licensing business in 2017 and have announced the planned sale of the nautica ® brand business . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( “ tax act ” ) . the tax act significantly changes u.s. corporate income tax laws by , among other things , reducing the u.s. corporate income tax rate to 21 % starting in 2018 and moves from a global taxation regime to a modified territorial regime . as part of the legislation , u.s. companies are required to pay a tax on historical earnings generated offshore that have not been repatriated to the u.s. and revalue deferred tax asset and liability positions at the lower federal base tax rate of 21 % . the transitional impact of the tax act resulted in a provisional net vf corporation 2017 form 10-k 21 charge of approximately of $ 465.5 million , or $ 1.15 cents per share , during the fourth quarter of 2017. the execution of our 2021 strategic choices , including the re-shaping of our portfolio , and significant changes to the u.s. corporate income tax laws , delivered the following results in 2017 : 2017 revenues were up 7 % to $ 11.8 billion compared to 2016 . outdoor & action sports coalition revenues increased 8 % over 2016 to $ 8.2 billion , including a 1 % favorable impact from foreign currency . story_separator_special_tag the following tables present a summary of the changes in coalition revenues and coalition profit during the last two years : replace_table_token_5_th 24 vf corporation 2017 form 10-k the following section discusses the changes in revenues and profitability by coalition : outdoor & action sports replace_table_token_6_th the outdoor & action sports coalition includes the following brands : vans ® , the north face ® , timberland ® , kipling ® , napapijri ® , jansport ® , reef ® , smartwool ® , eastpak ® , lucy ® and eagle creek ® . 2017 compared to 2016 global revenues for outdoor & action sports increased 8 % in 2017 , driven by growth in the direct-to-consumer and wholesale channels , including a 1 % favorable impact from foreign currency . the direct-to-consumer growth was driven by strong e-commerce and comparable store growth . revenues in the americas region increased 5 % in 2017 , reflecting 13 % growth in the non-u.s. americas region , which included a 2 % favorable impact from foreign currency , and 4 % growth in the u.s. revenues in europe increased 14 % , including a 1 % favorable impact from foreign currency . revenues in the asia-pacific region increased 7 % in 2017 , including a 1 % favorable impact from foreign currency . vans ® brand global revenues increased 19 % in 2017 , reflecting strong operational growth in both the direct-to-consumer and wholesale channels . the growth in the direct-to-consumer channel was driven by strong comparable store and e-commerce growth . global revenues for the north face ® brand increased 4 % in 2017 , as growth in the direct-to-consumer channel , driven by comparable store and e-commerce growth , and a 1 % favorable impact from foreign currency , were partially offset by relatively flat wholesale revenues . global wholesale revenues for the north face ® brand were tempered by u.s. retailer bankruptcies , lower year-over-year off-price shipments and efforts to manage inventory levels in certain markets . global revenues for the timberland ® brand increased 2 % in 2017 , as growth in the direct-to-consumer channel , driven by comparable store and e-commerce growth , and a 1 % favorable impact from foreign currency , were partially offset by relatively flat wholesale revenues . global direct-to-consumer revenues for outdoor & action sports grew 17 % in 2017 , driven by an expanding e-commerce business , comparable store growth and a 1 % favorable impact from foreign currency . wholesale revenues increased 2 % in 2017 , driven by growth in the vans ® brand and europe , partially offset by the above-mentioned u.s. retailer bankruptcies , lower year-over-year off-price shipments and efforts to manage inventory levels in certain markets . operating margin increased 50 basis points in 2017 despite a negative impact from foreign currency . excluding the impact of foreign currency , gross margin expansion , driven by a mix-shift to higher margin businesses , pricing and lower product costs , was partially offset by increased investments in direct-to-consumer , product and innovation , demand creation and technology . 2016 compared to 2015 global revenues for outdoor & action sports increased 2 % in 2016 , reflecting strong growth in the direct-to-consumer channel , partially offset by weakness in the u.s. wholesale channel . revenues in the americas region were consistent with 2015 , and revenues in the asia-pacific region increased 4 % in 2016 despite a 2 % negative impact from foreign currency . european revenues increased 5 % in 2016 , representing operational growth of 4 % and a favorable impact from foreign currency of 1 % . vans ® brand global revenues were up 6 % in 2016 , reflecting strong operational growth in the direct-to-consumer channel , partially offset by declines in the wholesale channel and a negative 1 % impact from foreign currency . global revenues for the north face ® brand decreased 2 % in 2016 , as strong operational growth in the direct-to-consumer channel was more than offset by declines in the wholesale channel in the u.s. and an unfavorable foreign currency impact of 1 % . the wholesale revenue declines for the north face ® brand were attributable to retailer bankruptcies and management 's proactive approach to managing inventory levels in the market by reducing off-price shipments in the u.s. during the fourth quarter . the combination of both factors negatively impacted revenue growth for the year by approximately 4 % . global revenues for the timberland ® brand were up 1 % in 2016 driven by growth in the direct-to-consumer channel and international business , partially offset by weaker wholesale revenues in the u.s. global direct-to-consumer revenues for outdoor & action sports grew 12 % in 2016 , driven by new store openings and an expanding e-commerce business , partially offset by an unfavorable 1 % impact from foreign currency . wholesale revenues were down 4 % in 2016 , primarily due to retailer bankruptcies and reduced off-price shipments in the u.s. , and a negative impact from foreign currency of 1 % . operating margin decreased 90 basis points in 2016 as the negative impact from foreign currency , increased investments in direct-to-consumer , product development and innovation and restructuring charges more than offset the benefits of favorable pricing and lower product costs . vf corporation 2017 form 10-k 25 jeanswear replace_table_token_7_th the jeanswear coalition consists of the global jeanswear businesses , led by the wrangler ® and lee ® brands . 2017 compared to 2016 global jeanswear revenues decreased 3 % in 2017 compared to 2016 , as growth in the direct-to-consumer channel was more than offset by u.s. wholesale declines in the mass , mid-tier and department store channels . specifically , our u.s. wholesale business has been impacted by a key customer 's inventory destocking decision and continued channel consolidation , which was partially mitigated by strong growth with our digital wholesale partners . revenues in the americas region decreased 4 % in 2017 , driven by softness in the wholesale channel .
| analysis of results of operations consolidated statements of income the following table presents a summary of the changes in total revenues during the last two years : replace_table_token_3_th 2017 compared to 2016 vf reported a 7 % increase in revenues in 2017 . the 2017 results were driven by an increase in the outdoor & action sports coalition and continued strength in our direct-to-consumer and international businesses . the increase was also attributable to growth in the imagewear coalition , which included a $ 247.2 million contribution from the williamson-dickie acquisition , which closed on october 2 , 2017. these increases were offset by declines in the jeanswear coalition . international sales grew in every region in 2017 . 2016 compared to 2015 vf reported revenues in 2016 that were in line with 2015 revenues . the 2016 results were primarily attributable to a 2 % increase in the outdoor & action sports coalition and continued strength in the international and direct-to-consumer businesses , which offset foreign currency headwinds of 1 % and softness in our jeanswear and imagewear coalitions . excluding the negative impact from foreign currency , international sales grew in every region in 2016. additional details on revenues are provided in the section titled “ information by business segment ” . the following table presents the percentage relationship to total revenues for components of the consolidated statements of income : replace_table_token_4_th 22 vf corporation 2017 form 10-k 2017 compared to 2016 gross margin improved 120 basis points to 50.5 % in 2017 compared to 49.3 % in 2016 , reflecting a 180 basis point benefit from pricing , a mix-shift toward higher margin businesses and lower restructuring costs , which was partially offset by a 60 basis point impact from foreign currency . selling , general and administrative expenses as a percentage of total revenues increased 160 basis points in 2017 compared to 2016 .
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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 `` special note regarding forward-looking statements '' and `` risk factors . '' we are not undertaking any obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made . overview we are an established and growing private mortgage insurance company . we were formed to serve the u.s. housing finance industry at a time when the demands of the financial crisis and a rapidly changing business environment created the need for a new , privately funded mortgage insurance company . since writing our first policy in may 2010 , we have grown to an estimated 12.1 % market share based on new insurance written , or niw , excluding niw under the home affordable refinance program , for the year ended december 31 , 2013 , up from 8.6 % and 4.5 % for the years ended december 31 , 2012 and 2011 , respectively . we believe that our growth has been driven largely by the unique opportunity we offer lenders to partner with a well-capitalized mortgage insurer , unencumbered by legacy business , that provides fair and transparent claims payment practices , and consistency and speed of service . in 2010 , essent became the first private mortgage insurer to be approved by the gses since 1995 , and is licensed to write coverage in all 50 states and the district of columbia . we completed our initial public offering in november 2013. the financial strength of essent guaranty , inc. , our wholly-owned insurance subsidiary , is rated baa2 with a stable outlook by moody 's investors service and bbb+ with a stable outlook by standard & poor 's rating services . we had master policy relationships with approximately 935 customers as of december 31 , 2013. we have a fully functioning , scalable and flexible mortgage insurance platform , which we acquired from triad guaranty inc. and its wholly-owned subsidiary , triad guaranty insurance corporation , which we refer to collectively as `` triad '' , in exchange for up to $ 30 million in cash and the assumption of certain contractual obligations . our holding company is domiciled in bermuda and our u.s. insurance business is headquartered in radnor , pennsylvania . we operate additional underwriting and service centers in winston-salem , north carolina and irvine , california . we have a highly experienced , talented team with 289 employees as of december 31 , 2013. for the years ended december 31 , 2013 , 2012 and 2011 , we generated new insurance written of approximately $ 21.2 billion , $ 11.2 billion and $ 3.2 billion , respectively , and as of december 31 , 2013 , we had approximately $ 32.0 billion of insurance in force . legislative and regulatory developments our results are significantly impacted by , and our future success may be affected by , legislative and regulatory developments affecting the housing finance industry . key regulatory and legislative developments that may affect us include : housing finance and gse reform the overwhelming majority of our current and expected future business is the provision of mortgage insurance on loans sold to the gses . therefore , changes to the business practices of the gses or any regulation relating to the gses may impact our business and our results of operations . the fhfa is the regulator and conservator of the gses with authority to control and direct their 73 operations . the fhfa has directed , and is likely to continue to direct , changes to the business operations of the gses in ways that affect the mortgage insurance industry . in addition , it is likely that federal legislation will be necessary to resolve the conservatorship of the gses , and such legislation could materially affect the role and charter of the gses and the operation of the housing finance system . in 2011 , the u.s. department of the treasury recommended options for winding down the gses and using a combination of federal housing policy changes to contract the government 's footprint in housing finance and restore a larger role for private capital . since 2011 , members of congress have introduced several bills intended to reform the secondary market and the role of the gses , although no comprehensive housing finance or gse reform legislation has been enacted to date . see `` businessregulationfederal laws and regulationshousing finance reform '' , `` risk factorsrisks relating to our business legislative or regulatory actions or decisions to change the role of the gses in the u.s. housing market generally , or changes to the charters of the gses with regard to the use of credit enhancements generally and private mortgage insurance specifically , could reduce our revenues or adversely affect our profitability and returns `` , and `` changes in the business practices of the gses , including actions or decisions to decrease or discontinue the use of mortgage insurance or changes in the gses ' eligibility requirements for mortgage insurers , could reduce our revenues or adversely affect our profitability and returns. `` dodd-frank act various regulatory agencies have produced , and are now in the process of developing additional , new rules under the dodd-frank act that are expected to have a significant impact on the housing finance industry , including the qualified mortgage , or qm , definition and the risk retention requirement and related qualified residential mortgage , or qrm , definition . story_separator_special_tag see `` businessregulationfederal laws and regulationdodd-frank actqualified residential mortgage regulationsrisk retention requirements '' and `` risk factorsrisks relating to our business the amount of insurance we write could be adversely affected by the implementation of the dodd-frank act 's risk retention requirements and the definition of qualified residential mortgage ( `` qrm '' ) . '' basel iii in july 2013 , the federal reserve board , the office of the comptroller of the currency and the federal deposit insurance corporation approved publication of the basel iii rules governing almost all u.s. banking organizations regardless of size or business model . the basel iii rules revise and enhance the federal banking agencies ' general risk-based capital , advanced approaches and leverage rules . the basel iii rules became effective on january 1 , 2014 , with a mandatory compliance date of 75 january 1 , 2015 for banking organizations other than advanced approaches banking organizations that are not savings and loan holding companies . the federal banking agencies previously issued proposed rules that would have made extensive changes to the capital requirements for residential mortgages , including eliminating capital recognition for certain low down payment mortgages covered by mortgage insurance . after consideration of extensive comments with regard to the proposed capital rules for residential mortgages , the federal banking agencies decided to retain in the basel iii rules the treatment for residential mortgage exposures that is currently set forth in the general risk-based capital rules and the treatment of mortgage insurance . the basel iii rules continue to afford fha-insured loans a lower risk-weighting than low down payment loans insured with private mortgage insurance , and ginnie mae mortgage-backed securities are afforded a lower risk weighting than fannie mae and freddie mac mortgage-backed securities . therefore , with respect to capital requirements , fha-insured loans will continue to have a competitive advantage over loans insured by private mortgage insurance and then sold to and securitized by the gses . in addition , with regard to the separate basel iii rules applicable to general credit risk mitigation for banking exposures , insurance companies engaged predominantly in the business of providing credit protection , such as private mortgage insurance companies , are not eligible guarantors . if implementation of the basel iii rules increases the capital requirements of banking organizations with respect to the residential mortgages we insure , it could adversely affect the size of the portfolio lending market , which in turn would reduce the demand for our mortgage insurance , but may create incentives for banks to originate and sell loans to the gses which could expand demand for mortgage insurance . if the federal banking agencies revise the basel iii rules to reduce or eliminate the capital benefit banks receive from insuring low down payment loans with private mortgage insurance , or if our bank customers believe that such adverse changes may occur at some time in the future , our current and future business may be adversely affected . furthermore , if mortgage insurance companies do not meet the requirements to be an eligible guarantor for purposes of general credit mitigation , our future business prospects may be adversely affected . `` risk factorsrisks relating to our business the implementation of the basel iii capital accord , or other changes to our customers ' capital requirements , may discourage the use of mortgage insurance . '' fha reform the fha is our primary competitor outside of the private mortgage insurance industry and the fha 's role in the mortgage insurance industry is also significantly dependent upon regulatory developments . the u.s. congress is considering reforms of the housing finance market , which includes consideration of the future mission , size and structure of the fha , which is part of hud . in hud 's annual report to congress on the financial status of the fha mutual mortgage insurance fund , or mmif , dated november 16 , 2012 , the capital reserve ratio of the mmif turned to a negative 1.44 % , below the congressionally mandated required minimum level of 2 % . in part as a result of this capital shortfall , congress is considering legislation to reform the fha . if fha reform were to raise fha premiums , tighten fha credit guidelines , make other changes which make lender use of fha less attractive , or implement credit risk sharing between fha and private mortgage insurers , these changes may be beneficial to our business . however , there can be no assurance that any fha reform legislation will be enacted into law , and what provisions may be contained in any final legislation , if any . therefore , the future impact on our business is uncertain . see `` businessregulationfederal laws and regulationfha reform '' and `` risk factorsrisks relating to our business the amount of insurance we may be able to write could be adversely affected if lenders and investors select alternatives to private mortgage insurance. `` 76 factors affecting our results of operations net premiums written and earned premiums are based on insurance in force , or iif , during all or a portion of a period . a change in the average iif during a period causes premiums to increase or decrease as compared to prior periods . average premiums rates in effect during a given period will also cause premiums to differ when compared to earlier periods . iif at the end of a reporting period is a function of the iif at the beginning of such reporting period plus niw less policy cancellations ( including claims paid ) during the period . as a result , premiums are generally influenced by : niw , which is the aggregate principal amount of the new mortgages that are insured during a period .
| results of operations the following table sets forth our results of operations for the periods indicated : replace_table_token_24_th year ended december 31 , 2013 compared to the year ended december 31 , 2012 for the year ended december 31 , 2013 , we reported net income of $ 65.4 million , compared to a net loss of $ 13.5 million for the year ended december 31 , 2012. the increase in our operating results in 2013 over 2012 was primarily due to an increase in net premiums earned associated with the growth of our iif and an increase in net investment income as well as the income tax benefit recorded due to the reversal of our valuation allowance against deferred tax assets , partially offset by increases in other underwriting and operating expenses and the provision for losses and loss adjustment expenses and a reduction in other income . net premiums written and earned net premiums earned increased in the year ended december 31 , 2013 by 195 % compared to the year ended december 31 , 2012 primarily due to the increase in our average iif from $ 7.6 billion in 2012 to $ 22.8 billion in 2013. net premiums written increased in the year ended december 31 , 2013 by 156 % over the prior year . in the year ended december 31 , 2013 , unearned premiums increased by $ 62.8 million as a result of net premiums written on single premium policies of $ 78.5 million which was partially offset by $ 15.7 million of unearned premium that was recognized in earnings during the year . in the year ended december 31 , 2012 , unearned premiums increased by $ 30.9 million as a result of net premiums written on single premium policies of $ 35.7 million partially offset by $ 4.8 million of unearned premium that was recognized in earnings during the year .
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the effective date of the amendment is for fiscal years beginning after december 15 , 2016. the company does not expect that the adoption of this asu story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this annual report on form 10-k. the forward-looking statements included in this discussion and elsewhere in this annual report on form 10-k involve risks and uncertainties , including anticipated financial performance , business prospects , industry trends , shareholder returns , performance of leases by tenants , performance on loans to customers and other matters , which reflect management 's best judgment based on factors currently known . see “ cautionary statement concerning forward-looking statements. ” actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors , including but not limited to those discussed in this item and in item 1a - “ risk factors. ” overview business our principal business objective is to enhance shareholder value by achieving predictable and increasing ffo and dividends per share . our prevailing strategy is to focus on long-term investments in a limited number of categories in which we maintain a depth of knowledge and relationships , and which we believe offer sustained performance throughout all economic cycles . our investment portfolio includes ownership of and long-term mortgages on entertainment , education and recreation properties . substantially all of our owned single-tenant properties are leased pursuant to long-term , triple-net leases , under which the tenants typically pay all operating expenses of the property . tenants at our owned multi-tenant properties are typically required to pay common area maintenance charges to reimburse us for their pro-rata portion of these costs . it has been our strategy to structure leases and financings to ensure a positive spread between our cost of capital and the rentals or interest paid by our tenants . we have primarily acquired or developed new properties that are pre-leased to a single tenant or multi-tenant properties that have a high occupancy rate . we have also entered into certain joint ventures and we have provided mortgage note financing . we intend to continue entering into some or all of these types of arrangements in the foreseeable future . historically , our primary challenges have been locating suitable properties , negotiating favorable lease or financing terms ( on new or existing properties ) , and managing our portfolio as we have continued to grow . we believe our management 's knowledge and industry relationships have facilitated opportunities for us to acquire , finance and lease properties . our business is subject to a number of risks and uncertainties , including those described in “ risk factors ” in item 1a of this report . as of december 31 , 2016 , our total assets were approximately $ 4.9 billion ( after accumulated depreciation of approximately $ 0.6 billion ) which included investments in each of our four operating segments with properties located in 40 states , the district of columbia and ontario , canada . our entertainment segment included investments in 141 megaplex theatres , eight entertainment retail centers ( which include eight additional megaplex theatres ) and eight family entertainment centers . our portfolio of owned entertainment properties consisted of 12.5 million square feet and was 99 % leased , including megaplex theatres that were 100 % leased . our education segment included investments in 67 public charter schools , 41 early education centers and 12 private schools . our portfolio of owned education properties consisted of 4.3 million square feet and was 100 % leased . our recreation segment included investments in 11 ski areas , five waterparks and 25 golf entertainment complexes . our portfolio of owned recreation properties was 100 % leased . our other segment consisted primarily of land under ground lease , property under development and land held for development related to the adelaar casino and resort project in sullivan county , new york . the combined owned portfolio consisted of 19.2 million square feet and was 99.5 % leased . as of december 31 , 2016 , we also had invested approximately $ 297.1 million in property under development . 44 operating results our total revenue , net income available to common shareholders and funds from operations as adjusted ( `` ffoaa '' ) per diluted share are detailed below for the years ended december 31 , 2016 and 2015 ( in millions , except per share information ) : replace_table_token_16_th ( 1 ) total revenue for the year ended december 31 , 2016 , versus the year ended december 31 , 2015 , was favorably impacted by the effect of acquisitions and build-to-suit projects completed during 2016 and 2015 as well as $ 4.7 million in gains from insurance claims and a $ 3.6 million prepayment fee from the early payoff of a mortgage note secured by a public charter school property . ( 2 ) net income available to common shareholders per diluted share for the year ended december 31 , 2016 , versus the year ended december 31 , 2015 , was favorably impacted by the items impacting total revenue described above , as well as $ 18.6 million in retirement severance expense recognized in 2015 related to the retirement of our former chief executive officer . net income available to common shareholders per diluted share for the year ended december 31 , 2016 versus the year ended december 31 , 2015 , was unfavorably impacted b y an increase in interest expense ( including less capitalization ) and general and administrative expense , lower gains on sales in 2016 due to a larger theatre sale that occurred in 2015 , and an increase in common shares outstanding . story_separator_special_tag estimated unguaranteed residual values at the date of lease inception represent management 's initial estimates of fair value of the leased assets at the expiration of the lease , not to exceed original cost . significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values . the estimated unguaranteed residual value is reviewed on an annual basis or more frequently if necessary . we evaluate the collectibility of our direct financing lease receivable to determine whether it is impaired . a direct financing lease receivable is considered to be impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . when a direct financing lease receivable is considered to be impaired , the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the direct financing lease receivable 's effective interest rate or to the value of the underlying collateral , less costs to sell , if such receivable is collateralized . real estate useful lives we are required to make subjective assessments as to the useful lives of our properties for the purpose of determining the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a 46 direct impact on our net income . depreciation and amortization are provided on the straight-line method over the useful lives of the assets , as follows : buildings 30 to 40 years tenant improvements base term of lease or useful life , whichever is shorter furniture , fixtures and equipment 3 to 25 years impairment of real estate values we are required to make subjective assessments as to whether there are impairments in the value of our rental properties . these estimates of impairment may have a direct impact on our consolidated financial statements . we assess the carrying value of our rental properties whenever events or changes in circumstances indicate that the carrying amount of a property may not be recoverable . certain factors that may occur and indicate that impairments may exist include , but are not limited to : underperformance relative to projected future operating results , tenant difficulties and significant adverse industry or market economic trends . if an indicator of possible impairment exists , a property that is held and used by the company is evaluated for impairment by comparing the carrying amount of the property to the estimated undiscounted future cash flows expected to be generated by the property . if the carrying amount of a property exceeds its estimated future cash flows on an undiscounted basis , an impairment charge is recognized in the amount by which the carrying amount of the property exceeds the fair value of the property . for assets and asset groups that are held for sale , an impairment loss is measured by comparing the fair value of the property , less costs to sell , to the asset ( group ) carrying value . management estimates fair value of our rental properties utilizing independent appraisals and or based on projected discounted cash flows using a discount rate determined by management to be commensurate with the risk inherent in the company . real estate acquisitions upon acquisition of real estate properties , we determine if the acquisition meets the criteria to be accounted for as a business combination . accordingly , we typically account for ( 1 ) acquired vacant properties , ( 2 ) acquired single tenant properties when a new lease or leases are signed at the time of acquisition , and ( 3 ) acquired single tenant properties that have an existing long-term triple-net lease or leases ( greater than 7 years ) as asset acquisitions . acquisitions of properties with shorter-term leases or properties with multiple tenants that require business related activities to manage and maintain the properties ( i.e . those properties that involve a process ) are treated as business combinations . costs incurred for asset acquisitions and development properties , including transaction costs , are capitalized . for asset acquisitions , we allocate the purchase price and other related costs incurred to the real estate assets acquired based on recent independent appraisals or methods similar to those used by independent appraisers and management judgment . if the acquisition is determined to be a business combination , we record the fair value of acquired tangible assets ( consisting of land , building , tenant improvements , and furniture , fixtures and equipment ) and identified intangible assets and liabilities ( consisting of above and below market leases , in-place leases , tenant relationships and assumed financing that is determined to be above or below market terms ) as well as any noncontrolling interest . in addition , acquisition-related costs in connection with business combinations are expensed as incurred . allowance for doubtful accounts management makes quarterly estimates of the collectibility of its accounts receivable related to base rents , tenant escalations ( straight-line rents ) , reimbursements and other revenue or income . management specifically analyzes trends in accounts receivable , historical bad debts , customer credit worthiness , current economic trends and changes in customer payment terms when evaluating the adequacy of its allowance for doubtful accounts . in addition , when customers are in bankruptcy , management makes estimates of the expected recovery of pre-petition administrative and damage claims . these estimates have a direct impact on our net income . mortgage notes and other notes receivable mortgage notes and other notes receivable , including related accrued interest receivable , consist of loans that we originated and the related accrued and unpaid interest income as of the balance sheet date .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 rental revenue was $ 399.6 million for the year ended december 31 , 2016 compared to $ 330.9 million for the year ended december 31 , 2015 . rental revenue increased $ 68.7 million from the prior period , of which $ 65.3 million was related to property acquisitions and developments completed in 2016 and 2015 , as well as an increase of $ 3.4 million in rental revenue on existing properties , partially offset by the impact of a weaker canadian exchange rate and property dispositions . percentage rents of $ 4.7 million and $ 3.0 million were recognized during the years ended december 31 , 2016 and 2015 , respectively . straight-line rents of $ 17.0 million and $ 12.2 million were recognized during the years ended december 31 , 2016 and 2015 , respectively . during the year ended december 31 , 2016 , we experienced a decrease of approximately 0.5 % in rental rates on approximately 1.3 million square feet with respect to 17 lease renewals . additionally , we have funded or have agreed to fund a weighted average of $ 31.42 per square foot in tenant improvements . there were no leasing commissions related to these renewals . tenant reimbursements totaled $ 15.6 million for the year ended december 31 , 2016 compared to $ 16.3 million for the year ended december 31 , 2015 . these tenant reimbursements related to the operations of our entertainment retail centers . the $ 0.7 million decrease was primarily due a decrease in tenant reimbursements due to vacancy at our retail centers in ontario , canada as well as the impact of a weaker canadian exchange rate .
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statements appearing elsewhere in this report . this discussion and analysis contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as the slow-down of the global financial markets and its impact on economic growth in general , the competition in the fertilizer industry and the impact of such competition on pricing , revenues and margins , the weather conditions in the areas where our customers are based , the cost of attracting and retaining highly skilled personnel , the prospects for future acquisitions , and the factors set forth elsewhere in this report , our actual results may differ materially from those anticipated in these forward-looking statements . considering these risks and uncertainties , there can be no assurance that the forward-looking statements contained in this report will in fact occur . you should not place undue reliance on the forward-looking statements contained in this report . the forward-looking statements speak only as of the date on which they are made , and , except to the extent required by u.s. federal securities laws , we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events . further , the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon , among other things , the existing regulatory environment , industry conditions , market conditions and prices , and our assumptions as of such date . we may change our intentions , at any time and without notice , based upon any changes in such factors , in our assumptions or otherwise . unless the context indicates otherwise , as used in the notes to the financial statements of the company , the following are the references herein of all the subsidiaries of the company ( i ) green agriculture holding corporation ( “ green new jersey ” ) , a wholly-owned subsidiary of green nevada incorporated in the state of new jersey ; ( ii ) shaanxi techteam jinong humic acid product co. , ltd. ( “ jinong ” ) , a wholly-owned subsidiary of green new jersey organized under the laws of the prc ; ( iii ) xi'an hu county yuxing agriculture technology development co. , ltd. ( “ yuxing ” ) , a variable interest entity in the prc ( “ vie ” ) controlled by jinong through contractual agreements ; ( iv ) shaanxi lishijie agrochemical co. , ltd. ( “ lishijie ” ) , a vie controlled by jinong through contractual agreements ; ( v ) songyuan jinyangguang sannong service co. , ltd. ( “ jinyangguang ” ) , a vie in the prc controlled by jinong through contractual agreements ; ( vi ) shenqiu county zhenbai agriculture co. , ltd. ( “ zhenbai agri ” ) , a vie controlled by jinong through contractual agreements ; ( vii ) weinan city linwei district wangtian agricultural materials co. , ltd. ( “ wangtian ” ) , a vie controlled by jinong through contractual agreements ; ( viii ) aksu xindeguo agricultural materials co. , ltd. ( “ xindeguo ” ) , a vie controlled by jinong through contractual agreements ; ( ix ) xinjiang xinyulei eco-agriculture science and technology co. , ltd ( “ xinyulei ” ) , a vie controlled by jinong through contractual agreements ; ( x ) sunwu county xiangrong agricultural materials co. , ltd. ( “ xiangrong ” ) , a vie controlled by jinong through contractual agreements ; ( xi ) anhui fengnong seed co. , ltd. ( “ fengnong ” ) , a vie controlled by jinong through contractual agreements ; ( xii ) beijing gufeng chemical products co. , ltd. , a wholly-owned subsidiary of jinong in the prc ( “ gufeng ” ) ; and ( xiii ) beijing tianjuyuan fertilizer co. , ltd. , gufeng 's wholly-owned subsidiary in the prc ( “ tianjuyuan ” ) . yuxing , lishijie , jinyangguang , zhenbai , wangtian , xindeguo , xinyulei , xiangrong and fengnong may also collectively be referred to as the “ the vie companies ” ; lishijie , jinyangguang , zhenbai , wangtian , xindeguo , xinyulei , xiangrong and fengnong may also collectively be referred to as “ the sales vies ” . unless the context otherwise requires , all references to ( i ) “ prc ” and “ china ” are to the people 's republic of china ; ( ii ) “ u.s . dollar , ” “ $ ” and “ us $ ” are to united states dollars ; and ( iii ) “ rmb ” , “ yuan ” and renminbi are to the currency of the prc or china . overview we are engaged in research , development , production and sale of various types of fertilizers and agricultural products in the prc through our wholly-owned chinese subsidiaries , jinong and gufeng ( including gufeng 's subsidiary tianjuyuan ) , and our vie companies . our primary business is the manufacturing and sales of fertilizer products . specifically , the manufactured fertilizers are humic-acid based compound fertilizer produced by jinong and compound fertilizer , blended fertilizer , organic compound fertilizer , slow-release fertilizer , highly-concentrated water-soluble fertilizer and mixed organic-inorganic compound fertilizer produced by gufeng . while the sales vies do n't manufacture fertilizer products , being the company 's newly founded sales segment , they are dedicated to procuring various agriculture materials from different suppliers for sale to customers across the nation . in addition , through yuxing , we develop and produce various agricultural products , such as top-grade fruits , vegetables , flowers and colored seedlings . for financial reporting purposes , our operations are organized into three business segments : fertilizer products ( jinong ) , fertilizer products ( gufeng ) and agricultural products production ( yuxing ) . story_separator_special_tag 6,000,000 12,000,000 aksu xindeguo agricultural materials co. , ltd. wholesale and retail sales of pesticides ; sales of chemical fertilizers , packaged seeds , agricultural mulches , micronutrient fertilizers , compound fertilizers , plant growth regulators , agricultural machineries , and water economizers ; consulting services for agricultural technologies ; purchase and sales of agricultural by- products . 10,000,000 12,000,000 xinjiang xinyulei eco-agriculture science and technology co. , ltd sales of chemical fertilizers , packaged seeds , agricultural mulches , micronutrient fertilizers , organic fertilizers , plant growth regulators , agricultural machineries , and water economizers ; purchase and sales of agricultural by-products ; cultivation of fruits and vegetables ; consulting services and training for agricultural technologies ; storage services ; sales of articles of daily use , food and oil ; on-line sales of the above-mentioned products . total 37,000,000 51,000,000 ( 1 ) the exchange rate between rmb and u.s. dollars on june 30 , 2016 is rmb1=us $ 0.1508 , according to the exchange rate published by bank of china . 40 january 1 , 2017 : cash principal of payment for notes for acquisition acquisition company name business scope ( rmb [ 1 ] ) ( rmb ) sunwu county xiangrong agricultural materials co. , ltd. sales of pesticides , agricultural chemicals , chemical fertilizers , agricultural materials ; manufacture and sales of mulches . 4,000,000 6,000,000 anhui fengnong seed co. , ltd. wholesale and retail sales of pesticides ; sales of chemical fertilizers , packaged seeds , agricultural mulches , micronutrient fertilizers , compound fertilizers and plant growth regulators 4,000,000 6,000,000 total 8,000,000 12,000,000 ( 1 ) the exchange rate between rmb and u.s. dollars on january 1 , 2017 is rmb1=us $ 0.144 , according to the exchange rate published by bank of china . pursuant to the saa and the acn , the shareholders of the targets , while retaining possession of the equity interests and continuing to be the legal owners of such interests , agreed to pledge and entrust all of their equity interests , including the proceeds thereof but excluding any claims or encumbrances , and the operations and management of its business to jinong , in exchange of an aggregate amount of rmb45,000,000 ( approximately $ 6,731,600 ) to be paid by jinong within three days following the execution of the saa , acn and the vie agreements , and convertible notes with an aggregate face value of rmb 63,000,000 ( approximately $ 9,418,800 ) with an annual fixed compound interest rate of 3 % and term of three years . jinong acquired the targets using the vie arrangement based on our need to further develop our business and comply with the regulatory requirements under the prc laws . as our business focuses on the production of fertilizer , all our business activities intertwine with those in the agriculture industry in china . specifically , we deal with compliance , regulation , safety , inspection , and licenses in fertilizer production , farm land use and transfer , growing and distribution of agriculture goods , agriculture basic supplies , seeds , pesticides , and trades of grains . it is an industry in which heavy regulations get implemented and strictly enforced . in addition , e-commerce , which is also under strict government regulations in the prc , has lately become a sale and distribution channel for agricultural products . currently , we are developing an online platform to connect the physical distribution network we either own or lease . compared with the regulatory environment in other jurisdictions , the regulatory environment in the prc is unique . for example , the “ m & a rules ” purports to require that an offshore special purpose vehicle controlled directly or indirectly by prc companies or individuals and formed for purposes of overseas listing through acquisition of prc domestic interests held by such prc companies or individuals obtain the approval of the china securities regulatory commission ( the “ csrc ” ) prior to the listing and trading of such special purpose vehicle 's securities on an overseas stock exchange . on september 21 , 2006 , the csrc published procedures regarding its approval of overseas listings by special purpose vehicles . for both e-commerce and agriculture industries , prc regulators limit the investment from foreign entities and set particularly rules for foreign-owned entities to conduct business . we expect these limitations on foreign-owned entities will continue to exist in e-commerce and agriculture industries . the vie arrangement , however , provides feasibility for obtaining administrative approval process and avoiding industry restrictions that can be imposed on an entity that is a wholly-owned subsidiary of a foreign entity . the vie agreements reduce uncertainty and the current limitation risk . it is our understanding that the vie agreements , as well as the control we obtained through vie arrangement , are valid and enforceable . such legal structure does not violate the known , published , and current prc laws . while there are substantial uncertainties regarding the interpretation and application of prc laws and future prc laws and regulations , and there can be no assurance that the prc authorities will take a view that is not contrary to or otherwise different from our belief and understanding stated above , we believe the substantial difficulty that we experienced previously to conduct business in agriculture as a foreign ownership ca be greatly reduced by the vie arrangement . further , as an integral part of the vie arrangement , the underlying equity pledge agreements provide legal protection for the control we obtained . pursuant to the equity pledge agreements , we have completed the equity pledge processes with the targets to ensure the complete control of the interests in the targets . the shareholders of the targets are not entitled to transfer any shares to a third party under the exclusive option agreements . if necessary , they may transfer shares to our company without consideration .
| results of operations fiscal year ended june 30 , 2017 compared to the year ended june 30 , 2016. for the years ended june 30 replace_table_token_8_th 42 net sales total net sales for the fiscal year ended june 30 , 2017 were $ 285,213,040 , an increase of $ 16,428,020 or 6.1 % , from $ 268,785,020 for the fiscal year ended june 30 , 2016. this increase was primarily due to an increase in sales vie 's and yuxing 's net sales . for the fiscal year ended june 30 , 2017 , jinong 's net sales decreased $ 19,074,905 , or 15.2 % , to $ 106,642,032 from $ 125,716,937 for the fiscal year ended june 30 , 2016. this decrease was mainly attributable to the decrease in jinong 's sales volume during the last fiscal year . for the fiscal year ended june 30 , 2017 , gufeng 's net sales were $ 104,446,239 , a decrease of $ 30,215,181 , or 22.4 % from $ 134,661,420 for the fiscal year ended june 30 , 2016. the decrease was mainly attributable to the decrease in gufeng 's sales volume during the last fiscal year . for the fiscal year ended june 30 , 2017 , yuxing 's net sales were $ 8,517,231 , an increase of $ 110,568 or 1.3 % , from $ 8,406,663 for the fiscal year ended june 30 , 2016. the increase was mainly attributable to the increase in market demand during the last fiscal year . for the fiscal year ended june 30 , 2017 , as a brand-new segment , the sales vies ' net sales were $ 65,607,538. cost of goods sold total cost of goods sold for the fiscal year ended june 30 , 2017 was $ 201,440,955 an increase of $ 25,685,266 , or 14.6 % , from $ 175,755,689 for the fiscal year ended june 30 , 2016. this increase was mainly due to increase in cost of goods sold in for yuxing and the sales vies .
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generally , the company serves two broad end-use markets , consumer and industrial , which , period to period , can exhibit different economic characteristics from each other . geographically , in 2020 approximately 65 % of sales were generated in the united states , 20 % in europe , 6 % in asia , 4 % in canada and 5 % in other regions . the company is a market-share leader in many of its product lines , particularly in uncoated recycled paperboard , tubes , cores , cones and composite containers . competition in most of the company 's businesses is intense . demand for the company 's products and services is primarily driven by the overall level of consumer consumption of non-durable goods ; however , certain product and service groups are tied more directly to durable goods , such as appliances , automobiles and construction . the businesses that supply and or service consumer product companies have tended to be , on a relative basis , more recession resistant than those that service industrial markets . financially , the company 's objective is to deliver average annual double-digit total returns to shareholders over time . to meet that target , the company focuses on three major areas : driving profitable sales growth , improving margins and leveraging the company 's strong cash flow and financial position . operationally , the company 's goal is to be the acknowledged leader in high-quality , innovative , value-creating packaging solutions within targeted customer market segments . covid-19 story_separator_special_tag in place a global task force to develop and implement business continuity plans to ensure its operations are as prepared as possible to be able to continue producing and shipping product to its customers without disruption . sonoco has a diverse global supply chain and to date has not experienced significant raw material or other supply disruptions . use of non-gaap financial measures to assess and communicate the financial performance of the company , sonoco management uses , both internally and externally , certain financial performance measures that are not in conformity with generally accepted accounting principles ( “ non-gaap ” financial measures ) . these non-gaap financial measures reflect the company 's gaap operating results adjusted to remove amounts , including the associated tax effects , relating to restructuring initiatives , asset impairment charges , environmental charges , acquisition-related costs , gains or losses from the disposition of businesses , excess property insurance recoveries , non-operating pension costs , certain income tax events and adjustments , and other items , if any , the exclusion of which management believes improves the period-to-period comparability and analysis of the underlying financial performance of the business . the adjusted non-gaap results are identified using the term “ base , ” for example , “ base earnings. ” the company 's base financial performance measures are not in accordance with , nor an alternative for , measures conforming to generally accepted accounting principles and may be different from non-gaap measures used by other companies . in addition , these non-gaap measures are not based on any comprehensive set of accounting rules or principles . sonoco continues to provide all information required by gaap , but it believes that evaluating its ongoing operating results may not be as useful if an investor or other user is limited to reviewing only gaap financial measures . the company consistently applies its non-gaap “ base ” performance measures presented herein and uses them for internal planning and forecasting purposes , to evaluate its ongoing operations , and to evaluate the ultimate performance of management and each business unit against plan/forecast all the way up through the evaluation of the chief executive officer 's performance by the board of directors . in addition , these same non-gaap measures are used in determining incentive compensation for the entire management team and in providing earnings guidance to the investing community . sonoco management does not , nor does it suggest that investors should , consider these non-gaap financial measures in isolation from , or as a substitute for , financial information prepared in accordance with gaap . sonoco presents these non-gaap financial measures to provide users information to evaluate sonoco 's operating results in a manner similar to how management evaluates business performance . material limitations associated with the use of such measures are that they do not reflect all period costs included in operating expenses and may not reflect financial results that are comparable to financial results of other companies that present similar costs differently . furthermore , the calculations of these non-gaap measures are based on subjective determinations of management regarding the nature and classification of events and circumstances that the investor may find material and view differently . to compensate for these limitations , management believes that it is useful in understanding and analyzing the results of the business to review both gaap information which includes all of the items impacting financial results and the non-gaap measures that exclude certain elements , as described above . restructuring and restructuring-related asset impairment charges are a recurring item as sonoco 's restructuring programs usually require several years to fully implement and the company is continually seeking to take actions that could enhance its efficiency . although recurring , these charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity and the inherent imprecision in the estimates used to recognize the impairment of assets and the wide variety of costs and taxes associated with severance and termination benefits in the countries in which the restructuring actions occur . similarly , non-operating pension expense is a recurring item . however , this expense is subject to significant fluctuations from period to period due to changes in actuarial assumptions , global financial markets ( including stock market returns and interest rate changes ) , plan changes , settlements , curtailments , and other changes in facts and circumstances . story_separator_special_tag on july 17 , 2019 , the company 's board of directors approved a resolution to terminate the sonoco pension plan for inactive participants ( the `` inactive plan '' ) effective september 30 , 2019. approval of the termination was received from the pension benefit guaranty corporation in 2020. following completion of a limited lump-sum offering , the company is expected to settle all remaining liabilities under the inactive plan through the purchases of annuities in mid 2021. in anticipation of settling these liabilities , the company took measures beginning in 2019 to derisk the inactive plan 's assets by investing them in a conservative mix of primarily fixed income investments . during 2020 , the company recorded total pension and postretirement benefit expenses of approximately $ 58.0 million , compared with $ 52.7 million during 2019. the increased expense was primarily due to lower expected returns on plan assets as a result of a full year 's impact of the derisking of the inactive plan portfolio . the aggregate net unfunded position of the company 's various defined benefit plans remained at $ 294 million at the end of both 2020 and 2019 as increases in plan liabilities from interest and lower discount rates were offset by increases in plan assets from company contributions and investment returns . the company generated $ 705.6 million in cash from operations during 2020 , compared with $ 425.9 million in 2019. the primary driver of the increase was the approximately $ 165 million after-tax voluntary contribution to the company 's u.s. defined benefit pension plan in 2019 that did not recur in 2020. cash generated from operations also improved due to the deferral of payments of the company 's portion of social security taxes pursuant to the cares act and a cash tax benefit generated by the expected funding in mid-2021 of the inactive plan as the obligations of the plan are settled . outlook managing through the pandemic will continue to be a primary focus in 2021 ; however , the company also expects to drive profitable growth , expand gross profit margin and enhance sustainability in our operations and our product lines . key to achieving management 's objectives for 2021 and beyond will be a strategy to invest in ourselves and product markets where we have competitive advantages and can be value adding . a prime example of this strategy is the company 's $ 114 million investment in project horizon announced earlier in 2020 , which will convert the hartsville corrugated medium machine to be able to produce uncoated recycled paperboard . the scope of the project was expanded to include a finished goods warehouse and other infrastructure improvements to the hartsville paper manufacturing complex . when completed in 2022 , project horizon is estimated to drive approximately $ 30 million in annualized cost savings . in addition , the company will work to further develop its previously implemented commercial and operational excellence initiatives aimed at improving margins by more fully realizing the value of our products and services , reducing our unit costs and better leveraging our fixed support costs . management is targeting an overall organic volume increase in 2021 of approximately 2.0 % driven largely by a continuation of the economic recovery and a steady return to pre-pandemic demand levels across our businesses . in addition , the company expects to benefit from growth in chilled and prepared food volume , improved perimeter of the store performance , new sustainable products , and growth in our medical and retail security businesses . the company will also continue to look for strategic and opportunistic acquisition candidates as well as opportunities to optimize our overall business portfolio . the company has projected that company-wide price/cost will be negative in 2021 due to higher year-over-year prices in key raw materials , such as recycled fiber and plastic resins , and higher freight costs . manufacturing and other productivity gains are expected to offset a significant portion of the negative price/cost impact and projected increases in labor and other costs ; however , not realizing the targeted organic volume gains would make fully achieving management 's productivity objectives more difficult . operating results in 2021 will include a full year of revenue and operating profit from the august 2020 can packaging acquisition , but will not include the revenue and profit of the european contract packaging business sold november 30 , 2020 ; together , these items are estimated to have a negative year-over-year impact of approximately $ 240 million on revenue and a negative year-over-year impact of approximately $ 0.14 on diluted earnings per share . the company projects the operating component of pension and post-retirement benefits expense will be approximately $ 1 million higher year over year , while the non-operating component , excluding settlement charges , is projected to be $ 13 million lower . the net anticipated decrease of $ 12 million is due primarily to recognition of only a partial year of expenses related to the inactive plan which is expected to be fully settled by the end of the second quarter 2021. non-cash , non-base , pretax settlement charges totaling approximately $ 560 million are expected to be recognized in 2021 as the liabilities of the inactive plan , terminated in 2019 , are settled through lump-sum payouts and annuity purchases . the company anticipates making an additional contribution to the inactive plan of approximately $ 150 million in mid-2021 in order to be fully funded on a termination basis at the time of the annuity purchase . contributions to all other defined benefit plans in 2021 are expected to total approximately $ 15 million . in consideration of the above factors , management is projecting that reported 2021 net sales will stay relatively flat at approximately $ 5.2 billion and overall margins for gross profit will improve approximately 0.8 % over 2020. base operating profit as a percent of sales is expected to remain at approximately 10.1 % .
| impact on operating results around the world , sonoco is an essential provider of consumer , industrial and medical packaging . sonoco associates are deemed “ essential critical infrastructure workers ” under the guidance of the u.s. department of homeland security and have received similar designations by the vast majority of other governmental agencies in the 34 countries where the company operates . as a result , nearly all of the company 's global operations were able to continue to operate despite locally-mandated temporary shutdown orders that were issued in many of our geographic locations . certain customers whose products were not deemed “ critically essential ” had to temporarily suspend operations due to the covid-19 pandemic , while some others had time periods when they were unable to fully staff their operations . as areas around the world have largely reopened their economies , the company has seen improved demand for many of its products and services . however , recent indications of a resurgence of the virus in certain regions and the emergence of variants of the virus for which existing vaccines could be less effective have raised concerns about the re-imposition of local restrictions on business activity and a negative effect on consumer behavior that alone , or together , could impede the economic recovery . sonoco is following these developments closely and will respond with appropriate changes to active production capacity and cost-management initiatives . an extended period of disruption to our served markets or global supply chains could materially and adversely affect our results of operations , access to sources of liquidity and overall financial condition . in addition , an extended global recession caused by the pandemic would have an adverse impact on the company 's operations and financial condition .
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the conversion into common stock occurred on december 24 , 2014. on december 1 , 2014 , we entered into a second unsecured grid note , for up to $ 250,000 with sco . as of december 31 , 2014 we have drawn a total of $ 150,000 . the interest rate is 8 % per annum and the maturity date is november 30 , 2015 unless a financing of at least $ 5,000,000 occurs . the financing occurred december 24 , 2014 and the grid note was paid in full on january 5 , 2015. note 3 property and equipment property and equipment consists of the following : replace_table_token_10_th depreciation and amortization on property and equipment was $ 2,000 and $ 3,000 for the years ended december 31 , 2014 and 2013 , respectively . f-10 plasmatech biopharmaceuticals , inc. and subsidiaries notes to consolidated financial statements two years ended december 31 , 2014 note 4 licensed technology on september 22 , 2014 , we entered into an exclusive , worldwide , licensing agreement with licensor to obtain rights to utilize and to sub-license to other pharmaceuticals firms , its patented methods for the extraction of therapeutic biologics from human plasma . licensed technology consists of the following : december 31 , 2014 2013 licensed technology $ 5,000,000 $ less accumulated amortization 9,000 licensed technology , net $ 4,991,000 $ amortization on licensed technology was $ 9,000 and $ 0 for the years ended december 31 , 2014 and 2013 , respectively . the aggregate estimated amortization expense for intangible assets remaining as of december 31 , 2014 is as follows : replace_table_token_11_th note 5 401 ( k ) plan we have a tax-qualified employee savings and retirement plan ( the 401 ( k ) plan ) covering all our employees . pursuant to the 401 ( k ) plan , employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit ( $ 17,500 in 2014 and 2013 ) and to have the amount of such reduction contributed to the 401 ( k ) plan . the 401 ( k ) plan is intended to qualify under section 401 of the internal revenue code so that contributions by employees or by us to the 401 ( k ) plan , and income earned on 401 ( k ) plan contributions , are not taxable to employees until withdrawn from the 401 ( k ) plan , and so that contributions by us , if any , will be deductible by us when made . at the direction of each participant , we invest the assets of the 401 ( k ) plan in any of 60 investment options . company contributions under the 401 ( k ) plan were $ 0 in 2014 and 2013. note 6 debt on september 10 , 2014 , we entered into an unsecured grid note , for up to $ 250,000 with sco capital partners llc . we have drawn a total of $ 250,000 . on december 1 , 2014 , we entered into a second unsecured grid note , for up to $ 250,000 with sco capital llc . at december 31 , 2014 we had drawn a total of $ 150,000 . the interest on both notes is 8 % per annum and the maturity dates are august 31 , 2015 for the first grid note and november 30 , 2015 for the second grid note unless a financing of at least $ 5,000,000 occurs , in which extent the notes are required to be paid in full . we had note payables totaling $ 400,000 at december 31 , 2014. we had interest expense totaling $ 7,000 on both notes at december 31 , 2014. the notes were paid in full on january 5 , 2015 note 7 commitments and contingencies operating leases at december 31 , 2014 , we had a commitment under a non-cancelable operating lease for our new york office until december 31 , 2015 totaling $ 142,000 and our boston office until december 31 , 2015 totaling $ 30,000 f-11 plasmatech biopharmaceuticals , inc. and subsidiaries notes to consolidated financial statements two years ended december 31 , 2014 note 7 commitments and contingencies ( continued ) and until february 28 , 2016 totaling $ 6,000 . rent expense for the years ended december 31 , 2014 and 2013 was $ 178,000 and $ 270,000 , respectively . rent expense in 2013 included rent for our dallas office which was story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes included in this form 10-k. plasmatech biopharmaceuticals , inc. ( together with our subsidiaries , we , our , plasmatech or the company ) is a delaware corporation . we are an emerging biopharmaceutical company focused on developing a range of pharmaceutical products primarily based upon technology recently licensed from licensor and our nanopolymer chemistry technologies . we currently have one marketed product licensed in the u.s. , europe , china , australia , new zealand and korea . we also have additional products and platform technologies in various stages of development where we are seeking partners to continue development and or to license the technology . story_separator_special_tag costs and changes in current assets and liabilities . on september 10 , 2014 , we entered into an unsecured grid note , for up to $ 250,000 with sco ( grid note i ) . story_separator_special_tag if we are unable to timely complete a particular project , our research and development efforts could be delayed or reduced , our business could suffer depending on the significance of the project and we might need to raise additional capital to fund operations , as discussed in the risk factors above , including without limitation those relating to the uncertainty of the success of our research and development activities and our ability to obtain necessary additional capital to fund operations in the future . as discussed in such risk factors , delays in our research and development efforts and any inability to raise additional funds could cause us to eliminate one or more of our research and development programs . we plan to continue our policy of investing any available funds in certificates of deposit , money market funds , government securities and investment-grade interest-bearing securities . we do not invest in derivative financial instruments . we do not believe inflation or changing prices have had a material impact on our revenue or operating income in the past three years . climate change we do not believe there is anything unique to our business which would result in climate change regulations having a disproportional effect on us as compared to u.s. industry overall . sources and availability of raw materials and components in addition , we also are subject to rules promulgated by the securities exchange commission ( sec ) in 2012 pursuant to the dodd-frank wall street reform and consumer protection act of 2010 that require us to conduct due diligence on and disclose if we are able to determine whether certain materials ( including tantalum , tin , gold and tungsten ) , known as conflict minerals , that originate from mines in the democratic republic of congo or certain adjoining countries ( drc ) , are used in our products . the first drc minerals report is due in may 2015 for the 2014 calendar year and we are conducting appropriate diligence measures to comply with such requirements . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period . in applying our accounting principles , 35 we must often make individual estimates and assumptions regarding expected outcomes or uncertainties . as you might expect , the actual results or outcomes are often different than the estimated or assumed amounts . these differences are usually minor and are included in our consolidated financial statements as soon as they are known . our estimates , judgments and assumptions are continually evaluated based on available information and experience . because of the use of estimates inherent in the financial reporting process , actual results could differ from those estimates . receivables receivables are reported in the balance sheets at the outstanding amount net of an allowance for doubtful accounts . we continually evaluate the creditworthiness of our customers and their financial condition and generally do not require collateral . the allowance for doubtful accounts is based upon reviews of specific customer balances , historic losses , and general economic conditions . as of december 31 , 2014 and 2013 , no allowance was recorded as all accounts were considered collectible . licensed technology on september 22 , 2014 , we entered into an exclusive , worldwide licensing agreement with licensor to obtain rights to utilize and to sub-license to other pharmaceuticals firms , its patented methods for the extraction of therapeutic biologics from human plasma . under the terms of the licensing agreement , as amended on january 23 , 2015 , we paid a license fee of $ 1 million in cash , will pay $ 4,000,000 in cash or 1,096,151 shares of our common stock in 2017 , a regulatory approval milestone payment of 513,375 shares of our common stock upon the first fda regulatory approval of a drug derived from the licensor 's proprietary sdf process , and a tiered royalty on annual net sales of plasma fractions produced with licensor 's proprietary sdf process . the license is amortized over the life of the patent . derivative liability in order to calculate the derivative liability preferred stock , we used the monte carlo simulation to estimate future stock prices . the use of valuation techniques requires us to make various key assumptions for inputs into the model , including assumptions about the expected future volatility of the price of our stock . in estimating the fair value at the end of december 31 , 2013 balance sheet date , we based our selected volatility on the one-year historic volatility of our stock as we believe this is most representative of the expected volatility in the near future for us . the series a preferred stock was converted into common stock at december 24 , 2014 so there is no longer a derivative liability . license revenues and royalties our revenues are generated from licensing , research and development agreements , royalties and product sales . we recognize revenue in accordance with sec staff accounting bulletin no . 104 ( sab 104 ) , revenue recognition . license revenue is recognized over the remaining life of the underlying patent or period of performance obligation . research and development revenues are recognized as services are performed . royalties and product revenues are recognized in the period of sales . stock based compensation expense we account for stock based compensation expense in accordance with fasb asc 718 , stock based compensation . we have two stock-based compensation plans under which incentive and non-incentive qualified stock options and restricted shares may be granted to employees , directors and consultants . we measure the
| results of operations comparison of years ended december 31 , 2014 and december 31 , 2013 product sales of mugard in the united states totaled $ 1,529,000 for the year ended december 31 , 2013. we did not have any sales of mugard in 2014 since mugard was licensed to amag on june 6 , 2013. we are currently receiving quarterly royalties from amag for the sale of mugard under our licensing agreement . our licensing revenue for the year ended december 31 , 2014 was $ 598,000 as compared to $ 435,000 for the same period of 2013 , an increase of $ 163,000. we recognize licensing revenue over the period of the performance obligation under our licensing agreements . we recorded royalty revenue for mugard of $ 327,000 for the year ended december 31 , 2014 and $ 78,000 royalties in the same period of 2013 , an increase of $ 249,000. total research and development spending for the year ended december 31 , 2014 was $ 333,000 , as compared to $ 884,000 for the same period of 2013 , a decrease of $ 551,000. the decrease in research and development expenses was primarily due to : decreased clinical development with trials for mugard ( $ 319,000 ) ; decreased salary and related costs ( $ 280,000 ) from reduced scientific staff ; offset by increased scientific consulting expense ( $ 230,000 ) ; and other net decreases in research spending ( $ 182,000 ) . product costs for mugard in the united states were $ 125,000 for the year ended december 31 , 2013. there were no product costs in 2014 due to no sales of mugard by us .
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we also believe that our license sales may be benefitting from recent consolidation in the biometrics industry that has left relatively few u.s. suppliers of biometrics software . we believe the u.s. government and its agencies would prefer to procure biometrics software from u.s. based and owned suppliers , if feasible , because of national security concerns . the $ 0.7 million decrease in dsl service assurance software license revenue was primarily due to lower license revenue from several telecom suppliers that use our core dr. dsl technology in their products , and , to a lesser degree , lower sales of our ldp software product . software license revenue decreased 1 % from $ 10.4 million in 2010 to $ 10.3 million in 2011. as a percentage of total revenue , software license revenue decreased from 61 % in 2010 to 53 % in 2011. the dollar decrease in software license revenue was primarily due to a $ 1.0 million decrease in revenue from the sale of dsl service assurance software , which was partially offset by a $ 0.9 million increase in revenue from the sale of biometrics and imaging software . the $ 1.0 million decrease in dsl service assurance software license revenue was primarily due to lower sales of our ldp software . in 2010 , we closed two ldp sales transactions with telephone companies and recognized a majority of the revenue from those agreements in 2010. while we recognized some additional revenue from one of the 2010 sales transactions in 2011 , there were no new significant sales of ldp software in 2011. the $ 0.9 million increase in revenue from the sale of biometrics and imaging software was primarily due to a number of larger-sized license transactions with oems , systems integrators and end users in 2011 . 25 software maintenance software maintenance was previously included as a component of a revenue category we called “ product sales. ” software maintenance consists of revenue from the sale of software maintenance contracts for biometrics and imaging , and dsl service assurance software . software maintenance contracts entitle customers to receive software support and software updates if and when they become available . software maintenance revenue increased 25 % from $ 2.7 million in 2011 to $ 3.4 million in 2012. as a percentage of total revenue , software maintenance revenue increased from 14 % in 2011 to 17 % in 2012. the dollar increase in software maintenance revenue was primarily due to a $ 0.5 million increase in revenue from biometrics and imaging maintenance contracts , and a $ 0.2 million increase in revenue from dsl service assurance maintenance contracts . the $ 0.5 million increase in revenue from biometrics and imaging maintenance contracts was primarily due to : 1 ) higher software license sales in 2012 which generally included the purchase of software maintenance ; and 2 ) renewals of maintenance contracts sold in years prior to 2012. the $ 0.2 million increase in revenue from dsl service assurance maintenance contracts was primarily due to the commencement of a maintenance contract with an ldp software customer in the fourth quarter of 2011 , which resulted in a full year of maintenance revenue in 2012 versus one quarter in 2011. software maintenance revenue increased 33 % from $ 2.0 million in 2010 to $ 2.7 million in 2011. as a percentage of total revenue , software maintenance revenue increased from 12 % in 2010 to 14 % in 2011. the dollar increase in software maintenance revenue was primarily due to a $ 0.6 million increase in revenue from biometrics and imaging maintenance contracts , and a $ 0.1 million increase in revenue from dsl service assurance maintenance contracts . the $ 0.6 million increase in revenue from biometrics and imaging maintenance contracts was primarily due to : 1 ) higher software license sales in 2011 which generally included the purchase of software maintenance ; and 2 ) renewals of maintenance contracts sold in years prior to 2011. the $ 0.1 million increase in revenue from dsl service assurance maintenance contracts was primarily due to maintenance revenue from two ldp telephone company customers who purchased ldp software in 2010. services services primarily consist of engineering service fees related to : i ) our biometrics and imaging product line ; ii ) our dsl service assurance software product line ; and iii ) a legacy dsl silicon contract . services decreased 30 % from $ 4.3 million in 2011 to $ 3.0 million in 2012. as a percentage of total revenue , services decreased from 22 % in 2011 to 15 % in 2012. the dollar decrease in services revenue was primarily due to a $ 1.1 million decrease in revenue from biometrics services , and a $ 0.2 million decrease in revenue from dsl service assurance services . the $ 1.1 million decrease in revenue from biometrics services in 2012 was primarily due to lower services revenue from two larger customers . one customer project ended in late 2011 and produced little revenue in 2012 after a significant amount of revenue in 2011. the other customer project wound down over the course of 2012 and resulted in significantly less revenue in 2012 compared to 2011 when the project was most active . services revenue derived from all other customers in 2012 and 2011 was approximately similar in both years . while we are attempting to grow our biometrics services business , we are unable to predict whether services revenue will trend upward or downward in future periods because forecasting the timing of the receipt of new customer service contracts and when the related services will be delivered is difficult . the $ 0.2 million decrease in revenue from dsl service assurance services was primarily due to lower service revenue from ldp customers who required engineering customization , and lower services revenue from our legacy dsl silicon customer that we include in our dsl service assurance business . story_separator_special_tag higher biometrics spending is primarily due to headcount growth in its engineering organization . as revenue and customer opportunities have grown in our biometrics business , we have hired additional engineers to keep up with that growth . it should also be noted that in 2012 and 2011 , we allocated approximately equal levels of engineering expenses to cost of services . therefore , the change in research and development expense in 2012 compared to 2011 was not materially affected by the allocation of engineering resources between our internal development projects and customer service projects . research and development expense decreased 10 % from $ 5.9 million in 2010 to $ 5.3 million in 2011. as a percentage of total revenue , research and development expense decreased from 34 % in 2010 to 27 % in 2011. as the table above indicates , total engineering costs increased by $ 0.5 million , which was primarily due to contractor and material costs incurred for a biometrics government services contract . notwithstanding the increase in total engineering costs , research and development expense declined by $ 0.6 million . this decrease was primarily due to how we deployed our engineering resources in 2011. in 2011 , our total engineering costs were $ 7.1 million , of which we classified $ 5.3 million to research and development cost and $ 1.8 million to cost of services based on the time spent on each activity . in 2010 , our total engineering costs were $ 6.6 million , of which we classified $ 5.9 million to research and development cost and $ 0.7 million to cost of services . therefore , the reduction of research and development expense in 2011 was primarily due to a greater deployment of engineering resources on customer services projects in the current year as compared to the previous year . our research and development activities are focused primarily on developing biometrics and imaging software ; and dsl service assurance software . selling and marketing expense selling and marketing expense primarily consists of costs for : i ) sales and marketing personnel , including salaries , sales commissions , stock-based compensation , fringe benefits , travel , and facilities ; and ii ) advertising and promotion expenses . selling and marketing expense increased 4 % from $ 4.1 million in 2011 to $ 4.3 million in 2012. as a percentage of total revenue , selling and marketing expense increased from 21 % in 2011 to 22 % in 2012. the $ 0.2 million increase in selling and marketing expense was primarily due to expense growth in our biometrics sales organization for new sales employees , foreign sales agents and sales commissions . expense increases from biometrics sales were partially offset by lower sales expenses in our dsl service assurance sales organization . 28 selling and marketing expense increased 6 % from $ 3.9 million in 2010 to $ 4.1 million in 2011. as a percentage of total revenue , selling and marketing expense decreased from 23 % in 2010 to 21 % in 2011. the $ 0.2 million increase in selling and marketing expense primarily reflects slightly higher sales expenses in our biometrics sales organization which was partially offset by lower sales expenses in our dsl service assurance sales organization . general and administrative expense general and administrative expense consists primarily of costs for : i ) officers , directors and administrative personnel , including salaries , bonuses , director compensation , stock-based compensation , fringe benefits , and facilities ; ii ) professional fees , including legal and audit fees ; iii ) public company expenses ; and iv ) other administrative expenses , such as insurance costs and bad debt provisions . general and administrative expense decreased 23 % from $ 5.0 million in 2011 to $ 3.9 million in 2012. as a percentage of total revenue , general and administrative expense decreased from 26 % in 2011 to 19 % in 2012. the dollar decrease in general and administrative expense was primarily due to : i ) $ 0.8 million of lower salary , severance , stock-based compensation and consulting expenses related to our former ceo ; ii ) $ 0.5 million of lower expenses related to our former chairman whose expenses were classified as sales and marketing expense commencing in the fourth quarter of 2011 when his title and role changed ; and iii ) and $ 0.1 million of lower stock-based compensation expenses for other members of senior management and our administrative staff . lower general and administrative expenses related to these three factors were partially offset by : i ) $ 0.2 million of higher third party accounting fees to assist us with the tax accounting on gains on patent asset sales ; and ii ) $ 0.1 million of higher other administrative expenses . general and administrative expense decreased 22 % from $ 6.4 million in 2010 to $ 5.0 million in 2011. as a percentage of total revenue , general and administrative expense decreased from 38 % in 2010 to 26 % in 2011. the dollar decrease in general and administrative expense was mainly attributable to : i ) lower legal fees related to patents and patent monetization activities of $ 1.0 million ; ii ) lower compensation expenses for directors and officers of $ 0.8 million ; and iii ) other administrative spending decreases of $ 0.2 million . these spending decreases were partially offset by $ 0.6 million of severance costs paid in 2011 to our former ceo upon his departure from the company . gain on sale of patent assets in 2011 , we engaged an intellectual property law firm to help us conduct a process to sell a portion of our patent portfolio pertaining to wireless and certain dsl patents .
| results of operations the following table sets forth , for the years indicated , certain line items from our consolidated statements of comprehensive income stated as a percentage of total revenue : replace_table_token_4_th summary of operations presently , our active business operations are focused on : i ) biometrics and imaging software and services ; and ii ) digital subscriber line ( “ dsl ” ) service assurance software and services . biometrics & imaging . our biometrics products consist of software and services used in biometric systems , and our imaging products consist of software used primarily in medical imaging applications . biometrics systems are used in applications such as law enforcement , border control , national defense , secure credentialing , access control and background checks . we typically sell our biometrics software and services to : i ) systems integrators that incorporate our software products into biometrics systems that they are developing on behalf of their customers ; ii ) oems that incorporate our products into their biometrics hardware and software solutions ; and iii ) directly to government agencies that are deploying biometrics systems . our imaging software is primarily sold to oems and systems integrators that incorporate our software into their medical and imaging products . dsl service assurance . our dsl service assurance products consist of dsl software products that are used by telephone companies to improve the quality of their dsl service offerings . we sell our dsl service assurance software products through oems and directly to telephone companies . 23 other activities in 2012. in addition to our core biometrics and imaging and dsl service assurance business , there were four other business activities that affected our financial results in 2012 : i ) prior to november 2009 , we were a supplier of dsl silicon intellectual property to the semiconductor industry . we continue to receive royalties from two customers that use our dsl silicon ip in their dsl chipsets .
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we custody and service accounts for hedge and mutual funds , registered investment advisers , proprietary trading groups , introducing brokers and individual investors . we specialize in routing orders and executing and processing trades in securities , futures and foreign exchange instruments on more than 100 electronic exchanges and market centers around the world . since our inception in 1977 , we have focused on developing proprietary software to automate broker-dealer functions . the proliferation of electronic exchanges in the last 25 years has provided us with the opportunity to integrate our software with an increasing number of exchanges and market centers into one automatically functioning , computerized platform that requires minimal human intervention . in connection with our ipo priced on may 3 , 2007 , ibg , inc. purchased 10.0 % of the membership interests in ibg llc , became the sole managing member of ibg llc and began to consolidate ibg llc 's financial results into its financial statements . our primary assets are our ownership of approximately 15.7 % of the membership interests of ibg llc , the current holding company for our businesses , and our controlling interest and related contractual rights as the sole managing member of ibg llc . the remaining approximately 84.3 % of ibg llc membership interests are held by holdings , a holding company that is owned by our founder , chairman and chief executive officer , mr. thomas peterffy and his affiliates , management and other employees of ibg llc , and certain other members . the ibg llc membership interests held by holdings will be subject to purchase by us over time in connection with offerings by us of shares of our common stock . business segments we report our results in two operating business segments , electronic brokerage and market making . these segments are analyzed separately as these are the two principal business activities from which we derive our revenues and to which we allocate resources . electronic brokerage . we conduct our electronic brokerage business through certain ib subsidiaries . as an electronic broker , we execute , clear and settle trades globally for both institutional and individual customers . capitalizing on the technology originally developed for our market making business , ib 's systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to execute trades electronically in these markets at a low cost , in multiple products and currencies from a single trading account . we offer our customers access to all classes of tradable , primarily exchange-listed products , including stocks , bonds , options , futures , forex and mutual funds traded on more than 100 exchanges and market centers in 24 countries and in 23 currencies around the world seamlessly . the emerging complexity of multiple market centers has provided us with the opportunity of building and continuously adapting our order routing software to secure excellent execution prices . 44 our customer base is diverse with respect to geography and segments . currently , more than half of our customers reside outside the u.s. in over 190 countries . approximately 64 % of our customers ' equity is in institutional accounts which include hedge funds , financial advisors , proprietary trading desks , and introducing brokers . we have developed specialized products and services that are successfully attracting these accounts . for examples , we offer prime brokerage services , including capital introduction and securities lending to hedge funds ; and our model portfolio technology and automated share allocation and rebalancing tools are particularly attractive to financial advisors . we provide a host of analytical tools such as the probability lab sm , which allows our customers to analyze option strategies under various market assumptions . the ib investors ' marketplace sm allows wealth advisors to search for money managers and assign them to client accounts based on their investment strategy . ib employeetrack sm is widely used by compliance officers of financial institutions to streamline the process of tracking their employees ' brokerage activities . portfolio builder allows our customers to set up an investment strategy based on research and rankings from top buy-side providers and fundamental data . in addition , ria compliance center provides information to assist advisors with registration and compliance obligations . market making . we conduct our market making business primarily through our th subsidiaries . as one of the largest market makers on many of the world 's leading exchanges , we provide liquidity by offering competitively tight bid/offer spreads over a broad base of over one million tradable , exchange-listed products . as principal , we commit our own capital and derive revenues or incur losses from the difference between the price paid when securities are bought and the price received when those securities are sold . because we provide continuous bid and offer quotations and we are continuously both buying and selling quoted securities , we may have either a long or a short position in a particular product at a given point in time . our entire portfolio is evaluated each second and continuously rebalanced throughout the trading day , thus minimizing the risk of our portfolio at all times . this real-time rebalancing of our portfolio , together with our real-time proprietary risk management system , enables us to curtail risk and to be profitable in both up-market and down-market scenarios . in the past several years our market making business has suffered from competitive pressures and along with the rapid increase of our electronic brokerage business , its significance has diminished . the operating business segments are supported by our corporate segment which provides centralized services and executes our currency diversification strategy . business environment the operating environment for our brokerage business continued to exhibit positive trends in 2015. investor uncertainty accompanied a downdraft in the equity markets in the third quarter of 2015 , and a period of increased volatility led to a contraction of margin borrowings but higher trading volumes . story_separator_special_tag the effects of our currency diversification strategy are reported as ( 1 ) a component of other income in the consolidated statement of comprehensive income and ( 2 ) oci in the consolidated statement of financial condition and the consolidated statement of comprehensive income . the full effect of the global is captured in comprehensive income . consolidated : for the current year , our net revenues were $ 1,189 million and income before income taxes was $ 458 million , compared to net revenues of $ 1,043 million and income before income taxes of $ 506 million in the prior year . the decrease in income before income taxes was mainly driven by customer bad debt expenses , which increased $ 143 million primarily driven by the swiss franc event described below ; employee compensation and benefits expenses , which increased 11 % ; and execution and clearing expenses , which increased 9 % ; partially offset by net interest income , which increased 24 % ; and commission and execution fees , which increased 12 % , in the current year . our pre-tax profit margin was 39 % for the current year and 49 % for the prior year . electronic brokerage : for the current year , income before income taxes in our electronic brokerage segment decreased $ 53 million , or 9 % , compared to the prior year , mainly driven by customer bad debt expenses , which increased $ 143 million primarily driven by the swiss franc event described below . net revenues increased 15 % , mainly due to higher commissions and execution fees , which increased 13 % , on higher customer trade volumes , and higher net interest income , which increased 24 % , driven by higher average customer margin borrowings and higher customer cash balances . pre-tax profit margin was 49 % for the current year and 62 % for the prior year . customer accounts grew 18 % and customer equity increased 19 % from the prior year . total daily average revenue trades ( `` darts '' ) for cleared and execution-only customers , for the current year , increased 14 % to 647 thousand , compared to 566 thousand in the prior year . sudden move in the value of the swiss franc on january 15 , 2015 , due to the sudden move in the value of the swiss franc that followed an unprecedented action by the swiss national bank , which removed a previously instituted and repeatedly confirmed cap of the currency relative to the euro , several of our customers who held currency futures and spot positions suffered losses in excess of their deposits with us . we took immediate action to hedge its exposure to the foreign currency receivables from these customers . during the current year , we incurred losses , net of hedging activity and debt collection efforts , of $ 119 million . we continue to actively pursue collection of the debts . the ultimate effect of this incident on our results will depend upon the outcome of our debt collection efforts . market making : for the current year , income before income taxes in our market making segment increased $ 16 million , or 14 % , compared to the prior year , as trading gains were favorably impacted by higher volatility levels and periods of higher trading activity . pre-tax profit margin was 44 % for the current year and 40 % for the prior year . 47 market making , by its nature , does not produce predictable earnings . our results in any given period may be materially affected by volumes in the global financial markets , the level of competition and other factors . electronic brokerage is more predictable , but it is dependent on customer activity , growth in customer accounts and assets , interest rates and other factors . for a further discussion of the factors , that may affect our future operating results , please see the description of risk factors in part i , item 1a of this annual report on form 10-k. the following two tables present net revenues and income before income taxes for each of our business segments for the periods indicated . net revenues of each of our segments and our total net revenues are summarized below : replace_table_token_8_th ( 1 ) the corporate segment includes corporate related activities , inter-segment eliminations and gains and losses on positions held as part of our overall currency diversification strategy . income before income taxes of each of our segments and our total income before income taxes are summarized below : replace_table_token_9_th ( 1 ) the corporate segment includes corporate related activities , inter-segment eliminations and gains and losses on positions held as part of our overall currency diversification strategy . net revenues trading gains trading gains are generated in the normal course of our market making business . trading revenues are , in general , proportional to the trading activity in the markets . our revenue base is highly diversified and comprised of millions of relatively small individual trades of various financial products traded on electronic exchanges , primarily in stocks , options and futures . trading gains accounted for approximately 23 % , 25 % and 31 % of our total net revenues for the years ended december 31 , 2015 , 2014 and 2013 , respectively . 48 trading gains also include revenues from net dividends . market making activities require us to hold a substantial inventory of equity securities . we derive significant revenues in the form of dividend income from these equity securities . this dividend income is largely offset by dividend expense incurred when we make significant payments in lieu of dividends on short positions in securities in our portfolio . dividend income and expense arise from holding market making positions over dates on which dividends are paid to shareholders of record .
| results of operations the tables in the period comparisons below provide summaries of our consolidated results of operations . the period-to-period comparisons below of financial results are not necessarily indicative of future results . replace_table_token_10_th 52 the following table sets forth our consolidated results of operations as a percent of our total net revenues for the indicated periods : replace_table_token_11_th year ended december 31 , 2015 ( `` current year '' ) compared to the year ended december 31 , 2014 ( `` prior year '' ) net revenues total net revenues , for the current year , increased $ 146 million , or 14 % , to $ 1,189 million , compared to the prior year . the increase in net revenues was primarily due to higher commissions and execution fees and net interest income . trading volume is an important driver of revenues and costs for both our electronic brokerage and market making segments . during the current year , our futures contract and stock share volumes increased 14 % and 12 % , respectively , while options contract volume remained unchanged , compared to the prior year . trading gains trading gains , for the current year , increased $ 8 million , or 3 % , to $ 269 million , compared to the prior year . as market makers , we provide liquidity by buying from sellers and selling to buyers . during the current year , our market making operations executed 65.9 million trades , an increase of 2 % compared to the number of trades executed in the prior year . market making stock share volume increased 28 % , while options and futures contract volumes decreased 3 % and 4 % , respectively , compared to the prior year . 53 trading gains were favorably impacted by higher volatility levels and periods of higher trading activity . the vix® , which measures perceived u.s. equity market volatility , increased 18 % to an average of 16.7 for the current year , compared to an average of 14.2 for the prior year .
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a discussion regarding results of operations and analysis of financial condition for the year ended february 1 , 2020 , as compared to the year ended february 2 , 2019 is included in item 7 of part ii , “ management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the year ended february 1 , 2020. executive overview fiscal 2020 in march 2020 , the world health organization declared the outbreak of a novel coronavirus ( covid-19 ) as a pandemic , which continues to impact the united states and global economies . the covid-19 pandemic has had and may continue to have a significant impact on the company 's business and results of operations . the company began closing stores on march 19 , 2020 as mandated by state and local governments , and by april 9 , 2020 , all brick-and-mortar store locations were temporarily closed to the public . our ecommerce capabilities allowed us to use our closed store locations ( with limited staffing ) to fill orders from our internet store . during the month ended may 30 , 2020 ( fiscal may ) , we re-opened most of our full-line stores , and by june 2 , 2020 , all dillard 's store locations had been re-opened using the centers for disease control and prevention ( `` cdc '' ) guidelines to promote a safe environment for our customers and employees . following our re-opening , a very small number of our locations were temporarily closed again to in-store shopping due to government mandate . other local mandates throughout the country require occupancy limits with which we are required to comply . we continue to monitor additional local government orders that may affect our operations . all stores are currently open and operating at reduced hours . during fiscal 2020 , total retail sales decreased approximately 31 % . the company reported no comparable store sales data for the fiscal year due to the temporary covid-19-related closures of its brick-and-mortar stores during the first and second quarters as well as the interdependence between in-store and online sales . consolidated gross margin for fiscal 2020 decreased 308 basis points of sales compared to fiscal 2019. retail gross margin decreased 319 basis points of sales to 29.4 % during fiscal 2020 compared to 32.6 % during fiscal 2019 , primarily due to increased markdowns . the company was able to reduce inventory by approximately 26 % compared to the prior year end , primarily by reducing purchases approximately 37 % . consolidated selling , general and administrative ( `` sg & a '' ) expenses decreased to $ 1.2 billion compared to $ 1.7 billion from the prior year primarily due to decreases in payroll expense partially as a result of the company 's reduced operating hours . sg & a expenses increased 91 basis points of sales in fiscal 2020 compared to fiscal 2019. net loss totaled $ 71.7 million , or $ 3.16 per share , during fiscal 2020 compared to net income of $ 111.1 million , or $ 4.38 per share , in the prior year . included in net loss for the 2020 fiscal year is a pretax loss of $ 2.2 million ( $ 1.4 million after tax or $ 0.06 per share ) primarily related to the sale of a store property and $ 10.7 million ( $ 8.4 million after tax or $ 0.37 per share ) in asset impairment charges related to certain clearance store locations . also included in net loss for fiscal year 2020 is a net tax benefit of $ 45.2 million ( $ 1.99 per share ) related to the coronavirus aid , relief and economic security ( “ cares ” ) act , signed into law on march 27 , 2020 , which allows for net operating loss carryback to years in which the federal income tax rate was 35 % . included in net income for fiscal 2019 is a pretax gain of $ 20.3 million ( $ 15.8 million after tax or $ 0.62 per share ) primarily related to the sale of six store properties . also included is $ 5.1 million ( $ 0.20 per share ) in tax benefits related to amended state tax return filings and the taxpayer certainty and disaster tax relief act of 2019. during fiscal 2020 , the company repurchased $ 95.6 million , or 2.2 million shares , of class a common stock under the company 's stock repurchase plan , with $ 173.1 million in authorization remaining under the march 2018 stock plan at january 30 , 2021. as of january 30 , 2021 , we had working capital of $ 889.1 million ( including cash and cash equivalents of $ 360.3 million ) and $ 565.8 million of total debt outstanding , excluding finance lease liabilities and operating lease liabilities , with no scheduled maturities until the end of fiscal 2022. cash flows provided by operating activities were $ 252.9 million in fiscal 2020 . 18 key performance indicators we use a number of key indicators of financial condition and operating performance to evaluate the performance of our business , including the following : replace_table_token_6_th * based upon the 52 weeks ended february 2 , 2019 and the 52 weeks ended february 3 , 2018 . * * the company reported no comparable store sales data for the fiscal year due to the temporary covid-19-related closures of its brick-and-mortar stores during the first and second quarters as well as the interdependence between in-store and online sales . trends and uncertainties fluctuations in the following key trends and uncertainties may have a material effect on our operating results . cash flow—cash from operating activities is a primary source of our liquidity that is adversely affected when the retail industry faces economic challenges . furthermore , operating cash flow can be negatively affected by competitive factors . pricing—if our customers do not purchase our merchandise offerings in sufficient quantities , we respond by taking markdowns . story_separator_special_tag interest and debt expense includes interest , net of interest income and capitalized interest , relating to the company 's unsecured notes , subordinated debentures and borrowings under the company 's credit 20 facility . interest and debt expense also includes gains and losses on note repurchases , if any , amortization of financing costs and interest on finance lease obligations . other expense . other expense includes the interest cost and net actuarial loss components of net periodic benefit costs . loss ( gain ) on disposal of assets . loss ( gain ) on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment , as well as gains from any insurance proceeds in excess of the cost basis of the insured assets . asset impairment and store closing charges . asset impairment and store closing charges consist of ( a ) write-downs to fair value of under-performing or held for sale properties and cost method investments and ( b ) exit costs associated with the closure of certain stores , if any . exit costs include future rent , taxes and common area maintenance expenses from the time the stores are closed . income on and equity in earnings of joint ventures . income on and equity in earnings of joint ventures includes the company 's portion of the income or loss of the company 's unconsolidated joint ventures as well as the distribution of excess cash ( excluding returns of investments ) from a mall joint venture , if any . 21 critical accounting policies and estimates the company 's significant accounting policies are also described in note 1 in the `` notes to consolidated financial statements '' in item 8 hereof . as disclosed in that note , the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes . the company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . since future events and their effects can not be determined with absolute certainty , actual results could differ from those estimates . management of the company believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in preparation of the company 's consolidated financial statements . merchandise inventory . all of the company 's inventories are valued at the lower of cost or market using the last-in , first-out ( “ lifo ” ) inventory method . approximately 96 % of the company 's inventories are valued using the lifo retail inventory method . under the retail inventory method , the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost to retail ratio to the retail value of inventories . the retail inventory method is an averaging method that is widely used in the retail industry due to its practicality . inherent in the retail inventory method calculation are certain significant management judgments including , among others , merchandise markon , markups , and markdowns , which significantly impact the ending inventory valuation at cost as well as the resulting gross margins . during periods of deflation , inventory values on the first-in , first-out ( `` fifo '' ) retail inventory method may be lower than the lifo retail inventory method . additionally , inventory values at lifo cost may be in excess of net realizable value . at january 30 , 2021 and february 1 , 2020 , merchandise inventories valued at lifo , including adjustments as necessary to record inventory at the lower of cost or market , approximated the cost of such inventories using the fifo retail inventory method . the application of the lifo retail inventory method did not result in the recognition of any lifo charges or credits affecting cost of sales for fiscal 2020 , 2019 , or 2018. a 1 % change in the dollar amount of markdowns would have impacted net loss by approximately $ 8 million for fiscal 2020. the company regularly records a provision for estimated shrinkage , thereby reducing the carrying value of merchandise inventory . complete physical inventories of the company 's stores and warehouses are performed no less frequently than annually , with the recorded amount of merchandise inventory being adjusted to coincide with these physical counts . the differences between the estimated amounts of shrinkage and the actual amounts realized during the past three years have not been material . revenue recognition . the company 's retail operations segment recognizes revenue upon the sale of merchandise to its customers , net of anticipated returns of merchandise . the asset and liability for sales returns are based on historical evidence of our return rate . we recorded an allowance for sales returns of $ 11.7 million and $ 18.3 million and return assets of $ 7.5 million and $ 12.1 million as of january 30 , 2021 and february 1 , 2020 , respectively . the return asset and the allowance for sales returns are recorded in the consolidated balance sheets in other current assets and trade accounts payable and accrued expenses , respectively . adjustments to earnings resulting from revisions to estimates on our sales return provision were not material for fiscal years 2020 , 2019 and 2018. the company 's share of income under the wells fargo alliance , involving the dillard 's branded private label credit cards is included as a component of service charges and other income . the company received income of approximately $ 79 million , $ 91 million and $ 94 million from the alliance in fiscal 2020 , 2019 and 2018 , respectively .
| results of operations the following table sets forth the results of operations and percentage of net sales , for the periods indicated : replace_table_token_8_th 25 sales replace_table_token_9_th the percent change by segment and product category in the company 's sales for the past two years is as follows : replace_table_token_10_th 2020 compared to 2019 net sales from the retail operations segment decreased $ 1.9 billion during fiscal 2020 compared to fiscal 2019 , a decrease of 30.8 % primarily due to the impact of the covid-19 pandemic . the company reported no comparable store sales data for the fiscal year due to the temporary closure of its brick-and-mortar stores as well as the interdependence between in-store and online sales . during fiscal 2020 , sales in all product categories decreased significantly . net sales from the construction segment decreased $ 50.7 million or 26.5 % during fiscal 2020 as compared to fiscal 2019 due to a decrease in construction activity . the remaining performance obligations related to executed construction contracts totaled $ 76.2 million , decreasing approximately 51 % from february 1 , 2020. exclusive brand merchandise sales penetration of exclusive brand merchandise for fiscal years 2020 , 2019 and 2018 was 20.4 % , 21.1 % and 20.7 % of total net sales , respectively . service charges and other income replace_table_token_11_th 26 2020 compared to 2019 service charges and other income is composed primarily of income from the wells fargo alliance . income from the alliance decreased $ 12.6 million in fiscal 2020 compared to fiscal 2019 primarily due to a decrease in finance charges in 2020. shipping and handling income increased during fiscal 2020 primarily due to the increase in online orders and ship-from-store capabilities . leased department income consisted primarily of commissions from a principal licensed department of an upscale women 's apparel vendor located in certain stores . by the end of july 2020 , our agreement with this principal licensed department had been terminated .
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“ risk factors , ” within this annual report on form 10-k. overview we are an innovative and leading provider of mission-critical investment decision support tools , including indexes ; portfolio construction and risk management products and services ; esg research and ratings ; and real estate research , reporting and benchmarking offerings . our research-derived intellectual property includes methodologies , models , derived data and algorithms ( collectively , “ content ” ) , as well as applications and services , which help our clients manage their investment processes and address their investment , risk and regulatory challenges . our clients comprise a wide spectrum of the global investment industry and include asset owners ( pension funds , endowments , foundations , central banks , sovereign wealth funds , family offices and insurance companies ) , asset managers ( institutional , mutual funds , hedge funds , etfs , private wealth , private banks and real estate investment trusts ) , private wealth managers , private banks , real estate investment trusts , financial intermediaries ( banks , broker-dealers , exchanges , custodians , trust companies and investment consultants ) and data distributors . our offerings are used by our clients across multiple asset classes to achieve a wide range of objectives , including benchmarking , index-linked product creation , portfolio construction , performance measurement and attribution , risk management , as well as investor and regulatory reporting . in addition , our clients are increasingly integrating the content developed across our company , such as factor and esg data and indexes , into their investment processes . as of december 31 , 2017 , we had over 7,000 clients across 88 countries . to calculate the number of clients , we use the shipping address of the ultimate customer utilizing the product which counts affiliates , user locations , or business units within a single organization as separate clients . if we aggregate all related clients under their respective parent entity , the number of clients would be approximately 4,000 as of december 31 , 2017. we had offices in 32 cities in 21 countries to help serve our diverse client base , with 52.6 % of our revenues coming from clients in the americas , 34.9 % in europe , the middle east and africa ( “ emea ” ) and 12.5 % in asia and australia . our principal business model is to license annual , recurring subscriptions to our offerings for a fee , which is , in a majority of cases , paid in advance . fees may vary by offering , number of users or volume of services . fees attributable to annual , recurring subscriptions are recorded as deferred revenues on our consolidated statement of financial condition and are recognized on our consolidated statement of income as the service is rendered . furthermore , a portion of our revenues comes from clients who use our indexes as the basis for index-linked investment products , such as etfs , or as the basis for passively managed funds and separate accounts . these clients commonly pay us a license fee , typically in arrears , for the use of our intellectual property primarily based on the aum in their investment product . we also generate revenues from certain exchanges that use our indexes as the basis for futures and options contracts and pay us a license fee , typically in arrears , for the use of our intellectual property based on their volume of trades . in addition , we generate revenues from subscription agreements for the receipt of periodic benchmark reports , digests and other publications , which are most often associated with our real estate offerings that are recognized upon delivery of such reports or data updates . fees are primarily paid in arrears after the offering is delivered . we also realize one-time fees related to customized reports , historical data sets and certain implementation and consulting services , as well as from certain offerings that are purchased on a non-renewal basis . in evaluating our financial performance , we focus on revenue and profit growth , including results accounted for under accounting principles generally accepted in the united states ( “ gaap ” ) as well as non-gaap measures , for the company as a whole and by operating segment . in addition , we focus on operating metrics , including run 42 rate , subscription sales and aggregate retention rate to manage the business . our business is not highly capital intensive and , as such , we expect to continue to convert a high percentage of our profits into excess cash in the future . our growth strategy includes : ( a ) creating broad and innovative research-driven content , ( b ) expanding our client base and deepening existing client relationships , ( c ) developing flexible and scalable technology , ( d ) expanding value-added service offerings and ( e ) executing strategic relationships and acquisitions . key financial metrics and drivers as discussed in the previous section , we utilize a portfolio of key financial metrics to manage the company , including gaap and non-gaap measures . as detailed below , we review revenues by type and by segment , or major product line . we also review expenses by activity , which provides more transparency into how resources are being deployed . in addition , we utilize operating metrics including run rate , subscription sales and aggregate retention rate , to analyze past performance and to provide insight into our latest reported portfolio of recurring business . in the discussion that follows , we provide variances excluding the impact of foreign currency exchange rate fluctuations when the impact is not considered negligible . foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period . story_separator_special_tag other expense ( income ) , net this category consists primarily of interest we pay on our outstanding indebtedness , interest we collect on cash and short-term investments , transition services income associated with our sale of iss , foreign currency exchange rate gains and losses as well as other non-operating income and expense items . non-gaap financial measures adjusted ebitda “ adjusted ebitda , ” a measure used by management to assess operating performance , is defined as net income before ( 1 ) income ( loss ) from discontinued operations , net of income taxes , ( 2 ) provision for income taxes , ( 3 ) other expense ( income ) , net , ( 4 ) depreciation and amortization of property , equipment and leasehold improvements , ( 5 ) amortization of intangible assets and , at times , ( 6 ) certain other transactions or adjustments . “ adjusted ebitda expenses , ” a measure used by management to assess operating performance , is defined as operating expenses less depreciation and amortization of property , equipment and leasehold improvements and amortization of intangible assets and , at times , certain other transactions or adjustments . adjusted ebitda and adjusted ebitda expenses are believed to be meaningful measures of the operating performance of the company because they adjust for significant one-time , unusual or non-recurring items as well as eliminate the accounting effects of capital spending and acquisitions that do not directly affect what management considers to be the company 's core operating performance in the period . all companies do not calculate adjusted ebitda and adjusted ebitda expenses in the same way . these measures can differ significantly from company to company depending on , among other things , long-term strategic decisions regarding capital structure , the tax jurisdictions in which companies operate and capital investments . accordingly , the company 's computation of the adjusted ebitda and adjusted ebitda expenses measures may not be comparable to similarly titled measures computed by other companies . run rate run rate is a key operating metric and is important because an increase or decrease in our run rate ultimately impacts our operating revenues over time . at the end of any period , we generally have subscription and investment product license agreements in place for a large portion of total revenues for the following 12 months . we measure the fees related to these agreements and refer to this as “ run rate. ” see “ — operating metrics — run rate ” below for additional information on the calculation of this metric . subscription sales subscription sales is a key operating metric and is important because new subscription sales increase our run rate and ultimately our operating revenues over time . see “ — operating metrics — subscription sales ” below for additional information . aggregate retention rate another key operating metric is aggregate retention rate which is important because subscription cancellations decrease our run rate and ultimately our operating revenues over time . see “ — operating metrics — aggregate retention rate ” below for additional information on the calculation of this metric . 45 critical accounting policies and estimates our consolidated financial statements are prepared in accordance with gaap . these accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements , as well as the reported amounts of revenues and expenses during the periods presented . we believe the estimates and judgments upon which we rely are reasonable based upon information available to us at the time these estimates and judgments are made . to the extent there are material differences between these estimates and actual results , our consolidated financial statements will be affected . see note 1 , “ introduction and basis of presentation— significant accounting policies , ” of the notes to the consolidated financial statements included herein for a listing of our accounting policies and note 2 , “ recent accounting standards updates. ” factors affecting the comparability of results acquisition of insignis on october 16 , 2015 , the company completed the purchase of insignis for $ 6.5 million through its subsidiary investorforce . insignis is a financial data provider , including data on positions , transactions and complex instruments such as exchange-traded futures and options , otc swaps and foreign exchange spot and forward contracts . financial results for insignis are included within the analytics segment from the time of acquisition . the purchase price allocations for the insignis acquisition were $ 4.2 million for goodwill , $ 2.2 million of identifiable intangible assets and $ 0.1 million for assets other than identifiable intangible assets . the results of insignis were included in our results of operations from its acquisition date of october 16 , 2015. the insignis acquisition has not had a significant impact on our results of operations . disposition of real estate occupiers on august 1 , 2016 , msci completed the sale of its real estate occupiers business . the value of the disposed assets and liabilities and the resulting gain on disposal were not material to the company . share repurchases on february 4 , 2014 , our board of directors approved a stock repurchase program authorizing the purchase of up to $ 300.0 million worth of shares of our common stock , which was subsequently increased to $ 850.0 million ( the “ 2014 repurchase program ” ) . on october 14 , 2015 , we exhausted the $ 850.0 million share repurchase authorization under the 2014 repurchase program . on september 18 , 2014 , as part of the 2014 repurchase program , we entered into an asr agreement to initiate share repurchases aggregating $ 300.0 million ( the “ september 2014 asr agreement ” ) .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 the following table presents the results of operations for the years indicated : replace_table_token_19_th 56 operating revenues the following table presents operating revenues by recurring subscriptions , asset-based fees and non-recurring revenues for the years indicated : replace_table_token_20_th total operating revenues grew 7.0 % to $ 1,150.7 million for the year ended december 31 , 2016 compared to $ 1,075.0 million for the year ended december 31 , 2015. revenue from recurring subscriptions increased 6.5 % to $ 913.7 million for the year ended december 31 , 2016 compared to $ 857.5 million for the year ended december 31 , 2015. the increase in recurring subscription revenues was driven by growth from index products as well as higher revenues from analytics and esg products , partially offset by lower real estate products ' revenues within the all other segment . adjusting for the impact of foreign currency exchange rate fluctuations , recurring subscription revenues would have increased 7.1 % for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. revenues from asset-based fees increased 6.2 % to $ 210.2 million for the year ended december 31 , 2016 compared to $ 198.0 million for the year ended december 31 , 2015. the increase was primarily driven by a 19.2 % increase in non-etf passive funds , as well as a 34.8 % increase in revenue from futures and options contracts linked to msci indexes . the average value of aum in etfs linked to msci indexes increased $ 27.6 billion , or 6.6 % , compared to the year ended december 31 , 2015. approximately two-thirds of the underlying securities included in the aum of our index-linked investment products are denominated in currencies other than the u.s. dollar .
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research and development expenses the company expenses as incurred all research and development expenses , including amounts funded by story_separator_special_tag overview we are in the business of discovering , developing , manufacturing and commercializing small molecule drugs . we use precision medicine approaches to create transformative drugs for patients with serious diseases in specialty markets . our business is focused on developing and commercializing therapies for the treatment of cystic fibrosis , or cf , and advancing our research and early-stage development programs , while maintaining our financial strength . we have marketed kalydeco ( ivacaftor ) since it was approved in 2012 for the treatment of patients six years of age and older with cf who have specific genetic mutations in their cystic fibrosis transmembrane conductance regulator , or cftr , gene . in june 2014 , we announced data from two phase 3 clinical trials , referred to as traffic and transport , of lumacaftor , a cftr corrector compound , in combination with ivacaftor , a cftr potentiator compound . in traffic and transport , we evaluated the combination regimen in patients with cf twelve years of age and older who have two copies ( homozygous ) of the f508del mutation in their cftr gene , which is the most prevalent form of cf . in november 2014 , we submitted a new drug application , or nda , to the united states food and drug administration , or fda , and a marketing authorization application , or maa , to the european medicines agency , or ema , for lumacaftor in combination with ivacaftor . cystic fibrosis our plan is to ( i ) continue to increase the number of patients eligible for treatment with ivacaftor , ( ii ) obtain marketing approval for lumacaftor in combination with ivacaftor for the treatment of patients with cf twelve years of age and older who have two copies of the f508del mutation in their cftr gene and ( iii ) research and develop earlier-stage compounds for the treatment of cf . ivacaftor kalydeco ( ivacaftor ) was approved in 2012 in the united states and european union as a treatment for patients with cf six years of age and older who have the g551d mutation in their cftr gene . our kalydeco net product revenues have been increasing over the last several years due to the increased number of patients who are being treated with kalydeco in the united states and ex-u.s. markets as we have expanded the label for kalydeco and completed reimbursement discussions for a portion of the patients eligible for treatment with kalydeco in ex-u.s markets . we expect our kalydeco net product revenues to increase further in 2015 as a result of additional label expansions and an increase in the number of patients with cf for whom reimbursement is available in ex-u.s. markets . lumacaftor in combination with ivacaftor in november 2014 , we submitted an nda to the fda and an maa to the ema for lumacaftor in combination with ivacaftor in patients with cf twelve years of age and older who are homozygous for the f508del mutation in their cftr gene . in 2015 , we submitted in canada , and expect to submit in australia , regulatory applications seeking approval for lumacaftor in combination with ivacaftor . these regulatory applications were based on two phase 3 randomized , double-blind , placebo-controlled clinical trials of lumacaftor in combination with ivacaftor referred to as traffic and transport . all four treatment arms in traffic and transport met their primary endpoints of mean absolute improvement in percent predicted forced expiratory volume in one second , or ppfev 1 , as compared to placebo . the fda has granted us priority review of the nda and the european committee for medicinal products for human use has granted our request for accelerated assessment of the maa . the target date for the fda to complete its review of the nda for lumacaftor in combination with ivacaftor under the prescription drug user fee act , or pdufa , is july 5 , 2015. accordingly , we expect to begin recognizing net product revenues from lumacaftor in combination with ivacaftor in the united states in mid-2015 . we do not expect significant net product revenues from lumacaftor in combination with ivacaftor from ex-u.s. markets in 2015 due to the reimbursement discussions that will be required in these markets following the potential approval of the combination in the fourth quarter of 2015. we believe that there are approximately 22,000 patients with cf twelve years of age and older who are homozygous for the f508del mutation in north america , europe and australia , including approximately 8,500 in the united states and approximately 12,000 in europe . 49 vx-661 in combination with ivacaftor in 2015 , we initiated a phase 3 development program for vx-661 in combination with ivacaftor in patients with cf twelve years of age and older , including patients who are homozygous for the f508del mutation in their cftr gene and patients who have one copy of the f508del mutation in their cftr gene ( heterozygous ) . next-generation cftr corrector compounds we also are seeking to identify and develop next-generation cftr corrector compounds that could be evaluated in future dual- and or triple-combination treatment regimens with the potential to provide additional benefits to patients with cf . we have multiple next-generation correctors in the lead-optimization stage of research and expect to begin clinical development of a next-generation corrector in 2015. research and early-stage development we are engaged in a number of other research and early-stage development programs , including programs in the areas of oncology and neurology . we plan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines with a focus on cf and other genetic diseases , oncology and neurology . story_separator_special_tag markets may take a significant period of time following obtaining marketing approval for the combination therapy . 51 story_separator_special_tag million of net product revenues from ex-u.s. markets in 2013. the increase in kalydeco net product revenues in 2014 , compared to 2013 , was primarily due to additional patients being treated with kalydeco as we completed reimbursement discussions in various jurisdictions and increased the number of patients eligible to receive kalydeco through label expansions . in 2015 , we expect further increases in kalydeco net product revenues as we continue to increase the number of patients that are treated with kalydeco . incivek net product revenues were $ 24.1 million in 2014 , a significant decrease from $ 466.4 million in 2013. we have withdrawn incivek from the market in the united states , and we do not expect significant incivek net product revenues in future periods . we believe our total net product revenues for 2015 will be dependent on the timing of potential regulatory approval of lumacaftor in combination with ivacaftor in the united states and on our success in commercializing this combination therapy following the potential approval . we submitted an nda to the fda and an maa to the ema for lumacaftor in 53 combination with ivacaftor in november 2014. the target date for the fda to complete its review of the nda under pdufa is july 5 , 2015. accordingly , we expect to begin recognizing net product revenues from lumacaftor in combination with ivacaftor in the united states in mid-2015 . we do not expect significant net product revenues from lumacaftor in combination with ivacaftor in 2015 from ex-u.s. markets due to the reimbursement discussions that will be required in these markets following the potential approval of the combination in the fourth quarter of 2015. royalty revenues our royalty revenues were $ 40.9 million , $ 156.6 million and $ 141.5 million in 2014 , 2013 and 2012 , respectively . since the beginning of 2014 , our royalty revenues have consisted of ( i ) revenues related to a cash payment we received in 2008 when we sold our rights to certain hiv royalties and ( ii ) revenues related to certain third-party royalties payable by our collaborators on sales of hiv drugs and telaprevir that also result in corresponding royalty expenses . in 2012 and 2013 , we received significant royalties from janssen nv based on incivo ( telaprevir ) net product sales . our rights to receive royalties on incivo sales ended at the beginning of 2014 , and janssen nv currently has a fully-paid license to market incivo in its territories , subject to the continued payment of certain third-party royalties . collaborative revenues our collaborative revenues have fluctuated significantly on an annual basis . this variability has been due to , among other things : the recognition of payments from janssen inc. related to our outlicense of vx-787 in 2014 ; the 2013 amendment of our collaboration agreement with janssen nv that resulted in significant collaborative revenues in 2013 ; and revenues we received from services we provided to janssen nv and mitsubishi tanabe through our third-party manufacturing network in 2012. the table presented below is a summary of our collaborative revenues for 2014 , 2013 and 2012 : replace_table_token_7_th in 2014 , the majority of our collaborative revenues related to $ 35.0 million in payments we received from janssen inc. related to our outlicense of vx-787 . in 2013 , we recognized $ 203.4 million in janssen nv collaborative revenues , which were primarily attributable to the $ 152.0 million payment we received pursuant to our amendment to the janssen nv collaboration agreement . these collaborative revenues also included the acceleration of the remaining deferred revenues related to the up-front payment we received from janssen nv in 2006. in 2014 , our collaborative revenues from janssen nv decreased to $ 7.1 million , and we do not expect significant collaborative revenues from janssen nv in future periods . collaborative revenues from cfft decreased from $ 14.3 million in 2013 to $ 6.5 million in 2014 due to the completion of the reimbursable research activities pursuant to our collaboration with cfft in february 2014. collaborative revenues from cfft decreased slightly in 2012 as compared to 2013. we do not expect significant collaborative revenues from cfft in future periods . 54 in 2012 , we recognized $ 9.6 million in collaborative revenues related to a one-time payment that we received from mitsubishi tanabe in 2009 and recognized over a period of time , and also recognized revenues related to manufacturing services we provided to mitsubishi tanabe through our third-party manufacturing network . we have not recognized any collaborative revenues from mitsubishi tanabe since the first half of 2012 and will not recognize any future collaborative revenues pursuant to our collaboration agreement with mitsubishi tanabe . operating costs and expenses replace_table_token_8_th cost of product revenues our cost of product revenues includes the cost of producing inventories that corresponded to product revenues for the reporting period , plus the third-party royalties payable on our net sales of kalydeco and incivek . in 2014 , cost of product revenues consisted primarily of third-party royalties for kalydeco . pursuant to our agreement with cfft , our tiered third-party royalties on kalydeco , and lumacaftor in combination with ivacaftor , if approved , calculated as a percentage of net sales , range from the single digits to the sub-teens . in 2015 , we expect our cost of product revenues to increase as compared to 2014 due to increased net product revenues , together with an increase in the third-party royalty rate payable to cfft as we begin to pay royalties at the top end of the royalty range . cost of product revenues in 2013 and 2012 included an aggregate of $ 10.4 million and $ 133.2 million , respectively , in write-offs for excess and obsolete inventories .
| results of operations replace_table_token_4_th net loss attributable to vertex net loss attributable to vertex has been affected by increasing kalydeco net product revenues , rapidly declining incivek net product revenues and royalty revenues , significant intangible asset impairment charges , inventory write-offs , restructuring charges and income ( loss ) from discontinued operations during the three year period ended december 31 , 2014. comparison of net loss attributable to vertex 2014 vs. 2013 net loss attributable to vertex was $ 738.6 million in 2014 compared to net loss attributable to vertex of $ 445.0 million in 2013 . our revenues decreased in 2014 as compared to 2013 due to a $ 442.3 million decrease in incivek revenues , a $ 166.1 million decrease in collaborative revenues and a $ 115.7 million decrease in royalty revenues , partially offset by a $ 92.5 million increase in kalydeco revenues . our operating costs and expenses decreased in 2014 as compared to 2013 primarily due to an intangible asset impairment charge related to vx-222 of $ 412.9 million recorded in 2013 and decreases in cost of product revenues , royalty expenses , research and development expenses and sales , general and administrative expenses . in 2014 , the $ 45.2 million loss reflected in other items , net was primarily due to interest expense associated with the leases for our corporate headquarters . in 2013 the $ 106.4 million gain reflected in other items , net was primarily due to a benefit from income taxes we recorded related to the vx-222 impairment charge .
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as a result of many factors , such as those set forth in the section of this report captioned “ risk factors ” and elsewhere in this report , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a biotechnology company focused on novel oncology ( cancer ) and hematology ( blood disease ) therapeutics to meaningfully improve patients ' lives . our core technology is the adaptir ( modular protein technology ) platform . we currently have one revenue-generating product in the area of hematology , as well as various investigational stage product candidates in immuno-oncology and autoimmune and inflammatory diseases . in august 2015 , emergent biosolutions inc. , or emergent , announced a plan to separate into two independent publicly traded companies , one a biotechnology and the other a global specialty life sciences company . to accomplish this separation , emergent created a new company , aptevo therapeutics inc. , or aptevo , to be the parent company for the development-based biotechnology business focused on novel oncology , hematology , and autoimmune and inflammatory therapeutics . we were incorporated in delaware in february 2016 as a wholly owned subsidiary of emergent . to effect the separation , emergent made a pro rata distribution of aptevo 's common stock to emergent 's stockholders on august 1 , 2016. in connection with the separation , we received certain assets from emergent 's biosciences division , including development programs and the adaptir platform technology . certain historical operations that were included by emergent in its biosciences segment have been reallocated to emergent 's continuing operations , and as a result the financial statements and discussion and analysis contained herein differ from emergent 's historically reportable biosciences segment . for the year ended december 31 , 2018 , we had a net loss of $ 53.7 million , and for the year ended december 31 , 2017 , we recognized net income of $ 7.0 million , due to the sale of our hyperimmune business , which consisted of the following products : winrho® sdf ; hepagam b® ; and varizig® , or the hyperimmune business . we had an accumulated deficit of $ 127.4 million as of december 31 , 2018. for the year ended december 31 , 2018 , net cash used in our operating activities was $ 51.7 million . although we expect our existing cash and cash equivalents will be sufficient to fund our operations for at least twelve months from the date of this filing , if we are unable to obtain additional financing when needed , we may have to delay , reduce the scope of , suspend or eliminate one or more of our research and development programs . following the sale of the hyperimmune business , our sole marked product is ixinity ® , and therefore ixinity will be our only source of product revenue . as such , our results of operations will be highly dependent on ixinity sales unless or until we develop or partner any of our development stage product candidates . we will not generate commercial revenues from our development stage product candidates unless and until we or our collaborators successfully complete development and obtain regulatory approval for such product candidates , which we expect will take a number of years and is subject to significant uncertainty . if we obtain regulatory approval for one of our development stage product candidates , we expect to incur significant commercialization expenses related to sales , marketing , manufacturing and distribution , to the extent that such costs are not paid by collaborators . we do not have sufficient cash to complete the clinical development of any of our development stage product candidates and will require additional funding in order to complete the development activities required for regulatory approval of such product candidates . 50 corporate and financi story_separator_special_tag style= '' width:5.24 % ; white-space : nowrap '' valign= '' top '' > employee salaries and related expenses , including stock-based compensation and benefits for our employees involved in our drug discovery and development activities ; external research and development expense incurred under agreements with third-party contract research organizations ( cro 's ) and investigative sites ; manufacturing material expense for third-party manufacturing ; and overhead costs such as rent , utilities and depreciation . we expect our research and development spending will be dependent upon such factors as the results from our clinical trials , the availability of reimbursement of research and development spending , the number of product candidates under development , the size , structure and duration of any clinical programs that we may initiate , and the costs associated with manufacturing our product candidates on a large-scale basis for later stage clinical trials . while programs are still in the pre-clinical trial phase , we do not provide a breakdown of the initial associated expenses as we are often evaluating multiple product candidates simultaneously . costs are reported in pre-clinical research and discovery until the program enters the clinic . our principal research and development expenses by program for the year ended december 31 , 2018 and 2017 are shown in the following table : replace_table_token_2_th research and development expenses increased by $ 6.4 million , to $ 35.4 million for the year ended december 31 , 2018 from $ 29.0 million for the year ended december 31 , 2017. this change was primarily comprised of : an increase in manufacturing costs for clinical drug product associated with apvo210 and apvo436 , and our general research and discovery programs , which are primarily related to research and development activities around new pipeline product candidates or programs as they are being evaluated ; offset by a decrease in expense for ixinity which resulted from less costs in 2018 relating to manufacturing process development activities compared to 2017 . story_separator_special_tag credit agreement on august 4 , 2016 , we entered into a credit and security agreement or the credit agreement , with midcap financial trust or midcap . the original credit agreement provided us with up to $ 35.0 million of available borrowing capacity composed of two tranches of $ 20.0 million and $ 15.0 million . the first tranche of $ 20.0 million was made available to us , and drawn , on the closing date of the credit agreement . on september 28 , 2017 , we and midcap financial trust entered into a second amendment to the credit agreement in order to accommodate the sale of the hyperimmune business under the llc purchase agreement , and to reflect changes in the remaining business as a result of such sale . pursuant to the second amendment , the agent and the lenders consented to the llc purchase agreement and the consummation of the sale transaction , released the agent 's liens on the assets transferred to one of our subsidiaries prior to the sale , and agreed that no prepayment of the term loans under the credit agreement would be required as a result the sale . as part of the second amendment , the agent and the lenders agreed that : ( i ) the commitments of the lenders to make the remaining $ 15.0 million tranche of loans under the credit agreement were terminated , ( ii ) the covenant levels set forth in the minimum net commercial product revenue covenant were revised , ( iii ) a new covenant requiring us to maintain a minimum $ 10.0 million unrestricted cash balance , and ( iv ) the date on which the term loans begin to amortize would be extended to february 1 , 2019 if we achieved net commercial product revenues of $ 16.0 million for the twelve month period ending june 30 , 2018 and maintain such level of net commercial product revenues for each quarter prior to february 1 , 2019 thereafter . as we achieved net commercial product revenues of $ 16.2 million for the twelve month period ending june 30 , 2018 , our principal repayments were deferred to february 1 , 2019 . 55 on february 23 , 2018 , we entered into a third amendment with the agent and lenders to amend certain provisions of the credit agreement in order to permit us to maintain a cash collateral account as security for our reimbursement obligations , in respect of certain letters of credit to be issued for our account . on august 6 , 2018 , we entered into an amended and restated credit and security agreement , or the amended credit agreement , amending the terms of our original $ 20 million term loan agreement with midcap . under the amended credit agreement , the timeline for us to begin making principal repayments has been extended to february 1 , 2020 , with an opportunity for further deferral through august 1 , 2020. the amount of restricted cash that we are required to maintain on our balance sheet has been reduced from $ 10.0 million to $ 5.0 million . on december 14 , 2018 , we entered into an amendment to the amended credit agreement to amend certain provisions as related to our equity distribution agreement . in january 2019 , our unrestricted cash level fell below $ 25.0 million which triggered the effectiveness of a security agreement in favor of midcap with respect to our registered intellectual property to secure our obligations under the amended credit agreement . the obligations under the amended credit agreement will mature on february 1 , 2023. amounts drawn under the amended credit agreement continue to accrue interest at a rate of libor plus 7.60 % per annum equity distribution agreement on november 9 , 2017 , we entered into an equity distribution agreement with piper jaffray . the equity distribution agreement provides that , upon the terms and subject to the conditions set forth therein , we may issue and sell through piper jaffray , acting as sales agent , shares of our common stock having an aggregate offering price of up to $ 17.5 million . we have no obligation to sell any such shares under the equity distribution agreement . the sale of the shares of our common stock by piper jaffray will be effected pursuant to a registration statement on form s-3 which we filed on november 9 , 2017. we have issued 13,265 shares under the equity distribution agreement as of december 31 , 2018. the equity distribution agreement will terminate upon the issuance and sale of all shares under the equity distribution agreement or upon the earlier termination thereof at any time by us or piper jaffray upon notice to the other party . purchase agreement on december 20 , 2018 we entered into a purchase agreement , or the purchase agreement , and a registration rights agreement , with lincoln park , pursuant to this agreement lincoln park has committed to purchase up to $ 35.0 million worth of the company 's common stock over a 36-month period commencing on february 13 , 2019 , the date the registration statement covering the resale of the shares was deemed effective by the sec . under the purchase agreement , on any business day selected by the company , the company may direct lincoln park to purchase shares of our common stock provided that lincoln park 's maximum commitment on any single day not exceed $ 2.0 million . the purchase price per share will be based off of prevailing market prices of our common stock immediately preceding the time of sale . in addition , we may also direct lincoln park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of our common stock exceeds certain threshold prices as set forth in the purchase agreement .
| al highlights commercial portfolio : achieved record year-over-year annual ixinity net revenue of $ 23.1 million in 2018 , representing a 111 % increase compared to revenue of $ 10.9 million in 2017. continued to expand the patient base for ixinity bringing additional new hemophilia b patients onto therapy throughout the year . improved supply chain logistics and cost efficiencies for ixinity by contracting with new third-party logistics providers . presented new data from a small retrospective study of ixinity at the thrombosis and hemostasis 2018 summit of north america annual meeting describing patient-reported outcomes data for ixinity for various clinical and quality of life measures ; overall , respondents in this study reported a high level of satisfaction with ixinity with low annualized bleed rates and a positive impact on quality of life scores . introduced new growth initiatives for ixinity ( launch of new 3,000 iu assay ; pediatric clinical trial , and pursuit of ex-u.s. distribution and partnership opportunities ) commencing in 2019 ; the initiation of the pediatric trail is required for the pursuit of business in markets such as europe . pipeline : commenced patient dosing in a phase 1/1b open-label , dose-escalation study of apvo436 in patients with acute myeloid leukemia ( aml ) and high-grade myelodysplastic syndrome ( mds ) ; anticipate reporting preliminary anti-drug antibody ( ada ) read-out in the third quarter of 2019 and reporting preliminary phase 1 safety data in data in the fourth quarter of 2019. presented comprehensive new pre-clinical data for apvo436 at the american association for cancer research ( aacr ) annual meeting demonstrating potent t cell-directed tumor killing with reduced cytokine release in pre-clinical studies compared to an aptevo-generated competitor bispecific construct . completed preparations to begin a phase 1 clinical study of apvo210 evaluating single and multiple ascending doses in healthy volunteers ; apvo210 is being developed for the treatment of autoimmune and inflammatory diseases .
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f-5 pennsylvania real estate investment trust consolidated statements of operations ( continued ) earnings per share replace_table_token_32_th ( 1 ) for the years ended december 31 , 2017 , 2016 and 2015 , there are net losses allocable to common shareholders , so the effect of common share equivalents of 93 story_separator_special_tag the following analysis of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report . overview pennsylvania real estate investment trust , a pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts ( “ reits ” ) in the united states , has a primary investment focus on retail shopping malls located in the eastern half of the united states , primarily in the mid-atlantic region . we currently own interests in 29 retail properties , of which 25 are operating properties and four are development or redevelopment properties . the 25 operating properties include 21 shopping malls and four other retail properties , have a total of 20.2 million square feet and are located in nine states . we and partnerships in which we hold an interest own 15.5 million square feet at these properties ( excluding space owned by anchors or third parties ) . there are 19 operating retail properties in our portfolio that we consolidate for financial reporting purposes . these consolidated properties have a total of 16.0 million square feet , of which we own 12.6 million square feet . the six operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.1 million square feet , of which 2.8 million square feet are owned by such partnerships . “ same store ” properties are properties that have been owned for the full periods presented and exclude properties acquired or disposed of or under redevelopment during the periods presented . we have one property under redevelopment classified as “ retail ” ( redevelopment of the gallery at market east into fashion district philadelphia , formerly referred to as fashion outlets of philadelphia ) . this redevelopment is expected to open in 2018 and stabilize in 2020. we have three properties in our portfolio that are classified as under development , however we do not currently have any activity occurring at these properties . our primary business is owning and operating retail shopping malls , which we do primarily through our operating partnership , preit associates , l.p. ( “ preit associates ” or the “ operating partnership ” ) . we provide management , leasing and real estate development services through preit services , llc ( “ preit services ” ) , which generally develops and manages properties that we consolidate for financial reporting purposes , and preit-rubin , inc. ( “ pri ” ) , which generally develops and manages properties that we do not consolidate for financial reporting purposes , including properties owned by partnerships in which we own an interest , and properties that are owned by third parties in which we do not have an interest . pri is a taxable reit subsidiary , as defined by federal tax laws , which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a reit under federal tax law . our revenue consists primarily of fixed rental income , additional rent in the form of expense reimbursements , and percentage rent ( rent that is based on a percentage of our tenants ' sales or a percentage of sales in excess of thresholds that are specified in the leases ) derived from our income producing properties . we also receive income from our real estate partnership investments and from the management and leasing services pri provides . our net loss increased by $ 20.1 million to a net loss of $ 32.8 million for the year ended december 31 , 2017 from a net loss of $ 12.7 million for the year ended december 31 , 2016 . the change in our 2017 results of operations was primarily due to gains from real estate sales of $ 23.0 million in 2016 , as well as a $ 18.2 million decrease in non same store net operating income due to property sales in 2016 and 2017. these factors were partially offset by a $ 12.3 million decrease in interest expense and a $ 6.8 million decrease in impairment of assets . we evaluate operating results and allocate resources on a property-by-property basis , and do not distinguish or evaluate our consolidated operations on a geographic basis . due to the nature of our operating properties , which involve retail shopping , we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria . accordingly , we have aggregated our individual properties into one reportable segment . in addition , no single tenant accounts for 10 % or more of our consolidated revenue , and none of our properties are located outside the united states . we hold our interest in our portfolio of properties through the operating partnership . we are the sole general partner of the operating partnership and , as of december 31 , 2017 , held a 89.4 % controlling interest in the operating partnership , and consolidated it for reporting purposes . we hold our investments in six of the 25 operating retail properties and two of the four development and redevelopment properties in our portfolio through unconsolidated partnerships with third parties in which we own a 25 % to 50 % interest . 45 acquisitions and dispositions see note 2 to our consolidated financial statements for a description of our dispositions and acquisition in 2017 , 2016 and 2015 . current economic conditions and our near term capital needs conditions in the economy have caused fluctuations and variations in business and consumer confidence , retail sales , and consumer spending on retail goods . story_separator_special_tag in preparing the consolidated financial statements , management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements , and the reported amounts of revenue and expenses during the reporting periods . in preparing the consolidated financial statements , management has utilized available information , including our past history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments , giving due consideration to materiality . management has also considered events and changes in property , market and economic conditions , estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments . actual results may differ from these estimates . in addition , other companies may utilize different estimates , which may affect comparability of our results of operations to those of companies in a similar business . the estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2017 , 2016 and 2015 , except as otherwise noted , and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods . we will continue to monitor the key factors underlying our estimates and judgments , but no change is currently expected . 48 set forth below is a summary of the accounting policy that management believes is critical to the preparation of the consolidated financial statements . this summary should be read in conjunction with the more complete discussion of our accounting policies included in note 1 to our consolidated financial statements . asset impairment real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable . a property to be held and used is considered impaired only if management 's estimate of the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges , are less than the carrying value of the property . this estimate takes into consideration factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . the determination of undiscounted cash flows requires significant estimates by management , including the expected course of action at the balance sheet date that would lead to such cash flows . subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists and whether the effects could materially affect our net income . to the extent estimated undiscounted cash flows are less than the carrying value of the property , the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property . assessment of our ability to recover certain lease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected . this requires us to make estimates as to the recoverability of such costs . an other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value . to the extent impairment has occurred , the excess carrying value of the asset over its estimated fair value is charged to income . if there is a triggering event in relation to a property to be held and used , we will estimate the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges . in addition , this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated . in determining the estimated undiscounted cash flows of the property or properties that are being analyzed for impairment of assets , we take the sum of the estimated undiscounted cash flows , generally assuming a holding period of 10 years , plus a terminal value calculated using the estimated net operating income in the eleventh year and terminal capitalization rates , which in 2017 ranged from 5.8 % to 13.0 % , 2016 ranged from 5.0 % to 10.0 % and in 2015 ranged from 4.5 % to 15.5 % . as further detailed in note 2 to our consolidated financial statements , in 2017 , 2016 and 2015 , as a result of our analysis , we determined that four , five and seven properties , respectively , had incurred impairment of assets . new accounting developments see note 1 to our consolidated financial statements for descriptions of new accounting developments . off balance sheet arrangements we have no material off-balance sheet items other than ( i ) the partnerships described in note 3 to our consolidated financial statements and in the “ overview ” section above and ( ii ) specifically with respect to our joint venture formed with macerich to develop fashion district philadelphia , our operating partnership , preit associates , has jointly and severally guaranteed the obligations of the joint venture to commence and complete a comprehensive redevelopment of that property costing not less than $ 300.0 million within 48 months after commencement of construction , which was march 14 , 2016 , and has severally guaranteed its 50 % share of the fdp term loan ( see note 3 to our consolidated financial statements ) , which currently has $ 150.0 million outstanding ( our share of which is $ 75.0 million ) .
| results of operations overview net loss for the year ended december 31 , 2017 was $ 32.8 million , compared to a net loss for the year ended december 31 , 2016 of $ 12.7 million . the change in our 2017 results of operations was primarily due to gains from real estate sales of $ 23.0 million in 2016 , as well as a $ 18.2 million decrease in non same store net operating income due to property sales in 2016 and 2017. these factors were partially offset by a $ 12.3 million decrease in interest expense and a $ 6.8 million decrease in impairment of assets . net loss for the year ended december 31 , 2016 was $ 12.7 million , compared to net loss for the year ended december 31 , 2015 of $ 129.6 million . the change in our 2016 results of operations from the prior year was primarily due to a decrease in impairment of assets of $ 77.7 million , a decrease of $ 16.0 million in depreciation and amortization , an increase in gains on sales of interests in real estate of $ 10.7 million and a decrease in interest expense of $ 10.4 million , partially offset by a decrease of $ 5.3 million of noi . occupancy the tables below set forth certain occupancy statistics for our retail properties as of december 31 , 2017 , 2016 and 2015 : replace_table_token_15_th ( 1 ) occupancy for all periods presented includes all tenants irrespective of the term of their agreement . ( 2 ) combined occupancy is calculated by using occupied gross leasable area ( “ gla ” ) for consolidated and unconsolidated properties and dividing by total gla for consolidated and unconsolidated properties .
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as a result of this acquisition , which closed on november 30 , 2012 , the bank acquired approximately $ 182.5 million in additional assets , including approximately $ 41.3 million of pass-rated performing loans and assumed $ 181.6 million in new deposits . the bank expects that the increase in its branch network as a result of the sterling branch acquisition will substantially increase its loan origination volume and , due to the substantial increase in deposits , fee income . in addition , the acquisition of the branches is expected to increase certain of the bank 's expenses , including salaries and employee benefits and occupancy and equipment expense . the bank received approximately $ 130.1 million in cash in the transaction , which may not be able to be immediately used to fund loans . while a substantial amount of the cash has been invested in securities , it may require additional time to deploy all of the proceeds to fund loans . the company anticipates that the sterling acquisition will be accretive to earnings per share in the first year after the acquisition . however , the size of the acquisition may cause integration challenges that could delay or reduce the expected benefits of the acquisition . 37 the branch acquisition complements the bank 's existing growth strategy by expanding into the southern montana market and more than doubling the bank 's retail branch network from six to 13 locations . of the seven acquired branches six are in new markets for the bank , including two in missoula , one in billings , and one each in hamilton , livingston and big timber . the seventh is in bozeman where the bank already has a presence . after the acquisition , the bank became the sixth largest montana-based banking institution . in addition , the transaction also strengthens the bank 's mortgage origination franchise and adds a wealth management business headquartered in bozeman , montana . the addition of sterling 's montana mortgage banking unit will double the bank 's mortgage banking business . this increase in the mortgage banking business and the addition of a wealth management business is expected to increase the bank 's noninterest income and further the bank 's strategy to increase fee income to complement its margin . recent accounting pronouncements in september 2011 , the fasb issued accounting standards update no . 2011-08 , intangibles - goodwill and other ( topic 350 ) - testing goodwill for impairment ( asu 2011-08 ) , to allow entities to use a qualitative approach to test goodwill for impairment . asu 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value . if it is concluded that this is the case , it is necessary to perform the currently prescribed two-step goodwill impairment test . otherwise , the two step goodwill impairment test is not required . asu 2011-08 is effective for us in fiscal 2013 and earlier adoption is permitted . upon completion of the acquisition 7 branches from another bank the company has recorded goodwill and has adopted the provisions of this pronouncement . in february 2013 , the fasb issued asu no . 2013-02 , comprehensive income ( topic 220 ) : reporting of amounts reclassified out of accumulated other comprehensive income . the amendments in this update require entities to report significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under u.s. generally accepted accounting principles to be reclassified in its entirety to net income . for all other amounts an entity is required to cross-reference other disclosures that provide additional detail about these amounts . the amendments are effective during the interim and annual periods beginning after december 15 , 2012. the company adopted this guidance and it did not have a significant impact on the consolidated financial statements . critical accounting policies certain accounting policies are important to the understanding of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances , including , but without limitation , changes in interest rates , performance of the economy , financial condition of borrowers and laws and regulations . the following are the accounting policies we believe are critical . allowance for loan losses . we recognize that losses will be experienced on loans and that the risk of loss will vary with , among other things , the type of loan , the creditworthiness of the borrower , general economic conditions and the quality of the collateral for the loan . we maintain an allowance for loan losses to absorb losses inherent in the loan portfolio . the allowance for loan losses represents management 's estimate of probable losses based on all available information . the allowance for loan losses is based on management 's evaluation of the collectability of the loan portfolio , including past loan loss experience , known and inherent losses , information about specific borrower situations and estimated collateral values , and current economic conditions . the loan portfolio and other credit exposures are regularly reviewed by management in its determination of the allowance for loan losses . the methodology for assessing the appropriateness of the allowance includes a review of historical losses , internal data including delinquencies among others , industry data , and economic conditions . 38 as an integral part of their examination process , the office of the comptroller of the currency will periodically review our allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management . story_separator_special_tag we sold $ 228.92 million in loans during fiscal year 2013 , an increase of $ 129.41 million from $ 99.51 million sold in fiscal year 2012. the amount of loans sold in fiscal year 2013 was exceptionally high , particularly in the second half of the fiscal year , as the bank had fully integrated the mortgage lending operations of the sterling bank montana home loan operations . likewise significant refinance volume of one- to four-family residential mortgages continued due to the historical low mortgage interest rates . origination activity in all loan categories , increased in the current fiscal year . commercial real estate and land loan originations increased $ 7.40 million during the year , and residential mortgage loan originations increased $ 132.76 million . the available-for-sale investment portfolio increased $ 129.89 million , or 145.26 % , to $ 218.96 million at june 30 , 2013 from $ 89.28 million at june 30 , 2012. the investment category with the largest increase was municipal securities , which increased $ 42.38 million . premises and equipment increased $ 3.38 million , which was primarily due to the purchase of the sterling bank montana branches as noted previously . this was partially offset by depreciation expense . total deposits increased by $ 197.76 million , notwithstanding lower rates on deposits . the growth was attributable to the acquisition of the sterling bank montana branches and consumers seeking additional safety and protection afforded by increased federal deposit insurance . of that increase , certificates of deposit increased $ 76.13 million , to $ 157.49 million at june 30 , 2013 from $ 81.36 million at june 30 , 2012. the bank had no brokered deposits as of june 30 , 2013. interest-earning checking accounts increased $ 19.75 million and noninterest checking increased $ 29.55 million . money market accounts increased $ 56.87 million and savings accounts increased $ 15.46 million . in addition to the sterling bank montana branch acquisition , a portion of the deposit growth the bank has experienced over the last three fiscal years has likely been the result of investor interest in principal protection during the financial crisis and ensuing economic downturn . as such , as the financial crisis subsides , we believe deposit growth could be more difficult to achieve on a long-term basis due to significant competition among financial institutions in our markets . advances from the fhlb and other borrowings decreased to $ 34.86 million at year-end 2013 from $ 42.70 million at year-end 2012 , a decrease of $ 7.84 million and is largely attributable to the availability of retail funding from deposits . total shareholders ' equity was $ 49.23 million at june 30 , 2013 , a decrease of $ 4.42 million over the comparable period . this decrease was due to earnings offset by dividends paid and decreases in net accumulated other comprehensive gain . 40 analysis of net interest income the bank 's earnings have historically depended primarily upon net interest income , which is the difference between interest income earned on loans and investments and interest paid on deposits and any borrowed funds . it is the single largest component of eagle 's operating income . net interest income is affected by ( i ) the difference between rates of interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings ( the “ interest rate spread ” ) and ( ii ) the relative amounts of loans and investments and interest-bearing deposits and borrowings . the following tables set forth average balance sheets , average yields and costs , and certain other information at and for the periods indicated . all average balances are daily average balances . non-accrual loans were included in the computation of average balances , but have been reflected in the table as loans carrying a zero yield . the yields set forth below include the effect of deferred fees , discounts and premiums that are amortized or accreted to interest income or expense . replace_table_token_18_th ( 1 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities . ( 2 ) net interest margin represents income before the provision for loan losses divided by average interest-earning assets . ( 3 ) for purposes of this table , tax exempt income is not calculated on a tax equivalent basis . 41 rate/volume analysis the following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to : ( 1 ) changes in volume multiplied by the old rate ; ( 2 ) changes in rate , which are changes in rate multiplied by the old volume ; and ( 3 ) changes not solely attributable to rate or volume , which have been allocated proportionately to the change due to volume and the change due to rate . replace_table_token_19_th comparison of operating results for the years ended june 30 , 2013 and 2012 net income . eagle 's net income decreased slightly to $ 1.97 million for the year ended june 30 , 2013 from $ 2.18 million for the year ended june 30 , 2012 , a decrease of $ 205,000. this decrease was the result of increases in noninterest expense of $ 9.83 million , offset by increases in net interest income of $ 1.62 million and increases in noninterest income of $ 6.14 million and decreases in the provision for loan losses of $ 423,000. eagle 's tax provision was also $ 1.44 million lower in 2013. basic earnings per share for the year ended june 30 , 2013 were $ 0.51 , compared to $ 0.59 for the year ended june 30 , 2012. diluted earnings per share were $ 0.50 and $ 0.56 for 2013 and 2012 , respectively . net interest income .
| overview historically , our principal business has consisted of attracting deposits from the general public and the business community and making loans secured by various types of collateral , including real estate and other consumer assets . we are significantly affected by prevailing economic conditions , particularly interest rates , as well as government policies concerning , among other things , monetary and fiscal affairs , housing and financial institutions and regulations regarding lending and other operations , privacy and consumer disclosure . attracting and maintaining deposits is influenced by a number of factors , including interest rates paid on competing investments offered by other financial and non-financial institutions , account maturities , fee structures , and levels of personal income and savings . lending activities are affected by the demand for funds and thus are influenced by interest rates , the number and quality of lenders and regional economic conditions . sources of funds for lending activities include deposits , borrowings , repayments on loans , cash flows from maturities of investment securities and income provided from operations . 36 our earnings depend primarily on our level of net interest income , which is the difference between interest earned on our interest-earning assets , consisting primarily of loans , mortgage-backed securities and other investment securities , and the interest paid on interest-bearing liabilities , consisting primarily of deposits , borrowed funds , and trust-preferred securities . net interest income is a function of our interest rate spread , which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest- bearing liabilities , as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities . also contributing to our earnings is noninterest income , which consists primarily of service charges and fees on loan and deposit products and services , net gains and losses on sale of assets , and mortgage loan service fees .
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borrowings under the whistler credit agreement are available in canadian or u.s. dollars and bear interest annually , subject to an applicable margin based on the wb partnerships ' consolidated total leverage ratio ( as defined in the whistler credit agreement ) , with pricing as of july 31 , 2017 , in the case of borrowings ( i ) in canadian dollars , at the wb partnerships ' option , either ( a ) at the canadian prime rate plus 0.75 % per annum or ( b story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the consolidated financial statements and notes related thereto included in this form 10-k. to the extent that the following md & a contains statements which are not of a historical nature , such statements are forward-looking statements which involve risks and uncertainties . these risks include , but are not limited to , those discussed in item 1a , “ risk factors ” in this form 10-k. the following discussion and analysis should be read in conjunction with the forward-looking statements section and item 1a , “ risk factors ” each included in this form 10-k. the md & a includes discussion of financial performance within each of our three segments . we have chosen to specifically include reported ebitda ( defined as segment net revenue less segment operating expense ; and for the mountain segment , plus segment equity investment income , plus gain on litigation settlement ; and for the real estate segment , plus gain on sale of real property ) and net debt ( defined as long-term debt , net plus long-term debt due within one year less cash and cash equivalents ) , in the following discussion because we consider these measurements to be significant indications of our financial performance and available capital resources . resort reported ebitda , total reported ebitda and net debt are not measures of financial performance or liquidity defined under generally accepted accounting principles ( “ gaap ” ) . we utilize reported ebitda in evaluating our performance and in allocating resources to our segments . refer to the end of the results of operations section for a reconciliation of reported ebitda to net income attributable to vail resorts , inc. we also believe that net debt is an important measurement as it is an indicator of our ability to obtain additional capital resources for our future cash needs . refer to the end of the results of operations section for a reconciliation of net debt to long-term debt , net . items excluded from reported ebitda and net debt are significant components in understanding and assessing financial performance or liquidity . reported ebitda and net debt should not be considered in isolation or as an alternative to , or substitute for , net income , net change in cash and cash equivalents or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity . because resort reported ebitda , total reported ebitda and net debt are not measurements determined in accordance with gaap and are thus susceptible to varying calculations , resort reported ebitda , total reported ebitda and net debt , as presented herein , may not be comparable to other similarly titled measures of other companies . in addition , our segment reported ebitda ( i.e . mountain , lodging and real estate ) , the measure of segment profit or loss required to be disclosed in accordance with gaap , may not be comparable to other similarly titled measures of other companies . overview our operations are grouped into three integrated and interdependent segments : mountain , lodging and real estate . resort is the combination of the mountain and lodging segments . the mountain , lodging and real estate segments represented approximately 85 % , 14 % and 1 % , respectively , of our net revenue for fiscal 2017 . 37 mountain segment the mountain segment is comprised of the operations of eleven mountain resort properties and three urban ski areas including : replace_table_token_4_th additionally , the company operates ancillary services , primarily including ski school , dining and retail/rental operations , and for perisher , including lodging and transportation operations . mountain segment revenue is seasonal , with the majority of revenue earned from our north american mountain resorts and urban ski areas occurring in our second and third fiscal quarters and the majority of revenue earned from perisher occurring in our first and fourth fiscal quarters . our north american mountain resorts were open for business for the 2016/2017 ski season primarily from mid-november through mid-april , which is the peak operating season for the mountain segment . our single largest source of mountain segment revenue is the sale of lift tickets ( including season passes ) , which represented approximately 51 % , 50 % and 49 % of mountain segment net revenue for fiscal 2017 , fiscal 2016 and fiscal 2015 , respectively . lift revenue is driven by volume and pricing . pricing is impacted by both absolute pricing , as well as the demographic mix of guests , which impacts the price points at which various products are purchased . the demographic mix of guests to our u.s. mountain resorts is divided into two primary categories : ( 1 ) out-of-state and international ( “ destination ” ) guests and ( 2 ) in-state and local ( “ local ” ) guests . for the 2016/2017 u.s. ski season , destination guests comprised approximately 61 % of our u.s. mountain resort skier visits , while local guests comprised approximately 39 % of our u.s. mountain resort skier visits , which compares to approximately 58 % and 42 % , respectively , for the 2015/2016 u.s. ski season and 59 % and 41 % , respectively , for the 2014/2015 u.s. ski season . story_separator_special_tag recent trends , risks and uncertainties we have identified the following important factors ( as well as uncertainties associated with such factors ) that could impact our future financial performance : the timing and amount of snowfall can have an impact on mountain and lodging revenue , particularly with regard to skier visits and the duration and frequency of guest visitation . to help mitigate this impact , we sell a variety of season pass products prior to the beginning of the ski season , resulting in a more stabilized stream of lift revenue . additionally , our season pass products provide a compelling value proposition to our guests , which in turn creates a guest commitment predominantly prior to the start of the ski season . in march 2017 , we began our pre-season pass sales program for the 2017/2018 north american ski season . through september 24 , 2017 , pre-season pass sales for the upcoming 2017/2018 north american ski season have increased approximately 17 % in units and increased approximately 23 % in sales dollars , compared to the prior year period ended september 25 , 2016 , including whistler blackcomb and stowe pass sales in both periods , adjusted to eliminate the impact of foreign currency by applying current period exchange rates to the prior period . however , we can not predict if this favorable trend will continue for the entire duration of the fall 2017 north american pass sales campaign , nor can we predict the overall impact that season pass sales will have on lift revenue for the 2017/2018 north american ski season . 39 on october 17 , 2016 , the company , through its wholly-owned canadian subsidiary ( “ exchangeco ” ) , acquired all of the outstanding common shares of whistler blackcomb for aggregate consideration to whistler blackcomb shareholders of approximately $ 1.09 billion , consisting of ( i ) approximately c $ 673.8 million in cash ( or c $ 17.50 per whistler blackcomb share ) , ( ii ) 3,327,719 shares of our common stock , and ( iii ) 418,095 shares of exchangeco ( the “ exchangeco shares ” ) . the cash purchase consideration portion was funded through borrowings from an incremental term loan under our seventh amended and restated credit agreement ( the “ vail holdings credit agreement ” ) . whistler blackcomb , through a 75 % ownership interest in whistler mountain resort limited partnership and a 75 % ownership interest in blackcomb skiing enterprises limited partnership , collectively ( the “ wb partnerships ” ) , operates a four season mountain resort that features two adjacent and integrated mountains , whistler mountain and blackcomb mountain . the remaining 25 % ownership interest in each of the wb partnerships is held by nippon cable , an unrelated party to vail resorts . we expect that whistler blackcomb will significantly contribute to our results of operations ; however , we can not predict whether we will realize all of the expected synergies from the combination of the operations of whistler blackcomb nor can we predict all the resources required to integrate whistler blackcomb operations and the ultimate impact whistler blackcomb will have on our future results of operations . the estimated fair values of assets acquired and liabilities assumed in the whistler blackcomb acquisition are substantially complete and are based on the information that was available as of the acquisition date . we believe that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed ; however , we are obtaining additional information necessary to finalize those estimated fair values . therefore , the measurements of estimated fair value reflected within the consolidated balance sheets as of july 31 , 2017 and their associated impact to our consolidated statements of operations are subject to change . in fiscal 2017 , our lift revenue was favorably impacted by non-pass price increases at our mountain resorts that were implemented for the 2016/2017 north american ski season . non-pass prices for the 2017/2018 north american ski season have not yet been finalized ; and , as such , there can be no assurances as to the level of price increases , if any , which will occur and the impact that pricing may have on visitation or revenue . our fiscal 2017 results for our mountain segment showed strong improvement over fiscal 2016 largely due to strong pass sales growth for the 2016/2017 north american ski season and the incremental operating results from the whistler blackcomb acquisition , as discussed above . however , our fiscal 2017 results were tempered by poor early ski season conditions prior to the holiday period at our u.s. resorts , which drove lower skier visitation during the early ski season compared to fiscal 2016. we can not predict whether our resorts will experience normal snowfall conditions for the upcoming 2017/2018 north american ski season nor can we estimate the impact there may be to advance bookings , guest travel , season pass sales , lift revenue ( excluding season passes ) , retail/rental sales or other ancillary services revenue next ski season as a result of past snowfall conditions . key u.s. economic indicators have remained steady in 2017 , including strong consumer confidence and declines in the unemployment rate . however , the growth in the u.s. economy may be impacted by economic challenges in the u.s. or declining or slowing growth in economies outside of the u.s. , accompanied by devaluation of currencies and lower commodity prices . given these economic uncertainties , we can not predict what the impact will be on overall travel and leisure spending or more specifically , on our guest visitation , guest spending or other related trends for the upcoming 2017/2018 u.s. ski season . on june 7 , 2017 , we acquired stowe mountain resort in stowe , vermont , from mt .
| results of operations summary shown below is a summary of operating results for fiscal 2017 , fiscal 2016 and fiscal 2015 ( in thousands ) : replace_table_token_5_th a discussion of segment results , including reconciliations of segment reported ebitda to net income attributable to vail resorts , inc. , and other items can be found below . the sections titled “ fiscal 2017 compared to fiscal 2016 ” and “ fiscal 2016 compared to fiscal 2015 ” in each of the mountain and lodging segment discussions below provide comparisons of financial and operating performance for fiscal 2017 to fiscal 2016 and fiscal 2016 to fiscal 2015 , respectively , unless otherwise noted . 41 mountain segment mountain segment operating results for fiscal 2017 , fiscal 2016 and fiscal 2015 are presented by category as follows ( in thousands , except etp ) : replace_table_token_6_th certain mountain segment operating expenses presented above for fiscal 2016 and fiscal 2015 have been reclassified to conform to the presentation for fiscal 2017. mountain reported ebitda includes $ 15.0 million , $ 13.4 million and $ 11.8 million of stock-based compensation expense for fiscal 2017 , fiscal 2016 and fiscal 2015 , respectively . fiscal 2017 compared to fiscal 2016 the results reflect an increase in mountain reported ebitda of $ 141.9 million , or 33.4 % , due primarily to the operations of whistler blackcomb , which is included in our consolidated results prospectively from the acquisition date ( acquired in october 2016 ) , partially offset by $ 10.8 million of acquisition and integration related expenses . additionally , stowe was acquired in june 2017 and their off-season operations are included in our consolidated results prospectively from the acquisition date . excluding acquisition and integration related expenses and the operations of whistler blackcomb and stowe , mountain reported ebitda increased 9.1 % . our results reflect strong u.s. season pass sales growth for the 2016/2017 north american ski season .
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persons other than the company 's unitholders . a “ class a event ” occurs if ( a ) postrock ceases to own directly or indirectly at least 50 % of the class a units , ( b ) certain business combinations involving postrock where persons other than postrock story_separator_special_tag the following discussion and analysis should be read in conjunction with the “ item 6. selected financial data ” and the accompanying financial statements and related notes included elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that reflect our future plans , estimates , forecasts , guidance , beliefs and expected performance . the forward-looking statements are dependent upon events , risks and uncertainties that may be outside our control . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , market prices for oil and natural gas , production volumes , estimates of proved reserves , capital expenditures , operating costs , lack of a sponsor , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this annual report on form 10-k , particularly in “ item 1a . risk factors ” and “ forward-looking statements , ” all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . overview we are a limited liability company formed in 2005 to acquire oil and natural gas properties . our proved reserves are located in the cherokee basin in oklahoma and kansas , the woodford shale in the arkoma basin in oklahoma , the central kansas uplift in kansas and in texas and louisiana . our primary business objective is to create long-term value and to generate stable cash flows allowing us to invest in our business to grow our reserves and production . we plan to achieve our objective by executing our business strategy , which is to : organically grow our business by increasing reserves and production through what we believe to be low-risk development drilling that focuses on capital efficient production growth and oil opportunities on our existing properties in the mid-continent region and in texas and louisiana ; reduce the volatility in our cash flows resulting from changes in oil and natural gas commodity prices and interest rates through efficient and effective hedging programs ; and make accretive , right-sized acquisitions of oil and natural gas properties characterized by a high percentage of proved developed oil and natural gas reserves with long-lived , stable production and low-risk drilling opportunities . we completed our initial public offering on november 20 , 2006 , and our class b common units are currently listed on the nyse mkt under the symbol “ cep. ” 34 unless the context requires otherwise , any reference in this annual report on form 10-k to “ constellation energy partners , ” “ we , ” “ our , ” “ us , ” “ cep , ” or the “ company ” means constellation energy partners llc and its subsidiaries . references in this annual report on form 10-k to “ postrock ” and “ cepm ” are to postrock energy corporation and its subsidiary constellation energy partners management , llc , respectively . references in this annual report on form 10-k to “ exelon ” and “ ceph ” are to exelon corporation and its subsidiary constellation energy partners holdings , llc , respectively . references in this annual report on form 10-k to “ sog ” and “ sep i ” are to sanchez oil & gas corporation and its subsidiary , sanchez energy partners i , lp , respectively . references in this annual report on form 10-k to “ constellation ” are to constellation energy group , inc. some key highlights of our business activities through december 31 , 2013 were : we sold our robinson 's bend field assets in the black warrior basin in alabama and used a portion of the proceeds from that sale to reduce our outstanding debt . as a result of this sale , amounts related to the robinson 's bend field assets have been reported as discontinued operations in 2013. all prior year information relating to the robinson 's bend field assets has been restated as discontinued operations , and all information reported or discussed in this annual report on form 10-k reflects the treatment of the robinson 's bend field assets as discontinued operations . we amended our reserve-based credit facility to extend its maturity to may 2017 and expand our borrowing capacity . we acquired producing oil and natural gas assets in texas and louisiana from sep i. we executed a capital plan that allowed us to expand our oil production from 2010 to 201 3 by 262.3 % and increased our proved oil reserves to 2 . 2 million barrels at december 31 , 2013. oil revenues accounted for 50.5 % of our total unhedged revenue stream in 201 3 . we have reduced our outstanding debt by 77.0 % from a high of $ 220.0 million in 2009 to $ 50.7 million . in 2014 , we intend to focus our efforts on developing oil opportunities on our existing properties in the mid-continent region and in texas and louisiana , while pursuing opportunities to acquire additional properties in our operating area or merger and acquisition opportunities that could lead to enhanced unitholder value . for additional information on our business plan for 2014 , refer below to “ outlook. ” significant operational factors in 2013 realized prices . our average realized price for the twelve months ended december 31 , 2013 , including hedge settlements , was $ 7.49 per mcfe and $ 5.56 per mcfe excluding hedge settlements . story_separator_special_tag in addition to limiting our ability to enter into transactions with postrock or its affiliates , this provision of our operating agreement could have an anti-takeover effect with respect to transactions not approved in advance by our board of managers , including discouraging takeover attempts that might result in a premium over the market price for our common units . we believe the section 203 restrictions related to these unit purchases expire in december 2014 . 36 story_separator_special_tag reserves which resulted in negative reserve revisions , and increased expenditures incurred for our drilling programs in 2012. these revisions were partially offset by increased oil reserves as a result of our successful drilling programs we calculate depletion using units-of-production under the successful efforts method of accounting . our other assets are depreciated using the straight line basis . we will use our 2013 year-end reserve report to record our depletion in the first three quarters of 2014 and our 2014 year-end reserve report to record our depletion in the fourth quarter of 2014. our asset impairment charges for the year ended december 31 , 2013 were $ 2.3 million , compared to $ 0.1 million for the same period in 2012. our impairment charges in 2013 were approximately $ 2.1 million to impair the value of our oil and natural gas fields in texas and louisiana and $ 0.2 million to impair certain of our wells in the woodford shale , both due to decreases in commodity pricing . our impairment charges in 2012 were approximately $ 0.1 million to impair certain of our wells in the woodford shale . the impairment was recorded because the net capitalized costs of the properties exceeded the fair value of the properties as measured by estimated cash flows reported in a third party reserve report . interest expense . net i nterest expense for the year ended december 31 , 2013 decreased $ 2.6 million , or 45 . 1 % , to approximatel y $ 3.1 million , compared to approximately $ 5.7 million in interest expense for the same period in 2012. this decrease was primarily due to $ 1.5 million in higher interest rate swap settlements , offset by $ 2.5 million lower non-cash mark-to-market losses on our interest rate swaps that are accounted for as mark-to-market activities and lower market interest rates resulting in lower interest expense of $ 1.6 million during 2013 as compared to the same period in 2012. at december 31 , 2013 , we had an outstanding balance under our reserve-based c redit facility of $ 50.7 million , compared to $ 84.0 million at december 31 , 2012. discontinued operations . loss from discontinued operations for the year ended december 31 , 2013 decreased $ 74.4 million , or 96.5 % , to a loss of $ 2.7 million , compared to a loss of $ 77.1 million in discontinued operations for the same period in 2012. our discontinued operations represent the net loss associated with the sale of our robinson 's bend field assets in the black warrior basin of alabama , in a transaction that closed on february 28 , 2013 , with an effective date of december 1 , 2012. the loss in 2013 reflects a $ 3.1 million loss on the sale of the properties , only two months of income and lower depreciation expenses . liquidity and capital resources during 2013 , we utilized our cash flow from the sale of our robinson 's bend field assets , as well as our cash flow from operations , as our primary sources of capital . our primary use of capital during this time was for the reduction of outstanding debt , the acquisition of properties and the development of existing oil opportunities within our existing asset base in the mid-continent and gulf coast regions . the primary focus of our business plan in 2013 was to use our excess operating cash flows to reduce our outstanding debt level while continuing a limited capital program focused on oil drilling and recompletions . since we shifted our strategic focus to debt reduction , we have successfully reduced our outstanding debt balance from a high of $ 220.0 million in 2009 to $ 50.7 million as of december 31 , 2013. this reduction in debt was achieved through a combination of the sale of our natural gas properties in the black warrior basin of alabama in 2013 , the one-time restructuring of our nymex fixed-for-floating price swaps in 2011 , the suspension of our cash distribution since 2009 , the reduction of our capital expenditures since 2009 , significant reductions in our operating expenses and the dedication of a significant portion of our operating cash flows to reducing debt . based upon our current business plan for 2014 , we anticipate that we will continue to generate sufficient operating cash flows to meet our working capital needs and fund a planned capital expenditure program between $ 20 .0 million and $ 2 2 .0 million . we also anticipate that we will have funds available to pay the probable settlement related to the postrock litigation of approximately $ 5.9 million . we will be monitoring the capital resources available to us to meet our future financial obligations and our planned 2014 capital expenditures . our current expectation is that we will continue managing our business to operate within the cash flows that are generated . given our focus on debt reduction , our quarterly distributions to our unitholders remained suspended through the fourth quarter of 2013. we were restricted from paying distributions to unitholders as we had no available cash ( taking into account the cash reserves set by our board of managers for the proper conduct of our business and the payment of fees and expenses ) from which to pay distributions . our future success in growing reserves and production will be highly dependent on the capital resources available to us and our success in drilling for or acquiring additional reserves and managing the costs associated with our operations .
| results of operations the following table sets forth the selected financial and operating data for the periods indicated ( in thousands , except net production and average sales and costs ) : replace_table_token_9_th ( a ) field operating expenses include lease operating expenses ( average production costs ) and production taxes 37 year ended december 31 , 2013 compared to year ended december 31 , 2012 oil and natural gas sales . unhedged natural gas sales increased $ 5.3 million , or 33.4 % , to $ 21.0 million for the year ended december 31 , 2013 , compared to $ 15.7 million in 2012. unhedged oil and liquid sales increased $ 9.5 million , or 80.0 % , to $ 21.4 million for the year ended december 31 , 2013 , compared to $ 11.9 million for the same period in 2012. with hedges and mark-to-market activities , our total revenue decreased $ 2.4 million when compared to the same period in 2012. of this decrease , $ 8.6 million was attributable to lower hedge settlements for our oil and natural gas commodity derivatives and $ 8.6 million was attributable to lower mark-to-market activities , partially offset by $ 14.8 million related to higher market prices for natural gas and oil . production for the twelve months ended december 31 , 201 3 was 8.2 bcfe , which was comparable to the same period in 2012. we hedged all of our actual consolidated production volumes sold through december 31 , 2013 , and approximately 81 % of our actual production through december 31 , 2012. in march 2013 , we liquidated or repositioned certain of our hedges to ensure that our outstanding derivative positions in future periods are lower than our expected future natural gas production in those periods .
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other real estate owned other real estate owned represents properties acquired through or in lieu of loan foreclosure and are initially recorded at fair value less estimated costs to sell story_separator_special_tag special cautionary notice regarding forward-looking statements forward-looking statements included in this annual report on form 10-k are based on various facts and derived utilizing numerous important assumptions and are subject to known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . forward-looking statements include the information concerning our future financial performance , business and growth strategy , projected plans and objectives , as well as projections of macroeconomic and industry trends , which are inherently unreliable due to the multiple factors that impact economic trends , and any such variations may be material . statements preceded by , followed by or that otherwise include the words `` believes , '' `` expects , '' `` anticipates , '' `` intends , '' `` projects , '' `` estimates , '' `` plans '' and similar expressions or future or conditional verbs such as `` will , '' `` should , '' `` would , '' `` may '' and `` could '' are generally forward-looking in nature and not historical facts , although not all forward-looking statements include the foregoing . you should understand that the following important factors could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements : risks related to the concentration of our business in texas , and specifically within the dallas metropolitan area , including risks associated with any downturn in the real estate sector and risks associated with a decline in the values of single family homes in the dallas metropolitan area ; our ability to implement our growth strategy , including identifying and consummating suitable acquisitions ; risks related to the integration of any acquired businesses , including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities , the time and costs associated with integrating systems , technology platforms , procedures and personnel , the need for additional capital to finance such transactions , and possible failures in realizing the anticipated benefits from acquisitions ; our ability to recruit and retain successful bankers that meet our expectations in terms of customer relationships and profitability ; our ability to retain executive officers and key employees and their customer and community relationships ; risks associated with our limited operating history and the relatively unseasoned nature of a significant portion of our loan portfolio ; market conditions and economic trends nationally , regionally and particularly in the dallas metropolitan area and texas ; risks related to our strategic focus on lending to small to medium-sized businesses ; the sufficiency of the assumptions and estimates we make in establishing reserves for potential loan losses ; risks associated with our commercial loan portfolio , including the risk for deterioration in value of the general business assets that generally secure such loans ; risks associated with our nonfarm nonresidential and construction loan portfolios , including the risks inherent in the valuation of the collateral securing such loans ; 43 potential changes in the prices , values and sales volumes of commercial and residential real estate securing our real estate loans ; risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area ; our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels ; changes in market interest rates that affect the pricing of our loans and deposits and our net interest income ; potential fluctuations in the market value and liquidity of our investment securities ; the effects of competition from a wide variety of local , regional , national and other providers of financial , investment and insurance services ; our ability to maintain an effective system of disclosure controls and procedures and internal controls over financial reporting ; risks associated with fraudulent and negligent acts by our customers , employees or vendors ; our ability to keep pace with technological change or difficulties when implementing new technologies ; risks associated with system failures or failures to prevent breaches of our network security ; risks associated with data processing system failures and errors ; potential impairment on the goodwill we have recorded or may record in connection with business acquisitions ; the institution and outcome of litigation and other legal proceeding against us or to which we become subject ; our ability to comply with various governmental and regulatory requirements applicable to financial institutions ; the impact of recent and future legislative and regulatory changes , including changes in banking , securities and tax laws and regulations and their application by our regulators , such as the dodd-frank act ; governmental monetary and fiscal policies , including the policies of the federal reserve ; our ability to comply with supervisory actions by federal and state banking agencies ; changes in the scope and cost of fdic , insurance and other coverage ; and systemic risks associated with the soundness of other financial institutions . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with `` item 6selected consolidated financial data '' and our consolidated financial statements and the accompanying notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate . story_separator_special_tag other income decreased $ 77,000 or 12.3 % for the the year ended december 31 , 2014 , compared to the same period in 2013 , primarily 49 due to a decrease of $ 12,000 in wire transfer fees and a decrease $ 52,000 in revenue from other real estate owned . noninterest expense generally , noninterest expense is composed of all employee expenses and costs associated with operating our facilities , obtaining and retaining customer relationships and providing bank services . the major component of noninterest expense is salaries and employee benefits . noninterest expense also includes operational expenses , such as occupancy expenses , depreciation and amortization of office equipment , professional and regulatory fees , including fdic assessments , data processing expenses , and advertising and promotion expenses . the following table presents , for the periods indicated , the major categories of noninterest expense : replace_table_token_10_th noninterest expense for the the year ended december 31 , 2014 increased $ 2.1 million or 13.1 % to $ 18.5 million compared to noninterest expense of $ 16.4 million for the same period in 2013. the most significant components of the increase were as follows : salaries and employee benefits . salaries and employee benefits are the largest component of noninterest expense and include payroll expense , the cost of incentive compensation , benefit plans , health insurance and payroll taxes . salaries and employee benefits were $ 10.0 million for the the year ended december 31 , 2014 , an increase of $ 953,000 or 10.5 % compared to the same period in 2013. the increase was primarily attributable to the addition of six full-time equivalent employees since december 31 , 2013. as of december 31 , 2014 , we had 121 full-time employees and four part-time employees . salaries and employee benefits included $ 455,000 and $ 323,000 in stock-based compensation expense for the year ended december 31 , 2014 and 2013 , respectively . occupancy of bank premises . our expense associated with occupancy of bank premises was $ 1.9 million for the the year ended december 31 , 2014 compared to $ 1.7 million for the same period of 2013. the increase of $ 169,000 or 10.0 % was due primarily to lease expense increase of $ 92,000 related to an additional 3,500 square feet resulting from the expansion of our corporate office space , a $ 63,000 increase in common area maintenance expense , and a $ 23,000 increase in grounds maintenance . 50 depreciation and amortization . depreciation and amortization costs were $ 1.3 million for the the year ended december 31 , 2014 and 2013. this category includes building , leasehold , furniture , fixtures and equipment depreciation totaling $ 1,045,000 and $ 972,000 for the the year ended december 31 , 2014 and 2013 , respectively , as well as intangible asset amortization of $ 294,000 for the same periods . data processing . data processing expenses were $ 881,000 for the the year ended december 31 , 2014 and $ 729,000 for the same period in 2013. the increase of $ 152,000 or 20.9 % was attributable to incremental processing fees resulting from the growth in the volume of our deposit accounts . fdic assessment fees . our fdic assessment fees were $ 421,000 and $ 378,000 for the the year ended december 31 , 2014 and 2013 , respectively . the increase of $ 43,000 or 11.4 % was a result of the growth in assets over this period . legal fees . legal fees were $ 125,000 and $ 80,000 for the the year ended december 31 , 2014 and 2013 , respectively . the increase of $ 45,000 or 56.3 % was due to an increase in loan work-out related legal support . other professional fees . other professional fees include audit , loan review , regulatory assessments , and information technology services . these fees were $ 1.0 million and $ 574,000 for the the year ended december 31 , 2014 and 2013 , respectively . this increase of $ 470,000 or 81.9 % was primarily attributable to increases in audit and accounting fees of $ 260,000 for services related to our initial public offering , compensation consulting services of $ 93,000 , and information technology support service inceases of $ 78,000. other real estate owned expenses and write-downs . expenses related to other real estate owned were $ 210,000 and $ 399,000 for the the year ended december 31 , 2014 and 2013 , respectively . the decrease of $ 189,000 or 47.4 % was due to a reduction in the number of properties comprising other real estate owned and in related property write-downs . the bank sold five other real estate owned properties and foreclosed on two additional properties between december 31 , 2013 and december 31 , 2014 reducing the number of properties held from five as of december 31 , 2013 , to two as of december 31 , 2014. in addition , we had no write-downs of other real estate owned for the the year ended december 31 , 2014 , compared to a write-down of $ 249,000 related to a commercial retail property for the year ended december 31 , 2013. other . this category includes operating and administrative expenses including small hardware and software purchases , business development expenses ( i.e . travel and entertainment , donations and club memberships ) , insurance and security expenses . other noninterest expense increased $ 388,000 or 22.5 % to $ 2.1 million for the the year ended december 31 , 2014 , compared to $ 1.7 million for the same period in 2013 primarily related to an increase in business development related expenses required to support our marketing efforts , directors fees , software expenses , and security expenses . income tax expense the amount of income tax expense is influenced by the amounts of our pre-tax income , tax-exempt income and other nondeductible expenses .
| overview we are a bank holding company headquartered in dallas , texas . through our wholly-owned subsidiary , veritex community bank , a texas state chartered bank , we provide relationship-driven commercial banking products and services tailored to meet the needs of small to medium-sized businesses and professionals . since our inception , we have targeted customers and focused our acquisitions primarily in the dallas metropolitan area , which we consider to be dallas and the adjacent communities in north dallas . as we continue to grow , we expect to expand our primary market to include the broader dallas-fort worth metropolitan area , which would include fort worth and arlington , as well as the communities adjacent to those cities . we currently operate eight branches and one mortgage office , all of which are located in the dallas metropolitan area . we have experienced significant organic growth since commencing banking operations in 2010 and have successfully acquired and integrated three banks . as of december 31 , 2014 , we had total assets of $ 802.3 million , total loans of $ 603.3 million , total deposits of $ 638.7 million and total stockholders ' equity of $ 113.3 million . as a bank holding company operating through one segment , community banking , we generate most of our revenues from interest income on loans , customer service and loan fees , gains on sale of mortgage loans , and interest income from securities . we incur interest expense on deposits and other borrowed funds and noninterest expense , such as salaries and employee benefits and occupancy expenses . we analyze our ability to maximize income generated from interest earning assets and expense of our liabilities through our net interest margin . net interest margin is a ratio calculated as net interest income divided by average interest-earning assets .
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in august 2015 , the fasb issued asu no . 2015-14 , revenue from contracts with customers ( topic 606 ) , which deferred the effective date of asu no . 2014-09 to annual periods beginning after december 15 , 2017 , including interim periods within that reporting period . the adoption of asu no . 2014-09 is not expected to have a material impact on the company 's consolidated financial statements . 83 notes to consolidated financial story_separator_special_tag story_separator_special_tag detail in subsequent sections of management 's discussion and analysis contained herein and in the notes to the consolidated financial statements contained in item 8 of this form 10-k. in particular , note 1 to the consolidated financial statements , “ summary of significant accounting policies , ” generally describes the company 's accounting policies . management believes that the judgments , estimates and assumptions used in the preparation of the company 's consolidated financial statements are appropriate given the factual circumstances at the time . however , given the sensitivity of the company 's consolidated financial statements to these critical policies , the use of other judgments , estimates and assumptions could result in material differences in the company 's results of operations or financial condition . allowance for loan losses . the allowance for loan losses is maintained at a level sufficient to provide for probable loan losses based on evaluating known and inherent risks in the portfolio . the allowance is based upon management 's comprehensive analysis of the pertinent factors underlying the quality of the loan portfolio . these factors include changes in the amount and composition of the loan portfolio , delinquency levels , actual loan loss experience , current economic conditions , and detailed analysis of individual loans for which full collectibility may not be assured . the detailed analysis includes methods to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment . the appropriate allowance for loan loss level is estimated based upon factors and trends identified by management at the time the consolidated financial statements are prepared . while the company believes it has established its existing allowance for loan losses in accordance with gaap , there can be no assurance that regulators , in reviewing the company 's loan portfolio , will not request the company to significantly increase or decrease its allowance for loan losses . in addition , because future events affecting borrowers and collateral can not be predicted with certainty , there can be no assurance that the existing allowance for loan losses is adequate or that substantial increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed elsewhere in this document . although management believes the level of the allowance as of september 30 , 2015 was adequate to absorb probable losses inherent in the loan portfolio , a decline in local economic conditions , results of examinations by the company 's or the bank 's regulators or other factors , could result in a material increase in the allowance for loan losses and may adversely affect the company 's financial condition and results of operations . msrs . msrs are capitalized when acquired through the origination of loans that are subsequently sold with servicing rights retained and are amortized to servicing income on loans sold approximately in proportion to and over the period of estimated net servicing income . the value of msrs at the date of the sale of loans is determined based on the discounted present value of expected future cash flows using key assumptions for servicing income and costs and prepayment rates on the underlying loans . the estimated fair value is evaluated at least annually by a third-party firm for impairment by comparing actual cash flows and estimated cash flows from the servicing assets to those estimated at the time the servicing assets were originated . the effect of changes in market interest rates on estimated rates of loan prepayments represents the predominant risk characteristic underlying the msrs ' portfolio . the company 's methodology for estimating the fair value of msrs is highly sensitive to changes in assumptions . for example , the determination of fair value uses anticipated prepayment speeds . actual prepayment experience may differ , and any difference may have a material effect on the fair value . thus , any measurement of msrs ' fair value is limited by the conditions existing and assumptions as of the date made . those assumptions may not be appropriate if they are applied at different times . 52 otti in the estimated fair value of investment securities . unrealized investment securities losses on available for sale and held to maturity securities are evaluated at least quarterly by a third-party firm to determine whether declines in value should be considered “ other than temporary ” and therefore be subject to immediate loss recognition through earnings for the portion related to credit losses . although these evaluations involve significant judgment , an unrealized loss in the fair value of a debt security is generally deemed to be temporary when the fair value of the security is less than the recorded value primarily as a result of changes in interest rates , when there has not been significant deterioration in the financial condition of the issuer , and the company has the intent and the ability to hold the security for a sufficient time to recover the recorded value . an unrealized loss in the value of an equity security is generally considered temporary when the fair value of the security is below the recorded value primarily as a result of current market conditions and not a result of deterioration in the financial condition of the underlying borrowers or the underlying collateral ( in the case of mutual funds ) and the company has the intent and the ability to hold the security for a sufficient time to recover the recorded value . story_separator_special_tag we are focused on monitoring existing performing loans , resolving non-performing assets and selling foreclosed assets . we have sought to reduce the level of non-performing assets through collections , write-downs , modifications and sales of oreo . we have taken proactive steps to resolve our non-performing loans , including negotiating payment plans , forbearances , loan modifications and loan extensions and accepting short payoffs on delinquent loans when such actions have been deemed appropriate . expand our presence within our existing market areas by capturing opportunities resulting from changes in the competitive environment . we currently conduct our business primarily in western washington . we have a community bank strategy that emphasizes responsive and personalized service to our customers . as a result of consolidation of banks in our market areas , we believe there is an opportunity for a community and customer focused bank to expand its customer base . by offering timely decision making , delivering appropriate banking products and services , and providing customer access to our senior managers we believe community banks , such as timberland bank , can distinguish themselves from larger banks operating in our market areas . we believe we have a significant opportunity to attract additional borrowers and depositors and expand our market presence and market share within our extensive branch footprint . continue generating revenues through mortgage banking operations . the substantial majority of the fixed-rate residential mortgage loans we originate are sold into the secondary market with servicing retained . this strategy produces gains on the sale of such loans and reduces the interest rate and credit risk associated with fixed-rate residential lending . we continue to originate custom construction and owner builder loans for sale into the secondary market upon the completion of construction . portfolio diversification . in recent years , we have strictly limited the origination of speculative construction , land development and land loans in favor of loans that possess credit profiles representing less risk to the bank . we continue originating owner/builder and custom construction loans , multi-family loans , commercial business loans and certain commercial real estate loans which offer higher risk adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than fixed rate one-to four-family loans . we anticipate capturing more of each customer 's banking relationship by cross selling our loan and deposit products and offering additional services to our customers . increase core deposits and other retail deposit products . we focus on establishing a total banking relationship with our customers with the intent of internally funding our loan portfolio . we anticipate that the continued focus on customer relationships will increase our level of core deposits and locally-based retail certificates of deposit . in addition to our retail branches , we maintain technology based products such as business cash management and a business remote deposit product that enables us to compete effectively with banks of all sizes . limit exposure to increasing interest rates . for many years , the majority of the loans the bank has retained in its portfolio have generally possessed periodic interest rate adjustment features or have been relatively short term in nature . loans originated for portfolio retention have generally included arm loans , short term construction loans , and to a lesser extent commercial business loans with interest rates tied to a market index such as the prime rate . longer term fixed-rate mortgage loans have generally been originated for sale into the secondary market . 54 market risk and asset and liability management general . market risk is the risk of loss from adverse changes in market prices and rates . the bank 's market risk arises primarily from interest rate risk inherent in its lending , investment , deposit and borrowing activities . the bank , like other financial institutions , is subject to interest rate risk to the extent that its interest-earning assets reprice differently than its interest-bearing liabilities . management actively monitors and manages its interest rate risk exposure . although the bank manages other risks , such as credit quality and liquidity risk , in the normal course of business management considers interest rate risk to be its most significant market risk that could potentially have the largest material effect on the bank 's financial condition and results of operations . the bank does not maintain a trading account for any class of financial instruments nor does it engage in hedging activities . furthermore , the bank is not subject to foreign currency exchange rate risk or commodity price risk . qualitative aspects of market risk . the bank 's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates . the bank has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates . the principal element in achieving this objective is to increase the interest rate sensitivity of the bank 's interest-earning assets by retaining in its portfolio , short-term loans and loans with interest rates subject to periodic adjustments . the bank relies on retail deposits as its primary source of funds . as part of its interest rate risk management strategy , the bank promotes transaction accounts and certificates of deposit with terms of up to six years . the bank has adopted a strategy that is designed to substantially match the interest rate sensitivity of assets relative to its liabilities . the primary elements of this strategy involve originating arm loans for its portfolio , maintaining residential construction loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than other one- to four-family residential mortgage loans , matching asset and liability maturities , investing in short-term securities , and originating fixed-rate loans for retention or sale in the secondary market while retaining the related msrs . sharp increases or decreases in interest rates may adversely affect the bank 's earnings .
| financial condition and results of operations general management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the consolidated financial condition and results of operations of the company . the information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in item 8 of this annual report on form 10-k. special note regarding forward-looking statements certain matters discussed in this annual report on form 10-k may contain forward-looking statements within the meaning of the private securities litigation reform act of 1995. these statements relate to our financial condition , results of operations , plans , objectives , future performance or business . forward-looking statements are not statements of historical fact and often include the words `` believes , '' `` expects , '' `` anticipates , '' `` estimates , '' `` forecasts , '' `` intends , '' `` plans , '' `` targets , '' `` potentially , '' `` probably , '' `` projects , '' `` outlook '' or similar expressions or future or conditional verbs such as `` may , '' `` will , '' `` should , '' `` would '' and `` could . '' forward-looking statements include statements with respect to our beliefs , plans , objectives , goals , expectations , assumptions and statements about future economic performance .
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the expense is recognized ratably over the service period story_separator_special_tag forward-looking statements we make statements in this report , and we may from time to time make other statements , regarding our outlook or expectations for earnings , revenues , expenses and or other financial , business or strategic matters regarding or affecting sterling bancorp that are forward-looking statements within the meaning of the private securities litigation reform act of 1995 , as amended . forward-looking statements are typically identified by words such as “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ outlook , ” “ target , ” “ estimate , ” “ forecast , ” “ project ” by future conditional verbs such as “ will , ” “ should , ” “ would , ” “ could ” or “ may , ” or by variations of such words or by similar expressions . these statements are not historical facts , but instead represent our current expectations , plans or forecasts and are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared . forward-looking statements are subject to numerous assumptions , risks ( both known and unknown ) and uncertainties , and other factors which change over time . forward-looking statements speak only as of the date they are made . we do not assume any duty and do not undertake to update our forward-looking statements . because forward-looking statements are subject to assumptions , risks , uncertainties , and other factors actual results or future events could differ , possibly materially , from those that we anticipated in our forward-looking statements and future results could differ materially from our historical performance . the following factors , among others , could cause our future results to differ materially from the plans , objectives , goals , expectations , anticipations , estimates and intentions expressed in the forward-looking statements : our company 's ability to successfully implement growth , expense reduction and other strategic initiatives and to integrate and fully realize cost savings and other benefits we estimate in connection with acquisitions generally ; continued implementation of our team based business strategy , including customer acceptance of our products and services and the perceived overall value , pricing and quality of them , compared to our competitors ; the possibility that the benefits anticipated from the hvb merger will not be fully realized , the possibility the hvb merger may not close , and other risks in connection with the proposed transaction and integration of hvb ; legislative and regulatory changes such as the dodd-frank act and its implementing regulations that adversely affect our business , including changes in regulatory policies and principles or the interpretation of regulatory capital or other rules ; adverse publicity , regulatory actions or litigation with respect to us or other well-known companies and the financial services industry in general and a failure to satisfy regulatory standards ; the effects of and changes in monetary and fiscal policies of the board of governors of the federal reserve system and the u.s. government ; our ability to make accurate assumptions and judgments about an appropriate level of allowance for loan losses and the collectability of our loan portfolio , including changes in the level and trend of loan delinquencies and write-offs that may lead to increased losses and non-performing assets in our loan portfolio , result in our allowance for loan losses not being adequate to cover actual losses , and require us to materially increase our reserves ; our use of estimates in determining fair value of certain of our assets , which estimates may prove to be incorrect and result in significant declines in valuation ; changes in the levels of general interest rates , and the relative differences between short and long term interest rates , deposit interest rates , our net interest margin and funding sources ; changes in other economic , competitive , governmental , regulatory , and technological factors affecting our markets , operations , pricing , products , services and fees ; and our success at managing the risks involved in the foregoing and managing our business . additional factors that may affect our results are discussed in this report on form 10-k under “ item 1a , risk factors ” and elsewhere in this report or in other filings with the sec . these risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . you should read such statements carefully . critical accounting policies our accounting and reporting policies are prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) and conform to general practices within the banking industry . accounting policies considered critical to our financial results include the allowance for loan losses , accounting for goodwill and other intangible assets , accounting for deferred income taxes and the recognition of interest income . 27 allowance for loan losses . the methodology for determining the allowance for loan losses is considered by the company to be a critical accounting policy due to the high degree of judgment involved , the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary . we evaluate our loans at least quarterly , review their risk components , the carrying value of loans as a part of that evaluation and the allowance is adjusted accordingly . while management uses the best information available to make evaluations , future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations . in addition , as an integral part of their examination process , our regulatory agencies periodically review the allowance for loan losses . story_separator_special_tag the company continues to evaluate reasonableness of expectations for the timing and amount of cash to be collected . subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments , and in some cases may result in the loan being considered impaired . general the following discussion and analysis presents the more significant factors affecting the company 's financial condition as of september 30 , 2014 and 2013 and results of operations for each of the years in the three-year period ended september 30 , 2014. the merger was effective october 31 , 2013 , which significantly impacts comparisons to earlier periods . the merger and the acquisition of gotham bank of new york were accounted for as purchase transactions , and accordingly , their related results of operations are included from the date of acquisition . the md & a should be read in conjunction with the consolidated financial statements , notes to consolidated financial statements and other information contained in this report . on october 31 , 2013 , we completed the merger of legacy sterling and legacy provident . this acquisition was consistent with our strategy of expanding in the greater new york metropolitan region and focusing on commercial banking . we believe the merger has created a larger , more a more profitable company by combining legacy provident 's differentiated team-based distribution channels with legacy sterling 's diverse commercial and consumer lending product capabilities . the merger has allowed us to accelerate loan growth , improve our ability to gather low cost core deposits and generate substantial cost savings and revenue enhancement opportunities . the merger has significantly diversified our business . legacy sterling was predominately a commercial & industrial lender which has complemented our loan portfolio , which was substantially collateralized by real estate . further , legacy sterling provides us greater non-interest income revenue streams . on a combined basis , we anticipate greater than 20 % of our total revenues will consist of non-interest income over time . story_separator_special_tag tax equivalent interest income on securities increased $ 19.9 million , or 75.8 % in fiscal 2014 , which was mainly the result of an increase of $ 569.6 million , or 50.7 % in the average balance of securities over the period . in connection with the merger , we acquired $ 607.9 million of securities on october 31 , 2013 . the tax equivalent yield on securities was 2.73 % in fiscal 2014 compared to 2.34 % in fiscal 2013 and 2.74 % in fiscal 2012. the increase in tax equivalent yield in fiscal 2014 was mainly due to the proportion of tax exempt securities which comprised 19.0 % of average securities in fiscal 2014 compared to 15.5 % in fiscal 2013 and a rebalancing of the securities portfolio due to the merger , which increased the yield on taxable securities in fiscal 2014 to 2.19 % compared to 1.85 % in fiscal 2013. the 40 basis point decline in the tax equivalent yield on securities between fiscal 2012 and 2013 was due to overall declines in market rates of interest . average deposits increased $ 2.1 billion , or 72.3 % in fiscal 2014 and were $ 4.9 billion compared to $ 2.9 billion in fiscal 2013 and $ 2.4 billion in fiscal 2012. the increase in the average balance of deposits was mainly due to the merger , as we assumed $ 2.3 billion in deposits on october 31 , 2013 . average interest bearing deposits increased $ 1.1 billion , or 51.2 % , in fiscal 2014 and $ 364.3 million , or 19.7 % , in fiscal 2013 compared to fiscal 2012. average non-interest bearing deposits increased $ 933.7 million and were $ 1.6 billion in fiscal 2014 compared to $ 646.4 million in fiscal 2013 and $ 520.3 million in fiscal 2012. the average cost of interest bearing deposits was 0.27 % in fiscal 2014 and 2013 and was 0.30 % in fiscal 2012. the cost of deposits reflects the current low interest rate environment . average borrowings increased $ 367.5 million , or 82.2 % in fiscal 2014 and were $ 814.4 million compared to $ 446.9 million in fiscal 2013 and $ 356.3 million in fiscal 2012. the increase in average borrowings in fiscal 2014 was required to fund loan growth and included the $ 100.0 million of senior notes issued in connection with the merger . average borrowings also included $ 25.7 million of subordinated debentures which were redeemed in june 2014. the average cost of borrowings was 2.45 % for fiscal 2014 compared to 3.13 % in fiscal 2013 and 3.65 % in fiscal 2012. the decline in the average cost of borrowings between the periods was mainly due to an increase in short-term fhlb borrowings as a percentage of total average borrowings . provision for loan losses . the provision for loan losses is determined by the company as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level that is the company 's best estimate of probable incurred credit losses inherent in the outstanding loan portfolio . the provision for loan losses totaled $ 19.1 million in fiscal 2014 compared to $ 12.2 million in fiscal 2013 and $ 10.6 million in fiscal 2012. see the section captioned “ loans - provision for loan losses ” elsewhere in this discussion for further analysis of the provision for loan losses . non-interest income .
| results of operations in fiscal 2014 , the company reported net income of $ 27.7 million , or $ 0.34 per diluted common share , compared to net income of $ 25.3 million , or $ 0.58 per diluted common share , in fiscal 2013 and $ 19.9 million , or $ 0.52 per diluted common share in fiscal 2012. in connection with the merger , the company issued 39.1 million common shares , which increased weighted average diluted shares outstanding from 43.8 million in fiscal 2013 to 80.5 million in fiscal 2014. the table below summarizes the company 's results of operations on a tax-equivalent basis . tax equivalent adjustments are the result of increasing income from tax-free securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 35 % federal tax rate , thus making tax-exempt yields comparable to taxable asset yields . selected income statement data , net interest margin , return on average assets , return on average common equity and dividends per common share for the comparable periods follows : 29 replace_table_token_8_th net income increased $ 2.4 million in fiscal 2014 compared to fiscal 2013. results in fiscal 2014 were positively impacted by the merger and organic growth generated through our commercial banking teams . this resulted in a $ 108.4 million increase in tax equivalent net interest income and a $ 19.7 million increase in non-interest income between the periods . results in fiscal 2014 were also impacted by merger-related expenses associated with the merger , and charges for asset write-downs , the settlement of benefit plan obligations , costs associated with our banking systems conversion and other charges , which totaled $ 45.6 million . excluding the impact of these items , net income was $ 57.8 million , and diluted earnings per share were $ 0.72 in fiscal 2014. please refer to item 6 .
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within this category of expenses are personnel , service bureau , cardholder correspondence and other direct costs associated with our collections and customer service efforts . card and loan servicing costs also include outsourced collections and customer service expenses . we expense card and loan servicing costs as we incur them , with the exception of prepaid costs , which we expense over respective service periods . marketing and solicitation expenses we generally expense credit card account and other product solicitation costs , including printing , credit bureaus , list processing costs , telemarketing , postage and internet marketing fees , as we incur these costs or expend resources ; however , we do capitalize certain direct receivables origination costs and amortize them over account lives . recent accounting pronouncements in august 2012 , the financial accounting standards board ( “ fasb ” ) issued proposed guidance that requires enhanced disclosures for reclassification adjustments out of accumulated other comprehensive income ( “ aoci ” ) . the proposed disclosures would require an entity to break the current period changes in the accumulated balances for each component of other comprehensive income into two categories—amounts reclassified out of aoci , and everything else . additional disclosures would be required displaying significant items reclassified out of each component of aoci , including ( 1 ) the line items impacted for those items being reclassified into earnings and ( 2 ) a cross-reference to the financial statement notes where further discussion is contained for those items not reclassified into earnings . a final rule was issued in february 2013 and is first effective for us for our financial reporting period ending story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein where certain terms have been defined . this management 's discussion and analysis of financial condition and results of operations includes forward-looking statements . we base these forward-looking statements on our current plans , expectations and beliefs about future events . there are risks that our actual experience will differ materially from the expectations and beliefs reflected in the forward-looking statements in this section . see “ cautionary notice regarding forward-looking statements. ” overview we are a provider of various credit and related financial services and products to or associated with the financially underserved consumer credit market—a market represented by credit risks that regulators classify as “ sub-prime. ” currently , within our credit cards and other investments segment , we are collecting on portfolios of credit card receivables underlying now-closed credit card accounts . these receivables include both receivables we originated through third-party financial institutions and portfolios of receivables we purchased from third-party financial institutions . the only open credit card accounts underlying our credit card receivables are those generated through our credit card products in the u.k. several of our portfolios of credit card receivables underlying now-closed accounts are encumbered by non-recourse structured financings , and for some of these portfolios , our only remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolios are insufficient to allow for full repayment of the financings . beyond these activities within our credit cards and other investments segment , we are applying the experiences and infrastructure associated with our historic credit card offerings to other credit product offerings , including private label merchant credit whereby we partner with retailers to provide credit at the point of sale to their customers who may have been declined under traditional financing options . we specialize in providing this `` second look '' credit service in various industries across the u.s. using our global infrastructure and technology platform , we also provide loan servicing activities , including underwriting , marketing , customer service and collections operations for third parties . lastly , through our credit cards and other investments segment , we are engaged in limited investment activities in ancillary finance , technology and other businesses as we seek to build new products and relationships that could allow for greater utilization of our expertise and infrastructure . in the current environment , the recurring cash flows we receive within our credit cards and other investments segment include those associated with ( 1 ) servicing compensation , ( 2 ) distributions from one of our equity-method investees that in march 2011 purchased and now holds all of the outstanding notes issued out of our u.k. portfolio structured financing trust , ( 3 ) unencumbered credit card receivables portfolios that have already generated enough cash to allow for the repayment of their underlying structured financing facilities , and ( 4 ) our private label merchant credit receivables . we are closely monitoring and managing our liquidity position , reducing our overhead infrastructure ( which was built to accommodate higher account originations and managed receivables levels ) and further leveraging our global infrastructure in order to maximize returns to shareholders on existing assets . some of these actions , while prudent to maximize cash returns on existing assets , have had the effect of reducing our potential for profitability . as is customary in our industry , we historically financed most of our credit card receivables through the asset-backed securitization markets . these markets worsened significantly in 2008 , and the level of “ advance rates ” or leverage we can achieve against credit card receivable assets in the current asset-backed securitization markets is far below 2008 levels . considering this reality , along with a u.s. regulatory environment in which sub-prime credit card lending returns on assets are significantly lower than they were before 2008 , we have concluded that we can not achieve our desired returns on equity through u.s. credit card lending.we continue , however , to originate credit cards in the u.k. because we believe the u.k. environment to be more favorable than the u.s. toward possible significant credit card origination growth in the future . story_separator_special_tag the significant decrease in income associated with our equity-method investees is principally related to our 50 % interest in the joint venture that purchased in march 2011 the outstanding notes issued out of our u.k. portfolio structured financing trust . contemporaneous with our march 2011 acquisition of our 50 % interest in the joint venture , it elected to account for its investment in the u.k. portfolio structured financing notes at their fair value , and it recognized a $ 34.2 million gain ( of which our 50 % share represented $ 17.1 million ) equal to the excess of the fair value of the notes as of march 31 , 2011 over the joint venture 's discounted purchase price of the notes . we expect to see continued liquidations in the credit card receivables portfolios and structured financing notes held by our equity-method investees for the foreseeable future . as such , absent possible additional investments in our existing or in new equity-method investees in the future , we expect gradually declining effects from our equity-method investments on our operating results . losses upon charge off of loans and fees receivable recorded at fair value . this account reflects charge offs of the face amount credit card receivables we record at fair value on our consolidated balance sheet . we have experienced a general trending decline in , and we expect future trending declines in , these charge offs as we continue to liquidate our credit card receivables . the effects of this general trending decline were muted in 2012 , however , given our sale of a large volume of late-stage delinquent accounts and related receivables ( which we treated as having been charged off contemporaneous with their sale ) out of our u.k. credit card receivables portfolio during the first quarter of 2012. provision for losses on loans and fees receivable recorded at net realizable value . our provision for losses on loans and fees receivable recorded at net realizable value covers aggregate loss exposures on ( 1 ) principal receivable balances , ( 2 ) finance charges and late fees receivable underlying income amounts included within our total interest income category , and ( 3 ) other fees receivable . we experienced a year over year increase in this category between 2011 and 2012 due to the effects of ( 1 ) disproportionately greater reductions in our allowance for uncollectible loans and fees receivables recorded in the year ended december 31 , 2011 associated with significant performance improvements experienced at that time , and ( 2 ) elevated losses incurred on new credit product testing in the year ended december 31 , 2012. for the foreseeable future , we expect growth in new product receivables recorded at net realizable value to exceed liquidations of our auto finance receivables recorded at net realizable value . accordingly , we expect increases in our provisions for losses on loans and fees receivable recorded at net realizable value in future quarters—such increases predominantly expected to reflect the effects of volume ( i.e. , growth of new product receivables ) , rather than credit quality changes or deterioration . based on experience with some of our new products ( in particular our u.k. credit card product ) in 2012 , we expect net improvements in the credit quality of our new product receivables throughout 2013. see note 2 , “ significant accounting policies and consolidated financial statement components , ” and our credit cards and other investments and auto finance segment discussions for further credit quality statistics and analysis . total other operating expense . total other operating expense decreased for the year ended december 31 , 2012 relative to the year ended december 31 , 2011 , reflecting the following : · diminished salaries and benefits costs resulting from our ongoing cost-cutting efforts as we continue to adjust our internal operations to reflect the declining size of our existing portfolios ; · lower card and loan servicing expenses reflecting the effects of continuing credit card and auto finance receivables portfolio liquidations ; · decreases in depreciation for the year ended december 31 , 2012 reflecting a diminished level of capital investments by us ; and · decreases in marketing and solicitation and other expense levels consistent with the aforementioned receivables portfolio liquidations and our cost-cutting efforts . 22 a large portion of our operating costs are variable based on the levels of accounts we market and receivables we service ( both for our own account and for others ) and the pace and breadth of our search for , acquisition of and introduction of new business lines , products and services . however , a number of our operating costs are fixed and will over time comprise a larger percentage of our total costs given the ongoing contraction of our credit card and auto finance loans and fees receivable levels . to this extent , our rate of cost reduction can be expected to slow relative to the rate of contraction in these loans and fees receivable . we do , however , attempt to maximize the utility that we get from our incurrence of fixed costs by our testing and exploration of new products and services and areas of investment , and we continue to perform extensive reviews of all areas of our businesses for cost savings opportunities to better align our costs with our net liquidating portfolio of managed receivables . notwithstanding our cost-cutting efforts and focus , while it is relatively easy for us to scale back our variable expenses , it is much more difficult ( to which we alluded above ) for us to appreciably reduce our fixed and other costs associated with an infrastructure ( particularly within our credit cards and other investments segment ) that was built to support growing managed receivables and levels of managed receivables that are significantly higher than both our current levels and the levels that we expect to see in the near future .
| consolidated results of operations replace_table_token_2_th 20 year ended december 31 , 2012 , compared to year ended december 31 , 2011 total interest income . total interest income consists primarily of finance charges and late fees earned on our credit card , private label merchant credit , and auto finance receivables . the decline period over period is due to continued net liquidations of our credit card and auto finance receivables over the past year . moreover , absent the effects of possible portfolio acquisitions , we expect our ongoing total interest income to decline for the next several quarters along with continuing expected net liquidations of our credit card and auto finance receivables . interest expense . the decrease in interest expense is due to ( 1 ) our debt facilities being repaid commensurate with net liquidations of the underlying credit card receivables and auto finance receivables that serve as collateral for the facilities , and ( 2 ) the effects of our repurchases of our convertible senior notes throughout 2011 and our may 2012 repayment of substantially all of our 3.625 % convertible senior notes as discussed in note 11 , “ convertible senior notes , ” in the accompanying notes to the consolidated financial statements . we also note that notwithstanding the effects of our convertible senior notes issuance discount accretion in increasing monthly interest expense amounts in the future , we expect lower interest expense for these notes in future periods attributable to our 2011 repurchases and our may 2012 repayment of substantially all of our 3.625 % convertible senior notes . fees and related income on earning assets .
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the company uses a cash flow hedge to minimize the variability in cash flows of assets or liabilities of 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 , 2017 , 2016 and 2015 . also discussed is our financial position as of december 31 , 2017 and 2016 . investors should read this discussion in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . this discussion and analysis contains forward-looking statements . please refer to the section entitled “ disclosure regarding forward-looking statements ” at the beginning of this annual report on form 10-k for a discussion of the uncertainties , risks and assumptions associated with these statements . year in review 2017 highlights : solidified plans to transition to an all airbus fleet by the end of 2018 ; added 19 airbus a320 series aircraft into service , and retired 10 md-80 aircraft and four boeing 757-200 aircraft ; returned $ 131.9 million to shareholders during the year - $ 86.2 million through open market stock repurchases and $ 45.7 million through the payment of recurring cash dividends ; realized a one-time tax benefit of $ 74.7 million resulting from the tax cuts and jobs act passed in december 2017 ; operated 401 routes at december 31 , 2017 versus 360 at the end of 2016 ; and announced plans to develop sunseeker resorts , a hotel/condo resort in port charlotte , florida . 28 aircraft operating fleet the following table sets forth the number and type of aircraft in service and operated by us as of the dates indicated : replace_table_token_9_th ( 1 ) does not include 11 owned aircraft currently on lease to a european carrier or three other aircraft for which we have taken delivery as of december 31 , 2017 . ( 2 ) does not include two aircraft for which we have taken delivery as of december 31 , 2017 . as of february 2 , 2018 , we are party to forward purchase agreements for 15 airbus a320 series aircraft and have executed lease agreements for 13 airbus a320 series aircraft of which we have not yet taken delivery . we expect delivery of 18 of these aircraft in 2018 and the remaining aircraft in 2019 and 2020. in january 2018 , we took delivery of two aircraft for which we had purchase agreements as of december 31 , 2017. also in january 2018 , we took redelivery of one of our owned aircraft on lease to a european carrier , and also expect redelivery of the remaining 10 aircraft on lease in 2018. refer to part i - item 2 - properties for further detail regarding our aircraft fleet . we continuously consider aircraft acquisitions on an opportunistic basis . network we use profitability management tools to manage capacity and route expansion through optimization of our flight schedule to , among other things , better match demand in certain markets . we continually adjust our network through the addition of new markets and routes , adjusting the frequencies into existing markets , and exiting under-performing markets , as we seek to achieve and maintain profitability on each route we serve . as of february 2 , 2018 and including recent service announcements , we were selling 396 routes . our route network as of december 31 , 2017 represents an 11.4 percent increase in the number of routes flown compared to the end of 2016 , and the number of mid-sized cities served is now up to 22 after we began to initiate service to larger cities in 2014. the following table shows the number of leisure destinations and cities served as of the dates indicated ( includes cities served seasonally ) : replace_table_token_10_th trends continuing with our fleet transition to an all-airbus fleet , we added 19 airbus a320 series aircraft to our operating fleet during 2017. we expect to have fully transitioned by the end of 2018 , based on our plan to add 30 airbus a320 series aircraft into service during 2018. in conjunction with the fleet transition , we retired 10 md-80 aircraft in 2017 as well as our four remaining boeing 757-200 aircraft , and expect to retire our remaining 37 md-80 aircraft by the end of 2018 . 29 as of february 2 , 2018 , we were offering service on 140 medium-sized city routes compared to 96 as of the same date in 2017. we initiated service on 30 new network routes in the fourth quarter of 2017 , including service into two new cities : milwaukee , wisconsin and norfolk , virginia . sunseeker resorts planning and development is ongoing and the land is currently being prepared for construction , with the opening of the resort planned for late 2019 or early 2020. construction of the project and sales efforts are expected to begin in the first half of 2018. our flight attendant group approved their collective bargaining agreement effective in december 2017. we expect the collective bargaining agreement to increase our operating costs by approximately $ 8 million for 2018. our flight dispatchers have also voted for union representation and negotiations are ongoing . any labor actions following an inability to reach collective bargaining agreements with these employee groups , or any other labor groups seeking to organize , could materially impact our operations during the continuance of any such activity . our operating expenses a brief description of the items included in our operating expense line items follows . aircraft fuel expense includes the cost of aircraft fuel , fuel taxes , into plane fees and airport fuel flowage , storage or through-put fees . salary and benefits expense includes wages , salaries , and employee bonuses , sales commissions for in-flight personnel , as well as expenses associated with employee benefit plans , stock compensation expense related to equity grants , and employer payroll taxes . story_separator_special_tag other revenue remained relatively flat in 2016 from 2015 , at $ 33.0 million and $ 32.4 million , respectively . 33 operating expenses the following table presents operating expense per passenger for the indicated periods . replace_table_token_13_th * includes effect of $ 8.3 million fuel tax refunds in the second quarter of 2016. the following table presents unit costs on a per asm basis , or casm , for the indicated periods . replace_table_token_14_th * includes effect of $ 8.3 million fuel tax refunds in the second quarter of 2016. salary and benefits expense . salary and benefits expense for 2016 increased $ 62.2 million , or 27.1 percent , compared with 2015. the increase was partially attributable to a 20.0 percent increase in the number of full-time equivalent employees ( `` ftes '' ) associated with the increase in average number of aircraft in service and the planning and training needed to transition to a single fleet type . the collective bargaining agreement with our pilots also drove an increase in salary and benefits expense for this employee group from the effective date of the agreement on august 1 , 2016. aircraft fuel expense . aircraft fuel expense for 2016 decreased $ 21.1 million , or 7.6 percent , compared with 2015. the decrease was primarily the result of a 19.9 percent decrease in system average cost per gallon to $ 1.49 per gallon ( including the effect of $ 8.3 million fuel tax refund ) . this was offset by a 15.2 percent increase in system fuel gallons consumed resulting from the increase in asms . as we add additional airbus aircraft , which are more fuel efficient than our md-80 aircraft , we anticipate our fuel efficiency will continue to improve ; our system asms per gallon increased from 70.2 in 2015 to 71.6 in 2016 as airbus aircraft flew 48.5 percent of scheduled service asms in 2016 compared to 32.6 percent in 2015. station operations expense . station operations expense for 2016 increased $ 21.8 million , or 21.3 percent on a 19.9 percent increase in scheduled service departures compared with 2015 . 34 depreciation and amortization expense . depreciation and amortization expense for 2016 increased $ 7.1 million , or 7.3 percent , compared with 2015 due mainly to a 12.1 percent increase in the average number of operating aircraft . the effect of the increase in operating aircraft was diluted by reduced depreciation on our md-80 aircraft nearing full depreciation . maintenance and repairs expense . maintenance and repairs expense for 2016 increased $ 18.5 million , or 20.0 percent compared with 2015. the increase was due mostly to a 12.1 percent increase in the average number of operating aircraft in service as well as the mix of maintenance activities resulting in more expensive events in the current year . major maintenance events for the md-80 aircraft are expected to decline as we retire aircraft consistent with our fleet retirement plan . the cost of major maintenance events for our airbus aircraft is deferred in accordance with the deferral method of accounting and the amortization of these expenses is included under depreciation and amortization expense . sales and marketing expense . sales and marketing expense for 2016 decreased $ 0.8 million , or 3.9 percent , compared to 2015 , primarily due to a reduction in net credit card fees paid by us . we charged for credit card fee reimbursement ( a fee charged to customers for using a credit card ) at zero margin , which was applied as a reduction to sales and marketing expense , and the net amount paid by us for credit card fees was reduced . in january 2017 , we discontinued the charge for credit card fee reimbursement . credit card fee reimbursements for 2016 and 2015 were $ 25.5 million and $ 21.7 million , respectively . the reduction in credit card fees was offset by increased expenses in 2016 related to a national advertising campaign which launched in late 2015. other expense . other expense for 2016 increased by $ 15.5 million , or 23.7 percent , compared with 2015 , due to increased flight crew training needed to support our growing operating fleet and network , information technology expenses , as well as increased property taxes and expenses related to irregular operations over the summer of 2016. income tax expense our effective income tax rate remained flat at 36.5 percent for both 2016 and 2015. liquidity and capital resources unrestricted cash and investment securities ( short-term and long-term ) were $ 490.7 million and $ 458.8 million at december 31 , 2017 and 2016 , respectively . restricted cash represents escrowed funds under fixed fee contracts and cash collateralized against letters of credit required by hotel properties for guaranteed room availability , airports , and certain other parties . under our fixed fee flying contracts , we require customers to prepay for flights , and the cash is escrowed until the flight is completed . prepayments are recorded as restricted cash and a corresponding amount is recorded as air traffic liability . investment securities represent liquid marketable securities which are available-for-sale . during 2017 , our primary source of funds was $ 391.1 million generated by our operations in addition to $ 497.5 million in proceeds from notes payable . our operating cash flows and borrowings have allowed us to return value to shareholders and invest in the growth of our fleet . our future capital needs are primarily for the acquisition of additional aircraft , including our existing airbus a320 series aircraft commitments , as well as potential capital outlay related to sunseeker resorts as well as other travel and leisure initiatives . of the aircraft expected to be placed into service in 2018 , 13 are structured as capital leases and will not require separate financing , and the additional 10 aircraft ( as of february 2 , 2018 ) being returned from lease to a european carrier were purchased in 2014 and have already been paid for .
| results of operations 2017 compared to 2016 operating revenue scheduled service revenue . scheduled service revenue for 2017 increased by $ 64.7 million , or 8.6 percent , compared with 2016 . the increase was mostly the result of a 10.3 percent increase in the number of scheduled service passengers offset by a 1.5 percent decrease in average base fare . hurricane irma 's largest impact was felt in florida markets during the third quarter 2017. the tragic las vegas shooting negatively impacted scheduled service demand in this market for several weeks in the fourth quarter 2017 , but bookings returned to more normalized levels later in the quarter . combined , the negative impact to revenue of these two events was in excess of $ 8.5 million . ancillary air-related revenue . ancillary air-related revenue for 2017 increased $ 46.9 million , or 9.4 percent , compared with 2016 due mostly to the increase in scheduled service passengers . the increase was slightly diluted by a 0.8 percent decrease in average ancillary air-related fare per passenger which correlates with a 2.1 percent reduction in stage length , as shorter trips tend to produce lower ancillary charges . ancillary third party revenue . ancillary third party revenue increased $ 7.8 million , or 17.3 percent , in 2017 from 2016 , primarily due to revenue generated from our co-branded credit card program . the increase from co-branded credit card revenue was offset by a decrease in net revenue from third party products ( hotel rooms , rental cars , attraction and show tickets ) resulting from an 11.1 percent and 5.8 percent decrease in hotel room nights and rental car days , respectively .
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while the company 's management believes the assumptions underlying its forward-looking statements are reasonable , such information is inherently subject to uncertainties and may involve certain risks , which could cause actual results , performance or achievements of the company to differ materially from anticipated future results , performance or achievements expressed or implied by such forward-looking statements . many of these uncertainties and risks are difficult to predict and beyond management 's control . forward-looking statements are not guarantees of future performance , results or events . the forward-looking statements contained herein are made as of the date hereof and the company undertakes no obligation to update or supplement these forward-looking statements . factors that might cause such differences include , but are not limited to the following : ▪ we intend to actively acquire and or develop multifamily properties for rental operations as market conditions dictate . 40 we may also acquire multifamily properties that are unoccupied or in the early stages of lease up . we may be unable to lease up these apartment properties on schedule , resulting in decreases in expected rental revenues and or lower yields due to lower occupancy and rates as well as higher than expected concessions . we may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position or to complete a development property . additionally , we expect that other real estate investors with capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts . this competition ( or lack thereof ) may increase ( or depress ) prices for multifamily properties . we may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms . we have acquired in the past and intend to continue to pursue the acquisition of properties and portfolios of properties , including large portfolios , that could increase our size and result in alterations to our capital structure . the total number of apartment units under development , costs of development and estimated completion dates are subject to uncertainties arising from changing economic conditions ( such as the cost of labor and construction materials ) , competition and local government regulation ; ▪ debt financing and other capital required by the company may not be available or may only be available on adverse terms ; ▪ labor and materials required for maintenance , repair , capital expenditure or development may be more expensive than anticipated ; ▪ occupancy levels and market rents may be adversely affected by national and local economic and market conditions including , without limitation , new construction and excess inventory of multifamily and single family housing , rental housing subsidized by the government , other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing , slow or negative employment growth and household formation , the availability of low-interest mortgages for single family home buyers , changes in social preferences and the potential for geopolitical instability , all of which are beyond the company 's control ; and ▪ additional factors as discussed in part i of this annual report on form 10-k , particularly those under “ item 1a . risk factors ” . forward-looking statements and related uncertainties are also included in the notes to consolidated financial statements in this report . overview equity residential ( “ eqr ” ) , a maryland real estate investment trust ( “ reit ” ) formed in march 1993 , is an s & p 500 company focused on the acquisition , development and management of high quality apartment properties in top united states growth markets . erp operating limited partnership ( “ erpop ” ) , an illinois limited partnership , was formed in may 1993 to conduct the multifamily residential property business of equity residential . eqr has elected to be taxed as a reit . references to the “ company , ” “ we , ” “ us ” or “ our ” mean collectively eqr , erpop and those entities/subsidiaries owned or controlled by eqr and or erpop . references to the “ operating partnership ” mean collectively erpop and those entities/subsidiaries owned or controlled by erpop . eqr is the general partner of , and as of december 31 , 2012 owned an approximate 95.9 % ownership interest in erpop . all of the company 's property ownership , development and related business operations are conducted through the operating partnership and eqr has no material assets or liabilities other than its investment in erpop . eqr issues public equity from time to time but does not have any indebtedness as all debt is incurred by the operating partnership . the operating partnership holds substantially all of the assets of the company , including the company 's ownership interests in its joint ventures . the operating partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity . the company 's corporate headquarters are located in chicago , illinois and the company also operates property management offices in each of its markets . as of december 31 , 2012 , the company had approximately 3,600 e mployees who provided real estate operations , leasing , legal , financial , accounting , acquisition , disposition , development and other support functions . business objectives and operating and investing strategies the company invests in high quality apartment communities located in strategically targeted markets with the goal of maximizing our risk adjusted total return ( operating income plus capital appreciation ) on invested capital . we seek to maximize the income and capital appreciation of our properties by investing in markets ( our core markets ) that are characterized by conditions favorable to multifamily property appreciation . story_separator_special_tag current environment on november 26 , 2012 , the company and avalonbay communities , inc. ( `` avalonbay '' or `` avb '' ) ( nyse : avb ) entered into a contract with lehman brothers holdings inc. ( `` lehman '' ) to acquire the assets and liabilities of archstone enterprise lp ( `` archstone '' ) , which consists principally of a portfolio of high-quality apartment properties in major markets in the united states . under the terms of the agreement , the company will acquire approximately 60 % of archstone 's assets and liabilities and avalonbay will acquire approximately 40 % of archstone 's assets and liabilities . the company will acquire approximately 75 operating properties , four properties under development and several land parcels to be held for future development for approximately $ 8.9 billion which will consist of cash of approximately $ 2.0 billion , 34,468,085 common shares and the assumption of the company 's portion of the liabilities related to the archstone assets ( other than certain liabilities owed to lehman and certain transaction expenses ) . the company also expects to assume approximately $ 3 billion of consolidated archstone debt . in addition , the company and avalonbay will acquire certain assets of archstone , including archstone 's interests in certain joint ventures , interests in a portfolio of properties located in germany and certain development land parcels , and will become subject to approximately $ 179.9 million in preferred interests of archstone unitholders through various unconsolidated joint ventures expected to be owned 60 % by the company and 40 % by avalonbay . the transaction is expected to close in the first quarter of 2013. we expect continued growth in 2013 same store revenue ( anticipated increase ranging from 4.0 % to 5.0 % ) and 2013 noi ( anticipated increase ranging from 4.5 % to 6.0 % ) and are optimistic that the strength in fundamentals realized in the past couple of years and so far in 2013 will be sustained for the foreseeable future . we believe the key drivers behind the anticipated increase in revenue are base rent pricing for new residents , renewal pricing for existing residents , resident turnover and physical occupancy . thus far in 2013 , base rents are higher as compared with the same period last year and are gradually increasing from normal seasonal lows . we expect base rent growth to average 4.0 % to 4.5 % with higher growth during the peak leasing season . renewal rates remain strong and are expected to exceed 5.0 % on average throughout the year . the significant disposition activity discussed below , including exiting certain of our non-core markets , will leave a same store set expected to show a decrease in turnover as compared to 2012. although occupancy is higher than anticipated for this time of the year , it is expected to remain consistent with last year . despite slow growth in the overall economy , our business continues to perform well because of the combined forces of demographics , household formations and the continued aversion to home ownership , all of which should ensure a continued strong demand for rental housing . the company anticipates that 2013 same store expenses will increase 2.5 % to 3.5 % primarily due to increases in real estate taxes , which are expected to increase over 6 % in 2013. this is primarily due to rate and value increases in certain states and municipalities , reflecting those states ' and municipalities ' continued economic challenges and the dramatic improvement in apartment fundamentals . the other key driver of this increase is the burn off of 421a tax abatements in new york city . very good expense control in the core property level expenses ( excluding real estate taxes ) continues as the company leverages technology to lower costs , which should partially offset the increase in real estate taxes . this exceptional expense control has allowed the company to realize over five years of same store annual expense growth below 3.0 % . while competition for the properties we are interested in acquiring is significant due to continued strength in market fundamentals , we are focusing our attention in 2013 on closing the archstone acquisition and integrating its properties and operations . we believe our access to capital , our ability to execute large , complex transactions and our ability to efficiently stabilize large scale lease up properties provide us with a competitive advantage , which is demonstrated in the pending archstone transaction . the company acquired nine consolidated properties consisting of 1,896 apartment units for $ 906.3 million during the year ended december 31 , 2012 . the company did not budget for any acquisitions to occur outside of archstone during the year ending december 31 , 2013 . the company also acquired six land parcels for $ 141.2 million during the year ended december 31 , 2012 . the company started construction on two projects ( inclusive of the company 's co-development with toll brothers to develop 400 park avenue south in new york city ) representing 357 apartment units totaling approximately $ 306.0 million of development costs during the year ended december 31 , 2012 . the company currently anticipates starting between $ 500.0 million and $ 700.0 million of new developments in 2013 , some of which were delayed from 2012 as we worked on funding for the archstone transaction . the company continues to sell non-core assets and reduce its exposure to non-core markets as we believe these assets will have lower long-term returns and we can sell them for prices that we believe are favorable . the archstone transaction provides an opportunity to accelerate this strategy and do so efficiently through the use of section 1031 tax deferred exchanges . the 43 company sold 35 consolidated properties consisting of 9,012 apartment units for $ 1.1 billion during the year ended december 31 , 2012 .
| results of operations in conjunction with our business objectives and operating strategy , the company continued to invest in apartment properties located in strategically targeted markets during the years ended december 31 , 2012 and december 31 , 2011 . in summary , we : year ended december 31 , 2012 : ▪ acquired $ 906.3 million of apartment properties consisting of nine consolidated properties and 1,896 apartment units at a weighted average cap rate ( see definition below ) of 4.7 % and acquired six land parcels for $ 141.2 million , all of which we deem to be in our strategic targeted markets ; and ▪ sold $ 1.1 billion of consolidated apartment properties consisting of 35 properties and 9,012 apartment units at a 44 weighted average cap rate of 6.2 % , the majority of which were in exit or less desirable markets . these sales , excluding two leveraged partially-owned assets sold during the third quarter , generated an unlevered internal rate of return ( irr ) , inclusive of management costs , of 10.6 % . year ended december 31 , 2011 : ▪ acquired $ 1.3 billion of apartment properties consisting of 20 consolidated properties and 6,103 apartment units at a weighted average cap rate ( see definition below ) of 5.2 % and acquired five land parcels and entered into a long-term ground lease on one land parcel located in new york city for a total of $ 68.3 million , all of which we deem to be in our strategic targeted markets ; ▪ acquired one vacant land parcel in new york city in a joint venture with toll brothers for $ 134.0 million , consisting of contributions by the company and toll brothers of approximately $ 76.1 million and $ 57.9 million , respectively , for future development ; ▪ acquired one unoccupied property in the san francisco bay area in the third quarter of 2011 for $ 39.5 million consisting of 95 apartment units that
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9. property , plant and equipment property , plant and equipment consisted of the following : replace_table_token_29_th in 2011 , we recorded a story_separator_special_tag financial condition and results of operations the consolidated financial statements and notes to the consolidated financial statements are the basis for our discussion and analysis of financial condition and results of operations . you should read this discussion in conjunction with those financial statements . forward-looking statements certain forward-looking statements related to our businesses are included in this discussion . those forward-looking statements reflect our current expectations . forward-looking statements are subject to certain risks , trends and uncertainties that could cause actual results to differ materially from the expectations expressed in the forward-looking statements . such risks , trends and uncertainties , which in most instances are beyond our control , include changes in advertising demand and other economic conditions ; consumers ' tastes ; newsprint prices ; program costs ; labor relations ; technological developments ; competitive pressures ; interest rates ; regulatory rulings ; and reliance on third-party vendors for various products and services . the words believe , expect , anticipate , estimate , intend and similar expressions identify forward-looking statements . you should evaluate our forward-looking statements , which are as of the date of this filing , with the understanding of their inherent uncertainty . we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date the statement is made . executive overview the e. w. scripps company ( scripps ) is a diverse media company with interests in television stations and newspaper publishing . the company 's portfolio of media properties includes : 19 television stations , including ten abc-affiliated stations , three nbc affiliates , one independent station and five azteca affiliates : daily and community newspapers in 13 markets and the washington-based scripps media center , home to the scripps howard news service . on december 30 , 2011 , we acquired the television station group owned by mcgraw-hill broadcasting company , inc. ( mcgraw-hill ) , for $ 212 million in cash , plus a working capital adjustment estimated at $ 4.4 million . the acquisition was financed with a $ 212 million term bank loan . the acquisition included four abc affiliated television stations as well as five azteca affiliated stations . in 2011 , we repurchased $ 51 million of shares under the share repurchase program authorized by the board of directors in 2010. in the first quarter of 2011 , we entered into a five-year agreement with universal uclick ( universal ) to provide syndication services for the news features and comics of united media . universal will provide editorial and production services , sales and marketing , sales support and customer service , and distribution and fulfillment for all the news features and comics of united media . under the terms of the agreement scripps will receive a fixed fee from universal and will continue to own certain copyrights and control the licenses for those properties , and will manage the business relationships with the creative talent that produces those comics and features . we completed the transition of the services in june 2011. also in the first quarter of 2011 , we entered into agreements with raycom media , inc. to produce news and provide services involving technical , promotional and online operations and certain local programming for wflx , raycom media 's fox affiliate in west palm beach , florida . raycom will continue to program the station and conduct all advertising sales . scripps will receive a minimum annual fee for its news content and the services provided and may receive additional incentive payments . our efforts to restructure our newspaper operations continue . we have invested in technology to install common advertising , circulation and editorial systems in our newspapers . we are standardizing processes within our operating divisions and are centralizing our outsourcing processes that do not require a significant presence in the local market . costs related to these efforts totaled $ 9.9 million for the year ended december 31 , 2011. we expect the restructuring program and installation of common newspaper systems to continue through 2013. f-4 critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) requires us to make a variety of decisions which affect reported amounts and related disclosures , including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates . in reaching such decisions , we apply judgment based on our understanding and analysis of the relevant circumstances , including our historical experience , actuarial studies and other assumptions . we are committed to incorporating accounting principles , assumptions and estimates that promote the representational faithfulness , verifiability , neutrality and transparency of the accounting information included in the financial statements . note 1 to the consolidated financial statements describes the significant accounting policies we have selected for use in the preparation of our financial statements and related disclosures . we believe the following to be the most critical accounting policies , estimates and assumptions affecting our reported amounts and related disclosures . acquisitions the accounting for a business combination requires assets acquired and liabilities assumed to be recorded at fair value . with the assistance of third party appraisals , we generally determine fair values using comparisons to market transactions and discounted cash flow analyses . the use of a discounted cash flow analysis requires significant judgment to estimate the future cash flows derived from the asset and the expected period of time over which those cash flows will occur and to determine an appropriate discount rate . changes in such estimates could affect the amounts allocated to individual identifiable assets . while we believe our assumptions are reasonable , if different assumptions were made , the amount allocated to intangible assets could differ substantially from the reported amounts . story_separator_special_tag in accordance with accounting principles we record the effects of these modifications currently or amortize them over future periods . we consider the most critical of our pension estimates to be our discount rate and the expected long-term rate of return on plan assets . the assumptions used in accounting for our defined benefit pension plans for 2011 and 2010 are the following : replace_table_token_7_th the discount rate used to determine our future pension obligations is based upon a dedicated bond portfolio approach that includes securities rated aa or better with maturities matching our expected benefit payments from the plans . the rate is determined each year at the plan measurement date and affects the succeeding year 's pension cost . discount rates can change from year to year based on economic conditions that impact corporate bond yields . a decrease in the discount rate increases pension obligations and pension expense . for our defined benefit pension plans , as of december 31 , 2011 , a half percent increase or decrease in the discount rate would have the following effect : replace_table_token_8_th in 2010 , we changed our target asset allocations to invest a greater percentage of plan assets in securities that better match the timing of the payment of plan obligations . as a result , approximately 70 % of plan assets are invested in a portfolio of fixed income securities with a duration approximately that of the projected payment of benefit obligations . the remaining 30 % of plan assets are invested in equity securities and other return-seeking assets . the expected long-term rate of return on plan assets is based primarily upon the target asset allocation for plan assets and capital markets forecasts for each asset class employed . our expected rate of return on plan assets also considers our historical compound rate of return on plan assets for a 15 year period . a decrease in the expected rate of return on plan assets increases pension expense . a 0.5 % change in the expected long-term rate of return on plan assets , to either 4.8 % or 5.8 % , would increase or decrease our 2012 pension expense by approximately $ 2.1 million . f-6 we had cumulative unrecognized actuarial losses for our pension plans of $ 157 million at december 31 , 2011. unrealized actuarial gains and losses result from deferred recognition of differences between our actuarial assumptions and actual results . in 2011 , we had an actuarial loss of $ 31 million . the cumulative unrecognized net loss is primarily due to declines in corporate bond yields and their impact on our discount rate , as well as the overall unfavorable performance of the equity markets since 2000. based on our current assumptions , we anticipate that 2012 pension expense will include $ 3.7 million in amortization of unrecognized actuarial losses . recently adopted standards and issued accounting standards recently adopted accounting standards in october 2009 , the fasb issued amendments to the accounting and disclosure for revenue recognition . these amendments , which were effective for us on january 1 , 2011 , modified the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable . the adoption of this standard did not have a material impact on our financial condition or results of operations . in september 2011 , the fasb issued changes to the disclosure requirements with respect to multiemployer pension plans . these changes require additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans . the additional disclosures are effective for our year ending december 31 , 2011. the implementation of this amended accounting guidance did not have a material impact on our consolidated financial position and results of operations . in june 2011 , the fasb issued amendments to disclosure requirements for presentation of comprehensive income . this guidance , effective retrospectively for the interim and annual periods beginning on or after december 15 , 2011 ( early adoption is permitted ) , requires presentation of total comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . the implementation in 2011 of this amended accounting guidance did not have a material impact on our consolidated financial position and results of operations . recently issued accounting standards in may 2011 , the fasb issued amendments to disclosure requirements for common fair value measurement . these amendments , effective for the interim and annual periods beginning on or after december 15 , 2011 ( early adoption is prohibited ) , result in common definition of fair value and common requirements for measurement of and disclosure requirements between u.s. gaap and ifrs . consequently , the amendments change some fair value measurement principles and disclosure requirements . the implementation of this amended accounting guidance is not expected to have a material impact on our consolidated financial position and results of operations . in september 2011 , the fasb issued changes to the testing of goodwill for impairment . these changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not ( more than 50 % ) that the fair value of a reporting unit is less than its carrying amount . such qualitative factors may include the following : macroeconomic conditions ; industry and market considerations ; cost factors ; overall financial performance ; and other relevant entity-specific events . if an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not , the entity is then required to perform the existing two-step quantitative impairment test , otherwise no further analysis is required . an entity also may elect not to perform the qualitative assessment and , instead , go directly to the two-step quantitative impairment test .
| results of operations the trends and underlying economic conditions affecting the operating performance and future prospects differ for each of our business segments . accordingly , you should read the following discussion of our consolidated results of operations in conjunction with the discussion of the operating performance of our business segments that follows . consolidated results of operations consolidated results of operations were as follows : replace_table_token_9_th continuing operations 2011 compared with 2010 operating results include certain items that affect the comparisons of 2011 to 2010. the most significant of these items are as follows : restructuring costs to standardize and centralize functions in our newspaper divisions totaled $ 9.9 million in 2011 and $ 12.7 million in 2010. acquisition costs of $ 2.8 million were incurred in 2011 for the acquisition of mcgraw-hill . impairment charges to reduce the carrying value of long-lived assets at four of our newspapers were $ 9 million in 2011. operating revenues decreased due to continued weakness in newspaper print advertising and lower political spending at our television stations in a non-election year . increased revenues from higher television retransmission rights and fees from our news and television service agreement with wflx helped offset some of the reductions .
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53 notes to consolidated financial statements – ( continued ) the following table provides the level of measurement used to determine the fair value for each of our financial instruments on a recurring basis , as of december 31 , 2014 and 2013 : replace_table_token_34_th 54 notes to consolidated financial statements – ( continued ) 4. restricted securities available for sale restricted story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes contained in item 8 of this form 10-k , which is incorporated herein by reference . 22 overview we offer automobile dealers financing programs that enable them to sell vehicles to consumers regardless of their credit history . our financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing ; from repeat and referral sales generated by these same customers ; and from sales to customers responding to advertisements for our product , but who actually end up qualifying for traditional financing . for the year ended december 31 , 2014 , consolidated net income was $ 266.2 million , or $ 11.92 per diluted share , compared to $ 253.1 million , or $ 10.54 per diluted share , for the same period in 2013 and $ 219.7 million , or $ 8.58 per diluted share , for the same period in 2012 . the growth in 2014 consolidated net income was primarily due to an increase in the average balance of our loan portfolio partially offset by a $ 21.8 million loss on extinguishment of debt related to the redemption of senior notes during the first quarter of the year . the growth in 2013 consolidated net income was primarily due to an increase in the average balance of our loan portfolio . critical success factors critical success factors include our ability to accurately forecast consumer loan performance , access capital on acceptable terms , and maintain or grow consumer loan volume at the level and on the terms that we anticipate , with an objective to maximize economic profit . economic profit is a financial metric we use to evaluate our financial results and determine incentive compensation . economic profit measures how efficiently we utilize our total capital , both debt and equity , and is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business . consumer loan performance at the time a consumer loan is submitted to us for assignment , we forecast future expected cash flows from the consumer loan . based on the amount and timing of these forecasts and expected expense levels , an advance or one-time purchase payment is made to the related dealer at a price designed to achieve an acceptable return on capital . if consumer loan performance equals or exceeds our initial expectation , it is likely our target return on capital will be achieved . we use a statistical model to estimate the expected collection rate for each consumer loan at the time of assignment . we continue to evaluate the expected collection rate of each consumer loan subsequent to assignment . our evaluation becomes more accurate as the consumer loans age , as we use actual performance data in our forecast . by comparing our current expected collection rate for each consumer loan with the rate we projected at the time of assignment , we are able to assess the accuracy of our initial forecast . the following table compares our forecast of consumer loan collection rates as of december 31 , 2014 , with the forecasts as of december 31 , 2013 , as of december 31 , 2012 , and at the time of assignment , segmented by year of assignment : replace_table_token_9_th ( 1 ) represents the total forecasted collections we expect to collect on the consumer loans as a percentage of the repayments that we were contractually owed on the consumer loans at the time of assignment . contractual repayments include both principal and interest . 23 consumer loans assigned in 2009 through 2013 have yielded forecasted collection results materially better than our initial estimates , while consumer loans assigned in 2006 and 2007 have yielded forecasted collection results materially worse than our initial estimates . for all other assignment years presented , actual results have been very close to our initial estimates . for the year ended december 31 , 2014 , forecasted collection rates improved for consumer loans assigned in 2008 , 2009 , 2010 , 2013 and 2014 , and were generally consistent with expectations at the start of the period for all other assignment years presented . forecasting collection rates accurately at loan inception is difficult . with this in mind , we establish advance rates that are intended to allow us to achieve acceptable levels of profitability , even if collection rates are less than we initially forecast . the following table presents forecasted consumer loan collection rates , advance rates , the spread ( the forecasted collection rate less the advance rate ) , and the percentage of the forecasted collections that had been realized as of december 31 , 2014 . all amounts , unless otherwise noted , are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . the table includes both dealer loans and purchased loans . replace_table_token_10_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . ( 2 ) presented as a percentage of total forecasted collections . the risk of a material change in our forecasted collection rate declines as the consumer loans age . story_separator_special_tag the decrease in our average cost of debt was primarily a result of a change in the mix of our outstanding debt , primarily relating to the extinguishment of the 2017 senior notes and issuance of the 2021 senior notes . the average outstanding debt balance increased compared to the same period in 2013 due to the use of debt proceeds to fund the growth in new consumer loan assignments and stock repurchases throughout the year . loss on extinguishment of debt . for the year ended december 31 , 2014 , we recognized a loss on extinguishment of debt of $ 21.8 million related to the redemption of the 2017 senior notes . we used the net proceeds from the january 2014 issuance of the 2021 senior notes , together with borrowings under our revolving credit facilities , to fund the redemption of the 2017 senior notes . provision for income taxes . for the year ended december 31 , 2014 , the effective tax rate of 36.8 % was generally consistent with the effective tax rate of 36.4 % in 2013 . year ended december 31 , 2013 compared to year ended december 31 , 2012 the following table highlights changes in net income for the year ended december 31 , 2013 , as compared to 2012 : replace_table_token_20_th ( 1 ) operating expenses consist of salaries and wages , general and administrative , and sales and marketing expenses . 29 finance charges . for the year ended december 31 , 2013 , finance charges increased $ 52.2 million , or 9.7 % , as compared to 2012. the increase was primarily the result of an increase in the average net loans receivable balance partially offset by a decrease in the average yield on our loan portfolio , as follows : replace_table_token_21_th the following table summarizes the impact each component had on the overall increase in finance charges for the year ended december 31 , 2013 : ( in millions ) impact on finance charges : for the year ended december 31 , 2013 due to an increase in the average net loans receivable balance $ 87.3 due to a decrease in the average yield ( 35.1 ) total increase in finance charges $ 52.2 the increase in the average net loans receivable balance was primarily due to growth in new consumer loan assignments in recent years , which resulted in the dollar volume of new consumer loan assignments exceeding the principal collected on loans throughout 2012 and 2013. the growth in new consumer loan assignments in recent years was the result of an increase in active dealers , partially offset by a decline in volume per active dealer . the average yield on our loan portfolio for the year ended december 31 , 2013 decreased as compared to the same period in 2012 due to higher advance rates on new consumer loan assignments , partially offset by improvements in forecasted collection rates throughout 2012 and 2013. premiums earned . for the year ended december 31 , 2013 premiums earned increased $ 4.4 million , or 9.3 % , as compared to 2012. the increase was primarily due to growth in the size of our reinsurance portfolio , which was the result of premiums written on vehicle service contracts from new consumer loan assignments throughout 2012 and 2013. other income . for the year ended december 31 , 2013 , other income increased $ 16.3 million , or 68.2 % , as compared to 2012. the increase was primarily due to : a $ 7.6 million increase in gps-sid fee income due to an increase in the fee earned per unit purchased by dealers from tpps . a $ 6.0 million increase in vehicle service contract profit sharing income primarily as a result of a new profit sharing arrangement we entered into with one of our tpps during 2012. operating expenses . for the year ended december 31 , 2013 , operating expenses increased $ 12.3 million , or 8.5 % , as compared to 2012. the change in operating expenses was primarily due to the following : an increase in salaries and wages expense of $ 5.1 million , or 6.2 % , comprised of the following : an increase of $ 8.8 million , excluding stock-based compensation , primarily related to increases of $ 4.9 million for our servicing function and $ 4.2 million for our support function . a decrease of $ 3.7 million in stock-based compensation expense primarily due to a change in the expected vesting of performance-based stock awards . an increase in general and administrative expenses of $ 3.9 million , or 12.8 % , primarily as a result of an increase related to legal fees . an increase in sales and marketing expense of $ 3.3 million , or 10.6 % , primarily as a result of an increase in the size of our field sales force and an increase in dealer support products and services . provision for credit losses . for the year ended december 31 , 2013 , the provision for credit losses decreased $ 2.1 million , or 8.8 % , as compared to 2012 . 30 during the year ended december 31 , 2013 , overall consumer loan performance exceeded our expectations at the start of the year . however , the performance of certain loan pools declined from our expectations during the year , resulting in a provision for credit losses of $ 21.9 million for the year ended december 31 , 2013 , of which $ 21.3 million related to dealer loans and $ 0.6 million related to purchased loans . the provision for credit losses included $ 3.0 million in expense related to our implementation of an enhanced forecasting methodology during the second quarter of 2013 , of which $ 1.2 million related to dealer loans and $ 1.8 million related to purchased loans .
| results of operations the following is a discussion of our results of operations and income statement data on a consolidated basis : replace_table_token_16_th year ended december 31 , 2014 compared to year ended december 31 , 2013 the following table highlights changes in net income for the year ended december 31 , 2014 , as compared to 2013 : replace_table_token_17_th ( 1 ) operating expenses consist of salaries and wages , general and administrative , and sales and marketing expenses . 27 finance charges . for the year ended december 31 , 2014 , finance charges increased $ 40.0 million , or 6.8 % , as compared to 2013 . the increase was primarily the result of an increase in the average net loans receivable balance partially offset by a decrease in the average yield on our loan portfolio , as follows : replace_table_token_18_th the following table summarizes the impact each component had on the overall increase in finance charges for the year ended december 31 , 2014 : ( in millions ) impact on finance charges : for the year ended december 31 , 2014 due to an increase in the average net loans receivable balance $ 76.0 due to a decrease in the average yield ( 36.0 ) total increase in finance charges $ 40.0 the increase in the average net loans receivable balance was primarily due to growth in new consumer loan assignments in recent years , which resulted in the dollar volume of new consumer loan assignments exceeding the principal collected on loans throughout 2013 and 2014. the growth in new consumer loan assignments in recent years was the result of an increase in active dealers , partially offset by a decline in volume per active dealer .
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in 2005 , the company made no story_separator_special_tag overview we are a leading manufacturer and distributor of building products used in the north american infrastructure , commercial and residential construction industries . for the year ended december 31 , 2005 , we believe approximately 70 % of our total net sales were for nonresidential applications . our products are segregated into two reporting segments : concrete construction products and fence , which accounted for 53.3 % and 46.7 % of our total net sales , respectively , for the year ended december 31 , 2005. no customer accounted for more than 10 % of our consolidated net sales in fiscal year 2005. our concrete construction products segment consists of two product lines-welded wire reinforcement and concrete accessories . welded wire reinforcement serves as a structural grid for concrete construction used in building , road , bridge and sewage and drainage projects . this product line also includes our newly introduced concrete cable product , pc strand , which is used in pre-tensioned and post-tensioned concrete construction . the concrete accessories product line includes over 2,000 types of hardware accessories used in concrete construction activity , including precast , tilt-up and masonry applications ; products used to position and install steel reinforcing bar ; and welded steel reinforcing products . the products in our fence segment include all types of galvanized and vinyl-coated chain link fence fabric , ornamental fencing , fittings and other related products . within the fence segment , we also distribute wood , vinyl and aluminum fence , pipe , tubing , access control equipment and other products that are primarily manufactured by third parties . seasonality and cyclicality . our products are used in the infrastructure , commercial and residential construction industries . these industries are both cyclical and seasonal . the highest level of sales and profitability generally occur during the times of the year when climatic conditions are most conducive to construction activity . accordingly , sales will typically be higher in the second and third quarters and will be lower in the first and fourth quarters . in an effort to mitigate cyclical influences , we have implemented the following strategies to help offset the impact of any such downturns on our operating results and liquidity : increased our focus on products used in the infrastructure and commercial construction industries , which over the years have tended to have less cyclical volatility than the residential construction industry ; positioned our concrete construction products segment to benefit from anticipated increases in infrastructure spending ; and expanded our distribution network to serve diverse areas of high population growth , as well as to limit the effects of any particular regional economic downturn . raw materials . our manufactured products are produced primarily from low-carbon steel rod . because both of our business segments require large quantities of the same raw material , we purchase steel rod in significantly larger quantities than would be necessary if the business segments were part of independent enterprises . because of such large volume purchases , we believe we realize meaningful cost savings . since steel rod cost comprises a substantial portion of cost of goods sold ( approximately one-third in fiscal year 2005 ) , we believe such cost savings provide a competitive advantage . recent performance fiscal 2004 demonstrated a significant recovery from the unfavorable market and competitive environment that existed through the majority of 2002 and 2003. our 2004 profitability was favorably impacted by the ability to raise prices in response to the dramatic increases in the cost of steel and the concerns that then existed about the availability of steel . while historically we have generally been successful in passing along the steel cost price increases to our customers , market activity and competitive pressures have in the past and may in the future limit our ability to do so and could result in a negative impact on future levels of profitability . those higher selling prices in 2004 were matched with costs of steel inventories that had been acquired at prices below the then current levels . as we entered 2005 , we expected margins to decline as the higher cost of steel would be reflected in our cost of sales . despite the anticipated decline in margins , we expected that the reduction in the gross profit dollars due to higher steel costs could be offset , in varying degrees , by increases in market activity , by an expansion of our product offerings in both product segments , by the benefits associated with a number of cost reduction programs , and by prices and steel costs remaining relatively stable . in the fence segment , a combination of lower than expected pricing levels and significant delays in the implementation of important cost reduction programs resulted in a shortfall to our original 2005 profitability expectations . during the first eight months of 2005 , the price of steel purchases declined , only achieving a relative degree of stability in the later months of the year . we believe there were a number of principal reasons for the decline . going into 2005 , there were high inventory levels of steel rod held by producers as well as higher than normal inventory of the products manufactured from steel rod , held by both the manufacturers and their respective customers . this led to an inventory liquidation process through most of the first nine months of 2005. as well , the poor weather during the first four to five months of 2005 further contributed to the lowering of market demand . a somewhat slower pace of economic activity and delays in some sources of funding for non-residential construction projects only exacerbated the weaker market environment . story_separator_special_tag the preparation of these financial statements requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . our estimation processes generally relate to potential bad debts , damaged and slow moving inventory , health care and workers compensation claims , the value of long-lived assets , including goodwill , and other intangible assets . we base our judgments on historical experience and various other assumptions we believe to be reasonable under the circumstances . these judgments result in the amounts shown as carrying values of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the consolidated financial statements and accompanying notes . actual results could differ materially from our estimates . we believe the following accounting policies are the most critical in the preparation of our consolidated financial statements . revenue recognition ; allowance for doubtful accounts . revenue is recognized from product sales and used rental equipment sales when there is persuasive evidence of an arrangement , delivery has occurred , the sales price is fixed or determinable and collection is probable . rental revenues are recognized ratably over the terms of the rental agreements . we maintain an allowance for doubtful accounts receivable by providing for specifically identified accounts where collection is questionable and an allowance based on the aging of the receivables , giving consideration to historical experience and current trends . a change in experiences or trends could require a material change in our estimate of the allowance for doubtful accounts in the future . inventory valuation . inventories are valued at the lower of first in , first out ( `` fifo '' ) cost or market . inventory cost includes the cost of the purchased products or raw materials ( including inbound freight ) , and the direct labor and overhead associated with the production of a manufactured product . shipping costs associated with the movement of inventory from a manufacturing facility to a distribution location are included as an element of the distribution location 's inventory cost . a valuation allowance for damaged and slow moving inventory is established based on individual product activity , giving consideration to historical experience and current trends . the valuation adjustment is the recorded cost of the inventory minus its estimated realizable value . the company has a supply arrangement whereby certain raw materials ordered under non-cancelable fixed price purchase commitments are held on consignment at third-party warehouses or in segregated areas at company locations . such inventory is the supplier 's consigned inventory and therefore is not recorded on the company 's balance sheet . the consigned inventory can be transferred to the company at the supplier 's option . this obligation is recorded by the company upon such transfer , at which time the company will have title to the inventory . workers ' compensation and health care self-insurance reserves . we accrue estimated liabilities for workers ' compensation claims expense and claims incurred but not reported under our self-insured health care program . these accruals are based on claims data and valuations that reflect our best estimate of the ultimate expense , which considers current and historical claims development experience . a change in the current or historical trends could require a material change in our estimate for this accrued liability in the future . goodwill impairment assessment . we review the carrying value of goodwill on an annual basis , or more frequently if events or changes in circumstances indicate that such carrying values may not be recoverable . the review for impairment requires the use of forecasts , estimates , and assumptions as to the future performance of our operations . actual results could differ from forecasts resulting in a revision of our assumptions and , if required , could result in recognizing an impairment loss in a future period . in determining the fair value of each reporting unit , the company estimates fair value by applying a range of market multiples to an average estimate of earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) . in the event the carrying value exceeds the estimated fair value , the company determines the implied value of the goodwill to assess any potential goodwill impairment . if such impairment exists , the excess carrying value is written off as an impairment expense . asset impairment . we evaluate the recoverability of our long-lived assets that are held-for-use whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . the recoverability of long-lived assets is determined based on a comparison of the estimated future undiscounted cash flows related to such assets to their carrying values . if the carrying value of such assets exceeds the future undiscounted cash flows , the carrying value of the related assets would be reduced to their estimated fair value . estimating future undiscounted cash flows requires the use of forecasts , estimates , and assumptions as to the future performance of our operations . any changes in these estimates or assumptions could result in an impairment charge in a future period . assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less any costs to sell the asset . recent accounting standards . in november 2004 , the fasb issued sfas no . 151 , `` inventory costs-an amendment of arb no . 43 , chapter 4 '' , to clarify the accounting for abnormal inventory costs and the allocation of fixed production overhead costs . sfas no . 151 will be effective for inventory costs incurred beginning in fiscal year 2006. the company does not expect the adoption to have a material impact on the company 's financial position or results of operations . story_separator_special_tag and building materials sector to an average estimate of consolidated ebitda .
| general the following is an analysis of our financial condition and results of operations . you should read this analysis in conjunction with our consolidated financial statements and accompanying notes to the consolidated financial statements included on pages 43 through 68 of this report . certain reclassifications were made to the 2004 and 2003 financial statements in order to conform to the 2005 presentation . costs relating to company-operated vehicles that deliver products to customers , which were previously included in selling , general and administrative expense , were reclassified to cost of sales . this reclassification decreased selling , general and administrative expense and increased cost of sales by $ 12.7 million and $ 11.6 million for fiscal years 2004 and 2003 , respectively . this reclassification decreased concrete construction products segment selling , general and administrative expense and increased concrete construction products segment cost of sales by $ 1.5 million and $ 1.0 million for fiscal years 2004 and 2003 , respectively . this reclassification decreased fence segment selling , general and administrative expense and increased fence segment cost of sales by $ 11.2 million and $ 10.6 million for fiscal years 2004 and 2003 , respectively . results of operations for fiscal 2005 compared to 2004 net sales replace_table_token_2_th consolidated net sales for fiscal 2005 increased $ 47.5 million , or 7.1 % , to $ 721.4 million , as compared to $ 673.9 million for fiscal 2004. the majority of the increase was due to volumes of products sold in the concrete accessories product line included in the concrete construction products segment and in the fence segment . price increases , principally in the first quarter of 2005 as compared to the same period in 2004 , in the welded wire reinforcement product line included in the concrete construction products segment also contributed to the sales increase .
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the employee stock option plan and director 's stock option plan were terminated in june 2014 and december 2014 , respectively . in september 2016 , our board approved the establishment of the 2016 equity incentive plan , which was approved by our shareholders at the november 29 , 2016 annual meeting . the 2016 equity incentive plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options , nonstatutory stock options , stock appreciation rights , restricted shares , restricted stock units , performance awards and other stock-based awards . as of june 30 , 2019 , 200,000 performance awards have been granted under the 2016 equity incentive plan . stock options there were no stock options granted during the fiscal years ended june 30 , 2019 and 2018. as of june 30 , 2019 , there was no unrecognized compensation cost under the former stock option plans as all outstanding stock options are fully vested . the intrinsic value of stock options outstanding and exercisable at june 30 , 2019 was approximately $ 600,000 . the following is a summary of stock option activity under the stock option plans for the fiscal years ended june 30 , 2019 and 2018 : replace_table_token_27_th 41 pro-dex , inc. notes to financial statements performance awards in december 2017 , the compensation committee of our board of directors granted 200,000 performance awards to our employees which will generally be paid in shares of our common stock . whether any performance awards vest , and the amount that does vest , is tied to the completion of service periods that range from 7 months to 9.5 years at inception and the achievement of our common stock trading at certain pre-determined prices . the weighted average fair value of the performance awards granted was $ 4.46 , calculated using the weighted average fair market value for each award , using a monte carlo simulation . we recorded share-based compensation expense of $ 33,000 and $ 187,000 for the fiscal years ended june 30 , 2019 and 2018 , respectively , related to these performance awards . on june 30 , 2019 , there was approximately $ 67,000 of unrecognized compensation cost related to these non-vested performance awards expected to be expensed over the weighted-average period of 3.88 years . on july 1 , 2018 , it was determined by the compensation committee of our board of directors that the first of five tranches of the performance awards had been achieved and participants were awarded 40,000 shares of common stock . each participant elected a net issuance to cover their individual withholding taxes and therefore the company issued 24,727 shares . employee stock purchase plan in september 2014 , our board approved the establishment of an employee stock purchase plan ( the espp ) . the espp conforms to the provisions of section 423 of the internal revenue code , has coterminous offering and purchase periods of six months , and bases the pricing to purchase shares of our common stock on a formula so as to result in a per share purchase price that approximates a 15 % discount from the market price of a share of our common stock at the end of the purchase period . our board of directors also approved the provision that shares formerly reserved for issuance under the former stock option plans in excess of shares issuable pursuant to outstanding options , aggregating 704,715 shares , be reserved for issuance pursuant to the espp . the espp was approved by our shareholders at the december 3 , 2014 annual meeting . on february 2 , 2015 , the company filed a registration statement on form s-8 registering the 704,715 shares issuable under the espp under the securities act of 1933. during the fiscal years ended june 30 , 2019 and 2018 , shares totaling 2,743 and 6,733 , respectively , were purchased pursuant to the espp and allocated to participating employees based upon their contributions at weighted average prices of $ 8.02 and $ 5.60 , respectively . on a cumulative basis , since the inception of the espp , employees have purchased a total of 18,866 shares . during the fiscal years ended june 30 , 2019 and 2018 , we recorded stock compensation expense in the amount of $ 4,000 and $ 7,000 , respectively , relating to the espp . 10. major customers & suppliers customers that story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this report , as well as the risk factors included in item 1a of this report . the following discussion contains forward-looking statements . ( see cautionary note regarding forward-looking statements included in part 1 of this report . ) story_separator_special_tag width= '' 342.333 '' > three to ten years leasehold improvements shorter of the lease term or the asset 's estimated useful life intangibles other intangibles consist of legal fees incurred in connection with patent applications . the legal fees will be amortized over the estimated life of the product ( s ) that will be utilizing the technology , or expensed immediately in the event the patent office denies the issuance of the patent . the expense associated with the amortization of the patent costs is recognized in research and development costs . notes receivable notes receivable are stated at unpaid principal balance and are subject to impairment losses . story_separator_special_tag our entire backlog at june 30 , 2019 is expected to be delivered during fiscal 2020. we have experienced , and may continue to experience , variability in our new order bookings due to , among other reasons , the launch of new products , the timing of customer orders based on end-user demand and customer inventory levels . we do not typically experience seasonal fluctuations in our shipments and revenues . 17 cost of sales and gross margin replace_table_token_6_th cost of sales in fiscal 2019 increased $ 2.9 million , or 20 % , from fiscal 2018 , primarily due to the increase in product costs , consistent with the 21 % increase in net sales . during fiscal 2018 , we accrued $ 83,000 for losses from the development services portion of certain contracts compared to none in fiscal 2019. under-absorption of manufacturing costs decreased by $ 156,000 for fiscal 2019 compared to fiscal 2018 , due primarily to adjustments to our standard labor and overhead rates at the beginning of fiscal 2019 in anticipation of higher manufacturing volumes . costs related to inventory and warranty charges increased $ 48,000 in fiscal 2019 compared to 2018 , due primarily to an accrual in the amount of $ 63,000 for a previously announced product recall related to legacy batteries . operating expenses replace_table_token_7_th selling expenses consist of salaries and other personnel-related expenses related to our business development department , as well as trade show attendance , advertising and marketing expenses , and travel and related costs incurred in generating and maintaining customer relationships . selling expenses increased $ 57,000 , or 16 % , compared to fiscal 2018 , primarily related to increased personnel expenses in the amount of $ 178,000 as well as recruiting expense of $ 40,000 offset by decreases in the amount of $ 156,000 due to the sale of the fineline division during the fourth quarter of fiscal 2018. general and administrative expenses ( g & a ) consist of salaries and other personnel-related expenses for corporate , accounting , finance and human resource personnel , as well as costs for outsourced information technology services , professional fees , directors ' fees and costs associated with being a public company . the $ 205,000 increase in g & a expenses from fiscal 2018 to 2019 is due primarily to $ 120,000 in increased fiscal 2019 bonus accruals and $ 59,000 in severance expense . the fiscal 2018 asset impairment charges relate to the impairment of our investment in monogram in the amount of $ 800,000 as well as impairment of goodwill and intangible assets in the amount of $ 229,000 related to fineline , which was impaired during the second quarter of fiscal 2018 in conjunction with an impairment analysis . research and development costs consist of salaries and other personnel-related costs of our product development and engineering personnel , related professional and consulting fees , and costs related to intellectual property , laboratory usage , materials , and travel and related costs incurred in the development and support of our products . 18 although the majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell , we have created a product roadmap to develop future products . research and development costs represent between 34 % and 39 % of total operating expenses and are expected to increase in the future as we continue to invest in product development . the amount spent on projects under development is summarized below ( in thousands ) : replace_table_token_8_th ( 1 ) costs incurred related to customer contracts are included in costs of sales and deferred costs and are not included in research and development costs . other income ( expense ) interest and dividend income our interest and dividend income includes $ 183,000 of interest related to our investment in a hotel through the participation agreement more fully described in note 6 to the financial statements contained elsewhere in this report as well as $ 83,000 of interest and dividend income earned from our interest bearing money market accounts and portfolio of equity investments . gain on sale of investments during the quarter ended december 31 , 2018 , we liquidated one of the stocks in our portfolio of equity investments receiving proceeds of $ 1.9 million and recording a gain on the sale in the amount of $ 356,000. interest expense interest expense consists primarily of interest expense related to the term loan from minnesota bank & trust ( mbt ) described more fully in note 7 to the financial statements contained elsewhere in this report and capital lease obligations for leased equipment . income taxes the effective tax rate for the years ended june 30 , 2019 and 2018 was 24 % and 38 % , respectively . the decrease in the fiscal 2019 effective tax rate is due to the benefit of applying the new federal corporate income tax rate of 21 % to the full fiscal year . the fiscal 2018 rate represents a blended rate for the rates in existence before and after the december 22 , 2017 adoption of the tax cuts and jobs act . 19 liquidity and capital resources the following table is a summary of our statements of cash flows and cash and working capital as of and for the fiscal years ended june 30 , 2019 and 2018 : replace_table_token_9_th cash flows from operating activities cash provided by operating activities during fiscal 2019 was $ 3.3 million and relates primarily to our net income of $ 4.1 million , non-cash depreciation and amortization in the amount of $ 438,000 and the non-cash decrease in the deferred income taxes of $ 1.4 million , offset by an increase in inventoryin the amount of $ 1.8 million due to projected increased sales , and an increase in accounts receivable of $ 1.1 million .
| overview the following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition for the fiscal years ended june 30 , 2019 and 2018. the company , headquartered in irvine , california , specializes in the design , development and manufacture of autoclavable , battery-powered and electric , multi-function surgical drivers and shavers used primarily in the orthopedic , spine , and maxocranial facial markets . additionally , we provide engineering , quality and regulatory consulting services to our customers . we also sell rotary air motors . our products are found in hospitals , medical engineering labs , scientific research facilities and high-tech manufacturing operations around the world . critical accounting policies our financial statements are prepared in accordance with gaap . the preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . revenue recognition effective july 1 , 2018 , we adopted new revenue recognition guidance issued by the fasb related to contracts with customers . under asu 2014-09 , ( topic 606 ) revenue from contracts with customers , we recognize revenue from the sales of products and services by applying the following steps : ( 1 ) identify the contract with a customer ; ( 2 ) identify the performance obligations in the contract ; ( 3 ) determine the transaction price ; ( 4 ) allocate the transaction price to each performance obligation in the contract ; and ( 5 ) recognize revenue when each performance obligation is satisfied .
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” a discussion of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 has been reported previously in our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on march 12 , 2020 , under the heading “ management 's discussion and analysis of financial condition and results of operations. ” overview we are a clinical-stage biopharmaceutical company leveraging our immtor immune tolerance platform with the goals of amplifying the efficacy of biologics , including enabling the re-dosing of life-saving gene therapies , and restoring self-tolerance in autoimmune diseases . our immtor platform encapsulates rapamycin , also known as sirolimus , an immunomodulator , in biodegradable nanoparticles and is designed to induce antigen-specific immune tolerance . we believe immtor has the potential to enhance the efficacy without compromising the safety of biologic therapies , improve product candidates under development , and enable novel therapeutic modalities . we have developed a portfolio of proprietary and collaboration-driven applications of immtor , and we plan to continue to develop proprietary compounds and pursue collaboration-driven development in certain disease areas , which could include strategic collaborations , out-licensing , and in-licensing transactions . impact of covid-19 we are closely monitoring how covid-19 is affecting our employees , business , preclinical studies and clinical trials . in response to the spread of covid-19 , we have closed our executive offices with our administrative employees continuing their work outside of our offices and limited the number of staff in any given research and development laboratory . disruptions caused by the covid-19 pandemic may result in difficulties or delays in initiating , enrolling , conducting or completing our planned and ongoing clinical trials , and the incurrence of unforeseen costs as a result of preclinical study or clinical trial delays . while the covid-19 pandemic has not had a material impact on our clinical programs as of the date of this annual report on form 10-k , it could have an impact on our ability to complete the phase 3 dissolve clinical program of sel-212 , and our 57 ability to commence preclinical and clinical studies of our iga nephropathy , gene therapy , and autoimmune disease programs , and our ability to obtain supply of both active drug substances and finished drug product as well as efficient execution of the overall supply chain for sel-212 and our other programs . we have been proactively working with our cro , clinical sites , and principal investigators to provide patients with more convenient locations to have their sua measured for the primary endpoint of the study , such as at local laboratories or their homes , as well as alternative sites to receive infusions of study drug . we are also working with our primary and back-up suppliers for sel-037 ( pegadricase ) and sel-110 ( immtor ) to ensure that we have adequate supply of our materials for both our clinical and preclinical programs . as of the date of this annual report on form 10-k , we believe we will have adequate supply of all material necessary to conduct our phase 3 dissolve clinical program of sel-212 in chronic refractory gout and to begin our clinical trial in gene therapy under our collaboration with askbio . at this time , there is significant uncertainty relating to the trajectory of the covid-19 pandemic and the impact of related responses . any impact of covid-19 on our business , revenues , results of operations and financial condition will largely depend on future developments , which are highly uncertain and can not be predicted with confidence , such as the ultimate geographic spread of the disease , the duration of the pandemic , travel restrictions and social distancing in the united states and other countries , business closures or business disruptions , the ultimate impact on financial markets and the global economy , and the effectiveness of actions taken in the united states and other countries to contain and treat the disease . see “ risk factors⸻the outbreak of covid-19 may continue to adversely impact our business , including our preclinical studies and clinical trials. ” in part i , item 1a of this annual report on form 10-k. financial operations to date , we have financed our operations primarily through public offerings and private placements of our securities , funding received from research grants and collaboration arrangements and our credit facility . we do not have any products approved for sale and have not generated any product sales . all of our revenue to date has been collaboration and grant revenue . since inception , we have incurred significant operating losses . we incurred net losses of $ 68.9 million and $ 55.4 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 404.6 million . we expect to continue to incur significant expenses and operating losses for at least the next several years as we : continue the research and development of our other product candidates as well as product candidates that we may be developing jointly with collaboration partners ; seek to enhance our immtor platform and discover and develop additional product candidates ; seek to enter into collaboration , licensing and other agreements , including , but not limited to research and development , and or commercialization agreements ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; potentially establish a sales , marketing and distribution infrastructure and scales-up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval ; maintain , expand and protect our intellectual property portfolio , including through licensing arrangements ; and add clinical , scientific , operational , financial and management information systems and personnel , including personnel to support our product development and potential future commercialization efforts and to support our operations as a public company . story_separator_special_tag other income ( expense ) other income ( expense ) was de minimis during each the years ended december 31 , 2020 , and 2018 , and for the year ended december 31 , 2019 it consists primarily of issuance fees associated with warrant liabilities . change in fair value of warrant liabilities common warrants classified as liabilities are remeasured at fair value , utilizing a black-scholes valuation methodology , quarterly with the change in fair value recognized as a component of earnings . foreign currency transaction gain ( loss ) the functional currency of our russian subsidiary is the russian ruble . in addition to holding cash denominated in russian rubles , our russian bank accounts also hold cash balances denominated in u.s. dollars to facilitate payments to be settled in u.s. dollars or other currencies . as of december 31 , 2020 and 2019 , we maintained cash of $ 0.3 million and $ 0.4 million , respectively , in russian banks , all of which was denominated in u.s. dollars . the amounts denominated in u.s. dollars and used in transacting the day-to-day operations of our russian subsidiary are subject to transaction gains and losses , which are reported as incurred . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:400 ; line-height:120 % '' > collaborations on october 8 , 2020 , we entered into the igan agreement , and paid igan a $ 0.5 million one-time up-front payment . on june 13 , 2020 , we entered into the sarepta agreement . we received a $ 2.0 million upfront payment . on june 11 , 2020 , we entered into the sobi license . sobi paid us a one-time , up-front payment of $ 75 million , and upon the closing of the sobi private placement , we received an additional $ 25 million from sobi in consideration for sobi 's purchase of our common stock at $ 4.6156 per share . we are eligible to receive $ 630 million in milestone payments upon the achievement of various development and regulatory milestones and sales thresholds for annual net sales of sel-212 , and tiered royalty payments ranging from the low double digits on the lowest sales tier to the high teens on the highest sales tier . additionally , sobi has agreed to fund the phase 3 clinical program of sel-212 , which commenced in september 2020. we expect this to substantially reduce our annual operating expenses . on december 17 , 2019 , we entered into the askbio license agreement . pursuant to the askbio license agreement , askbio has exercised its option to exclusively license intellectual property rights covering immtor to research , develop , and commercialize certain aav gene therapy products utilizing immtor , and targeting the gaa gene , or derivatives thereof , to treat pompe disease . we received $ 7.0 million of upfront fees pursuant to the askbio license agreement and are eligible to receive $ 237 million in milestone payments , and royalties on net sales ranging from the mid-to-high single digits . financings in august 2017 , we entered into a sales agreement , or the 2017 sales agreement , with jefferies llc , as sales agent , to sell shares of our common stock with an aggregate value of up to $ 50 million in an “ at-the-market ” offering . in august 2020 , concurrent with the filing of a new shelf registration statement , we entered into a new sales agreement , or the 2020 sales agreement , with jefferies llc , as sales agent , pursuant to which we may , from time to time , issue and sell common stock with an aggregate value of up to $ 50 million in an “ at-the-market ” offering . the 2017 sales agreement terminated pursuant to its terms in august 2020. sales of common stock , if any , pursuant to the 2020 sales agreement , may be made in sales deemed to be an “ at the market offering ” as defined in rule 415 ( a ) of the securities act , including sales made directly through the nasdaq stock market or on any other existing trading market for our common stock . we intend to use the proceeds from the offering for working capital and other general corporate purposes . we may suspend or terminate the 2020 sales agreement at any time . from august 11 , 2017 , the date we entered into the 2017 sales agreement , to december 31 , 2019 , we sold 615,453 shares of our common stock pursuant to the 2017 sales agreement at an average price of approximately $ 1.84 per share for aggregate net proceeds of $ 1.0 million , after deducting commissions and other transaction costs . during the year ended december 31 , 2020 , we sold 1,069,486 shares of our common stock pursuant to the 2017 sales agreement and 2020 sales agreement , as applicable , at an average price of approximately $ 2.16 per share for aggregate net proceeds of $ 2.1 million , after deducting commissions and other transaction costs . as of december 31 , 2020 , our cash , cash equivalents , and restricted cash were $ 140.1 million , of which $ 1.4 million was restricted cash related to lease commitments and $ 0.3 million was held by our russian subsidiary designated solely for use in its operations . our russian subsidiary cash is consolidated for financial reporting purposes . in addition to our existing cash equivalents , we receive research and development funding pursuant to our collaboration agreements . currently , funding from payments under our collaboration agreements represent our only source of committed external funds .
| results of operations comparison of the years ended december 31 , 2020 and 2019 revenue the following is a comparison of revenue for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : year ended december 31 , increase 2020 2019 ( decrease ) collaboration revenue $ 16,597 $ 6,677 $ 9,920 149 % during the year ended december 31 , 2020 , collaboration revenue increased by $ 9.9 million , or 149 % , from collaboration revenue generated in 2019. during the year ended december 31 , 2020 we recognized $ 16.6 million under the license agreement with sobi resulting from the shipment of clinical supply and the reimbursement of costs incurred for the phase 3 dissolve clinical program and a de minimis amount recognized for shipments under the collaboration agreement with sarepta . during the year ended december 31 , 2019 , we recognized $ 6.7 million in revenue upon expiration of the term for spark to exercise additional target options that represented material rights and less than $ 0.1 million of revenue for two shipments to spark under our collaboration agreement . research and development the following is a comparison of research and development expenses for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : year ended december 31 , increase 2020 2019 ( decrease ) research and development $ 54,505 $ 42,743 $ 11,762 28 % during the year ended december 31 , 2020 , our research and development expenses increased by $ 11.8 million , or 28 % , as com pared to 2019. the increase in cost was primarily the result of expenses incurred for the phase 3 dissolve clinical program for sel-212 , the phase 2 compare trial for sel-212 and for the askbio collaboration .
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under his employment agreement , dr. coles is eligible to earn an annual target bonus equal to 50 % of his base story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and notes thereto included elsewhere in this annual report . certain of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the section entitled “ risk factors , ” 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 . you should carefully read the section entitled “ risk factors ” to gain an understanding of the material and other risks that could cause actual results to differ materially from our forward-looking statements . please also see the section entitled “ cautionary note regarding forward-looking statements. ” overview introduction we are a clinical-stage biopharmaceutical company pursuing a targeted approach to neuroscience that combines a deep understanding of disease-related biology and neurocircuitry of the brain with advanced chemistry and cns target receptor selective pharmacology to discover and design new therapies . we seek to transform the lives of patients through the development of new therapies for neuroscience diseases , including schizophrenia , epilepsy and parkinson 's disease . our “ ready-made ” pipeline of 11 small molecule programs , which includes five clinical-stage product candidates , was developed through over a decade of research and investment by pfizer and was supported by an initial capital commitment from an affiliate of bain capital and a keystone equity position from pfizer . we are advancing our broad and diverse pipeline with seven clinical trials underway or expected to start by the end of 2021 and up to eight clinical data readouts expected by the end of 2023. we have built a highly experienced team of senior leaders and neuroscience drug developers who combine a nimble , results-driven biotech mindset with the proven expertise of large pharmaceutical company experience and capabilities in drug discovery and development . on october 27 , 2020 , arya completed the acquisition of cerevel therapeutics , inc. , a private company , pursuant to the business combination agreement dated july 29 , 2020 , as amended on october 2 , 2020. arya was incorporated as a cayman islands exempted company on february 20 , 2020 and was formed for the purpose of effecting a merger , share exchange , asset acquisition , share purchase , reorganization or similar business combination with one or more businesses . cerevel therapeutics , inc. was incorporated in delaware on july 23 , 2018 , referred to as inception , under the name perception holdco , inc. which was subsequently changed to cerevel therapeutics , inc. on october 23 , 2018. our principal operations commenced on september 24 , 2018 , or the formation transaction date , when cerevel therapeutics , inc. , or old cerevel , acquired licensed technology to a portfolio of pre-commercial neuroscience assets from pfizer in exchange for the issuance of series a-2 preferred stock of old cerevel and obtained a $ 350.0 million equity commitment , or the equity commitment , from bain investor , an affiliate of bain capital , to develop the in-licensed assets in exchange for the issuance of series a-1 preferred stock and series a common stock of old cerevel , which we refer to collectively as the formation transaction . bain investor also received the option to purchase up to an additional 10.0 million shares at $ 10.00 per share , subject to pfizer 's participation rights , or the share purchase option . on the formation transaction date , we received an initial investment of $ 115.0 million in equity funding from bain investor to begin operations . during 2019 we received an additional investment of $ 60.1 million in equity funding from bain investor . bain investor contributed an additional $ 25.0 million in equity financing in july 2020 , or the additional financing shares . upon the closing of the business combination transaction , old cerevel , became a wholly owned subsidiary of arya and arya was renamed cerevel therapeutics holdings , inc. and the stock purchase agreement , the equity commitment and the share purchase option related to old cerevel were terminated . upon completion of the business combination transaction , and pursuant to the terms of the business combination agreement , the existing shareholders of old cerevel exchanged their interests for shares of common stock of cerevel therapeutics holdings , inc. , or new cerevel . net proceeds from this transaction totaled approximately $ 439.5 million , which included funds held in arya 's trust account and the completion of a concurrent private investment in public equity financing , or pipe financing , inclusive of the $ 25.0 million received from bain investor in july 2020 . 141 we accounted for the business combination transaction as a reverse recapitalization which is the equivalent of old cerevel issu ing stock for the net assets of arya , with arya treated as the acquired company for accounting purposes . the net assets of arya were stated at historical cost with no goodwill or other intangible assets recorded . reported results from operations included herein prior to the business combination are those of old cerevel . t he shares and corresponding capital amounts and loss per share related to old cerevel 's outstanding redeemable convertible preferred stock , redeemable convertible common stock , and common stock prior to the business combination transaction have been retroactively restated to reflect the exchange ratio established in the business combination agreement ( 1.00 share of old cerevel for 2.854 share s of new cerevel ) , or the exchange ratio . story_separator_special_tag we have incurred significant operating losses since our inception and expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future . we believe that our available cash resources as of december 31 , 2020 , of $ 383.6 million , will enable us to fund our operating expense and capital expenditure requirements into 2023. we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : advance our clinical-stage product candidates cvl-231 , darigabat , tavapadon , cvl-871 and cvl-936 through clinical development , including as we advance these candidates into later-stage clinical trials ; advance our preclinical stage product candidates into clinical development including cvl-354 and our pde4b inhibitor program ; seek to identify , acquire and develop additional product candidates , including through business development efforts to invest in or in-license other technologies or product candidates ; hire additional clinical , quality control , medical , scientific and other technical personnel to support our clinical operations ; expand our operational , financial and management systems and increase personnel to support our operations ; meet the requirements and demands of being a public company ; maintain , expand and protect our intellectual property portfolio ; make milestone , royalty or other payments due under the pfizer license agreement and any future in-license or collaboration agreements ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; and undertake any pre-commercialization activities to establish sales , marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own or jointly with third parties . impact of the covid-19 pandemic in march 2020 the world health organization declared the covid-19 outbreak a pandemic . the covid-19 pandemic is evolving , and to date has led to the implementation of various responses , including government-imposed quarantines , travel restrictions and other public health safety measures . 143 we are closely monitoring the impact of the pandemic of covid-19 on all aspects of our business , including how it will impact our operations and the operations of our suppliers , vendors and business partners . we have taken steps to identify and mitigate the adverse impacts on , and risks to , our business posed by its spread and actions taken by governmental and health authorities to address this pandemic ; however , the spread of covid-19 has caused us to modify our business practices , including implementing a temporary work-from-home policy for all employees who are able to perform their duties remotely and temporarily restricting all non-essential travel and discouraged employee attendance at industry events and in-person work-related meetings . we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees and other business partners in light of covid-19 . more specifically , the onset of the covid-19 pandemic caused brief pauses in patient screening and enrollment in our phase 3 trials of tavapadon for the treatment of parkinson 's ( which we subsequently resumed in the second half of 2020 ) , and we remain particularly vigilant about patient safety given the elderly nature of this population . while we have taken measures to revise clinical trial protocols , t he ultimate extent to which covid-19 impacts our business , results of operation and financial condition will depend on future developments , which are highly uncertain and can not be predicted with confidence , such as the duration of the outbreak , new information that may emerge concerning the severity of covid-19 or the effectiveness of actions to contain covid-19 or treat its impact , among others . in addition , recurrences or additional waves of covid-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest . we can not presently predict the scope and severity of any potential business shutdowns or disruptions , but if we or any of the third parties with whom we engage were to experience prolonged business shutdowns or other disruptions , our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected , which could have a material adverse impact on our business , results of operation and financial condition . the estimates of the impact on our business may change based on new information that may emerge concerning covid-19 and the actions to contain it or treat its impact and the economic impact on local , regional , national and international markets . we have not incurred any significant impairment losses in the carrying values of our assets as a result of the pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our audited consolidated financial statements . our agreements with licensors and stockholders pfizer license agreement in august 2018 , we entered into the pfizer license agreement pursuant to which we were granted an exclusive , sublicensable , worldwide license under certain pfizer patent rights , and a non-exclusive , sublicensable , worldwide license under certain pfizer know-how to develop , manufacture and commercialize certain compounds and products , which currently constitute the entirety of our asset portfolio , in the field of treatment , prevention , diagnosis , control and maintenance of all diseases and disorders in humans , subject to the terms and conditions of the pfizer license agreement . additionally , pfizer has an exclusive right of first negotiation in the event that we seek to enter into any significant transaction with a third party with respect to a product either globally or in certain designated countries . significant transactions include exclusive licenses , assignments , sales , exclusive co-promotion arrangements , and other transfers of all commercial rights to a product globally or in certain designated countries , as well as exclusive distribution agreements globally or in certain designated countries .
| results of operations the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_11_th research and development the following table summarizes the components of research and development expense for the years ended december 31 , 2020 and 2019 : replace_table_token_12_th 149 for 2020 compared to 2019 , the increase in research and development expense was primarily due to an increase in program costs related to advancing our pipeline and increased personnel costs , including equity-based compensation , as well as an increase in unallocated costs as we grew our organization . the increase in unallocated costs is primarily related to an increase in professional services and other indirect research and development costs reflecting our increased investment in technology , increased consulting and professional fees for cross-program support activities and other overhead expenses . general and administrative ( in thousands ) for the year ended december 31 , 2020 for the year ended december 31 , 2019 change general and administrative $ 45,813 $ 33,169 38 % for 2020 compared to 2019 , the increase in general and administrative expense was primarily due to increased personnel costs , including equity-based compensation , higher facility-related costs as we grew our organization , as well as certain non-recurring charges recognized in connection with our business combination transaction . the increase in facility-related costs is primarily associated with the lease for our headquarters in cambridge , massachusetts .
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alternatively , the tetf could exercise its right to purchase at any time prior to the occurrence of a first qualifying financial transaction for $ 0.001 per share . the warrant included a provision that required changes in the strike price , driven by the pricing of the “ first qualifying financing transaction . ” as a result , the warrant embedded in the investment unit was accounted for as a derivative financial instrument and classified outside of equity under asc 815-40-15 as the settlement adjustment from the future transaction did not permit for the strike price to be considered fixed . on march 12 , 2014 , the tetf exercised its right to purchase for $ 0.001 per share , and we issued to the tetf an aggregate of 184,797 shares of our series b preferred stock . these shares were subsequently forward-split and converted to 1,235,219 shares of common stock in connection with our ipo . accounting for the investment unit we accounted for the investment unit as a hybrid financial instrument under fasb statement 155 , and measured the investment unit at the amount of proceeds received from the tetf award . the first qualifying financial transaction occurred during december 2013 , resulting in an adjustment to the fair value of the investment unit in the amount of approximately $ 2.5 million . the tetf exercised the warrant for $ 0.001 per share . we received notice of purchase from the tetf during march 2014 , and issued 184,797 shares of series b preferred stock , which has since been converted to 1,235,219 shares of common stock upon completion of the company 's ipo . upon exercise by the tetf of the warrant , the remaining component within the investment unit was the promissory note . the investment unit was valued at zero , because our obligation to repay the promissory note arose from an event of default ( a failure to maintain the texas residency requirement ) , which was an event which rested entirely within our control . note 5 – equity initial public offering on april 3 , 2018 , the company completed its ipo , whereby the company sold an aggregate of 1,280,000 shares of its common stock , at $ 5.00 per share , resulting in estimated net proceeds of $ 5,025,000 after underwriting discounts , commissions and estimated offering expenses of $ 895,000 . additionally , the underwriters have been issued warrants to purchase common stock equal to 3 % of the securities sold in the ipo , or 38,400 shares of common stock . private investment on may 9 , 2018 , the company completed a private placement , whereby the company sold to investors an aggregate of 828,500 shares of its common stock at $ 12.07 per share and warrants to purchase up to 621,376 shares of the company 's common stock with an initial exercise price equal to $ 15.62 per share . the per share price and warrant exercise price were subject to automatic adjustment , if applicable , based on the volume weighted average daily prices on the three days after the registration statement registering the resale of the shares of common stock sold to the investors and the shares of the common stock issuable upon exercise of the warrant was declared effective and the company 's shareholders approved the transaction . in no event would the purchase price or warrant exercise price be less than $ 4.25 per share . the company received net proceeds of $ 9,250,000 after commissions and expenses . on august 1 , 2018 , following the effectiveness of our registration statement on form s-1 ( file no . 333-225090 ) and pursuant to the terms of the purchase agreement and warrants , we issued to the original investors of the private placement an aggregate of 1,174,440 additional shares of our common stock and the warrants became exercisable for a total of 2,283,740 shares of our common stock with an exercise price equal to $ 4.25 per share . f-13 registered direct offering on november 22 , 2019 , the company completed a registered direct offering ( “ rdo ” ) , whereby the company sold to investors an aggregate of 3,167,986 shares of the company 's common stock at $ 0.40 per share and warrants to purchase up to 3,167,986 shares of the company 's common stock at an exercise price of $ 0.46 per share . the warrants are first exercisable on may 22 , 2020. the company received net proceeds of approximately $ 1,093,000 after commissions and expenses . additionally , the underwriters have been issued warrants to purchase common stock equal to 7 % of the aggregate number of shares of common stock issued and issuable pursuant to the rdo ( including shares underlying any warrants and options ) , or 443,518 shares of common stock at an exercise price of 125 % of the rdo price per share , or $ 0.58 per share . in connection with the closing of the company 's rdo , the company further adjusted the warrants to purchase up to 2,283,740 shares of the company 's common stock , that had been issued as part of the may 9 , 2018 private placement and adjusted in august 2018 to ( i ) reduce the exercise price for each share from $ 4.25 per share to $ 0.46 per share , ( ii ) extended the exercisable date of these warrants to may 22 , 2020 , and ( iii ) extended the termination date of the warrants by story_separator_special_tag this management 's discussion and analysis of financial condition and results ofoperations ( “ md & a ” ) contains certain forward-looking statements . story_separator_special_tag in studies of diabetic mice , the gene therapy approach restored normal blood glucose levels for an extended period of time , typically around four months . according to dr. gittes , the duration of restored blood glucose levels in mice could translate to decades in humans . if successful , this gene therapy could eliminate the need for insulin replacement therapy for diabetic patients . jobs act and recent accounting pronouncements the jobs act , enacted in 2012 , provides that an “ emerging growth company ” may take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act of 1933 , as amended , for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . we have implemented all new accounting pronouncements that are in effect and may affect our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that would have a material impact on our financial position or results of operations . critical accounting policies and significant judgments and estimates our financial statements have been prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 94 we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results , and they require our most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . research and development costs we record accrued expenses for costs invoiced from research and development activities conducted , on our behalf , by third-party service providers , which include the conduct of preclinical studies and clinical trials and use of contract research and manufacturing activities . we record the costs of research and development activities based upon the amount of services provided , and we include these costs in accrued liabilities in the balance sheets and within research and development expense in the statement of operations . these costs are a significant component of our research and development expenses . purchased materials to be used in future research are capitalized and included in research and development supplies . we estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services . we make significant judgments and estimates in determining the accrued balance in each reporting period . as actual costs become known , we adjust our accrued estimates . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed , the number of patients enrolled and the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period . our accrued expenses are dependent , in part , upon the receipt of timely and accurate reporting from cros and other third-party service providers . to date , there have been no material differences from our accrued expenses to actual expenses . income taxes deferred tax assets or liabilities are recorded for temporary differences between financial statement and tax basis of assets and liabilities , using enacted rates in effect for the year in which the differences are expected to reverse . a valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized . we have provided a full valuation allowance on our deferred tax assets , which primarily consist of cumulative net operating losses from april 1 , 2009 ( inception ) to december 31 , 2019 . due to our history of operating losses since inception and losses expected to be incurred in the foreseeable future , a full valuation allowance was considered necessary . impairment of long-lived assets management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year . if an evaluation is required , the estimated future undiscounted cash flows associated with the asset are compared to the asset 's carrying value to determine if an impairment of such asset is necessary .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following summarizes our results of operations for the years ended december 31 , 2019 and 2018 . research and development expense . research and development expense was $ 1,967,007 for the year ended december 31 , 2019 as compared to $ 971,427 for the year ended december 31 , 2018 . this increase of $ 995,580 , or 102 % , was due to our acceleration of preclinical research and manufacturing process development in 2019 in preparation for the advancement of clinical programs . we expect research and development expense to increase in future periods as we expand our clinical programs to a greater number of sites and our research programs to include new therapy combinations . general and administrative expense . general and administrative expense for the year ended december 31 , 2019 was $ 8,702,596 as compared to $ 11,386,229 for the year ended december 31 , 2018 . the decrease of $ 2,683,633 , or 24 % , in general and administrative expense is related primarily to a one-time larger than normal equity-based compensation amount issued in 2018 to recruit and retain executive leadership , board members , and technical experts to our team . excluding this expense , a decrease of $ 778,235 , or 13 % , for the year ended december 31 , 2019 versus december 31 , 2018 was primarily due to greater expenses incurred in 2018 related to our initial public offering and private placement . interest income . interest income was $ 27,905 and $ 29,184 for the years ended december 31 , 2019 and 2018 , respectively .
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the core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services . the company has drafted its accounting policy for the new standard based on a detailed review of its business and contracts . based on the new guidance , the company expects to continue recognizing revenue at the time it 's products are shipped , and therefore adoption of the standard did not have a material impact on its financial statements and is not expected to have a material impact in the future . the company anticipates it will expand its financial statement disclosures in order to comply with the disclosure requirements of the asu beginning in the first quarter of fiscal 2018. in july 2015 , the fasb issued asu 2015 - 11 , “ inventory . simplifying the measurement of inventory. ” this amendment requires companies to measure inventory at the lower of cost and net realizable value . the company adopted this amendment in april of 2017 , and the implementation did not have a material impact on the company 's financial statements . in february 2016 , the fasb issued asu 2016-02 , “ leases ” , which is intended to improve financial reporting for lease transactions . this asu will require organizations that lease assets , such as real estate and manufacturing equipment , to recognize both assets and liabilities on their balance sheet for the rights to use those assets for the lease term and obligations to make the lease payments created by those leases that have terms of greater than 12 months . the recognition , measurement , and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as finance or operating lease . this asu will also require disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases . these disclosures will include qualitative and quantitative requirements , providing additional information about the amounts recorded in the financial statements . this asu will be adopted by the company in april of 2018. we do not believe that this asu will have a material impact on our financial statements . in june 2016 , the fasb issued asu-2016-13 “ financial instruments – credit losses ” . this guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income . the guidance requires organizations to measure all expected credit losses for financial instruments at the reporting date based on historical experience , current conditions and reasonable and supportable forecasts . it is effective for fiscal years beginning after december 15 , 2019. the company is evaluating the potential impact on the company 's financial statements . in february 2018 , the fasb issued asu 2018-02 , “ income statement- reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income. ” this guidance gives businesses the option of reclassifying to retained earnings the so-called “ stranded tax effects ” left in accumulated other comprehensive income due to the reduction in the corporate income tax rate resulting from the 2017 tax cuts and jobs act . this amendment is effective for all organizations for fiscal years beginning after december 15 , 2018 and interim periods within those fiscal years . early adoption is allowed . we do not believe that this asu will have a material impact on our financial statements . management does not believe that any other recently issued , but not yet effective accounting pronouncement , if adopted , would have a material effect on the accompanying consolidated financial statements . story_separator_special_tag capital to continue to operate and grow our business . our cash requirements may vary materially from those currently anticipated due to changes in our operations , including our marketing and sales activities , product development , and the timing of our receipt of revenues . we do not have any material external sources of liquidity or unused sources of funds . our ability to obtain additional financing in the future will depend in part upon the prevailing capital market conditions , as well as our business performance . there can be no assurance that we will be successful in our efforts to arrange additional financing on terms satisfactory to us or at all . additionally , we will continue to reduce certain of our expenses in order to assist in meeting our capital needs . operating activities net cash used by operating activities was $ 259,870 for the fiscal year ended march 31 , 2018. cash provided during the year ended march 31 , 2018 was primarily due to net income of $ 109,737 , write-off of inventories of $ 312,830 and an increase in reserve of bad debt of $ 100,000 and off-set by decreases in deferred taxes of $ 166,000. a decrease in operating liabilities of $ 49,378 , depreciation and amortization of $ 39,273 and increases in net operating assets of $ 672,332. net cash provided by operating activities was $ 492,918 for the fiscal year ended march 31 , 2017. cash provided during the year ended march 31 , 2017 was primarily due to a net income of $ 1,205,760 , stock-based compensation of $ 98,600 and a decrease in operating liabilities of $ 16,800 , depreciation and amortization of $ 17,538 offset by an increase in net operating assets of $ 785,123. investing activities for the fiscal year ended march 31 , 2018 , there was no net cash used or provided by investing activities . for the fiscal year ended march 31 , 2017 , net cash provided by investing activities was $ story_separator_special_tag the core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services . the company has drafted its accounting policy for the new standard based on a detailed review of its business and contracts . based on the new guidance , the company expects to continue recognizing revenue at the time it 's products are shipped , and therefore adoption of the standard did not have a material impact on its financial statements and is not expected to have a material impact in the future . the company anticipates it will expand its financial statement disclosures in order to comply with the disclosure requirements of the asu beginning in the first quarter of fiscal 2018. in july 2015 , the fasb issued asu 2015 - 11 , “ inventory . simplifying the measurement of inventory. ” this amendment requires companies to measure inventory at the lower of cost and net realizable value . the company adopted this amendment in april of 2017 , and the implementation did not have a material impact on the company 's financial statements . in february 2016 , the fasb issued asu 2016-02 , “ leases ” , which is intended to improve financial reporting for lease transactions . this asu will require organizations that lease assets , such as real estate and manufacturing equipment , to recognize both assets and liabilities on their balance sheet for the rights to use those assets for the lease term and obligations to make the lease payments created by those leases that have terms of greater than 12 months . the recognition , measurement , and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as finance or operating lease . this asu will also require disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases . these disclosures will include qualitative and quantitative requirements , providing additional information about the amounts recorded in the financial statements . this asu will be adopted by the company in april of 2018. we do not believe that this asu will have a material impact on our financial statements . in june 2016 , the fasb issued asu-2016-13 “ financial instruments – credit losses ” . this guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income . the guidance requires organizations to measure all expected credit losses for financial instruments at the reporting date based on historical experience , current conditions and reasonable and supportable forecasts . it is effective for fiscal years beginning after december 15 , 2019. the company is evaluating the potential impact on the company 's financial statements . in february 2018 , the fasb issued asu 2018-02 , “ income statement- reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income. ” this guidance gives businesses the option of reclassifying to retained earnings the so-called “ stranded tax effects ” left in accumulated other comprehensive income due to the reduction in the corporate income tax rate resulting from the 2017 tax cuts and jobs act . this amendment is effective for all organizations for fiscal years beginning after december 15 , 2018 and interim periods within those fiscal years . early adoption is allowed . we do not believe that this asu will have a material impact on our financial statements . management does not believe that any other recently issued , but not yet effective accounting pronouncement , if adopted , would have a material effect on the accompanying consolidated financial statements . story_separator_special_tag capital to continue to operate and grow our business . our cash requirements may vary materially from those currently anticipated due to changes in our operations , including our marketing and sales activities , product development , and the timing of our receipt of revenues . we do not have any material external sources of liquidity or unused sources of funds . our ability to obtain additional financing in the future will depend in part upon the prevailing capital market conditions , as well as our business performance . there can be no assurance that we will be successful in our efforts to arrange additional financing on terms satisfactory to us or at all . additionally , we will continue to reduce certain of our expenses in order to assist in meeting our capital needs . operating activities net cash used by operating activities was $ 259,870 for the fiscal year ended march 31 , 2018. cash provided during the year ended march 31 , 2018 was primarily due to net income of $ 109,737 , write-off of inventories of $ 312,830 and an increase in reserve of bad debt of $ 100,000 and off-set by decreases in deferred taxes of $ 166,000. a decrease in operating liabilities of $ 49,378 , depreciation and amortization of $ 39,273 and increases in net operating assets of $ 672,332. net cash provided by operating activities was $ 492,918 for the fiscal year ended march 31 , 2017. cash provided during the year ended march 31 , 2017 was primarily due to a net income of $ 1,205,760 , stock-based compensation of $ 98,600 and a decrease in operating liabilities of $ 16,800 , depreciation and amortization of $ 17,538 offset by an increase in net operating assets of $ 785,123. investing activities for the fiscal year ended march 31 , 2018 , there was no net cash used or provided by investing activities . for the fiscal year ended march 31 , 2017 , net cash provided by investing activities was $
| business overview adm is a corporation that was organized under the laws of the state of delaware on november 24 , 1969. during the years ended march 31 , 2018 and 2017 , our operations were conducted through adm itself and its subsidiary , sonotron . we are a technology-based developer and manufacturer of diversified lines of products and services in the following areas : electronics for non-invasive medical and other applications ; research , development , regulatory and engineering services ; and , environmentally safe chemical products for industrial , cosmetic and topical uses . results of operations for the year ended march 31 , 2018 as compared to march 31 , 2017. replace_table_token_1_th replace_table_token_2_th replace_table_token_3_th revenues and gross margins revenues decreased $ 1,517,019 , or 29 % from the prior year , which resulted from decreases of $ 859,082 in the engineering segment and $ 764,106 in the electronics segment offset by an increase of $ 106,169 in the chemicals segment . the decrease in engineering services and electronics was primarily the result of a reduction of several projects for one customer . engineering services revenues were also primarily reduced due to the company 's decision to expend increased engineering resources on research and development activities of its proprietary medical devices in accordance with management 's plan to expedite the commercialization of these technologies . operating income ( loss ) loss from operations for the year ended march 31 , 2018 was $ 66,188 and 2017 showed income from operations of $ 1,138,561 , a decrease of $ 1,204,749 or 106 % .
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investments in real estate joint ventures we have seven equity investments in unconsolidated joint venture entities in which we own 50 % or less of the total ownership interest . because we can influence but not control these joint ventures , these investments are accounted for under the equity method . we provide leasing , development , asset and property management services to these joint ventures for which we are paid fees . refer to note 8 of the notes to the consolidated financial statements for further information . we review our equity investments in unconsolidated entities for impairment on a venture-by-venture basis whenever events or changes in circumstances indicate that the carrying value story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements , the notes thereto , and the comparative summary of selected financial data appearing elsewhere in this report . discontinued operations are discussed in note 6 of the notes to the consolidated financial statements in item 8. the financial information in this md & a is based on results from continuing operations . overview we are a fully integrated , self-administered , publicly-traded reit specializing in the ownership , management , development and redevelopment of community shopping centers located in the eastern and midwestern regions of the united states . most of our properties are multi-anchored by supermarkets and or national chain stores . our primary business is managing and leasing space to tenants in the shopping centers we own . we also manage centers for our unconsolidated joint ventures for which we charge fees . our credit risk , therefore , is concentrated in the retail industry . at december 31 , 2011 , we owned and managed , either directly or through our interest in real estate joint ventures , a total of 83 shopping centers and one office building , with approximately 15.2 million square feet of gross leasable area owned by us and our joint ventures . we also owned interests in three parcels of land held for development and five parcels of land adjacent to certain of our existing developed properties located in florida , georgia , michigan , tennessee and virginia . we are predominantly a community shopping center company with a focus on managing and adding value to our portfolio of centers that are primarily multi-anchored by grocery stores and or nationally recognized discount department stores . we believe that centers with a grocery and or discount component attract consumers seeking value-priced products . since these products are required to satisfy everyday needs , customers usually visit the centers on a weekly basis . over 53 % of our shopping centers are anchored by tenants or non-owned anchors that sell groceries . supermarket anchor tenants for our centers include , among others , publix supermarket , jewel-osco , kroger and whole foods . national chain anchors for our centers include , among others , tj maxx/marshalls , home depot , wal-mart , kohl 's , lowe 's home centers , best buy , and target . our shopping centers are primarily located in targeted metropolitan markets areas in the eastern and midwestern regions of the united states . our focus on these markets has enabled us to develop a thorough understanding of the unique characteristics of our markets . in both of our primary regions , we have concentrated a number of centers in reasonable proximity to each other in order to achieve efficiencies in management , leasing and acquiring new properties . in our existing centers , we focus on aggressive rental and leasing strategies and the value-added redevelopment of such properties . we strive to increase rental income over time through contractual rent increases and leasing and re-leasing of available space at higher rental levels , while balancing the needs for an attractive and diverse tenant mix . see item 2 , “ properties ” for additional information on rental revenue and lease expirations . in addition , we assess each of our centers periodically to identify improvement opportunities and proactively engage in renovation and expansion activities based on tenant demands , market conditions and capital availability . we also recognize the importance of customer satisfaction and spend a significant amount of resources to ensure that our centers have sufficient amenities , appealing layouts and proper maintenance . as opportunities arise and market conditions permit , we may sell mature properties or non-core assets , which have less potential for growth or are not viable for redevelopment . we intend to utilize the proceeds from such sales to reduce outstanding debt , or fund development and redevelopment activities , or fund selective acquisition opportunities . we intend to maximize shareholder value through a well-defined business strategy that incorporates the following elements : · leasing and managing our shopping centers to increase occupancy , maximize rental income , and control operating expenses and capital expenditures ; · redeveloping our centers to increase gross leasable area , reconfigure space for credit tenants , create outparcels , sell excess land , and generally make the centers more desirable for our tenants and their shoppers ; · acquiring new shopping centers that are located in targeted metropolitan markets and that provide opportunities to add value through intensive leasing , management , or redevelopment ; · developing our land held for development into income-producing investment property , subject to market demand , availability of capital and adequate returns on our incremental capital ; · selling non-core shopping centers and redeploying the proceeds into investments that meet our criteria ; · selling available-for-sale land parcels and using the proceeds to pay down debt or reinvest in our business ; · maintaining a strong and flexible balance sheet by capitalizing our company with a moderate ratio of debt to equity and by financing our investment activities with various forms and sources of capital ; and · managing our overall enterprise to create an efficient organization with a strong corporate culture and transparent disclosure for all stakeholders . story_separator_special_tag also during 2011 , we repaid the following debt : · three wholly owned property mortgages secured by our lakeshore marketplace , beacon square , and gaines marketplace shopping centers and three land loans totaling $ 38.6 million ; · one joint venture mortgage for which our proportionate share was $ 3.7 million secured by our martin square shopping center ; and · a $ 30 million secured bank bridge loan and a $ 30 million balance on an amortizing secured bank term loan . in addition , we conveyed title to our madison center shopping center in madison heights , michigan to the lender in exchange for release from our $ 9.1 million non-recourse mortgage obligation . as of result of our financing activities , we ended the year with $ 29.5 million outstanding under our bank line of credit , a decrease of $ 90.3 million from the $ 119.8 million outstanding at the end of 2010. we believe our lower debt levels , extended debt maturities , and enhanced liquidity available through our bank line resulted in a stronger financial position during 2011. critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . management has discussed the development , selection and disclosure of these estimates with the audit committee of our board . actual results could differ from these estimates under different assumptions or conditions . critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult , complex or subjective judgments . for example , significant estimates and assumptions have been made with respect to useful lives of assets , capitalization of development and leasing costs , recoverable amounts of receivables and initial valuations and related amortization periods of deferred costs and intangibles . the following discussion relates to what we believe to be our most critical accounting policies that require our most subjective or complex judgment . 25 revenue recognition our shopping center space is generally leased to retail tenants under leases that are classified as operating leases . we recognize minimum rents using the straight-line method over the terms of the leases commencing when the tenant takes possession of the space and when construction of landlord funded improvements is substantially complete . certain of the leases also provide for contingent percentage rental income which is recorded on an accrual basis once the specified target that triggers this type of income is achieved . the leases also provide for recoveries from tenants of common area maintenance ( “ cam ” ) , real estate taxes and other operating expenses . the majority of our recoveries are estimated and recognized as revenue in the period the recoverable costs are incurred or accrued . revenues from management , leasing , and other fees are recognized in the period in which the services have been provided and the earnings process is complete . lease termination income is recognized when a lease termination agreement is executed by the parties and the tenant vacates the space . when a lease is terminated early but the tenant continues to control the space under a modified lease agreement , the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement . current accounts receivable from tenants primarily relate to contractual minimum rent , percentage rent , real estate taxes , and cam or other operating expense reimbursements . accounts receivable and accrued rent we provide for bad debt expense based upon the allowance method of accounting . we continuously monitor the collectability of our accounts receivable from specific tenants , analyze historical bad debts , customer credit worthiness , current economic trends and changes in tenant payment terms when evaluating the adequacy of the allowance for bad debts . allowances are taken for those balances that we have reason to believe will be uncollectible . when tenants are in bankruptcy , we make estimates of the expected recovery of pre-petition and post-petition claims . the period to resolve these claims can exceed one year . management believes the allowance for doubtful accounts is adequate to absorb currently estimated bad debts . however , if we experience bad debts in excess of the allowance we have established , our operating income would be reduced . at december 31 , 2011 and 2010 , our accounts receivable were $ 9.6 million and $ 10.5 million , respectively , net of allowances for doubtful accounts of $ 3.5 million and $ 3.9 million , respectively . in addition , many of our leases contain non-contingent rent escalations for which we recognize income on a straight-line basis over the non-cancelable lease term . this method results in rental income in the early years of a lease being higher than actual cash received , creating a straight-line rent receivable asset which is included in the “ other assets ” line item in our consolidated balance sheets . we review our unbilled straight-line rent receivable balance to determine the future collectability of revenue that will not be billed to or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . our evaluation is based on our assessment of tenant credit risk changes indicating that expected future straight-line rent may not be realized .
| results of operations comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 the following summarizes certain line items from our audited statements of operations which we believe are important in understanding our operations and or those items that have significantly changed during the year ended december 31 , 2011 as compared to 2010 : replace_table_token_12_th nm - not meaningful total revenue increased $ 8.1 million , or 7.2 % , to $ 121.3 million for the year ended december 31 , 2011 from $ 113.2 million in 2010. the increase is primarily due to the following : · $ 7.0 million increase in minimum rent and tenant recovery income primarily related to our acquisitions in 2011 and 2010 ; and · $ 1.1 million increase in lease termination income . 29 recoverable operating expenses increased by $ 2.1 million , or 6.8 % , to $ 32.7 million in 2011 from $ 30.6 million in 2010 , primarily due to our acquisitions in 2011 and 2010. other non-recoverable operating expenses increased $ 0.5 million , or 17.3 % , to $ 3.7 million in 2011 from $ 3.2 million . the increase was primarily due to our acquisitions in 2010 and 2011. depreciation and amortization expense increased by $ 5.7 million , or 18.5 % , to $ 36.3 million in 2011 from $ 30.6 million in 2010. of that increase $ 4.9 million was related to our acquisitions in 2011 and 2010 and approximately $ 0.8 million was associated with accelerated depreciation for building demolition in 2011 at two properties .
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such statements , which include statements concerning future revenue sources and concentration , gross profit margins , selling and marketing expenses , research and development expenses , general and administrative expenses , capital resources , additional financings or borrowings and additional losses , are subject to risks and uncertainties , including , but not limited to , those discussed below and elsewhere in this form 10-k , particularly in item 1a `` risk factors , '' that could cause actual results to differ materially from those projected . the forward-looking statements set forth in this form 10-k are as of the close of business on march 6 , 2019 , and we undertake no duty and do not intend to update this information , except as required by applicable securities laws . overview we sell advanced veterinary diagnostic and specialty products . our offerings include point of care laboratory instruments and consumables ; point of care digital imaging diagnostic products ; vaccines ; local and cloud-based data services ; allergy testing and immunotherapy ; and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products . our core focus is on supporting veterinarians in the canine and feline healthcare space . our business is composed of two reportable segments , cca and ovp . the cca segment includes , primarily for canine and feline use , point of care laboratory instruments and consumables ; digital imaging diagnostic instruments , software and services ; local and cloud-based data services ; allergy testing and immunotherapy ; and single use offerings such as in-clinic diagnostic tests and heartworm preventive products . the ovp segment includes private label vaccine and pharmaceutical production , primarily for cattle but also for other species including equine , porcine , avian , feline and canine . ovp products are sold by third parties under third party labels . cca represented approximately 85 % of our 2018 revenue . ovp represented approximately 15 % of our 2018 revenue . cca segment revenue from point of care laboratory including instruments , consumables and other revenue such as service represented $ 57.4 million , $ 54.9 million and $ 48.8 million of our 2018 , 2017 and 2016 revenue , respectively . revenue in this area primarily involves placing an instrument under contract in the field and generating future revenue from testing consumables , such as cartridges and reagents , as that instrument is used . approximately $ 44.8 million , $ 39.2 million and $ 36.3 million of our 2018 , 2017 and 2016 revenue , respectively , resulted from the sale of such testing consumables to an installed base of instruments . approximately $ 10.8 million , $ 13.8 million and $ 10.4 million of our 2018 , 2017 and 2016 revenue , respectively , was from instrument sales , including revenue recognized from sales-type lease treatment . included in instrument sales are sales of infusion pumps , which are sold outright through distribution . sales of infusion pumps were $ 2.7 million , $ 4.0 million , and $ 3.7 million for 2018 , 2017 , and 2016 , respectively . approximately $ 1.8 million , $ 1.9 million and $ 2.0 million of our 2018 , 2017 and 2016 revenue , respectively , was from other revenue sources , such as charges for repairs . instruments placed under subscription agreements are considered operating or sales-type ( capital ) leases , depending on the duration and other factors of the underlying agreement . a loss of , or disruption in , the supply of consumables we are selling to an installed base of instruments could substantially harm our business . all of our point of care laboratory and - 32 - other non-imaging instruments and consumables are supplied by third parties , who typically own the product rights and supply the product to us under marketing and or distribution agreements . in many cases , we have collaborated with a third party to adapt a human instrument for veterinary use . major products in this area include our instruments for chemistry , hematology , blood gas and immunodiagnostic testing and their affiliated operating consumables . point of care digital imaging hardware , software and services represented approximately $ 22.8 million , $ 21.9 million and $ 29.6 million of 2018 , 2017 and 2016 revenue , respectively . digital radiography is the largest product offering in this area , which also includes ultrasound instruments . digital radiography solutions typically consist of a combination of hardware and software placed with a customer , often combined with an ongoing service and support contract . we sell our imaging solutions both in the u.s. and internationally . our experience has been that most of the revenue is generated at the time of sale in this area , in contrast to the point of care diagnostics laboratory placements discussed above where ongoing consumable revenue is often a larger component of economic value as a given instrument is used . other cca revenue , including single use diagnostic and other tests , pharmaceuticals and biologicals , as well as research and development , licensing and royalty revenue , represented $ 28.7 million , $ 28.4 million and $ 29.0 million of our 2018 , 2017 and 2016 revenue , respectively . since items in this area are often single use by their nature , our typical aim is to build customer satisfaction and loyalty for each product , generate repeat annual sales from existing customers and expand our customer base in the future . products in this area are both supplied by third parties and provided by us . major products and services in this area include heartworm diagnostic tests and preventives , and allergy test kits , allergy immunotherapy and testing . story_separator_special_tag these types of agreements include an embedded lease , designated as either an operating-type lease ( `` otl '' ) or a sales-type lease ( `` stl '' ) , dependent upon individual contract terms , most often relating to the term of the contract relative to - 34 - the life of the underlying instruments being placed under that contract . the determination of the amounts allocated to each component of the contract are based upon fair value . changes in fair value in any period of the underlying components will impact that amount of revenue recognized . allowance for doubtful accounts we maintain an allowance for doubtful accounts receivable based on client-specific allowances , as well as a general allowance . specific allowances are maintained for clients which are determined to have a high degree of collectability risk based on such factors , among others , as : ( i ) the aging of the accounts receivable balance ; ( ii ) the client 's past payment history ; and ( iii ) a deterioration in the client 's financial condition , evidenced by weak financial condition and or continued poor operating results , reduced credit ratings and or a bankruptcy filing . in addition to the specific allowance , the company maintains a general allowance for credit risk in its accounts receivable which is not covered by a specific allowance . the general allowance is established based on such factors , among others , as : ( i ) the total balance of the outstanding accounts receivable , including considerations of the aging categories of those accounts receivable ; ( ii ) past history of uncollectable accounts receivable write-offs ; and ( iii ) the overall creditworthiness of the client base . a considerable amount of judgment is required in assessing the realizability of accounts receivable . should any of the factors considered in determining the adequacy of the overall allowance change , an adjustment to the provision for doubtful accounts receivable may be necessary . inventory valuation we write down the carrying value of inventory for estimated obsolescence by an amount equal to the difference between the cost of inventory and the estimated market value when warranted based on assumptions of future demand , market conditions , remaining shelf life or product functionality . if actual market conditions or results of estimated functionality are less favorable than those we estimated , additional inventory write-downs may be required , which would have a negative effect on results of operations . the inventory allowance was $ 1.6 million as of december 31 , 2018 and 2017 . deferred tax assets – valuation allowance we evaluate our ability to realize the tax benefits associated with a deferred tax asset ( “ dta ” ) by analyzing our forecasted taxable income using both historical and projected future operating results , the reversal of existing temporary differences , taxable income in prior carry back years ( if permitted ) and the availability of tax planning strategies . a valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset . as of december 31 , 2018 and 2017 , we had valuation allowances of approximately $ 10.2 million and $ 14.5 million , respectively . the change in the valuation allowance resulted from the expiration of deferred tax assets which were offset with a valuation allowance at december 31 , 2017. see note 4 - income taxes in the accompanying notes to the consolidated financial statements for additional information regarding our income taxes . valuation of goodwill and intangibles we assess goodwill for impairment annually , at the reporting unit level , in the fourth quarter and whenever events or circumstances indicate impairment may exist . in evaluating goodwill for impairment , we have the option to first assess the qualitative factors to determine whether it is more-likely-than-not that the estimated fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the comparison of the estimated fair value of the reporting unit to the carrying value . the more-likely-than-not threshold is defined as having a likelihood of more than 50 percent . if , after assessing the totality of events or circumstances , we determine that is it more-likely-than-not that the - 35 - estimated fair value of a reporting is less than its carrying amount , we would then estimate the fair value of the reporting unit and compare it to the carrying value . if the carrying value exceeds the estimated fair value we would recognize an impairment for the difference ; otherwise , no further impairment test would be required . in contrast , we can opt to bypass the qualitative assessment for any reporting unit in any period and proceed directly to quantitative analysis . doing so does not preclude us from performing the qualitative assessment in any subsequent period . we performed qualitative assessments in the fourth quarters of 2018 , 2017 and 2016 and determined that no indications of impairment existed . we assess the realizability of intangible assets other than goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable . if an impairment review is triggered , we evaluate the carrying value of intangible assets based on estimated undiscounted future cash flows over the remaining useful life of the primary asset of the asset group and compare that value to the carrying value of the asset group . the cash flows that are used contain our best estimates , using appropriate and customary assumptions and projections at the time . if the net carrying value of an intangible asset exceeds the related estimated undiscounted future cash flows , an impairment to adjust the intangible asset to its fair value would be reported as a non-cash charge to earnings .
| results of operations our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward . this discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , in item 8 of this annual report on form 10-k. the following table sets forth , for the periods indicated , certain data derived from our consolidated statements of income ( in thousands ) : replace_table_token_3_th - 37 - the following tables set forth , for the periods indicated , segment data derived from our consolidated statements of income ( in thousands ) : cca segment replace_table_token_4_th ovp segment replace_table_token_5_th revenue total revenue decreased 1 % to $ 127.4 million in 2018 compared to $ 129.3 million in 2017 . total revenue decreased 1 % to $ 129.3 million in 2017 compared to $ 130.1 million in 2016 . cca segment revenue increased 4 % to $ 108.9 million in 2018 compared to $ 105.2 million in 2017 . the increase was driven primarily by a 14 % increase in revenue from point of care laboratory consumables , as well as a 4 % increase in revenue from point of care imaging products due to increased sales of digital radiography systems . this was partially offset by a 22 % decrease in revenue from point of care laboratory instruments due to lower sales-type lease instrument revenue recognition of $ 1.5 million and lower infusion pump sales of $ 1.3 million . cca segment revenue decreased 2 % to $ 105.2 million in 2017 compared to $ 107.4 million in 2016 . the decrease was driven primarily by a 26 % decrease in revenue from sales of our imaging products , partially offset by a 12 % increase in revenue from point of care laboratory subscriptions , equipment and consumables .
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the termination agreement provides for the following : ( i ) the termination of the consulting agreement ; ( ii ) the waiver of any notice provisions set forth in the consulting agreement ; ( iii ) the release of any obligations owed to or from either dr. huh or the company under the consulting agreement ; and ( iv ) the waiver of any amounts due and owing to dr. huh under the consulting agreement . ceo employment agreement on june 18 , 2012 , antria acquisition corp. entered into an agreement with nevan elam to serve as chief executive officer of antria acquisition corp. under the terms of this agreement , mr. elam will be entitled to receive an annual base of $ 230,000 until the executive commits full time to the business at which time his salary will increase to $ 350,000 . mr. elam is a significant shareholder managing director and member of the board of directors of konus . pursuant to a mutual understanding between mr. elam , konus and antriabio , the amounts owed to mr. elam pursuant to the terms of his employment agreement will be paid directly to konus . on march 26 , 2014 , we entered into an amended and restated employment agreement with mr. elam , amending his employment agreement . the amended employment agreement provides , among other things , for : ( i ) an increase in mr. elam 's base salary from $ 230,000 to $ 390,000 ; ( ii ) a termination of the bonus due to mr. elam under the employment agreement upon the company raising at least $ 5,000,000 in an equity financing ; ( iii ) a termination of the car allowance granted to mr. elam under the employment agreement ; and ( iv ) the termination of the pension benefit at the age of 65 equal to one-month 's salary for each year of employment . beginning in april 2014 , mr. elam was paid directly by the company . konus note on november 14 , 2013 , we issued into a 14 % promissory note in the principal amount of $ 250,000 ( konus note ) to konus in order to evidence funds konus loaned to the company . pursuant to the terms of the konus note , the principal balance of the note is due at the earlier of , ( i ) november 1 , 2014 or ( ii ) ten days after the closing of an equity financing that raises at least three million dollars . as we completed an initial close of the unit financing for aggregate proceeds of approximately $ 5 million on march 31 , 2014 , we paid the outstanding principal and interest balance on the konus note on april 1 , 2014. we also issued to konus a warrant to purchase 39,117 shares of our common stock at an exercise price of $ 7.50 per share of common stock for a period of five ( 5 ) years from the issuance of the warrant . 41 konus repayment agreement on march 26 , 2014 , we entered into a repayment agreement with konus . pursuant to the terms of the repayment agreement , we agreed to repay to konus $ 1,182,644 , representing the total amounts due and owing to konus for services rendered by konus as of january 31 , 2014 and its consultants to the company as set forth in the konus agreements ( as defined in the repayment agreement ) through , ( i ) the issuance of $ 275,000 worth of shares of our common stock ( “ payment shares ” ) with such payment shares to be valued at $ 1.56 per share of common stock and ( ii ) a cash payment or series of cash payments totaling $ 907,644 to be paid at such time as mutually agreed to by konus and the company . review , approval or ratification of transactions with related persons we rely on our board to review related party transactions on an ongoing basis to prevent conflicts of interest . our board reviews a transaction in light of the affiliations of the director , officer or employee and the affiliations of such person 's immediate family . transactions are presented to our board for approval before they are entered into or , if this is not possible , story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations of contain forward-looking statements which involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under “ risk factors ” and elsewhere in this annual report . we assume no obligation to update forward-looking statements or the risk factors . you should read the following discussion in conjunction with antria 's financial statements and related notes . 23 executive summary antriabio , is a biopharmaceutical company that develops novel , sustained release injectable therapies . we apply our proprietary formulation and manufacturing capabilities to known , well-characterized molecules to create differentiated , patent-protected products that have the potential to significantly improve existing standards of care . our lead product candidate , ab101 is a microsphere formulation of human recombinant insulin and a biodegradable polymer that is injected subcutaneously once per week for patients with type 1 and type 2 diabetes mellitus . we believe that ab101 has the potential to provide a near peak-less , slow and uniform release of basal insulin . the current standard of care in the $ 11 billion basal insulin market is daily or twice a day injections . story_separator_special_tag we are currently engaged in ongoing preclinical studies of ab301 . while we will be unable to commence our clinical studies for ab101 in calendar year 2015 , we believe we have made and continue to make significant progress towards advancing the program . we remain encouraged by the potential for ab101 , particularly following our interactions with the fda and the completion of toxicology studies in two species to support its ind . having expanded our capabilities through the construction of a cgmp manufacturing suite and announcing an additional pipeline candidate , we remain committed to advancing ab101 into the clinic in 2016. to that end , as of june 30 , 2015 , we had $ 5.7 million in cash to fund our operations . while we still have capital to fund our current activities , we do not have sufficient capital to continue our operations in calendar year 2016 , including funding the first clinical study for ab101 . we anticipate requiring approximately $ 15 million to fund all of our corporate objectives through calendar year 2016 , including making cgmp batches of ab101 material , finalizing and filing our ind with the fda and paying for the first clinical study , which we plan to conduct at a cro in southern california . the additional funding will also allow us to continue our preclinical efforts for ab301 , including preparations to file an ind for the candidate . as a result , one of our primary goals is to raise additional capital as soon as practicable on favorable terms . significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to share-based payments and warrants , fair value of derivative instruments , income tax valuation allowances and contingencies . management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstance , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . 25 patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . the $ 68,000 value of the patents acquired in connection with the asset acquisition from pr pharmaceuticals , inc. is being amortized over the remaining patent lives of approximately eleven years . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates , the scientific research necessary to produce commercially viable applications of our proprietary drugs , early stage clinical testing of product candidates , and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant date fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services is recorded at fair value of the common stock at the date which we became obligated to issue the shares . the value of the shares is expensed over the requisite service period . derivatives we account for our liability warrants by recording the fair value of the warrant derivative liability . the fair value of the warrants is calculated using either the black-scholes pricing model or the lattice model . we recorded the derivative expense at the inception of each instrument reflecting the difference between the fair value and the cash received . changes in the fair value in subsequent periods were recorded to derivative income or expense for the period . income taxes we use the asset and liability method of accounting for income taxes . under this method , we recognize deferred assets and liabilities based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years . we establish a valuation allowance for all deferred tax assets for which there is uncertainty regarding realization . story_separator_special_tag `` > the company received net proceeds of approximately $ 10.1 million from the equity transaction . while we do have cash on hand , we anticipate that we will need an additional $ 15 - $ 20 million to cover operating expenses , clinical trials of ab101 and continuing research and development of our product pipeline through the calendar year end 2016. we are currently evaluating raising additional capital to fund our current and future operations . going concern the continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operations in our
| results of operations the company recorded net losses of $ 11,362,364 and $ 9,730,454 for the years ended june 30 , 2015 and 2014 , respectively . revenues - we are a preclinical stage company and have not yet generated any revenues . expenses – research and development costs include salaries , benefits and other staff-related costs ; consultants and outside costs ; material manufacturing costs ; and facilities and other costs . research and development costs for the years ended june 30 , 2015 and 2014 were $ 4,701,209 and $ 34,317 , respectively . the increase is due to the company starting significant research and development activities during 2015 as the lab facility and significant staff were not established until 2015 . 26 general and administrative costs as of june 30 , 2015 and 2014 were $ 5,996,673 and $ 5,141,716 , respectively . the increase is mainly due to an increase in payroll expenses and stock based compensation expenses in 2015 compared to 2014 as the company has hired additional staff during the current year . interest expense for the years ended june 30 , 2015 and 2014 , was $ 6,729 and $ 4,230,112 , respectively , which is interest on debt issued and the debt discount related to the beneficial conversion features recorded on the convertible debt . the main decrease in interest expense is related to the beneficial conversion feature of $ 2,922,938 that was recorded and amortized into interest expense during the year ended june 30 , 2014 when the convertible debt was converted into common stock .
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the company has elected to include interest and penalties as a component of tax expense story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the section of this report entitled “ selected financial data ” and our financial statements and related notes included elsewhere in this report . this discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section of this report entitled “ risk factors . ” overview we are a clinical-stage biopharmaceutical company focused on the discovery , development and commercialization of innovative , minimally-systemic , small molecule therapeutics that work exclusively in the gastrointestinal , or gi , tract to treat cardio-renal , gi and metabolic diseases . we have developed a proprietary drug discovery and design platform enabling us , in a rapid and cost-efficient manner , to discover and design novel drug candidates . utilizing our platform , we discovered and designed our lead product candidate , tenapanor , which in clinical studies has demonstrated the ability to improve the symptoms of constipation-predominant irritable bowel syndrome , or ibs-c , and to reduce the absorption of both dietary sodium and phosphorus , which are key factors in the progression of kidney disease . in october 2012 , we entered into a collaboration partnership with astrazeneca ab , or astrazeneca , for the worldwide development and commercialization of tenapanor . astrazeneca is responsible for all development and commercialization costs for tenapanor and we have retained an option to co-promote in the united states . together with astrazeneca , we have completed a phase 2b clinical trial evaluating tenapanor in patients with ibs-c. results from the study demonstrated statistically significant and clinically meaningful improvements for ibs-c patients compared to patients receiving placebo , and at the 50 mg dose , the study met its primary endpoint . we , and astrazeneca , have also completed a phase 2b clinical trial evaluating tenapanor in treating hyperphosphatemic patients with chronic kidney disease on dialysis , or ckd-5d , and the study met its primary endpoint of lowering serum phosphate . in this study , the rate of diarrhea and the discontinuation rate due to diarrhea at the highest doses were higher than expected based on previous clinical trials . higher discontinuations rates due to diarrhea were observed primarily in the 30mg once daily and 30mg twice daily dose groups . we plan to announce results of a phase 2a trial in patients with late-stage chronic kidney disease during the second quarter of 2015. through our participation with astrazeneca on a development collaboration committee , we are involved in the management and oversight of the development of tenapanor and participation will continue until all of phase 2 clinical trials with tenapanor have been completed . in addition , we are directly responsible for the conduct of certain specified clinical trials being conducted with tenapanor . astrazeneca reimburses us for our internal and external costs related to those development efforts , and any other development efforts that may be assigned to us by the development collaboration committee . under the terms of the agreement with astrazeneca , we received a $ 35.0 million upfront payment and we are eligible to receive up to $ 237.5 million in development milestones , of which we have received $ 40.0 million through december 31 , 2014. the $ 40.0 million in development milestones consists of a payment of $ 15.0 million that we received in december 2013 and a payment of $ 25.0 million that we received in may 2014 as a result of the dosing of the first patient in the phase 2b esrd clinical trial in hyperphosphatemia in april 2014. in addition to the $ 237.5 million in total development milestones , we are also eligible to receive up to $ 597.5 million in sales and launch milestones . through december 31 , 2014 , we also received $ 34.2 million in reimbursement for our development efforts provided under the agreement . we are also eligible to receive incremental tiered royalties based on aggregate annual net sales of each licensed product starting in the high single digits and increasing to high teen percentages as annual net sales increase , subject to an increase related to our co-fund election , if we decide to make such an election . 71 we have identified the deliverables within the arrangement as a license to the technology , the initial supply of the compound of the licensed product for use in development , and ongoing development activities through completion of all phase 2 clinical trials to be conducted with tenapanor , which are accounted for as a single unit of accounting . we have concluded that the license is not a separate unit of accounting . it does not have stand-alone value to astrazeneca , separable from the development services to be performed pursuant to the agreement , as astrazeneca is unable to use the license for its intended purpose without our performance of the development services , which included the initial supply of the compound of the licensed product . we recognize revenue from the $ 35.0 million up-front payment on a straight-line basis over the period from the effective date of the agreement through the completion of the phase 2b ckd trials to be conducted with tenapanor , which we currently estimate to be december 2017. during the third quarter of 2014 , we extended the estimated period of performance from december 2016 to december 2017 due to the extension of the estimated completion date of the phase 2 ckd clinical trials . story_separator_special_tag million in research and development expenses related to tenapanor , all of which are reimbursed by astrazeneca under the license agreement . the reimbursements are recognized in collaborative development revenue in the statement of operations and comprehensive loss . the following table summarizes our research and development expenses during the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_8_th we expect our unpartnered research and development expenses will increase in the future as we progress our internal product candidates , advance our discovery research projects into the preclinical stage and continue our early stage research . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . we or our collaboration partners may never succeed in achieving marketing approval for any of our product candidates . the probability of success of each of the product candidates may be affected by numerous factors , including preclinical data , clinical data , competition , manufacturing capability and commercial viability . most of our product development programs are at an early stage ; therefore , the successful development of our product candidates is highly uncertain and may not result in approved products . completion dates and completion costs can vary significantly for each product candidate and are difficult to predict . given the uncertainty associated with clinical trial enrollment and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future clinical trials of our product candidates or if and to what extent we will generate revenues from the commercialization and sale of any of our product candidates . we anticipate that we and our collaboration partners will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate , as well as an ongoing assessment as to each product candidate 's commercial potential . we will need to raise additional capital or may seek additional collaboration partnerships in the future in order to complete the development and commercialization of our product candidates . 73 general and administrative general and administrative expenses include personnel costs , travel expenses and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs include salaries , bonus , benefits and stock-based compensation . we have incurred , and expect to continue to incur , additional expenses as a result of being a public company following the completion of our ipo in june 2014 , including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the sec , as well as increases in expenses for additional insurance , investor relations activities and other administration and professional services . change in fair value of convertible preferred stock warrant liability change in fair value of convertible preferred stock warrant liability was the fair value remeasurement of our liability related to our convertible preferred stock warrants . we recorded adjustments to the estimated fair value of the convertible preferred stock warrants until they were net exercised in connection with our ipo . at that time , the convertible preferred stock warrant liability was reclassified to additional paid-in capital and we no longer record any related periodic fair value adjustments . provision for income taxes we did not record a provision for income taxes for the year ended december 31 , 2012. our deferred tax assets continue to be fully offset by a valuation allowance . provision for income taxes for the years ended december 31 , 2014 and 2013 consist of california state income taxes as we are required to pay alternative minimum tax for the upfront and milestone payments received from astrazeneca . critical accounting polices and estimates our 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 united states generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenue generated and expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . revenue recognition research activities revenue from research activities made under collaboration partnership agreements are recognized as the services are provided and when there is persuasive evidence that an arrangement exists , delivery has occurred , the price is fixed or determinable , and collectability is reasonably assured . revenue generated from research and license agreements typically includes up-front signing or license fees , cost reimbursements , research services , minimum sublicense fees , milestone payments , and royalties on future licensees ' product sales . multiple-element arrangements for revenue agreements with multiple-element arrangements , such as license and development agreements , we allocate revenue to each non-contingent unit of accounting based on the relative selling price of each unit . when applying the relative selling price method , we determine the selling price for each deliverable using vendor-specific objective evidence or third-party evidence . if neither exists , we use the best estimate of selling price for that deliverable . revenue allocated is then recognized when the four basic revenue recognition criteria are met for each unit .
| results of operations comparison of the years ended december 31 , 2014 and 2013 revenue replace_table_token_9_th licensing revenue for the year ended december 31 , 2014 was $ 18.4 million , an increase of $ 10.3 million , or 128 % , compared to $ 8.1 million for the year ended december 31 , 2013. the increase was primarily due to the amortization of deferred revenue from the $ 15.0 million development milestone payment we received in december 2013 related to the amendment to the astrazeneca agreement and the $ 25.0 million development milestone payment we received in may 2014 related to the dosing of the first patient in the phase 2b esrd clinical trial in hyperphosphatemia in april 2014 , which are both being recognized ratably over our expected period of performance under the agreement . the estimated period of performance is based on the completion of all of the phase 2 clinical trials for tenapanor , which we currently estimate will be december 2017. this estimated period was extended during the third quarter of 2014 from december 2016 to december 2017 due to the extension of the estimated completion date of the remaining phase 2 clinical trials . the expected period of performance is reviewed quarterly and adjusted , as needed , to reflect our current assumptions regarding the timing of clinical studies . the remaining increase was due to the $ 1.25 million we recognized in may 2014 pursuant to the option and license agreement with sanofi upon the completion of our performance obligations . collaborative development revenue consists of our development expenses that are reimbursable to us by astrazeneca as part of our license agreement .
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direct financing leases — we periodically assess whether there are any indicators that the value of our net investments in direct financing leases may be impaired . when determining a possible impairment , we take into consideration the collectability story_separator_special_tag of operations . management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period . this item also provides our perspective on our financial position and liquidity , as well as certain other factors that may affect our future results . the discussion also breaks down the financial results of our business by segment to provide a better understanding of how these segments and their results affect our financial condition and results of operations . the following discussion should be read in conjunction with our consolidated financial statements in item 8 of this report and the matters described under item 1a . risk factors . please see our annual report on form 10-k for the year ended december 31 , 2018 for discussion of our financial condition and results of operations for the year ended december 31 , 2017. business overview we are a diversified net lease reit with a portfolio of operationally-critical , commercial real estate that includes 1,214 net lease properties covering approximately 140.0 million square feet and 21 operating properties as of december 31 , 2019 . we invest in high-quality single tenant industrial , warehouse , office , retail , and self-storage properties subject to long-term net leases with built-in rent escalators . our portfolio is located primarily in the united states and northern and western europe , and we believe it is well-diversified by tenant , property type , geographic location , and tenant industry . we also earn fees and other income by managing the portfolios of the managed programs through our investment management business . we no longer raise capital for new or existing funds , but currently expect to continue managing our existing managed programs through the end of their respective life cycles ( note 1 ) . significant developments cwi 1 and cwi 2 proposed merger on october 22 , 2019 , cwi 1 and cwi 2 announced that they had entered into a definitive merger agreement under which the two companies intend to merge in an all-stock transaction , with cwi 2 as the surviving entity . on january 13 , 2020 , the joint proxy statement/prospectus on form s-4 previously filed with the sec by cwi 1 and cwi 2 was declared effective . each of cwi 1 and cwi 2 has scheduled a special meeting of stockholders for march 26 , 2020 ; if the proposed transaction is approved , the merger is expected to close shortly thereafter . in connection with the cwi 1 and cwi 2 proposed merger , we have entered into an internalization agreement and transition services agreement . immediately following the closing of the cwi 1 and cwi 2 proposed merger : ( i ) the advisory agreements with each of cwi 1 and cwi 2 will terminate ; ( ii ) the operating partnerships of each of cwi 1 and cwi 2 will redeem the special general partnership interests that we currently hold , for which we will receive approximately $ 97 million in consideration , comprised of $ 65 million in shares of cwi 2 preferred stock and 2,840,549 shares in cwi 2 common stock valued at approximately $ 32 million ; ( iii ) cwi 2 will internalize the management services currently provided by us ; and ( iv ) we will provide certain transition services at cost to cwi 2 for periods generally up to 12 months from closing of the proposed merger . please see our current report on form 8-k dated october 22 , 2019 for additional information . amended credit facility on february 20 , 2020 , we amended and restated our senior unsecured credit facility . we increased the capacity of our unsecured line of credit under our amended credit facility to $ 2.1 billion , which is comprised of a $ 1.8 billion revolving line of credit , a £150.0 million term loan , and a $ 105.0 million delayed draw term loan , all maturing in five years . the delayed draw term loan may be drawn within one year and allows for borrowings in u.s. dollars , euros , or british pounds sterling . the aggregate principal amount ( of revolving and term loans ) available under the amended credit facility may be increased up to an amount not to exceed the u.s. dollar equivalent of $ 2.75 billion , subject to the conditions to increase provided in the related credit agreement . we will incur interest at libor , or a libor equivalent , plus 0.85 % on the revolving line of credit , and libor , or a libor equivalent , plus 0.95 % on the term loan and delayed draw term loan ( note 20 ) . w. p. carey 2019 10-k – 26 financial highlights during the year ended december 31 , 2019 , we completed the following ( as further described in the consolidated financial statements ) : real estate investments we acquired 23 investments totaling $ 737.5 million ( note 5 ) we completed seven construction projects at a cost totaling $ 122.5 million . construction projects include build-to-suit and expansion projects ( note 5 ) . we committed to purchase a warehouse and distribution facility in knoxville , tennessee , for approximately $ 68.0 million upon completion of construction of the property , which is expected to take place during the second quarter of 2020 ( note 5 ) . we committed to purchase two warehouse facilities in hillerød and hammelev , denmark , for approximately $ 19.9 million ( based on the exchange rate of the danish krone at december 31 , 2019 ) upon completion of construction of the properties . story_separator_special_tag w. p. carey 2019 10-k – 28 consolidated results ( in thousands , except shares ) replace_table_token_2_th ( a ) we consider adjusted funds from operations ( “ affo ” ) , a supplemental measure that is not defined by gaap ( a “ non-gaap measure ” ) , to be an important measure in the evaluation of our operating performance . see supplemental financial measures below for our definition of this non-gaap measure and a reconciliation to its most directly comparable gaap measure . ( b ) amounts for the years ended december 31 , 2019 and 2018 reflect the dilutive impact of the 53,849,087 shares of our common stock issued to stockholders of cpa:17 – global in connection with the cpa:17 merger on october 31 , 2018 ( note 3 ) , as well as the dilutive impact of the 10,901,697 shares of our common stock issued under our atm programs since january 1 , 2018 ( note 14 ) . revenues and net income attributable to w. p. carey 2019 vs. 2018 — total revenues increased in 2019 as compared to 2018 , due to increases within our real estate segment , partially offset by decreases within our investment management segment . real estate revenue increased due to an increase in lease revenues and operating property revenues , primarily from the properties we acquired in the cpa:17 merger on october 31 , 2018 ( note 3 ) and other property acquisition activity , partially offset by the impact of property dispositions . we also received proceeds from a bankruptcy claim on a prior tenant during 2019 ( note 5 ) . investment management revenue decreased primarily due to the cessation of asset management revenue earned from cpa:17 – global after the cpa:17 merger on october 31 , 2018 ( note 3 ) , as well as lower structuring and other advisory revenue earned from the managed programs . net income attributable to w. p. carey decreased in 2019 as compared to 2018 , due to decreases within both our investment management and real estate segments . net income from investment management attributable to w. p. carey decreased primarily due to the cessation of revenues and distributions previously earned from cpa:17 – global ( note 3 ) and a gain on change in control of interests recognized during 2018 in connection with the cpa:17 merger ( note 3 ) , partially offset by tax benefits recognized during 2019. net income from real estate attributable to w. p. carey decreased primarily due to a lower gain on sale of real estate recognized during 2019 as compared to 2018 ( note 17 ) , as well as higher impairment charges ( note 9 ) and loss on extinguishment of debt ( note 11 ) . we also recognized a loss on change in control of interests during 2019 in w. p. carey 2019 10-k – 29 connection with the cpa:17 merger , as compared to a gain on change in control of interests during 2018 ( note 3 ) . these decreases were partially offset by the impact of real estate acquisitions and properties acquired in the cpa:17 merger ( note 3 ) , which we owned for a full year in 2019 as compared to two months in 2018. the increase in revenues from such properties was partially offset by corresponding increases in depreciation and amortization , interest expense , and property expenses . we also recognized significant merger expenses in 2018 related to the cpa:17 merger ( note 3 ) and unrealized gains on our investment in shares of a cold storage operator during 2019 ( note 9 ) , and received proceeds from a bankruptcy claim on a prior tenant during 2019 ( note 5 ) . net cash provided by operating activities 2019 vs. 2018 — net cash provided by operating activities increased in 2019 as compared to 2018 , primarily due to an increase in cash flow generated from properties acquired during 2018 and 2019 , including properties acquired in the cpa:17 merger , as well as proceeds from a bankruptcy claim on a prior tenant received during 2019 ( note 5 ) , partially offset by merger expenses recognized in 2018 related to the cpa:17 merger ( note 3 ) and a decrease in cash flow as a result of property dispositions during 2018 and 2019 , as well as an increase in interest expense , primarily due to the assumption of non-recourse mortgage loans in the cpa:17 merger and the issuance of senior unsecured notes in march 2018 , october 2018 , june 2019 , and september 2019. affo 2019 vs. 2018 — affo increased in 2019 as compared to 2018 , primarily due to higher real estate revenues , partially offset by higher interest expense and lower investment management revenues and cash distributions as a result of the cpa:17 merger . portfolio overview our portfolio is comprised of operationally-critical , commercial real estate assets net leased to tenants located primarily in the united states and northern and western europe . we invest in high-quality single tenant industrial , warehouse , office , retail , and self-storage ( net lease ) properties subject to long-term leases with built-in rent escalators . portfolio information is provided on a pro rata basis , unless otherwise noted below , to better illustrate the economic impact of our various net-leased jointly owned investments . see terms and definitions below for a description of pro rata amounts . portfolio summary replace_table_token_3_th w. p. carey 2019 10-k – 30 replace_table_token_4_th ( a ) we acquired 273 net-leased properties ( in which we did not already have an ownership interest ) in the cpa:17 merger in october 2018 ( note 3 ) .
| results of operations we operate in two reportable segments : real estate and investment management . we evaluate our results of operations with a primary focus on increasing and enhancing the value , quality , and number of properties in our real estate segment . we focus our efforts on accretive investing and improving portfolio quality through re-leasing efforts , including negotiation of lease renewals , or selectively selling assets in order to increase value in our real estate portfolio . through our investment management segment , we expect to continue to earn fees and other income from the management of the portfolios of the remaining managed programs until those programs reach the end of their respective life cycles . w. p. carey 2019 10-k – 36 real estate — property level contribution the following table presents the property level contribution for our consolidated net-leased and operating properties within our real estate segment , as well as a reconciliation to net income from real estate attributable to w. p. carey ( in thousands ) : replace_table_token_9_th also refer to note 18 for a table presenting the comparative results of our real estate segment . w. p. carey 2019 10-k – 37 property level contribution is a non-gaap measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our real estate segment over time . property level contribution presents our lease and operating property revenues , less property expenses , reimbursable tenant costs , and depreciation and amortization . reimbursable tenant costs ( within real estate revenues ) are now included within lease revenues in the consolidated statements of income ( note 2 ) . we believe that property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties .
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” references to the `` company , '' `` prosight , '' `` we , '' `` us , '' and `` our '' are to prosight global , inc. and its consolidated subsidiaries unless the context otherwise requires . references to “ insurance subsidiaries ” are to new york marine and general insurance company ( “ new york marine ” ) , gotham insurance company ( “ gotham ” ) and southwest marine and general insurance company ( “ southwest marine ” ) unless the context otherwise requires . overview we are an entrepreneurial specialty insurance company that since our founding in 2009 has built products , services and solutions with the goal of significantly improving the experience and value proposition for our customers . we founded prosight , with capital commitments from affiliates of each of the goldman sachs group , inc. ( “ goldman sachs ” ) and tpg global , llc ( “ tpg ” ) as a different type of insurer that leverages customized technology infrastructure , underwriting expertise and unique niche focus to develop products , services and solutions that deliver distinct value to customers in the manner they prefer . our company is led by a highly experienced and entrepreneurial team with decades of insurance leadership experience at prosight and other leading insurers . we write property and casualty insurance with a focus on underwriting specialty risks by partnering with a select number of distributors , often on an exclusive basis . we have a diverse business mix covering specialty niches within the eight customer segments in which we operate . we market and distribute our insurance product offerings in all 50 states on both an admitted and non-admitted basis . we are focused on delivering consistent underwriting profitability with low volatility of underwriting results . in november of 2011 , we formed a bermuda holding company structure and acquired several entities in the u.k. to build our own lloyd 's syndicate . our principal objective was to achieve greater capital and tax efficiency for our growing u.s. niche business . we also considered opportunities to use this as a platform to extend our niche strategy to the u.k. and europe . by 2015 , however , we determined that we would not be able to profitably achieve our objectives due to two principal factors . firstly , a significant driver of the success of our u.s. sourced business is the extensive control and oversight of our niche specialized internal and external underwriters . in contrast , in the uk , the regulatory framework required us to operate the syndicate as an independent entity , largely excluded from oversight by the u.s. management team . as a result , our group chief underwriting officer could not serve on the board of directors of the u.k. entities nor have final underwriting authority for non-u.s. sourced business . in addition , given the growing predominance of the u.s. underwritten business in the syndicate , the syndicate was required to develop an organic and independent growth strategy for u.k. sourced business . the independently underwritten u.k. business did not execute upon our niche strategy , and generated unacceptable loss ratios and acquisition costs . secondly , while we had success in writing and reinsuring profitable u.s. sourced business into our syndicate , the u.s. business had become a disproportionately high percentage of the total syndicate book , and therefore our u.s. underwriting entity was treated as an independent lloyd 's coverholder . as such , we were required to deploy redundant control and underwriting resources in the u.k. to oversee our u.s. book . this resulted in an unacceptable increase in the syndicate expense ratio . given the uneconomic loss and expense costs associated with operating in lloyd 's , in 2015 we began evaluating an exit from the lloyd 's market and the repatriation of our u.s. business . the exit timeframes were extended due to capital constraints in our u.s. underwriting entity and protracted exit negotiations . in 2017 , we entered into a two-phase sale transaction , which closed in october 2017 and march 2018. accordingly , the financial results of the u.k. produced business are presented as discontinued operations in our consolidated financial statements . the financial results within the following discussion and analysis are attributable to our continuing operations . 55 initial public offering on july 29 , 2019 , the company completed its initial public offering ( “ ipo ” ) with the sale of 7,857,145 shares of the company 's common stock , including the issuance and sale by the company of 4,285,715 shares of the company 's common stock and the sale by prosight parallel investment llc and prosight investment llc ( “ pi ” ) ( collectively , the “ gs investors ” ) and prosight tpg , l.p. , tpg ps 1 , l.p. , tpg ps 2 , l.p. , tpg ps 3 , l.p. and tpg ps 4 , l.p. ( collectively the “ tpg investors ” and together with the gs investors , the “ principal stockholders ” ) of 3,571,430 shares of the company 's common stock . shares of the company 's common stock were initially offered to the public by the underwriters in the ipo at a per-share price of $ 14.00. the company did not receive any of the proceeds from the sale of the shares of the company 's common stock sold by the principal stockholders in the ipo . following the ipo , the gs investors held approximately 40.9 % of the company 's outstanding common stock and the tpg investors held approximately 39.4 % of the company 's outstanding common stock . on august 15 , 2019 the principal stockholders completed the sale of 1,178,570 shares of the company 's common stock at a price of $ 14.00 per share less the underwriting discount pursuant to the underwriters ' exercise of their over-allotment option granted in connection with the ipo . story_separator_special_tag in general , our losses and lae are affected by : · frequency of claims associated with the particular types of insurance contracts that we write ; 58 · trends in the average size of losses incurred on a particular type of business ; · mix of business written by us ; · changes in the legal or regulatory environment related to the business we write ; · trends in legal defense costs ; · wage inflation ; and · inflation in medical costs . losses and lae are based on an actuarial analysis of the paid and estimated outstanding losses , including losses incurred during the period and changes in estimates from prior periods . losses and lae may be paid out over a number of years . underwriting , acquisition and insurance expenses underwriting , acquisition and insurance expenses include policy acquisition costs and other underwriting expenses . policy acquisition costs are principally comprised of the commissions we pay our distribution partners and ceding commissions we receive on business ceded under certain reinsurance contracts , as well as taxes we pay to the states in which we write business , generally based on premium volume . policy acquisition costs that are directly related to the successful acquisition of those policies are deferred . the amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the policy life . other underwriting expenses represent the general and administrative expenses of our insurance business including employment costs , telecommunication and technology costs , the costs of our leases , and legal and auditing fees . income tax expense substantially all of our income tax expense relates to u.s. federal income taxes . our insurance companies are generally not subject to income taxes in the states in which they operate ; however , our non-insurance subsidiaries are subject to state income taxes . the amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect . among other things , the tax cuts and jobs act ( “ tcja ” ) lowered the u.s. federal corporate tax rate from 35 % to 21 % starting january 1 , 2018. our income tax expense for periods beginning in 2018 is based on the u.s. federal corporate income tax rate of 21 % . key metrics we discuss certain key metrics , described below , which provide useful information about our business and the operational factors underlying our financial performance . net income is the amount of profit or loss remaining after deducting all incurred expenses , including income taxes , from the total earned revenues for an accounting period . underwriting income is calculated by subtracting losses and lae and underwriting , acquisition and insurance expenses from net earned premiums . adjusted operating income is net income excluding net realized investment gains and losses , expenses relating to various transactions that we consider to be unique and non-recurring in nature ( net of estimated tax impact ) , and excluding the income tax expense resulting from implementation of tcja . loss and lae ratio , expressed as a percentage , is the ratio of losses and lae , allocated and unallocated , to net earned premiums , net of the effects of reinsurance . 59 expense ratio , expressed as a percentage , is the ratio of underwriting , acquisition and insurance expenses to net earned premiums . combined ratio is the sum of the loss and lae ratio and the expense ratio . a combined ratio under 100 % indicates an underwriting profit . a combined ratio over 100 % indicates an underwriting loss . adjusted loss and lae ratio is the loss and lae ratio excluding the effects of the waqs ( as defined below ) . adjusted expense ratio is the expense ratio excluding the effects of the waqs . adjusted combined ratio is the combined ratio excluding the effects of the waqs . return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders ' equity during the period . adjusted operating return on equity is adjusted operating income expressed on an annualized basis as a percentage of average beginning and ending stockholders ' equity during the period . net retention ratio is the ratio of net written premiums to gwp . underwriting income , adjusted operating income , adjusted loss and lae ratio , adjusted expense ratio , adjusted combined ratio and adjusted operating return on equity are non-generally accepted accounting principles ( “ gaap ” ) financial measures . see “ — reconciliation of non-gaap financial measures ” for a reconciliation of net income in accordance with gaap to underwriting income and adjusted operating income . see “ — factors affecting our results of operations — the waqs ” for additional detail on the impact of the waqs on our results of operations . factors affecting our results of operations the waqs in connection with the divestment of our u.k. business , new york marine as reinsured entered into the whole account quota share reinsurance agreements ( the “ waqs ” ) with third party reinsurers to maintain reasonable underwriting leverage within new york marine and its subsidiary insurance companies during a transition period following the u.k. divestment . the effective date of the waqs was april 1 , 2017. the reinsurers ' ceding participation is an aggregate 26.0 % . a provisional ceding commission of 30.0 % to 30.5 % is received as a reduction in the amount of ceded premium . subject to limits , these ceding commissions will vary in subsequent periods based on contractual ultimate loss ratios . during 2018 and following the transition of the u.s. business back to new york marine , the waqs were terminated . previously ceded written and unearned premium , net of the ceding commission , was reversed . loss reserves on premium earned prior to the cut-off termination remain ceded loss reserves .
| investing results our net investment income increased by 23.1 % to $ 68.9 million for the year ended december 31 , 2019 from $ 56.0 million for the year ended december 31 , 2018. our average invested assets increased 15.3 % from $ 1.7 billion for the year ended december 31 , 2018 , to $ 2.0 billion for the year ended december 31 , 2019. net investment yield increased by 0.2 percentage points , to 3.4 % as of december 31 , 2019 compared to 3.2 % as of december 31 , 2018. gross investment income increased by $ 13.1 million to $ 71.2 million for the year ended december 31 , 2019 compared to $ 58.1 million for the year ended december 31 , 2018. realized investment gains ( losses ) , net increased by $ 2.3 million due to non-recurring realized gains on the sale of certain securities as part of the repositioning of the investment portfolio , calls , and corporate actions during a favorable price environment for the year ended december 31 , 2019. the following table summarizes the components of net investment income and realized investment gains ( losses ) , net for the years ended december 31 , 2019 and 2018 : replace_table_token_18_th the weighted average duration of our fixed income portfolio , including cash equivalents , was 3.4 years at december 31 , 2019 and 2.9 years at december 31 , 2018. interest and other expenses , net our interest and other expenses , net increased by $ 16.7 million to $ 28.4 million for the year ended december 31 , 2019 compared to $ 11.7 million for the year ended december 31 , 2018. included in interest and other expenses in 2019 is $ 12.1 million of interest expenses primarily related to senior debt obligations , $ 8.0 million of expenses related to the transition of our former ceo and $ 7.1 million of expenses related to the vesting of restricted stock units granted during the ipo .
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during the first quarter of 2018 , story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report . story_separator_special_tag december 31 , 2018 , 46 of our 128 aircraft and 12 of our 20 spare engines are financed under operating leases . depreciation and amortization . depreciation and amortization expense includes the depreciation of fixed assets we own and leasehold improvements . it also includes the amortization of capitalized software costs and heavy maintenance . under the deferral method , the cost of our heavy maintenance is capitalized and amortized on a straight-line or usage basis until the earlier of the next estimated heavy maintenance event or the remaining lease term . distribution . distribution expense includes all of our direct costs , including the cost of web support , our third-party call center , travel agent commissions and related gds fees and credit card transaction fees , associated with the sale of our tickets and other products and services . maintenance , materials and repairs . maintenance , materials and repairs expense includes parts , materials , repairs and fees for repairs performed by third-party vendors and in-house mechanics required to maintain our fleet . it excludes direct labor 40 cost related to our own mechanics , which is included under salaries , wages and benefits . it also excludes the amortization of heavy maintenance expenses , which we defer under the deferral method of accounting and amortize as a component of depreciation and amortization expense . special charges . special charges include lease termination charges and ratification incentive payouts related to the new collective bargaining agreements with our pilots and dispatchers . loss on disposal of assets . loss on disposal of assets includes the net losses on the disposal of our fixed assets . other operating expenses . other operating expenses include airport operations expense and fees charged by third-party vendors for ground handling services and food and liquor supply service expenses , passenger re-accommodation expense , the cost of passenger liability and aircraft hull insurance , all other insurance policies except for employee related insurance , travel and training expenses for crews and ground personnel , professional fees , personal property taxes and all other administrative and operational overhead expenses . no individual item included in this category represented more than 5 % of our total operating expenses . other ( income ) expense interest expense . interest expense in 2018 , 2017 and 2016 was primarily related to the financing of purchased aircraft . capitalized interest . the company capitalizes the interest that is attributable to the outstanding pdp balances as a percentage of the related debt on which interest is incurred . capitalized interest represents interest cost incurred during the acquisition period of a long-term asset and is the amount which theoretically could have been avoided had we not paid pdps for the related aircraft or engines . capitalization of interest ceases when the asset is ready for service . capitalized interest for 2018 , 2017 and 2016 primarily related to the interest incurred on long-term debt . interest income . for 2018 , interest income represents interest income earned on cash , cash equivalents , short-term investments and on funds required to be held in escrow in accordance with the terms of our series 2017-1 eetc . for a detailed discussion of the series 2017-1 eetc , refer to “ notes to the financial statements—13 . debt and other obligations. ” for 2017 , interest income primarily represents interest income earned on cash , cash equivalents and short-term investments . for 2016 , interest income was primarily related to interest earned on cash , cash equivalents and on funds required to be held in escrow in accordance with the terms of our series 2015-1 eetc . other expense . other expense primarily includes realized gains and losses related to foreign currency transactions . special charges , non-operating . for 2018 , special charges , non-operating represents interest related to an aircraft purchase agreement for the acquisition of 14 a319 aircraft previously operated under operating leases . the contract was deemed a lease modification which resulted in a change of classification from operating leases to capital leases , until the purchase date of the aircraft . please see `` notes to financial statements—5 . special charges '' for further discussion . we had no special charges , non-operating in 2017 and 2016. income taxes we account for income taxes using the asset and liability method . we record a valuation allowance to reduce the deferred tax assets reported if , based on the weight of the evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards . in assessing the realizability of the deferred tax assets , we consider whether it is more likely than not that some or all of the deferred tax assets will be realized . in evaluating the ability to utilize our deferred tax assets , we consider all available evidence , both positive and negative , in determining future taxable income on a jurisdiction by jurisdiction basis . trends and uncertainties affecting our business we believe our operating and business performance is driven by various factors affecting airlines and their markets , trends affecting the broader travel industry and trends affecting the specific markets and customer base that we target . the following key factors may affect our future performance . competition . the airline industry is highly competitive . the principal competitive factors in the airline industry are fare pricing , total price , flight schedules , aircraft type , passenger amenities , number of routes served from a city , customer service , safety record , reputation , code-sharing relationships , frequent flyer programs and redemption opportunities . story_separator_special_tag our pilots are represented by the air line pilots association , international , or alpa , our flight attendants are represented by the association of flight attendants , or afa-cwa , our dispatchers are represented by the professional airline flight control association , or pafca , our ramp service agents are represented by the international association of machinists and aerospace workers , or iamaw , and our passenger service agents are represented by the transport workers union , or twu . conflicts between airlines and their unions can lead to work slowdowns or stoppages . 42 in august 2015 , that collective bargaining agreement with our pilots , represented by alpa , became amendable . in june 2016 , alpa requested the services of the national mediation board ( `` nmb '' ) to facilitate negotiations for an amended agreement and we joined alpa in the request . during 2017 , we experienced operational disruption from pilot-related work action which adversely impacted our results . we obtained a temporary restraining order to enjoin further illegal labor action . in january 2018 , under the guidance of the nmb assigned mediators , the parties reached a tentative amendable agreement and in february 2018 , the pilot group voted to approve the new five-year agreement with the company . in connection with this agreement , we incurred a one-time ratification incentive of $ 80.2 million , including payroll taxes , and an $ 8.5 million adjustment related to other contractual provisions . these amounts were recorded in special charges within operating expenses in the statement of operations for the year ended december 31 , 2018. for further information , refer to “ notes to the financial statements—5 . special charges. ” in march 2016 , with the help of the nmb , we reached a tentative agreement for a five -year contract with our flight attendants . in may 2016 , the flight attendants voted to approve the new five-year contract with the company . in december 2017 , pafca filed an application with the nmb seeking to represent our dispatchers , who were previously represented by the twu . in january 2018 , the nmb determined that a representation election would be held . the voting period for the representation election took place through february 20 , 2018 and the dispatchers elected to be represented by the pafca . in october 2018 , we reached a tentative agreement for a new five-year agreement with our dispatchers , which was ratified by the pafca members in october 2018. in july 2014 , certain ramp service agents directly employed by the company voted to be represented by the iamaw . in may 2015 , we entered into a five -year interim collective bargaining agreement with the iamaw , covering material economic terms . in june 2016 , with the help of the iamaw , we reached an agreement on the remaining terms of the collective bargaining agreement , which is amendable in june 2020 . in june 2018 , we were notified by the nmb that the twu filed an application seeking a representation election for our passenger service agents . our passenger service agents voted to be represented by the twu , but the representation applies only to the fort lauderdale station where we have direct employees in the passenger service classification . we began meeting with the twu in late october 2018 to negotiate an initial collective bargaining agreement . we believe the five-year term of our cbas is valuable in providing stability to our labor costs and provide us with competitive labor costs compared to other u.s.-based low-cost carriers . if we are unable to reach agreement with any of our unionized work groups in current or future negotiations regarding the terms of their cbas , we may be subject to work interruptions or stoppages , such as the strike by our pilots in june 2010. a strike or other significant labor dispute with our unionized employees is likely to adversely affect our ability to conduct business . any agreement we do reach could increase our labor and related expenses . in 2010 , the patient protection and affordable care act was passed into law . under the current administration , this law may be repealed in its entirety or certain aspects may be changed or replaced . if the law is repealed or modified or if new legislation is passed , such action could potentially increase our operating costs , with healthcare costs increasing at a higher rate than our employee headcount . maintenance expense . maintenance expense grew through 2018 , 2017 and 2016 mainly as a result of a growing fleet and the gradual increase of required maintenance for the older aircraft in our fleet . as the fleet ages , we expect that maintenance costs will increase in absolute terms . the amount of total maintenance costs and related amortization of heavy maintenance ( included in depreciation and amortization expense ) is subject to many variables such as future utilization rates , average stage length , the interval between heavy maintenance events , the size and makeup of the fleet in future periods and the level of unscheduled maintenance events and their actual costs . accordingly , we can not reliably quantify future maintenance expenses for any significant period of time . however , we believe , based on our scheduled maintenance events , maintenance expense and maintenance-related amortization expense in 2019 will be approximately $ 215 million . in addition , we expect to capitalize approximately $ 188 million of costs for heavy maintenance during 2019 . as a result of a majority of our fleet being acquired over a relatively short period of time , heavy maintenance scheduled on certain aircraft will overlap , meaning we will incur our most expensive scheduled maintenance obligations on certain aircraft at roughly the same time . these more significant maintenance activities will result in out-of-service periods during which our aircraft will be dedicated to maintenance activities and unavailable to fly revenue service .
| 2018 year in review the year 2018 marks our twelfth consecutive year of profitability . in 2018 , we increased our capacity by 23.4 % , as we grew our fleet of airbus single-aisle aircraft from 112 to 128 aircraft , launched service to 50 new markets and added 9 new destinations : cap-haïtien , haiti ; st. croix , u.s. virgin islands ; greensboro , north carolina ; asheville , north carolina ; jacksonville , florida ; columbus , ohio ; guayaquil , ecuador ; cali , colombia ; richmond , virginia . during 2018 , we earned net income of $ 155.7 million ( $ 2.28 per share , diluted ) , compared to net income of $ 415.5 million ( $ 5.99 per share , diluted ) in 2017 . the decrease in earnings was primarily driven by a few non-recurring items recorded in 2017 and 2018. during 2018 , the company recorded $ 90.4 million in special charges , non-operating and $ 88.9 million in special charges , operating . refer to “ notes to the financial statements—5 . special charges '' for additional information . also contributing to the decrease in earnings year over year was a non-recurring income tax benefit of $ 196.7 million booked in 2017 due to the enactment of the tax cuts and jobs act . in addition , aircraft fuel expense increased by 52.6 % , year over year , due to an increase in both fuel price per gallon and gallons consumed . these decreases in earnings were partially offset by a 24.5 % increase in our traffic and a 1.0 % increase in average yield , year over year . for the year ended december 31 , 2018 , we achieved an operating profit margin of 10.6 % on $ 3,323.0 million in operating revenues . our traffic grew by 24.5 % as we continued to address our value-conscious customers with ultra-low fares .
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in connection with the peninsula acquisition in december 2014 , the corporation acquired $ .933 million of nol carryforward and approximately $ .217 million of various tax credits , which it expects to utilize prior to expiration . 68 notes to the consolidated financial statements mackinac financial corporation and subsidiaries note 12 operating leases the corporation currently maintains seven operating leases for office locations . the first operating lease , for our story_separator_special_tag forward looking statements this report contains certain 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 . the corporation 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 1995 and is including this statement for purposes of these safe harbor provisions . forward-looking statements which are based on certain assumptions and describe future plans , strategies , or expectations of the corporation , are generally identifiable by use of the words believe , expect , intend , anticipate , estimate , project , or similar expressions . the corporation 's ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors that could cause actual results to differ from the results in forward-looking statements include , but are not limited to : risk factors risks related to our lending and credit activities · our business may be adversely affected by conditions in the financial markets and economic conditions generally , as our borrowers ' ability to repay loans and the value of the collateral securing our loans decline . · weakness in the markets for residential or commercial real estate , including the secondary residential mortgage loan markets , could reduce our net income and profitability . · as a community banking organization , the corporation 's success depends upon local and regional economic conditions and has different lending risks than larger banks . we manage our credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries and through loan approval and review procedures . we have established an evaluation process designed to determine the adequacy of our allowance for loan losses . while this evaluation process uses historical and other objective information , the classification of loans and the establishment of loan losses is an estimated based on experience , judgment and expectations regarding borrowers and economic conditions , as well as regulator judgments . we can make no assurance that our loan loss reserves will be sufficient to absorb future loan losses of prevent a material adverse effect on its business , profitability or financial condition . · our allowance for loan losses may be insufficient . continuing deterioration in economic conditions affecting borrowers , new information regarding existing loans , identification of additional problem loans , and other factors , both within and outside of our control , may require an increase in our allowance for loan losses . risks related to our operations · we are subject to interest rate risk . our earnings and cash flows are largely dependent upon our net interest income , which is the difference between interest income on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds . there are many factors which influence interest rates that are beyond our control , including but not limited to general economic conditions and governmental policy , in particular , the policies of the frb . · changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition . · we have limited experience in integrating acquisitions and may not realize the expected benefits of our recent acquisition of the peninsula bank . · our controls and procedures may fail or be circumvented . · impairment of deferred income tax assets could require charges to earnings , which could result in an adverse impact on our results of operations . in assessing the realizability of deferred income tax assets , management considers whether it is more likely than not that some allowance requires management to evaluate all available evidence , both negative and positive . positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carry back and carry forward periods is available under the tax law , including the use of tax planning strategies . when negative evidence ( e.g . cumulative losses in recent years , history of operating loss or tax credit carry forwards expiring unused ) exists , more positive evidence than negative evidence will be necessary . at december 31 , 2014 , net deferred tax assets are approximately $ 11.498 million . if 19 a valuation allowance becomes necessary with respect to such balance , it could have a material adverse effect on our business , results of operations and financial condition . · our information systems may experience an interruption of breach in security . risks related to legal and regulatory compliance · we operate in a highly regulated environment , which could increase our cost structure or have other negative impacts on our operations . · the full impact of the recently enacted dodd-frank act is currently unknown given that many of the details and substance of the new laws will be implemented through agency rulemaking . among the many requirements if the dodd-frank act for new banking regulations is a requirement for new capital regulations to be adopted within 18 months . these regulations must be at least as stringent as , and may call for higher levels of capital than , current regulations . strategic risks · maintaining or increasing our market share may depend on lowering prices and market acceptance of new products and services . · future growth or operating results may require us to raise additional capital but that capital may not be available . story_separator_special_tag 24 replace_table_token_14_th provision for loan losses the corporation records a provision for loan losses when it believes it is necessary to adjust the allowance for loan losses to maintain an adequate level after considering factors such as loan charge-offs and recoveries , changes in identified levels of risk in the loan portfolio , changes in the mix of loans in the portfolio , loan growth , and other economic factors . during 2014 , the corporation recorded a provision for loan loss of $ 1.200 million , compared to a provision of $ 1.675 million in 2013 and $ .945 million in 2012. noninterest income noninterest income was $ 3.112 million , $ 3.938 million , and $ 4.043 million in 2014 , 2013 , and 2012 , respectively . the principal recurring sources of noninterest income are the gains on the sale of sba/usda guaranteed loans and secondary market loans . in 2014 , revenues from these two business lines totaled $ 1.394 million compared to $ 1.979 million in 2013 and $ 2.566 million in 2012. the corporation , in recent years , expanded its efforts to generate increased income from secondary market loans by adding additional staff and centralizing processing activities . the corporation also retains the servicing for the majority of mortgage loans sold to the secondary market . in 2014 , income from servicing mortgages amounted to $ .675 million , compared to $ .790 million in 2013 and $ .417 million in 2012. deposit related income totaled $ .701 million in 2014 compared to $ .667 million in 2013 and $ .699 million in 2012. the corporation has experienced continued decline in deposit related income as a result of changes in the assessments mandated by new consumer regulations . the current regulatory environment may limit the corporation 's ability to grow these revenue sources . the following table details noninterest income for the three years ended december 31 ( dollars in thousands ) : replace_table_token_15_th 25 noninterest expense noninterest expense was $ 22.610 million in 2014 , compared to $ 18.128 million and $ 16.757 million in 2013 and 2012 , respectively . in 2014 , the increase in noninterest expense totaled $ 4.481 million , or 24.72 % . this increase was higher than normal due in large part to nonrecurring transaction related expenses of $ 2.475 million , along with other costs related to strategic initiatives . salaries and benefits , at $ 10.303 million , increased by $ .952 million , 10.18 % , from the 2013 expenses of $ 9.351 million and compared to $ 8.288 million in 2012. expense increases on salaries and benefits in 2013 were largely due to increased staffing ( due to the additions at our asset based lending subsidiary ) , combined with increased employee benefits costs relative to health insurance premium increases and stock compensation expenses related to the issuance of restricted stock . management will continue to review all areas of noninterest expense in order to evaluate where opportunities may exist which could reduce expenses without compromising service to customers . the following table details noninterest expense for the three years ended december 31 ( dollars in thousands ) : replace_table_token_16_th federal income taxes a deferred tax asset is recognized for temporary differences that will result in deductible amounts in future years and contain tax carryforwards including past net operating losses and tax credits . for example , a temporary difference is created between the reported amount and the tax basis of a liability for estimated expenses if , for tax purposes , those estimated expenses are not deductible until a future year . settlement of that liability will result in tax deductions in future years , and a deferred tax asset is recognized based on the weight of available evidence . all available evidence , both positive and negative , is considered to determine whether , based on the weight of that evidence , a valuation allowance is needed for some portion or all of a deferred tax asset . judgment must be used in considering the relative impact of negative and positive evidence . the weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified . the more negative evidence that exists , ( a ) the more positive evidence is necessary and ( b ) the more difficult it is to support a conclusion that a valuation allowance is not needed . a valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized . the corporation , as of december 31 , 2014 had a net operating loss and tax credit carryforwards for tax purposes of approximately $ 16.2 million , and $ 2.353 million , respectively . the corporation will evaluate the future benefits from these carryforwards and at such time as it becomes more likely than not that they would be utilized prior to expiration and recognizes the additional benefits as an adjustment to the valuation allowance . the net operating loss carryforwards expire twenty years from the date they originated . these carryforwards , if not utilized , will begin to expire in the year 2023. a portion of the nol , approximately $ 10.5 million , and the majority of the credit carryforwards are subject to the limitations for utilization as set forth in section 382 of the internal revenue code . the annual limitation is $ 1.404 million for the nol and the equivalent value of tax credits , which is approximately $ .476 million . these limitations for use were established in conjunction with the recapitalization of the corporation in december 2004 .
| executive summary the purpose of this section is to provide a brief summary of the 2014 results of operations and financial condition . a more detailed analysis of the results of operations and financial condition follows this summary . the corporation reported net income of $ 1.700 million or $ .30 per share , for the year ended december 31 , 2014 , compared to net income of $ 5.629 million , or $ 1.01 per share , for 2013 and $ 6.458 million , or $ 1.51 per share , in 2012. the 2014 results include nonrecurring transaction related expenses of $ 2.475 million . the 2013 and 2012 consolidated and bank results include a deferred tax valuation adjustment of $ 2.250 million , or $ .40 per share and $ 3.000 million , $ .70 per share , respectively . total assets of the corporation at december 31 , 2014 , were $ 743.785 million , an increase of $ 170.985 million , or 29.85 % from total assets of $ 572.800 million reported at december 31 , 2013. at december 31 , 2014 , the corporation 's loans stood at $ 600.935 million , an increase of $ 117.103 million , or 24.20 % , from 2013 year-end balances of $ 483.832 million . acquired loans , net of purchase accounting adjustments had a balance of $ 64.123 million at december 31 , 2014. total loan production in 2014 amounted to $ 183.403 million , which included $ 29.871 million of secondary market mortgage loans sold . the corporation also sold $ 7.075 million of sba/usda guaranteed loans . loan balances were also impacted by normal amortization and paydowns , some of which related to payoffs on participation loans .
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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 . unless the context otherwise requires or unless otherwise indicates , references in this report to “ clearwater paper corporation , ” “ we , ” “ our , ” “ the company ” and “ us ” refer to clearwater paper corporation and its subsidiaries . overview 2013 highlights consumer products expansion in december 2012 , we announced the start-up of our new through-air-dried , or tad , paper machine and the completion of two additional converting lines that became operational in shelby , north carolina during the fourth quarter of 2012. with the completion of two additional converting lines at that facility in 2013 , bringing the total to six , and upgrades to our tad tissue manufacturing facility in las vegas , nevada , we expect to increase our ultra and premium offerings to existing and new customers . overall , our tad tissue expansion project , or tad project , will allow us to supply a full range of tad products , including paper towels and bath tissue , to customers across the u.s. , while reducing transportation costs . we believe this project , along with our existing manufacturing capabilities , establishes us as the only private label tissue products company in the u.s. to offer a full line of tissue products to customers . capital allocation on february 5 , 2014 , in an event subsequent to the close of our 2013 fiscal year , we announced that our board of directors had approved a new stock repurchase program authorizing the repurchase of up to $ 100.0 million of our common stock . the repurchase program authorizes purchases of our common stock from time to time through open market purchases , negotiated transactions or other means , including accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other restrictions . we have no obligation to repurchase stock under this program and may suspend or terminate the program at any time . on january 23 , 2013 , we issued $ 275 million aggregate principal amount of 4.5 % senior notes , which we refer to as the 2013 notes . approximately $ 166 million of the net proceeds from the issuance was used to redeem all of our $ 150 million aggregate principal amount of 10.625 % senior notes due 2016 , which we refer to as the 2009 notes . on january 17 , 2013 , we announced that our board of directors had approved a new stock repurchase program authorizing the repurchase of up to $ 100.0 million of our common stock , which was completed in fourth quarter . the repurchases were authorized to be carried out by the utilization of a number of different methods , including but not limited to , open market purchases , accelerated buybacks and negotiated block purchases . on march 1 , 2013 , we entered into an accelerated stock buyback , or asb , agreement with a major financial institution to repurchase an aggregate of $ 50.0 million of our outstanding common stock . in total , 1,039,513 shares of our outstanding common stock were delivered under the asb agreement at an average repurchase price of $ 48.10 per share . in addition to the asb agreement , we also made repurchases of 1,030,657 shares of our outstanding common stock on the open market at a total cost of $ 50.0 million , representing an an average price of $ 48.51 per share . facility closures on march 6 , 2013 , we announced the planned permanent closure of our thomaston , georgia converting and distribution facility . the shutdown occurred gradually as converting lines were relocated and installed at our other facilities , with all operations at thomaston having ceased at the end of 2013. we incurred $ 6.0 million of costs associated with the closure in 2013. on february 17 , 2014 , in an event subsequent to the close of our 2013 fiscal year , we announced the permanent and immediate closure of our long island , new york , tissue converting and distribution facility . we expect the total impact of non-recurring exit related costs to be approximately $ 12 million to $ 15 million , of which approximately $ 10 million is expected to be incurred in 2014 and the remainder in 2015 . 21 business we are a leading producer of private label tissue and premium bleached paperboard products . our products are primarily wood pulp-based and predominately manufactured in the u.s. our business is organized into two reporting segments : our consumer products segment manufactures and sells a complete line of at-home tissue products in each tissue category , including bathroom tissue , paper towels , napkins and facial tissue . we also manufacture away-from-home tissue , or afh , machine-glazed tissue and parent rolls for external sales . our integrated manufacturing and converting operations and geographic footprint enable us to deliver a broad range of cost-competitive products with brand equivalent quality to our consumer products customers . in 2013 , our consumer products segment had net sales of $ 1.1 billion , representing approximately 61 % of our total net sales . our pulp and paperboard segment manufactures and markets bleached paperboard for the high-end segment of the packaging industry and is a leading producer of solid bleach sulfate paperboard . this segment also produces hardwood and softwood pulp , which is primarily used as the basis for our paperboard products , and slush pulp , which it supplies to our consumer products segment . in 2013 , our pulp and paperboard segment had net sales of $ 740.1 million , representing approximately 39 % of our total net sales . story_separator_special_tag the overall decline in the 2013 period was primarily attributable to lower overall pricing at our idaho pulp and paperboard facility and decreased usage due to our planned major maintenance during the third quarter of 2013 at the same facility . in addition , we experienced decreased usage at our arkansas pulp and paperboard facility due to recovery boiler operational issues , which were partially offset by higher overall pricing at our arkansas facility due primarily to supply limitations caused by wet weather conditions in the region for part of 2013 . 23 energy . we use energy in the form of electricity , hog fuel , steam and natural gas to operate our mills . energy prices have fluctuated widely over the past decade . we have taken steps , and intend to continue to take steps , to reduce our exposure to volatile energy prices through conservation . in addition , cogeneration facilities that produce steam and electricity at our east hartford , connecticut , lewiston , idaho and menominee , michigan manufacturing sites help to lower our energy costs . tad tissue production , however , involves increased natural gas usage as compared to conventional tissue manufacturing and , as a result , our natural gas requirements have increased with the ramp up our north carolina tad paper machine . energy costs for 2013 were 15.6 % higher than 2012 due to the first full year of production on our north carolina tad paper machine , as well as an increase in average market pricing for natural gas . to help mitigate our exposure to changes in natural gas prices , from time to time we have used firm-price contracts to supply a portion of our natural gas requirements . as of december 31 , 2013 , these contracts covered approximately 55 % of the expected average monthly requirements for the first quarter of 2014. our energy costs in future periods will depend principally on our ability to produce a substantial portion of our electricity needs internally , on changes in market prices for natural gas and on our ability to reduce our energy usage through conservation . packaging supplies . as a significant producer of private label consumer tissue products , we package to order for retail chains , wholesalers and cooperative buying organizations . under our agreements with those customers , we are responsible for the expenses related to the unique packaging of our products for direct retail sale to consumers . for 2013 , packaging costs were $ 17.0 million higher than 2012 primarily due to higher retail case shipments of facial and bathroom tissue and an increase in prices for poly wrapping and corrugated cardboard . maintenance and repairs . we regularly incur significant costs to maintain our manufacturing equipment . we perform routine maintenance on our machines and periodically replace a variety of parts such as motors , pumps , pipes and electrical parts . major equipment maintenance and repairs in our pulp and paperboard segment also require maintenance shutdowns approximately every 18 to 24 months , which increase costs and may reduce net sales in the quarters in which the major maintenance shutdowns occur . our next planned major maintenance outage is scheduled for the spring of 2015. during the first quarter of 2013 , we had four days of machine downtime costing $ 5.0 million , excluding labor , at our arkansas facility . during the third quarter of 2013 , we incurred 11 days of paper machine downtime , costing $ 17.5 million , for the planned major maintenance at our idaho facility . there was no major maintenance in the second and fourth quarters of 2013. in addition to ongoing maintenance and repair costs , we make capital expenditures to increase our operating capacity and efficiency , to improve safety at our facilities and to comply with environmental laws . excluding $ 11.9 million of expenditures for our tad project , we spent $ 74.5 million on capital expenditures during 2013 . depreciation . we record substantially all of our depreciation expense associated with our plant and equipment in `` cost of sales '' on our consolidated statements of operations . depreciation expense for 2013 was $ 10.9 million higher than 2012 due primarily to $ 10.7 million of additional depreciation expense associated with our north carolina tad paper machine , which started up in december 2012. other . other costs not included in the above table primarily consist of wage and benefit expenses and miscellaneous operating costs . although period cut-offs and inventory levels can impact cost of sales amounts , we would expect this impact to be relatively steady as a percentage of costs on a period-over-period basis . we experienced an increase in wage and benefit expenses in 2013 , compared to 2012 , due largely to the incremental costs associated with the startup of our north carolina tad facility , as well as higher overall employee costs . selling , general and administrative expenses selling , general and administrative expenses primarily consist of compensation and associated costs for sales and administrative personnel , as well as commission expenses related to sales of our products . our total selling , general and administrative costs were $ 119.1 million in 2013 compared to $ 121.0 million in 2012 . the lower expense for 2013 was due primarily to a decrease in profit-dependent compensation accruals and lower legal expenses during 2013 , partially offset by a $ 2.7 million increase in mark-to-market expense related to our directors ' common stock units in 2013 compared to 2012. interest expense interest expense is mostly comprised of interest on the 2013 notes and our $ 375 million aggregate principal amount of 7.125 % senior notes due 2018 issued in october 2010 , which we refer to as the 2010 notes . interest expense also includes amortization of deferred issuance costs associated with all of our notes and our revolving credit facility .
| cash flows summary replace_table_token_14_th operating activities —net cash flows from operating activities for 2013 decreased $ 62.3 million compared to 2012 due primarily to $ 15.0 million of cash used in working capital during the year , compared to $ 61.3 million of cash flows generated from working capital in 2012. the decrease in working capital was primarily attributable to a build-up in inventory to support our tad tissue program , partially offset by higher accounts payable and accrued liabilities and increased accrued interest due to the timing of interest payments on our 2013 notes . in addition , operating cash flows decreased due to lower net earnings , after adjusting for noncash related items . included in our noncash adjustments to net earnings was a $ 75.3 million reduction of tax reserves largely related to our decision to release certain tax reserves based on the internal revenue service 's ruling on the taxability of the afmtc . these decreases were partially offset by a $ 21.2 million favorable change in cash flows from taxes receivable , an absence of excess tax benefits used in 2013 compared to $ 15.8 million for 2012 , which was a result of performance shares for the 2011-2013 performance period not being paid or issued because the requisite market condition performance measure was not met , and a $ 5.6 million decrease in contributions to our qualified pension plans in 2013 compared to 2012. for 2012 , net cash flows from operating activities significantly increased compared to 2011 due primarily to cash generated from working capital , compared to cash used for working capital in 2011 , as well as higher earnings , after adjusting for noncash items .
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james l. pokluda iii nicol g. graham james l. pokluda iii nicol g. graham president and chief executive officer chief financial officer , treasurer and secretary ( chief accounting officer ) 27 story_separator_special_tag you should read the following discussion in conjunction with our consolidated financial statements and related notes appearing elsewhere in this form 10-k. 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 our expectations . factors that could cause such differences include those described in “ risk factors ” and elsewhere in this form 10-k. certain tabular information may not foot due to rounding . overview since our founding 41 years ago , we have grown to be a large provider of industrial products to the u.s. market . today , we serve approximately 8,000 customers . our products are used in mro activities and related projects , as well as for larger-scale projects in the utility , industrial and infrastructure markets and a diverse range of industrial applications including communications , energy , engineering and construction , general manufacturing , mining , marine construction and marine transportation , infrastructure , oilfield services , petrochemical , transportation , utility , wastewater treatment and food and beverage . activity in the mro market has been inconsistent , while the level of competition has increased . our revenue is driven in part by the level of capital spending within the end-markets we serve . because many of these end-markets defer capital expenditures during periods of economic downturns , our business has experienced cyclicality . our revenue has been and will continue to be impacted by fluctuations in capital spending and by our ability to drive demand through our sales and marketing initiatives and the continued development and marketing of our private branded products , such as lifeguard . the recent diminished level of economic activity and fluctuating commodity prices have impacted sales and the level of demand . this has had and will continue to have an impact on our performance , until economic activity and demand improves . our direct costs will continue to be influenced significantly by the prices we pay our suppliers to procure the products we distribute to our customers . changes in these costs may result , for example , from increases or decreases in raw material costs , changes in our relationships with suppliers or changes in vendor rebates . our operating expenses will continue to be affected by our investment in sales , marketing and customer support personnel and commissions paid to our sales force for revenue and profit generated . some of our operating expenses are related to our fixed infrastructure , including rent , utilities , administrative salaries , maintenance , insurance and supplies . to meet our customers ' needs for an extensive product offering and short delivery times , we will need to continue to maintain adequate inventory levels . our ability to obtain this inventory will depend , in part , on our relationships with suppliers . critical accounting policies and estimates critical accounting policies are those that both are important to the accurate portrayal of a company 's financial condition and results of operations , and require subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . in order to prepare financial statements that conform to accounting principles generally accepted in the united states , commonly referred to as gaap , we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes . certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations . we have identified the following accounting policies as those that require us to make the most subjective or complex judgments in order to fairly present our consolidated financial position and results of operations . actual results in these areas could differ materially from management 's estimates under different assumptions and conditions . inventories inventories are valued at the lower of cost , using the average cost method , or market . we continually monitor our inventory levels at each of our distribution centers . our reserve for inventory is based on the age of the inventory , movements of our inventory over the prior twelve months and the experience of our purchasing and sales departments in estimating demand for the product in the succeeding year . our inventories are generally not susceptible to technological obsolescence . a 20 % change in our estimate at december 31 , 2016 would have resulted in a change in loss before income taxes of $ 1.3 million . 14 intangible assets the company 's intangible assets , excluding goodwill , represent purchased tradenames and customer relationships . tradenames are not being amortized and are treated as indefinite-lived assets . tradenames are tested for recoverability on an annual basis in october of each year , or when there is a triggering event . the annual test for 2016 combined with the interim test showed an impairment of certain of the tradenames at southern , and we recorded a pre-tax charge of less than $ 0.1 million . the company assigns useful lives to its intangible assets based on the periods over which it expects the assets to contribute directly or indirectly to the future cash flows of the company . customer relationships are amortized over 6 to 9 year useful lives . if events or circumstances were to indicate that any of the company 's definite-lived intangible assets might be impaired , the company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable intangible asset . story_separator_special_tag million and its implied fair value resulting from the impairment test was zero . the annual goodwill impairment qualitative test was performed as of october 1 , 2016 , related to the southern reporting unit , the one reporting unit with goodwill at that date . this qualitative test , which compared current year to date performance to plan , indicated that it was more likely that the goodwill was not impaired . if there are further reductions in our market capitalization and market multiples , or the projected performance is not achieved , this remaining reporting unit could be at risk of failing the second step in the future . sales we generate most of our sales by providing industrial products to our customers , as well as billing for freight charges . we recognize revenue upon shipment of our products to customers from our distribution centers or directly from our suppliers . sales incentives earned by customers are accrued in the same month as the shipment is invoiced and are accounted for as a reduction in sales . cost of sales cost of sales consists primarily of the average cost of the industrial products that we sell . we also incur shipping and handling costs in the normal course of business . cost of sales also reflects cash discounts for prompt payment to vendors and vendor rebates generally related to annual purchase targets , as well as inventory obsolescence charges . operating expenses operating expenses include all expenses , excluding freight , incurred to receive , sell and ship product and administer the operations of the company . salaries and commissions . salary expense includes the base compensation , and any overtime earned by hourly personnel , for all sales , administrative and warehouse employees and stock compensation expense for options and restricted stock granted to employees . commission expense is earned by inside sales personnel based on gross profit dollars generated , by field sales personnel from generating sales and meeting various objectives , by sales , national and marketing managers for driving the sales process , by region managers based on the profitability of their branches and by corporate managers based primarily on our profitability and also on other operating metrics . other operating expenses . other operating expenses include all other expenses , except for salaries and commissions and depreciation and amortization . this includes all payroll taxes , health insurance , travel expenses , public company expenses , advertising , management information system expenses , facility rent and all distribution expenses such as packaging , reels , and repair and maintenance of equipment and facilities . depreciation and amortization . we incur depreciation expense on costs related to capitalized property and equipment on a straight-line basis over the estimated useful lives of the assets , which range from three to thirty years . we incur amortization expense on leasehold improvements and capital leases over the shorter of the lease term or the life of the related asset and on intangible assets over the estimated life of the asset . interest expense interest expense consists primarily of interest we incur on our debt . 16 story_separator_special_tag times , serif ; margin : 0pt 0 '' > replace_table_token_9_th our sales in 2015 decreased 21.0 % to $ 308.1 million from $ 390.0 million in 2014. when adjusted for the fluctuation in metal prices , revenues for the 2015 fiscal year decreased approximately 14 % compared to 2014 sales . our project business , especially across our key growth initiatives – environmental compliance , engineering & construction , industrials , lifeguard , utility power generation , and mechanical wire rope , was down approximately 19 % on a metals-adjusted basis . mro business fell approximately 11 % on a metals-adjusted basis . gross profit replace_table_token_10_th gross profit decreased 23.3 % to $ 65.9 million in 2015 from $ 85.9 million in 2014. the decrease in gross profit was primarily attributed to the decrease in sales . gross margin ( gross profit as a percentage of sales ) decreased to 21.4 % in 2015 from 22.0 % in 2014. operating expenses replace_table_token_11_th note : due to rounding , numbers may not add up to total operating expenses . salaries and commissions . salaries and commissions decreased 8.5 % to $ 28.5 million in 2015 from $ 31.2 million in 2014. commissions decreased $ 1.4 million as sales and gross profit decreased . salaries decreased $ 1.3 million primarily due to a headcount reduction as part of our cost savings initiative . other operating expenses . other operating expenses decreased 5.2 % to $ 25.0 million in 2015 from $ 26.4 million in 2014 primarily due to the decrease in sales volume and the related decrease in warehouse expenses , the decrease in facility expenses due to the southwest consolidation , lower benefits and employee related expenses as the full-time employee headcount decreased , offset by facility moving costs . depreciation and amortization . depreciation and amortization was flat in both years at $ 2.9 million . impairment charge . the company recorded a non-cash impairment charge in 2015 with respect to its southwest reporting unit and in respect of tradenames at its southern and southwest reporting units . ( see note 4 to our consolidated financial statements ) operating expenses as a percentage of sales increased to 19.4 % in 2015 from 15.5 % . this increase primarily relates to the impairment of goodwill offset by the savings in salaries and commissions and other operating expenses . 19 interest expense interest expense decreased 22.9 % to $ 0.9 million in 2015 from $ 1.2 million in 2014 due to lower average debt and a higher effective interest rate . average debt was $ 43.9 million in 2015 compared to $ 55.6 million in 2014. the average effective interest rate decreased to 1.9 % in 2015 from 2.1 % in 2014. this decrease was primarily due to the lower interest rates associated with the new loan and security agreement .
| results of operations the following discussion compares our results of operations for the years ended december 31 , 2016 , 2015 and 2014. the following table shows , for the periods indicated , information derived from our consolidated statements of operations , expressed as a percentage of sales for the period presented . replace_table_token_5_th note : due to rounding , percentages may not add up to total operating expenses , operating income ( loss ) , income ( loss ) before income taxes or net income ( loss ) . comparison of years ended december 31 , 2016 and 2015 sales replace_table_token_6_th our sales in 2016 ( including $ 7.0 million from vertex ) decreased 15.1 % to $ 261.6 million from $ 308.1 million in 2015. when adjusted for the fluctuation in metal prices , revenues for the 2016 fiscal year decreased approximately 8 % compared to 2015 sales . excluding the impact of vertex 's sales , we estimate that our project business , which targets end markets and encompassing environmental compliance , engineering & construction , industrials , lifeguard , utility power generation , and mechanical wire rope , was down approximately 34 % on a metals-adjusted basis , from 2015 , while maintenance , repair , and operations ( mro ) sales fell approximately 1 % on a metals-adjusted basis . gross profit replace_table_token_7_th gross profit decreased 19.7 % to $ 53.0 million in 2016 from $ 65.9 million in 2015. the decrease in gross profit was primarily attributable to the decrease in sales . gross margin ( gross profit as a percentage of sales ) decreased to 20.2 % in 2016 from 21.4 % in 2015 primarily due to continued competitive market conditions . 17 operating expenses replace_table_token_8_th note : due to rounding , numbers may not add up to total operating expenses . salaries and commissions .
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f-6 marinus pharmaceuticals , inc. statements of stockholders ' equity ( in thousands , except share and per share amounts ) replace_table_token_4_th see accompanying notes to financial statements . f-7 marinus pharmaceuticals , inc. statements of cash flow s ( in thousands ) replace_table_token_5_th see accompanying notes to financial statements . f-8 marinus pharmaceuticals , inc. notes to financial statements 1. organization and description of the business we are a clinical stage pharmaceutical company focused on developing and commercializing innovative therapeutics to treat patients suffering from rare seizure disorders . our clinical stage product candidate , ganaxolone , is a positive allosteric modulator of gaba a that is being developed in formulations for two different routes of administration : intravenous ( iv ) and oral . ganaxolone is a synthetic analog of allopregnanolone , an endogenous neurosteroid . the different formulations are intended to maximize potential therapeutic applications of ganaxolone for adult and pediatric patient populations , in both acute and chronic care , and for both in-patient and self-administered settings . ganaxolone acts at both synaptic and extrasynaptic gaba a receptors , a target known for its anti-seizure , antidepressant and anxiolytic potential . in december 2019 , an outbreak of a novel strain of coronavirus ( covid-19 ) was identified in wuhan , china . this virus was declared a pandemic by the world health organization in march 2020 and has spread to nearly every country in the world , including the united states ( u.s. ) . efforts to contain the spread of covid-19 have intensified and many countries , including the u.s. , have implemented severe travel restrictions , business shutdowns and social distancing measures that have impacted clinical development through supply chain shortages and clinical trial enrollment difficulties as hospitals reduce and redeploy staff , divert resources to patients suffering from covid-19 and limit hospital access for non-patients . the pandemic poses the risk that we , our employees , contractors , suppliers , or other partners may be prevented from conducting normal business activities for an indefinite period of time , including those due to shutdowns that may be requested or mandated by governmental authorities . the continued global spread of covid-19 has impacted our operations but did not have a material impact on our business , operating results , financial condition or cash flows as of and for the year ended december 31 , 2020. for example , several of our phase 1 trials of oral ganaxolone to support the cdd indication have experienced delays in enrollment due to covid-19 , however we do not expect these trials to delay our ability to file an nda . further , i n response to covid-19 , for our ongoing clinical trials , we have implemented multiple measures consistent with the u.s. food and drug administration 's guidance on the conduct of clinical trials of medical products during the covid-19 pandemic , including implementing remote site monitoring and remote visits using telemedicine where needed . however , covid-19 may still adversely impact our clinical trials . for example , our phase 3 clinical trial in rse is conducted in the hospital and resources related to the covid-19 outbreak may divert staffing in the hospital taking resources away from our clinical trial . our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate in a clinical trial while covid-19 outbreaks continue . although operations have not been materially affected by the covid-19 pandemic as of and for the year ended december 31 , 2020 , we are unable to predict the impact that covid-19 will have in the future on our business , financial position , operating results and cash flows due to numerous uncertainties . the duration and severity of the pandemic and its long-term impact on our business are uncertain at this time , and our ability to raise sufficient additional financing depends on many factors beyond our control , including the current volatility in the capital markets as a result of the covid-19 pandemic . liquidity we have not generated any product revenues and have incurred story_separator_special_tag . you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read “ cautionary note regarding forward-looking statements ” and item 1a . risk factors of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage pharmaceutical company focused on developing and commercializing innovative therapeutics to treat patients suffering from rare seizure disorders . our clinical stage product candidate , ganaxolone , is a positive allosteric modulator of gaba a that is being developed in formulations for two different routes of administration : intravenous ( iv ) and oral . ganaxolone is a synthetic analog of allopregnanolone , an endogenous neurosteroid . the different formulations are intended to maximize potential therapeutic applications of ganaxolone for adult and pediatric patient populations , in both acute and chronic care , and for both in-patient and self-administered settings . ganaxolone acts at both synaptic and extrasynaptic gaba a receptors , a target known for its anti-seizure , antidepressant and anxiolytic potential . story_separator_special_tag financial overview federal contract revenue in september 2020 , we entered into a contract ( the barda contract ) with the biomedical advanced research and development authority ( barda ) , a division of the u.s. department of health and human services ' office of the assistant secretary for preparedness and response . under the barda contract , we receive d an award of up to an estimated $ 51 million for development of rse . the barda contract provides for f unding to include support , on a cost-sharing basis , for completion of a phase 3 clinical trial of iv-administered ganaxolone in patients with rse ( our phase 3 clinical trial of iv-administered ganaxolone for the treatment of rse ( raise trial ) ) , funding of pre-clinical 79 studies to provide support that iv-administered ganaxolone could be an effective treatment for rse due to chemical nerve gas agent exposure , and funding of certain manufacturing scale-up and regulatory activities . the barda contract consists of an approximately two-year base period-during which barda will provide approximately $ 21 million of funding for the raise trial on a cost share basis and funding of additional preclinical studies of ganaxolone in nerve agent exposure models . following successful completion of the rse trial and preclinical studies in the base period , the barda contract provides for approximately $ 30 million of additional barda funding for three options in support of manufacturing , supply chain , clinical , regulatory and toxicology activities . under the barda contract , we will be responsible for cost sharing in the amount of approximately $ 33 million and barda will be responsible for approximately $ 51 million , if all development options are completed . the contract period-of-performance ( base period plus option exercises ) is up to approximately five years . we recognize federal contract revenue from the barda contract in the period in which the allowable research and development expenses are incurred . we expect federal contract revenue to increase as the costs associated with our raise trial increase . research and development expenses our research and development expenses consist primarily of costs incurred for the development of ganaxolone , which include : · employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; · expenses incurred under agreements with clinical research organizations ( cros ) and investigative sites that conduct our clinical trials and preclinical studies ; · the cost of acquiring , developing and manufacturing clinical trial materials ; · facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and · costs associated with preclinical activities and regulatory operations . we expense research and development costs when we incur them . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations and information our vendors provide to us . we will incur substantial costs beyond our present and planned clinical trials in order to file an nda and supplemental new drug applications ( sndas ) , or an maa outside the us , for ganaxolone for various clinical indications , and in each case , the nature , design , size and cost of further clinical trials and other studies will depend in large part on the outcome of preceding studies and trials and discussions with regulators . it is difficult to determine with certainty the costs and duration of our current or future clinical trials and preclinical studies , or if , when or to what extent we will generate revenue from the commercialization and sale of ganaxolone if we obtain regulatory approval . we may never succeed in achieving regulatory approval for ganaxolone . the duration , costs and timing of clinical trials and development of ganaxolone will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for our clinical programs will depend on numerous factors , including competition , manufacturing capability and commercial viability . see “ risk factors. ” our commercial success depends upon attaining significant market acceptance , if approved , among physicians , patients , healthcare payers and the medical community . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success , as well as an assessment of commercial potential . 80 general and administrative expenses general and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants , including stock-based compensation and travel expenses . other general and administrative expenses include professional fees for legal , patent review , consulting and accounting services . general and administrative expenses are expensed when incurred . we expect that our general and administrative expenses will increase in the future as a result of employee hiring and our scaling-up of operations commensurate with supporting more advanced clinical trials and in preparation for commercial infrastructure . these increases will likely include increased costs for insurance , hiring of additional personnel , outside consultants , and legal counsel and accountants , among other expenses . interest income interest income consists principally of interest income earned on cash and cash equivalent and investment balances . story_separator_special_tag second quarter of 2022. however , we will need to raise substantial additional financing in the future to fund our operations .
| results of operations federal contract revenue we recognized $ 1.7 million in federal contract revenue in the year ended december 31 , 2020 as a result of the barda contract we entered into in september 2020. no federal contract revenue was recognized in the year ending december 31 , 2019. research and development expenses we allocate direct research and development expenses , consisting principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros in connection with our clinical trials , and costs related to manufacturing or purchasing clinical trial materials , to specific product development programs . we do not allocate employee and contractor-related costs , costs associated with our facility expenses , including depreciation or other indirect costs , to specific product programs because these costs are deployed across multiple product programs under research and development and , as such , are separately classified . the table below shows our research and development expenses incurred with respect to each active program , in thousands . the primary drivers of our research and development expenditures are currently in our product development programs in rse , cdd , tsc and pcdh19-re . we expect our research and development expenses for ganaxolone will continue to increase during subsequent periods . we did not allocate research and development expenses to any other specific product development programs during the periods presented ( in thousands ) : replace_table_token_1_th note : certain prior year expenses have been reclassified to conform to current year presentation . ( 1 ) the increase in the year ended december 31 , 2020 was due to continued enrollment in the marigold study in the first half of 2020 and analysis of data results after completion of the clinical trial .
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intangible assets — we record intangible assets at cost or based on the fair story_separator_special_tag financial condition and results of operations you should read the following management 's discussion and analysis of financial condition and results of operations in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this report . this discussion contains forward-looking statements that involve risks , uncertainties , and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors , including those set forth under item 1a , “ risk factors ” and elsewhere in this report . in fiscal 2017 , in three separate transactions , we acquired ( 1 ) substantially all of the net assets of taylor brands , llc , ( 2 ) substantially all of the assets of ultimate survival technologies , inc. ( now referred to as ultimate survival technologies , llc , or ust ) , and ( 3 ) all of the issued and outstanding stock of crimson trace corporation for an aggregate purchase price of $ 211.1 million , net of cash acquired , subject to certain adjustments , utilizing cash on hand . taylor brands , llc , which has been integrated into our battenfeld technologies business and operates from columbia , missouri , is a leading provider of high-quality knives , specialty tools , and accessories . crimson trace corporation , based in wilsonville , oregon , is a leading provider of laser sight and tactical light products for consumers , law enforcement , security agencies , and military agencies worldwide . ust , based in jacksonville , florida , is a provider of high-quality survival and camping equipment , including led lights , all-weather fire starters , unbreakable signal mirrors , premium outdoor cutting tools , first aid kits , survival kits , and camp kitchen products . results of operations for the fiscal year ended april 30 , 2017 include activity for the period subsequent to the respective acquisition dates of taylor brands , llc , crimson trace corporation , and ust . we collectively refer to the acquisitions of taylor brands , llc , crimson trace corporation , and ust as the 2017 acquisitions . in fiscal 2018 , in two separate transactions , we acquired substantially all of the net assets of gemini technologies , incorporated , or gemtech , and bubba blade branded products and other assets from fish tales , llc . the aggregate purchase price for these two acquisitions was $ 23.1 million , subject to certain adjustments , utilizing a combination of cash on hand and borrowings under our revolving line of credit . gemtech , based in meridian , idaho , is a provider of quality suppressors and accessories for the consumer , law enforcement , and military markets . fish tales , llc , based in oro valley , arizona , is a provider of premium sportsman knives and tools for fishing and hunting , including the premium knife brand bubba blade . results of operations for the fiscal year ended april 30 , 2018 include activity for the period subsequent to the respective acquisition dates of gemtech and fish tales , llc . we collectively refer to the acquisitions of gemtech and fish tales , llc products as the 2018 acquisitions . we report our results of operations in two segments : ( 1 ) firearms and ( 2 ) outdoor products & accessories . effective october 1 , 2015 , our thompson/center accessories business was transitioned from our firearms segment to our outdoor products & accessories segment . for comparison purposes , we have reclassified the revenue and cost of sales of our thompson/center accessories products for the fiscal year ended april 30 , 2016 from our firearms segment , historically presented in other products and services , to our outdoor products & accessories segment . 2018 highlights our operating results for fiscal 2018 included the following : total net sales of $ 606.9 million , a decrease of $ 296.3 million , or 32.8 % , from the prior fiscal year . firearms segment gross sales of $ 452.5 million , which included $ 3.8 million of intersegment revenue , a decrease of $ 324.1 million , or 41.7 % , from the prior fiscal year . outdoor products & accessories segment gross sales of $ 171.7 million , which included $ 13.8 million of intersegment revenue , an increase of $ 31.0 million , or 22 % , over the prior fiscal year primarily because of the revenue generated as a result of the acquisitions in fiscal 2017 and 2018. organic gross sales in this segment grew 1.2 % . gross margin of 32.3 % , a decrease of 9.2 percentage points from the prior fiscal year . net income of $ 20.1 million , a decrease of $ 107.7 million , or 84.3 % , from the prior fiscal year . net income per diluted share of $ 0.37 , a decrease of $ 1.88 , or 83.6 % , from the prior fiscal year . 42 on december 22 , 2017 , the tax cuts and jobs act , or tax reform , was enacted in the united states . tax reform significantly revises the corporate federal income tax by , among other things , lowering corporate federal income tax rates , limiting various deductions , and repeal ing the domestic manufacturing deduction . we expect to see net benefits from the lower federal income tax rate although there are offsetting effects from other components of tax reform . on february 28 , 2018 , we issued an aggregate of $ 75.0 million of 5.000 % senior notes due 2020 , or the 2020 senior notes . we used the proceeds from the 2020 senior notes to redeem the 5.000 % senior notes due 2018 , or the 2018 senior notes , on march 8 , 2018. the 2020 senior notes have substantially the same terms and conditions as the redeemed 5.000 % senior notes . story_separator_special_tag % , from the prior fiscal year because of the lower demand for the majority of our products . revenue fo r our long guns decreased $ 89.4 million , or 49.8 % , from the prior fiscal year as a result of lower demand for our modern sporting rifles , offset by increased revenue for certain thompson/center arms branded hunting rifles . new products represented 29.2 % of firearm revenue for fiscal 2018 and included our new concealed carry m & p branded polymer pistol and many other product line extensions for our m & p and thompson/center arms branded products . price increases favorably impacted firearm revenue by 0.1 % for fi scal 2018 compared with the prior fiscal year . the reduction in the number of units sold negatively impacted firearm revenue by 40.6 % . total unit shipments for handguns declined at a slower rate than our decline in revenue for handguns as a result of promotional product shipments during the period , which lowered our average selling price . total unit shipments for long guns declined at a substantially slower rate than our decline in revenue as a result of promotional product shipments during fiscal 2018 and product mix primarily driven by lower demand for our higher priced modern sporting rifles and offset by increased shipments for certain lower priced thompson/center arms branded hunting rifles . our outdoor products & accessories segment net sales for fiscal 2018 increased 21.3 % over the prior fiscal year , primarily because of net sales generated by the 2017 acquisitions and 2018 acquisitions . inorganic revenue totaled $ 27.9 million , or 17.7 % , of net sales for this segment . organic revenue was relatively flat from the prior fiscal year . net sales for our outdoor products & accessories segment was 26.0 % of total net sales compared with 14.4 % in the prior fiscal year . our firearms segment order backlog as of april 30 , 2018 was $ 96.1 million , which was relatively flat from the end of fiscal 2017. our outdoor products & accessories segment order backlog as of april 30 , 2018 was $ 14.3 million , or $ 1.8 million higher than at the end of fiscal 2017. we allow orders received that have not yet shipped to be cancelled , and therefore , our backlog may not be indicative of future sales . fiscal 2017 net sales compared with fiscal 2016 net sales in our firearms segment for fiscal 2017 increased 18.5 % over fiscal 2016. shipments were stronger earlier in fiscal 2017 because consumer demand for firearms was stronger from may up to and including november , a month that had a record number of firearm purchases as indicated by adjusted nics checks . we believe this strong consumer demand in the first seven months of fiscal 2017 was a result of the ongoing increased consumer interest in firearms that occurred over the preceding several years , increased concern regarding additional firearms laws and regulations , and the impact of news events , including terrorism . these high levels of adjusted nics checks rapidly declined in december and remained lower than the prior year through february as firearm retailers indicated a soft retail environment , potentially as a result of excess inventory and reduced concern regarding additional firearm laws and regulations . total adjusted nics checks in march and april 2017 , however , returned to a positive trend . our handgun revenue increased $ 71.2 million , or 14.7 % , over fiscal 2016 primarily because of increased consumer demand for our concealed carry and full-size polymer pistol products , which resulted in increased unit shipments of our pistol products into our sporting goods distribution channel . the principal products in demand in our handgun category included our second-generation m & p branded full-size polymer pistol , small concealed carry polymer pistols , our smith & wesson branded sport series pistols , and revolvers . long gun revenue increased $ 52.0 million , or 40.8 % , over fiscal 2016 as a result of increased demand from our sporting goods distribution channel , as supported by market share gains driven by a shift in consumer demand toward modern sporting rifles . t he principal product in demand in our long gun category was our m & p branded sport model modern sporting rifle . other products and services revenue were relatively flat compared with fiscal 2016. new firearm products represented 27.2 % of firearm revenue for fiscal 2017 and included our second-generation m & p branded polymer pistol and many other product line extensions for our m & p branded products . in total , price increases favorably impacted firearm revenue by 0.6 % for fiscal 2017 compared with fiscal 2016 , while increases in the number of units sold impacted firearm revenue by 19.4 % . 45 our outdoor products & acces sories segment net sales increased 83.8 % compared with fiscal 2016 , primarily because of the 2017 acquisitions during fiscal 2017. the 2017 acquisitions generated revenue of $ 61.1 million subsequent to their respective acquisition dates and represented 6.8 % of total net sales for fiscal 2017 and 47.0 % of outdoor products & accessories net sales . excluding acquisitions , organic revenue in outdoor products & accessories segment declined 2.5 % , primarily driven by reduced shipments to two key internet retailers that we believe were negatively impacted by inventory reduction initiatives and order timing .
| result of principal payments on our term loan , the completion of our $ 50.0 million authorized stock repurchase program , and payments of employee withholding tax related to the vesting of restricted stock units offset by $ 50.0 million of borrowings on our revolving line . during the past four fiscal years , our board of directors authorized , subject to certain conditions , the repurchase of $ 100.0 million of our common stock through multiple stock repurchase programs in the open market or in privately negotiated transactions , of which $ 50.0 million remained authorized for repurchase , as of april 30 , 2018. in fiscal 2017 , we repurchased 2.6 million shares of our common stock in the open market for $ 50.0 million utilizing a combination of cash on hand and borrowings under our revolving line . we did not repurchase any shares of our common stock during fiscal 2018. on june 15 , 2015 , we entered into a credit agreement that provides us with a $ 175.0 million revolving line and a $ 105.0 million term loan . the term loan matures on june 15 , 2020 , and our revolving line matures on october 27 , 2021. we had $ 25.0 million of borrowings on our revolving line and $ 87.7 million outstanding on our term loan as of april 30 , 2018. in june 2015 , we used the proceeds from the term loan to redeem the entire $ 100.0 million outstanding principal balance of our then outstanding 5.875 % senior notes , plus accrued and unpaid interest to the redemption date . see note 5 – notes and loans payable and financing arrangements in the notes to the consolidated financial statements for additional information regarding our credit facility . additional proceeds under the credit facility are expected to be used for general corporate purposes .
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in addition to historical information , this annual report on form 10-k contains forward-looking statements , including statements regarding product plans , future growth and market opportunities which involve risks and uncertainties that could cause actual results to differ materially from these forward-looking statements . factors that might cause or contribute to such differences include , but are not limited to , those discussed in the section titled risk factors in part 1 , item 1a of this report . you should carefully review the risks described herein and in other documents we file from time to time with the securities and exchange commission ( `` sec '' ) , including our quarterly reports on form 10-q to be filed in fiscal 2012. when used in this report , the words “ expects ” , “ could ” , “ would ” , “ may ” , “ anticipates ” , “ intends ” , “ plans ” , “ believes ” , seeks ” , “ targets ” , “ estimates ” , “ looks for ” , “ looks to ” and similar expressions , as well as statements regarding our focus for the future , are generally intended to identify forward-looking statements . you should not place undue reliance on these forward-looking statements which speak only as of the date of this annual report on form 10-k. we undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document . business overview founded in 1982 , adobe systems incorporated is one of the largest and most diversified software companies in the world . we offer a line of software and services used by creative professionals , marketers , knowledge workers , application developers , enterprises and consumers for creating , managing , delivering , measuring , optimizing and engaging with compelling content and experiences across multiple operating systems , devices and media . we market and license our software directly to enterprise customers through our sales force , and to end users through app stores and our own website at www.adobe.com . we also distribute our products through a network of distributors , value-added resellers ( “ vars ” ) , systems integrators , independent software vendors ( “ isvs ” ) , retailers and original equipment manufacturers ( “ oems ” ) . in addition , we license our technology to hardware manufacturers , software developers and service providers for use in their products and solutions . we offer some of our products via a software-as-a-service ( “ saas ” ) model ( also known as a hosted model or “ cloud-based ” model ) as well as through term subscription and pay-per-use models . our software runs on personal computers ( “ pcs ” ) and server-based computers , as well as on smartphones , tablets and other devices , depending on the product . we have operations in the americas , europe , middle east and africa ( “ emea ” ) and asia . acquisitions on january 13 , 2012 , we completed the acquisition of privately held efficient frontier , a multi-channel ad buying and optimization company . efficient frontier will be integrated into our digital marketing reportable segment for financial reporting purposes beginning in the first quarter of fiscal 2012 . see note 2 and note 21 of our notes to consolidated financial statements for further information regarding this acquisition . during fiscal 2011 , we completed six business combinations and two asset acquisitions with aggregate purchase prices totaling approximately $ 328.3 million . we have included the financial results of the business combinations in our consolidated results of operations beginning on the respective acquisition dates however , the impact of these acquisitions was not material to our consolidated balance sheets and results of operations . on october 28 , 2010 , we completed the acquisition of day , a provider of wem , digital asset management and social collaboration solutions based in basel , switzerland and boston , massachusetts for approximately $ 248.3 million . we have included the financial results of day in our consolidated results of operations beginning on the acquisition date however the impact of this acquisition was not material to our consolidated balance sheets and results of operations in fiscal 2010. following the closing , we integrated day as a product line within our enterprise segment for financial reporting purposes . on october 23 , 2009 , we completed the acquisition of omniture , an industry leader in web analytics and online business optimization based in orem , utah , for approximately $ 1.8 billion . accordingly , we have included the results of the business operations acquired from omniture in our consolidated results of operations beginning on october 24 , 2009. coinciding with the integration of omniture , we created a new reportable segment for financial reporting purposes . see note 2 of our notes to consolidated financial statements for further information regarding these acquisitions . critical accounting policies and estimates in preparing our consolidated financial statements in accordance with gaap and pursuant to the rules and regulations of the sec , we make assumptions , judgments and estimates that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities . we base our assumptions , judgments and estimates on historical 52 experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis , we evaluate our assumptions , judgments and estimates . we also discuss our critical accounting policies and estimates with the audit committee of the board of directors . we believe that the assumptions , judgments and estimates involved in the accounting for revenue recognition , stock-based compensation , business combinations , goodwill impairment and income taxes have the greatest potential impact on our consolidated financial statements . story_separator_special_tag given the nature of our transactions , which are primarily software and software-related , our go-to-market strategies and our pricing practices , total net revenue as reported during the year ended december 2 , 2011 is materially consistent with total net revenue that would have been reported if the transactions entered into or materially modified after november 27 , 2009 were subject to previous accounting guidance . in addition to multiple element arrangements , we must estimate certain royalty revenue amounts due to the timing of securing information from our customers . while we believe we can make reliable estimates regarding these matters , these estimates are inherently subjective . accordingly , our assumptions and judgments regarding future products and services as well as our estimates of royalty revenue could differ from actual events , thus materially impacting our financial position and results of operations . product revenue is recognized when the above criteria are met . we reduce the revenue recognized for estimated future returns , price protection and rebates at the time the related revenue is recorded . in determining our estimate for returns and in accordance with our internal policy regarding global channel inventory which is used to determine the level of product held by our distributors on which we have recognized revenue , we rely upon historical data , the estimated amount of product inventory in our distribution channel , the rate at which our product sells through to the end user , product plans and other factors . our estimated provisions for returns can vary from what actually occurs . product returns may be more or less than what was estimated . the amount of inventory in the channel could be different than what is estimated . our estimate of the rate of sell through for product in the channel could be different than what actually occurs . there could be a delay in the release of our products . these factors and unanticipated changes in the economic and industry environment could make our return estimates differ from actual returns , thus materially impacting our financial position and results of operations . we offer price protection to our distributors that allows for the right to a credit if we permanently reduce the price of a software product . when evaluating the adequacy of the price protection allowance , we analyze historical returns , current sell-through of distributor and retailer inventory of our products , changes in customer demand and acceptance of our products and other related factors . in addition , we monitor the volume of sales to our channel partners and their inventories . changes to these assumptions or in the economic environment could result in higher returns or higher price protection costs in subsequent periods . in the future , actual returns and price protection may materially exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences , market conditions or technological obsolescence due to new platforms , product updates or competing products . while we believe we can make reliable estimates regarding these matters , these estimates are inherently subjective . accordingly , if our estimates change , our returns and price protection reserves would change , which would impact the total net revenue we report . we recognize revenues for hosting services that are based on a committed number of transactions ratably beginning on the date the customer commences use of our services and continuing through the end of the customer term . over-usage fees , and fees billed based on the actual number of transactions from which we capture data , are billed in accordance with contract terms as these fees are incurred . we record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met . our consulting revenue is recognized on a time and materials basis and is measured monthly based on input measures , such as on hours incurred to date compared to total estimated hours to complete , with consideration given to output measures , such as contract milestones , when applicable . stock-based compensation stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period , which is generally the vesting period . 54 for our ongoing traditional employee equity awards , we currently use the black-scholes option pricing model to determine the fair value of stock options and employee stock purchase plan ( “ espp ” ) shares . the determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , the risk-free interest rate , estimated forfeitures and expected dividends . we estimate the expected term of options granted by calculating the average term from our historical stock option exercise experience . we estimate the volatility of our common stock by using implied volatility in market traded options . our decision to use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility . we base the risk-free interest rate on zero-coupon yields implied from u.s. treasury issues with remaining terms similar to the expected term on the options . we do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model . we estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates .
| results of operations overview of 2011 effective in the first quarter of fiscal 2011 , we modified our segments due to changes in how we operate our business . we split our prior creative solutions segment into two new segments : creative and interactive solutions and digital media solutions . creative and interactive solutions contains our creative suite family of products including our professional page layout and web layout products , whereas digital media solutions contains our imaging and video products for professionals and hobbyists . we also merged our former platform segment into the new creative and interactive solutions segment to better align our focus with market trends and our opportunities . as part of our business unit reorganization , we also moved several products to different businesses . see note 19 of our notes to consolidated financial statements for further information . prior year information below has been updated to reflect these changes . for fiscal 2011 , we reported solid financial results and executed against our fiscal 2011 strategic growth initiatives : content authoring , digital marketing optimization and customer experience management . our performance was driven by continued demand for our cs5 product family as well as strength in our other business segments including our enterprise , knowledge worker , omniture and digital media solutions segments . for comparative purposes , financial results for the year ended december 3 , 2010 benefited from an extra week in the first quarter of fiscal 2010 due to our 52/53 week financial calendar . this extra week had a favorable impact on our revenue in the first quarter of fiscal 2010 by approximately $ 35 million and related impact to expenses of approximately $ 20 million . fiscal 2010 was a 53-week year , whereas fiscal 2011 was a 52-week year and our first quarter of fiscal 2011 contained one less week .
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( 2 ) catastrophe coverage is limited on an annual basis to two times the per occurrence amounts . the reinsurance treaties , which expired on june 30 , 2013 , provided for the following material terms : personal lines personal lines business , which includes homeowners , dwelling fire and canine legal liability insurance , was reinsured under a 75 % quota share treaty which provided coverage with respect to losses of up to $ 1,000,000 per occurrence . an excess of loss contract provided 100 % of coverage for story_separator_special_tag . overview we offer property and casualty insurance products to small businesses and individuals in new york state through our subsidiary , kingstone insurance company ( “ kico ” ) . kico 's insureds are located primarily in downstate new york , consisting of new york city , long island and westchester county . we derive 99 % of our revenue from kico , which includes revenues from earned premiums , ceding commissions from quota share reinsurance , net investment income generated from its portfolio , and net realized gains and losses on investment securities . all of kico 's insurance policies are for a one year period . earned premiums represent premiums received from insureds , which are recognized as revenue over the period of time that insurance coverage is provided ( i.e. , ratably over the one year life of the policy ) . a significant period of time normally elapses between the receipt of insurance premiums and the payment of insurance claims . during this time , kico invests the premiums , earns investment income and generates net realized and unrealized investment gains and losses on investments . 23 our expenses include the insurance underwriting expenses of kico and other operating expenses . insurance companies incur a significant amount of their total expenses from losses incurred by policyholders , which are commonly referred to as claims . in settling these claims for losses , various loss adjustment expenses ( “ lae ” ) are incurred such as insurance adjusters ' fees and litigation expenses . in addition , insurance companies incur policy acquisition costs . policy acquisition costs include commissions paid to producers , premium taxes , and other expenses related to the underwriting process , including employees ' compensation and benefits . other operating expenses include our corporate expenses as a holding company . these expenses include legal and auditing fees , occupancy costs related to our former corporate office , which was closed in may 2013 , executive employment costs , and other costs directly associated with being a public company . principal revenue and expense items net premiums earned . net premiums earned is the earned portion of our written premiums , less that portion of premium that is ceded to third party reinsurers under reinsurance agreements . the amount ceded under these reinsurance agreements is based on a contractual formula contained in the individual reinsurance agreement . insurance premiums are earned on a pro rata basis over the term of the policy . at the end of each reporting period , premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy . our insurance policies have a term of one year . accordingly , for a one-year policy written on july 1 , 2012 , we would earn half of the premiums in 2012 and the other half in 2013. ceding commission revenue . commissions on reinsurance premiums ceded are earned in a manner consistent with the recognition of the direct acquisition costs of the underlying insurance policies , generally on a pro-rata basis over the terms of the policies reinsured . net investment income and net realized gains ( losses ) on investments . we invest our statutory surplus funds and the funds supporting our insurance liabilities primarily in cash and cash equivalents , short-term investments , fixed maturity and equity securities . our net investment income includes interest and dividends earned on our invested assets , less investment expenses . net realized gains and losses on our investments are reported separately from our net investment income . net realized gains occur when our investment securities are sold for more than their costs or amortized costs , as applicable . net realized losses occur when our investment securities are sold for less than their costs or amortized costs , as applicable , or are written down as a result of other-than-temporary impairment . we classify equity securities as available-for-sale and our fixed maturity securities as either available-for-sale or held-to-maturity . net unrealized gains ( losses ) on those securities classified as available-for-sale are reported separately within accumulated other comprehensive income on our balance sheet . other income . we recognize installment fee income and fees charged to reinstate a policy after it has been cancelled for non-payment . we also recognize premium finance fee income on loans financed by a third party finance company . loss and loss adjustment expenses incurred . loss and loss adjustment expenses ( “ lae ” ) incurred represent our largest expense item , and for any given reporting period , include estimates of future claim payments , changes in those estimates from prior reporting periods and costs associated with investigating , defending and servicing claims . these expenses fluctuate based on the amount and types of risks we insure . we record loss and lae related to estimates of future claim payments based on case-by-case valuations , statistical analyses and actuarial procedures . we seek to establish all reserves at the most likely ultimate liability based on our historical claims experience . it is typical for certain claims to take several years to settle and we revise our estimates as we receive additional information from the claimants . our ability to estimate loss and lae accurately at the time of pricing our insurance policies is a critical factor in our profitability . 24 commission expenses and other underwriting expenses . other underwriting expenses include acquisition costs and other underwriting expenses . story_separator_special_tag 26 consolidated results of operations the following table summarizes the changes in the results of our operations ( in thousands ) for the periods indicated : replace_table_token_8_th 27 ( 1 ) for the year ended december 31 , 2013 , includes the effects of superstorm sandy ( which we define as a catastrophe ) , which occurred on october 29 , 2012. for the year ended december 31 , 2012 , includes the effects of superstorm sandy and tropical storm irene ( which we define as a catastrophe ) , which occurred between august 27 , 2011 and august 29 , 2011. we define a “ catastrophe ” as an event that involves multiple first party policyholders , or an event that produces a number of claims in excess of a preset , per-event threshold of average claims in a specific area , occurring within a certain amount of time constituting the event . catastrophes are caused by various natural events including high winds , excessive rain , winter storms , tornadoes , hailstorms , wildfires , tropical storms , and hurricanes . direct written premiums during the year ended december 31 , 2013 ( “ 2013 ” ) were $ 60,449,000 compared to $ 49,252,000 during the year ended december 31 , 2012 ( “ 2012 ” ) . the increase of $ 11,197,000 , or 22.7 % , was primarily due to an increase in policies in-force during 2013 as compared to 2012. we wrote more policies as a result of an increase in demand for our products in the markets that we serve . policies in-force increased by 21.1 % as of december 31 , 2013 compared to december 31 , 2012. in addition to the increase of policies in-force , we are also writing more policies , which have higher premiums . our increase in policies in-force as of december 31 , 2013 compared to december 31 , 2012 resulting from the increased demand for our products in the markets that we serve was partially offset by new york state regulations enacted to protect victims of superstorm sandy , which prohibited us from cancelling policies or non-renewing existing policies beginning in the fourth quarter of 2012 and extending through various dates during the quarter ended march 31 , 2013 ( the “ moratorium period ” ) . these regulations delayed cancellations and increased the amount of direct written premiums during the moratorium period in the fourth quarter of 2012. after the expiration of the moratorium period in 2013 , the additional cancellations and non-renewal of existing policies reduced our growth rate in 2013. net written premiums increased $ 5,280,000 , or 27.0 % , to $ 24,839,000 in 2013 from $ 19,559,000 in 2012. net written premiums include direct and assumed premiums , less the amount of written premiums ceded under our reinsurance treaties ( quota share , excess of loss and catastrophe ) . as we increase our written premiums in personal and commercial lines of business , which are both subject to quota share treaties , our written premiums ceded under quota share treaties will increase , which will result in a corresponding reduction to net written premiums . a reduction to the quota share percentage will reduce our ceded written premiums , which will result in a corresponding increase to our net written premiums . effective july 1 , 2013 , we decreased the quota share percentage in our commercial lines ( excluding commercial auto ) quota share treaty from 40 % to 25 % and effective july 1 , 2012 , we decreased the quota share percentage in our commercial lines ( excluding commercial auto ) quota share treaty from 60 % to 40 % . most of the premiums written under our personal lines are also subject to our catastrophe treaty . an increase in our personal lines business gives rise to more property exposure , which increases our exposure to catastrophe risk ; therefore our premiums for catastrophe insurance will increase . this results in an increase in premiums ceded under our catastrophe treaty , resulting in a decrease in net written premiums . effective july 1 , 2013 , following the expiration of our catastrophe treaty on june 30 , 2013 , we reconciled the premiums expensed to the actual amounts earned for the treaty year . this resulted in a reduction of $ 444,000 to premiums ceded to our catastrophe treaty and the recognition of such amount in the third quarter as an addition to net premiums earned . due to the increase in our property exposure and the resulting increase in premiums for catastrophe insurance discussed above , effective december 31 , 2013 , we began to record unearned catastrophe premiums . this resulted in a reduction of $ 618,000 to premiums ceded to our catastrophe treaty and the recognition of such amount as an addition to net premiums earned . in 2013 we incurred reinstatement premiums for catastrophe coverage as a result of superstorm sandy . an increase in written premiums will also increase the premiums ceded under our excess of loss treaties , which will result in a corresponding decrease to our net written premiums . effective july 1 , 2013 , following the expiration of our excess of loss treaties on june 30 , 2013 , we reconciled the premiums expensed to the actual amounts earned for the treaty year . this resulted in a reduction of $ 138,000 to premiums ceded to our excess of loss treaty and the recognition of such amount in the third quarter as an addition to net premiums earned . due to the increase in written premiums and the resulting increase in premiums ceded under our excess of loss treaties discussed above , effective december 31 , 2013 , we began to record unearned excess of loss premiums . this resulted in a reduction of $ 206,000 to premiums ceded to our excess of loss treaty and the recognition of such amount in the fourth quarter as an addition to net premiums earned .
| portfolio summary the following table presents a breakdown of the amortized cost , aggregate fair value and unrealized gains and losses by investment type as of december 31 , 2013 and 2012 : available for sale securities replace_table_token_14_th 36 held to maturity securities replace_table_token_15_th u.s. treasury securities included in held to maturity securities are held in trust pursuant to the new york state department of financial services ' minimum funds requirement . a summary of the amortized cost and fair value of the company 's investments in held-to-maturity securities by contractual maturity as of december 31 , 2013 and december 31 , 2012 is shown below : replace_table_token_16_th 37 credit rating of fixed-maturity securities the table below summarizes the credit quality of our available for sale fixed-maturity securities as of december 31 , 2013 and december 31 , 2012 as rated by standard and poor 's ( or , if unavailable from standard and poor 's , then moody 's or fitch ) : replace_table_token_17_th the table below summarizes the average maturity by type of fixed-maturity security as well as detailing the average yield as of december 31 , 2013 and december 31 , 2012 : replace_table_token_18_th fair value consideration as disclosed in note 4 to the consolidated financial statements , with respect to “ fair value measurements , ” we define fair value under gaap guidance as the price that would be received to sell an asset or paid to transfer a liability in a transaction involving identical or comparable assets or liabilities between market participants ( an “ exit price ” ) . this gaap guidance establishes a fair value hierarchy that distinguishes between inputs based on market data from independent sources ( “ observable inputs ” ) and a reporting entity 's internal assumptions based upon the best information available when external market data is limited or unavailable ( “ unobservable inputs ” ) . the fair value hierarchy in gaap prioritizes fair value measurements into three levels based on the nature of the inputs .
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33-53621 , declared effective by the sec on august 9 , 1994 ) . 3.5 amendment dated february 14 , 1996 to the certificate of incorporation of emerson ( incorporated by reference to exhibit ( 3 ) ( a ) of emerson 's quarterly report on form 10-q for the quarter ended december 31 , 1995 ) . 3.6 by-laws of emerson ( incorporated by reference to exhibit 3.1 of emerson 's quarterly report on form 10-q for the quarter ended december 31 , 2007 ) . 3.7 amendment dated november 28 , 1995 to the by-laws of emerson adopted march 1994 ( incorporated by reference to exhibit ( 3 ) ( b ) of emerson 's quarterly report on form 10-q for the quarter ended december 31 , 1995 ) . 3.8 amendment effective as of november 10 , 2009 to the by-laws of emerson adopted march 1994 ( incorporated by reference to exhibit 3.1 of emerson 's current report on form 8-k filed on november 16 , 2009 ) . 3.9 amendment effective as of august 31 , 2011 to the by-laws of emerson adopted march 1994 ( incorporated by reference to exhibit 3.2 of emerson 's current report on form 8-k filed on september 7 , 2011 ) . 10.12 license agreement effective as of january 1 , 2001 by and between funai corporation and emerson ( incorporated by reference to exhibit ( 10 ) ( z ) of emerson 's quarterly report on form 10-q for the quarter ended september 30 , 2000 ) . 10.12.1 first amendment to license agreement dated february 19 , 2002 by and between funai corporation and emerson ( incorporated by reference to exhibit ( 10.12.1 ) of emerson 's annual report on form 10-k for the year ended march 31 , 2002 ) . 10.12.2 second amendment to license agreement effective august 1 , 2002 by and between funai corporation and emerson ( incorporated by reference to exhibit ( 10.12.2 ) of emerson 's quarterly report on form 10-q for the quarter ended september 30 , 2002 ) . 10.12.3 third amendment to license agreement effective february 18 , 2004 by and between funai corporation and emerson ( incorporated by reference to exhibit 10.12.3 of emerson 's annual report on form 10-k for the year ending march 31 , 2004 ) . 48 10.12.4 fourth amendment to license agreement effective december 3 , 2004 by and between funai corporation , inc. and emerson ( incorporated by reference to exhibit ( 10.12.4 ) of emerson 's quarterly report on form 10-q for the quarter ended december 31 , 2004 ) . 10.12.5 fifth amendment to license agreement effective may 18 , 2005 by and between funai corporation , inc. and emerson ( incorporated by reference to exhibit ( 10.12.5 ) of emerson 's annual report on form 10-k for the year ending march 31 , 2005 ) . 10.12.7 seventh amendment to license agreement effective december 22 , 2005 by and between funai corporation , inc. and emerson ( incorporated by reference to exhibit 10.1 of emerson 's current report on form 8-k filed on december 29 , 2005 ) . 10.13 second lease modification dated as of may 15 , 1998 between hartz mountain , parsippany and emerson ( incorporated by reference to exhibit ( 10 ) ( v ) of emerson 's annual report on form 10-k for the year ended april 3 , 1998 ) . 10.13.1 third lease modification made the 26th day of october , 1998 between hartz mountain parsippany and emerson ( incorporated by reference to exhibit ( 10 ) ( b ) of emerson 's quarterly report on form 10-q for the quarter ended october 2 , 1998 ) . 10.13.2 fourth lease modification made the 12th day of february , 2003 between hartz mountain parsippany and emerson ( incorporated by reference to exhibit ( 10.13.2 ) of emerson 's annual report on form 10-k for the year ended march 31 , 2003 ) . 10.13.3 lease agreement dated as of october 8 , 2004 between sealy ta texas , l.p. , a georgia limited partnership , and emerson radio corp. ( incorporated by reference to exhibit ( 10.13.3 ) of emerson 's quarterly report on form 10-q for the quarter ended september 30 , 2004 ) . 10.13.4 fifth lease modification agreement made the 2nd day of december , 2004 between hartz mountain industries , inc. and emerson ( incorporated by reference to exhibit ( 10.13.3 ) of emerson 's quarterly report on form 10-q for the quarter ended december 31 , 2004 ) . 10.13.5 lease agreement ( single tenant ) between ontario warehouse i , inc. , a florida corporation , as landlord , and emerson radio corp. , a delaware corporation , as tenant , effective as of december 6 , 2005 ( incorporated by reference to exhibit 10.1 to emerson 's current report on form 8-k filed on january 4 , 2006 ) . 10.13.6 letter agreement , dated november 28 , 2005 , between emerson radio corp. and the grande group ( hong kong ) limited regarding lease of office space . ( incorporated by reference to exhibit 10.13.6 to emerson 's annual report on form 10-k for the year ended march 31 , 2006 ) . 10.13.7 letter agreement story_separator_special_tag the following discussion of the company 's operations and financial condition should be read in conjunction with the financial statements and notes thereto included elsewhere in this annual report on form 10-k. special note : certain statements set forth below constitute forward-looking statements made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. see item1a risk factors forward-looking information. in the following discussions , most percentages and dollar amounts have been rounded to aid presentation . story_separator_special_tag management considers certain accounting policies related to inventories , trade accounts receivables , impairment of long-lived assets , valuation of deferred tax assets , sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each . revenue recognition . revenues from product distribution are recognized at the time title passes to the customer . under the direct import program , title passes in the country of origin . under the domestic program , title passes primarily at the time of shipment . estimates for possible returns are based upon historical return rates and netted against revenues . except in connection with infrequent sales with specific arrangements to the contrary , returns are not permitted unless the goods are defective . in addition to the distribution of products , the company grants licenses for the right to use the company 's trademarks for a stated term for the manufacture and or sale of consumer electronics and other products under agreements which require payment of either i ) a non-refundable minimum guaranteed royalty or , ii ) the greater of the actual royalties due ( based on a contractual calculation , normally comprised of actual product sales by the licensee multiplied by a stated royalty rate , or sales royalties ) or a minimum guaranteed royalty amount . in the case of ( i ) , such amounts are recognized as revenue on a straight-line basis over the term of the license agreement . in the case of ( ii ) , sales royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the company has ascertained that the licensee 's sales of products have exceeded the guaranteed minimum . in effect , the company recognizes the greater of sales royalties earned to date or the straight-line amount of minimum guaranteed royalties to date . in the case where a royalty is paid to the company in advance , the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above . inventories . inventories are stated at the lower of cost or market . cost is determined using the first-in , first-out basis . the company records inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory reserves may be required . conversely , if market conditions improve , such reserves are reduced . trade accounts receivable . the company extends credit based upon evaluations of a customer 's financial condition and provides for any anticipated credit losses in the company 's financial statements based upon management 's estimates and ongoing reviews of recorded allowances . if the financial condition of a customer deteriorates , resulting in an impairment of that customer 's ability to make payments , additional reserves may be required . conversely , reserves are reduced to reflect credit and collection improvements . 22 income taxes . the company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that management estimates is more likely than not to be realized . while management considers future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance , in the event that management determines that a deferred tax asset will likely be realized in the future in excess of the net recorded amount , an adjustment to the deferred tax asset would increase income in the period such determination was made . likewise , if it is determined that all or part of a net deferred tax asset will likely not be realized in the future , an adjustment to the deferred tax asset would be charged to income in the period such determination was made . sales return reserves . management must make estimates of potential future product returns related to current period product revenue . management analyzes historical returns , current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns . management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period . additional reserves may be required if actual sales returns increase above the historical return rates . conversely , the sales return reserve could be decreased if the actual return rates are less than the historical return rates , which were used to establish the reserve . sales allowance and marketing support accruals . sales allowances , marketing support programs , promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with asc topic 605 , revenue recognition , subtopic 50 customer payments and incentives and securities and exchange commission staff accounting bulletins 101 revenue recognition in financial statements , and 104 revenue recognition , corrected copy ( sab 's 101 and 104 ) . at the time of sale , the company reduces recognized gross revenue by allowances to cover , in addition to estimated sales returns as required by asc topic 605 , revenue recognition. , subtopic 15 products , ( i ) sales incentives offered to customers that meet the criteria for accrual under asc topic 605 , subtopic 50 and( ii ) under sab 's 101 and 104 , an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover .
| results of operations : the following table summarizes certain financial information for the fiscal years ended march 31 ( in thousands ) : replace_table_token_4_th results of operations fiscal 2012 compared with fiscal 2011 net product sales net product sales for fiscal 2012 were $ 157.0 million as compared to $ 193.5 million for fiscal 2011 , a decrease of $ 36.5 million , or 18.9 % . the company 's sales during fiscal 2012 and 2011 were highly concentrated among the company 's two largest customers , where gross product sales comprised approximately 90.3 % and 90.5 % , respectively , of the company 's total gross product sales . net product sales may be periodically impacted by adjustments made to the company 's sales allowance and marketing support accrual to record unanticipated customer deductions from accounts receivable or to reduce the accrual by any amounts which were accrued in the past but not taken by customers through deductions from accounts receivable within a certain time period . in the aggregate , these adjustments had the effect of increasing net product sales and operating income by $ 1.0 million and $ 0.7 million for fiscal 2012 and fiscal 2011 , respectively . net product sales are comprised primarily of the sales of houseware and audio products which bear the emerson® brand name .
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on may 2 , 2012 , the company completed the issuance of the series a convertible preferred stock and warrants . on april 30 , 2012 , the company filed an articles of amendment to its articles of incorporation designating 1,000,000 shares of the company 's authorized preferred stock as series a convertible preferred stock . the company also entered into a registration rights agreement and investor rights agreement with the private investor . the series a convertible preferred stock ranks senior to all other equity instruments of the company , including the company 's common stock . the series a convertible preferred stock accrues cumulative dividends at a rate of 6 % per annum , whether or not dividends have been declared by the board of directors and whether or not there are profits , surplus or other funds available for the payment of such dividends . the story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this form 10-k. this discussion contains forward-looking statements , based on current expectations related to future events and aeti 's future financial performance that involves risks and uncertainties . aeti 's actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth in the section entitled risk factors in this form 10-k. overview our corporate structure currently consists of american electric technologies , inc. , which owns 100 % of both m & i and aat . we report financial data for three operating segments : the tp & s segment and the e & i segment which together encompass the operations of m & i including its south coast electric systems , llc subsidiary and the aat segment which encompasses the operations of aat including its wholly-owned omega metals division . in addition , m & i holds a 40 % , 41 % , and 49 % interest in china , singapore , and brazil foreign joint ventures ' operations , respectively . prior to december 31 , 2011 , the company owned 49 % of the singapore 's joint venture with our joint venture partner , oakwell engineering , ltd. , owning the remaining 51 % . at december 31 st 2011 , we exchanged 8 % of our miefe ownership for satisfaction of amounts owed to miefe 's general manager , under a deferred compensation arrangement for approximately $ 190,000. these ventures are stand-alone operating companies and enhance our ability to provide products to these markets . results from these ventures are reported using the equity method of accounting . 13 we are a leading provider of power delivery solutions to the global energy industry . our customers are in the following industries : oil & gas upstream which includes land and offshore drilling , and offshore production , all primarily related to exploration and production ( e & p ) midstream which includes oil & gas pipelines along with fractionation plants downstream which includes refining and petrochemical , as well as liquefied natural gas ( lng ) plants power generation and distribution distributed power generation such as remote power stations , co-generation , renewable power generation including solar power , geothermal , biomass , power distribution including substations marine and industrial marine vessel including platform supply vessels ( psv ) , offshore supply vessels ( osv ) , tankers and other various work boats , tankers industrial including non oil & gas industrial markets such as steel , heavy commercial , and other non oil & gas segments a key component of our company 's strategy is our international focus . we have two primary models for conducting our international business . first , we sell directly and through foreign sales agents and distributors that we have appointed . many of those international partners also provide local service and support for our products in those overseas markets . second , where local market conditions dictate , we have expanded internationally by forming joint venture operations with local companies in key markets such as china , brazil and singapore , where there are local content requirements or we need to do local manufacturing . our business strategy is to grow through organic growth in our key energy markets , to expand our solution set to our current market segments , to continue our international expansion , and to accelerate those efforts with acquisitions . while at the same time increasing earnings and cash flow per share to enhance overall stockholder value . the company is uniquely positioned to be the turn-key supplier for power delivery projects for our customers , where we are able to offer custom-designed power distribution and power conversion systems , power services , and electrical and instrumentation construction , all from one company . non-gaap financial measures a non-gaap financial measure is generally defined as one that purports to measure historical or future financial performance , financial position or cash flows , but excludes or includes amounts that would not be so adjusted in the most comparable gaap measure . in this report , we define and use the non-gaap financial measure ebitda as set forth below . ebitda definition of ebitda we define ebitda as follows : net income ( loss ) before : provision ( benefit ) for income taxes ; non-operating ( income ) expense items ; depreciation and amortization ; and dividends on mandatorily redeemable preferred stock . management 's use of ebitda we use ebitda to assess our overall financial and operating performance . we believe this non-gaap measure , as we have defined it , is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations . this measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieving optimal financial performance . story_separator_special_tag in 2010 , the company implemented cost saving initiatives which reduced indirect expense by $ 1.1 million in 2011 over 2010. the e & i segment reported net sales of $ 15.5 million for the year ended december 31 , 2011 , an increase of $ 4.0 million , or 35 % , over the year ended december 31 , 2010 which primarily reflected an improvement in the water/wastewater projects developed in municipalities . gross profit for the e & i segment during the year ended december 31 , 2011 was $ 1.2 million , compared to $ 834,000 in the corresponding prior year period . although gross profit as a percentage of net sales increased to 8 % from 7 % in the comparable prior period , the water/wastewater market continues to be competitive with fixed-priced projects . indirect costs during 2011 declined by $ 314,000 which benefited the gross profit . 18 the aat segment reported net sales of $ 7.5 million for the year ended december 31 , 2011 , up $ 655,000 from the comparable prior year period , a 10 % increase . gross profit decreased by $ 334,000 in 2011 , from $ 1.7 million in the prior year period . gross profit as a percentage of net sales decreased to 18 % in 2011from 24 % in the comparable prior period . in the fourth quarter 2011 , the company wrote down its aat inventory by $ 276,000 as a charge to cost of sales which reflected a change in the labor and overhead absorption rates in inventory . this segment continues to be challenged by competitive pricing due to weakness in the industrial sector . research and development costs for the year ended december 31 , 2011 were down to $ 557,000 from $ 882,000 in the previous period , all of which related to the continued development of the company 's isis products . selling and marketing expenses for the year ended december 31 , 2011 were $ 2.5 million , or 5 % of net sales compared to the prior year period ended december 31 , 2010 of $ 2.3 million , or 6 % of net sales . the dollar increase is primarily attributable to increased commissions related to the $ 13.0 million increase in net sales and an increase in marketing trade shows of approximately $ 130,000. general and administrative expenses were up for the year ended december 31 , 2011 over the same period in 2010 by $ 947,000 due to an increase in company 's variable compensation expense of $ 364,000 and legal expenses of $ 368,000 related to the e & i segment 's arbitration dispute , from which the company received a favorable determination from the binding arbitrator . in addition , the company recorded an additional audit expense accrual of $ 252,000 in 2011. net equity income from foreign joint ventures ' operations decreased for the year ended december 31 , 2011 by $ 388,000 to $ 1.5 million as compared to the prior year period ended december 31 , 2010. equity income from foreign joint ventures for the year ended december 31 , 2010 , benefited from the reversal of a $ 660,000 expense accrual recorded in 2007 associated with the bomay joint venture of which management determined in 2010 was no longer necessary . consolidated other expense , net was $ 216,000 for the year ended december 31 , 2011 , a decrease of $ 102,000 from the comparable prior year . the decrease primarily resulted from a $ 200,000 customer settlement in 2010 partially offset by an increase in interest expense due to a $ 1.0 million increase in outstanding debt in the revolving credit balance and higher interest rates in 2011. the ( provision for ) benefit from income taxes for the year ended december 31 , 2011 was a non-cash expense of $ 5.4 million which reflects the valuation allowance related to the company 's net deferred tax assets related to its u.s. operations . the deferred tax asset was primarily related to the net operating loss carry forwards of $ 9.8 million generated by aat prior to the company 's merger in 2007. subsequently , the company generated additional net operating losses and foreign tax credit carry forwards . it was determined in the fourth quarter of 2011 that due to the internal revenue service 's section 382 limitations on our ability to utilize the net operating losses and due to three years of cumulative losses , a full valuation allowance was warranted and as such , an expense was recorded . see note 7 to the consolidated financial statements included in this report for further details . liquidity and capital resources replace_table_token_12_th * consolidated net worth means the book value , as shown on its financial statements of all of borrower 's and its subsidiaries ' assets less consolidated total liabilities. aeti 's long-term debt as of december 31 , 2012 was $ 0.5 million on which payments are current . notes payable the company entered into a credit agreement with jp morgan chase bank , n.a . ( chase ) in october 2007. the credit agreement currently has a maturity on july 1 , 2014. at december 31 , 2012 and 2011 , there were $ 0.5 million and $ 5.0 million of borrowings outstanding and at december 31 , 2012 , there was additional borrowing capacity of $ 6.9 million . the revolving credit line is $ 10.0 million with a limit of up to $ 6.0 million of borrowing in the event that adjusted net income is less than $ 1.00 for any quarter ( line limit ) . adjusted net income is defined as domestic operating income plus depreciation and amortization . the agreement is collateralized by the company 's real estate in houston and beaumont , texas , trade accounts receivable , equipment , inventories , and work-in-process , and the company 's subsidiaries are guarantors of the borrowings .
| results of operations the table below summarizes our consolidated net sales and profitability for the years ended december 31 , 2012 , 2011 and 2010 ( dollars in thousands ) : replace_table_token_11_th year ended december 31 , 2012 compared to year ended december 31 , 2011 consolidated net sales increased $ 2.1 million or 4 % , to $ 54.1 million for the year ended december 31 , 2012 as compared to 2011. the company 's net sales growth from the comparative prior year period was driven primarily by increased demand for its technical products which was partially offset by declines in electrical instrumentation and construction . these declines in the e & i segment relate primarily to the company 's decision in 2012 to exit the water/wastewater construction business to focus its e & i efforts on more strategic segments including oil & gas , power generation and distribution , and marine and non oil & gas industrial . consolidated gross profit increased $ 1.0 million to $ 8.1 million and increased as a percentage of net sales from 14 % to 15 % . this increase was mainly attributable to the tp & s segment 's increased net sales and direct margin compared to the previous period in 2011. this performance reflects the improved business environment and benefits of the cost reduction efforts implemented in late 2010. the company 's gross profit reported each quarter in 2012 was $ 1.8 million in the first quarter , $ 2.2 million in the second quarter , $ 1.6 million in the third quarter and $ 2.5 million in the fourth quarter . segment comparisons the tp & s segment 's net sales increased $ 10.0 million from $ 28.9 million for the year ended december 31 , 2011 , to $ 39.0 million for the year ended december 31 , 2012 , a 35 % improvement .
| 2,075 |
factors that might cause such a difference include , but are not limited to , those discussed in `` risk factors . '' overview we are an information technology consulting firm serving forbes global 2000 and other large enterprise companies with a primary focus on the united states . we help our clients gain competitive advantage by using internet-based technologies to make their businesses more responsive to market opportunities and threats , strengthen relationships with their customers , suppliers and partners , improve productivity , and reduce information technology costs . we design , build , and deliver business-driven technology solutions using third party software products . our solutions include business analysis , portals and collaboration , business integration , user experience , enterprise content management , customer relationship management , interactive design , enterprise performance management , business process management , business intelligence , ecommerce , mobile platforms , custom applications , and technology platform implementations , among others . our solutions enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of an increasingly global , internet-driven , and competitive marketplace . services revenues services revenues are derived from professional services that include developing , implementing , integrating , automating and extending business processes , technology infrastructure , and software applications . most of our projects are performed on a time and materials basis , while a smaller portion of our revenues is derived from projects performed on a fixed fee basis . fixed fee engagements represented approximately 10 % of our services revenues for both years ended december 31 , 2014 and 2013 compared to 11 % for the year ended december 31 , 2012. for time and material projects , revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by the established billing rates . for fixed fee projects , revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours . amounts invoiced and collected in excess of revenues recognized are classified as deferred revenues . on most projects , we are also reimbursed for out-of-pocket expenses such as airfare , lodging , and meals . these reimbursements are included as a component of revenues . the aggregate amount of reimbursed expenses will fluctuate depending on the location of our clients , the total number of our projects that require travel , and whether our arrangements with our clients provide for the reimbursement of travel and other project-related expenses . 16 software and hardware revenues software and hardware revenues are derived from sales of third-party and internally developed software and hardware . revenues from sales of third-party software and hardware are generally recorded on a gross basis provided we act as a principal in the transaction . on rare occasions , we do not meet the requirements to be considered a principal in the transaction and act as an agent . in these cases , revenues are recorded on a net basis . software and hardware revenues are expected to fluctuate depending on our clients ' demand for these products . if we enter into contracts for the sale of services and software or hardware , management evaluates whether each element should be accounted for separately by considering the following criteria : ( 1 ) whether the deliverables have value to the client on a stand-alone basis ; and ( 2 ) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control ( only if the arrangement includes a general right of return related to the delivered item ) . further , for sales of software and services , management also evaluates whether the services are essential to the functionality of the software and whether management has fair value evidence for each deliverable . if management concludes that the separation criteria are met , then it accounts for each deliverable in the transaction separately , based on the relevant revenue recognition policies . generally , all deliverables of our multiple element arrangements meet these criteria and are accounted for separately , with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price . as a result , we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein . further , delivery of software and hardware sales , when sold contemporaneously with services , can generally occur at varying times depending on the specific client project arrangement . delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract . there are no significant cancellation or termination-type provisions for our software and hardware sales . contracts for our professional services provide for a general right , to the client or us , to cancel or terminate the contract within a given period of time ( generally 10 to 30 days ' notice is required ) . the client is generally responsible for any time and expenses incurred up to the date of cancellation or termination of the contract . cost of revenues cost of revenues consists primarily of cash and non-cash compensation and benefits , including bonuses and non-cash compensation related to equity awards . cost of revenues also includes the costs associated with subcontractors . third-party software and hardware costs , reimbursable expenses and other unreimbursed project-related expenses are also included in cost of revenues . project-related expenses will fluctuate generally depending on outside factors including the cost and frequency of travel and the location of our clients . cost of revenues does not include depreciation of assets used in the production of revenues which are primarily personal computers , servers , and other information technology related equipment . story_separator_special_tag more specifically , the increase in the cost of revenue is due to the increase in headcount to support the company 's ongoing revenue-producing projects and increased software revenue . the average number of colleagues performing services , including subcontractors , increased to 1,830 for the year ended december 31 , 2014 from 1,640 for the year ended december 31 , 2013. gross margin . gross margin increased 21 % to $ 149.3 million for the year ended december 31 , 2014 from $ 123.1 million for the year ended december 31 , 2013. gross margin as a percentage of revenues decreased to 32.7 % for the year ended december 31 , 2014 from 33.0 % for the year ended december 31 , 2013 , primarily due to the significant increase in software and hardware sales which typically have lower margins than services . services gross margin , excluding reimbursable expenses , increased to 37.2 % or $ 143.8 million for the year ended december 31 , 2014 from 36.6 % or $ 119.5 million for the year ended december 31 , 2013. the increase in services gross margin was primarily a result of higher average bill rates . the average bill rate for our professionals increased to $ 135 per hour for the year ended december 31 , 2014 from $ 123 per hour for the year ended december 31 , 2013 , primarily due to the improved pricing opportunities as the market for our services continues to improve . the average bill rate for the year ended december 31 , 2014 , excluding offshore delivery centers , was $ 147 per hour compared to $ 135 per hour for the year ended december 31 , 2013. selling , general and administrative . sg & a expenses increased 16 % to $ 90.2 million for the year ended december 31 , 2014 from $ 77.6 million for the year ended december 31 , 2013 due primarily to fluctuations in expenses as detailed in the following table . sg & a expenses , as a percentage of revenues , decreased to 19.8 % for the year ended december 31 , 2014 from 20.8 % for the year ended december 31 , 2013. replace_table_token_5_th 19 depreciation . depreciation expense increased 14 % to $ 3.7 million for the year ended december 31 , 2014 from $ 3.3 million for the year ended december 31 , 2013. the increase in depreciation expense was mainly attributable to increased capital expenditures and acquisitions . depreciation expense as a percentage of revenues was 0.8 % and 0.9 % for the years ended december 31 , 2014 and 2013 , respectively . amortization . amortization expense increased 81 % to $ 14.5 million for the year ended december 31 , 2014 from $ 8.0 million for the year ended december 31 , 2013. the increase in amortization expense was due to the addition of intangible assets acquired as a result of the company 's acquisition activity during 2014 and 2013 and the purchase and implementation of an erp system . acquisition costs . acquisition-related costs of $ 3.4 million were incurred during 2014 related to the acquisition of forwardthink , biopharm , trifecta , and zeon compared to $ 2.3 million during 2013 related to the acquisition of tritek , clear task , and corematrix . acquisition-related costs were incurred for legal , accounting , tax , investment bank and advisor fees , and valuation services performed by third parties . adjustment to fair value of contingent consideration . an adjustment of $ 1.5 million was recorded during the year ended december 31 , 2014 which represented the net impact of the fair market value adjustments to the earnings-based contingent consideration of the clear task and corematrix acquisitions . an adjustment of $ 0.3 million was made during the year ended december 31 , 2013 for the accretion of the fair value estimate for the earnings-based contingent consideration related to the clear task and corematrix acquisitions . provision for income taxes . we provide for federal , state , and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses . the effective income tax rate increased to 38.3 % for the year ended december 31 , 2014 from 32.0 % for the year ended december 31 , 2013. our effective tax rate for the year ended december 31 , 2014 only included the tax benefit for the 2014 research and development credit and domestic production deduction and the 2010 research and development tax credit . our effective tax rate for the year ended december 31 , 2013 included the benefit for the research and development credit for 2012 and 2013 and domestic production deduction for 2010 , 2011 , 2012 and 2013. year ended december 31 , 2013 compared to year ended december 31 , 2012 revenues . total revenues increased 14 % to $ 373.3 million for the year ended december 31 , 2013 from $ 327.1 million for the year ended december 31 , 2012. story_separator_special_tag $ 6.6 million to remit taxes withheld as part of a net share settlement of restricted stock vesting , and used $ 1.2 million to settle the contingent consideration for the purchase of clear task . for the year ended december 31 , 2013 , we received proceeds of $ 181.2 million from our line of credit and we realized a tax benefit of $ 2.6 million related to vesting of stock awards and stock option exercises plus $ 0.3 million in proceeds from the exercise of stock options and sales of stock through the employee stock purchase plan . we made payments of $ 165.0 million on our line of credit , used $ 13.8 million to repurchase shares of our common stock through the stock repurchase program , used $ 4.3 million to remit taxes withheld as part of a net share settlement of restricted stock vesting , and paid $ 0.4 million in fees related to our credit facility .
| financial results explanation for increases over prior year period ( in thousands ) ( in thousands ) for the year ended december 31 , 2013 for the year ended december 31 , 2012 total increase over prior year period increase attributable to acquired companies increase attributable to base business services revenues $ 326,589 $ 286,548 $ 40,041 $ 27,614 $ 12,427 software and hardware revenues 30,224 25,188 5,036 606 4,430 reimbursable expenses 16,512 15,360 1,152 918 234 total revenues $ 373,325 $ 327,096 $ 46,229 $ 29,138 $ 17,091 services revenues increased 14 % to $ 326.6 million for the year ended december 31 , 2013 from $ 286.5 million for the year ended december 31 , 2012. the increase in services revenues is primarily due to acquisitions during 2013 and 2012. services revenues attributable to our base business increased $ 12.4 million while services revenues attributable to acquired companies increased $ 27.6 million , resulting in a total increase of $ 40.0 million . software and hardware revenues increased 20 % to $ 30.2 million for the year ended december 31 , 2013 from $ 25.2 million for the year ended december 31 , 2012 due to the increase in the volume and magnitude of software renewals as compared to 2012. reimbursable expenses increased 8 % to $ 16.5 million for the year ended december 31 , 2013 from $ 15.4 million for the year ended december 31 , 2012 primarily as a result of the increase in services revenue . we did not realize any profit on reimbursable expenses . cost of revenues . cost of revenues increased 12 % to $ 250.2 million for the year ended december 31 , 2013 from $ 223.7 million for the year ended december 31 , 2012. the increase in cost of revenues was directly related to the increase in revenues attributable to the company 's base business and through acquisitions .
| 2,076 |
for purposes of measuring story_separator_special_tag ( dollars in thousands , except per share data ) operating environment : the united states economy continued to show signs of expansion in 2017 , as the gross domestic product ( “ gdp ” ) , the value of all goods and services produced in the nation , came in at an annual rate of 2.5 percent ( estimated ) in the fourth quarter . this comes on the heels of a third quarter reading of 3.2 percent in real gdp . the economy grew at 1.6 percent for all of 2016 , the worst performance since 2011 , after growing at a rate of 2.6 percent in 2015. the federal reserve board 's federal open market committee ( “ fomc ” ) increased the federal funds rate three times in 2017 ending the year at a range of 1.25 % to 1.50 % . in raising the key target range for the federal funds rate , the fomc noted strong labor markets and below target inflation . fomc officials expect inflation to stabilize around their 2.0 percent objective over the “ medium term ” . the median forecast is for a federal funds rate of 2.125 percent by year-end 2018 , implying that there will be three additional rate hikes in 2018. inflation picked up somewhat in 2017 , as the consumer price index ( “ cpi ” ) registered 2.1 percent for 2017 , just eclipsing the fomc 's benchmark of 2.0 percent . the cpi was 2.1 percent in 2016 as well . core personal consumption expenditure price index , which ignores food and energy , averaged 1.8 percent in 2017. on a national level , employment conditions improved in 2017. the civilian labor force increased 1.4 million , while the number of people employed increased 1.8 million in 2017. as a result , the annual unemployment rate for the u.s. fell in 2017 when compared to 2016. all sectors of employment , with the exception of the private sector , reported employment gains from the end of 2016. national , pennsylvania , new york and our market area 's non-seasonally-adjusted annual unemployment rates in 2017 and 2016 , are summarized as follows : replace_table_token_19_th employment conditions improved for both the commonwealth of pennsylvania and new york state in 2017 as evidenced by a decrease in their respective unemployment rates . with respect to the markets we serve , the unemployment rate decreased in all but one of the counties in which we have branches or atm locations . the lowest unemployment rate in 2017 , for all of the counties we serve , was montgomery county at 3.8 percent . with respect to the banking industry , net income for all federal deposit insurance corporation ( “ fdic ” ) -insured banks in 2017 totaled $ 164.8 billion , a decrease of $ 6.0 billion or 3.5 percent from 2016. approximately 56.2 percent of all institutions reported higher net income in 2016 , while only 5.4 percent reported net losses , a slight uptick from last year 's reported 4.2 percent unprofitable institutions . loan loss provisions of $ 51.1 billion in 2017 were $ 3.0 billion or 6.2 percent more than banks set aside in 2016. this is the third consecutive year that loan loss provisions have been higher than the preceding year . net interest income increased for the fourth year in a row , by $ 37.7 billion or 8.2 percent . noninterest income was $ 1.8 billion or 0.7 percent above the level of 2016. realized gains on sales of investments were -55- $ 1.7 billion or 43.8 percent less than a year ago . total noninterest expense increased $ 19.5 billion or 4.6 percent comparing 2017 and 2016. the return on average assets for 2017 was 0.97 percent compared to 1.04 percent in 2016. the united states economy continued to improve in 2017. this could affect future interest rates which may adversely impact bank earnings as net interest margins compress from the inability of management to keep funding costs low . continuous expense control , sound balance sheet management and lower loan loss provisions could offset some of the negative impact of the reduction in net interest margins . story_separator_special_tag style= '' display : inline ; '' > we experienced improvements in our asset quality as evidenced by a decrease in nonperforming assets of $ 2.6 million or 18.5 percent to $ 11.6 million or 0.68 percent of loans , net of unearned income , and foreclosed assets at december 31 , 2017 , from $ 14.2 million or 0.93 percent of loans , net of unearned income , and foreclosed assets at the end of 2016. the decrease resulted from a $ 3.6 million decrease in nonaccrual loans and a decrease in foreclosed assets of $ 0.1 million offset by an increase of $ 1.1 million in troubled debt restructured loans . for a further discussion of assets classified as nonperforming assets and potential problem loans , refer to the note entitled , “ loans , net and the allowance for loan losses , ” in the notes to consolidated financial statements to this annual report . we maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to individually evaluated loans , as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date . the balance in the allowance for loan losses account is based on past events and current economic conditions . we employ the ffiec interagency policy statement , as amended , and gaap in assessing the adequacy of the allowance account . under gaap , the adequacy of the allowance account is determined based on the provisions of fasb accounting standards codification ( “ asc ” ) 310 for loans specifically identified to be individually evaluated for impairment and the requirements of fasb asc 450 , for large groups of smaller-balance homogeneous loans to be collectively evaluated for impairment . story_separator_special_tag , the fomc actions to increase the targeted federal funds rate three times in 2017 , has resulted in higher deposit rates . -58- volatile deposits , time deposits $ 100 or more , averaged $ 125.2 million in 2017 , an increase of $ 13.8 million or 12.4 percent from $ 111.4 million in 2016. our average cost of these funds increased 14 basis points to 1.01 percent in 2017 , from 0.87 percent in 2016. this type of funding is susceptible to withdrawal by the depositor as they are particularly price sensitive and are therefore not considered to be a strong source of liquidity . market risk sensitivity : with respect to evaluating our exposure to irr on earnings , we utilize a gap analysis model that considers repricing frequencies of rsa and rsl . gap analysis attempts to measure our interest rate exposure by calculating the net amount of rsa and rsl that reprice within specific time intervals . a positive gap occurs when the amount of rsa repricing in a specific period is greater than the amount of rsl repricing within that same time frame and is indicated by a rsa/rsl ratio greater than 1.0. a negative gap occurs when the amount of rsl repricing is greater than the amount of rsa and is indicated by a rsa/rsl ratio less than 1.0. a positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period . a negative gap tends to indicate that earnings will be affected inversely to interest rate changes . at december 31 , 2017 and 2016 , we had cumulative one-year rsa/rsl ratios of 1.07 and 1.28. as previously mentioned , this indicated that if interest rates increase , our earnings would likely be favorably impacted . given current improvement in economic conditions and the recent action of the fomc to raise short-term rates and their consideration to continue to raise short-term rates in the 2018 , the focus of alco has been to maintain the positive gap position in order to safeguard future earnings from the potential risk of rising interest rates . during 2017 alco took steps to reduce the magnitude of our positive gap position and guard against rates unchanged through the origination of five year fixed rate loans and purchase of intermediate-term investment securities . alco will continue to focus efforts on strategies in 2018 in an attempt to maintain a positive gap position between rsa and rsl . however , these forward-looking statements are qualified in the aforementioned section entitled “ forward-looking discussion ” in this management 's discussion and analysis . the change in our cumulative one-year ratio from the previous year-end resulted from a $ 136.8 million or 22.0 percent increase in rsl coupled with a $ 17.4 million or 2.2 percent increase in rsa maturing or repricing within one year . the increase in rsl resulted primarily from a $ 75.4 million increase in interest-bearing transaction accounts and an increase in short-term borrowings of $ 41.0 million . the majority of the growth in money market and now accounts resulted from an increase in the deposit balances of local school districts and commercial customers . due to the somewhat cyclical nature associated with these deposits , we classified money market and now accounts in the “ due within twelve months ” category . with respect to the increase in rsa maturing or repricing within a twelve month time horizon , loans , net increased $ 43.4 million while investment securities decreased $ 27.0 million . short-term interest rates increased faster than longer-term rates during 2017 causing the yield curve to flatten . in an effort to mitigate irr in the investment portfolio and provide a source of liquidity , we chose to invest in fixed-rate , short-term and intermediate-term u.s. government-sponsored agency securities and , to a lesser extent , longer-term municipal securities . the increase in loans , net of unearned income , resulted from an increase in commercial lending , which primarily involves loans with adjustable-rate terms that reprice in the near term . liquidity : we employ a number of analytical techniques in assessing the adequacy of our liquidity position . one such technique is the use of ratio analysis to illustrate our reliance on noncore funds to fund our investments and loans maturing after 2017. at december 31 , 2017 , our noncore funds consisted of time deposits in denominations of $ 100 or more , repurchase agreements , short-term borrowings and long-term debt . large denomination time deposits are particularly not considered to be a strong source of liquidity since they are very interest rate sensitive and are considered to be highly volatile . at december 31 , 2017 , our net noncore funding dependence ratio , the difference between noncore funds and short-term investments to long-term assets , was 16.1 percent . our net short-term noncore funding dependence ratio , noncore funds maturing within one year , less short-term investments to long-term assets equaled 11.1 percent . comparatively , our ratios equaled 14.4 percent and 6.5 percent at the end of 2016 , which indicated an increase in our reliance on noncore funds . moreover , our basic liquidity surplus ratio , defined as liquid assets less short-term -59- potentially volatile liabilities as a percentage of total assets , declined to 3.7 percent at december 31 , 2017 , from 4.2 percent at december 31 , 2016. we believe that by supplying adequate volumes of short-term investments and implementing competitive pricing strategies on deposits , we can ensure adequate liquidity to support future growth . the consolidated statements of cash flows present the change in cash and cash equivalents from operating , investing and financing activities . cash and cash equivalents consist of cash on hand , cash items in the process of collection , noninterest-bearing and interest-bearing deposits with other banks and federal funds sold .
| review of financial position : total assets , loans and deposits were $ 2.2 billion , $ 1.7 billion and $ 1.7 billion , respectively , at december 31 , 2017. total assets , loans and deposits grew 8.5 percent , 10.4 percent and 8.2 percent , respectively , compared to 2016 year-end balances . the loan portfolio consisted of $ 1.3 billion of business loans , including commercial and commercial real estate loans , and $ 430.7 million in retail loans , including residential mortgage and consumer loans at december 31 , 2017. total investment securities were $ 281.8 million at december 31 , 2017 , including $ 272.5 million of investment securities classified as available-for sale and $ 9.3 million classified as held-to-maturity . total deposits consisted of $ 380.7 million in noninterest-bearing deposits and $ 1.3 billion in interest-bearing deposits at december 31 , 2017. stockholders ' equity equaled $ 265.0 million , or $ 35.82 per share , at december 31 , 2017 , and $ 256.6 million , or $ 34.71 per share , at december 31 , 2016. our equity to asset ratio was 12.21 percent and 12.83 percent at those respective period ends . dividends declared for the 2017 amounted to $ 1.26 per share representing 50.4 percent of net income .
| 2,077 |
through the fourth quarter of 2012 , the company reported its operations under three segments : snf , assisted story_separator_special_tag overview we own and operate skilled nursing and assisted living facilities in the states of alabama , arkansas , georgia , missouri , north carolina , ohio , oklahoma , and south carolina . as of december 31 , 2012 , through our wholly owned separate operating subsidiaries , we operate 50 facilities comprised of 46 skilled nursing facilities , three assisted living facilities and one independent living/senior housing facility totaling approximately 5,000 beds . our facilities provide a range of health care services to their patients and residents including , but not limited to , skilled nursing and assisted living services , social services , various therapy services , and other rehabilitative and healthcare services for both long-term residents and short-stay patients . as of december 31 , 2012 , of the total 50 facilities , we owned and operated 26 facilities , leased and operated 11 facilities , and managed 13 facilities ( including one consolidated variable interest entity ) . as part of our strategy to focus on the growth of skilled nursing facilities , we decided in the fourth quarter of 2011 to exit the home health business ; and accordingly , this business is reported as discontinued operations . we sold the assets of the home health business in 2012. additionally , in the fourth quarter of 2012 we entered into an agreement to sell six assisted living facilities located in ohio and executed a sublease arrangement to exit the skilled nursing business in jeffersonville , georgia . the six ohio assisted living facilities and the jeffersonville , georgia skilled nursing facility have an aggregate of 313 units in service . these seven facilities are also reported as discontinued operations . we sold the assets of four of the six ohio assisted living facilities in december 2012 , one in february 2013 , and the other in may 2013. as further discussed in the footnotes to the consolidated financial statements included in this annual report ( see note 20 , variable interest entities , and note 22 , related party transactions ) , effective august 1 , 2011 entities ( the `` oklahoma owners '' ) controlled by christopher brogdon ( vice chairman of the board of directors , owner of greater than 10 % of the outstanding common stock and former chief acquisition officer of the company ) and his spouse , connie brogdon , ( related parties to the company ) , acquired five skilled nursing facilities located in oklahoma ( the `` oklahoma facilities '' ) . the company entered into a management agreement with the oklahoma owners pursuant to which a wholly-owned subsidiary of the company supervises the management of the oklahoma facilities for a monthly fee equal to 5 % of the monthly gross revenues of the oklahoma facilities . upon acquisition , the company concluded it was the primary beneficiary of the oklahoma owners and pursuant to financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) topic 810-10 , consolidationoverall , consolidated the oklahoma owners in its 2011 consolidated financial statements . during the process of finalizing the 2012 financial statements , the company reassessed its prior conclusion that it should consolidate the oklahoma owners . in the reassessment process , the company concluded that it should not have consolidated the oklahoma owners . the company has deconsolidated the oklahoma owners effective january 1 , 2012 and the balance sheet , operations and cash flows of the oklahoma owners are not included in the company 's 2012 consolidated financial statements . the company further concluded that including the oklahoma owners in its 2011 financial statements was not material to such consolidated financial statements and therefore no adjustments have been made to the previously issued 2011 financial statements . note 20 , variable interest entities , in the consolidated financial statements included in part ii , item 8. , `` financial statements and supplementary data , '' includes summarized financial statements of the oklahoma owners for 2011 that are included in the company 's 2011 consolidated financial statements . 37 liquidity for the year ended and as of december 31 , 2012 , we had a net loss of $ 7.5 million and negative working capital of $ 5.9 million . at december 31 , 2012 , we had $ 15.9 million in cash and cash equivalents and $ 171.9 million in indebtedness , including current maturities and discontinued operations , of which $ 23.0 million is current debt ( including the company 's outstanding convertible promissory notes with a principal amount in the aggregate of $ 11.7 million which mature in october 2013 and approximately $ 3.7 million of mortgage notes included in liabilities of disposal group ) . our ability to achieve profitable operations is dependent on continued growth in revenue and controlling costs . we anticipate that scheduled debt service ( excluding outstanding convertible promissory notes but including principal , interest , collateral and capital improvement fund or other escrow deposits ) will total approximately $ 17.2 million and cash outlays for acquisition costs , maintenance capital expenditures , dividends on our series a preferred stock and income taxes will total approximately $ 4.7 million for the year ending december 31 , 2013. debt service requirements for the year ending december 31 , 2013 include approximately $ 1.9 million of bullet maturities that the company believes could be refinanced on a longer term basis . in recent periods , we have refinanced shorter term acquisition debt , including seller notes , with traditional longer term mortgage notes , some of which have been executed under government guaranteed lending programs . although , we anticipate the conversion to common stock of the company 's outstanding convertible promissory notes with a principal amount in the aggregate of $ 11.7 million which mature in october 2013 , we believe that our anticipated cash flow and committed funding sources would allow us to pay these notes in cash . story_separator_special_tag quail creek health and rehab on july 3 , 2012 , the company acquired a 118-bed skilled nursing facility located in oklahoma city , oklahoma , known as quail creek health and rehab . the total purchase price was $ 6.2 million including assumed fair valued indebtedness of $ 3.2 million . 39 companions specialized care center on august 17 , 2012 , the company acquired a 121-bed skilled nursing facility located in tulsa , oklahoma , known as companions specialized care center . the total purchase price was $ 5.9 million . sumter valley nursing and rehab on december 31 , 2012 , the company acquired a 96-bed skilled nursing facility located in sumter , south carolina , known as sumter valley nursing and rehab . the total purchase price was $ 5.6 million . georgetown healthcare and rehab on december 31 , 2012 , the company acquired an 84-bed skilled nursing facility located in georgetown , south carolina , known as georgetown healthcare and rehab . the total purchase price was $ 4.2 million . northwest nursing center on december 31 , 2012 , the company acquired an 88-bed skilled nursing facility located in oklahoma city , oklahoma , known as northwest nursing center . the total purchase price was $ 3.0 million . segments consistent with our strategy to focus on the growth of our skilled nursing facilities and in light of our sale of the majority of our assisted living facilities ( the completed sale of four of our assisted living facilities located in ohio in fourth quarter of 2012 ) , beginning in the fourth quarter of 2012 , we only evaluate operating performance for our 46 skilled nursing facilities , our remaining three assisted living facilities and one independent living facility on a combined basis . through the third quarter of 2012 , we previously evaluated our operations under three segments : skilled nursing facilities ( `` snf '' ) , assisted living facilities ( `` alf '' ) , and corporate & other . accordingly , management discussion and analysis on a segment basis is not included herein . primary performance indicators we focus on two primary indicators in evaluating our financial performance . those indicators are facility occupancy and patient mix . facility occupancy is important as higher occupancy generally leads to higher revenues . in addition , concentrating on increasing the number of medicare covered admissions ( `` the patient mix '' ) helps in increasing revenues . we include commercial insurance covered admissions that are reimbursed at the same level as those covered by medicare in our medicare utilization percentages and analysis . we also evaluate `` same facilities '' and `` recently acquired facilities '' results . same facilities represent those owned and leased facilities we began to operate prior to january 1 , 2011. recently acquired facilities results represents those owned and leased facilities we began to operate subsequent to january 1 , 2012. the tables below reflect our 2012 and 2011 patient care revenue key performance indicators for our skilled nursing facilities excluding discontinued operations . excluding discontinued operations , our assisted living facilities represent approximately 2 % and 1 % of our total consolidated revenues in 2012 and 2011 , respectively . 40 snf average occupancy replace_table_token_7_th we continue our work towards maximizing the number of patients covered by medicare where our operating margins are higher . snf patient mix replace_table_token_8_th snf analysis by state for the year ended december 31 , 2012 : replace_table_token_9_th snf analysis by state for the year ended december 31 , 2011 : replace_table_token_10_th 41 medicare reimbursement rates and procedures are subject to change from time to time , which could materially impact our revenues . medicare reimburses our skilled nursing facilities under pps for certain inpatient-covered services . under the pps , facilities are paid a predetermined amount per patient , per day , based on the anticipated costs of treating patients . the amount to be paid is determined by classifying each patient into a rug category that is based upon each patient 's acuity level . on july 29 , 2011 , cms announced a final rule reducing medicare skilled nursing facility pps payments in fiscal year 2012 by $ 3.87 billion , or 11.1 % lower than payments for fiscal year 2011. cms announced it is recalibrating the case-mix indexes ( `` cmi '' ) for fiscal year 2012 to restore overall payments to their intended levels on a prospective basis . each rug group consists of cmis that reflect a patient 's severity of illness and the services that a patient requires in the skilled nursing facility . in transitioning from the previous classification system to the new rug-iv , cms adjusted the cmis for fiscal year 2011 based on forecasted utilization under this new classification system to establish parity in overall payments . the fiscal year 2011 recalibration of the cmis will result in a reduction to skilled nursing facility payments of $ 4.47 billion , or 12.6 % . however , this reduction would be partially offset by the fiscal year 2012 update to medicare payments to skilled nursing facilities . the update , a 1.7 % or $ 600 million increase , reflects a 2.7 % market basket increase , reduced by a 1.0 % multi-factor productivity ( `` mfp '' ) adjustment mandated by the ppaca . the combined mfp-adjusted market basket increase and the fiscal year 2012 recalibration will yield a net reduction of $ 3.87 billion , or 11.1 % . divestitures as part of the company 's strategy to focus on the growth of its skilled nursing segment , the company decided in the fourth quarter of 2011 to exit the home health segment of the business . in the fourth quarter of 2012 , the company continued this strategy and entered into an agreement to sell six assisted living facilities located in ohio . the company also entered into a sublease arrangement in the fourth quarter of 2012 to exit the operations of a skilled nursing facility in jeffersonville , georgia .
| results of operations same and recently acquired facility patient care revenue analysis : total patient care revenues year ended december 31 , amounts in ( 000 's ) 2012 2011 same facilities $ 112,811 $ 111,682 recently acquired facilities 86,691 24,910 total $ 199,502 $ 136,592 45 continuing operations : replace_table_token_11_th patient care revenues total patient care revenues increased by $ 62.9 million , or 46.1 % from 2011 to 2012 , primarily as a result of the facilities acquired in 2012 , full year of operations in 2012 for facilities acquired in 2011 and the optimization of resident mix . management revenues management revenues ( net of eliminations ) increased by $ 0.5 million , or 33.1 % . in 2011 the management fee charged to the oklahoma owners was eliminated in the process of consolidating the oklahoma owners as a consolidated variable interest entity . upon deconsolidation of the oklahoma owners in 2012 , the management fee is recognized as a third party transaction . cost of services cost of services increased by $ 56.4 million , or 50.4 % , in 2012 as compared to 2011 primarily from the acquisitions in both years . cost of services as a percentage of patient care revenue increased slightly from 81.9 % in 2011 to 84.3 % in 2012. the increase in cost of services as a percentage of patient care revenue is primarily due to the effect in 2012 from the operations of certain 2012 acquired facilities prior to the company achieving completion of its cost reduction optimization strategy for acquired facilities .
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in 2016 , 2015 , and 2014 , the company sold 25 hotels , 1 7 hotels , and 1 3 hotels , respectively , resulting in total gains of $ 24 ,256 , $ 7,759 , and $ 2,749 , respectively , of which $ 23,575 , $ 4,996 , and $ 0 , respectively , was included in continuing operations . included story_separator_special_tag overview condor hospitality trust , inc. is a self-administered reit for federal income tax purposes that specializes in the investment and ownership of high-quality select-service , limited-service , extended stay , and compact full service hotels . substantially all of our opera tions are conducted through chlp , our operating partnership , of which the company is the sole general p artner . as of december 31 , 2016 , the company owned 19 hotels , representing 2,047 rooms , in 12 states , including one hotel owned through an 80 % interest in an unconsolidated joint venture . condor experienced another year of positive transition in 2016 with significant enhancements to its portfolio composition , equity structure , debt profile , and brand . the company 's new strategy enabled the company to announce its first common dividend since 2009. the company declared and paid three consecutive quarterly dividends commencing in the second quarter of 2016. s ignificant accomplishments for 2016 are summarized as follows : portfolio composition : in 2016 , the company sold 25 legacy hotels generating $ 61.4 million of gross proceeds . these legacy asset sales were completed in individual transactions at valuations management believes were attractive . the net proceeds were re cycled into two acquisitions . in august 2016 , the company closed on a joint venture to acquire the aloft atlanta downtown for $ 43.6 million . in december 2016 , the company acquired the aloft leawood for $ 22.5 million . both of these assets are representative of the company 's new inve stment strategy to acquire high-quality , premium- branded , select- service assets . subsequent to the close of the year , on january 23 , 2017 , the company announced that it had executed an agreement to purchase a portfolio of four home2 suites hotels for $ 73.8 million . the transaction is expected to close in the first quarter of 2017 , subject to customary closing conditions . equity structure : on march 16 , 2016 , the company closed on a $ 30 .0 million private placement , enabling the full redemption , including accrued dividends , of the series a and series b preferred stock . simultaneous ly with the sale and issuance of condor 's series d preferred stock in the $ 30.0 million private placement , the company exchanged all of its outstanding series c preferred stock for new series d pre ferred stock . subsequent to the close of 2016 , on february 28 , 2017 , the holders of the series d preferred stock voluntarily converted to common stock . at the time of conversion , the series d holders were granted $ 9.3 million of newly created series e preferred stock . debt profile : subsequent to the c lose of the year , on march 1 , 2017 , the company closed a new $ 90 .0 million secured credit facility . keybank and the huntington national bank served as the joint lead arrangers for the revolving credit facility . the new credit facility significantly reduced the company 's weighted average cost of debt and enabled the refinancing of all 2017 and 2018 maturities . the credit facility also enables the company to accelerate the closing of acquisitions . management believes the new facility is a strong indicator of condor 's credit-worthiness and the confidence of the debt community in the company 's new strategic direction . rebranding : the company completed a comprehensive rebranding in 2016. the company launched a new website in march 2016 and revised all reporting materials to reflect the new strategic direction of the company . with the aforementioned successes serving as a foundation for future growth , condor 's management is excited about 2017 and is confident in its ability to achieve the mission of providing attractive total returns in the lodging sector to condor 's shareholders . condor remains cautiously optimistic on the outlook of the hospitality sector in 2017. the hospitality sector experienced its seventh straight year of positive revpar growth in 2016. the expected decline in the pace of revpar growth materialized in 2016 and is expected to continue into 2017. most industry forecasts estimate that u.s. revpar will grow at a slower pace in 2017 , generally between 2.0 % - 3.0 % . the slower pace of revpar growth we believe is primarily driven by concerns on new supply and concerns on slowing economic growth . condor management believes the sectors and segments it targets will see growth in excess of these estimates . while many primary markets have a large influx of new supply , the markets condor targets are experiencing less 31 aggressive supply growth . additionally , the markets c ondor targets are less affected , we believe , by alternative lodging platforms like airbnb . these supply factors , combined with the possibility of cont inued positive economic growth , we believe should enable our hotels to experience growth in revpar in 2017. we believe that the performance of the hotel industry is strongly correlated with the per formance of the macro-economy . t he equity markets have so far reacted favorably following the u.s. presidential election . however , it is unknown if the new a dministration 's policies will have a position or negative impact on the economy . additionally , the continued threat of terrorism and economic and geopolitical turbulence abroad could derail the macro-economy . story_separator_special_tag at the beginning of 2016 , the company had 16 hotels held for sale and during the year classified an additional 1 6 hotels as held for sale . twenty-five of these hotels were sold during 2016. if a hotel is considered held for sale as of the most recent balance sheet presented or was sold in any period presented , the hotel property and the debt it collateralizes are shown as held for sale in all periods presented . as discussed in the footnotes to the consolidated financial statements , as of october 1 , 2014 we adopt ed asu 2014-08 which changes the criteria for reporting a discontinued operation such that only disposals representing a strategic shift in operations should be presented as discontinued operations subsequent to adoption . as a result of this adoption , only the operations of hotels meeting the criteria to be considered held fo r sale prior to october 1 , 2014 ( excluding those subsequently reclassified as held for use ) , none of which remain unsold at december 31 , 2016 , are included in discontinued operations for all periods presented as no individual hotel disposition represents a strategic s hift that has ( or will have ) a major effect on our operations or financial results . 34 operating performance metrics the following table presents our revpar , adr , and o ccupancy for our same store operations . the comparisons fo r same store operations include all of our hote ls owned as of december 31 , 2016 with the exception of the three ho tels we acquired in october 2015 , the hotel acquired through our atlanta jv in august 2016 , and the hotel acquired in december 2016 ( 14 hotels in cluded in same store results , seven of which are considered held for use ( “ hfu ” ) and seven of which are considered held for sale ( “ hfs ” ) ) . all hotels included in same store operations were owned throughout each of the periods presented . the performance metrics for the hotels acquired in 2015 and 2016 represent post-acquisition operations only and are separately presented . performance metrics presented for the hotel owned through our atlanta jv reflect 100 % of the operating results of the property including our interest and the interest of our joint venture partner . replace_table_token_10_th in the same store hfu portfolio of hotels , 2016 revpar decreased 1.3 % , driven by a decrease of 3.2 % in occupancy partially offset by an increase of 2.0 % in adr . this decrease in occupancy was driven by market challenges facing these hotels as a result of declines in the oil and gas , rail , and fracking industries as well as renovation interruption at three of these hotels during the 2016. despite the decrease in occupancy , the company was able to increase adr due to continued improvement in the economy and , to a lesser extent , decreases in inventory as a result of the ongoing renovations at certain hotels . in the same store hfu portfolio of hotels , 2015 revpar increased 7.9 % from 2014 , driven by an increase in adr of 8.1 % . in 2015 , the company focused on increasing adr in light of an improving economy and increasing leisure and transient travel . story_separator_special_tag weighted average interest rate on total debt outstanding between the periods , from 6.48 % at december 31 , 2014 to 5.31 % at december 31 , 2015 , as a result of debt repaid upon the sale of properties and debt refinancings during 2015 . 37 the $ 1,301 increase in general and administrative expense was driven by increased compensation expense resulting from compensation arrangements put into place with the new management team in 2015 and severance accrued for management who left the company during the year , as well as recruiting expenses incurred in relation to those transitions . increased director and officer insurance premiums , increased travel , legal , and professional fees expense resulting from our name change , increased transactional activity during t he year , and increased director s ' fees resulting from the increased size of our board of directors also contributed to this change . acquisition and terminated transaction costs will fluctuate period to period based on our acquisition activities . acquisition costs typically consist of transfer taxes , legal fees , and other costs associated with acquiring a hotel property as well as expenses incurred related to transactions that were terminated during the year . the increase in these expenses in 2015 was a result of the three acquisitions consummated during the year as well as increased activity by management to review potential future transactions . the $ 246 of terminated equity transactions expense in 2015 consists of charges incurred in the preparation of an exchange offer commenced on august 6 , 2015. this offer was withdrawn on september 17 , 2015 . impairment ( loss ) recovery in 2015 , we incurred $ 3,708 of imp airment losses , all of which were included in continuing operations with the exception o f net recovery of $ 121 included in discontinued operations . in 2014 , we incurred impairment losses totaling $ 2,921 , of which $ 1,269 was in continuing operations and $ 1,652 was in discontinued operations . all impairments recognized in both years related either to hotels held for sale at some point or sold during the year . dispositions in 2015 , eight hotels were sold with gains totaling $ 7,759 and nine hotels were sold that had been previously impaired and as such had no gains . in 2014 , five hotels were sold with gains totaling $ 2,749 and eight hotels were sold that had been previously impair ed and as such had no gains .
| results of operations comparison of the year ended december 31 , 2016 to the year en ded december 31 , 2015 ( in thousands , except per share amounts ) replace_table_token_11_th 35 revenue during 2016 , revenue from continuing operations decreased by $ 8,067 between the periods . revenue from properties acquired i n and subsequent to the fourth quarter of 2015 increased $ 10,175 and revenue from our other held for use asset s remained consistent , decreasing by $ 129 . revenue from held for sale and sol d properties decreased by $ 18,113 driven by property sales during the periods presented . expenses hotel and property operations expense from continuing operations decreased by $ 6,275 , driven by declines resulting from sold hotels partially offset by increases related to newly acquired properties . in totality , hotel and operations expenses from continuing operations decreased as a percentage of revenue by 0.6 % because of increases in adr and because the legacy hotels that remain in our portfolio and our recent acquisitions have higher operating margins than the hotels that were sold during the period . interest exp ense and depreciation expense from continuing operations decreased by $ 812 and $ 210 , respectively , between the periods as a result of a net decrease in the size of the company 's hotel portfolio and thus its debt levels . additionally , interest expense was favorably impacted by a decrease in the weighted average interest rate on total debt outstanding between the periods , from 5.31 % at december 31 , 2015 to 4.86 % at december 31 , 2016 , as a result of debt repaid upon the sale of properties and the lower than average interest rate obtained on the great western bank debt obtained as part of the leawood aloft acquisition in december 2016 .
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asu 2016-15 is effective for fiscal years beginning after december 15 , 2018 , and interim periods within fiscal years beginning after december 15 , 2019. early adoption is permitted , including adoption in an interim period . the company adopted the guidance retrospectively effective february 4 , 2019 , which did not have a material effect on the company 's condensed consolidated financial position and results of operations . f- 18 the lovesac company consolidated notes to financial statements february 2 , 2020 and february 3 , 2019 note 1 - operations and significant accounting policies ( continued ) new accounting pronouncements ( continued ) story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. as discussed in the section titled “ note about forward-looking statements , ” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties , as well as assumptions that , if they never materialize or prove incorrect , could cause our results to differ materially from those expressed or implied by such forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those identified below and those discussed in the section titled “ risk factors ” under part i , item 1a in this annual report on form 10-k. we operate on a 52- or 53-week fiscal year that ends on the sunday closest to february 1. each fiscal year generally is comprised of four 13-week fiscal quarters , although in the years with 53 weeks , the fourth quarter represents a 14-week period . overview we are a technology driven , omni-channel company that designs , manufactures and sells unique , high quality furniture comprised of modular couches called sactionals and premium foam beanbag chairs called sacs . we market and sell our products through modern and efficient showrooms and , increasingly , through online sales . we believe that our ecommerce centric approach , coupled with our ability to deliver our large upholstered products through nationwide express couriers , is unique to the furniture industry . the name “ lovesac ” was derived from our original innovative product , a premium foam beanbag chair , the sac . the sac was developed in 1995 and provided the foundation for the company . we believe that the large size , comfortable foam filling and irreverent branding of our sacs products have been instrumental in growing a loyal customer base and our positive , fun image . our sacs represented 17.0 % and 24.8 % of our sales for fiscal years 2020 and 2019 , respectively . our sactionals product line currently represents a majority of our sales . sactionals are a couch system that consists of two components , seats and sides , which can be arranged , rearranged and expanded into thousands of configurations easily and without tools . our sactional products include a number of patented features relating to their geometry and modularity , coupling mechanisms and other features . we believe that these high quality premium priced products enhance our brand image and customer loyalty and expect them to continue to garner a significant share of our sales . our sactionals represented 80.7 % and 72.5 % of our sales for the for fiscal 2020 and 2019 , respectively . we are currently reviewing our allocation methodology of the application of product discounts to each product segment of our business which we believe will provide a more comparative view of product category growth on a go forward basis . sacs and sactionals come in a wide variety of colors and fabrics that allow consumers to customize their purchases in numerous configurations and styles . we provide lifetime warranties on our sactionals frames and the foam used in both product lines , and 3-year warranties on our covers . our designed for life trademark reflects our dynamic product line that is built to last and evolve throughout a customer 's life . customers can continually update their sacs and sactionals with new covers , additions and configurations to accommodate changes in their family and housing situations . we believe the strength of our brand is reflected in the number of customers who routinely share their purchases of lovesac products with their friends through social media , often displaying our logos or company name in their posts . our customers include celebrities and other influencers who support our brand through postings made on an uncompensated and unsolicited basis . 28 we currently market and sell our products through 91 showrooms at top tier malls , lifestyle centers and street locations in 35 states in the u.s. our modern , efficient showrooms are designed to appeal to millennials and other purchasers looking for comfortable , enduring , premium furniture . they showcase the different sizes of our sacs , the myriad forms into which our sactionals can be configured , and the large variety of fabrics that can be used to cover our products . our retail showrooms are technology driven and focused on educating prospective customers about the many benefits of our unique products , enabling us to require just 498 to 1,794 square feet for each showroom . as part of our direct to consumer sales approach , we also sell our products through our ecommerce platform . we believe our products are uniquely suited to this channel . our foam-based sacs can be reduced to one-eighth of their normal size and each of our sactionals components weighs less than 50 pounds upon shipping . with furniture especially suited to ecommerce applications , our sales completed through this channel accounted for 23.9 % and 19.9 % of our total sales for fiscal 2020 and 2019 , respectively . our showrooms and other direct advertising and marketing efforts work in concert to drive customer conversion in ecommerce . story_separator_special_tag we continue to explore other pop-up and shop in shop partnerships and opportunities to promote our products and facilitate customers interacting with our products in the real world . other sales which includes pop-up and shop in shop sales accounted for 12.7 % and 11.9 % of our total sales for fiscal 2020 and 2019 , respectively . factors affecting our operating results while our growth strategy has contributed to our improving operating results , it also presents significant risks and challenges . these strategic initiatives will require substantial expenditures . the timing and magnitude of new showroom openings , existing showroom renovations , and marketing activities may affect our results of operations in future periods . other factors that could affect our results of operations in future periods include : impact of covid-19 in march 2020 , the world health organization declared the outbreak of covid-19 as a global pandemic , and , in the following weeks , many u.s. states and localities issued lockdown orders impacting the operations of our stores and consumer demand . since then , the covid-19 situation within the u.s. has rapidly escalated . on april 1 , 2020 , we announced that all showroom locations will remain closed until further notice . we will follow the guidance of local , state and federal governments , as well as health organizations , to determine when we can safely reopen our showrooms . additionally , we implemented a reduction in workforce of approximately 445 part time employees ( representing 57 % of our total headcount ) as well as a temporary reduction in executive cash compensation . cash compensation was reduced by 20 % for shawn nelson , chief executive officer , jack krause , president and chief operating officer , and donna dellomo , executive vice president and chief financial officer . the base salaries of all other senior management and full-time headquarter team members has been temporarily reduced by graduated amounts . our board of directors has also agreed to a temporary reduction of its retainer and monitoring fees and an extension of the associated payment timeline . we continue to monitor the situation closely and it is possible that we will implement further measures . overall economic trends the industry in which we operate is cyclical . in addition , our revenues are affected by general economic conditions . purchases of our products are sensitive to a number of factors that influence the levels of consumer spending , including economic conditions , consumer disposable income , housing market conditions , consumer debt , interest rates and consumer confidence . seasonality our business is seasonal . as a result , our revenues fluctuate from quarter to quarter , which often affects the comparability of our results between periods . net sales are historically higher in the fourth fiscal quarter due primarily to the impact of the holiday selling season . competition the retail industry is highly competitive and retailers compete based on a variety of factors , including design , quality , price and customer service . levels of competition and the ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations . how we assess the performance of our business in assessing the performance of our business , we consider a variety of financial and operating measures , including the following : net sales net sales reflect our sale of merchandise plus shipping and handling revenue less returns and discounts . sales made at company operated showrooms , including shop-in-shops and pop-up shops , and via the web are recognized in accordance with the guidance set forth in asc 606 , which is typically at the point of transference of title when the when the goods are shipped . 30 comparable showroom sales comparable showroom sales are calculated based on point of sale transactions from showrooms that were open at least fifty-two weeks as of the end of the reporting period . these sales will differ from sales on our income statement which are reported when goods are shipped and title has transferred to the customer . a showroom is not considered a part of the comparable showroom sales base if the square footage of the showroom changed or if the showroom was relocated . if a showroom was closed for any period of time during the measurement period , that showroom is excluded from comparable showroom sales . for fiscal years 2020 and 2019 , 14 and 6 showrooms , respectively wer e excluded from comparable showroom sales . comparable showroom sales allow us to evaluate how our showroom base is performing by measuring the change in period-over-period net sales in showrooms that have been open for twelve months or more . while we review comparable showroom sales as one measure of our performance , this measure is less relevant to us than it may be to other retailers due to our fully integrated , omni-channel , go-to-market strategy . as a result , measures that analyze a single channel are less indicative of the performance of our business than they might be for other companies that operate their distribution channels as separate businesses . further , certain of our competitors and other retailers calculate comparable showroom sales ( or similar measures ) differently than we do . as a result , the reporting of our comparable showroom sales may not be comparable to sales data made available by other companies . customer lifetime value and customer acquisition cost we calculate cac on an annual basis by dividing our expenses associated with acquiring new customers for a fiscal year by the number of new customers we acquire in that fiscal year . we include premium rent for locations above commercial rates , media costs to new customers , and a portion of showroom merchandising costs in our marketing expenses associated with acquiring new customers when calculating our cac .
| basis of presentation and results of operations the following discussion contains references to fiscal years 2020 and 2019 which represent our fiscal years ended february 2 , 2020 , and february 3 , 2019 , respectively . our fiscal year ends on the sunday closest to february 1. both fiscal 2020 and fiscal 2019 were 52 week periods . the following table sets forth , for the periods for fiscal 2020 and fiscal 2019 , our consolidated statement of operations as a percentage of total revenues : replace_table_token_6_th 32 fiscal 2020 compared to fiscal 2019 net sales net sales increased $ 67.5 million , or 40.7 % , to $ 233.4 million in fiscal 2020 compared to $ 165.9 million in fiscal 2019. the increase in net sales is primarily due to an increase in new customers , which grew by 22.5 % in fiscal 2020 as compared to 24.7 % in fiscal 2019 and was accompanied by an increase in the total number of units sold by 16.3 % over prior year . the fiscal 2020 average net sales based on point of transactions per showroom is $ 1,825,773 compared to $ 1,569,809 in fiscal 2019 , which reflects a higher average order volume per customer . we had 91 and 75 showrooms open as of february 2 , 2020 , and february 3 , 2019 , respectively .
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in addition to historical information , this discussion and analysis contains forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the exchange act . operating results are not necessarily indicative of results that may occur for the full fiscal year or any other future period . the term `` private synlogic '' refers to synlogic , inc. prior to the consummation of the merger described herein . the term `` mirna '' refers to mirna therapeutics , inc. prior to the consummation of the merger described herein . unless otherwise indicated , references to the terms `` synlogic , '' “ the company , '' `` we , '' `` our '' and `` us '' refer to private synlogic prior to the consummation of the merger described herein and synlogic , inc. ( formerly known as mirna therapeutics , inc. ) upon the consummation of the merger described herein . overview business synlogic is a clinical-stage biopharmaceutical company focused on the discovery and development of synthetic biotic medicines . synthetic biotic medicines are generated from synlogic 's proprietary drug discovery and development platform , leveraging a reproducible , modular approach to synthetic biology to develop beneficial microbes which perform or deliver critical therapeutic functions . synthetic biotic medicines are designed to metabolize a toxic substance , compensate for missing or damaged metabolic pathways , or deliver combinations of therapeutic factors . synlogic 's goal is to discover , develop , and ultimately commercialize synthetic biotic medicines . synlogic 's proprietary pipeline includes synthetic biotic medicines for the treatment of metabolic disorders including phenylketonuria ( pku ) and enteric hyperoxaluria . we are building a portfolio of partner-able assets in immunology and oncology . in a clinical trial with our lead program synb1618 , we have demonstrated consumption of phenylalanine ( phe ) , an amino acid that accumulates in a rare metabolic disorder known as pku and are expanding our pipeline based on learnings from this program . we have also demonstrated that our pre-clinical candidate synb8802 can consume dietary oxalate and reduce hyperoxaluria in animal models . we are designing synb8802 to be tested in patients with enteric hyperoxaluria , a disease which leads to dangerously high levels of urinary oxalate and for which patients have few treatment options today . we believe we have the core competencies in synthetic biology and manufacturing , as well as translational medicine , regulatory experience and clinical development to successfully discover and develop our synthetic biotic medicines . in june 2019 , we announced an expanded collaboration with ginkgo bioworks , inc. ( ginkgo ) to complement our in-house expertise in strain design and development . ginkgo uses software and automation to program and optimize microbial strains at a large scale . ginkgo 's technology provides us with a synthetic biology-based cell programming platform for testing thousands of microbial strains to accelerate progression of early preclinical leads to drug candidates optimized for clinical development . while we believe that our synthetic biotic platform has potential to address a broad range of diseases , our initial pipeline focus is on metabolic diseases . we will consider leveraging partnerships to advance programs for other diseases including oncology and inflammatory disorders . our most advanced programs target metabolic diseases that could potentially be treated by oral delivery of synthetic biotic medicines . these includes conditions caused by a genetic mutation characterized by a dysfunctional metabolic pathway including pku , as well as acquired metabolic diseases caused by organ dysfunction , such as enteric hyperoxaluria . when delivered orally , synthetic biotic medicines are designed to function in the gut to consume a disease-causing toxic metabolite with the intended consequence of reducing its systemic or urinary levels . we believe that success in our metabolic disease programs will enable us to demonstrate the potential of our synthetic biotic medicines while bringing meaningful change to the lives of patients suffering from these debilitating conditions . 65 impact of the covid-19 pandemic on our business in december 2019 , an outbreak of a novel strain of coronavirus was identified in wuhan , china . this virus continues to spread globally , has been declared a pandemic by the world health organization and has spread to over 100 countries , including the united states . the impact of this pandemic has been and will likely continue to be extensive in many aspects of society , which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world . the extent to which the coronavirus impacts us will depend on future developments , which are highly uncertain and can not be predicted , including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact , among others . our ability to enroll our clinical trials will be dependent on many factors , including the progression of the pandemic and its impact on patients and the investigators at our clinical trial sites . we are actively working with sites and investigators to mitigate these risks . over the coming weeks and months , we will continue to carefully monitor the situation with respect to each of our clinical trials and follow guidance from local and federal health authorities . phenylketonuria our most advanced product candidate is synb1618 , an oral therapy intended for the treatment of pku , a rare metabolic disease in which phe accumulates in the body as a result of genetic defects . elevated levels of phe are toxic to the brain and can lead to neurological dysfunction . synb1618 is designed to function in the gut of patients to reduce excess phe , with the goal of lowering levels in the blood and other tissues . synb1618 has received both fast track designation and orphan drug designation for pku from the u.s. food and drug administration ( fda ) . story_separator_special_tag in may 2020 , we announced the termination of our collaboration with abbvie s.à.r.l . ( “ abbvie ” ) to develop synthetic biotic medicines for the treatment of types of inflammatory bowel diseases , including crohn 's disease and ulcerative colitis . upon termination , we regained all rights to develop these and new ibd synthetic biotic medicines for all effectors targeting ibd . this allows us to fully leverage our expertise in strain engineering , quantitative biology , regulatory , and manufacturing to expand our wholly owned gi-based program portfolio to include ibd . we further regained the rights to partner these ibd programs . we may enter into additional strategic partnerships in the future to maximize the value of our programs and our synthetic biotic platform . we currently operate in one reportable business segment—the discovery and development of synthetic biotic medicines . to date , we have dedicated substantially all of our activities to the research and development of our product candidates . as of march 2021 , we have received approximately $ 340.1 million in proceeds as we financed our operations primarily through the sale of preferred stock , common stock , preferred units , warrants , payments received under the abbvie collaboration agreement , interest earned on investments , and cash received in the merger . we have not generated any revenue to date from product sales and have incurred significant operating losses since our inception . we have incurred net losses of approximately $ 59.2 million and $ 51.4 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 and 2019 , we had an accumulated deficit of approximately $ 230.3 million and $ 171.1 million , respectively , and we expect to incur losses for the foreseeable future as we develop our product candidates . we expect our expenses and capital requirements will increase substantially in connection with our ongoing activities , as we : complete preclinical studies , initiate and complete clinical trials for product candidates ; contract to manufacture product candidates ; advance research and development related activities to expand our product pipeline ; seek regulatory approval for our product candidates ; maintain , expand and protect our intellectual property portfolio ; 67 hire additional staff , including clinical , scientific , and management personnel ; expand our existing infrastructure and secure space in a facility to support continued growth in our research and development efforts ; and add operational and finance personnel to support product development efforts and to support operating as a public company . we do not expect to generate product revenue unless and until we successfully complete clinical development and obtain regulatory approvals for our product candidates , either alone or in collaboration with third parties . additionally , we expect to utilize third-party contract research organizations ( cros ) and contract manufacturing organizations ( cmos ) to carry out our clinical development and manufacturing activities , and we do not yet have a commercial organization . if we obtain regulatory approval for any of our product candidates , we expect to incur significant expenses related to developing our internal commercialization capability to support product sales , marketing and distribution . accordingly , we anticipate that we will seek to fund our operations through public or private equity or debt financings , collaborations or licenses , finance lease transactions or other available financing transactions . however , we may be unable to raise additional funds through these or other means when needed . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if it will be able to achieve or maintain profitability . even if we are able to generate product revenue , we may not become profitable . financial overview revenue revenue to date was generated from our collaboration agreement with abbvie . in may 2020 , we announced the termination of our collaboration with abbvie . upon termination of the collaboration with abbvie , we regained all rights to develop the ibd synthetic biotic medicines previously developed with abbvie as well as new ibd synthetic biotic medicines for all effectors targeting ibd . due to the termination of this agreement , we do not expect further revenue from abbvie . see note 10 , “ collaboration agreements : abbvie collaboration ” in the notes to the consolidated financial statements appearing elsewhere in this annual report on form 10-k for a full discussion of this arrangement . research and development expense research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates , including the conduct of preclinical and clinical studies and product development , which are expensed as they are incurred . these expenses consist primarily of : compensation , benefits and other employee related expenses ; supplies to support our internal research and development efforts ; research and development related facility and depreciation costs ; leased manufacturing space ; and third-party contract costs relating to research , process and formulation development , preclinical and clinical studies and regulatory operations . the lengthy process of securing regulatory approvals for new drugs requires the expenditure of substantial resources . any delay or failure to obtain regulatory approvals would materially adversely affect our product candidate development efforts and our business overall . given the inherent uncertainties of pharmaceutical product development , we can not estimate with any degree of certainty the likelihood , timing or cost of obtaining regulatory approval and marketing our product candidates and thus , when , if ever , our product candidates will generate revenues and cash flows . 68 the successful development of our product candidates is highly uncertain and subject to a number of risks . refer to the risk factors under the heading risks related to the development of our product candidates in part ii , item 1a , found elsewhere in this annual report on form 10- k .
| results of operations the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial results . replace_table_token_2_th year ended december 31 , 2020 compared to year ended december 31 , 2019 revenue years ended december 31 , change 2020 2019 $ % ( dollars in thousands ) revenue $ 545 $ 2,224 $ ( 1,679 ) ( 75 ) % revenue was $ 0.5 million for the year ended december 31 , 2020 compared to $ 2.2 million for the year ended december 31 , 2019. revenue for the years ended december 31 , 2020 and 2019 was related to the recognition of deferred revenue from services performed and payments received under the abbvie collaboration . in may 2020 , we announced the termination of our collaboration with abbvie . operating expenses replace_table_token_3_th research and development expense research and development expense was $ 47.5 million for the year ended december 31 , 2020 compared to $ 41.9 million for the year ended december 31 , 2019. the increase of $ 5.6 million was primarily due to an increase of $8.9 million of non-clinical costs , $ 1.5 million in clinical development costs associated with our synb8802 program , and $ 0.8 million in clinical development costs associated with our synb1891 program .
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factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus , particularly in the sections entitled “ risk factors ” and “ cautionary note regarding forward-looking statements. ” overview we manufacture , sell and service a broad range of specialty electrical transmission , distribution and on-site power generation equipment for applications in the utility , industrial , commercial and backup power markets . our principal products and services include custom-engineered electrical transformers and engine-generator sets and controls , complemented by a national field-service network to maintain and repair power generation assets . we are headquartered in fort lee , new jersey and operate from 13 additional locations in the u.s. , canada and mexico for manufacturing , service , centralized distribution , engineering , sales and administration . 21 our operations are divided into two reportable segments : transmission & distribution solutions and critical power . our t & d solutions business provides equipment solutions that help customers effectively and efficiently manage their electrical power distribution systems to desired specifications . these solutions are marketed principally through our ptl , jefferson and bemag brand names . our critical power business provides customers with sophisticated power generation equipment , related electrical distribution infrastructure , preventative maintenance services and an advanced data collection and monitoring platform , the combination of which is used to ensure smooth , uninterrupted power to operations during times of emergency . these solutions are marketed by our operations headquartered in minnesota , currently doing business under the titan brand name . discontinued operations during the fourth quarter of 2017 , as part of our review of strategic alternatives , we made the decision to sell our switchgear business . operating results for pcep , through which we did our switchgear business and have been previously included in the t & d solutions segment , have now been reclassified as discontinued operations for all periods presented . we have not entered into a definitive agreement for the sale of the switchgear business , and can not determine whether we will have any contingent obligations , financial commitments or continuing relationships with the discontinued operations other than provision of indemnification customary in such a sale . our switchgear business has incurred losses in the year ended 2016 and 2017 , and we believe that disposition of our switchgear business will improve our liquidity and will not significantly affect our capital resources . see note 5 – discontinued operations in notes to consolidated financial statements in part ii of this form 10-k. foreign currency exchange rates although we report our results in accordance with u.s. gaap and in u.s. dollars , two of our business subsidiaries are canadian operations whose functional currency is the canadian dollar . as such , the financial position , results of operations , cash flows and equity of these operations are initially consolidated in canadian dollars . their assets and liabilities are then translated from canadian dollars to u.s. dollars by applying the foreign currency exchange rate in effect at the balance sheet date , while the results of their operations and cash flows are translated to u.s. dollars by applying weighted average foreign currency exchanges rates in effect during the reporting period . the resulting translation adjustments are included in other comprehensive income or loss . the following table provides actual end of period exchange rates used to translate the financial position of our canadian operations at the end of each period reported . the average exchange rates presented below , as provided by the bank of canada , are indicative of the weighted average rates we used to translate the revenues and expenses of our canadian operations into u.s. dollars ( rates expressed as the number of u.s. dollars to one canadian dollar for each period reported ) : replace_table_token_3_th critical accounting policies use of estimates . the preparation of financial statements in accordance with generally accepted accounting principles in the u.s. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . the financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances . significant estimates in these financial statements include pension expense , inventory provisions , useful lives and impairment of long-lived assets , warranty accruals , income tax provision , goodwill impairment analysis , stock-based compensation , allowance for doubtful accounts and estimates related to purchase price allocation . changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions . revenue recognition . revenue is recognized when ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) delivery occurs , ( 3 ) the sales price is fixed or determinable , ( 4 ) collectability is reasonably assured and ( 5 ) customer acceptance criteria , if any , has been successfully demonstrated . revenue is recognized on the sale of goods , when the significant risks and rewards of ownership have been transferred to the buyer upon delivery , provided that the company maintains neither managerial involvement to the degree usually associated with ownership , nor effective control over the goods sold . there are no further obligations on the part of the company subsequent to revenue recognition , except when customers have the right of return or when the company warrants the product . the company records a provision for future returns , based on historical experience at the time of shipment of products to customers . the company warrants some of its products against defects in design , materials and workmanship for periods ranging from one to three years depending on the model . story_separator_special_tag depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of definite-lived intangible assets and excludes amounts included in cost of revenue . there was no material change in depreciation and amortization expense between the years ended december 31 , 2017 and december 31 , 2016. restructuring and integration . in 2017 the company completed the relocation of the medium voltage transformer production facility from canada to a lower cost facility and incurred $ 0.2 million of expense . in 2016 , the related relocation expenses were $ 2.2 million and consisted primarily from business integration costs of $ 2.1 million and cost over runs of $ 0.3 million on the 2015 restructuring accruals . foreign exchange gain . for the year ended december 31 , 2017 , approximately 37 % of our consolidated operating revenues were denominated in canadian dollars , and the majority of our expenses were denominated and disbursed in u.s. dollars . we have not historically engaged in currency hedging activities . fluctuations in foreign currency exchange rates between the time we initiate and then settle transactions with our customers and suppliers can have an impact on our operating results . for the years ended december 31 , 2017 and 2016 , we recorded a gain of $ 0.3 and $ 0.4 million , respectively , due to currency fluctuations . operating income the following table represents our operating income , excluding discontinued operations , by reportable segment for the periods indicated : replace_table_token_9_th t & d solutions . operating income from this segment increased by $ 0.1 million , resulting from lower restructuring costs , lower operating expenses and increased sales volumes in the year ended december 31 , 2017 compared to the year ended december 31 , 2016. critical power . the critical power segment operating income decreased by $ 0.8 million during 2017 from 2016. this decrease resulted from lower sales and higher selling , general and administrative costs . general corporate expense . our general corporate expenses consist primarily of executive management , corporate accounting and human resources personnel , office expenses , financing and corporate development activities , payroll and benefits administration , treasury , tax compliance , legal , stock-based compensation and public reporting costs , and costs not specifically allocated to reportable business segments . during the year ended december 31 , 2017 , our unallocated corporate overhead expense decreased by $ 0.5 million . non-operating expense interest expense . for the year ended december 31 , 2017 , our interest expense was $ 2.3 million , as compared to $ 1.7 million for the year ended december 31 , 2016. the net increase in our interest expense was due to higher borrowings under a product financing arrangement and our credit facilities during 2017 , as compared to 2016. the aggregate outstanding balance of our total debt increased by approximately $ 1.1 million during the year ended december 31 , 2017. other expense ( income ) . for the year ended december 31 , 2017 , our non-operating expense of $ 0.2 million as compared to non-operating income of $ 0.6 million for the year ended december 31 , 2016. for the year ended december 31 , 2016 , our non-operating income of $ 0.6 million consists primarily of abatement of penalties as they related to non-payment of payroll taxes of $ 1.1 million , offset by intangible impairment of $ 0.1 million . 27 provision for income taxes . our provision reflects an effective tax rate on income from continuing operations before income taxes of 415 % in 2017 , as compared to 39 % in 2016 , as set forth below ( dollars in thousands ) : replace_table_token_10_th on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( “ u.s . tax reform ” ) that lowers the statutory tax rate on u.s. earnings , taxes historic foreign earnings at a reduced rate of tax , establishes a territorial tax system and enacts new taxes associated with global operations . the impact of u.s. tax reform has been recorded on a provisional basis as the legislation provides for additional guidance to be issued by the u.s. department of the treasury on several provisions , including the computation of the transition tax . guidance during 2018 could impact the information required for , and the calculation of , the transition tax charge and could affect decisions that affect the tax on various u.s. and foreign items which would further impact the final amounts included in the transition charge and impact the revaluation of deferred taxes . in addition , analysis performed and conclusions reached as part of the tax return filing process and additional guidance on accounting for u.s. tax reform could affect the provisional amount . as part of tax reform , the u.s. has enacted a minimum tax on foreign earnings ( “ global intangible low-taxed income ” ) . because aspects of the new law and effect on our operations is uncertain and aspects of the accounting rules associated with this provision have not been resolved , we have not made a provisional accrual for the deferred tax aspects of this provision and consequently have not made an accounting policy election with respect to tax treatment of this tax provision . as a result of enactment of u.s. tax reform , we have recorded tax expense of $ 653 in 2017 to reflect our provisional estimate of both the transition tax on historic foreign earnings of $ 59 and the revaluation of deferred taxes of $ 712. the increase in our effective tax rate during 2017 primarily reflects the impact of $ 2.3 million of recognition of a valuation allowance on foreign tax credits , the impact of the tax cuts and jobs act enactment of $ 0.5 million and the impact of $ 0.3 million of anticipated partial repatriation of foreign subsidiary income in the first quarter of 2018. net loss per share we generated a net loss of $ 9.3 million for the year ended december
| overview of 2017 operating results selected financial and operating data for our reportable business segments for the most recent two years is summarized below . this information , as well as the selected financial data provided in note 16 and our consolidated financial statements and related notes included in this annual report on form 10-k , should be referred to when reading our discussion and analysis of results of operations below . our summary of operating results during the years ended 2017 and 2016 are as follows : replace_table_token_4_th during the fourth quarter of 2017 , as part of the company 's review of strategic alternatives , the company made the decision to sell its switchgear business by pcep . operating results for pcep , which have been previously included in the t & d solutions segment , have now been reclassified as discontinued operations for all periods presented . see note 5 – discontinued operations in notes to consolidated financial statements in part ii of this form 10-k. the excluded revenue for the switchgear business previously reported in t & d solutions was $ 13.0 million for 2017 and $ 14.8 million for 2016. the excluded loss from the switchgear business was $ 6.6 million for 2017 and $ 2.5 million for 2016 . 24 backlog .
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if the loan is not forgiven , it will mature in may 2022 and bear interest at a rate of 1.0 % per annum from the date of the loan , payable monthly commencing in september 2021. subject to preliminary guidance received from the small business administration on loan forgiveness , the company believes that the entire loan balance will be forgiven . until such loan is officially forgiven , the company will maintain the loan balance on the financial story_separator_special_tag forward-looking statements the following section of this annual report on form 10-k entitled “ management 's discussion and analysis of financial condition and results of operations ” contains statements that are not statements of historical fact and are forward-looking statements within the meaning of federal securities laws . these statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by the forward-looking statements . these statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties . factors that may cause our actual results to differ materially from those in the forward-looking statements include those factors described in “ item 1a . risk factors ” beginning on page 24 of this annual report on form 10-k. you should carefully review all of these factors , as well as the comprehensive discussion of forward-looking statements on page 1 of this annual report on form 10-k. 53 business overview we are a clinical-stage pharmaceutical company developing and commercializing products for treating inflammatory and immune diseases with a focus on the eye and nervous system . in the fourth quarter of 2020 , we acquired panoptes , transforming our pipeline with the addition of pp-001 . pp-001 , is a next-generation , non-steroidal , immuno-modulatory and small-molecule inhibitor of dhodh with what we believe to be best-in-class picomolar potency and a validated immune modulating mechanism designed to overcome the off-target side effects and safety issues associated with dhodh inhibitors . pp-001 has been developed in two clinical-stage ophthalmic formulations : paniject , an intravitreal injection for inflammatory diseases of the eye including posterior uveitis , and panidrop , a novel nano carrier technology eye drop for ocular surface diseases such as conjunctivitis , dry eye disease and others . other administration routes are also in development and ind enabling studies are underway for conditions outside the ocular space . in addition , we are developing ocular bandage gel ( “ obg ” ) , a modified form of the natural polymer hyaluronic acid , designed to protect the ocular surface to permit re-epithelialization of the cornea and improve ocular surface integrity . obg , with unique properties that help hydrate and protect the ocular surface , is in clinical evaluation for patients undergoing prk surgery for corneal wound repair after refractive surgery and patients with pe as a result of dry eye . we are currently developing obg as a device but are evaluating the potential to reclassify obg as a drug . we attended a type-b meeting with the fda 's cder division during the first quarter of 2021 to discuss obg 's path forward as a drug and will continue to evaluate this feedback in reaching a decision . 54 in may 2020 , we were granted a loan ( the “ loan ” ) from silicon valley bank in the amount of approximately $ 0.278 million pursuant to the paycheck protection program ( the “ ppp ” ) under division a , title i of the coronavirus aid , relief , and economic security act ( “ cares act ” ) , which was enacted in march 2020. the loan may be prepaid by the company at any time prior to maturity with no prepayment penalties . funds from the loan may only be used for payroll costs , costs used to continue group health care benefits , mortgage payments , rent , utilities , and interest on other debt obligations incurred before february 15 , 2020 ( “ qualifying expenses ” ) . we used the entire loan amount for qualifying expenses . under the terms of the ppp , certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the cares act . if the loan is not forgiven , the loan will mature in may 2022 and bear interest at a rate of 1.0 % per annum , payable monthly commencing in september 2021. throughout our history , we have not generated significant revenue . we have never been profitable , and from inception through december 31 , 2020 , our losses from operations have aggregated $ 108.3 million . our net loss was approximately $ 8.1 million and $ 7.1 million for the twelve months ended december 31 , 2020 and 2019 , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future as we continue the development and clinical trials of and seek regulatory approval for our pp-001 and obg product candidates , and any other product candidates we advance to clinical development . if we obtain regulatory approval for pp-001 and obg , we expect to incur significant expenses to create an infrastructure to support the commercialization of pp-001 and obg including sales , marketing and distribution functions . the continued spread of the covid-19 pandemic could adversely impact our clinical studies . in addition , covid-19 has resulted in significant governmental measures being implemented to control the spread of the virus , including quarantines , travel restrictions , and business shutdowns . covid-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy , which could negatively affect our ability to raise additional capital on attractive terms or at all . see “ item 1a . story_separator_special_tag 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 accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the expenses during the reporting periods . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . business combinations we applied the provisions of accounting standards codification ( “ asc ” ) topic 805 , “ business combinations , ” in the accounting for our acquisition of panoptes . it required us to recognize the assets acquired and the liabilities assumed at their acquisition date fair values , which were determined using market , income , and cost approaches , or a combination . goodwill as of the respective acquisition date was measured as the excess of consideration transferred over the net of the acquisition date fair value of the assets acquired and the liabilities assumed . goodwill is generally the result of expected synergies of the combined company or an assembled workforce . indefinite-lived intangible assets acquired were in-process research and development . the fair value for these intangible assets was determined using the income approach . under the income approach , fair value reflects the present value of the projected cash flows that are expected to be generated by the products incorporating the in-process research and development , if successful . accrued research and development expenses as part of the process of preparing financial statements , we are required to estimate and accrue research and development expenses . this process involves the following : communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development expenses that we accrue include : fees paid to contract research organizations and investigative sites in connection with clinical studies ; fees paid to contract manufacturing organizations in connection with non-clinical development , preclinical research , and the production of clinical study materials ; and professional service fees for consulting and related services . 57 we base our expense accruals related to non-clinical development , preclinical studies , and clinical trials on our estimates of the services received and efforts expended pursuant to contracts with organizations/consultants that conduct and manage clinical studies on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under some of these contracts may depend on many factors , such as the successful enrollment of patients , site initiation and the completion of clinical study milestones . our service providers invoice us as milestones are achieved and monthly in arrears for services performed . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities . stock-based compensation we have issued options to purchase our common stock and restricted stock . stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service/vesting period . determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we estimate the grant date fair value of stock options and the related compensation expense , using the black-scholes option valuation model . this option valuation model requires the input of subjective assumptions including : ( 1 ) expected life ( estimated period of time outstanding ) of the options granted , ( 2 ) volatility , ( 3 ) risk-free rate and ( 4 ) dividends . in general , the assumptions used in calculating the fair value of stock-based payment awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment .
| results of operations comparison of years ended december 31 , 2020 and 2019 the following table summarizes the results of our operations for the years ended december 31 , 2020 and 2019 : replace_table_token_1_th collaboration revenue . collaboration revenue was $ 0.012 million for the year ended december 31 , 2020 , compared to $ 2.686 million for the year ended december 31 , 2019. the revenue recognized for the year ended december 31 , 2020 related to the panoptes acquisition and the accompanying revenue we now generate from government funds from the date of its acquisition . the revenue recognized in the year ended december 31 , 2019 was a result of the termination of the license agreements with bhc and no further revenue will be recognized related to these agreements . research and development expenses . research and development expenses were $ 3.566 million for the year ended december 31 , 2020 compared to $ 5.389 million for the year ended december 31 , 2019. the decrease of $ 1.823 million was primarily due to a decrease in obg clinical activities following the completion of the prk pivotal study in 2019 , as well as the $ 0.500 million adjustment recorded in 2019 to the present value of the jade earn-out payment due upon fda approval of obg . these decreases were partially offset by increases in obg manufacturing and the expiration of a prepaid agreement in 2020 with a research vendor . general and administrative expenses . general and administrative expenses were $ 4.659 million for the year ended december 31 , 2020 , compared to $ 4.406 million for the year ended december 31 , 2019. the increase of $ 0.253 million was mainly due to increases in professional fees and acquisition costs as a result of the panoptes acquisition . these increases were partially offset by a decrease in personnel-related costs . other income , net .
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however , the large incisions required for open surgery create trauma to patients , typically resulting in longer hospitalization and recovery times , increased hospitalization costs , and additional pain and suffering relative to minimally invasive surgery ( “ mis ” ) , where mis is available . for over three decades , mis has reduced trauma to patients by allowing selected surgeries to be performed through small ports rather than large incisions . mis has been widely adopted for certain surgical procedures . da vinci surgical systems enable surgeons to extend the benefits of mis to many patients who would otherwise undergo a more invasive surgery by using computational , robotic , and imaging technologies to overcome many of the limitations of traditional open surgery or conventional mis . surgeons using a da vinci surgical system operate while seated comfortably at a console viewing a 3d , high-definition image of the surgical field . this immersive console connects surgeons to the surgical field and their instruments . while seated at the console , the surgeon manipulates instrument controls in a natural manner , similar to open surgical technique . our technology is designed to provide surgeons with a range of articulation of the surgical instruments used in the surgical field analogous to the motions of a human wrist , while filtering out the tremor inherent in a surgeon 's hand . in designing our products , we focus on making our technology easy and safe to use . our da vinci products fall into five broad categories : da vinci surgical systems , da vinci instruments and accessories , da vinci stapling , da vinci energy , and da vinci vision , including firefly fluorescence imaging systems ( “ firefly ” ) and da vinci endoscopes . we also provide a comprehensive suite of services , training , and education programs . within our integrated ecosystem , our products are designed to decrease variability in surgery by offering dependable , consistent functionality and user experiences for surgeons seeking better outcomes . we take a holistic approach , offering intelligent technology and systems designed to work together to make mis intervention more available and applicable . we have commercialized the following da vinci surgical systems : the da vinci standard surgical system in 1999 , the da vinci s surgical system in 2006 , the da vinci si surgical system in 2009 , and the fourth generation da vinci xi surgical system in 2014. we have extended our fourth generation platform by adding the da vinci x surgical system , commercialized in the second quarter of 2017 , and the da vinci sp surgical system , commercialized in the third quarter of 2018. we are early in the launch of our da vinci sp surgical system , and we have an installed base of 69 da vinci sp surgical systems as of december 31 , 2020. our plans for the rollout of the da vinci sp surgical system include putting systems in the hands of experienced da vinci users first while we optimize training pathways and our supply chain . we received fda clearances for the da vinci sp surgical system for urological and certain transoral procedures . we also received clearance in south korea where the da vinci sp surgical system may be used for a broad set of procedures . we plan to seek fda clearances for additional indications for da vinci sp over time . the success of the da vinci sp surgical system is dependent on positive experiences and improved clinical outcomes for the procedures for which it has been cleared as well as securing additional clinical clearances . all da vinci systems include a surgeon 's console ( or consoles ) , imaging electronics , a patient-side cart , and computational hardware and software . we offer approximately 70 different multi-port da vinci instruments to provide surgeons with flexibility in choosing the types of tools needed to perform a particular surgery . these multi-port instruments are generally robotically controlled and provide end effectors ( tips ) that are similar to those used in either open or laparoscopic surgery . we offer advanced instrumentation for the da vinci xi and da vinci x platforms , including da vinci energy and da vinci stapler products , to provide surgeons with sophisticated , computer-aided tools to precisely and efficiently interact with tissue . da vinci x and da vinci xi surgical systems share the same instruments whereas the da vinci si surgical system uses instruments that are not compatible with da vinci x or da vinci xi systems . we currently offer nine core instruments on our da vinci sp surgical system . we plan to expand the sp instrument offering over time . training technologies include our intuitive simulation products , our intuitive telepresence remote case observation and telementoring tools , and our dual console for use in surgeon proctoring and collaborative surgery . during the first quarter of 2019 , the fda cleared our ion endoluminal system to enable minimally invasive biopsies in the lung . our ion system extends our commercial offering beyond surgery into diagnostic procedures with this first application . we are introducing the ion system in the u.s. in a measured fashion while we optimize training pathways and our supply chain and collect additional clinical data . we are early in the launch and have placed 36 ion systems for commercial use as of december 31 , 2020. ion systems are not included in our da vinci surgical system installed base . we currently have 3 ion systems placed with hospitals for gathering clinical data in addition to the systems placed for commercial use . the success of new product introductions depends on a number of factors including , but not limited to , pricing , competition , market and consumer acceptance , the effective forecasting and management of product demand , inventory levels , the management of manufacturing and supply costs , and the risk that new products may have quality or other defects in the early stages of introduction . story_separator_special_tag due to the uncertainty of the recovery , including the potential for covid-19 infection rates to increase , the extent and period of time over which the covid-19 pandemic and any resultant economic recession will impact hospital spending , and additional policy responses that may be outlined by governments and other authorities , we can not reliably estimate the impact that the covid-19 pandemic may have on procedure volume in the first quarter of 2021 and beyond . 53 table of contents system demand as the impact of the covid-19 pandemic progressed throughout 2020 , customers in affected regions deferred decisions to purchase or lease systems into future quarters and , in some cases , indefinitely . these deferral decisions continued into the fourth quarter of 2020. in addition , the year-over-year stagnation in procedures and , in turn , reduced utilization of our systems has resulted in unused capacity in the existing installed base . we expect hospitals to first fill their unused capacity before purchasing additional systems . the depth and extent to which the covid-19 pandemic will impact individual markets will vary based on the availability of testing capabilities , personal protective equipment , intensive care units and operating rooms , and medical staff , as well as government interventions . as covid-19 continues to disrupt healthcare operations and patient flow , we expect that system placements will lag behind the recovery of da vinci procedure volume . while we can not reliably estimate the extent or period of time over which the covid-19 pandemic and any resultant economic recession will impact hospital spending , we anticipate lower year-over-year system placements for the first quarter of 2021. customer relief program in april 2020 , we announced a program to provide financial relief to our customers . the program was comprised of three main elements . the first element provided credits against service fees otherwise due in the six-month period from april 1 through september 30 , 2020 , that generally reflected the underutilization of the system during that period . those credits were offered to most customers worldwide . the second element of the program deferred certain lease payments , and the third element extended certain payment terms . service fee credits resulted in an $ 80 million decrease in service revenue in 2020. while the short-term payment relief offered did not have a material impact to the results of operations , we deferred $ 15 million of lease billings and extended payment terms associated with $ 181 million of trade receivables since the start of the program , of which $ 19 million remain outstanding as of december 31 , 2020. we may be subject to increased credit risks resulting in collection delinquencies and defaults , which could materially impact our bad debt write-offs and provisions for credit losses . although we have programs in place that are designed to monitor and mitigate the associated risks , there can be no assurance that such programs will be effective in reducing credit risks relating to these lease financing arrangements and extended payment terms . general increase in risks capital markets and worldwide economies have been significantly impacted by the covid-19 pandemic , and it is possible that it could cause a prolonged recession in local and or global economies . such an economic recession could have a material adverse effect on our long-term business as hospitals curtail and reduce capital and overall spending . the covid-19 pandemic and local actions , such as “ shelter-in-place ” orders and restrictions on our ability to travel and access our customers or temporary closures of our facilities , including our manufacturing operations , or the facilities of our suppliers and their contract manufacturers , could further significantly impact our sales and our ability to produce and ship our products and supply our customers . any of these events could negatively impact the number of da vinci procedures performed or the number of system placements and have a material adverse effect on our business , financial condition , results of operations , or cash flows . our response our priorities and actions during the covid-19 pandemic are as follows . first , we are focused on the health and safety of all those we serve – patients , customers , our communities , and our employees – implementing continuous updates to our health and safety policies and processes . second , we are supporting our customers according to their priorities – clinical , operational , and economic – and ensuring continuity of supply by working with our suppliers and our distributors . third , we are securing our workforce economically . we have built a valuable team over the years , and we believe they will be important in the recovery that follows the pandemic . finally , we will continue to invest in our priority development programs while eliminating avoidable spend . business model overview we generate revenue from the placements of da vinci surgical systems , in sales or sales-type lease arrangements where revenue is recognized up-front or in operating lease transactions and usage-based models where revenue is recognized over time . we earn recurring revenue from the sales of instruments , accessories , and services , as well as the revenue from operating leases . the da vinci surgical system generally sells for between $ 0.5 million and $ 2.5 million , depending upon the model , configuration , and geography , and represents a significant capital equipment investment for our customers when purchased . our instruments and accessories have limited lives and will either expire or wear out as they are used in surgery , at which point they need to be replaced . we generally earn between $ 600 and $ 3,500 of instruments and accessories revenue per surgical procedure performed , depending on the type and complexity of the specific procedures performed and the number and type of instruments used .
| 2020 operational and financial highlights total revenue decreased by 3 % to $ 4.4 billion for the year ended december 31 , 2020 , compared to $ 4.5 billion for the year ended december 31 , 2019. approximately 1,243,000 da vinci procedures were performed during the year ended december 31 , 2020 , an increase of 1 % compared to approximately 1,229,000 da vinci procedures for the year ended december 31 , 2019. instruments and accessories revenue increased by 2 % to $ 2.46 billion for the year ended december 31 , 2020 , compared to $ 2.41 billion for the year ended december 31 , 2019. systems revenue decreased by 12 % to $ 1.18 billion for the year ended december 31 , 2020 , compared to $ 1.35 billion for the year ended december 31 , 2019. a total of 936 da vinci surgical systems were shipped during the year ended december 31 , 2020 , a decrease of 16 % compared to 1,119 systems during the year ended december 31 , 2019. as of december 31 , 2020 , we had a da vinci surgical system installed base of approximately 5,989 systems , an increase of 7 % compared to the installed base of approximately 5,582 systems as of december 31 , 2019. utilization of da vinci surgical systems , measured in terms of procedures per system per year , declined 2 % relative to 2019. during the year ended december 31 , 2020 , we placed 26 ion systems for commercial use , compared to 10 ion systems during the year ended december 31 , 2019. gross profit as a percentage of revenue was 65.6 % for the year ended december 31 , 2020 , compared to 69.4 % for the year ended december 31 , 2019. operating income decreased by 24 % to $ 1.05 billion for the year ended december 31 , 2020 , compared to $ 1.37 billion for the year ended december 31 , 2019. operating income included $ 399 million and $ 338 million of
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“ risk factors ” elsewhere in this annual report on form 10-k and in other documents filed with the sec and otherwise publicly disclosed . please refer to “ forward-looking statements ” contained within this item 7 for additional information . executive overview we believe that the outlook for our business model is favorable given the economic backdrop , despite the uncertainty regarding government policy and its potential effects on prepayments of our investments , the impact on our portfolio from asset purchases by the federal reserve in a third round of quantitative easing , or `` qe3 '' , and the uncertainty in europe ( in particular , uncertainty regarding the european union 's political , economic and monetary future ) and its potential impact on the u.s. credit markets . during 2012 we significantly expanded our investment in agency cmbs io and non-agency cmbs and cmbs io given the attractive risk-adjusted return and prepayment protection profile of these investments . with respect to non-agency cmbs and cmbs io , we have purchased higher quality securities ( a-rated and aaa-rated , respectively ) which will have higher yields than agency cmbs and cmbs io , but which carry higher financing risks and costs and can exhibit more price volatility . we also added longer-to-reset agency hybrid arms as we expect interest rates overall to remain range-bound for the foreseeable future . highlights of the fourth quarter during the fourth quarter of 2012 , we reported net income of $ 18.3 million , or $ 0.34 per common share versus $ 18.4 million , or $ 0.34 per common share for the third quarter of 2012. our net interest income increased to $ 21.1 million for the fourth quarter of 2012 compared to $ 19.1 million for the third quarter of 2012 due to the higher average balance of our investment portfolio 31 of $ 4,117.5 million during the fourth quarter of 2012 versus $ 3,729.1 million for the third quarter of 2012. although our average interest earning assets increased , our weighted average net interest spread declined to 1.93 % for the fourth quarter of 2012 from 2.00 % for the third quarter of 2012. our net interest spread is declining as a result of purchasing lower spread assets and also from interest-rate resets on our agency arm portfolio . the following table summarizes the average annualized yield by type of mbs investment for the fourth quarter of 2012 and for each of the preceding four quarters : replace_table_token_5_th although we have targeted a 60 % /40 % allocation between agency mbs and non-agency mbs/loans , our agency mbs allocation in recent quarters has increased outside of this range due to attractive investment opportunities in agency cmbs io . the following table provides our asset allocation as of december 31 , 2012 and as of the end of each of the four preceding quarters : replace_table_token_6_th our shareholders ' equity decreased to $ 616.7 million as of december 31 , 2012 , or $ 10.30 per common share , from $ 617.9 million , or $ 10.31 per common share as of september 30 , 2012 . the decrease in shareholders ' equity since september 30 , 2012 resulted from a net decrease in accumulated other comprehensive income of $ 3.4 million , partially offset by our net income in excess of dividends declared . the decrease in accumulated other comprehensive income was due to a net decrease in the fair value of available for sale investments due to decreases in the fair value of agency rmbs caused by increased prepayment concerns . as of december 31 , 2012 , we had an estimated net operating loss ( `` nol '' ) carryfoward of $ 135.9 million . as a result of our common stock offering in february 2012 , we underwent an `` ownership change '' under section 382 of the code ( `` section 382 '' ) . in general , if a company undergoes an ownership change under section 382 , the company 's ability to utilize an nol carryforward to offset its taxable income ( and , in our case , after taking the reit distribution requirements into account ) , becomes limited to a certain amount per year . for purposes of section 382 , an ownership change occurs if over a rolling three-year period , the percentage of the company stock owned by 5 % or greater shareholders has increased by more than 50 percentage points over the lowest percentage of common stock owned by such shareholders during the three-year period . based on management 's analysis and expert third-party advice , which necessarily includes certain assumptions regarding the characterization under section 382 of our use of capital raised by us , we determined that the ownership change under section 382 will limit our ability to use our nol carryforward to offset our taxable income to an estimated maximum amount of $ 13.4 million per year . the nol carryforward expires substantially beginning in 2020. trends and recent market impacts the following marketplace conditions and prospective trends have impacted and may continue to impact our future results of operations and our financial condition . for additional information about risks that may be posed by these trends , please refer 32 to part i , item 1a , `` risk factors '' and part ii , item 7a , `` quantitative and qualitative disclosures about market risk '' contained within this annual report on form 10-k. federal reserve monetary policy and the effects on agency rmbs and prepayments in september 2012 , the federal open market committee ( `` fomc '' ) announced qe3 by indicating that it will purchase $ 40 billion per month in fixed-rate agency rmbs , continue to reinvest principal repayments on its existing agency rmbs portfolio , and extend the average maturity of its holdings of securities . story_separator_special_tag the fomc also indicated that it currently anticipates that the exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.50 % , inflation between one and two years ahead is projected to be no more than a half percentage point above the 2 % longer-run goal , and longer-term inflation expectations continue to be well anchored . in determining how long to maintain a highly accommodative stance of monetary policy , the fomc indicated that it will also consider other information , including additional measures of labor market conditions , indicators of inflation pressures and inflation expectations , and readings on financial developments . finally , the fomc indicated that when it decides to begin to remove policy accommodation , it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 % . the actions by the fomc noted above have continued to keep overall interest rates low and the treasury yield curve relatively flat ( as measured by the difference of 1.53 % between the two year treasury rate and the ten year treasury rate as of december 31 , 2012 versus 1.64 % as of december 31 , 2011 ) . asset credit spreads also remain tight despite continued economic uncertainty both domestically and abroad , in our judgment primarily due to the extraordinary involvement by the federal reserve in the markets . while our borrowing costs are based on short-term market rates such as libor and the federal funds target rate , our asset yields more closely correlate with longer-term treasury rates and longer-term swap rates . in general , a flat yield curve will result in reduced net interest spreads for new investments and will impact our ability to reinvest our capital on an accretive basis . a negative impact of a flattening yield curve is the prospective reduction of our net interest spread ( and the related return on our invested capital ) for new investments . since the first quarter of 2012 , we have seen declining net interest spreads on our new investment purchases in part as a result of the flattening yield curve and in part as a result of reduced credit spreads discussed further below . financing our business model requires that we have access to leverage , principally through the repurchase agreement market . we access the repurchase agreement markets through relationships with broker-dealers and financial institutions . repurchase agreement financing is generally uncommitted financing and as such , there can be no guarantee that we will always have access to this financing . during periods of sustained volatility in the credit markets , such as was experienced in 2008 , or other disruptions to the credit and financing markets , access to repurchase agreement financing may be limited as liquidity providers reduce their exposure to the short-term funding credit markets . repurchase agreement markets also fund many different types of assets for many different types of borrowers including mbs , asset-backed securities , commercial paper and government securities . recent activities by the federal reserve , including operation twist , have increased the supply of these other types of assets which has increased competition for repurchase agreement financing . consequently , we have seen a modest increase in our repurchase agreement financing costs during most of 2012. regulatory reform 34 in july 2010 the dodd-frank act was enacted into law . this legislation aims to restore responsibility and accountability to the financial system . it remains unclear how this legislation may ultimately impact the company , credit markets and the market for repurchase agreements or other borrowing facilities , the investing environment for agency and non-agency mbs , or interest rate swaps and other derivatives , since the rules and regulations under the dodd-frank act continue to be promulgated , implemented and interpreted by the cftc . on august 31 , 2011 , the sec issued a concept release relating to the exclusion from registration as an investment company provided to mortgage companies by section 3 ( c ) ( 5 ) ( c ) of the 1940 act . this release raises concerns regarding the ability of mortgage reits to continue to rely on the exclusion in the future . in particular , the release states the sec is concerned that certain types of mortgage-related pools today appear to resemble in many respects investment companies such as closed-end funds and may not be the kinds of companies that were intended to be excluded from regulation under the 1940 act by section 3 ( c ) ( 5 ) ( c ) . the outcome of the review by the sec at this time is not determinable . for a discussion of the uncertainties and risks related to the sec 's review , please refer to `` risk factors '' contained within part i , item 1a of this annual report on form 10-k. gse reform on february 11 , 2011 , the treasury released proposals to limit or potentially wind down the role that fannie mae and freddie mac play in the mortgage market . similar proposals to limit or wind down the role of fannie mae and freddie mac have been proposed by a number of other parties . any such proposals , if enacted , may have broad adverse implications for the mbs market and our business , results of operations , and financial condition . we expect such proposals to be the subject of significant discussion , and it is not yet possible to determine whether such proposals will be enacted . we do not believe the ultimate reform of fannie mae and freddie mac will occur in 2013. however , it is possible that new types of agency mbs could be proposed and sold by fannie mae and freddie mac that are structured differently from current agency mbs . this may have the effect of reducing the amount of available investment opportunities for the company .
| results of operations the following discussion addresses significant activity in our consolidated statements of income for the year s ended december 31 , 2012 , december 31 , 2011 , and december 31 , 2010 and should be read in conjunction with the notes to the consolidated financial statements contained within item 8 of part ii to this annual report on form 10-k and the executive overview contained within this item 7. year ended december 31 , 2012 compared to year ended december 31 , 2011 during 2012 , continued monetary easing initiatives instituted by the federal reserve and general economic weakness led to declining interest rates with the 5-year to 10-year portion of the u.s. treasury curve declining by 0.11 % -0.17 % . this low rate environment impacted our results of operations by increasing actual and estimated prepayment speeds on our agency rmbs and by reducing returns on new investments that we added to the investment portfolio . during 2012 we also saw increased repurchase agreement costs on our agency rmbs versus 2011 as lenders began to pass through increased regulatory compliance costs and also due to competition for financing and temporary increases in costs from the federal reserve 's sale of short-term treasury securities pursuant to operation twist . the sale of short-term treasury securities by the federal reserve reduces the amount of repurchase agreement available as buyers of these securities typically finance them through the repurchase agreement markets . net interest income - agency mbs the following table provides a summary of the results of our agency mbs investments and related financings by type of collateral for the periods indicated : replace_table_token_17_th ( 1 ) expense amounts and financing rates include allocated interest rate expense on interest rate swaps designated as hedges . ( 2 ) average balances are calculated as a simple average of the daily amortized cost basis and exclude unrealized gains and losses .
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the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with the historical consolidated financial statements and the notes thereto included in part ii , item 8 “ consolidated financial statements and supplementary data. ” this discussion contains forward-looking statements that reflect our plans , estimates and beliefs and involve numerous risks and uncertainties , including but not limited to those described in part i , item 1a “ risk factors ” of this annual report on form 10-k. actual results may differ materially from those contained in any forward-looking statements . you should carefully read “ special note regarding forward-looking statements ” and part i , item 1a , “ risk factors. ” overview we are an innovative global medical technology company that develops , commercializes , and delivers minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services . our systems have been designed on a cost-effective , proprietary and flexible platforms that enable us to expand beyond the aesthetic industry 's traditional markets of dermatology and plastic surgery , and into non-traditional markets , including family and general practitioners and aesthetic medical spas . in 2020 and 2019 , respectively , a substantial majority of our systems delivered in north america were in non-traditional markets . in november 2019 , we completed our business combination with venus concept ltd. and the business of venus concept ltd. became our primary business . we have had recurring net operating losses and negative cash flows from operations . as of december 31 , 2020 and 2019 , we had an accumulated deficit of $ 157.4 million and $ 75.7 million , respectively . until we generate revenue at a level to support our cost structure , we expect to continue to incur substantial operating losses and negative cash flows from operations . in order to continue our operations , we must achieve profitable operations and or obtain additional equity investment or debt financing . until we achieve profitability , we plan to fund our operations and capital expenditures with cash on hand , borrowings and issuances of capital stock . as of december 31 , 2020 and 2019 , we had cash and cash equivalents of $ 34.4 million and $ 15.7 million , respectively . on march 19 , 2020 we issued and sold securities in a private placement for gross proceeds of approximately $ 22.3 million . see “ — 2020 private placement ” below . on june 16 , 2020 , we entered into a purchase agreement ( the “ equity purchase agreement ” ) with lincoln park capital fund , llc ( “ lincoln park ” ) , which provides that , upon the terms and subject to the conditions and limitations set forth therein , we may sell to lincoln park up to $ 31.0 million of shares of our common stock . during 2020 , we raised net cash proceeds of $ 8.4 million under the equity purchase agreement as described below . see “ — equity purchase agreement with lincoln park ” below . in december 2020 , we issued and sold securities in a private placement for gross proceeds of approximately $ 22.5 million . see “ — december 2020 offering ” below . the covid-19 pandemic has had a significant negative impact on our business , and we expect the pandemic to continue to have a negative impact in the foreseeable future , the extent of which is uncertain and largely subject to whether the severity of the pandemic worsens , or duration lengthens . see ‘ ‘ —liquidity and capital resources `` for additional information . 2020 private placement on march 18 , 2020 , we entered into a securities purchase agreement with certain investors pursuant to which we agreed to sell and they agreed to purchase an aggregate of approximately 2.3 million shares of our common stock , 0.7 million shares of series a preferred stock , which was convertible into 6.6 million shares of our common stock and warrants to purchase up to an aggregate of approximately 6.7 million shares of our common stock at an exercise price of $ 3.50 per share ( the “ 2020 private placement ” ) . the warrants have a five-year term and are exercisable beginning 181 days after their issue date . the aggregate net purchase price for the securities sold in the 2020 private placement was approximately $ 20.3 million . the transaction was completed on march 19 , 2020. all outstanding shares of series a preferred stock automatically converted into shares 6.6 million shares of our common stock on june 16 , 2020 upon receipt of stockholder approval at our annual meeting of stockholders held on june 16 , 2020. for additional information on the 2020 private placement , see note 1 “ nature of operations—the 2020 private placement ” in the notes to our consolidated financial statements included elsewhere in this report . 79 equity purchase agreement with lincoln park on june 16 , 2020 , we entered into the equity purchase agreement with lincoln park , which provides that , upon the terms and subject to the conditions and limitations set forth therein , we may sell to lincoln park up to $ 31.0 million of shares of our common stock pursuant to our shelf registration statement . the purchase price of shares of common stock related to a future sale will be based on the then prevailing market prices of such shares at the time of sales as described in the equity purchase agreement . concurrently with entering into the equity purchase agreement , we also entered into a registration rights agreement with lincoln park , pursuant to which we agreed to provide lincoln park with certain registration rights related to the shares issued under the equity purchase agreement ( the “ registration rights agreement ” ) . see ‘ ‘ —liquidity and capital resources `` below . story_separator_special_tag we believe our artas® and neograft® systems are complementary and give us a hair restoration product offering that can serve a broad segment of the market . in the united states , we have obtained 510 ( k ) clearance from the fda for our venus concept 's freeze® and venus freeze plus , venus viva® and venus viva® md , venus legacy® bx and legacy® cx , venus versa® , venus velocity , venus bliss , venus epileve , artas® and artas® ix systems . the venus glow and neograft® systems are listed as class i devices under the fda classification system . outside the united states , we market our technologies in over 60 countries across europe , the middle east , africa , asia-pacific and latin america . because each country has its own regulatory scheme and clearance process , not every device is cleared or authorized for the same indications in each market in which a particular system is marketed . as of december 31 , 2020 , we operated directly in 20 international markets through our 16 direct offices in the united states , canada , united kingdom , japan , south korea , mexico , argentina , colombia , spain , france , germany , australia , china , hong kong , israel , and south africa . our revenues for the year ended december 31 , 2020 and 2019 were $ 78.0 million and $ 110.4 million , respectively . we had a net loss attributable to venus concept of $ 85.3 million and $ 40.6 million in the year ended december 31 , 2020 and 2019 , respectively . we had an adjusted ebitda loss of $ 20.1 million and $ 12.5 million for the year ended december 31 , 2020 and 2019 , respectively . 81 use of non-gaap financial measures adjusted ebitda is a non-gaap measure defined as net loss income before foreign exchange loss , financial expenses , income tax expense , depreciation and amortization , stock-based compensation and non-recurring items for a given period . adjusted ebitda is not a measure of our financial performance under u.s. gaap and should not be considered an alternative to net income or any other performance measures derived in accordance with u.s. gaap . accordingly , you should consider adjusted ebitda along with other financial performance measures , including net income , and our financial results presented in accordance with u.s. gaap . other companies , including companies in our industry , may calculate adjusted ebitda differently or not at all , which reduces its usefulness as a comparative measure . we understand that although adjusted ebitda is frequently used by securities analysts , lenders and others in their evaluation of companies , adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation , or as a substitute for analysis of our results as reported under u.s. gaap . some of these limitations are : adjusted ebitda does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; and although depreciation and amortization are a non-cash charges , the assets being depreciated will often have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for such replacements . we believe that adjusted ebitda is a useful measure for analyzing the performance of our core business because it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by changes in foreign exchange rates that impact financial assets and liabilities denominated in currencies other than the u.s. dollar , tax positions ( such as the impact on periods or companies of changes in effective tax rates ) , the age and book depreciation of fixed assets ( affecting relative depreciation expense ) , amortization of intangible assets , stock-based compensation expense ( because it is a non-cash expense ) and non-recurring items as explained below . the following reconciliation of net loss to adjusted ebitda for the years presented : venus concept inc. reconciliation of net loss to non-gaap adjusted ebitda replace_table_token_1_th ( 1 ) for the year ended december 31 , 2020 , the other adjustments are represented by severance and retention payments ( $ 1.9 million ) and litigation settlement expenses ( $ 0.3 million ) . for the year ended december 31 , 2019 , the other adjustments are mainly represented by professional fees related to the merger and a patent infringement case . 82 key factors impacting our results of operations our results of operations are impacted by several factors , but we consider the following to be particularly significant to our business : number of systems delivered . the majority of our revenue is generated from the delivery of systems , both under traditional sales contracts and under subscription agreements . the following table set forth the number of systems we have delivered in the geographic regions indicated : replace_table_token_2_th mix between traditional sales , subscription model sales and distributor sales . we deliver systems through ( 1 ) traditional direct system sales contracts to customers , ( 2 ) our subscription model , and ( 3 ) system sales through distributor agreements . unit deliveries under direct system sales contracts and subscription agreements have the higher per unit revenues and gross margins , while revenues and gross margins on systems sold through distributors are lower . however , distributor sales do not require significant sales and marketing support as these expenses are borne by the distributors . in addition , while traditional system sales contracts and subscription contracts have similar gross margins , cash collections on subscription contracts generally occur over a three-year period , with approximately 40 % collected in the first year and the balance collected evenly over the remaining two years of the subscription agreement . investment in sales , marketing and operations .
| results of operations the following tables set forth our consolidated results of operations in u.s. dollars and as a percentage of revenues for the years indicated : replace_table_token_3_th 91 the following tables set forth our revenue by region and by product type for the years indicated : replace_table_token_4_th replace_table_token_5_th ( 1 ) products other include artas® procedure kits , venus concept 's venus skin and hair products , and other consumables . ( 2 ) services include verografters technician services , 2two5 advertising agency services and extended warranty sales . comparison of the years ended december 31 , 2020 and 2019 revenues replace_table_token_6_th total revenue decreased by $ 32.4 million , or 29.3 % , to $ 78.0 million for the year ended december 31 , 2020 from $ 110.4 million for the year ended december 31 , 2019. the decrease in revenue was a result of decreased revenue in the united states of $ 13.8 million and decreased revenue in international markets of $ 18.6 million . the decrease in revenue in both the united states and international markets was driven by covid-19 related lockdown measures or restrictions imposed by federal and state governments , a reduction in procedures at the clinic level caused by additional covid-19 safety protocols , and a general reluctance on the part of some consumers to undergo non-essential aesthetic procedures given the risks presented by covid-19 . these disruptions and the resultant uncertainty at the clinic level negatively impacted our ability to sell into our customary channels in both the united states and international markets . although our selling efforts were hampered by target customer concerns in making capital outlays given the economic uncertainty , this became less of an obstacle towards the end of 2020 as we experienced a more robust sales trend in most markets . we sold an aggregate of 1,306 systems in the year ended december 31 , 2020 compared to 2,464 in the year ended december 31 , 2019.
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading `` risk factors '' in part i , item 1a of this annual report on form 10-k. business overview we are an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities , futures and foreign exchange instruments on more than 100 electronic exchanges and trading venues around the world . since our inception in 1977 , we have focused on developing proprietary software to automate broker-dealer functions . the advent of electronic exchanges in the last 21 years has provided us with the opportunity to integrate our software with an increasing number of exchanges and trading venues into one automatically functioning , computerized platform that requires minimal human intervention . in connection with our ipo priced on may 3 , 2007 , ibg , inc. purchased 10.0 % of the membership interests in ibg llc , became the sole managing member of ibg llc and began to consolidate ibg llc 's financial results into its financial statements . overview of recapitalization transactions and our organizational structure prior to the ipo , we had historically conducted our business through a limited liability company structure . our primary assets are our ownership of approximately 11.5 % of the membership interests of ibg llc , the current holding company for our businesses , and our controlling interest and related contractual rights as the sole managing member of ibg llc . the remaining approximately 88.5 % of ibg llc membership interests are held by ibg holdings llc , a holding company that is owned by our founder , chairman and chief executive officer , thomas peterffy , and his affiliates , management and other employees of ibg llc , and certain other members . the ibg llc membership interests held by ibg holdings llc will be subject to purchase by us over time in connection with offerings by us of shares of our common stock . purchases of ibg llc membership interests , held by ibg holdings llc , by the company are governed by the exchange agreement by and among the company , ibg holdings llc , ibg llc and the members of ibg llc , dated as of may 3 , 2007 ( the `` exchange agreement '' ) , a copy of the fully executed agreement was filed as an exhibit to our quarterly report on form 10-q for the quarter ended september 30 , 2009 and filed with the sec on november 9 , 2009. under the exchange agreement , ibg holdings llc may request redemption of its membership interests in ibg llc and the company is required to use its commercially reasonable efforts to consummate a public offering of a number of shares of class a common stock ( `` common stock '' ) approximately equal to the aggregate number of the ibg holdings llc membership interests for which redemption has been requested . upon consummation of such public offering , the company is required to purchase from ibg holdings llc that number of ibg llc membership interests equal to the aggregate number of the ibg holdings llc membership interests subject to redemption , at a purchase price per membership interest equal to the offering price in such public offering . however , under the exchange agreement , the company is not obligated to effect any purchase of the ibg llc membership interests held by ibg holdings llc unless and until the company has consummated a public offering of a number of shares of common stock approximately equal to the aggregate number of the ibg holdings llc membership interests subject to redemption . subsequent to the ipo , no public offerings have been consummated . 41 as an alternative , at the option of and upon mutual agreement of the company , ibg holdings llc and ibg llc , instead of , or in addition to , consummating one or more public offerings , redemptions of ibg holdings llc membership interests may be effected by using cash on hand at ibg llc and corresponding redemptions by ibg llc of its membership interests held by ibg holdings llc . this alternative funding method would not impose any obligations on the company . in 2008 , 2009 and 2010 some of the ibg holdings llc membership interests were redeemed using cash from ibg llc . in june 2011 , with the consent of ibg holdings llc and the company ( on its own behalf and acting as the sole managing member of ibg llc ) , ibg llc agreed to redeem certain membership interests from ibg holdings llc through the sale of common stock and to distribute the proceeds of such sale to the beneficial owners of such membership interests . on august 4 , 2011 , the company filed a `` shelf '' registration statement on form s-3 with the sec for the issuance of additional shares in connection with ibg holdings llc requesting redemption of a portion of its member interests in ibg llc . on august 4 , 2011 , a prospectus supplement ( file number 333-176053 ) was filed by the company with the sec to issue 1,983,624 shares of common stock in exchange for an equivalent number of shares of member interests in ibg llc . the company expects that future redemptions will be funded through the issuance of common stock . story_separator_special_tag as reported by the nasdaq omx phlx market , bid/offer spreads in 2011 were approximately 33 % wider than in 2010. we believe this increase can be attributed to elevated levels of volatility throughout the year as well as the heightened scrutiny over high frequency trading firms that began after the may 2010 `` flash crash . '' regulators and exchanges began enacting new rules last year that eliminated some of the advantages high frequency traders ( `` hft 's '' ) had over registered market makers . the dodd-frank wall street reform and consumer protection act , which was signed into law last summer , are also expected to impose strict regulations on the hedge fund industry . volatility . our market making profits are generally correlated with market volatility since we typically maintain an overall long volatility position , which protects us against a severe market dislocation in either direction . based on the chicago board options exchange volatility index 43 ( `` vix '' ) , the average volatility level was 24 during 2011. while this was only 7 % higher than it was during 2010 , the vix spent 75 days above 30 in 2011 versus only 23 days above this level in 2010. the ratio of actual to implied volatility is also meaningful to our results . because the cost of hedging our positions is based on implied volatility , while our trading profits are , in part , based on actual market volatility , a higher ratio is generally favorable and a lower ratio generally has a negative effect on our trading gains . this ratio averaged approximately 85 % during 2011 , about 13 % higher than it was in 2010. currency fluctuations . as a global market maker trading on exchanges around the world in multiple currencies , we are exposed to foreign currency risk . we actively manage this exposure by keeping our net worth in proportion to a defined basket of currencies we call the `` global '' . because we report our financial results in u.s. dollars , the change in the value of the global to the u.s. dollar affects our earnings . at the end of the third quarter , we increased the number of currencies in this basket from six to 16 to further diversify our risk and to better align our hedging strategy with the currencies that we use in our business . the value of the global , as measured in u.s. dollars , at december 31 , 2011 declined 0.6 % compared to its value at december 31 , 2010. this had a relatively small negative impact on our comprehensive earnings . financial overview diluted earnings per share were $ 1.39 for year ended december 31 , 2011. the calculation of diluted earnings per share is detailed in note 4 , `` initial public offering and recapitalization , '' to the audited consolidated financial statements , in part ii , item 8 of this annual report on form 10-k. diluted earnings per share were $ ( 0.22 ) for the year ended december 31 , 2010. results for 2010 reflect a negative $ 0.71 per share impact from additional taxes triggered by the approximately $ 1 billion special cash dividend paid in december 2010. the company considers the special dividend to be non-operating in nature . on a comprehensive basis , which includes the effect of changes in the u.s. dollar value of the company 's non-u.s. subsidiaries , diluted earnings per share were $ 1.33 for the year ended december 31 , 2011 compared to diluted earnings per share of $ 0.02 for the same period in 2010. on a non-gaap basis , 2010 diluted earnings per share , adjusted for the special dividend and for currency translation effects , were $ 0.73 , as reported in 2010. reported results on a comprehensive basis reflect the gaap convention adopted in 2011 that requires the reporting of currency translation results contained in other comprehensive income as part of reportable earnings . previously , currency translation results were reported as a component of changes in total equity in the statement of financial condition . for a reconciliation of our u.s. gaap to non-gaap results for 2010 see the 'gaap to non-gaap reconciliation and footnotes ' section on page 73 of this annual report on form 10-k. in december 2010 , the company paid a special cash dividend of $ 1.79 per share to holders of the company 's common stock , which had a negative impact on our earnings per share of approximately $ 0.71 for the year ended december 31 , 2010. the dividend of $ 1.79 per share was part of a series of dividends that had no effect on our reported income before tax on a consolidated basis . however , the u.s. federal income tax liability triggered by the dividends is reported as income tax expense in the consolidated statement of comprehensive income . the above dividend resulted from the following transaction . on december 21 , 2010 , timber hill europe ag ( `` the ag '' ) paid its sole shareholder , ibg llc , a dividend of $ 990.3 million . the ag 's pretax earnings had not previously been subject to taxation in the united states . u.s. federal income taxes on the company 's share of this dividend were $ 40.8 million . please refer to the section below entitled `` non-gaap financial measures '' for a discussion of the impact of the dividend on our reported results for 2010. for the year ended december 31 , 2011 , our net revenues were $ 1,358.3 million and income before income taxes was $ 741.1 million , compared to net revenues of $ 922.1 million and income before 44 income taxes of $ 337.4 million for 2010. compared to 2010 , trading gains increased 80 % in 2011 , commissions and execution fees increased by 18 % and net interest income increased 82 % .
| results of operations the tables in the period comparisons below provide summaries of our consolidated results of operations . the period-to-period comparisons below of financial results are not necessarily indicative of future results . replace_table_token_10_th 50 the following table sets forth our consolidated results of operations as a percent of our total revenues for the indicated periods : replace_table_token_11_th year ended december 31 , 2011 compared to the year ended december 31 , 2010 net revenues total net revenues for the year ended december 31 , 2011 increased $ 436.2 million or 47 % , to $ 1,358.3 million from $ 922.1 million during the year ended december 31 , 2010. trading volume is an important driver of revenues and costs for both our market making and electronic brokerage segments . during 2011 , options and futures contracts executed by our operating companies increased by 16 % and 11 % , respectively , while stock shares volume decreased 8 % . brokerage options and futures contract volumes increased 18 % and 13 % , respectively ; market making options and futures contract volumes increased 16 % and 1 % , respectively ; while brokerage stock share volume increased 1 % and market making stock share volume decreased 38 % . in brokerage , although stock volume for the year was stable , we observed decreases primarily in low-priced stocks after we raised risk margin requirements , to better protect against sudden price moves , on companies with small market capitalization . in market making , decreases in stock volume resulted from targeted paring back of activity at certain exchanges to improve profitability and avoid high fees . increased customer cash and margin balances contributed to an increase of $ 69.8 million in net interest income in our brokerage segment .
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if elected by an employee , the equity amount is equal in value on the date of grant to 50 % of his or her target incentive opportunity , based on the employee 's base salary . the number of rsus granted is determined by dividing 50 % of the employee 's target incentive opportunity by the fair value of a rsu on the grant date . if elected , the award vests 100 % on the cicp payout date of the following year for all participants . vesting is conditioned upon the performance conditions of the cicp and on continued employment ; if threshold funding does not occur , the equity grant will be cancelled . the company considers vesting to be probable on the grant date and recognizes the associated stock-based compensation expense over the requisite service period beginning on the grant date and story_separator_special_tag business overview we develop , market , license , and support software , which allows organizations to build , deploy , and change enterprise applications easily and quickly . our unified software platform enables our customers to build enterprise applications in a fraction of the time it would take with competitive disjointed architectures , by directly capturing business objectives , automating programming , and automating work . we also provide consulting services , maintenance , and training related to our software . we focus our sales efforts on target accounts , which are large companies or divisions within companies and typically leaders in their industry . our strategy is to sell a series of licenses that are focused on a specific purpose or area of operations , rather than to sell a large enterprise license . our license revenue is primarily derived from sales of our prpc software and related solution frameworks . prpc is a comprehensive platform for building and managing bpm applications that unifies business rules and business processes . our solution frameworks , built on the capabilities of prpc , are purpose or industry-specific collections of best practice functionality , which allow organizations to quickly implement new customer-facing practices and processes , bring new offerings to market , and provide customized or specialized processing . our products are simpler , easier to use and often result in shorter implementation periods than competitive enterprise software products . prpc and related solution frameworks can be used by a broad range of customers within financial services , insurance , healthcare , communications , energy and government markets . our solution frameworks products include customer relationship management ( crm ) software , which enables unified predictive decisioning and analytics and optimizes the overall customer experience . our decision management products and capabilities are designed to manage processes so that actions optimize the process outcomes based on business objectives . we continue to invest in the development of new products and intend to remain a leader in bpm , crm , and decision management . we also offer pega cloud , a service offering that allows customers to create and or deploy pega applications using an internet-based infrastructure . this offering enables our customers to immediately build , test , and deploy their applications in a secure cloud environment while minimizing their infrastructure and hardware costs . revenue from our pega cloud offering is included in consulting services revenue . we offer training for our staff , customers , and partners at our regional training facilities , at third party facilities , and at customer sites . in 2012 , we began offering training online through pega academy , which provides an alternative way to learn our software in a virtual environment quickly and easily . we expect that this online training will help expand the number of trained experts at a faster pace . our total revenue increased 11 % in 2012 compared to 2011 and reflects revenue growth in each of software license , maintenance , and professional services revenue . license revenue increased 18 % , primarily driven by the increase in term license revenue . maintenance revenue increased 14 % , primarily due to the increase in the aggregate value of the installed base of our software and continued strong renewal rates . professional services gross margin increased to 17 % in 2012 largely due to lower on-boarding time and expenses associated with reduced hiring as more of our customers became enabled and more implementation projects were led by our partners . in 2012 , we generated approximately $ 43.6 million in cash from operations due to our strong collections , and ended the year with $ 123 million in cash , cash equivalents , and marketable securities . we believe our growth and success in 2012 were due to : our disciplined and focused global sales strategy to targeted customers ; the return on investment our clients achieve from the use of pega technology , leading to repeat purchases ; 21 demand for our industry-leading software solutions and services ; investment in making our products faster and easier to use ; and expansion of our solutions frameworks offerings . we believe that the ongoing challenges for our business include our ability to drive revenue growth , expand our expertise in new and existing industries , remain a leader in crm and the decision management markets , and maintain our leadership position in the bpm market . to support our growth and successfully address these challenges through 2013 we plan to : extend our product leadership through continued innovation ; improve the end user experience with enhanced user interface ; maintain our focused global sales strategy to targeted customers ; invest in our research and development by significantly increasing headcount ; build-out our sales capacity by hiring additional sales professionals ; invest in self-study enablement to expand the pega ecosystem ; further develop and leverage our partner alliances ; and develop and increase our solutions frameworks . story_separator_special_tag the aggregate value of payments due under these licenses was $ 48.4 million as of december 31 , 2011 compared to $ 32.8 million as of december 31 , 2010. we recognize revenue for our term license arrangements over the term of the agreement as payments become due or earlier if prepaid . the increase in our term license revenue was primarily due to revenue from the increased aggregate value of term license arrangements executed during 2011 , partially offset by higher prepayments in 2010. prepayments can cause our term license revenue to vary quarter to quarter . total future payments due under term licenses increased to $ 161.4 million as of december 31 , 2011 compared to $ 90.9 million as of december 31 , 2010. subscription revenue primarily consists of the ratable recognition of license , maintenance and bundled services revenue on perpetual license arrangements that include a right to unspecified future products . subscription revenue does not include revenue from our pega cloud offerings . the timing of scheduled payments under customer arrangements determines the amount of revenue that can be recognized in a reporting period . consequently , our subscription revenue may vary quarter to quarter . ( dollars in thousands ) year ended december 31 , increase 2011 2010 maintenance revenue maintenance $ 117,110 $ 83,878 $ 33,232 40 % the increase in maintenance revenue was primarily due the continued increase in the aggregate value of the installed base of our software and a full year of maintenance revenue attributed to license arrangements executed by chordiant prior to the acquisition . replace_table_token_17_th 28 professional services are primarily consulting services related to new license implementations . the increase in consulting services revenue was primarily due to higher demand for these services as a result of the significant increase in the number of license arrangements executed in the fourth quarter of 2010 and 2011. replace_table_token_18_th the decrease in software license gross profit percent was primarily due to the full year of amortization expense in 2011 for the technology intangibles we acquired as part of the chordiant acquisition in april 2010. the increase in maintenance gross profit percent was primarily due to the increase in maintenance revenue . during 2010 , we continued to hire professional services employees to support our growth and expand our expertise across various industries . the decrease in professional services gross profit percent was primarily due to lower utilization as a result of an increased number of newly hired personnel that required training before they could be assigned to customer projects . it was also due to the participation of an increased number of existing professional services personnel in expert training programs . these advanced training programs are part of our strategy to increase the pool of expertly trained professional services personnel to fulfill increased demand for these services . the lower utilization was partially offset by an increase in our overall realization rates in 2011 compared to 2010. replace_table_token_19_th the increase in amortization expense was due to a full year of amortization in 2011 associated with $ 88 million of intangible assets we acquired as part of the chordiant acquisition in april 2010. the decrease in amortization expense included in general and administrative expense was due to the chordiant trade name intangible asset being fully amortized in 2011. operating expenses replace_table_token_20_th 29 we continue to increase sales headcount to target new accounts in new and existing industries and across expanded geographies and to create additional sales capacity for future periods . the increase in selling and marketing expenses was primarily due to a $ 15.1 million increase in compensation and benefit expenses associated with higher headcount , a $ 7.6 million increase in commissions expense associated with the record value of license arrangements executed in 2011 , a $ 1.6 million increase in amortization expense related to the acquired chordiant customer related intangibles , a $ 2.1 million increase in partner commissions expenses , a $ 1.7 million increase in travel expenses , and a $ 1.2 million increase in sales and marketing program expenses , including our pegaworld user conference . replace_table_token_21_th the increase in headcount reflects growth in our india research facility . the increase in offshore headcount lowered our average compensation expense per employee . the increase in research and development expenses was primarily due to an $ 8.9 million increase in compensation and benefit expenses associated with higher headcount , a $ 2.1 million increase in rent expense , partially offset by a $ 2.5 million decrease in engineering contractor expenses . replace_table_token_22_th the increase in general and administrative expenses was primarily due to a $ 1.1 million increase in compensation and benefit expenses associated with higher headcount and a $ 1.8 million increase in accounting fees and tax consulting and legal fees primarily related to the expansion of our international operations . as a result of our lease arrangement for our new office headquarters , we ceased use of our former offices in the fourth quarter of 2012. in june 2011 , because of our expectation that we would cease use of our former offices , we revised the remaining useful lives of certain leasehold improvements and furniture and fixtures and recorded incremental depreciation expense of approximately $ 0.9 million during 2011. we recorded approximately $ 1.9 million of rent expense under the new lease arrangement during 2011. we recorded approximately $ 0.8 million of this rent and depreciation in cost of services and approximately $ 2 million in operating expenses . acquisition-related costs acquisition-related costs are expensed as incurred and include direct and incremental costs associated with an impending or completed acquisition . during 2011 , the $ 0.5 million of acquisition-related costs were primarily legal fees associated with litigation assumed from our acquisition of chordiant .
| results of operations 2012 compared to 2011 replace_table_token_5_th the aggregate value of new license arrangements executed in 2012 was slightly higher than in 2011. the aggregate value of new license arrangements executed fluctuates quarter to quarter . during 2012 and 2011 , approximately 74 % and 58 % , respectively , of new license arrangements were executed with existing customers . we believe the continued demand for our software products and related services is due to the strong value proposition , short implementation period , and variety of licensing models we offer our customers . the increase in gross profit was primarily due to the increase in license revenue and to a lesser extent the increase in maintenance revenue . the increase in operating expenses was primarily due to the increase in selling and marketing expenses and to a lesser extent the increase in research and development expenses , associated with higher headcount . the increase in income from operations and income before provision for income taxes was primarily due to the higher increases in license and maintenance gross profit compared to the increase in operating expenses . 22 revenue replace_table_token_6_th in both 2011 and 2012 , more than 50 % of the aggregate value of new license arrangements for the fiscal year was executed in our fourth quarter . a large proportion of the value of these arrangements was term licenses that contributed very little to the increase in our term license revenue in 2012 , but will be recognized as revenue in future periods .
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factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in risk factors . overview of our business zillow group , inc. operates the leading real estate and home-related information marketplaces on mobile and the web , with a complementary portfolio of brands and products to help people find vital information about homes and connect with local professionals . zillow group 's brands focus on all stages of the home lifecycle : renting , buying , selling and financing . the zillow group portfolio of consumer brands includes real estate and rental marketplaces zillow , trulia , streeteasy , hotpads and naked apartments . in addition , zillow group works with tens of thousands of real estate agents , rental and mortgage professionals , helping maximize business opportunities and connect to millions of consumers . we also own and operate a number of brands for real estate , rental and mortgage professionals , including mortech , dotloop , bridge interactive and retsly . our living database of more than 110 million u.s. homeshomes for sale , homes for rent and homes not currently on the marketattracts an active and vibrant community of users . individuals and businesses that use zillow 's mobile applications and websites have updated information on more than 68 million homes and added more than 456 million home photos , creating exclusive home profiles not available anywhere else . these profiles include detailed information about homes , including property facts , listing information and purchase and sale data . we provide this information to our users where , when and how they want it , through our industry-leading mobile applications that enable consumers to access our information when they are curbside , viewing homes , and through our websites . using complex , proprietary automated valuation models , we provide current home value estimates , or zestimates , and current rental price estimates , or rent zestimates , on more than 100 million u.s. homes . we generate revenue from the sale of advertising services and our suite of tools to businesses and professionals primarily associated with the residential real estate , rental and mortgage industries . these professionals include local real estate and rental professionals , mortgage professionals and brand advertisers . our two revenue categories are marketplace revenue and display revenue . marketplace revenue for the year ended december 31 , 2016 consisted of premier agent revenue , other real estate revenue and mortgages revenue . premier agent revenue is generated by the sale of advertising under our premier agent program , which offers a suite of marketing and business technology products and services to help real estate agents achieve their advertising needs , while growing their businesses and personal brands . other real estate revenue primarily includes revenue generated by zillow group rentals , which includes our rentals marketplace and suite of tools for rental professionals , as well as revenue from the sale of various other advertising services and a suite of tools to real estate professionals . mortgages revenue primarily includes advertising sold to mortgage lenders and other mortgage professionals , as well as revenue generated by mortech , which provides subscription-based mortgage software solutions , including a product and pricing engine and lead management platform . display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost-per-click basis to advertisers promoting their brands on our mobile applications and websites and our partner websites . impressions are delivered when a sold advertisement appears on pages viewed by users of our mobile applications and websites . effective february 17 , 2015 , zillow group acquired trulia , inc. ( trulia ) , and each of zillow and trulia became wholly owned subsidiaries of zillow group . the total purchase price of trulia was approximately 45 $ 2.0 billion . we have included trulia in zillow group 's results of operations prospectively after february 17 , 2015 , the date of acquisition . because the trulia acquisition occurred during the year ended december 31 , 2015 , the information presented in this report with respect to the year ended december 31 , 2015 relates to zillow on a standalone basis prior to february 17 , 2015 and to zillow group after february 17 , 2015 , whereas the information presented in this section with respect to the year ended december 31 , 2016 relates to zillow group . results of operations , including marketplace revenue , for the year ended december 31 , 2015 include market leader revenue from february 17 , 2015 through september 30 , 2015 , the date we divested the market leader business , whereas the information presented in this report with respect to the year ended december 31 , 2016 does not include market leader revenue . as a result , comparisons to the prior-year period may not be indicative of future results or future rates of growth . for additional information regarding the transaction with trulia , see note 7 to our consolidated financial statements . overview of significant milestones and results the following is a summary of our significant milestones for the year ended december 31 , 2016 : in february , we completed the acquisition of naked apartments , inc. ( naked apartments ) , new york city 's largest rentals-only platform . the total purchase price for the acquisition of naked apartments was approximately $ 13.2 million . based on the allocation of the purchase price in connection with our acquisition of naked apartments , a substantial majority of the purchase price has been allocated to goodwill and intangible assets . for additional information regarding the transaction with naked apartments , see note 7 to our consolidated financial statements . in february , we launched a new national advertising campaign , home. the campaign featured real people sharing their own personal stories of what makes home special to them . story_separator_special_tag as of december 31 , 2016 , we had 2,776 full-time employees compared to 2,204 full-time employees as of december 31 , 2015. unique users to analyze our business performance , determine financial forecasts and help develop long-term strategic plans , we frequently review unique users as a key growth driver . measuring unique users is important to us because our marketplace revenue depends in part on our ability to enable real estate , rental and mortgage professionals to connect with our users , and our display revenue depends in part on the number of impressions delivered . furthermore , our community of users improves the quality of our living database of homes with their contributions . we count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web 47 browser during a calendar month . if an individual accesses our mobile applications using different mobile devices within a given month , the first instance of access by each such mobile device is counted as a separate unique user . if an individual accesses more than one of our mobile applications within a given month , the first access to each mobile application is counted as a separate unique user . if an individual accesses our websites using different web browsers within a given month , the first access by each such web browser is counted as a separate unique user . if an individual accesses more than one of our websites in a single month , the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain . zillow measures unique users with google analytics and trulia measures unique users with omniture analytical tools . beginning on february 17 , 2015 , the reported monthly unique users reflect the effect of zillow group 's february 17 , 2015 acquisition of trulia . replace_table_token_7_th * for december 2014 , the reported monthly unique user metric was estimated by zillow based on historical trends by calculating the percentage change in monthly unique users from november 2013 to december 2013 and multiplying that percentage change by the reported november 2014 monthly unique users . zillow transitioned to an upgraded version of the google analytics measurement service , universal analytics , in the month of december 2014 , on both its mobile application and website platforms . as a result , we are not able to provide an accurate count of the monthly unique users as reported by the service for december 2014. basis of presentation revenue we generate revenue from the sale of advertising services and our suite of tools to businesses and professionals primarily associated with the residential real estate and mortgage industries . these professionals include local real estate and rental professionals , mortgage professionals and brand advertisers . our two revenue categories are marketplace revenue and display revenue . marketplace revenue . marketplace revenue for the year ended december 31 , 2016 consisted of premier agent revenue , other real estate revenue and mortgages revenue . marketplace revenue for the year ended december 31 , 2015 also includes market leader revenue from february 17 , 2015 through the date of divestiture of september 30 , 2015. premier agent revenue is derived from our premier agent program . our premier agent program offers a suite of marketing and business technology products and services to help real estate agents achieve their advertising needs , while growing their businesses and personal brands . all premier agents receive access to a dashboard portal on our website that provides individualized program performance analytics and our free customer relationship management , or crm , tool that captures detailed information about each contact made with a premier agent through our mobile and web platforms . from 2012 through the end of the third quarter of 2016 , we had primarily charged customers for our premier agent product based on the number of impressions delivered on our buyer 's agent list in zip codes purchased and a contracted maximum cost per impression . our premier agent product includes multiple deliverables which are accounted for as a single unit of accounting , as the delivery or performance of the undelivered elements is based on traffic to our mobile applications and websites . with this pricing method , we recognized revenue related to our impression-based premier agent product based on the lesser of ( i ) the actual number of impressions delivered on our buyer 's agent list during the period multiplied by the contracted maximum cost per impression , or ( ii ) the contractual maximum spend on a straight-line basis during the contractual period over which the services are delivered , typically over a period of six months or twelve months and then month-to-month thereafter . 48 in 2016 , we began testing and implementation of a new auction-based pricing method for our premier agent product by which we determine the cost per impression delivered in each zip code based upon the total amount spent by premier agents to purchase impressions in the zip code during the month . the cost per impression that we charge is dynamicas demand for impressions in a zip code increases or decreases , the cost per impression in that zip code may be increased or decreased . this new auction-based pricing method complements our self-serve account interface , which we introduced to premier agents over the course of 2016. the interface includes account management tools that allow agent advertisers to independently control their budgets , impression buys , and the duration of their advertising commitment . we began testing this auction-based pricing method for our premier agent product to better align our revenue opportunities with increasing traffic levels to our mobile and web platforms and leveraging increasing demand by real estate agents for access to home shoppers who use our mobile applications and websites .
| results of operations the following tables present our results of operations for the periods indicated and as a percentage of total revenue : year ended december 31 , 2016 2015 2014 ( in thousands , except per share data ) statements of operations data : revenue $ 846,589 $ 644,677 $ 325,893 costs and expenses : cost of revenue ( exclusive of amortization ) ( 1 ) ( 2 ) 71,591 61,614 29,461 sales and marketing ( 1 ) 380,919 307,089 169,462 technology and development ( 1 ) 273,066 198,565 84,669 general and administrative ( 1 ) 313,695 170,445 65,503 acquisition-related costs 1,423 16,576 21,493 restructuring costs ( 1 ) 35,551 loss ( gain ) on divestiture of businesses ( 1,251 ) 4,368 total costs and expenses 1,039,443 794,208 370,588 loss from operations ( 192,854 ) ( 149,531 ) ( 44,695 ) loss on debt extinguishment ( 22,757 ) other income 2,711 1,501 1,085 interest expense ( 7,408 ) ( 5,489 ) loss before income taxes ( 220,308 ) ( 153,519 ) ( 43,610 ) income tax benefit ( expense ) ( 130 ) 4,645 net loss $ ( 220,438 ) $ ( 148,874 ) $ ( 43,610 ) net
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factors that may cause such differences include , but are not limited to , availability and cost of financial resources , product demand , market acceptance and other factors discussed in this report under the heading “ risk factors ” . this management 's discussion and analysis of financial conditions and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this report . overview we are a clinical development stage biotechnology company with the intent to develop safe and effective immunotherapies for cancer and infectious diseases . these immunotherapies are based on a platform technology under exclusive license from penn that utilizes live attenuated lm bioengineered to secrete antigen/adjuvant fusion proteins . these lm strains use a fragment of the protein listeriolysin , or llo , fused to a tumor associated antigen , or taa , or other antigen of interest which we refer to these as lm -llo immunotherapies . we believe these lm -llo agents redirect the potent immune response to lm which is inherent in humans , to the taa or antigen of interest . lm -llo based immunotherapies stimulate the immune system to induce antigen-specific anti-tumor immune responses involving both innate and adaptive arms of the immune system . in addition , this technology facilitates the immune response by altering the microenvironment of tumors to make them more susceptible to immune attack . adxs-hpv , advaxis ' lead immunotherapy for the treatment of hpv-associated cancers , demonstrated improved survival and objective tumor responses in a completed phase 2 trial in 110 patients with recurrent cervical cancer ( india ) . advaxis is now planning the registrational program for adxs-hpv . adxs-hpv is also being evaluated in other hpv-associated cancers including a phase 2 in advanced cervical cancer ( gog , largely underwritten by the ncu , u.s. ) , two phase 1/2 studies in head & neck cancer ( one underwritten by cruk , u.k. and the other with the ismms , u.s. ) , and a phase 1/2 in anal cancer ( bruog , u.s. ) adxs-hpv has orphan drug designation for both anal cancer and head and neck cancer . in addition , we have developed immunotherapies for prostate cancer and her2 overexpressing cancers ( such as breast , gastric and other cancers in humans and osteosarcoma in canines ) . over fifteen distinct constructs are in various stages of development , developed directly by us and through strategic collaborations with recognized centers of excellence . we have no customers . since our inception in 2002 , we have focused our development efforts on understanding our technology and establishing a drug development pipeline that incorporates this technology into therapeutic immunotherapies , currently those targeting hpv-associated diseases ( cervical cancer , head and neck cancer and anal cancer ) , prostate cancer , and her2 overexpressing cancers . although no immunotherapies have been commercialized to date , research and development and investment continues to be placed behind the pipeline and the advancement of this technology . pipeline development and the further exploration of the technology for advancement entail risk and expense . we anticipate that our ongoing operational costs will increase significantly as we continue conducting our clinical development program . 39 if we fail to raise a significant amount of capital , we may need to significantly curtail operations or cease operations in the near future . any sale of our common stock or issuance of rights to acquire our common stock below $ 9.24 per share ( as may be further adjusted ) with respect to certain of our outstanding warrants will trigger dilution due to the anti-dilution protection provisions contained therein . we have sustained losses from operations in each fiscal year since our inception , and we expect these losses to continue for the indefinite future , due to the substantial investment in research and development . as of october 31 , 2013 and october 31 , 2012 we had an accumulated deficit of $ 70,465,823 and $ 47,601,427 , respectively and shareholders ' equity of $ 18,002,142 and shareholders ' deficiency of $ 5,962,724 , respectively . our research and development costs decreased from approximately $ 6.6 million for the year ended october 31 , 2012 to approximately $ 5.6 million for the year ended october 31 , 2013. we expect to incur significant additional costs . the timing and estimated costs of these projects are difficult to predict . we may attempt to accelerate the timing of the required financing and , conversely , if the trial or trials are not successful we may slow our spending and defer the timing of additional financing . while we will attempt to attract corporate partnership and grants , we have not assumed the receipt of any additional financial resources in our cash planning . to date , we have outsourced many functions of drug development including manufacturing and clinical trial management . accordingly , the expenses for these outsourced services account for a significant amount of our accumulated loss . we can not predict when , if ever , any of our immunotherapies will become commercially viable or approved by the u.s. food and drug administration , or fda . we expect to spend substantial additional sums on continued research and development of proprietary products and technologies , including conducting clinical trials for our immunotherapies , with no certainty that our immunotherapies will become commercially viable or profitable as a result of these expenditures . 40 the timing of additional financing . while we will attempt to attract a corporate partnership and grants , we have not assumed the receipt of any additional financial resources in our cash planning . to date , we have outsourced many functions of drug development including manufacturing and clinical trial management . accordingly , the expenses of these outsourced services account for a significant amount of our accumulated loss . story_separator_special_tag we plan to advance adxs-cher2 into a phase 1 dose escalation trial in the second half of 2014 to determine the maximum tolerated dose for the treatment of patients with breast cancer . develop scale-up and commercial manufacturing processes . we plan to develop scale-up and commercial manufacturing processes , including the development of a lyophilized dosage form . expand the market for advaxis lm-llo immunotherapies to the treatment of companion animals . we intend to enter into partnerships with animal health companies to develop and commercialize advaxis lm -llo immunotherapies for companion animals . 42 leverage our proprietary discovery platform to identify new therapeutic immunotherapies . we intend to utilize our proprietary discovery platform to identify new antigen-associated product candidates . we may conduct some of these efforts internally and or leverage our platform to forge strategic collaborations . we have utilized our proprietary discovery platform to identify a number of preclinical product candidates and may initiate studies to support ind submissions either alone or in collaboration with strategic partners . specifically , we intend to conduct research relating to the development of the next generations of our lm -llo immunotherapies using new antigens of interest ; improving the lm -llo based platform technology by developing new strains of listeria that may be more suitable as live vaccine vectors ; developing bivalent lm -llo immunotherapies ; further evaluating synergy of lm -llo immunotherapies with cytotoxic therapies and continuing to develop the use of llo as a component of a fusion protein based immunotherapy . we currently have over 15 distinct immunotherapies in various stages of development , developed directly by us and through strategic collaborations with recognized centers of excellence . these include but are not limited to the following advaxis immunotherapy and corresponding tumor antigen : adxs11-001/hpv16-e7 , adxs31-142/prostate specific antigen , adxs31-164/her2/neu chimera , lm -llo-hmw-maa/hmw-maa , c-terminus fragment , lm -llo-isg15/isg15 , lm -llo cd105/endoglin , lm -llo-flk/vegf and bivalent therapy , her-2-chimera/hmw-maa-c. we will continue to conduct preclinical research to develop additional lm -llo constructs to expand our platform technology and may develop additional distinct immunotherapies in the future . our growth strategy is to expand from the adxs-hpv franchise into larger cancer indications such as prostate and breast cancer to further validate the robustness and versatility of the platform technology and to develop immunotherapies that we believe to be of interest to big pharmaceutical partners . we also intend to further expand the research and development programs to provide multiple biomarker-specific products with applications across multiple tumor types that express those biomarkers . additionally , we plan to partner with or acquire a target discovery company , develop multiple constructs targeting numerous biomarker targets to deliver the promise of biomarker driven multi-targeted immunotherapies . the overall goal with each patient is to : biopsy the patient 's tumor ; identify which biomarkers are expressed ; treat the patient with our immunotherapies that hit multiple targets simultaneously , adding in the ability to adjust an individual 's immunotherapy over time based on changes in the tumor . we believe that if successful , this has the potential to revolutionize the treatment of cancer . enter into commercialization collaborations for adxs-hpv . if adxs-hpv is approved by the fda and other regulatory authorities for first use , we plan to either enter into commercial partnerships , joint ventures , or other arrangements with competitive or complementary companies , including pharmaceutical companies or commercialize these products ourselves in north america and europe through direct sales and distribution . develop commercialization capabilities in india , china , south america , north america and europe . we believe that the infrastructure required to commercialize our oncology products is relatively limited , which may make it cost-effective for us to internally develop a marketing effort and sales force . if adxs-hpv is approved by the fda and other regulatory authorities for first use and we do not enter into commercial partnerships , joint ventures , or other arrangements with competitive or complementary companies , including pharmaceutical companies , we plan to commercialize these products ourselves in north america and europe through direct sales and distribution . however , we will remain opportunistic in seeking strategic partnerships in these and other markets when advantageous . continue to both leverage and strengthen our intellectual property portfolio . we believe we have a strong intellectual property position relating to the development and commercialization of lm -llo immunotherapies . we plan to continue to leverage this portfolio to create value . in addition to strengthening our existing intellectual property position , we intend to file new patent applications , in-license new intellectual property and take other steps to strengthen , leverage , and expand our intellectual property position . short-term strategic goals and objectives during the next 12 months , our strategic goals and objectives include the following : report final results from the completed phase 2 clinical trial conducted in india with adxs-hpv in the treatment of recurrent cervical cancer ; initiate phase 1/2 high-dose clinical trial in patients with recurrent cervical cancer ; conduct an end of phase 2 meeting with the fda and submit a special protocol assessment for adxs-hpv ; initiate global phase 3 study in recurrent cervical cancer with adxs-hpv ; initiate phase 1 study with adxs-psa in prostate cancer ; initiate phase 1 study with adxs-cher2 in breast cancer ; initiate phase 1 study with adxs-hpv in hpv-associated lung cancer through our partner gbp in asia ; continue to support the phase 2 clinical trial of adxs-hpv in the treatment of advanced cervical cancer with the gog , largely underwritten by the nci ; continue our collaboration with the bruog to support the phase 1/2 clinical trial of adxs-hpv in the treatment of anal cancer , entirely underwritten by the bruog ; continue our collaboration with the icahn school of medicine at mount sinai ( ismms ) to support the phase 1/2 study with adxs-hpv in patients with head and neck cancer ; seek to conduct advisory board with key opinion leaders ; report data from mount sinai phase
| results of operations fiscal year 2013 compared to fiscal year 2012 revenue we recorded no revenue for the years ended october 31 , 2013 and october 31 , 2012. research and development expenses research and development expenses decreased by approximately $ 1,024,000 to approximately $ 5,622,000 for the fiscal year ended october 31 , 2013 as compared with approximately $ 6,646,000 for the same period a year ago . this is primarily attributable to clinical trial expenses , which decreased in the current year resulting from lower manufacturing costs due to the near completion of dosing patients in our india trial and less clinical trial activity . we anticipate a significant increase in research and development expenses as a result of expanded development and commercialization efforts primarily related to clinical trials and product development . in addition , expenses will be incurred in the development of strategic and other relationships required to license manufacture and distribute our product candidates . general and administrative expenses general and administrative expenses increased by approximately $ 3,383,000 to approximately $ 9,072,000 for the fiscal year ended october 31 , 2013 as compared with approximately $ 5,689,000 for the same period a year ago . this was primarily the result of noncash expenses related to the issuance of shares of our common stock under various agreements entered into in the current period as well as an increase in stock-based compensation related to the issuance of additional options to employees , consultants and directors . in addition , we incurred higher legal and consulting costs in the current period when compared with the same period a year ago . interest expense for the fiscal year ended october 31 , 2013 , interest expense decreased significantly to approximately $ 988,000 from $ 4,537,000 in the same period a year ago , which decrease is largely a result of the may 2012 exchange of approximately $ 4.5
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cash and cash equivalents for purposes of the consolidated statements of cash flows , cvr considers all highly liquid money market accounts and debt story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report . forward-looking statements this report , including , without limitation , the sections captioned `` business '' and `` management 's discussion and analysis of financial condition and results of operations , '' contains `` forward-looking statements '' as defined by the sec , including statements concerning contemplated transactions and strategic plans , expectations and objectives for future operations . forward-looking statements include , without limitation : statements , other than statements of historical fact , that address activities , events or developments that we expect , believe or anticipate will or may occur in the future ; statements relating to future financial or operational performance , future dividends , future capital sources and capital expenditures ; and any other statements preceded by , followed by or that include the words `` anticipates , '' `` believes , '' `` expects , '' `` plans , '' `` intends , '' `` estimates , '' `` projects , '' `` could , '' `` should , '' `` may , '' or similar expressions . although we believe that our plans , intentions and expectations reflected in or suggested by the forward-looking statements we make in this report , including this management 's discussion and analysis of financial condition and results of operations , are reasonable , we can give no assurance that such plans , intentions or expectations will be achieved . these statements are based on assumptions made by us based on our experience and perception of historical trends , current conditions , expected future developments and other factors that we believe are appropriate in the circumstances . such statements are subject to a number of risks and uncertainties , many of which are beyond our control . you are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements as a result of various factors , including but not limited to those set forth under the section captioned `` risk factors '' and contained elsewhere in this report . such factors include , among others : volatile margins in the refining industry and exposure to the risks associated with volatile crude oil prices ; the availability of adequate cash and other sources of liquidity for the capital needs of our businesses ; the ability to forecast future financial condition or results of operations and future revenues and expenses of our businesses ; the effects of transactions involving forward and derivative instruments ; disruption of the petroleum business ' ability to obtain an adequate supply of crude oil ; changes in laws , regulations and policies with respect to the export of crude oil or other hydrocarbons ; interruption of the pipelines supplying feedstock and in the distribution of the petroleum business ' products ; competition in the petroleum and nitrogen fertilizer businesses ; capital expenditures and potential liabilities arising from environmental laws and regulations ; changes in ours or the refining partnership 's or nitrogen fertilizer partnership 's credit profile ; the cyclical nature of the nitrogen fertilizer business ; the seasonal nature of the petroleum business ; the supply and price levels of essential raw materials of our businesses ; the risk of a material decline in production at our refineries and nitrogen fertilizer plant ; 54 potential operating hazards from accidents , fire , severe weather , floods or other natural disasters ; the risk associated with governmental policies affecting the agricultural industry ; the volatile nature of ammonia , potential liability for accidents involving ammonia that cause interruption to the nitrogen fertilizer business , severe damage to property and or injury to the environment and human health and potential increased costs relating to the transport of ammonia ; the dependence of the nitrogen fertilizer business on a few third-party suppliers , including providers of transportation services and equipment ; new regulations concerning the transportation of hazardous chemicals , risks of terrorism and the security of chemical manufacturing facilities ; the risk of security breaches ; the petroleum business ' and the nitrogen fertilizer business ' dependence on significant customers ; the potential loss of the nitrogen fertilizer business ' transportation cost advantage over its competitors ; the potential inability to successfully implement our business strategies , including the completion of significant capital programs ; our ability to continue to license the technology used in the petroleum business and nitrogen fertilizer business operations ; our petroleum business ' ability to purchase gasoline and diesel rins on a timely and cost effective basis ; our petroleum business ' continued ability to secure environmental and other governmental permits necessary for the operation of its business ; existing and proposed environmental laws and regulations , including those relating to climate change , alternative energy or fuel sources , and existing and future regulations related to the end-use and application of fertilizers ; refinery and nitrogen fertilizer facility operating hazards and interruptions , including unscheduled maintenance or downtime , and the availability of adequate insurance coverage ; instability and volatility in the capital and credit markets ; and potential exposure to underfunded pension obligations of affiliates as a member of the controlled group of mr. icahn . all forward-looking statements contained in this report only speak as of the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this report , or to reflect the occurrence of unanticipated events , except to the extent required by law . story_separator_special_tag units in addition to owning 100 % of the refining partnership 's general partner . story_separator_special_tag because we calculate the benchmark margin using the market value of nymex gasoline and heating oil against the market value of nymex wti , we refer to the benchmark as the nymex 2-1-1 crack spread , or simply , the 2-1-1 crack spread . the 2-1-1 crack spread is expressed in dollars per barrel and is a proxy for the per barrel margin that a sweet crude oil refinery would earn assuming it produced and sold the benchmark production of gasoline and distillate . although the 2-1-1 crack spread is a benchmark for the refinery margin , because the refineries have certain feedstock costs and logistical advantages as compared to a benchmark refinery and their product yield is less than total refinery throughput , the crack spread does not account for all the factors that affect refinery margin . the coffeyville refinery is able to process a blend of crude oil that includes quantities of heavy and medium sour crude oil that has historically cost less than wti . the wynnewood refinery has the capability to process blends of a variety of crude oil ranging from medium sour to light sweet crude oil , although isobutene , gasoline components , and normal butane are also typically used . we measure the cost advantage of the crude oil slate by calculating the spread between the price of the delivered crude oil and the price of wti . the spread is referred to as the consumed crude oil differential . the refinery margin can be impacted significantly by the consumed crude oil differential . the consumed crude oil differential will move directionally with changes in the wts differential to wti and the wcs differential to wti as both these differentials indicate the relative price of heavier , more sour , slate to wti . the correlation between the consumed crude oil differential and published differentials will vary depending on the volume of light medium sour crude oil and heavy sour crude oil the petroleum business purchases as a percent of its total crude oil volume and will correlate more closely with such published differentials the heavier and more sour the crude oil slate . the consumed crude oil cost discount to wti for 2015 was $ 1.12 per barrel compared to consumed crude oil cost discounts of $ 0.54 per barrel in 2014 and $ 2.57 per barrel in 2013 . the petroleum business produces a high volume of high value products , such as gasoline and distillates . the fact that the actual product specifications used to determine the nymex 2-1-1 crack spread are different from the actual production in its refineries is because the prices the petroleum business realizes are different than those used in determining the 2-1-1 crack spread . the difference between its price and the price used to calculate the 2-1-1 crack spread is referred to as gasoline padd ii , group 3 vs. nymex basis , or gasoline basis , and ultra-low sulfur diesel padd ii , group 3 vs. nymex basis , or ultra-low sulfur diesel basis . if both gasoline and ultra-low sulfur diesel basis are greater than zero , this means that prices in its marketing area exceed those used in the 2-1-1 crack spread . the petroleum business is significantly affected by developments in the markets in which it operates . for example , numerous pipeline projects in 2014 expanded the connectivity of the cushing and permian basin markets to the gulf coast , resulting in a decrease in the domestic crude advantage . the refining industry is directly impacted by these events and could see a downward movement in refining margins as a result . 58 the direct operating expense structure is also important to the petroleum business ' profitability . major direct operating expenses include energy , employee labor , maintenance , contract labor , and environmental compliance . the predominant variable cost is energy , which is comprised primarily of electrical cost and natural gas . the petroleum business is therefore sensitive to the movements of natural gas prices . assuming the same rate of consumption of natural gas for the year ended december 31 , 2015 , a $ 1.00 change in natural gas prices would have increased or decreased the petroleum business ' natural gas costs by approximately $ 11.1 million . because crude oil and other feedstocks and refined products are commodities , the petroleum business has no control over the changing market . therefore , the lower target inventory it is able to maintain significantly reduces the impact of commodity price volatility on its petroleum product inventory position relative to other refiners . this target inventory position is generally not hedged . to the extent its inventory position deviates from the target level , the petroleum business considers risk mitigation activities usually through the purchase or sale of futures contracts on the nymex . its hedging activities carry customary time , location and product grade basis risks generally associated with hedging activities . because most of its titled inventory is valued under the fifo costing method , price fluctuations on its target level of titled inventory have a major effect on the petroleum business ' financial results . safe and reliable operations at the refineries are key to the petroleum business ' financial performance and results of operations . unplanned downtime at the refineries may result in lost margin opportunity , increased maintenance expense and a temporary increase in working capital investment and related inventory position . the petroleum business seeks to mitigate the financial impact of planned downtime , such as major turnaround maintenance , through a diligent planning process that takes into account the margin environment , the availability of resources to perform the needed maintenance , feedstock logistics and other factors . the refineries generally require a facility turnaround every four to five years . the length of the turnaround is contingent upon the scope of work to be completed .
| overview and executive summary we are a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through our holdings in the refining partnership and the nitrogen fertilizer partnership . the refining partnership is an independent petroleum refiner and marketer of high value transportation fuels . the nitrogen fertilizer partnership produces nitrogen fertilizers in the form of uan and ammonia . we own the general partner and approximately 66 % and 53 % , respectively , of the outstanding common units representing limited partner interests in each of the refining partnership and the nitrogen fertilizer partnership . we operate under two business segments : petroleum and nitrogen fertilizer . for the fiscal years ended december 31 , 2015 , 2014 and 2013 , we generated consolidated net sales of $ 5.4 billion , $ 9.1 billion and $ 9.0 billion , respectively , and operating income of $ 421.6 million , $ 264.3 million and $ 710.5 million , respectively . the petroleum business generated net sales of $ 5.2 55 billion , $ 8.8 billion and $ 8.7 billion , and the nitrogen fertilizer business generated net sales of $ 289.2 million , $ 298.7 million and $ 323.7 million , in each case , for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the petroleum business generated operating income of $ 361.7 million , $ 207.2 million and $ 603.0 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the nitrogen fertilizer business generated operating income of $ 68.7 million , $ 82.8 million and $ 124.9 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . refer to part i , item 1 , business , of this report for a detailed discussion of our business and the petroleum and nitrogen fertilizer segments .
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the company does not typically prepay sales commissions in advance of being paid for services delivered . product development product development expenses include payroll , employee benefits , and other employee related expenses associated with product development . product development expenses also include third-party development and programming costs , subject matter experts , localization costs incurred to translate software for international markets , and the amortization of purchased software code and services content . costs related to product development are expensed until the point that technological feasibility is reached . costs incurred during the implementation of product development and enhancements story_separator_special_tag this discussion should be read in conjunction with the other sections of this form 10-k , including “ risk factors , ” and the financial statements and notes thereto . the various sections of this discussion contain a number of forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this annual report on form 10-k. see “ cautionary note regarding forward looking statements and risk factor summary. ” our actual results may differ materially . 31 organizational overview we were incorporated on may 30 , 1997 under the laws of the state of delaware . we are a leading provider of trusted mobility management ( tm2 ) that consists of federally certified communications management , identity management , and interactive bill presentment and analytics solutions . we help our clients achieve their organizational missions for mobility management and security objectives in this challenging and complex business environment . we offer our tm2 solutions through a flexible managed services model which includes both a scalable and comprehensive set of functional capabilities that can be used by any customer to meet the most common functional , technical and security requirements for mobility management . our tm2 solutions were designed and implemented with flexibility in mind such that it can accommodate a large variety of customer requirements through simple configuration settings rather than through costly software development . the flexibility of our tm2 solutions enables our customers to be able to quickly expand or contract their mobility management requirements . our tm2 solutions are hosted and accessible on-demand through a secure federal government certified proprietary portal that provides our customers with the ability to manage , analyze and protect their valuable communications assets , and deploy identity management solutions that provide secured virtual and physical access to restricted environments . strategic focus we executed on our key initiative for 2020 by winning the re-competed u.s. department of homeland security indefinite delivery/indefinite quantity ( dhs cwms 2.0 idiq ) and successfully supported the 2020 census . in addition , we focused on increasing our customer base and our sales pipeline and leveraging our strategic relationships with key system integrators and strategic partners to capture additional market share . in fiscal 2021 , we will continue to focus on the following key goals : ● selling high margin managed services , ● growing our sales pipeline by investing in our business development and sales team assets , ● pursuing additional opportunities with our key systems integrator and strategic partners , ● improving our proprietary platform and products , which includes pursuing fedramp certification for itms and maintaining our atos with our federal government agencies , as well as upgrading our secure identity management technology , ● working to successfully deliver and expand the scope of work under the newly awarded dhs cwms 2.0 idiq , and ● expanding our solution offerings into the commercial space . our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth . our strategy for achieving our longer-term goals include : ● pursuing accretive and strategic acquisitions to expand our solutions and our customer base , ● delivering new incremental offerings to add to our existing tm2 offering , ● developing and testing innovative new offerings that enhance our tm2 offering , and ● transitioning our data center and support infrastructure into a more cost-effective and federally approved cloud environment to comply with perceived future contract requirements . we believe these actions could drive a strategic repositioning our tm2 offering and may include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of tm2 offerings . 32 critical accounting policies and estimates refer to note 2 to the consolidated financial statements for a summary of our significant accounting policies referenced , as applicable , to other notes . in many cases , the accounting treatment of a particular transaction is specifically dictated by u.s. gaap and does not require management 's judgment in its application . our senior management has reviewed these critical accounting policies and related disclosures with its audit committee . see note 2 to consolidated financial statements , which contain additional information regarding accounting policies and other disclosures required by u.s. gaap . the following section below provides information about certain critical accounting policies that are important to the consolidated financial statements and that require significant management assumptions and judgments . segments segments are defined by authoritative guidance as components of a company in which separate financial information is available and is evaluated by the chief operating decision maker ( codm ) , or a decision-making group , in deciding how to allocate resources and in assessing performance . our codm is our chief executive officer . our customers view our market as a singular business and demand an integrated and scalable suite of enterprise-wide solutions . our tm2 offerings are substantially managed service driven solutions that use our proprietary technology platform to deliver our services . story_separator_special_tag for arrangements in which we do not have such control we recognize revenues and related costs on a net basis . 34 goodwill goodwill represents the excess of acquisition cost of an acquired company over the fair value of assets acquired and liabilities assumed . in accordance with gaap , goodwill is not amortized but is tested for impairment at the reporting unit level annually at december 31 and between annual tests if events or circumstances arise , such as adverse changes in the business climate , that would more likely than not reduce the fair value of the reporting unit below its carrying value . a reporting unit is defined as either an operating segment or a business one level below an operating segment for which discrete financial information is available that management regularly reviews . the company has a single reporting unit for the purpose of impairment testing . the goodwill impairment test utilizes a two-step approach . the first step identifies whether there is potential impairment by comparing the fair value of a reporting unit to its carrying amount , including goodwill . if the fair value of a reporting unit is less than its carrying amount , the second step of the impairment test is required to measure the amount of any impairment loss . we have the option to bypass the qualitative assessment for any reporting period and proceed to performing the first step of the two-step goodwill impairment test and then subsequently resume performing a qualitative assessment in any subsequent period . we bypassed using a qualitative assessment for 2020. goodwill impairment testing involves management judgment , requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value using widely accepted valuation techniques , such as the market approach ( earnings multiples or transaction multiples for the industry in which the reporting unit operates ) or the income approach discounted cash flow methods ) . the fair values of the reporting units were determined using a combination of valuation techniques consistent with the market approach and the income approach . when preparing discounted cash flow models under the income approach , we estimate future cash flows using the reporting unit 's internal five-year forecast and a terminal value calculated using a growth rate that management believes is appropriate in light of current and expected future economic conditions . we then apply a discount rate to discount these future cash flows to arrive at a net present value amount , which represents the estimated fair value of the reporting unit . the discount rate applied approximates the expected cost of equity financing , determined using a capital asset pricing model . the model generates an appropriate discount rate using internal and external inputs to value future cash flows based on the time value of money and the price for bearing the uncertainty inherent in an investment . we had approximately $ 18.5 million of goodwill as of december 31 , 2020. the fair value of our single reporting unit was above carrying value ; accordingly , we have concluded that goodwill is not impaired at december 31 , 2020. the company could be exposed to increased risk of goodwill impairment if future operating results or macroeconomic conditions differ significantly from our current assumptions . allowance for doubtful accounts we have not historically maintained an allowance for doubtful accounts for our federal government customers as we have not experienced material or recurring losses . allowances for doubtful accounts relate to commercial accounts receivable and such an allowance represents management 's best estimate of the losses inherent in the company 's outstanding trade accounts receivable . we determine the allowance for doubtful accounts by considering a number of factors , including the length of time accounts receivable are past due , the customers ' previous payment history and current ability to pay its obligation , and the condition of the general economy and the industry as a whole . customer account balances outstanding longer than 120 days that have not been settled in accordance with contract terms or for which no firm payment commitments exist are placed with a third party collection agency and a reserve is established . we write off the reserved accounts receivable against the existing allowance after it is determined that such accounts are ultimately uncollectible . payments subsequently received on such receivables are credited to the allowance for doubtful accounts . if the accounts receivable has been written off and no allowance for doubtful accounts exist subsequent payments received are credited to bad debt expense . 35 to the extent historical credit experience , updated for emerging market trends in credit is not indicative of future performance , actual losses could differ significantly from management 's judgments and expectations , resulting in either higher or lower future provisions for losses , as applicable . the process of determining the allowance for doubtful accounts requires a high degree of judgment . it is possible that others , given the same information , may at any point in time reach different reasonable conclusions . during the year ended december 31 , 2020 , the company recorded net provisions for bad debt expense totaling approximately $ 1,000 related to commercial contracts . share-based compensation we issue share-based compensation awards to employees , directors , an on occasion to non-employees upon which the fair value of awards is subject to significant estimates made by management . the fair value of each option award is estimated on the date of grant using a black-scholes option pricing model ( “ black-scholes model ” ) , which uses the assumptions of no dividend yield , risk free interest rates and expected life ( in years ) of approximately two ( 2 ) to ten ( 10 ) years . expected volatilities are based on the historical volatility of our common stock . the expected term of options granted is based on analyses of historical employee termination rates and option exercises .
| 2020 results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 revenues revenues for the year ended december 31 , 2020 were approximately $ 180.3 million , an increase of approximately $ 78.6 million ( or 77 % ) , as compared to approximately $ 101.7 million in 2019. our mix of revenues for the periods presented is set forth below : replace_table_token_2_th ( 1 ) previously included certain software license revenues that are classified to managed service fees . ■ our carrier services increased primarily due to activities of the u.s. department of commerce contract supporting the 2020 census , u.s. citizenship and immigration services , partially offset by reduction in u.s. customs border patrol and department of health and human services . the carrier service revenue recognized from the 2020 census project was approximately 61 % of our total carrier services revenue in 2020. the largest phase of our work on the 2020 census project was completed in late 2020. we will continue to support the bureau of census through october 2022 in other minor operations . ■ our managed service fees increased due to expansion of managed services for existing government customers , as well as increases in sales of accessories to our government customers as compared to last year . ■ billable service fees increased due to the ramp up of services delivered through our partnerships with large systems integrators and professional services supporting the 2020 census project . as stated above , the largest phase of our work was completed . ■ reselling and other services increased due to timing of large product resales . reselling and other services are transactional in nature and as a result the amount and timing of revenue will vary significantly from quarter to quarter .
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other intangible assets with finite lives are measured at their acquisition date fair values , are amortized over their economic lives and presented net of accumulated amortization on the balance sheet . other intangible story_separator_special_tag the following discussion contains “ forward-looking statements ” . white mountains intends statements that are not historical in nature , which are hereby identified as forward-looking statements , to be covered by the safe harbor provisions of the private securities litigation reform act of 1995. white mountains can not promise that its expectations in such forward-looking statements will turn out to be correct . white mountains 's actual results could be materially different from and worse than its expectations . see “ forward-looking statements ” on page 67 for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements . the following discussion also includes nine non-gaap financial measures ( i ) adjusted book value per share , ( ii ) underlying growth in adjusted book value per share , ( iii ) gross written premiums and msc from new business , ( iv ) adjusted capital , ( v ) nsm 's earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) , ( vi ) nsm 's adjusted ebitda , ( vii ) total consolidated portfolio returns excluding the mediaalpha transaction , ( viii ) common equity securities and other long-term investments returns excluding the mediaalpha transaction and ( ix ) other long-term investments return excluding the mediaalpha transaction , that have been reconciled from their most comparable gaap financial measures on page 58. white mountains believes these measures to be useful in evaluating white mountains 's financial performance and condition . results of operations for the years ended december 31 , 2019 , 2018 and 2017 overview—year ended december 31 , 2019 versus year ended december 31 , 2018 white mountains ended 2019 with book value per share of $ 1,024 and adjusted book value per share of $ 1,018 , an increase of 14.4 % and 14.8 % for the year , including dividends . comprehensive income attributable to common shareholders was $ 413 million in 2019 compared to comprehensive loss attributable to common shareholders of $ 146 million in 2018. the results for 2019 were driven primarily by investment results and the $ 182 million gain from the mediaalpha transaction . the results for 2018 were driven primarily by investment results , which were adversely impacted by the sharp decline in equity markets in the fourth quarter of 2018. on february 26 , 2019 , mediaalpha completed the mediaalpha transaction . the transaction resulted in a gain of $ 55 to each of white mountains 's book value per share and adjusted book value per share . see “ mediaalpha ” on page 43. including the $ 55 per share net gain from the mediaalpha transaction as if it had closed on december 31 , 2018 , book value per share would have been $ 951 and adjusted book value per share would have been $ 943 as of december 31 , 2018. had the mediaalpha transaction closed on december 31 , 2018 , white mountains 's book value per share would have increased 7.8 % and adjusted book value per share would have increased 8.1 % in 2019 , including dividends . during 2019 , white mountains repurchased and retired $ 5 million of its common shares . during 2019 , white mountains deployed roughly $ 435 million in new business opportunities , ending the year with approximately $ 1.0 billion of undeployed capital . gross written premiums and msc collected in the hg global/bam segment totaled $ 107 million in both 2019 and 2018. bam insured municipal bonds with par value of $ 12.8 billion in 2019 , compared to $ 12.0 billion in 2018. during 2019 , bam completed assumed reinsurance transactions to insure municipal bonds with a par value of $ 1.1 billion and , during 2018 , bam completed assumed reinsurance transactions to insure municipal bonds with a par value of $ 2.2 billion . total pricing was 83 basis points in 2019 , compared to 93 basis points in 2018. in december 2019 , bam made a $ 32 million cash payment of principal and interest on the bam surplus notes held by hg global . in january 2020 , bam made an additional $ 65 million special cash payment of principal and interest on the bam surplus notes . during 2018 , bam made a $ 23 million cash payment of principal and interest on the bam surplus notes . bam 's total claims paying resources were $ 938 million as of december 31 , 2019 , compared to $ 871 million as of december 31 , 2018. the increase in claims paying resources was driven by positive cash flow from operations . during the fourth quarter of 2019 , white mountains updated its debt service model for the bam surplus notes to reflect ( i ) the cash payments of principal and interest on the bam surplus notes made in december 2019 and january 2020 , ( ii ) the amendments made to the terms of the bam surplus notes in january 2020 , including an extension of the variable interest rate period , and ( iii ) in light of the current interest rate environment , a more conservative forecast of future operating results for bam . this has resulted in slower modeled future payments on the bam surplus notes and , in turn , a $ 20 million increase to the time value of money discount on the bam surplus notes as reflected in adjusted book value per share as of december 31 , 2019 . story_separator_special_tag bam 's total claims paying resources were $ 871 million as of december 31 , 2018 , compared to $ 708 million as of december 31 , 2017. the increase in claims paying resources was driven by positive cash flow from operations as well as the $ 100 million reinsurance agreement that bam entered into with fidus re in the second quarter of 2018 . 29 on may 11 , 2018 , white mountains acquired a 95.0 % ownership interest in nsm ( 83.6 % on a fully diluted , fully converted basis ) , a full-service mgu and program administrator for specialty property & casualty insurance . nsm reported pre-tax loss of $ 5 million from may 11 , 2018 , the date of acquisition , through december 31 , 2018. nsm reported adjusted ebitda of $ 16 million and revenues of $ 102 million from may 11 , 2018 through december 31 , 2018. mediaalpha reported pre-tax income of $ 9 million in 2018 , compared to break-even pre-tax income in 2017. mediaalpha 's adjusted ebitda was $ 32 million in 2018 , compared to $ 11 million in 2017. mediaalpha reported advertising and commission revenues of $ 296 million in 2018 , compared to $ 163 million in 2017. the increases in pre-tax income , adjusted ebitda and revenues were driven primarily by growth in the p & c vertical and the hlm vertical , which includes business generated from assets acquired from healthplans.com in the fourth quarter of 2017. white mountains 's pre-tax total return on invested assets was -1.7 % for 2018 , compared to 5.6 % for 2017. investment returns for 2018 were adversely impacted by the sharp decline in equity markets in the fourth quarter . investment returns for 2017 benefited from the relatively short-duration of the fixed income portfolio and strong equity markets . white mountains 's portfolio of common equity securities and other long-term investments returned -3.6 % for 2018 , compared to 12.7 % for 2017. white mountains 's fixed income portfolio returned 1.2 % for 2018 , compared to 3.5 % for 2017. adjusted book value per share the following table presents white mountains 's adjusted book value per share , a non-gaap financial measure , as of december 31 , 2019 , 2018 and 2017 and reconciles this non-gaap measure to book value per share , the most comparable gaap measure . see “ non-gaap financial measures ” on page 58. replace_table_token_9_th ( 1 ) amounts reflects white mountains 's preferred share ownership in hg global of 96.9 % . 30 the following tables presents goodwill and other intangible assets that are included in white mountains 's adjusted book value as of december 31 , 2019 , 2018 and 2017 : replace_table_token_10_th ( 1 ) the relative fair values of goodwill and other intangible assets recognized in connection with the acquisition of kbk had not yet been finalized at december 31 , 2018 . ( 2 ) see note 4 — “ goodwill and other intangible assets ” on page f-31 for details of other intangible assets . 31 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > december 31 , 2017 gross written premiums and msc collected in the hg global/bam segment totaled $ 107 million in 2018 , compared to $ 101 million in 2017. bam insured $ 12.0 billion of municipal bonds , $ 8.8 billion of which were in the primary market in 2018 , compared to $ 10.4 billion , $ 9.6 billion of which were in the primary market , in 2017. during 2018 , bam completed an assumed reinsurance transaction to insure municipal bonds with a par value of $ 2.2 billion . total pricing , which reflects both gross written premiums and msc from new business , decreased to 93 basis points in 2018 , compared to 99 basis points in 2017. see “ non-gaap financial measures ” on page 58. pricing in the primary market decreased to 71 basis points in 2018 , compared to 74 basis points in 2017. pricing in the assumed reinsurance and secondary markets decreased to 150 basis points in 2018 , compared to 410 basis points in 2017. the following table presents the gross par value of primary and secondary market policies issued , the gross par value of assumed reinsurance , the gross written premiums and msc collected and total pricing for the twelve months ended december 31 , 2018 and 2017 : replace_table_token_16_th ( 1 ) see “ non-gaap financial measures ” on page 58 . 36 hg global reported gaap pre-tax income of $ 32 million in 2018 , compared to $ 26 million in 2017. hg global 's results in 2018 included $ 23 million of interest income on the bam surplus notes , compared to $ 19 million in 2017. white mountains reported gaap pre-tax losses from bam of $ 61 million 2018 , compared to $ 50 million in 2017. bam 's results included $ 23 million of interest expense on the bam surplus notes and $ 47 million of general and administrative expenses in 2018 , compared to $ 19 million of interest expense on the bam surplus notes and $ 42 million of general and administrative expenses in 2017. the increase in general and administrative expenses was primarily due to financing expense from the reinsurance agreement with fidus re , which is accounted for using the deposit method under gaap . during 2018 , bam made a $ 23 million cash payment of principal and interest on the bam surplus notes held by hg global . of this payment , $ 18 million was a repayment of principal held in the supplemental trust , $ 1 million was a payment of accrued interest held in the supplemental trust and $ 4 million was a payment of accrued interest held outside the supplemental trust . during 2017 , bam made a $ 5 million cash payment of principal and interest on the bam surplus notes .
| summary of consolidated results the following table presents white mountains 's consolidated financial results by industry for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_11_th 32 i. summary of operations by segment as of december 31 , 2019 , white mountains conducted its operations through four segments : ( 1 ) hg global/bam , ( 2 ) nsm , ( 3 ) kudu and ( 4 ) other operations . in addition , mediaalpha was consolidated as a reportable segment until the date of the mediaalpha transaction . a discussion of white mountains 's consolidated investment operations is included after the discussion of operations by segment . white mountains 's segment information is presented in note 14 — “ segment information ” on page f-52 . as a result of the kudu transaction , white mountains began consolidating kudu in its financial statements in the second quarter of 2019. white mountains 's segment disclosures for the year ended december 31 , 2019 include kudu 's results of operations for the period from april 4 , 2019 , the date of the kudu transaction , to december 31 , 2019. see note 2 — “ significant transactions ” on page f-17 . as a result of the mediaalpha transaction , white mountains no longer consolidated mediaalpha , and consequently it was no longer a reportable segment . white mountains 's segment disclosures for the year ended december 31 , 2019 include mediaalpha 's results of operations for the period from january 1 , 2019 to february 26 , 2019 , the date of the mediaalpha transaction . see note 2 — “ significant transactions ” on page f-17 . as a result of the onebeacon transaction , the results of operations for onebeacon for the year ended december 31 , 2017 have been classified as discontinued operations , and are now presented separately , net of related income taxes , in the statement of comprehensive income . see note 20 — “ held for sale and discontinued operations ” on page f-60 .
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inputs that are often used in the valuation methodologies include , but are not limited to , benchmark yields , credit spreads , default rates , prepayment speeds and non-binding broker quotes . as the company is responsible for the determination of fair value , it performs quarterly story_separator_special_tag the following discussion should be read together with the accompanying consolidated financial statements and notes to the consolidated financial statements thereto . readers are cautioned that the statements , estimates , projections or outlook contained in this report , including discussions regarding financial prospects , economic conditions , trends and uncertainties contained in this item 7 , may constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995 , or pslra . these forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the results discussed in the forward-looking statements . a description of some of the risks and uncertainties can be found in item 1a , “ risk factors. ” executive overview general unitedhealth group is a diversified health and well-being company , whose mission is to help people live healthier lives and help make health care work better . through our diversified family of businesses , we leverage core competencies in advanced , enabling technology ; health care data , information and intelligence ; and care management and coordination to help meet the demands of the health system . these core competencies are deployed within our two distinct , but strategically aligned , business platforms : health benefits operating under unitedhealthcare and health services operating under optum . 29 unitedhealthcare serves the health benefits needs of individuals across life 's stages through three businesses . unitedhealthcare employer & individual serves individual consumers and employers . the unique health needs of seniors are served by unitedhealthcare medicare & retirement . unitedhealthcare community & state serves the public health marketplace , offering states innovative medicaid solutions . optum serves health system participants including consumers , physicians , hospitals , governments , insurers , distributors and pharmaceutical companies , through its optumhealth , optuminsight and optumrx businesses . revenues our revenues are primarily comprised of premiums derived from risk-based health insurance arrangements in which the premium is typically at a fixed rate per individual served for a one-year period , and we assume the economic risk of funding our customers ' health care benefits and related administrative costs . effective in 2011 , commercial health plans with medical loss ratios on fully insured products , as calculated under the definitions in the health reform legislation and implementing regulations , that fall below certain targets ( 85 % for large employer groups , 80 % for small employer groups and 80 % for individuals , subject to state-specific exceptions ) are required to rebate ratable portions of their premiums annually . as a result , our quarterly premium revenue may be reduced by a pro rata estimate of our full-year premium rebate payable under the health reform legislation . any required rebate payments for the current year are made in the third quarter of the subsequent year . we also generate revenues from fee-based services performed for customers that self-insure the health care costs of their employees and employees ' dependants . for both risk-based and fee-based health care benefit arrangements , we provide coordination and facilitation of medical services ; transaction processing ; health care professional services ; and access to contracted networks of physicians , hospitals and other health care professionals . we also generate service revenues from our optum businesses . product revenues are mainly comprised of products sold by our pharmacy benefit management business . we derive investment income primarily from interest earned on our investments in debt securities ; investment income also includes gains or losses when investment securities are sold , or other-than-temporarily impaired . operating costs medical costs . our operating results depend in large part on our ability to effectively estimate , price for and manage our medical costs through underwriting criteria , product design , negotiation of favorable care provider contracts and care coordination programs . controlling medical costs requires a comprehensive and integrated approach to organize and advance the full range of interrelationships among patients/consumers , health professionals , hospitals , pharmaceutical/technology manufacturers and other key stakeholders . medical costs include estimates of our obligations for medical care services rendered on behalf of insured consumers for which we have not yet received or processed claims , and our estimates for physician , hospital and other medical cost disputes . in every reporting period , our operating results include the effects of more completely developed medical costs payable estimates associated with previously reported periods . our medical care ratio , calculated as medical costs as a percentage of premium revenues , reflects the combination of pricing , rebates , benefit designs , consumer health care utilization and comprehensive care facilitation efforts . operating costs . operating costs are primarily comprised of costs related to employee compensation and benefits , agent and broker commissions , premium taxes and assessments , professional fees , advertising and occupancy costs . we seek to improve our operating cost ratio , calculated as operating costs as a percentage of total revenues , for an equivalent mix of business . however , changes in business mix , such as increases in the size of our health services businesses may impact our operating costs and operating cost ratio . cash flows we generate cash primarily from premiums , service and product revenues and investment income , as well as proceeds from the sale or maturity of our investments . our primary uses of cash are for payments of medical claims and operating costs , payments on debt , purchases of investments , acquisitions , dividends to shareholders and common stock repurchases . for more information on our cash flows , see “ liquidity ” below . story_separator_special_tag we have made changes to reduce our product distribution costs in the individual market in response to the health reform legislation , including reducing producer commissions , and are implementing changes to distribution in the large group insured market segment . these changes could impact future growth in these products . commercial rate increase review the health reform legislation also requires hhs to maintain an annual review of “ unreasonable ” increases in premium rates for commercial health plans . hhs established a review threshold of annual premium rate increases generally at or above 10 % ( with state-specific thresholds to be applicable commencing september 2012 ) , and clarified that the hhs review will not supersede existing state review and approval processes . the regulations further require commercial health plans to provide to the states and hhs extensive information supporting any rate increase of 10 % ( or applicable state threshold ) or more . under the regulations , the hhs rate review process would apply only to health plans in the individual and small group markets . the federal government is also encouraging states to intensify their reviews of requests for rate increases by affected commercial health plans ( including large group plans ) and providing funding to assist in those state-level reviews . since august 2010 , hhs has allocated approximately $ 250 million for grants to states to enable the states to conduct more robust reviews of requests for premium increases . many states have applied for and received grants , and state regulators have signaled their intent to more closely scrutinize premium rates . premium rate review legislation ( ranging from new or enhanced rate filing requirements to prior approval requirements ) has been introduced or passed in more than half of the states in 2011. as a result , we have begun to experience greater regulatory challenges to appropriate premium rate increases in several states , including california , new york and rhode island . depending on the level of scrutiny by the states , there is a broad range of potential business impacts . for example , it may become more difficult to price our commercial risk business consistent with expected underlying cost trends , leading to the risk of operating margin compression . medicare advantage rates as part of the health reform legislation , medicare advantage risk adjusted benchmarks , which ultimately drive our cms payments , were reduced by 1.6 % in 2011 from 2010 levels . beginning in 2012 , additional cuts to medicare advantage benchmarks have taken effect ( benchmarks will ultimately range from 95 % of medicare fee-for-service rates in high cost areas to 115 % in low cost areas ) , with changes being phased-in over two to six years , depending on the level of benchmark reduction in a county . these changes could result in reduced enrollment or reimbursement or payment levels . we expect the 2012 rates will be outpaced by underlying medical trends , placing continued importance on effective medical management and ongoing improvements in administrative costs . there are a number of annual adjustments we can make to our operations , which may partially offset any impact from these rate reductions . for example , we can seek to intensify our medical and operating cost management , adjust members ' benefits and decide on a county-by-county basis in which geographies to participate . additionally , achieving high quality scores from cms for improving upon certain clinical and operational performance standards will impact future quality bonuses that may offset these anticipated rate reductions . we also may be able to mitigate the effects of reduced funding on margins by increasing enrollment due to the increases in the number of people eligible for medicare in coming years . longer term , market wide decreases in the availability or relative quality of medicare advantage products may increase demand for other senior health benefits products such as our medicare part d and medicare supplement insurance offerings . it is also anticipated that cms will release the final medicare advantage risk adjustment data validation ( radv ) audit methodology in 2012. radv audits are intended to validate that the risk-adjusted payments medicare advantage plans receive are supported by medical record data . depending upon the final radv methodology released by cms , recoveries from radv audits may result in additional rate pressure . budget control act 's medicare sequestration congress passed the budget control act of 2011 , which , following the failure of the joint select committee on deficit reduction to cut the federal deficit by $ 1.2 trillion , triggers automatic across-the-board budget cuts ( sequestration ) , including medicare spending cuts averaging 2 % of total program costs for nine years , starting in 2013. medicare payments exempted from sequestration include : part d low-income subsidies ; part d catastrophic subsidies ; and payments to states for coverage of medicare cost-sharing for certain low-income medicare beneficiaries . 32 the office of management and budget is responsible for determining , calculating and implementing cuts . we are exploring strategies to mitigate any impact that may result from the cuts beginning in 2013. insurance industry fee the health reform legislation includes an annual insurance industry assessment ( $ 8 billion levied on the insurance industry in 2014 with increasing annual amounts thereafter ) . the annual fee will be allocated based on the ratio of an entity 's net premiums written during the preceding calendar year to the total health insurance for any u.s. health risk that is written during the preceding calendar year , subject to certain exceptions and uncertainties . our effective income tax rate will increase significantly in 2014 due to the non-deductibility of these fees . premium increases will be necessary to offset the impact of these and other provisions . premium increases are generally subject to state regulatory approval and potentially to federal review . other market participants could increase premiums at different levels which could impact our market share positively or negatively .
| results summary replace_table_token_5_th ( a ) medical care ratio is calculated as medical costs divided by premium revenue . ( b ) operating cost ratio is calculated as operating costs divided by total revenues . ( c ) return on equity is calculated as net earnings divided by average equity . average equity is calculated using the equity balance at the end of the preceding year and the equity balances at the end of the four quarters of the year presented . selected operating performance and financial liquidity items the following represents a summary of selected 2011 operating and liquidity items . these matters should not be considered by themselves ; see below for further discussion and analysis . consolidated total revenues of $ 102 billion increased 8 % over 2010. unitedhealthcare revenues of $ 95 billion rose 7 % over 2010. optum revenues of $ 29 billion increased 21 % over 2010. unitedhealthcare enrollment during 2011 grew by 1.6 million people in 2011. consolidated medical care ratio of 80.8 % increased 20 basis points over 2010. net earnings of $ 5 billion and diluted earnings per share of $ 4.73 are up 11 % and 15 % , respectively over 2010. return on equity of 18.9 % increased 20 basis points over 2010. operating cash flows of $ 7 billion rose 11 % over 2010. liquidity : ◦ extended our credit agreement to december 2016 and increased capacity to $ 3 billion . ◦ 2011 debt offerings raised new debt totaling $ 2.25 billion . ◦ debt to debt-plus-equity ratio decreased 100 basis points from 2010 to 29.1 % .
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the company incurred transaction costs of $ 0.8 million story_separator_special_tag financial condition and results of operations the following commentary presents a discussion and analysis of the company 's financial condition and results of operations by its management . the review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2016 and 2015. financial information for prior years is presented when appropriate . the objective of this financial review is to enhance investor understanding of the accompanying tables and charts , the consolidated financial statements , notes to financial statements , and financial statistics appearing elsewhere in this annual report on form 10-k. where applicable , this discussion also reflects management 's insights with respect to known events and trends that have or may reasonably be expected to have a material effect on the company 's operations and financial condition . our 2016 revenues decreased by $ 9.9 million ( 9.3 % ) , compared to 2015 , due to lower revenues from services , site solutions , and scanning receivers . we recorded an operating loss of $ 8.9 million in 2016 , compared to an operating loss of $ 5.8 million in 2015. the loss was the result of the negative gross margin impact of lower revenues and impairment expenses . within operating expenses impairment charges of $ 5.8 million offset lower cash-based operating expenses in 2016 compared to 2015. we impaired the customer relationships related to the services reporting unit . the 2016 net loss included adjustments of $ 12.6 million related to the valuation allowance for deferred taxes . introduction pctel operates in two segments for reporting purposes , connected solutions and rf solutions . our chief operating decision maker uses operating profits and identified assets for the connected solutions and rf solutions segments to make operating decisions . each segment has its own segment manager as well as its own engineering , sales and marketing , and operational general and administrative functions . all of our accounting and finance , human resources , it and legal functions are provided on a centralized basis through the corporate function . we manage its balance sheet and cash flows centrally at the corporate level , with the exception of trade accounts receivable and inventory which is managed at the segment level . each of the segment managers reports to and maintains regular contact with the chief operating decision maker to discuss operating activities , financial results , forecasts , or plans for the segment . connected solutions segment pctel 's connected solutions segment designs and manufactures precision antennas . pctel antennas are deployed primarily in small cells , enterprise wi-fi access points , fleet management and transit systems , and in equipment and devices for the industrial internet of things ( “ iiot ” ) . revenue growth in these markets is driven by the increased use of wireless communications and increased complexity trends occurring within them . pctel antennas are primarily sold to original equipment manufacturer ( “ oem ” ) providers where they are designed into the customer 's solution . competition in the antenna markets addressed by connected solutions is fragmented . competitors include amphenol , comtelco , laird , mobile mark , pulse , and radiall/larsen . we seek out product applications that command a premium for product performance and customer service , and avoids commodity markets . pctel maintains expertise in several technology areas in order to be competitive in the antenna market . these include radio frequency engineering , mobile antenna design and manufacturing , mechanical engineering , product quality and testing , and wireless network engineering . rf solutions segment pctel 's rf solutions segment provides test tools and engineering services that improve the performance of wireless networks globally . mobile operators , neutral hosts , and equipment manufacturers rely on pctel to analyze , design , and optimize next generation wireless networks . revenue growth is driven by the implementation and roll out of new wireless technology standards ( i.e . 1g to 2g , 2g to 3g , 3g to 4g , 4g to 5g , etc… ) . pctel test equipment is sold directly to wireless carriers or to oem providers who integrate our products into their solution which is then sold to wireless carriers . competitors for pctel 's test tool products include oems such as anritsu , berkley varitronics , digital receiver technology , and rohde and schwarz . pctel maintains expertise in several technology areas in order to be competitive in the test tool and related engineering services market . these include radio frequency engineering , digital signal processing ( “ dsp ” ) engineering , manufacturing , mechanical engineering , product quality and testing , and wireless network engineering . 16 story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > sales and marketing expenses increased $ 1.2 million from 2014 to 2015. the increase consisted of $ 1.0 million related to the business acquired from nexgen and $ 0.6 million related to sales headcount and marketing expenses , offset by a $ 0.4 million reduction in stock compensation expenses . we had 56 , 61 , and 65 full-time equivalent employees in sales and marketing at december 31 , 2016 , 2015 , and 2014 , respectively . general and administrative general and administrative expenses include costs associated with the general management , finance , human resources , information technology , legal , public company costs , and other operating expenses to the extent not otherwise allocated to other functions . general and administrative expenses decreased $ 0.3 million from 2015 to 2016 as decreases in nexgen related expenses and other corporate expenses offset higher stock compensation expenses . story_separator_special_tag the restructuring expense incurred for lease terminations includes the remaining obligations under the lease , net of assumed proceeds for a sublease . as of december 31 , 2016 , the colorado office has not been subleased . in june 2015 , we committed to a restructuring program for reductions in u.s. headcount and the exit from the mobile towers product line . to lower operating and production costs , we reduced headcount in engineering related to scanning receivers , in u.s. operations for connected solutions , and related to the mobile tower product line . we terminated 51 employees between june and december 2015 and recorded severance and other employee benefits of $ 1.2 million . our mobile towers were primarily sold into the oil and gas 19 exploration market in north america . the mobile towers were used to primarily provide a communications link to an oil drilling site or lighting for a site under construction . the decline in oil prices caused a decline in related mobile tower sal es . we made the decision to exit the mobile tower product line due to the anticipated long term effect on revenue from depressed oil prices , and one of our two tower suppliers filing for chapter 7 bankruptcy in june 2015 as a result of the decline in sales . mobile towers were not a key element of our kitting operation or antenna business within connected solutions . our exit from the mobile tower product line did not meet the accounting guidance for discontinued operations . the exit from mobile towers did not constitute a strategic shift in our operations . we recorded a charge of $ 0.4 million related to write-off of intangible assets related to the mobile towers product line . operating ( loss ) profit by segment replace_table_token_8_th total operating loss declined $ 3.2 million for the year ended december 31 , 2016 compared to 2015. the decline is largely attributed to $ 2.1 million in lower gross profit and $ 5.8 million in impairment expenses related to intangible assets for our services reporting unit , offsetting lower restructuring charges and lower cash-based operating expenses . total operating profit declined $ 9.9 million for the year ended december 31 , 2015 compared to 2014. the decline is largely attributed to $ 6.3 million lower gross profit previously discussed , $ 1.6 million of restructuring costs , and a $ 1.5 million increase in amortization of intangible assets from the nexgen acquisition . other income , net replace_table_token_9_th other income , net consists of interest income , foreign exchange gains and losses , insurance proceeds , and income from legal settlements . for the year ended december 31 , 2016 , we recorded interest income of $ 100 and foreign exchange gains of $ 13. for the year ended december 31 , 2015 , an amendment to the nexgen apa resulted in settlement income of $ 3.2 million consisting of $ 2.3 million from the release of the nexgen escrow fund , $ 0.8 million from the collection of previously excluded accounts receivables , and $ 0.1 million related to the reversal of the contingent liability for the earnout . we also received $ 0.1 million in insurance proceeds related to claims for legal and professional expenses for the sec investigation of the telworx parties . the legal expenses and professional fees related to the insurance claim were recorded in general and administrative expenses . we recorded interest income of $ 55 and foreign exchange losses of $ 33 during the year ended december 31 , 2015. for the year ended december 31 , 2014 , settlement income includes $ 0.9 million related to legal settlements with professional service firms that assisted the telworx parties with the sale of the business to pctel . we received $ 0.6 million in insurance proceeds related to claims for legal and professional expenses for the sec investigation of the telworx parties . the legal expenses and professional fees related to the insurance claim were recorded in general and administrative expenses . we recorded interest income of $ 85 and foreign exchange losses of $ 49 during the year ended december 31 , 2014 . 20 expense ( benefit ) for income taxes replace_table_token_10_th the effective tax rate differed from the statutory federal rate of 34.0 % by approximately 135 % during 2016 primarily due to an adjustment to the valuation allowance for deferred taxes . based on lower future projected u.s. tax income , we recorded adjustments of $ 12.6 million to the valuation allowance . the effective tax rate differed from the statutory federal rate of 34.0 % by approximately 2.5 % during 2015 primarily due to research and development credits and incremental tax on repatriation of israel funds . the effective tax rate differed from the statutory federal rate of 34.0 % by approximately 14.0 % during 2014 primarily due to reversals of reserves for uncertain tax positions related to research credits and foreign withholding taxes . at december 31 , 2016 , we had net deferred tax assets of $ 4.5 million , which includes a valuation allowance of $ 13.3 million . we maintain a valuation allowance due to uncertainties regarding realizability . on a regular basis , management evaluates the recoverability of deferred tax assets and the need for a valuation allowance . the valuation allowance at december 31 , 2016 is primarily because the company does not believe it will generate sufficient us taxable income to realize a significant portion of its deferred tax assets . the valuation allowance at december 31 , 2015 related to credits and state operating losses that we do not expect to realize because they correspond to tax jurisdictions where we no longer have significant operations . liquidity and capital resources replace_table_token_11_th liquidity and capital resources overview at december 31 , 2016 , our cash , cash equivalents , and investments were approximately $ 33.3 million and we had working capital of approximately $ 55.2 million .
| results of operations for continuing operations years ended december 31 , 2016 , 2015 , and 2014 ( all amounts in tables , other than percentages , are in thousands ) revenues by segment replace_table_token_5_th revenues were approximately $ 96.7 million for the year ended december 31 , 2016 , a decrease of 9.3 % from the prior year . revenues declined by $ 6.1 million ( 16.5 % ) for the rf solutions segment due to lower revenues for both products and services . approximately 71 % of the decline in revenues in 2016 for the rf solutions segment is due to the decline in service revenues . the service revenue decline was due to a downturn in north american cellular carrier spending and slower distributed communication system ( “ das ” ) deployments . revenues for the connected solutions segment decreased $ 3.8 million ( 5.5 % ) primarily due to lower kitting revenues and due to the exit from mobile towers . approximately 42 % of the revenue decline during 2016 was due to the exit from mobile towers . revenues were approximately $ 106.6 million for the year ended december 31 , 2015 , a decrease of 0.5 % from the prior year . revenues for the rf solutions segment increased by $ 2.1 million ( 6.1 % ) due to the additional revenue generated from the business acquired from nexgen , offset by lower revenues for scanning receivers . revenues for the connected solutions segment decreased $ 2.8 million ( 3.8 % ) . within connected solutions , revenues increased for antenna products , but decreased for cellular kitting products and mobile towers . we exited the mobile tower product line as of september 30 , 2015. the decline in revenues from mobile towers contributed 2.6 % of the 3.8 % decrease in revenues for connected solutions for the year ended december 31 , 2015 compared to the prior year .
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section 1350 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . * 31.2 certification of chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . * 32.1 certification of chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to story_separator_special_tag the following discussion and analysis should be read in conjunction with our financial statements and related notes thereto included elsewhere in this form 10-k. portions of this document that are not statements of historical or current fact are forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations , and intentions . the cautionary statements made in this form 10-k should be read as applying to all related forward-looking statements wherever they appear in this form 10-k. our actual results could differ materially from those anticipated in the forward-looking statements . factors that could cause our actual results to differ materially from those anticipated include those discussed in business , information regarding forward-looking statements , and risk factors. executive overview we are a leading provider of seismic data acquisition services throughout the continental united states and canada . we supply seismic data to companies engaged in the exploration and development of oil and natural gas on land and in land-to-water transition areas . our customers rely on seismic data to identify areas where subsurface conditions are favorable for the accumulation of existing hydrocarbons , to optimize the development and production of hydrocarbon reservoirs , to better delineate existing oil and natural gas fields , and to augment reservoir management techniques . we acquire geophysical data using the latest in 3-d survey techniques . we introduce acoustic energy into the ground by using vibration equipment or dynamite detonation , depending on the surface terrain and subsurface requirements . the reflected energy , or echoes , is received through geophones , converted into a digital signal at a multi-channel recording unit , and then transmitted to a central recording vehicle . subsurface requirements dictate the number of channels necessary to perform our services . with our state-of-the-art seismic equipment , including computer technology and multiple channels , we acquire , on a cost-effective basis , immense volumes of seismic data that when processed and interpreted produce more precise images of the earth 's subsurface . our customers then use 12 our seismic data to generate 3-d geologic models that help reduce finding costs and improve recovery rates from existing wells . currently , the seismic data acquisition industry is made up of a number of companies divided into two groups . the first group is made up of three publicly-traded companies with long operating histories which field numerous crews and work in a number of different regions and terrain . this group includes us , dawson geophysical company and cgg-veritas . we believe that these companies field approximately half of the seismic crews currently operating in the continental u.s. and canada . the second group is made up of smaller companies who generally run one or two seismic crews and often specialize in specific regions or types of operation . we provide our seismic data acquisition services primarily to onshore oil and natural gas exploration and development companies for use in the onshore drilling and production of oil and natural gas in the continental u.s. and canada . the main factors influencing demand for seismic data acquisition services in our industry are the level of drilling activity by oil and natural gas companies and the sizes of such companies ' exploration and development budgets , which , in turn , depend largely on current and anticipated future crude oil and natural gas prices and depletion rates . our customers are major and independent oil and natural gas exploration and development companies . the services we provide to our customers vary according to the size and needs of each customer . our services are marketed by sales , supervisory , and executive personnel who contact customers to determine their needs and respond to customer inquiries regarding the availability of crews . contacts are based principally upon professional relationships developed over a number of years . the acquisition of seismic data for the oil and natural gas industry is a highly competitive business . contracts for such services generally are awarded on the basis of price quotations , crew experience , and the availability of crews to perform in a timely manner , although factors other than price , such as crew safety , performance history , and technological and operational expertise , are often determinative . our competitors include companies with financial resources that are significantly greater than our own as well as companies of comparable and smaller size . our primary competitors are dawson geophysical company and cgg-veritas . in addition to the previously named companies , we also compete for projects from time to time with smaller seismic companies which operate in local markets with only one or two crews . we believe that our long-term industry expertise , the customer relationships developed over our history , and our financial stability gives us an advantage over most of our competitors in the industry . story_separator_special_tag additional seismic crews . we operated eight seismic crews in the u.s. during the first and second quarters , added a ninth crew in the third quarter , and continued operating nine crews during the fourth quarter of 2012 , as compared to seven seismic crews in the u.s. during the first quarter , the addition of an eighth crew in the second quarter , and we continued operating eight crews during the third and fourth quarters of 2011. we operated seven seismic crews in canada during the first quarter , two crews during the second quarter , the equivalent of 1.5 crews during the third quarter , and five crews during the fourth quarter of 2012 , as compared to six seismic crews during the first quarter , two crews during story_separator_special_tag working capital increased $ 5,492,070 to $ 17,708,163 as of december 31 , 2013 , from the december 31 , 2012 , working capital of $ 12,216,093. this increase was due primarily to increases in cash and cash equivalents of $ 7,516,130 and $ 3,909,198 in prepaid federal and state income taxes , and decreases of $ 9,582,719 in trade accounts payable , $ 2,958,078 in accrued liabilities , $ 3,104,129 in billings in excess of costs and estimated earnings on uncompleted contracts , and $ 2,180,400 in current maturities of notes payable , partially offset by decreases in trade accounts receivable of $ 24,898,346 and $ 3,950,996 in costs and estimated earnings in excess of billings on uncompleted contracts . cash flows used in investing activities . net cash used in investing activities was $ 667,498 for the year ended december 31 , 2013 , and $ 30,265,696 for the year ended december 31 , 2012. this $ 29,598,198 decrease was due to a decrease in capital expenditures of $ 30,121,740 and a decrease in proceeds from the sale of property and equipment of $ 523,542. cash flows used in financing activities . net cash used in financing activities was $ 14,996,672 for the year ended december 31 , 2013 , and $ 16,140,906 for the year ended december 31 , 2012. the $ 1,144,234 decrease was due primarily to no cash dividend payment in 2013 as compared with the payment of cash dividends of $ 3,099,014 in 2012 , partially offset by an increase in principal payments on notes payable of $ 2,004,365. capital expenditures . early during the year ended december 31 , 2013 we adopted a maintenance capital expenditures program and incurred capital expenditures of $ 2,474,865 , primarily to maintain existing equipment . during the year ended december 31 , 2012 , capital expenditures of $ 57,107,732 were used to acquire seismic equipment and vehicles , replace similar equipment and vehicles , and to purchase our fourth and fifth gsr systems consisting of a total of 14,200 channels and related equipment , our sixth gsr system with 13,000 channels , our first next-generation 3-channel gsx system with 8,000 stations , and seven new inova vibration vehicles . cash of $ 31,970,418 , notes of $ 22,201,800 from a commercial bank , and capital lease obligations from a vehicle leasing company of $ 2,935,514 were used to finance these acquisitions . this major investment should continue to bring us the benefits of these new technologies and allow us to be in a cash building mode in 2014. we may , however , purchase additional equipment during 2014 as the demand for our services warrants . capital resources historically , we have relied on cash generated from operations , short-term borrowings from commercial banks and equipment lenders , and loans from directors to fund our working capital requirements and capital expenditures . the company has a revolving line of credit agreement with a commercial bank . the borrowing limit under the revolving line of credit agreement is $ 5,000,000 and was renewed on september 16 , 2012 , and again on september 16 , 2013. the revolving line of credit agreement does not expire until september 16 , 2014. our obligations under this agreement are secured by a security interest in our accounts receivable . interest on the outstanding amount under the line of credit loan agreement is payable monthly at the greater of the prime rate of interest or five percent . as of december 31 , 2013 , and since its inception , we have had no borrowings outstanding under the line of credit loan agreement . 16 at december 31 , 2013 , the company had four outstanding notes payable to commercial banks for equipment purchases . the notes have interest rates between 3.50 % and 4.60 % , are due in monthly installments between $ 128,363 and $ 215,863 plus interest , have a total outstanding balance of $ 14,416,225 , and are collateralized by equipment . three notes payable with interest rates between 5.00 % and 6.35 % and monthly payments between $ 50,170 and $ 82,950 plus interest were paid off in 2013. these notes were collateralized by equipment . the company had , at december 31 , 2013 , two outstanding notes payable to finance companies for corporate insurance . the notes have interest rates between 4.00 % and 4.95 % , are due in monthly installments between $ 18,831 and $ 329,823 including interest , and have a total outstanding balance of $ 501,766. our houston sales office is in a 1,711-square foot facility . the monthly rent is currently $ 3,422. our corporate office in plano , texas was increased from 8,523 square feet to 10,137 square feet of office space in march of 2012. the monthly rent is currently $ 15,206. we leased an 800-square foot facility in oklahoma city , oklahoma , as a sales office on a month-to-month basis , and the monthly rent was $ 665. this office was closed on october 31 , 2013. we lease a 400-square foot facility in pratt , kansas , as a permit office on a month-to-month basis , and the current monthly rent is $ 500. in october of 2012 , we expanded our denison , texas repair warehouse facility with the addition of a third 10,000-square foot building . the denison , texas , facility consists of one 5,000-square foot building , three 10,000-square foot adjacent buildings , and an outdoor storage area of approximately 60,500 square feet . the monthly rent is currently $ 14,438. we lease a 915-square foot office facility in midland , texas , as a sales office with a monthly rent of $ 1,296. upon the acquisition of eagle canada , we assumed a lease for 3,030 square feet of office space located in calgary , alberta .
| results of operations year ended december 31 , 2013 , compared to year ended december 31 , 2012 revenues . our revenues were $ 134,534,540 for the year ended december 31 , 2013 , compared to $ 196,317,215 for the same period of 2012 , a decrease of 31.5 % . revenues for the 12 months ended december 31 , 2013 decreased due to the softening in the seismic market that began early in 2013 , our operation of fewer crews in the u.s. and canada during the second , third , and fourth quarters of 2013 as compared to the same period of 2012 , and severe weather conditions in many or our key markets in the u.s. and canada during the fourth quarter of 2013. in 2013 in the u.s. , we operated nine crews in the first quarter , began the second quarter operating nine crews and ended the second quarter operating two crews . we started the third quarter with three crews and ended the quarter operating five crews which we continued operating during the fourth quarter of 2013. in canada , we operated six crews in the first quarter of 2013 , began the second quarter operating six crews , and ended the quarter operating two crews . we operated no crews in canada during the third quarter of 2013 and started and ended the fourth quarter operating three crews . this compares to 2012 when we operated eight seismic crews in the u.s. during the first and second quarters , added a ninth crew in the third quarter , and continued operating nine crews during the fourth quarter of 2012. we operated seven seismic crews in canada during the first quarter , two crews during the second quarter , the equivalent of 1.5 crews during the third quarter , and five crews during the fourth quarter of 2012. cost of services .
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50 the fair value of stock options was estimated at the date of grant using a black-scholes option pricing mode l with the following weighted-average assumptions : replace_table_token_35_th ( 1 ) based on the u.s. treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options . ( 2 story_separator_special_tag the following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and should be read in conjunction with those statements and notes thereto . this report contains various “ forward-looking statements ” within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , which represent our expectations or beliefs concerning future events , including the following : · the planned opening of approximately 15 to 20 aeo stores and 10 aerie stores in north america and continued international expansion during fiscal 2016 ; · the success of our efforts to expand internationally , engage in future franchise/license agreements , and or growth through acquisitions or joint ventures ; · the selection of approximately 55 to 65 american eagle outfitters stores in the united states and canada for remodeling and refurbishing during fiscal 2016 ; · the potential closure of approximately 30 to 35 american eagle outfitters and 15 aerie stores in the united states and canada during fiscal 2016 ; · the planned opening of approximately 30 new international third party operated american eagle outfitters stores during fiscal 2016 ; · the success of our core american eagle outfitters and aerie brands through our omni-channel outlets within north america and internationally ; · the expected payment of a dividend in future periods ; · the possibility that our credit facilities may not be available for future borrowings ; · the possibility that rising prices of raw materials , labor , energy and other inputs to our manufacturing process , if unmitigated , will have a significant impact to our profitability ; and · the possibility that we may be required to take additional store impairment charges related to underperforming stores . we caution that these forward-looking statements , and those described elsewhere in this report , involve material risks and uncertainties and are subject to change based on factors beyond our control , as discussed within part i , item 1a of this form 10-k. accordingly , our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statement . critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , which require us to make estimates and assumptions that may affect the reported financial condition and results of operations should actual results differ from these estimates . we base our estimates and assumptions on the best available information and believe them to be reasonable for the circumstances . we believe that of our significant accounting policies , the following involve a higher degree of judgment and complexity . refer to note 2 to the consolidated financial statements for a complete discussion of our significant accounting policies . management has reviewed these critical accounting policies and estimates with the audit committee of our board . 16 revenue recognition . we record revenue for store sales upon the purchase of merchandise by customers . our e-commerce operation records revenue upon the estimated customer receipt date of the merchandise . revenue is not recorded on the purchase of gift cards . a current liability is recorded upon purchase , and revenue is recognized when the gift card is redeemed for merchandise . we estimate gift card breakage and recognize revenue in proportion to actual gift card redemptions as a component of total net revenue . we determine an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed . revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions . the estimated sales return reserve is based on projected merchandise returns determined through the use of historical average return percentages . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return reserve . however , if the actual rate of sales returns increases significantly , our operating results could be adversely affected . we recognize royalty revenue generated from our license or franchise agreements based upon a percentage of merchandise sales by the licensee/franchisee . this revenue is recorded as a component of total net revenue when earned . merchandise inventory . merchandise inventory is valued at the lower of average cost or market , utilizing the retail method . average cost includes merchandise design and sourcing costs and related expenses . we record merchandise receipts at the time which both title and risk of loss for the merchandise transfers to us . we review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise . additionally , we estimate a markdown reserve for future planned markdowns related to current inventory . if inventory exceeds customer demand for reasons of style , seasonal adaptation , changes in customer preference , lack of consumer acceptance of fashion items , competition , or if it is determined that the inventory in stock will not sell at its currently ticketed price , additional markdowns may be necessary . these markdowns may have a material adverse impact on earnings , depending on the extent and amount of inventory affected . we estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date . story_separator_special_tag sales from american eagle outfitters and aerie stores , as well as sales from aeo direct , are included in total comparable sales . sales from licensed or franchise stores are not included in comparable sales . individual american eagle outfitters and aerie brand comparable sales disclosures represent sales from stores and aeo direct . aeo direct sales are included in the individual american eagle outfitters and aerie brand comparable sales metric for the following reasons : · our approach to customer engagement is “ omni-channel ” , which provides a seamless customer experience through both traditional and non-traditional channels , including four wall store locations , web , mobile/tablet devices , social networks , email , in-store displays and kiosks ; and · shopping behavior has continued to evolve across multiple channels that work in tandem to meet customer needs . management believes that presenting a brand level performance metric that includes all channels ( i.e. , stores and aeo direct ) to be the most appropriate , given customer behavior . we no longer present aeo direct separately due to the continued evolution of omni-channel engagement and the reasons discussed above . our management considers comparable sales to be an important indicator of our current performance . comparable sales results are important to achieve leveraging of our costs , including store payroll , store supplies , rent , etc . comparable sales also have a direct impact on our total net revenue , cash and working capital . 18 gross profit — gross profit measures whether we are optimizing the price and inventory levels of ou r merchandise and achieving an optimal level of sales . gross profit is the difference between total net revenue and cost of sales . cost of sales consists of : merchandise costs , including design , sourcing , importing and inbound freight costs , as well as mar kdowns , shrinkage and certain promotional costs ( collectively “ merchandise costs ” ) and buying , occupancy and warehousing costs . design costs consist of : compensation , rent , depreciation , travel , supplies and samples . buying , occupancy and warehousing costs consist of : compensation , employee benefit expenses and travel for our buyers and certain senior merchandising executives ; rent and utilities related to our stores , corporate headquarters , distribution centers and other office space ; freight from our distribution centers to the stores ; compensation and supplies for our distribution centers , including purchasing , receiving and inspection costs ; and shipping and handling costs related to our e-commerce operation . the inability to obtain acceptable levels of sales , initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations . operating income – our management views operating income as a key indicator of our performance . the key drivers of operating income are comparable sales , gross profit , our ability to control selling , general and administrative expenses , and our level of capital expenditures . management also uses earnings before interest and taxes as an indicator of operating results . return on invested capital - our management uses return on invested capital as a key measure to assess our efficiency at allocating capital to profitable investments . this measure is critical in determining which strategic alternatives to pursue . store productivity — store productivity , including total net revenue per average square foot , sales per productive hour , average unit retail price ( “ aur ” ) , conversion rate , the number of transactions per store , the number of units sold per store and the number of units per transaction , is evaluated by our management in assessing our operational performance . inventory turnover — our management evaluates inventory turnover as a measure of how productively inventory is bought and sold . inventory turnover is important as it can signal slow moving inventory . this can be critical in determining the need to take markdowns on merchandise . cash flow and liquidity — our management evaluates cash flow from operations , investing and financing in determining the sufficiency of our cash position . cash flow from operations has historically been sufficient to cover our uses of cash . our management believes that cash flow from operations will be sufficient to fund anticipated capital expenditures and working capital requirements . our goals are to drive improvements to our gross profit performance , bring greater consistency to our results and deliver profitable growth over the long term . story_separator_special_tag loss on impairment of assets in fiscal 2014 was the result of a store fleet and corporate location review and challenging performance last year , and consisted of $ 25.1 million for the impairment of 48 aeo brand and 31 aerie stores and $ 8.4 million for corporate items . there was no loss on impairment of assets recorded in fiscal 2015 . 21 depreciation and amortization expense depreciation and amortization expense increased to $ 148.2 million from $ 141.2 million last year , driven by omni-channel and it investments , new factory and mainline aeo brand stores , and the new fulfillment center . as a rate to total net revenue , depreciation and amortization decreased to 4.2 % from 4.3 % last year as a result of the higher total net revenue . other income , net other income was $ 2.0 million this year , compared to income of $ 3.7 million last year , primarily as a result of foreign currency fluctuations . provision for income taxes the effective income tax rate from continuing operations decreased to 33.7 % this year from 44.3 % last year . the lower effective income tax rate in fiscal 2015 was primarily due to an increase in world-wide earnings , income tax settlements , higher federal tax credits , and a decrease to the valuation allowance on foreign deferred tax assets . refer to note 14 to the consolidated financial statements for additional information regarding our accounting for income taxes .
| results of operations overview our fiscal 2015 performance was strong , in a challenging retail environment . we executed on our key priorities aimed at achieving sales and earnings growth . specifically , we made improvements to the merchandise by refocusing on innovation , quality and more compelling styles . both american eagle and aerie delivered increases in sales and profitability . we achieved higher average selling prices and fewer markdowns . aeo 's digital business was particularly strong and the business benefited from the utilization of advances in omni-channel tools . inventories and expenses were well managed throughout the year . we ended the year with $ 260.1 million in cash and no long-term debt . cash flow from operations for the year was strong and allowed for the repurchase of 15.6 million shares for $ 227.1 million . total net revenue for the year increased 7 % to $ 3.522 billion , compared to $ 3.283 billion last year . total comparable sales increased 7 % . by brand , american eagle outfitters ' comparable sales rose 7 % and aerie increased 20 % . consolidated gross margin increased 180 basis points to 37.0 % , compared to 35.2 % last year . income from continuing operations was $ 1.09 per diluted share this year , compared to $ 0.46 per diluted share last year . on an adjusted basis , income from continuing operations last year was $ 0.63 per diluted share , which excludes a ( $ 0.17 ) per diluted share impact from impairment and restructuring charges . 19 the preceding paragraph contains non-gaap financial measures ( “ non-gaap ” or “ adjusted ” ) , comprised of earnings per share information excluding non-gaap items . this financial measure is not based on any standardized methodology prescribed by u.s. generally accepted accounting principles ( “ gaap ” ) and is not necessarily comparable to similar measures presented by other companies .
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management , including our chief executive officer and chief financial officer , has conducted an evaluation of the effectiveness of the company 's internal control over financial reporting as of december 31 , 2020 , based on the criteria for effective internal control described in internal control — integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission . based on its assessment , management concluded that the company 's internal control over financial reporting was effective as of december 31 , 2020. this report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the securities and exchange commission that permits us to provide only management 's report in this report . management 's report shall not be deemed to be filed for purposes of section 18 of the securities exchange act of 1934 , or otherwise subject to the liabilities of that section , and is not incorporated by reference into any filing of the company , whether made before or after the date hereof , regardless of any general incorporation language in such filing . changes in internal control over financial reporting there was no change in our internal control over financial reporting during the quarter ended december 31 , 2020 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information . none . 38 part iii ( in thousands ) for part iii , except as set forth below , the information set forth in our definitive proxy statement for our annual meeting of shareholders to be filed within 120 days after december 31 , 2020 , hereby is incorporated by reference into this report . item 10. directors , executive officers and corporate governance . item 11. executive compensation . item 12. security ownership of certain beneficial owners and management and related stockholder matters . item 13. certain relationships and related transactions , and director independence . barbara goldstein barbara goldstein , the wife of mark goldstein , has been employed by the company as director of corporate communications for 16 years and was paid approximately $ 86 in 2020. the audit committee approved this related party transaction , but has reviewed it only on a periodic basis . justin goldstein the company hired justin goldstein , the son of mark goldstein , in october 2020 , on a part-time basis to assist the company with transitioning certain blogs to a new platform . the audit committee approved and ratified this related party transaction after it was notified of the engagement in december 2020. justin 's employment terminated in march 2021. he was paid approximately $ 9 for this engagement . item 14. principal story_separator_special_tag management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements . this item 7 contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . please refer to `` item 1a . risk factors '' for a discussion of the uncertainties , risks and assumptions associated with these statements . covid-19 pandemic during the first quarter of 2020 , the global economy began experiencing a downturn related to the impacts of the covid-19 global pandemic . such impacts have included significant volatility in the global stock markets , a significant reduction in the target federal funds rate , the enactment of the coronavirus aid , relief , and economic security ( cares ) act , including the payroll protection program ( ppp ) administered by the small business administration ( sba ) , and a variety of local , state and federal restrictions , measures and guidance . while many businesses resumed operations towards the end of the second quarter of 2020 , the duration of the impact still remains uncertain . we expect to see continued volatility in the economic markets and government responses to the covid-19 pandemic . these changing conditions and governmental responses could have impacts on our operating results during future periods . supply chain and outsourcing partners as a result of covid-19 , we have encountered various supply chain disruptions impacting the availability and lead times of certain raw materials for our finished goods products . we have been proactively identifying alternative sources for delayed raw materials and our highest demand products remain unaffected . all of our outsourcing partners , including contract manufacturing plants and third-party logistics warehouses , have remained open during the entirety of covid-19 , however , they have had difficulties with staffing their workforce to keep production lines running . health and safety we have taken proactive , aggressive action to protect the health and safety of our employees , customers , partners and other counterparties . we have implored employees to continue to work from home and have strict requirements for employees who must enter our corporate office , such as body temperature documentation , mask requirements , and scheduling that limits physical employee interaction . we have continued our travel suspension and workspace disinfection . we expect to continue to implement these and other measures as appropriate . customer demand at the onset of the pandemic , as a result of government-mandated stay-at-home orders , some of our customers were impacted and forced to cease operations . story_separator_special_tag customer closings primarily impacted revenue for our batiste dry shampoo distributed products during the last part of march 2020. shipments to our major batiste dry shampoo customers resumed in may 2020 , but at lower levels than preceded the pandemic due to lower foot traffic , which has been largely caused by the new work-from-home environment and retail closures . any future customer closures , customer restrictions , or continued foot traffic decrease would negatively impact our business . liquidity although there is uncertainty related to the anticipated impact of the covid-19 outbreak on our future results , we believe our business model , available covid-19 relief programs and our new debt agreement with umb leave us well-positioned to manage our business through this crisis as it continues to develop and will be sufficient to meet our operational cash needs during the next twelve months . covid-19 has impacted our ability to meet customer demand , has delayed our ability to quickly repay debt , and has resulted in increased financing costs . we continue to monitor the rapidly evolving situation and guidance from international and domestic authorities , including federal , state and local public health authorities and may take additional actions based on their recommendations . in these circumstances , there may be developments outside our control requiring us to adjust our operating plan . given the dynamic nature of 11 this situation , we can not reasonably estimate the impacts of covid-19 on our financial condition , results of operations or cash flows in the future . executive overview our business scott 's liquid gold-inc. exists to positively impact consumers ' lives in the markets we serve and create shareholder value . we develop , market , and sell high-quality , high-value household and personal care products nationally and internationally to mass merchandisers , drugstores , supermarkets , hardware stores , e-commerce retailers , other retail outlets , and to wholesale distributors . our long history of selling household products has generated strong consumer and customer loyalty for our brands . on an ongoing basis , management focuses on a variety of key indicators to monitor our business health and performance . these key indicators include ( but are not limited to ) the following : net sales ( collectively , by operating segment , and by manufactured versus distributed products ) ; profitability , focusing on gross margins and net income ; and cash flow . to achieve our business and financial objectives , we focus on initiatives to drive the growth of the key indicators above . our ability to drive and generate growth depends on consumer demand for our products and retail customers ' willingness to carry our products in a competitive marketplace . in this environment , we intend to continue to focus on our key indicators to remain competitive , sustain our current level of operations , and drive further growth in future periods . outlook looking forward , we are focused on both short- and long-term strategies that we believe will enhance our financial health and deliver shareholder value . while the marketplace in which we operate has always been highly competitive , we expect that the category challenges and the level of competition will continue to rise . we believe that some of the trends in our business and industry could adversely affect our profitability , including the following : changes in national and international regulations ; changes in policies or practices of some of our key retail customers ; potential continuation of decreasing sales of our distributed products ; rapid growth of e-commerce and alternative retail channels ; and volatility in the costs of raw materials . we believe our history of providing high-quality , high-value products to consumers positions us to meet the challenges in our marketplace by continuing to focus on the following key priorities in 2021 : pursuing growth opportunities , including distributing alpha ® skin care , kids n pets ® , and scott 's liquid gold ® to broader markets ; building finished goods inventory for our products to position us for supply chain volatility and growth opportunities ; improving our processes and systems , specifically through the implementation of a new erp ; and optimizing our supply chain , third-party logistics partners , and operations . 12 story_separator_special_tag and our anticipated future cash flow from operations , together with our loan facility , will be sufficient to meet our cash requirements for the 12 months following the filing date of this report . beginning on april 1 , 2021 , we expect to incur additional capital expenditures associated with our erp system implementation . these capital expenditures are fixed and recurring $ 38 monthly payments for implementation services and we have already paid for our erp software . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires management to use judgment and make estimates . the level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed . actual results could ultimately differ from those estimates . the accounting policies that are most critical in the preparation of the company 's consolidated financial statements are those that are both important to the presentation of the consolidated financial statements and require significant or complex judgments and estimates on the part of management . revenue recognition our revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations . see note 1 ( m ) , “ revenue recognition ” in our consolidated financial statements for additional discussion . intangible assets and goodwill our intangible assets and goodwill policy is significant because the amount is a significant component of our consolidated balance sheets . further , determining estimated useful lives of our intangible assets is subjective and can change the impact on
| results of operations replace_table_token_4_th increase in net loss changed primarily due to the following : impairment for raw material inventory no longer useable due to lower sales during covid and supply chain issues . additional intangible asset amortization associated with our biz and dryel acquisition and a full year of amortization for our kids n pets intangibles . incremental increase in selling expenses driven by initial start-up costs for new third-party logistics providers . increase in interest expense related to our umb debt financing . partially offset by : o a full year of kids n pets sales and our 2020 acquisition of biz and dryel . net sales attributable to these acquisitions totaled $ 7,970 , comprised of $ 3,618 for kids n pets and $ 4,352 of net sales attributable to biz and dryel . o other income associated with the termination of our exclusive distribution agreement with mj . o increase in gross margins due to outsourcing our product manufacturing . 13 segment results the following tables show comparative net sales , gross margin , gross profit , income ( loss ) from operations , volume and percentage changes for our household and personal care products between periods : household products replace_table_token_5_th household products increase in net sales and income from operations was primarily attributable to our kids n pets , biz and dryel acquisitions , as well as cost efficiencies realized from our outsourcing transition . net sales associated with these acquisitions totaled $ 7,970 , comprised of $ 3,618 for kids n pets and $ 4,352 of net sales attributable to biz and dryel . this was partially offset by $ 158 of raw material impairment included in cost of sales .
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the number of shares of our common stock available under our 2013 long-term incentive plan shall be reduced by the sum of the aggregate number of shares of common stock which become subject to outstanding options , outstanding stock appreciation rights , outstanding stock awards and outstanding performance-related awards . to the extent that shares of our common stock subject to an outstanding option , stock appreciation right , stock story_separator_special_tag you should read the following in conjunction with the sections of this annual report on form 10-k entitled risk factors , cautionary note concerning forward-looking statements , selected financial data and business and our historical financial statements and related notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in the section entitled risk factors and elsewhere in this annual report on form 10-k. consolidated financial data : replace_table_token_5_th matters affecting the comparability of our financial results on september 24 , 2010 , we received an equity commitment of $ 150 million from the starwood fund , a private equity fund managed by an affiliate of starwood capital group , a private equity firm founded and controlled by barry sternlicht , the chairman of our board . prior to the starwood fund 's investment , most of our operations consisted of fee building projects in which we built , marketed and sold homes for independent third-party property owners with whom we have revenue sharing agreements on projects typically marketed under the tri pointe homes brand name . for periods prior to september 24 , 2010 , the date on which the starwood fund agreed to make its investment in us , we conducted our business through a number of different entities , which we refer to collectively as our predecessor. for periods from and after september 24 , 2010 and prior to the completion of our formation transactions , we conducted our business through tph llc . as a result of the foregoing , the financial and operational data for 2010 that is presented and discussed in this annual report on form 10-k is generally bifurcated between the period during 2010 that our business was conducted through our predecessor ( january 1 , 2010 through september 23 , 2010 ) and the period during 2010 that our business was conducted through tph llc ( september 24 , 2010 through december 31 , 2010 ) . the historical results of operations of our predecessor may not be comparable to the results of operations of tph llc because each of our predecessor and tph llc used a different basis of accounting and our homebuilding operations have been our strategic focus since september 24 , 2010 compared to our predecessor 's focus on fee building services prior to such date . - 38 - year ended december 31 , 2012 compared to year ended december 31 , 2011 net new home orders and backlog replace_table_token_6_th net new home orders for the year ended december 31 , 2012 increased 386 % to 204 , compared to 42 during the prior year . our overall absorption rate ( the rate at which home orders are contracted , net of cancellations ) for the year ended december 31 , 2012 was 37.8 per average selling community ( 3.15 monthly ) , compared to 21.0 per average selling community ( 1.75 monthly ) during the prior year . our monthly absorption rates increased despite an increase in our cancellation rate . our cancellation rate of buyers for our owned projects who contracted to buy a home but did not close escrow ( as a percentage of overall orders ) was approximately 16 % for the year ended december 31 , 2012 as compared to an unusually low 13 % during the prior year . we believe our current cancellation rate of 16 % is more representative of an industry average cancellation rate as compared to 13 % for the year ended december 31 , 2011. we experienced substantial order growth primarily due to an increase in our average selling community count . our average number of selling communities increased by 3.4 communities from 2.0 for the year ended december 31 , 2011 to 5.4 for the year ended december 31 , 2012. the increase was due to our opening seven new selling communities for the year ended december 31 , 2012 , offset by final net new home orders at two selling communities . the increase in net new home orders positively impacted our number of homes in backlog , which is discussed below . we expect that our net new home orders and backlog increases will have a positive impact on revenues and cash flow in future periods . backlog reflects the number of homes , net of actual cancellations experienced during the period , for which we have entered into a sales contract with a customer but for which we have not yet delivered the home . homes in backlog are generally closed within three to six months , although we may experience cancellations of sales contracts prior to closing . the increase in backlog units of 60 homes was driven by the 386 % increase in net new home orders during the year ended december 31 , 2012 as compared to the previous year . the dollar value of backlog increased $ 29.9 million , or 890 % , as of december 31 , 2012 from $ 3.4 million as of december 31 , 2011. the increase in dollar amount of backlog reflects an increase in the number of homes in backlog of 60 , or 750 % , to 68 homes as of december 31 , 2012 from 8 homes as of december 31 , 2011 and an increase in the average sales price of homes in backlog . story_separator_special_tag the increase was primarily attributed to ( 1 ) an increase of $ 1.7 million in our compensation-related expenses resulting largely from a 38 % increase in our office headcount to 36 employees as of december 31 , 2012 compared to 26 as of december 31 , 2011 , ( 2 ) an increase of $ 225,000 in office rent and office related expenses due to our growth , and our resulting move to our northern california office in august 2011 and our larger southern california office in november 2011 , and ( 3 ) moderate increases in outside professional services , depreciation , travel and other miscellaneous expenses related to increased operations from our growth in 2012. our general and administrative expense as a percentage of home sales revenue was 8.7 % and 34.2 % for the year ended december 31 , 2012 and 2011 , respectively . total sales and marketing and g & a expenses ( sg & a ) increased $ 5.2 million , or 85 % , to $ 11.4 million for the year ended december 31 , 2012 from $ 6.2 million in the prior year . total sg & a expense was 14.7 % and 45.6 % of home sales revenue for the years ended december 31 , 2012 and 2011 , respectively . we expect that our sg & a expense as a percentage of home sales revenue will continue to decrease as our increase in new home deliveries from growth in our community count generate increased home sales revenue . other expense , net other expense , net , remained relatively consistent at $ 24,000 for the year ended december 31 , 2012 compared to $ 20,000 for the prior year . - 41 - other items interest , which was incurred principally to finance land acquisitions , land development and home construction , totaled $ 2,077,000 million and $ 171,000 for the year ended december 31 , 2012 and 2011 , respectively , all of which was capitalized to real estate inventory . the increase in interest incurred during the year ended december 31 , 2012 as compared to the prior year was primarily attributable to our increase in outstanding debt , which was the result of the increase in the number of active projects and the growth in our real estate inventory . net income ( loss ) as a result of the foregoing factors , net income for the year ended december 31 , 2012 was $ 2.5 million compared to net loss for the year ended december 31 , 2011 of $ ( 4.6 ) million . lots owned and controlled the table below summarizes our lots owned and controlled as of the dates presented : replace_table_token_11_th ( 1 ) includes lots that are under a land option contract , purchase contract or a non-binding letter of intent . with respect to lots under a non-binding letter of intent , there can be no assurance that we will enter into binding agreements or as to the terms thereof . year ended december 31 , 2011 compared to the period from september 24 , 2010 through december 31 , 2010 net new home orders and backlog replace_table_token_12_th - 42 - net new home orders for the year ended december 31 , 2011 increased 33 , or 367 % , to 42 compared to nine for the period from september 24 , 2010 through december 31 , 2010. our overall absorption rate for the year ended december 31 , 2011 was 21.0 per average selling community ( 1.75 monthly ) , compared to 4.5 per average selling community ( 1.50 monthly ) for the period from september 24 , 2010 through december 31 , 2010. our absorption rate per average selling community increased and we experienced substantial order growth because of the comparison of twelve months of order activity to just over three months in the 2010 period . our cancellation rate was approximately 13 % for the year ended december 31 , 2011 as compared to 19 % for the period from september 24 , 2010 through december 31 , 2010. backlog units increased by six homes , or 300 % , to eight as of december 31 , 2011 as compared to two as of december 31 , 2010 primarily driven by the 367 % increase in net new home orders for the year ended december 31 , 2011. the dollar value of backlog increased $ 2.7 million , or 383 % , to $ 3.4 million as of december 31 , 2011 from $ 0.7 million as of december 31 , 2010. the increase in dollar amount of backlog reflects an increase in the number of homes in backlog and an increase in the average sales price of homes in backlog . our average sales price of homes in backlog increased $ 73,000 , or 21 % , to $ 421,000 for the period ended december 31 , 2011 compared to $ 348,000 for the period from september 24 , 2010 through december 31 , 2010 due to the introduction of new product at new communities with a shift to larger square footage homes with corresponding higher average sales prices in the 2011 period . home sales revenue and new homes delivered replace_table_token_13_th new home deliveries increased 25 , or 227 % , to 36 during the year ended december 31 , 2011 from 11 during the period from september 24 , 2010 through december 31 , 2010. the increase in new home deliveries was primarily attributable to the increase in units in backlog and net new home orders because of the comparison of twelve months of activity to just over three months in the 2010 period .
| overview our principal uses of capital for the year ended december 31 , 2012 were operating expenses , land purchases , land development , home construction and the payment of routine liabilities . we used funds generated by operations and available borrowings to meet our short-term working capital requirements . we remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth . cash flows for each of our communities depend on their stage in the development cycle , and can differ substantially from reported earnings . early stages of development or expansion require significant cash outlays for land acquisitions , entitlements and other approvals , and construction of model homes , roads , utilities , general landscaping and other amenities . because these costs are a component of our inventory and not recognized in our statement of operations until a home closes , we incur significant cash outlays prior to our recognition of earnings . in the later stages of community development , cash inflows may significantly exceed earnings reported for financial statement purposes , as the cash outflow associated with home and land construction was previously incurred . from a liquidity standpoint , we are currently actively acquiring and developing lots in our markets to maintain and grow our lot supply and active selling communities that are strategically located in core markets , which are in major job centers or on transportation corridors to those job centers . we are also using our cash on hand to fund expansion into colorado . as demand for new homes improves and we continue to expand our business , we expect that cash outlays for land purchases and land development to grow our lot inventory will exceed our cash generated by operations .
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